<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-20421
TELE-COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1260157
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of treasury shares and shares held by subsidiaries) as of July 31,
1998, was:
Tele-Communications, Inc. Series A TCI Group common stock - 473,411,579 shares,
Tele-Communications, Inc. Series B TCI Group common stock - 49,932,623 shares,
Tele-Communications, Inc. Series A Liberty Media Group
common stock - 326,005,365 shares,
Tele-Communications, Inc. Series B Liberty Media Group common stock
- 31,699,575 shares,
Tele-Communications, Inc. Series A TCI Ventures Group common stock
- 376,964,436 shares,
and
Tele-Communications, Inc. Series B TCI Ventures Group common stock
- 45,433,352 shares.
<PAGE> 2
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Assets amounts in millions
<S> <C> <C>
Cash and cash equivalents $ 295 244
Restricted cash (note 4) 314 40
Trade and other receivables, net 578 529
Prepaid program rights 120 104
Committed program rights 132 115
Investments in affiliates, accounted for under the equity method,
and related receivables (note 5) 4,455 3,063
Investment in Time Warner, Inc. ("Time Warner") (note 6) 4,899 3,555
Property and equipment, at cost:
Land 70 96
Distribution systems 9,854 10,784
Support equipment and buildings 1,741 1,558
------------ ------------
11,665 12,438
Less accumulated depreciation 4,789 4,759
------------ ------------
6,876 7,679
------------ ------------
Franchise costs 16,083 17,910
Less accumulated amortization 2,645 2,763
------------ ------------
13,438 15,147
------------ ------------
Other assets, net of amortization 2,170 1,837
------------ ------------
$ 33,277 32,313
============ ============
</TABLE>
(continued)
I-1
<PAGE> 3
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Liabilities and Stockholders' Equity amounts in millions
<S> <C> <C>
Accounts payable $ 121 169
Accrued interest 256 258
Accrued programming expense 442 399
Other accrued expenses 988 997
Deferred option premium (note 6) -- 306
Debt (note 8) 14,422 15,250
Deferred income taxes 6,934 6,104
Other liabilities 1,061 664
------------ ------------
Total liabilities 24,224 24,147
------------ ------------
Minority interests in equity of consolidated subsidiaries 1,399 1,565
Redeemable securities:
Preferred stock (note 9) 299 655
Common stock 37 5
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts ("Trust Preferred Securities") holding solely subordinated debt
securities of TCI Communications, Inc. ("TCIC")(note 10) 1,500 1,500
Stockholders' equity (note 11):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
Stock, $.01 par value -- --
Common stock, $1 par value:
Series A TCI Group. Authorized 1,750,000,000 shares; issued
610,489,561 shares in 1998 and 605,616,143 shares in 1997 610 606
Series B TCI Group. Authorized 150,000,000 shares; issued
73,942,428 shares in 1998 and 78,203,044 shares in 1997 74 78
Series A Liberty Media Group. Authorized 750,000,000 shares;
issued 357,740,005 shares in 1998 and 344,962,521 shares in 1997 358 345
Series B Liberty Media Group. Authorized 75,000,000 shares;
issued 35,245,018 shares in 1998 and 35,180,385 shares in 1997 35 35
Series A TCI Ventures Group. Authorized 750,000,000 shares;
issued 377,092,104 shares in 1998 and 377,386,032 shares in 1997 377 377
Series B TCI Ventures Group. Authorized 75,000,000 shares;
issued 45,799,330 shares in 1998 and 32,532,800 shares in 1997 46 33
Additional paid-in capital 5,271 5,063
Accumulated other comprehensive earnings, net of taxes (note 1) 1,630 772
Accumulated deficit (852) (877)
------------ ------------
7,549 6,432
Treasury stock and common stock held by subsidiaries, at cost (note 11) (1,731) (1,991)
------------ ------------
Total stockholders' equity 5,818 4,441
------------ ------------
Commitments and contingencies (notes 2, 5, 7 and 14)
$ 33,277 32,313
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
amounts in millions,
except per share amounts
<S> <C> <C> <C> <C>
Revenue $ 1,813 1,882 3,685 3,703
Operating costs and expenses:
Operating 685 731 1,423 1,421
Selling, general and administrative 462 435 890 828
Stock compensation 183 56 412 71
Cost of distribution agreements (note 13) -- -- 83 --
Depreciation and amortization 420 407 843 781
------- ------- ------- -------
1,750 1,629 3,651 3,101
------- ------- ------- -------
Operating income 63 253 34 602
Other income (expense):
Interest expense (251) (294) (536) (583)
Interest and dividend income 18 18 39 39
Share of losses of affiliates, net (note 5) (351) (182) (589) (338)
Loss on early extinguishment of debt (note 8) (22) (11) (38) (11)
Minority interests in earnings of consolidated subsidiaries, net
(note 10) (43) (56) (29) (94)
Gain on issuance of equity interest by subsidiary (note 7) -- 21 38 21
Gain on issuance of stock by equity investee (note 5) 201 -- 201 --
Gain on disposition of assets (notes 6 and 7) 36 43 1,099 62
Other, net (19) (4) (29) (6)
------- ------- ------- -------
(431) (465) 156 (910)
------- ------- ------- -------
Earnings (loss) before income taxes (368) (212) 190 (308)
Income tax benefit (expense) 75 58 (165) 96
------- ------- ------- -------
Net earnings (loss) (293) (154) 25 (212)
Dividend requirements on preferred stocks (2) (11) (13) (21)
------- ------- ------- -------
Net earnings (loss) attributable to common stockholders $ (295) (165) 12 (233)
======= ======= ======= =======
Net earnings (loss) attributable to common stockholders:
TCI Group Series A and Series B common stock $ (144) (171) 83 (255)
Liberty Media Group Series A and Series B common stock (65) 6 238 22
TCI Ventures Group Series A and Series B common stock (86) -- (309) --
------- ------- ------- -------
$ (295) (165) 12 (233)
======= ======= ======= =======
Basic earnings (loss) attributable to common stockholders per
common share (note 3):
TCI Group Series A and Series B common stock $ (.28) (.25) .16 (.38)
======= ======= ======= =======
Liberty Media Group Series A and Series B common stock $ (.18) .02 .67 .06
======= ======= ======= =======
TCI Ventures Group Series A and Series B common stock $ (.20) -- (.73) --
======= ======= ======= =======
Diluted earnings (loss) attributable to common stockholders per common and
potential common share (note 3):
TCI Group Series A and Series B common stock $ (.28) (.25) .15 (.38)
======= ======= ======= =======
Liberty Media Group Series A and Series B common stock $ (.18) .02 .61 .05
======= ======= ======= =======
TCI Ventures Group Series A and Series B common stock $ (.20) -- (.73) --
======= ======= ======= =======
Comprehensive earnings (loss) (note 1) $ 215 (127) 883 (210)
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 5
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------------------
Class B TCI Group Liberty Media Group TCI Ventures Group
Preferred ------------------- ------------------ -------------------
Stock Series A Series B Series A Series B Series A Series B
-------- -------- -------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ -- 606 78 345 35 377 33
Net earnings -- -- -- -- -- -- --
Exchange of common stock in connection with
the Magness Settlement (note 12) -- -- 11 -- -- -- 13
Issuance of common stock in connection with
settlement of litigation -- 1 1 -- -- -- --
Reclassification to redeemable securities
of redemption amount of common stock
subject to put obligation -- -- -- -- -- -- --
Premium received in connection with put
obligation -- -- -- -- -- -- --
Issuance of common stock for acquisitions
(note 7) -- 1 -- 7 -- 13 --
Repurchase of common stock to be held in
treasury -- -- -- -- -- -- --
Repurchase and retirement of common stock -- -- -- -- -- -- --
Retirement of common stock held in treasury -- (12) (16) -- -- (13) --
Gain from issuance of equity by subsidiary
and equity investee, net of taxes (note 5) -- -- -- -- -- -- --
Issuance of common stock upon conversion of
notes and preferred stock (notes
8 and 9) -- 14 -- 6 -- -- --
Payment of call premiums (note 12) -- -- -- -- -- -- --
Recognition of fees related to Exchange
(note 12) -- -- -- -- -- -- --
Reimbursement of fees related to Exchange
(note 12) -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements -- -- -- -- -- -- --
Payment of preferred stock dividends -- -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- -- --
Change in unrealized holding gains for
available-for-sale securities, net of
taxes -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance at June 30, 1998 $ -- 610 74 358 35 377 46
======== ======== ======== ======== ======== ======== ========
<CAPTION>
Treasury
stock and
common
Accumulated stock
Additional other held by Total
paid-in comprehensive Accumulated subsidiaries, stockholders'
capital earnings deficit at cost equity
-------- -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1998 5,063 772 (877) (1,991) 4,441
Net earnings -- -- 25 -- 25
Exchange of common stock in connection with
the Magness Settlement (note 12) 509 -- -- (533) --
Issuance of common stock in connection with
settlement of litigation 48 -- -- (3) 47
Reclassification to redeemable securities
of redemption amount of common stock
subject to put obligation (32) -- -- -- (32)
Premium received in connection with put
obligation 3 -- -- -- 3
Issuance of common stock for acquisitions
(note 7) 353 -- -- -- 374
Repurchase of common stock to be held in
treasury -- -- -- (5) (5)
Repurchase and retirement of common stock (8) -- -- -- (8)
Retirement of common stock held in treasury (760) -- -- 801 --
Gain from issuance of equity by subsidiary
and equity investee, net of taxes (note 5) 67 -- -- -- 67
Issuance of common stock upon conversion of
notes and preferred stock (notes
8 and 9) 329 -- -- -- 349
Payment of call premiums (note 12) (274) -- -- -- (274)
Recognition of fees related to Exchange
(note 12) (20) -- -- -- (20)
Reimbursement of fees related to Exchange
(note 12) 11 -- -- -- 11
Accreted dividends on all classes of
preferred stock (13) -- -- -- (13)
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements 5 -- -- -- 5
Payment of preferred stock dividends (10) -- -- -- (10)
Foreign currency translation adjustment -- (3) -- -- (3)
Change in unrealized holding gains for
available-for-sale securities, net of
taxes -- 861 -- -- 861
-------- -------- -------- -------- --------
Balance at June 30, 1998 5,271 1,630 (852) (1,731) 5,818
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1998 1997
------------ ------------
amounts in millions
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 25 (212)
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 843 781
Cost of distribution agreements 83 --
Stock compensation 412 71
Payments of obligation relating to stock compensation (136) (14)
Share of losses of affiliates, net 589 338
Loss on early extinguishment of debt 38 11
Minority interests in earnings of consolidated subsidiaries, net 29 94
Gain on issuance of equity interest by subsidiary (38) (21)
Gain on issuance of stock by equity investee (201) --
Gain on disposition of assets (1,099) (62)
Deferred income tax expense (benefit) 122 (147)
Payments of restructuring charges (5) (19)
Other noncash credits (1) --
Changes in operating assets and liabilities, net of
the effect of acquisitions:
Change in receivables (40) (125)
Change in prepaids (33) (92)
Change in other accruals and payables (46) 162
------------ ------------
Net cash provided by operating activities 542 765
------------ ------------
Cash flows from investing activities:
Cash paid for acquisitions (72) (206)
Capital expended for property and equipment (560) (215)
Investments in and loans to affiliates (788) (184)
Collections of loans to affiliates 952 72
Proceeds from disposition of assets 643 193
Change in restricted cash (274) (13)
Cash received in exchanges -- 15
Other investing activities (10) (14)
------------ ------------
Net cash used in investing activities (109) (352)
------------ ------------
Cash flows from financing activities:
Borrowings of debt 2,966 1,238
Repayments of debt (2,895) (2,030)
Prepayment penalties (34) (7)
Repurchase of common stock to be held in treasury (5) (13)
Repurchase and retirement of common stock (8) --
Repurchase of subsidiary common stock (7) (42)
Payment of preferred stock dividends (23) (23)
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (95) (85)
Payment of call premiums (274) --
Proceeds from issuance of subsidiary preferred stock -- 48
Proceeds from issuance of Trust Preferred Securities -- 490
Other financing activities (7) 10
------------ ------------
Net cash used in financing activities (382) (414)
------------ ------------
Net increase (decrease) in cash and cash equivalents 51 (1)
Cash and cash equivalents at beginning of period 244 355
------------ ------------
Cash and cash equivalents at end of period $ 295 354
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 7
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Tele-Communications, Inc. and those of all majority-owned
subsidiaries ("TCI" or the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of results for
the full year. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto contained in TCI's Annual Report on Form 10-K for the year
ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). The Company has reclassified its
prior period consolidated balance sheet and consolidated statements of
operations to conform to the requirements of SFAS 130. SFAS 130
requires that all items which are components of comprehensive earnings
or losses be reported in a financial statement in the period in which
they are recognized. The Company has included cumulative foreign
currency translation adjustments and unrealized holding gains and
losses on available-for-sale securities in other comprehensive earnings
that are recorded directly in stockholders' equity. Pursuant to SFAS
130, these items are reflected, net of related tax effects, as
components of comprehensive earnings in the Company's consolidated
statements of operations, and are included in accumulated other
comprehensive earnings in the Company's consolidated balance sheets and
statement of stockholders' equity.
(continued)
I-6
<PAGE> 8
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133"), which is effective
for all fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative
instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their
fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those
instruments qualify as hedges of the (1) fair values of existing
assets, liabilities, or firm commitments, (2) variability of cash flows
of forecasted transactions, or (3) foreign currency exposures of net
investments in foreign operations. Although management of the Company
has not completed its assessment of the impact of SFAS 133 on its
consolidated results of operations and financial position, management
estimates that the impact of SFAS 133 will not be material.
Certain prior period amounts have been reclassified for comparability
with the 1998 presentation.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share (the "TCI Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share (the "TCI Group Series B Stock", and together
with the TCI Group Series A Stock, the "TCI Group Stock"),
respectively. On August 10, 1995, TCI distributed, in the form of a
dividend, 2.25 shares of Liberty Group Stock for each four shares of
TCI Group Stock owned (the "Liberty Distribution").
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share (the "TCI Ventures Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
Ventures Group Stock"). The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is
comprised of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.
(continued)
I-7
<PAGE> 9
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the Exchange Offers was two shares
of the applicable series of TCI Ventures Group Stock for each share of
the corresponding series of TCI Group Stock properly tendered up to the
indicated maximum numbers. Upon the September 10, 1997 consummation of
the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and
16,266,400 shares of TCI Group Series B Stock were exchanged for
377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
shares of TCI Ventures Group Series B Stock (the "TCI Ventures
Exchange").
The TCI Group Stock is intended to reflect the separate performance of
TCI and its subsidiaries and assets not attributed to Liberty Media
Group or TCI Ventures Group. Such subsidiaries and assets are referred
to as "TCI Group" and are comprised primarily of TCI's domestic cable
and communications business. Collectively, the TCI Group, the Liberty
Media Group and the TCI Ventures Group are referred to as the "Groups"
and individually, may be referred to herein as a "Group." The TCI Group
Series A Stock, TCI Ventures Group Series A Stock and the Liberty Group
Series A Stock are sometimes collectively referred to herein as the
"Series A Stock," and the TCI Group Series B Stock, TCI Ventures Group
Series B Stock and Liberty Group Series B Stock are sometimes
collectively referred to herein as the "Series B Stock."
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, each such Group in the capital structure
of TCI, which encompasses the TCI Group Stock, Liberty Group Stock and
TCI Ventures Group Stock, does not affect the ownership or the
respective legal title to such assets or responsibility for liabilities
of TCI or any of its subsidiaries. TCI and its subsidiaries each
continue to be responsible for their respective liabilities. Holders of
TCI Group Stock, Liberty Group Stock and TCI Ventures Group Stock are
common stockholders of TCI and are subject to risks associated with an
investment in TCI and all of its businesses, assets and liabilities.
The redesignation of TCI Group Stock and the issuance of Liberty Group
Stock and TCI Ventures Group Stock does not affect the rights of
creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of the
separate Groups and the market prices of shares of TCI Group Stock,
Liberty Group Stock and TCI Ventures Group Stock. In addition, net
losses of any portion of TCI, dividends or distributions on, or
repurchases of, any series of common stock, and dividends on, or
certain repurchases of preferred stock would reduce funds of TCI
legally available for dividends on all series of common stock.
Accordingly, financial information of any one Group should be read in
conjunction with the financial information of TCI and the other Groups.
(continued)
I-8
<PAGE> 10
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The common stockholders' equity value of TCI Ventures Group or Liberty
Media Group that, at any relevant time, is attributed to TCI Group, and
accordingly not represented by outstanding TCI Ventures Group Stock or
Liberty Group Stock, respectively, is referred to as "Inter-Group
Interest." Prior to consummation of the Liberty Distribution and TCI
Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group and TCI Ventures Group, respectively. Following
consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
Group no longer has Inter-Group Interests in Liberty Media Group and
TCI Ventures Group, respectively. For periods in which an Inter-Group
Interest exists, TCI Group accounts for its Inter-Group Interest in a
manner similar to the equity method of accounting. Following
consummation of the Liberty Distribution and the TCI Ventures Exchange,
an Inter-Group Interest would be created with respect to Liberty Media
Group or TCI Ventures Group only if a subsequent transfer of cash or
other property from TCI Group to Liberty Media Group or TCI Ventures
Group is specifically designated by the Board as being made to create
an Inter-Group Interest or if outstanding shares of Liberty Group Stock
or TCI Ventures Stock, respectively, are purchased with funds
attributable to TCI Group. Management of TCI believes that generally
accepted accounting principles require that Liberty Media Group or TCI
Ventures Group be consolidated with TCI Group for all periods in which
TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
Ventures Group, respectively.
Dividends on TCI Group Stock, Liberty Group Stock or TCI Ventures Group
Stock are payable at the sole discretion of the Board out of the lesser
of assets of TCI legally available for dividends or the available
dividend amount with respect to each Group, as defined. Determinations
to pay dividends on TCI Group Stock, Liberty Group Stock or TCI
Ventures Group Stock are based primarily upon the financial condition,
results of operations and business requirements of the applicable Group
and TCI as a whole.
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) specifically attributed to and
reflected in the combined financial statements of the Group that
includes the entity which incurred the debt or issued the preferred
stock or, in case the entity incurring the debt or issuing the
preferred stock is Tele-Communications, Inc., the TCI Group. The Board
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected in the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such other
Group.
(continued)
I-9
<PAGE> 11
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board, in the case of a transfer from TCI Group to either Liberty
Media Group or TCI Ventures Group, reflected as the creation of, or
increase in, TCI Group's Inter-Group Interest in such Group or, in the
case of a transfer from either Liberty Media Group or TCI Ventures
Group to TCI Group, reflected as a reduction in TCI Group's Inter-Group
Interest in such Group. There are no specific criteria for determining
when a transfer will be reflected as a borrowing or as an increase or
reduction in an Inter-Group Interest. The Board expects to make such
determinations, either in specific instances or by setting generally
applicable policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of TCI, the financing needs and objectives of the Groups, the
investment objectives of the Groups, the availability, cost and time
associated with alternative financing sources, prevailing interest
rates and general economic conditions.
Loans from one Group to another Group generally will bear interest at
such rates and have such repayment schedules and other terms as are
established from time to time by, or pursuant to procedures established
by, the Board. The Board expects to make such determinations, either in
specific instances or by setting generally applicable policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the use of proceeds by
and creditworthiness of the recipient Group, the capital expenditure
plans of and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing
sources.
The combined balance sheets of a Group reflect its net loans or
advances to or loans or advances from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical combined financial statements,
net loans or advances between Groups have been and will continue to be
included as a component of each respective Group's combined equity.
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group or TCI Ventures Group resulting from an equity contribution
by the TCI Group to Liberty Media Group or TCI Ventures Group or any
decrease in such Inter-Group Interest resulting from a transfer of
funds from Liberty Media Group or TCI Ventures Group to TCI Group would
be determined by reference to the market value of the Liberty Group
Series A Stock, or the TCI Ventures Group Series A Stock, respectively,
as of the date of such transfer, such an increase could occur at a time
when such shares could be considered undervalued and such a decrease
could occur at a time when such shares could be considered overvalued.
(continued)
I-10
<PAGE> 12
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All financial impacts of issuances and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or Liberty Media Group, respectively) result in TCI
Group being credited, and TCI Ventures Group or Liberty Media Group
being charged (in addition to the charge for the dividend or other
distribution paid), with an amount equal to the product of the
aggregate amount of such dividend or other distribution paid or
distributed in respect of outstanding shares of TCI Ventures Group
Stock or Liberty Group Stock and a fraction of the numerator of which
is TCI Ventures Group or Liberty Media Group "Inter-Group Interest
Fraction" and the denominator of which is the TCI Ventures Group or the
Liberty Media Group "Outstanding Interest Fraction" (both as defined).
Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
Group Stock, the consideration for which is charged to TCI Group, will
be to such extent reflected in the combined financial statements of TCI
Group and will result in an increase in TCI Group's Inter-Group
Interest in TCI Ventures Group or Liberty Media Group, respectively.
(continued)
I-11
<PAGE> 13
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Proposed Merger
TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
pursuant to, and subject to the terms and conditions set forth in, the
Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
become a wholly-owned subsidiary of AT&T and (i) each share of TCI
Group Series A Stock will be converted into .7757 of a share of common
stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
each share of TCI Group Series B Stock will be converted into .8533 of
a share of AT&T Common Stock, (iii) each share of Liberty Group Series
A Stock will be converted into one share of a newly authorized class of
AT&T common stock to be designated as the Class A Liberty Group Common
Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock") and (iv) each share of Liberty Group Series B Stock will be
converted into one share of a newly authorized class of AT&T common
stock to be designated as the Class B Liberty Group Common Stock, par
value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
together with the AT&T Liberty Class A Tracking Stock, the "AT&T
Liberty Tracking Stock"). In addition, TCI has announced its intention,
subject to stockholder approval, to combine the assets and businesses
of Liberty Media Group and TCI Ventures Group and reclassify each share
of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
Series A Stock and each share of TCI Ventures Group Series B Stock as
.52 of a share of Liberty Group Series B Stock. If such combination and
reclassification does not occur prior to the Merger, then in the Merger
each share of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock will be converted into .52 of a share of the
corresponding series of AT&T Liberty Tracking Stock. In general, the
holders of shares of AT&T Liberty Class A Tracking Stock and the
holders of shares of AT&T Liberty Class B Tracking Stock will vote
together as a single class with the holders of shares of AT&T Common
Stock on all matters presented to such stockholders, with the holders
being entitled to one-tenth (1/10th) of a vote for each share of AT&T
Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
held.
In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
Preferred Stock, Series C-TCI Group will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (132.86 shares per preferred share), (iii)
TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
converted into a number of shares of AT&T Liberty Class A Tracking
Stock equal to the current conversion rate of such preferred stock
(56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
TCI Group Preferred Stock, Series G will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (1.19 shares per preferred share) and (v)
TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
Series H will be converted into a number of shares of AT&T Liberty
Class A Tracking Stock equal to the current conversion rate of such
preferred stock (0.590625 of a share per preferred share).
(continued)
I-12
<PAGE> 14
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The shares of AT&T Liberty Tracking Stock to be issued in the Merger
will be a newly authorized class of common stock of AT&T which will be
intended to reflect the separate performance of the businesses and
assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
Group following the Merger will be made up of the corporations,
partnerships and other entities and interests which comprise Liberty
Media Group and TCI Ventures Group at the time of the Merger. Pursuant
to the Merger Agreement, immediately prior to the Merger, certain
assets currently held by TCI Ventures Group (including, among others,
the shares of AT&T Common Stock received in the merger of AT&T and
Teleport Communications Group, Inc. ("TCG"), the stock of At Home
Corporation ("@Home") held by TCI Ventures Group and the assets and
business of the National Digital Television Center, Inc. ("NDTC")) will
be transferred to TCI Group in exchange for approximately $5.5 billion
in cash. Also, upon consummation of the Merger, Liberty/Ventures Group
will become entitled to the benefit of all of the net operating loss
carryforwards available to the entities included in TCI's consolidated
income tax return as of the date of the Merger. Additionally, certain
warrants currently attributed to TCI Group will be transferred to
Liberty/Ventures Group in exchange for up to $176 million in cash.
Certain agreements to be entered into at the time of the Merger as
contemplated by the Merger Agreement will, among other things, provide
preferred vendor status to Liberty/Ventures Group for digital basic
distribution on AT&T's systems of new programming services created by
Liberty/Ventures Group provide for a renewal of existing affiliation
agreements and provide for the business of the Liberty/Ventures Group
to continue to be managed following the Merger by certain members of
TCI's management who currently manage the businesses of Liberty Media
Group and TCI Ventures Group.
If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
stockholders to approve the Merger prior to March 31, 1999, (ii) the
withdrawal or modification by the AT&T Board of Directors of its
approval of the transaction, or (iii) the failure to obtain necessary
governmental and regulatory approvals by September 30, 1999, which
failure occurs as a result of the announcement by AT&T of a significant
transaction which delays receipt of such governmental approvals, AT&T
will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
the Merger Agreement due to the failure of TCI stockholders to approve
the transaction prior to March 31, 1999 or the withdrawal or
modification by the TCI Board of Directors of its approval of the
Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.
Consummation of the Merger is subject to the satisfaction or waiver of
customary conditions to closing, including but not limited to, the
separate approvals of the stockholders of AT&T and TCI, receipt of all
necessary governmental consents and approvals, and effectiveness of the
registration statement registering the AT&T Common Stock and AT&T
Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
As a result, there can be no assurance that the Merger will be
consummated or, if the Merger is consummated, as to the date of such
consummation.
(3) Earnings (Loss) Per Common and Potential Common Share
Basic earnings per share ("EPS") is measured as the income or loss
attributable to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted EPS is similar
to basic EPS but presents the dilutive effect on a per share
basis of potential common shares as if they had been converted at the
beginning of the periods presented. Potential common shares that have
an anti-dilutive effect are excluded from diluted EPS.
(continued)
I-13
<PAGE> 15
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(a) TCI Group Stock
The basic earnings (loss) attributable to TCI Group common stockholders
per common share for the three months and six months ended June 30,
1998 and 1997 was computed by dividing net earnings (loss) attributable
to TCI Group common stockholders by the weighted average number of
common shares outstanding of TCI Group Stock during the period.
The diluted earnings attributable to TCI Group common stockholders per
common share for the six months ended June 30, 1998 was computed by
dividing net earnings attributable to TCI Group common stockholders,
which is adjusted by the addition of preferred stock dividends and
interest accrued during the six months ended June 30, 1998 to net
earnings, assuming conversion of TCI Group convertible securities as of
the beginning of the period, by the weighted average number of common
shares outstanding of TCI Group Stock during the period. Shares
issuable upon conversion of the Convertible Preferred Stock, Series
C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
Stock"), preferred stock of subsidiaries, convertible notes payable,
stock options and other performance awards have been included in the
computation of weighted average shares, as illustrated below. Shares of
TCI Group Stock issuable upon exercise of the Malone Right (as defined
in note 12), and issuable upon conversion of Convertible Preferred
Stock, Series D ("Series D Preferred Stock") and associated dividend
payments for the six months ended June 30, 1998 have been excluded as
adjustments in computing the diluted earnings attributable to TCI Group
common shareholders per common share as such potential common shares
are antidilutive for the six months ended June 30, 1998.
The diluted loss attributable to TCI Group common stockholders per
common share for the three months ended June 30, 1998 and the three
months and six months ended June 30, 1997 was computed by dividing net
loss attributable to TCI Group common stockholders by the weighted
average number of common shares outstanding of TCI Group Stock during
the period. Potential common shares were not included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive. As a result of the TCI Ventures
Exchange, the earnings (loss) per share information of TCI Group for
the three and six months ended June 30, 1997 was restated to exclude
those assets and related liabilities, which prior to being attributed
to TCI Ventures Group in connection with the issuance of the TCI
Ventures Group Stock, had been attributed to TCI Group.
No material changes in the weighted average outstanding shares or
potential common shares occurred after June 30, 1998.
(continued)
I-14
<PAGE> 16
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the reconciliation of basic EPS to diluted EPS
with respect to TCI Group Stock is presented below:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
amounts in millions, except per share amounts
<S> <C> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to
common stockholders $ (144) (171) 83 (255)
========== ========== ========== ==========
Weighted average common shares 523 683 520 680
========== ========== ========== ==========
Basic earnings (loss) per share
attributable to common
stockholders $ (.28) (.25) .16 (.38)
========== ========== ========== ==========
Diluted EPS:
Earnings (loss) attributable to
common stockholders $ (144) (171) 83 (255)
Add preferred dividend
requirements -- -- 6 --
Add interest expense -- -- 1 --
---------- ---------- ---------- ----------
Adjusted earnings (loss)
attributable to common
stockholders assuming
conversion of preferred
shares and notes payable $ (144) (171) 90 (255)
========== ========== ========== ==========
Weighted average common shares 523 683 520 680
---------- ---------- ---------- ----------
Add dilutive potential common
shares:
Employee and director
options and other
performance awards -- -- 9 --
Malone Right -- -- -- --
Convertible notes payable -- -- 24 --
Series C-TCI Group
Preferred Stock -- -- 7 --
Series D Preferred Stock -- -- -- --
Series G Preferred Stock -- -- 8 --
Preferred stock of
subsidiaries -- -- 45 --
---------- ---------- ---------- ----------
Dilutive potential
common shares -- -- 93 --
---------- ---------- ---------- ----------
Diluted weighted average common
shares 523 683 613 680
========== ========== ========== ==========
Diluted earnings (loss) per
share attributable to
common stockholders $ (.28) (.25) .15 (.38)
========== ========== ========== ==========
</TABLE>
(continued)
I-15
<PAGE> 17
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Liberty Group Stock
The basic earnings (loss) attributable to Liberty Media Group common
stockholders per common share for the three months and six months ended
June 30, 1998 and 1997 was computed by dividing net earnings
attributable to Liberty Media Group common stockholders by the weighted
average number of common shares outstanding of Liberty Group Stock
during the period.
The diluted earnings attributable to Liberty Media Group common
stockholders per common and potential common share for the six months
ended June 30, 1998 and the three months and six months ended June 30,
1997 was computed by dividing earnings attributable to Liberty Media
Group common stockholders by the weighted average number of common and
potential common shares outstanding of Liberty Group Stock during the
period. Shares issuable upon conversion of the Convertible Preferred
Stock, Series C-Liberty Media Group ("Series C-Liberty Media Group
Preferred Stock"), the Series D Preferred Stock, the Redeemable
Convertible Liberty Media Group Preferred Stock, Series H (the "Series
H Preferred Stock"), convertible notes payable, stock options and other
performance awards have been included in the computation of weighted
average shares, as illustrated below. Numerator adjustments for
dividends and interest associated with the convertible preferred shares
and convertible notes payable, respectively, were not made to the
computation of diluted earnings per share as such dividends and
interest are paid or payable by TCI Group.
The diluted loss attributable to Liberty Media Group common
stockholders per common share for the three months ended June 30, 1998
was computed by dividing the net loss attributable to Liberty Media
Group common stockholders by the weighted average number of common
shares outstanding of Liberty Group Stock during the period. Potential
common shares were not included in the computation of weighted average
shares outstanding because their inclusion would be anti-dilutive.
No material changes in the weighted average outstanding shares or
potential common shares occurred after June 30, 1998.
(continued)
I-16
<PAGE> 18
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the reconciliation of basic EPS to diluted EPS
with respect to Liberty Group Stock is presented below:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
amounts in millions, except per share amounts
<S> <C> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to
common stockholders $ (65) 6 239 22
============ ============ ============ ============
Weighted average common shares 358 375 356 374
============ ============ ============ ============
Basic earnings (loss) per share
attributable to common
stockholders $ (.18) .02 .67 .06
============ ============ ============ ============
Diluted EPS:
Earnings (loss) attributable to
common stockholders $ (65) 6 239 22
============ ============ ============ ============
Weighted average common shares 358 375 356 374
------------ ------------ ------------ ------------
Add dilutive potential common
shares:
Employee and director
options -- 2 8 3
Convertible notes payable -- 20 19 20
Series C-Liberty Media
Group Preferred Stock -- 4 4 4
Series D Preferred Stock -- 6 -- 6
Series H Preferred Stock -- 4 4 4
------------ ------------ ------------ ------------
Dilutive potential
common shares -- 36 35 37
------------ ------------ ------------ ------------
Diluted weighted average common
shares 358 411 391 411
============ ============ ============ ============
Diluted earnings (loss) per
share attributable to
common stockholders $ (.18) .02 .61 .05
============ ============ ============ ============
</TABLE>
(c) TCI Ventures Group Stock
The basic and diluted loss attributable to TCI Ventures Group common
stockholders per common share for the three and six months ended June
30, 1998 was computed by dividing net loss attributable to TCI Ventures
Group common stockholders by the weighted average number of common
shares outstanding of TCI Ventures Group Stock during the period (422
million and 421 million for the three and six months ended June 30,
1998, respectively). Potential common shares were not included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
(continued)
I-17
<PAGE> 19
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At June 30, 1998, there were 37 million potential common
shares consisting of stock options and other performance
awards, and convertible securities that could potentially
dilute future EPS calculations in periods of net earnings.
Such potential common share amount does not take into account
the assumed number of shares that would be repurchased by the
Company upon the exercise of the stock options and other
performance awards and the conversion of the convertible
securities. No material changes in the weighted average
outstanding shares or potential common shares occurred after
June 30, 1998.
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $538 million and $589 million for the six
months ended June 30, 1998 and 1997, respectively. Cash paid for income
taxes was $19 million and $22 million for the six months ended June 30,
1998 and 1997, respectively.
Summary of cash paid for acquisitions and cash received in exchanges is
as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------
1998 1997
----- ------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Aggregate cost basis of assets acquired $ (729) (1,123)
Liabilities assumed, net of current assets 3 622
Deferred tax liability recorded in acquisitions 107 34
Acquisition of minority interests in equity of consolidated
subsidiaries (179) 3
Elimination of notes receivable from affiliates 350 --
Common stock and preferred stock issued in acquisitions 376 258
------ ------
Cash paid for acquisitions $ (72) (206)
====== ======
Cash received in exchanges:
Aggregate cost basis of assets acquired $ -- (395)
Historical cost of assets exchanged -- 399
Gain recorded on exchange of assets -- 11
------ ------
Cash received in exchanges $ -- 15
====== ======
</TABLE>
For a description of certain non-cash transactions, see note 7.
The Company's restricted cash includes proceeds received in connection
with certain asset dispositions. Such proceeds, which aggregated $303
million and $34 million at June 30, 1998 and December 31, 1997,
respectively, are designated to be reinvested in certain identified
assets for income tax purposes. The Company's restricted cash also
includes amounts held as collateral for interest payment obligations
pursuant to certain bank credit facilities. Such amounts aggregated $9
million and $5 million at June 30, 1998 and December 31, 1997,
respectively.
(continued)
I-18
<PAGE> 20
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investments in Affiliates
The Company has various investments accounted for under the equity
method. The following table includes the Company's carrying value of
the more significant investments:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Cablevision Systems Corporation ("CSC") $ 1,099 15
TCG 464 295
USA Networks, Inc. ("USAI") 717 229
Sprint Spectrum Holding Company, L.P., MinorCo, L.P.
and PhillieCo, L.P. 352 607
Various foreign equity investments (other than
Telewest Communications plc, Flextech p.l.c. and
Cablevision S.A.) 264 213
Telewest Communications plc ("Telewest") 263 324
Flextech p.l.c. ("Flextech") 259 261
InterMedia Capital Partners IV, L.P. and InterMedia
Capital Management IV, L.P. 254 262
Cablevision S.A. ("Cablevision") 232 239
QVC, Inc. 155 134
Home Shopping Network, Inc. ("HSN") 147 119
</TABLE>
Summarized unaudited combined results of operations for the Company's
affiliates for the periods in which the Company used the equity method
to account for such affiliates are as follows:
<TABLE>
<CAPTION>
Six months ended
Combined Operations June 30,
---------------------------
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Revenue $ 8,209 3,586
Operating expenses (7,211) (3,472)
Depreciation and amortization (1,585) (620)
------------ ------------
Operating loss (587) (506)
Interest expense (1,110) (364)
Other, net (172) (262)
------------ ------------
Net loss $ (1,869) (1,132)
============ ============
</TABLE>
(continued)
I-19
<PAGE> 21
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On March 4, 1998, the Company contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange
for approximately 24.5 million newly issued CSC Class A common shares
(as adjusted for a stock dividend) (the "CSC Transaction"). CSC also
assumed and repaid approximately $574 million of debt owed by the
Company to external parties and $95 million of debt owed to the
Company. As a result of the CSC Transaction, the Company recognized a
$511 million gain in the accompanying consolidated statement of
operations for the six months ended June 30, 1998. Such gain represents
the excess of the $1,161 million fair value of the CSC Class A common
shares received over the historical cost of the net assets transferred
by the Company to CSC. The Company has also entered into letters of
intent with CSC which provide for the Company to acquire a cable system
in Michigan and an additional 3% of CSC's Class A common shares and for
CSC to (i) acquire cable systems serving approximately 250,000
customers in Connecticut and (ii) assume $110 million of the Company's
debt. The ability of the Company to sell or increase its investment in
CSC is subject to certain restrictions and limitations set forth in a
stockholders agreement with CSC.
At June 30, 1998, the Company owned 24,991,286 shares of CSC Class A
common stock, which had a closing market price of $83.50 per share on
such date. Such shares represented an approximate 33.2% equity interest
in CSC's total outstanding shares and an approximate 9% voting interest
in CSC in all matters except for (i) the election of directors, in
which case the Company effectively has the right to designate two of
CSC's directors, and (ii) any increase in authorized shares, in which
case the Company has agreed to vote its interest in proportion with the
public holders of CSC Class A common shares. During the six months
ended June 30, 1998, CSC accounted for $80 million of the Company's
share of affiliate losses.
The Company is a partner in a series of partnerships formed to engage
in the business of providing wireless communications services, using
the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide, using the
"Sprint"(R) brand (a registered trademark of Sprint Communications
Company, L.P.) (the "PCS Ventures"). The PCS Ventures include Sprint
Spectrum Holding Company, L. P. ("Sprint Spectrum") and MinorCo, L.P.
(collectively, "Sprint PCS" or the "Sprint PCS Partnerships") and
PhillieCo, L.P. ("PhillieCo"). The partners of each of the Sprint PCS
Partnerships are subsidiaries of Sprint Corporation ("Sprint"), Comcast
Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and the
Company. The partners of PhillieCo are subsidiaries of Sprint, Cox and
the Company. The Company has a 30% partnership interest in each of the
Sprint PCS Partnerships and a 35% interest as a partner in PhillieCo.
During the six months ended June 30, 1998 and 1997, the PCS Ventures
accounted for $324 million and $157 million, respectively, of the
Company's share of affiliate losses.
(continued)
I-20
<PAGE> 22
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
From inception through June 1998, the four partners have contributed
$4.2 billion to the Sprint PCS Partnerships (of which the Company
contributed an aggregate of $1.3 billion). Sprint PCS's business plan
will require additional capital financing prior to the end of 1998.
Sources of funding for Sprint PCS's capital requirements may include
vendor financing, public offerings or private placements of equity
and/or debt securities, commercial bank loans and/or capital
contributions from the Sprint PCS partners. However, there can be no
assurance that any additional financing can be obtained on a timely
basis, on terms acceptable to Sprint PCS or the Sprint PCS partners and
within the limitations contained in the agreements governing Sprint
PCS's existing debt.
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized
management to operate Sprint PCS in accordance with such budget. The
Sprint PCS partners may mutually agree to make additional capital
contributions. However, the Sprint PCS partners have no such obligation
in the absence of an approved budget, and there can be no assurance the
Sprint PCS partners will reach such an agreement or approve the 1998
proposed budget. In addition, the failure by the Sprint PCS partners to
approve a business plan may impair the ability of Sprint PCS to obtain
required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the
delay or abandonment of Sprint PCS's development and expansion plans
and expenditures, the failure to meet regulatory requirements or other
potential adverse consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership
board has resulted in the occurrence of a "Deadlock Event" under the
Sprint PCS partnership agreement as of January 1, 1998. Under the
Sprint PCS partnership agreement, if one of the Sprint PCS partners
refers the budget issue to the chief executive officers of the
corporate parents of the Sprint PCS partners for resolution pursuant to
specified procedures and the issue remains unresolved, buy/sell
provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint
PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
(continued)
I-21
<PAGE> 23
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In May 1998 the Sprint PCS partners entered into a series of agreements
pursuant to which the Company, Comcast and Cox would exchange their
respective interests in Sprint PCS and PhillieCo for shares of a new
class of tracking stock of Sprint which would track the performance of
Sprint's newly created PCS Group (which would initially consist of
Sprint PCS, PhillieCo and certain PCS licenses which are separately
owned by Sprint). The consummation of such transactions is subject to a
number of conditions, including the approval of such transactions by
the stockholders of Sprint and the receipt of required Federal
Communications Commission ("FCC") approvals. If such transactions are
consummated, the Company will initially hold shares of Sprint PCS Group
stock (as well as certain additional securities of Sprint exercisable
for or convertible into such securities) representing approximately 24%
of the equity value of Sprint attributable to the PCS Group, subject to
further dilution as a result of additional expected issuances of shares
of Sprint PCS stock (including in connection with a proposed initial
public offering of shares of Sprint PCS stock that may be consummated
in connection with such transactions). In connection with the execution
of such agreements, the Sprint PCS partners agreed to make up to $400
million in additional capital contributions (of which the Company's
share is $120 million) to Sprint PCS pending the closing of such
transactions. If the above-described transactions are consummated, the
Company would begin to use the cost method to account for its
investment in the Sprint PCS stock. No assurance can be given that the
above-described transactions will be consummated.
On June 30, 1998, TCI owned 1,011,528 shares of TCG's Class A common
stock and 48,779,000 shares of TCG's Class B common stock. TCG's Class
A common stock had a closing price on the Nasdaq financial market of
$54.25 per share on June 30, 1998.
On April 22, 1998, TCG completed a merger transaction with ACC Corp.
("ACC") in which ACC shares were exchanged with shares of TCG in the
ratio of .90909 share of TCG stock for each share of ACC stock. The
transaction was valued at approximately $1.1 billion. As a result of
such merger transaction, TCI's interest in TCG was reduced to
approximately 26%. In connection with the dilution of TCI's interest in
TCG, TCI recorded a non-cash gain of $201 million (before deducting
deferred income tax expense of $71 million).
In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T. Such merger was consummated on July
23, 1998. As a result of such merger, TCI received in exchange for all
of its interest in TCG, approximately 47 million shares of AT&T Common
Stock, which shares are attributed to TCI Ventures Group. TCI will
account for its ownership interest in AT&T Common Stock using the cost
method. See note 2.
(continued)
I-22
<PAGE> 24
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 1998, pursuant to an investment agreement among Universal
Studios, Inc. ("Universal"), HSN, Inc. ("HSNI"), HSN and Liberty Media
Group, dated as of October 1997 and amended and restated as of December
1997, HSNI consummated a transaction (the "Universal Transaction")
through which USA Networks Partners, Inc., a subsidiary of Universal,
sold its 50% interest in USA Networks, Inc., a New York general
partnership, to HSNI and Universal contributed the remaining 50%
interest in USAI and its domestic television production and
distribution operations to HSNI. Subsequent to these transactions, HSNI
was renamed USAI. In connection with the Universal Transaction,
Universal, USAI, HSN and Liberty Media Group became parties to a number
of other agreements relating to, among other things, (i) the management
of USAI, (ii) the purchase and sale or other transfer of voting
securities of USAI, including securities convertible or exchangeable
for voting securities of USAI, and (iii) the voting of such securities.
At the closing of the Universal Transaction, Universal was issued
approximately 6 million shares of USAI's Class B Common Stock,
approximately 7 million shares of USAI's Common Stock and approximately
109 million common equity shares ("LLC Shares") of USANi LLC, a limited
liability company ("USANi LLC") formed to hold all of the businesses of
USAI and its subsidiaries, except for its broadcasting business and its
equity interest in Ticketmaster Group, Inc. and received a cash payment
of $1.3 billion. Pursuant to an exchange agreement relating to the LLC
Shares (the "LLC Exchange Agreement"), approximately 74 million of the
LLC Shares issued to Universal are each exchangeable for one share of
USAI's Class B Common Stock and the remainder of the LLC Shares issued
to Universal are each exchangeable for one share of USAI's Common
Stock.
At the closing of the Universal Transaction, Liberty Media Group was
issued approximately 1.2 million shares of USAI's Class B Common Stock,
representing all of the remaining shares of USAI's Class B Common Stock
issuable pursuant to Liberty Media Group's contractual right to receive
shares of Class B common stock of USAI upon the occurrence of certain
events. Of such shares, 800,000 shares of Class B Common Stock were
contributed to BDTV IV INC. (and collectively with BDTV INC., BDTV-II
INC. and BDTV III INC., "BDTV"), a newly-formed entity having
substantially the same terms as BDTV INC., BDTV-II INC. and BDTV III
INC. (with the exception of certain transfer restrictions) in which
Liberty Media Group owns over 99% of the equity and none of the voting
power (except for protective rights with respect to certain fundamental
corporate actions) and Barry Diller owns less than 1% of the equity and
all of the voting power. In addition, Liberty Media Group purchased 10
LLC Shares at the closing of the Universal Transaction for an aggregate
purchase price of $200.
(continued)
I-23
<PAGE> 25
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the dilution of Liberty Media Group's ownership
interest that resulted from the issuance of common stock by USAI in the
Universal Transaction, the Company recorded a $33 million increase to
additional paid in capital (after deducting a deferred tax liability of
$21 million) and an increase to investments in affiliates of $54
million. On June 24, 1998, USAI consummated the previously announced
agreement to acquire the remaining stock of Ticketmaster Group, Inc.
which it did not previously own through a tax-free merger (the
"Ticketmaster Transaction"). In connection with the dilution of Liberty
Media Group's ownership interest that resulted from the issuance of
common stock by USAI in the Ticketmaster Transaction, the Company
recorded a $32 million increase to additional paid-in capital (after
deducting a deferred tax liability of $20 million) and an increase to
investment in affiliates of $52 million. No gain was recognized in the
consolidated statements of operations due primarily to Liberty Media
Group's commitment to purchase additional equity interests in USAI.
In connection with the Universal Transaction, each of Universal and
Liberty Media Group was granted a preemptive right with respect to
future issuances of USAI's capital stock, subject to certain
limitations, to maintain their respective percentage ownership
interests in USAI that they had prior to such issuances. In connection
with such right, on June 4, 1998, Liberty Media Group purchased
approximately 4.7 million shares of USAI's capital stock at $20 per
share as a result of the conversion by USAI of certain convertible
debentures whereby USAI common stock was issued to retire such
debentures. Additionally, on June 30 1998, Liberty Media Group
contributed $300 million in cash to USANi LLC in exchange for an
aggregate of approximately 15 million LLC Shares. Liberty Media Group's
cash purchase price was increased at an annual interest rate of 7.5%
beginning from the date of the closing of the Universal Transaction
through the date of Liberty Media Group's purchase of such securities.
In addition, on July 27, 1998, Liberty Media Group purchased
approximately 7.9 million LLC Shares at $20 per share as a result of
the issuance of common stock by USAI in the Ticketmaster Transaction.
Pursuant to the LLC Exchange Agreement, each LLC Share issued or to be
issued to Liberty Media Group is exchangeable for one share of USAI's
Common Stock. Including indirect ownership interests in USAI of 8% held
through BDTV, Liberty Media Group held direct and indirect ownership
interests in USAI as of June 30, 1998 of approximately 20%.
At June 30, 1998 Tele-Communications International, Inc. ("TINTA"), a
majority-owned subsidiary of the Company, indirectly owned through its
50% ownership interest in TW Holdings, L.L.C., 132,638,250 or 26.7% of
the issued and outstanding non-voting Telewest convertible preference
shares and 246,111,750 or 26.5% (assuming no conversion of the Telewest
convertible preference shares) of the issued and outstanding Telewest
ordinary shares. The reported closing price on the London Stock
Exchange of Telewest ordinary shares was (pound)1.41 ($2.35) per share
at June 30, 1998. Telewest is a company that is currently operating and
constructing cable television and telephone systems in the United
Kingdom ("UK"). Telewest accounted for $64 million and $73 million of
the Company's share of its affiliates' losses during the six months
ended June 30, 1998 and 1997, respectively.
(continued)
I-24
<PAGE> 26
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On April 15, 1998, it was announced that Telewest and General Cable PLC
("General Cable") had agreed to the terms of a proposed merger (the
"Merger Offer") in which holders of General Cable will be offered 1.243
new Telewest shares and (pound)0.65 ($1.08) in cash for each share of
General Cable. In addition, holders of American Depository shares of
General Cable ("General Cable ADSs") (each representing five General
Cable shares) will be offered 6.215 new Telewest shares and (pound)3.25
($5.42) in cash for each share of General Cable ADSs. Based upon
Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
1998, the Merger Offer is valued at approximately (pound)649 million
($1.1 billion).
The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of approximately
261 million new Telewest shares at a price of (pound)0.925 ($1.54) per
share. Mediaone Group, Inc. ("Mediaone") (formerly a division of U S
WEST, Inc.), TINTA and Cox have agreed to subscribe for their full
allocation of new Telewest shares (approximately 69 million shares in
the case of TINTA) and to subscribe on a pro rata basis for any new
Telewest shares not subscribed for by other Telewest shareholders.
Together, Mediaone, TINTA and Cox held 67.9% of the issued and
outstanding Telewest ordinary shares at June 30, 1998. In addition, it
is anticipated that Mediaone, TINTA, Cox and SBC Communications, Inc.
will convert their entire respective holdings of Telewest convertible
preference shares into new Telewest shares. Following the issuance of
new Telewest shares with respect to the above transactions, and
assuming the exercise of all options under General Cable's share option
schemes, it is anticipated that existing Telewest shareholders would
hold 79% and existing General Cable shareholders would hold 21% of the
then issued ordinary share capital of the combined group.
Consummation of the merger is subject to regulatory approval and other
conditions. There can be no assurance that such merger will be
consummated or consummated on the terms contemplated by the parties.
On October 9, 1997, TINTA sold a portion of its 51% interest in
Cablevision, a company engaged in the multi-channel video distribution
business in Buenos Aires, Argentina, to unaffiliated third parties (the
"Buyers") for cash proceeds of $120 million. In addition, on October 9,
1997, Cablevision issued 3,541,829 shares of stock in the aggregate to
the Buyers for $320 million. The above transactions, (collectively, the
"Cablevision Sale") reduced TINTA's interest in Cablevision to 26.2%.
TINTA recognized a gain of $49 million on the Cablevision Sale. As a
result of the Cablevision Sale, effective October 1, 1997, TINTA ceased
to consolidate Cablevision and began to account for Cablevision using
the equity method of accounting. Cablevision accounted for $8 million
of the Company's share of its affiliates' losses during the six months
ended June 30, 1998.
In addition to Telewest and Cablevision, the Company has an equity
method investment in Flextech, an entity engaged in the distribution
and production of programming for multichannel video distribution
systems in the UK, and other less significant equity method investments
in video distribution and programming businesses located in the UK,
other parts of Europe, Asia, Latin America and certain other foreign
countries. In the aggregate, such other foreign equity method
investments accounted for $39 million and $41 million of the Company's
share of its affiliates' losses during the six months ended June 30,
1998 and 1997, respectively.
(continued)
I-25
<PAGE> 27
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of applicable partnership
law for all debts (other than non-recourse debts) of that partnership
in the event liabilities of that partnership were to exceed its assets.
(6) Investment in Time Warner
Liberty Media Group holds approximately 57 million shares of a separate
series of Time Warner common stock with limited voting rights (the "TW
Exchange Stock"). Holders of the TW Exchange Stock are entitled to one
one-hundredth (l/100th) of a vote for each share with respect to the
election of directors. Holders of the TW Exchange Stock will not have
any other voting rights, except as required by law or with respect to
limited matters, including amendments of the terms of the TW Exchange
Stock adverse to such holders. Subject to the federal communications
laws, each share of the TW Exchange Stock will be convertible at any
time at the option of the holder on a one-for-one basis for a share of
Time Warner common stock. Holders of TW Exchange Stock are entitled to
receive dividends ratably with the Time Warner common stock and to
share ratably with the holders of Time Warner common stock in assets
remaining for common stockholders upon dissolution, liquidation or
winding up of Time Warner. See note 8.
On June 24, 1997, Liberty Media Group granted Time Warner an option,
expiring October 10, 2002, to acquire the business of Southern
Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
(together with Southern, the "Southern Business") through a purchase of
assets (the "Southern Option") and received 6.4 million shares of TW
Exchange Stock valued at $306 million in consideration for the grant.
Such amount had been reflected as a deferred option premium in the
accompanying consolidated financial statements. Pursuant to the
Southern Option, Time Warner acquired the Southern Business, effective
January 1, 1998 for $213 million in cash. The Company recognized a $515
million pre-tax gain in connection with such transactions in the first
quarter of 1998.
(continued)
I-26
<PAGE> 28
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Acquisitions and Dispositions
During the first six months of 1998, the Company completed three
transactions whereby the Company contributed cable television systems
serving in the aggregate approximately 670,000 customers to three
separate joint ventures (collectively, the "1998 Joint Ventures") in
exchange for non-controlling ownership interests in each of the 1998
Joint Ventures, and the assumption and repayment by the 1998 Joint
Ventures of debt owed by the Company to external parties aggregating
$323 million and intercompany debt owed to the Company aggregating $833
million. In connection with such transactions, the Company has agreed
to take certain steps to support compliance by each of the 1998 Joint
Ventures with their payment obligations under certain debt instruments,
up to an aggregate contingent commitment of $784 million. In light of
such contingent commitments, the Company has deferred any gains on the
formation of the 1998 Joint Ventures. Such deferred gains, which
aggregated $163 million, will not be recognized until such time as the
Company's contingent commitments with respect to the 1998 Joint
Ventures are eliminated. The Company uses the equity method of
accounting to account for its investments in the 1998 Joint Ventures.
The CSC Transaction (see note 5) and the formation of the 1998 Joint
Ventures are collectively referred to herein as the "1998 Contribution
Transactions."
Including the 1998 Contribution Transactions, the Company, as of July
31, 1998, has, since January 1, 1997, contributed, or signed agreements
or letters of intent to contribute within the next twelve months,
certain cable television systems (the "Contributed Cable Systems")
serving approximately 3.9 million basic customers to joint ventures in
which the Company will retain non-controlling ownership interests (the
"Contribution Transactions"). Following the completion of the
Contribution Transactions, the Company will no longer consolidate the
Contributed Cable Systems. Accordingly it is anticipated that the
completion of the Contribution Transactions, as currently contemplated,
will result in an aggregate estimated reduction (based on actual
amounts with respect to the 1998 Contribution Transactions and
currently contemplated amounts with respect to the pending Contribution
Transactions) to the Company's debt of $4.8 billion and aggregate
estimated reductions (based on 1997 amounts) to the Company's annual
revenue and annual operating income before depreciation, amortization
and other non-cash items and stock compensation of $1.8 billion and
$815 million, respectively. No assurance can be given that any of the
pending Contribution Transactions will be consummated.
(continued)
I-27
<PAGE> 29
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
contributed the assets, obligations and operations of its retail C-band
satellite business to Superstar/Netlink Group LLC ("Superstar/Netlink")
in exchange for an approximate 20% interest in Superstar/Netlink. As a
result of this transaction, the Company's ownership interest in
Superstar/Netlink decreased from 100% to approximately 80% and the
Company recognized a gain of $38 million (before deducting deferred
income tax expense of $15 million). Turner Vision's contribution to
Superstar/Netlink was accounted for as a purchase, and the $61 million
excess of the purchase price over the fair value of the assets acquired
was recorded as goodwill and is being amortized over five years.
On June 11, 1998, United Video Satellite Group, Inc. ("UVSG") and The
News Corporation Limited ("News Corp.") announced the signing of a
definitive agreement whereby News Corp.'s TV Guide properties will be
combined with UVSG to create a platform for offering television guide
services to consumers and advertising. As part of this combination, a
unit of News Corp. will receive consideration consisting of $800
million in cash and 30 million shares of UVSG's stock, including
11,251,706 shares of its Class A common stock and 18,748,294 shares of
its Class B common stock. As a result of the transaction, and certain
other pending transactions, News Corp., TCI and UVSG's public
stockholders will own on an economic basis approximately 40%, 44% (of
which 34% will be attributable to TCI Ventures Group and 10% will be
attributable to Liberty Media Group) and 16%, respectively, of UVSG.
Following the transaction, News Corp. and TCI will each have
approximately 48% of the voting power of UVSG's outstanding stock.
(continued)
I-28
<PAGE> 30
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Notes payable (a) $ 9,727 9,017
Bank credit facilities (b) 3,540 5,233
Commercial paper 717 533
Convertible notes (c) 40 40
Capital lease obligations and other debt 398 427
------------ ------------
$ 14,422 15,250
============ ============
</TABLE>
(a) During the six months ended June 30, 1998, the Company
purchased certain notes payable which had an aggregate
principal balance of $299 million and fixed interest rates
ranging from 8.67% to 10.125% (the "1998 Purchases"). In
connection with the 1998 Purchases, the Company recognized a
loss on early extinguishment of debt of $38 million. Such loss
related to prepayment penalties amounting to $34 million and
the retirement of deferred loan costs.
During the six months ended June 30, 1997, the Company
purchased certain notes payable which had an aggregate
principal balance of $190 million and fixed interest rates
ranging from 8.75% to 10.13% (the "1997 Purchases"). In
connection with the 1997 Purchases, the Company recognized a
loss on early extinguishment of debt of $11 million. Such loss
related to prepayment penalties amounting to $7 million and
the retirement of deferred loan costs.
(b) At June 30, 1998, subsidiaries of the Company had
approximately $3.6 billion in unused lines of credit,
excluding amounts related to lines of credit which provide
availability to support commercial paper.
As security for borrowings under one of the Company's credit
facilities, the Company has pledged a portion of its Time
Warner common stock with an estimated market value at June 30,
1998 of $1.9 billion based upon the market value of the
marketable common stock into which it is convertible.
Additionally, as security for borrowings under another of its
credit facilities, the Company pledged its holdings in
Discovery Communications, Inc., QVC, Inc. and a 30 year
non-convertible 9% preferred stock of Fox Kids Worldwide, Inc.
At June 30, 1998, the carrying value of such holdings
aggregated $595 million.
Certain of TCI's subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of
outstanding commercial paper. Also, certain of TCI's
subsidiaries pay fees ranging from 1/4% to 1/2% per annum on
the average unborrowed portion of the total amount available
for borrowings under bank credit facilities.
(continued)
I-29
<PAGE> 31
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(c) The convertible notes, which are stated net of unamortized
discount of $166 million at June 30, 1998 and December 31,
1997, mature on December 18, 2021. The notes require, so long
as conversion of the notes has not occurred, an annual
interest payment through 2003 equal to 1.85% of the face
amount of the notes. At June 30, 1998, the notes were
convertible, at the option of the holders, into an aggregate
of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
shares of Series A Liberty Group Stock, 20,711,373 shares of
Series A TCI Ventures Group Stock and 3,451,897 shares of
Series A Common Stock, $1.00 par value per share, of TCI
Satellite Entertainment, Inc.
The bank credit facilities and various other debt instruments of the
Company's subsidiaries generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
include certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.
The fair value of the debt of the Company's subsidiaries is estimated
based on the quoted market prices for the same or similar issues or on
the current rates offered to the Company for debt of the same remaining
maturities. At June 30, 1998, the fair value of the Company's debt was
$15,083 million, as compared to a carrying value of $14,422 million on
such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company has entered into variable and fixed interest
rate exchange agreements ("Interest Rate Swaps") pursuant to which it
(i) pays a fixed interest rate (the "Fixed Rate Agreement") of 6.2% and
receives variable interest rates on a notional amount of $10 million at
June 30, 1998 and (ii) pays variable interest rates (the "Variable Rate
Agreements") and receives fixed interest rates ranging from 4.8% to
9.7% on notional amounts of $2,400 million at June 30, 1998. During the
six months ended June 30, 1998 and 1997, the Company's net payments
pursuant to the Fixed Rate Agreement were less than $1 million and $4
million, respectively; and the Company's net receipts pursuant to the
Variable Rate Agreements were $4 million and $11 million, respectively.
(continued)
I-30
<PAGE> 32
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the Company's Variable Rate Agreements at June
30, 1998 is as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Amount to be paid
Expiration Interest rate Notional (received) upon
date to be received amount termination (a)
--------------------------- -------------- -------------- -------------------------------
<S> <C> <C> <C>
September 1998 4.8%-5.4% $ 450 $ 2
April 1999 7.4% 50 (1)
September 1999 6.4% 350 (3)
February 2000 5.8%-6.6% 300 (3)
March 2000 5.8%-6.0% 675 (1)
September 2000 5.1% 75 1
March 2027 9.7% 300 (30)
December 2036 9.7% 200 (8)
----------- -----------
$ 2,400 $ (43)
=========== ===========
</TABLE>
- --------------------
(a) The estimated amount that the Company would pay or receive to
terminate the agreements at June 30, 1998, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
The Fixed Rate Agreement expires in August 1998. At June 30, 1998, the
Company would be required to pay less than $1 million to terminate the
Fixed Rate Agreement.
In addition to the Fixed Rate and Variable Rate Agreements, the Company
entered into Interest Rate Swaps pursuant to which it pays a variable
rate based on the London Interbank Offered Rate ("LIBOR") (6.1% at June
30, 1998) and receives a variable rate based on the Constant Maturity
Treasury Index ("CMT") (5.9% at June 30, 1998) on a notional amount of
$400 million through September 2000; and pays a variable rate based on
LIBOR (6.0% at June 30, 1998) and receives a variable rate based on CMT
(6.0% at June 30, 1998) on notional amounts of $95 million through
February 2000. During the six months ended June 30, 1998, the Company's
net payments pursuant to such agreements were less than $1 million. At
June 30, 1998, the Company would be required to pay an estimated $3
million to terminate such Interest Rate Swaps.
The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of
nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit
losses because it does not anticipate nonperformance by the
counterparties. Further, the Company does not anticipate material
near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of June 30, 1998.
(continued)
I-31
<PAGE> 33
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Redeemable Preferred Stock
On February 20, 1998, the Company issued a Notice of Redemption which
called for the redemption of all of its outstanding Series D Preferred
Stock for $304.0233 per share. Effective April 1, 1998, all of the
outstanding shares of Series D Preferred Stock were redeemed to the
extent not previously converted into shares of TCI Group Series A Stock
and Liberty Group Series A Stock.
(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of TCI
Communications, Inc." Dividends accrued on the Trust Preferred
Securities aggregated $71 million and $61 million during the six months
ended June 30, 1998 and 1997, respectively, and are included in
minority interests in earnings of consolidated subsidiaries in the
accompanying consolidated financial statements.
(11) Stockholders' Equity
Stock Repurchases
During the six months ended June 30, 1998, pursuant to a stock
repurchase program, 66,041 shares of TCI Group Series A Stock, 145,450
shares of TCI Ventures Group Series A Stock, 94,000 shares of TCI
Ventures Group Series B Stock and 266,783 shares of Liberty Group
Series A Stock were repurchased at an aggregate cost of approximately
$13 million.
Treasury Stock and Common Stock Held by Subsidiaries, at Cost
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------- --------------------------------
Number of Number of
shares Cost basis shares Cost basis
-------------- -------------- ------------- ----------------
(dollar amounts in millions)
<S> <C> <C> <C> <C>
Treasury stock is summarized as follows:
TCI Group Series A Stock 11,362,365 $ 182 11,296,324 $ 180
TCI Group Series B Stock 14,842,472 250 30,876,766 518
Liberty Group Series A Stock 25,126,455 490 25,082,172 489
Liberty Group Series B Stock 82,074 2 82,074 2
TCI Ventures Group Series A Stock 61,450 1 -- --
TCI Ventures Group Series B Stock 432,196 5 338,196 4
Common stock held by subsidiaries is
summarized as follows:
TCI Group Series A Stock 125,728,816 466 125,645,656 464
TCI Group Series B Stock 9,154,134 161 9,112,500 160
Liberty Group Series A Stock 6,654,367 113 6,654,367 113
Liberty Group Series B Stock 3,417,187 61 3,417,187 61
-------------- --------------
$ 1,731 $ 1,991
============== ==============
</TABLE>
(continued)
I-32
<PAGE> 34
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock Based Compensation
Certain key employees of the Company and members of the Board hold
options with tandem stock appreciation rights ("SARs") to acquire TCI
Group Series A Stock, Liberty Group Series A Stock and TCI Ventures
Group Series A Stock as well as restricted stock awards of TCI Group
Series A Stock, Liberty Group Series A Stock and TCI Ventures Group
Series A Stock. Estimated compensation relating to SARs has been
recorded through June 30, 1998, and is subject to future adjustment
based upon vesting and market values and, ultimately, on the final
determination of market values when such rights are exercised.
Other
During the fourth quarter of 1997, the Company entered into a Total
Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
the Equity Swap Facility, the Company has the right to direct the
counterparty (the "Counterparty") to use the Equity Swap Facility to
purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
TCI Ventures Group Series A Stock with an aggregate purchase price of
up to $300 million. The Company has the right, but not the obligation,
to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility. During such period, the
Company is to settle periodically any increase or decrease in the
market value of the Equity Swap Shares. If the market value of the
Equity Swap Shares exceeds the Counterparty's cost, Equity Swap Shares
with a fair value equal to the difference between the market value and
cost will be segregated from the other Equity Swap Shares. If the
market value of Equity Swap Shares is less than the Counterparty's
cost, the Company, at its option, will settle such difference with
shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock
or, subject to certain conditions, with cash or letters of credit. In
addition, the Company is required to periodically pay the Counterparty
a fee equal to a LIBOR-based rate on the Counterparty's cost to acquire
the Equity Swap Shares. Due to the Company's ability to issue shares to
settle periodic price fluctuations and fees under the Equity Swap
Facility, the Company records all amounts received or paid under this
arrangement as increases or decreases, respectively, to equity. As of
June 30, 1998, the Equity Swap Facility had acquired 4,935,780 shares
of TCI Group Series A Stock and 1,151,800 shares of TCI Ventures Group
Series A Stock at an aggregate cost that was approximately $48 million
less than the fair value of such Equity Swap Shares at June 30, 1998.
At June 30, 1998, there were 98,598,176 shares of TCI Group Series A
Stock, 14,511,570 shares of TCI Group Series B Stock, 38,863,193 shares
of Liberty Group Series A Stock, 33,704,949 shares of TCI Ventures
Group Series A Stock and 2,800,000 shares of TCI Ventures Group Series
B Stock reserved for issuance under exercise privileges related to
options, convertible debt securities and convertible preferred stock.
Also, one share of Series A Stock is reserved for each share of Series
B Stock. Additionally, subsidiaries of TCI own an aggregate of 278,307
shares of TCI Convertible Redeemable Participating Preferred Stock,
Series F ("Series F Preferred Stock"). Each share of Series F Preferred
Stock is convertible into 1496.65 shares of TCI Group Series A Stock.
(continued)
I-33
<PAGE> 35
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Transactions with Officers and Directors
On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI
Group Series B Stock owned by the Estate of Bob Magness (the "Magness
Estate"), the late founder and former Chairman of the Board of TCI.
Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
shares of TCI Group Series A Stock received in the Exchange, together
with approximately 1.5 million shares of TCI Group Series A Stock that
the Magness Estate previously owned (collectively, the "Option
Shares"), to two investment banking firms (the "Investment Bankers")
for approximately $530 million (the "Sale Price"). Subsequent to the
Sale, TCI entered into an agreement with the Investment Bankers whereby
TCI has the option, but not the obligation, to purchase the Option
Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment
Bankers are to settle quarterly any increase or decrease in the market
value of the Option Shares. If the market value of the Option Shares
exceeds the Investment Bankers' cost, Option Shares with a fair value
equal to the difference between the market value and cost will be
segregated from the other Option Shares in an account at the Investment
Bankers. If the market value of the Option Shares is less than the
Investment Bankers' cost, the Company, at its option, will settle such
difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, the Company is required to pay the
Investment Bankers a quarterly fee equal to the LIBOR plus 1% on the
Sale Price, as adjusted for payments made by the Company pursuant to
any quarterly settlement with the Investment Bankers. Due to the
Company's ability to settle quarterly price fluctuations and fees with
shares of TCI Group Series A Stock or TCI Ventures Group Series A
Stock, the Company records all amounts received or paid under this
arrangement as increases or decreases, respectively, to equity. During
the fourth quarter of 1997, the Company repurchased 4,000,000 shares of
TCI Group Series A Stock from one of the Investment Bankers for an
aggregate cash purchase price of $66 million. Additionally, as a result
of the Exchange Offers and certain open market transactions, the
Investment Bankers disposed of 4,210,308 shares of TCI Group Series A
Stock and acquired 23,407,118 shares of TCI Ventures Group Series A
Stock during the last half of 1997. As a result of the foregoing
transactions and certain transactions related to the January 5, 1998
settlement of litigation involving the Magness Estate, as described
below, the Option Shares were comprised of 6,201,042 shares of TCI
Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series
A Stock at June 30, 1998. At June 30, 1998, the market value of the
Option Shares exceeded the Investment Bankers' cost by $275 million.
In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
Chairman and Chief Executive Officer, agreed to forgo the exercise of
certain option rights and in consideration, TCI granted to Dr. Malone
the right (the "Malone Right") to acquire 30,545,864 shares of TCI
Group Series B Stock.
On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought
against it and other parties in connection with the administration of
the Magness Estate.
(continued)
I-34
<PAGE> 36
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A
Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
returned to TCI as authorized but unissued shares, and the Magness
Estate paid $11 million to TCI representing a reimbursement of the
Exchange fees incurred by TCI from June 16, 1997 through February 9,
1998 with respect to such returned shares. TCI then issued to the
Magness Estate 10,017,145 shares of TCI Group Series B Stock and
12,034,298 shares of TCI Ventures Group Series B Stock.
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"),
under which the Malones granted to TCI the right to acquire the
Malones' high-voting shares (the "High-Voting Shares"), currently
consisting of an aggregate of approximately 60 million shares of Series
B Stock upon Dr. Malone's death or upon a contemplated sale of the
High-Voting Shares (other than a minimal amount) to third persons. In
either such event, TCI has the right to acquire the shares at a maximum
price equal to the then relevant market price of shares of "low-voting"
Series A Stock plus a ten percent premium. The Malones also agreed that
if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no
greater than a ten percent premium over the price paid for the relevant
shares of Series A Stock. TCI paid $150 million to the Malones for
agreeing to the terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually, and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares. The Magness Family was
paid $124 million by TCI for entering into the Magness Call Agreement.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement is reflected as a $274 million reduction of
additional paid-in capital in the accompanying consolidated financial
statements.
(continued)
I-35
<PAGE> 37
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the
Malones and TCI under which (i) the Magness Family and the Malones
agree to consult with each other in connection with matters to be
brought to the vote of TCI's shareholders, subject to the proviso that
if they cannot mutually agree on how to vote the shares, Dr. Malone has
an irrevocable proxy to vote the High-Voting Shares owned by the
Magness Family, (ii) the Magness Family may designate a nominee for the
Board and Dr. Malone has agreed to vote his High Voting Shares for such
nominee and (iii) certain "tag along rights" have been created in favor
of the Magness Family and certain "drag along rights" have been created
in favor of the Malones. In addition, the Malone Right granted by TCI
to Dr. Malone to acquire 30,545,864 shares of TCI Group Series B Stock
was reduced to an option to acquire 14,511,570 shares of TCI Group
Series B Stock. Pursuant to the terms of the Shareholders' Agreement,
the Magness Family has the right to participate in the reduced Malone
Right on a proportionate basis with respect to 12,406,238 shares of the
14,511,570 shares subject to the Malone Right. On June 24, 1998, Dr.
Malone delivered notice to the Company exercising his right to purchase
up to 14,511,570 shares of TCI Group Series B Stock at a per share
price of $35.5875 pursuant to the Malone Right. In addition, a
representative of the Magness Family has advised Dr. Malone that the
Magness Family will participate in such purchase up to the Magness
Family's proportionate share. Subject to final verification and
agreement of each party's proportionate share, upon the closing of the
exercise of the Malone Right, Dr. Malone would acquire 8,718,770 and
the Magness Family would acquire 5,792,800 of the shares of TCI Group
Series B Stock that are subject to the Malone Right. Such exercises are
subject to any required regulatory approvals.
On April 30, 1998, the Company acquired a limited partnership interest
from an individual who is an executive officer and a director of TCI in
exchange for 153,183 shares of Liberty Group Series B Stock and a
limited partnership interest in another limited partnership with a
capital account of $1 million.
(13) At Home Corporation
In April 1997, @Home, a subsidiary of the Company, issued 240,000
shares of convertible preferred stock, resulting in cash proceeds of
$48 million, less issuance costs. On July 11, 1997, @Home completed its
initial public offering (the "@Home IPO"), in which 10,350,000 shares
of @Home common stock were sold for net cash proceeds of approximately
$100 million. As a result of the @Home IPO, the Company's economic
interest in @Home decreased from 43% to 39% which economic interest
represents an approximate 72% voting interest. In connection with the
associated dilution of the Company's ownership interest in @Home, the
Company recognized a gain of $60 million.
(continued)
I-36
<PAGE> 38
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
@Home has entered into exclusive distribution agreements with certain
cable operators. In connection with the distribution agreements, @Home
has issued warrants to such cable operators to purchase 17,946,956
shares of @Home's Series A common stock. Of these warrants, warrants to
purchase 10,581,298 shares were exercisable as of June 30, 1998. During
the six months ended June 30, 1998, @Home recorded a non-cash,
non-recurring charge of $83 million to operations based on the fair
value of 2,705,514 shares which were underlying warrants which became
exercisable during the period. Such charges are included in cost of
distribution agreements in the accompanying consolidated statements of
operations. @Home may issue additional stock, or warrants in connection
with its efforts to expand its distribution of the @Home service to
other cable operators. The exercise of warrants or stock issued by
@Home will reduce the Company's equity interest and voting power in
@Home.
Pursuant to a shareholders' agreement among certain shareholders of
@Home, under certain circumstances, TCI could be required to sell a
portion of its common stock of @Home to such shareholders.
(14) Commitments and Contingencies
On October 5, 1992, the United States Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). In 1993 and 1994, the FCC adopted certain rate regulations
required by the 1992 Cable Act and imposed a moratorium on certain rate
increases. As a result of such actions, the Company's basic and tier
service rates and its equipment and installation charges (the
"Regulated Services") are subject to the jurisdiction of local
franchising authorities and the FCC. Basic and tier service rates are
evaluated against competitive benchmark rates as published by the FCC,
and equipment and installation charges are based on actual costs. Any
rates for Regulated Services that exceeded the benchmarks were reduced
as required by the 1993 and 1994 rate regulations. The rate regulations
do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service
basis, such as premium movie and pay-per-view services.
The Company believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, the Company's rates for Regulated Services are
subject to review by the FCC, if a complaint has been filed by a
customer, or the appropriate franchise authority, if such authority has
been certified by the FCC to regulate rates. If, as a result of the
review process, a system cannot substantiate its rates, it could be
required to retroactively reduce its rates to the appropriate benchmark
and refund the excess portion of rates received. Any refunds of the
excess portion of tier service rates would be retroactive to the date
of complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the
implementation of the rate reductions.
(continued)
I-37
<PAGE> 39
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2017 (the "Film
Licensing Obligations"). Based on customer levels at June 30, 1998,
these agreements require minimum payments aggregating approximately
$680 million. The aggregate amount of the Film Licensing Obligations
under other license agreements is not currently estimable because such
amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying
films. Nevertheless, the Company anticipates that its aggregate
payments under the Film Licensing Obligations will be significant.
The Company is a party to affiliation agreements with programming
suppliers. Pursuant to certain of such agreements, the Company is
committed to carry such suppliers' programming on its cable systems.
Additionally, certain of such agreements provide for penalties and
charges in the event the programming is not carried or not delivered to
a contractually specified number of customers.
The Company is committed to purchase billing services from an
unaffiliated third party pursuant to three successive five year
agreements. Pursuant to this arrangement the Company is obligated to
make minimum payments aggregating approximately $1.6 billion through
2012. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $585 million at June 30, 1998. With respect to the
Company's guarantees of $166 million of such obligations, TCI has been
indemnified for any loss, claim or liability that TCI may incur, by
reason of such guarantees. As described in note 7, the Company also has
provided certain credit enhancements with respect to obligations of the
1998 Joint Ventures. The Company also has guaranteed the performance of
certain affiliates and other parties with respect to such parties'
contractual and other obligations. Although there can be no assurance,
management of the Company believes that it will not be required to meet
its obligations under such guarantees, or if it is required to meet any
of such obligations, that they will not be material to the Company.
TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
Partnership") to pay fees for the license to exhibit certain films
through 2000. Although the aggregate amount of The Premium Movie
Partnership's license fee obligations is not currently estimable, TINTA
believes that the aggregate payments pursuant to such obligations could
be significant. If TINTA were to fail to fulfill its obligations under
the guarantee, the beneficiaries have the right to demand an aggregate
payment from TINTA of approximately $38 million. Although TINTA has not
had to perform under such guarantee to date, TINTA cannot be certain
that it will not be required to perform under such guarantee in the
future.
(continued)
I-38
<PAGE> 40
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
(the "DMX Merger"). Assuming the conversion of TCI Music convertible
preferred stock, TCI, at June 30, 1998, owned TCI Music securities
representing 80.7% of TCI Music's common stock and 97.4% of the voting
power attributable to such TCI Music common stock. In connection with
the DMX Merger, the Company assumed a contingent obligation pursuant to
a Rights Agreement (the "Rights Agreement") to purchase up to
14,896,648 shares (6,812,393 of which are owned by subsidiaries of the
Company) of TCI Music common stock at a price of $8.00 per share. TCI
will settle its obligation under the Rights Agreement during the third
quarter of 1998 by paying $8.00 per share to all holders who tender TCI
Music common stock and the associated rights to TCI in accordance with
the terms of the Rights Agreement. The Company has recorded its
contingent obligation to purchase such shares as a component of
minority interest in equity of consolidated subsidiaries in the
accompanying consolidated financial statements.
Effective as of December 16, 1997, NDTC, a subsidiary of TCI which is
attributed to of the TCI Ventures Group, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC
("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation
(formerly NextLevel Systems, Inc., "GI") to purchase advanced digital
set-top devices. The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and
interoperable with the OpenCable(TM) architecture specifications
adopted by CableLabs, the cable television industry's research and
development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million
set-top devices during calendar years 1998, 1999 and 2000 at an average
price of $318 per set-top device. Through June 30, 1998, 525,000
set-top devices had been purchased pursuant to this commitment. GI
agreed to provide NDTC and its Approved Purchasers the most favorable
prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's
purchase commitment, GI agreed to grant warrants to purchase its common
stock proportional to the number of devices ordered by each
organization, which as of the effective date of the Digital Terminal
Purchase Agreement, would have represented at least a 10% equity
interest in GI (on a fully diluted basis). Such warrants vest as annual
purchase commitments are met. It is anticipated that the value
associated with such equity interest would be attributed to TCI Group
upon purchase and deployment of the digital set-top devices. See note
2. NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, GI fails to meet a material
milestone designated in the Digital Terminal Purchase Agreement with
respect to the development, testing and delivery of advanced digital
set-top devices.
On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
exchange for (i) certain of the assets of NDTC's set-top authorization
business, (ii) the license of certain related technology to GI, (iii) a
$50 million promissory note from TCI Ventures Group to GI, and (iv) a
nine year revenue guarantee from TCI Ventures Group in favor of GI. In
connection therewith, NDTC also entered into a services agreement
pursuant to which it will provide certain services to GI's set-top
authorization business.
(continued)
I-39
<PAGE> 41
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has entered into an Operating Lease Agreement (the "Lease")
with an unaffiliated third party (the "Lessor"). Under the Lease, the
Company agreed to sell to, and lease back from, the Lessor advanced
digital set-top devices with an initial aggregate net cost of up to
$400 million. The initial term of the Lease is two years, and it
provides for renewal, at the Company's option, for up to five
additional consecutive one-year terms. Rent under the Lease is payable
quarterly. At the end of the originally scheduled or renewed lease
term, the Company is required to either (i) purchase the equipment at
the Termination Value (as defined in the Lease), or (ii) arrange for
the sale of the leased equipment to a third party and pay the Lessor
the difference between the sale price and a predetermined guaranteed
value, which in all cases is less than the Termination Value. As of
June 30, 1998, the Company has sold and leased back advanced digital
set-top devices under the Lease with an aggregate cost of $107 million.
Current annual lease payments with respect to such leased equipment are
$16 million. The Company has treated the Lease as an operating lease in
the accompanying consolidated financial statements.
A TCI subsidiary attributed to TCI Ventures Group issued preferred
stock in connection with a previous acquisition. Such preferred stock
is exchangeable at the option of the holders into 1,084,056 shares of
TCI Group Series A Stock beginning in April 1999. The TCI Ventures
Group entered into a forward purchase contract in July 1998 with a
commercial bank to acquire 1,084,056 shares of TCI Group Series A Stock
for approximately $45 million on or before April 19, 1999. Such shares
will be used to satisfy the exchange requirements of the aforementioned
preferred stock.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it
is reasonably possible the Company may incur losses upon conclusion of
such matters, an estimate of any loss or range of loss cannot be made.
In the opinion of management, it is expected that amounts, if any,
which may be required to satisfy such contingencies will not be
material in relation to the accompanying consolidated financial
statements.
Estimates of compensation relating to phantom stock appreciation rights
granted to employees of a subsidiary of TCI have been recorded in the
accompanying combined financial statements, but are subject to future
adjustment based upon a valuation model derived from such subsidiary's
cash flow, working capital and debt.
During the six months ended June 30, 1998, the Company continued its
enterprise-wide comprehensive efforts to review and correct computer
systems, equipment and related software to ensure they properly
recognize, process and store business information. The computer
systems, equipment and software being evaluated include systems which
are integral to the distribution of the Company's products and
services, systems that support operations of the Company and protect
its assets, and all internal use software. The Company is utilizing
both internal and external resources, including the establishment of a
year 2000 enterprise program management office accountable to the
Company's executive management, to identify and remediate or replace
systems for year 2000 readiness.
(continued)
I-40
<PAGE> 42
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the six months ended June 30, 1998, the Company began the
process of testing and replacing or remediating critical components of
its cable systems' headend equipment. Although no assurance can be
given, the Company expects to conclude such testing by December 1998
with replacement or remediation completed by the end of the first
quarter of 1999. Also the Company began the process of remediating
systems that control the commercial advertising in its cable
operations. Although no assurance can be given, those remediation
efforts should be complete by mid-1999. The Company continued to assess
potential year 2000 issues of its affiliated companies and provided its
affiliates with remediation information on software products and
systems. The Company's business and financial systems and software
which will continue to be utilized by the Company beyond the year 1999
will be capable of recognizing the year 2000 and therefore should not
require material remediation or replacement.
Significant third party vendors whose systems are critical to the
Company's cable operations have been identified and surveyed and
confirmations from such parties have been received indicating that they
are either year 2000 ready or have plans in place to become ready.
During the six months ended June 30, 1998, the Company completed an
independent assessment of a key financial application externally
managed by a third party vendor and determined that such vendor's
systems and software should be compliant by the end of 1998. Also, the
Company has developed and initiated a plan with key suppliers who
provide systems which are integral to the distribution of the Company's
products and services to upgrade or replace non-year 2000 compliant
systems on a product-by-product and site-by-site basis by mid-1999.
Management of the Company intends to have further communication with
primary vendors identified as having systems that are not year 2000
compliant to assess those vendors' plans for remediating their own year
2000 issues and to assess the impact on the Company if such vendors
fail to remediate their year 2000 issues. The Company continues to
evaluate the level of validation it will require of third parties to
ensure their year 2000 readiness.
Management of the Company has not yet determined the full cost
associated with its year 2000 readiness efforts and the related
potential impact on the Company's financial position, results of
operations or cash flows but has identified certain cost elements that,
in the aggregate, are not expected to be less than $63 million, which
includes $3 million of program management expenses incurred during the
six months ended June 30, 1998. Although there can be no assurance, the
Company anticipates that the costs ultimately required to be paid to
ensure the Company's year 2000 readiness will not have a material
adverse effect on the Company's financial position, results of
operations or cash flows. However, there can be no assurance that the
Company's systems or the systems of other companies on which the
Company relies will be converted in time or that any such failure to
convert by the Company or other companies will not have a material
adverse effect on its financial position, results of operations or cash
flows.
(continued)
I-41
<PAGE> 43
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Information about the Company's Segments
The Company has two reportable segments: domestic cable and
communications services and domestic programming services. Domestic
cable and communications services receive video, audio and data signals
from various sources, and amplify and distribute the signals by coaxial
cable and optical fiber to the premises of customers who pay a fee for
the service. Domestic programming services produces, acquires, and
distributes, through all available formats and media, branded
entertainment and informational programming and software, including
multimedia products, delivered in both analog and digital form. The
Company's domestic cable and communications services business and
assets are included in TCI Group, and the Company's domestic
programming business and assets are included in Liberty Media Group.
The Company's principal international businesses and assets and the
Company's remaining non-cable and non-programming domestic businesses
and assets are included in TCI Ventures Group.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company
evaluates performance based on a measure of operating cash flow
(defined as operating income before depreciation, amortization, other
non-cash items and stock compensation). The Company generally
accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The Company utilizes the following interim financial information for
purposes of making decisions about allocating resources to a segment
and assessing a segment's performance:
<TABLE>
<CAPTION>
Domestic cable Domestic
& communications programming All
services services other Total
---------------- --------------- ------------ -----------
amounts in millions
<S> <C> <C> <C> <C>
Six months ended June 30, 1998:
Revenue from external customers
including intersegment
revenue $ 3,081 322 436 3,839
Intersegment revenue (9) 141 22 154
Segment operating cash flow 1,283 44 45 1,372
Six months ended June 30, 1997:
Revenue from external customers
including intersegment
revenue $ 3,161 119 499 3,779
Intersegment revenue 7 47 22 76
Segment operating cash flow 1,327 38 89 1,454
</TABLE>
(continued)
I-42
<PAGE> 44
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of reportable segment operating cash flow to the
Company's consolidated earnings (loss) before income tax is as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Total operating cash flow for reportable segments $ 1,327 1,365
Other operating cash flow 45 89
Other items excluded from operating cash flow:
Depreciation and amortization (843) (781)
Stock compensation (412) (71)
Cost of distribution agreements (83) --
Interest expense (536) (583)
Interest and dividend income 39 39
Share of losses of affiliates, net (589) (338)
Loss on early extinguishment of debt (38) (11)
Minority interest in earnings of consolidated
subsidiaries, net (29) (94)
Gain on issuance of equity interest by subsidiary 38 21
Gain on issuance of stock by equity investee 201 --
Gain on disposition of assets 1,099 62
Other, net (29) (6)
------------ ------------
Earnings (loss) before income taxes $ 190 (308)
============ ============
</TABLE>
I-43
<PAGE> 45
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Assets amounts in millions
<S> <C> <C>
Cash and cash equivalents $ 42 21
Restricted cash (note 4) 304 35
Trade and other receivables, net 439 394
Investment in Cablevision Systems Corporation
("CSC"), accounted for under the
equity method (note 5) 1,082 --
Investments in other affiliates, accounted for
under the equity method, and
related receivables (note 6) 367 414
Property and equipment, at cost:
Land 62 77
Distribution systems 9,332 9,933
Support equipment and buildings 1,388 1,411
------------ ------------
10,782 11,421
Less accumulated depreciation 4,483 4,479
------------ ------------
6,299 6,942
------------ ------------
Franchise costs 15,974 17,802
Less accumulated amortization 2,606 2,725
------------ ------------
13,368 15,077
------------ ------------
Other assets, net of amortization 618 695
------------ ------------
$ 22,519 23,578
============ ============
</TABLE>
(continued)
I-44
<PAGE> 46
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Liabilities and Combined Deficit amounts in millions
<S> <C> <C>
Accounts payable $ 89 137
Accrued interest 248 250
Accrued programming expenses 264 243
Other accrued expenses 695 726
Debt (note 8) 12,647 14,106
Deferred income taxes 5,376 5,147
Other liabilities 934 563
------------ ------------
Total liabilities 20,253 21,172
------------ ------------
Minority interests in equity of attributed subsidiaries 914 1,048
Redeemable securities:
Preferred stock (note 9) 299 655
Common stock 18 5
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts ("Trust Preferred Securities") holding solely subordinated debt
securities of TCI Communications, Inc. ("TCIC") (note 10) 1,500 1,500
Combined deficit (note 11):
Combined equity (deficit), including preferred stocks of
Tele-Communications, Inc. ("TCI") 16 (276)
Accumulated other comprehensive earnings, net of taxes (note 1) 11 4
------------ ------------
27 (272)
Due from related parties (note 12) (492) (530)
------------ ------------
Total combined deficit (465) (802)
------------ ------------
Commitments and contingencies (notes 2, 7 and 15)
$ 22,519 23,578
============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-45
<PAGE> 47
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997* 1998 1997*
------------ ------------ ------------ ------------
amounts in millions,
except per share amounts
<S> <C> <C> <C> <C>
Revenue (note 12) $ 1,504 1,606 3,081 3,161
Operating costs and expenses:
Operating:
Related party (note 12) 58 23 118 52
Other 469 581 996 1,127
Selling, general and administrative (note 12) 350 339 684 655
Stock compensation (note 11) 77 36 147 38
Depreciation and amortization 373 362 749 694
------------ ------------ ------------ ------------
1,327 1,341 2,694 2,566
------------ ------------ ------------ ------------
Operating income 177 265 387 595
Other income (expense):
Interest expense (227) (282) (500) (555)
Interest income 2 9 7 16
Intercompany interest, net 1 1 6 (1)
Share of losses of CSC (note 5) (48) -- (80) --
Share of earnings (losses) of other affiliates, net
(note 6) (5) (17) 47 (34)
Loss on early extinguishment of debt (note 8) (22) (11) (38) (11)
Minority interests in earnings of attributed
subsidiaries, net (note 10) (49) (47) (95) (81)
Gain on disposition of assets (note 7) 30 43 541 33
Other, net (14) (10) (28) (14)
------------ ------------ ------------ ------------
(332) (314) (140) (647)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (155) (49) 247 (52)
Income tax benefit (expense) 13 1 (151) 7
------------ ------------ ------------ ------------
Earnings (loss) before loss of TCI Ventures Group
(note 1) (142) (48) 96 (45)
Loss of TCI Ventures Group through the date of the TCI
Ventures Exchange (note 1) -- (112) -- (189)
------------ ------------ ------------ ------------
Net earnings (loss) (142) (160) 96 (234)
Dividend requirements on preferred stocks (2) (11) (13) (21)
------------ ------------ ------------ ------------
Net earnings (loss) attributable to common
stockholders $ (144) (171) 83 (255)
============ ============ ============ ============
Basic earnings (loss) attributable to common stockholders per
common share (note 3) $ (.28) (.25) .16 (.38)
============ ============ ============ ============
Diluted earnings (loss) attributable to common stockholders
per common share (note 3) $ (.28) (.25) .15 (.38)
============ ============ ============ ============
Comprehensive earnings (loss) (note 1) $ (136) (157) 103 (227)
============ ============ ============ ============
</TABLE>
*Restated - see note 1.
See accompanying notes to combined financial statements.
I-46
<PAGE> 48
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Statement of Combined Deficit
Six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Combined
equity
(deficit), Accumulated
including other Due
preferred comprehensive from Total
stocks of earnings, related combined
TCI net of taxes parties deficit
------------ ------------ ------------ ------------
amounts in millions
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ (276) 4 (530) (802)
Net earnings 96 -- -- 96
Change in due from related parties -- -- 38 38
Reclassification to redeemable securities of redemption
amount of TCI Group Stock subject to put obligations (13) -- -- (13)
Premium received in connection with put obligation 2 -- -- 2
Transfer of net liabilities from related party (50) -- -- (50)
Change in unrealized gains for available-for-sale
securities, net of taxes -- 7 -- 7
Accreted dividends on all classes of TCI preferred stock (13) -- -- (13)
Accreted dividends on all classes of TCI preferred stock
not subject to mandatory redemption requirements 5 -- -- 5
Payment of TCI preferred stock dividends (10) -- -- (10)
Payment of call premiums (note 13) (134) -- -- (134)
Recognition of fees related to Exchange (note 13) (20) -- -- (20)
Reimbursement of fees related to Exchange (note 13) 11 -- -- 11
Repurchase of TCI Group Stock (2) -- -- (2)
Issuance of TCI Group Stock in connection with settlement
of litigation 47 -- -- 47
Issuance of TCI Group Stock for acquisitions (note 4) 24 -- -- 24
Issuance of TCI Group Stock and Liberty Group Stock upon
conversion of notes and preferred stock 349 -- -- 349
------------ ------------ ------------ ------------
Balance at June 30, 1998 $ 16 11 (492) (465)
============ ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-47
<PAGE> 49
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------------
1998 1997*
------------ ------------
amounts in millions
Cash flows from operating activities: (see note 4)
<S> <C> <C>
Earnings (loss) before loss of TCI Ventures Group** $ 96 (45)
Adjustments to reconcile earnings (loss) before loss of TCI Ventures
Group to net cash provided by operating activities:
Depreciation and amortization 749 694
Stock compensation 147 38
Payments of obligation relating to stock compensation (66) (14)
Share of losses of CSC 80 --
Share of losses (earnings) of other affiliates, net (47) 34
Loss on early extinguishment of debt 38 11
Minority interests in earnings of attributed subsidiaries, net 95 81
Gain on disposition of assets (541) (33)
Intergroup tax allocation -- 82
Deferred income tax expense (benefit) 121 (132)
Payments of restructuring charges (4) (19)
Other noncash charges 2 --
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (37) (123)
Change in accruals and payables (159) 189
------------ ------------
Net cash provided by operating activities 474 763
------------ ------------
Cash flows from investing activities:
Cash paid for acquisitions (60) (194)
Capital expended for property and equipment (493) (128)
Investments in and loans to affiliates (151) (20)
Collections of loans to affiliates 943 --
Proceeds from dispositions of assets 351 193
Change in restricted cash (269) (13)
Cash received in exchanges -- 15
Change in due from Liberty Media Group -- 11
Change in interest in TCI Ventures Group -- (78)
Other investing activities 12 (30)
------------ ------------
Net cash provided by (used in) investing activities 333 (244)
------------ ------------
Cash flows from financing activities:
Borrowings of debt 1,883 1,041
Repayments of debt (2,625) (1,822)
Payment of preferred stock dividends (23) (23)
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (95) (85)
Payment of call premiums (134) --
Change in amounts due from related parties 259 (123)
Proceeds from issuance of TCI Group Stock -- 3
Proceeds from issuance of Trust Preferred Securities -- 490
Other financing activities (51) --
------------ ------------
Net cash used in financing activities (786) (519)
------------ ------------
Net increase in cash and cash equivalents 21 --
Cash and cash equivalents at beginning of period 21 --
------------ ------------
Cash and cash equivalents at end of period $ 42 --
============ ============
</TABLE>
* Restated - see note 1.
** Loss of TCI Ventures Group does not use funds.
See accompanying notes to combined financial statements.
I-48
<PAGE> 50
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
June 30, 1998
(unaudited)
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of TCI that are attributed to TCI Group, as
defined below. The combined financial statements of TCI Group are
presented for purposes of additional analysis of the consolidated
financial statements of TCI and subsidiaries, and should be read in
conjunction with such consolidated financial statements.
All significant intercompany accounts and transactions have been
eliminated. Preferred stock of TCI, which is owned by subsidiaries of
TCI, eliminates in combination. Common stock of TCI held by
subsidiaries is included in combined deficit.
The accompanying interim combined financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These combined financial statements should be read in conjunction with
the audited combined financial statements and notes thereto of TCI
Group for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Effective January 1, 1998, TCI Group adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). TCI Group has reclassified its prior
period combined balance sheet and combined statements of operations to
conform to the requirements of SFAS 130. SFAS 130 requires that all
items which are components of comprehensive earnings or losses be
reported in a financial statement in the period in which they are
recognized. TCI Group has included unrealized holding gains and losses
on available-for-sale securities in other comprehensive earnings that
are recorded directly in combined deficit. Pursuant to SFAS 130, this
item is reflected, net of related tax effects, as a component of
comprehensive earnings in TCI Group's combined statements of
operations, and is included in accumulated other comprehensive earnings
in TCI Group's combined balance sheets and statement of combined
deficit.
(continued)
I-49
<PAGE> 51
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which is effective for
all fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments and
hedging activities by requiring that all derivative instruments be
reported as assets or liabilities and measured at their fair values.
Under SFAS 133, changes in the fair values of derivative instruments
are recognized immediately in earnings unless those instruments qualify
as hedges of the (1) fair values of existing assets, liabilities, or
firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposures of net investments in
foreign operations. Although management of TCI Group has not completed
its assessment of the impact of SFAS 133 on its combined results of
operations and financial position, management estimates that the impact
of SFAS 133 will not be material.
Certain prior period amounts have been reclassified for comparability
with the 1998 presentation.
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share ("TCI Group Series A Stock")
and Tele-Communications, Inc. Series B TCI Group Common Stock, par
value $1.00 per share ("TCI Group Series B Stock", and together with
the TCI Group Series A Stock, the "TCI Group Stock"), respectively. On
August 10, 1995, TCI distributed, in the form of a dividend, 2.25
shares of Liberty Group Stock for each four shares of TCI Group Stock
owned (the "Liberty Distribution").
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share ("TCI Ventures Group Series A Stock")
and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
par value $1.00 per share ("TCI Ventures Group Series B Stock," and
together with the TCI Ventures Group Series A Stock, the "TCI Ventures
Group Stock"). The TCI Ventures Group Stock is intended to reflect the
separate performance of the "TCI Ventures Group," which is comprised of
TCI's principal international assets and businesses and substantially
all of TCI's non-cable and non-programming assets.
(continued)
I-50
<PAGE> 52
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the Exchange Offers was two shares
of the applicable series of TCI Ventures Group Stock for each share of
the corresponding series of TCI Group Stock properly tendered, up to
the indicated maximum numbers. Upon the September 10, 1997 consummation
of the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock
and 16,266,400 shares of TCI Group Series B Stock were exchanged for
377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
shares of TCI Ventures Group Series B Stock, respectively (the "TCI
Ventures Exchange").
The TCI Group Stock is intended to reflect the separate performance of
TCI and its subsidiaries and assets not attributed to Liberty Media
Group or TCI Ventures Group. Such subsidiaries and assets are referred
to as "TCI Group" and are comprised primarily of TCI's domestic cable
and communications business. Collectively, TCI Group, Liberty Media
Group and TCI Ventures Group are referred to as the "Groups" and
individually, may be referred to herein as a "Group." The TCI Group
Series A Stock, TCI Ventures Group Series A Stock and Liberty Group
Series A Stock are sometimes collectively referred to herein as "Series
A Stock," and the TCI Group Series B Stock, TCI Ventures Group Series B
Stock and Liberty Group Series B Stock are sometimes collectively
referred to herein as the "Series B Stock."
As a result of the TCI Ventures Exchange, the combined financial
statements of TCI Group were restated to exclude those assets and
related liabilities which, prior to being attributed to TCI Ventures
Group in connection with the issuance of the TCI Ventures Group Stock,
had been attributed to TCI Group.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock did not affect the
ownership or the respective legal title to assets or responsibility for
liabilities of TCI or any of its subsidiaries. TCI and its subsidiaries
each continue to be responsible for their respective liabilities.
Holders of TCI Group Stock, Liberty Group Stock and TCI Ventures Group
Stock are common stockholders of TCI and are subject to risks
associated with an investment in TCI and all of its businesses, assets
and liabilities. The redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock did not affect the
rights of creditors of TCI.
(continued)
I-51
<PAGE> 53
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of the
separate Groups and the market prices of shares of TCI Group Stock,
Liberty Group Stock and TCI Ventures Group Stock. In addition, net
losses of any portion of TCI, dividends or distributions on, or
repurchases of, any series of common stock, and dividends on or certain
repurchases of preferred stock, would reduce funds of TCI legally
available for dividends on all series of common stock. Accordingly,
financial information of any one Group should be read in conjunction
with the financial information of TCI and the other Groups.
The common stockholders' equity value of TCI Ventures Group or Liberty
Media Group that, at any relevant time, is attributed to TCI Group, and
accordingly not represented by outstanding TCI Ventures Group Stock or
Liberty Group Stock, respectively, is referred to as "Inter-Group
Interest." Prior to consummation of the Liberty Distribution and TCI
Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group and TCI Ventures Group, respectively. Following
consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
Group no longer has Inter-Group Interests in Liberty Media Group and
TCI Ventures Group, respectively. For periods in which an Inter-Group
Interest exists, TCI Group accounts for its Inter-Group Interest in a
manner similar to the equity method of accounting. Following
consummation of the Liberty Distribution and the TCI Ventures Exchange,
an Inter-Group Interest would be created with respect to Liberty Media
Group or TCI Ventures Group only if a subsequent transfer of cash or
other property from TCI Group to Liberty Media Group or TCI Ventures
Group is specifically designated by the Board as being made to create
an Inter-Group Interest or if outstanding shares of Liberty Group Stock
or TCI Ventures Stock, respectively, are purchased with funds
attributable to TCI Group. Management of TCI believes that generally
accepted accounting principles require that Liberty Media Group or TCI
Ventures Group be consolidated with TCI Group for all periods in which
TCI Group held an Inter-Group Interest in Liberty Media Group or TCI
Ventures Group, respectively.
Dividends on TCI Group Stock are payable at the sole discretion of the
Board out of the lesser of assets of TCI legally available for
dividends or the available dividend amount with respect to TCI Group,
as defined. Determinations to pay dividends on TCI Group Stock are
based primarily upon the financial condition, results of operations and
business requirements of TCI Group and TCI as a whole.
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) specifically attributed to and
reflected in the combined financial statements of the Group that
includes the entity which incurred the debt or issued the preferred
stock or, in case the entity incurring the debt or issuing the
preferred stock is Tele-Communications, Inc., the TCI Group. The Board
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected in the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such other
Group.
(continued)
I-52
<PAGE> 54
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board, in the case of a transfer from TCI Group to either Liberty
Media Group or TCI Ventures Group, reflected as the creation of, or
increase in, TCI Group's Inter-Group Interest in such Group or, in the
case of a transfer from either Liberty Media Group or TCI Ventures
Group to TCI Group, reflected as a reduction in TCI Group's Inter-Group
Interest in such Group. There are no specific criteria for determining
when a transfer will be reflected as a borrowing or as an increase or
reduction in an Inter-Group Interest. The Board expects to make such
determinations, either in specific instances or by setting generally
applicable policies from time to time, after consideration of such
factors as it deems relevant, including, without limitation, the needs
of TCI, the financing needs and objectives of the Groups, the
investment objectives of the Groups, the availability, cost and time
associated with alternative financing sources, prevailing interest
rates and general economic conditions.
Loans from one Group to another Group generally will bear interest at
such rates and have such repayment schedules and other terms as are
established from time to time by, or pursuant to procedures established
by, the Board. The Board expects to make such determinations, either in
specific instances or by setting generally applicable policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the use of proceeds by
and creditworthiness of the recipient Group, the capital expenditure
plans of and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing
sources.
The combined balance sheets of a Group reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical combined financial statements,
net loans or advances between Groups have been, and will continue to
be, included as a component of each respective Group's combined equity.
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group or TCI Ventures Group resulting from an equity contribution
by TCI Group to Liberty Media Group or TCI Ventures Group or any
decrease in such Inter-Group Interest resulting from a transfer of
funds from Liberty Media Group or TCI Ventures Group to TCI Group would
be determined by reference to the market value of the Liberty Group
Series A Stock or the TCI Ventures Group Series A Stock, respectively,
as of the date of such transfer, such an increase could occur at a time
when such shares could be considered undervalued and such a decrease
could occur at a time when such shares could be considered overvalued.
(continued)
I-53
<PAGE> 55
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
All financial impacts of issuances and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or Liberty Media Group, respectively) result in TCI
Group being credited, and TCI Ventures Group or Liberty Media Group
being charged (in addition to the charge for the dividend or other
distribution paid), with an amount equal to the product of the
aggregate amount of such dividend or other distribution paid or
distributed in respect of outstanding shares of TCI Ventures Group
Stock or Liberty Group Stock and a fraction of the numerator of which
is TCI Ventures Group or Liberty Media Group Inter-Group Interest
Fraction and the denominator of which is the TCI Ventures Group or the
Liberty Media Group "Outstanding Interest Fraction" (both as defined).
Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
Group Stock, the consideration for which is charged to TCI Group, will
be to such extent reflected in the combined financial statements of the
TCI Group and will result in an increase in TCI Group's Inter-Group
Interest in TCI Ventures Group or Liberty Media Group, respectively.
(continued)
I-54
<PAGE> 56
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Proposed Merger
TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
pursuant to, and subject to the terms and conditions set forth in, the
Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
become a wholly-owned subsidiary of AT&T and (i) each share of TCI
Group Series A Stock will be converted into .7757 of a share of common
stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
each share of TCI Group Series B Stock will be converted into .8533 of
a share of AT&T Common Stock, (iii) each share of Liberty Group Series
A Stock will be converted into one share of a newly authorized class of
AT&T common stock to be designated as the Class A Liberty Group Common
Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock") and (iv) each share of Liberty Group Series B Stock will be
converted into one share of a newly authorized class of AT&T common
stock to be designated as the Class B Liberty Group Common Stock, par
value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
together with the AT&T Liberty Class A Tracking Stock, the "AT&T
Liberty Tracking Stock"). In addition, TCI has announced its intention,
subject to stockholder approval, to combine the assets and businesses
of Liberty Media Group and TCI Ventures Group and reclassify each share
of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
Series A Stock and each share of TCI Ventures Group Series B Stock as
.52 of a share of Liberty Group Series B Stock. If such combination and
reclassification does not occur prior to the Merger, then in the Merger
each share of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock will be converted into .52 of a share of the
corresponding series of AT&T Liberty Tracking Stock. In general, the
holders of shares of AT&T Liberty Class A Tracking Stock and the
holders of shares of AT&T Liberty Class B Tracking Stock will vote
together as a single class with the holders of shares of AT&T Common
Stock on all matters presented to such stockholders, with the holders
being entitled to one-tenth (1/10th) of a vote for each share of AT&T
Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
held.
In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
Preferred Stock, Series C-TCI Group will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (132.86 shares per preferred share), (iii)
TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
converted into a number of shares of AT&T Liberty Class A Tracking
Stock equal to the current conversion rate of such preferred stock
(56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
TCI Group Preferred Stock, Series G will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (1.19 shares per preferred share) and (v)
TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
Series H will be converted into a number of shares of AT&T Liberty
Class A Tracking Stock equal to the current conversion rate of such
preferred stock (0.590625 of a share per preferred share).
(continued)
I-55
<PAGE> 57
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The shares of AT&T Liberty Tracking Stock to be issued in the Merger
will be a newly authorized class of common stock of AT&T which will be
intended to reflect the separate performance of the businesses and
assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
Group following the Merger will be made up of the corporations,
partnerships and other entities and interests which comprise Liberty
Media Group and TCI Ventures Group at the time of the Merger. Pursuant
to the Merger Agreement, immediately prior to the Merger, certain
assets currently held by TCI Ventures Group (including, among others,
the shares of AT&T Common Stock received in the merger of AT&T and
Teleport Communications Group, Inc. ("TCG"), the stock of At Home
Corporation held by TCI Ventures Group and the assets and business of
the National Digital Television Center, Inc. ("NDTC")) will be
transferred to TCI Group in exchange for approximately $5.5 billion in
cash. Also upon consummation of the Merger, Liberty/Ventures Group will
become entitled to the benefit of all of the net operating loss
carryforwards available to the entities included in TCI's consolidated
income tax return as of the date of the Merger. Additionally, certain
warrants currently attributed to TCI Group will be transferred to
Liberty/Ventures Group in exchange for up to $176 million in cash.
Certain agreements to be entered into at the time of the Merger as
contemplated by the Merger Agreement will, among other things, provide
preferred vendor status to Liberty/Ventures Group for digital basic
distribution on AT&T's systems of new programming services created by
Liberty/Ventures Group provide for a renewal of existing affiliation
agreements and provide for the business of the Liberty/Ventures Group
to continue to be managed following the Merger by certain members of
TCI's management who currently manage the businesses of Liberty Media
Group and TCI Ventures Group.
If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
stockholders to approve the Merger prior to March 31, 1999, (ii) the
withdrawal or modification by the AT&T Board of Directors of its
approval of the transaction, or (iii) the failure to obtain necessary
governmental and regulatory approvals by September 30, 1999, which
failure occurs as a result of the announcement by AT&T of a significant
transaction which delays receipt of such governmental approvals, AT&T
will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
the Merger Agreement due to the failure of TCI stockholders to approve
the transaction prior to March 31, 1999 or the withdrawal or
modification by the TCI Board of Directors of its approval of the
Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.
Consummation of the Merger is subject to the satisfaction or waiver of
customary conditions to closing, including but not limited to, the
separate approvals of the stockholders of AT&T and TCI, receipt of all
necessary governmental consents and approvals, and effectiveness of the
registration statement registering the AT&T Common Stock and AT&T
Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
As a result, there can be no assurance that the Merger will be
consummated or, if the Merger is consummated, as to the date of such
consummation.
(continued)
I-56
<PAGE> 58
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(3) Earnings (Loss) Per Common and Potential Common Share
Basic earnings per share ("EPS") is measured as the income or loss
attributable to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted EPS is similar to
basic EPS, but presents the dilutive effect on a per share basis of
potential common shares as if they had been converted at the beginning
of the periods presented. Potential common shares that have an
anti-dilutive effect are excluded from diluted EPS.
The basic earnings (loss) attributable to TCI Group common stockholders
per common share for the three months and six months ended June 30,
1998 and 1997 was computed by dividing net earnings (loss) attributable
to TCI Group common stockholders by the weighted average number of
common shares outstanding of TCI Group Stock during the period.
The diluted earnings attributable to TCI Group common stockholders per
common share for the six months ended June 30, 1998 was computed by
dividing net earnings attributable to TCI Group common stockholders,
which is adjusted by the addition of preferred dividends and interest
expense accrued during the six months ended June 30, 1998 to net
earnings, assuming conversion of TCI Group convertible securities as of
the beginning of the period, by the weighted average number of common
shares outstanding of TCI Group Stock during the period. Shares
issuable upon conversion of the Convertible Preferred Stock, Series
C-TCI Group ("Series C-TCI Group Preferred Stock"), the Redeemable
Convertible TCI Group Preferred Stock, Series G ("Series G Preferred
Stock"), preferred stock of subsidiaries, convertible notes payable,
stock options and other performance awards have been included in the
computation of weighted average shares, as illustrated below. Shares of
TCI Group stock issuable upon exercise of the Malone Right (as defined
in note 13), and issuable upon conversion of Convertible Preferred
Stock, Series D ("Series D Preferred Stock"), and associated dividend
payments for the six months ended June 30, 1998 have been excluded as
adjustments in computing the diluted earnings attributable to TCI Group
common stockholders per common share as such potential common shares
are antidilutive for the six months ended June 30, 1998.
The diluted loss attributable to TCI Group common stockholders per
common share for the three months ended June 30, 1998 and the three
months and six months ended June 30, 1997 was computed by dividing net
loss attributable to TCI Group common stockholders by the weighted
average number of common shares outstanding of TCI Group Stock during
the period. Potential common shares were not included in the
computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
No material changes in the weighted average outstanding shares or
potential common shares occurred after June 30, 1998.
(continued)
I-57
<PAGE> 59
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Information concerning the reconciliation of basic EPS to diluted EPS
with respect to TCI Group Stock is presented below:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
amounts in millions, except per share amounts
<S> <C> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to
common stockholders $ (144) (171) 83 (255)
============ ============ ============ ============
Weighted average common shares 523 683 520 680
============ ============ ============ ============
Basic earnings (loss) per share
attributable to common
stockholders $ (.28) (.25) .16 (.38)
============ ============ ============ ============
Diluted EPS:
Earnings (loss) attributable to
common stockholders $ (144) (171) 83 (255)
Add preferred dividend requirements -- -- 6 --
Add interest expense -- -- 1 --
------------ ------------ ------------ ------------
Adjusted earnings (loss)
attributable to common
stockholders assuming
conversion of preferred shares $ (144) (171) 90 (255)
============ ============ ============ ============
Weighted average common shares 523 683 520 680
------------ ------------ ------------ ------------
Add dilutive potential common shares:
Employee and director options
and other performance awards -- -- 9 --
Malone Right -- -- -- --
Convertible notes payable -- -- 24 --
Series C-TCI Group Preferred
Stock -- -- 7 --
Series D Preferred Stock -- -- -- --
Series G Preferred Stock -- -- 8 --
Preferred stock of subsidiaries -- -- 45 --
------------ ------------ ------------ ------------
Dilutive potential common
shares -- -- 93 --
------------ ------------ ------------ ------------
Diluted weighted average common
shares 523 683 613 680
============ ============ ============ ============
Diluted earnings (loss) per share
attributable to common
stockholders $ (.28) (.25) .15 (.38)
============ ============ ============ ============
</TABLE>
(continued)
I-58
<PAGE> 60
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(4) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $502 million and $565 million for the six
months ended June 30, 1998 and 1997, respectively. Cash paid for income
taxes was not material for the six months ended June 30, 1998 and 1997.
Summary of cash paid for acquisitions and cash received in exchanges is
as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------------
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Aggregate cost basis of assets acquired $ (413) (1,073)
Liabilities assumed, net of current assets 2 584
Deferred tax liability recorded in acquisitions 107 34
Acquisition of minority interests in equity of consolidated
subsidiaries (130) 3
Elimination of notes receivable from affiliates 350 --
Common stock and preferred stock issued in acquisitions 24 258
------------ ------------
Cash paid for acquisitions $ (60) (194)
============ ============
Cash received in exchanges:
Aggregate cost basis of assets acquired $ -- (395)
Historical cost of assets disposed of -- 399
Gain recorded on exchange of assets -- 11
------------ ------------
Cash received in exchanges $ -- 15
============ ============
</TABLE>
For a description of certain non-cash transactions, see notes 6, 7 and
12.
TCI Group's restricted cash includes proceeds received in connection
with certain asset dispositions. Such proceeds, which aggregated $303
million and $34 million at June 30, 1998 and December 31, 1997,
respectively, are designated to be reinvested in certain identified
assets for income tax purposes.
(continued)
I-59
<PAGE> 61
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Investment in Cablevision Systems Corporation
On March 4, 1998, TCI Group contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange
for approximately 24.5 million newly issued CSC Class A common shares
(as adjusted for a stock dividend) (the "CSC Transaction"). CSC also
assumed and repaid approximately $574 million of debt owed by TCI Group
to external parties and $95 million of debt owed to TCI Group. As a
result of the CSC Transaction, TCI Group recognized a $511 million gain
in the accompanying combined statement of operations for the six months
ended June 30, 1998. Such gain represents the excess of the $1,161
million fair value of the CSC Class A common shares received over the
historical cost of the net assets transferred by TCI Group to CSC. TCI
Group has also entered into letters of intent with CSC which provide
for TCI Group to acquire a cable system in Michigan and an additional
3% of CSC's Class A common shares and for CSC to (i) acquire cable
systems serving approximately 250,000 customers in Connecticut and (ii)
assume $110 million of TCI Group's debt. The ability of TCI Group to
sell or increase its investment in CSC is subject to certain
restrictions and limitations set forth in a stockholders agreement with
CSC.
At June 30, 1998, TCI Group owned 24,471,086 shares of CSC Class A
common stock, which had a closing market price of $83.50 per share on
such date. Such shares represented an approximate 32.5% equity interest
in CSC's total outstanding shares and an approximate 9% voting interest
in CSC in all matters except for (i) the election of directors, in
which case TCI Group effectively has the right to designate two of
CSC's directors, and (ii) any increase in authorized shares, in which
case TCI Group has agreed to vote its interest in proportion with the
public holders of CSC Class A common shares.
Summarized unaudited results of operations for CSC, accounted for under
the equity method, are as follows for the period from the date of
acquisition through June 30, 1998 (amounts in millions):
<TABLE>
<S> <C>
Revenue $ 1,041
Operating, selling, general and administrative expense (816)
Depreciation and amortization (228)
------------
Operating loss (3)
Interest expense (149)
Other, net (46)
------------
Net loss $ (198)
============
</TABLE>
(continued)
I-60
<PAGE> 62
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(6) Investments in Other Affiliates
TCI Group's investments in affiliates other than CSC are comprised of
limited partnerships and other entities that are primarily engaged in
the domestic cable business. Summarized unaudited results of operations
for the periods in which TCI Group used the equity method to account
for such other affiliates are as follows:
<TABLE>
<CAPTION>
Six months ended
Combined Operations June 30,
------------------- ---------------------------
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Revenue $ 526 512
Operating, selling, general and administrative expenses (277) (293)
Depreciation and amortization (182) (158)
------------ ------------
Operating income 67 61
Interest expense (125) (112)
Other, net 20 (28)
------------ ------------
Net loss $ (38) (79)
============ ============
</TABLE>
In January 1998, InterMedia Partners, a California limited partnership
("InterMedia Partners") repurchased substantially all of the equity
interests held by partners other than TCI Group. InterMedia Partners
has been included in the combined financial statements of TCI Group
since the date of such repurchases.
Certain of TCI Group's affiliates are general partnerships and any
subsidiary of TCI Group that is a general partner in a general
partnership is, as such, liable as a matter of applicable partnership
law for all debts (other than non-recourse debts) of that partnership
in the event liabilities of that partnership were to exceed its assets.
(continued)
I-61
<PAGE> 63
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(7) Acquisitions and Dispositions
In addition to the CSC Transaction described in note 5, TCI completed,
during the first six months of 1998, three transactions whereby TCI
Group contributed cable television systems serving in the aggregate
approximately 670,000 customers to three separate joint ventures
(collectively, the "1998 Joint Ventures") in exchange for
non-controlling ownership interests in each of the 1998 Joint Ventures,
and the assumption and repayment by the 1998 Joint Ventures of debt
owed by TCI Group to external parties aggregating $323 million and
intercompany debt owed to TCI Group aggregating $833 million. In
connection with such transactions, TCI Group has agreed to take certain
steps to support compliance by each of the 1998 Joint Ventures with
their payment obligations under certain debt instruments, up to an
aggregate contingent commitment of $784 million. In light of such
contingent commitments, TCI Group has deferred any gains on the
formation of the 1998 Joint Ventures. Such deferred gains, which
aggregated $163 million, will not be recognized until such time as TCI
Group's contingent commitments with respect to the 1998 Joint Ventures
are eliminated. TCI Group uses the equity method of accounting to
account for its investments in the 1998 Joint Ventures. The CSC
Transaction and the formation of the 1998 Joint Ventures are
collectively referred to herein as the "1998 Contribution
Transactions."
Including the 1998 Contribution Transactions, TCI Group, as of July 31,
1998, has, since January 1, 1997, contributed, or signed agreements or
letters of intent to contribute within the next twelve months, certain
cable television systems (the "Contributed Cable Systems") serving
approximately 3.9 million basic customers to joint ventures in which
TCI Group will retain non-controlling ownership interests (the
"Contribution Transactions"). Following the completion of the
Contribution Transactions, the Contributed Cable Systems will no longer
be included in TCI Group's combined financial statements. Accordingly
it is anticipated that the completion of the Contribution Transactions,
as currently contemplated, will result in an aggregate estimated
reduction (based on actual amounts with respect to the 1998
Contribution Transactions and currently contemplated amounts with
respect to the pending Contribution Transactions) to TCI Group's debt
of $4.8 billion and aggregate estimated reductions (based on 1997
amounts) to TCI Group's annual revenue and annual operating income
before depreciation, amortization, other non-cash items and stock
compensation of $1.8 billion and $815 million, respectively. No
assurance can be given that any of the pending Contribution
Transactions will be consummated.
(continued)
I-62
<PAGE> 64
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- -------------
amounts in millions
<S> <C> <C>
Notes payable (a) $ 9,382 8,672
Bank credit facilities (b) 2,311 4,842
Commercial paper 717 533
Convertible notes (c) 40 40
Capital lease obligations and other debt 197 19
-------------- -------------
$ 12,647 14,106
============== =============
</TABLE>
(a) During the six months ended June 30, 1998, TCI Group purchased
certain notes payable which had an aggregate principal balance
of $299 million and fixed interest rates ranging from 8.67% to
10.125% (the "1998 Purchases"). In connection with the 1998
Purchases, TCI Group recognized a loss on early extinguishment
of debt of $38 million. Such loss related to prepayment
penalties amounting to $34 million and the retirement of
deferred loan costs.
During the six months ended June 30, 1997, TCI Group purchased
certain notes payable which had an aggregate principal balance
of $190 million and fixed interest rates ranging from 8.75% to
10.13% (the "1997 Purchases"). In connection with the 1997
Purchases, TCI Group recognized a loss on early extinguishment
of debt of $11 million. Such loss related to prepayment
penalties amounting to $7 million and the retirement of
deferred loan costs.
(b) At June 30, 1998, subsidiaries of TCI Group had approximately
$2.6 billion in unused lines of credit, excluding amounts
related to lines of credit which provide availability to
support commercial paper.
Certain subsidiaries attributed to TCI Group are required to
maintain unused availability under bank credit facilities to
the extent of outstanding commercial paper. Also, certain
subsidiaries attributed to TCI Group pay fees ranging from
1/4% to 1/2% per annum on the average unborrowed portion of
the total amount available for borrowings under bank credit
facilities.
(continued)
I-63
<PAGE> 65
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) The convertible notes, which are stated net of unamortized
discount of $166 million at June 30, 1998 and December 31,
1997, mature on December 18, 2021. The notes require (so long
as conversion of the notes has not occurred) an annual
interest payment through 2003 equal to 1.85% of the face
amount of the notes. At June 30, 1998, the notes were
convertible, at the option of the holders, into an aggregate
of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
shares of Series A Liberty Group Stock, 20,711,373 shares of
Series A TCI Ventures Group Stock and 3,451,897 shares of
Series A Common Stock, $1.00 par value per share, of TCI
Satellite Entertainment, Inc.
The bank credit facilities and various other debt instruments
attributable to TCI Group generally contain restrictive covenants which
require, among other things, the maintenance of certain earnings,
specified cash flow and financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
include certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and/or dividend payments.
The fair value of the debt attributable to TCI Group is estimated based
on the quoted market prices for the same or similar issues or on the
current rates offered to TCI Group for debt of the same remaining
maturities. At June 30, 1998, the fair value of TCI Group's debt was
$13,336 million, as compared to a carrying value of $12,647 million on
such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCI Group has entered into variable and fixed interest
rate exchange agreements ("Interest Rate Swaps") pursuant to which it
(i) pays a fixed interest rate (the "Fixed Rate Agreement") of 6.2% and
receives variable interest rates on a notional amount of $10 million at
June 30, 1998 and (ii) pays variable interest rates (the "Variable Rate
Agreements") and receives fixed interest rates ranging from 4.8% to
9.7% on notional amounts of $2,400 million at June 30, 1998. During the
six months ended June 30, 1998 and 1997, TCI Group's net payments
pursuant to the Fixed Rate Agreement were less than $1 million and $4
million, respectively; and TCI Group's net receipts pursuant to the
Variable Rate Agreements were $4 million and $11 million, respectively.
(continued)
I-64
<PAGE> 66
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Information concerning TCI Group's Variable Rate Agreements at June 30,
1998 is as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Amount to
be paid
Expiration Interest rate Notional (received) upon
date to be received amount termination (a)
-------------------------------- -------------- ---------- ------------------
<S> <C> <C> <C>
September 1998 4.8%-5.4% $ 450 $ 2
April 1999 7.4% 50 (1)
September 1999 6.4% 350 (3)
February 2000 5.8%-6.6% 300 (3)
March 2000 5.8%-6.0% 675 (1)
September 2000 5.1% 75 1
March 2027 9.7% 300 (30)
December 2036 9.7% 200 (8)
---------- ----------
$ 2,400 $ (43)
========== ==========
</TABLE>
------------------
(a) The estimated amount that TCI Group would pay or receive to
terminate the agreements at June 30, 1998, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
The Fixed Rate Agreement expires in August 1998. At June 30, 1998, TCI
Group would be required to pay less than $1 million to terminate the
Fixed Rate Agreement.
In addition to the Fixed Rate and Variable Rate Agreements, TCI Group
entered into Interest Rate Swaps pursuant to which it pays a variable
rate based on the London Interbank Offered Rate ("LIBOR") (6.1% at June
30, 1998) and receives a variable rate based on the Constant Maturity
Treasury Index ("CMT") (5.9% at June 30, 1998) on a notional amount of
$400 million through September 2000; and pays a variable rate based on
LIBOR (6.0% at June 30, 1998) and receives a variable rate based on CMT
(6.0% at June 30, 1998) on notional amounts of $95 million through
February 2000. During the six months ended June 30, 1998, TCI Group's
net payments pursuant to such agreements were less than $1 million. At
June 30, 1998, TCI Group would be required to pay an estimated $3
million to terminate such Interest Rate Swaps.
TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of
nonperformance by the other parties to the agreements. However, as of
June 30, 1998, TCI Group does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance by
the counterparties. Further, TCI Group does not anticipate material
near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments.
(continued)
I-65
<PAGE> 67
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(9) Redeemable Preferred Stock
On February 20, 1998, TCI issued a Notice of Redemption which called
for the redemption of all of its outstanding Series D Preferred Stock
for $304.0233 per share. Effective April 1, 1998, all of the
outstanding shares of Series D Preferred Stock were redeemed to the
extent not previously converted into shares of TCI Group Series A Stock
and Liberty Group Series A Stock.
(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of TCIC
The Trust Preferred Securities are presented together in a separate
line item in the accompanying combined balance sheet captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of TCI
Communications, Inc." Dividends accrued on the Trust Preferred
Securities aggregated $71 million and $61 million for the six months
ended June 30, 1998 and 1997, respectively, and are included in
minority interests in earnings of attributed subsidiaries in the
accompanying combined financial statements.
(11) Combined Deficit
General
During the fourth quarter of 1997, TCI Group entered into a Total
Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
the Equity Swap Facility, TCI Group has the right to direct the
counterparty (the "Counterparty") to use the Equity Swap Facility to
purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
TCI Ventures Group Series A Stock with an aggregate purchase price of
up to $300 million. TCI Group has the right, but not the obligation, to
purchase Equity Swap Shares through the September 30, 2000 termination
date of the Equity Swap Facility. During such period, TCI Group is to
settle periodically any increase or decrease in the market value of the
Equity Swap Shares. If the market value of the Equity Swap Shares
exceeds the Counterparty's cost, Equity Swap Shares with a fair value
equal to the difference between the market value and cost will be
segregated from the other Equity Swap Shares. If the market value of
Equity Swap Shares is less than the Counterparty's cost, TCI Group, at
its option, will settle such difference with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock or, subject to certain
conditions, with cash or letters of credit. In addition, TCI Group is
required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap
Shares. Due to TCI Group's ability to issue shares to settle periodic
price fluctuations and fees under the Equity Swap Facility, TCI Group
records all amounts received or paid under this arrangement as
increases or decreases, respectively, to equity. As of June 30, 1998,
the Equity Swap Facility had acquired 4,935,780 shares of TCI Group
Series A Stock and 1,151,800 shares of TCI Ventures Group Series A
Stock at an aggregate cost that was approximately $48 million less than
the fair value of such Equity Swap Shares at June 30, 1998. The costs
and benefits associated with the TCI Group Series A Stock held by the
Equity Swap Facility are attributed to TCI Group.
(continued)
I-66
<PAGE> 68
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Stock Repurchases
During the six months ended June 30, 1998, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 66,041
shares of TCI Group Series A Stock at an aggregate cost of $2 million.
Such stock repurchases are reflected as an increase of combined deficit
in the accompanying combined financial statements.
Stock Options and Stock Appreciation Rights
TCI Group records stock compensation expense relating to restricted
stock awards, options and/or stock appreciation rights granted by TCI
to certain TCI employees and/or directors who are involved with the TCI
Group. Estimated compensation relating to stock appreciation rights
("SARs") has been recorded through June 30, 1998, and is subject to
future adjustment based upon vesting and market values, and ultimately,
on the final determination of market values when such rights are
exercised. The payable arising from the compensation related to the
options and/or stock appreciation rights is included in the amount due
from related parties.
(12) Transactions with Liberty Media Group, TCI Ventures Group and Other
Related Parties
The components of due to (from) related parties are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in millions
<S> <C> <C>
Notes receivable from Liberty Media Group,
including accrued interest (a) $ (84) (378)
TINTA Note Payable (b) 5 89
Intercompany account (c) (458) (241)
------------ ------------
$ (537) (530)
============ ============
</TABLE>
--------------------
(a) Amounts outstanding under the notes receivable from the
Liberty Media Group bear interest at 6.5%. Collections of
principal and interest on notes receivable from Liberty Media
Group during the six months ended June 30, 1998 aggregated
approximately $301 million.
(b) Amounts outstanding under TCI's note payable to TINTA (the
"TINTA Note Payable") bear interest at variable rates based on
TCI's weighted average cost of bank borrowings of similar
maturities (6.4% at June 30, 1998). Principal and interest is
due and payable as mutually agreed from time to time by TCI
and TINTA. During the six months ended June 30, 1998 and 1997,
interest expense related to the TINTA Note Payable aggregated
$2 million and $4 million, respectively.
(continued)
I-67
<PAGE> 69
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) The non-interest bearing intercompany account includes certain
income tax and stock compensation allocations that are to be
settled at some future date. All other amounts included in the
intercompany account are to be settled within thirty days
following notification. Through September 10, 1997, the date of
the TCI Ventures Exchange, the effects of all transactions with
TCI Ventures Group, except for those related to the TINTA Note
Payable, were reflected as adjustments to TCI Group's combined
deficit.
On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
(the "DMX Merger"). Simultaneously with the DMX Merger, substantially
all of TCI's controlling ownership interest in TCI Music was
transferred from TCI Group to Liberty Media Group in exchange for an
$80 million promissory note (the "Music Note") and an agreement to
reimburse TCI for any amounts TCI pays pursuant to its contingent
obligation pursuant to a Rights Agreement (the "Rights Agreement") to
purchase up to 14,896,648 shares (6,812,393 of which are owned by
subsidiaries of TCI) of TCI Music common stock at a price of $8.00 per
share. TCI will settle its obligation under the Rights Agreement during
the third quarter of 1998 by paying $8.00 per share to all holders who
tender TCI Music common stock and the associated rights to TCI in
accordance with the terms of the Rights Agreement. Liberty Media Group
will reimburse TCI Group for the amount required to satisfy such
obligation. The Music Note may be reduced by the payment of cash or the
issuance by TCI of shares of Liberty Group Stock for the benefit of
entities included within TCI Group. Additionally, Liberty Media Group
may elect to pay $50 million of the Music Note by delivery of a Stock
Appreciation Rights Agreement that will give TCI Group the right to
receive 20% of the appreciation in value of Liberty Media Group's
investment in TCI Music, to be determined at July 11, 2002.
TCI Group has provided a revolving loan facility (the "Ventures
Intergroup Credit Facility") to TCI Ventures Group for a five-year
period commencing on September 10, 1997. Such facility permits
aggregate outstanding borrowings at any one time of up to $500 million
(subject to reduction as provided below), which borrowings bear
interest at a rate per annum equal to The Bank of New York's prime rate
(as in effect from time to time) plus 1% per annum, payable quarterly.
A commitment fee equal to 3/8% per annum of the average unborrowed
availability under the Ventures Intergroup Credit Facility is payable
by TCI Ventures Group to TCI Group on a quarterly basis. Such
commitment fee was $1 million for the six months ended June 30, 1998.
The maximum amount of borrowings permitted under the Ventures
Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
by up to $300 million if and to the extent that the aggregate amount of
any additional capital that TCI Ventures Group is required to
contribute to certain specified partnerships subsequent to the
September 10, 1997 consummation of the Exchange Offers is less than
$300 million. No borrowings were outstanding pursuant to the Ventures
Intergroup Credit Facility at June 30, 1998.
(continued)
I-68
<PAGE> 70
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain TCI corporate general and administrative costs are charged to
Liberty Media Group and TCI Ventures Group at rates set at the
beginning of the year based on projected utilization for that year. The
utilization-based charges are set at levels that management believes to
be reasonable and that approximate the costs Liberty Media Group and
TCI Ventures Group would incur for comparable services on a stand-alone
basis. During the six months ended June 30, 1998 and 1997, Liberty
Media Group was allocated $2 million and $1 million, respectively, and
TCI Ventures Group was allocated $6 million and $4 million,
respectively, in corporate general and administrative costs by TCI
Group. Such amounts are included in selling, general and administrative
expenses in the accompanying combined financial statements.
During 1996, TCI Group transferred, subject to regulatory approval,
certain distribution equipment to a subsidiary of TINTA in exchange for
a (pound)15 million ($23 million using the applicable exchange rate)
principal amount promissory note (the "TVG LLC Promissory Note"). The
TVG LLC Promissory Note was contributed by TCI Group to TCI Ventures
Group in connection with the September 10, 1997 consummation of the
Exchange Offers. The distribution equipment was subsequently leased
back to TCI Group over a five year term with semi-annual payments of $2
million, plus expenses. Effective October 1, 1997, such distribution
equipment was transferred back to TCI Group and the related lease and
the TVG LLC Promissory Note were canceled. During the six months ended
June 30, 1997, (i) the U.S. dollar equivalent of interest income earned
with respect to the TVG LLC Promissory Note was $1 million and (ii) the
U.S. dollar equivalent of the lease expense under the above-described
lease agreement aggregated $2 million.
Through June 30, 1997, TCI Group had a 50.1% partnership interest in
QE+Ltd. ("QE+"), a limited partnership interest which distributes
"STARZ!," a first-run movie premium programming service. Entities
attributed to Liberty Media Group held the remaining 49.9% partnership
interest. Also prior to July 1, 1997, Encore Media Corporation ("EMC")
(at the time a 90%-owned subsidiary of TCI and a member of Liberty
Media Group) earned management fees from QE+ equal to 20% of managed
costs, as defined. In addition, Liberty Media Group earned a fee for
certain services provided to QE+ equal to 4% of the gross revenue of
QE+ ("STARZ Content Fees"). Such management fees and STARZ Content Fees
aggregated $4 million for the six months ended June 30, 1997 and are
included in operating costs and expenses in the accompanying combined
financial statements. In addition, during the six months ended June 30,
1997, QE+ provided $7 million of programming services to an entity
attributed to TCI Ventures Group. Such amount is included in revenue in
the accompanying combined financial statements.
Subsequent to June 30, 1997, TCI Group and Liberty Media Group entered
into a series of transactions pursuant to which the businesses of
"Encore," a movie premium programming service, and "STARZ!" were
contributed to Encore Media Group, a subsidiary of TCI that is
attributed to the Liberty Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of QE+ were no longer included in
the combined financial results of TCI Group. In connection with the
foregoing transactions, Liberty Media Group issued a note payable to
TCI Group (which note was paid in full during the first quarter of
1998) and TCI Group entered into a 25 year affiliation agreement with
Encore Media Group (the "EMG Affiliation Agreement") pursuant to which
TCI Group pays monthly fixed amounts in exchange for unlimited access
to all of the existing Encore and STARZ!
services.
(continued)
I-69
<PAGE> 71
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Group's fixed annual commitments pursuant to the EMG Affiliation
Agreement increase annually from $220 million in 1998 to $315 million
in 2003, and will increase with inflation through 2022.
A subsidiary of TCI that was attributed to TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment
was subleased to TCI Group under an operating lease. In January 1998,
TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
Ventures Group's assignment of its ownership interest in such
subsidiary to TCI Group. Due to the related party nature of the
transaction, the $50 million total of the cash payment and the
historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $176 million) has been reflected
as an increase to TCI Group's combined deficit.
Pursuant to an agreement between TCI Music and TCI Group, certain
entities within TCI Group are required to deliver to TCI Music monthly
revenue payments aggregating $18 million annually (adjusted annually
for inflation) through 2017. During the six months ended June 30, 1998,
the aggregate amount paid by TCI Group to TCI Music pursuant to such
arrangement was $9 million. Such amount is included as a reduction of
revenue in the accompanying combined statements of operations.
Encore Media Group and certain other TCI subsidiaries attributed to
Liberty Media Group produce and/or distribute programming to cable
television operators (including TCI Group) and others. Charges to TCI
Group, which are based upon customary rates charged to others,
aggregated $110 million and $31 million for the six months ended June
30, 1998 and 1997, respectively. Such amounts are included in operating
costs and expenses in the accompanying combined statements of
operations.
Entities included in TCI Group lease satellite transponder facilities
and receive video transport services from entities included in TCI
Ventures Group. Charges by TCI Ventures Group for such arrangements and
other related operating expenses for the six months ended June 30, 1998
and 1997, aggregated $6 million and $14 million, respectively. Such
amounts are included in operating costs and expenses in the
accompanying combined statements of operations.
In addition, a subsidiary attributed to TCI Ventures Group distributed
certain program services to TCI Group. Charges to TCI Group for such
services aggregated $4 million for each of the six months ended June
30, 1998 and 1997, and are included in operating costs and expenses in
the accompanying combined financial statements.
TCI Group distributed certain program services to a subsidiary
attributed to TCI Ventures Group. The charges, which approximate TCI
Group's cost, aggregated $3 million in each of the six month periods
ended June 30, 1998 and 1997. Amounts received by TCI Group pursuant to
this agreement are included in operating costs and expenses in the
accompanying combined financial statements.
(continued)
I-70
<PAGE> 72
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(13) Transactions with Officers and Directors
On June 16, 1997, TCI Group exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI
Group Series B Stock owned by the Estate of Bob Magness (the "Magness
Estate"), the late founder and former Chairman of the Board of TCI.
Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
shares of TCI Group Series A Stock received in the Exchange, together
with approximately 1.5 million shares of TCI Group Series A Stock that
the Magness Estate previously owned (collectively, the "Option
Shares"), to two investment banking firms (the "Investment Bankers")
for approximately $530 million (the "Sale Price"). Subsequent to the
Sale, TCI entered into an agreement with the Investment Bankers whereby
TCI has the option, but not the obligation, to purchase the Option
Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, TCI Group and the Investment
Bankers are to settle quarterly any increase or decrease in the market
value of the Option Shares. If the market value of the Option Shares
exceeds the Investment Bankers' cost, Option Shares with a fair value
equal to the difference between the market value and cost will be
segregated from the other Option Shares in an account at the Investment
Bankers. If the market value of the Option Shares is less than the
Investment Bankers' cost, TCI Group, at its option, will settle such
difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, TCI Group is required to pay the
Investment Bankers a quarterly fee equal to LIBOR plus 1% on the Sale
Price, as adjusted for payments made by TCI Group pursuant to any
quarterly settlement with the Investment Bankers. Due to TCI Group's
ability to settle quarterly price fluctuations and fees with shares of
TCI Group Series A Stock or TCI Ventures Group Series A Stock, TCI
Group records all amounts received or paid under this arrangement as
increases or decreases, respectively, to equity. During the fourth
quarter of 1997, TCI Group repurchased 4,000,000 shares of TCI Group
Series A Stock from one of the Investment Bankers for an aggregate cash
purchase price of $66 million. Additionally, as a result of the
Exchange Offers and certain open market transactions, the Investment
Bankers disposed of 4,210,308 shares of TCI Group Series A Stock and
acquired 23,407,118 shares of TCI Ventures Group Series A Stock during
the last half of 1997. As a result of the foregoing transactions and
certain transactions related to the January 5, 1998 settlement of
litigation involving the Magness Estate, as described below, the Option
Shares were comprised of 6,201,042 shares of TCI Group Series A Stock
and 11,740,610 shares of TCI Ventures Group Series A Stock at June 30,
1998. At June 30, 1998, the market value of the Option Shares exceeded
the Investment Bankers' cost by $275 million. The costs and benefits
associated with the Option Shares are attributed to TCI Group.
(continued)
I-71
<PAGE> 73
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
Chairman and Chief Executive Officer, agreed to forgo the exercise of
certain option rights and in consideration, TCI granted to Dr. Malone
the right (the "Malone Right") to acquire 30,545,864 shares of TCI
Group Series B Stock.
On January 5, 1998, TCI Group announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness
Estate.
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A
Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
returned to TCI as authorized but unissued shares, and the Magness
Estate paid $11 million to TCI representing a reimbursement of the
Exchange fees incurred by TCI from June 16, 1997 through February 9,
1998 with respect to such returned shares. TCI then issued to the
Magness Estate 10,017,145 shares of TCI Group Series B Stock and
12,034,298 shares of TCI Ventures Series B Stock.
On February 9, 1998, in connection with the Magness Settlement, TCI
Group entered into a call agreement (the "Malone Call Agreement") with
Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
"Malones"), under which the Malones granted to TCI Group the right to
acquire the Malones' high-voting shares (the "High-Voting Shares"),
currently consisting of an aggregate of approximately 60 million shares
of Series B Stock upon Dr. Malone's death or upon a contemplated sale
of the High-Voting Shares (other than a minimal amount) to third
persons. In either such event, TCI Group has the right to acquire the
shares at a maximum price equal to the then relevant market price of
shares of "low-voting" Series A Stock plus a ten percent premium. The
Malones also agreed that if TCI were ever to be sold to another entity,
then the maximum premium that the Malones would receive on their
High-Voting Shares would be no greater than a ten percent premium over
the price paid for the relevant shares of Series A Stock. TCI paid $150
million to the Malones for agreeing to the terms of the Malone Call
Agreement.
(continued)
I-72
<PAGE> 74
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Also, on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI Group for
entering into the Magness Call Agreement.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to stock dividends) that are subject to the
Malone Call Agreement and the Magness Call Agreement. TCI Group's share
of the Call Payments of $134 million was paid during the first quarter
of 1998 and is reflected as an increase of combined deficit in the
accompanying combined financial statements.
Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the
Malones and TCI under which (i) the Magness Family and the Malones
agree to consult with each other in connection with matters to be
brought to the vote of TCI's shareholders, subject to the proviso that
if they cannot mutually agree on how to vote the shares, Dr. Malone has
an irrevocable proxy to vote the High-Voting Shares owned by the
Magness Family, (ii) the Magness Family may designate a nominee for
TCI's Board of Directors and Dr. Malone has agreed to vote his High
Voting Shares for such nominee and (iii) certain "tag along rights"
have been created in favor of the Magness Family and certain "drag
along rights" have been created in favor of the Malones. In addition,
the Malone Right granted by TCI Group to Dr. Malone to acquire
30,545,864 shares of TCI Group Series B Stock was reduced to an option
to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to
the terms of the Shareholders' Agreement, the Magness Family has the
right to participate in the reduced Malone Right on a proportionate
basis with respect to 12,406,238 shares of the 14,511,570 shares
subject to the Malone Right. On June 24, 1998, Dr. Malone delivered
notice to TCI exercising his right to purchase up to 14,511,570 shares
of TCI Group Series B Stock at a per share price of $35.5875 pursuant
to the Malone Right. In addition, a representative of the Magness
Family has advised Dr. Malone that the Magness Family will participate
in such purchase up to the Magness Family's proportionate share.
Subject to final verification and agreement of each party's
proportionate share, upon the closing of the exercise of the Malone
Right, Dr. Malone would acquire 8,718,770 and the Magness Family would
acquire 5,792,800 of the shares of TCI Group Series B Stock that are
subject to the Malone Right. Such exercises are subject to any required
regulatory approvals.
(continued)
I-73
<PAGE> 75
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On April 30, 1998, TCI acquired a limited partnership interest from an
individual who is an executive officer and a director of TCI in
exchange for 153,183 shares of Liberty Group Series B Stock and a
limited partnership interest in another limited partnership with a
capital account of $1 million. TCI's issuance of such shares of Liberty
Group Series B Stock resulted in a $5 million reduction of TCI's notes
receivable from Liberty Media Group. See note 12.
(14) Income Taxes
TCI files a consolidated federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which TCI owns
less than 80% each file a separate income tax return. TCI and such
subsidiaries calculate their respective tax liabilities on a separate
return basis which are combined in the accompanying combined financial
statements.
A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
among TCI and certain subsidiaries of TCI was implemented effective
July 1, 1995. The Old Tax Sharing Agreement formalized certain of the
elements of a pre-existing tax sharing arrangement and contains
additional provisions regarding the allocation of certain consolidated
income tax attributes and the settlement procedures with respect to the
intercompany allocation of current tax attributes. Under the Old Tax
Sharing Agreement, TCI Group was responsible to TCI for its share of
consolidated income tax liabilities (computed as if TCI were not liable
for the alternative minimum tax) determined in accordance with the Old
Tax Sharing Agreement, and TCI was responsible to TCI Group to the
extent that the income tax attributes generated by TCI Group and its
attributed entities were utilized by TCI to reduce its consolidated
income tax liabilities (computed as if TCI were not liable for the
alternative minimum tax). The tax liabilities and benefits of such
entities so determined were charged or credited to an intercompany
account between TCI and TCI Group. Such intercompany account is
required to be settled only upon the date that an entity ceases to be a
member of TCI's consolidated group for federal income tax purposes.
Under the Old Tax Sharing Agreement, TCI retains the burden of any
alternative minimum tax and has the right to receive the tax benefits
from an alternative minimum tax credit attributable to any tax period
beginning on or after July 1, 1995 and ending on or before October 1,
1997.
(continued)
I-74
<PAGE> 76
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by TCI Group,
Liberty Media Group and TCI Ventures Group. Effective for periods on
and after the Effective Date, federal income taxes will be computed
based upon the type of tax paid by TCI (on a regular tax or alternative
minimum tax basis) on a separate basis for each Group. Based upon these
separate calculations, an allocation of tax liabilities and benefits
will be made such that each Group will be required to make cash
payments to TCI based on its allocable share of TCI's consolidated
federal income tax liabilities (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used
by TCI in reducing its consolidated federal income tax liability. Tax
attributes and tax basis in assets would be inventoried and tracked for
ultimate credit to or charge against each Group. Similarly, in each
taxable period that TCI pays alternative minimum tax, the federal
income tax benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for payment to
or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the utilized tax benefits would receive a cash payment only
if, and when, the unutilized taxable losses of the other Group are
actually utilized. If the unutilized taxable losses expire without ever
being utilized, the Group generating the unutilized tax benefits will
never receive payment for such benefits. Pursuant to the New Tax
Sharing Agreement, state and local income taxes are calculated on a
separate return basis for each Group (applying provisions of state and
local tax law and related regulations as if the Group were a separate
unitary or combined group for tax purposes), and TCI's combined or
unitary tax liability is allocated among the Groups based upon such
separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement, as amended.
In connection with the creation of TCI Ventures Group, the net amount
of the balance of each TCI Group intercompany account under the Old Tax
Sharing Agreement that is attributable to entities included in TCI
Ventures Group for the period beginning July 1, 1995 and ending on
September 10, 1997 (the consummation date of the TCI Ventures Exchange)
has been included in TCI Group's combined deficit. Tax liabilities and
benefits, as determined under the Old Tax Sharing Agreement, that were
generated by the entities comprising TCI Ventures Group for the period
beginning on September 10, 1997 and ending on September 30, 1997 were
credited or debited to an intercompany account between TCI Group and
TCI Ventures Group in accordance with the Old Tax Sharing Agreement.
(continued)
I-75
<PAGE> 77
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At December 31, 1997, TCI Group had net operating loss carryforwards
for income tax purposes aggregating approximately $1,425 million of
which, if not utilized to reduce taxable income in future periods, $134
million expires in 2003, $117 million in 2004, $344 million in 2005,
$245 million in 2006, $19 million in 2009, $147 million in 2010, $231
million in 2011 and $188 million in 2012. Certain subsidiaries of TCI
Group had additional net operating loss carryforwards for income tax
purposes aggregating approximately $232 million and these net operating
losses are subject to certain rules limiting their usage. Pursuant to
the Old and New Tax Sharing Agreements, TCI Group has been credited
with approximately $75 million of net operating loss carryforwards that
are in addition to the amounts disclosed above. TCI is responsible to
TCI Group to the extent TCI Group's net operating loss carryforwards
are utilized by TCI in future periods.
(15) Commitments and Contingencies
On October 5, 1992, the United States Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). In 1993 and 1994, the Federal Communications Commission
(the "FCC") adopted certain rate regulations required by the 1992 Cable
Act and imposed a moratorium on certain rate increases. As a result of
such actions, TCI Group's basic and tier service rates and its
equipment and installation charges (the "Regulated Services") are
subject to the jurisdiction of local franchising authorities and the
FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and installation
charges are based on actual costs. Any rates for Regulated Services
that exceeded the benchmarks were reduced as required by the 1993 and
1994 rate regulations. The rate regulations do not apply to the
relatively few systems which are subject to "effective competition" or
to services offered on an individual service basis, such as premium
movie and pay-per-view services.
TCI Group believes that it has complied in all material respects with
the provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCI Group's rates for Regulated Services are
subject to review by the FCC, if a complaint is filed by a customer, or
the appropriate franchise authority, if such authority has been
certified by the FCC to regulate rates. If, as a result of the review
process, a system cannot substantiate its rates, it could be required
to retroactively reduce its rates to the appropriate benchmark and
refund the excess portion of rates received. Any refunds of the excess
portion of tier service rates would be retroactive to the date of
complaint. Any refunds of the excess portion of all other Regulated
Service rates would be retroactive to one year prior to the
implementation of the rate reductions.
(continued)
I-76
<PAGE> 78
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $203 million at June 30, 1998. With respect to TCI
Group's guarantees of $166 million of such obligations, TCI Group has
been indemnified for any loss, claim or liability that TCI Group may
incur, by reason of such guarantees. As described in note 7, TCI Group
also has provided certain credit enhancements with respect to the 1998
Joint Ventures. TCI Group also has guaranteed the performance of
certain affiliates and other parties with respect to such parties'
contractual and other obligations. Although there can be no assurance,
management of TCI Group believes that it will not be required to meet
its obligations under such guarantees, or if it is required to meet any
of such obligations, that they will not be material to TCI Group.
TCI Group is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output, distribution
and license agreements. As of June 30, 1998, the amount of such
obligations or guarantees was approximately $272 million. The future
obligations of TCI Group with respect to these agreements is not
currently determinable because such amount is dependent upon the number
of qualifying films released theatrically by certain motion picture
studios as well as the domestic theatrical exhibition receipts upon the
release of such qualifying films.
As described in note 12, TCI Group has agreed to make fixed monthly
payments through 2022 to Liberty Media Group pursuant to the EMG
Affiliation Agreement.
TCI Group is a party to affiliation agreements with programming
suppliers. Pursuant to certain of such agreements, TCI Group is
committed to carry such suppliers' programming on its cable systems.
Additionally, certain of such agreements provide for penalties and
charges in the event the programming is not carried or not delivered to
a contractually specified numbers of customers.
TCI Group is committed to purchase billing services pursuant to three
successive five year agreements. Pursuant to such arrangement, TCI
Group is obligated at June 30, 1998 to make minimum payments
aggregating approximately $1.6 billion through 2012. Such minimum
payments are subject to inflation and other adjustments pursuant to the
terms of the underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated at June 30, 1998 to make minimum revenue payments through
2017 and minimum license fee payments through 2007 aggregating
approximately $419 million to TCI Music. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.
TCI Group has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it
is reasonably possible TCI Group may incur losses upon conclusion of
such matters, an estimate of any loss or range of loss cannot be made.
In the opinion of management, it is expected that amounts, if any,
which may be required to satisfy such contingencies will not be
material in relation to the accompanying combined financial statements.
(continued)
I-77
<PAGE> 79
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
other cable operators that may be designated from time to time by NDTC
("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation
(formerly NextLevel Systems, Inc., "GI") to purchase advanced digital
set-top devices. The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and
interoperable with the OpenCable(TM) architecture specifications
adopted by CableLabs, the cable television industry's research and
development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million
set-top devices during calendar years 1998, 1999 and 2000 at an average
price of $318 per basic set-top device. Through June 30, 1998,
approximately 525,000 set-top devices had been purchased pursuant to
this commitment. GI agreed to provide NDTC and its Approved Purchasers
the most favorable prices, terms and conditions made available by GI to
any customer purchasing advanced digital set-top devices. In connection
with NDTC's purchase commitment, GI agreed to grant warrants to
purchase its common stock proportional to the number of devices ordered
by each organization, which as of the effective date of the Digital
Terminal Purchase Agreement, would have represented at least a 10%
equity interest in GI (on a fully diluted basis). Such warrants vest as
annual purchase commitments are met. It is anticipated that the value
associated with such equity interest would be attributed to TCI Group
upon purchase and deployment of the digital set-top devices. See note
2. NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, GI fails to meet a material
milestone designated in the Digital Terminal Purchase Agreement with
respect to the development, testing and delivery of advanced digital
set-top devices.
TCI Group has entered into an Operating Lease Agreement (the "Lease")
with an unaffiliated third party (the "Lessor"). Under the Lease, TCI
Group agreed to sell to, and lease back from, the Lessor advanced
digital set-top devices with an initial aggregate net cost of up to
$400 million. The initial term of the Lease is two years, and it
provides for renewal, at TCI Group's option, for up to five additional
consecutive one-year terms. Rent under the lease is payable quarterly.
At the end of the originally scheduled or renewed lease term, TCI Group
is required to either (i) purchase the equipment at the Termination
Value (as defined in the Lease), or (ii) arrange for the sale of the
leased equipment to a third party and pay the Lessor the difference
between the sale price and a predetermined guaranteed value, which in
all cases is less than the Termination Value. As of June 30, 1998, TCI
Group has sold and leased back advanced digital set-top devices under
the Lease with an aggregate cost of $107 million. Current annual lease
payments with respect to such leased equipment are $16 million. TCI
Group has treated the Lease as an operating lease in the accompanying
combined financial statements.
During the six months ended June 30, 1998, TCI continued its
enterprise-wide comprehensive efforts to review and correct computer
systems, equipment and related software to ensure they properly
recognize, process and store business information. The computer
systems, equipment and software being evaluated include systems which
are integral to the distribution of TCI Group's products and services,
systems that support operations of TCI Group and protect its assets,
and all internal use software. TCI Group is utilizing both internal and
external resources, including the establishment of a year 2000
enterprise program management office accountable to TCI's executive
management, to identify and remediate or replace systems for year 2000
readiness.
(continued)
I-78
<PAGE> 80
"TCI GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
During the six months ended June 30, 1998, TCI Group began the process
of testing and replacing or remediating critical components of its
cable systems' headend equipment. Although no assurance can be given,
TCI Group expects to conclude such testing by December 1998 with
replacement or remediation completed by the end of the first quarter of
1999. Also, TCI Group began the process of remediating systems that
control the commercial advertising in its cable operations. Although no
assurance can be given, those remediation efforts should be complete by
mid-1999. TCI Group continued to assess potential year 2000 issues of
its affiliated companies and provided its affiliates with remediation
information on software products and systems. TCI Group's business and
financial systems and software which will continue to be utilized by
TCI Group beyond the year 1999 will be capable of recognizing the year
2000 and therefore should not require material remediation or
replacement.
Significant third party vendors whose systems are critical to TCI
Group's cable operations have been identified and surveyed and
confirmations from such parties have been received indicating that they
are either year 2000 ready or have plans in place to become ready.
During the six months ended June 30, 1998, TCI Group completed an
independent assessment of a key financial application externally
managed by a third party vendor and determined that such vendor's
systems and software should be compliant by the end of 1998. Also, TCI
Group has developed and initiated a plan with key suppliers who provide
systems which are integral to the distribution of TCI Group's products
and services to upgrade or replace non-year 2000 compliant systems on a
product-by-product and site-by-site basis by mid-1999.
Management of TCI Group intends to have further communication with
primary vendors identified as having systems that are not year 2000
compliant to assess those vendors' plans for remediating their own year
2000 issues and to assess the impact on TCI Group if such vendors fail
to remediate their year 2000 issues. TCI Group continues to evaluate
the level of validation it will require of third parties to ensure
their year 2000 readiness.
Management of TCI has not yet determined the full cost associated with
its year 2000 readiness efforts and the related potential impact on
TCI's financial position, results of operations or cash flows but has
identified certain cost elements that, in the aggregate, are not
expected to be less than $63 million, which includes $3 million of
program management expenses incurred during the six months ended June
30, 1998. TCI Group's allocable share of such cost elements is
estimated to be not less than $47 million. Although there can be no
assurance, TCI Group anticipates that the costs ultimately required to
be paid to ensure TCI Group's year 2000 readiness will not have a
material adverse effect on TCI Group's financial position, results of
operations or cash flows. However, there can be no assurance that TCI
Group's systems or the systems of other companies on which TCI Group
relies will be converted in time or that any such failure to convert by
TCI Group or other companies will not have a material adverse effect on
its financial position, results of operations or cash flows.
I-79
<PAGE> 81
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Assets amounts in thousands
<S> <C> <C>
Cash and cash equivalents $ 33,679 40,871
Restricted cash (note 8) 9,466 4,527
Trade and other receivables, net 53,074 39,963
Prepaid program rights 119,774 104,219
Committed film inventory 132,422 114,658
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 5) 1,258,285 538,149
Investment in Time Warner, Inc. ("Time Warner") (note 6) 4,875,230 3,537,841
Other investments, at cost, and related
receivables (note 7) 400,822 401,810
Property and equipment, at cost:
Land -- 39
Support equipment and buildings 44,267 41,478
------------ ------------
44,267 41,517
Less accumulated depreciation 14,968 13,954
------------ ------------
29,299 27,563
------------ ------------
Excess cost over acquired net assets 212,817 203,300
Less accumulated amortization 18,375 9,057
------------ ------------
194,442 194,243
------------ ------------
Other assets, at cost, net of amortization 28,731 24,371
------------ ------------
$ 7,135,224 5,028,215
============ ============
</TABLE>
(continued)
I-80
<PAGE> 82
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
Liabilities and Combined Equity amounts in thousands
<S> <C> <C>
Accounts payable and accrued liabilities $ 90,252 69,367
Accrued stock compensation (note 10) 82,875 68,846
Program rights payable 177,005 156,351
Deferred option premium (note 6) -- 305,742
Debt (note 8) 981,395 348,590
Deferred income taxes 1,571,355 1,042,762
Other liabilities 2,064 2,060
------------ ------------
Total liabilities 2,904,946 1,993,718
------------ ------------
Minority interests in equity of attributed subsidiaries 103,501 101,000
Obligation to redeem Liberty Group Stock (note 9) 16,222 --
Combined equity (note 9):
Combined equity 2,082,249 1,690,256
Accumulated other comprehensive earnings, net of
taxes (note 1) 1,543,100 734,649
------------ ------------
3,625,349 2,424,905
Due to related parties 485,206 508,592
------------ ------------
Total combined equity 4,110,555 2,933,497
------------ ------------
Commitments and contingencies (notes 2, 9 and 10) $ 7,135,224 5,028,215
============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-81
<PAGE> 83
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
amounts in thousands,
except per share amounts
<S> <C> <C> <C> <C>
Revenue:
Related parties (note 9) $ 69,700 24,127 141,408 46,638
Others 95,325 35,545 180,287 72,393
------------ ------------ ------------ ------------
165,025 59,672 321,695 119,031
------------ ------------ ------------ ------------
Operating costs and expenses:
Operating 89,961 19,903 169,700 39,429
Selling, general and administrative 52,069 24,768 94,143 37,232
Charges from related parties (note 9) 6,536 2,354 13,886 4,433
Stock compensation (notes 9 and 10) 62,306 14,466 138,436 20,040
Depreciation and amortization 8,119 776 15,907 1,555
------------ ------------ ------------ ------------
218,991 62,267 432,072 102,689
------------ ------------ ------------ ------------
Operating income (loss) (53,966) (2,595) (110,377) 16,342
Other income (expense):
Interest expense to related party (note 9) (1,143) -- (6,874) --
Other interest expense (9,787) (306) (13,329) (611)
Dividend and interest income 13,393 8,212 26,755 19,247
Share of earnings (losses) of affiliates, net (note 5) (49,021) 5,739 (71,020) 12,975
Minority interests in earnings of attributed subsidiaries (1,601) (2,295) (762) (11,909)
Gain on disposition of assets (note 6) 789 581 515,307 581
Gain on issuance of equity interests by
affiliate (note 5) -- -- 23,460 --
Loss on early extinguishment of debt -- (320) -- (320)
Other, net (8) 6 (115) 115
------------ ------------ ------------ ------------
(47,378) 11,617 473,422 20,078
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (101,344) 9,022 363,045 36,420
Income tax benefit (expense) 36,727 (2,481) (124,521) (14,267)
------------ ------------ ------------ ------------
Net earnings (loss) $ (64,617) 6,541 238,524 22,153
============ ============ ============ ============
Basic earnings (loss) attributable to common
stockholders per common share (note 3) $ (.18) .02 .67 .06
============ ============ ============ ============
Diluted earnings (loss) attributable to common stockholders
per common share (note 3) $ (.18) .02 .61 .05
============ ============ ============ ============
Comprehensive earnings (note 1) $ 405,149 6,593 1,046,975 22,205
============ ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-82
<PAGE> 84
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statement of Equity
Six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Accumulated other
comprehensive Due to Total
Combined earnings, related combined
equity net of taxes parties equity
------------ ------------ ------------ ------------
amounts in thousands
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 1,690,256 734,649 508,592 2,933,497
Net earnings 238,524 -- -- 238,524
Payments for call agreements (63,521) -- -- (63,521)
Purchase of Liberty Group Stock (8,265) -- -- (8,265)
Issuance of Liberty Group Stock 173,164 -- (5,074) 168,090
Gain, net of taxes, in connection with the
issuance of common shares by USA Networks,
Inc. ("USAI"), formerly HSN, Inc. ("HSNI")
(note 5) 64,522 -- -- 64,522
Gain in connection with the issuance of common
shares by TCI Music, Inc. ("TCI Music") 2,508 -- -- 2,508
Premium received in connection with put
obligation 1,283 -- -- 1,283
Reclassification of redemption amount of
Liberty Group Stock subject to put obligation (16,222) -- -- (16,222)
Change in due to related parties -- -- (18,312) (18,312)
Change in unrealized holding gains on
available-for-sale securities -- 808,451 -- 808,451
------------ ------------ ------------ ------------
Balance at June 30, 1998 $ 2,082,249 1,543,100 485,206 4,110,555
============ ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-83
<PAGE> 85
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------ ------------
amounts in thousands
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 238,524 22,153
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 15,907 1,555
Stock compensation 138,436 20,040
Payments of stock compensation (2,062) --
Share of losses (earnings) of affiliates, net 71,020 (12,975)
Deferred income tax benefit (42,172) (8,638)
Intergroup tax allocation 166,467 21,992
Minority interests in earnings of attributed subsidiaries 762 11,909
Gain on disposition of assets (515,307) (581)
Gain on issuance of equity interests by affiliate (23,460) --
Loss on early extinguishment of debt -- 320
Noncash interest expense 2,480 --
Changes in operating assets and liabilities, net of acquisitions:
Change in receivables (13,934) 1,882
Change in inventories (608) --
Change in prepaid expenses (34,439) 1,449
Change in payables and accruals 24,904 9,954
------------ ------------
Net cash provided by operating activities 26,518 69,060
------------ ------------
Cash flows from investing activities:
Cash proceeds from dispositions 215,265 581
Cash paid for acquisitions (10,112) --
Capital expended for property and equipment (7,163) (705)
Investments in and loans to affiliates and others (498,207) (15,405)
Return of capital from affiliates 5,326 11,700
Other investing activities (3,457) 650
------------ ------------
Net cash used by investing activities (298,348) (3,179)
------------ ------------
Cash flows from financing activities:
Borrowings of debt 878,920 2,020
Repayments of debt (247,293) (3,640)
Change in restricted cash (4,939) --
Contribution for issuance of Liberty Group Stock -- 2,054
Purchase of Liberty Group Stock (8,265) (13,256)
Premium received on put contracts 1,283 --
Cash transfers to related parties (291,514) (10,750)
Payments for call agreements (63,521) --
Contributions by minority shareholders of attributed subsidiaries -- 8
Distributions to minority shareholders of attributed subsidiaries (33) (35)
------------ ------------
Net cash provided (used) by financing activities
264,638 (23,599)
Net increase (decrease) in cash and cash equivalents (7,192) 42,282
Cash and cash equivalents at beginning of period 40,871 317,359
Cash and cash equivalents at end of period $ 33,679 359,641
============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-84
<PAGE> 86
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
June 30, 1998
(unaudited)
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
are attributed to Liberty Media Group, as defined below. All
significant intercompany accounts and transactions have been
eliminated. The combined financial statements of Liberty Media Group
are presented for purposes of additional analysis of the consolidated
financial statements of TCI and subsidiaries, and should be read in
conjunction with such consolidated financial statements.
The accompanying interim combined financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These combined financial statements should be read in conjunction with
the audited combined financial statements and notes thereto of Liberty
Media Group for the year ended December 31, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Effective January 1, 1998, Liberty Media Group adopted the provisions
of Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). Liberty Media Group has reclassified
its prior period combined balance sheet and combined statement of
operations to conform to the requirements of SFAS 130. SFAS 130
requires that all items which are components of comprehensive earnings
be reported in a financial statement in the period in which they are
recognized. Liberty Media Group has included unrealized holding gains
and losses on available-for-sale securities in other comprehensive
earnings that are recorded directly in combined equity. Pursuant to
SFAS 130, this item is reflected, net of related tax effects, as a
component of other comprehensive earnings in Liberty Media Group's
combined statements of operations, and is included in accumulated other
comprehensive earnings in Liberty Media Group's combined balance sheets
and combined statement of equity.
Certain prior period amounts have been reclassified for comparability
with the 1998 presentation.
(continued)
I-85
<PAGE> 87
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Targeted Stock
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue two new series of stock,
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series B Stock," and together
with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
Liberty Group Stock is intended to reflect the separate performance of
TCI's assets which produce and distribute programming services
("Liberty Media Group"). Additionally, the stockholders, of TCI
approved the redesignation of the previously authorized Class A and
Class B common stock into Tele-Communications, Inc. Series A TCI Group
Common Stock, par value $1.00 per share (the " TCI Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share (the "TCI Group Series B Stock", and together
with the TCI Group Series A Stock, the "TCI Group Stock"),
respectively. On August 10, 1995, TCI distributed, in the form of a
dividend, 2.25 shares of Liberty Group Stock for each four shares of
TCI Group Stock owned (the "Liberty Distribution").
Liberty Media Group's assets include businesses which provide
programming services, including production, acquisition and
distribution through all available formats and media of branded
entertainment, educational and informational programming and software,
including multimedia products. Liberty Media Group's assets also
include businesses engaged in electronic retailing, direct marketing,
advertising sales relating to programming services, infomercials and
transaction processing.
On August 28, 1997, the stockholders of TCI authorized the Board to
issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock, par value $1.00 per share (the "TCI Ventures Group Series A
Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
Ventures Group Stock"). The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is
comprised of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.
The TCI Group Stock is intended to reflect the separate performance of
TCI and its subsidiaries and assets not attributed to Liberty Media
Group or TCI Ventures Group. Such subsidiaries and assets, which are
comprised primarily of TCI's domestic cable and communications
businesses, are collectively referred to as "TCI Group". Collectively,
Liberty Media Group, TCI Ventures Group and TCI Group are referred to
as the "Groups" and individually are referred to as a "Group". The TCI
Group Series A Stock, TCI Ventures Group Series A Stock and the Liberty
Group Series A Stock are sometimes collectively referred to herein as
the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures
Group Series B Stock and Liberty Group Series B Stock are sometimes
collectively referred to herein as the "Series B Stock."
(continued)
I-86
<PAGE> 88
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and issuance of
Liberty Group Stock and TCI Ventures Group Stock did not affect the
ownership or the respective legal title to assets or responsibility for
liabilities of TCI or any of its subsidiaries. TCI and its subsidiaries
each continue to be responsible for their respective liabilities.
Holders of Liberty Group Stock are common stockholders of TCI and are
subject to risks associated with an investment in TCI and all of its
businesses, assets and liabilities. The redesignation of TCI Group
Stock and issuance of Liberty Group Stock did not affect the rights of
creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition of TCI could
affect the combined results of operations or financial condition of
Liberty Media Group and the market price of shares of Liberty Group
Stock. In addition, net losses of any portion of TCI, dividends and
distributions on, or repurchases of, any series of common stock, and
dividends on, or certain repurchases of preferred stock would reduce
funds of TCI legally available for dividends on all series of common
stock. Accordingly, Liberty Media Group financial information should be
read in conjunction with the TCI consolidated financial information.
After the Liberty Distribution, existing preferred stock and debt
securities of TCI that were convertible into or exchangeable for shares
of TCI Class A common stock were, as a result of the operation of
antidilution provisions, adjusted so that there will be delivered upon
their conversion or exchange (in addition to the same number of shares
of redesignated TCI Group Series A Stock as were theretofore issuable
thereunder) the number of shares of Liberty Group Series A Stock that
would have been issuable in the Liberty Distribution with respect to
the TCI Class A common stock issuable upon conversion or exchange had
such conversion or exchange occurred prior to the record date for the
Liberty Distribution. Options to purchase TCI Class A common stock
outstanding at the time of the Liberty Distribution were adjusted by
issuing to the holders of such options separate options to purchase
that number of shares of Liberty Group Series A Stock which the holder
would have been entitled to receive had the holder exercised such
option to purchase TCI Class A common stock prior to the record date
for the Liberty Distribution and reallocating a portion of the
aggregate exercise price of the previously outstanding options to the
newly issued options to purchase Liberty Group Series A Stock.
The issuance of shares of Liberty Group Series A Stock upon such
conversion, exchange or exercise of such convertible securities will
not result in any transfer of funds or other assets from TCI Group to
Liberty Media Group in consideration of such issuance. In the case of
the exercise of such options to purchase Liberty Group Series A Stock,
the proceeds received upon the exercise of such options will be
attributed to Liberty Media Group.
(continued)
I-87
<PAGE> 89
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The common stockholders' equity value of Liberty Media Group that, at
any relevant time, is attributed to TCI Group, and accordingly not
represented by outstanding Liberty Group Stock is referred to as
"Inter-Group Interest." Prior to consummation of the Liberty
Distribution, TCI Group had a 100% Inter-Group Interest in Liberty
Media Group. Following consummation of the Liberty Distribution, TCI
Group no longer has an Inter-Group Interest in Liberty Media Group.
Following consummation of the Liberty Distribution an Inter-Group
Interest would be created with respect to Liberty Media Group only if a
subsequent transfer of cash or other property from TCI Group to Liberty
Media Group is specifically designated by the Board as being made to
create an Inter-Group Interest or if outstanding shares of Liberty
Group Stock are purchased with funds attributable to TCI Group.
Dividends on Liberty Group Stock are payable at the sole discretion of
the Board out of the lesser of assets of TCI legally available for
dividends or the available dividend amount with respect to Liberty
Media Group, as defined. Determinations to pay dividends on Liberty
Group Stock are based primarily upon the financial condition, results
of operations and business requirements of Liberty Media Group and TCI
as a whole.
All debt incurred or preferred stock issued by TCI and its subsidiaries
is (unless the Board otherwise provides) specifically attributed to and
reflected in the combined financial statements of the Group that
includes the entity which incurred the debt or issued the preferred
stock or, in case the entity incurring the debt or issuing the
preferred stock is Tele-Communications, Inc., the TCI Group. The Board
could, however, determine from time to time that debt incurred or
preferred stock issued by entities included in a Group should be
specifically attributed to and reflected in the combined financial
statements of one of the other Groups to the extent that the debt is
incurred or the preferred stock is issued for the benefit of such other
Group.
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstance, one of the other
Groups may transfer funds to such Group. Such transfers of funds among
the Groups will be reflected as borrowings or, if determined by the
Board, in the case of a transfer from TCI Group to Liberty Media Group,
reflected as the creation of, or increase in, TCI Group's Inter-Group
Interest in Liberty Media Group or, in the case of a transfer from
Liberty Media Group to TCI Group, reflected as a reduction in TCI
Group's Inter-Group Interest in Liberty Media Group. There are no
specific criteria for determining when a transfer will be reflected as
a borrowing or as an increase or reduction in an Inter-Group Interest.
The Board expects to make such determinations, either in specific
instances or by setting generally applicable policies from time to
time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the financing needs
and objectives of the Groups, the investment objectives of the Groups,
the availability, cost and time associated with alternative financing
sources, prevailing interest rates and general economic conditions.
(continued)
I-88
<PAGE> 90
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Loans from one Group to another Group generally will bear interest at
such rates and have such repayment schedules and other terms as are
established from time to time by, or pursuant to procedures established
by, the Board. The Board expects to make such determinations, either in
specific instances or by setting generally applicable policies from
time to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the use of proceeds by
and creditworthiness of the recipient Group, the capital expenditure
plans of and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing
sources.
The combined balance sheets of a Group reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical financial statements, net loans
or advances between Groups have been and will continue to be included
as a component of each respective Group's equity.
Although any increase in TCI Group's Inter-Group Interest in Liberty
Media Group resulting from an equity contribution by TCI Group to
Liberty Media Group or any decrease in such Inter-Group Interest
resulting from a transfer of funds from Liberty Media Group to TCI
Group would be determined by reference to the market value of the
Liberty Group Series A Stock, as of the date of such transfer, such an
increase could occur at a time when such shares could be considered
undervalued and such a decrease could occur at a time when such shares
could be considered overvalued.
All financial impacts of issuances and purchases of shares of TCI Group
Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group, TCI Ventures Group or Liberty Media
Group, respectively. All financial impacts of issuances of shares of
TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
are attributed to TCI Group in respect of a reduction in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively, will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Group Stock, TCI Ventures Group Stock or
Liberty Group Stock, will be attributed entirely to TCI Group, TCI
Ventures Group or Liberty Media Group, respectively, except that
dividends or other distributions on TCI Ventures Group Stock or Liberty
Group Stock will (if at the time there is an Inter-Group Interest in
TCI Ventures Group or Liberty Media Group, respectively) result in TCI
Group being credited, and TCI Ventures Group or Liberty Media Group
being charged (in addition to the charge for the dividend or other
distribution paid), with an amount equal to the product of the
aggregate amount of such dividend or other distribution paid or
distributed in respect of outstanding shares of TCI Ventures Group
Stock or Liberty Group Stock and a fraction of the numerator of which
is the TCI Ventures Group or the Liberty Media Group "Inter-Group
Interest Fraction" and the denominator of which is TCI Ventures Group
or the Liberty Media Group "Outstanding Interest Fraction" (both as
defined). Financial impacts of repurchases of TCI Ventures Group Stock
or Liberty Group Stock, the consideration for which is charged to TCI
Group, will be to such extent reflected in the combined financial
statements of TCI Group and will result in an increase in TCI Group's
Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
respectively.
(continued)
I-89
<PAGE> 91
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Proposed Merger
TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
pursuant to, and subject to the terms and conditions set forth in, the
Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
become a wholly-owned subsidiary of AT&T and (i) each share of TCI
Group Series A Stock will be converted into .7757 of a share of common
stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
each share of TCI Group Series B Stock will be converted into .8533 of
a share of AT&T Common Stock, (iii) each share of Liberty Group Series
A Stock will be converted into one share of a newly authorized class of
AT&T common stock to be designated as the Class A Liberty Group Common
Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock") and (iv) each share of Liberty Group Series B Stock will be
converted into one share of a newly authorized class of AT&T common
stock to be designated as the Class B Liberty Group Common Stock, par
value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
together with the AT&T Liberty Class A Tracking Stock, the "AT&T
Liberty Tracking Stock"). In addition, TCI has announced its intention,
subject to stockholder approval, to combine the assets and businesses
of Liberty Media Group and TCI Ventures Group and reclassify each share
of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
Series A Stock and each share of TCI Ventures Group Series B Stock as
.52 of a share of Liberty Group Series B Stock. If such combination and
reclassification does not occur prior to the Merger, then in the Merger
each share of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock will be converted into .52 of a share of the
corresponding series of AT&T Liberty Tracking Stock. In general, the
holders of shares of AT&T Liberty Class A Tracking Stock and the
holders of shares of AT&T Liberty Class B Tracking Stock will vote
together as a single class with the holders of shares of AT&T Common
Stock on all matters presented to such stockholders, with the holders
being entitled to one-tenth (1/10th) of a vote for each share of AT&T
Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
held.
In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
Preferred Stock, Series C-TCI Group will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (132.86 shares per preferred share), (iii)
TCI's Convertible Preferred Stock Series C-Liberty Media Group (the
"Series C-Liberty Media Group Preferred Stock") will be converted into
a number of shares of AT&T Liberty Class A Tracking Stock equal to the
current conversion rate of such preferred stock (56.25 shares per
preferred share), (iv) TCI's Redeemable Convertible TCI Group Preferred
Stock, Series G will be converted into a number of shares of AT&T
Common Stock equal to .7757 times the current conversion rate of such
preferred stock (1.19 shares per preferred share) and (v) TCI's
Redeemable Convertible Liberty Media Group Preferred Stock, Series H
(the "Series H Preferred Stock") will be converted into a number of
shares of AT&T Liberty Class A Tracking Stock equal to the current
conversion rate of such preferred stock (0.590625 of a share per
preferred share).
(continued)
I-90
<PAGE> 92
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The shares of AT&T Liberty Tracking Stock to be issued in the Merger
will be a newly authorized class of common stock of AT&T which will be
intended to reflect the separate performance of the businesses and
assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
Group following the Merger will be made up of the corporations,
partnerships and other entities and interests which comprise Liberty
Media Group and TCI Ventures Group at the time of the Merger. Pursuant
to the Merger Agreement, immediately prior to the Merger, certain
assets currently held by TCI Ventures Group (including, among others,
the shares of AT&T Common Stock received in the merger of AT&T and
Teleport Communications Group, Inc., the stock of At Home Corporation
held by TCI Ventures Group and the assets and business of the National
Digital Television Center, Inc.) will be transferred to TCI Group in
exchange for approximately $5.5 billion in cash. Also, upon
consummation of the Merger, Liberty/Ventures Group will become entitled
to the benefit of all of the net operating loss carryforwards available
to the entities included in TCI's consolidated income tax return as of
the date of the Merger. Additionally, certain warrants currently
attributed to TCI Group will be transferred to Liberty/Ventures Group
in exchange for up to $176 million in cash. Certain agreements to be
entered into at the time of the Merger as contemplated by the Merger
Agreement will, among other things, provide preferred vendor status to
Liberty/Ventures Group for digital basic distribution on AT&T's systems
of new programming services created by Liberty/Ventures Group and its
affiliates, provide for a renewal of existing affiliation agreements
and provide for the business of the Liberty/Ventures Group to continue
to be managed following the Merger by certain members of TCI's
management who currently manage the businesses of Liberty Media Group
and TCI Ventures Group.
If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
stockholders to approve the Merger prior to March 31, 1999, (ii) the
withdrawal or modification by the AT&T Board of Directors of its
approval of the transaction, or (iii) the failure to obtain necessary
governmental and regulatory approvals by September 30, 1999, which
failure occurs as a result of the announcement by AT&T of a significant
transaction which delays receipt of such governmental approvals AT&T
will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
the Merger Agreement due to the failure of TCI stockholders to approve
the transaction prior to March 31, 1999 or the withdrawal or
modification by the TCI Board of Directors of its approval of the
Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.
Consummation of the Merger is subject to the satisfaction or waiver of
customary conditions to closing, including but not limited to, the
separate approvals of the stockholders of AT&T and TCI, receipt of all
necessary governmental consents and approvals, and effectiveness of the
registration statement registering the AT&T Common Stock and AT&T
Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
As a result, there can be no assurance that the Merger will be
consummated or, if the Merger is consummated, as to the date of such
consummation.
(3) Earnings Per Common and Potential Common Share
Basic earnings per share ("EPS") is measured as the income or loss
available to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted EPS is similar to
basic EPS but presents the dilutive effect on a per share basis of
potential common shares as if they had been converted at the beginning
of the periods presented. Potential common shares that have an
anti-dilutive effect are excluded from diluted EPS.
(continued)
I-91
<PAGE> 93
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The basic earnings (loss) attributable to Liberty Media Group common
stockholders per common share for the three months and six months ended
June 30, 1998 and 1997 was computed by dividing earnings (loss)
attributable to Liberty Media Group common stockholders by the weighted
average number of common shares outstanding of Liberty Group Stock
during the period.
The diluted earnings attributable to Liberty Media Group common
stockholders per common and potential common share for the six months
ended June 30, 1998 and the three months and six months ended June 30,
1997 was computed by dividing earnings attributable to Liberty Media
Group common stockholders by the weighted average number of common and
potential common shares outstanding of Liberty Group Stock during the
period. Shares issuable upon conversion of the Series C-Liberty Media
Group Preferred Stock, the Convertible Preferred Stock, Series D (the
"Series D Preferred Stock"), the Series H Preferred Stock, convertible
notes payable, stock options and other performance awards have been
included in the computation of weighted average shares, as illustrated
below. Numerator adjustments for dividends and interest associated with
the convertible preferred shares and convertible notes payable,
respectively, were not made to the computation of diluted earnings per
share as such dividends and interest are paid or payable by TCI Group.
The diluted loss attributable to Liberty Media Group common
stockholders per common share for the three months ended June 30, 1998
was computed by dividing the net loss attributable to Liberty Media
Group common stockholders by the weighted average number of common
shares outstanding of Liberty Group Stock during the period. Potential
common shares were not included in the computation of weighted average
shares outstanding because their inclusion would be anti-dilutive.
No material changes in the weighted average outstanding shares or
potential common shares occurred after June 30, 1998.
(continued)
I-92
<PAGE> 94
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Information concerning the reconciliation of basic EPS to dilutive EPS
with respect to Liberty Group Stock is presented below:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
amounts in thousands, except per share amounts
<S> <C> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to
common stockholders $ (64,617) 6,541 238,524 22,153
============== ============== ============== ==============
Weighted average common shares 357,751 374,504 356,296 374,435
============== ============== ============== ==============
Basic earnings (loss) per share
attributable to common stockholders $ (.18) .02 .67 .06
============== ============== ============== ==============
Diluted EPS:
Earnings (loss) attributable to
common stockholders $ (64,617) 6,541 238,524 22,153
============== ============== ============== ==============
Weighted average common shares 357,751 374,504 356,296 374,435
============== ============== -------------- --------------
Add dilutive potential common shares:
Employee and director options and
other performance awards -- 3,635 7,719 3,436
Convertible notes payable -- 19,605 19,417 19,605
Series C-Liberty Media Group
Preferred Stock -- 3,970 3,970 3,970
Series D Preferred Stock -- 5,599 -- 5,599
Series H Preferred Stock -- 3,953 3,879 3,953
-------------- -------------- -------------- --------------
Dilutive potential common shares -- 36,762 34,985 36,563
-------------- -------------- -------------- --------------
Diluted weighted average common shares 357,751 411,266 391,281 410,998
============== ============== ============== ==============
Diluted earnings (loss) per share
attributable to common stockholders $ (.18) .02 .61 .05
============== ============== ============== ==============
</TABLE>
(4) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $17,649,000 and $612,000 for the six months
ended June 30, 1998 and 1997, respectively. Cash paid for income taxes
during the six months ended June 30, 1998 and 1997 was not material.
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Cash paid for acquisitions is as follows:
Fair value of assets acquired $ 14,617 --
Net liabilities assumed (1,718) --
Minority interests in equity of acquired entities (279) --
Gain in connection with the issuance of common
shares by TCI Music (2,508) --
------------ ------------
Cash paid for acquisitions $ 10,112 --
============ ============
</TABLE>
(continued)
I-93
<PAGE> 95
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------------
1998 1997
---------------- ----------------
amounts in thousands
<S> <C> <C>
Issuance of Liberty Group Stock in exchange for common stock
of affiliate (note 5) $ 168,090 --
================ ================
Noncash accretion of contingent obligation to purchase shares
of attributed subsidiary from minority holders
$ 2,425 --
================ ================
</TABLE>
(5) Investments in Affiliates
Summarized unaudited results of operations for the periods in which
Liberty Media Group used the equity method to account for such
affiliates are as follows:
Combined Operations
<TABLE>
<CAPTION>
Six Months ended June 30,
-----------------------------------
1998 1997
---------------- ----------------
amounts in thousands
<S> <C> <C>
Revenue $ 5,046,869 2,552,690
Operating selling, general and administrative expenses (4,156,502) (2,287,382)
Depreciation and amortization (554,377) (121,990)
---------------- ---------------
Operating income 335,990 143,318
Interest expense (387,020) (66,510)
Other, net (51,106) (108,489)
---------------- ---------------
Net loss $ (102,136) (31,681)
================ ===============
</TABLE>
The following table reflects the carrying value of Liberty Media
Group's investments, accounted for under the equity method, including related
receivables:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- ----------------
amounts in thousands
<S> <C> <C>
Discovery Communications, Inc. ("Discovery") $ 69,851 88,251
QVC, Inc. ("QVC") 154,760 133,920
BET Holdings, Inc. ("BET") 30,257 26,466
Courtroom Television Network ("Court") (3,157) (3,286)
Fox/Liberty Networks LLC ("Fox Sports")(a) (21,366) (21,608)
Liberty/TINTA LLC ("Liberty/TINTA") (14,927) (14,532)
Superstar/Netlink Group LLC ("Superstar/Netlink")(b) (12,514) (40,161)
Home Shopping Network, Inc. ("HSN") 146,773 118,653
USAI(c) 716,874 228,522
Your Choice TV, LLC ("YCTV") 8,609 9,316
United Video Satellite Group, Inc. ("UVSG")(d) 166,507 --
Other 16,618 12,608
---------------- ----------------
$ 1,258,285 538,149
================ ================
</TABLE>
(continued)
I-94
<PAGE> 96
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The following table reflects Liberty Media Group's share of earnings
(losses) of each of the aforementioned affiliates:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Discovery $ (18,400) 188
QVC 20,840 12,382
BET 3,791 2,813
Court 129 (3,151)
Fox Sports (a) (76,610) --
Liberty/TINTA (4,983) --
Superstar/Netlink (b) 7,492 8,014
HSN 2,036 2,295
USAI (c) 6,702 1,319
YCTV (3,299) --
UVSG (d) (1,583) --
Other (7,135) (10,885)
------------ ------------
$ (71,020) 12,975
============ ============
</TABLE>
(a) Prior to the first quarter of 1998, Liberty Media Group had no
obligation, nor intention, to fund Fox Sports. During 1998,
Liberty Media Group made the determination to provide funding
to Fox Sports based on specific transactions consummated by
Fox Sports. Consequently, Liberty Media Group's share of
losses of Fox Sports for the six months ended June 30, 1998
includes previously unrecognized losses of Fox Sports of
approximately $64 million. Losses for Fox Sports were not
recognized in prior periods due to the fact that Liberty Media
Group's investment in Fox Sports was less than zero.
(b) Effective February 1, 1998, Turner-Vision, Inc. contributed
the assets, obligations and operations of its retail C-band
satellite business to Superstar/Netlink in exchange for an
approximate 20% interest in Superstar/Netlink. As a result of
this transaction, Liberty Media Group's ownership interest in
Superstar/Netlink decreased from 50% to approximately 40%. In
connection with the dilution of Liberty Media Group's
ownership interest in Superstar/Netlink, Liberty Media Group
recognized a gain of $23 million (before deducting deferred
income tax expense of $9 million).
(continued)
I-95
<PAGE> 97
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(c) In February 1998, pursuant to an Investment Agreement among
Universal Studios, Inc. ("Universal"), HSNI, HSN and Liberty
Media Group, dated as of October 1997 and amended and restated
as of December 1997 (the "Investment Agreement"), HSNI
consummated a transaction (the "Universal Transaction")
through which USA Networks Partners, Inc., a subsidiary of
Universal, sold its 50% interest in USAI, a New York general
partnership, to HSNI and Universal contributed the remaining
50% interest in USAI and its domestic television production
and distribution operations to HSNI. Subsequent to these
transactions, HSNI was renamed USAI. In connection with the
Universal Transaction, Universal, USAI, HSN and Liberty Media
Group became parties to a number of other agreements relating
to, among other things, (i) the management of USAI, (ii) the
purchase and sale or other transfer of voting securities of
USAI, including securities convertible or exchangeable for
voting securities of USAI, and (iii) the voting of such
securities.
At the closing of the Universal Transaction, Universal was
issued approximately 6 million shares of USAI's Class B Common
Stock, approximately 7 million shares of USAI's Common Stock
and approximately 109 million common equity shares ("LLC
Shares") of USANi LLC, a limited liability company ("USANi
LLC") formed to hold all of the businesses of USAI and its
subsidiaries, except for its broadcasting business and its
equity interest in Ticketmaster Group, Inc. and received a
cash payment of $1.3 billion. Pursuant to an Exchange
Agreement relating to the LLC Shares (the "LLC Exchange
Agreement"), approximately 74 million of the LLC Shares issued
to Universal are each exchangeable for one share of USAI's
Class B Common Stock and the remainder of the LLC Shares
issued to Universal are each exchangeable for one share of
USAI's Common Stock.
At the closing of the Universal Transaction, Liberty Media
Group was issued approximately 1.2 million shares of USAI's
Class B Common Stock, representing all of the remaining shares
of USAI's Class B Common Stock issuable pursuant to Liberty
Media Group's contractual right to receive shares of Class B
common stock of USAI upon the occurrence of certain events
(the "Contingent Right"). Of such shares, 800,000 shares of
Class B Common Stock were contributed to BDTV IV Inc.
("BDTV-IV" and collectively with BDTV INC., BDTV-II INC. and
BDTV III INC, "BDTV"), a newly-formed entity having
substantially the same terms as BDTV INC., BDTV-II INC. and
BDTV III INC. (with the exception of certain transfer
restrictions) in which Liberty Media Group owns over 99% of
the equity and none of the voting power (except for protective
rights with respect to certain fundamental corporate actions)
and Barry Diller owns less than 1% of the equity and all of
the voting power. In addition, Liberty Media Group purchased
10 LLC Shares at the closing of the Universal Transaction for
an aggregate purchase price of $200.
(continued)
I-96
<PAGE> 98
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In connection with the dilution of Liberty Media Group's
ownership interest that resulted from the issuance of common
stock by USAI in the Universal Transaction, Liberty Media
Group recorded a $33 million increase to combined equity
(after deducting a deferred tax liability of $21 million) and
an increase to investments in affiliates of $54 million. On
June 24, 1998, USAI consummated the previously announced
agreement to acquire the remaining stock of Ticketmaster
Group, Inc. which it did not previously own through a tax-free
merger (the "Ticketmaster Transaction"). In connection with
the dilution of Liberty Media Group's ownership interest that
resulted from the issuance of common stock by USAI in the
Ticketmaster Transaction, Liberty Media Group recorded a $32
million increase to combined equity (after deducting a
deferred tax liability of $20 million) and an increase to
investment in affiliates of $52 million. No gain was
recognized in the combined statements of operations due
primarily to Liberty Media Group's commitment to purchase
additional equity interests in USAI.
In connection with the Universal Transaction, each of
Universal and Liberty Media Group was granted a preemptive
right with respect to future issuances of USAI's capital
stock, subject to certain limitations, to maintain their
respective percentage ownership interests in USAI that they
had prior to such issuances. In connection with such right, on
June 4, 1998, Liberty Media Group purchased approximately 4.7
million shares of USAI's capital stock at $20 per share as a
result of the conversion by USAI of certain convertible
debentures whereby USAI common stock was issued to retire such
debentures. Additionally, on June 30, 1998, Liberty Media
Group contributed $300 million in cash to USANi LLC in
exchange for an aggregate of 15 million LLC Shares. Liberty
Media Group's cash purchase price was increased at an annual
interest rate of 7.5% beginning from the date of the closing
of the Universal Transaction through the date of Liberty Media
Group's purchase of such securities. In addition, on July 27,
1998, Liberty Media Group purchased approximately 7.9 million
LLC Shares at $20 per share as a result of the issuance of
common stock by USAI in the Ticketmaster Transaction. Pursuant
to the LLC Exchange Agreement, each LLC Share issued or to be
issued to Liberty Media Group is exchangeable for one share of
USAI's Common Stock. Including indirect ownership interests in
USAI of 8% held through BDTV, Liberty Media Group held direct
and indirect ownership interests in USAI as of June 30, 1998
of approximately 20%.
(d) On January 12, 1998, TCI acquired from a minority stockholder
of UVSG 12.4 million shares of UVSG Class A common stock in
exchange for 12.7 million shares of TCI Ventures Group Series
A Stock and 7.3 million shares of Liberty Group Series A
Stock. The aggregate value assigned to the shares issued by
TCI was based upon the market value of such shares at the time
the transaction was announced. As a result of such
transactions, TCI increased its ownership in the equity of
UVSG to approximately 73%, of which 17% is attributed to
Liberty Media Group.
Certain of Liberty Media Group's affiliates are general partnerships
and any subsidiary of Liberty Media Group that is a general partner in
a general partnership is, as such, liable as a matter of partnership
law for all debts (other than non-recourse debts) of that partnership
in the event liabilities of that partnership were to exceed its assets.
(continued)
I-97
<PAGE> 99
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(6) Investment in Time Warner
Liberty Media Group holds shares of a separate series of Time Warner
common stock with limited voting rights (the "TW Exchange Stock").
Holders of the TW Exchange Stock are entitled to one one-hundredth
(l/100th) of a vote for each share with respect to the election of
directors. Holders of the TW Exchange Stock will not have any other
voting rights, except as required by law or with respect to limited
matters, including amendments of the terms of the TW Exchange Stock
adverse to such holders. Subject to the federal communications laws,
each share of the TW Exchange Stock will be convertible at any time at
the option of the holder on a one-for-one basis for a share of Time
Warner common stock. Holders of TW Exchange Stock are entitled to
receive dividends ratably with the Time Warner common stock and to
share ratably with the holders of Time Warner common stock in assets
remaining for common stockholders upon dissolution, liquidation or
winding up of Time Warner.
As security for borrowings under one of its credit facilities, Liberty
Media Group has pledged a portion of its TW Exchange Stock. At June 30,
1998, such pledged portion had an aggregate fair value of approximately
$1.9 billion based upon the market value of the marketable common stock
into which it is convertible. See note 8.
On June 24, 1997 Liberty Media Group granted Time Warner an option,
expiring October 10, 2002, to acquire the business of Southern
Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
(together with Southern, the "Southern Business") through a purchase of
assets (the "Southern Option"). Liberty Media Group received 6.4
million shares of TW Exchange Stock valued at $306 million in
consideration for the grant. In September 1997, Time Warner exercised
the Southern Option. Pursuant to the Southern Option, Time Warner
acquired the Southern Business, effective January 1, 1998, for $213
million in cash. Liberty Media Group recognized a $515 million pre-tax
gain in connection with such transactions in the first quarter of 1998.
(7) Other Investments
Other investments and related receivables are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- -----------------
amounts in thousands
<S> <C> <C>
Investment in preferred stock, at cost, including premium $ 370,688 370,791
Other investments, at cost, and related receivables 30,134 31,019
---------------- -----------------
$ 400,822 401,810
================ =================
</TABLE>
(continued)
I-98
<PAGE> 100
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Management of Liberty Media Group estimates that the market value,
calculated utilizing a variety of approaches including multiple of cash
flow, per subscriber value, a value of comparable public or private
businesses or publicly quoted market prices, of all of Liberty Media
Group's other investments aggregated $469 million and $458 million at
June 30, 1998 and December 31, 1997, respectively. No independent
external appraisals were conducted for those assets.
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- ------------
amounts in thousands
<S> <C> <C>
Bank credit facilities:
Communications Capital Corp. (a) $ 298,000 292,000
LMC Capital LLC (b) 305,000 --
TCI Music (c) 77,736 53,200
Encore Media Group LLC (d) 300,000 --
Other 659 3,390
------------- ------------
$ 981,395 348,590
============= ============
</TABLE>
(a) Payable by Communications Capital Corp. ("CCC")
This revolving credit agreement, as amended, provides for
borrowings up to $500 million through August of 2000. Interest
on borrowings under the agreement is tied to, at CCC's option,
the bank's prime rate or the London Interbank Offered Rate
("LIBOR") plus an applicable margin. The revolving credit
agreement provides as security for this indebtedness a portion
of Liberty Media Group's TW Exchange Stock. Additionally, the
agreement provides for a three-month interest reserve to be
held by an administrative agent. At June 30, 1998, $4.6
million was held in the interest reserve and is included in
restricted cash in the accompanying combined balance sheets.
CCC must pay an annual commitment fee of .2% of the unfunded
portion of the commitment.
(continued)
I-99
<PAGE> 101
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(b) Payable by LMC Capital LLC ("LMC Capital")
This revolving credit agreement, dated June 4, 1998, provides
for borrowings up to $640 million through June 2003. Interest
on borrowings under the agreement is tied to, at LMC Capital's
option, the bank's prime rate or the LIBOR plus an applicable
margin. Additionally, the credit agreement provides for a
three-month interest reserve to be held by an administrative
agent. At June 30, 1998, $4.9 million was held in the interest
reserve and is included in restricted cash in the accompanying
combined balance sheets. LMC Capital must pay an annual
commitment fee of .2% of the unfunded portion of the
commitment. The banks lend against collateral designated by
LMC Capital ("Designated Assets"). The components of the
Designated Assets may be changed from time to time. The
aggregate market value of the Designated Assets, as determined
by certain criteria in the LMC Capital agreement, must at all
times exceed an amount equal to three times the total
outstandings under the facility. The Designated Assets at June
30, 1998 were Liberty Media Group's holdings in Discovery, QVC
and a 30 year non-convertible 9% preferred stock of Fox Kids
Worldwide, Inc. with a stated value of $345 million. The
carrying value of the Designated Assets as of June 30, 1998
was $595 million. Recourse to the banks for payment of LMC
Capital's obligations is limited solely to the Designated
Assets.
(c) Payable by TCI Music
On December 30, 1997 TCI Music entered into a revolving loan
agreement (the "TCI Music Revolving Loan Agreement") which
provides for borrowings up to $100 million. Interest on
borrowings under the agreement is tied to LIBOR plus an
applicable margin or at the banks base rate dependent on TCI
Music's leverage ratio, as defined, for the preceding quarter.
The TCI Music Revolving Loan Agreement matures on June 30,
2005 with principal reductions beginning semi-annually on June
30, 2000 based on a scheduled percentage of the total
commitment. A commitment fee is charged on the unborrowed
portion of the TCI Music Revolving Loan Agreement commitment
ranging from .25% to .375% based upon the leverage ratio for
the preceding quarter.
(d) Payable by Encore Media Group LLC ("Encore Media Group")
On July 7, 1997, Encore Media Group obtained a $625 million
senior, secured facility (the "EMG Senior Facility") in the
form of a $225 million reducing revolving line of credit and a
$400 million, 364-day revolving credit facility convertible to
a term loan. In June, 1998, Encore Media Group converted the
364-day facility to a $300 million term loan. Interest on the
EMG Senior Facility is tied to, at Encore Media Group's
option, the bank's prime rate plus an applicable margin or the
LIBOR rate plus an applicable margin. Encore Media Group is
required to pay a commitment fee which varies based on a
leverage ratio. The credit agreement for the EMG Senior
Facility contains certain provisions which limit Encore Media
Group as to additional indebtedness, sale of assets, liens,
guarantees, and distributions. Additionally, Encore Media
Group must maintain certain specified financial ratios.
The fair market value of Liberty Media Group's debt approximated its
carrying value at June 30, 1998.
(continued)
I-100
<PAGE> 102
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(9) Combined Equity
In conjunction with a stock repurchase program or similar transaction,
TCI may elect to sell put options on its own common stock. Proceeds
from any sales of puts with respect to Liberty Group Stock are
reflected by Liberty Media Group as an increase to combined equity, and
an amount equal to the maximum redemption amount under unexpired put
options with respect to Liberty Group Stock is reflected as an
obligation to redeem Liberty Group Stock in the accompanying combined
balance sheets.
During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 266,783 shares of Liberty Group Stock were
repurchased at an aggregate cost of approximately $8 million. Such
amount is reflected as a decrease to combined equity in the
accompanying combined financial statements.
On July 13, 1998, Liberty Media Group announced that it had made a
proposal to TCI International, Inc. ("TINTA") concerning the
acquisition by Liberty Media Group of all of the outstanding shares of
common stock of TINTA not beneficially owned by TCI Ventures Group.
Under the proposal, Liberty Media Group would exchange, in a merger
transaction, 0.58 of a share of Liberty Group Series A Stock for each
share of Tele-Communications International, Inc. Series A Common Stock
acquired by Liberty Media Group in the merger. Liberty Media Group's
proposal, and a proposed merger agreement, will be considered by
TINTA's board of directors. TINTA, on behalf of the board of directors,
has engaged an investment banking firm to render its opinion concerning
the fairness to TINTA's public shareholders of the consideration
offered by Liberty Media Group.
Stock Options and Stock Appreciation Rights
Liberty Media Group records stock compensation expense relating to
restricted stock awards, options and/or stock appreciation rights
(collectively, "Awards") granted by TCI to certain TCI employees and/or
directors who are involved with Liberty Media Group. Estimated
compensation relating to stock appreciation rights ("SARs") has been
recorded through June 30, 1998, and is subject to future adjustment
based upon vesting and market value, and ultimately, on the final
determination of market value when such rights are exercised. The
estimated compensation adjustment with respect to TCI SARs resulted in
increases to Liberty Media Group's share of TCI's stock compensation
liability of $124 million and $15 million for the six months ended June
30, 1998 and 1997, respectively. In addition, for the six months ended
June 30, 1998, Liberty Media Group made cash payments relating to its
share of TCI's stock compensation obligations of $2 million.
Transactions with TCI and Other Related Parties
Certain TCI corporate general and administrative costs are charged to
Liberty Media Group at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges are
set at levels that management believes to be reasonable and that
approximate the costs Liberty Media Group would incur for comparable
services on a stand-alone basis. During the six months ended June 30,
1998 and 1997, Liberty Media Group was allocated $2,451,000 and
$526,000, respectively, in corporate general and administrative costs
by TCI.
(continued)
I-101
<PAGE> 103
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Entities included in Liberty Media Group lease satellite transponder
facilities from TCI Ventures Group. Charges by TCI Ventures Group for
such arrangements and other related operating expenses for the six
months ended June 30, 1998 and 1997, aggregated $10,990,000 and
$3,907,000, respectively.
In connection with the formation of Encore Media Group during 1997, TCI
Group entered into a 25 year affiliation agreement with Encore Media
Group (the "EMG Affiliation Agreement") pursuant to which TCI Group
pays monthly fixed amounts in exchange for unlimited access to all of
the existing Encore and STARZ! services. Such amounts are included in
revenue from related parties. Additionally, certain other subsidiaries
attributed to Liberty Media Group produce and/or distribute programming
to cable television operators (including TCI Group) and others
(including TCI Ventures Group). Charges to TCI Group and TCI Ventures
Group are based upon customary rates charged to others.
On July 11, 1997, TCI Music merged with DMX, Inc. (the "DMX Merger").
In connection with the DMX Merger, TCI assumed a contingent obligation
to purchase from all holders who tender shares and rights in accordance
with the terms of a Rights Agreement (the "Rights Agreement") up to
14,896,648 shares (6,812,393 of which are owned by subsidiaries of TCI)
of TCI Music common stock at a price of $8.00 per share. Simultaneously
with the DMX Merger, Liberty Media Group acquired the TCI Music Series
B Common Stock and 2.6 million of the TCI-owned TCI Music Series A
Common Stock by assuming the obligation of the Rights Agreement and
issuing an $80 million promissory note (the "Music Note") to TCI.
Liberty Media Group has recorded its contingent obligation to purchase
such shares as a component of minority interest in equity of attributed
subsidiaries in the accompanying combined financial statements.
Including rights held by subsidiaries of TCI that are not members of
Liberty Media Group, the obligation under the Rights Agreement could be
as high as $86 million and will be satisfied by Liberty Media Group in
the third quarter of 1998.
During the first quarter of 1998, TCI Music issued approximately
382,000 shares of its Series A Common Stock in connection with certain
acquisitions. In connection with the issuance of such shares, Liberty
Media Group's ownership interest was diluted to 77.6% (TCI's ownership
interest was diluted to 80.7%) and Liberty Media Group recorded a $2.5
million increase to combined equity. No gain was recognized in the
combined statements of operations due primarily to Liberty Media
Group's contingent obligation under the Rights Agreement.
Due to Related Parties
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Notes payable to TCI Group, including accrued interest $ 84,240 378,348
Intercompany account 400,966 130,244
------------ ------------
$ 485,206 508,592
============ ============
</TABLE>
(continued)
I-102
<PAGE> 104
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Amounts outstanding under the notes payable to TCI Group bear interest
at 6.5%. Payments of principal and interest on notes payable to TCI
Group during the first six months of 1998 aggregated approximately $301
million. During the second quarter of 1998, TCI issued 153,183 shares
of Liberty Group Series B Stock valued at $5 million to an individual
who is an officer and director of TCI for the benefit of entities
attributed to TCI Group, Accordingly, the Music Note was reduced by
such amount.
The non-interest bearing intercompany account includes certain income
tax and stock compensation allocations that are to be settled at some
future date. All other amounts included in the intercompany account are
to be settled within thirty days following notification.
Transactions with Officers and Directors
On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Estate of
Bob Magness (the "Magness Estate"), the late founder and former
Chairman of the Board of TCI.
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr.
John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI the right to acquire the Malones'
high-voting shares (the "High-Voting Shares"), currently consisting of
an aggregate of approximately 60 million shares of Series B Stock, upon
Dr. Malone's death or upon a contemplated sale of the High-Voting
Shares (other than a minimal amount) to third persons. In either such
event, TCI has the right to acquire the shares at a maximum price equal
to the then relevant market price of shares of Series A Stock plus a
ten percent premium. The Malones also agreed that if TCI were ever to
be sold to another entity, then the maximum premium that the Malones
would receive on their High-Voting Shares would be no greater than a
ten percent premium over the price paid for the relevant shares of
Series A Stock. TCI paid $150 million to the Malones for agreeing to
the terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares. The Magness Family was
paid $124 million by TCI for entering into the Magness Call Agreement.
Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the
Malones and TCI under which (i) the Magness Family and the Malones
agreed to consult with each other in connection with matters to be
brought to the vote of TCI's shareholders, subject to the proviso that
if they cannot mutually agree on how to vote the shares, Dr. Malone has
an irrevocable proxy to vote the High-Voting Shares owned by the
Magness Family, (ii) the Magness Family may designate a nominee for the
Board and Dr. Malone has agreed to vote his High Voting Shares for such
nominee and (iii) certain "tag along rights" have been created in favor
of the Magness Family and certain "drag along rights" have been created
in favor of the Malones.
(continued)
I-103
<PAGE> 105
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to stock dividends) that are subject to the
Malone Call Agreement and the Magness Call Agreement. Liberty Media
Group's share of the Call Payments of $64 million was paid during the
first quarter of 1998 and is reflected as a reduction of combined
equity in the accompanying combined financial statements.
(10) Commitments and Contingencies
Encore Media Group is obligated to pay fees for the rights to exhibit
certain films that are released by various producers through 2017 (the
"Film Licensing Obligations"). Based on customer levels at June 30,
1998, these agreements require minimum payments aggregating
approximately $680 million. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable
because such amount is dependent upon the number of qualifying films
released theatrically by certain motion picture studios as well as the
domestic theatrical exhibition receipts upon the release of such
qualifying films. Nevertheless, it is anticipated that the required
aggregate payments under the Film Licensing Obligations will be
significant.
Liberty Media Group leases business offices, has entered into
transponder lease agreements, and uses certain equipment under lease
arrangements.
Estimates of stock compensation granted to employees of an attributed
subsidiary of Liberty Media Group have been recorded in the
accompanying combined financial statements, but are subject to future
adjustment based upon a valuation model derived from such attributed
subsidiary's cash flow, working capital and debt.
Liberty Media Group has contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible Liberty Media Group may
incur losses upon conclusion of such matters, an estimate of any loss
or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying
combined financial statements.
During the six months ended June 30, 1998, TCI continued its
enterprise-wide comprehensive efforts to review and correct computer
systems, equipment and related software to ensure they properly
recognize, process and store business information. The computer
systems, equipment and software being evaluated include systems which
are integral to the distribution of Liberty Media Group's products and
services, systems that support operations of Liberty Media Group and
protect its assets, and all internal use software. Liberty Media Group
is utilizing both internal and external resources, including the
establishment of a year 2000 enterprise program management office
accountable to TCI's executive management, to identify and remediate or
replace systems for year 2000 readiness.
During the six months ended June 30, 1998, TCI began the process of
testing and replacing or remediating critical components of its cable
systems' headend equipment, which is critical to the ability of Liberty
Media Group and its affiliates to earn revenue from the distribution of
programming services. Although no assurance can be given, TCI expects
to conclude such testing by December 1998 with replacement or
remediation completed by the end of the first quarter of 1999. Also,
TCI began the process of remediating systems that control the
commercial advertising in its cable operations, including the
advertisement of programming services distributed by Liberty Media
Group and its affiliates. Although no assurance can be given, those
remediation efforts should be complete by mid-1999. Liberty Media Group
continued to assess potential year 2000 issues of its affiliated
companies and provided its affiliates with remediation information on
software products and systems. Liberty Media Group's business and
financial systems and software which will continue to be utilized by
Liberty Media Group beyond the year 1999 will be capable of recognizing
the year 2000 and therefore should not require material remediation or
replacement.
Significant third party vendors whose systems are critical to the
Liberty Media Group's operations have been identified and surveyed and
confirmations from such parties have been received indicating that they
are either year 2000 ready or have plans in place to become ready.
Also, Liberty Media Group has developed and initiated a plan with key
suppliers who provide systems which are integral to the distribution of
Liberty Media Group's products and services to upgrade or replace
non-year 2000 compliant systems on a product-by-product and
site-by-site basis by mid-1999.
Management of Liberty Media Group intends to have further communication
with primary vendors identified as having systems that are not year
2000 compliant to assess those vendors' plans for remediating their own
year 2000 issues and to assess the impact on Liberty Media Group if
such vendors fail to remediate their year 2000 issues. Liberty Media
Group continues to evaluate the level of validation it will require of
third parties to ensure their year 2000 readiness.
(continued)
I-104
<PAGE> 106
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Management of TCI has not yet determined the full cost associated with
its year 2000 readiness efforts and the related potential impact on
TCI's financial position, results of operations or cash flows but has
identified certain cost elements that, in the aggregate, are not
expected to be less than $63 million, which includes $3 million of
program management expenses incurred during the six months ended June
30, 1998. Liberty Media Group's allocable share of such cost elements
is estimated to be not less than $1 million. Although there can be no
assurance, Liberty Media Group anticipates that the costs ultimately
required to be paid to ensure Liberty Media Group's year 2000 readiness
will not have a material adverse effect on Liberty Media Group's
financial position, results of operations or cash flows. However, there
can be no assurance that Liberty Media Group's systems or the systems
of other companies on which Liberty Media Group relies will be
converted in time or that any such failure to convert by Liberty Media
Group or other companies will not have a material adverse effect on its
financial position, results of operations or cash flows.
I-105
<PAGE> 107
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Assets
Cash and cash equivalents $ 193,567 161,495
Trade and other receivables, net 86,967 86,856
Investment in Teleport Communications Group, Inc. ("TCG"), accounted for
under the equity method (note 9) 464,193 294,851
Investments in Sprint Spectrum Holding Company, L.P., MinorCo, L.P. and
PhillieCo, L.P. (collectively, the "PCS Ventures"), accounted for
under the equity method (note 10) 351,648 607,333
Investment in Telewest Communications plc ("Telewest"), accounted for
under the equity method (note 11) 263,381 324,417
Investment in Cablevision S.A. ("Cablevision"), accounted for under the
equity method (note 5) 231,957 239,379
Investments in other affiliates, accounted for under the equity method,
and related receivables (note 12) 616,805 631,918
Deferred tax asset (note 15) 13,882 85,737
Property and equipment, at cost:
Land 7,893 7,893
Distribution systems 713,177 851,145
Support equipment and buildings 118,036 116,088
------------ ------------
839,106 975,126
Less accumulated depreciation 290,847 265,945
------------ ------------
548,259 709,181
------------ ------------
Franchise costs and other intangible assets 552,026 333,516
Less accumulated amortization 99,607 76,507
------------ ------------
452,419 257,009
------------ ------------
Other assets, net of amortization 433,010 381,726
------------ ------------
$ 3,656,088 3,779,902
============ ============
</TABLE>
(continued)
I-106
<PAGE> 108
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Liabilities and Combined Equity
Accounts payable $ 32,021 31,825
Accrued liabilities 94,548 109,549
Customer prepayments 133,398 133,479
Capital lease obligations 200,458 386,808
Debt (note 13) 594,000 408,532
Other liabilities 22,250 18,683
------------ ------------
Total liabilities 1,076,675 1,088,876
------------ ------------
Minority interests in equity of attributed subsidiaries 412,501 420,177
Obligation to redeem TCI Ventures Group Stock (note 14) 2,963 --
Combined equity (notes 6 and 14):
Combined equity 2,079,918 2,215,683
Accumulated other comprehensive earnings, net of taxes (note 1) 75,902 33,661
------------ ------------
2,155,820 2,249,344
Due to related parties (note 14) 8,129 21,505
------------ ------------
Total combined equity 2,163,949 2,270,849
------------ ------------
Commitments and contingencies (notes 2, 8, 10, 11, 12, 14 and 16) $ 3,656,088 3,779,902
============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-107
<PAGE> 109
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ------------ ------------ ------------
amounts in thousands,
except per share amounts
<S> <C> <C> <C> <C>
Revenue:
Related parties (note 14) $ 10,666 9,665 21,449 24,065
Other 214,465 242,455 414,680 475,075
----------- ------------ ------------ ------------
225,131 252,120 436,129 499,140
----------- ------------ ------------ ------------
Operating costs and expenses:
Operating:
Related parties (note 14) 12,726 14,369 24,970 30,219
Other 131,709 131,988 257,430 249,222
General and administrative:
Related parties (note 14) 4,076 2,212 6,270 4,424
Other 53,502 63,562 102,569 125,995
Cost of distribution agreements (note 8) -- -- 83,320 --
Stock compensation (note 14) 44,696 4,663 126,786 12,925
Depreciation and amortization 35,430 44,020 70,975 85,164
----------- ------------ ------------ ------------
282,139 260,814 672,320 507,949
----------- ------------ ------------ ------------
Operating loss (57,008) (8,694) (236,191) (8,809)
Other income (expense):
Share of losses of the PCS Ventures (note 10) (168,588) (93,849) (323,790) (157,385)
Share of losses of Telewest (note 11) (33,498) (31,750) (63,717) (73,458)
Share of losses of TCG (note 9) (14,337) (14,049) (32,043) (27,817)
Share of losses of Cablevision (note 5) (4,386) -- (7,591) --
Share of losses of other affiliates (note 12) (25,072) (27,301) (49,712) (50,409)
Interest expense (14,495) (15,348) (23,599) (29,544)
Interest income:
Related parties (note 14) 595 2,726 1,637 3,752
Other 2,429 1,893 4,697 3,901
Gain on disposition of assets, net 4,109 -- 41,897 28,893
Gain on issuance of stock by equity investee (note 9) 201,385 21,251 201,385 21,251
Gain on issuance of equity interest by attributed entity
(note 7) -- -- 14,700 --
Minority interests in (earnings) losses of attributed
subsidiaries, net 520 (9,076) 53,325 (8,460)
Other, net (1,947) 3,984 132 6,250
----------- ------------ ------------ ------------
(53,285) (161,519) (182,679) (283,026)
----------- ------------ ------------ ------------
Loss before income taxes (110,293) (170,213) (418,870) (291,835)
Income tax benefit 24,779 58,307 109,973 102,677
----------- ------------ ------------ ------------
Net loss $ (85,514) (111,906) (308,897) (189,158)
=========== ============ ============ ============
Basic and diluted loss attributable to common stockholders
per common share subsequent to TCI Ventures Exchange
(note 3) $ (0.20) (0.73)
=========== ===========
Comprehensive loss (note 1) $ (53,189) (87,405) (266,656) (194,035)
=========== ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-108
<PAGE> 110
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Statement of Combined Equity
Six months ended June 30, 1998
(unaudited)
<TABLE>
<CAPTION>
Accumulated
other
comprehensive Due to Total
Combined earnings, related combined
equity net of taxes parties equity
------------ ------------ ------------ ------------
amounts in thousands
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 2,215,683 33,661 21,505 2,270,849
Net loss (308,897) -- -- (308,897)
Repurchases of TCI Ventures Group Stock (3,857) -- -- (3,857)
Issuance of TCI Ventures Group Stock for
acquisition of minority interest (note 6) 177,661 -- -- 177,661
Payment of call premiums (note 14) (75,836) -- -- (75,836)
Transfer of net liabilities to related party
(note 14) 49,528 -- -- 49,528
Adjustment to minority interest deficit in
joint venture (note 7) 24,524 -- -- 24,524
Excess of earnings over distributions to
minority interest in joint venture 3,969 -- -- 3,969
Reclassification of redemption amount of TCI
Ventures Group Stock subject to put
obligation (2,963) -- -- (2,963)
Premium received in connection with put
obligation 348 -- -- 348
Interest on equity swap (242) -- -- (242)
Foreign currency translation adjustment -- (3,580) -- (3,580)
Change in unrealized holding gains for
available-for-sale securities -- 45,821 -- 45,821
Change in due to related parties -- -- (13,376) (13,376)
------------ ------------ ------------ ------------
Balance at June 30, 1998 $ 2,079,918 75,902 8,129 2,163,949
============ ============ ============ ============
</TABLE>
I-109
<PAGE> 111
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------ ------------
amounts in thousands
(see note 4)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (308,897) (189,158)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 70,975 85,164
Cost of distribution agreements 83,320 --
Stock compensation 126,786 12,925
Payment of obligation relating to stock compensation (69,020) (57)
Share of losses of affiliates, net 476,853 309,069
Gain on disposition of assets, net (41,897) (28,893)
Gain on issuance of stock by equity investee (201,385) (21,251)
Gain on issuance of equity interest by attributed entity (14,700) --
Minority interests' share of losses (earnings), net (53,325) 8,460
Other noncash charges (credits) (236) 2,304
Deferred income tax expense (benefit) 42,546 (5,690)
Intergroup tax allocation (166,467) (104,621)
Changes in operating assets and liabilities, net of the effect of
acquisitions and the deconsolidation of Flextech p.l.c.:
Change in receivables 804 (4,297)
Change in payables, accruals, customer prepayments and
other liabilities (1,370) (20,919)
------------ ------------
Net cash provided by (used in) operating activities
$ (56,013) 43,036
------------ ------------
</TABLE>
(continued)
I-110
<PAGE> 112
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------ ------------
amounts in thousands
(see note 4)
<S> <C> <C>
Cash flows from investing activities:
Investments in and loans to affiliates $ (160,887) (145,997)
Capital expended for property and equipment (59,770) (87,052)
Proceeds from dispositions of assets 82,951 --
Maturities (purchases) of marketable securities, net 32,667 (35,419)
Collections of loans to affiliates 13,012 70,430
Effect of the deconsolidation of Flextech p.l.c. on cash and cash
equivalents -- (38,142)
Cash paid for acquisitions, net -- (11,993)
Other, net (6,527) (7,574)
------------ ------------
Net cash used in investing activities (98,554) (255,747)
------------ ------------
Cash flows from financing activities:
Borrowings of debt 204,000 195,290
Repayments of debt and capital lease obligations (22,814) (214,242)
Payment of call premiums (75,836) --
Repurchase of common stock by attributed entities (6,947) (42,014)
Repurchase of TCI Ventures Group Stock (3,857) --
Proceeds from issuance of preferred stock -- 48,245
Repayments received on loan to TCI 83,356 122,782
Change in amounts due to related parties 11,969 --
Change in combined equity -- 78,599
Distribution to minority interest owners (3,704) (7,000)
Other, net 472 (950)
------------ ------------
Net cash provided by financing activities 186,639 180,710
------------ ------------
Net increase (decrease) in cash and cash equivalents 32,072 (32,001)
Cash and cash equivalents: Beginning of period 161,495 105,527
------------ ------------
End of period $ 193,567 73,526
============ ============
</TABLE>
See accompanying notes to combined financial statements.
I-111
<PAGE> 113
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
June 30, 1998
(unaudited)
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
are attributed to TCI Ventures Group, as defined below. The combined
financial statements of TCI Ventures Group are presented for purposes
of additional analysis of the consolidated financial statements of TCI
and subsidiaries, and should be read in conjunction with such
consolidated financial statements.
All significant intercompany accounts and transactions have been
eliminated. Preferred stock of TCI, which is owned by subsidiaries of
TCI, eliminates in combination. Common stock of TCI held by
subsidiaries is included in combined equity.
The accompanying interim combined financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results of such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These unaudited interim combined financial statements should be read in
conjunction with the TCI Ventures Group's December 31, 1997 audited
financial statements and notes thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Effective January 1, 1998, TCI Ventures Group adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). TCI Ventures Group has reclassified
its prior period combined balance sheet and combined statement of
operations to conform to the requirements of SFAS 130. SFAS 130
requires that all items which are components of comprehensive earnings
or losses be reported in a financial statement in the period in which
they are recognized. TCI Ventures Group has included cumulative foreign
currency translation adjustments and unrealized holding gains and
losses on available-for-sale securities in other comprehensive earnings
that are recorded directly in combined equity. Pursuant to SFAS 130,
these items are reflected, net of related tax effects, as components of
comprehensive losses in TCI Ventures Group's combined statements of
operations, and are included in accumulated other comprehensive
earnings in TCI Ventures Group's combined balance sheets and statements
of combined equity.
(continued)
I-112
<PAGE> 114
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ( "SFAS 133"), which is effective
for all fiscal years beginning after June 15, 1999. SFAS 133
establishes accounting and reporting standards for derivative
instruments and hedging activities by requiring that all derivative
instruments be reported as assets or liabilities and measured at their
fair values. Under SFAS 133, changes in the fair values of derivative
instruments are recognized immediately in earnings unless those
instruments qualify as hedges of the (1) fair values of existing
assets, liabilities, or firm commitments, (2) variability of cash flows
of forecasted transactions, or (3) foreign currency exposures of net
investments in foreign operations. Although management of the Company
has not completed its assessment of the impact of SFAS 133 on its
combined results of operations and financial position, management
estimates that the impact of SFAS 133 will not be material.
As further described in notes 5 and 12, TINTA ceased to consolidate
Flextech p.l.c. ("Flextech") and Cablevision and began to account for
Flextech and Cablevision using the equity method of accounting,
effective January 1, 1997 and October 1, 1997, respectively.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot
rate at June 30, 1998, as published in The Wall Street Journal.
Targeted Stock
On August 28, 1997, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue the Tele-Communications, Inc.
Series A TCI Ventures Group Common Stock, par value $1.00 per share
(the "TCI Ventures Group Series A Stock") and Tele-Communications, Inc.
Series B TCI Ventures Group Common Stock, par value $1.00 per share
(the "TCI Ventures Group Series B Stock," and together with TCI
Ventures Group Series A Stock, the "TCI Ventures Group Stock") The TCI
Ventures Group Stock is intended to reflect the separate performance of
the TCI Ventures Group, as defined below.
(continued)
I-113
<PAGE> 115
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As of June 30, 1998, the TCI Ventures Group consisted principally of
the following assets and their related liabilities: (i) TCI's 85%
equity interest (representing a 92% voting interest) in
Tele-Communications International, Inc. ("TINTA"), which is TCI's
primary vehicle for the conduct of its international cable, telephony
and programming businesses (other than those international programming
businesses attributed to the Liberty Media Group), (ii) TCI's principal
interests in the telephony business ("TCI Telephony") consisting
primarily of TCI's investment in a series of partnerships formed to
engage in the business of providing wireless communications services,
using the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide under the
Sprint(R) brand (a registered trademark of Sprint Communications
Company, L.P.), TCI's 26% equity interest (representing a 40% voting
interest) in TCG, a competitive local exchange carrier, and Western
Tele-Communications, Inc. ("WTCI"), a wholly-owned subsidiary of TCI
that provides long distance transport of video, voice and data traffic
and other telecommunications services to interexchange carriers on a
wholesale basis using primarily a digital broadband microwave network
located throughout a 12 state region, (iii) a 56% equity interest
(representing a 89% voting interest) in United Video Satellite Group,
Inc. ("UVSG"), which provides satellite-delivered video, audio, data
and program promotion services to cable television systems, satellite
dish owners, radio stations and private network users, primarily
throughout North America, (iv) TCI's 39% equity interest (representing
a 72% voting interest) in At Home Corporation ("@Home"), a provider of
high speed multimedia Internet services, and TCI's interest in other
Internet-related assets and (v) other assets, including ETC w/tci, Inc.
("ETC"), a wholly-owned subsidiary of TCI which is a developer and
distributor of for-profit education, training and communications
services and products, and National Digital Television Center, Inc. and
related companies ("NDTC"), which provide digital compression and
authorization services to programming suppliers and to video
distribution outlets. The foregoing subsidiaries and assets are
collectively referred to as "TCI Ventures Group." The stocks of TINTA,
TCG, @Home and UVSG are publicly traded.
The TCI Ventures Group does not include any business that uses TCI's
domestic cable network to distribute services to customers (e.g.,
cable, telephony and Internet services). Such domestic "distribution"
businesses will continue to be attributed to the TCI Group.
The TCI Ventures Group may also include such other assets and
liabilities of the TCI Group as the Board may in the future determine
to attribute or sell to the TCI Ventures Group and such other
businesses, assets and liabilities that TCI or any of its subsidiaries
may in the future acquire for the TCI Ventures Group, as determined by
the Board. It is currently the intention of TCI that any businesses,
assets and liabilities so attributed to the TCI Ventures Group in the
future would not include assets and liabilities of TCI's domestic
programming businesses and investments or its domestic cable operations
(including its businesses which utilize its cable network to distribute
telephony and Internet services).
(continued)
I-114
<PAGE> 116
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The "TCI Group" is intended to reflect the performance of those
businesses of TCI and its subsidiaries not attributed to the "Liberty
Media Group" (which is intended to reflect the performance of TCI's
business which produces and distributes programming services) and TCI
Ventures Group. Collectively, TCI Group, Liberty Media Group and TCI
Ventures Group are referred to as the "Groups" and individually may be
referred to herein as a "Group". The Tele-Communications, Inc. Series A
TCI Group Common Stock, par value $1.00 per share (the "TCI Group
Series A Stock"), TCI Ventures Group Series A Stock and the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
par value $1.00 per share ("Liberty Group Series A Stock") are
sometimes collectively referred to herein as the "Series A Stock," and
the Tele-Communications, Inc. Series B TCI Group Common Stock, par
value $1.00 per share (the "TCI Group Series B Stock"), TCI Ventures
Group Series B Stock and Tele-Communications, Inc. Series B Liberty
Media Group Common Stock, par value $1.00 per share ("Liberty Group
Series B Stock") are sometimes collectively referred to herein as the
"Series B Stock."
The common stockholders' equity value of TCI attributable to TCI
Ventures Group that, at any relevant time, is attributed to TCI Group,
and accordingly, not represented by outstanding TCI Ventures Group
Stock is referred to as "Inter-Group Interest". Prior to the issuance
of shares of TCI Ventures Group Stock, the Inter-Group Interest of TCI
Group in TCI Ventures Group was 100%. Following consummation of the TCI
Ventures Exchange, TCI Group no longer has an Inter-Group Interest in
TCI Ventures Group. Following consummation of the TCI Ventures
Exchange, an Inter-Group Interest would be created with respect to TCI
Ventures Group only if a subsequent transfer of cash or other property
from TCI Group to TCI Ventures Group is specifically designated by the
Board as being made to create an Inter-Group Interest or if outstanding
shares of TCI Ventures Stock are purchased with funds attributable to
TCI Group.
While the TCI Ventures Group Stock constitutes common stock of TCI,
issuance of the TCI Ventures Group Stock did not result in any transfer
of assets or liabilities of TCI or any of its subsidiaries or affect
the rights of holders of TCI's or any of its subsidiaries' debt.
Holders of TCI Group Series A Stock and TCI Group Series B Stock
(collectively, the "TCI Group Stock"), Liberty Group Series A Stock and
Liberty Group Series B Stock (collectively, the "Liberty Group Stock")
and TCI Ventures Group Stock are common stockholders of TCI and are
subject to risks associated with an investment in TCI and all of its
businesses, assets and liabilities.
(continued)
I-115
<PAGE> 117
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In August 1997, TCI commenced offers (the "Exchange Offers") to
exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
Stock and up to 16,266,400 shares of TCI Group Series B Stock,
respectively. The exchange ratio for the exchange offers was two shares
of the applicable series of TCI Ventures Group Stock for each share of
the corresponding series of TCI Group Stock properly tendered up to the
indicated maximum numbers. Upon the September 10, 1997 consummation of
the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and
16,266,400 shares of TCI Group Series B Stock were exchanged for
377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
shares of TCI Ventures Group Series B Stock (as adjusted for a stock
dividend - see below), (the "TCI Ventures Exchange"). The aggregate
number of shares of TCI Ventures Group Stock issued in the Exchange
Offers represented 100% of the common stockholders' equity value of TCI
attributable to the TCI Ventures Group. Accordingly, the Inter-Group
Interest of the TCI Group was reduced to zero upon consummation of the
Exchange Offers.
Notwithstanding the attribution of assets and liabilities, equity and
items of income and expense among TCI Group, Liberty Media Group and
TCI Ventures Group for the purpose of preparing their respective
combined financial statements, the change in the capital structure of
TCI resulting from the redesignation of TCI Group Stock and the
issuance of TCI Ventures Group Stock did not affect the ownership or
the respective legal title to assets or responsibility for liabilities
of TCI or any of its subsidiaries. TCI and its subsidiaries each
continue to be responsible for their respective liabilities. Holders of
TCI Group Stock, Liberty Media Group Stock and TCI Ventures Group Stock
are common stockholders of TCI and are subject to risks associated with
an investment in TCI and all of its businesses, assets and liabilities.
The redesignation of TCI Group Stock and the issuance of TCI Ventures
Group Stock did not affect the rights of the creditors of TCI.
Financial effects arising from any portion of TCI that affect the
consolidated results of operations or financial condition could affect
the combined results of operations or financial condition of the TCI
Ventures Group and the market price of shares of TCI Ventures Group
Stock. In addition, net losses of any portion of TCI, dividends or
distributions on, or repurchases of, any series of common stock, and
dividends on, or certain repurchases of, preferred stock, would reduce
funds of TCI legally available for dividends on all series of common
stock. Accordingly, TCI Ventures Group financial information should be
read in conjunction with the financial information of TCI and the other
Groups.
Dividends on TCI Ventures Group Stock will be payable at the sole
discretion of the Board out of the lesser of the assets of TCI legally
available for dividends or the available dividend amount with respect
to the TCI Ventures Group, as defined. Determinations to pay dividends
on TCI Ventures Group Stock are based primarily upon the financial
condition, results of operations and business requirements of the TCI
Ventures Group and TCI as a whole.
(continued)
I-116
<PAGE> 118
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
All financial impacts of issuances and purchases of shares of TCI
Ventures Group Stock which are attributed to TCI Ventures Group will be
to such extent reflected in the combined financial statements of TCI
Ventures Group. All financial impacts of issuances of shares of TCI
Ventures Group Stock the proceeds of which are attributed to TCI Group
in respect of a reduction in TCI Group's Inter-Group Interest in TCI
Ventures Group will be to such extent reflected in the combined
financial statements of TCI Group. Financial impacts of dividends or
other distributions on TCI Ventures Group Stock will be attributed
entirely to TCI Ventures Group, except that dividends or other
distributions on TCI Ventures Group Stock will (if at the time there is
an Inter-Group Interest in the TCI Ventures Group) result in TCI Group
being credited, and TCI Ventures Group being charged (in addition to
the charge for the dividend or other distribution paid), with an amount
equal to the product of the aggregate amount of such dividend or other
distribution paid or distributed in respect of outstanding shares of
TCI Ventures Group Stock and a fraction the numerator of which is the
"TCI Ventures Group Inter-Group Interest Fraction" and the denominator
of which is the "TCI Ventures Group Outstanding Interest Fraction"
(both as defined). Financial impacts of repurchases of TCI Ventures
Group Stock, the consideration for which is charged to TCI Group will
be to such extent reflected in the combined financial statements of TCI
Group and will result in an increase in TCI Group's Inter-Group
Interest in TCI Ventures Group.
All debt incurred or preferred stock issued by TCI and its subsidiaries
following the issuance of TCI Ventures Group Stock is (unless the Board
otherwise provides) specifically attributed to and reflected in the
combined financial statements of the Group that includes the entity
which incurred the debt or issued the preferred stock or, in case the
entity incurring the debt or issuing the preferred stock is
Tele-Communications, Inc., the TCI Group. The Board could, however,
determine from time to time that debt incurred or preferred stock
issued by entities included in a Group should be specifically
attributed to and reflected on the combined financial statements of one
of the other Groups to the extent that the debt is incurred or the
preferred stock is issued for the benefit of such other Group.
Although it is management's intention that each Group would normally
arrange for the external financing required to satisfy its respective
liquidity requirements, the cash needs of one Group may exceed the
liquidity sources of such Group. In such circumstances, one of the
other Groups may transfer funds to such Group. Such transfers of funds
among the Groups will be reflected as borrowings or, if determined by
the Board, in the case of a transfer from the TCI Group to either the
Liberty Media Group or the TCI Ventures Group, reflected as the
creation of, or increase in, the TCI Group's Inter-Group Interest in
such Group or, in the case of a transfer from either the Liberty Media
Group or the TCI Ventures Group to the TCI Group, reflected as a
reduction in the TCI Group's Inter-Group Interest in such Group. There
are no specific criteria for determining when a transfer will be
reflected as a borrowing or as an increase or reduction in an
Inter-Group Interest. The Board expects to make such determinations,
either in specific instances or by setting generally applicable
policies from time to time, after consideration of such factors as it
deems relevant, including, without limitation, the needs of TCI, the
financing needs and objectives of the Groups, the investment objectives
of the Groups, the availability, cost and time associated with
alternative financing sources, prevailing interest rates and general
economic conditions.
(continued)
I-117
<PAGE> 119
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Loans from one Group to another Group would bear interest at such rates
and have such repayment schedules and other terms as are established
from time to time by, or pursuant to procedures established by, the
Board. The Board expects to make such determinations, either in
specific instances or by setting generally applicable polices from time
to time, after consideration of such factors as it deems relevant,
including, without limitation, the needs of TCI, the use of proceeds by
and creditworthiness of the recipient Group, the capital expenditure
plans and investment opportunities available to each Group and the
availability, cost and time associated with alternative financing
sources.
The combined balance sheets of a Group reflect its net loans or
advances to or borrowings from the other Groups. Similarly, the
respective combined statements of operations of the Groups reflect
interest income or expense, as the case may be, associated with such
loans or advances and the respective combined statements of cash flows
of the Groups reflect changes in the amounts of loans or advances
deemed outstanding. In the historical financial statements, net loans
or advances between Groups have been and will continue to be included
as a component of each respective Group's equity.
Although any increase in the TCI Group's Inter-Group Interest in the
TCI Ventures Group resulting from an equity contribution by the TCI
Group to the TCI Ventures Group or any decrease in such Inter-Group
Interest resulting from a transfer of funds from the TCI Ventures Group
to the TCI Group would be determined by reference to the market value
of the Series A TCI Ventures Group Stock as of the date of such
transfer, such an increase could occur at a time when such shares could
be considered undervalued and such a decrease could occur at a time
when such shares could be considered overvalued.
(continued)
I-118
<PAGE> 120
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(2) Proposed Merger
TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
pursuant to, and subject to the terms and conditions set forth in, the
Agreement and Plan of Restructuring and Merger, dated as of June 23,
1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
become a wholly-owned subsidiary of AT&T and (i) each share of TCI
Group Series A Stock will be converted into .7757 of a share of common
stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
each share of TCI Group Series B Stock will be converted into .8533 of
a share of AT&T Common Stock, (iii) each share of Liberty Group Series
A Stock will be converted into one share of a newly authorized class of
AT&T common stock to be designated as the Class A Liberty Group Common
Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
Stock") and (iv) each share of Liberty Group Series B Stock will be
converted into one share of a newly authorized class of AT&T common
stock to be designated as the Class B Liberty Group Common Stock, par
value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
together with the AT&T Liberty Class A Tracking Stock, the "AT&T
Liberty Tracking Stock"). In addition, TCI has announced its intention,
subject to stockholder approval, to combine the assets and businesses
of Liberty Media Group and TCI Ventures Group and reclassify each share
of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
Series A Stock and each share of TCI Ventures Group Series B Stock as
.52 of a share of Liberty Group Series B Stock. If such combination and
reclassification does not occur prior to the Merger, then in the Merger
each share of TCI Ventures Group Series A Stock and TCI Ventures Group
Series B Stock will be converted into .52 of a share of the
corresponding series of AT&T Liberty Tracking Stock. In general, the
holders of shares of AT&T Liberty Class A Tracking Stock and the
holders of shares of AT&T Liberty Class B Tracking Stock will vote
together as a single class with the holders of shares of AT&T Common
Stock on all matters presented to such stockholders, with the holders
being entitled to one-tenth (1/10th) of a vote for each share of AT&T
Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
held.
In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
Preferred Stock, Series C-TCI Group will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (132.86 shares per preferred share), (iii)
TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
converted into a number of shares of AT&T Liberty Class A Tracking
Stock equal to the current conversion rate of such preferred stock
(56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
TCI Group Preferred Stock, Series G will be converted into a number of
shares of AT&T Common Stock equal to .7757 times the current conversion
rate of such preferred stock (1.19 shares per preferred share) and (v)
TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
Series H will be converted into a number of shares of AT&T Liberty
Class A Tracking Stock equal to the current conversion rate of such
preferred stock (0.590625 of a share per preferred share).
(continued)
I-119
<PAGE> 121
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The shares of AT&T Liberty Tracking Stock to be issued in the Merger
will be a newly authorized class of common stock of AT&T which will be
intended to reflect the separate performance of the businesses and
assets attributed to the "Liberty/Ventures Group." The Liberty/Ventures
Group following the Merger will be made up of the corporations,
partnerships and other entities and interests which comprise Liberty
Media Group and TCI Ventures Group at the time of the Merger. Pursuant
to the Merger Agreement, immediately prior to the Merger, certain
assets currently held by TCI Ventures Group (including, among others,
the shares of AT&T Common Stock received in the merger of AT&T and TCG,
the stock of @Home held by TCI Ventures Group and the assets and
business of NDTC) will be transferred to TCI Group in exchange for
approximately $5.5 billion in cash. Also, upon consummation of the
Merger, Liberty/Ventures Group will become entitled to the benefit of
all of the net operating loss carryforwards available to the entities
included in TCI's consolidated income tax return as of the date of the
Merger. Additionally, certain warrants currently attributed to TCI
Group will be transferred to Liberty/Ventures Group in exchange for up
to $176 million in cash. Certain agreements to be entered into at the
time of the Merger as contemplated by the Merger Agreement will, among
other things, provide preferred vendor status to Liberty/Ventures Group
for digital basic distribution on AT&T's systems of new programming
services created by Liberty/Ventures Group and its affiliates, provide
for a renewal of existing affiliation agreements and provide for the
business of the Liberty/Ventures Group to continue to be managed
following the Merger by certain members of TCI's management who
currently manage the businesses of Liberty Media Group and TCI Ventures
Group.
If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
stockholders to approve the Merger prior to March 31, 1999, (ii) the
withdrawal or modification by the AT&T Board of Directors of its
approval of the transaction, or (iii) the failure to obtain necessary
governmental and regulatory approvals by September 30, 1999, which
failure occurs as a result of the announcement by AT&T of a significant
transaction which delays receipt of such governmental approvals, AT&T
will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
the Merger Agreement due to the failure of TCI stockholders to approve
the transaction prior to March 31, 1999 or the withdrawal or
modification by the TCI Board of Directors of its approval of the
Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.
Consummation of the Merger is subject to the satisfaction or waiver of
customary conditions to closing, including but not limited to, the
separate approvals of the stockholders of AT&T and TCI, receipt of all
necessary governmental consents and approvals, and effectiveness of the
registration statement registering the AT&T Common Stock and AT&T
Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
As a result, there can be no assurance that the Merger will be
consummated or, if the Merger is consummated, as to the date of such
consummation.
(continued)
I-120
<PAGE> 122
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(3) Loss Per Common Share
Basic earnings per share ("EPS") is measured as the income or loss
attributable to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted EPS is similar to
basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options, etc.)
as if they had been converted at the beginning of the periods
presented. Potential common shares that have an anti-dilutive effect
are excluded from diluted EPS.
The basic and diluted loss attributable to TCI Ventures Group
stockholders per common share for the three and six month periods ended
June 30, 1998 was computed by dividing the net loss attributable to TCI
Ventures Group stockholders by the weighted average number of common
shares outstanding of TCI Ventures Group Stock for the period (422
million and 421 million for the three and six month periods ended June
30, 1998, respectively). Potential common shares were not included in
the computation of weighted average shares outstanding because their
inclusion would be anti-dilutive.
At June 30, 1998, there were 37 million potential common shares
consisting of stock options and other performance awards and
convertible securities that could potentially dilute future earnings
per share calculations in periods of net earnings. Such potential
common share amount does not take into account the assumed number of
shares that would be repurchased by the Company upon the exercise of
the stock options and other performance awards and the conversion of
the convertible securities. No material changes in the weighted average
outstanding shares or potential common shares occurred after June 30,
1998.
(4) Supplemental Disclosures to Statements of Cash Flows
Cash paid for interest was $23.1 million and $28.0 million for the six
months ended June 30, 1998 and 1997, respectively. Cash paid for income
taxes was $12.8 million and $17.4 million during the six months ended
June 30, 1998 and 1997, respectively.
The effects of changing the method of accounting for the TCI Ventures
Group's ownership interest in Flextech from the consolidation method to
the equity method (see note 12) are summarized below (amounts in
thousands):
<TABLE>
<S> <C>
Assets reclassified to equity investments $ 177,003
Liabilities reclassified to equity investments (72,512)
Minority interests in equity of subsidiaries
reclassified to equity investments (142,633)
-----------------
Decrease in cash and cash equivalents $ (38,142)
-----------------
</TABLE>
For information concerning additional non-cash transactions see notes
6, 7 and 14.
(continued)
I-121
<PAGE> 123
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(5) Cablevision
On October 9, 1997, TINTA sold a portion of its 51% interest in
Cablevision to unaffiliated third parties (the "Buyers") for cash
proceeds of $120 million. In addition, on October 9, 1997, Cablevision
issued 3,541,829 shares of stock in the aggregate to the Buyers for
$320 million. The 1997 transactions, (collectively, the "Cablevision
Sale") reduced TINTA's interest in Cablevision to 26.2%. TINTA
recognized a gain of $49 million on the Cablevision Sale (excluding
related tax expense of $17 million). TINTA continues to manage
Cablevision pursuant to a renewable five-year management contract that
was entered into in connection with the Cablevision Sale, and certain
material corporate transactions of Cablevision will require TINTA's
approval, so long as TINTA maintains at least a 16% interest in
Cablevision. As a result of the Cablevision Sale, effective October 1,
1997, TINTA ceased to consolidate Cablevision and began to account for
Cablevision using the equity method of accounting.
Prior to 1997, none of Cablevision's operating results had been
allocated to Cablevision's 49% minority interest because (i) the
minority interest had no obligation to provide any funding to
Cablevision and (ii) Cablevision's liabilities exceeded the minority
interest's historical cost basis in Cablevision's assets. During the
second quarter of 1997, Cablevision's net earnings caused the minority
interest's historical cost basis in Cablevision's net assets to become
positive. Accordingly, TINTA began allocating 49% of such net earnings
to the minority interest during the second quarter of 1997. If the
minority interest's historical cost basis had been positive since
January 1, 1997, TINTA would have allocated an additional $4.3 million
during the six months ended June 30, 1997 of Cablevision's net earnings
to the minority interest.
Summarized unaudited results of operations for Cablevision are as
follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998
-----------------
Consolidated Operations amounts in thousands
<S> <C>
Revenue $ 127,620
Operating, selling, general and
administrative expenses (80,047)
Depreciation and amortization (29,921)
-----------------
Operating income 17,652
Interest expense, net (42,879)
Other, net 11,106
-----------------
Net loss $ (14,121)
=================
</TABLE>
(continued)
I-122
<PAGE> 124
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(6) Acquisitions
On January 12, 1998, TCI acquired from a minority shareholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7
million shares of TCI Ventures Group Series A Stock and 7.3 million
shares of Liberty Group Series A Stock. The aggregate value assigned to
the shares issued by TCI was based upon the market value of such shares
at the time the transaction was announced. As a result of such
transaction TCI increased its ownership in the equity of UVSG to
approximately 73%, of which 56% is attributed to the TCI Ventures Group
and 17% is attributed to Liberty Media Group. In addition, TCI's
collective voting power increased to 93%. In connection with such
transaction, during the first quarter of 1998, TCI Ventures Group
recorded a $154.2 million increase to intangible assets, a $23.5
million decrease to minority interests in equity of attributed
subsidiaries and a $177.7 million increase to combined equity.
On June 11, 1998, UVSG and The News Corporation Limited ("News Corp.")
announced the signing of a definitive agreement whereby News Corp.'s TV
Guide properties will be combined with UVSG to create a platform for
offering television guide services to consumers and advertising. As
part of this combination, a unit of News Corp. will receive
consideration consisting of $800 million in cash and 30 million shares
of UVSG's stock, including 11,251,706 shares of its Class A common
stock and 18,748,294 shares of its Class B common stock. As a result of
the transaction, and certain other pending transactions, News Corp.,
TCI and UVSG's public stockholders will own on an economic basis
approximately 40%, 44% (of which 34% will be attributable to TCI
Ventures Group and 10% will be attributable to Liberty Media Group) and
16%, respectively, of UVSG. Following the transaction, News Corp. and
TCI will each have approximately 48% of the voting power of UVSG's
outstanding stock.
On July 23, 1998, TINTA agreed to purchase 100% of the issued and
outstanding common stock of Pramer S.A., an Argentine programming
company, for $80 million in cash and the assumption of certain
liabilities. Consummation of such transaction is expected to occur in
the third quarter of 1998. No assurance can be given that such
transaction will be consummated or consummated on the terms
contemplated by the parties.
(7) Dispositions
On January 16, 1998, TINTA sold its interest in TeleCable Nacional, CXA
for cash proceeds of $10.0 million. TINTA recognized a gain on such
sale of $9.2 million.
On February 12, 1998, TCI Ventures Group sold its (i) 79% interest in
New Jersey Fiber Technologies, L.P., (ii) 40% interest in NHT
Partnership and (iii) 50% interest in Louisville Lightwave for
aggregate cash proceeds of $44.1 million. TCI Ventures Group recognized
a gain of $28.6 million on such transactions.
TCI Ventures Group sold its interest in Acclaim Entertainment, Inc.
("Acclaim") in February 1998 for cash proceeds of $17.0 million. The
loss on such sale was not significant as the sales price approximated
TCI Ventures Group's carrying value in Acclaim.
(continued)
I-123
<PAGE> 125
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
contributed the assets, obligations and operations of its retail C-band
satellite business to Superstar/Netlink Group LLC ("Superstar/Netlink")
in exchange for an approximate 20% interest in Superstar/Netlink. As a
result of such transaction, each of UVSG's and Liberty Media Group's
ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%. Turner Vision's contribution to Superstar/Netlink
was accounted for as a purchase and the $61.2 million excess of the
purchase price over the fair value of the assets acquired was recorded
as goodwill and is being amortized over five years.
In connection with the dilution of UVSG's ownership interest in
Superstar/Netlink, UVSG recognized a gain of $14.7 million (before
deducting deferred income tax expense of $5.9 million). The minority
interest deficit in Superstar/Netlink attributable to Liberty Media
Group has been included in combined equity in the accompanying combined
financial statements. Accordingly, the effect of the change in Liberty
Media Group's ownership in the underlying equity of Superstar/Netlink
of $24.5 million has been credited to combined equity in the
accompanying combined financial statements.
In February 1998, TCI, Liberty Media Group and UVSG announced an
agreement in principal for UVSG to acquire Liberty Media Group's 40%
interest in Superstar/Netlink and its 100% interest in certain
businesses conducted by Netlink USA ("Netlink") (the "Netlink
Business") in exchange for 6.4 million shares of UVSG's common stock.
In April 1998, UVSG, Liberty Media Group and Turner Vision entered into
a memorandum of understanding with PRIMESTAR, Inc. ("PRIMESTAR") for
the sale of Superstar/Netlink to PRIMESTAR for shares of a new series
of convertible preferred stock of PRIMESTAR and the assumption of
liabilities (the "PRIMESTAR Transaction"). Liberty Media Group and UVSG
have agreed in principal to restructure their transaction to provide
for UVSG to acquire any shares of PRIMESTAR preferred stock received by
Liberty Media Group in the PRIMESTAR Transaction and Liberty Media
Group's Netlink Business for 6.4 million shares of UVSG Class B common
stock. Consummation of the transaction between Liberty Media Group and
UVSG is subject to UVSG stockholder approval and certain regulatory
approvals. Consummation of the PRIMESTAR Transaction is subject to a
number of conditions, including negotiation of a definitive agreement
and receipt of applicable regulatory approvals. No definitive agreement
with respect to the PRIMESTAR Transaction has been reached, however,
and there can be no assurance that any such agreement will be entered
into or that the terms of any such agreement would be the same as the
terms previously disclosed.
In July 1998, TCI and the other partner of Kansas City Fiber Network,
L.P. ("KC Fiber") sold the assets of KC Fiber to TCG for cash proceeds
of approximately $55 million. The TCI Ventures Group held a 50%
interest in KC Fiber and the remaining 50% was held by Kansas City
Cable Partners, a partnership in which the TCI Group holds a 50%
interest. TCI Ventures Group received proceeds of approximately $20
million in connection with such sale.
(continued)
I-124
<PAGE> 126
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(8) @Home
In April 1997, @Home issued 240,000 shares of convertible preferred
stock resulting in cash proceeds of $48 million, less issuance costs.
On July 11, 1997 @Home completed its initial public offering (the
"@Home IPO"), in which 10,350,000 shares of @Home common stock were
sold for net cash proceeds of approximately $100 million. As a result
of the @Home IPO, the TCI Ventures Group's economic interest in @Home
decreased from 43% to 39% which economic interest represents an
approximate 72% voting interest. In connection with the associated
dilution of TCI Ventures Group's ownership interest in @Home, TCI
Ventures Group recognized a gain of $60 million.
@Home has entered into exclusive distribution agreements with certain
cable operators. In connection with the distribution agreements, @Home
has issued warrants to such cable operators to purchase 17,946,956
shares of @Home's Series A common stock. Of these warrants, warrants to
purchase 10,581,298 shares were exercisable as of June 30, 1998. During
the six months ended June 30, 1998, @Home recorded non-cash,
non-recurring charges of $83.3 million to operations based on the fair
value of 2,705,514 shares which were underlying warrants which became
exercisable during the period. Such charges are included in "cost of
distribution agreements" in the accompanying combined statements of
operations. @Home may issue additional stock, or warrants in connection
with its efforts to expand its distribution of the @Home service to
other cable operators. The exercise of warrants or stock issued by
@Home will reduce TCI Ventures Group's equity interest and voting power
in @Home.
Pursuant to a shareholder's agreement among certain shareholders of
@Home, under certain circumstances, TCI Ventures Group could be
required to sell a portion of its common stock of @Home to such
shareholders.
(9) Investment in TCG
On June 30, 1998, TCI Ventures Group owned 1,011,528 shares of TCG's
Class A common stock and 48,779,000 shares of TCG's Class B common
stock. TCG's Class A common stock had a closing market value of $54.25
per share on June 30, 1998.
On April 22, 1998, TCG completed a merger transaction with ACC Corp.
("ACC") in which ACC shares were exchanged with shares of TCG in the
ratio of .90909 share of TCG stock for each share of ACC stock. The
transaction was valued at approximately $1.1 billion. As a result of
such merger transaction, TCI Ventures Group's interest in TCG was
reduced to approximately 26%. In connection with the dilution of TCI
Ventures Group's interest in TCG, TCI Ventures Group recorded a
non-cash gain of $201.4 million (before deducting deferred income tax
expense of $70.5 million).
(continued)
I-125
<PAGE> 127
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T. Such merger was consummated on July
23, 1998. As a result of such merger, TCI Ventures Group received in
exchange for all of its interest in TCG, approximately 46.95 million
shares of AT&T Common Stock. TCI Ventures Group will account for its
ownership interest in AT&T Common Stock using the cost method. See
note 2.
Summarized unaudited results of operations for TCG are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
Operations 1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Revenue $ 455,380 212,508
Operating, selling, general and
administrative expenses (404,589) (197,698)
Depreciation and amortization (115,391) (67,011)
------------ ------------
Operating loss (64,600) (52,201)
Interest expense, net (52,824) (40,210)
Other, net (636) (3,949)
------------ ------------
Net loss $ (118,060) (96,360)
============ ============
</TABLE>
(10) Investments in the PCS Ventures
TCI Telephony is a partner in a series of partnerships formed to engage
in the business of providing wireless communications services, using
the radio spectrum for broadband personal communications services
("PCS"), to residential and business customers nationwide, using the
"Sprint" brand. The PCS Ventures include Sprint Spectrum Holding
Company, L. P. ("Sprint Spectrum") and MinorCo, L.P. (collectively,
"Sprint PCS") and PhillieCo, L.P. ("PhillieCo"). The partners of Sprint
PCS are subsidiaries of Sprint Corporation ("Sprint"), Comcast, Cox and
TCI. The partners of PhillieCo are subsidiaries of Sprint, Cox and TCI.
TCI Ventures Group has a 30% partnership interest in Sprint PCS and a
35% partnership interest in PhillieCo.
From inception through June 1998, the four partners have contributed
$4.2 billion to Sprint PCS (of which TCI Telephony contributed an
aggregate of $1.3 billion). Sprint PCS's business plan will require
additional capital financing prior to the end of 1998. Sources of
funding for Sprint PCS's capital requirements may include vendor
financing, public offerings or private placements of equity and/or debt
securities, commercial bank loans and/or capital contributions from the
Sprint PCS partners. However, there can be no assurance that any
additional financing can be obtained on a timely basis, on terms
acceptable to Sprint PCS or the Sprint PCS partners and within the
limitations contained in the agreements governing Sprint PCS's existing
debt.
(continued)
I-126
<PAGE> 128
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized
management to operate Sprint PCS in accordance with such budget. The
Sprint PCS partners may mutually agree to make additional capital
contributions. However, the Sprint PCS partners have no such obligation
in the absence of an approved budget, and there can be no assurance the
Sprint PCS partners will reach such an agreement or approve the 1998
proposed budget. In addition, the failure by the Sprint PCS partners to
approve a business plan may impair the ability of Sprint PCS to obtain
required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the
delay or abandonment of Sprint PCS's development and expansion plans
and expenditures, the failure to meet regulatory requirements or other
potential adverse consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership
board has resulted in the occurrence of a "Deadlock Event" under the
Sprint PCS partnership agreement as of January 1, 1998. Under the
Sprint PCS partnership agreement, if one of the Sprint PCS partners
refers the budget issue to the chief executive officers of the
corporate parents of the Sprint PCS partners for resolution pursuant to
specified procedures and the issue remains unresolved, buy/sell
provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint
PCS partners, or, in certain circumstances, liquidation of Sprint PCS.
In May 1998 Sprint PCS partners entered into a series of agreements
pursuant to which TCI Telephony, Comcast and Cox would exchange their
respective interests in Sprint PCS and PhillieCo for shares of a new
class of tracking stock of Sprint which would track the performance of
Sprint's newly created PCS Group (which would initially consist of
Sprint PCS, PhillieCo and certain PCS licenses which are separately
owned by Sprint). The consummation of such transactions is subject to a
number of conditions, including the approval of such transactions by
the stockholders of Sprint and the receipt of required FCC approvals.
If such transactions are consummated, TCI Telephony will initially hold
shares of Sprint PCS Group stock (as well as certain additional
securities of Sprint exercisable for or convertible into such
securities) representing approximately 24% of the equity value of
Sprint attributable to the PCS Group, subject to further dilution as a
result of additional expected issuances of shares of Sprint PCS stock
(including in connection with a proposed initial public offering of
shares of Sprint PCS stock that may be consummated in connection with
such transactions). In connection with the execution of such
agreements, the Sprint PCS partners agreed to make up to $400 million
in additional capital contributions (of which TCI Telephony's share is
$120 million) to Sprint PCS pending the closing of such transactions.
If the above-described transactions are consummated, the Company would
begin to use the cost method to account for its investment in the
Sprint PCS stock. No assurance can be given that the above-described
transactions will be consummated.
(continued)
I-127
<PAGE> 129
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Summarized unaudited results of operations for the PCS Ventures,
accounted for under the equity method, are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
Combined Operations 1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Revenue $ 350,526 35,300
Operating, selling, general and
administrative expenses (854,505) (410,327)
Depreciation and amortization (275,822) (102,642)
------------ ------------
Operating loss (779,801) (477,669)
Interest expense (182,958) (13,784)
Other, net (110,540) (64,335)
------------ ------------
Net loss $ (1,073,299) (555,788)
============ ============
</TABLE>
(11) Investment in Telewest
At June 30, 1998, TINTA indirectly owned through its 50% ownership
interest in TW Holdings, L.L.C., 132,638,250 or 26.7% of the issued and
outstanding non-voting Telewest convertible preference shares and
246,111,750 or 26.5% (assuming no conversion of the Telewest
convertible preference shares) of the issued and outstanding Telewest
ordinary shares. The reported closing price on the London Stock
Exchange of Telewest ordinary shares was (pound)1.41 ($2.35) per share
at June 30, 1998.
On April 15, 1998, it was announced that Telewest and General Cable PLC
("General Cable") had agreed to the terms of a proposed merger (the
"Merger Offer") in which holders of General Cable will be offered 1.243
new Telewest shares and (pound)0.65 ($1.08) in cash for each share of
General Cable. In addition, holders of American Depository shares of
General Cable ("General Cable ADSs") (each representing five General
Cable shares) will be offered 6.215 new Telewest shares and (pound)3.25
($5.42) in cash for each share of General Cable ADSs. Based upon
Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
1998, the Merger Offer is valued at approximately (pound)649 million
($1.1 billion).
The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of approximately
261 million new Telewest shares at a price of (pound)0.925 ($1.54) per
share. Mediaone Group, Inc. ("Mediaone") (formerly a division of U S
WEST, Inc.), TINTA and Cox Communications, Inc. ("Cox") have agreed to
subscribe for their full allocation of new Telewest shares
(approximately 69 million shares in the case of TINTA) and to subscribe
on a pro rata basis for any new Telewest shares not subscribed for by
other Telewest shareholders. Together, Mediaone, TINTA and Cox held
67.9% of the issued and outstanding Telewest ordinary shares at June
30, 1998. In addition, it is anticipated that Mediaone, TINTA, Cox and
SBC Communications, Inc. ("SBC") will convert their entire respective
holdings of Telewest convertible preference shares into new Telewest
shares. Following the issuance of new Telewest shares with respect to
the above transactions, and assuming the exercise of all options under
General Cable's share option schemes, it is anticipated that existing
Telewest shareholders would hold 79% and existing General Cable
shareholders would hold 21% of the then issued ordinary share capital
of the combined group.
(continued)
I-128
<PAGE> 130
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Consummation of the merger is subject to regulatory approval and other
conditions. There can be no assurance that such merger will be
consummated or consummated on the terms contemplated by the parties.
As a result of Telewest's issuance of U.S. dollar denominated
debentures (the "Telewest Debentures"), changes in the exchange rate
used to translate the U.S. dollar into the UK pound sterling will cause
Telewest to experience realized and unrealized foreign currency
transaction gains and losses throughout the term of the Telewest
Debentures, which mature in 2006 and 2007, if not redeemed earlier.
During the six months ended June 30, 1998 and 1997, Telewest
experienced unrealized foreign currency transaction losses of $2.4
million and $40.0 million respectively, with respect to the Telewest
Debentures.
The functional currency of Telewest is the UK pound sterling. The
average exchange rate used to translate the TCI Ventures Group's share
of Telewest's operating results from UK pounds to U.S. dollars was
1.6530 to 1 and 1.6447 to 1 during the six months ended June 30, 1998
and 1997, respectively. The spot rate used to translate the TCI
Ventures Group's share of Telewest's net assets from UK pounds to U.S.
dollars was 1.6677 to 1 and 1.6508 to 1 at June 30, 1998 and December
31, 1997, respectively.
Summarized unaudited results of operations for Telewest are as follows:
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------------
1998 1997
--------------- ----------------
Consolidated Operations in thousands
<S> <C> <C>
Revenue $ 373,912 298,357
Operating, selling, general and administrative expenses (284,078) (271,437)
Depreciation and amortization (177,578) (147,267)
--------------- ----------------
Operating loss (87,744) (120,347)
Interest expense, net (132,937) (97,215)
Share of losses of affiliates (18,318) (16,974)
Foreign currency transaction loss (2,413) (40,006)
Other, net 1,210 242
--------------- ----------------
Net loss $ (240,202) (274,300)
=============== ================
</TABLE>
(12) Investments in Other Affiliates
The TCI Ventures Group's affiliates other than the PCS Ventures,
Telewest, TCG and Cablevision (the "Other Affiliates") generally are
engaged in the cable and/or programming businesses in the U.S. and in
various foreign countries.
The TCI Ventures Group has guaranteed notes payable and other
obligations of certain of the Other Affiliates (the "Guaranteed
Obligations"). At June 30, 1998, the U.S. dollar equivalent of the
amounts borrowed pursuant to the Guaranteed Obligations aggregated
approximately $101 million.
(continued)
I-129
<PAGE> 131
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Certain of the Other Affiliates are general partnerships and any
subsidiary of the TCI Ventures Group that is a general partner in a
general partnership is, as such, liable, as a matter of partnership law
for all debts (other than non-recourse debts) of that partnership to
the extent liabilities of that partnership were to exceed its assets.
Agreements governing the TCI Ventures Group's investment in certain of
the Other Affiliates contain (i) buy-sell and other exit arrangements
whereby the TCI Ventures Group could be required to purchase another
investor's ownership interest and (ii) performance guarantees whereby
the TCI Ventures Group has guaranteed the performance of the TCI
Ventures Group's subsidiary that directly holds the related investment.
The following table reflects the TCI Ventures Group's carrying value
(including receivables) of the Other Affiliates:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
amounts in thousands
<S> <C> <C>
Flextech (a) $ 259,058 261,453
Liberty/TINTA LLC ("Liberty/TINTA") (b) 134,407 127,574
MultiThematiques S.A. ("MultiThematiques") 70,977 68,335
Jupiter Telecommunications
Co., Ltd. ("Jupiter") 51,225 49,197
United International Investments ("UII") (c) 25,101 26,966
Bresnan International Partners (Poland), L.P. ("BIP
Poland") 21,345 26,110
Jupiter Programming Co., Ltd. ("JPC") 17,403 15,582
Bresnan International Partners (Chile), L.P. 15,071 22,863
Other 22,218 33,838
------------ ------------
$ 616,805 631,918
============ ============
</TABLE>
---------------------
(a) Flextech
TINTA owned, at June 30, 1998, 57,889,032 Flextech ordinary
shares ("Flextech Ordinary Shares") representing 36.8% of the
issued and outstanding Flextech share capital and, when
combined with a special voting share owned by TINTA, 50% of
the aggregate voting interests attributable to such Flextech
share capital. Based upon the (pound)5.53 ($9.22) per share
closing price of the Flextech Ordinary Shares on the London
Stock Exchange, the Flextech Ordinary Shares owned by TINTA
had an aggregate market value of (pound)320 million ($534
million) at June 30, 1998.
(continued)
I-130
<PAGE> 132
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
In January 1997, TINTA reduced its voting interest in Flextech
to 50% by issuing to a nominee an irrevocable proxy (the
"Proxy") to vote 960,850 Flextech Ordinary Shares at any
shareholder meeting to be held through December 31, 1997. In
April 1997, Flextech and BBC Worldwide Limited ("BBC
Worldwide") formed two separate joint ventures (the "Principal
Joint Venture" and the "Second Joint Venture", collectively
the "BBC Joint Ventures") and entered into certain related
transactions. The consummation of the BBC Joint Ventures and
related transactions resulted in, among other things, a
reduction of TINTA's ownership interest in Flextech to 35.9%
and the issuance to TINTA by Flextech of a special voting
share (the "Special Voting Share"). The Special Voting Share
when combined with TINTA's other share capital in Flextech,
allows TINTA to cast 50% of the votes on most matters brought
to the shareholders of Flextech for vote. The Special Voting
Share will terminate upon the occurrence of the earlier of (i)
the third anniversary of issuance or (ii) any transfer of
Flextech shares by TINTA outside a specified affiliated group.
In light of TINTA's decreased voting interest in Flextech,
TINTA, effective January 1, 1997, ceased to consolidate
Flextech and began to account for Flextech using the equity
method of accounting.
Flextech has undertaken to finance the working capital
requirements of the Principal Joint Venture and is obligated
to provide the Principal Joint Venture with a primary credit
facility of (pound)88 million ($147 million) and subject to
certain restrictions, a standby credit facility of (pound)30
million ($50 million). As of June 30, 1998, the Principal
Joint Venture had borrowed (pound) 6.6 million ($11.0 million)
under the primary credit facility. Flextech has also agreed to
make available to the Second Joint Venture, if required,
funding of up to (pound)10 million ($17 million). As of June
30, 1998, Flextech had funded (pound) 7.5 million ($12.5
million) to the Second Joint Venture under such obligation. If
Flextech defaults in its funding obligation to the Principal
Joint Venture and fails to cure within 42 days after receipt
of notice from BBC Worldwide, BBC Worldwide is entitled,
within the following 90 days, to require that TINTA assume all
of Flextech's funding obligations to the Principal Joint
Venture (the "Standby Commitment").
If BBC Worldwide requires TINTA to perform Flextech's funding
obligations pursuant to the Standby Commitment, then TINTA
will acquire Flextech's entire equity interest in the
Principal Joint Venture for (pound)1.00, and will replace
Flextech's directors on the board of the Principal Joint
Venture with representatives of TINTA. Flextech will pay
commitment and standby fees to TINTA for its undertaking under
the Standby Commitment. If Flextech repays to TINTA all loans
it makes to the Principal Joint Venture (plus interest at
TINTA's marginal cost of funds plus 2% per annum) within 180
days after TINTA first becomes obligated to perform Flextech's
financial obligations, it may reacquire its interest in the
Principal Joint Venture for (pound)1.00. TINTA may also,
within the same period, require Flextech to reacquire its
interest on the same terms. The Standby Commitment will
terminate on the earliest of (i) the date on which Flextech
has met all of its required financial obligations to the
Principal Joint Venture under the primary and standby credit
facilities, or (ii) the date on which Flextech delivers a bank
guarantee of all of its funding obligations to the Principal
Joint Venture.
(continued)
I-131
<PAGE> 133
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
So long as TINTA is contingently obligated under the Standby
Commitment, it has been agreed that (i) Flextech will not sell
any of its direct or indirect interests in the Principal Joint
Venture, (ii) Flextech will not conduct its business in such a
way as is likely to cause it to be in material breach of any
material contracts or to have insufficient working capital to
meet its funding obligation to the Principal Joint Venture,
and (iii) Flextech will use its available resources to
subscribe for any outstanding loan stock of the Principal
Joint Venture, if and to the extent required by TINTA at any
time after December 31, 2011.
(b) Liberty/TINTA LLC
Subsidiaries of TINTA and Liberty Media Group own equal parts
of Liberty/TINTA. During 1996, Liberty/TINTA and News
Corporation Limited ("News Corp.") formed a joint venture
including a number of partnerships or other entities under
common ownership, ("Fox Sports International"), to operate
currently existing sports services in Latin America and
Australia and a variety of new sports services throughout the
world, excluding the United States, Canada and certain other
defined geographic areas.
During the third quarter of 1997, Fox Sports International
distributed (i) its 35% interest in Torneos y Competencias
S.A. ("Torneos") to Liberty/TINTA and (ii) certain Australian
sports rights to News Corp. On October 2, 1997, TINTA
purchased a 5% direct interest in Torneos from an unaffiliated
third party for $12 million. As of June 30, 1998, TINTA had
made cash contributions to Torneos on the behalf of
Liberty/TINTA of $48 million.
(c) UII
At June 30, 1998, UII owned approximately 50.0%, 46.6% and
45.0% of Melita Cable TV Limited ("Melita"), Tevel Israel
International Communications Ltd. ("Tevel") and Princes
Holding Limited ("PHL"), respectively. Through UII, TINTA
owned 50.0%, 50.0% and 55.6% of the foregoing Melita, Tevel
and PHL ownership interests. Melita and Tevel operate cable
television systems in Malta and Israel, respectively. PHL is
an Irish cable and microwave-multichannel distribution
operator.
TINTA has signed a memorandum of understanding with United
International Holdings, Inc. ("UIH") for the sale of TINTA's
ownership interests in Tevel and Melita to UIH. Concurrently,
TINTA will purchase an additional 25% interest in PHL from
UIH. The parties have agreed that, net of its purchase of
UIH's 25% interest in PHL, TINTA will receive $71 million for
its interests in Tevel and Melita. Such proceeds are subject
to adjustment.
Consummation of such transactions is contingent on the consent
of certain third parties and regulatory bodies, as well as on
the completion of financing by UIH. There can be no assurance
that such transactions will be consummated or consummated on
the terms contemplated by the parties.
(continued)
I-132
<PAGE> 134
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Asia Business News (Singapore) PTE Ltd.
On December 31, 1997, TINTA surrendered all of its shares of Asia
Business News (Singapore) PTE Ltd. ("ABN") in exchange for a $25
million unsecured note receivable from ABN (the "ABN Note"). The ABN
Note is due on December 31, 2012. Due to uncertainty regarding
collection of the ABN Note, TINTA recorded the ABN Note at an amount
equal to its investment in ABN as of the date of conversion. No gain
was recognized on the above transaction.
The following table reflects the TCI Ventures Group's share of losses
of the Other Affiliates:
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------
1998 1997
------------- -----------
amounts in thousands
<S> <C> <C>
Jupiter $ 12,007 10,638
MultiThematiques 10,481 4,134
JPC 6,670 7,513
Liberty/TINTA 6,664 7,432
Flextech 6,181 10,615
BIP Poland 3,754 750
ABN -- 6,230
Other 3,955 3,097
------------- -----------
$ 49,712 50,409
============= ===========
</TABLE>
Summarized unaudited results of operations of the Other Affiliates by
geographic region for the periods in which the TCI Ventures Group used
the equity method to account for its investments in the Other
Affiliates are as follows:
<TABLE>
<CAPTION>
Six months ended June 30, 1998
--------------------------------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia(a) Caribbean(b) States Total
------------ ------------ ------------ ------------ ------------
Combined Operations amounts in thousands
<S> <C> <C> <C> <C> <C>
Revenue $ 176,241 104,010 -- 5,152 285,403
Operating expenses (193,241) (139,435) -- (4,003) (336,679)
Depreciation and amortization (6,486) (11,308) (170) (2,724) (20,688)
------------ ------------ ------------ ------------ ------------
Operating loss (23,486) (46,733) (170) (1,575) (71,964)
Interest expense, net (5,796) (1,130) (3,311) (1,211) (11,448)
Other, net 4,802 3,212 (12,489) (175) (4,650)
------------ ------------ ------------ ------------ ------------
Net loss $ (24,480) (44,651) (15,970) (2,961) (88,062)
============ ============ ============ ============ ============
</TABLE>
(continued)
I-133
<PAGE> 135
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
<TABLE>
<CAPTION>
Six months ended June 30, 1997
------------------------------------------------------------------------------
Latin
America
Asia and and The United
Europe Australia (a) Caribbean (b) States Total
------------ ------------- ------------- ------------ ------------
Combined Operations amounts in thousands
<S> <C> <C> <C> <C> <C>
Revenue $ 130,458 111,101 6,559 5,272 253,390
Operating expenses (159,370) (129,664) (5,233) (4,749) (299,016)
Depreciation and amortization (14,422) (7,205) (1,191) (2,855) (25,673)
------------ ------------- ------------- ------------ ------------
Operating income (loss) (43,334) (25,768) 135 (2,332) (71,299)
Interest expense, net (922) (5,498) (2,784) (993) (10,197)
Other, net (4,815) (13,579) (14,807) (4,990) (38,191)
------------ ------------- ------------- ------------ ------------
Net loss $ (49,071) (44,845) (17,456) (8,315) (119,687)
=========== ============= ============= ============ ============
</TABLE>
------------------
(a) The summarized operating results of ABN are included in the
combined operations through December 31, 1997, the date TINTA
surrendered all of its shares of ABN in exchange for the ABN
Note. See related discussion above. The summarized operating
results of Sky Network Television New Zealand, Ltd. ("Sky")
are included in the combined operations through September 26,
1997, the date that TINTA sold its interest in Sky.
(b) The summarized operating results of Caguas/Humacao Cable
Systems ("Caguas") are included in the combined operations
through May 1, 1997, the date TINTA acquired the 50% ownership
in Caguas which TINTA did not already own.
(13) Debt
The components of debt are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------- ----------------
amounts in thousands
<S> <C> <C>
Debentures (a) $ 345,000 345,000
Ventures Group Bank Facility (b) 204,000 --
Puerto Rico Bank Facility (c) 45,000 45,000
Other -- 18,532
-------------- ----------------
$ 594,000 408,532
============== ================
</TABLE>
--------------------
(a) On February 8, 1996, TINTA received net cash proceeds of
approximately $336 million from the issuance of 4-1/2%
Convertible Subordinated Debentures (the "Debentures") due
2006 having an aggregate principal amount of $345 million. The
Debentures are convertible into shares of TINTA Series A
common stock at a price of $27.30 per share of TINTA Series A
common stock, subject to anti-dilution adjustments. Interest
on the Debentures is payable on February 15 and August 15 of
each year. The Debentures may be redeemed by TINTA in whole or
in part, at any time on or after February 15, 1999.
(continued)
I-134
<PAGE> 136
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(b) On March 10, 1998, TCI Ventures Group entered into a bank
credit facility with a term of one year which provides for
aggregate borrowings of up to $400 million (the "Ventures
Group Bank Facility"). Borrowings under the Ventures Group
Bank Facility bear interest at variable rates (6.05% at June
30, 1998). TCI Ventures Group is required to pay a commitment
fee equal to 0.15% on the average daily unused portion of the
maximum borrowing commitments. The Ventures Group Bank
Facility contains restrictive covenants which require, among
other things, the maintenance of certain financial ratios, and
includes limitations on indebtedness, liens and encumbrances,
acquisitions, dispositions and dividends.
(c) TINTA's Puerto Rico subsidiary (the "Puerto Rico Subsidiary")
has a reducing revolving bank facility which is unsecured and
provides for maximum borrowing commitments of $100 million
(the "Puerto Rico Bank Facility"). The availability of such
commitments for borrowing is subject to the Puerto Rico
Subsidiary's compliance with applicable financial covenants
and other customary conditions. Commencing March 31, 2000, the
maximum commitments will be reduced quarterly through March
31, 2006. Borrowings under the Puerto Rico Bank Facility bear
interest at variable rates (6.15% at June 30, 1998). In
addition, the Puerto Rico Subsidiary is required to pay a
commitment fee equal to 0.375% on the average daily unused
portion of the maximum borrowing commitments, payable
quarterly in arrears and at maturity. The Puerto Rico Bank
Facility contains restrictive covenants which require, among
other things, the maintenance of certain financial ratios
(primarily the ratios of cash flow to total debt and cash flow
to debt service, as defined), and includes certain limitations
on indebtedness, investments, guarantees, acquisitions,
dispositions, dividends, liens and encumbrances, and
transactions with affiliates. If TCI's ownership interest in
TINTA were to fall below 50.1%, borrowings under the Puerto
Rico Bank Facility would be secured by the assets of the
Puerto Rico Subsidiary and the variable interest rates on such
borrowings would be increased.
With the exception of the Debentures, which had a fair value of $317
million at June 30, 1998, the TCI Ventures Group believes that the fair
value and the carrying value of the TCI Ventures Group's debt were
approximately equal at June 30, 1998.
(continued)
I-135
<PAGE> 137
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(14) Combined Equity
General
During the fourth quarter of 1997, TCI entered into a Total Return
Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
Equity Swap Facility, TCI has the right to direct the counterparty (the
"Counterparty") to use the Equity Swap Facility to purchase shares
("Equity Swap Shares") of TCI Group Series A Stock and TCI Ventures
Group Series A Stock with an aggregate purchase price of up to $300
million. TCI has the right, but not the obligation, to purchase Equity
Swap Shares through the September 30, 2000 termination date of the
Equity Swap Facility. During such period, TCI is to settle periodically
any increase or decrease in the market value of the Equity Swap Shares.
If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from
the other Equity Swap Shares. If the market value of Equity Swap Shares
is less than the Counterparty's cost, TCI, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock or, subject to certain conditions, with cash or
letters of credit. In addition, the Company is required to periodically
pay the Counterparty a fee equal to a LIBOR-based rate on the
Counterparty's cost to acquire the Equity Swap Shares. Due to TCI's
ability to issue shares to settle periodic price fluctuation and fees
under the Equity Swap Facility, TCI records all amounts received or
paid under this arrangement as increases or decreases, respectively, to
equity. As of June 30, 1998, the Equity Swap Facility had acquired
4,935,780 shares of TCI Group Series A Stock and 1,151,800 shares of
TCI Ventures Group Series A Stock at an aggregate cost that was
approximately $48 million less than the fair value of such Equity Swap
Shares at June 30, 1998. The costs and benefits associated with the TCI
Ventures Group Series A Stock held by the Equity Swap Facility are
attributed to TCI Ventures Group.
(continued)
I-136
<PAGE> 138
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Estate of
Bob Magness (the "Magness Estate"), the late founder and former
Chairman of the Board of TCI.
On February 9, 1998, in connection with the Magness Settlement, TCI,
entered into a call agreement (the "Malone Call Agreement") with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"),
under which the Malones granted to TCI the right to acquire the
Malones' high-voting shares, currently consisting of an aggregate of
approximately 60 million shares of Series B Stock (the "High-Voting
Shares"), upon Dr. Malone's death or upon a contemplated sale of the
High-Voting Shares (other than a minimal amount) to third persons. In
either such event, TCI has the right to acquire the shares at a maximum
price equal to the then relevant market price of shares of "low-voting"
Series A Stock plus a ten percent premium. The Malones also agreed that
if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no
greater than a ten percent premium over the price paid for the relevant
shares of Series A Stock. TCI paid $150 million to the Malones for
agreeing to the terms of the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain
cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
Magness) and the Magness Estate (collectively, the "Magness Family")
also entered into a call agreement with TCI (with substantially the
same terms as the one entered into by the Malones, including a call on
the shares owned by the Magness Family upon Dr. Malone's death) (the
"Magness Call Agreement") on the Magness Family's aggregate of
approximately 49 million High-Voting Shares. The Magness Family was
paid $124 million by TCI for entering into the Magness Call Agreement.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was
allocated to each of the Groups based upon the number of shares of each
Group (before giving effect to stock dividends) that are subject to the
Malone Call Agreement and the Magness Call Agreement. TCI Ventures
Group's share of the Call Payments of $76 million was paid during the
first quarter of 1998 and is reflected as a decrease to combined
equity.
Stock Repurchases
In conjunction with a stock repurchase program or similar transaction,
TCI may elect to sell put options on its own common stock. Proceeds
from any sales of puts with respect to TCI Ventures Group Stock are
reflected by TCI Ventures Group as an increase to combined equity, and
an amount equal to the maximum redemption amount under unexpired put
options with respect to TCI Ventures Group Stock is reflected as an
obligation to redeem TCI Ventures Group Stock in the accompanying
combined balance sheets.
During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 145,450 shares of TCI Ventures Group Series A Stock
and 94,000 shares of TCI Ventures Group Series B Stock were repurchased
at an aggregate cost of $3.9 million. Such amount is reflected as a
decrease to combined equity in the accompanying combined financial
statements.
(continued)
I-137
<PAGE> 139
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Stock Based Compensation
TCI Ventures Group records stock compensation expense relating to
restricted stock awards, options and/or stock appreciation rights
(collectively, "Awards") granted (i) by TCI to certain TCI employees
and/or directors who are involved with the TCI Ventures Group and (ii)
by TINTA, UVSG, and @Home to employees and/or directors of such
entities. Stock compensation with respect to Awards granted by TCI
includes amounts related to TCI common stock and to common stock of
certain non-public subsidiaries of TCI and is allocated to TCI Ventures
Group based on the Awards held by TCI employees and/or directors who
are involved with TCI Ventures Group. Estimated compensation relating
to the Awards has been recorded in the accompanying combined financial
statements through June 30, 1998. Such estimate is subject to future
adjustment based upon vesting and market value, and ultimately, on the
final determination of market value when such rights are exercised. The
estimated compensation adjustment with respect to TCI Awards resulted
in increases to TCI Ventures Group's share of TCI's stock compensation
liability of $121.7 million and $12.8 million for the six months ended
June 30, 1998 and 1997, respectively. In addition, for the six months
ended June 30, 1998, TCI Ventures Group made cash payments relating to
its share of TCI's stock compensation obligations of $68.9 million. The
payable arising from the compensation related to the Awards granted by
TCI is included in the amount due to related parties.
Transactions with Related Parties
The components of due to (from) related parties are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------------- ------------------
amounts in thousands
<S> <C> <C>
TCI Note Receivable (a) $ (5,351) (88,707)
Intercompany account (b) 13,480 110,212
---------------- ------------------
$ 8,129 21,505
================ ==================
</TABLE>
--------------------
(a) Amounts outstanding under a note agreement between the TCI
Ventures Group and TCI (the "TCI Note Receivable") bear
interest at variable rates based on TCI's weighted average
cost of bank borrowings of similar maturities (6.4% at June
30, 1998). Principal and interest is due and payable as
mutually agreed from time to time by TCI and the TCI Ventures
Group. During the six months ended June 30, 1998 and 1997,
interest income related to the TCI Note Receivable aggregated
$1.6 million and $3.8 million, respectively.
(b) The non-interest bearing intercompany account includes certain
income tax and stock compensation allocations that are to be
settled at some future date. All other amounts included in the
intercompany account are to be settled within thirty days
following notification. Through September 10, 1997, the date
of the TCI Ventures Exchange, the effects of all transactions
with TCI Group, except those related to the TCI Note
Receivable, were reflected as adjustments to TCI Ventures
Group's combined equity.
(continued)
I-138
<PAGE> 140
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The TCI Group has provided a revolving loan facility (the "Ventures
Intergroup Credit Facility") to the TCI Ventures Group for a five-year
period commencing on September 10, 1997. Such facility permits
aggregate outstanding borrowings at any one time of up to $500 million
(subject to reduction as provided below), which borrowings bear
interest at a rate per annum equal to The Bank of New York's prime rate
(as in effect from time to time) plus 1% per annum, payable quarterly.
A commitment fee equal to 3/8% per annum of the average unborrowed
availability under the Ventures Intergroup Credit Facility is payable
by the TCI Ventures Group to the TCI Group on a quarterly basis. Such
commitment fee was $950,000 for the six months ended June 30, 1998. The
maximum amount of borrowings permitted under the Ventures Intergroup
Credit Facility will be reduced on a dollar-for-dollar basis by up to
$300 million if and to the extent that the aggregate amount of any
additional capital that TCI Telephony is required to contribute to
Sprint PCS Partnerships subsequent to the TCI Ventures Exchange is less
than $300 million. No borrowings were outstanding pursuant to the
Ventures Intergroup Credit Facility at June 30, 1998.
During 1996, TCI Group transferred, subject to regulatory approval,
certain distribution equipment to a subsidiary of TINTA in exchange for
a (pound)15 million ($23 million using the applicable exchange rate)
principal amount promissory note (the "TVG LLC Promissory Note"). The
TVG LLC Promissory Note was contributed by TCI Group to TCI Ventures
Group in connection with the September 10, 1997 consummation of the
Exchange Offers. The distribution equipment was subsequently leased
back to TCI Group over a five year term with semi-annual payments of $2
million, plus expenses. Effective October 1, 1997, such distribution
equipment was transferred back to TCI Group and the related lease and
the TVG LLC Promissory Note were canceled. During the six months ended
June 30, 1997, (i) the U.S. dollar equivalent of interest expense with
respect to the TVG LLC Promissory Note was $789,000, (ii) the U.S.
dollar equivalent of the lease revenue under the above-described lease
agreement aggregated $1.7 million and (iii) TINTA experienced foreign
currency transaction losses of $589,000, with respect to the TVG LLC
Promissory Note.
Certain TCI corporate general and administrative costs are charged to
TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. TCI Ventures Group was allocated
$6.3 million and $4.4 million in corporate general and administrative
costs by the TCI Group during the six months ended June 30, 1998 and
1997, respectively.
During the six months ended June 30, 1998 and 1997, programming revenue
earned by UVSG from TCI Group was $4.1 million and $4.3 million,
respectively. UVSG purchases programming from Liberty Media Group and,
during the six months ended June 30, 1997, also purchased programming
from TCI Group. These purchases totaled $22.2 million and $18.3 million
for the six months ended June 30, 1998 and 1997, respectively, and are
included in operating costs in the accompanying combined statements of
operations.
(continued)
I-139
<PAGE> 141
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Amounts included in revenue for services provided to the other Groups
by WTCI and NDTC are $17.3 million and $18.1 million for the six months
ended June 30, 1998 and 1997, respectively.
A subsidiary of TCI that was a member of TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment
was subleased to TCI Group under an operating lease. In January 1998,
TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
Ventures Group's assignment of its ownership interest in such
subsidiary to TCI Group. Due to the related party nature of the
transaction, the $49.5 million total of the cash payment and the
historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $175.8 million) has been
reflected as an addition to TCI Ventures Group's combined equity.
The Puerto Rico Subsidiary purchases programming services from the TCI
Group. The charges, which approximate the TCI Group's cost and are
based on the aggregate number of subscribers served by the Puerto Rico
Subsidiary, aggregated $2.8 million and $2.9 million during the six
months ended June 30, 1998 and 1997, respectively. The above-described
programming fee charges are included in operating costs in the
accompanying combined statements of operations.
As further described in note 5, effective October 1, 1997, TINTA ceased
to consolidate Cablevision and began to account for Cablevision under
the equity method of accounting. Cablevision purchases programming
services from certain affiliates. The related charges generally are
based upon the number of Cablevision's subscribers that receive the
respective services. During the six months ended June 30, 1997, such
charges aggregated $7.4 million. Additionally, certain of Cablevision's
general and administrative functions are provided by affiliates. The
related charges, which generally are based upon the respective
affiliate's cost of providing such functions, aggregated $1.6 million
during the six months ended June 30, 1997. The above-described
programming and general and administrative charges are included in
operating costs in the accompanying combined statements of operations.
(15) Income Taxes
The TCI Ventures Group and its 80%-or-more-owned domestic businesses
which have been attributed to the TCI Ventures Group (the "TCI Ventures
Tax Group") are included in the consolidated federal and state income
tax returns of TCI. The TCI Ventures Group's income taxes include those
items in the consolidated calculation applicable to the TCI Ventures
Tax Group ("intercompany tax allocation") and any income taxes of
attributed entities that are excluded from the consolidated federal and
state income tax returns of TCI. Intercompany tax allocation represents
an apportionment of tax expense or benefit (other than deferred taxes)
among subsidiaries of TCI in relation to their respective amounts of
taxable earnings or losses.
(continued)
I-140
<PAGE> 142
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI,
TCI Ventures Group and certain subsidiaries of TCI was implemented
effective July 1, 1995. The Old Tax Sharing Agreement formalized
certain of the elements of a pre-existing tax sharing arrangement and
contains additional provisions regarding the allocation of certain
consolidated income tax attributes and the settlement procedures with
respect to the intercompany allocation of current tax attributes. Under
the Old Tax Sharing Agreement, the TCI Ventures Group was responsible
to TCI for its share of consolidated income tax liabilities (computed
as if TCI were not liable for the alternative minimum tax) determined
in accordance with the Old Tax Sharing Agreement, and TCI was
responsible to the TCI Ventures Group to the extent that the income tax
attributes generated by the TCI Ventures Tax Group were utilized by TCI
to reduce its consolidated income tax liabilities (computed as if TCI
were not liable for the alternative minimum tax). The tax liabilities
and benefits of such entities so determined were charged or credited to
an intercompany account between TCI and the TCI Ventures Group. Such
intercompany account is required to be settled only upon the date that
an entity ceases to be a member of TCI's consolidated group for federal
income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
the burden of any alternative minimum tax and has the right to receive
the tax benefits from any alternative minimum tax credit attributable
to any tax period beginning on or after July 1, 1995 and ending on or
before October 1, 1997.
Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by the TCI Group,
the Liberty Media Group and the TCI Ventures Group. Effective for
periods on and after the Effective Date, federal income taxes will be
computed based upon the type of tax paid by TCI (on a regular tax or
alternative minimum tax basis) on a separate basis for each Group.
Based upon these separate calculations, an allocation of tax
liabilities and benefits will be made such that each Group will be
required to make cash payments to TCI based on its allocable share of
TCI's consolidated federal income tax liabilities (on a regular tax or
alternative minimum tax basis, as applicable) attributable to such
Group and actually used by TCI in reducing its consolidated federal
income tax liability. Tax attributes and tax basis in assets would be
inventoried and tracked for ultimate credit to or charge against each
Group. Similarly, in each taxable period that TCI pays alternative
minimum tax, the federal income tax benefits of each Group, computed as
if such Group were subject to regular tax, would be inventoried and
tracked for payment to or payment by each Group in years that TCI
utilizes the alternative minimum tax credit associated with such
taxable period. The Group generating the unutilized tax benefits would
receive a cash payment only if, and when, the unutilized taxable losses
of the other Group are actually utilized. If the unutilized taxable
losses expire without ever being utilized, the Group generating the
utilized tax benefits will never receive payment for such benefits.
Pursuant to the New Tax Sharing Agreement, state and local income taxes
are calculated on a separate return basis for each Group (applying
provisions of state and local tax law and related regulations as if the
Group were a separate unitary or combined group for tax purposes), and
TCI's combined or unitary tax liability is allocated among the Groups
based upon such separate calculation.
(continued)
I-141
<PAGE> 143
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that were
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement as amended.
The net amount of the balance of each TCI Group intercompany account
under the Old Tax Sharing Agreement that is attributable to entities
included in the TCI Ventures Group for the period beginning July 1,
1995 and ending on September 10, 1997 (the consummation date of the
Exchange Offers) has been included in TCI Ventures Group's combined
equity. Tax liabilities and benefits, as determined under the Old Tax
Sharing Agreement, that were generated by the entities comprising the
TCI Ventures Group for the period beginning on September 10, 1997 and
ending on September 30, 1997 were credited or debited to an
intercompany account between the TCI Group and the TCI Ventures Group
in accordance with the Old Tax Sharing Agreement. The intercompany tax
account existing between TCI and TINTA for the period beginning July 1,
1995 and ending September 30, 1997 will be required to be settled
between the TCI Ventures Group and TINTA if and when TINTA ceases to be
a member of TCI's consolidated group for federal income tax purposes.
For periods subsequent to September 30, 1997 TINTA and TCI Ventures
Group have followed a tax sharing arrangement with terms similar to
those contained in the New Tax Sharing Agreement.
At December 31, 1997, the TCI Ventures Group had federal net operating
loss carryforwards for income tax purposes aggregating approximately
$504 million which, if not utilized to reduce taxable income in future
periods, will begin to expire at various dates beginning in the year
2004. Pursuant to the Old and New Tax Sharing Agreements, TCI Ventures
Group has already received benefit for approximately $37 million of
such net operating loss carryforwards. TCI Ventures Group is
responsible to TCI to the extent this amount of net operating loss
carryforwards is utilized by TCI in future periods.
(16) Commitments and Contingencies
In addition to the commitments and contingent obligations described
below, TCI Ventures Group has significant commitments and contingent
obligations with respect to certain of its affiliates and other
matters. See notes 2, 8, 10, 11, 12 and 14.
TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
Partnership") to pay fees for the license to exhibit certain films
through 2000. Although the aggregate amount of The Premium Movie
Partnership's license fee obligations is not currently estimable, TINTA
believes that the aggregate payments pursuant to such obligations could
be significant. If TINTA were to fail to fulfill its obligations under
the guarantee, the beneficiaries have the right to demand an aggregate
payment from TINTA of approximately $38 million. Although TINTA has not
had to perform under such guarantee to date, TINTA cannot be certain
that it will not be required to perform under such guarantee in the
future.
(continued)
I-142
<PAGE> 144
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
TINTA has formed strategic partnerships with News Corp., Organizacoes
Globo and Group Televisa S.A. to develop and operate a direct-to-home
satellite service for Latin America, Mexico, and various Central and
South American countries (collectively, the "DTH Ventures"). Through
June 30, 1998, TINTA had contributed $44.8 million to the DTH Ventures.
It is anticipated that TINTA could be required to make additional cash
contributions in connection with the DTH Ventures. In addition, as of
June 30, 1998, TINTA had guaranteed approximately $93 million of the
DTH Ventures' financial obligations.
Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC
("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation
("GI") to purchase advanced digital set-top devices. The hardware and
software incorporated into these devices will be designed and
manufactured to be compatible and interoperable with the OpenCable(TM)
architecture specifications adopted by CableLabs, the cable television
industry's research and development consortium, in November 1997. NDTC
has agreed that Approved Purchasers will purchase, in the aggregate, a
minimum of 6.5 million set-top devices during calendar years 1998, 1999
and 2000 at an average price of $318 per set-top device. Through June
30, 1998, 525,000 set-top devices had been purchased pursuant to this
commitment. GI agreed to provide NDTC and its Approved Purchasers the
most favorable prices, terms and conditions made available by GI to any
customer purchasing advanced digital set-top devices. In connection
with NDTC's purchase commitment, GI agreed to grant warrants to
purchase its common stock proportional to the number of devices ordered
by each organization, which as of the effective date of the Digital
Terminal Purchase Agreement, would have represented at least a 10%
equity interest in GI (on a fully diluted basis). Such warrants vest as
annual purchase commitments are met. It is anticipated that the value
associated with such equity interest would be attributed to TCI Group
upon purchase and deployment of the digital set-top devices. See note
2. NDTC has the right to terminate the Digital Terminal Purchase
Agreement if, among other reasons, GI fails to meet a material
milestone designated in the Digital Terminal Purchase Agreement with
respect to the development, testing and delivery of advanced digital
set-top devices.
On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
exchange for (i) certain of the assets of NDTC's set-top authorization
business, (ii) the license of certain related technology to GI, (iii) a
$50 million promissory note from TCI Ventures Group to GI and (iv) a
nine year revenue guarantee from TCI Ventures Group in favor of GI. In
connection therewith, NDTC also entered into a service agreement
pursuant to which it will provide certain services to GI's set-top
authorization business.
(continued)
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<PAGE> 145
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
A TCI subsidiary attributed to TCI Ventures Group issued preferred
stock in connection with a previous acquisition. Such preferred stock
is exchangeable at the option of the holders into 1,084,056 shares of
TCI Group Series A Stock beginning in April 1999. The TCI Ventures
Group entered into a forward purchase contract in July 1998 with a
commercial bank to acquire 1,084,056 shares of TCI Group Series A Stock
for approximately $45 million on or before April 19, 1999. Such shares
will be used to satisfy the exchange requirements of the aforementioned
preferred stock.
TCI Ventures Group has contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible TCI Ventures Group may
incur losses upon conclusion of such matters, an estimate of any loss
or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying
combined financial statements.
During the six months ended June 30, 1998, TCI continued its
enterprise-wide comprehensive efforts to review and correct computer
systems, equipment and related software to ensure they properly
recognize, process and store business information. The computer
systems, equipment and software being evaluated include systems which
are integral to the distribution of TCI Ventures Group's products and
services, systems that support operations of TCI Ventures Group and
protect its assets, and all internal use software. TCI Ventures Group
is utilizing both internal and external resources, including the
establishment of a year 2000 enterprise program management office
accountable to TCI's executive management, to identify and remediate or
replace systems for year 2000 readiness.
During the six months ended June 30, 1998, TCI began the process of
testing and replacing or remediating critical components of its cable
systems' headend equipment, which is critical to both the cable
operations of the Puerto Rico Subsidiary and to the ability of TCI
Ventures Group and its affiliates to earn revenue from the distribution
of programming services. Although no assurance can be given, TCI
Ventures Group expects to conclude such testing by December 1998 with
replacement or remediation completed by the end of the first quarter of
1999. Also, TCI Ventures Group began the process of remediating systems
that control the commercial advertising in its cable operations,
including the advertisement of programming services distributed by TCI
Ventures Group and its affiliates. Although no assurance can be given,
those remediation efforts should be complete by mid-1999. TCI Ventures
Group continued to assess potential year 2000 issues of its affiliated
companies and provided its affiliates with remediation information on
software products and systems. TCI Ventures Group's business and
financial systems and software which will continue to be utilized by
TCI Ventures Group beyond the year 1999 will be capable of recognizing
the year 2000 and therefore should not require material remediation or
replacement.
(continued)
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<PAGE> 146
"TCI VENTURES GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Significant third party vendors whose systems are critical to TCI
Ventures Group's operations have been identified and surveyed and
confirmations from such parties have been received indicating that they
are either year 2000 ready or have plans in place to become ready.
During the six months ended June 30, 1998, TCI Ventures Group completed
an independent assessment of a key financial application externally
managed by a third party vendor and determined that such vendor's
systems and software should be compliant by the end of 1998. Also, TCI
Ventures Group has developed and initiated a plan with key suppliers
who provide systems which are integral to the distribution of TCI
Ventures Group's products and services to upgrade or replace non-year
2000 compliant systems on a product-by-product and site-by-site basis
by mid-1999.
Management of TCI Venture's Group intends to have further communication
with primary vendors identified as having systems that are not year
2000 compliant to assess those vendors' plans for remediating their own
year 2000 issues and to assess the impact on TCI Ventures Group if such
vendors fail to remediate their year 2000 issues. TCI Ventures Group
continues to evaluate the level of validation it will require of third
parties to ensure their year 2000 readiness.
Management of TCI has not yet determined the full cost associated with
its year 2000 readiness efforts and the related potential impact on
TCI's financial position, results of operations or cash flows but has
identified certain cost elements that, in the aggregate, are not
expected to be less than $63 million, which includes $3 million of
program management expenses incurred during the six months ended June
30, 1998. TCI Ventures Group's allocable share of such cost elements is
estimated to be not less than $15 million. Although there can be no
assurance, TCI Ventures Group anticipates that the costs ultimately
required to be paid to ensure TCI Ventures Group's year 2000 readiness
will not have a material adverse effect on TCI Ventures Group's
financial position, results of operations or cash flows. However, there
can be no assurance that TCI Ventures Group's systems or the systems of
other companies on which TCI Ventures Group relies will be converted in
time or that any such failure to convert by TCI Ventures Group or other
companies will not have a material adverse effect on its financial
position, results of operations or cash flows.
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<PAGE> 147
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company, TCI Group,
Liberty Media Group and TCI Ventures Group. Such discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto of the Company and the accompanying combined financial statements and
notes thereto of each of the TCI Group, Liberty Media Group and TCI Ventures
Group. Additionally, the following discussion and analysis should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations and financial statements included in Part II of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. The
following discussion focuses on material trends, risks and uncertainties
affecting the results of operations and financial condition of the Company, TCI
Group, Liberty Media Group and TCI Ventures Group.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and other factors
include, among others: general economic and business conditions and industry
trends; the regulatory and competitive environment of the industries in which
the Company, and the entities in which the Company has interests, operate;
uncertainties inherent in new business strategies, uncertainties inherent in the
Company's and its major vendors' year 2000 remediation efforts (including
uncertainties with respect to the availability of equipment and skilled
personnel), new product launches and development plans; rapid technological
changes; the acquisition, development and/or financing of telecommunications
networks and services; the development and provision of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the Federal
Communications Commission, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint
venturers; competitor responses to the Company's products and services, and the
products and services of the entities in which the Company has interests, and
the overall market acceptance of such products and services; and other factors.
These forward-looking statements (and such risks, uncertainties and other
factors) speak only as of the date of this Report, and the Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein, to reflect any change in the
Company's expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.
Targeted Stock
TCI targeted common stock is comprised of six series: TCI Group Series
A Stock, TCI Group Series B Stock, Liberty Group Series A Stock, Liberty Group
Series B Stock, TCI Ventures Group Series A Stock and TCI Ventures Group Series
B Stock.
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<PAGE> 148
The Liberty Group Stock is intended to reflect the separate performance
of the Liberty Media Group, which is comprised of TCI's assets which produce and
distribute programming services. The TCI Ventures Group Stock is intended to
reflect the separate performance of the TCI Ventures Group, which is comprised
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. The TCI Group Stock is intended to
reflect the separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. TCI Group is comprised
primarily of TCI's domestic cable and communications business. For additional
information concerning targeted stock, see note 1 to the accompanying
consolidated financial statements of TCI.
Proposed Merger
TCI and AT&T have agreed to a Merger pursuant to, and subject to the
terms and conditions set forth in, the Merger Agreement dated as of June 23,
1998. In the Merger, TCI will become a wholly-owned subsidiary of AT&T. In
addition, TCI has announced its intention, subject to stockholder approval, to
combine the assets and businesses of Liberty Media Group and TCI Ventures Group.
Consummation of the Merger is subject to the satisfaction or waiver of customary
conditions to closing, including but not limited to, the separate approvals of
the stockholders of AT&T and TCI, receipt of all necessary governmental consents
and approvals, and effectiveness of the registration statement registering the
AT&T Common Stock and AT&T Liberty Tracking Stock to be issued to TCI
stockholders in the Merger. As a result, there can be no assurance that the
Merger will be consummated or, if the Merger is consummated, as to the date of
such consummation. For additional information concerning the Merger, see note 2
to the accompanying consolidated financial statements of TCI.
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<PAGE> 149
Magness Settlement
On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI. Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively, the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares exceeds the Investment
Bankers' cost, Option Shares with a fair value equal to the difference between
the market value and cost will be segregated from the other Option Shares in an
account at the Investment Bankers. If the market value of the Option Shares is
less than the Investment Bankers' cost, the Company, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures Group
Series A Stock or, subject to certain conditions, with cash or letters of
credit. In addition, the Company is required to pay the Investment Bankers a
quarterly fee equal to the London Interbank Offered Rate ("LIBOR") plus 1% on
the Sale Price, as adjusted for payments made by the Company pursuant to any
quarterly settlement with the Investment Bankers. Due to the Company's ability
to settle quarterly price fluctuations and fees with shares of TCI Group Series
A Stock or TCI Ventures Group Series A Stock, the Company records all amounts
received or paid under this arrangement as increases or decreases, respectively,
to equity. During the fourth quarter of 1997, the Company repurchased 4,000,000
shares of TCI Group Series A Stock from one of the Investment Bankers for an
aggregate cash purchase price of $66 million. Additionally, as a result of the
Exchange Offers and certain open market transactions, the Investment Bankers
disposed of 4,210,308 shares of TCI Group Series A Stock and acquired 23,407,118
shares of TCI Ventures Group Series A Stock during the last half of 1997. As a
result of the foregoing transactions and certain transactions related to the
January 5, 1998 settlement of litigation involving the Magness Estate, as
described below, the Option Shares were comprised of 6,201,042 shares of TCI
Group Series A Stock and 11,740,610 shares of TCI Ventures Group Series A Stock
at June 30, 1998. At June 30, 1998, the market value of the Option Shares
exceeded the Investment Bankers' cost by $275 million. The costs and benefits
associated with the Option Shares are attributed to TCI Group.
In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
Chairman and Chief Executive Officer, agreed to forgo the exercise of certain
option rights and in consideration, TCI granted to Dr. Malone the right (the
"Malone Right") to acquire 30,545,864 shares of TCI Group Series B Stock.
On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness Estate.
In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock and
11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares, and the Magness Estate paid $11 million to TCI
representing a reimbursement of the Exchange fees incurred by TCI from June 16,
1997 through February 9, 1998 with respect to such returned shares. TCI then
issued to the Magness Estate 10,017,145 shares of TCI Group Series B Stock and
12,034,298 shares of TCI Ventures Series B Stock.
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<PAGE> 150
On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire the Malones' high-voting shares,
currently consisting of an aggregate of approximately 60 million shares of
Series B Stock (the "High-Voting Shares"), upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI has the right to acquire the shares at
a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones also agreed
that if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no greater
than a ten percent premium over the price paid for the relevant shares of Series
A Stock. TCI paid $150 million to the Malones for agreeing to the terms of the
Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into by
the Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's aggregate
of approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement.
The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was reflected as
a $274 million reduction of additional paid-in capital. The Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, $134 million, $64 million
and $76 million of the Call Payments were allocated to TCI Group, Liberty Media
Group and TCI Ventures Group, respectively.
Additionally, on February 9, 1998, the Magness Family entered into a
shareholders' agreement (the "Shareholders' Agreement") with the Malones and TCI
under which (i) the Magness Family and the Malones agree to consult with each
other in connection with matters to be brought to the vote of TCI's
shareholders, subject to the proviso that if they cannot mutually agree on how
to vote the shares, Dr. Malone has an irrevocable proxy to vote the High-Voting
Shares owned by the Magness Family, (ii) the Magness Family may designate a
nominee for the Board and Dr. Malone has agreed to vote his High Voting Shares
for such nominee and (iii) certain "tag along rights" have been created in favor
of the Magness Family and certain "drag along rights" have been created in favor
of the Malones. In addition, the Malone Right granted by TCI to Dr. Malone to
acquire 30,545,864 shares of TCI Group Series B Stock was reduced to an option
to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to the terms
of the Shareholders' Agreement, the Magness Family has the right to participate
in the reduced Malone Right on a proportionate basis with respect to 12,406,238
shares of the 14,511,570 shares subject to the Malone Right. On June 24, 1998,
Dr. Malone delivered notice to TCI Group exercising his right to purchase up to
14,511,570 shares of TCI Group Series B Stock at a per share price of $35.5875
pursuant to the Malone Right. In addition, a representative of the Magness
Family has advised Dr. Malone that the Magness Family will participate in such
purchase up to the Magness Family's proportionate share. Subject to final
verification and agreement of each party's proportionate share, upon the closing
of the exercise of the Malone Right, Dr. Malone would acquire 8,718,770 and the
Magness Family would acquire 5,792,800 of the shares of TCI Group Series B Stock
that are subject to the Malone Right. Such exercises are subject to any required
regulatory approvals.
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<PAGE> 151
Year 2000
During the six months ended June 30, 1998, the Company continued its
enterprise-wide comprehensive efforts to review and correct computer systems,
equipment and related software to ensure they properly recognize, process and
store business information. The computer systems, equipment and software being
evaluated include systems which are integral to the distribution of the
Company's products and services, systems that support operations of the Company
and protect its assets, and all internal use software. The Company is utilizing
both internal and external resources, including the establishment of a year 2000
enterprise program management office accountable to the Company's executive
management, to identify and remediate or replace systems for year 2000
readiness.
During the six months ended June 30, 1998, the Company began the
process of testing and replacing or remediating critical components of its cable
systems' headend equipment. Although no assurance can be given, the Company
expects to conclude such testing by December 1998 with replacement or
remediation completed by the end of the first quarter of 1999. Also, the Company
began the process of remediating systems that control the commercial advertising
in its cable operations. Although no assurance can be given, those remediation
efforts should be complete by mid-1999. The Company continued to assess
potential year 2000 issues of its affiliated companies and provided its
affiliates with remediation information on software products and systems. The
Company's business and financial systems and software which will continue to be
utilized by the Company beyond the year 1999 will be capable of recognizing the
year 2000 and therefore should not require material remediation or replacement.
Significant third party vendors whose systems are critical to the
Company's cable operations have been identified and surveyed and confirmations
from such parties have been received indicating that they are either year 2000
ready or have plans in place to become ready. During the six months ended June
30, 1998, the Company completed an independent assessment of a key financial
application externally managed by a third party vendor and determined that such
vendor's systems and software should be compliant by the end of 1998. Also, the
Company has developed and initiated a plan with key suppliers who provide
systems which are integral to the distribution of the Company's products and
services to upgrade or replace non-year 2000 compliant systems on a
product-by-product and site-by-site basis by mid-1999.
Management of the Company intends to have further communication with
primary vendors identified as having systems that are not year 2000 compliant to
assess those vendors' plans for remediating their own year 2000 issues and to
assess the impact on the Company if such vendors fail to remediate their year
2000 issues. The Company continues to evaluate the level of validation it will
require of third parties to ensure their year 2000 readiness.
Management of the Company has not yet determined the full cost
associated with its year 2000 readiness efforts and the related potential impact
on the Company's financial position, results of operations or cash flows but has
identified certain cost elements that, in the aggregate, are not expected to be
less than $63 million, which includes $3 million of program management expenses
incurred during the six months ended June 30, 1998. Although there can be no
assurance, the Company anticipates that the costs ultimately required to be paid
to ensure the Company's year 2000 readiness will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.
However, there can be no assurance that the Company's systems or the systems of
other companies on which the Company relies will be converted in time or that
any such failure to convert by the Company or other companies will not have a
material adverse effect on its financial position, results of operations or cash
flows.
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<PAGE> 152
MATERIAL CHANGES IN RESULTS OF OPERATIONS
GENERAL
Summarized operating data with respect to TCI is presented below for
the indicated periods:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
---------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------- ---------------
amounts in millions
<S> <C> <C> <C> <C>
Revenue $ 1,813 1,882 3,685 3,703
Operating, selling, general and administrative
expenses 1,147 1,166 2,313 2,249
Stock compensation 183 56 412 71
Cost of distribution agreements -- -- 83 --
Depreciation and amortization 420 407 843 781
------------ ------------ ------------- ---------------
Operating income 63 253 34 602
Interest expense (251) (294) (536) (583)
Share of losses of affiliates, net (351) (182) (589) (338)
Minority interests in earnings of consolidated
subsidiaries (43) (56) (29) (94)
Gain on dispositions of assets 237 64 1,338 83
Other, net (23) 3 (28) 22
------------ ------------ ------------- ---------------
(431) (465) 156 (910)
------------ ------------ ------------- ---------------
Earnings (loss) before income taxes (368) (212) 190 (308)
Income tax benefit (expense) 75 58 (165) 96
------------ ------------ ------------- ---------------
Net earnings (loss) $ (293) (154) 25 (212)
============ ============ ============= ===============
</TABLE>
The operating results of each of the TCI Group, Liberty Media Group and
TCI Ventures Group are separately discussed below.
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<PAGE> 153
TCI GROUP
TCI Group operates principally in the domestic cable and communications
industry. The table below sets forth, for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of TCI Group. Other items of
significance are discussed under separate captions below.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------------------- ----------------------------------------------
1998 1997 (a) 1998 1997 (a)
--------------------- --------------------- --------------------- ---------------------
dollar amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue 100% $ 1,504 100% $ 1,606 100% $ 3,081 100% $ 3,161
Operating expenses (35) (527) (37) (604) (36) (1,114) (37) (1,179)
Selling, general and
administrative expenses (23) (350) (21) (339) (22) (684) (21) (655)
Stock compensation (5) (77) (2) (36) (5) (147) (1) (38)
Depreciation and amortization (25) (373) (23) (362) (24) (749) (22) (694)
-------- -------- -------- -------- -------- -------- -------- --------
Operating income 12% $ 177 17% $ 265 13% $ 387 19% $ 595
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- --------------------
(a) Restated - see note 1 to the accompanying combined financial statements
of TCI Group.
The operation of TCI Group's cable television systems is regulated at
the federal, state and local levels. The Cable Television Consumer Protection
and Competition Act of 1992 and the Telecommunications Act of 1996 (the "Cable
Acts") established rules under which Regulated Services are regulated if a
complaint is filed by a customer or if the appropriate franchise authority is
certified by the Federal Communications Commission to regulate rates. At June
30, 1998, approximately 67% of TCI Group's basic customers were served by cable
television systems that were subject to such rate regulation.
During the six months ended June 30, 1998, 74% of TCI Group's revenue
was derived from Regulated Services. As noted above, any increases in rates
charged for Regulated Services are regulated by the Cable Acts. Moreover,
competitive factors may limit TCI Group's ability to increase its service rates.
During the first six months of 1998, TCI Group consummated the 1998
Contribution Transactions. Since January 1, 1997, TCI Group has also consummated
certain other acquisitions and dispositions. Such transactions affect the
comparability of TCI Group's results of operations for the three and six months
ended June 30, 1998 and 1997. For additional information see note 7 to the
accompanying combined financial statements of TCI Group.
TCI Group's revenue decreased $102 million or 6% for the three months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 5%. Revenue from TCI Group's customers
accounted for 2% of such increase in revenue, primarily as a result of a 6%
increase in basic revenue that was partially offset by a 10% decrease in premium
revenue. TCI Group experienced a 5% increase in its average basic rate, an
increase in the number of average basic customers of 1%, a 5% decrease in its
average premium rate and a 5% decrease in the number of average premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCI Group provided fulfillment services to a third party
resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 4% increase in revenue.
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<PAGE> 154
TCI Group's revenue decreased $80 million or 3% for the six months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 3%. Revenue from TCI Group's customers
accounted for 1% of such increase in revenue, primarily as a result of a 5%
increase in basic revenue that was partially offset by a 12% decrease in premium
revenue. TCI Group experienced a 5% increase in its average basic rate, a
decrease in the number of average basic customers of less than 1%, a 3% decrease
in its average premium rate and a 9% decrease in the number of average premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCI Group provided fulfillment services to a third party
resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 3% increase in revenue.
Operating expenses decreased $77 million or 13% for the three months
ended June 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, such expenses decreased 2%, as higher programming and labor
costs were more than offset by reductions attributable to higher capitalized
labor and overhead resulting from increased installation and construction
activities.
Operating expenses decreased $65 million or 6% for the six months ended
June 30, 1998, as compared to the corresponding prior year period. Exclusive of
the effects of acquisitions, the 1998 Contribution Transactions and other
dispositions, such expenses increased 9%. Such increase relates primarily to
higher programming and labor costs, which were partially offset by reductions
attributable to higher capitalized labor and overhead resulting from increased
installation and construction activities.
TCI Group cannot determine whether and to what extent increases in the
cost of programming will affect its future operating costs. However, due to TCI
Group's obligations under the EMG Affiliation Agreement with Encore Media Group,
it is anticipated that TCI Group's programming costs with respect to the
"STARZ!" and "Encore" premium services will increase in 1998 and future periods.
See note 12 to the accompanying combined financial statements of TCI Group.
Selling, general and administrative expenses increased $11 million or
3% for the three months ended June 30, 1998, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions, the 1998
Contribution Transactions and other dispositions, such expenses increased 20%.
Such increase was due primarily to general increases in expenses relating to the
launch of digital products and other initiatives, increased data processing
costs, lower launch and other incentives from programming suppliers and other
individually insignificant increases in general and administrative expenses in
1998.
Selling, general and administrative expenses increased $29 million or
4% for the six months ended June 30, 1998, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions, the 1998
Contribution Transactions and other dispositions, such expenses increased 15%.
Such increase was due primarily to general increases in expenses relating to the
launch of digital products and other initiatives, increased data processing
costs and other individually insignificant increases in general and
administrative expenses in 1998.
TCI Group records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by TCI to certain TCI
Group employees and directors who are involved with TCI Group. Estimated
compensation relating to stock appreciation rights has been recorded through
June 30, 1998, and is subject to future adjustment based upon vesting and market
values and, ultimately, on the final determination of market values when such
rights are exercised.
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<PAGE> 155
Depreciation and amortization expense increased $11 million or 3% and
$55 million or 8% for the three and six months ended June 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases represent the net effects of decreases due to the 1998 Contribution
Transactions and other dispositions that were more than offset by increases
attributable to acquisitions and capital expenditures.
Other Income and Expenses
TCI Group's interest expense decreased $55 million or 20% and $55
million or 10% for the three and six months ended June 30, 1998, respectively,
as compared to the corresponding prior year periods. Such decreases are
primarily the result of debt reductions attributable to the 1998 Contribution
Transactions.
TCI Group's share of CSC's losses, including amortization of the
difference between the recorded value of TCI Group's investment in CSC and TCI
Group's proportionate share of CSC's net deficiency, aggregated $48 million and
$80 million for the three months ended June 30, 1998 and for the period from
March 4, 1998 through June 30, 1998, respectively. As described in note 5 to the
accompanying combined financial statements of TCI Group, TCI Group acquired an
equity interest in CSC on March 4, 1998.
TCI Group's investments in affiliates other than CSC are comprised of
limited partnerships and other entities that are primarily engaged in the
domestic cable television business. TCI Group's share of net earnings (losses)
of other affiliates aggregated $(5 million) and $47 million for the three and
six months ended June 30, 1998, respectively, as compared to $(17 million) and
$(34 million) for the corresponding prior year periods. A significant portion of
the change from the six months ended June 30, 1997 to the six months ended June
30, 1998 is attributable to TCI Group's share of a 1998 gain recognized by
InterMedia Partners on the sale of certain cable television systems. Such gain
was recognized by InterMedia Partners prior to the time that TCI Group began to
consolidate InterMedia Partners. See note 6 to the accompanying combined
financial statements of TCI Group.
During the six months ended June 30, 1998 and 1997, TCI Group purchased
notes payable which had aggregate principle balances of $299 million and $190
million, respectively. In connection with such purchases, TCI Group recognized
losses on early extinguishment of debt of $38 million and $11 million for the
six months ended June 30, 1998 and 1997, respectively. Such losses relate to
prepayment penalties and the retirement of deferred loan costs.
Minority interests in earnings of attributed subsidiaries aggregated
$49 million and $95 million for the three and six months ended June 30, 1998,
respectively, as compared to $47 million and $81 million for the corresponding
prior year periods. The majority of such amounts represent the accrual of
dividends on the Trust Preferred Securities issued in 1997 and 1996 and the
accrual of dividends on certain preferred securities issued in 1996 by a TCI
subsidiary that is attributed to TCI Group. See note 10 to the accompanying
combined financial statements of TCI Group.
Gain on disposition of assets of $541 million for the six months ended
June 30, 1998 relates primarily to the March 4, 1998 contribution of cable
television systems by TCI Group to CSC. Such gain represents the excess of the
$1,161 million fair value of CSC Class A common shares received by TCI Group
over the historical cost of the net assets transferred by TCI Group to CSC. See
note 5 to the accompanying combined financial statements of TCI Group.
I-154
<PAGE> 156
Net Earnings
As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI Group's net loss (before preferred stock dividend
requirements) of $142 million for the three months ended June 30, 1998 changed
by $94 million, as compared to TCI Group's net loss (before loss of TCI Ventures
Group and preferred stock dividend requirements) of $48 million for the three
months ended June 30, 1997, and (ii) TCI Group's net earnings (before preferred
stock dividend requirements) of $96 million for the six months ended June 30,
1998 changed by $141 million, as compared to TCI Group's net loss (before loss
of TCI Ventures Group and preferred stock dividend requirements) of $45 million
for the six months ended June 30, 1997.
LIBERTY MEDIA GROUP
Liberty Media Group's assets include businesses which provide
programming services including production, acquisition and distribution through
all available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products. Liberty
Media Group's assets also include businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing. A significant portion of Liberty Media
Group's operations are conducted through corporations and partnerships in which
Liberty Media Group holds a 20%-50% ownership interest. As Liberty Media Group
generally accounts for such ownership interests using the equity method of
accounting, the financial condition and results of operations of such entities
are not reflected on a combined basis within Liberty Media Group's combined
financial statements.
On June 24, 1997 Liberty Media Group granted Time Warner the Southern
Option. Liberty Media Group received 6.4 million shares of TW Exchange Stock
valued at $306 million in consideration for the grant. In September 1997, Time
Warner exercised the Southern Option. Pursuant to the Southern Option, Time
Warner acquired the Southern Business, effective January 1, 1998, for $213
million, which was paid in cash, together with the assumption of certain
liabilities on January 2, 1998. Effective January 1, 1998, the Southern Business
is no longer included in the combined financial statements of Liberty Media
Group.
Subsequent to June 30, 1997, Liberty Media Group and TCI Group entered
into a series of transactions pursuant to which the businesses of "Encore," a
movie premium programming service, and "STARZ!," a first-run movie premium
programming service, were contributed to Encore Media Group, a subsidiary of TCI
that is attributed to the Liberty Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of STARZ! were included in the combined
financial statements of Liberty Media Group.
Simultaneously with the July 1997 DMX Merger, substantially all of
TCI's controlling ownership interest in TCI Music was transferred to Liberty
Media Group in exchange for the Music Note and the assumption of the obligation
under the Rights Agreement. Accordingly, TCI Music has been included in the
combined financial statements of Liberty Media Group since the date of the DMX
Merger.
Effective November 1, 1997, Liberty Media Group acquired the remaining
50% interest in International Cable Channels Partnership, Ltd. ("ICCP") for
$1.75 million. Upon consummation of such transaction the operations of ICCP were
included in the combined financial statements of Liberty Media Group.
I-155
<PAGE> 157
Summary of Operations
Liberty Media Group's programming services include production,
acquisition and distribution through all available formats and media of branded
entertainment, educational and informational programming and software, including
multimedia products ("Entertainment and Information Programming Services"). The
table below sets forth, for the periods indicated, certain financial information
and the percentage relationship that certain items bear to revenue. This summary
provides trend data related to the normal recurring operations of Liberty Media
Group. Corporate expenses have been reflected separately in the following table.
Liberty Media Group holds significant equity investments, the results of which
are not a component of operating income, but are discussed below under "Other
Income and Expense." Other items of significance are discussed separately below.
<TABLE>
<CAPTION>
Three months ended June 30,
------------------------------------------------------
1998 1997
--------------------------- -------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C>
Entertainment and Information
Programming Services
Revenue 100% $ 165,025 100% $ 59,672
Operating, selling, general and administrative 88% (145,987) 76% (45,245)
Stock compensation 4% (6,239) -- --
Depreciation and amortization 5% (8,090) 1% (747)
------ -------------- ----- -------------
Operating income 3% $ 4,709 23% $ 13,680
====== ============== ===== =============
Corporate expenses
Selling, general and administrative $ (2,579) $ (1,780)
Stock compensation (56,067) (14,466)
Depreciation and amortization (29) (29)
-------------- -------------
Operating loss $ (58,675) $ (16,275)
============== =============
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------------------------------
1998 1997
--------------------------- -------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C>
Entertainment and Information
Programming Services
Revenue 100% $ 321,695 100% $ 119,031
Operating, selling, general and administrative 85% (272,420) 66% (78,295)
Stock compensation 4% (14,030) 4% (4,576)
Depreciation and amortization 5% (15,847) 1% (1,498)
------ -------------- ----- -------------
Operating income 6% $ 19,398 29% $ 34,662
====== ============== ===== =============
Corporate expenses
Selling, general and administrative $ (5,309) $ (2,799)
Stock compensation (124,406) (15,464)
Depreciation and amortization (60) (57)
-------------- -------------
Operating loss $ (129,775) $ (18,320)
============== =============
</TABLE>
I-156
<PAGE> 158
Entertainment and Information Programming Services
As discussed above, certain acquisitions and dispositions have affected
the comparability of Liberty Media Group's operating results for the six months
and three months ended June 30, 1998 and 1997. The following table presents
adjustments to remove the effects of such acquisitions and dispositions.
<TABLE>
<CAPTION>
Three months ended June 30, 1998
---------------------------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------------- --------------------- ----------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 165,025 (95,933) 69,092
Operating, selling, general and
administrative expenses (145,987) 105,247 (40,740)
Stock compensation (6,239) 199 (6,040)
Depreciation and amortization (8,090) 6,372 (1,718)
------------------- --------------------- ----------------
Operating income $ 4,709 15,885 20,594
=================== ===================== ================
</TABLE>
<TABLE>
<CAPTION>
Three months ended June 30, 1997
-----------------------------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------------- -------------------- -------------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 59,672 (7,853) 51,819
Operating, selling, general and
administrative expenses (45,245) 1,788 (43,457)
Depreciation and amortization (747) 136 (611)
------------------- -------------------- -------------------
Operating income $ 13,680 (5,929) 7,751
=================== ==================== ===================
</TABLE>
I-157
<PAGE> 159
<TABLE>
<CAPTION>
Six months ended June 30, 1998
----------------------------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------------- --------------------- ----------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 321,695 (185,289) 136,406
Operating, selling, general and
administrative expenses (272,420) 195,954 (76,466)
Stock compensation (14,030) 241 (13,789)
Depreciation and amortization (15,847) 12,453 (3,394)
------------------- --------------------- ----------------
Operating income $ 19,398 23,359 42,757
=================== ===================== ================
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30, 1997
----------------------------------------------------------------
Effect of
acquisitions
Historical and dispositions As adjusted
------------------- -------------------- ----------------
amounts in thousands
<S> <C> <C> <C>
Revenue $ 119,031 (15,522) 103,509
Operating, selling, general and
administrative expenses (78,295) 3,545 (74,750)
Stock compensation (4,576) -- (4,576)
Depreciation and amortization (1,498) 271 (1,227)
------------------- -------------------- ----------------
Operating income $ 34,662 (11,706) 22,956
=================== ==================== ================
</TABLE>
Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 33% or $17 million
for the quarter ended June 30, 1998, as compared to the quarter ended June 30,
1997. The increase is primarily attributable to higher revenue from the
distribution of Encore services to cable operators, including TCI Group. In
connection with the formation of Encore Media Group, TCI Group entered into the
EMG Affiliation Agreement pursuant to which TCI Group pays monthly fixed amounts
in exchange for unlimited access to all of the existing Encore and STARZ!
services. During the three months ended June 30, 1998, revenue from Encore
services distributed to TCI Group increased due to the EMG Affiliation
Agreement, when compared to the three months ended June 30, 1997. Additionally,
Netlink had increased revenue during the second quarter of 1998 compared to the
same period in 1997 of approximately $2 million, primarily due to increased
rates as a result of increased copyright fees.
Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, decreased 6% or $3 million for the quarter
ended June 30, 1998 compared to the quarter ended June 30, 1997. Operating,
selling, general and administrative expenses related to Encore services
decreased by $5 million during the second quarter of 1998 compared to the second
quarter of 1997 primarily due to decreased national consumer marketing during
1998. Such decrease was offset by increased operating, selling,
general and administrative expenses at Netlink of approximately $2 million which
is primarily attributable to an increase in the copyright fee rate from
approximately $.06 per subscriber to $.27 per subscriber.
I-158
<PAGE> 160
Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 32% or $33 million
during the six months ended June 30, 1998 compared to the six months ended June
30, 1997. The increase is primarily attributable to higher subscription revenue
from the distribution of Encore services to cable operators, including TCI
Group. Additionally, Netlink had increased revenue during the first six months
of 1998 compared to the same period in 1997 of approximately $4 million
primarily due to increased rates as a result of increased copyright fees.
Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 2% or $2 million for the six months
ended June 30, 1998 compared to the same period of 1997. Decreased marketing
support and national consumer marketing related to Encore services of $6 million
was offset by increased programming costs of $2 million for Encore services and
increased copyright fees at Netlink of $5 million for the six months ended June
30, 1998 compared to 1997. Additionally, Liberty Media Group incurred start up
costs of approximately $1 million during the six months ended June 30, 1998 for
a new package of Spanish language channels.
The increase in stock compensation of Entertainment and Information
Programming Services for the quarter and six months ended June 30, 1998 as
compared to the corresponding periods in 1997 is due to an increase in Encore
Media Group's stock compensation of $6 million and $9 million, respectively. See
note 10 to the accompanying combined financial statements of Liberty Media
Group.
Revenue from TCI Music contributed $21 million and $40 million to
revenue from Entertainment and Information Programming Services for the quarter
and six months ended June 30, 1998, respectively. Additionally, revenue from
STARZ! contributed $72 million and $140 million and ICCP contributed $3 million
and $5 million to revenue for three months and six months ended June 30, 1998,
respectively. As discussed above, operations for TCI Music, STARZ! and ICCP were
not included in the combined financial results of Liberty Media Group for the
six months ended June 30, 1997. Operating, selling, general and administrative
expenses for Entertainment and Information Programming Services for the quarter
and six months ended June 30, 1998 included $21 million and $38 million,
respectively, from the operations of TCI Music, $81 million and $151 million,
respectively, from the operations of STARZ! and $4 million and $7 million,
respectively, from the operations of ICCP.
Corporate Expenses
The amount of expense associated with stock compensation is based on
the vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised. See note 9 to the accompanying combined
financial statements of Liberty Media Group.
Other Income and Expense
Interest expense was $20 million and less than $1 million during the
six months ended June 30, 1998 and 1997, respectively. Increased interest
expense is directly related to increased outstanding debt at Encore Media Group,
TCI Music, CCC and LMC Capital as well as an increase in interest-bearing
amounts due to TCI Group during the six months ended June 30, 1998 compared to
the six months ended June 30, 1997.
I-159
<PAGE> 161
Liberty Media Group's share of losses of affiliates for the quarter
ended June 30, 1998 was $49 million compared to earnings of $6 million for the
second quarter of 1997. Liberty Media Group's share of losses of affiliates was
$71 million for the six months ended June 30, 1998 compared to earnings of $13
million for the corresponding period in 1997.
Liberty Media Group's share of earnings of affiliates attributable to
its interest in Discovery decreased $9 million and $18 million during the
quarter and six months ended June 30, 1998 compared to the quarter and six
months ended June 30, 1997, respectively. While Discovery's revenue increased by
25% and 24% during the first quarter and six months of 1998, respectively, its
earnings before interest, taxes, depreciation and amortization decreased by 32%
and 23%, principally because of costs associated with launching new digital
services, continuing investments in the retail business as well as new joint
ventures such as YCTV and the joint venture with the British Broadcasting
Corporation. Interest expense for Discovery was 77% and 123% higher in the
second quarter and six months of 1998, respectively, compared to the same
periods in 1997 mainly due to increased debt caused by significant cash payments
made to distributors in support of the launch of "Animal Planet" and its new
digital services.
Liberty Media Group's share of earnings of affiliates attributable to
its interest in QVC increased approximately $4 million and $8 million during the
quarter and six months ended June 30, 1998, respectively, compared to the same
period in 1997. QVC's revenue increased by 13% for each of the quarter and six
months ended June 30, 1998, contributing to a 23% and 22% increase in earnings
before interest, taxes, depreciation and amortization over the corresponding
periods in 1997. In the aggregate, interest expense, taxes, depreciation and
amortization for QVC increased by 11% for each of the second quarter and first
six months of 1998 resulting in a 75% and 68% increase in net income for QVC for
the quarter and six months ended June 30, 1998, respectively, compared to the
quarter and six months ended June 30, 1997.
The share of losses of Fox Sports was responsible for approximately $41
million and $77 million of the decrease in share of earnings of affiliates for
the second quarter and first six months of 1997 to 1998, respectively. Prior to
the first quarter of 1998, Liberty Media Group had no obligation, nor intention,
to fund Fox Sports. During 1998, Liberty Media Group made the determination to
provide funding to Fox Sports based on specific transactions consummated by Fox
Sports. Consequently, Liberty Media Group's share of losses of Fox Sports for
the six months ended June 30, 1998 includes previously unrecognized losses of
Fox Sports of approximately $64 million. Losses for Fox Sports were not
recognized in prior periods due to the fact that Liberty Media Group's
investment in Fox Sports was less than zero.
During 1997, Liberty Media Group granted Time Warner the Southern
Option and received 6.4 million shares of Time Warner Exchange Stock valued at
$306 million in consideration for the grant. Such amount had been reflected as a
deferred option premium in the accompanying combined financial statements of
Liberty Media Group. Pursuant to the Southern Option, Time Warner acquired the
Southern Business, effective January 1, 1998 for $213 million in cash. Liberty
Media Group recognized a $515 million pre-tax gain in connection with these
transactions in the first quarter of 1998. See note 6 to the accompanying
combined financial statements of Liberty Media Group.
I-160
<PAGE> 162
Effective February 1, 1998, Turner-Vision, Inc. ("Turner-Vision")
contributed the assets, obligations and operations of its retail C-band
Satellite business to Superstar/Netlink in exchange for an approximate 20%
interest in Superstar/Netlink. As a result of this transaction, Liberty Media
Group's ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%. In connection with such dilution, Liberty Media Group
recognized a $23 million gain (before deducting deferred income tax expense of
$9 million). See note 5 to the accompanying combined financial statements of
Liberty Media Group.
TCI VENTURES GROUP
The following table sets forth certain financial information for the
TCI Ventures Group and the businesses attributed to it during the six months
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------------------------------------
1998 1997
------------------------------ --------------------------
dollar amounts in thousands
<S> <C> <C> <C> <C>
Revenue:
UVSG $ 289,545 66% $ 250,977 50%
NDTC (1) 44,275 10 46,881 9
ETC 41,495 10 45,721 9
TINTA (2) 25,672 6 134,156 27
WTCI 17,390 4 17,468 4
@Home 14,993 3 1,833 --
Corporate and other 2,759 1 2,104 1
--------------- -------- -------------- ------
$ 436,129 100% $ 499,140 100%
=============== ======== ============== ======
Operating, selling, general,
administrative:
UVSG $ 233,093 60% $ 203,588 50%
NDTC 36,237 9 27,090 7
ETC 45,021 11 53,326 13
TINTA (2) 20,296 5 84,368 20
WTCI 11,378 3 11,288 3
@Home 33,830 9 21,628 5
Corporate and other 11,384 3 8,572 2
--------------- -------- -------------- ------
$ 391,239 100% $ 409,860 100%
=============== ======== ============== ======
Depreciation, amortization, stock
compensation and other non-cash
charges
UVSG $ 29,565 11% $ 9,164 9%
NDTC 19,645 7 14,738 15
ETC 2,964 1 3,221 3
TINTA (2) 15,305 5 33,967 35
WTCI 6,442 2 4,360 5
@Home (3) 89,322 32 3,347 3
Corporate and other (4) 117,838 42 29,292 30
--------------- -------- -------------- ------
$ 281,081 100% $ 98,089 100%
=============== ======== ============== ======
Operating income (loss):
UVSG $ 26,887 (5) $ 38,225 (5)
NDTC (11,607) 5,053
ETC (6,490) (10,826)
TINTA (2) (9,929) 15,821
WTCI (430) 1,820
@Home (3) (108,159) (23,142)
Corporate and other (126,463) (35,760)
--------------- --------------
$ (236,191) $ (8,809)
=============== ==============
</TABLE>
- -----------------------
I-161
<PAGE> 163
(1) A significant number of NDTC's major customers are affiliates
of TCI, and NDTC derives a substantial portion of its revenue
from such affiliated companies. For each of the six months
ended June 30, 1998 and 1997 revenue from services provided to
TCI and its consolidated subsidiaries accounted for 37% of
NDTC's total revenue.
(2) As described in note 5 to the accompanying combined financial
statements of TCI Ventures Group, effective October 1, 1997,
TINTA ceased to consolidate Cablevision and began to account
for Cablevision using the equity method of accounting. As a
result, effective October 1, 1997, TINTA's results of
operations no longer include Cablevision's results of
operations on a consolidated basis. The following table sets
forth summary information with respect to the operating
results of Cablevision that were included in TINTA's results
of operations for the six months ended June 30, 1997 (amounts
in thousands):
<TABLE>
<S> <C>
Revenue $ 114,208
Operating costs and expenses (67,618)
Depreciation and amortization (26,376)
-------------
Operating income $ 20,214
=============
</TABLE>
(3) During the first quarter of 1998, @Home recorded non-cash
charges of $83.3 million to operations based on the fair value
of 2,705,514 shares of @Home's Series A common stock which
were underlying certain warrants which became exercisable
during the period. For additional information concerning such
warrants, see note 8 to the accompanying combined financial
statements of TCI Ventures Group.
(4) Amount includes stock compensation expense of $116.3 million
and $11.1 million for the six months ended June 30, 1998 and
1997, respectively.
(5) Not meaningful.
Revenue
Revenue decreased by $27.0 million or 11% and $63.0 million or 13%
during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such decreases are largely
attributable to TINTA's deconsolidation of Cablevision which was partially
offset by increased revenue of UVSG and @Home.
TINTA revenue decreased by $55.4 million or 81% and $108.5 million or
81% during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year period. Such decreases are primarily
attributable to the deconsolidation of Cablevision in 1997.
Revenue from UVSG increased $21.1 million or 16% and $38.6 million or
15% during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such increases are due
primarily to Turner Vision's retail C-band operations which were combined with
Superstar/Netlink effective February 1, 1998.
I-162
<PAGE> 164
Operating Costs and Expenses
Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges decreased by $10.1 million or 5%
and $18.6 million or 5% during the three and six month periods ended June 30,
1998, respectively, as compared to the corresponding prior year periods. Such
decreases are attributable to the effects of the deconsolidation of Cablevision
which was partially offset by increased costs attributable to UVSG and @Home.
TINTA operating costs and expenses, excluding depreciation,
amortization, stock compensation and other non-cash charges decreased $33.4
million or 76% and $64.1 million or 76% for the three and six month periods
ended June 30, 1998, respectively, as compared to the corresponding prior year
periods. Such decreases are primarily attributable to the deconsolidation of
Cablevision in 1997.
Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG increased $15.5 million
or 15% and $29.5 million or 14% during the three and six month periods ended
June 30, 1998, respectively, as compared to the corresponding prior year
periods. Such increases are primarily attributable to Turner Vision's retail
C-band operations which were combined with Superstar/Netlink effective February
1, 1998.
Certain TCI corporate general and administrative costs are charged to
the TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. During the three months ended June 30, 1998
and 1997, TCI Ventures Group was allocated $4.1 million and $2.2 million,
respectively, in corporate general and administrative costs by TCI Group. During
the six months ended June 30, 1998 and 1997, TCI Ventures Group was allocated
$6.3 million and $4.4 million, respectively, in corporate general and
administrative costs by TCI Group.
During the first quarter of 1998, @Home recorded non-cash charges of
$83.3 million to operations based on the fair value of 2,705,514 shares of
@Home's Series A common stock which were underlying certain warrants which
became exercisable during the period. For additional information concerning such
warrants, see note 8 to the accompanying combined financial statements of TCI
Ventures Group.
Stock compensation expense increased $40.0 million and $113.9 million
during the three and six month periods ended June 30, 1998, respectively, as
compared to the corresponding prior year periods. Such amounts represent changes
in TCI Ventures Group's stock compensation liability. TCI Ventures Group records
stock compensation expense relating to Awards granted by (i) TCI to certain TCI
employees and/or directors who are involved with the TCI Ventures Group and (ii)
TINTA, UVSG, and @Home to employees and/or directors of such entities. Stock
compensation with respect to Awards granted by TCI includes amounts related to
TCI common stock and to common stock of certain non-public subsidiaries of TCI
and is allocated to TCI Ventures Group based on the Awards held by TCI employees
and/or directors who are involved with TCI Ventures Group. Estimated
compensation relating to stock appreciation rights has been recorded through
June 30, 1998. Such estimate is subject to future adjustment based upon vesting
and market value, and ultimately, on the final determination of market value
when such rights are exercised. See note 14 to the accompanying combined
financial statements of TCI Ventures Group.
The $8.6 million or 20% and $14.2 million or 17% decreases in
depreciation and amortization expense during the three and six month periods
ended June 30, 1998, respectively, as compared to the corresponding prior year
periods, are primarily the result of the effects of the deconsolidation of
Cablevision, which effects were partially offset by increases in UVSG's and
NDTC's depreciation and amortization.
I-163
<PAGE> 165
Other Income and Expense
The TCI Ventures Group's share of losses from its investment in the PCS
Ventures increased $74.7 million and $166.4 million during the three and six
month periods ended June 30, 1998, respectively, as compared to the
corresponding prior year periods. The increases in the share of losses are
attributed primarily to increases in (i) selling, general and administrative
costs associated with Sprint Spectrum's efforts to increase its customer base,
(ii) depreciation expense resulting from capital expenditures made to expand its
PCS network, (iii) interest expense associated with higher amounts of
outstanding debt and (iv) Sprint Spectrum's share of losses of American PCS L.P.
It is expected that Sprint PCS will continue to incur significant operating
losses and significant negative cash flow from operating activities during the
next several years while it continues to expand its PCS network and build its
customer base. Sprint PCS's operating profitability will depend upon many
factors, including, among others, its ability to (i) market its products and
services successfully, (ii) achieve its projected market penetration, (iii)
manage customer turnover rates effectively and (iv) price its products and
services competitively. There can be no assurance that Sprint PCS will achieve
or sustain operating profitability or positive cash flow from operating
activities in the future. If Sprint PCS does not achieve and maintain operating
profitability and positive cash flow from operating activities on a timely
basis, it may not be able to meet its debt service requirements.
The TCI Ventures Group's share of Telewest's net losses increased
(decreased) $1.7 million and $(9.7 million) during the three and six month
periods ended June 30, 1998, respectively, as compared to the corresponding
prior year periods. Such changes are primarily attributable to the net effects
of (i) changes in foreign currency transaction losses, (ii) an increase in
operating cash flow resulting from revenue growth and (iii) an increase in
interest expense. In connection with a previous merger transaction, Telewest
issued the Telewest Debentures. Changes in the exchange rate used to translate
the Telewest Debentures into U.K. pounds sterling and the adjustment of a
foreign currency option contract to market value caused Telewest to experience
unrealized foreign currency transaction losses of (i) $13.4 million and $282,000
during the three months ended June 30, 1998 and 1997, respectively, and (ii)
$2.4 million and $40.0 million during the six months ended June 30, 1998 and
1997, respectively. It is anticipated that Telewest will continue to experience
realized and unrealized foreign currency transaction gains and losses throughout
the term of the Telewest Debentures, which mature in 2006 and 2007, if not
redeemed earlier.
The share of losses from the TCI Ventures Group's investment in TCG
increased $288,000 and $4.2 million for the three and six month periods ended
June 30, 1998, respectively, as compared to the corresponding prior year
periods. The increase in the share of losses for the six month period ended June
30, 1998 is primarily attributable to merger costs incurred by TCG during the
first quarter of 1998 related to the pending merger with AT&T. In January 1998,
TCG entered into certain agreements pursuant to which it agreed to be acquired
by AT&T. Such merger was consummated on July 24, 1998. As a result of such
merger, TCI Ventures Group received in exchange for all of its interest in TCG,
approximately 46.95 million shares of AT&T common stock. TCI Ventures Group will
account for its ownership interest in AT&T common stock using the cost method.
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As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the equity
method of accounting. The TCI Ventures Group's share of losses from Cablevision
was $4.4 million and $7.6 million for the three and six month periods ended June
30, 1998, respectively.
The TCI Ventures Group's share of the losses of affiliates other than
the PCS Ventures, Telewest, TCG and Cablevision (the "Other Affiliates")
remained relatively constant during the three and six month periods ended June
30, 1998, as compared to the corresponding prior year periods. Increased losses
of MultiThematiques, BIP Poland and Jupiter were partially offset by decreases
in share of losses of ABN and Flextech. As of December 31, 1997, TINTA
surrendered all of its shares of ABN in exchange for a $25 million unsecured
note receivable. Accordingly, effective December 31, 1997, TINTA no longer
accounts for ABN under the equity method of accounting. TCI Ventures Group
expects that the Other Affiliates will continue to incur losses as they continue
to expand their operations and/or launch new services. For additional
information, see note 12 to the accompanying combined financial statements of
TCI Ventures Group.
Interest expense decreased $853,000 and $5.9 million during the three
and six month periods ended June 30, 1998, respectively, as compared to the
corresponding prior year periods. Such changes are primarily the result of the
net effects of the deconsolidation of Cablevision, the assignment of certain
capital lease obligations to TCI Group and increased borrowings under the
Ventures Group Bank Facility during the second quarter of 1998.
During the six months ended June 30, 1998, TCI Ventures Group
recognized $41.9 million in gains from the disposition of assets. Such gains are
attributable to TCI Ventures Group's sale of its interest in (i) NHT
Partnership, (ii) Louisville Lightwave, (iii) New Jersey Fiber Technologies,
L.P., (iv) TeleCable Nacional, CXA and Sportsline USA, Inc. In addition, UVSG
recognized a gain of $14.7 million from the dilution of its interest in
Superstar/Netlink. For additional information regarding such transactions, see
note 7 to the accompanying combined financial statements of TCI Ventures Group.
On April 22, 1998, TCG completed a merger transaction with ACC in which
ACC shares were exchanged with shares of TCG. As a result of such merger
transaction, TCI Ventures Group's interest in TCG was reduced to approximately
26%. In connection with the dilution of TCI Ventures Group's interest in TCG,
TCI Ventures Group recorded a non-cash gain of $201.4 million (before deducting
deferred income taxes of $70.5 million). For additional information regarding
such transaction, see note 9 to the accompanying combined financial statements
of TCI Ventures Group.
In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures Group, and Antec Corporation ("Antec") entered into a business
combination with Antec being the surviving entity. In connection with this
transaction, the TCI Ventures Group recognized a $29 million gain (before
deducting deferred income taxes of $11 million) representing the difference
between the fair value of the Antec shares received and the carrying value of
its investment in TSX at the date of the transaction. The TCI Ventures Group
accounts for its investment in Antec using the cost method.
The minority interests' share of net losses increased $9.6 million and
$61.8 million during the three and six month periods ended June 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases are primarily attributable to increases in net losses for @Home and
TINTA.
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Net Losses
The TCI Ventures Group's net losses of $85.5 million and $308.9 million
during the three and six month periods ended June 30, 1998, respectively,
represent increases (decreases) of $(26.4 million) and $119.7 million, as
compared to the TCI Ventures Group's net losses of $111.9 million and $189.2
million for the three and six month periods ended June 30, 1997, respectively.
Included in such amounts was the recognition of certain non-operating gains
aggregating (i) $201.4 million and $21.3 million during the three months ended
June 30, 1998 and 1997, respectively, and (ii) $216.1 million and $21.3 million
during the six months ended June 30, 1998 and 1997, respectively. With the
exception of UVSG, WTCI and the Puerto Rico Subsidiary, the entities included in
the TCI Ventures Group's combined financial statements generally have sustained
losses since their respective inception dates. Any improvements in such
entities' results of operations are largely dependent upon the ability of such
entities to increase their respective customer bases while maintaining pricing
structures and controlling costs. There can be no assurance that any such
improvements will occur.
MATERIAL CHANGES IN FINANCIAL CONDITION
TCI GROUP
On March 4, 1998, TCI Group contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 24.5 million newly issued CSC Class A common shares (as adjusted
for a stock dividend) (the "CSC Transaction"). CSC also assumed and repaid
approximately $574 million of debt owed by TCI Group to external parties and $95
million of debt owed to TCI Group. TCI Group has also entered into letters of
intent with CSC which provide for TCI Group to acquire a cable system in
Michigan and an additional 3% of CSC's Class A common shares and for CSC to (i)
acquire cable systems serving approximately 250,000 customers in Connecticut and
(ii) assume $110 million of TCI Group's debt. The ability of TCI Group to sell
or increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC. For additional
information concerning the CSC Transaction, see note 5 to the accompanying
combined financial statements of TCI Group.
In addition to the CSC Transaction described in note 5 to the
accompanying combined financial statements of TCI Group, TCI also completed,
during the first six months of 1998, three transactions whereby TCI Group
contributed cable television systems serving in the aggregate approximately
670,000 customers to three separate joint ventures (collectively, the "1998
Joint Ventures") in exchange for non-controlling ownership interests in each of
the 1998 Joint Ventures, and the assumption and repayment by the 1998 Joint
Ventures of debt owed by TCI Group to external parties aggregating $323 million
and intercompany debt owed to TCI Group aggregating $833 million. In connection
with such transactions, TCI Group has agreed to take certain steps to support
compliance by each of the 1998 Joint Ventures with their payment obligations
under certain debt instruments, up to an aggregate contingent commitment of $784
million. In light of such contingent commitments, TCI Group has deferred any
gains on the formation of the 1998 Joint Ventures. Such deferred gains, which
aggregated $163 million, will not be recognized until such time as TCI Group's
contingent commitments with respect to the 1998 Joint Ventures are eliminated.
TCI Group uses the equity method of accounting to account for its investments in
the 1998 Joint Ventures. The CSC Transaction and the formation of the 1998 Joint
Ventures are collectively referred to herein as the "1998 Contribution
Transactions."
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Including the 1998 Contribution Transactions, TCI Group, as of July 31,
1998, has, since January 1, 1997, contributed, or signed agreements or letters
of intent to contribute within the next twelve months, certain cable television
systems (the "Contributed Cable Systems") serving approximately 3.9 million
basic customers to joint ventures in which TCI Group will retain non-controlling
ownership interests (the "Contribution Transactions"). Following the completion
of the Contribution Transactions, the Contributed Cable Systems will no longer
be included in TCI Group's combined financial statements. Accordingly it is
anticipated that the completion of the Contribution Transactions, as currently
contemplated, will result in an aggregate estimated reduction (based on actual
amounts with respect to the 1998 Contribution Transactions and currently
contemplated amounts with respect to the pending Contribution Transactions) to
TCI Group's debt of $4.8 billion and aggregate estimated reductions (based on
1997 amounts) to TCI Group's annual revenue and annual operating income before
depreciation, amortization, other non-cash items and stock compensation of $1.8
billion and $815 million, respectively. No assurance can be given that any of
the pending Contribution Transactions will be consummated.
During the six months ended June 30, 1998, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 66,041 shares of
TCI Group Series A Stock at an aggregate cost of $2 million.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, TCI Group paid $134
million during the first quarter of 1998 for its allocated share of the Call
Payments. For additional information see note 13 to the accompanying combined
financial statements of TCI Group.
During the fourth quarter of 1997, TCI Group entered into an Equity
Swap Facility. Pursuant to the Equity Swap Facility, TCI Group has the right to
direct the Counterparty to use the Equity Swap Facility to purchase Equity Swap
Shares of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million. TCI Group has the right, but not
the obligation, to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility. During such period, TCI Group is
to settle periodically any increase or decrease in the market value of the
Equity Swap Shares. If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from the other
Equity Swap Shares. If the market value of the Equity Swap Shares is less than
the Counterparty's cost, TCI Group, at its option, will settle such difference
with shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit. In addition, TCI
Group is required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI Group's ability to issue shares to settle periodic price fluctuations
and fees under the Equity Swap Facility, TCI Group records all amounts received
or paid under this arrangement as increases or decreases, respectively, to
equity. As of June 30, 1998, the Equity Swap Facility had acquired 4,935,780
shares of TCI Group Series A Stock and 1,151,800 shares of TCI Ventures Group
Series A Stock at an aggregate cost that was approximately $48 million less than
the fair value of such Equity Swap Shares at June 30, 1998. The costs and
benefits associated with the TCI Group Series A Stock held by the Equity Swap
Facility are attributed to TCI Group.
Through June 30, 1997, TCI Group had a 50.1% partnership interest in
QE+, a limited partnership interest which distributed STARZ!. Entities
attributed to Liberty Media Group held the remaining 49.9% partnership interest.
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Subsequent to June 30, 1997, TCI Group and Liberty Media Group entered
into a series of transactions pursuant to which the businesses of Encore and
STARZ! were contributed to Encore Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of QE+ were no longer included in the
combined financial results of TCI Group. In connection with the foregoing
transactions, Liberty Media Group issued a note payable to TCI Group (which note
was paid in full during the first quarter of 1998) and TCI Group entered into
the EMG Affiliation Agreement pursuant to which TCI Group pays monthly fixed
amounts in exchange for unlimited access to all of the existing Encore and
STARZ! services.
TCI Group's fixed annual commitments pursuant to the EMG Affiliation
Agreement increase annually from $220 million in 1998 to $315 million in 2003,
and will increase with inflation through 2022.
On July 11, 1997, TCI Music merged with DMX. Simultaneously with the
DMX Merger, substantially all of TCI's controlling ownership interest in TCI
Music was transferred from TCI Group to Liberty Media Group in exchange for an
$80 million promissory note and an agreement to reimburse TCI for any amounts
TCI pays pursuant to its contingent obligation pursuant to a Rights Agreement
(the "Rights Agreement") to purchase up to 14,896,648 shares (6,812,393 of which
are owned by subsidiaries of TCI) of TCI Music common stock at a price of $8.00
per share. TCI will settle its obligation under the Rights Agreement during the
third quarter of 1998 by paying $8.00 per share to all holders who tender TCI
Music common stock and the associated rights to TCI in accordance with the terms
of the Rights Agreement. Liberty Media Group will reimburse TCI Group for the
amount required to satisfy such obligation. The Music Note may be reduced by the
payment of cash or the issuance by TCI of shares of Liberty Group Stock for the
benefit of entities included within TCI Group. Additionally, Liberty Media Group
may elect to pay $50 million of the Music Note by delivery of a Stock
Appreciation Rights Agreement that will give TCI Group the right to receive 20%
of the appreciation in value of Liberty Media Group's investment in TCI Music,
to be determined at July 11, 2002.
A subsidiary of TCI that was attributed to TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. Due to the related
party nature of the transaction, the $50 million total of the cash payment and
the historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $176 million) has been reflected as an
increase to TCI Group's combined deficit.
At June 30, 1998, TCI Group had approximately $2.6 billion of
availability in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper. Although TCI
Group was in compliance with the restrictive covenants contained in its credit
facilities at said date, additional borrowings under the credit facilities are
subject to TCI Group's continuing compliance with the restrictive covenants
after giving effect to such additional borrowings. Such restrictive covenants
require, among other things, the maintenance of certain earnings, specified cash
flow and financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain limitations on
indebtedness, investments, guarantees, dispositions, stock repurchases and/or
dividend payments. See note 8 to the accompanying combined financial statements
of TCI Group for additional information regarding TCI Group's debt.
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One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of "Operating Cash
Flow" (operating income before depreciation, amortization, other non-cash items
and stock compensation) ($1,283 million and $1,327 million during the six months
ended June 30, 1998 and 1997, respectively) to interest expense ($500 million
and $555 million during the six months ended June 30, 1998 and 1997,
respectively), is determined by reference to the combined statements of
operations. TCI Group's interest coverage ratio was 257% and 239% during the six
months ended June 30, 1998 and 1997, respectively. Management of TCI Group
believes that the foregoing interest coverage ratio is adequate in light of the
relative predictability of its cable television operations and interest expense.
However, TCI Group's current intent is to continue to reduce its outstanding
indebtedness such that its interest coverage ratio could be increased. There is
no assurance that TCI Group will be able to achieve such objective. In the event
TCI Group is unable to achieve such objective, management believes that net cash
provided by operating activities, the ability of TCI Group to obtain additional
financing (including the available lines of credit and access to public debt
markets), issuances and sales of TCI's equity or equity of its subsidiaries,
attributable to TCI Group, and proceeds from disposition of assets will provide
adequate sources of short-term and long-term liquidity in the future. See TCI
Group's combined statements of cash flows included in the accompanying combined
financial statements.
Operating Cash Flow is a measure of value and borrowing capacity within
the cable television industry and is not intended to be a substitute for cash
flows provided by operating activities, a measure of performance prepared in
accordance with generally accepted accounting principles, and should not be
relied upon as such. Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense, and
should not be considered in isolation to other measures of performance.
Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying combined statements of cash flows.
Net cash provided by operating activities ($474 million and $763 million during
the six months ended June 30, 1998 and 1997, respectively) generally reflects
net cash from the operations of TCI Group available for TCI Group's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow.
The amount of capital expended by TCI Group for property and equipment
was $493 million, $128 million and $538 million during the six months ended June
30, 1998 and 1997, and the year ended December 31, 1997, respectively. In light
of TCI Group's plans to upgrade the capacity of its cable distribution systems,
and its plans to increase the number of customers who subscribe to digital video
services, TCI Group anticipates that its annual capital expenditures during the
next several years will significantly exceed the amount expended during 1997. In
this regard, TCI Group estimates that it will expend approximately $1.7 billion
to $1.9 billion over the next three years to expand the capacity of its cable
distribution systems. TCI Group expects that the actual amount of capital that
will be required in connection with its plans to increase the number of digital
video service customers will be significant. However, TCI Group cannot
reasonably estimate such actual capital requirement since such actual capital
requirement is dependent upon the extent of any customer increases and the
average installed per-unit cost of digital set-top devices. As described below,
TCI is obligated to purchase a significant number of digital set-top devices
over the next three years.
TCI Group's restricted cash includes proceeds received in connection
with certain asset dispositions. Such proceeds, which aggregated $303 million
and $34 million at June 30, 1998 and December 31, 1997, respectively, are
designated to be reinvested in certain identified assets for income tax
purposes.
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TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $203
million at June 30, 1998. With respect to TCI Group's guarantees of $166 million
of such obligations, TCI Group has been indemnified for any loss, claim or
liability that TCI Group may incur, by reason of such guarantees. As described
in note 7 to the accompanying combined financial statements of TCI Group, TCI
Group also has provided certain credit enhancements with respect to the 1998
Joint Ventures. TCI Group also has guaranteed the performance of certain
affiliates and other parties with respect to such parties' contractual and other
obligations. Although there can be no assurance, management of TCI Group
believes that it will not be required to meet its obligations under such
guarantees, or if it is required to meet any of such obligations, that they will
not be material to TCI Group.
TCI Group has provided a revolving loan facility to TCI Ventures Group
for a five-year period commencing on September 10, 1997. Such facility permits
aggregate outstanding borrowings at any one time of up to $500 million (subject
to reduction as provided below), which borrowings bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from time to
time) plus 1% per annum, payable quarterly. A commitment fee equal to 3/8% per
annum of the average unborrowed availability under the Ventures Intergroup
Credit Facility is payable by TCI Ventures Group to TCI Group on a quarterly
basis. Such commitment fee was $1 million for the six months ended June 30,
1998. The maximum amount of borrowings permitted under the Ventures Intergroup
Credit Facility will be reduced on a dollar-for-dollar basis by up to $300
million if and to the extent that the aggregate amount of any additional capital
that TCI Ventures Group is required to contribute to certain specified
partnerships subsequent to the September 10, 1997 consummation of the Exchange
Offers is less than $300 million. No borrowings were outstanding pursuant to the
Ventures Intergroup Credit Facility at June 30, 1998.
TCI Group is a party to affiliation agreements with programming
suppliers. Pursuant to certain of such agreements, TCI Group is committed to
carry such suppliers' programming on its cable systems. Additionally, certain of
such agreements provide for penalties and charges in the event the programming
is not carried or not delivered to a contractually specific number of customers.
TCI Group is committed to purchase billing services pursuant to three
successive five year agreements. Pursuant to such arrangement, TCI Group is
obligated at June 30, 1998 to make minimum payments aggregating approximately
$1.6 billion through 2012. Such minimum payments are subject to inflation and
other adjustments pursuant to the terms of the underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, TCI Group is
obligated at June 30, 1998 to make minimum revenue payments through 2017 and
minimum license fee payments through 2007 aggregating approximately $419 million
to TCI Music. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.
TCI Group is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output, distribution and
license agreements. As of June 30, 1998, the amount of such obligations or
guarantees was approximately $272 million. The future obligations of TCI Group
with respect to these agreements is not currently determinable because such
amount is dependent upon the number of qualifying films released theatrically by
certain motion picture studios as well as the domestic theatrical exhibition
receipts upon the release of such qualifying films.
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Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
other cable operators that may be designated from time to time by NDTC, entered
into the Digital Terminal Purchase Agreement with GI to purchase advanced
digital set-top devices. The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and interoperable
with the OpenCable(TM) architecture specifications adopted by CableLabs, the
cable television industry's research and development consortium, in November
1997. NDTC has agreed that Approved Purchasers will purchase, in the aggregate,
a minimum of 6.5 million set-top devices during calendar years 1998, 1999 and
2000 at an average price of $318 per basic set-top device. Through June 30,
1998, approximately 525,000 set-top devices had been purchased pursuant to this
commitment. GI agreed to provide NDTC and its Approved Purchasers the most
favorable prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization, which as of
the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).
Such warrants vest as annual purchase commitments are met. It is anticipated
that the value associated with such equity interest would be attributed to TCI
Group upon purchase and deployment of the digital set-top devices. See note 2 to
the accompanying combined financial statements of TCI Group. NDTC has the right
to terminate the Digital Terminal Purchase Agreement if, among other reasons, GI
fails to meet a material milestone designated in the Digital Terminal Purchase
Agreement with respect to the development, testing and delivery of advanced
digital set-top devices.
TCI Group has entered into an Operating Lease Agreement (the "Lease")
with an unaffiliated third party (the "Lessor"). Under the Lease, TCI Group
agreed to sell to, and lease back from, the Lessor advanced digital set-top
devices with an initial aggregate net cost of up to $400 million. The initial
term of the Lease is two years, and it provides for renewal, at TCI Group's
option, for up to five additional consecutive one-year terms. Rent under the
lease is payable quarterly. At the end of the originally scheduled or renewed
lease term, TCI Group is required to either (i) purchase the equipment at the
Termination Value (as defined in the Lease), or (ii) arrange for the sale of the
leased equipment to a third party and pay the Lessor the difference between the
sale price and a predetermined guaranteed value, which in all cases is less than
the Termination Value. As of June 30, 1998, TCI Group has sold and leased back
advanced digital set-top devices under the Lease with an aggregate cost of $107
million. Current annual lease payments with respect to such leased equipment are
$16 million. TCI Group has treated the Lease as an operating lease in the
accompanying combined financial statements.
TCI Group's various partnerships and other affiliates accounted for by
the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities (which are generally not guaranteed by TCI Group), through net
cash provided by their own operating activities and in certain circumstances
through required capital contributions from their partners.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCI Group has entered into Interest Rate Swaps pursuant to which
it (i) pays a fixed interest rate of 6.2% and receives variable interest rates
on a notional amount of $10 million at June 30, 1998 and (ii) pays variable
interest rates and receives fixed interest rates ranging from 4.8% to 9.7% on
notional amounts of $2,400 million at June 30, 1998. During the six months ended
June 30, 1998 and 1997, TCI Group's net payments pursuant to the Fixed Rate
Agreement were less than $1 million and $4 million, respectively; and TCI
Group's net receipts pursuant to the Variable Rate Agreements were $4 million
and $11 million, respectively.
At June 30, 1998, TCI Group would be required to pay less than $1
million to terminate the Fixed Rate Agreement and would be entitled to receive
$43 million upon termination of the Variable Rate Agreements.
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In addition to the Fixed Rate and Variable Rate Agreements, TCI Group
entered into Interest Rate Swaps pursuant to which it pays a variable rate based
on LIBOR (6.1% at June 30, 1998) and receives a variable rate based on CMT (5.9%
at June 30, 1998) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (6.0% at June 30, 1998) and receives a
variable rate based on CMT (6.0% at June 30, 1998) on notional amounts of $95
million through February 2000. During the six months ended June 30, 1998, TCI
Group's net payments pursuant to such agreements were less than $1 million. At
June 30, 1998, TCI Group would be required to pay an estimated $3 million to
terminate such Interest Rate Swaps.
TCI Group is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, TCI Group does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of June 30, 1998, TCI Group
does not anticipate material near-term losses in future earnings, fair values or
cash flows resulting from derivative financial instruments. See note 11 to the
accompanying combined financial statements for additional information regarding
Interest Rate Swaps.
At June 30, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $6,895 million (or 55%) of
fixed rate debt and $5,752 million (or 45%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, TCI Group expects that it would
experience an increase in interest expense.
LIBERTY MEDIA GROUP
Liberty Media Group's sources of funds include its available cash
balances, net cash provided by operating activities, cash distributions from
affiliates, dividend and interest receipts, proceeds from asset sales,
availability under certain credit facilities, and loans from TCI Group. To the
extent cash needs of Liberty Media Group exceed cash provided by Liberty Media
Group, TCI Group may transfer funds to Liberty Media Group. Conversely, to the
extent cash provided by Liberty Media Group exceeds cash needs of Liberty Media
Group, Liberty Media Group may transfer funds to TCI Group.
On January 12, 1998, TCI acquired from a minority stockholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Series A Stock and 7.3 million shares of Liberty
Group Series A Stock. The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced. As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 17% is attributed to Liberty Media
Group.
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In February 1998, TCI, Liberty Media Group and UVSG announced their
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted by
Netlink USA ("Netlink") (the "Netlink Business") in exchange for 6.4 million
shares of UVSG's common stock. In April 1998, UVSG, Liberty Media Group and
Turner-Vision entered into a memorandum of understanding with PRIMESTAR, Inc.
("PRIMESTAR") for the sale of Superstar/Netlink to PRIMESTAR for shares of a new
series of convertible preferred stock of PRIMESTAR and the assumption of
liabilities (the "Primestar Transaction"). Liberty Media Group and UVSG have
agreed in principal to restructure their transaction to provide for UVSG to
acquire any shares of PRIMESTAR preferred stock received by Liberty Media Group
in the Primestar Transaction and Liberty Media Group's Netlink Business for 6.4
million shares of Class B Common Stock of UVSG. Consummation of the transaction
between Liberty Media Group and UVSG is subject to UVSG stockholder approval and
certain regulatory approvals. Consummation of the Primestar Transaction is
subject to a number of conditions, including negotiation of a definitive
agreement and receipt of applicable regulatory approvals. No definitive
agreement with respect to the Primestar Transaction has been reached, however,
and there can be no assurance that any such agreement will be entered into or
that the terms of any such agreement would be the same as terms previously
disclosed.
Encore Media Group's loan agreement contains restrictions regarding
transfers of funds to other members of Liberty Media Group in the form of loans,
advances or cash dividends. In addition, subsequent to the exercise of the
Southern Option, cash provided by operating activities of Southern was no longer
available as a source of cash for Liberty Media Group. Additionally, subsequent
to the sale of the Netlink Business to UVSG, cash provided by operating
activities of the Netlink Business will no longer be available as a source of
cash for Liberty Media Group. Cash provided by operating activities of Southern
and the Netlink Business has been a significant source of cash for Liberty Media
Group. Although no assurance can be given, cash generated by Liberty Media
Group's remaining operating activities, distributions from affiliates, dividend
and interest payments, availability under its credit facilities and available
cash balances should provide adequate cash to meet its obligations. For
additional information concerning Liberty Media Group's cash flows see the
combined statements of cash flows included in the accompanying combined
financial statements of Liberty Media Group.
As of June 30, 1998, Liberty Media Group holds approximately 57 million
shares of the TW Exchange Stock. During the six months ended June 30, 1998, the
unrealized appreciation, net of taxes, of the fair value of such shares of TW
Exchange Stock was $808 million based upon the market value of the common stock
into which the TW Exchange Stock is convertible. Holders of TW Exchange Stock
are entitled to receive dividends ratably with Time Warner common stock. Liberty
Media Group received approximately $10 million in cash dividends for each of the
first six months of 1998 and 1997. It is anticipated that Time Warner will
continue to pay dividends on its common stock and consequently that Liberty
Media Group will receive dividends on the TW Exchange Stock it holds. However,
there can be no assurance that such dividends will continue to be paid.
Liberty Media Group received approximately $15 million in cash
dividends on a 30 year non-convertible 9% preferred stock, with a stated value
of $345 million, during the six months ended June 30, 1998.
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Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million and another which provides up to $640 million.
Borrowings of $298 million and $305 million, respectively, were outstanding at
June 30, 1998. Certain assets of Liberty Media Group serve as collateral for
borrowings under these two bank credit facilities. Encore Media Group has a $525
million senior, secured facility. The credit agreement for the EMG Senior
Facility contains certain provisions which limit Encore Media Group as to
additional indebtedness, sale of assets, liens, guarantees, and distributions.
Additionally, Encore Media Group must maintain certain specified financial
ratios. Borrowings of $300 million were outstanding on the EMG Senior Facility
at June 30, 1998. TCI Music has a revolving loan agreement which provides for
borrowings of up to $100 million. Borrowings of $78 million were outstanding at
June 30, 1998. See note 8 to the accompanying combined financial statements of
Liberty Media Group.
The Music Note may be reduced by the payment of cash or the issuance by
TCI of shares of Liberty Media Group Stock for the benefit of entities included
within the TCI Group. During the second quarter of 1998, TCI issued 153,183
shares of Liberty Group Series B Stock valued at $5 million to an individual who
is an officer and director of TCI for the benefit of entities included within
the TCI Group. Accordingly, the Music Note was reduced by such amount.
Additionally, Liberty Media Group may elect to pay $50 million of the Music Note
by delivery of a Stock Appreciation Rights Agreement that would give TCI Group
the right to receive 20% of the appreciation in value of Liberty Media Group's
investment in TCI Music, to be determined at July 11, 2002.
Including rights held by subsidiaries of TCI that are not members of
the Liberty Media Group, the obligation under the Rights Agreement could be as
high as $86 million and will be paid by Liberty Media Group in August of 1998.
Various partnerships and other affiliates of Liberty Media Group
accounted for under the equity method finance a substantial portion of their
acquisitions and capital expenditures through borrowings under their own credit
facilities and net cash provided by their operating activities.
As of June 30, 1998, Liberty Media Group was not exposed to material
near-term losses in future earnings, fair values, or cash flows resulting from
derivative financial instruments.
Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming. As of June 30, 1998, Encore Media
Group's future minimum obligation related to certain film licensing agreements
was $680 million. The amount of the total obligation is not currently estimable
because such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Continued development may require additional financing and it cannot be
predicted whether Liberty Media Group will obtain such financing. If additional
financing cannot be obtained, Liberty Media Group could attempt to sell assets
but there can be no assurance that asset sales, if any, can be consummated at a
price and on terms acceptable to Liberty Media Group. Further, Liberty Media
Group and/or TCI could attempt to sell equity securities but, again, there can
be no certainty that such a sale could be accomplished on acceptable terms.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, Liberty Media Group paid
$64 million during the first quarter of 1998 for its allocated share of the Call
Payments. See note 9 to the accompanying combined financial statements of
Liberty Media Group.
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On June 30, 1998, Liberty Media Group contributed $300 million in cash
to USANi LLC in exchange for an aggregate of 15 million LLC Shares. Liberty
Media Group's cash purchase price was increased at an annual interest rate of
7.5% beginning from the date of the closing of the Universal Transaction through
the date of Liberty Media Group's purchase of such securities. Pursuant to the
LLC Exchange Agreement, each LLC Share issued or to be issued to Liberty Media
Group is exchangeable for one share of USAI's Common Stock.
In connection with the Universal Transaction, each of Universal and
Liberty Media Group was granted a preemptive right with respect to future
issuances of USAI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in USAI that they had
immediately prior to such issuances. On June 24, 1998, Liberty Media Group
purchased approximately 4.7 million USAI shares of common stock pursuant to a
preemptive right of $20 per share in cash. In addition, on July 27, 1998,
Liberty Media Group purchased 7.9 million LLC Shares at $20 per share as a
result of the issuance of common stock by USAI in the Ticketmaster Transaction.
During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 266,783 shares of Liberty Group Stock were repurchased at an
aggregate cost of approximately $8 million. Such amount is reflected as a
decrease to combined equity in the accompanying combined financial statements.
On July 13, 1998, Liberty Media Group announced that it had made a
proposal to TINTA concerning the acquisition by Liberty Media Group of all of
the outstanding shares of common stock of TINTA not beneficially owned by TCI
Ventures Group. Under the proposal, Liberty Media Group would exchange, in a
merger transaction, 0.58 of a share of Liberty Group Series A Stock for each
share of Tele-Communications International, Inc. Series A Common Stock acquired
by Liberty Media Group in the merger. Liberty Media Group's proposal, and a
proposed merger agreement, will be considered by TINTA's board of directors.
TINTA, on behalf of the board of directors, has engaged an investment banking
firm to render its opinion concerning the fairness to TINTA's public
shareholders of the consideration offered by Liberty Media Group.
TCI VENTURES GROUP
The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the businesses attributed to
it:
<TABLE>
<CAPTION>
June 30,
1998
--------------------
amounts in thousands
Total assets
<S> <C>
TINTA $ 1,376,290
TCI Telephony 821,726
UVSG 386,932
NDTC 345,276
@Home 149,136
ETC 82,745
WTCI 80,290
Other 413,693
-------------------
$ 3,656,088
===================
Debt and capital lease obligations (1)
TINTA $ 390,023
Corporate and other 204,015
NDTC 151,539
UVSG 22,397
@Home 26,484
-------------------
$ 794,458
===================
</TABLE>
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<PAGE> 177
(1) For additional information concerning the terms of TCI
Ventures Group's debt, see note 13 to the accompanying
combined financial statements of the TCI Ventures Group.
The TCI Ventures Group's combined operating activities provided (used)
cash of $(56.0 million) and $43.0 million during the six months ended June 30,
1998 and 1997, respectively. As discussed above, effective October 1, 1997,
Cablevision's cash flows are no longer included in the TCI Ventures Group's
combined statements of cash flows. Cablevision's operating activities provided
cash of $21.3 million during the six months ended June 30, 1997. At June 30,
1998, UVSG and @Home held cash and cash equivalents of $95.5 million and $91.2
million, respectively. The cash balances of such entities are generally intended
to be applied towards the respective liquidity requirements of such entities. It
is not presently anticipated that any significant portion of such cash balances
will be distributed or otherwise made available to other members of the TCI
Ventures Group.
During the six months ended June 30, 1998 and 1997, cash used by TCI
Ventures Group's investing activities aggregated $98.6 million and $255.7
million, respectively. The 1998 amount includes cash proceeds of $83.0 million
received upon the disposition of assets. Additionally, the 1998 and 1997 amounts
include $160.9 million and $146.0 million, respectively, that were used by the
TCI Ventures Group to fund investments in, and loans to, affiliates. For
additional information concerning the TCI Ventures Group's cash flows, see the
combined statements of cash flows included in the accompanying combined
financial statements of TCI Ventures Group.
Substantially all of the entities the ownership of which, or the
investment in which, has been attributed to the TCI Ventures Group will require
significant additional capital in order to develop their respective businesses
and assets, to fund future operating losses and to fund future growth. In
certain cases, the TCI Ventures Group has contractual commitments pursuant to
which (subject to certain conditions) it may be required to make significant
additional capital contributions to the entities in which it has investments.
TINTA and its consolidated subsidiaries also have commitments under various
partnership and other funding agreements to contribute capital or loan money to
fund capital expenditures and other capital requirements of certain affiliates.
There can be no assurance that any of the TCI Ventures Group's entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
them to be able to meet their respective capital requirements. There is also no
assurance that the anticipated capital requirements of the TCI Ventures Group's
entities and/or affiliates will not significantly increase due to changing
circumstances, such as unanticipated opportunities, technological or marketing
hurdles, unanticipated expenses, and the like. The failure to generate
sufficient cash flow from operating activities or to raise sufficient funds may
require such entity to delay or abandon some or all of its development and
expansion plans or in certain instances, could result in the failure to meet
certain regulatory requirements, any and all of which could have a material
adverse effect on such entity's growth, its ability to compete in its industry
and its ability to service its debt.
I-176
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The ability of one of the TCI Ventures Group entities to fund the cash
flow deficits of other TCI Ventures Group entities is limited not only by the
structural separation of such businesses in separate corporations and
partnerships, but also by the presence of other investors, both debt and equity,
in many of the TCI Ventures Group entities. In addition, TINTA and certain of
the other TCI Ventures Group entities, such as TCG and Sprint PCS, are holding
companies, the assets of which consist solely or primarily of investments in
their subsidiaries and affiliates. As such, the ability of such holding
companies to meet their respective financial obligations and their funding and
other commitments to their respective subsidiaries and affiliates, is dependent
upon external financing and/or of dividends, loans or other payments from their
respective subsidiaries and affiliates, or repayment of loans and advances from
such holding companies. Accordingly, such holding companies' ability to meet
their respective liquidity requirements, including debt service, is limited as a
result of their dependence upon external financing and funds received from their
respective subsidiaries and affiliates. The payment of dividends or the making
of loans or advances to such holding companies by their respective subsidiaries
and affiliates may be subject, among other things, to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and affiliates, and are subject to various business considerations.
From inception through June 1998, the Sprint PCS partners have
contributed $4.2 billion to Sprint PCS (of which TCI Telephony contributed an
aggregate of $1.3 billion). Sprint PCS's business plan will require additional
capital financing prior to the end of 1998. Sources of funding for Sprint PCS's
capital requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners. However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.
Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized management
to operate Sprint PCS in accordance with such budget. The Sprint PCS partners
may mutually agree to make additional capital contributions. However, the Sprint
PCS partners have no such obligation in the absence of an approved budget, and
there can be no assurance the Sprint PCS partners will reach such an agreement
or approve the 1998 proposed budget. In addition, the failure by the Sprint PCS
partners to approve a business plan may impair the ability of Sprint PCS to
obtain required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the delay or
abandonment of Sprint PCS's development and expansion plans and expenditures,
the failure to meet regulatory requirements or other potential adverse
consequences.
Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998. Under the Sprint PCS partnership
agreement, if one of the Sprint PCS partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS partners for
resolution pursuant to specified procedures and the issue remains unresolved,
buy/sell provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint PCS
partners, or, in certain circumstances, liquidation of Sprint PCS.
I-177
<PAGE> 179
In May 1998 the Sprint PCS partners entered into a series of agreements
pursuant to which TCI Telephony, Comcast and Cox would exchange their respective
interests in Sprint PCS and PhillieCo for shares of a new class of tracking
stock of Sprint which would track the performance of Sprint's newly created PCS
Group (which would initially consist of Sprint PCS, PhillieCo and certain PCS
licenses which are separately owned by Sprint). The consummation of such
transactions is subject to a number of conditions, including the approval of
such transactions by the stockholders of Sprint and the receipt of required FCC
approvals. If such transactions are consummated, TCI Telephony will initially
hold shares of Sprint PCS Group stock (as well as certain additional securities
of Sprint exercisable for or convertible into such securities) representing
approximately 24% of the equity value of Sprint attributable to the PCS Group,
subject to further dilution as a result of additional expected issuances of
shares of Sprint PCS stock (including in connection with a proposed initial
public offering of shares of Sprint PCS stock that may be consummated in
connection with such transactions). In connection with the execution of such
agreements, the Sprint PCS partners agreed to make up to $400 million in
additional capital contributions (of which TCI Telephony's share is $120
million) to Sprint PCS pending the closing of such transactions. If the
above-described transactions are consummated, the Company would begin to use the
cost method to account for its investment in the Sprint PCS stock. No assurance
can be given that the above-described transactions will be consummated.
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<PAGE> 180
Historically, the TCI Ventures Group's combined operating activities
have not provided sufficient funds to meet all of the TCI Ventures Group's
capital requirements. The TCI Ventures Group's ability to obtain sufficient
capital resources to make its expected additional capital contributions to the
Sprint PCS Partnerships and other entities in which it has investments are
limited. WTCI and NDTC are the only wholly-owned subsidiaries attributed to the
TCI Ventures Group that are operating companies and such entities are currently
the TCI Ventures Group's only source of cash provided by operating activities.
As a result, the TCI Ventures Group has limited ability to generate funds
internally to fund capital requirements and limited cash flow from operating
activities to support external financings. The other operating companies
attributed to the TCI Ventures Group have other investors, public or private,
and the payment of dividends, or the making of loans or advances by any one of
such TCI Ventures Group entities to any other of such TCI Ventures Group
entities would be subject to various business considerations, as well as any
legal restrictions, including pursuant to agreements among the investors. At
June 30, 1998, TCI Ventures Group had the Ventures Intergroup Credit Facility
with TCI Group which has a five-year term commencing on September 10, 1997 and
which permits aggregate borrowings at any one time outstanding of up to $500
million (subject to reduction as provided below), which borrowings bear interest
at a rate per annum equal to The Bank of New York's prime rate (as in effect
from time to time) plus 1% per annum, payable quarterly. A commitment fee equal
to 3/8% per annum of the average unborrowed availability under the Ventures
Intergroup Credit Facility is payable by the TCI Ventures Group to the TCI Group
on a quarterly basis. The maximum amount of borrowings permitted under the
Ventures Intergroup Credit Facility will be reduced on a dollar-for-dollar basis
by up to $300 million if and to the extent that the aggregate amount of any
additional capital that TCI Telephony is required to contribute to Sprint PCS
subsequent to the September 10, 1997 consummation of the Exchange Offers is less
than $300 million. No borrowings were outstanding pursuant to the Ventures
Intergroup Credit Facility at June 30, 1998. Additionally, in March 1998, TCI
Ventures Group entered into the Ventures Group Bank Facility with a term of one
year which provides for aggregate borrowings of up to $400 million. At June 30,
1998, borrowings of $204 million were outstanding under the Ventures Group Bank
Facility. If the available borrowings under the Ventures Group Bank Facility and
the Ventures Intergroup Credit Facility are not sufficient to fund the TCI
Ventures Group's capital requirements, no assurance can be given that the TCI
Ventures Group will be able to obtain any required additional financing on terms
acceptable to it, or at all. Additional capital could be raised for the TCI
Ventures Group by, among other things, engaging in public offerings or private
placements of TCI Ventures Group common stock or through issuance of debt
securities or preferred equity securities attributed to the TCI Ventures Group.
If TCI Ventures Group is unable to obtain sufficient financing from outside
sources, the TCI Ventures Group may continue to be dependent upon funding from
the TCI Group. The TCI Ventures Group's failure to meet its contractual and
other capital requirements could have significant adverse consequences to a
particular operating company or affiliate and to the TCI Ventures Group.
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<PAGE> 181
TINTA's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of TINTA believes
may require substantial additional funds. Although TINTA has, at June 30, 1998,
(i) $5.4 million due from TCI Ventures Group pursuant to an unsecured promissory
note, (ii) a $200 million credit facility with the TCI Ventures Group and (iii)
the ability to access any excess cash and borrowing availability from the Puerto
Rico Subsidiary, TINTA's ability to otherwise obtain debt financing to assist
its operating companies and to meet its capital obligations at other than the
subsidiary level will be limited because TINTA does not conduct any operations
directly. Furthermore, because TINTA's assets consist primarily of ownership
interests in foreign subsidiaries and affiliates, the repatriation of any cash
provided by such subsidiaries' and affiliates' operating activities in the form
of dividends, loans or other payments is subject to, among other things,
exchange rate fluctuations, tax laws and other economic considerations, as well
as applicable statutory and contractual restrictions. Moreover, the liquidity
sources of TINTA's foreign subsidiaries and affiliates are generally intended to
be applied towards the respective liquidity requirements of such foreign
subsidiaries and affiliates, and accordingly, do not represent a direct source
of liquidity to TINTA. Accordingly, with the exception of any liquidity that may
be provided to TINTA by the Puerto Rico Subsidiary, no assurance can be given
that TINTA will have access to any cash generated by its foreign operating
subsidiaries and affiliates.
On April 15, 1998, it was announced that Telewest and General Cable had
agreed to the terms of a proposed merger in which holders of General Cable will
be offered 1.243 new Telewest shares and (pound)0.65 ($1.08) in cash for each
share of General Cable. In addition, holders of General Cable ADSs (each
representing five General Cable shares) will be offered 6.215 new Telewest
shares and (pound)3.25 ($5.42) in cash for each share of General Cable ADSs.
Based upon Telewest's closing share price of (pound)0.89 ($1.48) on April 14,
1998, the Merger Offer is valued at approximately (pound)649 million ($1.1
billion).
The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of 261 million new Telewest
shares at a price of (pound)0.925 ($1.54) per share. Mediaone, TINTA and Cox
have agreed to subscribe for their full allocation of new Telewest shares
(approximately 69 million shares in the case of TINTA) and to subscribe on a pro
rata basis for any new Telewest shares not subscribed for by other Telewest
shareholders. Together, Mediaone, TINTA and Cox held 67.9% of the issued and
outstanding Telewest ordinary shares at June 30, 1998. In addition, it is
anticipated that Mediaone, TINTA, Cox and SBC will convert their entire
respective holdings of Telewest convertible preference shares into new Telewest
shares. Following the issuance of new Telewest shares with respect to the above
transactions, and assuming the exercise of all options under General Cable's
share option schemes, it is anticipated that existing Telewest shareholders
would hold 79% and existing General Cable shareholders would hold 21% of the
then issued ordinary share capital of the combined group.
Consummation of the merger is subject to regulatory approval and other
conditions. There can be no assurance that such merger will be consummated or
consummated on the terms contemplated by the parties.
On July 23, 1998, TINTA agreed to purchase 100% of the issued and
outstanding common stock of Pramer S.A., an Argentine programming company, for
$80 million in cash and the assumption of certain liabilities. Consummation of
such transaction is expected to occur in the third quarter of 1998. No assurance
can be given that such transaction will be consummated or consummated on the
terms contemplated by the parties.
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TINTA has signed a memorandum of understanding with UIH for the sale of
TINTA's ownership interests in Tevel and Melita to UIH. Concurrently, TINTA will
purchase an additional 25% interest in PHL from UIH. The parties have agreed
that, net of its purchase of UIH's 25% interest in PHL, TINTA will receive $71
million for its interests in Tevel and Melita. Such proceeds are subject to
adjustment. Consummation of such transactions is contingent on the consent of
certain third parties and regulatory bodies, as well as on the completion of
financing by UIH. There can be no assurance that such transactions will be
consummated or consummated on the terms contemplated by the parties.
@Home is investing significantly in the development of its network
infrastructure and hiring new personnel rapidly in anticipation of potential
growth in its business, which is in a very early state of development. As of
June 30, 1998 there were minimal subscribers to its @Home services. @Home
believes that the net cash proceeds from a proposed public offering, together
with existing cash, cash equivalents and capital lease financing, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next 12 months. @Home may, however, require additional funds if its
estimates of working capital and/or capital expenditure and/or lease financing
requirements change or prove inaccurate or in order for @Home to respond to
unforeseen technological or marketing hurdles or to take advantage of
unanticipated opportunities. Over the longer term, it is likely that @Home will
require substantial additional funds to continue to fund its infrastructure
investment, product development, marketing, sales and customer support needs.
There can be no assurance that any such funds will be available at the time or
times needed, or available on terms acceptable to @Home. If adequate funds are
not available, or are not available on acceptable terms, @Home may not be able
to continue its network implementation, to develop new products and services or
otherwise to respond to competitive pressures. Such inability could have a
material adverse effect on @Home's business, operating results and financial
condition.
@Home has entered into exclusive distribution agreements with certain
cable operators. In connection with the distribution agreements, @Home has
issued warrants to such cable operators to purchase 17,946,956 shares of @Home's
Series A common stock. Of these warrants, warrants to purchase 10,581,298 shares
were exercisable as of June 30, 1998. During the first quarter of 1998, @Home
recorded a non-cash, non-recurring charges of $83.3 million to operations based
on the fair value of 2,705,514 shares which were underlying warrants which
became exercisable during the period. @Home may issue additional stock, or
warrants in connection with its efforts to expand its distribution of the @Home
service to other cable operators. The exercise of warrants or stock issued by
@Home will reduce TCI Ventures Group's equity interest and voting power in
@Home.
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<PAGE> 183
During the period in which each of TCI, Cox, Comcast Corporation
("Comcast") and Cablevision Systems Corporation ("CSC") have agreed (subject to
certain exceptions and limitations) to use @Home as its exclusive provider of
high speed residential consumer Internet access services, a stockholders
agreement among such parties and @Home provides that in the event the number of
exclusive homes passed attributable to TCI decreases below 80% of the number of
homes passed of TCI and its controlled affiliates as of June 1996, then TCI will
be required to offer to sell a proportionate amount of its equity in @Home to
certain other stockholders of @Home at fair market value. Since June 1996, TCI
has sold or transferred certain cable systems that reduce TCI's number of base
homes passed. In addition, TCI has announced the proposed sale or transfer of
additional cable systems that would further reduce TCI's number of base homes
passed. In the event that such cable systems continue to be exclusive to @Home,
such cable systems and their homes passed would continue to be included in TCI's
homes passed for purposes of determining whether or not TCI is obligated to
offer a portion of its equity interest in @Home to Cox, Comcast and CSC, even
though such cable systems are no longer owned or controlled by TCI. If TCI does
not require that such cable systems remain exclusive to @Home, the TCI Ventures
Group could be required to sell shares to Cox, Comcast, CSC and certain other
stockholders of @Home, at fair market value. There can be no assurance that, if
the TCI Ventures Group is required to sell shares of @Home, the price paid to
the TCI Ventures Group would represent adequate consideration to the TCI
Ventures Group because such fair market value may not adequately reflect the TCI
Ventures Group's expectation of the long term value of such investments in
@Home. In addition to the exceptions to the general exclusivity obligations, Cox
and Comcast have the right to terminate the exclusivity provisions with respect
to TCI, Cox, Comcast and CSC in the event TCI does not attain certain customer
penetration levels for the @Home service relative to the customer penetration
levels of Cox and Comcast, as of June 4, 1999, and each anniversary thereafter
until 2002. Such termination could have a material adverse effect on @Home and
the value of the TCI Ventures Group's interest in @Home.
In addition, although TCI, Cox, Comcast and CSC are subject to certain
exclusivity obligations to carry @Home's residential consumer Internet service
over their cable systems, such exclusivity obligations are subject to a number
of exceptions which allow them to compete with @Home in certain circumstances.
Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA generally does not attempt to hedge
existing investments in its foreign affiliates and subsidiaries. Although TINTA
monitors foreign currency exchange rates with the objective of mitigating its
exposure to unfavorable fluctuations in such rates, TINTA believes that, given
the nature of its business, it is not possible or practical to eliminate TINTA's
exposure to unfavorable fluctuations in foreign currency exchange rates. As of
June 30, 1998, TINTA was not exposed to material near-term losses in future
earnings, fair values or cash flows resulting from derivative financial
instruments.
TINTA has significant commitments and contingent obligations with
respect to certain affiliates. For additional information see notes 12 and 16 to
the accompanying combined financial statements of TCI Ventures Group.
In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
that were subject to the Malone Call Agreement and the Magness Call Agreement.
Accordingly, TCI Ventures Group paid $76 million during the first quarter of
1998 for its allocated share of the Call Payments. For additional information
see note 14 to the accompanying combined financial statements of TCI Ventures
Group.
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<PAGE> 184
During the fourth quarter of 1997, TCI entered into the Equity Swap
Facility. Pursuant to the Equity Swap Facility, TCI has the right to direct the
Counterparty to use the Equity Swap Facility to purchase Equity Swap Shares of
TCI Group Series A Stock and TCI Ventures Group Series A Stock with an aggregate
purchase price of up to $300 million. TCI has the right, but not the obligation,
to purchase Equity Swap Shares through the September 30, 2000 termination date
of the Equity Swap Facility. During such period, TCI is to settle periodically
any increase or decrease in the market value of the Equity Swap Shares. If the
market value of the Equity Swap Shares exceeds the Counterparty's cost, Equity
Swap Shares with a fair value equal to the difference between the market value
and cost will be segregated from the other Equity Swap Shares. If the market or
value of Equity Swap Shares is less than the Counterparty's cost, TCI, at its
option, will settle such difference with shares of TCI Group Series A Stock or
TCI Ventures Group Series A Stock or, subject to certain conditions, with cash
or letters of credit. In addition, TCI is required to periodically pay the
Counterparty a fee equal to a LIBOR-based rate on the Counterparty's cost to
acquire the Equity Swap Shares. Due to TCI's ability to issue shares to settle
periodic price fluctuation and fees under the Equity Swap Facility, TCI records
all amounts received or paid under this arrangement as increases or decreases to
equity. As of June 30, 1998, the Equity Swap Facility has acquired 4,935,780
shares of TCI Group Series A Stock and 1,150,800 shares of TCI Ventures Group
Series A Stock at an aggregate cost that was approximately $48 million less than
the fair value of such Equity Swap Shares at June 30, 1998. The costs and
benefits associated with the TCI Ventures Group Series A Stock held by the
Equity Swap Facility are attributed to TCI Ventures Group.
A TCI subsidiary attributed to TCI Ventures Group issued preferred
stock in connection with a previous acquisition. Such preferred stock is
exchangeable at the option of the holders into 1,084,056 shares of TCI Group
Series A Stock beginning in April 1999. TCI Ventures Group entered into a
forward purchase contract in July 1998 with a commercial bank to acquire
1,084,056 shares of TCI Group Series A Stock for approximately $45 million on or
before April 19, 1999. Such shares will be used to satisfy the exchange
requirements of the aforementioned preferred stock.
During the six months ended June 30, 1998, pursuant to the stock
repurchase program, 145,450 shares of TCI Ventures Group Series A Stock and
94,000 shares of TCI Ventures Group Series B Stock were repurchased at an
aggregate cost of $3.9 million. Such amount is reflected as a decrease to
combined equity in the accompanying combined financial statements.
The board of directors of UVSG has authorized UVSG to repurchase from
time to time up to an aggregate of 1,000,000 shares of UVSG's Class A common
stock. During the six months ended June 30, 1998, UVSG repurchased 188,000
shares of stock for a total of $6.7 million.
Effective February 1, 1998, Turner-Vision contributed the assets,
obligations and operations of its retail C-band satellite business to
Superstar/Netlink in exchange for an approximate 20% interest in
Superstar/Netlink. As a result of this transaction, both UVSG's and Liberty
Media Group's ownership interest in Superstar/Netlink decreased from 50% to
approximately 40%. UVSG recognized a gain of $14.7 million (before deducting
deferred income tax expense of $5.9 million) in connection with such dilution.
See note 7 to the accompanying combined financial statements of TCI Ventures
Group.
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In February 1998, TCI, Liberty Media Group and UVSG announced an
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
Superstar/Netlink and its 100% interest in certain businesses conducted by
Netlink in exchange for 6.4 million shares of UVSG's common stock. In April
1998, UVSG, Liberty Media Group and Turner Vision entered into a memorandum of
understanding with PRIMESTAR for the sale of Superstar/Netlink to PRIMESTAR for
shares of a new series of convertible preferred stock of PRIMESTAR and the
assumption of liabilities. Liberty Media Group and UVSG have agreed in principal
to restructure their transaction to provide for UVSG to acquire any shares of
PRIMESTAR preferred stock received by Liberty Media Group in the PRIMESTAR
Transaction and Liberty Media Group's Netlink Business for 6.4 million shares of
UVSG Class B common stock. Consummation of the transaction between Liberty Media
Group and UVSG is subject to UVSG stockholder approval and certain regulatory
approvals. Consummation of the PRIMESTAR Transaction is subject to a number of
conditions including negotiation of a definitive agreement and receipt of
applicable regulatory approvals. No definitive agreement with respect to the
PRIMESTAR Transactions has been reached, however, and there can be no assurance
that any such agreement will be entered into or that the terms of any such
agreement would be the same as the terms previously disclosed.
On June 11, 1998, UVSG and News Corp. announced the signing of a
definitive agreement whereby News Corp.'s TV Guide properties will be combined
with UVSG to create a platform for offering television guide services to
consumers and advertising. As part of this combination, a unit of News Corp.
will receive consideration consisting of $800 million in cash and 30 million
shares of UVSG's stock, including 11,251,706 shares of its Class A common stock
and 18,748,294 shares of its Class B common stock. As a result of the
transaction, and certain other pending transactions, News Corp., TCI and UVSG's
public stockholders will own on an economic basis approximately 40%, 44% (of
which 34% will be attributable to TCI Ventures Group and 10% will be
attributable to Liberty Media Group) and 16%, respectively, of UVSG. Following
the transaction, News Corp. and TCI will each have approximately 48% of the
voting power of UVSG's outstanding stock.
A subsidiary of TCI that was a member of TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. Due to the related
party nature of the transaction, the $49.5 million total of the cash payment and
the historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $175.8 million) has been reflected as an
addition to TCI Ventures Group's combined equity.
On January 12, 1998, TCI acquired from a minority shareholder of UVSG
12.4 million shares of UVSG Class A common stock in exchange for 12.7 million
shares of TCI Ventures Group Series A Stock and 7.3 million shares of Liberty
Group Series A Stock. The aggregate value assigned to the shares issued by TCI
was based upon the market value of such shares at the time the transaction was
announced. As a result of such transaction TCI increased its ownership in the
equity of UVSG to approximately 73%, of which 56% is attributed to TCI Ventures
Group and 17% is attributed to Liberty Media Group. In addition, TCI's
collective voting power increased to 93%. In connection with such transaction,
during the first quarter of 1998, TCI Ventures Group recorded a $154.2 million
increase to intangible assets, a $23.5 million decrease to minority interest in
equity of attributed subsidiaries and a $177.7 million increase to combined
equity.
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On January 16, 1998, TINTA sold its interest in TeleCable Nacional, CXA
for cash proceeds of $10 million and TCI Ventures Group sold its interest in
Acclaim Entertainment, Inc. in February 1998 for cash proceeds of approximately
$17 million.
On February 12, 1998, TCI Ventures Group sold its (i) 40% interest in
NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii) 79%
interest in New Jersey Fiber Technologies, L.P. for aggregate cash proceeds of
$44.1 million.
In January 1998, TCG entered into certain agreements pursuant to which
it agreed to be acquired by AT&T. Such merger was consummated on July 23, 1998.
As a result of such merger, TCI Ventures Group received in exchange for all of
its interest in TCG, approximately 46.95 million shares of AT&T Common Stock.
TCI Ventures Group will account for its ownership interest in AT&T Common Stock
using the cost method. As of June 30, 1998, the current annual dividend per
share for AT&T Common Stock was $1.32. No assurance can be given that future
dividends will be paid at such rate or at all. See note 2 to the accompanying
combined financial statements of TCI Ventures Group.
In July 1998, TCI and the other partners of KC Fiber sold the assets of
KC Fiber to TCG for cash proceeds of $55 million. TCI Ventures Group holds a 50%
interest in KC Fiber and the remaining 50% is held by Kansas City Cable
Partners, a partnership in which the TCI Group holds a 50% interest. TCI
Ventures Group received proceeds of approximately $20 million in connection with
such sale.
Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an agreement with GI to purchase advanced digital set-top devices. The hardware
and software incorporated into these devices will be designed and manufactured
to be compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's research
and development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million set-top
devices over the next three years at an average price of $318 per set-top
device. Through June 30, 1998, 525,000 set-top devices had been purchased
pursuant to this commitment. GI agreed to provide NDTC and its Approved
Purchasers the most favorable prices, terms and conditions made available by GI
to any customer purchasing advanced digital set-top devices. In connection with
NDTC's purchase commitment, GI agreed to grant warrants to purchase its common
stock proportional to the number of devices ordered by each organization, which
as of the effective date of the Digital Terminal Purchase Agreement, would have
represented at least a 10% equity interest in GI (on a fully diluted basis).
Such warrants vest as annual purchase commitments are met. It is anticipated
that the value associated with such equity interest would be attributed to TCI
Group upon purchase and deployment of the digital set-top devices. See note 2 to
the accompanying combined financial statements of TCI Ventures Group. NDTC has
the right to terminate the Digital Terminal Purchase Agreement if, among other
reasons, GI fails to meet a material milestone designated in the Digital
Terminal Purchase Agreement with respect to the development, testing and
delivery of advanced digital set-top devices.
On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
exchange for (i) certain of the assets of NDTC's set-top authorization business,
(ii) the license of certain related technology to GI, (iii) a $50 million
promissory note from TCI Ventures Group to GI and (iv) a nine year revenue
guarantee from TCI Ventures Group in favor of GI. In connection therewith, NDTC
also entered into a service agreement pursuant to which it will provide certain
services to GI's set-top authorization business.
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TELE-COMMUNICATIONS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no new material legal proceedings or material developments
in previously reported legal proceedings during the quarter ended June
30, 1998 to which TCI or any of its consolidated subsidiaries is a
party or of which any of its property is the subject, except as
follows:
New Litigation
AT&T Merger Litigation. Between June 24 and July 1, 1998, thirteen
substantially similar purported class action complaints were filed by
stockholders of Tele-Communications, Inc. ("TCI") in the Court of
Chancery of the State of Delaware (the "Delaware Chancery Court") under
the captions Nieto v. Fisher, et al., C.A. No. 16470; Martin, et al. v.
Fisher, et al., C.A. No. 16471; Bove v. Fisher, et al., C.A. No. 16473;
Freiman v. Fisher, et al., C.A. No. 16474; Great Neck Capital
Appreciation Investment Partnership, L.P. v. Fisher, et al., C.A. No.
16477; Cohen v. Fisher, et al., C.A. No. 16478; Silvert v. Fisher, et
al., C.A. No. 16479; Alex Cooper Profit Sharing Trust v. Fisher, et
al., C.A. No. 16482; Satz v. Fisher, et al., C.A. No. 16489; Stefansky,
et al. v. Fisher, et al., C.A. No. 16490; Hushing v. Fisher, et al.,
C.A. No. 16491; Krim v. Fisher, et al., C.A. No. 16495; and Hirsch v.
Fisher, et al., C.A. No. 16501. All thirteen complaints name as
defendants TCI and the following directors of TCI: Donne F. Fisher,
John W. Gallivan, Paul A. Gould, Leo J. Hindery, Jr., Jerome H. Kern,
Kim Magness, John C. Malone, Robert A. Naify and J.C. Sparkman. The
complaints in C.A. Nos. 16470, 16471, 16474, 16478, 16479, 16495, and
16501 also name AT&T Corporation ("AT&T") as a defendant. The
complaints were filed in response to the announcement on June 24, 1998
of a proposed merger between TCI and AT&T and allege substantially
similar claims.
The gravamen of the complaints is that the terms of the proposed
TCI-AT&T merger will unjustly benefit holders of TCI Group Class B
common stock at the expense of holders of TCI Group Class A common
stock and that, by approving the proposed merger, the directors of TCI
have breached their fiduciary duties to the TCI Group Class A
stockholders. Plaintiffs in all thirteen complaints seek to enjoin the
proposed merger (or rescind the merger in the event it is consummated)
and unspecified compensatory damages, fees and costs. In addition to
the above complaints, the complaint in an existing derivative action
against TCI and the TCI board of directors in the Delaware Chancery
Court, In re Tele-Communications, Inc. Shareholder Litigation,
Consolidated C.A. No. 16128, was amended on June 26, 1998 to include
claims arising from the proposed TCI-AT&T merger substantially similar
to those alleged in the thirteen actions above. See related discussion
below. These actions remain pending and discovery has not commenced.
Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition of this matter should not have a material adverse effect
upon the financial condition of the Company.
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TELE-COMMUNICATIONS, INC.
Item 1. Legal Proceedings (continued).
On June 25 and July 1, 1998, two other substantially similar purported
class action complaints alleging claims arising from the proposed
TCI-AT&T merger were filed in the Delaware Chancery Court under the
captions Landau v. Fisher, et al., C.A. No. 16492, and Getfinger v.
Fisher, et al., C.A. No. 16502, respectively. Named as defendants in
both complaints are TCI, AT&T and the TCI board of directors: Donne F.
Fisher, John W. Gallivan, Paul A. Gould, Leo J. Hindery, Jr., Jerome H.
Kern, Kim Magness, John C. Malone, Robert A. Naify and J.C. Sparkman.
The two actions were brought on behalf of holders of Series A TCI
Ventures Group Common Stock and allege that the TCI directors breached
their fiduciary duty to plaintiffs by failing to adequately represent
the interests of the class in the proposed consolidation of TCI
Ventures Group ("Ventures") and Liberty Media Group ("Liberty") and the
sale of Ventures' assets to TCI, both to be undertaken in connection
with the proposed TCI-AT&T merger. The complaints further allege that
the consideration to be received by the class in the Ventures-Liberty
consolidation is inadequate. Plaintiffs in the complaints seek to
enjoin the transactions complained of (or rescind the transactions in
the event they are consummated) and unspecified compensatory damages,
fees and costs. These actions remain pending and discovery has not
commenced. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action,
the ultimate disposition of this matter should not have a material
adverse effect upon the financial condition of the Company.
Tele-Communications International, Inc. Stockholder Litigation. On July
13, 1998, two putative class action complaints were filed by certain
stockholders of Tele-Communications International, Inc. ("TINTA") in
the Court of Chancery of the State of Delaware. The actions, which have
identical claims and allegations, are styled as Berkowitz v. Hindery,
et al., C.A. No. 16533, and Chetkov v. Hindery, et al., C.A. No. 16534,
respectively. The complaints were filed following the announcement of a
proposed business combination in which Liberty Media Group would
acquire all outstanding public shares of TINTA not already owned by TCI
Ventures Group. The defendants named in both complaints are
Tele-Communications, Inc., TINTA, and the Board of Directors of TINTA:
Leo J. Hindery, John C. Malone, Gary S. Howard, David J. Evans, Pierre
Lescure, Paul A. Gould, Fred A. Vierra, and Jerome H. Kern. The
gravamen of both complaints is that the TINTA directors will breach
their fiduciary duties by approving the merger and undervaluing the
proposed merger consideration to the detriment of the TINTA public
stockholders. Plaintiffs in both actions seek to enjoin the
consummation or closing of the proposed merger, or the rescission of
the merger in the event it is consummated, and unspecified compensatory
damages, fees and costs. The actions remain pending and discovery has
not commenced. Based upon the facts available, management believes
that, although no assurances can be given as to the outcome of this
action, the ultimate disposition of this matter should not have a
material adverse effect upon the financial condition of the Company.
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TELE-COMMUNICATIONS, INC.
Item 1. Legal Proceedings (continued).
New Developments in Previously Reported Litigation
As previously reported, following the announcement of the proposed
merger (the "TBS-Time Warner Merger") between Turner Broadcasting
Systems, Inc. ("TBS") and Time Warner, Inc. ("Time Warner") several
purported class action lawsuits were filed by TBS shareholders in
Fulton County Superior Court, Georgia. On November 1, 1995, plaintiffs
in thirteen of the cases filed a second amended class action Complaint
in what became a consolidated action styled Lewis v. TBS, Inc. C.A. No.
B-41500 (the "Lewis Action"). The defendants include, among others,
Tele-Communications, Inc., John Malone, Peter Barton and Fred Vierra.
The TBS-Time Warner merger was consummated on October 10, 1996. On
December 20, 1996, the Georgia State Court dismissed the plaintiffs
third amended complaint in the Lewis Action. Plaintiffs stated their
intention to appeal the dismissal order and filed a fourth amended
complaint on January 16, 1997. On July 14, 1997, the court granted
defendants motion for summary judgment on the fourth amended complaint.
On October 14, 1997, plaintiffs filed an appeal from dismissal of the
third amended complaint and the order granting summary judgment on
claims raised in the fourth amended complaint. On appeal, the Georgia
State Court's dismissal of the third amended complaint was affirmed by
the Court of Appeals, and on July 9, 1998, the time period during which
plaintiffs could have applied for certiorari to the Georgia Supreme
Court expired. Such events represent the final resolution of this
matter and this case will not be reported on in the future.
As previously reported, during August 1996, five putative class action
complaints were filed with the Delaware Court of Chancery in C.A. Nos.
15179, 15187, 15188, 15189 and 15195 by stockholders of Home Shopping
Network, Inc. ("HSN"). The complaints were filed following the
announcement of the proposed merger between HSN and Silver King
Communications, Inc. ("Silver King"). The defendants in the actions
include HSN, Silver King, Tele-Communications, Inc. ("TCI"), Liberty
Media Corporation ("Liberty") and the directors of HSN (Barry Diller,
James G. Held, Peter R. Barton, Robert R. Bennett, Leo J. Hindery, Jr.,
H. Norman Schwarzkopf and Mr. Eli Segal). Mr. Bennett is an executive
officer of Liberty. Mr. Hindery is an executive officer of TCI. The
foregoing actions have been consolidated for all purposes pursuant to
an order by the court which specifies that the complaint in C.A. No.
15188 is the designated complaint in the consolidated action. The
HSN-Silver King merger was completed on December 20, 1996. This case
was dismissed in April 1998 and will not be reported on in the future.
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TELE-COMMUNICATIONS, INC.
Item 1. Legal Proceedings (continued).
As previously reported, in January of 1995, two class action complaints
("Actions") were filed against Interactive Network, Inc.
("Interactive") and certain of its then current and former officers and
directors (collectively the "Interactive Defendants") in the United
States District Court for the Northern District of California which
sought unspecified damages for alleged violations of the disclosure
requirements of the federal securities laws. The actions were filed on
behalf of a class of shareholders that purchased the stock of
Interactive during the period of August 15, 1994 through November 22,
1994. Pursuant to an order of the Court, the Actions were consolidated
and in April 1995, a Consolidated Amended Class Action Complaint
captioned In re Interactive Network Inc. Securities Litigation
("Consolidated Case") was filed in the same court which sought damages
against the Interaction Defendants for violation of the federal
securities law disclosure requirements during the class period May 2,
1994 through March 31, 1995. On or about January 13, 1997, Plaintiffs
filed a Fourth Amended Complaint, seeking damages against the
Interactive Defendants and Tele-Communications, Inc., TCI
Communications, Inc., TCI Development Corporation, and Gary Howard
(collectively, "the TCI Defendants") for violation of federal
securities law disclosure requirements during the class period May 16,
1994 through March 31, 1995. In addition, the Fourth Amended Complaint
sought damages against the TCI Defendants based upon the allegation
that they were "controlling persons" of Interactive at the time the
alleged wrongs took place. On January 30, 1997, the TCI Defendants and
the Interactive Defendants separately moved to dismiss the Fourth
Amended Complaint on the ground that it failed to state a cause of
action against them. On April 4, 1997, the Court issued an order
dismissing, with prejudice, the primary liability claims against the
TCI Defendants. The Court granted the Plaintiffs leave to amend their
Complaint as to their claim for violation of federal securities law
disclosure requirements against the Interactive Defendants. The Court
further granted Plaintiffs leave to amend their "controlling person"
claim against the TCI Defendants. On or about April 30, 1997,
Plaintiffs filed a Fifth Amended Complaint seeking damages for
violation of federal securities law disclosure requirements against the
Interactive and TCI Defendants during the class period January 19, 1994
through March 31, 1995. The Fifth Amended Complaint also seeks damages
against the TCI Defendants as "controlling persons." On October 9,
1997, the Court granted the Interactive Defendants' Motion to Dismiss
with Prejudice substantial portions of the Fifth Amended Complaint. On
March 30, 1998 the Court entered a stipulated order dismissing all of
the TCI Defendants from the consolidated case. The stipulated dismissal
did not have any adverse effect upon the financial condition of the
Company. Such stipulated dismissal represents the final resolution of
this matter and this case will not be reported on in the future.
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TELE-COMMUNICATIONS, INC.
Item 1. Legal Proceedings (continued).
As previously reported, on February 24, 1997, James Dalton, et al.
filed suit in District Court for Arapahoe County, Colorado, Case No.
97-CV421, against Tele-Communications, Inc. ("TCI") and certain current
and former officers of TCI and its subsidiary, TCI Communications, Inc.
(John C. Malone, Brendan R. Clouston, Barry P. Marshall, Camille K.
Jayne, Sadie N. Decker, Bruce W. Ravenel, Gerald W. Gaines, Bernard W.
Schotters, II) and Daniel L. Ritchie and Donne F. Fisher, in their
capacity as co-personal representatives of the Estate of Bob Magness.
Plaintiffs filed this action under the Colorado Securities Act and
Colorado common law on behalf of all persons who purchased TCI
securities from January 10, 1996 through October 24, 1996 ("the class
period"). On September 3, 1997, defendants motion to dismiss was
denied. Defendants answered the Complaint on October 3, 1997. Discovery
is proceeding and the parties have agreed to attend a mediation which
will take place at some date in the future. Based upon the facts
available, management believes that, although no assurances can be
given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the
Company.
As previously reported, in September 1997, five substantially similar
purported class action complaints were filed by stockholders of BET
Holdings, Inc. ("BET") in the Court of Chancery of the State of
Delaware under the captions Herbert Behrens v. Robert L. Johnson, et
al., C.A. No. 15921; Harbor Finance Partners v. Peter Barton, et al.,
C.A. No. 15923; Alan Friedman v. Robert L. Johnson, et al., C.A. No.
15924; Tiger Options, L.L.C. v. Robert L. Johnson, et al., C.A. No.
15936 and Jerome Ramos v. Robert L. Johnson, et al., C.A. No. 15941.
Subsequently, on October 14, 1997, an Order of Consolidation was
entered consolidating these actions under the caption In re BET
Holdings, Inc. Shareholders Litigation, C.A. No. 15921 (the
"Consolidated Action"). In the designated complaint in the Consolidated
Action, the named defendants are: Robert L. Johnson, John C. Malone,
Peter R. Barton, Delano E. Lewis, Sheila Crump Johnson, Herbert P.
Wilkins, Denzel Washington, TCI, Liberty Media Corporation, and BET.
The Consolidated Action focuses on the announcement of an offer by TCI,
Liberty and Robert L. Johnson, the Chief Executive Officer of BET
(collectively, the "Acquisition Group") to purchase all outstanding
shares of BET for $48 per share, alleging that the proposed $48 per
share price was inadequate and that the transaction contemplated by the
offer would constitute a breach of fiduciary duty by the directors of
BET. In March 1998, BET accepted a $63 per share merger proposal from
the Acquisition Group. At that time, the parties to the contractual
action agreed to a settlement in principle which is subject to final
negotiation and execution of settlement documents, confirmatory
discovery, court approval and other matters. On June 25, 1998, the
parties to the Consolidated Action filed a Stipulation of Settlement
with the Delaware Chancery Court. On July 28, 1998, the Delaware
Chancery Court entered a final order approving the settlement and
dismissing the litigation. Such final order represents the final
resolution of this matter and this case will not be reported on in
future filings.
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TELE-COMMUNICATIONS, INC.
Item 1. Legal Proceedings (continued).
As previously reported, on October 7, 1997, a purported class lawsuit
captioned Yvonne Baskerville v. Robert L. Johnson, et al., Civil Action
No. 97ca00778 was filed in the Superior Court of The District of
Columbia. The defendants in the Baskerville action are: Robert L.
Johnson, John C. Malone, Denzel Washington, Delano E. Lewis, Sheila
Crump Johnson, BET, TCI and Liberty Media Corporation. The Baskerville
action is substantially similar to the Consolidated Action. The
Complaint, among other things, alleges Breach of Fiduciary Duty in
connection with a proposed "freeze-out" transaction, where they allege
that defendants intended to take full equity ownership of BET through a
merger into a new entity. The Complaint seeks judgment declaring class
action; granting injunctive relief against consummation of the
transaction or order rescinding the proposed merger transaction; and
ordering defendants to account for all damages including costs and
disbursements, attorney fees, and expert fees. By consent of the
parties, proceedings in the Baskerville action have been stayed
conditionally. On July 30, 1998, the Superior Court of the District of
Columbia dismissed the Baskerville action. Such dismissal represents
the final resolution of this matter and this case will not be reported
on in future filings.
As previously reported, on January 8, 1998, the following actions were
filed in the Court of Chancery of the State of Delaware In and For New
Castle County: Morgan, et al. v. Tele-Communications, Inc., et al.,
Civil Action No. 16128-NC; Steiner v. Tele-Communications, Inc., et
al., Civil Action No. 16130-NC; Weisberg v. Tele-Communications, Inc.,
et al., Civil Action No. 16131-NC; Pan v. Tele-Communications, Inc., et
al., Civil Action No. 16133; Klein v. Tele-Communications, Inc., et
al., Civil action No. 16135; Crandon Capital Partners v.
Tele-Communications, Inc., et al., Civil Action No. 16136; and Deutsch
v. Tele-Communications, Inc., et al., Civil Action No. 16148. Also
named as defendants in these cases are John C. Malone, John W.
Gallivan, Donne F. Fisher, Leo J. Hindery, Jr., J.C. Sparkman, Paul A.
Gould, Jerome H. Kern, Kim Magness, and Robert A. Naify. On June 26,
1998, Plaintiffs filed an amended complaint to add claims arising from
the proposed TCI-AT&T merger substantially similar to those alleged in
the AT&T Merger litigation described above. Based upon the facts
available, management believes that, although no assurances can be
given as to the outcome of this action, the ultimate disposition of
this matter should not have a material adverse effect upon the
financial condition of the Company.
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TELE-COMMUNICATIONS, INC.
Item 2. Change in Securities.
TCI issued 1,135,288 shares of TCI Group Series A Stock on June 29, 1998 to the
holder of shares of Convertible Preferred Stock, Series C TCI Group ("Series C -
TCI Group") upon the conversion, and pursuant to the terms, thereof. TCI issued
the equity securities described in this paragraph in reliance on the exemption
from the registration requirements of the Act provided by Section 3(a)(9)
thereof. TCI believes that such exemption from registration is available because
(i) shares of TCI Group Series A Stock were issued by TCI to existing security
holders exclusively in exchange for shares of Series C-TCI Group and (ii) no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange.
On April 30, 1998, TCI issued 153,183 shares of Liberty Group Series B Stock
valued at $5 million and conveyed a limited partnership interest in a limited
partnership with a capital account of $1 million to an individual who is an
executive officer and a director of TCI in exchange for such individual's
limited partnership interest in another limited partnership. TCI issued the
equity securities described in this paragraph pursuant to the private placement
exemption from the registration requirements of the Act provided by Section 4(2)
thereof.
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TELE-COMMUNICATIONS, INC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits -
(3) The Restated Certificate of Incorporation, dated
August 4, 1994, as amended on August 4, 1994, August
16, 1994, October 11, 1994, October 21, 1994, January
26, 1995, August 3, 1995, August 3, 1995, January 25,
1996, January 25, 1996, April 7, 1997, August 28,
1997, December 30, 1997, December 30, 1997, January
17, 1998 and April 24, 1998.
(10.1) Employment Agreement, dated as of June 23, 1998,
between the Company and Leo J. Hindery, Jr.
(10.2) Employment Agreement, dated as of June 1, 1998,
between the Company and Stephen M. Brett
(10.3) Employment Agreement, dated as of January 1, 1998,
between the Company and Larry E. Romrell
(27) Tele-Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended June 30, 1998:
<TABLE>
<CAPTION>
Date of Items
Report Reported Financial Statements Filed
------ -------- --------------------------
<S> <C> <C>
March 6, 1998, as Item 7 Cablevision Systems Corporation
amended on June 23 Three and nine months ended September
and June 30, 1998 30, 1997 (unaudited)
Years ended December 31, 1996, 1995 and
1994
</TABLE>
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<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
Date: August 13, 1998 By: /s/ Leo J. Hindery, Jr.
--------------------------------------
Leo J. Hindery, Jr.
President and Chief
Operating Officer
Date: August 13, 1998 By: /s/ Stephen M. Brett
--------------------------------------
Stephen M. Brett
Executive Vice President,
General Counsel and Secretary
Date: August 13, 1998 By: /s/ Bernard W. Schotters
--------------------------------------
Bernard W. Schotters
Senior Vice President
(Principal Financial Officer)
Date: August 13, 1998 By: /s/ Ann M. Koets
--------------------------------------
Ann M. Koets
Executive Vice President
TCI Communications, Inc.
(Principal Accounting Officer)
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EXHIBIT INDEX
The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:
(3) The Restated Certificate of Incorporation, dated
August 4, 1994, as amended on August 4, 1994, August
16, 1994, October 11, 1994, October 21, 1994, January
26, 1995, August 3, 1995, August 3, 1995, January 25,
1996, January 25, 1996, April 7, 1997, August 28,
1997, December 30, 1997, December 30, 1997, January
17, 1998 and April 24, 1998.
(10.1) Employment Agreement, dated as of June 23, 1998,
between the Company and Leo J. Hindery, Jr.
(10.2) Employment Agreement, dated as of June 1, 1998,
between the Company and Stephen M. Brett
(10.3) Employment Agreement, dated as of January 1, 1998,
between the Company and Larry E. Romrell
(27) Tele-Communications, Inc. Financial Data Schedule
<PAGE> 1
EXHIBIT 3
State of Delaware
PAGE 1
Office of the Secretary of State
---------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"TCI/LIBERTY HOLDING COMPANY". CHANGING ITS NAME FROM "TCI/LIBERTY HOLDING
COMPANY" TO "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH DAY
OF AUGUST, A.D. 1994, AT 4:14 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
Edward J. Freel, Secretary of State
AUTHENTICATION: 7202362
DATE: 08-04-94
2371729 8100
944145668
<PAGE> 2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:14 PM 08/04/1994
944145668 -- 2371729
RESTATED CERTIFICATE OF INCORPORATION
OF
TCI/LIBERTY HOLDING COMPANY
---------------------
TCI/LIBERTY HOLDING COMPANY, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is TCI/Liberty Holding Company. The
original Certificate of Incorporation of the Corporation was filed on
January 24, 1994. The name under which the Corporation was originally
incorporated is TCI/Liberty Holding Company.
(2) This Restated Certificate of Incorporation restates and amends the
Certificate of Incorporation of the Corporation.
(3) Pursuant to Section 242 and 245 of the General Corporation Law of
the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Tele-Communications, Inc.
ARTICLE II
REGISTERED OFFICE
The location of the registered office of the Corporation in the State of
Delaware is the office of The Prentice-Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904, and the name
of the registered agent at such address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
<PAGE> 3
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is one billion two hundred sixty two million three
hundred seventy five thousand ninety six (1,262,375,096) shares, of which one
billion two hundred fifty million (1,250,000,000) shares shall be common stock
("Common Stock") and twelve million three hundred seventy five thousand ninety
six (12,375,096) shares shall be preferred stock ("Preferred Stock"). Said
shares of Common Stock and Preferred Stock shall be divided into the following
classes:
(a) One billion one hundred million (1,100,000,000) shares of Common Stock
shall be of a class designated as Class A Common Stock with a par value of $1.00
per share;
(b) One hundred fifty million (150,000,000) shares of Common Stock shall be
of class designated as Class B Common Stock with a par value of $1.00 per share;
(c) Seven hundred thousand (700,000) shares of Preferred Stock shall be of
a class designated as Class A Preferred Stock with a par value of $.01 per
share;
(d) One million six hundred seventy five thousand and ninety six
(1,675,096) shares of Preferred Stock shall be of a class designated as Class B
6% Cumulative Redeemable Exchangeable Junior Preferred Stock with a par value of
$.01 per share; and
(e) Ten million (10,000,000) shares of Preferred Stock shall be of a class
designated as Series Preferred Stock with a par value of $.01 per share.
The description of the Common Stock and the Preferred Stock of the
Corporation, and the relative rights, preferences and limitations thereof, or
the method of fixing and establishing the same, are as hereinafter in this
Article IV set forth:
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SECTION A
CERTAIN DEFINITIONS
Unless the context otherwise requires, the terms defined in this Section A
shall have, for all purposes of this Article IV, the meanings herein specified:
"Board of Directors" shall mean the Board of Directors of the Corporation
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of New York, New York, are not required
to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) corporate stock.
"Certificate" shall mean this Restated Certificate of Incorporation of the
Corporation, as it may from time to time hereafter be amended or restated.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual fiduciary or other capacity.
SECTION B
CLASS A PREFERRED STOCK
The Class A Preferred Stock shall have the following preferences,
limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section B, the
meanings herein specified:
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
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<PAGE> 5
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Class A Preferred Stock
are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or series
of capital stock, whether now existing or hereafter created, of the Corporation,
other than (A) the Class A Preferred Stock, (B) any class or series of Parity
Stock (except to the extent provided under clause (v) hereof) and (C) any Senior
Stock, and (v) any class or series of Parity Stock to the extent that it ranks
junior to the Class A Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation, as the case may be. For purposes of clause
(v) above, a class or series of Parity Stock shall rank junior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Class A Preferred Stock shall be
entitled to dividend payment, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of such
class or series.
"Liquidation Preference" measured per share of the Class A Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section B have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section B
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Issue Date if the
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<PAGE> 6
Determination Date is on or prior to the first Dividend Payment Date) through
and including the Determination Date, and, in the case of clauses (b) and (c)
hereof, whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends. In connection with the determination of the Liquidation
Preference of a share of Class A Preferred Stock upon redemption or upon
liquidation, dissolution or winding up of the Corporation, the Determination
Date shall be the applicable date of redemption or the date of distribution of
amounts payable to stockholders in connection with any such liquidation,
dissolution or winding up.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class A Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class A Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class A Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class A Preferred Stock. No class or
series of capital stock that ranks junior to the Class A Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Class A Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Date" as to any share of Class A Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) or (b) of
this Section B, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Class A Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking prior to the Class A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation. Capital stock of any class or series shall rank prior to the Class
A Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of such class or series shall be entitled
to dividend
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<PAGE> 7
payments, payments on redemption or payments of amounts distributable upon
dissolution, liquidation or winding up of the Corporation, as the case may be,
in preference or priority to the holders of shares of Class A Preferred Stock.
No class or series of capital stock that ranks on a parity basis with or junior
to the Class A Preferred Stock as to rights on liquidation shall rank or be
deemed to rank prior to the Class A Preferred Stock as to dividend rights or
rights of redemption, notwithstanding that the dividend rate, dividend payment
dates, sinking fund provisions, if any, or mandatory redemption provisions
thereof are different from those of the Class A Preferred Stock, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section B.
"Stated Liquidation Value" of a share of Class A Preferred Stock means
$322.84.
"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class A Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class A Preferred Stock at
the rate of 9 3/8% per annum of the Stated Liquidation Value of such share from
the Issue Date to and including the date on which the Liquidation Preference of
such share is made available (whether on liquidation, dissolution, or winding up
of the Corporation or, in the case of paragraph 4 of this Section B, upon the
applicable Redemption Date). Accrued dividends on the Class A Preferred Stock
will be payable, as provided in paragraph 2(c) below, annually on each Dividend
Payment Date to the holders of record of the Class A Preferred Stock as of the
close of business on the Record Date for such dividend payment. Dividends shall
be fully cumulative and shall accrue (without interest or compounding) on a
daily basis without regard to the occurrence of a Dividend Payment Date and
whether or not such dividends are declared and whether or not there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. The amount of dividends "accrued" as of the first Dividend Payment
Date and as of any date that is not a Dividend Payment Date shall be calculated
on the basis of the foregoing rate per annum for the actual number of days
elapsed from the Issue Date (in the case of the first Dividend Payment Date and
any date prior to the first Dividend Payment Date) or the
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<PAGE> 8
last preceding Dividend Payment Date (in the case of any other date) to and
including the date as of which such determination is to be made, based on a 365-
or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class A Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable with respect to any dividend
payment on the Class A Preferred Stock that may be in arrears or with respect to
that portion of any other payment on the Class A Preferred Stock that is in
arrears which consists of accumulated or accrued and unpaid dividends. Such
accumulated or accrued and unpaid dividends may be declared and paid at any time
(subject to the rights of any Senior Stock and, if applicable, to the concurrent
satisfaction of any dividend arrearages then existing with respect to any Parity
Stock which ranks on a parity basis with the Class A Preferred Stock as to the
payment of dividends) without reference to any regular Dividend Payment Date, to
holders of record as of the close of business on such date, not more than 45
days nor less than 10 days preceding the payment date thereof, as may be fixed
by the Board of Directors (the "Special Record Date"). Notice of each Special
Record Date shall be given, not more than 45 days nor less than 10 days prior
thereto, to the holders of record of the shares of Class A Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class A Preferred Stock shall be declared and paid in cash. All dividends paid
with respect to the shares of Class A Preferred Stock pursuant to this paragraph
2 shall be paid pro rata to all the holders of shares of Class A Preferred Stock
outstanding on the applicable Record Date or Special Record Date, as the case
may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class A Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class A Preferred Stock as of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class A Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class A Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation after receiving the
Liquidation Preference per share. If, upon distribution of the
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<PAGE> 9
Corporation's assets in liquidation, dissolution or winding up, the assets of
the Corporation to be distributed among the holders of the Class A Preferred
Stock and to all holders of any Parity Stock ranking on a parity basis with the
Class A Preferred Stock with respect to distributions upon liquidation,
dissolution or winding up shall be insufficient to permit payment in full to
such holders of the respective preferential amounts to which they are entitled,
then the entire assets of the Corporation to be distributed to holders of the
Class A Preferred Stock and such Parity Stock shall be distributed pro rata to
such holders based upon the aggregate of the full preferential amounts to which
the shares of Class A Preferred Stock and such Parity Stock would otherwise
respectively be entitled. Neither the consolidation or merger of the Corporation
with or into any other corporation or corporations nor the sale, transfer or
lease of all or substantially all of the assets of the Corporation shall itself
be deemed to be a liquidation, dissolution or winding up of the Corporation
within the meaning of this paragraph 3. Notice of the liquidation, dissolution
or winding up of the Corporation shall be given, not less than 20 days prior to
the date on which such liquidation, dissolution or winding up is expected to
take place or become effective, to the holders or record of the shares of Class
A Preferred Stock.
4. Redemption.
(a) MANDATORY REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the Corporation shall redeem, out
of funds legally available therefor, on the twelfth anniversary of the Issue
Date (or, if such day is not a Business Day, on the first Business Day
thereafter), all shares of Class A Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Corporation legally
available for redemption of shares of the Class A Preferred Stock or Parity
Stock then required to be redeemed are insufficient to redeem the total number
of such shares remaining outstanding, those funds which are legally available
shall, subject to the rights of any Senior Stock and the provisions of paragraph
5, be used to redeem the maximum possible number of shares of Class A Preferred
Stock and Parity Stock. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 hereof, at any time and from time to time thereafter
when additional funds of the Corporation are legally available for such purpose,
such funds shall immediately be used to redeem the shares of Class A Preferred
Stock and Parity Stock which are required to be redeemed that the Corporation
failed to redeem until the balance of such shares has been redeemed. The
selection of shares to be redeemed pursuant to the two immediately preceding
sentences shall be made on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(b) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section B, the shares of Class A Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class A Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class A Preferred Stock to be
redeemed shall be chosen pro rata among all holders of Class A Preferred Stock.
The Corporation shall not be required to register a transfer of (i) any shares
of Class A Preferred Stock for a period of 15
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days next preceding any selection of shares of Class A Preferred Stock to be
redeemed or (ii) any shares of Class A Preferred Stock selected or called for
redemption.
(c) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class A Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class A Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class A preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Class A Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(d) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(c) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class A Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class A Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
(e) STATUS OF REDEEMED SHARES. All shares of Class A Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividends periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class A Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or
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otherwise acquire any shares of Class A Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose, pursuant to
paragraph 4 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Class A Preferred Stock, of such Parity Stock and of any other class
of series of Parity Stock that by the terms of the instrument creating or
evidencing such Parity Stock is required to be redeemed under such circumstances
are redeemed or exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class A Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class A
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class A Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside for such purpose
and no other purpose, the Corporation shall not declare or pay any dividend on
or make any distribution with respect to any Junior Stock or Parity Stock or set
aside any money or assets for any such purpose, except that the Corporation may
declare and pay a dividend on any Parity Stock ranking on a parity basis with
the Class A Preferred Stock with respect to the right to receive dividend
payments, contemporaneously with the declaration and payment of a dividend on
the Class A Preferred Stock, provided that such dividends are declared and paid
pro rata so that the amount of dividends declared and paid per share of the
Class A Preferred Stock and such Parity Stock shall in all cases bear to each
other the same ratio that accumulated and accrued and unpaid dividends per share
on the Class A Preferred Stock and such Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for redemption or
exchange pursuant to paragraph 4 hereof any shares of Class A Preferred Stock
called for redemption on such date, and until such shares are redeemed in full,
the Corporation shall not redeem or exchange any Parity Stock or Junior Stock or
declare or pay any dividend on or make any distribution with respect to any
Junior Stock, or set aside any money or assets for any such purpose, and neither
the Corporation nor any Subsidiary thereof shall purchase or otherwise acquire
any Class A Preferred Stock, Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose.
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Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
of Directors in good faith) that would be available for distribution to the
holders of the Class A Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class A
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class A Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class A Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class A Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class A Preferred Stock and accordingly, if the holders of shares of
Class A Preferred Stock shall have waived (as provided in paragraph 7 of this
Section B) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class A Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting.
(a) VOTING RIGHTS. The holders of Class A Preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class A Preferred Stock may be increased or decreased (but
not below the number of shares of Class A preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3 of the total voting
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power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class A Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class A Preferred Stock or that would decrease
the number of authorized shares of Class A Preferred Stock or the number of
authorized shares of Class A Preferred Stock (but not below the number of shares
of Preferred Stock or Class A Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class A Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class A Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
7. Waiver.
Any provision of this Section B which, for the benefit of the holders of
Class A Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in whole
or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class A
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or writing
or by vote at an annual meeting or a meeting called for such purpose at which
the holders of Class A Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section B to be
given to the holders of share of Class A Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class A
Preferred Stock, the shares of Class A Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
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10. Heading of Subdivisions.
The headings of the various subdivisions of this Section are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section.
SECTION C
CLASS B 6% CUMULATIVE REDEEMABLE EXCHANGEABLE
JUNIOR PREFERRED STOCK
The Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
shall have the following preferences, limitations and relative rights:
1. Certain Definitions. Unless the context otherwise requires, the terms
defined in this paragraph 1 shall have, for all purposes of this Section C, the
meanings herein specified:
"Average Market Price" as of any Record Date or Special Record Date for a
dividend payment declared by the Board of Directors means the average of the
daily Current Market Prices of the Class A Common Stock for a period of 20
consecutive trading days ending on the tenth trading day prior to such Record
Date or Special Record Date, appropriately adjusted to take into account any
stock dividends on the Class A Common Stock, or any stock splits,
reclassifications or combinations of the Class A Common Stock, during the period
following the first of such 20 trading days and ending on the last full trading
day immediately preceding the Dividend Payment Date or other date fixed for the
payment of dividends to which such Record Date or Special Record Date, as the
case may be, relates.
"Class A Common Stock" shall mean the Class A Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
A Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class A Common Stock, such capital
stock to which a holder of Class A Common Stock shall be entitled upon the
occurrence of such event.
"Class A Preferred Stock" shall mean the Class A Preferred Stock, par value
$.01 per share, of the Corporation.
"Class B Common Stock" shall mean the Class B Common Stock, par value $1.00
per share, of the Corporation, which term shall include, where appropriate, in
the case of any reclassification, recapitalization or other change in the Class
B Common Stock, or in the case of a consolidation or merger of the Corporation
with or into another Person affecting the Class B Common Stock, such capital
stock to which a holder of Class B Common Stock shall be entitled upon the
occurrence of such event.
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<PAGE> 15
"Class B Preferred Stock" shall mean the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Current Market Price" of a share of Class A Common Stock on any day means
the last reported per share sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock on such day
on the Nasdaq National Market or as quoted by the National Quotation Bureau
Incorporated, or if the Class A Common Stock is listed on an exchange, on the
principal exchange on which the Class A Common Stock is listed. In the event
that no such quotation is available for any day, the Board of Directors shall be
entitled to determine the Current Market Price on the basis of such quotations
as it considers appropriate.
"Dividend Payment Date" shall mean, for any Dividend Period, the last day
of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Initial Accrual Date to
and including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Initial Accrual Date", when used with respect to the shares of Class B
Preferred Stock, shall mean March 2, 1994.
"Issue Date" shall mean the date on which shares of Class B Preferred Stock
are first issued.
"Junior Exchange Notes" shall mean junior subordinated debt securities of
the Corporation of a series to be issued under the Junior Exchange Note
Indenture in exchange for shares of Class B Preferred Stock as contemplated by
paragraphs 4(d) and (f) of this Section C.
"Junior Exchange Note Indenture" shall mean an indenture substantially in
the form annexed as Exhibit 4.5 to the S-4 Registration Statement, as
supplemented by a supplemental indenture substantially in the form annexed as
Exhibit 1 to such form of indenture, as said indenture and supplemental
indenture may be amended or further supplemented from time to time (subject to
any applicable restrictions of this Certificate) and, unless the context
indicates otherwise, shall include the form and terms of the Junior Exchange
Notes established as contemplated thereunder.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class B
Common Stock, (iii) any other class or series of capital stock, whether now
existing or hereafter created, of the Corporation, other than (A) the Class B
Preferred Stock, (B) the Class A Preferred Stock, (C) any class or series of
Parity Stock (except to the extent provided under clause (iv) hereof) and (D)
any Senior Stock, and (iv) any class or series of Parity Stock to the extent
that it ranks junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation, as the case may be. For purposes
of clause (iv) above, a class or series of Parity
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<PAGE> 16
Stock shall rank junior to the Class B Preferred Stock as to dividend rights,
rights of redemption or rights on liquidation if the holders of shares of Class
B Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Liquidation Preference" measured per share of the Class B Preferred Stock
as of any date in question (the "Determination Date") shall mean an amount equal
to the sum of (a) the Stated Liquidation Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 2(b) of
this Section C have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 3 and paragraph 4 of this Section C
and the definition of Redemption Price, an amount equal to all unpaid dividends
accrued on such share during the period from the immediately preceding Dividend
Payment Date (or the Initial Accrual Date if the Determination Date is on or
prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference of
a share of Class B Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts payable
to stockholders in connection with any such liquidation, dissolution or winding
up.
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Optional Exchange Date" shall mean the date fixed for the exchange of
shares of Class Be Preferred Stock pursuant to paragraph 4(d) of this Section C,
provided that such date will not be the Optional Exchange Date unless on or
before such date all conditions to the issuance and delivery of Junior Exchange
Notes upon such exchange contained in paragraph 4(f) of this Section C have been
satisfied.
"Parity Stock" shall mean any class or series of capital stock, whether now
existing or hereafter created, of the Corporation ranking on a parity basis with
the Class B Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Class B Preferred Stock, whether or not the dividend rates, dividend payment
dates, redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Class B Preferred
Stock, if the holders of shares of such class or series shall be entitled to
dividend payments, payments on redemption or payments of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective accumulated and accrued and unpaid
dividends, redemption prices or liquidations prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Class B Preferred Stock. No class or
series of capital stock that ranks junior to the Class B Preferred
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<PAGE> 17
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Class B Preferred Stock as to dividend rights of redemption,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides.
"Record Date" for the dividends payable on any Dividend Payment Date means
the fifteen day of the month preceding the month during which such Dividend
Payment Date shall occur, or if any such day is not a Business Day, then on the
next preceding Business Day, as and if designated by the Board of Directors.
"Redemption Agent" has the meaning ascribed to such term in paragraph 4(c)
of this Section C.
"Redemption Date" as to any share of Class B Preferred Stock shall mean the
date fixed for redemption of such share pursuant to paragraph 4(a) of this
Section C, provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no purpose, has been
set apart or deposited in trust as contemplated by paragraph 4(c) of this
Section C.
"Redemption Price" as to any share of Class B Preferred Stock which is to
be redeemed on any Redemption Date shall mean the Liquidation Preference thereof
on such Redemption Date.
"S-4 Registration Statement" shall mean the Corporation's Registration
Statement on Form S-4 (Reg. No. 33-54263) filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933 and declared effective on June
28, 1994.
"Senior Stock" shall mean (i) the Class A Preferred Stock and (ii) any
other class or series of capital stock, whether now existing or hereafter
created, of the Corporation ranking prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock of
any class or series shall rank prior to the Class B Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders of
shares of such class or series shall be entitled to dividend payments, payments
on redemption or payments of amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be, in preference or priority
to the holders of shares of Class B Preferred Stock. No class or series of
capital stock that ranks on a parity basis with or junior to the Class B
Preferred Stock as to rights on liquidation shall rank or be deemed to rank
prior to the Class B Preferred Stock as to dividend rights or rights of
redemption, notwithstanding that the dividend rate, dividend payment dates,
sinking fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Class B Preferred Stock, unless the instrument
creating or evidencing such class or series of capital stock otherwise expressly
provides.
"Special Record Date" has the meaning ascribed to such term in paragraph
2(b) of this Section C.
"Stated Liquidation Value" of a share of Class B Preferred Stock means
$100.
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<PAGE> 18
"Subsidiary" of any Person shall mean (i) a corporation a majority of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of such
Person, directly or indirectly, has (x) a majority ownership interest or (y) the
power to elect or direct the election of a majority of the members of the
governing body of such first-named Person.
"TIA" shall mean the Trust Indenture Act of 1939 (or any successor statute)
as in effect on the date the Junior Exchange Note Indenture is or is required to
be qualified thereunder in accordance with paragraph 4 of this Section C.
2. Dividends.
(a) DIVIDEND RIGHTS; DIVIDEND PAYMENT DATES. Subject to the prior
preferences and other rights of any Senior Stock and the provisions of paragraph
5 hereof, the holders of Class B Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors, out of unrestricted funds
legally available therefor, cumulative dividends, in preference to dividends on
any Junior Stock, that shall accrue on each share of Class B Preferred Stock at
the rate of 6.0% per annum of the Stated Liquidation Value of such share from
the Initial Accrual Date to and including the date on which the Liquidation
Preference of such share is made available (whether on liquidation, dissolution,
or winding up of the Corporation or, in the case of paragraph 4 of this Section
C, upon the applicable Redemption Date or Optional Exchange Date. Accrued
dividends on the Class B Preferred Stock will be payable, as provided in
paragraph 2(c) below, annually on each Dividend Payment Date to the holders of
record of the Class B Preferred Stock as of the close of business on the Record
Date for such dividend payment. Dividends shall be fully cumulative and shall
accrue (without interest or compounding) on a daily basis without regard to the
occurrence of a Dividend Payment Date and whether or not such dividends are
declared and whether or not there are any unrestricted funds of the Corporation
legally available for the payment of dividends. The amount of dividends
"accrued" as of the first Dividend Payment Date and as of any date that is not a
Dividend Payment Date shall be calculated on the basis of the foregoing rate per
annum for the actual number of days elapsed from the Initial Accrual Date (in
the case of the first Dividend Payment Date and any date prior to the first
Dividend Payment Date) or the last preceding Dividend Payment Date (in the case
of any other date) to and including the date as of which such determination is
to be made, based on a 365- or 366-day year, as the case may be.
(b) SPECIAL RECORD DATE. On each Dividend Payment Date, all dividends that
have accrued on each share of Class B Preferred Stock during the immediately
preceding Dividend Period shall, to the extent not paid as provided in paragraph
2(c) below on such Dividend Payment Date for any reason (whether or not such
unpaid dividends have been earned or declared or there are any unrestricted
funds of the Corporation legally available for the payment of dividends), be
added to the Liquidation Preference of such share and will remain a part thereof
until such dividends are paid as provided in paragraph 2(c) below. No interest
or additional dividends will accrue or be payable (whether in cash, shares of
Class A Common Stock
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<PAGE> 19
or otherwise) with respect to any dividend payment on the Class B Preferred
Stock that may be in arrears or with respect to that portion of any other
payment on the Class B Preferred Stock that is in arrears which consists of
accumulated or accrued and unpaid dividends. Such accumulated or accrued and
unpaid dividends may be declared and paid at any time (subject to the rights of
any Senior Stock and, if applicable, to the concurrent satisfaction of any
dividend arrearages then existing with respect to any Parity Stock which ranks
on a parity basis with the Class B Preferred Stock as to the payment of
dividends) without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 45 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board of
Directors (the "Special Record Date"). Notice of each Special Record Date shall
be given, not more than 45 days nor less than 10 days prior thereto, to the
holders of record of the shares of Class B Preferred Stock.
(c) METHOD OF PAYMENT. All dividends payable with respect to the shares of
Class B Preferred Stock may be declared and paid, in the sole discretion of the
Board of Directors, in cash, through the issuance of shares of Class A Common
Stock or in any combination of the foregoing, provided, however, that if on any
Dividend Payment Date or other date fixed for the payment of dividends declared
by the Board of Directors, the Corporation pursuant to applicable law or
otherwise is prohibited or restricted from paying in cash the full amount of
dividends declared payable to the holders of Class B Preferred Stock on such
date, then the portion of such dividends the payment of which in cash is so
prohibited or restricted (or such greater portion of such dividends as the Board
of Directors may determine) shall be paid through the issuance of shares of
Class A Common Stock. If any dividend payment declared by the Board of Directors
with respect to the shares of Class B Preferred Stock is to be paid in whole or
in part through the issuance of shares of Class A Common Stock, the amount of
such dividend payment to be paid per share of Class B Preferred Stock in shares
of Class A Common Stock (the "Stock Dividend Amount") shall be satisfied and
paid by the delivery to the holders of record of such shares of Class B
Preferred Stock on the Record Date or Special Record Date, as the case may be,
for such dividend payment, of a number of shares of Class A Common Stock
determined by dividing the Stock Dividend Amount by the Average Market Price of
a share of Class A Common Stock as of such Record Date or Special Record Date.
The Corporation shall not be required to issue any fractional share of Class A
Common Stock to which any holder of Class B Preferred Stock may become entitled
pursuant to this paragraph 2(c). The Board of Directors may elect to settle any
final fraction of a share of Class A Common Stock which a holder of one or more
shares of Class B Preferred Stock would otherwise be entitled to receive
pursuant to this paragraph 2(c) by having the Corporation pay to such holder, in
lieu of issuing such fractional share, cash in an amount (rounded upward to the
nearest whole cent) equal to the same fraction of the Average Market Price of a
share of Class A Common Stock as of the Record Date or Special Record Date, as
the case may be, for the dividend payment with respect to which such shares of
Class A Common Stock are being delivered. Such election, if made, shall be made
as to all holders of Class B Preferred Stock who would otherwise be entitled to
receive a fractional share of Class A Common Stock on the Dividend Payment Date
or other date fixed for the payment of such dividend.
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All dividends paid with respect to the shares of Class B Preferred Stock
pursuant to this paragraph 2 shall be paid pro rata to all the holders of shares
of Class B Preferred Stock outstanding on the applicable Record Date or Special
Record Date, as the case may be.
3. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which
any Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Class B Preferred Stock shall be entitled to receive from the assets of the
Corporation available for distribution to stockholders, before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in cash
or property at its fair market value, as determined by the Board of Directors in
good faith, or a combination thereof, per share, equal to the Liquidation
Preference of a share of Class B Preferred Stock of the date of payment or
distribution, which payment or distribution shall be made pari passu with any
such payment or distribution made to the holders of any Parity Stock ranking on
a parity basis with the Class B Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up of the Corporation. The holders of
Class B Preferred Stock shall be entitled to no other or further distribution of
or participation in any remaining assets of the Corporation's assets in
liquidation, dissolution or winding up, the assets of the Corporation to be
distributed among the holders of the Class B Preferred Stock and to all holders
of any Parity Stock ranking on a parity basis with the Class B Preferred Stock
with respect to distributions upon liquidation, dissolution or winding up shall
be insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Class B Preferred Stock and such
Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Class B
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 3. Notice of the liquidation, dissolution or winding up of the
Corporation shall be given, not less than 20 days prior to the date on which
such liquidation, dissolution or winding up is expected to take place or become
effective, to the holders of record of the shares of Class B Preferred Stock.
4. Redemption or Exchange.
(a) OPTIONAL REDEMPTION. Subject to the rights of any Senior Stock and the
provisions of paragraph 5 of this Section C, the shares of Class B Preferred
Stock may be redeemed, at the option of the Corporation by the action of the
Board of Directors, in whole or from time to time in part, on any Business Day
occurring after the Issue Date, at the Redemption Price on the Redemption Date.
If less than all outstanding shares of Class B Preferred Stock are to be
redeemed on any Redemption Date, the shares of Class B Preferred Stock to be
redeemed shall be chosen by lot or by such other method as the Board of
Directors
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considers fair and appropriate (and which complies with the requirements, if
any, of any national securities exchange or national interdealer quotation
system on which the Class B Preferred Stock may be listed or admitted to trading
or quoted). The Corporation shall not be required to register a transfer of (i)
any shares of Class B Preferred Stock for a period of 15 days next preceding any
selection of shares of Class B Preferred Stock to be redeemed or (ii) any shares
of Class B Preferred Stock selected or called for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption shall be given by or on
behalf of the Corporation, not more than 60 days nor less than 30 days prior to
the Redemption Date, to the holders of record of the shares of Class B Preferred
Stock to be redeemed; but no defect in such notice or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares of
Class B Preferred Stock. In addition to any information required by law or by
the applicable rules of any national securities exchange or national interdealer
quotation system on which the Class B Preferred Stock may be listed or admitted
to trading or quoted, such notice shall set forth the Redemption Price, the
Redemption Date, the number of shares to be redeemed and the place at which the
shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed, and if the Corporation has
elected to deposit the Redemption Price with a Redemption Agent in accordance
with paragraph 4(c) below, shall state the name and address of the Redemption
Agent and the date on which such deposit was or will be made. In the event that
fewer than the total number of shares of Class B Preferred Stock represented by
a certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by the
Corporation pursuant to this paragraph 4 shall have been given as provided in
paragraph 4(b) above, and if on or before the Redemption Date specified in such
notice an amount in cash sufficient to redeem in full on the Redemption Date at
the Redemption Price all shares of Class B Preferred Stock called for redemption
shall have been set apart so as to be available for such purpose and only for
such purpose, then effective as of the close of business on the Redemption Date,
the shares of Class B Preferred Stock called for redemption, notwithstanding
that any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof to receive the Redemption Price of such shares, without interest, upon
the surrender of certificates representing the same.
At its election, the Corporation on or prior to the Redemption Date (but no
more than 60 days prior to the Redemption Date) may deposit immediately
available funds in an amount equal to the aggregate Redemption Price of the
shares of Class B Preferred Stock called for redemption in trust for the holders
thereof with any bank or trust company organized under the laws of the United
States of America or any state thereof having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and at
the expense of the Corporation, to mail the notice of redemption as soon as
practicable after receipt of such
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irrevocable instructions (or to complete such mailing previously commenced, if
it has not already been completed) and to pay, on and after the Redemption Date
or prior thereto, the Redemption Price of the shares of Class B Preferred Stock
to be redeemed to their respective holders upon the surrender of the
certificates therefor. A deposit made in compliance with the immediately
preceding sentence shall be deemed to constitute full payment for the shares of
Class B Preferred Stock to be redeemed and from and after the close of business
on the date of such deposit (although prior to the Redemption Date), the shares
of Class B Preferred Stock to be redeemed shall no longer be deemed outstanding
and the holders thereof shall cease to be stockholders with respect to such
shares and shall have no rights with respect to such shares except the right of
the holders thereof to receive the Redemption Price of such shares (calculated
through the Redemption Date), without interest, upon surrender of the
certificates therefor. Any interest accrued on the funds so deposited shall be
paid to the Corporation from time to time. Any funds so deposited with the
Redemption Agent which shall remain unclaimed by the holders of such shares of
Class B Preferred Stock at the end of one year after the Redemption Date shall
be returned by the Redemption Agent to the Corporation, after which repayment
the holders of such shares of Class B Preferred Stock called for redemption
shall look only to the Corporation for the payment thereof, without interest,
unless an applicable escheat or abandoned property law designates another
Person.
(d) OPTIONAL EXCHANGE FOR JUNIOR EXCHANGE NOTES. Subject to the rights of
any Senior Stock and the provisions of paragraph 5 of this Section C, the shares
of Class B Preferred Stock may be exchanged, out of funds legally available
therefor, at the option of the Corporation by action of the Board of Directors,
in whole but not in part, on any Business Day occurring after the Issue Date,
for Junior Exchange Notes. Each holder of outstanding shares of Class B
Preferred Stock shall be entitled to receive, in exchange for his shares of
Class B Preferred Stock pursuant to this paragraph 4(d), newly issued Junior
Exchange Notes of a series authorized and established for the purpose of such
exchange, the aggregate principal amount of which shall be equal to the
aggregate Liquidation Preference on the Optional Exchange Date of the shares of
Class B Preferred Stock so exchanged by such holder, provided that the Junior
Exchange Notes will be issuable only in principal amounts of $100 or any
integral multiple thereof and an adjustment will be paid by the Corporation, in
cash or by its check, in an amount equal to any excess principal amount
otherwise issuable.
(e) NOTICE OF EXCHANGE. Notice of the Corporation's election to exercise
its optional exchange right pursuant to paragraph 4(d) (an "Optional Exchange
Notice") shall be given by or on behalf of the Corporation, not more than 60
days nor less than 30 days prior to the Optional Exchange Date, to the holders
of record of the shares of Class B Preferred Stock; but no defect in such notice
or in the mailing thereof shall affect the validity of the proceedings for the
exchange of any shares of Class B Preferred Stock. In addition to any
information required by law or by the applicable rules of any national
securities exchange or national interdealer quotation system on which the shares
of Class B Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Optional Exchange Date, the place at which shares of
Class B Preferred Stock will, upon presentation and surrender of the stock
certificates evidencing such shares, be exchanged for Junior Exchange Notes, and
the material terms (or, as to the rate per annum at which the Junior Exchange
Notes will bear
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interest, and, if applicable, as to any other of such terms, the method of
determining the same), consistent with the provisions hereof and of the Junior
Exchange Note Indenture, of the series of Junior Exchange Notes to be issued
upon such exchange.
Upon determination of the rate per annum at which the Junior Exchange Notes
to be issued upon such exchange will bear interest and any other terms of such
Junior Exchange Notes, the method of determining which was set forth in the
Optional Exchange Notice, the Corporation shall promptly give notice of such
determination to the holders of shares of Class B Preferred Stock, which notice
may be given by (or, if required by applicable law, shall be given by)
publication of such determination in a daily newspaper of national circulation.
(f) CONDITIONS TO EXCHANGE FOR JUNIOR EXCHANGE NOTE. Prior to the giving of
an Optional Exchange Notice, the Corporation shall execute and deliver, with a
bank or trust company selected by the Corporation, the Junior Exchange Note
Indenture, substantially in the form annexed to the S-4 Registration Statement
with only such changes as (i) are necessary to comply with law, any applicable
rules of any securities exchange or usage, (ii) are requested by the Corporation
and which would make any provisions of the Junior Exchange Note Indenture, or of
the Junior Exchange Notes of the series established thereunder for the purpose
of such exchange, more restrictive to the Corporation or beneficial to the
holders of the Junior Exchange Notes of such series, as determined by the Board
of Directors in good faith, such determination to be conclusive, (iii) are
requested by the Corporation to add to the covenants and agreements of the
Corporation contained in the Junior Exchange Note Indenture or to remove any
right or power therein reserved to or conferred upon the Corporation, (iv) are
requested by the Corporation in the event of any amendment to this Certificate
that effects a change in the terms of the Class B Preferred Stock, to conform
(as nearly as may be taking into account the differences between debt securities
and equity securities) the provisions of the Junior Exchange Note Indenture
(including, without limitation, the provisions relating to the establishment of
the terms of any series of Junior Exchange Notes authorized to be issued
thereunder) to the terms of the Class B Preferred Stock as so changed, (v) are
consented to by the holders of at least a majority of the number of shares of
Class B Preferred Stock then outstanding (or such greater percentage thereof as
may be required by applicable law or any applicable rules of any national
securities exchange or national interdealer quotation system), either in writing
or by vote at a meeting called for that purpose at which the holders of Class B
Preferred Stock shall vote as a separate class, or (vi) would not adversely
affect the rights of the holders of Junior Exchange Notes of such series
issuable thereunder.
Prior to the Optional Exchange Date, the Corporation shall (i) establish in
the manner contemplated by the Junior Exchange Note Indenture the terms of the
series of Junior Exchange Notes to be issued thereunder on the Optional Exchange
Date, and (ii) file at the office of the exchange agent for the Class B
Preferred Stock (or with the books of the Corporation if there is no exchange
agent) an opinion of counsel to the effect that (A) the Junior Exchange Note
Indenture has been duly authorized, executed and delivered by the Corporation,
and constitutes a valid and binding instrument enforceable against the
Corporation in accordance with its terms (subject, as to enforceability, to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity
and
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except that the Corporation may be prohibited from making payments on the Junior
Exchange Notes of the series to be issued if and to the extent it would at the
time be prohibited from redeeming capital stock and subject to other
qualifications as are then customarily contained in opinions of counsel
experienced in such matters); (B) that the Junior Exchange Notes of such series
have been duly authorized and, when executed and authenticated in accordance
with the provisions of the Junior Exchange Note Indenture and delivered in
exchange for the shares of Class B Preferred Stock, will constitute valid and
binding obligations of the Corporation entitled to the benefits of the Junior
Exchange Note Indenture (subject as aforesaid); (C) that the issuance and
delivery of the Junior Exchange Notes of such series in exchange for the shares
of Class B Preferred Stock will not violate the laws of the state of
incorporation of the Corporation; and (D) that (x) the Junior Exchange Note
Indenture has been duly qualified under the TIA (or that such qualification is
not necessary) and (y) that the issuance and delivery of the Junior Exchange
Notes of such series in exchange for the shares of Class B Preferred Stock is
exempt from the registration or qualification requirements of the 1933 Act and
applicable state securities laws or, if no such exemption is available, that the
Junior Exchange Notes of such series have been duly registered or qualified for
such exchange under the 1933 Act and such applicable state securities laws.
(g) METHOD OF EXCHANGE. If an Optional Exchange Notice shall have been
given by the Corporation pursuant to paragraph 4(e) of this Section C, and if
the Corporation shall have satisfied the conditions to such exchange contained
in paragraph 4(f), then effective as of the close of business on the Optional
Exchange Date, the shares of Class B Preferred Stock, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right of the holders
thereof upon the surrender of certificates evidencing the same to receive the
Junior Exchange Notes exchangeable therefor, and the cash adjustment, if any, in
lieu of Junior Exchange Notes in other than authorized denominations, without
interest.
Before any holder of shares of Class B Preferred Stock called for exchange
shall be entitled to receive the Junior Exchange Notes deliverable in exchange
therefor, such holder shall surrender the certificate or certificates
representing the shares to be exchanged at such place as the Corporation shall
have specified in the Optional Exchange Notice, which certificate or
certificates shall be duly endorsed to the Corporation or in blank (or
accompanied by duly executed instruments to transfer to the Corporation or in
blank) with signatures guaranteed (such endorsements or instruments of transfer
to be in form satisfactory to the Corporation), together with a written notice
to the Corporation, specifying the name or names (with addresses) in which the
Junior Exchange Notes are to be issued. If any transfer is involved in the
issuance or delivery of any Junior Exchange Notes in a name other than that of
the registered holder of the shares of Class B Preferred Stock surrendered for
exchange, such holder shall also deliver to the Corporation a sum sufficient for
all taxes payable in respect of such transfer or evidence satisfactory to the
Corporation that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Corporation shall pay any issue, stamp or
other similar tax in respect of such issuance or delivery.
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As soon as practicable after the later of the Optional Exchange Date and
the proper surrender of the certificate(s) for such shares of Class B Preferred
Stock as provided above, the Corporation shall deliver at the place specified in
the Optional Exchange Notice, to the holder of the shares of Class B Preferred
Stock so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a Junior Exchange Note or Notes (of authorized
denominations) in the principal amount to which he shall be entitled upon such
exchange, together with a check in the amount of any cash adjustment as provided
in paragraph 4(d). The Person in whose name any Junior Exchange Note is issued
upon an exchange pursuant to paragraph 4(d) shall be treated for all purposes as
the holder of record thereof as of the close of business on the Optional
Exchange Date.
(h) STATUS OF REDEEMED SHARES. All shares of Class B Preferred Stock
redeemed, exchanged, purchased or otherwise acquired by the Corporation shall be
retired and shall not be reissued.
5. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends for all
prior dividend periods on any Parity Stock which by the terms of the instrument
creating or evidencing such Parity Stock is entitled to the payment of such
cumulative dividends prior to the redemption, exchange, purchase or other
acquisition of the Class B Preferred Stock, and until full cumulative dividends
on such Parity Stock for all prior dividend periods are paid, or declared and
the consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock, of such Parity Stock and of any other class of series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative dividends
on the Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, neither the Corporation nor any
Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire any
shares of Class B Preferred Stock, Parity Stock or Junior Stock, or set aside
any money or assets for any such purpose, pursuant to paragraph 4 hereof, a
sinking fund or otherwise, unless all then outstanding shares of Class B
Preferred Stock and of any other class or series of Parity Stock that by the
terms of the instrument creating or evidencing such Parity Stock is required to
be redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
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If at any time the Corporation shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Class B Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until the full cumulative
dividends on the Class B Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date are paid, or declared and
the consideration sufficient to pay the same in full is set aside for such
purpose and no other purpose, the Corporation shall not declare or pay any
dividend on or make any distribution with respect to any Junior Stock or Parity
Stock or set aside any money or assets for any such purpose, except that the
Corporation may declare and pay a dividend on any Parity Stock ranking on a
parity basis with the Class B Preferred Stock with respect to the right to
receive dividend payments, contemporaneously with the declaration and payment of
a dividend on the Class B Preferred Stock, provided that such dividends are
declared and paid pro rata so that the amount of dividends declared and paid per
share of the Class B Preferred Stock and such Parity Stock shall in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Class B Preferred Stock and such Parity Stock bear to
each other.
If the Corporation shall fail to redeem or exchange on any date fixed for
redemption or exchange pursuant to paragraph 4(a) or 4(d) hereof any shares of
Class B Preferred Stock called for redemption or exchange on such date, and
until such shares are redeemed or exchanged in full, the Corporation shall not
redeem or exchange any Parity Stock or Junior Stock or declare or pay any
dividend on or make any distribution with respect to any Junior Stock, or set
aside any money or assets for any such purpose, and neither the Corporation nor
any Subsidiary thereof shall purchase or otherwise acquire any Class B Preferred
Stock, Parity Stock or Junior Stock, or set aside any money or assets for any
such purpose.
Neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any Parity Stock or Junior Stock, or set aside any
money or assets for any such purpose, if after giving effect to such redemption,
exchange, purchase or other acquisition, the amount (as determined by the Board
or Directors in good faith) that would be available for distribution to the
holders of the Class B Preferred Stock upon liquidation, dissolution or winding
up of the Corporation if such liquidation, dissolution or winding up were to
occur on the date fixed for such redemption, exchange, purchase or other
acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Class B
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of this paragraph
5 shall prevent (i) the payment of dividends on any Junior Stock solely in
shares of Junior Stock or the redemption, purchase or other acquisition of
Junior Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Junior Stock; or (ii) the payment of dividends on any Parity Stock
solely in shares of Parity Stock and/or Junior Stock or the redemption,
exchange, purchase or other acquisition of Class B Preferred Stock or Parity
Stock solely in exchange for (together with a cash adjustment for fractional
shares, if any), or (but only in the case of the first and fifth paragraphs
hereof) through the application of the proceeds from the sale of, shares of
Parity Stock and/or Junior Stock.
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The provisions of the first paragraph of this paragraph 5 are for the sole
benefit of the holders of Class B Preferred Stock and Parity Stock having the
terms described therein and accordingly, at any time when there are no shares of
any such class or series of Parity Stock outstanding or if the holders of each
such class or series of Parity Stock have, by such vote or consent of the
holders thereof as may be provided for in the instrument creating or evidencing
such class or series, waived in whole or in part the benefit of such provisions
(either generally or in the specific instance), then the provisions of the first
paragraph of this paragraph 5 shall not (to the extent waived, in the case of
any partial waiver) restrict the redemption, exchange, purchase or other
acquisition of any shares of Class B Preferred Stock, Parity Stock or Junior
Stock. All other provisions of this paragraph 5 are for the sole benefit of the
holders of Class B Preferred Stock and accordingly, if the holders of shares of
Class B Preferred Stock shall have waived (as provided in paragraph 7 of this
Section C) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Class B Preferred Stock, any Parity Stock
or any Junior Stock.
6. Voting
(a) VOTING RIGHTS. The holders of Class B preferred Stock shall have no
voting rights whatsoever, except as required by law and except for the voting
rights described in this paragraph 6; provided, however, that the number of
authorized shares of Class B Preferred Stock may be increased or decreased (but
not below the number of shares of Class B Preferred Stock then outstanding) by
the affirmative vote of the holders of at least 66 2/3% of the total voting
power of the then outstanding Voting Securities (as defined in Section C of
Article V of this Certificate), voting together as a single class as provided in
Article IX of this Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Class B Preferred Stock shall be
required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to this Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Class B Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Class B Preferred Stock (but not below the number of shares of
Preferred Stock or Class B Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Class B Preferred Stock shall
have the right to vote at any annual or special meeting of stockholders for the
purpose of electing directors. Each share of Class B Preferred Stock shall have
one vote for such purpose, and shall vote as a single class with any other class
or series of capital stock of the Corporation entitled to vote in any general
election of directors, unless the instrument creating or evidencing such class
or series of capital stock otherwise expressly provides.
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7. Waiver.
Any provision of this Section C which, for the benefit of the holders of
Class B Preferred Stock, prohibits, limits or restricts actions by the
Corporation, or imposes obligations on the Corporation, may be waived in
whole or in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case with the
consent of the holders of at least a majority of the number of shares of Class B
Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system), either in writing or by vote
at an annual meeting or a meeting called for such purpose at which the holders
of Class B Preferred Stock shall vote as a separate class.
8. Method of Giving Notices.
Any notice required or permitted by the provisions of this Section C to be
given to the holders of shares of Class B Preferred Stock shall be deemed duly
given if deposited in the United States mail, first class mail, postage prepaid,
and addressed to each holder of record at his address appearing on the books of
the Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
9. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the equitable
rights and remedies which may otherwise be available to holders of Class B
Preferred Stock, the shares of Class B Preferred Stock shall not have any
designations, preferences, limitations or relative rights other than those
specifically set forth in this Certificate.
10. Heading of Subdivisions.
The headings of the various subdivisions of this Section C are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section C.
SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or more
series, with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix:
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(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the annual dividend rate, if any, for the particular series, and
the date or dates from which dividends on all shares of such series shall
be cumulative, if dividends on stock of the particular series shall be
cumulative:
(iii) the redemption price or prices for the particular series:
(iv) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes of stock or
indebtedness of the Corporation, and the terms and conditions of such
conversion;
(v) the voting rights, if any, of the holders of a particular series;
and
(vi) the obligation, if any, of the Corporation to purchase and retire
and redeem shares of a particular series as a sinking fund or redemption or
purchase account, the terms thereof and the redemption price or prices per
share for such series redeemed pursuant to the sinking fund or redemption
account.
All shares of any one series of the Series Preferred Stock shall be alike
in every particular and all series shall rank equally and be identical in all
respects except insofar as they may vary with respect to the matters which the
Board of Directors is hereby expressly authorized to determine in the resolution
or resolutions providing for the issue of any series of the Series Preferred
Stock.
SECTION E
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Each share of the Class A Common Stock, par value $1.00 per share (the
"Class A Common Stock"), and each share of the Class B Preferred Stock, par
value $1.00 per share (the "Class B Common Stock"), of the Corporation shall,
except as otherwise provided in this Section E, be identical in all respects and
shall have equal rights and privileges.
1. Voting Rights.
Holders of Class A Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Class B Preferred Stock shall be
entitled to ten votes for each share of such stock held, on all matters
presented to such stockholders. Except as may otherwise be required by the laws
of the State of Delaware or in the instrument creating or evidencing any class
or series of Preferred Stock the holders of shares of Class A Common Stock
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and the holders of shares of Class B Common Stock shall vote with the holders of
Preferred Stock, if any, as one class with respect to the election of directors
and with respect to all other matters to be voted on by stockholders of the
Corporation (including, without limitations, any proposed amendment to this
Certificate that would increase the number of authorized shares of Class A
Common Stock, of Class B Common Stock or of any class or series of Preferred
Stock or decrease the number of authorized shares of any such class or series of
stock (but not below the number of shares thereof then outstanding)), and no
separate vote or consent of the holders of shares of Class A Common Stock, the
holders of shares of Class B Common Stock or the holders of shares of Preferred
Stock shall be required for the approval of any such matter.
2. Conversion Rights.
Each share of Class B Common Stock shall be convertible, at the option of
the holder thereof, into one share of Class A Common Stock. Any such conversion
may be effected by any holder of Class B Common Stock by surrendering such
holder's certificate or certificates for the Class B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for the Class B Common Stock, together with a written notice to the Corporation
at such office that such holder elects to convert all or a specified number of
shares of Class B Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Class A Common Stock to be issued. If so required by the Corporation, any
certificate for shares surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Class A Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Class A Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Class A Common Stock on
that date. A number of shares of Class A Common Stock equal to the number of
shares of Class B Common Stock outstanding from time to time shall be set aside
and reserved for issuance upon conversion of shares of Class B Common Stock.
Shares of Class B Common Stock that have been converted hereunder shall remain
treasury shares to be disposed of by resolution of the Board of Directors.
Shares of Class A Common Stock shall not be convertible into shares of Class B
Common Stock.
3. Dividends. Subject to paragraph 4 of this Section E, whenever a dividend
is paid to the holders of Class A Common Stock, the Corporation also shall pay
to the holders of Class B Common Stock a dividend per share at least equal to
the dividend per share paid to the holders of the Class A Common Stock. Subject
to paragraph 4 of this Section E, whenever a dividend is paid to the holders of
Class B Common Stock, the Corporation shall also pay to the holders of the Class
A Common Stock a dividend per share at least equal to the dividend per share
paid to the holders of the Class B Common Stock. Dividends shall be payable only
as and when declared by the Board of Directors.
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4. Share Distributions. If at any time a distribution on the Class A Common
Stock or Class B Common Stock is to be paid in Class A Common Stock, Class B
Common Stock or any other securities of the Corporation (hereinafter sometimes
called a "share distribution"), such share distribution may be declared and paid
only as follows:
(a) a share distribution consisting of Class A Common Stock to holders of
Class A Common Stock and Class B Common Stock, on an equal per share basis; or
to holders of Class A Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class B Common Stock consisting of
shares of Class B Common Stock on an equal per share basis:
(b) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common Stock, on an equal per share basis; or
to holders of Class B Common Stock only, but in such event there shall also be a
simultaneous share distribution to holders of Class A Common Stock consisting of
shares of Class A Common Stock on an equal per share basis; and
(c) a share distribution consisting of any class of securities of the
Corporation other than Common Stock, to the holders of Class A Common Stock and
the holders of Class B Common Stock on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine one class of its
Common Stock without reclassifying, subdividing or combining the other class of
Common Stock, on an equal per share basis.
5. Liquidation and Mergers. Subject to the prior payment in full of the
preferential amounts to which any Preferred Stock is entitled, the holders of
Class A Common Stock and the holders of Class B Common Stock shall share
equally, on a share for share basis, in any distribution of the Corporation's
assets upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provisions for payment of the
debts and other liabilities of the Corporation. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 5.
SECTION F
UNCLAIMED DIVIDENDS
Any and all right, title, interest and claim in or to any dividends
declared by the Corporation, whether in cash, stock or otherwise, which are
unclaimed for a period of four years after the close of business on the payment
date, shall be and be deemed extinguished and abandoned; and such unclaimed
dividends in the possession of the Corporation, its transfer agent
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or other agents or depositories, shall at such time become the absolute property
of the Corporation, free and clear of any and all claims of any Persons
whatsoever.
ARTICLE V
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors.
Subject to any rights of the holders of any class or series of Preferred Stock
to elect additional directors, the number of directors shall not be less than
three (3) and the exact number of directors shall be fixed by the Board of
Directors by resolution. Election of directors need not be by written ballot.
SECTION B
CLASSIFICATION OF THE BOARD
Except as otherwise fixed by or pursuant to the provisions of Article IV
hereof relating to the rights of the holders of any class or series of Preferred
Stock to separately elect additional directors, which additional directors are
not required to be classified pursuant to the terms of such class or series of
Preferred Stock, the Board of Directors of the Corporation shall be divided into
three classes: Class I, Class II and Class III. Each class shall consist, as
nearly as possible, of a number of directors equal to one-third (33 1/3%) of the
then authorized number of members of the Board of Directors. The term of office
of the initial Class I directors shall expire at the annual meeting of
stockholders in 1995; the term of office of the initial Class II directors shall
expire at the annual meeting of stockholders in 1996; and term of office of the
initial Class III directors shall expire at the annual meeting of stockholders
in 1997. At each annual meeting of stockholders of the Corporation the
successors of that class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election. The
directors of each class will hold office until their respective successors are
elected and qualified.
SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of Preferred
Stock, directors may be removed from office only for cause (as hereinafter
defined) upon the affirmative vote of the
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holders of at least 66 2/3% of the total voting power of the then outstanding
Voting Securities (as hereinafter defined), voting together as a single class.
Except as may otherwise to provided by law, "cause" for removal, for purposes of
this Section C, shall exist only if: (i) the director whose removal is proposed
has been convicted of a felony, or has been granted immunity to testify in an
action where another has been convicted of a felony, by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (ii)
such director has become mentally incompetent, whether or not so adjudicated,
which mental incompetence directly affects his ability as a director of the
Corporation, as determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director); or (iii) such director's
actions or failure to act have been determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director) to
be in derogation of the director's duties. The term "Voting Securities" shall
include the Class A Common Stock, the Class B Common Stock and any class or
series of Preferred Stock entitled to vote with the holders of Common Stock
generally upon all matters which may be submitted to a vote of stockholders at
any annual meeting or special meeting thereof.
SECTION D
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of the holders of any class or series of Preferred
Stock, vacancies on the Board of Directors resulting from death, resignation,
removal, disqualification or other cause, and newly created directorships
resulting from any increase in the number of directors on the Board of
Directors, shall be filled by the affirmative vote of a majority of the
remaining directors then in office (even though less than a quorum) or by the
sole remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or to which the new directorship is
apportioned, and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director, except as may be
provided in the terms of any class or series of Preferred Stock with respect to
any additional director elected by the holders of such class or series of
Preferred Stock.
SECTION E
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or may hereafter be amended, a director of the Corporation shall
not be liable to the Corporation or any of its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of this
paragraph 1 shall be prospective only and shall not
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adversely affect any limitation, right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2. Indemnification.
(a) RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section E. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
(b) PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses incurred
by a director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this paragraph or
otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
(d) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person may or
hereafter acquire under any statute, provision of this Certificate, the Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
(e) OTHER INDEMNIFICATION. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
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<PAGE> 35
3. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION F
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors, by action taken by the
affirmative vote of not less than 75% of the members of the Board of Directors
then in office, is hereby expressly authorized and empowered to adopt, amend or
repeal any provision of the Bylaws of this Corporation.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable. It shall be
issued as fully paid, and the private property of the stockholders shall not be
liable for the debts, obligations or liabilities of this Corporation. This
Certificate shall not be subject to amendment in this respect.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of Preferred
Stock, stockholder action may be taken only at an annual or special meeting.
Except as otherwise provided in the
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<PAGE> 36
terms of any class or series of Preferred Stock or unless otherwise prescribed
by law or by another provision of this Certificate, special meetings of the
stockholders of the Corporation, for any purpose or purposes, shall be called by
the Secretary of the Corporation (i) upon the written request of the holders of
not less than 66 2/3% of the total voting power of the outstanding Voting
Securities (as defined in Section C of Article V of this Certificate) or (ii) at
the request of at least 75% of the members of the Board of Directors then in
office.
SECTION B
ANNUAL AND SPECIAL MEETINGS
Except as otherwise provided in the terms of any class or series of
Preferred Stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
is specifically denied.
ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any class or series of Preferred
Stock, the affirmative vote of the holders of at least 66 2/3% of the total
voting power of the then outstanding Voting Securities (as defined in Section C
of Article V of this Certificate), voting together as a single class at a
meeting specifically called for such purpose, shall be required in order for the
Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision of this
Certificate or the addition or insertion of other provisions herein;
(b) the adoption, amendment or repeal of any provision of the Bylaws of the
Corporation; provided, however, that this clause (b) shall not apply to, and no
vote of the stockholders of the Corporation shall be required to authorize, the
adoption, amendment or repeal of any provision of the Bylaws of the Corporation
by the Board of Directors in accordance with the power conferred upon it
pursuant to Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with or into any other
corporation; provided, however, that this clause (c) shall not apply to any
merger or consolidation (i) as to which the laws of the State of Delaware, as
then in effect, do not require the consent of this Corporation's stockholders,
or (ii) which at least 75% of the members of the Board of Directors then in
office have approved;
(d) the sale, lease or exchange of all, or substantially all, of the
property and assets of the Corporation; or
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(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the Corporation
pursuant to this Certificate are granted subject to the provisions of this
Article IX.
# # # #
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IN WITNESS WHEREOF, the undersigned has signed this Restated Certificate of
Incorporation this 4th DAY OF August, 1994.
TCI/LIBERTY HOLDING COMPANY
By: /s/ Brendan R. Clouston
Brendan R. Clouston
Title: Executive Vice President
ATTEST:
By: /s/ Stephen M. Brett
Stephen M. Brett
Title: Secretary
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<PAGE> 39
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
--------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE FOURTH
DAY OF AUGUST, A.D. 1994, AT 4:18 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
EDWARD J. FREEL, SECRETARY OF STATE
AUTHENTICATION:
7202383
DATE: 08-04-94
<PAGE> 40
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES C" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Commumcations, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, SERIES C":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $1.00 per share, of this Corporation, to consist
of 80,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof of the shares of such series (in addition
to the designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of this Corporation authorized hereby is
"Convertible Preferred Stock, Series C" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined in this Section 2 shall have the meanings herein specified:
Affiliate: As defined in Section 7(b).
<PAGE> 41
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Conversion Rate: As defined in Section 5(b).
Convertible Preferred Holder: As defined in Section 7(a).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness, whether existing
at the Issue Date or thereafter created, incurred, assumed or guaranteed.
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each three-month period
from but excluding the Dividend Payment Date for the preceding Dividend Period
to and including the Dividend Payment Date for such Dividend Period.
First Accrual Date: August 8, 1994.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage,
pledge, lien, charge or other encumbrance
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<PAGE> 42
to which the property or assets of this Corporation are subject whether or not
the obligations secured thereby shall have been assumed by or shall otherwise
be this Corporation's legal liability; and (iv) any amendment, renewal,
extension or refunding of any liability of the types referred to in clauses
(i), (ii) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Class A Common Stock, Class B Common
Stock, and any other class or series of stock of this Corporation not entitled
to receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof. any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of(i) $2.375 plus an amount equal to
all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) have been added to and remain a part
of the Liquidation Value as of such date, plus (iii), for purposes of
determining amounts payable pursuant to Sections 4 and 6 hereof, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (i) and (ii) above to the date as of which the Liquidation Value is
being determined.
Original Holder: As defined in Section 7(a).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock.
Permitted Transferee: As defined in Section 7(a).
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(c), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart, and if the Redemption Price is not so paid in full or the consideration
sufficient therefor so set apart
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<PAGE> 43
then the Redemption Date will be the date on which such Redemption Price is
fully paid or the consideration sufficient for the payment thereof, and for no
other purpose, has been set apart.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date.
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Record Date: As defined in Section 3(C).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 5 1/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable quarterly on the first day of each January, April, July and October, or
the immediately preceding business day if such first day is a Saturday, Sunday
or legal holiday (each such payment date being hereinafter referred to as a
"Dividend Payment Date"), commencing on October 1, 1994 to the holders of
record of the Convertible Preferred Stock as of the close of business on the
applicable Record Date. For purposes of determining the amount of dividends
"accrued" as of any date that is not a Dividend Payment Date, such amount shall
be calculated on the basis of the rate per annum specified in Section 3(a) for
actual days elapsed from but excluding the First Accrual Date (in the case of
any date prior to the first Dividend Payment Date) or the last preceding
Dividend Payment Date (in the case of any other date) to and including the date
as of which such determination is to be made, based on a 365-day year.
4
<PAGE> 44
(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled. To
the extent not paid on each Dividend Payment Date, all dividends which have
accrued on each Share during the Dividend Period ending on such Dividend
Payment Date will be added cumulatively to the Liquidation Value of such Share
and will remain a part thereof until such dividends are paid. In the event that
dividends are not paid in full on two consecutive Dividend Payment Dates,
dividends on that portion of the Liquidation Value of each Share which consists
of accrued dividends that have theretofore been or thereafter are added to, and
remain a part of, the Liquidation Value in accordance with the preceding
sentence shall accrue cumulatively on a daily basis at the rate of fifteen
percent (15%) per annum, from and after such second consecutive Dividend
Payment Date to and including the date of conversion of such Share pursuant to
Section 5 or the date on which the Liquidation Value or Redemption Price of
such Share is made available pursuant to Section 4 or 6 hereof, respectively,
unless such portion of the Liquidation Value that consists of accrued unpaid
dividends shall be earlier paid in full. Such portion of the Liquidation Value
as consists of accrued unpaid dividends, may be declared and paid at any time
without reference to any regular Dividend Payment Date, to holders of record as
of the close of business on such date, not more than 50 days nor less than 10
days preceding the payment date thereof, as may be fixed by the Board of
Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 (other than on any date fixed for a redemption of Shares
pursuant to Section 6(a)), this Corporation shall fail to pay the Redemption
Price due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of fifteen percent (15%) per annum of
the Liquidation Value thereof from and after such Redemption date to and
including the date of conversion of such Shares pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Shares is made
available pursuant to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(c), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Security, nor shall any shares
of any Junior Security be purchased, redeemed, or otherwise acquired for value
by the Corporation, unless the holders of the Convertible Preferred Stock shall
have received all dividends to which they are entitled pursuant to Section 3(a)
hereof for all the Dividend Periods preceding the date on which such dividend
on the Junior Securities is to
5
<PAGE> 45
occur, or such dividends shall have been declared and the consideration
sufficient for the payment thereof set apart so as to be available for the
payment in full thereof and for no other purpose. The provisions of this
Section 3(f) shall not apply (i) to a dividend payable in any Junior Security,
or (ii) to the repurchase, redemption or other acquisition of shares of any
Junior Security solely through the issuance of Junior Securities (together
with a cash adjustment for tractional shares, if any) or through the
application of the proceeds from the sale of Junior Securities.
4. Liquidation. Upon any liquidation, dissolution or winding up
of this Corporation, whether voluntary or involuntary, the holders of
Convertible Preferred Stock shall be entitled to be paid an amount in cash
equal to the aggregate Liquidation Value at the date fixed for liquidation of
all Shares outstanding before any distribution or payment is made upon any
Junior Securities, which payment shall be made pari passu with any such payment
made to the holders of any Parity Securities. The holders of Convertible
Preferred Stock shall be entitled to no other or further distribution of or
participation in any remaining assets of this Corporation after receiving the
Liquidation Value per Share. If upon such liquidation, dissolution or winding
up, the assets of this Corporation to be distributed among the holders of
Convertible Preferred Stock and to all holders of Parity Securities are
insufficient to permit payment in full to such holders of the aggregate
preferential amounts which they are entitled to be paid, then the entire assets
of this Corporation to be distributed to such holders shall be distributed
ratably among them based upon the full preferential amounts to which the shares
of Convertible Preferred Stock and such Parity Securities would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Convertible Preferred Stock and Parity Securities have
been paid in full the amounts to which they are entitled, the remaining assets
of this Corporation may be distributed to the holders of Junior Securities.
This Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Convertible Preferred Stock not less than
30 days prior to the payment date stated in such written notice. Neither the
consolidation or merger of this Corporation into or with any other corporation
or corporations, nor the sale, transfer or lease by this Corporation of all or
any part of its assets, shall be deemed to be a liquidation, dissolution or
winding up of this Corporation within the meaning of this Section 4.
5. Conversion.
(a) Unless previously called for redemption as provided in Section
6 hereof, the Convertible Preferred Stock may be converted at any time or from
time to time, in such manner and upon such terms and conditions as hereinafter
provided in this Section 5 into fully paid and nonassessable full shares of
Class A Common Stock. In the case of Shares called for redemption by this
Corporation pursuant to Section 6(a) hereof, the conversion right provided by
this Section 5 shall terminate at the close of business on the fifteenth day
preceding the date fixed for redemption. In the case of Shares required to be
redeemed pursuant to Section 6(b), the conversion right provided by this
Section 5 shall terminate immediately upon receipt by this Corporation of a
notice given pursuant to said Section. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A
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<PAGE> 46
Common Stock in this Section 5 shall be deemed to apply, so far as appropriate
and as nearly as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be convened into Class A
Common Stock at the initial conversion rate of 100 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case this Corporation shall (i) pay a dividend or make a
distribution on its outstanding shares of Class A Common Stock in shares of its
Capital Stock, (ii) subdivide the then outstanding shares of Class A Common
Stock into a greater number of shares of Class A Common Stock, (iii) combine
the then outstanding shares of Class A Common Stock into a smaller number of
shares of Class A Common Stock, or (iv) issue by reclassification of its shares
of Class Common Stock any shares of any other class of Capital Stock of this
Corporation (including any such reclassification in connection with a merger in
which this Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Convertible Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of Capital Stock of
this Corporation that such holder would have owned or been entitled to receive
immediately following such action had such shares of Convertible Preferred
Stock been converted immediately prior to such time. An adjustment made
pursuant to this Section 5(c) for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution
and an adjustment made pursuant to this Section 5(c) for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.
(d) In case this Corporation shall issue any rights or warrants to
all holders of shares of Class A Common Stock entitling them (for a period
expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Class A Common Stock (or Convertible Securities) at a price
per share of Class A Common Stock (or having an initial exercise price or
conversion price per share of Class A Common Stock) less than the then current
market price per share of Class A Common Stock (as determined in accordance
with the provisions of Section 5(f) below) on such record date, the number of
shares of Class A Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Class A
Common Stock into which such Share was theretofore convertible immediately
prior to such record date by a fraction of which the numerator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of additional shares of Class A Common Stock offered for
subscription or purchase (or into which the Convertible Securities so offered
are initially convertible) and of
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<PAGE> 47
which the denominator shall be the number of shares of Class A Common Stock
outstanding on such record date plus the number of shares of Class A Common
Stock which the aggregate offering price of the total number of shares of Class
A Common Stock so offered (or the aggregate initial conversion or exercise
price of the Convertible Securities so offered) would purchase at the then
current market price per share of Class A Common Stock (as determined in
accordance with the provisions of Section 5(f) below) on such record date. Such
adjustment shall be made successively whenever any such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. In
the event that all of the shares of Class A Common Stock (or all of the
Convertible Securities) subject to such rights or warrants have not been issued
when such rights or warrants expire (or, in the case of rights or warrants to
purchase Convertible Securities which have been exercised, all of the shares of
Class A Common Stock issuable upon conversion of such Convertible Securities
have not been issued prior to the expiration of the conversion right thereof),
then the Conversion Rate shall be readjusted retroactively to be the Conversion
Rate which would then be in effect had the adjustment upon the issuance of such
rights or warrants been made on the basis of the actual number of shares of
Class A Common Stock (or Convertible Securities) issued upon the exercise of
such rights or warrants (or the conversion of such Convertible Securities); but
such subsequent adjustment shall not affect the number of shares of Class A
Common Stock issued upon the conversion of any Share prior to the date such
subsequent adjustment is made.
(e) In case this Corporation shall distribute to all holders of
shares of Class A Common Stock (including any such distribution made in
connection with a merger in which this Corporation is the continuing
corporation, other than a merger to which Section 5(g) is applicable) any
evidences of its indebtedness or assets (other than cash dividends or Capital
Stock) or rights or warrants to purchase shares of Class A Common Stock or
Class B Common Stock or securities convertible into shares of Class A Common
Stock or Class B Common Stock (excluding those referred to in Section 5(d)
above), then in each such case the number of shares of Class A Common Stock
into which each Share shall thereafter be convertible shall be determined by
multiplying the number of shares of Class A Common Stock into which such Share
was theretofore convertible immediately prior to the record date for the
determination of stockholders entitled to receive the distribution by a
fraction of which the numerator shall be the then current market price per share
of Class A Common Stock (as determined accordance with the provisions of
Section 5(f) below) on such record date and of which the denominator shall be
such current market price per share of Class A Common Stock less the fair
market value on such record date (as determined by the Board of Directors of
this Corporation, whose determination shall be conclusive) of the portion of
the assets or evidences of indebtedness or rights and warrants so to be
distributed applicable to one share of Class A Common Stock. Such adjustment
shall be made successively whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e) or
(k), the current market price per share of Class A Common Stock at any date
shall be deemed to be the average of the daily closing prices for a share of
Class A Common Stock for the ten (10) consecutive trading
8
<PAGE> 48
days before the day in question. The closing price or each day shall be the
last reported sale price regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the composite tape, or if the shares of Class A
Common Stock are not quoted on the composite tape, on the principal United
States securities exchange registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassification or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, this
Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property that
such holder would have owned immediately after such reclassification, change,
consolidation, merger, sale or transfer if such holder had converted such Share
into Class A Common Stock immediately prior to the effective date of such
reclassification, change, consolidation, merger, sale or transfer (assuming for
this purpose (to the extent applicable) that such holder failed to exercise any
rights of election and received per share of Class A Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Convertible
Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of the Convertible
Preferred Stock shall thereafter be made applicable, as nearly as reasonably
may be to any such other shares of stock and other securities and property
deliverable upon conversion of the Convertible Preferred Stock remaining
outstanding or other convertible preferred stock or other Convertible
Securities received by the holders of Convertible Preferred Stock in place
thereof; and provided, further, that any such resulting or surviving
corporation or purchaser shall expressly assume the obligation to deliver, upon
the exercise of the conversion privilege, such shares, securities or property
as the holders of the
9
<PAGE> 49
Convertible Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in
place thereof, shall be entitled to receive pursuant to the provisions hereof,
and to make provisions for the protection of the conversion rights as above
provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or(g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the
Convertible Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be. In any case in
which this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Class A Common Stock or other
Capital Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other Capital Stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to Section 5(n); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
Capital Stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing,
10
<PAGE> 50
together with any shares of Class B Common Stock tendered for in such
tender offer, at least a majority of the total voting power
represented by the outstanding shares of Class A Common Stock and
Class B Common Stock which has been recommended by the Board of
Directors as being in the best interests of the holders of Class A
Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(c) hereof, to the holders of the Convertible
preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting the obligations of this Corporation to provide notice of corporate
actions hereunder, the failure to give the notice required by this Section 5(j)
or any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock, such holder shall
surrender the certificate or certificates for such Convertible Preferred Stock
at the office of this Corporation or at the office of the transfer agent for
the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall given written notice to this
Corporation at said office that it elects to convert all or a part of the
Shares represented by said certificate or certificates in accordance with the
terms of this Section 5, and shall state in writing therein the name or names
in which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and the Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred
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<PAGE> 51
Stock, accompanied by the written notice and the statement above prescribed,
issue and deliver at the office of this Corporation or of said transfer agent
to the person for whose account such Convertible Preferred Stock was so
surrendered, or to his nominee(s) or, subject to compliance with applicable
law, transferee(s), a certificate or certificates for the number of full shares
of Class A Common Stock to which such holder shall be entitled, together with
cash in lieu of any fraction of a share as hereinafter provided. If surrendered
certificates for Convertible Preferred Stock are converted only in part, this
Corporation will issue and deliver to the holder, or to his nominee(s) without
charge therefor, a new certificate or certificates representing the aggregate
of the unconverted Shares. Such conversion shall be deemed to have been made as
of the date of such surrender of the Convertible Preferred Stock to be
converted; and the person or persons entitled to receive the Class A Common
Stock issuable upon conversion of such Convertible Preferred Stock shall be
treated for all purposes as the record holder or holders of such Class A Common
Stock on such date.
Upon the conversion of any Share, this Corporation shall pay, to the
holder of record of such Share on the immediately preceding Record Date, all
accrued but unpaid dividends on such Share to the date of the surrender of such
Share for conversion. Such payment shall be made in cash or, at the election of
this Corporation, the issuance of certificates representing such number of
shares of Class A Common Stock as have an aggregate current market price (as
determined in accordance with Section 5(f)) on the date of issuance equal to
the amount of such accrued but unpaid dividends. Upon the making of such
payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Convertible Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
This Corporation shall not be required to convert any shares of
Convertible Preferred Stock, and no surrender of Convertible Preferred Stock
shall be effective for that purpose, while the stock transfer books of this
Corporation are closed for any purpose; but the surrender of Convertible
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books, as if the conversion had been made on the date such Convertible
Preferred Stock was surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this
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<PAGE> 52
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Convertible Preferred Stock by delivery of shares of
Class A Common Stock which are held in the treasury of this Corporation. This
Corporation shall take all such corporate and other actions as from time to
time may be necessary to insure that all shares of Class A Common Stock
issuable upon conversion of shares of Convertible Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and issued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of this Corporation, but such shares shall not be reissued as Convertible
Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
6. Redemption.
(a) Subject to the provisions of Section 6(f), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after August 8.
2001 at the Redemption Price per share as of the applicable Redemption Date. If
less than all outstanding Shares are to be redeemed, Shares shall be redeemed
ratably among the holders thereof.
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<PAGE> 53
(b) Subject to the rights of any Parity Securities and the
provisions of Section 6(f) and subject to any prohibitions or restrictions
contained in any Debt Instrument, at any time on or after August 8,2001, any
holder shall have the right, at such holder's option, to require redemption by
this Corporation at the Redemption Price per Share as of the applicable
Redemption Date of all or any portion of his Shares having an aggregate
Liquidation Value in excess of $1,000,000, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in
accordance with the first sentence of this Section 6(b), the Shares so
requested to be redeemed on such date within 60 days following this
Corporation's receipt of such notice as this Corporation shall state in its
notice given pursuant to Section 6(c). If the funds of this Corporation legally
available for redemption of Shares and not restricted in accordance with the
first sentence of this Section 6(b) are insufficient to redeem the total number
of shares required to be redeemed pursuant to this Section 6(b), those funds
which are legally available for redemption of such Shares and not so restricted
will be used to redeem the maximum possible number of such Shares ratably among
the holders who have required Shares to be redeemed under this Section 6(b). At
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date until the balance of such Shares are redeemed.
(c) Notice of any redemption pursuant to this Section shall be
mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to the Redemption Date, to the holders of record of the shares of
Convertible Preferred Stock to be redeemed, at their respective addresses as
the same appear upon the books of this Corporation or are supplied by them in
writing to this Corporation for the purpose of such notice (with telephonic or
facsimile confirmation of notice to Bill Daniels so long as he is a holder of
record); but no failure to mail such notice or any defect therein or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of the Convertible Preferred Stock. Such notice shall set forth
the Redemption Price, the Redemption Date, the number of Shares to be redeemed
and the place at which the Shares called for redemption will, upon presentation
and surrender of the stock certificates evidencing such Shares, be redeemed. In
case fewer than the total number of shares of Convertible Preferred Stock
represented by any certificate are redeemed, a new certificate representing the
number of unredeemed Shares will be issued to the holder thereof without cost
to such holder.
(d) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(c) and if on or
before the Redemption Date specified in such notice the consideration necessary
for such redemption shall have been set apart so as to be available therefor
and only therefor, then on and after the close of business on the Redemption
Date, the Shares called for redemption, notwithstanding that any certificate
therefor shall not have been surrendered for cancellation, shall no longer be
deemed outstanding, and all rights with respect to such Shares shall forthwith
cease and terminate, except the right of the holders thereof to receive upon
surrender of their certificates the consideration payable upon redemption
thereof.
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<PAGE> 54
(e) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(f) If at any time this Corporation shall have failed to pay, or
declare and set apart the consideration sufficient to pay, all dividends
accrued up to and including the immediately preceding Dividend Payment Date on
the Convertible Preferred Stock, and until all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock shall have been paid or declared and set apart so as to be
available for the payment in full thereof and for no other purpose, this
Corporation shall not redeem, pursuant to a sinking fund or otherwise, any
shares of Convertible Preferred Stock or Junior Securities, unless all then
outstanding shares of Convertible Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Convertible Preferred Stock or
Junior Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(b) all shares of Convertible Preferred
Stock required to be redeemed on such date, this Corporation shall not redeem,
or discharge any sinking fund obligation with respect to, any Junior
Securities, unless all then outstanding shares of Convertible Preferred Stock
are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock or Junior Securities. Nothing contained in this
Section 6(f) shall prevent the purchase or acquisition of shares of Convertible
Preferred Stock pursuant to a purchase or exchange offer or offers made to
holders of all outstanding shares of Convertible Preferred Stock, provided that
as to holders of all outstanding shares of Convertible Preferred Stock, the
terms of the purchase or exchange offer for all such shares are identical. The
provisions of this Section 6(f) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(f) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption.
7. Transfer.
(a) Without the prior written consent of this Corporation, no
person holding shares of Convertible Preferred Stock of record (hereinafter
called a "Convertible Preferred Holder") may transfer, and this Corporation
shall not register the transfer of, such shares of Convertible Preferred Stock,
whether by sale, assignment, or otherwise, except to a Permitted Transferee.
(i) In the case of a Convertible Preferred Holder
acquiring record and beneficial ownership of the shares of Convertible
Preferred Stock in question upon initial issuance by this Corporation
(an "Original Holder"), a "Permitted Transferee" shall mean:
(x) any Affiliate (as defined in Section 7(b)) of
such Original Holder.
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<PAGE> 55
(y) any other Original Holder (or any Affiliate
of any such other Original Holder), or
(z) any person or entity to whom Shares are
transferred by an Original Holder pursuant to
a gift or bequest or pursuant to the laws of
intestacy.
(ii) In the case of a Convertible Preferred Holder which
is a Permitted Transferee of an Original Holder, a "Permitted
Transferee" shall mean:
(x) any Original Holder,
(y) any Permitted Transferee of an Original
Holder, except any transferee referred to in
clause (i)(z) above, or
(z) any person or entity to whom Shares are
transferred by a Permitted Transferee
pursuant to a gift or bequest or pursuant to
the laws of intestacy.
(b) For purposes of this Section 7, the term "Affiliate" shall
mean (i) any person or corporation that owns beneficially and of record at
least a majority of the outstanding securities representing the right, other
than as affected by events of default, to vote for the election of directors
("voting securities") of an Original Holder or (ii) any person or corporation
at least a majority of the voting securities of which are owned beneficially
and of record by an Original Holder, where in the case of both (i) and (ii),
voting securities will be deemed "owned" by a person or corporation if either
owned directly or if owned indirectly through one or more intermediary
corporations at least a majority of the voting securities of which are owned
beneficially and of record by that person or corporation or by an intermediary
corporation in such a majority or more chain of ownership.
(c) This Corporation may, in connection with preparing a list of
stockholders entitled to vote at any meeting of stockholders, or as a condition
to the transfer or the registration of shares of Convertible Preferred Stock on
this Corporation's books, require the furnishing of such affidavits or other
proof as it deems necessary to establish that any person is the beneficial
owner of shares of Convertible Preferred Stock or is a Permitted Transferee.
(d) Shares of Convertible Preferred Stock shall be registered in
the names of the beneficial owners thereof and not in "street" or "nominee"
name. For this purpose, a "beneficial owner" of any shares of Convertible
Preferred Stock shall mean a person who, or any entity which, possesses the
power, either singly or jointly, to direct the voting or disposition of such
shares. Certificates for shares of Convertible Preferred Stock shall bear a
legend referencing the restrictions on transfer imposed by this Section 7.
16
<PAGE> 56
8. Voting Rights. The holders of the Convertible Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the holders of
the Capital Stock of this Corporation which is entitled to vote generally on
the election of directors. Each Share shall entitle the registered holder
thereof to such number of votes as is equal to the number of shares of Class A
Common Stock into which such Share is then convertible. Holders of Convertible
Preferred Stock shall vote together with holders of common stock and shall not
be entitled to vote as a class except as otherwise required by law or this
Corporation's Restated Certificate of Incorporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3% of the Liquidation Value of all Shares outstanding
at the time such action is taken.
10. Preemptive RightS. The holders of the Convertible Preferred
Stock will not have any preemptive right to subscribe for or purchase any
shares of stock or any other securities which may be issued by this
Corporation.
11. Senior Securities. The Convertible Preferred Stock shall not
rank junior to any other classes or series of stock of this Corporation in
respect of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding, this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and for the equitable rights and remedies that may otherwise be
available to holders of Convertible Preferred Stock, the shares of Convertible
Preferred Stock shall not have any designations, preferences, limitations or
relative rights, other than those specifically set forth in these resolutions
(as such resolutions may, subject to Section 9, be amended from time to time)
and in the Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
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<PAGE> 57
FURTHER RESOLVED, that the appropriate officers of this Corporation
are hereby authorized to execute and acknowledge a certificate setting forth
these resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ FRED A VIERRA
Fred A. Vierra
Executive Vice President
18
<PAGE> 58
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SECOND DAY OF AUGUST, A.D. 1994, AT 9 O'CLOCK A.M.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, Secretary Of State
AUTHENTICATION: 7278684
DATE: 10-24-94
2371729 8100
944202094
<PAGE> 59
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/22/1994
944156379 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on August 4, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Convertible Preferred
Stock, Series C;"
Whereas, such Certificate of Designation inaccurately stated that the
par value of the Convertible Preferred Stock, Series C, is $1.00 per share,
when in fact the par value of the Convertible Preferred Stock, Series C, is
S.01 per share;
Therefore, the Certificate of Designation is hereby corrected in
accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $l.00 per share" shall be deleted from the
third line of the second (unnumbered) paragraph of the Certificate of
Designation and the words "par value $.01 per share" shall be substituted in
their place.
2. The words "par value $1.00 per share" shall be deleted from
paragraph number 1 of the Certificate of Designation and the words "par value
$.O1 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: August 16, 1994
Signature: /s/ Stephen M. Brett
Stephen M. Brett
Title: Executive Vice President
<PAGE> 60
State of Delaware
Office of the Secretary of State PAGE 1
-------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
ELEVENTH DAY OF OCTOBER, A.D. 1994, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
(SEAL) /s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7265951
2371729 8100 DATE: 10-12-94
944192934
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 10/11/1994
944192934 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "REDEEMABLE CONVERTIBLE PREFERRED STOCK,
SERIES E" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Redeemable Convertible Preferred Stock, Series E":
BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates and
authorizes the issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to consist of 400,000 shares, and hereby fixes the
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, particiating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the designations,
preferences and relative, participating, limitations or restrictions thereof
set forth in the Restated Certificate of Incorporation that are applicable to
preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $1.00 per share, of the Corporation authorized hereby is "Redeemable
Convertible Preferred Stock, Series E" (the "Series E Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes, the meanings
herein specified;
"Amendment Date" shall mean the date of the effectiveness under
applicable law of a duly approved amendment to the Corporation's Restated
Certificate of Incorporation
<PAGE> 62
increasing the number of shares of capital stock and the number of shares of
capital stock designated as "Class A Common Stock" to an amount which, after
giving effect to the exercise, exchange or conversion of all Convertible
Securities then outstanding and the conversion of all shares of Class B Common
Stock then outstanding into shares of Class A Common Stock, would be sufficient
to permit the conversion, at the then applicable Conversion Rate, of all shares
of Series E Preferred Stock then outstanding into shares of Class A Common
Stock.
"Average Quoted Price", when used with respect to the Class A Common
Stock, shall mean the average of the Quoted Prices of the Class A Common Stock
for the most recent period of five trading days on which shares of such class
trade ending three Business Days prior to the Redemption Date, appropriately
adjusted to take into account the actual occurrence, during the period
following the first of such five trading days and ending on the Business Day
immediately preceding such Special Redemption Date, of any event of a type
described in paragraph 7. The "Quoted Price" of a share of Class A Common Stock
on any day means the last sale price (or, if no sale price is reported, the
average of the high and low bid prices) of the Class A Common Stock, on such
day as reported on the National Association of Securities Dealers, Inc.
Automated Quotation System, or if the Class A Common Stock is listed on an
exchange, as reported in the composite transactions for the principal exchange
on which such stock is listed.
"Board of Directors" shall mean the Board of Directors of the
Corporation and, unless the context indicates otherwise, shall also mean, to
the extent permitted by law, any committee thereof authorized, with respect to
any particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in Denver, Colorado are not required to be
open.
"Capital stock shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Certificate" shall mean the Restated Certificate of Incorporation of
the Corporation, as it may from time to time hereafter be amended or restated.
"Class A Common Stock" shall mean the Class A Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class A Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class A Common
Stock, such capital stock to which a holder of Class A Common Stock shall be
entitled upon the occurrence of such event.
"Class A Preferred Stock shall mean the Class A Preferred Stock, par
value $.01 per share, of the Corporation.
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"C[ass B Common Stock" shall mean the Class B Common Stock, par value
$1.00 per share, of the Corporation, which term shall include, where
appropriate, in the case of any reclassification, recapitalization or other
change in the Class B Common Stock, or in the case of a consolidation or merger
of the Corporation with or into another Person affecting the Class B Common
Stock, such capital stock to which a holder of Class B Common Stock shall be
entitled upon the occurrence of such event.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.O1 per share, of
the Corporation.
"Convertible Securities" shall mean securities, other than the Class B
Common Stock, that are convertible into or exchangeable for Class A Common
Stock.
"Dividend Payment Date" shall mean, for any Dividend Period, the last
day of such Dividend Period which shall be the first day of March of each year,
commencing with March 1, 1995, or the next succeeding Business Day if any such
day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to and
including the first Dividend Payment Date and each annual period between
consecutive Dividend Payment Dates.
"Issue Date" shall mean the date on which shares of Series E Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the Class A Common Stock, (ii) the Class
B Common Stock, (iii) the Class B Preferred Stock, (iv) any other class or
series of capital stock, whether now existing or hereafter created, of the
Corporation, other than (A) the Series E Preferred Stock, (B) any class or
series of Parity Stock (except to the extent provided under clause (v) hereof)
and (C) any Senior Stock, and (v) any class or series of Parity Stock to the
extent that it ranks junior to the Series E Preferred Stock as to dividend
rights, rights of redemption or rights on liquidation, as the case may be. For
purposes of clause (v) above, a class or series of Parity Stock shall rank
junior to the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation if the holders of shares of Series E
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of such class or series.
"Liquidation Preference" measured per share of the Series E Preferred
Stock as of any date in question (the "Determination Date") shall mean an
amount equal to the sum of (a) the Stated Liquidation Value of such share, plus
(b) an amount equal to all dividends accrued on such share which pursuant to
paragraph 3(b) have been added to and remain a part of the Liquidation
Preference as of the Determination Date, plus (c) for purposes of determining
the amounts payable pursuant to paragraph 4 and paragraph 5 and the definition
of Redemption Price, an amount equal to all unpaid dividends accrued on such
share during the period from the immediately preceding Dividend Payment Date
(or the Issue Date if the Determination Date is
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on or prior to the first Dividend Payment Date) through and including the
Determination Date, and, in the case of clauses (b) and (c) hereof, whether or
not such unpaid dividends have been earned or declared or there are any
unrestricted funds of the Corporation legally available for the payment of
dividends. In connection with the determination of the Liquidation Preference
of a share of Series E Preferred Stock upon redemption or upon liquidation,
dissolution or winding up of the Corporation, the Determination Date shall be
the applicable date of redemption or the date of distribution of amounts
payable to stockholders in connection with any such liquidation, dissolution or
winding up.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board or the President of the Corporation and by the Treasurer
of the Corporation.
"Opinion of Counsel" shall mean a written opinion from legal counsel
selected by the Corporation. The counsel may be an employee of or counsel to
the Corporation.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking on a
parity basis with the Series E Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series shall
rank on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Series E Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series E Preferred Stock, if the holders of shares of such class
or series shall be entitled to dividend payments, payments on redemption or
payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in proportion to their respective
accumulated and accrued and unpaid dividends, redemption prices or liquidations
prices, respectively, without preference or priority, one over the other, as
between the holders of shares of such class or series and the holders of Series
E Preferred Stock. No class or series of capital stock that ranks junior to the
Series E Preferred Stock as to rights on liquidation shall rank or be deemed to
rank on a parity basis with the Series E Preferred Stock as to dividend rights
or rights of redemption, unless the instrument creating or evidencing such
class or series of capita[ stock otherwise expressly provides.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
government or agency or political subdivision thereof, or other entity, whether
acting in an individual, fiduciary, or other capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
means the fifteenth day of the month preceding the month during which such
Dividend Payment Date shall occur, or if any such day is not a Business Day,
then on the next preceding Business Day, as and if designated by the Board of
Directors.
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<PAGE> 65
"Redemption Date" as to any share of Series E Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a),
provided that no such date will be a Redemption Date unless the applicable
Redemption Price is actually paid in full on such date.
"Redemption Price" as to any share of Series E Preferred Stock which
is to be redeemed on any Redemption Date shall mean the Liquidation Preference
thereof on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking prior to
the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank prior
to the Series E Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation,
as the case may be, in preference or priority to the holders of shares of
Series E Preferred Stock. No class or series of capital stock that ranks on a
parity basis with or junior to the Series E Preferred Stock as to rights on
liquidation shall rank or be deemed to rank prior to the Series E Preferred
Stock as to dividend rights or rights of redemption, notwithstanding that the
dividend rate, dividend payment dates, sinking fund provisions, if any, or
mandatory redemption provisions thereof are different from those of the Series
E Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly provides.
"Share" shall mean one share of Series E Preferred Stock of the
Corporation.
"Special Record Date" has the meaning ascribed to such term in
paragraph 3(b).
"Stated Liquidation Value" of a share of Series E Preferred Stock
means $22,303.
"Subsidiary" of any Person shall mean (i) a corporation a majority of
the capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by such Person
and/or one or more Subsidiaries of such Person and (ii) any other Person (other
than a corporation) in which such Person and/or one or more Subsidiaries of
such Person, directly or indirectly, has (x) a majority ownership interest or
(y) the power to elect or direct the election of a majority of the members of
the governing body of such first-named Person.
"TCI Holder" shall mean the Corporation and each Subsidiary of the
Corporation.
3. Dividends.
(a) Dividends Rights; Dividend Payment Dates.
Subject to the prior preferences and other rights of any Senior Stock and the
provisions of Paragraph 6 hereof, the holders of Series E Preferred Stock shall
be entitled to receive, when and as declared by the
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<PAGE> 66
Board of Directors, out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, that
shall accrue on each share of Series E Preferred Stock at the rate of 5.0% per
annum of the Stated Liquidation Value of such share from the Issue Date to and
including the date on which the Liquidation Preference of such share is made
available (whether on liquidation, dissolution, or winding up of the
Corporation or, in the case of paragraph 5, upon the applicable Redemption
Date). Accrued dividends on the Series E Preferred Stock will be payable, as
provided in paragraph 3(c) below, annually on each Dividend Payment Date to the
holders of record of the Series E Preferred Stock as of the close of business
on the Record Date for such dividend payment. Dividends shall be fully
cumulative and shall accrue (without interest or compounding) on a daily basis
without regard to the occurrence of a Dividend Payment Date and whether or not
such dividends are declared and whether or not there are any unrestricted funds
of the Corporation legally available for the payment of dividends. The amount
of dividends "accrued" as of the first Dividend Payment Date and as of any date
that is not a Dividend Payment Date shall be calculated on the basis of the
foregoing rate per annum for the actual number of days elapsed from the Issue
Date (in the case of the first Dividend Payment Date and any date prior to the
first Dividend Payment Date) or the last preceding Dividend Payment Date (in
the case of any other date) to and including the date as of which such
determination is to be made, based on a 365- or 366-day year, as the case may
be.
(b) SPECIAL RECORD DATE. On each Dividend Payment
Date, all dividends that have accrued on each share of Series E Preferred Stock
during the immediately preceding Dividend Period shall, to the extent not paid
as provided in paragraph 3(c) below on such Dividend Payment Date for any
reason (whether or not such unpaid dividends have been earned or declared or
there are any unrestricted funds of the Corporation legally available for the
payment of dividends), be added to the Liquidation Preference of such share and
will remain a part thereof until such dividends are paid as provided in
paragraph 3(c) below. No interest or additional dividends will accrue or be
payable with respect to any dividend payment on the Series E Preferred Stock
that may be in arrears or with respect to that portion of any other payment on
the Series E Preferred Stock that is in arrears which consist of accumulated or
accrued and unpaid dividends. Such accumulated or accrued and unpaid dividends
may be declared and paid at any time (subject to the rights of any Senior Stock
and, if applicable, to the concurrent satisfaction of any dividend arrearages
then existing with respect to any Parity Stock which ranks on a parity basis
with the Series E Preferred Stock as to the payment of dividends) without
reference to any regular Dividend Payment Date, to holders of record as of the
close of business on such date, not more than 45 days nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Directors
(the "Special Record Date"). Notice of each Special Record Date shall be given,
not more than 45 days nor less than of days prior thereto, to the holders of
record of the shares of Series E Preferred Stock.
(c) METHOD OF PAYMENT. AlI dividends payable with
respect to the shares of Series E Preferred Stock shall be declared and paid in
cash. All dividends paid with respect to the shares of Series E Preferred Stock
pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series E Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
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4. Distributions Upon Liquidation Dissolution or Winding Up.
Subject to the prior payment in full of the preferential
amounts to which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary, or
involuntary, the holders of Series E Preferred Stock shall be entitled to
receive from the assets of the Corporation available for distribution to
stockholders, before any payment or distribution, shall be made to the holders
of any Junior Stock, an amount in cash or property, at its fair market value, as
determined by the Board of Directors in good faith, or a combination thereof,
per share, equal to the Liquidation Preference of a share of Series E Preferred
Stock as of the date of payment or distribution, which payment or distribution
shall be made pari passu with any such payment or distribution made to the
holders of any Parity Stock ranking on a parity basis with the Series E
Preferred Stock with respect to distributions upon liquidation, dissolution or
winding up of the Corporation. The holders of Series E Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of the Corporation after receiving the Liquidation Preference
per share. If, upon distribution of the Corporation's assets in liquidation,
dissolution or winding up, the assets of the Corporation to be distributed
among the holders of the Series E Preferred Stock and to all holders of any
Parity Stock ranking on a parity basis with the Series E Preferred Stock with
respect to distributions upon liquidation, dissolution or winding up shall be
insufficient to permit payment in full to such holders of the respective
preferential amounts to which they are entitled, then the entire assets of the
Corporation to be distributed to holders of the Series E Preferred Stock and
such Parity Stock shall be distributed pro rata to such holders based upon the
aggregate of the full preferential amounts to which the shares of Series E
Preferred Stock and such Parity Stock would otherwise respectively be entitled.
Neither the consolidation or merger of the Corporation with or into any other
corporation or corporations nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding up of the Corporation within the meaning
of this paragraph 4. Notice of the liquidation, dissolution or winding up of
the Corporation shall be given, not less than 20 days prior to the date on
which such liquidation, dissolution or winding up is expected to take place or
become effective, to the holders of record of the shares of Series E Preferred
Stock.
5. Redemption.
(a) OPTIONAL REDEMPTION. Subject to the rights of any
Senior Stock and the provisions of paragraph 6, the shares of Series E
Preferred Stock may be redeemed, at the option of the Corporation by the action
of the Board of Directors, in whole or from time to time in part, on any
Business Day occurring after the Issue Date, at the Redemption Price on the
Redemption Date. If less than all outstanding shares of Series E Preferred
Stock are to be redeemed on any Redemption Date, the shares of Series E
Preferred Stock to be redeemed shall be chosen pro rata among all holders of
Series E Preferred Stock. The Corporation shall not be required to register a
transfer of (i) any shares of Series E Preferred Stock for a period of 15 days
next preceding any selection of shares of Series E Preferred Stock to be
redeemed or (ii) any shares of Series E Preferred Stock selected or called for
redemption.
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(b) NOTICE OF REDEMPTION. Notice of redemption shall be
given by or on behalf of the Corporation, not more than 60 days nor less than 30
days prior to the Redemption Date, to the holders of record of the shares of
Series E Preferred Stock to be redeemed; but no defect in such notice or in the
mailing thereof shall affect the validity of the proceedings for the redemption
of any shares of Series E Preferred Stock. In addition to any information
required by law or by the applicable rules of any national securities exchange
or national interdealer quotation system on which the Series E Preferred Stock
may be listed or admitted to trading or quoted, such notice shall set forth the
Redemption Price, the Redemption Date, the number of shares to be redeemed, the
portion of the Redemption Price, if any, which the Corporation has elected to
pay through the issuance of Class A Common Stock and the place which the shares
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Series E Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) DEPOSIT OF REDEMPTION PRICE. If notice of any
redemption by the Corporation pursuant to this paragraph 5 shall have been
given as provided in paragraph 5(b) above, and if on or before the Redemption
Date specified in such notice an amount in cash sufficient to redeem in full on
the Redemption Date at the Redemption Price all shares of Series E Preferred
Stock called for redemption shall have been set apart so as to be available for
such purpose and only for such purpose, then effective as of the close of
business on the Redemption Date, the shares of Series E Preferred Stock called
for redemption, notwithstanding that any certificate therefor shall not have
been surrendered for cancellation, shall no longer be deemed outstanding, and
the holders thereof shall cease to be stockholders with respect to such shares
and all rights with respect to such shares shall forthwith cease and terminate,
except the right of the holders thereof to receive the Redemption Price of such
shares, without interest, upon the surrender of certificates representing the
same.
(d) REDEMPTION BY ISSUANCE OF CLASS A COMMON STOCK.
Subject to compliance with the conditions contained in this paragraph 5(d), the
Corporation may elect to pay the Redemption Price (or designated portion
thereof) of the shares of Series E Preferred Stock called for redemption by
issuing to the holder thereof, in respect of his shares to be redeemed, a number
of shares of Class A Common Stock equal to the aggregate Redemption Price (or
designated portion thereof) of such shares divided by the Average Quoted Price
of a share of Class A Common Stock. No fractional shares of Class A Common
Stock or scrip shall be issued upon such redemption. As to any final fraction
of a share of Class A Common Stock that would otherwise be issuable to a holder
upon redemption of his shares of Series E Preferred Stock (determined on the
basis of the total number of such holder's shares of Series E Preferred Stock
in respect of which shares of Class A Common Stock are issuable), the
Corporation shall pay an amount in cash or by its check equal to the same
fraction of the Average Quoted Price of a share of Class A Common Stock.
The Corporation's right to elect to pay the Redemption Price (or
designated portion thereof) of the shares of Series E preferred Stock through
the issuance of shares of Class A
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Common Stock shall be conditioned upon: (i) the Corporation's having timely
given a Redemption Notice setting forth such election as provided in paragraph
5(b), (ii) the Corporation's having obtained and filed, on or before the
Redemption Date, at the office of the redemption agent for the Series E
Preferred Stock (or with the books of the Corporation if there is no redemption
agent) an Opinion of Counsel to the effect that (A) the shares of Class A
Common Stock to be issued upon such redemption have been duly authorized and,
when issued and delivered in payment of the Redemption Price (or designated
portion thereof) of the shares of Series E Preferred Stock to be redeemed, will
be validly issued, fully paid and non-assessable and free from preemptive
rights, (B) that the issuance and delivery of such shares of Class A Common
Stock upon such redemption of shares of Series E Preferred Stock will not
violate the laws of the state of incorporation of the Corporation and (C),
unless at the time the Redemption Notice is given all shares of the Series E
Preferred Stock are owned by one or more TCI Holders, that the issuance and
delivery of the shares of Class A Common Stock upon such redemption of shares
of Series E Preferred Stock is exempt from the resignation or qualification
requirements of the 1933 Act and applicable state securities laws or, if no
such exemption is available, that the shares of Class A Common Stock to be
issued have been duly registered or qualified under the 1933 Act and such
applicable state securities laws, and (iii) the Corporation's having filed, on
or before the Redemption Date, at the office of such redemption agent (or with
the books of the Corporation if there is no redemption agent), an Officers'
Certificate setting forth the number of shares of Class A Common Stock to be
issued in payment of the Redemption Price (or designated portion thereof) of
each share of Series E Preferred Stock and the method of determining the same
(consistent with the provisions hereof). If the foregoing conditions have not
been satisfied prior to or on the Redemption Date, the Redemption Price for the
shares of Series E Preferred Stock (or portion thereof designated to be paid
in Class A Common Stock) shall be paid in cash.
(e) STATUS OF REDEEMED SHARES. All shares of Series E
Preferred Stock redeemed, exchanged, purchased or otherwise acquired by the
Corporation shall be retired and shall be restored to the status of authorized
and unissued shares of Series Preferred Stock (and may be reissued as part of
another series of the preferred stock of the Corporation, but such shares shall
not be reissued as Series E Preferred Stock).
6. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends for all prior dividend periods on any Parity Stock which by the terms
of the instrument creating or evidencing such Parity Stock is entitled to the
payment of such cumulative dividends prior to the redemption, exchange,
purchase or other acquisition of the Series E Preferred Stock, and until full
cumulative dividends on such Parity Stock for all prior dividend periods are
paid, or declared and the consideration sufficient to pay the same in full is
set aside so as to be available for such purpose and no other purpose, neither
the Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose pursuant to
paragraph 5 hereof. a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock, of such Parity Stock
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and of any other class of series of Parity Stock that by the terms of the
instrument creating or evidencing such Parity Stock is required to be redeemed
under such circumstances are redeemed or exchanged pursuant to the terms hereof
and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside so as to be available for such purpose and no other purpose, neither the
Corporation nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series E Preferred Stock, Parity Stock or
Junior Stock, or set aside any money or assets for any such purpose, pursuant
to paragraph 5 hereof, a sinking fund or otherwise, unless all then outstanding
shares of Series E Preferred Stock and of any other class or series of Parity
Stock that by the terms of the instrument creating or evidencing such Parity
Stock is required to be redeemed under such circumstances are redeemed or
exchanged pursuant to the terms hereof and thereof.
If at any time the Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series E Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series E Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid,
or declared and the consideration sufficient to pay the same in full is set
aside for such purpose and no other purpose, the Corporation shall not declare
or pay any dividend on or make any distribution with respect to any Junior
Stock or Parity Stock or set aside any money or assets for any such purpose,
except that the Corporation may declare and pay a dividend on any Parity Stock
ranking on a parity basis with the Series E Preferred Stock with respect to
the right to receive dividend contemporaneously with the declaration and
payment of a dividend on the Series E Preferred Stock, provided that such
dividends are declared and paid pro rata so that the amount of dividends
declared and paid per share of the Series E Preferred Stock and such Parity
Stock shall in all cases bear to each other the same ratio that accumulated and
accrued and unpaid dividends per share on the Series E Preferred Stock and such
Parity Stock bear to each other.
If the Corporation shall fail to redeem on any date fixed for
redemption or exchange pursuant to paragraph 5 hereof any shares of Series E
Preferred Stock called for redemption on such date, and until such shares are
redeemed in full, the Corporation shall not redeem or exchange any Parity Stock
or Junior Stock or declare or pay any dividend on or make any distribution
with respect to any Junior Stock, or set aside any money or assets for any such
purpose, and neither the Corporation nor any Subsidiary thereof shall purchase
or otherwise acquire any Series E Preferred Stock, Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose.
Neither the Corporation nor any Subsidiary thereof shall
redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior
Stock, or set aside any money or assets
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for any such purpose, if after giving effect to such redemption, exchange,
purchase or other acquisition, the amount (as determined by the Board of
Directors in good faith) that would be available for distribution to the
holders of the Series E Preferred Stock upon liquidation, dissolution or
winding up of the Corporation if such liquidation, dissolution or winding up
were to occur on the date fixed for such redemption, exchange, purchase or
other acquisition of such Parity Stock or Junior Stock would be less than the
aggregate Liquidation Preference as of such date of all shares of Series E
Preferred Stock then outstanding.
Nothing contained in the first, fourth or fifth paragraph of
this paragraph 6 shall prevent (i) the payment of dividends on any Junior Stock
solely in shares of Junior Stock or the redemption, purchase or other
acquisition of Junior Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of the
first and fifth paragraphs hereof) through the application of the proceeds from
the sale of, shares of Junior Stock; or (ii) the payment of dividends on any
Parity Stock solely in shares of Parity Stock and/or Junior Stock or the
redemption, exchange, purchase or other acquisition of Series E Preferred Stock
or Parity Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first and fifth
paragraphs hereof) through the application of the proceeds from the sale of,
shares of Parity Stock and/or Junior Stock.
The provisions of the first paragraph of this paragraph 6 are
for the sole benefit of the holders of Series E Preferred Stock and Parity
Stock having the terms described therein and accordingly, at any time when
there are no shares of any such class or series of Parity Stock outstanding or
if the holders of each such class or series of Parity Stock have, by such vote
or consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series E Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series E Preferred Stock and
accordingly, if the holders of shares of Series E Preferred Stock shall have
waived (as provided in paragraph 9) in whole or in part the benefit of the
applicable provisions, either generally or in the specific instance, such
provision shall not (to the extent of such waiver, in the case of a partial
waiver) restrict the redemption, exchange, purchase or other acquisition of or
declaration, payment or making of any dividends or distributions on the Series
E Preferred Stock, any Parity Stock or any Junior Stock.
7. Conversion.
(a) Unless previously called for redemption as provided
in Section 5 hereof, shares of Series E Preferred Stock shall be convertible,
at the option of the holder thereof, at any time subsequent to the Amendment
Date in such manner and upon such terms and conditions as hereinafter provided
in this paragraph 7, into fully paid and non-assessable full shares of Class A
Common Stock. No shares of Class A Common Stock shall be issued in respect of
the conversion of the Series E Preferred Stock after the fifteenth Business
Day (the "Cut-off Date") preceding the date fixed for redemption; provided that
the conversion of Shares
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surrendered for conversion in accordance with paragraph 7 after the Cut-off
Date shall be given effect as of the date of such surrender if the Redemption
Price to be paid, or to be irrevocably set apart in trust for the benefit of
the holders of Shares to be so redeemed, has not been paid or so set apart on
or before such date fixed for redemption. In case cash, securities or property
other than Class A Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Class A Common Stock in
this paragraph 7 shall be deemed to apply, so far as appropriate and as nearly
as may be, to such cash, property or other securities.
(b) Subject to the provisions for adjustment hereinafter
set forth in this paragraph 7, the Series E Preferred Stock may be converted
into Class A Common Stock at the initial conversion rate of 1,000 fully paid
and non-assessable shares of Class A Common Stock for one share of the Series
E Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this paragraph is hereinafter
referred to as the "Conversion Rate").
(c) In case after the Issue Date the Corporation shall
(i) pay a dividend or make a distribution on its outstanding shares of Class A
Common Stock in shares of its capital block or capital stock of any Subsidiary,
(ii) subdivide the then outstanding shares of Class A Common Stock into a
greater number of shares of Class A Common Stock, (iii) combine the then
outstanding shares of Class A Common Stock into a smaller number of shares of
Class A Common Stock, or (iv) issue by reclassification of its shares of Class
A Common Stock any shares of any other class of capital stock of the
Corporation (including any such reclassification in connection with a merger in
which the Corporation is the continuing corporation), then the Conversation
Rate in effect immediately prior to the opening of business on the record date
for such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that the holder of each
share of the Series E Preferred Stock thereafter surrendered for conversion
shall be entitled to receive the number and kind of shares of capital stock of
the Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Series E Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this paragraph 7(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant to this paragraph 7(c)
for a subdivision, combination or classification shall become effective
immediately after the effective date of the subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any action
listed above shall be taken.
(d) In case the Corporation shall after the Issue Date
issue any rights or warrants to all holders of shares of Class A Common Stock
entitling them (for a period expiring within 45 days after the record date for
the determination of stockholders entitled to receive such rights or warrants)
to subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of paragraph 7(f) below) on such record date,
the number of shares of Class A
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Common Stock into which each Share shall thereafter be convertible shall be
determined by multiplying the number of shares of Class A Common Stock into
which such Share was theretofore convertible immediately prior to such record
date by a fraction of which the numerator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of
additional shares of Class A Common Stock offered for subscription or purchase
(or into which the Convertible Securities so offered are initially
convertible) and of which the denominator shall be the number of shares of
Class A Common Stock outstanding on such record date plus the number of shares
of Class A Common Stock which the aggregate offering price of the total number
of shares of Class A Common Stock so offered (or the aggregate initial
conversion or exercise price of the Convertible Securities so offered) would
purchase at the then current market price per share of Class A Common Stock (as
determined in accordance with the provisions of paragraph 7(f) below) on such
record date. Such adjustment shall be made successively whenever any such
rights or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Class A Common Stock
(or all of the Convertible Securities) subject to such rights or warrants have
not been issued when such rights or warrants expire (or, in the case of rights
or warrants to purchase Convertible Securities which have been exercised, all
of the shares of Class A Common Stock issuable upon conversion of such
Convertible Securities have not been issued prior to the expiration of the
conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such right or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case the Corporation shall distribute after the
Issue Date to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which the Corporation is the
continuing corporation, other than a merger to which paragraph 7(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since the Issue Date (determined without regard
to gains on the sale of significant capital assets) or capital stock in respect
of which an adjustment is made pursuant to paragraph 7(c) hereof) or rights or
warrants to purchase shares of Class A Common Stock or Class B Common Stock or
securities convertible into shares of Class A Common Stock or Class B Common
Stock (excluding those referred to in paragraph 7(d) above), then in each such
case the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined accordance with the provisions of paragraph 7(f) below) on
such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of the Corporation whose
determination shall be conclusive) of the portion of the securities, assets or
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evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under paragraph
7(d), (e) or (k), the current market price per share of Class A Common Stock at
any date shall be deemed to be the average of the daily closing prices for a
share of Class A Common Stock for the ten (10) consecutive trading days before
the day in question. The closing price for each day shall be the last reported
sale price regular way or, in case no such reported sale takes place on such
day, the average of the reported closing bid and asked prices regular way, in
either case on the composite tape, or if the shares of Class A Common Stock are
not quoted on the composite tape, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") on which the shares of Class A Common Stock are listed or
admitted to trading, or if they are not listed or admitted to trading on any
such exchange, the last reported sale price (or the average of the quoted
closing bid and asked prices if there were no reported sales) as reported by
the National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system, or if the Class A Common Stock is not
quoted on NASDAQ or any comparable system, the average of the closing bid and
asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(g) In case of any reclassification or change in the
Class A Common Stock (other than any reclassification or change referred to in
paragraph 7(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of
the Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
7(c) is applicable) in the outstanding Class A Common Stock), or in case of any
sale or transfer to another corporation or entity (other than by mortgage or
pledge) of all or substantially all of the properties and assets of the
Corporation, in any such case after the Issue Date, the Corporation (or its
successor in such consolidation or merger) or the purchaser of such properties
and assets shall make appropriate provision so that the holder of a Share shall
have the right thereafter to convert such Share into the kind and amount of
shares of stock and other securities and property that such holder would have
owned immediately after such reclassification, change, consolidation, merger,
sale or transfer if such holder had converted such Share into Class A Common
Stock immediately prior to the effective date of such reclassification, change,
consolidation, merger, sale or transfer (assuming for this purpose (to the
extent applicable) that such holder failed to exercise any, rights of election
and received per share of Class A Common Stock the kind and amount of shares of
stock and other securities and property received per share by a plurality of
the non-electing shares), and the holders of the Series E Preferred Stock shall
have no other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate of
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<PAGE> 75
Incorporation of the resulting or surviving corporation or otherwise or in any
contracts of sale or transfer, so that the provisions set forth herein for the
protection of the conversion rights of the Series E Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be to any such other
shares of stock and other securities and property deliverable upon conversion
of the Series E Preferred Stock remaining outstanding or other convertible
preferred stock or other Convertible Securities received by the holders of
Series E Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series E Preferred Stock
remaining outstanding or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion
privilege shall be adjusted as provided in paragraphs 7(c), (d), (e) or (g),
the Corporation shall promptly cause a notice to be mailed to the holders of
record of the Series E Preferred Stock describing the nature of the event
requiring such adjustment, the Conversion Rate in effect immediately thereafter
and the kind and amount of stock or other securities or property into which the
Series E Preferred Stock shall be convertible after such event. Where
appropriate, such notice may be given in advance and included as a part of a
notice required to be mailed under the provisions of paragraph 7(j).
(i) The Corporation may, but shall not be required to,
make any adjustment of the Conversion Rate if such adjustment would require an
increase or decrease of less than 1% in such Conversion Rate; provided however,
that any adjustments which by reason of this paragraph 7(i) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 7 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. In any case
in which this paragraph 7(i) shall require that an adjustment shall become
effective immediately after a record date for such event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any
shares of Series E Preferred Stock converted after such record date and before
the occurrence of such event the additional shares of Class A Common Stock or
other capital stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Class A Common Stock, or
other capital stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to paragraph 7(n); provided,
however, that, if requested by such holder, the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Class A Common Stock or other
capital stock, and such cash, upon the occurrence of the event requiring such
adjustment.
(j) In case at any time:
(i) the Corporation shall take any action which
would require an adjustment in the Conversion Rate pursuant to this
paragraph;
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(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of the Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any such event, the Corporation shall give written notice, in the
manner provided in paragraph 5 hereof, to the holders of the Series E Preferred
Stock at their respective addresses as the same appear on the books of the
Corporation, at least twenty days (or ten days in the case of a recommended
tender offer as specified in clause (ii) above) prior to any record date for
such action, dividend or distribution or the date as of which it is expected
that holders of Class A Common Stock of record shall be entitled to exchange
their shares of Class A Common Stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, transfer, lease, tender offer, dissolution, liquidation or winding up;
provided, however, that any notice required by any event described in clause
(ii) of this paragraph 7(j) shall be given in the manner and at the time that
such notice is given to the holders of Class A Common Stock. Without limiting
the obligations of the Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this paragraph 7(j) or
any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
(k) Before any holder of Series E Preferred Stock shall
be entitled to convert the same in Class A Common Stock, such holder shall
surrender the certificate or certificates for such Series E Preferred Stock at
the office of the Corporation or at the office of the transfer agent for the
Series E Preferred Stock, which certificate or certificates, if the Corporation
shall so request, shall be duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in blank
(such endorsements or instruments of transfer to be in form satisfactory to the
Corporation), and shall give written notice to the Corporation at said office
that such holder elects to convert all or a part of the Shares represented by
said certificate or certificates in accordance with the terms of this paragraph
7, and shall state in writing therein the name or names in which such holder
wishes the certificates for Class A Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such Series E Preferred Stock and the Corporation, whereby the holder of such
Series E Preferred Stock shall be deemed to subscribe for the amount of Class A
Common Stock which such holder shall be entitled to receive upon
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conversion of the number of shares of Series E Preferred Stock to be converted,
and, in satisfaction of such subscription, to deposit the shares of Series E
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Series E Preferred Stock to be
converted shall constitute full payment of such subscription for Class A Common
Stock to be issued upon such conversion. The Corporation will as soon as
practicable after such deposit of a certificate or certificates for Series E
Preferred Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of the Corporation or of said
transfer agent to the person for whose account such Series E Preferred Stock
was so surrendered, or to his nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
full shares of Class A Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided.
If surrendered certificates for Series E Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the aggregate of the unconverted Shares. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series E
Preferred Stock to be converted; and the person or persons entitled to receive
the Class A Common Stock issuable upon conversion of such Series E Preferred
Stock shall be treated for all purposes as the record holder or holders of such
Class A Common Stock on such date.
Upon the conversion of any Share, the Corporation shall pay,
to the holder of record of such Share on the immediately preceding Record Date,
all accrued but unpaid dividends on such Share to the date of the surrender of
such Share for conversion. Such payment shall be made in cash or, at the
election of the Corporation, the issuance of certificates representing such
number of shares of Class A Common Stock as have an aggregate current market
price (as determined in accordance with paragraph 7(f)) on the date of issuance
equal to the amount of such accrued but unpaid dividends. Upon the making of
such payment to the person entitled thereto as determined pursuant to the first
sentence of this paragraph, no further dividends shall accrue on such Share or
to be payable to any other person.
The issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Series E Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance, provided, however, if any such certificate is to be issued in a name
other than that of the registered holder of the share or shares of Series E
Preferred Stock converted, the person or persons requesting the issuance
thereof shall pay to the Corporation the amount of any tax which may be payable
in respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
The Corporation shall not be required to convert any shares of
Series E Preferred Stock, and no surrender of Series E Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Series E Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series E Preferred Stock was
surrendered.
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(l) Promptly following the Amendment Date the Corporation
shall reserve and keep available at all times thereafter, solely for the
purpose of issuance upon conversion of the outstanding shares of Series E
Preferred Stock, such number of shares of Class A Common Stock as shall be
issuable upon the conversion of all outstanding Shares, provided that nothing
contained herein shall be construed to preclude the Corporation from satisfying
its obligations in respect of the conversion of the outstanding shares of
Series E Preferred Stock by delivery of shares of Class A Common Stock which
are held in the treasury of the Corporation. Promptly following the Amendment
Date, the Corporation shall take all such corporate and other actions as from
time to time may be necessary to insure that all shares of Class A Common
Stock issuable upon conversion of shares of Series E Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Series E Preferred Stock received by
the Corporation upon conversion thereof into Class A Common Stock shall be
retired and shall be restored to status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of the Corporation), but such shares shall not be reissued as Series E
Preferred Stock
(n) The Corporation shall not be required to issue
fractional shares of Class A Common Stock or scrip upon conversion of the
Series E Preferred Stock. As to any final fraction of a share of Class A Common
Stock which a holder of one or more Shares would otherwise be entitled to
receive upon conversion of such Shares in the same transaction, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount
equal to the same fraction of the market value of a full share of Class A
Common Stock. For purposes of this paragraph 7(n), the market value of a share
of Class A Common Stock shall be the last reported sale price regular way on
the business day immediately preceding the date of conversion, or, in case no
such reported sale takes place on such day, the average of the reported closing
bid and asked prices regular way on such day, in either case on the composite
tape, or if the shares of Class A Common Stock are not quoted on the composite
tape, on the principal United States securities exchange registered under the
Exchange Act on which the shares of Class A Common Stock are listed or admitted
to trading, or if the shares of Class A Common Stock are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average of
the quoted last reported bid and asked prices if there were no reported sales)
as reported by NASDAQ or any comparable system, or if the Class A Common Stock
is not quoted on NASDAQ or any comparable system, the average of the closing
bid and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Corporation for that
purpose or, in the absence of such quotations, such other method of determining
market value as the Board of Directors shall from time to time deem to be fair.
(o) If any shares of Class A Common Stock which would be
issuable upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion, the
Corporation will in good faith and as expeditiously as possible cause such
shares to be duly registered or approved, as the case may be. The Corporation
will endeavor to list the shares of Class A Common Stock required to be
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<PAGE> 79
delivered upon conversion of Shares prior to such delivery upon the principal
national securities exchange upon which the outstanding, Class A Common Stock
is listed at the time of such delivery.
8. Voting
(a) VOTING RIGHTS. The holders of Series E Preferred
Stock shall have no voting rights whatsoever, except as required by law and
except for the voting rights described in this paragraph 8; provided, however,
that the number of authorized shares of Series E Preferred Stock may be
increased or decreased (but not below the number of shares of Series E
Preferred Stock then outstanding) by the affirmative vote of the holders of
at least 66 2/3 of the total voting power of the then outstanding Voting
Securities (as defined in Article V, Section C of the Corporation's Restated
Certificate of Incorporation), voting together as a single class as provided in
Article IX of the Certificate. Without limiting the generality of the
foregoing, no vote or consent of the holders of Series E Preferred Stock shall
be required for (a) the creation of any indebtedness of any kind of the
Corporation (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Series E Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Series E Preferred Stock (but not below the number of shares of
Preferred Stock or Series E Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Series E
Preferred Stock shall have the right to vote at any annual or special meeting
of stockholders for the purpose of electing directors. Each share of Series E
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with any other class or series of capital stock of the Corporation
entitled to vote in any general election of directors, unless the instrument
creating or evidencing such class or series of capital stock otherwise
expressly provides.
9. Waiver.
Any provision which for the benefit of the holders of Series
E Preferred Stock, prohibits, limits or restricts actions by the Corporation,
or imposes obligations on the Corporation, may be waived in whole or in part,
or the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent of the
holders of at least a majority of the number of shares of Series E Preferred
Stock then outstanding (or such greater percentage thereof as may be required
by applicable law or any applicable rules of any national securities exchange
or national interdealer quotation system), either in writing or by vote at an
annual meeting or a meeting called for such purpose at which the holders of
Series E Preferred Stock shall vote as a separate class.
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<PAGE> 80
10. Method of Giving Notices.
Any notice required or permitted hereby to be given to the
holders of shares of Series E Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation or supplied by him in writing to the Corporation for the purpose
of such notice.
11. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Series E Preferred Stock, the shares of Series E Preferred Stock shall not have
any designations, preferences, limitations or relative rights other than those
specifically set forth herein.
12. Heading of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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<PAGE> 81
FURTHER RESOLVED, that the appropriate officers of the Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, duly authorized officer has
executed this certificate on this 11 day of October, 1994.
/s/ Larry Romrell
Name: Larry Romrell
Title: Executive Vice President
Attest: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Secretary
<PAGE> 82
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF OCTOBER, A.D. 1994, AT 8:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[Seal]
/s/ Edward J. Freel
Edward J. Freel, Secretary of State
AUTHENTICATION: 7278574
DATE: 10-24-94
<PAGE> 83
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 08:30 AM 10/24/1994
944202081 - 2371729
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to a
CERTIFICATE OF DESIGNATION
of
TELE-COMMUNICATIONS, INC.
Whereas, on October 11, 1994, Tele-Communications, Inc. (the
"Corporation") filed with the Delaware Secretary of State a Certificate of
Designation (the "Certificate of Designation") authorizing the issuance of a
series of preferred stock of the Corporation designated "Redeemable Convertible
Preferred Stock, Series E;"
Whereas, such Certificate of Designation inaccurately stated
that the par value of the Redeemable Convertible Preferred Stock, Series E, is
$1.00 per share, when in fact the par value of the Redeemable Convertible
Preferred Stock, Series E, is $.01 per share;
Therefore, the Certificate of Designation is hereby corrected
in accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
1. The words "par value $1.00 per share" shall be
deleted from paragraph number 1 of the Certificate of Designation and the words
"par value $.01 per share" shall be substituted in their place.
Executed on the date set forth below by the undersigned duly
authorized officer of the Corporation.
Date: October 21, 1994 Signature: /s/ Stephen M. Brett
Name: Stephen M. Brett
Title: Executive President
and General Counsel
<PAGE> 84
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
-------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF JANUARY, A.D. 1995, AT 10:55 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
Edward J. Freel, SECRETARY OF STATE
AUTHENTICATION: 7387640
DATE: 01-26-95
<PAGE> 85
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED lO:55 AM 01/26/1995
950019173 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
--------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE PREFERRED STOCK,
SERIES D" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned Executive Vice President of Tele-Communications, Inc.,
a Delaware corporation (the "Corporation"), hereby certifies that the Board of
Directors duly adopted the following resolutions creating a series of preferred
stock designated as "Convertible Preferred Stock, Series D":
"BE IT RESOLVED, that, pursuant to authority expressly granted by the
provisions of the Restated Certificate of Incorporation of this Corporation,
the Board of Directors hereby creates and authorizes the issuance of a series
of preferred stock, par value $.01 per share, of this Corporation, to consist
of 1,000,000 shares, and hereby fixes the designations, dividend rights, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
designations, preferences and relative, participating, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred stock,
par value $.01 per share, of this Corporation authorized hereby is "Convertible
Preferred Stock, Series D" (the "Convertible Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined this Section 2 shall have the meanings herein specified:
Affiliate: As to any person or, entity, any other person or entity
which. directly or indirectly, controls, or is under common control with, or is
controlled by, such person or entity. As
<PAGE> 86
used in this definition, "control" (including, with its correlative meanings,
"controlling," "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies of a Person (whether through the ownership
of securities, or partnership or other ownership interest, by contract or
otherwise).
Board of Directors: The Board of Directors of this Corporation and any
authorized committee thereof.
Business Day: Any day other than a Saturday, Sunday, or holiday in
which banking institutions in Denver, Colorado, are closed for business.
Capital Stock: Any and all shares, interests, participations or other
equivalents (however designated) of corporate stock of this Corporation.
Class A Common Stock: The Class A Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class A
Common Stock may thereafter have been changed.
Class B Common Stock: The Class B Common Stock, par value $1.00 per
share, of this Corporation as such exists on the date of this Certificate of
Designation, and Capital Stock of any other class into which such Class B
Common Stock may thereafter have been changed.
Class B Preferred Stock: The Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share of the
Corporation.
Class C Preferred Stock: The Convertible Preferred Stock, Series C,
par value $.01 per share, of the Corporation.
Class E Preferred Stock: The Convertible Preferred Stock, Series E,
par value $.01 per share, of the Corporation.
Common Stock: The Class A Common Stock. Class B Common Stock and any
other class of Capital Stock of this Corporation designated as Common Stock.
Conversion Rate: As defined in Section 5(b).
Convertible Securities: Securities, other than the Class B Common
Stock, that are convertible into or exchangeable for Class A Common Stock.
Debt Instrument: Any bond, debenture, note, indenture, guarantee or
other instrument or agreement evidencing any Indebtedness of this Corporation,
whether existing at the Issue Date or thereafter created, incurred, assumed or
guaranteed.
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<PAGE> 87
Dividend Payment Date: As defined in Section 3(b).
Dividend Period: The period from but excluding the First Accrual Date
to and including the first Dividend Payment Date and each six-month period from
but excluding the Dividend Payment Date for the preceding Dividend Period to
and including the Dividend Payment Date for such Dividend Period.
Exchange Option. As defined in Section 7(a).
Expiration Date. As defined in Section 7(d).
First Accrual Date: The Issue Date.
Indebtedness: Any (i) liability, contingent or otherwise, of this
Corporation (x) for borrowed money whether or not the recourse of the lender is
to the whole of the assets of this Corporation or only to a portion thereof),
(y) evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given other than in connection with the acquisition of
inventory or similar property in the ordinary course of business, or (z) for
the payment of money relating to an obligation under a lease that is required
to be capitalized for financial accounting purposes in accordance with
generally accepted accounting principles; (ii) liability of others described in
the preceeding clause (i) which this Corporation has guaranteed or which is
otherwise its legal liability; (iii) obligations secured by a mortgage, pledge,
lien, charge or other encumbrance to which the property or assets of this
Corporation are subject whether or not the obligations secured thereby shall
have been assumed by or shall otherwise be this Corporation's legal liability;
and (iv) any amendment, renewal, extension or refunding of any liability of the
types referred to in clauses (i), (il) and (iii) above.
Issue Date: The first date on which any shares of the Convertible
Preferred Stock are first issued or deemed to have been issued.
Junior Securities: All shares of Common Stock, Class B Preferred Stock
and any other class or series of stock of this Corporation not entitled to
receive any dividends unless all dividends required to have been paid or
declared and set apart for payment on the Convertible Preferred Stock shall
have been so paid or declared and set apart for payment and, for purposes of
Section 4 hereof, any class or series of stock of this Corporation not entitled
to receive any assets upon liquidation, dissolution or winding up of the
affairs of this Corporation until the Convertible Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
Liquidation Value: Measured per Share of the Convertible Preferred
Stock as of any particular date, the sum of (i) S300 plus (ii) an amount equal
to all dividends accrued on such Share through the Dividend Payment Date
immediately preceding the date on which the Liquidation Value is being
determined, which pursuant to Section 3(c) or (d) have been added to and remain
a part of
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<PAGE> 88
the Liquidation Value as of such date, plus (iii), for purposes of determining
amounts payable pursuant to Sections 4 and 6 hereof, an amount equal to all
unpaid dividends accrued on the sum of the amounts specified in clauses (i) and
(ii) above to the date as of which the Liquidation Value is being determined.
Merger Agreement: The Agreement and Plan of Merger, dated as of August
8, 1994 among this Corporation, TCI Communications, Inc. and TeleCable
Corporation.
Mirror Preferred Stock. As defined in Section 7(c).
Option Notice. As defined in Section 7(d).
Parity Securities: Any class or series of stock of this Corporation
entitled to receive payment of dividends on a parity with the Convertible
Preferred Stock or entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Convertible
Preferred Stock. The Class A Preferred Stock, the Class C Preferred Stock and
Class E Preferred Stock rank on a parity basis with the Convertible Preferred
Stock.
Record Date: For dividends payable on any Dividend Payment Date, the
fifteenth day of the month preceding the month during which such Dividend
Payment Date shall occur.
Redemption Date: As to any Share, the date fixed for redemption of
such Share as specified in the notice of redemption given in accordance with
Section 6(d), provided that no such date will be a Redemption Date unless the
applicable Redemption Price is actually paid on such date or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so irrevocably set apart in trust for the
benefit of the holders of Shares to be redeemed, then the Redemption Date will
be the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been
irrevocably set apart in trust for the benefit of the holders of Shares to be
redeemed; and provided, further that for purposes of Section 6(c) hereof, the
date fixed for redemption of Shares which are required to be redeemed pursuant
to such Section shall be the Business Day which is 20 Business Days after the
date this Corporation receives the notice referred to in such Section from the
holder of Shares therein specified.
Redemption Price: As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Value as in effect on such Redemption Date;
provided, however, that for purposes of Section 5(p) hereof (but not Section
5(a) as it may refer to Section 5(p)) and this definition, the date otherwise
fixed for redemption of such Shares shall be deemed the Redemption Date in
respect of such Shares.
Rights. As defined in Section 7(a).
4
<PAGE> 89
Senior Securities: Any class or series of stock of this Corporation
ranking senior to the Convertible Preferred Stock in respect of the right to
receive payment of dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of the affairs of this Corporation.
Share: As defined in Section 3(a).
Special Liquidation Value: In respect of any Dividend Payment Date and
Shares, all accrued dividends not paid or irrevocably set apart in trust for
the benefit of the holders of Shares on or before such date.
Special Securities: Capital Stock (other than Class A Common Stock or
Class B Common Stock) of this Corporation or a Subsidiary thereof which (a) is
common stock of the issuer thereof or (b) participates in one or more business
operations of the issuer thereof in such a manner that if such operations were
owned by a corporation and such Capital Stock were issued thereby such Capital
Stock would be common stock of such corporation.
Special Record Date: As defined in Section 3(c).
Subsidiary: With respect to any person or entity, any corporation or
partnership more than 50% of whose outstanding voting securities or partnership
interests, as the case may be, are directly or indirectly owned by such person
or entity.
Successor Interest: As defined in Section S(g).
3. Dividends.
(a) Subject to the rights of any Parity Securities with respect to
dividends, the holders of the Convertible Preferred Stock shall be entitled to
receive, and, subject to any prohibition or restriction contained in any Debt
Instrument, this Corporation shall be obligated to pay, but only out of funds
legally available therefor, preferential cumulative cash dividends which shall
accrue as provided herein. Except as otherwise provided in Sections 3(c) or
3(d) hereof, dividends on each share of Convertible Preferred Stock
(hereinafter referred to as a "Share") shall accrue on a daily basis at the
rate of 51/2% per annum of the Liquidation Value to and including the date of
conversion thereof pursuant to Section 5 or the date on which the Liquidation
Value or Redemption Price of such Share is made available pursuant to Section 4
or 6 hereof, respectively. Dividends on the Convertible Preferred Stock shall
accrue as provided herein, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally or contractually available for the payment of dividends and regardless
of the provisions of any Parity Securities or Debt Instrument.
(b) Accrued dividends on the Convertible Preferred Stock shall be
payable semiannually on the first day of each January and July or the
immediately succeeding Business Day.
5
<PAGE> 90
if such first day is not a Business Day (each such payment date being
hereinafter referred to as a "Dividend Payment Date"), commencing on July I,
1995 to the holders of record of the Convertible Preferred Stock as of the
close of business on the applicable Record Date. For purposes of determining
the amount of dividends "accrued" as of any date that is not a Dividend Payment
Date, such amount shall be calculated on the basis of the rate per annum
specified in Section 3(a) for actual days elapsed from but excluding the First
Accrual Date (in the case of any date prior to the first Dividend Payment Date)
or the last preceding Dividend Payment Date in respect of which dividends were
fully paid or irrevocably set apart in trust for the benefit of the holders of
Shares (or shares of Class A Common Stock were issued in respect of the Special
Liquidation Value as provided in Section 5(o) hereof), in the case of any other
date, to and including the date as of which such determination is to be made,
based on a 365-day year.
(c) If on any Dividend Payment Date this Corporation pursuant to
applicable law or the terms of any Debt Instrument shall be prohibited or
restricted from paying in cash the full dividends to which holders of the
Convertible Preferred Stock and any Parity Securities shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
restricted by the terms of any Debt Instrument shall be distributed among the
holders of the Convertible Preferred Stock and such Parity Securities ratably
in proportion to the full amounts to which they would otherwise be entitled
except for the issuance of the Class A Common Stock issued in respect of the
partial conversion of Shares pursuant to Section 5(o) hereof. To the extent not
paid on each Dividend Payment Date, all dividends which have accrued on each
Share during the Dividend Period ending on such Dividend Payment Date will be
added cumulatively to the Liquidation Value of such Share and will remain a
part thereof until such dividends are paid. In the event that dividends are
not paid in full on two consecutive Dividend Payment Dates, dividends on that
portion of the Liquidation Value of each Share which consists of accrued
dividends that have theretofore been or thereafter are added to, and remain a
part of, the Liquidation Value in accordance with the preceding sentence shall
accrue cumulatively on a daily basis at the rate of ten percent (10%) per
annum, from and after such second consecutive Dividend Payment Date to and
including the date of conversion of such Share pursuant to Section 5 or the
date on which the Liquidation Value or Redemption Price of such Share is made
available pursuant to Section 4 or 6 hereof, respectively, unless such portion
of the Liquidation Value that consists of accrued unpaid dividends shall be
earlier paid in full. Such portion of the Liquidation Value as consists of
accrued unpaid dividends, may be declared and paid at any time on any Business
Day without reference to any regular Dividend Payment Date, to holders of
record as of the close of business on such date, not more than 50 days nor less
than 10 days preceding the payment date thereof, as may be fixed by the Board
of Directors of this Corporation (the "Special Record Date").
(d) In the event that on any date fixed for redemption of Shares
pursuant to Section 6 this Corporation shall fail to pay the Redemption Price
due and payable upon presentation and surrender of the stock certificates
evidencing Shares to be redeemed, then dividends on such Shares shall accrue
cumulatively on a daily basis at the rate of ten percent (10%) per annum of the
Liquidation Value thereof from and after such date fixed for redemption to and
including the date
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<PAGE> 91
of conversion of such Shares pursuant to Section 5 or the date on which the
Liquidation Value or Redemption Price of such Shares is made available pursuant
to Section 4 or 6 hereof, respectively.
(e) Notice of each Special Record Date shall be mailed, in the
manner provided in Section 6(d), to the holders of record of the Convertible
Preferred Stock not less than 15 days prior thereto.
(f) As long as any Convertible Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Security, nor
shall any shares of any Junior Security be purchased, redeemed, or otherwise
acquired for value by this Corporation, unless the holders of the Convertible
Preferred Stock shall have received all dividends to which they are entitled
pursuant to Section 3(a) hereof for all the Dividend Periods preceding the date
on which such dividend on the Junior Securities is to occur, or such dividends
shall have been declared and the consideration sufficient for the payment
thereof irrevocably set apart in trust for the benefit of the holders of Shares
so as to be available for the payment in full thereof and for no other purpose.
The provisions of this Section 3(f) shall not apply (i) to a dividend payable
in any junior Security, or (ii) to the repurchase, redemption or other
acquisition of shares of any Junior Security solely through the issuance of
Junior Securities (together with a cash adjustment for fractional shares, if
any) or through the application of the proceeds from the sale of Junior
Securities. This Corporation shall not permit a Subsidiary thereof to take any
action which this Corporation is prohibited by this Section 3(f) from taking.
4. Liquidation. Upon any liquidation, dissolution or winding up of
this Corporation, whether voluntary or involuntary, the holders of Convertible
Preferred Stock shall be entitled to be paid an amount in cash equal to the
aggregate Liquidation Value at the date fixed for liquidation of all Shares
outstanding before any distribution or payment is made upon any Junior
Securities, which payment shall be made pari passu with any such payment made
to the holders of any Parity Securities. The holders of Convertible Preferred
Stock shall be entitled to no other or further distribution of or participation
in any remaining assets of this Corporation after receiving the Liquidation
Value per Share. If upon such liquidation, dissolution or winding up, the
assets of this Corporation to be distributed among the holders of Convertible
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Convertible Preferred
Stock and such Parity Securities would otherwise respectively be entitled. Upon
any such liquidation, dissolution or winding up, after the holders of
Convertible Preferred Stock and Parity Securities have been paid in full the
amounts to which they are entitled, the remaining assets of this Corporation
may be distributed to holders of Junior Securities. This Corporation shall mail
written notice of such liquidation, dissolution or winding up to each record
holder of Convertible Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this
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<PAGE> 92
Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of this Corporation within the meaning
of this Section 4.
5. Conversion.
(a) Unless previously called for, or otherwise subject to,
redemption as provided in Section 6 hereof, the Convertible Preferred Stock may
be converted at any time or from time to time, in such manner and upon such
terms and conditions as hereinafter provided in this Section 5 into fully paid
and non-assessable full shares of Class A Common Stock. No Share of Class A
Common Stock shall be issued in respect of the conversion of the Convertible
Preferred Stock (other than pursuant to Section 5(o) or 5(p) hereof) after the
fifteenth Business Day (the "Cut-off Date") preceding the date fixed for
redemption; provided that the conversion of Shares surrendered for conversion
in accordance with Section 5 after the Cut-off Date shall be given effect as of
the date of such surrender if the Redemption Price to be paid, or to be
irrevocably set apart in trust for the benefit of the holders of Shares to be
so redeemed, has not been paid or so set apart on or before such date fixed for
redemption. In case cash, securities or property other than Class A Common
Stock shall be payable, deliverable or issuable upon conversion as provided
herein, then all references to Class A Common Stock in this Section 5 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for adjustment hereinafter set forth
in this Section 5, the Convertible Preferred Stock may be converted into Class
A Common Stock at the initial conversion rate of 10 fully paid and
non-assessable shares of Class A Common Stock for one share of the Convertible
Preferred Stock. (This conversion rate as from time to time adjusted
cumulatively pursuant to the provisions of this Section is hereinafter referred
to as the "Conversion Rate").
(c) In case after August 8, 1994 this Corporation shall (i) pay a
dividend or make a distribution on its outstanding shares of Class A Common
Stock in shares of its Capital Stock or capital stock of any Subsidiary, (ii)
subdivide the then outstanding shares of Class A Common Stock into a greater
number of shares of Class A Common Stock, (iii) combine the then outstanding
shares of Class A Common Stock into a smaller number of shares of Class A
Common Stock, or (iv) issue by reclassification of its shares of Class A Common
Stock any shares of any other class of Capital Stock of this Corporation
(including any such reclassification in connection with a merger in which this
Corporation is the continuing corporation), then the Conversion Rate in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that the holder of each share of the
Convertible Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number and kind of shares of Capital Stock of this
Corporation (or capital stock of a Subsidiary) that such holder would have
owned or been entitled to receive immediately following such action had such
shares of Convertible Preferred Stock been converted immediately prior to such
time. An adjustment made pursuant to this Section 5(c) for a dividend or
distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant
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to this Section 5(c) for a subdivision, combination or reclassification shall
become effective immediately after the effective date of the subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any action listed above shall be taken.
(d) In case this Corporation shall after August 8, 1994 issue any
rights or warrants to all holders of shares of Class A Common Stock entitling
them (for a period expiring within 45 days after the record date for the
determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Class A Common Stock (or Convertible
Securities) at a price per share of Class A Common Stock (or having an initial
exercise price or conversion price per share of Class A Common Stock) less than
the then current market price per share of Class A Common Stock (as determined
in accordance with the provisions of Section 5(f) below) on such record date,
the number of shares of Class A Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to such record date by a fraction of which the
numerator shall be the number of shares of Class A Common Stock outstanding on
such record date plus the number of additional shares of Class A Common Stock
offered for subscription or purchase (or into which the Convertible Securities
so offered are initially convertible) and of which the denominator shall be the
number of shares of Class A Common Stock outstanding on such record date plus
the number of shares of Class A Common Stock which the aggregate offering price
of the total number of shares of Class A Common Stock so offered (or the
aggregate initial conversion or exercise price of the Convertible Securities so
offered) would purchase at the then current market price per share of Class A
Common Stock (as determined in accordance with the provisions of Section 5(f)
below) on such record date. Such adjustment shall be made successively whenever
any such rights or warrants are issued and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. In the event that all of the shares of Class A Common
Stock (or all of the Convertible Securities) subject to such rights or warrants
have not been issued when such rights or warrants expire (or, in the case of
rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Class A Common Stock issuable upon conversion
of such Convertible Securities have not been issued prior to the expiration of
the conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Class A Common Stock (or Convertible
Securities) issued upon the exercise of such rights or warrants (or the
conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Class A Common Stock issued upon the
conversion of any Share prior to the date such subsequent adjustment is made.
(e) In case this Corporation shall distribute after August 8, 1994
to all holders of shares of Class A Common Stock (including any such
distribution made in connection with a merger in which this Corporation is the
continuing corporation, other than a merger to which Section 5(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends out of earnings since July 1, 1994 (determined without regard to
gains on the sale of significant capital assets) or Capital Stock in respect of
which an adjustment is made pursuant to Section 5(c) hereof)
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<PAGE> 94
or rights or warrants to purchase shares of Class A Common Stock or Class B
Common Stock or securities convertible into shares of Class A Common Stock or
Class B Common Stock (excluding those referred to in Section 5(d) above), then
in each such case the number of shares of Class A Common Stock into which each
Share shall thereafter be convertible shall be determined by multiplying the
number of shares of Class A Common Stock into which such Share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Class A Common
Stock (as determined in accordance with the provisions of Section 5(f) below)
on such record date and of which the denominator shall be such current market
price per share of Class A Common Stock less the fair market value on such
record date (as determined by the Board of Directors of this Corporation, whose
determination shall be conclusive) of the portion of the securities, assets or
evidences of indebtedness or rights and warrants so to be distributed
applicable to one share of Class A Common Stock. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) For the purpose of any computation under Section 5(d), (e),
(k), (o) or (p) or Section 7, the current market price per share of Class A
Common Stock at any date shall be deemed to be the average of the daily closing
prices for a share of Class A Common Stock for the ten (10) consecutive
trading days before the day in question. The closing price for each day shall
be the last reported sale price regular way or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices regular way, in either case on the composite tape, or if the shares of
Class A Common Stock are not quoted on the composite tape, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), on which the shares of Class A Common
Stock are listed or admitted to trading, or if they are not listed or admitted
to trading on any such exchange, the last reported sale price (or the average
of the quoted closing bid and asked prices if there were no reported sales) as
reported by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(g) In case of any reclassification or change in the Class A
Common Stock (other than any reclassification or change referred to in Section
5(c) and other than a change in par value) or in case of any consolidation of
this Corporation with any other corporation or any merger of this Corporation
into another corporation or of another corporation into this Corporation (other
than a merger in which this Corporation is the continuing corporation and which
does not result in any reclassificaiion or change (other than a change in par
value or any reclassification or change to which Section 5(c) is applicable) in
the outstanding Class A Common Stock), or in case of any sale or transfer to
another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, in any
such case after August 8, 1994, this
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Corporation (or its successor in such consolidation or merger) or the purchaser
of such properties and assets shall make appropriate provision so that the
holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of shares of stock and other securities and property (a
"Successor Interest") that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such
holder had converted such Share into Class A Common Stock immediately prior to
the effective date of such reclassification, change, consolidation, merger,
sale or transfer (assuming for this purpose (to the extent applicable) that
such holder failed to exercise any rights of election and received per share of
Class A Common Stock the kind and amount of shares of stock and other
securities and property received per share by a plurality of the non-electing
shares), and the holders of the Convertible Preferred Stock shall have no other
conversion rights under these provisions (other than pursuant to Section 5(o)
or 5(p) hereof, provided that upon any conversion effected pursuant to Section
5(o) or 5(p) after any event to which this Section 5(g) is applicable,
references in Section 5(o) and 5(o) to Class A Common Stock shall be deemed to
be references to Successor Interests); provided, that effective provision shall
be made, in the Articles or Certificate of Incorporation of the resulting or
surviving corporation or otherwise or in any contracts of sale or transfer, so
that the provisions set forth herein for the protection of the conversion
rights of the Convertible Preferred Stock shall thereafter be made applicable,
as nearly as reasonably may be to any such other shares of stock and other
securities and property deliverable upon conversion of the Convertible
Preferred Stock remaining outstanding or other convertible preferred stock or
other Convertible Securities received by the holders of Convertible Preferred
Stock in place thereof; and provided, further, that any such resulting or
surviving corporation or purchaser shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such shares, securities
or property as the holders of the Convertible Preferred Stock remaining
outstanding, or other convertible preferred stock or other convertible
securities received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make provisions for the
protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege shall
be adjusted as provided in Sections 5(c), (d), (e) or (g), this Corporation
shall promptly cause a notice to be mailed to the holders of record of the
Convertible Preferred Stock describing the nature of the event requiring such
adjustment, the Conversion Rate in effect immediately thereafter and the kind
and amount of stock or other securities or property into which the Convcrtible
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to
be mailed under the provisions of Section 5(j).
(i) This Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that
any adjustments which by reason of this Section 5(i) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of share, as the case may be. In any case in which
this Section 5(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation
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<PAGE> 96
may defer until the occurrence of such event (x) issuing to the holder of any
shares of Convertible Preferred Stock converted after such record date and
before the occurrence of such event the additional shares of Class A Common
Stock or other Capital Stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of Class A Common
Stock, or other Capital Stock issuable upon such conversion before giving
effect to such adjustment and (y) paying to such holder cash in lieu of any
fractional interest to which such holder is entitled pursuant to Section 5(n);
provided, however, that, if requested by such holder, this Corporation shall
deliver to such holder a due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares of Class A Common Stock
or other Capita] Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
(j) In case at any time:
(i) this Corporation shall take any action which would
require an adjustment in the Conversion Rate pursuant to this Section;
(ii) there shall be any capital reorganization or
reclassification of the Class A Common Stock (other than a change in
par value), or any consolidation or merger to which the Corporation is
a party and for which approval of any shareholders of this Corporation
is required, or any sale, transfer or lease of all or substantially
all of the properties and assets of the Corporation, or a tender offer
for shares of Class A Common Stock representing, together with any
shares of Class B Common Stock tendered for in such tender offer, at
least a majority of the total voting power represented by the
outstanding shares of Class A Common Stock and Class B Common Stock
which has been recommended by the Board of Directors as being in the
best interests of the holders of Class A Common Stock; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of this Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in Section 6(d) hereof, to the holders of the Convertible
Preferred Stock at their respective addresses as the same appear on the books
of the Corporation, at least twenty days (or ten days in the case of a
recommended tender offer as specified in clause (ii) above) prior to any record
date for such action, dividend or distribution or the date as of which it is
expected that holders of Class A Common Stock of record shall be entitled to
exchange their shares of Class A Common Stock for securities or other property,
if any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, tender offer, dissolution, liquidation or
winding up; provided, however, that any notice required by any event described
in clause (ii) of this Section 5(j) shall be given in the manner and at the
time that such notice is given to the holders of Class A Common Stock. Without
limiting
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<PAGE> 97
the obligations of this Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this Section 5(j) or any
defect therein shall not affect the legality or validity of any such corporate
action of the Corporation or the vote upon such action.
(k) Before any holder of Convertible Preferred Stock shall be
entitled to convert the same into Class A Common Stock (other than pursuant to
Section 5(o) hereof but including pursuant to Section 5(p) hereof), such holder
shall surrender the certificate or certificates for such Convertible Preferred
Stock at the office of this Corporation or at the office of the transfer agent
for the Convertible Preferred Stock, which certificate or certificates, if this
Corporation shall so request, shall be duly endorsed to this Corporation or in
blank or accompanied by proper instruments of transfer to this Corporation or
in blank (such endorsements or instruments of transfer to be in form
satisfactory to this Corporation), and shall give written notice to this
Corporation at said office that such holder elects to convert all or a part of
the Shares represented by said certificate or certificates in accordance with
the terms of this Section 5 (and in the case of a conversion pursuant to
Section 5(p) hereof, specifying that such conversion is made pursuant to
Section 5(p) hereof), and shall state in writing therein the name or names in
which such holder wishes the certificates for Class A Common Stock to be
issued. Every such notice of election to convert shall constitute a contract
between the holder of such Convertible Preferred Stock and this Corporation,
whereby the holder of such Convertible Preferred Stock shall be deemed to
subscribe for the amount of Class A Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Convertible
Preferred Stock to be converted, and, in satisfaction of such subscription, to
deposit the shares of Convertible Preferred Stock to be converted, and thereby
this Corporation shall be deemed to agree that the surrender of the shares of
Convertible Preferred Stock to be converted shall constitute full payment of
such subscription for Class A Common Stock to be issued upon such conversion.
This Corporation will as soon as practicable after such deposit of a
certificate or certificates for Convertible Preferred Stock, accompanied by the
written notice and the statement above prescribed, or on the Dividend Payment
Date described in Section 5(o) hereof as contemplated in such Section, issue and
deliver at the office of this Corporation or of said transfer agent to the
person for whose account such Convertible Preferred Stock was so surrendered,
or to his nominee(s) or, subject to compliance with applicable law,
transferee(s), or the holders of Convertible Preferred Stock on the Record Date
in respect of the Dividend Payment Date described in Section 5(o) hereof, a
certificate or certificates for the number of full shares of Class A Common
Stock to which such holder shall be entitled, together with cash in lieu of any
fraction of a share as hereinafter provided. If surrendered certificates for
Convertible Preferred Stock are converted only in part, this Corporation will
issue and deliver to the holder, or to his nominee(s), without charge therefor,
a new certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made as of the date of
such surrender of the Convertible Preferred Stock to be converted or on such
Dividend Payment Date described in Section 5(o) hereof, as the case may be; and
the person or persons entitled to receive the Class A Common Stock issuable
upon conversion of such Convertible Preferred Stock shall be treated for all
purposes as the record holder or holders of such Class A Common Stock on such
date.
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<PAGE> 98
Upon the conversion of any Share (other than pursuant to Section 5(o)
or 5(p) hereof), this Corporation shall pay, to the holder of record of such
Share on the immediately preceding Record Date, if such date is after the most
recent Dividend Payment Date, or otherwise to the holder of record of such
Share as of the date of conversion, all accrued but unpaid dividends on such
Share to the date of the surrender of such Share for conversion. Such payment
shall be made in cash or, at the election of this Corporation, the issuance of
certificates representing such number of shares of Class A Common Stock as have
an aggregate current market price (as determined in accordance with Section
5(f)) on the date of issuance equal to the amount of such accrued but unpaid
dividends. Upon the making of such payment to the person entitled thereto as
determined pursuant to the first sentence of this paragraph, no further
dividends shall accrue on such Share or be payable to any other person.
The issuance of certificates for shares of Class A Common Stock upon
conversion of shares of Convertible Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance,
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the share or shares of Converuble Preferred
Stock converted, the person or persons requesting the issuance thereof shall
pay to this Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
Except for conversion pursuant to Section 5(o) or 5(p) hereof, this
Corporation shall not be required to convert any shares of Convertible
Preferred Stock, and no surrender of Convertible Preferred Stock shall be
effective for that purpose, while the stock transfer books of this Corporation
are closed for any purpose; but the surrender of Convertible Preferred Stock
for conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Convertible Preferred Stock was
surrendered.
(l) This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the
outstanding shares of Convertible Preferred Stock, such number of shares of
Class A Common Stock as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed
to preclude this Corporation from satisfying its obligations in respect of the
conversion of the outstanding shares of Convertible Preferred Stock by delivery
of shares of Class A Common Stock which are held in the treasury of this
Corporation. This Corporation shall take all such corporate and other actions
as from time to time may be necessary to insure that aII shares of Class A
Common Stock issuable upon conversion of shares of Convertible Preferred Stock
al the Conversion Rate in effect from time to time will, upon issue, be duly
and validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(m) All shares of Convertible Preferred Stock received by this
Corporation upon conversion thereof into Class A Common Stock shall be retired
and shall be restored to the status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series
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<PAGE> 99
of the preferred stock of this Corporation, but such shares shall not be
reissued as Convertible Preferred Stock).
(n) This Corporation shall not be required to issue fractional
shares of Class A Common Stock or scrip upon conversion of the Convertible
Preferred Stock. As to any final fraction of a share of Class A Common Stock
which a holder of one or more Shares would otherwise be entitled to receive
upon conversion of such Shares in the same transaction, this Corporation shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market value of a full share of Class A Common Stock.
For purposes of this Section 5(n), the market value of a share of Class A
Common Stock shall be the last reported sale price regular way on the business
day immediately preceding the date of conversion, or, in case no such reported
sale takes place on such day, the average of the reported closing bid and asked
prices regular way on such day, in either case on the composite tape, or if the
shares of Class A Common Stock are not quoted on the composite tape, on the
principal United States securities exchange registered under the Exchange Act
on which the shares of Class A Common Stock are listed or admitted to trading,
or if the shares of Class A Common Stock are not listed or admitted to trading
on any such exchange, the last reported sale price (or the average of the
quoted last reported bid and asked prices if there were no reported sales) as
reported by NASDAQ or any comparable system, or if the Class A Common Stock is
not quoted on NASDAQ or any comparable system, the average of the closing bid
and asked prices as funfished by any member of the National Association
of Securities Dealers, Inc. selected from time to time by this Corporation for
that purpose or, in the absence of such quotations, such other method of
determining market value as the Board of Directors shall from time to time deem
to be fair.
(o) To the extent all cash dividends on the Convertible Preferred
Stock which have accrued on any Dividend Payment Date are not paid, or are not
irrevocably set apart in trust for the benefit of the holder of such Shares, on
such date, then each Share shall be deemed to be automatically partially
converted into a number of duly authorized, fully paid and non-assessable
shares of Class A Common Stock equal to the quotient obtained by dividing the
Special Liquidation Value in respect of such Share on such Dividend Payment
Date by 95% of the current market price of the Class A Common Stock on such
date (as determined in accordance with Section 5(f) hereof) and this
Corporation shall issue and deliver to the holder of record of such Share on
the Record Date in respect of such Dividend Payment Date a certificate
evidencing such number of shares of Class A Common Stock and payment in respect
of fractional shares as provided in Section 5(n) hereof. Upon the issuance of
such Class A Common Stock the dividend otherwise accrued on such Dividend
Payment Date shall for all purposes be deemed paid. Partial conversion of
Shares pursuant to this Section 5(o) shall not reduce Liquidation Value (except
for Special Liquidation Value to the extent included in Liquidation Value), or
(except as provided in the immediately preceding sentence) otherwise affect the
right of the holder of such Shares to convert the same pursuant to the other
provisions of this Section 5.
(p) If this Corporation fails on any Redemption Date to pay the
Redemption Price in respect of Shares otherwise called for redemption pursuant
to Section 6(a) or (b) hereof or which
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a holder elects to cause to be redeemed pursuant to Section 6(c) hereof, the
holder of such Shares may, in addition to any other right of conversion herein
contained, convert such Shares into a number of shares of Class A Common Stock
equal to the quotient obtained by dividing such Redemption Price by 95% of the
current market price (determined in accordance with Section 5(f) hereof) on
such Redemption Date. The holder's rights in this Section 5(p) shall be in
addition to any other rights such holder may have in respect of such failure.
(q) If any shares of Class A Common Stock which would be issuable
upon conversion of Shares require registration with or approval of any
governmental authority before such shares may be issued upon conversion
(whether or not, in the case of Section 5(o) or 5(p) hereof, any event giving
rise to such issuance has occurred or is likely to occur), this Corporation
will in good faith and as expeditiously as possible cause such shares to be
duly registered or approved, as the case may be. This Corporation will endeavor
to list the shares of Class A Common Stock required to be delivered upon
conversion of Shares prior to such delivery upon the principal national
securities exchange upon which the outstanding Common Stock is listed at the
time of such delivery.
6. Redemption.
(a) Subject to the provisions of Section 6(g), if at any time
after the third anniversary of the Issue Date the market value per share (as
defined below) of the Class A Common Stock shall have equaled or exceeded
$37.50 (as adjusted for dividends on Class A Common Stock payable in Class A
Common Stock, stock splits and reverse stock splits in respect of the Class A
Common Stock occurring after August 8, 1994) on any 20 out of a period of 30
consecutive Business Days ending within five days prior to the giving of a
notice of redemption pursuant to this Section, the shares of Convertible
Preferred Stock may be redeemed out of funds legally available therefor, at the
option of this Corporation by action of the Board of Directors, in whole or in
part, at the Redemption Price per Share as of the applicable Redemption Date.
If less than all Shares are to be redeemed, Shares shall be redeemed ratably
among the holders thereof. For purposes of this Section, the market values of
the Class A Common Stock shall be the last reported sale price of the Class A
Common Stock on the NASDAQ National Market System (or, if not quoted on the
NASDAQ National Market System, then on such exchange on which the Class A
Common Stock is listed as the Corporation may designate) on each such Business
Day or if there shall not have been a sale on any such Business Day, the market
value for that Business Day shall be the average of the bid and asked
quotations on the NASDAQ National Market System on that Business Day, or, if
the Class A Common Stock shall not then be quoted on the NASDAQ National Market
System or listed on any exchange, the market value shall be the highest bid
quotation in the over-the-counter market on such Business Day as reported by
National Quotation Bureau, Inc. or its successor or such other generally
accepted source of publicly reported bid and asked quotations as the
Corporation may reasonably designate.
(b) Subject to the provisions of Section 6(g), the shares of
Convertible Preferred Stock may be redeemed out of funds legally available
therefor, at the option of this Corporation by action of the Board of
Directors, in whole or from time to time in part, at any time after the
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fifth anniversary of the Issue Date at the Redemption Price per Share as of the
applicable Redemption Date. If less than all outstanding Shares are to be
redeemed, Shares shall be redeemed ratably among the holders thereof.
(c) Subject to the rights of any Parity Securities and subject to
any prohibitions or restrictions contained in any Debt Instrument, at any time
on or after the tenth anniversary of the Issue Date, any holder of Shares shall
have the right, at such holder's option, to require redemption by this
Corporation at the Redemption Price per Share as of the applicable Redemption
Date of all or any portion of such holder's Shares having an aggregate
Liquidation Value in excess of $50,000 (or, if all of the Shares held by such
holder have an aggregate Liquidation Value of less than $50,000, all but not
less than all of such Shares) by written notice to this Corporation stating the
number of Shares to be redeemed. This Corporadon shall redeem, out of funds
legally available therefor, the Shares so requested to be redeemed on such date
within 20 Business Days following this Corporation's receipt of such notice;
provided, however, that notwithstanding the provisions of Section 5(p) hereof,
if this Corporation fails on the Redemption Date to pay the Redemption Price in
respect of Shares otherwise subject to redemption pursuant to this Section 6(c)
and fails irrevocably to set apart such Redemption Price in trust for the
benefit of the holders of such Shares, the holder of such Shares shall not
exercise the conversion rights provided for in Section 5(p) for a period of one
year from such date fixed for redemption (the "One-Year Period"); provided,
further, that nothing contained in this Section 6(c) shall (i) affect any other
rights of such holder, including, without limitation, the accrual of dividends
as provided in Section 3 hereof with respect to any Shares in respect of which
the Redemption Price has not been paid or funds irrevocably set apart in trust
for the benefit of the holders of such Shares, (ii) otherwise affect the right
of the holder to convert Shares or (iii) otherwise affect the right of the
holder of any Shares in respect of which the Redemption Price has not been paid
or funds irrevocably set apart in trust for the benefit of the holders of such
Shares to convert the same pursuant to the provisions of Section 5 following the
expiration of the One-Year Period. At any time during the One-Year-Period, this
Corporation may pay, out of funds legally available therefor, ratably among the
holders who have required Shares to be redeemed under this Section 6(c), the
Redemption Price for all or part of such Shares. If the funds of this
Corporation legally available for redemption of Shares are insufficient to
redeem the total number of shares required to be redeemed pursuant to this
Section 6(c), those funds which are legally available for redemption of such
Shares will be used to redeem the maximum possible number of such Shares ratably
among the holders who have required Shares to be redeemed under this Section
6(c). Without limiting the holders' rights pursuant to Section 5(p) hereof. at
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately
be used to redeem the Shares this Corporation failed to redeem on such
Redemption Date (to the extent not previously converted) until the balance of
such Shares are redeemed.
(d) Notice of any redemption pursuant to Section 6(a) or 6(b)
shall be mailed, first class, postage prepaid, not less than 30 days nor more
than 60 days prior to the Redemption Date, to the holders of record of the
shares of Convertible Preferred Stock to be redeemed, at their respective
addresses as the same appear upon the books of this Corporation or are supplied
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by them in writing to this Corporation for the purpose of such notice; but no
failure to mail such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for the redemption of any shares
of the Convertible Preferred Stock; provided that this sentence shall not
prejudice the right of any holder to receive such damages which may result from
any such defective notice. Such notice shall set forth the Redemption Price, the
Redemption Date, the number of Shares to be redeemed and the place at which the
Shares called for redemption will, upon presentation and surrender of the stock
certificates evidencing such Shares. be redeemed. In case fewer than the total
number of shares of Convertible Preferred Stock represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Shares
will be issued to the holder thereof without cost to such holder.
(e) If notice of any redemption by this Corporation pursuant to
this Section 6 shall have been mailed as provided in Section 6(d) and if on or
before the Redemption Date specified in such notice the consideration
necessary for such redemption shall have been irrevocably set apart in trust
for the benefit of the holders of Shares to be so redeemed so as to be
available therefor and only therefor, then on and after the close of business
on the Redemption Date, the Shares called for redemption, notwithstanding that
any certificate therefor shall not have been surrendered for cancellation,
shall no longer be deemed outstanding, and all rights with respect to such
Shares shall forthwith cease and terminate, except the right of the holders
thereof to receive upon surrender of their certificates the consideration
payable upon redemption thereof.
(f) All shares of Convertible Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Convertible Preferred
Stock).
(g) If at any time this Corporation shall have failed to pay, or
declare and irrevocably set apart in trust for the benefit of the holders of
Shares the consideration sufficient to pay, all dividends accrued up to and
including the immediately preceding Dividend Payment Date on the Convertible
Preferred Stock, and until all dividends accrued up to and including the
immediately preceding Dividend Payment Date on the Convertible Preferred Stock
shall have been paid or declared and irrevocably set apart in trust for the
benefit of the holders of Shares so as to be available for the payment in full
thereof and for no other purpose, this Corporation shall not redeem, pursuant
to a sinking fund or otherwise, any shares of Convertible Preferred Stock,
Parity, Securities or Junior Securities, unless all then outstanding shares of
Convertible Preferred Stock are redeemed, and shall not purchase or otherwise
acquire any shares of Convertible Preferred Stock, Parity Securities or Junior
Securities. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to Section 6(a), (b) and (c) all shares of Convertible
Preferred Stock required to be redeemed on such date, this Corporation shall
not redeem, or discharge any sinking fund obligation with respect to, any
Junior Securities, unless all then outstanding shares of Convertible Preferred
Stock are redeemed, and shall not purchase or otherwise acquire any shares of
Convertible Preferred Stock (other than by way of redemption or
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conversion) or Junior Securities. Nothing contained in this Section 6(g) shall
prevent the purchase or acquisition of shares of Convertible Preferred Stock
pursuant to a purchase or exchange offer or offers made to holders of all
outstanding shares of Convertible Preferred Stock, provided that as to holders
of all outstanding shares of Convertible Preferred Stock, the terms of the
purchase or exchange offer for all such shares are identical and all accrued
dividends on all Shares have been paid or shall have been paid or declared and
irrevocably set apart in trust for the benefit of holders of Shares so as to be
available for the payment in full thereof and for no other purpose. The
provisions of this Section 6(g) are for the benefit of holders of Convertible
Preferred Stock and accordingly the provisions of this Section 6(g) shall not
restrict any redemption by this Corporation of Shares held by any holder,
provided that all other holders of Shares shall have waived in writing the
benefits of this provision with respect to such redemption. This Corporation
shall not permit any Subsidiary thereof to take any action which this
Corporation is prohibited from taking pursuant to this Section 6(g).
7. Exchange Option.
(a) In case this Corporation shall at any time distribute to all
holders of the Class A Common Stock any rights or warrants ("Rights") to
subscribe for or purchase Special Securities, each holder of Shares shall have
the option (the "Exchange Option"), in lieu of any adjustment to the Conversion
Rate pursuant to Section 5, to exchange shares of Convertible Preferred Stock
for shaes of Mirror Preferred Stock (as defined below) which shall have an
initial aggregate liquidation value determined as follows:
(i) in the case of Rights exercisable upon payment, in
whole or in part, of cash or property other than Class A Common Stock,
the maximum aggregate liquidation value of shares of Mirror Preferred
Stock issuable to a holder of Convertible Preferred Stock upon
exercise of the Exchange Option shall be equal to the product of (x)
the number shares of Special Securities issuable upon exercise of the
Rights which this Corporation would have distributed to such holder of
Convertible Preferred Stock had such holder's Shares been converted
immediately prior to the record date for the distribution of such
Rights, and (y) the amount of cash, or the fair market value of such
other property (as reasonably determined by the Board of Directors;
with respect to any Class A Common Stock that is included in such
property, the fair market value thereof shall be the current market
price as determined pursuant to Section 5(f) as of such record date),
payable by a holder of Class A Common Stock in respect of the purchase
of any such shares upon exercise of a Right; or
(ii) in the case of Rights exercisable upon the surrender
of Class A Common Stock without payment of additional
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consideration, the maximum aggregate liquidation value of shares of
Mirror Preferred Stock issuable upon exercise of the Exchange Option
by the holder thereof shall be equal to the product of (x) the
Conversion Rate expressed in dollars of Liquidation Value per share of
Class A Common Stock as in effect on the record date for distribution
of the Rights, and (y) the maximum number of shares of Class A Common
Stock that would have been surrendered by such holder upon exercise of
Rights that would have been distributed to such holder had such holder
converted his Shares immediately prior to the record date for
distribution of the Rights.
(b) The exercise price of the Exchange Option shall be one
dollar in Liquidation Value of Shares of Convertible Preferred Stock for each
dollar of liquidation value of shares of Minor Preferred Stock to be purchased
upon exercise of the Exchange Option.
(c) "Mirror Preferred Stock" means convertible preferred stock
issued by the issuer of the Special Securities, such Mirror Preferred Stock to
have terms, conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations, or restrictions thereof
which are identical, or as nearly so as is practicable in the reasonable
judgment of the Board of Directors, to those of the Convertible Preferred
Stock, except that the running of any time periods pursuant to the terms of
the Convertible Preferred Stock shall be tacked to such time periods in the
Mirror Preferred Stock and except that Mirror Preferred Stock shall be
convertible into shares of the Special Security in respect of which such Mirror
Preferred Stock is issued pursuant to the terms hereof in lieu of Class A
Common Stock. The rate at which Mirror Preferred Stock shall be convertible into
Special Securities, expressed in shares of the Special Security per dollar of
liquidation value of the Mirror Preferred Stock, shall:
(i) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon payment, in whole or in part, of
cash or property other than Class A Common Stock, be determined by a
quotient, the numerator of which shall be the number of shares of
Special Securities issuable upon exercise of the Rights which this
Corporation would have distributed to all holders of Convertible
Preferred Stock had all of the Shares been converted immediately prior
to the record date for the distribution of such Rights and the
denominator of which shall be equal to the aggregate liquidation value
of Mirror Preferred Stock issuable (assuming exercise of all the
Exchange Options) to all holders of Convertible Preferred Stock in
respect of such Rights pursuant to Section 7(a)(i) above; or
(ii) in the case of Mirror Preferred Stock issued in
respect of Rights exercisable upon surrender of shares of Class A
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Common Stock without payment of additional consideration, be
determined by the inverse of the product of (x) the Conversion Rate of
the Convertible Preferred Stock expressed in dollars of Liquidation
Value per share of Class A Common Stock as in effect immediately prior
to the record date for distribution of the Rights (without giving
effect to any antidilution adjustment pursuant to Section 6 in respect
of such Rights) and (y) the number of shares of Class A Common Stock
required to be surrendered upon the exercise of each Right.
(d) If this Corporation distributes Rights in respect of
which the holders of Convertible Preferred Stock are required to be granted an
Exchange Option hereunder, this Corporation shall, concurrently with the
distribution of such Rights to holders of Class A Common Stock, provide each
holder of Convertible Preferred Stock a notice (the "Option Notice") stating
that such holder may, on or before the date of expiration of the Rights (the
"Expiration Date"), exercise the Exchange Option in accordance herewith, and
setting forth a description of the Rights, the Special Securities, and the
Mirror Preferred Stock. Such notice shall be accompamed by any prospectus or
similar document provided to holders of Class A Common Stock in respect of the
distribution of the Rights and a copy of the certificate of designations (or
similar document) proposed to be filed by this Corporation or any Subsidiary
with the appropriate government official in order to establish the Mirror
Preferred Stock.
(e) If a transaction described in this Section 7 occurs
before the Issue Date, holders of the Convertible Preferred Stock may exercise
the rights in this Section 7 within 45 days after the Issue Date or, if later,
the date related Rights expire.
(f) Upon the exchange of any Share, this Corporation
shall pay, to the holder of record of such Share on the immediately preceding
Record Date, if such date is after the most recent Dividend Payment Date, or
otherwise, to the holder of record of such Share as of the date of exercise of
the Exchange Option, all accrued but unpaid dividends on such Share to the date
of the surrender of such Share for exchange. Such payment shall be made in cash
or, at the election of this Corporation, the issuance of certificates
representing such number of shares of Class A Common Stock as have an aggregate
current market price (as determined in accordance with Section 5(f)) on the
date of issuance equal to the amount of such accrued but unpaid dividends. Upon
the making of such payment to the person entitled thereto as determined
pursuant to the first sentence of this paragraph, no further dividends shall
accrue on such Share or be payable to any other person.
8. No Voting Rights. Except as required by law and Sections 9 and 11
hereof, the holders of the Convertible Preferred Stock shall not be entitled to
vote on any matters submitted to a vote of the holders of the Capital Stock of
this Corporation.
9. Amendment. No amendment or modification of the designation,
rights, preferences, and limitations of the Shares set forth herein shall be
binding or effective without the prior consent of the holders of record of
Shares representing 66 2/3 % of the Liquidation Value
21
<PAGE> 106
of all Shares outstanding (excluding, for this purpose, Shares owned by this
Corporation or any of its Affiliates) at the time such action is taken.
10. Preemptive Rights. The holders of the Convertible Preferred Stock
will not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by this Corporation, provided
that this Section 10 shall not limit the rights of holders of the Convertible
Preferred Stock pursuant to Sections 5 or 7 hereof.
11. Senior Securities. The Convertible Preferred Stock shall not rank
junior to any other classes or series of stock of this Corporation in respect
of the right to receive dividends or the right to participate in any
distribution upon liquidation, dissolution or winding up of this Corporation.
Without the prior consent of the holders of record of Shares representing
66 2/3% of the Liquidation Value of all Shares then outstanding (excluding, for
this purpose, Shares owned by this Corporation or any of its Affiliates), this
Corporation shall not issue any Senior Securities.
12. Exclusion of Other Rights. Except as may otherwise be required by
law and for the equitable rights and remedies that may otherwise be available
to holders of Convertible Preferred Stock, the shares of Convertible Preferred
Stock shall not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in these resolutions (as such
resolutions may, subject to Section 9, be amended from time to time) and in the
Restated Certificate of Incorporation of this Corporation.
13. Headings. The headings of the various sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this Corporation are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded, in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
/s/ STEPHEN M. BRETT
Stephen M. Brett
Executive Vice President
22
<PAGE> 107
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE THIRD DAY
OF AUGUST, A.D. 1995, AT 12:45 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
EDWARD J. FREEL
----------------------------
Edward J. Freel,
Secretary of State
AUTHENTICATION: 7596118
DATE: 08-03-95
<PAGE> 108
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:45 PM 08/03/1995
950175231 - 2371729
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the Restated Certificate of Incorporation of the
Corporation is hereby amended as follows:
(i) THE FIRST PARAGRAPH OF ARTICLE IV OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS
FOLLOWS:
"AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue is two billion seven hundred seventy-seven
million three hundred seventy-five thousand ninety-six (2,777,375,096) shares,
which shall be divided into the following classes:
(a) Two billion seven hundred twenty-five million
(2,725,000,000) shares shall be of a class designated Common Stock,
par value $1.00 per share ("Common Stock"), such class to be divided
into series as provided in Section E of this Article IV;
(b) Seven hundred thousand (700,000) shares shall be of a
class designated Class A Preferred Stock, par value $.01 per share
("Class A Preferred Stock");
(c) One million six hundred seventy-five thousand
ninety-six (1,675,096) shares shall be of a class designated Class B
6% Cumulative Redeemable Exchangeable Junior Preferred Stock, par
value $.01 per share ("Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock"); and
(d) Fifty million (50,000,000) shares shall be of a class
designated Series Preferred Stock, par value $.01 per share ("Series
Preferred Stock"), such class to be issuable in series as provided in
Section D of this Article IV.
<PAGE> 109
The Class A Preferred Stock, the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and the Series Preferred Stock are
collectively referred to as "Preferred Stock"."
(ii) SECTION D OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION D
SERIES PREFERRED STOCK
The Series Preferred Stock may be issued, from time to time, in one or
more series, with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board of
Directors. The Board of Directors, in such resolution or resolutions (a copy of
which shall be filed and recorded as required by law), is also expressly
authorized to fix with respect to each series:
(i) the distinctive serial designations and the division
of such shares into series and the number of shares of a particular
series, which may be increased or decreased, but not below the number
of shares thereof then outstanding, by a certificate made, signed,
filed and recorded as required by law;
(ii) the dividend rate or amounts, if any, for the
particular series, the date or dates from which dividends on all
shares of such series shall be cumulative, if dividends on stock of
the particular series shall be cumulative and the relative rights of
priority, if any, or participation, if any, with respect to payment of
dividends on shares of that series;
(iii) the rights of the shares of each series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of each series;
(iv) the right, if any, of the holders of a particular
series to convert or exchange such stock into or for other classes or
series of a class of stock or indebtedness of the Corporation, and the
terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in
such events as the Board of Directors shall determine;
(v) the voting rights, if any, of the holders of a
particular series; and
(vi) the terms and conditions, if any, for the Corporation
to purchase or redeem shares of a particular series.
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<PAGE> 110
All shares of any one series of the Series Preferred Stock shall be
alike in every particular. Except to the extent otherwise provided in the
resolution or resolutions providing for the issue of any series of Series
Preferred Stock, the holders of shares of such series shall have no voting
rights except as may be required by the laws of the State of Delaware."
(iii) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION E
SERIES A TCI GROUP COMMON STOCK, SERIES B TCI GROUP COMMON
STOCK, SERIES A LIBERTY MEDIA GROUP COMMON STOCK
AND SERIES B LIBERTY MEDIA GROUP COMMON STOCK
One billion seven hundred fifty million (1,750,000,000) shares of
Common Stock shall be of a series designated Tele-Communications, Inc. Series A
TCI Group Common Stock (the "Series A TCI Group Common Stock"), one hundred
fifty million (150,000,000) shares of Common Stock shall be of a series
designated Tele-Communications, Inc. Series B TCI Group Common Stock (the
"Series B TCI Group Common Stock"), seven hundred fifty million (750,000,000)
shares of Common Stock shall be of a series designated Tele-Communications,
Inc. Series A Liberty Media Group Common Stock (the "Series A Liberty Media
Group Common Stock") and seventy-five million (75,000,000) shares of Common
Stock shall be of a series designated Tele-Communications, Inc. Series B
Liberty Media Group Common Stock (the "Series B Liberty Media Group Common
Stock").
Each share of Series A TCI Group Common Stock and each share of Series
B TCI Group Common Stock shall, except as otherwise provided in this Section E,
be identical in all respects and shall have equal rights, powers and
privileges.
Each share of Series A Liberty Media Group Common Stock and each share
of Series B Liberty Media Group Common Stock shall, except as otherwise
provided in this Section E, be identical in all respects and shall have equal
rights, powers and privileges.
1. Voting Rights.
Holders of Series A TCI Group Common Stock shall be entitled to one
vote for each share of such stock held, holders of Series B TCI Group Common
Stock shall be entitled to ten votes for each share of such stock held, holders
of Series A Liberty Media Group Common Stock shall be entitled to one vote for
each share of such stock held and holders of Series B Liberty Media Group
Common Stock shall be entitled to ten votes for each share of such stock held,
on all matters presented to such stockholders. Except as may otherwise be
required by the laws of the State of Delaware or, with respect to any class of
Preferred Stock or any series of such a class, in this
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<PAGE> 111
Certificate (including any resolution or resolutions providing for the
establishment of such class or series pursuant to authority vested in the Board
of Directors by this Certificate), the holders of shares of Series A TCI Group
Common Stock, the holders of shares of Series B TCI Group Common Stock, the
holders of shares of Series A Liberty Media Group Common Stock and the holders
of shares of Series B Liberty Media Group Common Stock and the holders of
shares of each class or series of Preferred Stock, if any, entitled to vote
thereon, shall vote as one class with respect to the election of directors and
with respect to all other matters to be voted on by stockholders of the
Corporation (including, without limitation, any proposed amendment to this
Certificate that would increase the number of authorized shares of Common Stock
or any series thereof or of any other class or series of stock or decrease the
number of authorized shares of any class or series of stock (but not below the
number of shares thereof then outstanding)), and no separate vote or consent of
the holders of shares of Series A TCI Group Common Stock, the holders of shares
of Series B TCI Group Common Stock, the holders of shares of Series A Liberty
Media Group Common Stock, the holders of shares of Series B Liberty Media Group
Common Stock or the holders of shares of any such class or series of Preferred
Stock shall be required for the approval of any such matter.
2. Conversion Rights.
(a) CONVERSION OF SERIES B TCI GROUP COMMON STOCK INTO SERIES A
TCI GROUP COMMON STOCK. Each share of Series B TCI Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Series A
TCI Group Common Stock. Any such conversion may be effected by any holder of
Series B TCI Group Common Stock by surrendering such holder's certificate or
certificates for the Series B TCI Group Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
B TCI Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B TCI Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Group Common Stock to be issued. If so required
by the Corporation, any certificate for shares surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or the duly authorized
representative of such holder. Promptly thereafter, the Corporation shall issue
and deliver to such holder or such holder's nominee or nominees, a certificate
or certificates for the number of shares of Series A TCI Group Common Stock to
which such holder shall be entitled as herein provided. Such conversion shall
be deemed to have been made at the close of business on the date of receipt by
the Corporation or any such transfer agent of the certificate or certificates,
notice and, if required, instruments of transfer referred to above, and the
person or persons entitled to receive the Series A TCI Group Common Stock
issuable on such conversion shall be treated for all purposes as the record
holder or holders of such Series A TCI Group Common Stock on that date. A
number of shares of Series A TCI Group Common Stock equal to the number of
shares of Series B TCI Group Common Stock outstanding from time to time shall
be set aside and reserved for issuance upon conversion of shares of Series B
TCI Group Common Stock. Shares of Series A TCI Group Common Stock shall not be
convertible into shares of Series B TCI Group Common Stock.
-4-
<PAGE> 112
(b) CONVERSION OF SERIES B LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A LIBERTY MEDIA GROUP COMMON STOCK. Each share of Series B Liberty
Media Group Common Stock shall be convertible, at the option of the holder
thereof, into one share of Series A Liberty Media Group Common Stock. Any such
conversion may be effected by any holder of Series B Liberty Media Group Common
Stock by surrendering such holder's certificate or certificates for the Series
B Liberty Media Group Common Stock to be converted, duly endorsed, at the
office of the Corporation or any transfer agent for the Series B Liberty Media
Group Common Stock, together with a written notice to the Corporation at such
office that such holder elects to convert all or a specified number of shares
of Series B Liberty Media Group Common Stock represented by such certificate
and stating the name or names in which such holder desires the certificate or
certificates for Series A Liberty Media Group Common Stock to be issued. If so
required by the Corporation, any certificate for shares surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
the duly authorized representative of such holder. Promptly thereafter, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Series A
Liberty Media Group Common Stock to which such holder shall be entitled as
herein provided. Such conversion shall be deemed to have been made at the close
of business on the date of receipt by the Corporation or any such transfer
agent of the certificate or certificates, notice and, if required, instruments
of transfer referred to above, and the person or persons entitled to receive
the Series A Liberty Media Group Common Stock issuable on such conversion shall
be treated for all purposes as the record holder or holders of such Series A
Liberty Media Group Common Stock on that date. A number of shares of Series A
Liberty Media Group Common Stock equal to the number of shares of Series B
Liberty Media Group Common Stock outstanding from time to time shall be set
aside and reserved for issuance upon conversion of shares of Series B Liberty
Media Group Common Stock. Shares of Series A Liberty Media Group Common Stock
shall not be convertible into shares of Series B Liberty Media Group Common
Stock.
(c) CONVERSION OF SERIES A LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A TCI GROUP COMMON STOCK AND SERIES B LIBERTY MEDIA GROUP COMMON STOCK
INTO SERIES B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At
the option of the Corporation by action of its Board of Directors, (A) all
shares of Series A Liberty Media Group Common Stock shall be convertible into a
number (or fraction) of fully paid and nonassessable shares of Series A TCI
Group Common Stock equal to the Optional Conversion Ratio, and (B) all shares
of Series B Liberty Media Group Common Stock shall be convertible into a number
(or fraction) of fully paid and nonassessable shares of Series B TCI Group
Common Stock equal to the Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(c), the "Optional Conversion
Ratio" shall mean the quotient (calculated to the nearest five decimal places)
obtained by dividing (A) the Liberty Media Group Common Stock Per Share Value
by (B) the average Market Value of one share of Series A TCI Group Common Stock
over the 20-Trading Day period ending on the Trading Day preceding the
Appraisal Date.
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<PAGE> 113
(iii) The "Liberty Media Group Private Market Value" shall mean an
amount equal to the private market value of the Liberty Media Group as of the
last day of the calendar month preceding the month in which the last of the two
appraisers referred to in the immediately following sentence are selected (the
last day of such calendar month is hereinafter referred to as the "Appraisal
Date"). In the event that the Corporation determines to establish the Liberty
Media Group Private Market Value, two investment banking firms of recognized
national standing shall be designated to determine the private market value of
the Liberty Media Group, one designated by the Corporation (the "First
Appraiser") and one designated by a committee of the Board of Directors all of
whose members are independent directors as determined under Nasdaq National
Market rules (the "Second Appraiser"). The date upon which the last of such
appraisers is selected is hereinafter referred to as the "Selection Date". Not
later than 20 days after the Selection Date, the First Appraiser and the Second
Appraiser shall each determine its initial view as to the private market value
of the Liberty Media Group as of the Appraisal Date and shall consult with one
another with respect thereto. Not later than the 30th day after the Selection
Date, the First Appraiser and the Second Appraiser shall each have determined
its final view as to such private market value. If the higher of the respective
final views of the First Appraiser and the Second Appraiser as to such private
market value (the "Higher Appraised Amount") is not more than 120% of the lower
of such respective final views (the "Lower Appraised Amount"), the Liberty
Media Group Private Market Value (subject to any adjustment provided in
subparagraph (v) of this paragraph 2(c)) shall be the average of those two
amounts. If the Higher Appraised Amount is more than 120% of the Lower
Appraised Amount, the First Appraiser and the Second Appraiser shall agree upon
and jointly designate a third investment banking firm of recognized national
standing (the "Mutually Designated Appraiser") to determine such private market
value. The Mutually Designated Appraiser shall not be provided with any of the
work of the First Appraiser and Second Appraiser. The Mutually Designated
Appraiser shall, no later than the 20th day after the date the Mutually
Designated Appraiser is designated, determine such private market value (the
"Mutually Appraised Amount"), and the Liberty Media Group Private Market Value
(subject to any adjustment provided in subparagraph (v) of this paragraph 2(c))
shall be (A) if the Mutually Appraised Amount is between the Lower Appraised
Amount and the Higher Appraised Amount, (I) the average of (1) the Mutually
Appraised Amount and (2) the Lower Appraised Amount or the Higher Appraised
Amount, whichever is closer to the Mutually Appraised Amount, or (II) the
Mutually Appraised Amount, if neither the Lower Appraised Amount nor the Higher
Appraised Amount is closer to the Mutually Appraised Amount, or (B) if the
Mutually Appraised Amount is greater than the Higher Appraised Amount or less
than the Lower Appraised Amount, the average of the Higher Appraised Amount and
the Lower Appraised Amount. For these purposes, if any such investment banking
firm expresses its final view of the private market value of the Liberty Media
Group as a range of values, such investment banking firm's final view of such
private market value shall be deemed to be the midpoint of such range of
values.
(iv) Each of the investment banking firms referred to in clause
(iii) of this paragraph 2(c) shall be instructed to determine the private
market value of the Liberty Media Group as of the Appraisal Date based upon the
amount a willing purchaser would pay to a willing seller, in an arm's length
transaction, if it were acquiring the Liberty Media Group, as if the Liberty
Media Group were a publicly traded non-controlled corporation and the purchaser
was acquiring all of the capital stock
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<PAGE> 114
of such corporation, and without consideration of any potential regulatory
constraints limiting the potential purchasers of the Liberty Media Group other
than that which would have existed if the Liberty Media Group were a publicly
traded non-controlled entity.
(v) Following the determination of the Liberty Media Group Private
Market Value, the investment banking firms whose final views of the private
market value of the Liberty Media Group were used in the calculation of the
Liberty Media Group Private Market Value shall determine the Adjusted
Outstanding Shares of Liberty Media Group Common Stock together with any
further appropriate adjustments to the Liberty Media Group Private Market Value
resulting from such determination. The "Adjusted Outstanding Shares of Liberty
Media Group Common Stock" shall mean a number, as determined by such investment
banking firms as of the Appraisal Date, equal to the sum of the number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock outstanding, the Number of Shares Issuable with Respect to
the Inter-Group Interest, the number of Committed Acquisition Shares issuable,
the number of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock issuable upon the conversion, exercise or
exchange of all Pre-Distribution Convertible Securities and the number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock issuable upon the conversion, exercise or exchange of those
Convertible Securities (other than Pre-Distribution Convertible Securities and
other than Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares) the holders of which would
derive an economic benefit from conversion, exercise or exchange of such
Convertible Securities which exceeds the economic benefit of not converting,
exercising or exchanging such Convertible Securities. The "Liberty Media Group
Common Stock Per Share Value" shall mean the quotient obtained by dividing the
Liberty Media Group Private Market Value by the Adjusted Outstanding Shares of
Liberty Media Group Common Stock, provided that if such investment banking
firms do not agree on the determinations provided for in this subparagraph (v),
the Liberty Media Group Common Stock Per Share Value shall be the average of
the quotients so obtained on the basis of the respective determinations of such
firms.
(vi) If the Corporation determines to convert shares of Series A
Liberty Media Group Common Stock into Series A TCI Group Common Stock and
shares of Series B Liberty Media Group Common Stock into Series B TCI Group
Common Stock at the Optional Conversion Ratio, such conversion shall occur on a
Conversion Date on or prior to the 120th day following the Appraisal Date. If
the Corporation determines not to undertake such conversion, the Corporation
may at any time thereafter undertake to reestablish the Liberty Media Group
Common Stock Per Share Value as of a subsequent date.
(vii) The Corporation shall not convert shares of Series A Liberty
Media Group Common Stock into shares of Series A TCI Group Common Stock without
converting shares of Series B Liberty Media Group Common Stock into shares of
Series B TCI Group Common Stock, and the Corporation shall not convert shares of
Series B Liberty Media Group Common Stock into shares of Series B TCI Group
Common Stock without converting shares of Series A Liberty Media Group Common
Stock into shares of Series A TCI Group Common Stock. The Series A Liberty Media
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<PAGE> 115
Group Common Stock and the Series B Liberty Media Group Common Stock
shall also be convertible at the option of the Corporation in accordance with
paragraph 5(b)(iii) of this Section E.
3. Dividends.
(a) DIVIDENDS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI
GROUP COMMON STOCK. Dividends on the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock may be declared and paid only out of the lesser
of (i) assets of the Corporation legally available therefor and (ii) the TCI
Group Available Dividend Amount. Subject to paragraph 4 of this Section E,
whenever a dividend is paid to the holders of Series A TCI Group Common Stock,
the Corporation shall also pay to the holders of Series B TCI Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A TCI Group Common Stock, and whenever a dividend is paid to the
holders of Series B TCI Group Common Stock, the Corporation shall also pay to
the holders of Series A TCI Group Common Stock a dividend per share equal to
the dividend per share paid to the holders of Series B TCI Group Common Stock.
(b) DIVIDENDS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. Dividends on the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock may
be declared and paid only out of the lesser of (i) assets of the Corporation
legally available therefor and (ii) the Liberty Media Group Available Dividend
Amount. Subject to paragraph 4 and the last sentence of paragraph 5(b) of this
Section E, whenever a dividend is paid to the holders of Series A Liberty Media
Group Common Stock, the Corporation shall also pay to the holders of Series B
Liberty Media Group Common Stock a dividend per share equal to the dividend per
share paid to the holders of Series A Liberty Media Group Common Stock, and
whenever a dividend is paid to the holders of Series B Liberty Media Group
Common Stock, the Corporation shall also pay to the holders of Series A Liberty
Media Group Common Stock a dividend per share equal to the dividend per share
paid to the holders of Series B Liberty Media Group Common Stock.
(c) DISCRIMINATION BETWEEN OR AMONG SERIES OF COMMON STOCK. The
Board of Directors, subject to the provisions of paragraph 3(a) and 3(b) of
this Section E, shall have the authority and discretion to declare and pay
dividends on the Series A TCI Group Common Stock and Series B TCI Group Common
Stock or the Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock in equal or unequal amounts, notwithstanding the
relationship between the TCI Group Available Dividend Amount and the Liberty
Media Group Available Dividend Amount, the respective amounts of prior
dividends declared on, or the liquidation rights of, the Series A TCI Group
Common Stock and Series B TCI Group Common Stock or the Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock or any other
factor.
-8-
<PAGE> 116
4. Share Distributions.
(a) DISTRIBUTIONS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B
TCI GROUP COMMON STOCK. The Corporation may provide for the initial issuance
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock by declaring and paying a distribution (the
"Distribution") consisting of shares of Series A Liberty Media Group Common
Stock to holders of Series A TCI Group Common Stock and, on an equal per share
basis, shares of Series B Liberty Media Group Common Stock to holders of Series
B TCI Group Common Stock. If at any time after the Distribution a distribution
paid in Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock or any other securities of the Corporation or any other Person
(hereinafter sometimes called a "share distribution") is to be made with
respect to the Series A TCI Group Common Stock or Series B TCI Group Common
Stock, such share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A
TCI Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI
Group Common Stock, on an equal per share basis; or consisting of
shares of Series B TCI Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series A TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock) to holders of Series A
TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series B TCI Group Common Stock;
(ii) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
Liberty Media Group Common Stock) to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock, on an equal per
share basis; provided that the sum of (A) the aggregate number of
shares of Series A Liberty Media Group Common Stock to be so issued
(or the number of such shares which would be issuable upon conversion,
exercise or exchange of any Convertible Securities to be so issued)
and (B) the number of shares of such series that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group
(other than Pre-Distribution Convertible Securities and other than
Convertible Securities convertible into or exercisable or exchangeable
for Committed Acquisition Shares) is less than or equal to the Number
of Shares Issuable with Respect to the Inter-Group Interest; and
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(iii) a share distribution consisting of any class
or series of securities of the Corporation or any other Person other
than Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock), either on
the basis of a distribution of identical securities, on an equal per
share basis, to holders of Series A TCI Group Common Stock and Series B
TCI Group Common Stock or on the basis of a distribution of one class
or series of securities to holders of Series A TCI Group Common Stock
and another class or series of securities to holders of Series B TCI
Group Common Stock, provided that the securities so distributed (and,
if the distribution consists of Convertible Securities, the securities
into which such Convertible Securities are convertible or for which
they are exercisable or exchangeable) do not differ in any respect
other than their relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions,
with holders of shares of Series B TCI Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent than
the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A TCI Group Common Stock and the Series B TCI Group Common
Stock), provided that if the securities so distributed constitute
capital stock of a Subsidiary of the Corporation, such rights shall not
differ to a greater extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution
provisions between the Series A TCI Group Common Stock and the Series B
TCI Group Common Stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A TCI Group Common Stock without reclassifying, subdividing or combining the
Series B TCI Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B TCI Group
Common Stock without reclassifying, subdividing or combining the Series A TCI
Group Common Stock, on an equal per share basis.
(b) DISTRIBUTIONS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. If at any time a share distribution
is to be made with respect to the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, such share distribution may be
declared and paid only as follows (or as permitted by paragraph 5 of this
Section E with respect to the redemptions and other distributions referred to
therein):
(i) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A Liberty
Media Group Common Stock) to holders of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, on an
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equal per share basis; or consisting of shares of Series B Liberty
Media Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B Liberty Media Group
Common Stock) to holders of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, on an equal per share
basis; or consisting of shares of Series A Liberty Media Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A Liberty Media Group Common Stock)
to holders of Series A Liberty Media Group Common Stock and, on an
equal per share basis, shares of Series B Liberty Media Group Common
Stock (or like Convertible Securities convertible into or exercisable
or exchangeable for shares of Series B Liberty Media Group Common
Stock) to holders of Series B Liberty Media Group Common Stock; and
(ii) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
as described in clause (i) of this paragraph 4(b) and other than
Series A TCI Group Common Stock or Series B TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock or Series B TCI Group
Common Stock) either on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock or on the basis of a distribution of one class or series
of securities to holders of Series A Liberty Media Group Common Stock
and another class or series of securities to holders of Series B
Liberty Media Group Common Stock, provided that the securities so
distributed (and, if the distribution consists of Convertible
Securities, the securities into which such Convertible Securities are
convertible or for which they are exercisable or exchangeable) do not
differ in any respect other than their relative voting rights and
related differences in designation, conversion, redemption and share
distribution provisions, with holders of shares of Series B Liberty
Media Group Common Stock receiving the class or series having the
higher relative voting rights (without regard to whether such rights
differ to a greater or lesser extent than the corresponding
differences in voting rights, designation, conversion, redemption and
share distribution provisions between the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock),
provided that if the securities so distributed constitute capital
stock of a Subsidiary of the Corporation, such rights shall not differ
to a greater extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution
provisions between the Series A Liberty Media Group Common Stock and
the Series B Liberty Media Group Common Stock, and provided in each
case that such distribution is otherwise made on an equal per share
basis.
The Corporation shall not reclassify, subdivide or combine the Series
A Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series B Liberty Media Group Common Stock, on an equal per share
basis, and the Corporation shall not reclassify, subdivide or combine the
Series B Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series A Liberty Media Group Common Stock, on an equal per share
basis.
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5. Redemption and Other Provisions Relating to the Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF SUBSIDIARY. At any time
at which all of the assets and liabilities attributed to the Liberty Media
Group have become and continue to be held directly or indirectly by any one or
more corporations all of the capital stock of which is owned by the Corporation
(the "Liberty Media Group Subsidiaries"), the Board of Directors may, subject
to the availability of assets of the Corporation legally available therefor,
redeem, on a pro rata basis, all of the outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock in
exchange for an aggregate number of outstanding fully paid and nonassessable
shares of common stock of each Liberty Media Group Subsidiary equal to the
product of the Adjusted Outstanding Interest Fraction and the number of all of
the outstanding shares of common stock of such Liberty Media Group Subsidiary.
Any such redemption shall occur on a Redemption Date set forth in a notice to
holders of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock and Convertible Securities convertible into or exercisable
or exchangeable for shares of either such series (unless provision for notice
is otherwise made pursuant to the terms of such Convertible Securities)
pursuant to paragraph 5(d)(vi). In effecting such a redemption, the Board of
Directors may determine either to (i) redeem shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock in exchange
for shares of separate classes or series of common stock of each Liberty Media
Group Subsidiary with relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions not
greater than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
with holders of shares of Series B Liberty Media Group Common Stock receiving
the class or series having the higher relative voting rights, or (ii) redeem
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock in exchange for shares of a single class of common stock of
each Liberty Media Group Subsidiary without distinction between the shares
distributed to the holders of the Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock. If the Corporation determines to
undertake a redemption as described in clause (i) of the preceding sentence,
the outstanding shares of common stock of each Liberty Media Group Subsidiary
not distributed to holders of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock shall consist solely of the class or
series having the lower relative voting rights.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF
DISPOSITION OF LIBERTY MEDIA GROUP ASSETS. In the event of the Disposition, in
one transaction or a series of related transactions, by the Corporation and its
subsidiaries of all or substantially all of the properties and assets of the
Liberty Media Group to one or more persons, entities or groups (other than (w)
in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 6 of this Section E, (x) a
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4,
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paragraph 5(a) or paragraph 6 of this Section E, (y) to any person, entity or
group which the Corporation, directly or indirectly, after giving effect to the
Disposition, controls or (z) in connection with a Related Business
Transaction), the Corporation shall, on or prior to the 85th Trading Day
following the consummation of such Disposition, either:
(i) subject to paragraph 3(b) of this Section E, declare
and pay a dividend in cash and/or in securities or other property
(other than a dividend or distribution of Common Stock) to the holders
of the outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock equally on a share for
share basis (subject to the last sentence of this Section 5(b)), in an
aggregate amount equal to the product of the Outstanding Interest
Fraction as of the record date for determining the holders entitled to
receive such dividend and the Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation
legally available therefor and the Liberty Media Group Available
Dividend Amount would have been sufficient to pay a dividend in lieu
thereof pursuant to clause (i) of this paragraph 5(b), then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Liberty
Media Group, redeem all outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted Outstanding Interest
Fraction as of the date of such redemption and the Net
Proceeds of such Disposition, such aggregate amount to be
allocated (subject to the last sentence of this paragraph
5(b)) to shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock in the ratio of
the number of shares of each such series outstanding (so that
the amount of consideration paid for the redemption of each
share of Series A Liberty Media Group Common Stock and each
share of Series B Liberty Media Group Common Stock is the
same); or
(B) if such Disposition involves substantially all
(but not all) of the properties and assets of the Liberty
Media Group, apply an aggregate amount of cash and/or
securities or other property (other than Common Stock) equal
to the product of the Outstanding Interest Fraction as of the
date shares are selected for redemption and the Net Proceeds
of such Disposition to the redemption of outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock, such aggregate amount to be
allocated (subject to the last sentence of this paragraph
5(b)) to shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock in the ratio of
the number of shares of each such series outstanding, and the
number of shares of each such series to be redeemed to equal
the lesser of (x) the whole number nearest the number
determined by dividing the aggregate amount so allocated to
the redemption of such series by the average Market Value of
one share of Series A Liberty Media Group
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Common Stock during the ten-Trading Day period beginning on
the 16th Trading Day following the consummation of such
Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same);
such redemption to be effected in accordance with the applicable
provisions of paragraph 5(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A
Liberty Media Group Common Stock into a number (or fraction) of fully
paid and nonassessable shares of Series A TCI Group Common Stock and
(B) each outstanding share of Series B Liberty Media Group Common
Stock into a number (or fraction) of fully paid and nonassessable
shares of Series B TCI Group Common Stock, in each case equal to 110%
of the average daily ratio (calculated to the nearest five decimal
places) of the Market Value of one share of Series A Liberty Media
Group Common Stock to the Market Value of one share of Series A TCI
Group Common Stock during the ten-Trading Day period referred to in
clause (ii)(B) of this paragraph 5(b).
For purposes of this paragraph 5(b):
(x) as of any date, "substantially all of the properties
and assets of the Liberty Media Group" shall mean a portion of such
properties and assets that represents at least 80% of the then-current
market value (as determined by the Board of Directors) of the
properties and assets of the Liberty Media Group as of such date;
(y) in the case of a Disposition of properties and assets
in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of
such transactions; and
(z) the Corporation may pay the dividend or redemption
price referred to in clause (i) or (ii) of this subparagraph 5(b)
either in the same form as the proceeds of the Disposition were
received or in any other combination of cash or securities or other
property (other than Common Stock) that the Board of Directors
determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the Net Proceeds. If the
dividend or redemption price is paid in the form of securities of an
issuer other than the Corporation, the Board of Directors may
determine either to (1) pay the dividend or redemption price in the
form of separate classes or series of securities, with one class or
series of such securities to holders of Series A Liberty Media Group
Common Stock and another class or series of securities to holders of
Series B Liberty Media Group Common Stock, provided that such
securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise
or exchange) do not differ in any respect other than their
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relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Series B Liberty Media Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A Liberty Media Group Common Stock and the Series B Liberty
Media Group Common Stock), provided that if such securities constitute
capital stock of a Subsidiary of the Corporation, such rights shall
not differ to a greater extent than the corresponding differences in
voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, and
otherwise such securities shall be distributed on an equal per share
basis, or (2) pay the dividend or redemption price in the form of a
single class of securities without distinction between the shares
received by the holders of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless
the provisions of any class or series of Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares provide specifically to the
contrary, after any Conversion Date or Redemption Date on which all outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock were converted or redeemed, any share of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock that is
issued on conversion, exercise or exchange of any Pre-Distribution Convertible
Securities or any Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares shall, immediately
upon issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, be converted into (in case
all such outstanding shares were converted) or redeemed in exchange for (in
case all such outstanding shares were redeemed) the kind and amount of shares
of capital stock, cash and/or other securities or property that a holder of
such Pre-Distribution Convertible Securities or any Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares would have been entitled to receive pursuant to the terms of
such securities had such terms provided that the conversion, exercise or
exchange privilege in effect immediately prior to any such conversion or
redemption of all outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock would be adjusted so that
the holder of any such Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares thereafter surrendered for
conversion, exercise or exchange would be entitled to receive the kind and
amount of shares of capital stock, cash and/or other securities or property
such holder would have received as a result of such action had such securities
been converted, exercised or exchanged immediately prior thereto. With respect
to any Convertible Securities which are created, established or otherwise first
authorized for issuance subsequent to the record date for the Distribution
(other than
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Pre-Distribution Convertible Securities and Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares), the terms and provisions of which do not provide for adjustments
specifying the kind and amount of capital stock, cash and/or securities or
other property that such holder would be entitled to receive upon the
conversion, exercise or exchange of such Convertible Securities following any
Conversion Date or Redemption Date on which all outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
were converted or redeemed, then upon such conversion, exercise or exchange of
such Convertible Securities, any share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that is issued on
conversion, exercise or exchange of any such Convertible Securities shall,
immediately upon issuance pursuant to such conversion, exercise or exchange and
without any notice or any other action on the part of the Corporation or its
Board of Directors or the holder of such share of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, be redeemed in
exchange for, to the extent assets of the Corporation are legally available
therefor, the amount of $.01 per share in cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation
of a Disposition referred to in subparagraph 5(b) of this Section E, the
Corporation shall announce publicly by press release (A) the Net Proceeds of
such Disposition, (B) the number of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, (C) the
number of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock into or for which Convertible Securities are
then convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable, (D) the Outstanding Interest Fraction as of a recent date preceding
the date of such notice and (E) the Adjusted Outstanding Interest Fraction as
of a recent date preceding the date of such notice. Not earlier than the 26th
Trading Day and not later than the 30th Trading Day following the consummation
of such Disposition, the Corporation shall announce publicly by press release
which of the actions specified in clauses (i), (ii) or (iii) of paragraph 5(b)
of this Section E it has irrevocably determined to take.
(ii) If the Corporation determines to pay a dividend pursuant to
clause (i) of subparagraph 5(b) of this Section E, the Corporation shall, not
later than the 30th Trading Day following the consummation of such Disposition,
cause to be given to each holder of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such Disposition,
(B) the anticipated payment date
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of such dividend (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (C) the kind of shares of capital stock,
cash and/or other securities or property to be distributed in respect of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, (D) the Net Proceeds of such Disposition, (E) the Outstanding
Interest Fraction as of a recent date preceding the date of such notice, (F)
the number of outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (G) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to receive such dividend only if they
appropriately convert, exercise or exchange them prior to the record date
referred to in clause (A) of this sentence. Such notice shall be sent by
first-class mail, postage prepaid, at such holder's address as the same appears
on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the Liberty Media Group pursuant to clause
(ii) (A) of paragraph 5(b) of this Section E, the Corporation shall cause to be
given to each holder of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock outstanding on the Redemption
Date shall be redeemed, (B) the Redemption Date (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be paid
as a redemption price in respect of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock outstanding on the
Redemption Date, (D) the Net Proceeds of such Disposition, (E) the Adjusted
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (F) the place or places where certificates for shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property, (G) the number of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (H) in the
case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
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participate in such redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Redemption
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 5(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following such Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Redemption Date, at such holder's address as the same appears on
the transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of
shares of Series A Media Group Common Stock and Series B Liberty Media Group
Common Stock following a Disposition of substantially all (but not all) of the
properties and assets of the Liberty Media Group pursuant to clause (ii)(B) of
paragraph 5(b) of this Section E, the Corporation shall, not later than the
30th Trading Day following the consummation of such Disposition, cause to be
given to each holder of record of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock, and to each
holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption Date (which shall not
be more than 85 Trading Days following the consummation of such Disposition),
(C) the kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
selected for redemption, (D) the Net Proceeds of such Disposition, (E) the
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (F) the number of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and the number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock into or for which outstanding Convertible Securities are
then convertible, exercisable or exchangeable and the conversion or exercise
prices thereof, (G) in the case of a notice to holders of Convertible
Securities, a statement to the effect that holders of such Convertible
Securities shall be entitled to participate in such selection for redemption
only if such holders appropriately convert, exercise or exchange such
Convertible Securities on or prior to the date referred to in clause (A) of
this sentence and a statement as to what, if anything, such holders shall be
entitled to receive pursuant to the terms of such Convertible Securities if
such holders convert, exercise or exchange such Convertible Securities
following such date and (H) a statement that the Corporation will not be
required to register a transfer of any shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock for a period of 15
Trading Days next preceding the date referred to in clause (A) of this
sentence. Promptly following the date referred to in clause (A) of the
preceding sentence, but not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A
Liberty Media Group
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Common Stock and Series B Liberty Media Group Common Stock to be so redeemed, a
notice setting forth (A) the number of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock held by such holder
to be redeemed, (B) a statement that such shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock shall be
redeemed, (C) the Redemption Date (which shall not be more than 85 Trading Days
following the consummation of such Disposition), (D) the kind and per share
amount of shares of capital stock, cash and/or other securities or property to
be received by such holder with respect to each share of such Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock to be
redeemed, including details as to the calculation thereof, and (E) the place or
places where certificates for shares of such Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation waives such requirement), are to
be surrendered for delivery of certificates for shares of such capital stock,
cash and/or other securities or property. The notices referred to in this
clause (iv) shall be sent by first-class mail, postage prepaid, at such
holder's address as the same appears on the transfer books of the Corporation.
The outstanding shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock to be redeemed shall be redeemed by the
Corporation pro rata among the holders of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock or by such other method as
may be determined by the Board of Directors to be equitable.
(v) In the event of any conversion pursuant to paragraph 2(c) of
this Section E or pursuant to this paragraph 5 (other than pursuant to
paragraph 5(c)), the Corporation shall cause to be given to each holder of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for such notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock shall be converted, (B) the
Conversion Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition in the event of a conversion pursuant to
paragraph 5(b) and which shall not be more than 120 days after the Appraisal
Date in the event of a conversion pursuant to paragraph 2(c)), (C) the per
share number of shares of Series A TCI Group Common Stock or Series B TCI Group
Common Stock, as applicable, to be received with respect to each share of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock, including details as to the calculation thereof, (D) the place or
places where certificates for shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement),
are to be surrendered, (E) the number of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the
number of Committed Acquisition Shares issuable and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible
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Securities shall be entitled to participate in such conversion only if such
holders appropriately convert, exercise or exchange such Convertible Securities
on or prior to the Conversion Date referred to in clause (B) of this sentence
and a statement as to what, if anything, such holders shall be entitled to
receive pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following such Conversion Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Conversion Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(vi) If the Corporation determines to redeem shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
pursuant to subparagraph (a) of this paragraph 5, the Corporation shall
promptly cause to be given to each holder of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), a notice setting
forth (A) a statement that all outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock shall be
redeemed in exchange for shares of common stock of the Liberty Media Group
Subsidiaries, (B) the Redemption Date, (C) the Adjusted Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (D) the place
or places where certificates for shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement),
are to be surrendered for delivery of certificates for shares of common stock
of the Liberty Media Group Subsidiaries, (E) the number of outstanding shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock and the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (F) in the
case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Redemption
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 5(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following the Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Redemption Date, at such holder's address as the same appears on
the transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this
paragraph 5(d) to any particular holder of Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common
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Stock or of Convertible Securities nor any defect therein shall affect the
sufficiency thereof with respect to any other holder of outstanding shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock or of Convertible Securities, or the validity of any conversion or
redemption.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to paragraph 2(c) of this Section E or pursuant to this
paragraph 5. In connection with the determination of the number of shares of
any class of capital stock that shall be issuable or the amount of securities
that shall be deliverable to any holder of record upon any such conversion,
redemption, dividend or other distribution (including any fractions of shares
or securities), the Corporation may aggregate the number of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock is a fraction, the Corporation shall,
if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth Trading Day prior to the date such payment
is to be made (without interest). For purposes of the preceding sentence, "fair
market value" of any fraction shall be (A) in the case of any fraction of a
share of capital stock of the Corporation, the product of such fraction and the
Market Value of one share of such capital stock and (B) in the case of any
other fractional security, such value as is determined by the Board of
Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
at the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding
the conversion or redemption of such shares or the Corporation's default in
payment of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock pursuant to paragraph 2(c) of this Section E or
pursuant to this paragraph 5, such holder shall surrender at such place as the
Corporation shall specify certificates for such shares of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group
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Common Stock, properly endorsed or assigned for transfer (unless the
Corporation shall waive such requirement). The Corporation shall as soon as
practicable after such surrender of certificates representing shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
deliver to the person for whose account shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock were so surrendered,
or to the nominee or nominees of such person, certificates representing the
number of whole shares of the kind of capital stock or cash and/or securities
or other property to which such person shall be entitled as aforesaid, together
with any payment for fractional securities contemplated by paragraph
5(d)(viii). If less than all of the shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock represented by any
one certificate are to be redeemed, the Corporation shall issue and deliver a
new certificate for the shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock not redeemed. The Corporation shall
not be required to register a transfer of (1) any shares of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock for a
period of 15 Trading Days next preceding any selection of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
to be redeemed or (2) any shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock selected or called for redemption.
Shares selected for redemption may not thereafter be converted pursuant to
paragraph 2(b) of this Section E.
(xi) From and after any applicable Conversion Date or Redemption
Date, all rights of a holder of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that were converted or
redeemed shall cease except for the right, upon surrender of the certificates
representing shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, to receive certificates representing shares
of the kind and amount of capital stock or cash and/or securities or other
property for which such shares were converted or redeemed, together with any
payment for fractional securities contemplated by paragraph 5(d)(viii) of this
Section E and such holder shall have no other or further rights in respect of
the shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock so converted or redeemed, including, but not limited
to, any rights with respect to any cash, securities or other properties which
are reserved or otherwise designated by the Corporation as being held for the
satisfaction of the Corporation's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption or any Committed Acquisition Shares which may then be issuable. No
holder of a certificate that, immediately prior to the applicable Conversion
Date or Redemption Date for the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, represented shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
shall be entitled to receive any dividend or other distribution with respect to
shares of any kind of capital stock into or in exchange for which the Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
was converted or redeemed until surrender of such holder's certificate for a
certificate or certificates representing shares of such kind of capital stock.
Upon such surrender, there shall be paid to the holder the amount of any
dividends or other distributions (without interest) which
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theretofore became payable with respect to a record date after the Conversion
Date or Redemption Date, as the case may be, but that were not paid by reason
of the foregoing, with respect to the number of whole shares of the kind of
capital stock represented by the certificate or certificates issued upon such
surrender. From and after a Conversion Date or Redemption Date, as the case may
be, for any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, the Corporation shall, however, be entitled
to treat the certificates for shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that have not yet been
surrendered for conversion or redemption as evidencing the ownership of the
number of whole shares of the kind or kinds of capital stock for which the
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock represented by such certificates shall have been converted
or redeemed, notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on conversion
or redemption of shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of any shares of capital
stock in a name other than that in which the shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
6. Liquidation.
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to
the prior payment in full of the preferential amounts to which any class or
series of Preferred Stock is entitled, (a) the holders of the shares of Series
A TCI Group Common Stock and the holders of the shares of Series B TCI Group
Common Stock shall share equally, on a share for share basis, in a percentage
of the funds of the Corporation remaining for distribution to its common
stockholders equal to 100% multiplied by the average daily ratio (expressed as
a decimal) of X/Z for the 20-Trading Day period ending on the Trading Day prior
to the date of the public announcement of such liquidation, dissolution or
winding up, and (b) the holders of the shares of Series A Liberty Media Group
Common Stock and the holders of the shares of Series B Liberty Media Group
Common Stock shall share equally, on a share for share basis, in a percentage
of the funds of the Corporation remaining for distribution to its common
stockholders equal to 100% multiplied by the average daily ratio (expressed as
a decimal) of Y/Z for such 20-Trading Day period, where X is the aggregate
Market Capitalization of the Series A TCI Group Common Stock and the Series B
TCI Group Common Stock, Y is the aggregate Market Capitalization of the Series
A Liberty Media Group Common Stock and the Series B Liberty Media Group Common
Stock, and Z is the aggregate Market Capitalization of the Series A TCI Group
Common Stock, the Series B
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TCI Group Common Stock, the Series A Liberty Media Group Common Stock and the
Series B Liberty Media Group Common Stock. Neither the consolidation or merger
of the Corporation with or into any other corporation or corporations nor the
sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 6.
7. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Section E shall be final and binding on all stockholders of the
Corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the Corporation.
8. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 8 shall have, for all purposes of this Section E, the meanings herein
specified:
"Adjusted Outstanding Interest Fraction", as of any date, shall mean a
fraction the numerator of which is the aggregate number of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
outstanding on such date and the denominator of which is the sum of (a) such
aggregate number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock outstanding on such date, (b) the
Number of Shares Issuable with Respect to the Inter-Group Interest as of such
date, (c) the aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock issuable, determined as of
such date, upon conversion, exercise or exchange of Pre-Distribution
Convertible Securities and (d) the number of Committed Acquisition Shares
issuable, determined as of such date.
"Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation has, prior to the record
date for the Distribution, agreed to issue, but as of such record date has not
issued, and (b) the shares of Series A Liberty Media Group Common Stock that
are issuable upon conversion, exercise or exchange of Convertible Securities
that the Corporation has, prior to the record date for the Distribution, agreed
to issue, but as of such record date has not issued, in each case including
obligations of the Corporation to issue shares of the Corporation's Class A
Common Stock, par value $1.00 per share, which as a result of the Distribution,
constitute obligations to issue, among other securities, Series A Liberty Media
Group Common Stock or Convertible Securities which are convertible into or
exercisable or exchangeable for Series A Liberty Media Group Common Stock;
provided, however that Committed Acquisition Shares shall not include any
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock issuable upon conversion, exercise or exchange of
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Pre-Distribution Convertible Securities. The type and amount of Committed
Acquisition Shares issuable shall be appropriately adjusted to reflect
subdivisions and combinations of the Series A Liberty Media Group Common Stock
and dividends or distributions of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock to holders of Series A
Liberty Media Group Common Stock and other reclassifications of the Series A
Liberty Media Group Common Stock, in each case occurring (or the record date
for which occurs) after the Distribution.
"Conversion Date" shall mean any date fixed by the Board of Directors
for a conversion of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, as set forth in a notice to holders
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock pursuant to paragraph 5(d) of this Section E.
"Convertible Securities" shall mean any securities of the Corporation
(other than any series of Common Stock) that are convertible into, exchangeable
for or evidence the right to purchase any shares of any series of Common Stock,
whether upon conversion, exercise, exchange, pursuant to antidilution
provisions of such securities or otherwise.
"Corporation Earnings (Loss) Attributable to the Liberty Media Group",
for any period, shall mean the net earnings or loss of the Liberty Media Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the Liberty Media Group for such period as presented in
the combined financial statements of the Liberty Media Group for such period,
including income and expenses of the Corporation attributed to the operations
of the Liberty Media Group on a substantially consistent basis, including
without limitation, corporate administrative costs, net interest and income
taxes.
"Corporation Earnings (Loss) Attributable to the TCI Group", for any
period, shall mean the net earnings or loss of the TCI Group for such period
determined on a basis consistent with the determination of the net earnings or
loss of the TCI Group for such period as presented in the combined financial
statements of the TCI Group for such period, including income and expenses of
the Corporation attributed to the operations of the TCI Group on a
substantially consistent basis, including without limitation, corporate
administrative costs, net interest and income taxes.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets
or stock or otherwise) of properties or assets.
"Inter-Group Interest Fraction", as of any date, shall mean a fraction
the numerator of which is the Number of Shares Issuable with Respect to the
Inter-Group Interest as of such date and the denominator of which is the sum of
(a) such Number of Shares Issuable with Respect to the Inter-Group Interest as
of such date and (b) the aggregate number of shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock outstanding as
of such date.
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"Liberty Media Group" shall mean, as of any date that any shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its
subsidiaries in Liberty Media Corporation or any of its subsidiaries
(including any successor thereto by merger, consolidation or sale of
all or substantially all of its assets, whether or not in connection
with a Related Business Transaction) and their respective properties
and assets,
(b) all assets and liabilities of the Corporation or any
of its subsidiaries to the extent attributed to any of the properties
or assets referred to in clause (a) of this sentence, whether or not
such assets or liabilities are assets and liabilities of Liberty Media
Corporation or any of its subsidiaries (or a successor as described in
clause (a) of this sentence),
(c) all assets and properties contributed or otherwise
transferred to the Liberty Media Group from the TCI Group, and
(d) the interest of the Corporation or any of its
subsidiaries in the businesses, assets and liabilities acquired by the
Corporation or any of its subsidiaries for the Liberty Media Group, as
determined by the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock (other than a dividend or other distribution
payable in shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, with respect to which adjustment shall be
made as provided in clause (a) of the definition of "Number of Shares Issuable
with Respect to the Inter-Group Interest", or in other securities of the
Corporation attributed to the Liberty Media Group for which provision shall be
made as set forth in the penultimate sentence of this definition), the Liberty
Media Group shall no longer include an amount of assets or properties equal to
the aggregate amount of such kind of assets or properties so paid in respect of
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock multiplied by a fraction the numerator of which is equal to
the Inter-Group Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and the denominator of which is
equal to the Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and (ii) from and after any
transfer of assets or properties from the Liberty Media Group to the TCI Group,
the Liberty Media Group shall no longer include the assets or properties so
transferred. If the Corporation shall pay a dividend or make any other
distribution with respect to shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock payable in securities of the
Corporation attributed to the Liberty Media Group other than Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the TCI
Group shall be deemed to hold an amount of such other securities equal to the
amount so distributed multiplied by the fraction specified in clause (i) of
this definition (determined as of a time immediately prior to the record date
for such dividend or other distribution), and to the extent
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interest or dividends are paid or other distributions are made on such other
securities so distributed to the holders of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, the Liberty Media Group
shall no longer include a corresponding ratable amount of the kind of assets
paid as such interest or dividends or other distributions in respect of such
securities so deemed to be held by the TCI Group. The Corporation may also, to
the extent any such other securities constitute Convertible Securities which
are at the time convertible, exercisable or exchangeable, cause such
Convertible Securities deemed to be held by the TCI Group to be deemed to be
converted, exercised or exchanged (and to the extent the terms of such
Convertible Securities require payment or delivery of consideration in order to
effect such conversion, exercise or exchange, the Liberty Media Group shall in
such case include an amount of the kind of properties or assets required to be
paid or delivered as such consideration for the amount of the Convertible
Securities deemed converted, exercised or exchanged as if such Convertible
Securities were outstanding), in which case such Convertible Securities shall
no longer be deemed to be held by the TCI Group or attributed to the Liberty
Media Group.
"Liberty Media Group Available Dividend Amount", as of any date, shall
mean the product of the Outstanding Interest Fraction and either: (a) the
excess of (i) an amount equal to the total assets of the Liberty Media Group
less the total liabilities (not including preferred stock) of the Liberty Media
Group as of such date over (ii) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of Series
A Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock
and each class or series of Preferred Stock attributed to the Liberty Media
Group or (b) in case there is no such excess, an amount equal to the
Corporation Earnings (Loss) Attributable to the Liberty Media Group (if
positive) for the fiscal year in which such date occurs and/or the preceding
fiscal year.
"Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (i) the Market Value
of one share of such class or series on such Trading Day and (ii) the number of
shares of such class or series outstanding on such Trading Day.
"Market Value" of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported
sales prices regular way of a share of such class or series on such day (if
such day is a Trading Day, and if such day is not a Trading Day, on the Trading
Day immediately preceding such day) or in case no such reported sale takes
place on such Trading Day the average of the reported closing bid and asked
prices regular way of a share of such class or series on such Trading Day, in
either case on the Nasdaq National Market, or if the shares of such class or
series are not quoted on such Nasdaq National Market on such Trading Day, the
average of the closing bid and asked prices of a share of such class or series
in the over-the-counter market on such Trading Day as furnished by any New York
Stock Exchange member firm selected from time to time by the Corporation, or if
such closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such Trading Day, the market value of a share of
such class or series as determined by the Board of Directors; provided that for
purposes of determining the ratios set forth in paragraphs 2(c), 5(b) and 6 of
this Section E, (a) the "Market
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Value" of any share of any series of Common Stock on any day prior to the "ex"
date or any similar date for any dividend or distribution paid or to be paid
with respect to such series of Common Stock shall be reduced by the fair market
value of the per share amount of such dividend or distribution as determined by
the Board of Directors and (b) the "Market Value" of any share of any series of
Common Stock on any day prior to (i) the effective date of any subdivision (by
stock split or otherwise) or combination (by reverse stock split or otherwise)
of outstanding shares of such series of Common Stock or (ii) the "ex" date or
any similar date for any dividend or distribution with respect to any such
series of Common Stock in shares of such series of Common Stock shall be
appropriately adjusted to reflect such subdivision, combination, dividend or
distribution.
"Net Proceeds" shall mean, as of any date, with respect to any
Disposition of any of the properties and assets of the Liberty Media Group, an
amount, if any, equal to the gross proceeds of such Disposition after any
payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 5(b) of this Section E (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group), (b) any transaction
costs, including, without limitation, any legal, investment banking and
accounting fees and expenses and (c) any liabilities and other obligations
(contingent or otherwise) of, or attributed to, the Liberty Media Group,
including, without limitation, any indemnity or guarantee obligations incurred
in connection with the Disposition or any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
dividends and other obligations (without duplication of amounts allocated for
the satisfaction of the Corporation's obligations with respect to
Pre-Distribution Convertible Securities and Committed Acquisition Shares
issuable which are included in the determination of the Adjusted Outstanding
Interest Fraction) in respect of Preferred Stock attributed to the Liberty
Media Group. For purposes of this definition, any properties and assets of the
Liberty Media Group remaining after such Disposition shall constitute
"reasonable provision" for such amount of taxes, costs and liabilities
(contingent or otherwise) as can be supported by such properties and assets. To
the extent the proceeds of any Disposition include any securities or other
property other than cash, the Board of Directors shall determine the value of
such securities or property, including for the purpose of determining the
equivalent value thereof if the Board of Directors determines to pay a dividend
or redemption price in cash or securities or other property as provided in
clause (z) of paragraph 5(b) of this Section E.
"Number of Shares Issuable with Respect to the Inter-Group Interest"
after the Distribution shall be zero and shall from time to time thereafter, as
applicable, be
(a) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A Liberty Media Group Common Stock and
dividends or distributions of shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock to holders
of Series A Liberty Media Group Common Stock and other
reclassifications of Series A Liberty Media Group Common Stock,
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(b) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or sold by the Corporation after the Distribution other
than Committed Acquisition Shares, the proceeds of which are
attributed to the TCI Group, (ii) the aggregate number of shares of
Series A Liberty Media Group Common Stock issued or delivered upon
conversion, exercise or exchange of Convertible Securities (other than
Pre-Distribution Convertible Securities and Convertible Securities
which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares), the proceeds of which are attributed to
the TCI Group, (iii) the aggregate number of shares of Series A
Liberty Media Group Common Stock issued or delivered by the
Corporation as a dividend or distribution to holders of Series A TCI
Group Common Stock and Series B TCI Group Common Stock, (iv) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or delivered upon the conversion, exercise or exchange of
any Convertible Securities (other than Pre-Distribution Convertible
Securities and Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares) issued
or delivered by the Corporation after the Distribution as a dividend
or distribution or by reclassification or exchange to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock
and (v) the aggregate number of shares of Series A Liberty Media Group
Common Stock (rounded, if necessary, to the nearest whole number),
equal to the aggregate fair value (as determined by the Board of
Directors) of assets or properties attributed to the Liberty Media
Group that are transferred from the Liberty Media Group to the TCI
Group in consideration of a reduction in the Number of Shares Issuable
with Respect to the Inter-Group Interest, divided by the Market Value
of one share of Series A Liberty Media Group Common Stock as of the
date of such transfer, and
(c) increased by (i) the aggregate number of any shares
of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (ii) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties, theretofore attributed to the TCI
Group that are contributed to the Liberty Media Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
Inter-Group Interest, divided by the Market Value of one share of
Series A Liberty Media Group Common Stock as of the date of such
contribution and (iii) the aggregate number of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which Convertible Securities are deemed to be
converted, exercised or exchanged pursuant to the last sentence of the
definition of "TCI Group" in this paragraph 8. The Corporation shall
not issue or sell shares of Series B Liberty Media Group Common Stock
in respect of a reduction in the Number of Shares Issuable with
Respect to the Inter-Group Interest.
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Whenever a change in the Number of Shares Issuable with Respect to the
Inter-Group Interest occurs, the Corporation shall prepare and file a statement
of such change with the Secretary of the Corporation.
"Outstanding Interest Fraction", as of any date, shall mean a fraction
the numerator of which is the aggregate number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock
outstanding on such date and the denominator of which is the sum of (a) such
aggregate number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock outstanding on such date and (b) the
Number of Shares Issuable with Respect to the Inter-Group Interest as of such
date.
"Pre-Distribution Convertible Securities" shall mean Convertible
Securities that were outstanding on the record date for the Distribution and
were, prior to such date, convertible into or exercisable or exchangeable for
shares of the Class A Common Stock, par value $1.00 per share, of the
Corporation.
"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, as set forth in a notice to holders of such
series pursuant to this Certificate.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group in
which the Corporation receives as proceeds of such Disposition primarily equity
securities (including, without limitation, capital stock, convertible
securities, partnership or limited partnership interests and other types of
equity securities, without regard to the voting power or contractual or other
management or governance rights related to such equity securities) of the
purchaser or acquiror of such assets and properties of the Liberty Media Group,
any entity which succeeds (by merger, formation of a joint venture enterprise
or otherwise) to such assets and properties of the Liberty Media Group or a
third party issuer, which purchaser, acquiror or other issuer is engaged or
proposes to engage primarily in one or more businesses similar or complementary
to the businesses conducted by the Liberty Media Group prior to such
Disposition, as determined in good faith by the Board of Directors.
"Subsidiary" shall mean, with respect to any person or entity, any
corporation or partnership 50% or more of whose outstanding voting securities
or partnership interests, as the case may be, are directly or indirectly owned
by such person or entity.
"TCI Group" shall mean, as of any date:
(a) the interest of the Corporation or any of its
subsidiaries in all of the businesses in which the Corporation or any
of its subsidiaries (or any of their predecessors or successors) is or
has been engaged, directly or indirectly, and the respective assets
and liabilities of the Corporation or any of its subsidiaries, other
than any businesses, assets or liabilities of the Liberty Media Group;
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<PAGE> 138
(b) a proportionate interest in the businesses, assets
and liabilities of the Liberty Media Group equal to the Inter-Group
Interest Fraction as of such date;
(c) from and after any dividend or other distribution
with respect to shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock (other than a dividend or
other distribution payable in shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, with
respect to which adjustment shall be made as provided in clause (a) of
the definition of "Number of Shares Issuable with Respect to the
Inter-Group Interest", or in other securities of the Corporation
attributed to the Liberty Media Group, for which provision shall be
made as set forth in the penultimate sentence of this definition), an
amount of assets or properties theretofore included in the Liberty
Media Group equal to the aggregate amount of such kind of assets or
properties so paid in respect of such dividend or other distribution
with respect to shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock multiplied by a fraction the
numerator of which is equal to the Inter-Group Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution; and
(d) any assets or properties transferred from the Liberty
Media Group to the TCI Group;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group, the TCI Group shall
no longer include such assets or properties so contributed or transferred
(other than pursuant to its interest in the businesses, assets and liabilities
of the Liberty Media Group pursuant to clause (b) above). If the Corporation
shall pay a dividend or make any other distribution with respect to shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock payable in other securities of the Corporation attributed to the
Liberty Media Group, the TCI Group shall be deemed to hold an amount of such
other securities equal to the amount so distributed multiplied by the fraction
specified in clause (c) of this definition (determined as of a time immediately
prior to the record date for such dividend or other distribution), and to the
extent interest or dividends are paid or other distributions are made on such
other securities so distributed to holders of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, the TCI Group shall
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities so
deemed to be held by the TCI Group. The Corporation may also, to the extent any
such other securities constitute Convertible Securities which are at the time
convertible, exercisable or exchangeable, cause such Convertible Securities
deemed to be held by the TCI Group to be deemed to be converted, exercised or
exchanged (and to the extent the terms of such Convertible Securities require
payment or delivery of consideration in order to effect such conversion,
exercise or exchange, the TCI Group shall in such case no longer include an
amount of the kind of properties or assets required to be paid or delivered as
such consideration for
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the amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which case
such Convertible Securities shall no longer be deemed to be held by the TCI
Group or attributed to the Liberty Media Group.
"TCI Group Available Dividend Amount", as of any date, shall mean
either: (a) the excess of (i) an amount equal to the total assets of the TCI
Group less the total liabilities (not including preferred stock) of the TCI
Group as of such date over (ii) the aggregate par value of, or any greater
amount determined to be capital in respect of, all outstanding shares of Series
A TCI Group Common Stock, Series B TCI Group Common Stock and each class or
series of Preferred Stock attributed to the TCI Group or (b) in case there is
no such excess, an amount equal to the Corporation Earnings (Loss) Attributable
to the TCI Group (if positive) for the fiscal year in which such date occurs
and/or the preceding fiscal year.
"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not traded on
the Nasdaq National Market System or in the over-the-counter market."
(IV) SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of
Preferred Stock, directors may be removed from office only for cause (as
hereinafter defined) upon the affirmative vote of the holders of 66 2/3% of the
total voting power of the then outstanding shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common Stock and any class or series of
Preferred Stock entitled to vote at an election of directors, voting together
as a single class. Except as may be provided by law, "cause" for removal, for
purposes of this Section C, shall exist only if: (i) the director whose removal
is proposed has been convicted of a felony, or has been granted immunity to
testify in an action where another has been convicted of a felony, by a court
of competent jurisdiction and such conviction is no longer subject to direct
appeal; (ii) such director has become mentally incompetent, whether or not so
adjudicated, which mental incompetence directly affects his ability as a
director of the Corporation, as determined by at least 66 2/3% of the members
of the Board of Directors then in office (other than such director); or (iii)
such director's actions or failure to act have been determined by at least 66
2/3% of the members of the Board of Directors then in office (other than such
director) to be in derogation of the director's duties."
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<PAGE> 140
(V) ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of
Preferred Stock, stockholder action may be taken only at an annual or special
meeting. Except as otherwise provided in the terms of any class or series of
Preferred Stock or unless otherwise prescribed by law or by another provision
of this Certificate, special meetings of the stockholders of the Corporation,
for any purpose or purposes, shall be called by the Secretary of the
Corporation (i) upon the written request of the holders of not less than 66
2/3% of the total voting power of the outstanding Voting Securities (as
hereinafter defined) or (ii) at the request of at least 75% of the members of
the Board of Directors then in office. The term "Voting Securities" shall
include the Series A TCI Group Common Stock, the Series B TCI Group Common
Stock, the Series A Liberty Media Group Common Stock, the Series B Liberty
Media Group Common Stock and any class or series of Preferred Stock entitled to
vote with the holders of Common Stock generally upon all matters which may be
submitted to a vote of stockholders at any annual meeting or special meeting
thereof.
SECTION B
ACTION WITHOUT A MEETING
Except as otherwise provided in the terms of any class or series of
Preferred Stock, no action required to be taken or which may be taken at any
annual meeting or special meeting of stockholders may be taken without a
meeting, and the power of stockholders to consent in writing, without a
meeting, is specifically denied."
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<PAGE> 141
(VI) ARTICLE IX OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE CORPORATION
IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE IX
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
Subject to the rights of the holders of any class or series of
Preferred Stock, the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of this Certificate), voting together as a single
class at a meeting specifically called for such purpose, shall be required in
order for the Corporation to take any action to authorize:
(a) the amendment, alteration or repeal of any provision
of this Certificate or the addition or insertion of other provisions
herein;
(b) the adoption, amendment or repeal of any provision of
the Bylaws of the Corporation; provided, however, that this clause (b)
shall not apply to, and no vote of the stockholders of the Corporation
shall be required to authorize, the adoption, amendment or repeal of
any provision of the Bylaws of the Corporation by the Board of
Directors in accordance with the power conferred upon it pursuant to
Section F of Article V of this Certificate;
(c) the merger or consolidation of this Corporation with
or into any other corporation; provided, however, that this clause (c)
shall not apply to any merger or consolidation (i) as to which the
laws of the State of Delaware, as then in effect, do not require the
consent of this Corporation's stockholders, or (ii) which at least 75%
of the members of the Board of Directors then in office have approved;
(d) the sale, lease or exchange of all, or substantially
all, of the property and assets of the Corporation; or
(e) the dissolution of the Corporation.
All rights at any time conferred upon the stockholders of the
Corporation pursuant to this Certificate are granted subject to the provisions
of this Article IX."
(vii) Upon the effectiveness of this Certificate of Amendment, (a) each share
of the Class A Common Stock, par value $1.00 per share, of the Corporation that
is issued and outstanding (including shares held in the treasury of the
Corporation) shall be redesignated and changed, ipso
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<PAGE> 142
facto and without any other action on the part of the stockholders thereof, into
one share of Series A TCI Group Common Stock and (b) each share of Class B
Common Stock, par value $1.00 per share, of the Corporation that is issued and
outstanding (including shares held in the treasury of the Corporation) shall be
redesignated and changed, ipso facto and without any other action on the part of
the stockholders thereof, into one share of Series B TCI Group Common Stock.
SECOND: That said amendments were duly adopted by the Board of
Directors of the Corporation, and pursuant to resolution of the Board of
Directors of the Corporation, the annual meeting of the stockholders of the
Corporation was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute and the Restated
Certificate of Incorporation of the Corporation were voted in favor of said
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
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IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 3rd day of August, 1995.
TELE-COMMUNICATIONS, INC.
By: BRENDON R. CLOUSTON
Name: Brendon R. Clouston
Title: Executive Vice President
ATTEST:
By: STEPHEN M. BRETT
Name: Stephen M. Brett
Title: Secretary
<PAGE> 144
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE THIRD
DAY OF AUGUST, A.D. 1995, AT 12:46 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
EDWARD J. FREEL
----------------------------
Edward J. Freel,
Secretary of State
AUTHENTICATION: 7596126
DATE: 08-03-95
<PAGE> 145
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:46 PM 08/03/1995
950175234 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION
---------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED
AS "CONVERTIBLE REDEEMABLE PARTICIPATING PREFERRED STOCK,
SERIES F" ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
---------------------
The undersigned Executive Vice President of
Tele-Communications, Inc., a Delaware corporation (the "Corporation"), hereby
certifies that the Board of Directors of the Corporation duly adopted the
following resolutions creating a series of preferred stock designated as
"Convertible Redeemable Participating Preferred Stock, Series F":
BE IT RESOLVED, that pursuant to authority expressly granted by
the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Corporation, the Board of Directors hereby creates and
authorizes the issuance of a series of preferred stock, par value $.01 per
share, of the Corporation, to consist of 500,000 shares, and hereby fixes the
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the designations,
preferences and relative, participating, limitations or restrictions thereof set
forth in the Restated Certificate of Incorporation that are applicable to
preferred stock of all series) as follows:
1. Designation. The designation of the series of preferred
stock, par value $.01 per share, of the Corporation authorized hereby is
"Convertible Redeemable Participating Preferred Stock, Series F" (the "Series F
Preferred Stock").
2. Certain Definitions. Unless the context otherwise requires,
the terms defined in this paragraph 2 shall have, for all purposes, the meanings
herein specified:
<PAGE> 146
"Average Quoted Price", when used with respect to the Series A
TCI Group Common Stock, shall mean the average of the Quoted Prices of the
Series A TCI Group Common Stock for the most recent period of five trading days
on which shares of such series trade ending three Business Days prior to the
Redemption Date, appropriately adjusted to take into account the actual
occurrence, during the period following the first of such five trading days and
ending on the Business Day immediately preceding such Redemption Date, of any
event of a type described in paragraph 7. The "Quoted Price" of a share of
Series A TCI Group Common Stock on any day means the last sale price (or, if no
sale price is reported, the average of the high and low bid prices) of the
Series A TCI Group Common Stock, on such day as reported on the National
Association of Securities Dealers, Inc. Automated Quotation System, Inc.
("NASDAQ") or if the Series A TCI Group Common Stock is listed on an exchange,
as reported in the composite transactions for the principal exchange on which
such stock is listed.
"Board of Directors" shall mean the Board of Directors of the
Corporation and, unless the context indicates otherwise, shall also mean, to the
extent permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Corporation with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday
or a day on which banking institutions in Denver, Colorado are not required to
be open.
"capital stock" shall mean any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Certificate" shall mean the Restated Certificate of
Incorporation of the Corporation, as it may from time to time hereafter be
amended or restated.
"Class A Preferred Stock" shall mean the Class A Preferred
Stock, par value $.01 per share, of the Corporation.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of the
Corporation.
"Conversion Rate" shall have the meaning ascribed to such term
in paragraph 7(b) hereof.
"Convertible Securities" shall mean securities, other than the
Series B TCI Group Common Stock, that are convertible into or exchangeable for
Series A TCI Group Common Stock; provided, however, that neither the Series A
Liberty Media Group Common Stock nor the Series B Liberty Media Group Common
Stock shall be deemed to be a Convertible Security by virtue of the
Corporation's right to cause the outstanding shares of each such series of
Liberty Media Group Common Stock to be converted into Series A TCI Group Common
Stock and Series B TCI Group Common Stock, respectively, in accordance with
paragraphs 2(c) or 5(b)(iii) of Section E of Article IV of the Certificate.
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<PAGE> 147
"Cut-Off Date" shall have the meaning ascribed to such term in
paragraph 7(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Issue Date" shall mean the date on which shares of Series F
Preferred Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii)
the Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv)
any other class or series of capital stock, whether now existing or hereafter
created, of the Corporation, other than (A) the Series F Preferred Stock, (B)
any class or series of Parity Stock (except to the extent provided under clause
(v) hereof) and (C) any Senior Stock, and (v) any class or series of Parity
Stock to the extent that it ranks junior to the Series F Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation, as the case may
be. For purposes of clause (v) above, a class or series of Parity Stock shall
rank junior to the Series F Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation if the holders of shares of Series F
Preferred Stock shall be entitled to dividend payments, payments on redemption
or payments of amounts distributable upon dissolution, liquidation or winding up
of the Corporation, as the case may be, in preference or priority to the holders
of shares of such class or series.
"Liberty Media Group Common Stock" shall mean, collectively,
the Series A Liberty Media Group Common Stock and the Series B Liberty Media
Group Common Stock.
"Liquidation Preference" per share of Series F Preferred Stock
shall be $.01.
"1933 Act" shall mean the Securities Act of 1933, as amended.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board or the President of the Corporation and by the Treasurer
of the Corporation.
"Opinion of Counsel" shall mean a written opinion from legal
counsel selected by the Corporation. The counsel may be an employee of or
counsel to the Corporation.
"Original Stated Amount" of a share of Series F Preferred Stock
means $24,875.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking on a
parity basis with the Series F Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series shall
rank on a parity as to dividend rights, rights of redemption or rights on
liquidation with the Series F Preferred Stock, whether or not the dividend
rates, dividend payment dates, redemption or liquidation prices per share or
sinking fund or mandatory redemption provisions, if any, are different from
those of the Series F Preferred Stock, if the holders of shares of such class or
series shall be entitled to dividend payments, payments on redemption or
payments of amounts distributable upon dissolution, liquidation or winding up of
the Corporation, as the case may be, in proportion to their respective
accumulated and accrued and unpaid
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<PAGE> 148
dividends, redemption prices or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series F Preferred Stock. No class or
series of capital stock that ranks junior to the Series F Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Series F Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Participating Dividend" shall have the meaning ascribed to
such term in paragraph 3(a) hereof.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, trust, unincorporated
organization, government or agency or political subdivision thereof, or other
entity, whether acting in an individual, fiduciary or other capacity.
"Redemption Date" as to any share of Series F Preferred Stock
shall mean the date fixed for redemption of such share by the Board of Directors
of the Corporation pursuant to paragraph 5(a); provided that no such date will
be a Redemption Date unless the applicable Redemption Price is actually paid or
deposited as provided in paragraph 5(d) hereof on such date.
"Redemption Price" as to any share of Series F Preferred Stock
which is to be redeemed on any Redemption Date shall mean the Stated Amount
thereof on such Redemption Date.
"Senior Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Corporation ranking prior to
the Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation. Capital stock of any class or series shall rank prior to
the Series F Preferred Stock as to dividend rights, rights of redemption or
rights on liquidation if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Corporation, as
the case may be, in preference or priority to the holders of shares of Series F
Preferred Stock. No class or series of capital stock that ranks on a parity
basis with or junior to the Series F Preferred Stock as to rights on liquidation
shall rank or be deemed to rank prior to the Series F Preferred Stock as to
dividend rights or rights of redemption, notwithstanding that the dividend rate,
dividend payment dates, sinking fund provisions, if any, or mandatory redemption
provisions thereof are different from those of the Series F Preferred Stock,
unless the instrument creating or evidencing such class or series of capital
stock otherwise expressly provides.
"Series A Liberty Media Group Common Stock" shall have the
meaning ascribed to such term in Section E of Article IV of the Certificate.
"Series A TCI Group Common Stock" shall mean the Series A TCI
Group Common Stock, par value $1.00 per share, of the Corporation, which term
shall include, where appropriate,
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<PAGE> 149
in the case of any reclassification, recapitalization or other change in the
Series A TCI Group Common Stock, or in the case of a consolidation or merger of
the Corporation with or into another Person affecting the Series A TCI Group
Common Stock, such capital stock to which a holder of Series A TCI Group Common
Stock shall be entitled upon the occurrence of such event; provided, however,
that with respect to any period prior to the date of filing of the amendment to
the Certificate redesignating the Class A Common Stock, par value $1.00 per
share, of the Corporation as "Series A TCI Group Common Stock," such term shall
be deemed to refer to the Class A Common Stock, par value $1.00 per share, of
the Corporation.
"Series B Liberty Media Group Common Stock" shall have the
meaning ascribed to such term in Section E of Article IV of the Certificate.
"Series B TCI Group Common Stock" shall mean the Series B TCI
Group Common Stock, par value $1.00 per share, of the Corporation, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Corporation with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event; provided, however, that with respect to any period
prior to the date of filing of the amendment to the Certificate redesignating
the Class B Common Stock, par value $1.00 per share, of the Corporation as
"Series B TCI Group Common Stock," such term shall be deemed to refer to the
Class B Common Stock, par value $1.00 per share, of the Corporation.
"Stated Amount" per share of the Series F Preferred Stock as of
any date in question (the "Determination Date") shall mean an amount equal to
the sum of (a) the Original Stated Amount of such share, plus (b) an amount
equal to all dividends which have been declared on the shares of Series F
Preferred Stock (including, but not limited to, Participating Dividends) but
which, as of the Determination Date, are unpaid. In connection with the
determination of the Stated Amount of a share of Series F Preferred Stock upon
redemption, the Determination Date shall be the applicable date of redemption.
"Subsidiary" of any Person shall mean (i) a corporation a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by such Person and/or one or more Subsidiaries of such Person and (ii) any other
Person (other than a corporation) in which such Person and/or one or more
Subsidiaries of such Person, directly or indirectly, has (x) a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the members of the governing body of such first-named Person.
"TCI Group Common Stock" shall mean, collectively, the Series A
TCI Group Common Stock and the Series B TCI Group Common Stock.
"TCI Holder" shall mean the Corporation and each Subsidiary of
the Corporation.
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<PAGE> 150
3. Dividends.
(a) CASH DIVIDEND RIGHTS. Subject to the prior preferences and
other rights of any Senior Stock and the provisions of paragraph 6 hereof, the
holders of Series F Preferred Stock shall be entitled to receive cash dividends
per share in an amount (the "Participating Dividend") equal to the product of
(x) the amount of the cash dividend declared and to be paid on a single share of
Series A TCI Group Common Stock (or any other security into which the Series F
Preferred Stock is then convertible) and (y) the number of shares of Series A
TCI Group Common Stock (or other security) into which a share of Series F
Preferred Stock may be converted as of the date such dividend is paid. The
Participating Dividends shall be the only dividends payable to holders of Series
F Preferred Stock and such Participating Dividends shall be declared and paid
only when, as and if a cash dividend is declared and paid upon the outstanding
shares of Series A TCI Group Common Stock. Dividends or distributions on the
Series A TCI Group Common Stock which are paid or made in securities, properties
or other assets of the Corporation other than cash shall not constitute
Participating Dividends and holders of Series F Preferred Stock shall have no
rights with respect thereto, other than as may be provided in paragraph 7.
Participating Dividends shall be payable prior and in preference to any dividend
payments to the holders of any Junior Stock. Participating Dividends shall be
payable to holders of record of shares of Series F Preferred Stock as of the
record date for the determination of holders of Series A TCI Group Common Stock
entitled to receive such dividend and shall be payable on the payment date
established by the Corporation for the payment of such cash dividend to holders
of Series A TCI Group Common Stock.
(b) METHOD OF PAYMENT. All dividends payable with respect to
the shares of Series F Preferred Stock shall be declared and paid in cash. All
dividends paid with respect to the shares of Series F Preferred Stock pursuant
to this paragraph 3 shall be paid pro rata to all the holders of shares of
Series F Preferred Stock outstanding on the applicable record date.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential
amounts to which any Senior Stock is entitled, in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series F Preferred Stock shall be entitled to receive from the
assets of the Corporation available for distribution to stockholders, before any
payment or distribution shall be made to the holders of any Junior Stock, an
amount in cash or property at its fair market value, as determined by the Board
of Directors in good faith, or a combination thereof, per share, equal to the
Liquidation Preference of a share of Series F Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari passu
with any such payment or distribution made to the holders of any Parity Stock
ranking on a parity basis with the Series F Preferred Stock with respect to
distributions upon liquidation, dissolution or winding up of the Corporation.
Following the payment of all amounts owing to holders of each class or series of
capital stock of the Corporation having a preference or priority over the TCI
Group Common Stock as to distributions upon the liquidation, dissolution or
winding up of the Corporation, then the holders of the Series F Preferred
Stock
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shall be entitled to participate, with the holders of the TCI Group Common
Stock, pro rata, based upon the number of shares of Series A TCI Group Common
Stock into which the shares of Series F Preferred Stock are then convertible, as
to any amounts remaining for distribution to the holders of TCI Group Common
Stock upon the liquidation, dissolution or winding up of the Corporation. If,
upon distribution of the Corporation's assets in liquidation, dissolution or
winding up, the assets of the Corporation to be distributed among the holders of
the Series F Preferred Stock and to all holders of any Parity Stock ranking on a
parity basis with the Series F Preferred Stock with respect to distributions
upon liquidation, dissolution or winding up shall be insufficient to permit
payment in full to such holders of the respective preferential amounts to which
they are entitled, then the entire assets of the Corporation to be distributed
to holders of the Series F Preferred Stock and such Parity Stock shall be
distributed pro rata to such holders based upon the aggregate of the full
preferential amounts to which the shares of Series F Preferred Stock and such
Parity Stock would otherwise respectively be entitled. Neither the consolidation
or merger of the Corporation with or into any other corporation or corporations
nor the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 4. Notice of the
liquidation, dissolution or winding up of the Corporation shall be given, not
less than 20 days prior to the date on which such liquidation, dissolution or
winding up is expected to take place or become effective, to the holders of
record of the shares of Series F Preferred Stock.
5. Redemption.
(a) OPTIONAL REDEMPTION. Subject to the rights of any Senior
Stock and the provisions of paragraph 6, the shares of Series F Preferred Stock
may be redeemed, at the option of the Corporation by the action of the Board of
Directors, in whole or from time to time in part, at the Redemption Price on any
Redemption Date occurring on or after the thirtieth Business Day following the
Issue Date. The Redemption Price shall be payable (except as provided in the
last sentence of paragraph 5(c) hereof) only in shares of Series A TCI Group
Common Stock. If less than all outstanding shares of Series F Preferred Stock
are to be redeemed on any Redemption Date, the shares of Series F Preferred
Stock to be redeemed shall be chosen pro rata among all holders of Series F
Preferred Stock. The Corporation shall not be required to register a transfer of
(i) any shares of Series F Preferred Stock for a period of 15 days next
preceding any selection of shares of Series F Preferred Stock to be redeemed or
(ii) any shares of Series F Preferred Stock selected or called for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption shall be given
by or on behalf of the Corporation, not more than 60 days nor less than 30 days
prior to the Redemption Date, to the holders of record of the shares of Series F
Preferred Stock to be redeemed; but no defect in such notice or in the mailing
thereof shall affect the validity of the proceedings for the redemption of any
shares of Series F Preferred Stock. In addition to any information required by
law or by the applicable rules of any national securities exchange or national
interdealer quotation system on which the Series F Preferred Stock may be listed
or admitted to trading or quoted, such notice shall set forth the Redemption
Price, the Redemption Date, the number of shares to be redeemed, the portion of
the Redemption Price, if any, which
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the Corporation has elected to pay through the issuance of Series A TCI Group
Common Stock and the place at which the shares of Series F Preferred Stock
called for redemption will, upon presentation and surrender of the stock
certificates evidencing such shares, be redeemed. In the event that fewer than
the total number of shares of Series F Preferred Stock represented by a
certificate are redeemed, a new certificate representing the number of
unredeemed shares will be issued to the holder thereof without cost to such
holder.
(c) ISSUANCE OF SERIES A TCI GROUP COMMON STOCK. Subject to
compliance with the conditions contained in this paragraph 5(c), the Corporation
shall pay the Redemption Price of the shares of Series F Preferred Stock called
for redemption by issuing to the holder thereof, in respect of its shares to be
redeemed, a number of shares of Series A TCI Group Common Stock equal to the
aggregate Redemption Price (or designated portion thereof) of such shares
divided by the Average Quoted Price of a share of Series A TCI Group Common
Stock. No fractional shares of Series A TCI Group Common Stock or scrip shall be
issued upon such redemption. As to any final fraction of a share of Series A TCI
Group Common Stock that would otherwise be issuable to a holder upon redemption
of his shares of Series F Preferred Stock (determined on the basis of the total
number of such holder's shares of Series F Preferred Stock in respect of which
shares of Series A TCI Group Common Stock are issuable), the Corporation shall
pay an amount in cash or by its check equal to the same fraction of the Average
Quoted Price of a share of Series A TCI Group Common Stock.
The Corporation's right to pay the Redemption Price of the
shares of Series F Preferred Stock through the issuance of shares of Series A
TCI Group Common Stock shall be conditioned upon: (i) the Corporation's having
timely given a notice of redemption setting forth such election as provided in
paragraph 5(b); (ii) the Corporation's having obtained and filed, on or before
the Redemption Date, at the office of the redemption agent for the Series F
Preferred Stock (or with the books of the Corporation if there is no redemption
agent) an Opinion of Counsel to the effect that (A) the shares of Series A TCI
Group Common Stock to be issued upon such redemption have been duly authorized
and, when issued and delivered in payment of the Redemption Price of the shares
of Series F Preferred Stock to be redeemed, will be validly issued, fully paid
and non-assessable and free from preemptive rights, (B) that the issuance and
delivery of such shares of Series A TCI Group Common Stock upon such redemption
of shares of Series F Preferred Stock will not violate the laws of the state of
incorporation of the Corporation, and (C) unless at the time the Redemption
Notice is given all shares of the Series F Preferred Stock are owned by one or
more TCI Holders, that the issuance and delivery of the shares of Series A TCI
Group Common Stock upon such redemption of shares of Series F Preferred Stock is
exempt from the registration or qualification requirements of the 1933 Act and
applicable state securities laws or, if no such exemption is available, that the
shares of Series A TCI Group Common Stock to be issued have been duly registered
or qualified under the 1933 Act and such applicable state securities laws; and
(iii) the Corporation's having filed, on or before the Redemption Date, at the
office of such redemption agent (or with the books of the Corporation if there
is no redemption agent), an Officers' Certificate setting forth the number of
shares of Series A TCI Group Common Stock to be issued in payment of the
Redemption Price of each share of Series F Preferred Stock and the method of
determining the same (consistent with the provisions hereof). If the foregoing
conditions have not been satisfied prior to or on the
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Redemption Date, the Corporation shall pay the Redemption Price for the shares
of Series F Preferred Stock to be redeemed in cash.
(d) DEPOSIT OF REDEMPTION PRICE. If notice of any redemption by
the Corporation pursuant to this paragraph 5 shall have been given as provided
in paragraph 5(b) above, and if on or before the Redemption Date specified in
such notice the Corporation shall have deposited with the redemption agent for
the Series F Preferred Stock (or if there is no redemption agent, shall have set
apart so as to be available for such purpose and only such purpose) shares of
Series A TCI Group Common Stock sufficient to redeem in full on the Redemption
Date at the Redemption Price all shares of Series F Preferred Stock called for
redemption and provided that the conditions set forth in paragraph 5(c) have
been satisfied, then effective as of the close of business on the Redemption
Date, the shares of Series F Preferred Stock called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and the holders thereof
shall cease to be stockholders with respect to such shares, and all rights with
respect to such shares shall forthwith cease and terminate, except the right of
the holders thereof to receive the Series A TCI Group Common Stock (or cash, as
applicable) issuable (or payable) in payment of the Redemption Price of such
shares, without interest, upon the surrender of certificates representing the
same.
(e) STATUS OF REDEEMED SHARES. All shares of Series F Preferred
Stock redeemed, exchanged, purchased or otherwise acquired by the Corporation
shall be retired and shall be restored to the status of authorized and unissued
shares of Series Preferred Stock (and may be reissued as part of another series
of the preferred stock of the Corporation, but such shares shall not be reissued
as Series F Preferred Stock).
6. Limitations on Dividends and Redemptions.
If at any time the Corporation shall have declared a dividend on the
Series F Preferred Stock and failed to pay or set aside consideration sufficient
to pay such dividend, or if the Corporation declares a cash dividend on the
shares of Series A TCI Group Common Stock and fails to pay or set aside the
Participating Dividend required to be paid to the holders of the Series F
Preferred Stock, then (i) the Corporation shall not declare or pay any dividend
on or make any distribution with respect to any Parity Stock or Junior Stock or
set aside any money or assets for any such purpose until such dividend payable
to the holders of Series F Preferred Stock has been paid or consideration
sufficient to pay such dividend has been set aside for such purpose, and (ii)
neither the Corporation nor any Subsidiary thereof shall redeem, exchange,
purchase or otherwise acquire any shares of Series F Preferred Stock, Parity
Stock or Junior Stock, or set aside any money or assets for any such purpose,
pursuant to paragraph 5 hereof, a sinking fund or otherwise, unless all then
outstanding shares of any class or series of Parity Stock that by the terms of
the instrument creating or evidencing such Parity Stock is required to be
redeemed under such circumstances are redeemed or exchanged pursuant to the
terms hereof and thereof.
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If the Corporation shall fail to redeem on any date fixed for
redemption or exchange pursuant to paragraph 5 hereof any shares of Series F
Preferred Stock called for redemption on such date, and until such shares are
redeemed in full, the Corporation shall not redeem or exchange any Parity Stock
or Junior Stock or declare or pay any dividend on or make any distribution with
respect to any Junior Stock, or set aside any money or assets for any such
purpose, and neither the Corporation nor any Subsidiary thereof shall purchase
or otherwise acquire any Series F Preferred Stock, Parity Stock or Junior Stock,
or set aside any money or assets for any such purpose.
Neither the Corporation nor any Subsidiary thereof shall
redeem, exchange, purchase or otherwise acquire any Parity Stock or Junior
Stock, or set aside any money or assets for any such purpose, if after giving
effect to such redemption, exchange, purchase or other acquisition, the amount
(as determined by the Board of Directors in good faith) that would be available
for distribution to the holders of the Series F Preferred Stock upon
liquidation, dissolution or winding up of the Corporation if such liquidation,
dissolution or winding up were to occur on the date fixed for such redemption,
exchange, purchase or other acquisition of such Parity Stock or Junior Stock
would be less than the aggregate Liquidation Preference as of such date of all
shares of Series F Preferred Stock then outstanding.
Nothing contained in this paragraph 6 shall prevent (i) the
payment of dividends on any Junior Stock solely in shares of Junior Stock or the
redemption, purchase or other acquisition of Junior Stock solely in exchange for
(together with a cash adjustment for fractional shares, if any) shares of Junior
Stock, or (ii) the payment of dividends on any Parity Stock solely in shares of
Parity Stock and/or Junior Stock or the redemption, exchange, purchase or other
acquisition of Parity Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or through the application of the
proceeds from the sale of, shares of Parity Stock and/or Junior Stock.
All provisions of this paragraph 6 are for the sole benefit of
the holders of Series F Preferred Stock and accordingly, if the holders of
shares of Series F Preferred Stock shall have waived (as provided in paragraph
9) in whole or in part the benefit of the applicable provisions, either
generally or in the specific instance, such provision shall not (to the extent
of such waiver, in the case of a partial waiver) restrict the redemption,
exchange, purchase or other acquisition of, or declaration, payment or making of
any dividends or distributions on the Series F Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion.
(a) Unless previously called for redemption as provided in
Section 5 hereof, shares of Series F Preferred Stock shall be convertible, at
the option of the holder thereof, at any time in such manner and upon such terms
and conditions as hereinafter provided in this paragraph 7, into fully paid and
non-assessable full shares of Series A TCI Group Common Stock. No shares of
Series A TCI Group Common Stock shall be issued in respect of the conversion of
the Series F Preferred Stock after the fifteenth Business Day (the "Cut-off
Date") preceding the date fixed for redemption; provided that the conversion of
shares surrendered for
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conversion in accordance with this paragraph 7 after the Cut-off Date shall be
given effect as of the date of such surrender if the Redemption Price to be
paid, or to be irrevocably set apart in trust for the benefit of the holders of
shares to be so redeemed, has not been paid or so set apart on or before such
date fixed for redemption. In case cash, securities or property other than
Series A TCI Group Common Stock shall be payable, deliverable or issuable upon
conversion as provided herein, then all references to Series A TCI Group Common
Stock in this paragraph 7 shall be deemed to apply, so far as appropriate and as
nearly as may be, to such cash, property or other securities
(b) Subject to the provisions for adjustment hereinafter set
forth in this paragraph 7, the Series F Preferred Stock may be converted into
Series A TCI Group Common Stock at the initial conversion rate of 1,000 fully
paid and non-assessable shares of Series A TCI Group Common Stock for one share
of the Series F Preferred Stock. (This conversion rate as from time to time
adjusted cumulatively pursuant to the provisions of this paragraph is
hereinafter referred to as the "Conversion Rate").
(c) In case after the Issue Date the Corporation shall (i) pay
a dividend or make a distribution on its outstanding shares of Series A TCI
Group Common Stock in shares of Series A TCI Group Common Stock, (ii) subdivide
the then outstanding shares of Series A TCI Group Common Stock into a greater
number of shares of Series A TCI Group Common Stock, (iii) combine the then
outstanding shares of Series A TCI Group Common Stock into a smaller number of
shares of Series A TCI Group Common Stock, or (iv) issue by reclassification of
its shares of Series A TCI Group Common Stock any shares of any other class of
capital stock of the Corporation (including any such reclassification in
connection with a merger in which the Corporation is the continuing
corporation), then the Conversion Rate in effect immediately prior to the
opening of business on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of each share of Series F Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Series A TCI Group Common Stock (and the number and kind of other securities)
that such holder would have owned or been entitled to receive immediately
following such action had such shares of Series F Preferred Stock been converted
immediately prior to such time. An adjustment made pursuant to this paragraph
7(c) for a dividend or distribution shall become effective immediately after the
record date for the dividend or distribution and an adjustment made pursuant to
this paragraph 7(c) for a subdivision, combination or reclassification shall
become effective immediately after the effective date of the subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any action listed above shall be taken.
(d) In case the Corporation shall after the Issue Date issue
any rights or warrants to all holders of shares of Series A TCI Group Common
Stock entitling them (for a period expiring within 45 days after the record date
for the determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Series A TCI Group Common Stock
(or Convertible Securities) at a price per share of Series A TCI Group Common
Stock (or having an initial exercise price or conversion price per share of
Series A TCI Group Common Stock) less than the then current market price per
share of Series A TCI Group
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Common Stock (as determined in accordance with the provisions of paragraph 7(f)
below) on such record date, the number of shares of Series A TCI Group Common
Stock into which each share of Series F Preferred Stock shall thereafter be
convertible shall be determined by multiplying the number of shares of Series A
TCI Group Common Stock into which such share of Series F Preferred Stock was
theretofore convertible immediately prior to such record date by a fraction of
which the numerator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of additional shares of
Series A TCI Group Common Stock offered for subscription or purchase (or into
which the Convertible Securities so offered are initially convertible) and of
which the denominator shall be the number of shares of Series A TCI Group Common
Stock outstanding on such record date plus the number of shares of Series A TCI
Group Common Stock which the aggregate offering price of the total number of
shares of Series A TCI Group Common Stock so offered (or the aggregate initial
conversion or exercise price of the Convertible Securities so offered) would
purchase at the then current market price per share of Series A TCI Group Common
Stock (as determined in accordance with the provisions of paragraph 7(f) below)
on such record date. Such adjustment shall be made successively whenever any
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Series A TCI Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities have not been issued prior to the
expiration of the conversion right thereof), then the Conversion Rate shall be
readjusted retroactively to be the Conversion Rate which would then be in effect
had the adjustment upon the issuance of such rights or warrants been made on the
basis of the actual number of shares of Series A TCI Group Common Stock (or
Convertible Securities) issued upon the exercise of such rights or warrants (or
the conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Series A TCI Group Common Stock issued
upon the conversion of any share of Series F Preferred Stock prior to the date
such subsequent adjustment is made.
(e) In case the Corporation shall distribute after the Issue
Date to all holders of shares of Series A TCI Group Common Stock (including any
such distribution made in connection with a merger in which the Corporation is
the continuing corporation, other than a merger to which paragraph 7(g) is
applicable) any securities, evidences of its indebtedness or assets (other than
cash dividends or Series A TCI Group Common Stock in respect of which an
adjustment is made pursuant to paragraph 7(c) hereof) or rights or warrants to
purchase shares of Series A TCI Group Common Stock or securities convertible
into shares of Series A TCI Group Common Stock (excluding those referred to in
paragraph 7(d) above), then in each such case the number of shares of Series A
TCI Group Common Stock into which each share of Series F Preferred Stock shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such share was theretofore
convertible immediately prior to the record date for the determination of
stockholders entitled to receive the distribution by a fraction of which the
numerator shall be the then current market price per share of Series A TCI Group
Common Stock (as determined in accordance with the
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provisions of paragraph 7(f) below) on such record date and of which the
denominator shall be such current market price per share of Series A TCI Group
Common Stock less the fair market value on such record date (as determined by
the Board of Directors of the Corporation, whose determination shall be
conclusive) of the portion of the securities, assets or evidences of
indebtedness or rights or warrants so to be distributed applicable to one share
of Series A TCI Group Common Stock. Such adjustment shall be made successively
whenever any such distribution is made and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such distribution.
(f) For the purpose of any computation under paragraph 7(d),
(e) or (k), the current market price per share of Series A TCI Group Common
Stock at any date shall be deemed to be the average of the daily closing prices
for a share of Series A TCI Group Common Stock for the ten (10) consecutive
trading days before the day in question, appropriately adjusted to take into
account the actual occurrence during such period of any of the events specified
in paragraph 7(c) hereof. The closing price for each day shall be the last
reported sale price regular way or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in either case on the composite tape, or if the shares of Series A TCI Group
Common Stock are not quoted on the composite tape, on the principal United
States securities exchange registered under the Exchange Act on which the shares
of Series A TCI Group Common Stock are listed or admitted to trading, or if they
are not listed or admitted to trading on any such exchange, the last reported
sale price (or the average of the quoted closing bid and asked prices if there
were no reported sales) as reported by NASDAQ or any comparable system, or if
the Series A TCI Group Common Stock is not quoted on NASDAQ or any comparable
system, the average of the closing bid and asked prices as furnished by any
member of the National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose or, in the absence of such
quotations, such other method of determining market value as the Board of
Directors shall from time to time deem to be fair. With respect to any
calculation of the current market price per share of Series A TCI Group Common
Stock relating to any period prior to the redesignation of the Corporation's
Class A Common Stock, par value $1.00 per share, into Series A TCI Group Common
Stock, such current market price shall be calculated based upon the closing
price of a share of such Class A Common Stock of the Corporation for periods
prior to such redesignation.
(g) In case of any reclassification or change in the Series A
TCI Group Common Stock (other than any reclassification or change referred to in
paragraph 7(c) and other than a change in par value) or in case of any
consolidation of the Corporation with any other corporation or any merger of the
Corporation into another corporation or of another corporation into the
Corporation (other than a merger in which the Corporation is the continuing
corporation and which does not result in any reclassification or change (other
than a change in par value or any reclassification or change to which paragraph
7(c) is applicable) in the outstanding Series A TCI Group Common Stock), or in
case of any sale or transfer to another corporation or entity (other than by
mortgage or pledge) of all or substantially all of the properties and assets of
the Corporation, in any such case after the Issue Date, the Corporation (or its
successor in such consolidation or merger) or the purchaser of such properties
and assets shall make appropriate provision so that the holder of a share of
Series F Preferred Stock shall have the right thereafter
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to convert such share into the kind and amount of shares of stock and other
securities and property that such holder would have owned immediately after such
reclassification, change, consolidation, merger, sale or transfer if such holder
had converted such share of Series F Preferred Stock into Series A TCI Group
Common Stock immediately prior to the effective date of such reclassification,
change, consolidation, merger, sale or transfer (assuming for this purpose (to
the extent applicable) that such holder failed to exercise any rights of
election and received per share of Series A TCI Group Common Stock the kind and
amount of shares of stock and other securities and property received per share
by a plurality of the non-electing shares), and the holders of the Series F
Preferred Stock shall have no other conversion rights under these provisions;
provided, that effective provision shall be made, in the Articles or Certificate
of Incorporation of the resulting or surviving corporation or otherwise or in
any contracts of sale or transfer, so that the provisions set forth herein for
the protection of the conversion rights of the Series F Preferred Stock shall
thereafter be made applicable, as nearly as reasonably may be practicable, to
any such other shares of stock and other securities and property deliverable
upon conversion of the Series F Preferred Stock remaining outstanding or other
convertible preferred stock or other Convertible Securities received by the
holders of Series F Preferred Stock in place thereof; and provided, further,
that any such resulting or surviving corporation or purchaser shall expressly
assume the obligation to deliver, upon the exercise of the conversion privilege,
such shares, securities or property as the holders of the Series F Preferred
Stock remaining outstanding, or other convertible preferred stock or other
convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion rights as above provided.
(h) Whenever the Conversion Rate or the conversion privilege
shall be adjusted as provided in paragraphs 7(c), (d), (e) or (g), the
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series F Preferred Stock describing the nature of the event requiring
such adjustment, the Conversion Rate in effect immediately thereafter and the
kind and amount of stock or other securities or property into which the Series F
Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to be
mailed under the provisions of paragraph 7(j).
(i) The Corporation may, but shall not be required to, make any
adjustment of the Conversion Rate if such adjustment would require an increase
or decrease of less than 1% in such Conversion Rate; provided, however, that any
adjustments which by reason of this paragraph 7(i) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. In any case in which this
paragraph 7(i) shall require that an adjustment shall become effective
immediately after a record date for such event, the Corporation may defer until
the occurrence of such event (x) issuing to the holder of any shares of Series F
Preferred Stock converted after such record date and before the occurrence of
such event the additional shares of Series A TCI Group Common Stock or other
capital stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Series A TCI Group Common Stock or
other capital stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such
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holder cash in lieu of any fractional interest to which such holder is entitled
pursuant to paragraph 7(n); provided, however, that, if requested by such
holder, the Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares of Series A TCI Group Common Stock or other capital stock, and such cash,
upon the occurrence of the event requiring such adjustment.
(j) In case at any time:
(i) the Corporation shall take any action
which would require an adjustment in the Conversion Rate
pursuant to this paragraph;
(ii) there shall be any capital reorganization
or reclassification of the Series A TCI Group Common Stock
(other than a change in par value), or any consolidation or
merger to which the Corporation is a party and for which
approval of any shareholders of the Corporation is required, or
any sale, transfer or lease of all or substantially all of the
properties and assets of the Corporation; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of the
Corporation;
then, in any such event, the Corporation shall give written notice, in the
manner provided in herein, to the holders of the Series F Preferred Stock at
their respective addresses as the same appear on the books of the Corporation,
at least twenty days (or ten days in the case of a recommended tender offer as
specified in clause (ii) above) prior to any record date for such action,
dividend or distribution or the date as of which it is expected that holders of
Series A TCI Group Common Stock of record shall be entitled to exchange their
shares of Series A TCI Group Common Stock for securities or other property, if
any, deliverable upon such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, dissolution, liquidation or winding up; provided,
however, that any notice required by any event described in clause (ii) of this
paragraph 7(j) shall be given in the manner and at the time that such notice is
given to the holders of Series A TCI Group Common Stock. Without limiting the
obligations of the Corporation to provide notice of corporate actions hereunder,
the failure to give the notice required by this paragraph 7(j) or any defect
therein shall not affect the legality or validity of any such corporate action
of the Corporation or the vote upon such action.
(k) Each share of Series F Preferred Stock that ceases to be
owned, of record and beneficially, by a TCI Holder will automatically be
converted without action by the holder thereof into shares of Series A TCI Group
Common Stock at the then applicable Conversion Rate; such conversion shall be
deemed effective immediately prior to the transfer or other event resulting in
such shares of Series F Preferred Stock ceasing to be held of record and
beneficially by a TCI Holder. A pledge or other grant of a security interest in
shares of Series F Preferred Stock shall not be deemed to constitute a direct or
indirect transfer of such shares or another event causing such automatic
conversion until such time as the pledgee or other holder of a security interest
initiates any action for the purpose of exercising on such pledge or security
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interest or foreclosing upon the pledged securities, and from and after the time
of such transfer or other event such shares of Series F Preferred Stock will be
deemed to represent only the right to receive the number of shares of Series A
TCI Group Common Stock issuable upon such conversion.
(l) Before any holder of Series F Preferred Stock shall be
entitled to convert the same into Series A TCI Group Common Stock, such holder
shall surrender the certificate or certificates for such Series F Preferred
Stock at the office of the Corporation or at the office of the transfer agent
for the Series F Preferred Stock, which certificate or certificates, if the
Corporation shall so request, shall be duly endorsed to the Corporation or in
blank or accompanied by proper instruments of transfer to the Corporation or in
blank (such endorsements or instruments of transfer to be in form satisfactory
to the Corporation), and shall give written notice to the Corporation at said
office that such holder elects to convert all or a part of the shares
represented by said certificate or certificates in accordance with the terms of
this paragraph 7 (except that no such written notice shall be necessary in the
event of an automatic conversion pursuant to paragraph 7(k) hereof), and shall
state in writing therein the name or names in which such holder wishes the
certificates for Series A TCI Group Common Stock to be issued. Every such notice
of election to convert shall constitute a contract between the holder of such
Series F Preferred Stock and the Corporation, whereby the holder of such Series
F Preferred Stock shall be deemed to subscribe for the amount of Series A TCI
Group Common Stock which such holder shall be entitled to receive upon
conversion of the number of shares of Series F Preferred Stock to be converted,
and, in satisfaction of such subscription, to deposit the shares of Series F
Preferred Stock to be converted, and thereby the Corporation shall be deemed to
agree that the surrender of the shares of Series F Preferred Stock to be
converted shall constitute full payment of such subscription for Series A TCI
Group Common Stock to be issued upon such conversion. The Corporation will as
soon as practicable after such deposit of a certificate or certificates for
Series F Preferred Stock, accompanied by the written notice and the statement
above prescribed, issue and deliver at the office of the Corporation or of said
transfer agent to the Person for whose account such Series F Preferred Stock was
so surrendered, or to his nominee(s) or, subject to compliance with applicable
law, transferee(s), a certificate or certificates for the number of full shares
of Series A TCI Group Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share as hereinafter provided.
If surrendered certificates for Series F Preferred Stock are converted only in
part, the Corporation will issue and deliver to the holder, or to his
nominee(s), without charge therefor, a new certificate or certificates
representing the aggregate of the unconverted shares. Such conversion shall be
deemed to have been made as of the date of such surrender of the Series F
Preferred Stock to be converted or, in the case of an automatic conversion
pursuant to paragraph 7(k) hereof, as of the date of the transfer or other event
resulting in such automatic conversion, and the Person or Persons entitled to
receive the Series A TCI Group Common Stock issuable upon conversion of such
Series F Preferred Stock shall be treated for all purposes as the record holder
or holders of such Series A TCI Group Common Stock on such date.
Upon the conversion of any share, the Corporation shall pay, to
the holder of record of such share of Series F Preferred Stock, dividends on
such share which have been declared but have not been paid as of the date of the
surrender of such share for conversion or
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the date such automatic conversion shall have been deemed to take place. Such
payment shall be made in cash or, at the election of the Corporation, the
issuance of certificates representing such number of shares of Series A TCI
Group Common Stock as have an aggregate current market price (as determined in
accordance with paragraph 7(f)) on the date of issuance equal to the amount of
such unpaid dividends. Upon the making of such payment to the Person entitled
thereto as determined pursuant to the first sentence of this paragraph, no
further dividends shall accrue on such share or be payable to any other Person.
The issuance of certificates for shares of Series A TCI Group
Common Stock upon conversion of shares of Series F Preferred Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance; provided, however, if any such certificate is to be issued in a name
other than that of the registered holder of the share or shares of Series F
Preferred Stock converted, the Person or Persons requesting the issuance thereof
shall pay to the Corporation the amount of any such tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that such tax has been paid.
The Corporation shall not be required to convert any shares of
Series F Preferred Stock, and no surrender of Series F Preferred Stock shall be
effective for that purpose, while the stock transfer books of the Corporation
are closed for any purpose; but the surrender of Series F Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if the
conversion had been made on the date such Series F Preferred Stock was
surrendered.
(m) The Corporation shall reserve and keep available
at all times thereafter, solely for the purpose of issuance upon conversion of
the outstanding shares of Series F Preferred Stock, such number of shares of
Series A TCI Group Common Stock as shall be issuable upon the conversion of all
outstanding shares of Series F Preferred Stock, provided that nothing contained
herein shall be construed to preclude the Corporation from satisfying its
obligations in respect of the conversion of the outstanding shares of Series F
Preferred Stock by delivery of shares of Series A TCI Group Common Stock which
are held in the treasury of the Corporation. The Corporation shall take all such
corporate and other actions as from time to time may be necessary to insure that
all shares of Series A TCI Group Common Stock issuable upon conversion of shares
of Series F Preferred Stock at the Conversion Rate in effect from time to time
will, upon issue, be duly and validly authorized and issued, fully paid and
nonassessable and free of any preemptive or similar rights, and will be free and
clear of any liens, claims, charges or other encumbrances, except those created
by the holder of the shares of Series F Preferred Stock being converted or the
Person entitled to receive the shares of Series A TCI Group Common Stock
issuable upon such conversion.
(n) All shares of Series F Preferred Stock received by
the Corporation upon conversion thereof into Series A TCI Group Common Stock
shall be retired and shall be restored to the status of authorized and unissued
shares of Series F Preferred Stock (and may be reissued as part of another
series of the Preferred Stock of the Corporation), but such shares shall not be
reissued as shares of Series F Preferred Stock.
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(o) The Corporation shall not be required to issue fractional
shares of Series A TCI Group Common Stock or scrip upon conversion of the Series
F Preferred Stock. As to any final fraction of a share of Series A TCI Group
Common Stock which a holder of one or more Shares would otherwise be entitled to
receive upon conversion of such Shares in the same transaction, the Corporation
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the market value of a full share of Series A TCI Group
Common Stock. For purposes of this paragraph 7(o), the market value of a share
of Series A TCI Group Common Stock shall be the last reported sale price regular
way on the business day immediately preceding the date of conversion, or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way on such day, in either case on the
composite tape, or if the shares of Series A TCI Group Common Stock are not
quoted on the composite tape, on the principal United States securities exchange
registered under the Exchange Act on which the shares of Series A TCI Group
Common Stock are listed or admitted to trading, or if the shares of Series A TCI
Group Common Stock are not listed or admitted to trading on any such exchange,
the last reported sale price (or the average of the quoted last reported bid and
asked prices if there were no reported sales) as reported by NASDAQ or any
comparable system, or if the Series A TCI Group Common Stock is not quoted on
NASDAQ or any comparable system, the average of the closing bid and asked prices
as furnished by any member of the National Association of Securities Dealers,
Inc. selected from time to time by the Corporation for that purpose or, in the
absence of such quotations, such other method of determining market value as the
Board of Directors shall from time to time deem to be fair.
8. Voting.
(a) VOTING RIGHTS. The holders of Series F Preferred Stock
shall have no voting rights whatsoever, except as required by law and except for
the voting rights described in this paragraph 8. Without limiting the generality
of the foregoing, no vote or consent of the holders of Series F Preferred Stock
shall be required for (a) the creation of any indebtedness of any kind of the
Corporation, (b) the creation or designation of any class or series of Senior
Stock, Parity Stock or Junior Stock, or (c) any amendment to the Certificate
that would increase the number of authorized shares of Preferred Stock or the
number of authorized shares of Series F Preferred Stock or that would decrease
the number of authorized shares of Preferred Stock or the number of authorized
shares of Series F Preferred Stock (but not below the number of shares of
Preferred Stock or Series F Preferred Stock, as the case may be, then
outstanding).
(b) ELECTION OF DIRECTORS. The holders of the Series F
Preferred Stock will have the right to vote at any annual or special meeting of
stockholders for the purpose of electing directors. Each share of Series F
Preferred Stock shall have one vote for such purpose, and the holders of such
shares shall vote as a single class with any other class or series of capital
stock of the Corporation entitled to vote in any general election of directors,
unless the instrument creating or evidencing such other class or series of
capital stock otherwise expressly provides.
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<PAGE> 163
9. Waiver.
Any provision which, for the benefit of the holders of Series F
Preferred Stock, prohibits, limits or restricts actions by the Corporation, or
imposes obligations on the Corporation, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent in
writing of the holders of at least a majority of the number of shares of Series
F Preferred Stock then outstanding (or such greater percentage thereof as may be
required by applicable law or any applicable rules of any national securities
exchange or national interdealer quotation system); provided, however, that no
such waiver shall be binding or be otherwise effective against any holder of
shares of Series F Preferred Stock which does not execute a written consent to
such waiver.
10. Method of Giving Notices.
Any notice required or permitted hereby to be given to the
holders of shares of Series F Preferred Stock shall be deemed duly given if
deposited in the United States mail, first class mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation or supplied by him in writing to the Corporation for the purpose of
such notice.
11. Exclusion of Other Rights.
Except as may otherwise be required by law and except for the
equitable rights and remedies which may otherwise be available to holders of
Series F Preferred Stock, the shares of Series F Preferred Stock shall not have
any designations, preferences, limitations or relative rights other than those
specifically set forth herein.
12. Heading of Subdivisions.
The headings of the various subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
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FURTHER RESOLVED, that the appropriate officers of the
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned, duly authorized officer
has executed this certificate on this 3rd day of August, 1995.
By: BRENDON R. CLOUSTON
Name: Brendon R. Clouston
Title: Executive Vice President
Attest: STEPHEN M. BRETT
Name: Stephen M. Brett
Title: Secretary
<PAGE> 165
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
_______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF JANUARY, A.D. 1996, AT 3:00 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OR DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2371729 8100 DATE: 7804651
960024220 01-25-96
<PAGE> 166
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:00 PM 01/25/1996
960024220 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------
SETTING FORTH A COPY OF RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"REDEEMABLE CONVERTIBLE TCI GROUP PREFERRED STOCK, SERIES G"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
--------------------
The undersigned, an executive Vice President of TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), HEREBY CERTIFIES that the Board
of Directors of the Company on DECEMBER 13, 1995, duly adopted the following
resolutions creating a new series of the Company's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Company, the Board of Directors hereby creates and
authorizes the issuance of a new series of the Company's Series Preferred
Stock, par value $.01 per share (Series Preferred Stock"), and hereby fixes the
powers, designations, dividend rights, voting powers, rights on liquidation,
conversion rights, redemption rights and other preferences and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions of the shares of such series (in addition to the
powers, designations, preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions
thereof set forth in the Restated Certificate of Incorporation that are
applicable to each class and series of the Company's preferred stock, par value
$.01 per share ("Preferred Stock")) as follows:
1. Designation Number of Shares. The designation of the series of
Series Preferred Stock, par value $.01 per share, of the Company created hereby
shall be "Redeemable Convertible TCI Group Preferred Stock, Series G" ("Series
G Preferred Stock"). The designated number of shares of Series G Preferred
Stock shall be 7,259,380. Each share of Series G Preferred Stock shall have a
stated value of $21.60 ("Stated Value").
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<PAGE> 167
Any shares of Series G Preferred Stock redeemed, converted or
otherwise acquired by the Company shall be retired, shall not be reissued as
shares of Series G Preferred Stock and shall resume the status of authorized
and unissued shares of Series Preferred Stock, without designation as to
series, until such shares are once more designated as part of a particular
series of Series Preferred Stock by the Board of Directors.
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Anniversary Date" shall mean JANUARY 25, 1997.
"Average Market Price" as of any Record Date or Special Record Date
for a dividend payment declared by the Board of Directors shall mean the
average of the daily Closing Prices of the Series A TCI Group Common Stock for
the period of ten (10) consecutive trading days ending on the tenth trading day
prior to such Record date or Special Record Date, appropriately adjusted in
such manner as the Board of Directors in good faith deems appropriate to take
into account any stock dividend on the Series A TCI Group Common Stock, or any
subdivision, combination or reclassification of the Series A TCI Group Common
Stock that occurs, or the Ex-Dividend date for which occurs, during the period
following the first trading day in such ten-trading day period and ending on
the last full trading day immediately preceding the Dividend Payment Date or
other date fixed for the payment of dividends to which such Record Date or
Special Record Date relates.
"Board of Directors" shall mean the Board of Directors of the Company,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in The City of New York, New York are not
required to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
the Company.
"Closing Price" of a share of Series A TCI Group Common Stock or of a
share of Series A Liberty Media Group Common Stock, or of a share of any other
class or series of capital stock of the Company into which the Series G
Preferred Stock may hereafter become convertible pursuant to paragraph 7, on
any day shall mean the last reported per share sale price (or, if no sale price
is reported, the average of the high and low bid prices) of the Series A TCI
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<PAGE> 168
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as the case may be, on such day on the Nasdaq Sock Market or as
quoted by the National Quotation Bureau Incorporated or, if the Series A TCI
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as applicable, is listed on an exchange, on the principal
exchange on which the Series A TCI Group Common Stock, the Series A Liberty
Media Group Common Stock or such capital stock, as the case may be, is listed.
In the event that no such quotation is available for any day, the Board of
Directors shall be entitled to determine the Closing Price on the basis of such
quotations as it in good faith considers appropriate.
"Contingency" shall have the meaning set forth in paragraph 3(a).
"Conversion Date" of a share of Series G Preferred Stock shall mean
the date on which the requirements for conversion of such share set forth in
paragraph 7(b) of this Certificate of designations have been satisfied by the
holder thereof.
"Conversion Rate" shall mean the kind and amount of securities, assets
or other property that as of any date are issuable or deliverable upon
conversion of a share of Series G Preferred Stock. The Conversion Rate of a
share of Series G Preferred Stock shall initially be 1.05 shares of Series A
TCI Group Common Stock for each share of Series G Preferred Stock, subject to
adjustment as set forth in paragraph 7 of this Certificate of Designations. In
the event that pursuant to paragraph 7 the Series G Preferred Stock becomes
convertible into more than one class or series of capital stock of the Company,
the term Conversion Rate, when used with respect to any such class or series,
shall mean the number or fraction of shares or other units of such capital
stock that as of any date would be issued upon conversion of a share of Series
G Preferred Stock.
"Convertible Securities" shall mean any or all options, warrants,
securities and rights which are convertible into or exercisable or exchangeable
for Series A TCI Group Common Stock at the option of the holder thereof, or
which otherwise entitle the holder thereof to subscribe for, purchase or
otherwise acquire Series A TCI Group Common Stock; provided, however, that such
term shall not include the Series B TCI Group Common Stock.
"Career Market Price", on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the Current
Market Price is being calculated, shall mean the average of the daily Closing
Prices of the Series A TCI Group Common Stock for the shortest of:
(i) the period of 30 consecutive trading days commencing 45
trading days before such Determination Date,
(ii) the period commencing on the date next succeeding the
first public announcement of the issuance of rights, warrants or
options or the distribution in
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respect of which the Current Market Price is being calculated and
ending on the last full trading day before such Determination Date,
and
(iii) the period, if any, commencing on the date next
succeeding the Ex-Dividend Date with respect to the next preceding
issuance of rights, warrants or options or distribution for which an
adjustment is required by the provisions of paragraph 7(c)(iv), 7(d)
or 7(e), and ending on the last full trading day before such
Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of paragraph
7(c)(iv), 7(d) or 7(e) (the "preceding adjustment event") precedes the record
date for the issuance or distribution in respect of which the Current Market
Price is being calculated and the Ex-Dividend Date for such preceding
adjustment event is on or after the Determination Date for the issuance or
distribution in respect of which the Current Market Price is being calculated,
then the Current Market Price shall be adjusted by deducting therefrom the fair
market value (on the record date for the issuance or distribution in respect of
which the Current Market Price is being calculated), as determined in good
faith by the Board of Directors, of the capital stock, rights, warrants or
options, assets or debt securities issued or distributed in respect of each
share of Series A TCI Group Common Stock in such preceding adjustment event.
Further, in the event that the Ex-Dividend Date (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which paragraph 7(c)(i), (ii), (iii) or (v) applies occurs
during the period applicable for calculating the Current Market Price, then the
Current Market Price shall be calculated for such period in a manner determined
in good faith by the Board of Directors to reflect the impact of such dividend,
subdivision, combination or reclassification on the Closing Prices of the
Series A TCI Group Common Stock during such period.
"Determination Date" for any issuance of rights, warrants or options
or any distribution to which paragraph 7(d) or 7(e) applies shall mean the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights, warrants or options or the distribution to which such
paragraph applies and (ii) the Ex-Dividend date for such rights, warrants or
options or distribution.
"Dividend Payment Date" shall mean the FIRST day of each FEBRUARY and
AUGUST, commencing with AUGUST 1, 1997, or the next succeeding Business Day if
any such day is not a Business Day.
"Dividend Period" shall mean the period from the Anniversary Date to
but excluding the first Dividend Payment Date and, thereafter, each semi-annual
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.
"Exchange Preferred Stock" shall have the meaning set forth in
paragraph 7(g).
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<PAGE> 170
"Ex-Dividend Date" shall mean the date on which "ex-dividend" trading
commences for a dividend, an issuance of rights, warrants or options or a
distribution to which any of paragraph 7(c), (d), or (e) applies in the
over-the-counter market or on the principal exchange on which the Series A TCI
Group Common Stock is then quoted or listed.
"Issue Date" shall mean the date on which shares of Series G Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii) the
Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv) any
other class or series of capital stock, whether now existing or hereafter
created, of the Company, other than (A) the Series G Preferred Stock, (B) any
class or series of Parity Stock (except to the extent provided under clause (v)
hereof) and (C) any class or series of Senior Stock, and (v) any class or
series of Parity Stock to the extent that it ranks junior to the Series G
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation, as the case may be. For purposes of clause (v) above, a class or
series of Parity Stock shall rank junior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of Series G Preferred Stock shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of such class or series of Parity Stock.
"Liberty Media Group Common Stock" shall mean the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock.
"Liquidation Preference" measured per share of the Series G Preferred
Stock as of any date in question (the "Relevant Date") shall mean an amount
equal to the sum of (a) the Stated Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 3(d)
of this Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
determining the amounts payable pursuant to paragraph 4 and paragraph 5 of this
Certificate of Designations and the definition of Redemption Price, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (a) and (b) above during the period from and including the immediately
preceding Dividend Payment Date (or the Anniversary Date if the Relevant Date
is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Company legally available for the payment of dividends. In connection
with the determination of the Liquidation Preference of a share of Series G
Preferred Stock upon redemption or upon liquidation, dissolution or winding up
of the Company, the Relevant Date shall be the applicable date of redemption or
the date of distribution of amounts payable to stockholders in connection with
any such liquidation, dissolution or winding up.
"Mirror Preferred Stock" shall have the meaning set forth in paragraph
7(g).
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<PAGE> 171
"1933 Act" shall mean the Securities Act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Officers' Certificate" shall mean a certificate signed by the
Chairman of the Board, President or any Senior Vice President of the Company
and by the Treasurer or an Assistant Treasurer of the Company.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created, of the Company ranking on a parity
basis with the Series G Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series,
whether now existing or hereafter created, shall rank on a parity as to
dividend rights, rights of redemption or rights on liquidation with the Series
G Preferred Stock, whether or not the dividend rates, dividend payment dates,
redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different from those of the Series G
Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as
the case may be, in proportion to their respective accumulated and accrued and
unpaid dividends, redemption prices or liquidations prices, respectively,
without preference or priority, one over the other, as between the holders of
shares of such class or series and the holders of Series G Preferred Stock. No
class or series of capital stock that ranks junior to the Series G Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series G Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly so provides. The Series C Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock and the
Series H Preferred Stock rank on a parity basis with the Series G Preferred
Stock as to dividend rights, rights of redemption and rights on liquidation and
constitute "Parity Stock" for purposes of this Certificate of Designations.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
shall mean the 15th day of the month preceding the month during which such
Dividend Payment Date shall occur as and if designated by the Board of
Directors.
"Redeemable Capital Stock" shall have the meaning set forth in
paragraph 7(c).
"Redemption Date" as to any share of Series G Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a) or
5(b) of this Certificate of Designations, provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid in full
on such date or the consideration sufficient for the
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payment thereof, and for no other purpose, has been set apart or deposited in
trust as contemplated by paragraph 5(d) of this Certificate of Designations.
"Redemption Price", as to any share of Series G Preferred Stock that
is to be redeemed on any Redemption Date, shall mean the Liquidation Preference
thereof on such Redemption Date.
"Redemption Securities" shall have the meaning set forth in paragraph
7(g).
"Senior Stock" shall mean any class or series of capital stock of the
Company hereafter created ranking prior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank prior to the Series G Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of such class or series shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of Series G Preferred Stock. No class or
series of capital stock that ranks on a parity basis with or junior to the
Series G Preferred Stock as to rights on liquidation shall rank or be deemed to
rank prior to the Series G Preferred Stock as to dividend rights or rights of
redemption, notwithstanding that the dividend rate, dividend payment dates,
sinking fund provisions, if any, or mandatory redemption provisions thereof are
different from those of the Series G Preferred Stock, unless the instrument
creating or evidencing such class or series of capital stock otherwise
expressly so provides.
"Series A Liberty Media Group Common Stock" shall mean the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series A Liberty
Media Group Common Stock, or in the case of a consolidation or merger of the
Company with or into another Person affecting the Series A Liberty Media Group
Common Stock, such capital stock to which a holder of Series A Liberty Media
Group Common Stock shall be entitled upon the occurrence of such event.
"Series A TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series A TCI Group Common Stock, such capital stock to
which a holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B Liberty Media Group Common Stock" shall mean the
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series B Liberty
Media Group Common Stock, or in the case of a
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consolidation or merger of the Company with or into another Person affecting
the Series B Liberty Media Group Common Stock, such capital stock to which a
holder of Series B Liberty Media Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series B TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series C Preferred Stock" shall mean the Convertible Preferred Stock,
Series C, par value $.01 per share, of the Company.
"Series D Preferred Stock" shall mean the Convertible Preferred Stock,
Series D, par value $.01 per share, of the Company.
"Series F Preferred Stock" shall mean the Convertible Redeemable
Participating Preferred Stock, Series F, par value $.01 per share, of the
Company.
"Series G Preferred Stock" shall have the meaning set forth in
paragraph 1 of this Certificate of Designations.
"Series H Preferred Stock" shall mean the Redeemable Convertible
Liberty Media Group Preferred Stock, Series H, par value $.01 per share, of the
Company.
"Special Record Date" hall have the meaning set forth in paragraph
3(d) of this Certificate of Designations.
"Stated Value" of a share of Series G Preferred Stock shall have the
meaning set forth in paragraph 1 of this Certificate of Designations.
"Subsidiary" shall mean (i) a corporation (other than the Company) a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by the Company and/or one or more Subsidiaries of the Company and (ii) any
other Person (other than a corporation) in which the Company and/or one or more
Subsidiaries of the Company, directly or indirectly, has (x) a majority
ownership interest and (y) the power to elect or direct the election of a
majority of the members of the governing body of such entity.
"Target Price" shall initially mean $27 and shall be appropriately
adjusted to take into account any stock dividends on the Series A TCI Group
Common Stock or the Series A Liberty Media Group Common Stock, or any stock
splits, reclassifications or combinations of
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the Series A TCI Group Common Stock or the Series A Liberty Media Group Common
Stock during the period following the Issue Date and ending on the Anniversary
Date or on such earlier date, if any, as of which the Contingency is met.
"TCI Group Common Stock" shall mean the Series A TCI Group Common
Stock and the Series B TCI Group Common Stock.
3. Dividends.
(a) The Contingency. If the sum of (i) the Closing Price of the
Series A TCI Group Common Stock, plus (ii) one-fourth of the Closing Price of
the Series A Liberty Media Group Common Stock equals or exceeds the Target
Price for any ten (10) consecutive trading days during the period of sixty-five
(65) consecutive trading days ending on and including the last trading day
immediately preceding the Anniversary Date (the "Contingency"), no dividends
will accrue or be payable with respect to the Series G Preferred Stock.
(b) Payment. In the event that the Contingency is not met, and
only in such event, the holders of Series G Preferred Stock shall, subject to
the prior preferences and other rights of any Senior Stock and to the
provisions of paragraph 6 hereof, be entitled to receive, when and as declared
by the Board of Directors out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, which
shall accrue as provided herein. Except as otherwise provided in paragraph
3(d) of this Certificate of Designations, dividends on each share of Series G
Preferred Stock will, if the Contingency is not met, accrue on a daily basis at
the rate of 4% per annum of the Liquidation Preference of such share from and
including the Anniversary Date to but excluding the date on which the
Liquidation Preference or Redemption Price of such share is made available
pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations
or the date of conversion of such share pursuant to paragraph 7 hereof, as
applicable. Dividends shall accrue as provided herein whether or not such
dividends have been declared and whether or not there are any unrestricted
funds of the Company legally available for the payment of dividends. Accrued
dividends on the series G Preferred Stock shall be payable semiannually on each
Dividend Payment Date, commencing on AUGUST 1, 1997, to the holders of record
of the Series G Preferred Stock as of the close of business on the applicable
Record Date. For purposes of determining the amount of dividends "accrued" (i)
as of the first Dividend Payment Date and as of any date that is not a Dividend
Payment Date, such amount shall be calculated on the basis of the rate per
annum specified above in this paragraph 3(b) for the actual number of days
elapsed from and including the Anniversary Date (in the case of the first
Dividend Payment Date and any date prior to the first Dividend Payment Date) or
the last preceding Dividend Payment Date (in the case of any other date) to but
excluding the date as of which such determination is to be made, based on a
365-day year, and (ii) as of any Dividend Payment Date after the first Dividend
Payment Date, such amount shall be calculated on the basis of such rate per
annum based on a 360-day year of twelve 30-day months. For so long as the
Liquidation Preference of a share of Series G Preferred Stock is equal to the
Stated Value per share, the amount of the dividend payable per share on the
Dividend Payment Date for each full semi-annual Dividend Period shall be $.432.
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(c) Method of Payment. All dividends payable with respect to the
shares of Series G Preferred Stock may be declared and paid, in the sole
discretion of the Board of Directors, in cash, through the issuance of shares
of Series A TCI Group Common Stock or in any combination of the foregoing. If
any dividend payment declared by the Board of Directors with respect to the
shares of Series G Preferred Stock is to be paid in whole or in part through
the issuance of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Series G Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be
satisfied and paid by the delivery to the holders of record of such shares of
Series G Preferred Stock on the Record Date or Special Record Date, as the case
may be, for such dividend payment, of a number of shares of Series A TCI Group
Common Stock determined by dividing the Stock Dividend Amount by the Average
Market Price of a share of Series A TCI Group Common Stock as of such Record
Date or Special Record Date. The Company shall not be required to issue any
fractional share of Series A TCI Group Common Stock to which any holder of
Series G Preferred Stock may become entitled pursuant to this paragraph 3(c).
The Board of Directors may elect to settle any final fraction of a share of
Series A TCI Group Common Stock which a holder of one or more shares of Series
G Preferred Stock would otherwise be entitled to receive pursuant to this
paragraph 3(c) by having the Company pay to such holder, in lieu of issuing
such fractional share, cash in any amount (rounded upward to the nearest whole
cent) equal to the same fraction of the Average Market Price of a share of
Series A TCI Group Common Stock as of the Record Date or Special Record Date,
as the case may be, for the dividend payment with respect to which such shares
of Series A TCI Group Common Stock are being delivered. Such election, if made,
shall be made as to all holders of Series G Preferred Stock who would otherwise
be entitled to receive a fractional share of Series A TCI Group Common Stock on
the Dividend Payment Date or other date fixed for the payment of such dividend.
All dividends paid with respect to the shares of Series G Preferred
Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series G Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
(d) Unpaid Dividends. If on any Dividend Payment Date the Company,
pursuant to applicable law or otherwise, shall be prohibited or restricted from
paying the full dividends to which holders of Series G Preferred Stock, and any
Parity Stock ranking on a parity basis with the Series G Preferred Stock with
respect to the right to receive dividend payments, shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
otherwise restricted (if any) shall be distributed among the holders of Series G
Preferred Stock and any such Parity Stock ratably in proportion to the full
amounts to which they would otherwise be entitled. On each Dividend Payment
Date, all dividends that have accrued on each share of Series G Preferred
Stock during the Dividend Period ending on such Dividend Payment Date shall, to
the extent not paid on such Dividend Payment Date for any reason (whether or
not such unpaid dividends have been declared or there are any unrestricted
funds of the Company legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such share and will remain a
part thereof until such dividends are paid. The rate per annum at which
dividends accrue in respect of that portion of the Liquidation Preference of
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a share of Series G Preferred Stock that consists of accrued unpaid dividends
that have been added to the Liquidation Preference of such share on a Dividend
Payment Date pursuant to this paragraph 3(d) and remain unpaid on the next
succeeding Dividend Payment Date shall increase to 8.625% per annum from and
after such next succeeding Dividend Payment Date to and including the date on
which the Liquidation Preference or Redemption Price of such share is made
available pursuant to paragraph 4 or 5, respectively, of this Certificate of
Designations or the date of conversion of such share pursuant to paragraph 7
hereof, as applicable, unless the portion of the Liquidation Preference that
consists of such accrued unpaid dividends is earlier declared and paid or an
amount sufficient to pay the same in full is irrevocably set apart in trust for
such purpose. That portion of the Liquidation Preference of a share of Series
G Preferred Stock that consists of accrued unpaid dividends, together with all
dividends accrued in respect thereof, may be declared an paid at any time
(subject to the rights of any Senior Stock and to the concurrent satisfaction
of any dividend arrearage then existing with respect to any Parity Stock that
ranks on a parity basis with the Series G Preferred Stock as to the payment of
dividends), without reference to any regular Dividend Payment Date, to holders
of record as of the close of business on such date, not more than 45 days nor
less than 10 days preceding the payment date thereof, as may be fixed by the
Board of Directors (the "Special Record Date"). Notice of each Special Record
Date shall be given, not more than 45 days nor less than 10 days prior thereto,
to the holders of record of the shares of Series G Preferred Stock.
(e) Credit. Any dividend payment made on the shares of Series G
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to the shares of Series G Preferred Stock.
(f) Authorized Shares. All shares of Series A TCI Group Common Stock
issued in payment of any dividend on the Series G Preferred Stock shall, when
issued, be duly and validly authorized, fully paid, nonassessable and free from
all preemptive or similar rights; the delivery of such shares shall be made in
compliance with all applicable Federal and state securities laws, and such
shares shall have been listed for trading on such national securities exchange
or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which any
Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Series G Preferred Stock shall be entitled to receive from the assets of the
Company available for distribution to stockholders before any payment or
distribution shall be made to the holders of any Junior stock, an amount in
cash (or, at the election of the Company, property at its fair market value, as
determined by the Board of Directors in good faith) per share, equal to the
Liquidation Preference of a share of Series G Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari
passu with, and if the Company has elected to pay in property, in the same form
of property as, any such payment or distribution made to the holders of any
Parity Stock ranking on a parity basis with the Series G Preferred Stock with
respect to distributions upon liquidation, dissolution or winding
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up of the Company. The holders of Series G Preferred Stock shall be entitled
to no other or further distribution of or participation in any remaining assets
of the Company after receiving the Liquidation Preference per share. If, upon
distribution of the Company's assets in liquidation, dissolution or winding up,
the assets of the Company to be distributed among the holders of the Series G
Preferred Stock and to all holders of any Parity Stock ranking on a parity
basis with the Series G Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up shall be insufficient to permit payment
in full to such holders of the respective preferential amounts to which they
are entitled, then the entire assets of the Company to be distributed to holders
of the Series G Preferred Stock and such Parity Stock shall be distributed pro
rata to such holders based upon the aggregate of the full preferential amounts
to which the shares of Series G Preferred Stock and such Parity Stock would
otherwise respectively be entitled. Neither the consolidation or merger of the
Company with or into any other corporation or corporations nor the sale,
transfer, or lease of all or substantially all of the assets of the Company
shall itself be deemed a liquidation, dissolution or winding up of the Company
within the meaning of this paragraph 4. Notice of the liquidation, dissolution
or winding up of the Company shall be given, not less than twenty (20) days
prior to the date on which such liquidation, dissolution or winding up is
expected to take place or become effective to the holders of record of the
shares of Series G Preferred Stock.
5. Redemption.
(a) Optional Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
shares of Series G Preferred Stock may be redeemed, at the option of the
Company by action of the Board of Directors, in whole or from time to time in
part, on any Business Day occurring on or after FEBRUARY 1, 2001, at the
Redemption Price on the Redemption Date. If fewer than all of the outstanding
shares of Series G Preferred Stock are to be redeemed on any Redemption Date,
the shares of Series G Preferred Stock to be redeemed shall be chosen by the
Company pro rata (as nearly as may be practicable) among all holders of Series
G Preferred Stock. The Company shall not be required to register a transfer of
(i) any shares of Series G Preferred Stock for a period of 15 days next
preceding any selection of shares of Series G Preferred Stock to be redeemed or
(ii) any shares of Series G Preferred Stock selected or called for redemption.
(b) Mandatory Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
Company shall redeem, out of funds legally available therefor, on FEBRUARY 1,
2016 (or, if such day is not a Business Day, on the first Business Day
thereafter) all shares of Series G Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Company legally
available for redemption of shares of the Series G Preferred Stock and any
Parity Stock then required to be redeemed are insufficient to redeem the total
number of such shares remaining outstanding, those funds which are legally
available shall, subject to the rights of any Senior Stock and the provisions
of paragraph 6, to be used to redeem the maximum possible number of shares of
Series G Preferred Stock and each such other class or series of Parity Stock.
Subject to the rights of any Senior Stock and the provisions of paragraph 6
hereof, at any time and from time to time
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thereafter when additional funds of the Company are legally available for such
purpose, such funds shall immediately be used to redeem the shares of Series G
Preferred Stock and of each such other class or series of Parity Stock which
were required to be redeemed that the Company failed to redeem until the
balance of such shares have been redeemed. The selection of shares to be
redeemed pursuant to the two immediately preceding sentences shall be made, as
nearly as practicable, on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(c) Notice of Redemption. Notice of redemption shall be given by or
on behalf of the Company at least sixty (60) days prior to the Redemption
Date, in the case of a redemption pursuant to paragraph 5(a), and not more than
sixty (60) days nor less than thirty (30) days prior to the Redemption Date, in
the case of the redemption pursuant to paragraph 5(b), to the holders of record
of the shares of Series G Preferred Stock to be redeemed; but no defect in such
notice or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any shares of Series G Preferred Stock. In addition to
any information required by law or by the applicable rules of any national
securities exchange or national interdealer quotation system on which the
Series G Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Redemption Price, the Redemption Date, the number of
shares to be redeemed and the place at which the shares called for redemption
will, upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and if the Company has elected to deposit the Redemption
Price with a Redemption Agent in accordance with paragraph 5(d), shall state
the name and address of the Redemption Agent and the date on which such deposit
was or will be made. Such notice shall also set forth the then current
Conversion Rate for the shares of Series G Preferred Stock and the place or
places to which a holder desiring to convert shares of Series G Preferred Stock
should deliver the certificate(s) evidencing such shares, together with such
other documents and instruments as are or may be required pursuant to paragraph
7 of this Certificate of Designations. In the event that fewer than the total
number of shares of Series G preferred Stock represented by a certificate are
redeemed, a new certificate representing the number of unredeemed shares will
be issued to the holder thereof without cost to such holder. If the shares of
series G Preferred Stock evidenced by a certificate selected for partial
redemption pursuant to paragraph 5(a) of this Certificate of Designations are
thereafter converted in part pursuant to paragraph 7 hereof, the shares so
converted (as far as may be) will be deemed to be the shares selected for
redemption.
(d) Deposit of Redemption Price. If notice of any redemption by the
Company pursuant to this paragraph 5 shall have been given as provided in
paragraph 5(c) of this Certificate of Designations and if on or before the
Redemption Date specified in such notice an amount in cash sufficient to redeem
in full on the Redemption Date at the Redemption Price all shares of Series G
Preferred Stock called for redemption or required to be redeemed shall have been
set apart so as to be available for such purpose and only for such purpose,
then effective as of the close of business on the Redemption Date, the shares
of Series G Preferred Stock called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all remaining rights with respect
to such shares shall
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forthwith cease and terminate, except the right of the holders thereof to
receive the Redemption Price of such shares, without interest, upon the
surrender of certificates representing the same.
At its election, the Company on or prior to the Redemption Date (but
no more than ninety (90) days prior to the Redemption Date) may deposit
immediately available funds in an amount equal to the aggregate Redemption
Price of the shares of Series G Preferred Stock called for redemption in trust
for the holders thereof with any bank or trust company organized under the laws
of the United States of America or any state thereof having capital, undivided
profits and surplus aggregating at least $450 million (the "Redemption Agent"),
with irrevocable instructions and authority to the Redemption Agent, on behalf
and at the expense of the Company, to mail the notice of redemption as soon as
practicable after receipt of such irrevocable instructions (or to complete such
mailing previously commenced, if it has not already been completed) and to pay,
on and after the Redemption Date or prior thereto, the Redemption Price of the
shares of Series G Preferred Stock to be redeemed to their respective holders
upon the surrender of the certificates therefor. A deposit made in compliance
with the immediately preceding sentence shall be deemed to constitute full
payment for the shares of Series G Preferred Stock to be redeemed and from and
after the later of the close of business on the date of such deposit (although
prior to the Redemption Date) or the date notice of redemption is mailed, the
shares of Series G Preferred Stock to be redeemed shall no longer be deemed
outstanding and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect to such shares except (x)
the right of the holders thereof to receive the Redemption Price of such shares
(calculated through the Redemption Date), without interest, upon surrender of
the certificates therefor and (y) the right to convert such shares in
accordance with paragraph 7 prior to the close of business on the Business Day
immediately preceding the Redemption Date. Any funds so deposited which shall
not be required for the payment of the Redemption Price of any shares of Series
G Preferred Stock to be redeemed because of the conversion of such shares shall
after such conversion be repaid to the Company by the Redemption Agent. Any
interest accrued on the funds so deposited shall be paid to the Company from
time to time. Any funds so deposited with the Redemption Agent which shall
remain unclaimed by the holders of such shares of Series G Preferred Stock at
the end of one year after the Redemption Date shall be returned by the
Redemption Agent to the Company, after which repayment the holders of such
shares of Series G Preferred Stock called for redemption shall look only to the
Company for the payment thereof, without interest, unless an applicable escheat
or abandoned property law otherwise requires.
6. Limitations on Dividends and Redemptions. If at any time the
Company shall have failed to pay, or declare and set aside the consideration
sufficient to pay, full cumulative dividends for all prior dividend periods on
any Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock is entitled to the payment of such cumulative dividends prior
to the redemption, exchange, purchase or other acquisition of the Series G
Preferred Stock, and until full cumulative dividends on such Parity Stock for
all prior dividend periods are paid, or declared and the consideration
sufficient to pay the same in full is set aside so as to be available for such
purpose and no other purpose, neither the Company nor any Subsidiary thereof
shall redeem, exchange, purchase or otherwise acquire any shares of Series
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G Preferred Stock, Parity Stock or Junior Stock, or set aside any money or
assets for any such purpose pursuant to paragraph 5(d) hereof, any sinking fund
or otherwise, unless all then outstanding shares of Series G Preferred Stock,
of such Parity Stock and of any other class or series of parity Stock that by
the terms of the instrument creating or evidencing such parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof.
If at any time the Company shall have failed to pay, or declare and set
aside the consideration sufficient to pay, full cumulative dividends on the
Series G Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date are paid, or declared and the
consideration sufficient to pay the same in full is set aside so as to be
available for such purpose and no other purpose, (i) neither the Company nor
any Subsidiary thereof shall redeem, exchange, purchase or otherwise acquire
any shares of Series G preferred Stock, Parity Stock, or Junior Stock, or set
aside any money or assets for any such purpose pursuant to paragraph 5(d)
hereof, any sinking fund or otherwise, unless all then outstanding shares of
Series G Preferred Stock and of any other class or series of Parity Stock that
by the terms of the instrument creating or evidencing such Parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof, and (ii) the Company shall not declare or pay any
dividend on or make any distribution with respect to any Junior stock or parity
Stock or set aside any money or assets for any such purpose, except that the
Company may declare and pay a dividend on any Parity Stock ranking on a parity
basis with the Series G Preferred Stock with respect to the right to receive
dividend payments, contemporaneously with the declaration and payment of a
dividend on the Series G Preferred Stock, provided that such dividends are
declared and paid pro rata so that the amount of dividends declared and paid
per share of Series G Preferred Stock and such Parity Stock shall in all cases
bear to each other the same ratio that accumulated and accrued and unpaid
dividends per share on the Series G Preferred Stock and such Parity Stock bear
to each other.
If the Company shall fail to redeem on any date fixed for redemption
pursuant to paragraph 5(a) or 5(b) of this Certificate of Designations any
shares of Series G Preferred Stock called for redemption or required to be
redeemed on such date, and until such shares are redeemed in full, the Company
shall not (x) redeem any Junior Stock or, except as provided in paragraph 5(b)
hereof, Parity Stock or (y) declare or pay any dividend on or make any
distribution with respect to any Junior Stock or, except as provided in the
second paragraph of this paragraph 6, parity Stock, or set aside any money or
assets for any such purpose, and neither the Company nor any Subsidiary thereof
shall purchase or otherwise acquire any Series G Preferred Stock, Parity Stock
or Junior Stock, or set aside any money or assets for any such purpose.
Nothing contained in the first or third paragraph of this paragraph 6
shall prevent (i) the payment of dividends on any Junior Stock solely in shares
of Junior Stock or the redemption, purchase or other acquisition of Junior
Stock solely in exchange for (together with
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a cash adjustment for fractional shares, if any), or (but only in the case of
the first paragraph of this paragraph 6) through the application of the
proceeds from the sale of, shares of Junior Stock; (ii) the payment of
dividends on any Parity Stock solely in shares of Parity Stock and/or Junior
Stock or the redemption, exchange, purchase or other acquisition of Series G
Preferred Stock or Parity Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or (but only in the case of the
first paragraph of this paragraph 6) through the application of the proceeds
from the sale of, shares of Parity Stock and/or Junior Stock; or (iii) the
purchase or acquisition of shares of Series G Preferred Stock pursuant to a
purchase or exchange offer made to all holders of outstanding shares of Series
G Preferred Stock, provided that the terms of the purchase or exchange offer
shall be identical for all shares of Series G Preferred Stock and all accrued
dividends on such shares shall have been paid or shall have been declared and
irrevocably set apart in trust for the benefit of the holders of shares of
Series G Preferred Stock and for no other purpose.
The provisions of the first paragraph of this paragraph 6 are for the
sole benefit of the holders of Series G Preferred Stock and Parity Stock having
the terms described therein and accordingly, at any time when there are no
shares of any such class or series of Parity Stock outstanding or if the
holders of each such class or series of Parity Stock have, by such vote or
consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series G Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series G Preferred Stock and
accordingly, if the holders of shares of Series G Preferred Stock shall have
waived as provided in paragraph 10 of this Certificate of Designations) in
whole or in part the benefit of the applicable provision, either generally or
in the specific instance, such provision shall not (to the extent of such
waiver, in the case of a partial waiver) restrict the redemption, exchange,
purchase or other acquisition of, or declaration, payment or making of any
dividends or distributions on, the Series G Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion of Series G Preferred Stock.
(a) Right to Convert. Unless previously redeemed as provided in
paragraph 5 of this Certificate of Designations, shares of Series G Preferred
Stock may be converted at the option of the holder thereof, in the manner and
upon the terms and conditions set forth in this paragraph 7, into fully paid
and nonassessable whole shares of Series A TCI Group Common Stock at the
Conversion Rate in effect on the Conversion Date, at any time prior to the
close of business on the Business Day immediately preceding the Redemption Date
for the redemption of shares of Series G Preferred Stock pursuant to paragraph
5(a) or 5(b) of this Certificate of Designations.
(b) Mechanics of Conversion. In order to convert shares of Series G
Preferred Stock, the holder thereof shall surrender the certificate or
certificates representing the shares of
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Series G Preferred Stock to be converted at the office of the Company or the
office of any transfer agent for the Series G Preferred Stock, which
certificate or certificates shall be duly endorsed to the Company in blank (or
accompanied by duly executed instruments of transfer to the Company in blank)
with signatures guaranteed (such endorsements or instruments of transfer to be
in form satisfactory to the Company), together with a written notice to the
Company at said office of the election to convert the same, specifying the
number of shares of Series G Preferred Stock to be converted and the name or
names (with addresses) in which the certificate or certificates for shares of
Series A TCI Group Common Stock are to be issued. If any transfer is involved
in the issuance or delivery of any certificate or certificates for shares of
Series A TCI Group Common Stock in a name other than that of the registered
holder of the shares of Series G Preferred Stock surrendered for conversion,
such holder shall also deliver to the Company a sum sufficient to pay all
taxes, if any, payable in respect of such transfer or evidence satisfactory to
the Company that such taxes have been paid. Except as provided in the
immediately preceding sentence, the Company shall pay any issue, stamp or other
similar tax in respect of such issuance or delivery.
The Company shall, as soon as practicable after the Conversion Date,
deliver to the holder of the shares of Series G Preferred Stock so surrendered
for conversion, or to such holder's nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
whole shares of Series A TCI Group Common Stock to which such holder shall be
entitled, together with cash or its check in lieu of any fractional share as
provided in paragraph 7(o). If the shares of Series G Preferred Stock
represented by a certificate surrendered for conversion are converted only in
part, the Company will also issue and deliver to the holder, or to such
holder's nominee(s) or, subject to compliance with applicable law,
transferee(s), without charge therefor, a new certificate or certificates
representing in the aggregate the unconverted shares of Series G Preferred
Stock.
The Person in whose name the certificate for shares of Series A TCI
Group Common Stock is issued upon such conversion shall be treated for all
purposes as the stockholder of record of such shares of Series A TCI Group
Common Stock as of the close of business on the Conversion Date; provided,
however, that no surrender of Series G Preferred Stock on any date when the
stock transfer books of the Company are closed for any purpose shall be
effective to constitute the Person or Persons entitled to receive the shares of
Series A TCI Group Common Stock on such date, but such surrender shall be
effective (assuming all other requirements of this paragraph 7 have been
satisfied) to constitute such Person or Persons as the record holders of such
shares of Series A TCI Group Common Stock for all purposes as of the opening of
business on the next succeeding day on which such stock transfer books are
open, and such conversion shall be at the Conversion Rate in effect on the date
that such shares of Series G Preferred Stock were surrendered for conversion
(and such other requirements satisfied) as if the stock transfer books of the
Company had not been closed on such date. Upon conversion of shares of Series
G Preferred stock, the rights of the holder of the shares so converted, as a
holder thereof, will cease.
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Notwithstanding the last sentence of the immediately preceding
paragraph, if the Board of Directors declares any dividend on the Series G
Preferred Stock pursuant to paragraph 3 of this Certificate of Designations,
and the Conversion Date for any shares of Series G Preferred Stock occurs on or
after the Record Date or Special Record Date, as the case may be, and before
the Dividend Payment Date for such dividend (or, in the case of a dividend
declared pursuant to Section 3(d), then the holder of such shares of Series G
Preferred Stock on such Record Date shall be entitled to receive such dividend
on such Dividend Payment Date (or such other date, as the case may be), as if
such Conversion Date had not occurred.
(c) Adjustments for Change in Capital Stock. If after the Issue
Date, the Company:
(i) pays a dividend or makes a distribution on the Series A
TCI Group Common Stock in shares of Series A TCI Group Common Stock;
(ii) subdivides combines the outstanding shares of Series A
TCI Group Common Stock into a greater number of shares;
(iii) combines the outstanding shares of Series A TCI Group
Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on the Series A
TCI Group Common Stock in shares of its capital stock (other than
Series A TCI Group Common Stock or rights, warrants or options for
its capital stock); or
(v) issues by reclassification of its shares of Series A TCI
Group Common Stock (other than a reclassification by way of merger or
binding share exchange that is subject to paragraph 7(f)) any shares
of its capital stock (other than rights, warrants or options for its
capital stock),
then, subject to the following sentence and to paragraph 7(j), the conversion
privilege and the Conversion Rate in effect immediately prior to the opening of
businesses on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of any shares of Series G Preferred Stock
thereafter converted may receive the kind and number of shares of capital stock
of the Company which such holder would have owned immediately following such
event if such holder had converted his shares of Series G Preferred Stock
immediately prior to the record date for, or effective date of, as the case may
be, such event. Notwithstanding the foregoing, if an event listed in clause
(iv) or (v) above would result in the shares of Series G Preferred Stock being
convertible into shares or units (or a fraction thereof) of more than one class
or series of capital stock of the Company and any such class or series of
capital stock provides by its terms a right in favor the Company to call,
redeem, exchange or otherwise acquire all of the outstanding shares or units of
such class or series (such class or series of capital stock being herein
referred
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to as "Redeemable Capital Stock") then, at the option of the Company, the
conversion privilege and Conversion Rate of the Series G Preferred Stock shall
not be adjusted pursuant to this paragraph 7(c) and in lieu thereof, but
subject to paragraph 7(j), the adjustment to the Conversion Rate contemplated
by paragraph 7(e) shall be made with the same effect as if the dividend or
distribution of Redeemable Capital Stock or the issuance of the additional
class or series of Redeemable Capital Stock by reclassification had been a
distribution of assets of the Company.
The adjustment contemplated by this paragraph 7(c) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective immediately after the
record date for the dividend or distribution. For a subdivision, combination
or reclassification, the adjustment shall become effective immediately after
the effective date of the subdivision, combination or reclassification.
If after an adjustment a holder of Series G Preferred Stock would be
entitled to receive upon conversion thereof shares of two or more classes or
series of capital stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken with respect to
any such class or series of capital stock as is contemplated by this paragraph
7 with respect to the Series A TCI Group Common Stock, on terms comparable to
those applicable to the Series A TCI Group Common Stock pursuant to this
paragraph 7.
Any shares of Series A TCI Group Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the time of
the record date for such dividend for purposes of calculating the number of
outstanding shares of Series A TCI Group Common Stock under paragraphs 7(d) and
7(e) below.
(d) Adjustment for Rights Issue. If, after the Company distributes any
rights, warrants or options to holders of shares of Series A TCI Group Common
Stock entitling them, for a period expiring within 45 days after the record date
for the determination of stockholders entitled to receive such distribution, to
purchase shares of Series A TCI Group Common Stock (or Convertible Securities)
at a price per share (or having a conversion price per share, after adding
thereto an allocable portion of the exercise price of the right, warrant or
option to purchase such Convertible Securities, computed on the basis of the
maximum number of shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities) less than the Current Market Price on
the Determination Date, the Conversion Rate shall be adjusted so that it shall
equal the rate determined by dividing the Conversion Rate in effect immediately
prior to the opening of business on such record date by a fraction, of which the
numerator shall be the number of shares of Series A TCI Group Common Stock
outstanding on such record date plus the number of shares of Series A TCI Group
Common Stock which the aggregate offering price of the total number of shares of
Series A TCI Group Common Stock so offered (or the aggregate conversion price
of the Convertible Securities to be so offered, after adding thereto the
aggregate exercise price of the rights, warrants or options to purchase such
Convertible Securities) to the holders of Series A TCI Group Common Stock (and
to the holders of Convertible Securities and Series B TCI Group Common Stock
referred to in the immediately succeeding paragraph of this paragraph 7(d) if
the distribution to which this
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paragraph 7(d) applies is also being made to such holders) would purchase at
such Current Market Price, and of which the denominator shall be the number of
shares of Series A TCI Group Common Stock outstanding on such record date plus
the number of additional shares of Series A TCI Group Common Stock so offered
to the holders of Series A TCI Group Common Stock (and to such holders of
Convertible Securities and Series B TCI Group Common Stock) for subscription or
purchase (or into which the Convertible Securities so offered are convertible).
Shares of Series A TCI Group Common Stock owned by or held for the account of
the Company shall not be deemed to be outstanding the purpose of any such
adjustment.
For purposes of this paragraph 7(d) the number of shares of Series A
TCI Group Common Stock outstanding on any record date shall be deemed to
include (i) the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be necessary to effect the full exercise, exchange or
conversion of all Convertible Securities outstanding on such record date which
are then exercisable, exchangeable or convertible at a price (before giving
effect to any adjustment to such price for the distribution to which this
paragraph 7(d) is being applied) equal or less than the Current Market Price
per share of Series A TCI Group Common Stock on the applicable Determination
Date, if all of such Convertible Securities were deemed to have been exercised,
exchanged or converted immediately prior to the opening of business on such
record date and (ii) if the Series B TCI Group Common Stock is then convertible
into Series A TCI Group Common Stock, the maximum number of shares of Series A
TCI Group Common Stock the issuance of which would be necessary to effect the
full conversion of all shares of Series B TCI Group Common Stock outstanding on
such record date, if all of such shares of Series B TCI Group Common Stock were
deemed to have been converted immediately prior to the opening of business on
such record date.
The adjustment contemplated by this paragraph 7(d) shall be made
successively whenever any such rights, warrants or options are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive the rights, warrants or options. If all of
the shares of Series A TCI Group Common Stock (or all of the Convertible
Securities) subject to such rights, warrants or options have not been issued
when such rights, warrants or options expire (or, in the case of rights,
warrants or options to purchase Convertible Securities which have been
exercised, if all of the shares of Series A TCI Group Common Stock issuable
upon conversion of such Convertible Securities have not been issued prior to
the expiration of the conversion right thereof), then the Conversion Rate shall
promptly be readjusted to the Conversion Rate which would then be in effect had
the adjustment upon the issuance of such rights, warrants or options been made
on the basis of the actual number of shares of Series A TCI Group Common Stock
(or Convertible Securities) issued upon the exercise of such rights, warrants
or options (or conversion of such Convertible Securities).
No adjustment shall be made under this paragraph 7(d) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect immediately
prior to such adjustment.
(e) Adjustments for Other Distributions. If, after the Issue Date
(i) the Company distributes to all holders of shares of Series A TCI Group
Common Stock any assets
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or debt securities or any rights, warrants or options to purchase securities
(excluding (x) dividends or distributions referred to in paragraph 7(c) (except
as otherwise provided in clause (ii) of this sentence) and distributions of
rights, warrants or options referred to in paragraph 7(d) and (y) cash
dividends or other cash distributions, unless such cash dividends or cash
distributions are Extraordinary Cash Dividends), or (ii) the Company makes a
dividend or distribution of Redeemable Capital Stock on, or issues Redeemable
Capital Stock by reclassification of, the Series A TCI Group Common Stock by
reclassification of, the Series A TCI Group Common Stock and determines
pursuant to paragraph 7(c) to treat the same as a distribution of assets of the
Company subject to this paragraph 7(e), then in each such event the Conversion
Rate shall be adjusted by dividing the Conversion Rate in effect immediately
prior to the opening of business on (A) the record date for the determination
of stockholders entitled to receive the distribution or (B) in the case of a
reclassification, the effective date of such reclassification by a fraction, of
which the numerator shall be the total number of shares of Series A TCI Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by the Current Market price on the Determination
Date, less the fair market value (as determined in good faith by the Board of
Directors) on such record date or effective date of said assets (or Redeemable
Capital Stock) or debt securities or rights, warrants or options so distributed
to the holders of Series A TCI Group Common Stock (and to the holders of
Convertible Securities and Series B TCI Group Common Stock referred to in the
immediately succeeding paragraph of this paragraph 7(e) if the distribution to
which this paragraph 7(e) applies is also being made to such holders), and of
which the denominator shall be the total number of shares of Series A TCI Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by such Current Market Price.
For purposes of this paragraph 7(e), the number of shares of Series A
TCI Group Common Stock outstanding on any relevant date shall be deemed to
include (i) the maximum number of shares of Series A TCI Group Common Stock the
issuance of which would be outstanding on such date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any adjustment
to such price for the distribution to which this paragraph 7(e) is being
applied) equal to or less than the Current Market Price on the applicable
Determination Date, if all of such Convertible Securities were deemed to have
been exercised, exchanged or converted immediately prior to the opening of
business on such date and (ii) if the Series B TCI Group Stock is then
convertible into Series A TCI Group Common Stock the issuance of which would be
necessary to effect the full conversion of all shares of Series B TCI Group
Common Stock outstanding on such date, if all of such shares of Series B TCI
Group Common Stock were deemed to have been converted immediately prior to the
opening of business on such date.
For purposes of this paragraph 7(e), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to the Series A TCI Group
Common Stock the amount of which, together with the aggregate amount of cash
dividends on the Series A TCI Group Common Stock to be aggregated with such
cash dividend in accordance with the following provisions of this paragraph,
equals or exceeds the threshold percentage set forth below in the following
sentence. If, upon the date prior to the Ex-Dividend Date with respect to a
cash
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dividend on Series A TCI Group Common Stock, the aggregate of the amount of
such cash dividend together with the amounts of all cash dividends on the
Series A TCI Group Common Stock with Ex-Dividend Dates occurring in the 365
consecutive day period ending on the date prior to the Ex-Dividend Date with
respect to the cash dividend to which this provision is being applied (other
than any such other cash dividends with Ex-Dividend Dates occurring in such
period for which a prior adjustment in the Conversion Rate was previously made
under this paragraph 7(e)) equals or exceeds on a per share basis 10% of the
average of the Closing Prices during the period beginning on the date after the
first such Ex-Dividend Date in such period and ending on the date prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of the
Closing Prices shall be the period commencing 365 days prior to the date
immediately prior to the Ex-Dividend Date with respect to the cash dividend to
which this provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Date occurring in such 365-day period
that is aggregated with such cash dividend in accordance with this paragraph
shall be deemed to be an Extraordinary Cash Dividend.
The adjustment pursuant to the foregoing provisions of this paragraph
7(e) shall be made successively whenever any distribution to which this
paragraph 7(e) applies is made, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
distribution (or, in the case of a reclassification, the effective date).
Shares of Series A TCI Group Common Stock owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any such
adjustment.
No adjustment shall be made under this paragraph 7(e) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect prior to such
adjustment. In the event that, with respect to any distribution to which this
paragraph 7(e) would otherwise apply, the numerator of the fraction in the
formula set forth in the first paragraph of this paragraph 7(e) is zero or a
negative number, then the adjustment provided by this paragraph 7(e) shall not
be made. If the Company makes a distribution to all holders of its Series A
TCI Group Common Stock of any of its assets or debt securities or any rights,
warrants or options to purchase securities of the Company that, but for the
immediately preceding sentence, would otherwise result in an adjustment in the
Conversion Rate pursuant to the foregoing provisions of this paragraph 7(e),
then, from and after the record date for determining the holders of Series A
TCI Group Common Stock entitled to receive the distribution, a holder of Series
G Preferred Stock that converts such shares in accordance with the provisions of
this paragraph 7 will upon such conversion be entitled to receive, in addition
to the shares of Series A TCI Group Common Stock into which such shares of
Series G Preferred Stock are convertible, the kind and amount of securities,
cash or other assets comprising the distribution that such holder would have
received if such holder had converted such shares of Series G Preferred Stock
immediately prior to the record date for determining the holders of Series A
TCI Group Common Stock entitled to receive the distribution.
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(f) Consolidation, Merger or Sale of the Company. If the Company
consolidates with or merges into, or transfers (other than by mortgage or
pledge) the properties and assets substantially as an entirety to, another
Person or the Company is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Series A TCI Group Common Stock, the
Company (or its successor in such transaction) or the transferee of such
properties and assets shall make appropriate provision so that the holders of
the shares of Series G Preferred Stock then outstanding shall have the right
thereafter to convert such shares into the kind and amount of securities, cash
or other assets receivable upon such transaction by a holder of the number of
shares of Series A TCI Group Common Stock into which such shares of Series G
Preferred Stock could have been converted immediately before the effective date
of such transaction (assuming, to the extent applicable, that such holder
failed to exercise any rights of election with respect thereto and received per
share of Series A TCI Group Common Stock the kind and amount of securities,
cash or other assets received per share by a plurality of the non-electing
shares of Series A TCI Group Common Stock), and the holders of the Series G
Preferred Stock shall have no other conversion rights under these provisions;
provided that (i) effective provision shall be made, in the Articles or
Certificate of Incorporation of the resulting or surviving corporation or
otherwise or in any contracts of sale or transfer, so that the provisions set
forth herein for the protection of the conversion rights of Series G Preferred
Stock shall thereafter be made applicable, as nearly as reasonable may be, to
any such other securities and assets deliverable upon conversion of the Series
G Preferred Stock remaining outstanding or other convertible preferred stock or
other securities received by the holders of Series G Preferred Stock in place
thereof; and (ii) any such resulting or surviving corporation or transferee
shall expressly assume the obligation to deliver, upon the exercise of the
conversion privilege, such securities, cash or other assets as the holders of
the Series G Preferred Stock remaining outstanding, or other convertible
preferred stock or other securities received by the holders in place thereof,
shall be entitled to receive pursuant to the provisions hereof, and to make
provision for the protection of the conversion rights of the Series G Preferred
Stock, or of any other convertible preferred stock or other securities received
by the holders in place thereof, as provided in clause (i) of this sentence.
If this paragraph 7(f) applies, paragraphs 7(c), 7(d) and 7(e) shall
not apply.
(g) Effect of Redemption. Subject to paragraph 7(j) and to the
remaining provisions of this paragraph 7(g), in the event that a holder of
Series G Preferred Stock would be entitled to receive upon conversion thereof
pursuant to this paragraph 7 any Redeemable Capital Stock and the Company
redeems, exchanges or otherwise acquires all of the outstanding shares or other
units of such Redeemable Capital Stock (such event being a "Redemption Event"),
then, from and after the effective date of such Redemption Event, the holders
of shares of Series G Preferred Stock then outstanding shall be entitled to
receive upon conversion of such shares, in lieu of shares or units of such
Redeemable Capital Stock, the kind and amount of securities, cash or other
assets receivable upon the Redemption Event by a holder of the number of shares
or units of such Redeemable Capital Stock into which such shares of Series G
Preferred Stock could have been converted immediately prior to the effective
date of such Redemption Event (assuming, to the extent applicable, that such
holder failed to exercise any rights of election with
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respect thereto and received per share or unit of such Redeemable Capital Stock
the kind and amount of securities, cash or other assets received per share or
unit by a plurality of the non-electing shares or units of such Redeemable
Capital Stock), and (from and after the effective date of such Redemption
Event) the holders of the Series G Preferred Stock shall have no other
conversion rights under these provisions with respect to such Redeemable
Capital Stock.
Notwithstanding the foregoing, if the Redemption price for the shares
of such Redeemable Capital Stock is paid in whole or in part in Redemption
Securities, and the Mirror Preferred Stock Condition is met, the Series G
Preferred Stock shall not be convertible into such Redemption Securities and,
from and after the applicable redemption date, the holders of any shares of
Series G Preferred Stock that have not been exchanged for Mirror Preferred
Stock and Exchange Preferred Stock shall have no conversion rights under these
provisions except for any conversion right that may have existed immediately
prior to the effective date of the Redemption Event with respect to any
securities (including the Series A TCI Group Common Stock), cash or other
assets other than the Redeemable Capital Stock so Redeemed. The Mirror
Preferred Stock Condition will be met in connection with a redemption of any
Redeemable Capital Stock into which the Series G Preferred Stock is then
convertible, if the Company makes appropriate provision so that the holders of
the Series G Preferred Stock have the right to exchange their shares of Series
G Preferred Stock on the effective date of the Redemption Event for Exchange
Preferred Stock of the Company and Mirror Preferred Stock of the issuer of the
Redemption Securities. The sum of the initial liquidation preferences of the
shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in
exchange for a share of Series G Preferred Stock will equal the Liquidation
Preference of a share of Series G Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation
Preference of the shares of Series G Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Redeemable Capital
Stock to be Redeemed (determined immediately prior to the effective date of the
Redemption Event) and the average of the daily Closing Prices of the Redeemable
Capital Stock for the period of ten consecutive trading days ending on the
third trading day prior to the effective date of the Redemption Event, divided
by (y) the sum of the amount determined pursuant to clause (x), plus the fair
value of the securities (other than those being Redeemed), cash or other assets
that would have been receivable by a holder of Series G Preferred Stock upon
conversion thereof immediately prior to the effective date of the Redemption
Event (such fair value to be determined in the case of securities with a
Closing Price in the same manner as provided in clause (x) and otherwise by the
Board of Directors in the exercise of its good faith judgment). The shares of
Exchange Preferred Stock will have an aggregate initial liquidation preference
equal to the difference between the aggregate Liquidation Preference of the
shares of Series G Preferred Stock exchanged therefore and the aggregate
initial liquidation preference of the Mirror Preferred Stock.
When used in connection with a redemption by the Company of any
Redeemable Capital Stock into which the Series G Preferred Stock is then
convertible, the following terms have the following meanings:
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(i) "Redemption Securities" means securities of an issuer
other than the Company that are distributed by the Company in
payment, in whole or in part, of the redemption price for such
Redeemable Capital Stock.
(ii) "Mirror Preferred Stock" means convertible preferred
stock issued by the issuer of the Redemption Securities and having
terms, conditions, designations, dividend rights, voting powers,
rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly
so as is practicable in the good faith judgment of the Board of
Directors, to those of the Series G Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (x) the liquidation
preference will be determined as provided above in this paragraph
7(g), (y) the running of any time periods pursuant to the terms of the
Series G Preferred Stock shall be tacked to the corresponding time
periods in the Mirror Preferred Stock and (z) the Mirror Preferred
Stock shall be convertible into the kind and amount of Redemption
Securities, cash and other assets that the holder of a share of Series
G Preferred Stock in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof would have received upon
redemption of the Redeemable Capital Stock had such shares of Series G
Preferred Stock been converted prior to the effective date of the
Redemption Event.
(iii) "Exchange Preferred Stock" means a series of
convertible preferred stock of the Company having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation
and other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof that are identical, or as nearly so as is practicable in the
good faith judgment of the Board of Directors, to those of the Series
G Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (x) the liquidation preference will be
determined as provided above in this paragraph 7(g), (y) the running
of any time periods pursuant to the terms of the Series G Preferred
Stock shall be tacked to the corresponding time period in the Exchange
Preferred Stock and (z) the Exchange Preferred Stock will not be
convertible into, and the holders will have no conversion rights
thereunder with respect to, the Redeemable Capital Stock redeemed in
the Redemption Event.
Notwithstanding the second paragraph of this paragraph 7(g), the Mirror
Preferred Stock Condition shall only be deemed to have been satisfied in
connection with any Redemption Event if, in the good faith determination of the
Board of Directors: (i) receipt of Mirror Preferred Stock and/or Exchange
Preferred Stock in exchange for Series G Preferred Stock pursuant to the second
paragraph of this paragraph 7(g) would not result in the recognition of gain or
loss by the holders of such Series G Preferred Stock for United States federal
income tax purposes; (ii) an adjustment made in the Conversion Rate of the
Series G Preferred Stock with respect to such Redemption Event, as provided in
the first paragraph of this paragraph 7(g), would result in the recognition of
gain or loss by the holders of Series G Preferred Stock for United States
federal
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income tax purposes; or (iii) receipt of Redemption Securities in redemption of
the Redeemable Capital Stock to be redeemed in the Redemption Event would
result in the recognition of gain or loss by the holders of such Redeemable
Capital Stock, as the case may be.
(h) Simultaneous Adjustments. In the event that this paragraph 7
requires adjustments to the Conversion Rate under more than one of paragraph
7(c)(iv), (d) or (e), and the record dates for the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of paragraph 7(c), second, the
provisions of paragraph 7(e) and, third, the provisions of paragraph 7(d).
(i) When Adjustment May Be Deferred. In any case in which this
paragraph 7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event (x) issuing to the holder of any shares of Series G Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of Series A TCI Group Common Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the shares of Series A TCI Group Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder cash or
its check in lieu of any fractional interest to which he is entitled pursuant
to paragraph 7(o); provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A TCI Group Common Stock, and
such cash, upon the occurrence of the event requiring such adjustment.
(j) De Minimis Adjustment; When Adjustment Is Not Required. No
adjustments in the Conversion Rate need be made unless the adjustment would
require an increase or decrease of at least one percent (1%) in the Conversion
Rate. Any adjustment which is not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest
cent or to the nearest 1/1000th of a share, as the case may be.
No adjustment need be made for rights to purchase shares of Series A
TCI Group Common Stock or for sales of shares of Series A TCI Group Common
Stock which in either case are made pursuant to a Company plan providing for
reinvestment of dividends or interest or pursuant to a bona fide employee stock
option or stock purchase plan of the Company. No adjustment need be made for a
change in the par value of the Series A TCI Group Common Stock.
No adjustment need be made under this paragraph 7 for a transaction
referred to in paragraph 7(c), 7(d), 7(e) or 7(g) if holders of the Series G
Preferred Stock are to participate in the transaction on a basis and with
notice that the Board of Directors in good faith determines to be fair and
appropriate in light of the basis and notice on which holders of Series A TCI
Group Common Stock participate in the transaction; provided that the basis on
which the holders of shares of Series G Preferred Stock are to participate in
the transaction shall not be deemed to
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be fair if it would require the holder to convert his shares of Series G
Preferred Stock, in order to participate, at any time prior to the expiration
of the conversion period specified for the shares of Series G Preferred Stock
pursuant to paragraph 7(a) of this Certificate of Designations. The
immediately preceding sentence shall apply to any transaction referred to in
paragraph 7(c), 7(d), 7(e) or 7(g) only if, in good faith determination of the
Board of Directors: (i) participation in such transaction by the holders of the
Series G Preferred Stock would not result in the recognition of gain or loss by
such holders of United States federal income tax purposes; (ii) an adjustment
made in the Conversion Rate of the Series G Preferred Stock in lieu of
participating in such transaction, pursuant to this paragraph 7, would result
in the recognition of gain or loss by holders of Series G Preferred Stock for
United States federal income tax purposes; or (iii) participation in such
transaction by the holders of the Series A TCI Group Common Stock would result
in the recognition of gain or loss by such holders for United States federal
income tax purposes.
To the extent the shares of Series G Preferred Stock become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(k) Company Determination Final. Any determination required to be
made pursuant to paragraph 7(c), 7(d), 7(e), 7(f), 7(g), 7(h), 7(j) or 7(o)
shall be made by the Board of Directors (whether or not reference to the Board
of Directors is expressly made in any such paragraph) and any determination so
made in good faith shall be conclusive and binding, absent manifest error, on
the holders of shares of Series G Preferred Stock. In making any determination
as to the expected tax treatment of any action, transaction or event referred
to herein, including, without limitation, the determinations provided for in
the last paragraph of Paragraph 7(g) and the last sentence of the fourth
paragraph of paragraph 7(j), the Board of Directors shall be entitled to rely
conclusively on (i) an opinion of counsel rendered by a law firm acceptable to
the Board of Directors, acting in good faith, or (ii) a private letter ruling
from the Internal Revenue Service, to such effect, which opinion of counsel or
private letter ruling may be based upon such assumptions, and be subject to
such qualifications, conditions and limitations, as the Board of Directors
shall in good faith determine to be appropriate under the circumstances. Any
such determination by the Board of Directors shall be based on the expected
United States federal income tax consequences applicable to the transaction in
question, without regard to special tax rules such as those applicable to
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders ho do not hold the securities or other property
in question as capital assets, or the personal circumstances of any particular
stockholder.
(l) Notice of Adjustment. Whenever the provisions of this paragraph
7 require an adjustment of the Conversion Rate, the Company shall promptly
compute such adjustment and (i) file with the transfer agent for the Series G
Preferred Stock (or with the books of the Company if there is no transfer
agent) an Officers' Certificate setting forth a description of the event
requiring the adjustment, the new Conversion Rate (including a reasonable
detailed calculation thereof), and the kind and amount of capital stock or
other securities or cash or other assets into which the Series G Preferred
Stock shall be convertible after such event, and (ii) cause a notice containing
a summary of the information set forth in said certificate to be given to the
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<PAGE> 193
holders of Series G Preferred Stock. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be given
under the provisions of paragraph 7(m).
(m) Advance Notice of Certain Transactions. If the Company:
(i) takes any action which would require an adjustment in the
Conversion Rate;
(ii) is a party to a consolidation, merger or binding share
exchange, or transfers all or substantially all of its assets to
another Person, and any stockholders of the Company must approve the
transaction; or
(iii) voluntarily or involuntarily dissolves, liquidates or
winds up,
then, in any such event, the Company shall give the holders of the Series G
Preferred Stock, at least twenty (20) days prior to any record date or other
date set for definitive action if there shall be no record date, a notice
stating the record date for and the anticipated effective date of such action
or event and, if the event is a dividend or distribution or issuance by
reclassification of Redeemable Capital Stock, whether the Company has
determined to adjust the Conversion Rate pursuant to paragraph 7(c), or 7(e),
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of Series A
TCI Group Common Stock. Without limiting the obligation of the Company to
provide notice of corporate actions hereunder, the failure to mail the notice
or any defect in it shall not affect the legality or validity or any corporate
action or the vote thereon.
(n) Reservation of Series A TCI Group Common Stock Issuable Upon
Conversion. The Company shall at all times on and after the Issue Date reserve
and keep available out of its authorized but unissued shares of Series A TCI
Group Common Stock, solely for the purpose of effecting the conversion of the
shares of Series G Preferred Stock, such number of its shares of Series A TCI
Group Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series G Preferred Stock; provided that
nothing contained herein shall be construed to preclude the Company from
satisfying its obligations in respect of the conversion of the outstanding
shares of Series G Preferred Stock by delivery of shares of Series A TCI Group
Common Stock which are held in the treasury of the Company. The Company shall
take all such corporate and other actions as from time to time may be necessary
to insure that all shares of Series A TCI Group Common Stock issuable upon
conversion of shares of Series G Preferred Stock at the Conversion Rate in
effect from time to time will, when issued, be duly and validly authorized and
issued, fully paid and nonassessable, and free from all preemptive or similar
rights. in order that the Company may issue shares of Company will in good
faith and as expeditiously as possible endeavor to comply with all applicable
Federal and state securities laws and will in good faith and as expeditiously
as possible endeavor to list such shares to be issued upon conversion on such
national securities exchange
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<PAGE> 194
or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
(o) Fractional Shares. No fractional shares of Series A TCI Group
Common Stock or scrip shall be issued upon conversion of the Series G Preferred
Stock. Whether or not fractional shares would otherwise be required to be
issued to a holder of Series G Preferred Stock upon such conversion shall be
determined on the basis of the total number of shares of Series G Preferred
Stock the holder is at the time converting into Series A TCI Group Common Stock
and the total number of shares of Series A TCI Group Common Stock issuable
upon such conversion. In lieu of the issuance of fractional shares of Series A
TCI Group Common Stock, the Company shall pay instead an amount in cash or by
its check equal to the same fraction of the Closing Price of a full share of
Series A TCI Group Common Stock on the last full trading day prior to the
Conversion Date.
(p) Impairment. The Company will not, by amendment of this
Certificate of Designations or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, other than as expressly permitted by
this Certificate of Designations or approved by the requisite vote or written
consent of the holders of Series G Preferred Stock taken or given in accordance
with this Certificate, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this paragraph 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
G Preferred Stock against impairment.
8. Voting.
(a) Voting Rights. The holders of Series G Preferred Stock shall
have no voting rights whatsoever, except as required by law and except for the
voting rights described in this paragraph 8; provided, however, that the number
of authorized shares of Series G Preferred Stock may be increased or decreased
(but not below the number of shares of Series G Preferred Stock then
outstanding) by the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of the Restated Certificate of Incorporation of the
Company (the "Restated Certificate")), voting together as a single class as
provided in Article IX of the Restated Certificate. Without limiting the
generality of the foregoing, no vote or consent of the holders of Series G
Preferred Stock shall be required for (a) the creation of any indebtedness of
any kind of the Company, (b) the creation or designation of any class or series
of Senior Stock, Parity Stock or Junior Stock, or (c) any amendment to the
Restated Certificate that would increase the number of authorized shares of
Preferred Stock or the number of authorized shares of Series G Preferred Stock
or that would decrease the number of authorized shares of Preferred Stock or
the number of authorized shares of Series G Preferred Stock (but not below the
number of shares of Preferred Stock or Series G Preferred Stock, as the case
may be, then outstanding).
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<PAGE> 195
(b) Election of Directors. The holders of the Series G Preferred
Stock shall have the right to vote at any annual or special meeting of
stockholders for the purpose of electing directors. Each share of Series G
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with all other classes or series of capital stock of the Company
that are entitled to vote in any general election of directors, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
9. No Preemptive Rights. The holders of shares of Series G Preferred
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital stock or other securities of the Company convertible
into or carrying rights or options to purchase any such shares.
10. Waiver. Any provision of this Certificate of Designations which,
for the benefit of the holders of Series G Preferred Stock, prohibits, limits
or restricts actions by the Company, or imposes obligations on the Company,
including but not limited to provisions relating to the obligation of the
Company to redeem or convert such shares, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case by the affirmative vote
or with the consent of the holders of at least a majority of the number of
shares of Series G Preferred Stock then outstanding (or such greater percentage
thereof as may be required by applicable law or any applicable rules of any
national securities exchange or national interdealer quotation system), either
in writing or by vote at an annual meeting or a special meeting called for such
purpose at which the holders of Series G Preferred Stock shall vote as a
separate class.
11. Method of Giving Notices. Any notice required or permitted by
the provisions of this Certificate of Designations to be given to the holders
of shares of Series G Preferred Stock shall be deemed duly given if deposited
in the United States mail, first class mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company or
supplied by him in writing to the Company for the purpose of such notice.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and except for the equitable rights and remedies which may otherwise be
available to holders of Series G Preferred Stock, the shares of Series G
Preferred Stock shall not have any designations, preferences, limitations or
relative rights other than those specifically set forth in this Certificate of
Designations.
13. Headings of Subdivisions. The headings of the various
subdivisions of this Certificate of Designations are for convenience of
reference only and shall not affect the interpretation of any of the provisions
of this Certificate of Designations.
FURTHER RESOLVED, that the appropriate officers of this Company are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded in
accordance with the requirements of Section 151(g) of the General Corporation
Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this
25th day of January, 1996.
/s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
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<PAGE> 196
State of Delaware
OFFICE OF THE SECRETARY OF STATE PAGE 1
_______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FIFTH DAY OF JANUARY, A.D. 1996, AT 3:05 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OR DEEDS FOR RECORDING.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2371729 8100 DATE: 7804670
960024231 01-25-96
<PAGE> 197
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 03:05 PM 01/25/1996
980024220 - 2371729
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------
SETTING FORTH A COPY OF RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"REDEEMABLE CONVERTIBLE LIBERTY MEDIA GROUP
PREFERRED STOCK, SERIES H"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------
The undersigned, an executive Vice President of TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), HEREBY CERTIFIES that the Board
of Directors of the Company on December 13, 1995, duly adopted the following
resolutions creating a new series of the Company's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section D of the Restated Certificate of
Incorporation of the Company, the Board of Directors hereby creates and
authorizes the issuance of a new series of the Company's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of the Company's preferred stock,
par value $.01 per share ("Preferred Stock")) as follows:
1. Designation Number of Shares. The designation of the series of
Series Preferred Stock, par value $.01 per share, of the Company created hereby
shall be "Redeemable Convertible Liberty Media Group Common Stock, Series H"
("Series H Preferred Stock"). The designated number of shares of Series H
Preferred Stock shall be 7,259,380. Each share of Series H Preferred Stock
shall be 7,259,380. Each share of Series H Preferred Stock shall have a stated
value of $5.40 ("Stated Value").
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<PAGE> 198
Any shares of Series H Preferred Stock redeemed, converted or
otherwise acquired by the Company shall be retired, shall not be reissued as
shares of Series H Preferred Stock and shall resume the status of authorized
and unissued shares of Series Preferred Stock, without designation as to
series, until such shares are once more designated as part of a particular
series of Series Preferred Stock by the Board of Directors.
2. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Anniversary Date" shall mean January 25, 1997.
"Average Market Price" as of any Record Date or Special Record Date
for a dividend payment declared by the Board of Directors shall mean the
average of the daily Closing Prices of the Series A TCI Group Common Stock for
the period of ten (10) consecutive trading days ending on the tenth trading day
prior to such Record date or Special Record Date, appropriately adjusted in
such manner as the Board of Directors in good faith deems appropriate to take
into account any stock dividend on the Series A TCI Group Common Stock, or any
subdivision, combination or reclassification of the Series A TCI Group Common
Stock that occurs, or the Ex-Dividend date for which occurs, during the period
following the first trading day in such ten-trading day period and ending on
the last full trading day immediately preceding the Dividend Payment Date or
other date fixed for the payment of dividends to which such Record Date or
Special Record Date relates.
"Board of Directors" shall mean the Board of Directors of the Company,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday Sunday, or a
day on which banking institutions in The City of New York, New York are not
required to be open.
"capital stock" shall mean any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
"Class B Preferred Stock" shall mean the Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
the Company.
"Closing Price" of a share of Series A TCI Group Common Stock or of a
share of Series A Liberty Media Group Common Stock, or a share of any other
class or series of capital stock of the Company into which the Series H
Preferred Stock may hereafter become convertible pursuant to paragraph 7, on
any day shall mean the last reported per share sale price (or, if no sale price
is reported, the average of the high and low bid prices) of the Series A TCI
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<PAGE> 199
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as the case may be, on such day on the Nasdaq Stock Market or as
quoted by the National Quotation Bureau Incorporated or, if the Series A TCI
Group Common Stock, the Series A Liberty Media Group Common Stock or such
capital stock, as applicable, is listed on an exchange, on the principal
exchange on which the Series A TCI Group Common Stock, the Series A Liberty
Media Group Common Stock or such capital stock, as the case may be, is listed.
In the event that no such quotation is available for any day, the Board of
Directors shall be entitled to determine the Closing Price on the basis of such
quotations as it in good faith considers appropriate.
"Contingency" shall have the meaning set forth in paragraph 3(a.).
"Conversion Date" of a share of Series H Preferred Stock shall mean
the date on which the requirements for conversion of such share set forth in
paragraph 7(b) of this Certificate of designations have been satisfied by the
holder thereof.
"Conversion Rate" shall mean the kind and amount of securities, assets
or other property that as of any date are issuable or deliverable upon
conversion of a share of Series H Preferred Stock. The Conversion Rate of a
share of Series H Preferred Stock shall initially be .2625 shares of Series A
Liberty Media Group Common Stock for each share of Series H Preferred Stock,
subject to adjustment as set forth in paragraph 7 of this Certificate of
Designations. In the event that pursuant to paragraph 7 of the Series H
Preferred Stock becomes convertible into more than one class or series of
capital stock of the Company, the term Conversion Rate, when used with respect
to any such class or series, shall mean the number or fraction of shares or
other units of such capital stock that as of any date would be issued upon
conversion of a share of Series H Preferred Stock.
"Convertible Securities" shall mean any or all options, warrants,
securities and rights which are convertible into or exercisable or exchangeable
for Series A Liberty Media Group Common Stock at the option of the holder
thereof, or which otherwise entitle the holder thereof to subscribe for,
purchase or otherwise acquire Series A Liberty Media Group Common Stock;
provided, however, that such term shall not include the Series B Liberty Media
Group Common Stock.
"Career Market Price", on the Determination Date for any issuance of
rights, warrants or options or any distribution in respect of which the Current
Market Price is being calculated, shall mean the average of the daily Closing
Prices of the Series A Liberty Media Group Common Stock for the shortest of:
(i) the period of 30 consecutive trading days commencing 45
trading days before such Determination Date.
(ii) the period commencing on the date next succeeding the
first public announcement of the issuance of rights, warrants or
options or the distribution in
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<PAGE> 200
respect of which the Current Market Price is being calculated and
ending on the last full trading day before such Determination Date,
and
iii) the period, if any, commencing on the date next
succeeding the Ex-Dividend Date with respect to the next preceding
issuance of rights, warrants or options or distribution for which an
adjustment is required by the provisions of paragraph 7(c)(iv), 7(d)
or 7(e), and ending on the last full trading day before such
Determination Date.
If the record date for an issuance of rights, warrants or options or a
distribution for which an adjustment is required by the provisions of paragraph
7(c)(iv), 7(d) or 7(e) (the "preceding adjustment event") precedes the record
date for the issuance or distribution in respect of which the Current Market
Price is being calculated and the Ex-Dividend Date for such preceding
adjustment event is on or after the Determination Date for the issuance or
distribution in respect of which the Current Market Price is being calculated,
then the Current Market Price shall be adjusted by deducting therefrom the fair
market value (on the record date for the issuance or distribution in respect of
which the Current Market Price is being calculated), as determined in good
faith by the Board of Directors, of the capital stock, rights, warrants or
options, assets or debt securities issued or distributed in respect of each
share of Series A Liberty Media Group Common Stock in such preceding adjustment
event. Further, in the event that the Ex-Dividend Date (or in the case of a
subdivision, combination or reclassification to which paragraph 7(c)(i), (ii),
(iii) or (v) applies occurs during the period in a manner determined in good
faith by the Board of Directors to reflect the impact of such dividend,
subdivision, combination or reclassification on the Closing prices of the
Series A Liberty Media Group Common Stock during such period.
"Determination Date" for any issuance of rights, warrants or options
or any distribution to which paragraph 7(d) or 7(e) applies shall mean the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights, warrants or options or the distribution to which such
paragraph applies and (ii) the Ex-Dividend date for such rights, warrants or
options or distribution.
"Dividend Payment Date" shall mean the first day of each February and
August, commencing with August 1, 1997, or the next succeeding Business
Day if any such day is not a Business Day.
"Dividend Period" shall mean the period from the Anniversary Date to
but excluding the first Dividend Payment Date and, thereafter, each semi-annual
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.
"Exchange Preferred Stock" shall have the meaning set forth in
paragraph 7(g).
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<PAGE> 201
"Ex-Dividend Date: shall mean the date on which "ex-dividend" trading
commences for a dividend, an issuance of rights, warrants or options or a
distribution to which any of paragraph 7(c), (d), or (e) applies in the
over-the- counter market or on the principal exchange on which the Series A
Liberty Media Group Common Stock is then quoted or listed.
"Issue Date" shall mean the date on which shares of Series H Preferred
Stock are first issued.
"Junior Stock" shall mean (i) the TCI Group Common Stock, (ii) the
Liberty Media Group Common Stock, (iii) the Class B Preferred Stock, (iv) any
other class or series of capital stock, whether now existing or hereafter
created, of the Company, other than (A) the Series H Preferred Stock, (B) any
class or series of Parity Stock (except to the extent provided under clause (v)
hereof) and (C) any class or series of Senior Stock, and (v) above, a class or
series of Parity Stock shall rank junior to the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of Series H Preferred Stock shall be entitled to dividend payments,
payments on redemption or payments of amounts distributable upon dissolution,
liquidation or winding up of the Company, as the case may be, in preference or
priority to the holders of shares of such class or series of Parity Stock.
"Liberty Media Group Common Stock" shall mean the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock.
"Liquidation Preference" measured per share of the Series H Preferred
Stock as of any date in question (the "Relevant Date") shall mean an amount
equal to the sum of (a) the Stated Value of such share, plus (b) an amount
equal to all dividends accrued on such share which pursuant to paragraph 3(d)
of this Certificate of Designations have been added to and remain a part of the
Liquidation Preference as of the Relevant Date, plus (c) for purposes of
determining the amounts payable pursuant to paragraph 4 and paragraph 5 of this
Certificate of Designations and the definition of Redemption Price, an amount
equal to all unpaid dividends accrued on the sum of the amounts specified in
clauses (a) and (b) above during the period from and including the immediately
preceding Dividend Payment Date (or the Anniversary Date if the Relevant Date
is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Company legally available for the payment of dividends, In connection with
the determination of the Liquidation Preference of a share of Series H
Preferred Stock upon redemption or upon liquidation, dissolution or winding up
of the company, the Relevant Date shall be the applicable date of redemption or
the date of distribution of amounts payable to stockholders in connection with
any such liquidation, dissolution or winding up.
"Mirror Preferred Stock" shall have the meaning set forth in paragraph
7(g).
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<PAGE> 202
"1933 Act" shall mean the Securities act of 1933, as amended from time
to time, or any successor statute, and the rules and regulations promulgated
thereunder.
"Officers' Certificate" shall mean a certificate signed by the
chairman of the Board, President or any Senior Vice President of the Company
and by the Treasurer or any Assistant Treasurer of the Company.
"Parity Stock" shall mean any class or series of capital stock,
whether now existing or hereafter created of the Company ranking on a parity
basis with the Series H Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation. Capital stock of any class or series,
whether now existing or hereafter created, shall rank on a parity as to
dividend rights, rights of redemption or rights on liquidation with the Series
H Preferred Stock, whether or not the dividend rates, dividend payment dates,
redemption or liquidation prices per share or sinking fund or mandatory
redemption provisions, if any, are different form those of the Series H
Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as
the case may be, in proportion to their respective accumulated and accrued and
unpaid dividends, redemption prices or liquidation prices, respectively,
without preference or priority, one over the other, as between the holders of
shares of such class or series and the holders of Series H Preferred Stock. No
class or series of capital stock that ranks junior to the Series H Preferred
Stock as to rights on liquidation shall rank or be deemed to rank on a parity
basis with the Series H Preferred Stock as to dividend rights or rights of
redemption, unless the instrument creating or evidencing such class or series
of capital stock otherwise expressly so provides. The Series C Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock and the
Series G Preferred Stock rank on a parity basis with the Series H Preferred
Stock as to dividend rights, rights of redemption and rights on liquidation and
constitute "Parity Stock" for purposes of this Certificate of Designations.
"Person" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity, whether acting in an individual, fiduciary or other
capacity.
"Record Date" for the dividends payable on any Dividend Payment Date
shall mean the 15th day of the month preceding the month during which such
Dividend Payment Date shall occur as and if designated by the Board of
Directors.
"Redeemable Capital Stock" shall have the meaning set forth in
paragraph 7(c).
"Redemption Date" as to any share of Series H Preferred Stock shall
mean the date fixed for redemption of such share pursuant to paragraph 5(a) or
5(b) of this Certificate of Designation, provided that no such date will be a
Redemption Date unless the applicable Redemption Price is actually paid in full
on such date or the consideration sufficient for the
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<PAGE> 203
payment thereof, and for no other purpose, has been set apart or deposited in
trust as contemplated by paragraph 5(d) of this Certificate of Designations.
"Redemption Price", as to any share of Series H Preferred Stock that
is to be redeemed on any Redemption Date, shall mean the Liquidation Preference
thereof on such Redemption Date.
"Redemption Securities" shall have the meaning set forth in paragraph
7(g).
"Senior Stock" shall mean any class or series of capital stock of the
Company hereafter created ranking prior the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank prior to the Series H Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation if the holders
of shares of such class or series shall be entitled to dividend payments,
payments of the Company, as the case may be, in preference or priority to the
holders of shares of Series H Preferred Stock. No class or series of capital
stock that ranks on a parity basis with or junior to the Series H Preferred
Stock as to rights on liquidation shall rank or be deemed to rank prior to the
Series H Preferred Stock as to dividend rights or rights of redemption,
notwithstanding that the dividend rate, dividend payment dates, sinking fund
provisions, if any, or mandatory redemption provisions thereof are different
from those of the Series H Preferred Stock, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly so
provides.
"Series A Liberty Media Group Common Stock" shall mean the Tele-
Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series A Liberty
Media Group Common Stock, or in the case of a consolidation or merger of the
Company with or into another Person affecting the Series A Liberty Media Group
Common Stock, such capital stock to which a holder of Series A Liberty Media
Group Common Stock shall be entitled upon the occurrence of such event.
"Series A TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series A TCI Group Common Stock, such capital stock to
which a holder of Series A TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series B Liberty Media Group Common Stock" shall mean the Tele-
Communications, Inc. Series B Liberty Media Group Common Stock par value
$1.00 per share, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series B Liberty
Media Group Common Stock, or in the case of a
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<PAGE> 204
consolidation or merger of the Company with or into another Person affecting
the Series B Liberty Media Group Common Stock, such shall be entitled upon the
occurrence of such event.
"Series B TCI Group Common Stock" shall mean the Tele-Communications,
Inc. Series B TCI Group Common Stock, par value $1.00 per share, which term
shall include, where appropriate, in the case of any reclassification,
recapitalization or other change in the Series B TCI Group Common Stock, or in
the case of a consolidation or merger of the Company with or into another
Person affecting the Series B TCI Group Common Stock, such capital stock to
which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Series C Preferred Stock" shall mean the Convertible Preferred Stock,
Series C, par value $.01 per share, of the Company.
"Series D Preferred Stock" shall mean the Convertible Preferred Stock,
Series D, par value $.01 per share, of the Company.
"Series F Preferred Stock" shall mean the Convertible Redeemable
Participating Preferred Stock, Series F, par value $.01 per share, of the
Company.
"Series G Preferred Stock" shall have the meaning set forth in
paragraph 1 of this Certificate of Designations.
"Series H Preferred Stock" shall mean the Redeemable Convertible
Liberty Media Group Preferred Stock, Series H, par value $.01 per share, of the
Company.
"Special record Date" hall have the meaning set forth in paragraph
3(d) of this Certificate of Designations.
"Shared Value" of a share of Series H Preferred Stock shall have the
meaning set forth in paragraph 1 of this Certificate of Designations.
"Subsidiary" shall mean (i) a corporation (other than the Company) a
majority of the capital stock of which, having voting power under ordinary
circumstances to elect directors, is at the time, directly or indirectly, owned
by the Company and/or one or more Subsidiaries of the Company and (ii) any
other Person (other than a corporation) in which the Company and/or one or more
Subsidiaries of the Company, directly or indirectly, has (x) a majority
ownership interest and (y) the power to elect or direct the election of a
majority of the members of the governing body of such entity.
"Target Price" shall initially mean $27 and shall be appropriately
adjusted to take into account any stock dividends on the Series A TCI Group
Common Stock or the Series A Liberty Media Group Common Stock, or any stock
splits, reclassifications or combinations of
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the Series A TCI Group Common Stock or the Series A Liberty Media Group Common
Stock during the period following the Issue Date and ending on the Anniversary
Date or on such earlier date, if any, as of which the Contingency is met.
"TCI Group Common Stock" shall mean the Series A TCI Group
Common Stock and the Series B TCI Group Common Stock.
3. Dividends
(a) The Contingency. If the sum of (i) the Closing Price of the
Series A TCI Group Common Stock, plus (ii) one-fourth of the Closing Price of
the Series A Liberty Media Group Common Stock equals or exceeds the Target
Price for any ten (10) consecutive trading days during the period of sixty-five
(65) consecutive trading days ending on and including the last trading day
immediately preceding the Anniversary Date (the "Contingency"), no dividends
will accrue or be payable with respect to the Series H Preferred Stock.
(b) Payment. In the event that the Contingency is not met, and
only in such event, the holders of Series H Preferred Stock shall, subject to
the prior preferences and other rights of any Senior Stock and to the
provisions of paragraph 6 hereof, be entitled to receive, when and as declared
by the Board of Directors out of unrestricted funds legally available therefor,
cumulative dividends, in preference to dividends on any Junior Stock, which
shall accrue as provided herein. Except as otherwise provided in paragraph
3(d) of this Certificate of Designations, dividends on each share of Series H
Preferred Stock will, if the Contingency is not met, accrue on a daily basis at
the rate of 4% per annum of the Liquidation Preference of such share from and
including the Anniversary Date to but excluding the date on which the
Liquidation Preference or Redemption Price of such share is made available
pursuant to paragraph 4 or 5, respectively, of this Certificate of Designations
or the date of conversion of such share pursuant to paragraph 7 hereof, as
applicable. Dividends shall accrue as provided herein whether or not such
dividends have been declared and whether or not there are any unrestricted
funds of the Company legally available for the payment of dividends. Accrued
dividends on the series H Preferred Stock shall be payable semiannually on each
Dividend Payment Date, commencing on August 1, 1997, to the holders of record
of the Series H Preferred Stock as of the close of business on the applicable
Record Date. For purposes of determining the amount of dividends "accrued" (i)
as of the first Dividend Payment Date and as of any date that is not a Dividend
Payment Date, such amount shall be calculated on the basis of the rate per
annum specified above in this paragraph 3(b) for the actual number of days
elapsed from and including the Anniversary Date (in the case of the first
Dividend Payment Date and any date prior to the first Dividend Payment Date) or
the last preceding Dividend Payment Date (in the case of any other date) to but
excluding the date as of which such determination is to be made, based on a
365-day year, and (ii) as of any Dividend Payment Date after the first Dividend
payment Date, such amount shall be calculated on the basis of such rate per
annum based on a 360-day year of twelve 30-day months. For so long as the
Liquidation Preference of a share of Series H Preferred Stock is equal to the
Stated Value per share, the amount of the dividend payable per share on the
Dividend Payment Date for each full semi-annual Dividend Period shall be $.108.
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(c) Method of Payment. All dividends payable with respect to the
shares of Series H Preferred Stock may be declared and paid, in the sole
discretion of the Board of Directors, in cash, through the issuance of shares
of Series A TCI Group Common Stock or in any combination of the foregoing. If
any dividend payment declared by the Board of Directors with respect to the
shares of Series H Preferred Stock is to be paid in whole or in part through
the issuance of shares of Series A TCI Group Common Stock, the amount of such
dividend payment to be paid per share of Series H Preferred Stock in shares of
Series A TCI Group Common Stock (the "Stock Dividend Amount") shall be
satisfied and paid by the delivery to the holders of record of such shares of
Series H Preferred Stock on the Record Date or Special Record Date, as the case
may be, for such dividend payment, of a number of shares of Series A TCI Group
Common Stock determined by dividing the Stock Dividend Amount by the Average
Market Price of a share of Series A TCI Group Common Stock as of such Record
Date or Special Record Date. The Company shall not be required to issue any
fractional share of Series A TCI Group Common Stock to which any holder of
Series H Preferred Stock may become entitled pursuant to this paragraph 3(c).
The Board of Directors may elect to settle any final fraction of a share of
Series A TCI Group Common Stock which a holder of one or more shares of Series
H Preferred Stock would otherwise be entitled to receive pursuant to this
paragraph 3(c) by having the Company pay to such holder, in lieu of issuing
such fractional share, cash in an amount (rounded upward to the nearest whole
cent) equal to the same fraction of the Average Market Price of a share of
Series A TCI Group Common Stock as of the Record Date or Special Record Date,
as the case may be, for the dividend payment with respect to which such shares
of Series A TCI Group Common Stock who would otherwise be entitled to receive a
fractional share of Series A TCI Group Common Stock on the Dividend payment
Date or other date fixed for the payment of such dividend.
All dividends paid with respect to the shares of Series H Preferred
Stock pursuant to this paragraph 3 shall be paid pro rata to all the holders of
shares of Series H Preferred Stock outstanding on the applicable Record Date or
Special Record Date, as the case may be.
(d) Unpaid Dividends. If an any Dividend Payment Date the Company,
pursuant to applicable law or otherwise, shall be prohibited or restricted from
paying the full dividends of which holders of Series H Preferred Stock, and any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to the right to receive dividend payments, shall be entitled, the
amount available for such payment pursuant to applicable law and which is not
otherwise restricted (if any) shall be distributed among the holders of Series H
Preferred Stock and any such Parity Stock ratably in proportion to the full
amounts to which they would otherwise be entitled. On each Dividend Payment
Date, all dividends that have accrued ton each share of Series H Preferred
Stock during the Dividend Period ending on such Dividend Payment Date shall, to
the extent not paid on such Dividend Payment Date for any reason (whether or
not such unpaid dividends have been declared or there are any unrestricted
funds of the Company legally available for the payment of dividends), be added
cumulatively to the Liquidation Preference of such share and will remain a part
thereof until such dividends are paid. The rate per annum at which dividends
accrue in respect of that portion of the Liquidation Preference of
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a share of Series H Preferred Stock that consists of accrued unpaid dividends
that have been added to the Liquidation Preference of such share on a Dividend
Payment Date pursuant to this paragraph 3(d) and remain unpaid on the next
succeeding Dividend Payment Date shall increase to 8.625% per annum from and
after such next succeeding Dividend Payment Date to and including the date on
which the Liquidation Preference or Redemption Price of such share is made
available pursuant to paragraph 4 or 5, respectively, of this Certificate of
Designations or the date of conversion of such share pursuant to paragraph 7
hereof, as applicable, unless the portion of the Liquidation Preference that
consists of such accrued unpaid dividends is earlier declared and paid or an
amount sufficient to pay the same in full is irrevocably set apart in trust for
such purpose. That portion of the Liquidation Preference of a share of Series
H Preferred Stock that consists of accrued unpaid dividends, together with all
dividends accrued in respect thereof, may be declared an paid at any time
(subject to the rights of any Senior Stock and to the concurrent satisfaction
of any dividend arrearages that existing with respect to any Parity Stock that
ranks on a parity basis with the Series H Preferred Stock as to the payment of
dividends), without reference to any regular Dividend Payment Date, to holders
of record as of the close of business, on such date, not more than 45 days nor
less than 10 days prior thereto, to the holders of record of the shares of
Series H Preferred Stock.
(e) Credit. Any dividend payment made on the shares of Series H
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to the shares of Series H Preferred Stock.
(f) Authorized Shares. All shares of Series A TCI Group Common Stock
issued in payment of any dividend on the Series H Preferred Stock shall, when
issued, be duly and validly authorized, fully paid, nonassessable and free from
all preemptive or similar rights; the delivery of such shares shall be made in
compliance with all applicable Federal and state securities losses, and such
shares shall have been listed for trading on such national securities exchange
or national securities association, if any, on which the Series A TCI Group
Common Stock is then listed.
4. Distributions Upon Liquidation, Dissolution or Winding Up.
Subject to the prior payment in full of the preferential amounts to which any
Senior Stock is entitled, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of
Series H Preferred Stock shall be entitled to receive from the assets of the
company available for distribution to stockholders before any payment or
distribution shall be made to the holders of any Junior Stock, an amount in
cash (or, at the election of the Company, property at its fair market value, as
determined by the Board of Directors in good faith) per share, equal to the
Liquidation Preference of a share of Series H Preferred Stock as of the date of
payment or distribution, which payment or distribution shall be made pari
passu with, and if the Company has elected to pay in property, in the same form
of property as, any such payment or distribution made to the holders of any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to distributions upon liquidation, dissolution or winding
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up of the Company. The holders of Series H Preferred Stock shall be entitled
to no other or further distribution of or participation in any remaining assets
of the Company after receiving the Liquidation Preference per share. If, upon
distribution of the Company's assets in liquidation, dissolution or winding up,
the assets of the company to be distributed among the holders of the Series H
Preferred Stock and to all holders of any Parity Stock ranking on a parity
basis with the Series H Preferred Stock with respect to distributions upon
liquidation, dissolution or winding up shall be insufficient to permit payment
in full to such holders of the respective preferential amounts to which they
are entitled, then the entire assets of the Company to be distributed to holders
of the Series H Preferred Stock and such Parity Stock shall be distributed pro
rata to such holders based upon the aggregate of the full preferential amounts
to which the shares of Series H Preferred Stock and such Parity Stock would
otherwise respectively be entitled. Neither the consolidation or merger of the
Company with or into any other corporation or corporations nor the sale,
transfer, or lease of all or substantially all of the assets of the Company
shall itself be deemed a liquidation, dissolution or winding up of the Company
within the meaning of this paragraph 4. Notice of the liquidation, dissolution
or winding up of the Company shall be given, not less than twenty (20) days
prior to the date on which such liquidation, dissolution or winding up is
expected to take place or become effective to the holders of record of the
shares of Series H Preferred Stock.
5. Redemption.
(a) Optional Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designation, the
shares of Series H Preferred Stock may be redeemed, at the option of the
Company by action of the Board of Directors, in whole or from time to time in
part, on any Business Day occurring on or after February 1, 2001, at the
Redemption Price on the Redemption Date. If fewer than all of the outstanding
shares of Series H Preferred Stock are to be redeemed on any Redemption Date,
the shares of Series H Preferred Stock to be redeemed shall be chosen by the
Company pro rata (as nearly as may be practicable) among all holders of Series
H Preferred Stock. The Company shall not be required to register a transfer of
(i) any shares of Series H Preferred stock for a period of 15 days next
preceding any selection of shares of Series H Preferred Stock to be redeemed or
(ii) any shares of Series H Preferred Stock selected or called for redemption.
(b) Mandatory Redemption. Subject to the rights of any Senior Stock
and the provisions of paragraph 6 of this Certificate of Designations, the
Company shall redeem, out of funds legally available therefor, on February 1,
2016 (or, if such day is not a Business Day, on the first Business Day
thereafter) all shares of Series H Preferred Stock remaining outstanding at the
Redemption Price on the Redemption Date. If the funds of the Company legally
available for redemption of shares of the Series H Preferred Stock and any
Parity Stock then required to be redeemed are insufficient to redeem the total
number of such shares remaining outstanding, those funds which are legally
available shall, subject to the rights of any Senior Stock and the provisions
of paragraph 6, to be used to redeem the maximum possible number of shares of
Series H Preferred Stock and each such other class or series of Parity Stock.
Subject to the rights of any Senior Stock and the provisions of paragraph 6
hereof, at any time and from time to time
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thereafter when additional funds of the Company are legally available for such
purpose, such funds shall immediately be used to redeem the shares of Series H
Preferred Stock and of each such other class or series of Parity Stock which
were required to be redeemed that the Company failed to redeem until the
balance of such shares have been redeemed. The selection of shares to be
redeemed pursuant to the two immediately preceding sentences shall be made, as
nearly as practicable, on a pro rata basis as among the different classes or
series and as among the holders of shares of a particular class or series.
(c) Notice of Redemption. Notice of redemption shall be given by or
on behalf other the Company at least sixty (60) days prior to the Redemption
Date, in the case of a redemption pursuant to paragraph 5(a) and not more than
sixty (60) days nor less than thirty (30) days prior to the Redemption Date, in
the case of the redemption pursuant to paragraph 5(b), to the holders of record
of the shares of Series H Preferred Stock to be redeemed; but no defect in such
notice or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any shares of Series H Preferred Stock. In addition to
any information required by law or by the applicable rules of an national
securities exchange or national interdealer quotation system on which the
Series H Preferred Stock may be listed or admitted to trading or quoted, such
notice shall set forth the Redemption Price, the Redemption Date, the number of
shares to be redeemed and the place at which the shares called for redemption
will, upon presentation and surrender of the stock certificates evidencing such
shares, be redeemed, and if the Company has elected to deposit the Redemption
Price with a Redemption Agent in accordance with paragraph 5(d), shall state
the name and address of the Redemption Agent and the date on which such deposit
was or will be made. Such notice shall also set forth the then current
Conversion Rate for the shares of Series H Preferred Stock and the place or
places to which a holder desiring to convert shares of Series H Preferred Stock
should deliver the certificate(s) evidencing such shares, together with such
other documents and instruments as are or may be required pursuant to paragraph
7 of this Certificate of Designations. In the event that fewer than the total
number of shares of Series H preferred Stock represented by a certificate are
redeemed, a new certificate representing the number of unredeemed shares will
be issued to the holder thereof without cost to such holder. If the shares of
Series H Preferred Stock evidenced by a certificate selected for partial
redemption pursuant to paragraph 5(a) of this Certificate of Designations are
thereafter converted in part pursuant to paragraph 7 hereof, the shares so
converted (as far as may be) will be deemed to be the shares selected for
redemption.
(d) Deposit of Redemption Price. If notice of any redemption by the
Company pursuant to this paragraph 5 shall have been given as provided in
paragraph 5(c) of this Certificate of Designations and if on or before the
Redemption Date specified in such notice an amount in cash sufficient to redeem
in full on the Redemption Date at the Redemption Price all shares of Series H
Preferred Stock call for redemption or required to be redeemed shall have been
set apart so as to be available for such purpose and only for such purpose,
then effective as of the close of business on the Redemption Date, the shares
of Series H Preferred Stock called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and all remaining rights with respect
to such shares shall
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forthwith cease and terminate, except the right of the holders thereof to
receive the Redemption Price of such shares, without interest, upon the
surrender of certificates representing the same.
At its election, the Company on or prior to the Redemption Date (but
no more than ninety (90) days prior to the Redemption Date) may deposit
immediately available funds in an amount equal to the aggregate Redemption
Price of the shares of Series H Preferred Stock called for redemption in trust
for the holders thereof with any bank of trust company organized under the laws
of the United States of America or any state thereof having capital, undivided
profits and surplus aggregating at least $50 million (the "Redemption Agent"),
with irrevocable instructions and authority to the Redemption Agent on behalf
and at the expense of the Company, to mail the notice of redemption as soon as
practicable after receipt of such irrevocable instructions (or to complete such
mailing previously commenced, if it has not already been completed) and to pay,
on and after the Redemption Date or prior thereto, the Redemption Price of the
shares of Series H Preferred Stock to be redeemed to their respective holders
upon the surrender of the certificates therefor. A deposit made in compliance
with the immediately receding sentence shall be deemed to constitute full
payment for the shares of Series H Preferred Stock to be redeemed and from and
after the later of the close of business on the date of such deposit (although
prior to the Redemption Date) or the date notice of redemption is mailed, the
shares of Series H Preferred Stock to be redeemed shall no longer be deemed
outstanding and the holders thereof shall cease to be stockholders with respect
to such shares and shall have no rights with respect to such shares except (x)
the right of the holders thereof to receive the Redemption Price of such shares
(calculated through the Redemption date), without interest, upon surrender of
the certificates therefor and (y) the right to convert such shares in
accordance with paragraph 7 prior to the close of business on the Business Day
immediately preceding the Redemption Date. Any funds so deposited which shall
not be required for the payment of the Redemption Price of any shares of Series
H Preferred Stock to be redeemed because of the conversion of such shares shall
after such conversion be repaid to the Company by the Redemption Agent. Any
interest accrued on the funds so deposited shall be paid to the Company from
time to time. Any funds so deposited with the Redemption Agent which shall
remain unclaimed by the holders of such shares of Series H Preferred Stock at
the end of one year after the Redemption Date shall be returned by the
Redemption Agent to the Company, after which repayment the holders of such
shares of Series H Preferred Stock called for redemption shall look only to the
Company for the payment thereof, without interest, unless an applicable escheat
or abandoned property law otherwise requires.
6. Limitations on Dividends and Redemptions. If at any time the
Company shall have failed to pay, or declare and set aside the consideration
sufficient to pay, full cumulative dividends for all prior dividend periods on
any Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock which by the terms of the instrument creating or evidencing
such Parity Stock is entitled to the payment of such cumulative dividends prior
to the redemption, exchange, purchase or other acquisition of the Series H
Preferred Stock, and until full cumulative dividends on such Parity Stock for
all prior dividend periods are paid, or declared and the consideration
sufficient to pay the same in full is set aside so as to be available for such
purpose and no other purpose, neither the Company nor any Subsidiary thereof
shall redeem, exchange, purchase or otherwise acquire any shares of Series
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H Preferred Stock, Parity Stock or Junior Stock, or set aside any money or
assets for any such purpose pursuant to paragraph 5(d) hereof, any sinking fund
or otherwise, unless all then outstanding shares of Series H Preferred Stock,
of such Parity Stock and of any other class or series of Parity Stock that by
the terms of the instrument creating or evidencing such Parity Stock is
required to be redeemed under such circumstances are redeemed pursuant to the
terms hereof and thereof.
If at any time the Company shall have failed to pay, or declare and
set aside the consideration sufficient to pay, full cumulative dividends on the
Series H Preferred Stock for all Dividend Periods ending on or before the
immediately preceding Dividend Payment Date, and until full cumulative
dividends on the Series H Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series H Preferred Stock for all dividend Periods
ending before the immediately preceding Dividend Payment Date are paid, or
declared and the consideration sufficient to pay the same in full is set aside
so as to be available for such purpose and no other purpose, (i) neither the
Company nor any Subsidiary thereof shall redeem, exchange, purchase or
otherwise acquire any shares of Series H Preferred Stock, Parity Stock, or
Junior Stock, or set aside any money or assets for any such purpose pursuant to
paragraph 5(d) hereof, any sinking fund or otherwise, unless all then
outstanding shares of Series H Preferred Stock and of any other class or series
of Parity Stock that by the terms of the instrument creating or evidencing such
Parity Stock is required to be redeemed under such circumstances are redeemed
or exchanged pursuant to the terms hereof and thereof, and (ii) the Company
shall not declare or pay any dividend on or make any distribution with respect
to any Junior Stock or Parity Stock or set aside any money or assets for any
such purpose, except that the Company may declare and pay a dividend on any
Parity Stock ranking on a parity basis with the Series H Preferred Stock with
respect to the right to receive dividend payments, contemporaneously with the
declaration and payment of a dividend on the Series H Preferred Stock, provided
that such dividends are declared and paid pro rata so that the amount of
dividends declared and paid per share of Series H Preferred Stock and such
Parity Stock shall in all cases bear to each other the same ratio that
accumulated and accrued and unpaid dividends per share on the Series H
Preferred Stock and such Parity Stock bear to each other.
If the Company shall fail to redeem on any date fixed for redemption
pursuant to paragraph 5(a) or 5(b) of this Certificate of Designations any
shares of Series H Preferred Stock called for redemption or required to be
redeemed on such date, and until such shares are redeemed in full, the Company
shall not (x) redeem any Junior Stock or, except as provided in paragraph 5(b)
hereof, Parity Stock or (y) declare or pay any dividend on or make any
distribution with respect to any Junior Stock or, except as provided in the
second paragraph of this paragraph 6, Parity Stock, or set aside any money or
assets for any such purpose, and neither the Company nor any Subsidiary thereof
shall purchase or otherwise acquire any Series H Preferred Stock, Parity Stock
or Junior Stock, or set aside any money or assets for any such purpose.
Nothing contained in the first or third paragraph of this paragraph 6
shall prevent (i) the payment of dividends on any Junior Stock solely in shares
of Junior Stock or the redemption, purchase or other acquisition of Junior
Stock solely in exchange for (together with
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a cash adjustment for fractional shares, if any), or (but only in the case of
the first paragraph of this paragraph 6) through the application of the
proceeds from the sale of shares of Junior Stock; (ii) the payment of dividends
on any Parity Stock solely in shares of Parity Stock and/or Junior Stock or the
redemption, exchange, purchase or other acquisition of Series H Preferred Stock
or Parity Stock solely in exchange for (together with a cash adjustment for
fractional shares, if any), or (but only in the case of the first paragraph of
this paragraph 6) through the application of the proceeds from the sale of,
shares of Parity Stock and/or Junior Stock; or (iii) the purchase or
acquisition of shares of Series H Preferred Stock pursuant to a purchase or
exchange offer made to all holders of outstanding shares of Series H Preferred
Stock, provided that the terms of the purchase or exchange offer shall be
identical for all shares of Series H Preferred Stock and all accrued dividends
on such shares shall have been paid or shall have been declared and irrevocably
set apart in trust for the benefit of the holders of shares of Series H
Preferred Stock and for no other purpose.
The provisions of the first paragraph of this paragraph 6 are for the
sole benefit of the holders of Series H Preferred Stock and Parity Stock having
the terns described therein and accordingly, at any time when there are no
shares of any such class or series of Parity Stock outstanding or if the
holders of each such class or series of Parity Stock have, by such vote or
consent of the holders thereof as may be provided for in the instrument
creating or evidencing such class or series, waived in whole or in part the
benefit of such provisions (either generally or in the specific instance), then
the provisions of the first paragraph of this paragraph 6 shall not (to the
extent waived, in the case of any partial waiver) restrict the redemption,
exchange, purchase or other acquisition of any shares of Series H Preferred
Stock, Parity Stock or Junior Stock. All other provisions of this paragraph 6
are for the sole benefit of the holders of Series H Preferred Stock and
accordingly, if the holders of shares of Series H Preferred Stock shall have
waived as provided in paragraph 10 of this Certificate of Designations) in
whole or in part the benefit of the applicable provision, either generally or
in the specific instance, such provision shall not (to the extent of such
waiver, in the case of a partial waiver) restrict the redemption, exchange,
purchase or other acquisition of, or declaration, payment or making of any
dividends or distributions on, the Series H Preferred Stock, any Parity Stock
or any Junior Stock.
7. Conversion of Series H Preferred Stock.
(a) Right to Convert. Unless previously redeemed as provided in
paragraph 5 of this Certificate of Designations, shares of Series H Preferred
Stock may be converted at the option of the holder thereof, in the manner and
upon the terms and conditions set forth in this paragraph 7, into fully paid
and nonassessable whole shares of Series A Liberty Media Group Common Stock at
the Conversion Rate in effect on the Conversion Date, at any time prior to the
close of business on the Business Day immediately preceding the Redemption Date
for the redemption of shares of Series H Preferred Stock pursuant to paragraph
5(a) or 5(b) of this Certificate of Designations.
(b) Mechanics of Conversion. In order to convert shares of Series H
Preferred Stock, the holder thereof shall surrender the certificate or
certificates representing the shares of
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Series H Preferred Stock to be converted at the office of the Company or the
office of any transfer agent for the Series H Preferred Stock, which
certificate or certificates shall be duly endorsed to the Company in blank (or
accompanied by duly executed instruments of transfer to the Company in blank)
with signatures guaranteed (such endorsements or instruments of transfer to be
in form satisfactory to the Company), together with a written notice to the
Company at said office of the election to convert the same, specifying the
number of shares of Series H Preferred Stock to be converted and the name or
names (with addresses) in which the certificate or certificates for shares of
Series A Liberty Media Group Common Stock are to be issued. If any transfer
certificates for shares of Series A Liberty Media Group Common Stock are to be
issued. If any transfer is involved in the issuance or delivery of any
certificate or certificates for shares of Series A Liberty Media Group Common
Stock in a name other than that of the registered holder of the shares of
Series H Preferred Stock surrendered for conversion, such holder shall also
deliver to the Company a sum sufficient to pay all taxes, if any, payable is
respect of such transfer or evidence satisfactory to the company that such
taxes have been paid. Except as provided in the immediately preceding
sentence, the Company shall pay any issue, stamp or other similar tax in
respect of such issuance or delivery.
The Company shall, as soon as practicable after the Conversion Date,
deliver to the holder of the shares of Series H Preferred Stock so surrendered
for conversion, or to such holder's nominee(s) or, subject to compliance with
applicable law, transferee(s), a certificate or certificates for the number of
whole shares of Series A Liberty Media Group Common Stock to which such holder
shall be entitled, together with cash or its check in lieu of any fractional
share as provided in paragraph 7(o). If the shares of Series H Preferred Stock
represented by a certificate surrendered for conversion are converted only in
part, the Company will also issue and deliver to the holder, or to such
holder's nominee(s) or, subject to compliance with applicable law,
transferee(s), without charge therefor, a new certificate or certificates
representing in the aggregate the unconverted shares of Series H Preferred
Stock.
The Person in whose name the certificate for shares of Series A
Liberty Media Group Common Stock is issued upon such conversion shall be
treated for all purposes as the stockholder of record of such shares of Series
A Liberty Media Group Common Stock as of the close of business on the
Conversion Date; provided, however, that no surrender of Series H Preferred
Stock on any date when the stock transfer books of the Company are closed for
any purpose shall be effective to constitute the Person or Persons entitled to
receive the shares of Series A Liberty Media Group Common Stock on such date,
but such surrender shall be effective (assuming all other requirements of this
paragraph 7 have been satisfied) to constitute such Person or Persons as the
record holders of such shares of Series A Liberty Media Group Common Stock for
all purposes as of the opening of business on the next succeeding day on which
such stock transfer books are open, and such conversion shall be at the
Conversion Rate in effect on the date that such shares of Series H Preferred
Stock were surrendered for conversion (and such other requirements satisfied)
as if the stock transfer books of the Company had not been closed on such date.
upon conversion of shares of Series H Preferred stock, the rights of the holder
of the shares so converted as a holder thereof, will cease.
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Notwithstanding the last sentence of the immediately preceding
paragraph, if the Board of Directors declares any dividend on the Series H
Preferred Stock pursuant to paragraph 3 of this Certificate of Designations,
and the Conversion Date for any shares of Series H Preferred Stock occurs on or
after the Record Date or Special Record Date, as the case may be, and before
the Dividend payment Date for such dividend (or, in the case of a dividend
declared pursuant to Section 3(d), then the holder of such shares of Series H
Preferred Stock on such Record Date shall be entitled to receive such dividend
on such Dividend Payment Date (or such other date, as the case may be), as if
such Conversion Date had not occurred.
(c) Adjustments for Change in Capital Stock. If after the Issue
Date, the Company:
(i) pays a dividend or makes a distribution on the Series A
Liberty Media Group Common Stock in shares of Series A Liberty Media
Group Common Stock;
(ii) subdivides the outstanding shares of Series A Liberty
Media Group Common Stock into a greater number of shares;
(iii) combines the outstanding shares of Series A Liberty
Media Group Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on the Series A
Liberty Media Group Common Stock in shares of its capital stock (other
than Section A Liberty Media Group Common Stock or rights, warrants or
options for its capital stock), or
(v) issues by reclassification of its shares of Series A
Liberty Media Group Common Stock (other than a reclassification by way
of merger or binding share exchange that is subject to paragraph 7(f))
any shares of its capital stock (other than rights, warrants or
options for its capital stock).
then, subject to the following sentence and to paragraph 7(j), the conversion
privilege and the Conversion Rate in effect immediately prior to the opening of
business on the record date for such dividend or distribution or the effective
date of such subdivision, combination or reclassification shall be adjusted so
that the holder of any shares of Series H Preferred Stock thereafter converted
may receive the kind and number of shares of capital stock of the Company which
such holder would have owned immediately following such event if such holder
had converted his shares of Series H Preferred Stock immediately prior to the
record date for, or effective date of, as the case may be, such event.
Notwithstanding the foregoing, if an event listed in clause (iv) of (v) above
would result in the shares of Series H Preferred Stock being convertible into
shares or units (or a fraction thereof) of more than one class or series of
capital stock of the Company and any such class or series of capital stock
(other than Series A
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Liberty Media Group Stock) provides by its terms a right in favor the Company
to call, redeem, exchange or otherwise acquire all of the outstanding shares or
units of such class or series (such class or series of capital stock being
herein referred to as "Redeemable Capital Stock") then, at the option of the
Company, the conversion privilege and Conversion Rate of the Series H Preferred
Stock shall not be adjusted pursuant to this paragraph 7(c) and in lieu
thereof, but subject to paragraph (j), the adjustments to the Conversion Rate
contemplated by paragraph 7(e) shall be made with the same effect as if the
dividend or distribution of Redeemable Capital Stock or the issuance of the
additional class or series of Redeemable Capital stock by reclassification had
been a distribution of assets of the Company.
The adjustment contemplated by this paragraph 7(c) shall be made
successively whenever any event listed above shall occur. For a dividend or
distribution, the adjustment shall become effective immediately after the
record date for the dividend or distribution. For a subdivision, combination
or reclassification, the adjustment shall become effective immediately after
the effective date of the subdivision, combination or reclassification.
If after an adjustment a holder of Series H Preferred Stock would be
entitled to receive upon conversion thereof shares of two or more classes or
series of capital stock of the Company, the Conversion Rate shall thereafter be
subject to adjustment upon the occurrence of an action taken with respect to
any such class or series of capital stock as is contemplated by this paragraph
7 with respect to the Series A Liberty Media Group Common Stock, on terms
comparable to those applicable to the Series A Liberty Media Group Common Stock
pursuant to this paragraph 7.
Any shares of Series A Liberty Media Group Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the time of the record date for such dividend for purposes of calculated the
number of outstanding shares of Series A Liberty Media Group Common Stock under
paragraphs 7(d) and 7(e) below.
(d) Adjustment for Rights Issue. If, after the Company distributes
any rights, warrant or options to holders of shares of Series A Liberty Media
Group Common Stock entitling them for a period expiring within 45 days after
the record date of the determination of stockholders entitled to receive such
distribution, to purchase shares of Series A Liberty Media Group Common Stock
(or Convertible Securities) as a price per share (or having a conversion price
per share, after adding thereto an allocable portion of the exercise price of
the right, warrant or option to purchase such Convertible Securities, computed
on the basis of the maximum number of shares of Series A Liberty Media Group
Common Stock issuable upon conversion of such Convertible Securities) less than
the Current Market Price on the Determination Date, the Conversion Rate in
effect immediately prior to the opening of business on such record date by a
fraction, of which the numerator shall be the number of shares of Series A
Liberty Media Group Common Stock outstanding on such record date plus the
number of shares of Series A Liberty Media Common Stock which the aggregate
offering price of the total number of shares of Series A Liberty Media Group
Common Stock so offered
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<PAGE> 216
(or the aggregate conversion price of the Convertible Securities to be so
offered, after adding thereto the aggregate exercise price of the rights,
warrants or options to purchase such Convertible Securities) to the holders of
Series A Liberty Media Group Common Stock (and to the holders of Convertible
Securities and Series B Liberty Media Group Common Stock referred to in the
immediately succeeding paragraph of this paragraph 7(d) if the distribution to
which this paragraph 7(d) applies is also being made to such holders) would
purchase at such Current Market Price, and of which the denominator shall be
the number of shares of Series A Liberty Media Group Common Stock outstanding
on such record date plus the number of additional shares of Series A Liberty
Media Group Common Stock so offered to the holders of Series A Liberty Media
Group Common Stock (and to such holders of Convertible Securities and Series B
Liberty Media Group Common Stock) for subscription or purchase (or into which
the Convertible Securities so offered are convertible). Shares of Series A
Liberty Media Group Common Stock owned by or held for the account of the
Company shall not be deemed to be outstanding the propose of any such
adjustment.
For purposes of this paragraph 7(d) the number of shares of Series A
Liberty Media Group Common Stock outstanding on any record date shall be deemed
to include (i) the maximum number of shares of Series A Liberty Media Group
Common Stock the issuance of which would be necessary to effect the full
exercise, exchange or conversion of all Convertible Securities outstanding on
such record date which are then exercisable, exchangeable or convertible at a
price (before giving effect to any adjustment to such price for the
distribution to which this paragraph 7(d) is being applied) equal or less than
the Current Market Price per share of Series A Liberty Media Group Common Stock
on the applicable Determination Date, if all of such Convertible Securities
were deemed to have been exercised, exchanged or converted immediately prior to
the opening of business on such record date and (ii) if the Series B Liberty
Media Group Common Stock is then convertible into Series A Liberty Media Group
Common Stock, the maximum number of shares of Series A Liberty Media Group
Common Stock the issuance of which would be necessary to effect the full
conversion of all shares of Series B Liberty Media Group Common Stock
outstanding on such record date, if all of such shares of Series B Liberty
Media Group Common Stock were deemed to have been converted immediately prior
to the opening of business on such record date.
The adjustment contemplated by this paragraph 7(d) shall be made
successively whenever any such rights, warrants or options are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive the rights, warrants or options. If all of
the share of Series A Liberty Media Group Common Stock (or all of the
Convertible Securities) subject to such rights, warrants or options have not
been issued when such rights, warrants or options expire (or, in the case of
rights, warrants or options to purchase Convertible Securities which have been
exercised, if all of the shares of Series A Liberty Media Group Common Stock
issuable upon conversion of such Convertible Securities have not been issued
prior to the expiration of the conversion right hereof), then the Conversion
Rate shall promptly be readjusted to the Conversion Rate which would then be in
effect had the adjustment upon the issuance of such rights, warrants or options
been made on the basis of the actual number of shares of Series A Liberty Media
Group Common Stock (or Convertible Securities) issued
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<PAGE> 217
upon the exercise of such rights, warrants or options (or conversion of such
Convertible Securities).
No adjustment shall be made under this paragraph 7(d) if the adjusted
Conversion Rate would be lower than the Conversion Rate in effect immediately
prior to such adjustment.
(e) Adjustments for Other Distributions. If, after the Issue Date
(i) the Company distributes to all holders of shares of Series A Liberty Media
Group Common Stock any assets or debt securities or any rights, warrants or
options to purchase securities (excluding (x) dividends or distributions
referred to in paragraph 7(c) (except as otherwise provide in clause (ii) of
this sentence) and distributions of rights, warrants or options referred to in
paragraph 7(d) and (y) cash dividends or other cash distributions, unless such
cash dividends or cash distributions are Extraordinary Cash Dividends), or (ii)
the Company makes a dividend or distribution of Redeemable Capital Stock on, or
issues Redeemable Capital Stock by reclassification of, the Series A Liberty
Media Group Common Stock by reclassification of, the Series A Liberty Media
Group Common Stock and determines pursuant to paragraph 7(c) to treat the same
as a distribution of assets of the Company subject to this paragraph 7(e),
then in each such event the Conversion Rate shall be adjusted by dividing the
Conversion Rate in effect immediately prior to the opening of business on (A)
the record date for the determination of stockholders entitled to receive the
distribution or (B) in the case of a reclassification, the effective date of
such reclassification by a fraction, of which the numerator shall be the total
number of shares or Series A Liberty Media Group Common Stock outstanding on
such record date or immediately prior to such effective date multiplied by the
Current Market price on the Determination Date, less the fair market value (as
determined in good faith by the Board of Directors) on such record date or
effective date of said assets (or Redeemable Capital Stock) or debt securities
or rights, warrants or options so distributed to the holders of Series A
Liberty Media Group Common Stock (and to the holders of Convertible Securities
and Series B Liberty Media Group Common Stock referred to in the immediately
succeeding paragraph of this paragraph 7(e) if the distribution to which this
paragraph 7(e) applies is also being made to such holders), and of which the
denominator shall be the total number of shares of Series A Liberty Media Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by such Current Market Price.
For purposes of this paragraph 7(e), the number of shares of Series A
Liberty Media Group Common Stock outstanding on any relevant date shall be
deemed to include (i) the maximum number of shares of Series A Liberty Media
Group Common Stock the issuance of which would be outstanding on such date
which are then exercisable, exchangeable or convertible at a price (before
giving effect to any adjustment to such price for the distribution to which
this paragraph 7(e) is being applied) equal to or less than the Current Market
Price on the applicable Determination Date, if all of such Convertible
Securities were deemed to have been exercised, exchanged or converted
immediately prior to the opening of business on such date and (ii) if the
Series B Liberty Media Group Stock is then convertible into Series A Liberty
Media Group Common Stock the issuance of which would be necessary to effect the
full conversion of all
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<PAGE> 218
shares of Series B Liberty Media Group Common Stock outstanding on such date,
if all of such shares of Series B Liberty Media Group Common Stock were deemed
to have been converted immediately prior to the opening of business on such
date.
For purposes of this paragraph 7(e), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to the Series A Liberty
Media Group Common Stock the amount of which, together with the aggregate
amount of cash dividends on the Series A Liberty Media Group Common Stock to be
aggregated with such cash dividend in accordance with the following provisions
of this paragraph, equals or exceeds the threshold percentage set forth below
in the following sentence. If, upon the date prior to the Ex-Dividend Date
with respect to a cash dividend on Series A Liberty Media Group Common Stock,
the aggregate of the amount of such cash dividend together with the amounts of
all cash dividends on the Series A Liberty Media Group Common Stock with
Ex-Dividend Dates occurring in the 365 consecutive day period ending on the
date prior to the Ex-Dividend Date with respect to the cash dividend to which
this provision is being applied (other than any such other cash dividends with
Ex-Dividend Dates occurring in such period for which a prior adjustment in the
Conversion Rate was previously made under this paragraph 7(e)) equals or
exceeds on a per share basis 10% of the average of the Closing Prices during
the period beginning on the date after the first such Ex-Dividend Date in such
period and ending on the date prior to the Ex-Dividend Date with respect to the
cash dividend to which this provision is being applied (except that if no other
cash dividend has had an Ex-Dividend Date occurring in such period, the period
for calculating the average of the Closing Prices shall be the period
commencing 365 days prior to the date immediately prior to the Ex-Dividend Date
with respect to the cash dividend to which this provision has been applied),
such cash dividend together with each other cash dividend to which this
provision is being applied), such cash dividend with an Ex-Dividend Date
occurring in such 365-day period that is aggregated with such cash dividend in
accordance with this paragraph shall be deemed to be an Extraordinary Cash
Dividend.
The adjustment pursuant to the foregoing provisions of this paragraph
7(e) shall be made successively whenever any distribution to which this
paragraph 7(e) applies is made, and shall become effective immediately after
the record date for the determination of stockholders entitled to receive the
distribution (or, in the case of a reclassification, the effective date).
Shares of Series A Liberty Media Group Common Stock owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of any
such adjustment.
No adjustment shall be made under this paragraph 7(e) if the adjusted
Conversion Rate would be lower than the conversion rate in effect prior to such
adjustment. In the event that, with respect to any distribution to which this
paragraph 7(e) would otherwise apply, the numerator of the fraction in the
formula set forth in the first paragraph of this paragraph 7(e) is zero or a
negative number, then the adjustment provided by this paragraph 7(e) shall not
be made. If the Company makes a distribution to all holders of its Series A
Liberty Media Group Common Stock of any of its assets or debt securities or any
rights, warrants or options to purchase securities of the Company that, but for
the immediately preceding sentence, would otherwise result in an adjustment in
the Conversion Rate pursuant to the foregoing provisions of this paragraph
7(e), then, from and after the record date for determining the holders of
Series A
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<PAGE> 219
Liberty Media Group Common Stock entitled to receive the distribution, a holder
of Series H Preferred Stock that converts such shares in accordance with the
provisions of this paragraph 7 will upon such conversion be entitled to
receive, in addition to the shares of Series A Liberty Media Group Common
Stock into which such shares of Series H Preferred Stock are convertible, the
kind and amount of securities, cash or other assets comprising the distribution
that such holder would have received if such holder had converted such shares
of Series H Preferred Stock immediately prior to the record date for
determining the holders of Series A Liberty Media Group Common Stock entitled
to receive the distribution.
(f) Consolidation, Merger or Sale of the Company. If the Company
consolidates with or merges into, or transfers (other than by mortgage or
pledge) its properties and assets substantially as an entirety to, another
Person or Company is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Series A Liberty Media Group Common
Stock, the Company (or its successor in such transaction) or the transferee of
such properties and assets shall make appropriate provision so that the
holders of the shares of Series H Preferred Stock then outstanding shall have
the right thereafter to convert such shares into the kind and amount of
securities, cash or other assets receivable upon such transaction by a holder
of the number of shares of Series A Liberty Media Group Common Stock, the
Company (or its successor in such transaction) or the transferee of such
properties and assets shall make appropriate provision so that the holders of
the shares of Series H Preferred Stock then outstanding shall have the right
thereafter to convert such shares into the kind and amount of securities, cash
or other assets receivable upon such transaction by a holder of the number of
shares of Series A Liberty Media Group Common Stock into which such shares of
Series H Preferred Stock could have been converted immediately before the
effective date of such transaction (assuming, to the extent applicable, that
such holder failed to exercise any rights of election with respect thereto and
received per share of Series A Liberty Media Group Common Stock the kind and
amount of securities, cash or other assets received per share by a plurality of
the non-electing shares of Series A Liberty Media Group Common Stock), and the
holders of the Series H Preferred Stock shall have no other conversion rights
under these provisions; provided that (i) effective provision shall be made, in
the Articles or Certificate of Incorporation of the resulting or surviving
corporation or otherwise or in any contracts of sale or transfer, so that the
provisions set forth herein for the protection of the conversion rights of
Series H Preferred Stock shall thereafter be made applicable, as nearly as
reasonable may be, to any such other securities and assets deliverable upon
conversion of the Series H Preferred Stock remaining outstanding or other
convertible preferred stock or other securities received by the holders of
Series H Preferred Stock in place thereof, and (ii) any such resulting or
surviving corporation or transferee shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such securities, cash
or other assets as the holders of the Series H Preferred Stock remaining
outstanding, or other convertible preferred stock or other securities received
by the holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provision for the protection of the conversion
rights of the Series H Preferred Stock, or of any other convertible preferred
stock or other securities received by the holders in place thereof, as provided
in clause (i) of this sentence.
If this paragraph 7(f) applies, paragraphs 7(c), 7(d) and 7(e) apply.
(g) Effect of Redemption. Subject to paragraph 7(j) and to the
remaining provisions of this paragraph 7(g), in the event that (i) the Company
redeems all, and not less than all, of the outstanding shares of Series A
Liberty Media Group Common Stock in accordance
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<PAGE> 220
with the terms thereof or (ii) a holder of Series H Preferred Stock would be
entitled to receive upon conversion thereof pursuant to this paragraph 7 any
Redeemable Capital Stock and the Company redeems, exchanges or otherwise
acquires all of the outstanding shares or other units of such Redeemable
Capital Stock (such event referred to in clause (i) and (ii) being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series H Preferred Stock then outstanding shall
be entitled to receive upon conversion of such shares, in lieu of shares or
units of such Redeemable Capital Stock, the kind and amount of securities cash
or other assets receivable upon the redemption Event by a holder of the number
of shares or units of such Redeemable Capital Stock into which such shares of
Series H Preferred Stock could have been converted immediately prior to the
effective date of such Redemption Event (assuming, to the extent applicable,
that such holder failed to exercise any rights of election with respect thereto
and received per share or unit of such Redeemable Capital Stock the kind and
amount of securities, cash or other assets received per shares or unit by a
plurality of the non-electing shares or units of such Redeemable Capital
Stock), and (from and after the effective date of such Redemption Event) the
holders of the Series H Preferred Stock shall have no other conversion rights
under these provisions with respect to such Redeemable Capital Stock, as the
case may be.
Notwithstanding the foregoing, if the redemption price for the shares
of Series A Liberty Media Group Common Stock or Redeemable Capital Stock
is paid in whole or in part in Redemption Securities, and the Mirror Preferred
Stock Condition is met, the Series H Preferred Stock shall not be convertible
into such Redemption Securities and, from and after the applicable redemption
date, the holders of any shares of Series H Preferred Stock that have not been
exchanged for Mirror Preferred Stock shall have no conversion rights under
these provisions except for any conversion right that may have existed
immediately prior to the effective date of the Redemption Event with respect to
any securities, cash or other assets other than the Series A Liberty Media
Group Common Stock or Redeemable Capital Stock so redeemed. The Mirror
Preferred Stock Condition will be met in connection with a redemption of the
Series A Liberty Media Group Common Stock or the Redeemable Capital Stock into
which the Series H Preferred Stock is then convertible, assuming that the
Series H Preferred Stock is not then convertible into any other security, cash
or other assets, if the Company makes appropriate provision so that the holders
of the Series H Preferred Stock have the right to exchange their shares of
Series H Preferred Stock on the effective date of the Redemption Event for
shares of Mirror Preferred Stock of the issuer of the Redemption Securities,
which Mirror Preferred Stock shall have an aggregate initial liquidation
preference equal to the aggregate Liquidation Preference of the shares of
Series H Preferred Stock exchanged therefor.
If before giving effect to a Redemption Even, a holder of Series H
Preferred Stock would be entitled to receive upon conversion of such Series H
Preferred Stock any Securities, cash (other than cash in lieu of fractional
securities) or other assets in addition to the Series A Liberty Media Group
Common Stock or Redeemable Capital Stock being redeemed, and
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<PAGE> 221
the redemption price payable upon such Redemption Event will include Redemption
Securities, then to satisfy the Mirror Preferred Stock Condition, the Company
would be required to make appropriate provision so that the holders of the
Series H Preferred Stock have the right to exchange their shares of Series H
Preferred Stock on the effective date of the Redemption Event for Exchange
Preferred Stock of the Company and Mirror Preferred Stock of the issuer of the
Redemption Securities. The sum of the initial liquidation preferences of the
shares of Exchange Preferred Stock and Mirror Preferred Stock delivered in
exchange for a share of Series H Preferred Stock will equal the Liquidation
Preference of a share of Series H Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation
Preference of the shares of Series H Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Series A Liberty
Media Group Common Stock or Redeemable Capital stock to be redeemed (determined
immediately prior to the effective date of the Redemption Event) and the
average of the daily Closing Prices of the Series A Liberty Media Group Common
Stock or Redeemable Capital Stock, as the case may be, for the period of ten
consecutive trading days ending on the third trading day prior to the effective
date of the Redemption event, divided by (y) the sum of the amount determined
pursuant to clause (x), plus the fair value of the securities (other than those
being redeemed), cash or other assets that would have been receivable by a
holder of Series H Preferred Stock upon conversion thereof immediately prior to
the effective date of the Redemption event (such fair value to be determined in
the case of securities with a Closing Price in the same manner as provided in
clause (x) and otherwise by the Board of Directors in the exercise of its good
faith judgment). The shares of exchange Preferred stock will have an aggregate
initial liquidation preference equal to the difference between the aggregate
Liquidation Preference of the shares of Series H Preferred Stock exchanged
therefore and the aggregate initial liquidation preference of the Mirror
Preferred Stock.
When used in connection with a redemption by the Company of any
redeemable Capital Stock into which the Series H Preferred stock is then
convertible, the following terms have the following meanings:
(i) "Redemption Securities' means securities of an issuer
other than the Company that are distributed by the company, in
payment, in whole or in part, of the redemption price for the Series A
Liberty Media Group Common Stock or such Redeemable Capital Stock.
(ii) "Mirror Preferred Stock" means convertible preferred
stock issued by the issuer of the Redemption Securities and having
terms, conditions, designations, dividend rights, voting powers,
rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly
so as is practicable in the good faith judgment of the Board of
Directors, to those of the Series H Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (x) the liquidation
preference will be determined as provided above in this paragraph
7(g), (y) the running of any time periods pursuant to the terms of
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<PAGE> 222
the Series H Preferred Stock shall be tacked to the corresponding time
periods in the Mirror Preferred stock and (z) the Mirror Preferred
stock shall be convertible into the kind and amount of Redemption
Securities, cash and other assets that the holder of a share of Series
H Preferred Stock in respect of which such Mirror Preferred Stock is
issued pursuant to the terms hereof would have received upon
redemption of the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock, as the case may be, had such shares of
Series H Preferred Stock been converted prior to the effective date
of the Redemption Event.
(iii) "Exchange Preferred Stock" means a series of
convertible preferred stock of the company having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation
and other preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions
thereof that are identical, or as nearly so as is practicable in the
good faith judgment of the Board of Directors, to those of the Series
H Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (x) the liquidation preference will be
determined as provided above in this paragraph 7 (g), (y) the running
of any time periods pursuant to the terms of the Series H Preferred
Stock and (z) the Exchange Preferred Stock will not be convertible
into, and the holders will have no conversion rights thereunder with
respect to, the Redeemable Capital Stock redeemed in th Redemption
Event.
Notwithstanding the second paragraph of this paragraph 7(g), the
Mirror Preferred Stock condition shall only be deemed to have been satisfied in
connection with any Redemption Event if, in the good faith determination of the
Board of Directors: (i) receipt of Mirror Preferred stock and/or Exchange
Preferred Stock in exchange for Series H Preferred Stock pursuant to the second
paragraph of this paragraph 7(g) would not result in the recognition of gain or
loss by the holders of such Series H Preferred Stock for United States federal
income tax purposes; (ii) an adjustment made in the Conversion Rate of the
Series H Preferred Stock with respect to such Redemption Event, as provided in
the first paragraph of this paragraph of this paragraph 7(g), would result in
the recognition of gain or loss by the holders of Series H Preferred Stock for
United States federal income tax purposes; or (iii) receipt of Redemption
Securities in redemption of the Series A Liberty Media Group Common Stock or
the Redeemable Capital Stock to be redeemed in the Redemption Event would
result in the recognition of gain or loss by the holders of such Redeemable
Capital Stock, as the case may be.
(h) Simultaneous Adjustments. In the event that this paragraph 7
requires adjustments to the conversion Rate under more than one of paragraph
7(c)(iv), (d) or (e), and the record dates of the distributions giving rise to
such adjustments shall occur on the same date, then such adjustments shall be
made by applying, first, the provisions of paragraph 7(c), second, the
provisions of paragraph 7(e) and, third, the provisions of paragraph 7(d).
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(i) When Adjustment May be Deferred. In any case in which this
paragraph 7 shall require that an adjustment shall become effective immediately
after a record date for an event, the Company may defer until the occurrence of
such event (x) issuing to the holder of any shares of Series H Preferred Stock
converted after such record date and before the occurrence of such event the
additional shares of Series A Liberty Media Group Common Stock issuable upon
such Series A Liberty Media Group Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder cash or
its check in lieu of any fractional interest to which he is entitled pursuant
to paragraph 7(o); provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A Liberty Media Common Stock
and such cash, upon the occurrence of the event requiring such adjustment.
(j) De Minimis Adjustment; When Adjustment is Not Required. No
adjustments in the Conversion Rate need be made unless the adjustment would
require an increase or decrease of at least one percent (1%) in the Conversion
Rate. Any adjustment which is not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this paragraph 7 shall be made to the nearest
cent or to the nearest 1/1000th of a share, as the case may be.
No adjustment need be made for rights to purchase shares of Series A
Liberty Media Group Common Stock or for sales of shares of Series A Liberty
Media Group Common Stock which in either case are made pursuant to a Company
plan providing for reinvestment of dividends or interest or pursuant to a bona
fide employee stock option or stock purchase plan of the Company. No
adjustment need be made for a change in the par value of the Series A Liberty
Media Group Common Stock.
No adjustment need be made under this paragraph 7 for a transaction
referred to in paragraph 7(c), 7(d), 7(e), or 7(g) if holders of the Series H
Preferred stock are to participate in the transaction on a basis and with the
notice that the Board of Directors in good faith determines to be fair and
appropriate in light of the basis and notice on which holders of Series A
Liberty Media Group Common Stock participate in the transaction; provided that
the basis on which the holders of shares of Series H Preferred Stock are to
participate in the transaction shall not be deemed to be fair if it would
require the holder to convert his shares of Series H Preferred Stock, in order
to participate, at any time prior to the expiration of the conversion period
specified for the share of Series H Preferred Stock pursuant to paragraph 7(a)
of this Certificate of Designations. The immediately preceding sentence shall
apply to any transaction referred to in paragraph 7(c), 7(d), 7(e) or 7(g) only
if, in good faith determination of the Board of Directors: (i) participation in
such transaction by the holders of the Series H Preferred stock would not
result in the recognition of gain or loss by such holders of United States
federal income tax purposes, (ii) an adjustment made in the Conversion Rate of
the Series H Preferred Stock in lieu of participating in such transaction,
pursuant to this paragraph 7, would result in the recognition of gain or loss
by holders of Series H Preferred Stock for United States federal
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income tax purposes; or (iii) participation in such transaction by the holders
of the Series A Liberty Media Group Common Stock would result in the
recognition of gain or loss by such holders for United States federal income
tax purposes.
To the extent the shares of Series H Preferred stock become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.
(k) Company Determination Final. Any determination required to be
made pursuant to paragraph 7(c), 7(d), 7(e), 7(f), 7(g), 7(g), 7(j) or 7(o)
shall be made by the Board of Directors (whether or not reference to the Board
of directors is expressly made in any such paragraph) and any determination so
made in good faith shall be conclusive and binding, absent manifest error, on
the holders of shares of Series H Preferred stock. In making any determination
as to the expected tax treatment of any action, transaction or event referred
to herein, including, without limitation, the determinations provided for in
the last paragraph of Paragraph 7(g) and the last sentence of the fourth
paragraph of paragraph 7(j), the Board of Directors shall be entitled to rely
conclusively on (i) an opinion of counsel rendered by a law firm acceptable to
the Board of Directors, acting in good faith, or (ii) a private letter ruling
from the Internal Revenue Service, to such effect, which opinion of counsel or
private letter ruling may be based upon such assumptions, and be subject to
such qualifications, conditions and limitations, as the Board of Directors
shall in good faith determine to be appropriate under the circumstances. Any
such determination by the Board of Directors shall be based on the expected
United States federal income tax consequences applicable to the transaction, in
question, without regard to special tax rules such as those applicable to
dealers in securities, foreign persons, mutual funds, insurance companies,
tax-exempt entities and holders ho do not hold the securities or other property
in question as capital assets, or the personal circumstances of any particular
stockholder.
(l) Notice of Adjustment. Whenever the provisions of this paragraph
7 require an adjustment of the Conversion rate, the Company shall promptly
compute such adjustment and (i) file with the transfer agent for the Series H
Preferred Stock (or with the books of the Company if there is no transfer
agent) an Officers' Certificate setting forth a description of the event
requiring the adjustment, the new Conversion Rate (including a reasonable
detailed calculation thereof), and the kind and amount of capital stock or
other securities or cash or other assets into which the Series H Preferred
Stock shall be convertible after such event, and (ii) cause a notice containing
a summary of the information set forth in said certificate to be given to the
holders of Series H Preferred Stock. Where appropriate, such notice may be
given in advance and included as a part of the notice required to be given
under the provisions of paragraph 7(m).
(m) Advance Notice of Certain Transactions. If the Company:
(i) takes any action which would require an adjustment in the
Conversion Rate;
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(ii) is a party to a consolidation, merger or binding share
exchange, or transfers all or substantially all of its assets to
another Person, and any stockholders of the Company must approve the
transaction; or
(iii) voluntarily or involuntarily dissolves, liquidates or
winds up.
then, in any such event, the Company shall give the holders of the Series H
Preferred Stock, at least twenty (20) days prior to any record date or other
date set for definitive action if there shall be no record date, a notice
stating the record date for and the anticipated effective date of such action
or event and, if the event is a dividend or distribution or issuance by
reclassification of Redeemable Capital Stock, whether the Company has
determined to adjust the Conversion Rate pursuant to paragraph 7(c), or 7(e),
provided, however, that any notice required hereunder shall in any event be
given no later than the time that notice is given to the holders of Series A
Liberty Media Group Common Stock. Without limiting the obligation of the
Company to provide notice of corporate actions hereunder, the failure to mail
the notice or any defect in it shall not affect the legality or validity or any
corporate action or the vote thereon.
(n) Reservation of Series A Liberty Media Group Common Stock Issuable
Upon Conversion. The Company shall at all times on and after the Issue Date
reserve and keep available out of its authorized but unissued shares of Series
A Liberty Media Group Common Stock, solely for the purpose of effecting the
conversion of the shares of Series H Preferred Stock, such number of its shares
of Series A Liberty Media Group Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series H
Preferred Stock; provided that nothing contained herein shall be construed to
preclude the Company from satisfying its obligations in respect of the
conversion of the outstanding shares of Series H Preferred Stock by delivery of
shares of Series A Liberty Media Group Common Stock which are held in the
treasury of the Company. The Company shall take all such corporate and other
actions as from time to time may be necessary to insure that all shares of
Series A Liberty Media Group Common Stock issuable upon conversion of shares of
Series H Preferred Stock at the Conversion Rate in effect from time to time
will, when issued, be duly and validly authorized and issued, fully paid and
nonassessable, and free from all preemptive or similar rights. in order that
the Company may issue shares of Series A Liberty Media Group Common Stock upon
conversion of the Series H Preferred Stock, the Company will in good faith and
as expeditiously as possible endeavor to comply with all applicable Federal
and state securities laws and will in good faith and as expeditiously as
possible endeavor to list such shares to be issued upon conversion on such
national securities exchange or national securities association, if any, on
which the Series A Liberty Media Group Common Stock is then listed.
(o) Fractional Shares. No fractional shares of Series A Liberty
Media Group Common Stock or scrip shall be issued upon conversion of the Series
H Preferred Stock. Whether or not fractional shares would otherwise be
required to be issued to a holder of Series H Preferred Stock upon such
conversion shall be determined on the basis of the total number of shares of
Series H Preferred Stock the holder is at the time converting into Series A
Liberty Media Group Common Stock and the total number of shares of Series A
Liberty Media Group
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<PAGE> 226
Common Stock issuable upon such conversion. In lieu of the issuance of
fractional shares of Series A Liberty Media Group Common Stock, the Company
shall pay instead an amount in cash or by its check equal to the same fraction
of the Closing Price of a full share of Series A Liberty Media Group Common
Stock on the last full trading day prior to the Conversion Date.
(p) Impairment. The Company will not, by amendment of this
Certificate of Designations or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, other than as expressly permitted by this Certificate of
Designations or approved by the requisite vote or written consent of the
holders of Series H Preferred Stock taken or given in accordance with this
Certificate, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
paragraph 7 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of Series
H Preferred Stock against impairment.
8. Voting.
(a) Voting Rights. The holders of Series H Preferred Stock shall
have no voting rights whatsoever, except as required by law and except for the
voting rights described in this paragraph 8; provided, however, that the number
of authorized shares of Series H Preferred Stock may be increased or decreased
(but not below the number of shares of Series H Preferred Stock then
outstanding) by the affirmative vote of the holders of at least 66 2/3% of the
total voting power of the then outstanding Voting Securities (as defined in
Section A of Article VIII of the Restated Certificate of Incorporation of the
Company (the "Restated Certificate")), voting together as a single class as
provided in Article IX of the Restated Certificate. Without limiting the
generality of the foregoing, no vote or consent of the holders of Series H
Preferred Stock shall be required for (a) the creation of any indebtedness of
any kind of the Company, (b) the creation or designation of any class or series
of Senior Stock, Parity Stock or Junior Stock, or (c) any amendment to the
Restated Certificate that would increase the number of authorized shares of
Preferred Stock or the number of authorized shares of Series H Preferred Stock
or that would decrease the number of authorized shares of Preferred Stock or
the number of authorized shares of Series H Preferred stock (but not below the
number of shares of Preferred Stock or Series H Preferred Stock, as the case
may be, then outstanding).
(b) Election of Directors. The holders of the Series H Preferred
Stock shall have the right to vote at any annual or special meeting of
stockholders for the purpose of electing director. Each shares of Series H
Preferred Stock shall have one vote for such purpose, and shall vote as a
single class with all other classes or series of capital stock of the Company
that are entitled to vote in any general election of directors, unless the
instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
9. No Preemptive Rights. The holders of shares of Series H Preferred
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital
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<PAGE> 227
stock or other securities of the Company convertible into or carrying rights or
options to purchase any such shares.
10. Waiver. Any provision of this Certificate of Designations which,
for the benefit of the holders of Series H Preferred Stock, prohibits, limits
or restricts actions by the Company, or imposes obligations on the Company,
including but not limited to provisions relating to the obligation of the
Company to redeem or convert such shares, may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case by the affirmative vote
or with the consent of the holders of at least a majority of the number of
shares of Series H Preferred Stock then outstanding (or such greater percentage
thereof as may be required by applicable law or any applicable rules of any
national securities exchange or national interdealer quotation system), either
in writing or by vote at an annual meeting or a special meeting called for such
purpose at which the holders of Series H Preferred Stock shall vote as a
separate class.
11. Method of Giving Notices. Any notice required or permitted by
the provisions of this Certificate of Designations to be given to the holders
of shares of Series H Preferred Stock shall be deemed duly given if deposited
in the United States mail, first class mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Company or
supplied by him in writing to the Company for the purpose of such notice.
12. Exclusion of Other Rights. Except as may otherwise be required
by law and except for the equitable rights and remedies which may otherwise be
available to holders of Series H Preferred Stock, the shares of Series H
Preferred Stock shall not have any designations, preferences, limitations or
relative rights other than those specifically set forth in this Certificate of
Designations.
13. Headings of Subdivisions. The headings of the various
subdivisions of this Certificate of Designations are for convenience of
reference only and shall not affect the interpretation of any of the provisions
of this Certificate of Designations.
FURTHER RESOLVED, that the appropriate officers of this Company are
hereby authorized to execute and acknowledge a certificate setting forth these
resolutions and to cause such certificate to be filed and recorded in
accordance with the requirements of section 151(g) of the General Corporation
Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on this
25th day of January, 1996.
/s/ STEPHEN M. BRETT
--------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
APRIL, A.D. 1997, AT 8:30 O'CLOCK A.M.
/s/ EDWARD J. FREEL
-----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8526540
DATE: 06-24-97
<PAGE> 229
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: That the Restated Certificate of Incorporation of the Corporation is
hereby amended as follows:
(I) THE FIRST PARAGRAPH OF ARTICLE IV OF THE RESTATED CERTIFICATE OF
INCORPORATION OF THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY
AS FOLLOWS:
"AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is three billion six hundred two million three hundred
seventy-five thousand ninety-six (3,602,375,096) shares, which shall be divided
into the following classes:
(a) Three billion five hundred fifty million (3,550,000,000) shares
shall be of a class designated Common Stock, par value $1.00 per share
("Common Stock"), such class to be divided into series as provided in
Section E of this Article IV;
(b) Seven hundred thousand (700,000) shares shall be of a class
designated Class A Preferred Stock, par value $.01 per share ("Class A
Preferred Stock");
(c) One million six hundred seventy-five thousand ninety-six
(1,675,096) shares shall be of a class designated Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share
("Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock");
and
(d) Fifty million (50,000,000) shares shall be of a class designated
Series Preferred Stock, par value $.01 per share ("Series Preferred
Stock"), such class to be issuable in series as provided in Section D of
this Article IV.
The Class A Preferred Stock, the Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock and the Series Preferred Stock are
collectively referred to as "Preferred Stock.""
(II) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION E
SERIES A TCI GROUP COMMON STOCK, SERIES B TCI GROUP COMMON
STOCK, SERIES A LIBERTY MEDIA GROUP COMMON STOCK,
SERIES B LIBERTY MEDIA GROUP COMMON STOCK,
SERIES A TELEPHONY GROUP COMMON STOCK AND
SERIES B TELEPHONY GROUP COMMON STOCK
One billion seven hundred fifty million (1,750,000,000) shares of Common
Stock shall be of a series designated Tele-Communications, Inc. Series A TCI
Group Common Stock (the "Series A TCI Group Common Stock"), one hundred fifty
million (150,000,000) shares of Common Stock shall be of a series designated
Tele-Communications, Inc. Series B TCI Group Common Stock (the "Series B TCI
Group Common Stock"), seven hundred fifty million (750,000,000) shares of Common
Stock shall be of a series designated Tele-Communications, Inc. Series A Liberty
Media Group Common Stock (the "Series A Liberty Media Group Common Stock"),
seventy-five million (75,000,000) shares of Common Stock shall be of a series
designated Tele-Communications, Inc. Series B Liberty Media Group Common Stock
(the "Series B
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Liberty Media Group Common Stock"), seven hundred fifty million (750,000,000)
shares of Common Stock shall be of a series designated Tele-Communications, Inc.
Series A Telephony Group Common Stock (the "Series A Telephony Group Common
Stock") and seventy five million (75,000,000) shares of Common Stock shall be of
a series designated Tele-Communications, Inc. Series B Telephony Group Common
Stock (the "Series B Telephony Group Common Stock").
Each share of Series A TCI Group Common Stock and each share of Series B
TCI Group Common Stock shall, except as otherwise provided in this Section E, be
identical in all respects and shall have equal rights, powers and privileges.
Each share of Series A Liberty Media Group Common Stock and each share of
Series B Liberty Media Group Common Stock shall, except as otherwise provided in
this Section E, be identical in all respects and shall have equal rights, powers
and privileges.
Each share of Series A Telephony Group Common Stock and each share of
Series B Telephony Group Common Stock shall, except as otherwise provided in
this Section E, be identical in all respects and shall have equal rights, powers
and privileges.
1. Voting Rights.
Holders of Series A TCI Group Common Stock shall be entitled to one vote
for each share of such stock held, holders of Series B TCI Group Common Stock
shall be entitled to ten votes for each share of such stock held, holders of
Series A Liberty Media Group Common Stock shall be entitled to one vote for each
share of such stock held, holders of Series B Liberty Media Group Common Stock
shall be entitled to ten votes for each share of such stock held, holders of
Series A Telephony Group Common Stock shall be entitled to one vote for each
share of such stock held, and holders of Series B Telephony Group Common Stock
shall be entitled to ten votes for each share of such stock held, on all matters
presented to such stockholders. Except as may otherwise be required by the laws
of the State of Delaware or, with respect to any class of Preferred Stock or any
series of such a class, in this Certificate (including any resolution or
resolutions providing for the establishment of such class or series pursuant to
authority vested in the Board of Directors by this Certificate), the holders of
shares of Series A TCI Group Common Stock, the holders of shares of Series B TCI
Group Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A Telephony Group Common Stock, the holders of
shares of Series B Telephony Group Common Stock and the holders of shares of
each class or series of Preferred Stock, if any, entitled to vote thereon, shall
vote as one class with respect to the election of directors and with respect to
all other matters to be voted on by stockholders of the Corporation (including,
without limitation, any proposed amendment to this Certificate that would
increase the number of authorized shares of Common Stock or any series thereof
or of any other class or series of stock or decrease the number of authorized
shares of any class or series of stock (but not below the number of shares
thereof then outstanding)), and no separate vote or consent of the holders of
shares of Series A TCI Group Common Stock, the holders of shares of Series B TCI
Group Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A Telephony Group Common Stock, the holders of
shares of Series B Telephony Group Common Stock, or the holders of shares of any
such class or series of Preferred Stock shall be required for the approval of
any such matter.
2. Conversion Rights.
(a) CONVERSION OF SERIES B TCI GROUP COMMON STOCK INTO SERIES A TCI GROUP
COMMON STOCK. Each share of Series B TCI Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Series A TCI
Group Common Stock. Any such conversion may be effected by any holder of Series
B TCI Group Common Stock by surrendering such holder's certificate or
certificates for the Series B TCI Group Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
B TCI Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B TCI Group Common Stock
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<PAGE> 231
represented by such certificate and stating the name or names in which such
holder desires the certificate or certificates for Series A TCI Group Common
Stock to be issued. If so required by the Corporation, any certificate for
shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
of such shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Series A TCI Group Common Stock to which such holder shall be entitled
as herein provided. Such conversion shall be deemed to have been made at the
close of business on the date of receipt by the Corporation or any such transfer
agent of the certificate or certificates, notice and, if required, instruments
of transfer referred to above, and the person or persons entitled to receive the
Series A TCI Group Common Stock issuable on such conversion shall be treated for
all purposes as the record holder or holders of such Series A TCI Group Common
Stock on that date. A number of shares of Series A TCI Group Common Stock equal
to the number of shares of Series B TCI Group Common Stock outstanding from time
to time shall be set aside and reserved for issuance upon conversion of shares
of Series B TCI Group Common Stock. Shares of Series A TCI Group Common Stock
shall not be convertible into shares of Series B TCI Group Common Stock.
(b) CONVERSION OF SERIES B LIBERTY MEDIA GROUP COMMON STOCK INTO SERIES A
LIBERTY MEDIA GROUP COMMON STOCK. Each share of Series B Liberty Media Group
Common Stock shall be convertible, at the option of the holder thereof, into one
share of Series A Liberty Media Group Common Stock. Any such conversion may be
effected by any holder of Series B Liberty Media Group Common Stock by
surrendering such holder's certificate or certificates for the Series B Liberty
Media Group Common Stock to be converted, duly endorsed, at the office of the
Corporation or any transfer agent for the Series B Liberty Media Group Common
Stock, together with a written notice to the Corporation at such office that
such holder elects to convert all or a specified number of shares of Series B
Liberty Media Group Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Series A Liberty Media Group Common Stock to be issued. If so required by the
Corporation, any certificate for shares surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder of such shares or the duly authorized representative
of such holder. Promptly thereafter, the Corporation shall issue and deliver to
such holder or such holder's nominee or nominees, a certificate or certificates
for the number of shares of Series A Liberty Media Group Common Stock to which
such holder shall be entitled as herein provided. Such conversion shall be
deemed to have been made at the close of business on the date of receipt by the
Corporation or any such transfer agent of the certificate or certificates,
notice and, if required, instruments of transfer referred to above, and the
person or persons entitled to receive the Series A Liberty Media Group Common
Stock issuable on such conversion shall be treated for all purposes as the
record holder or holders of such Series A Liberty Media Group Common Stock on
that date. A number of shares of Series A Liberty Media Group Common Stock equal
to the number of shares of Series B Liberty Media Group Common Stock outstanding
from time to time shall be set aside and reserved for issuance upon conversion
of shares of Series B Liberty Media Group Common Stock. Shares of Series A
Liberty Media Group Common Stock shall not be convertible into shares of Series
B Liberty Media Group Common Stock.
(c) CONVERSION OF SERIES B TELEPHONY GROUP COMMON STOCK INTO SERIES A
TELEPHONY GROUP COMMON STOCK. Each share of Series B Telephony Group Common
Stock shall be convertible, at the option of the holder thereof, into one share
of Series A Telephony Group Common Stock. Any such conversion may be effected by
any holder of Series B Telephony Group Common Stock by surrendering such
holder's certificate or certificates for the Series B Telephony Group Common
Stock to be converted, duly endorsed, at the office of the Corporation or any
transfer agent for the Series B Telephony Group Common Stock, together with a
written notice to the Corporation at such office that such holder elects to
convert all or a specified number of shares of Series B Telephony Group Common
Stock represented by such certificate and stating the name or names in which
such holder desires the certificate or certificates for Series A Telephony Group
Common Stock to be issued. If so required by the Corporation, any certificate
for shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
of such shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or
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certificates for the number of shares of Series A Telephony Group Common Stock
to which such holder shall be entitled as herein provided. Such conversion shall
be deemed to have been made at the close of business on the date of receipt by
the Corporation or any such transfer agent of the certificate or certificates,
notice and, if required, instruments of transfer referred to above, and the
person or persons entitled to receive the Series A Telephony Group Common Stock
issuable on such conversion shall be treated for all purposes as the record
holder or holders of such Series A Telephony Group Common Stock on that date. A
number of shares of Series A Telephony Group Common Stock equal to the number of
shares of Series B Telephony Group Common Stock outstanding from time to time
shall be set aside and reserved for issuance upon conversion of shares of Series
B Telephony Group Common Stock. Shares of Series A Telephony Group Common Stock
shall not be convertible into shares of Series B Telephony Group Common Stock.
(d) CONVERSION OF SERIES A LIBERTY MEDIA GROUP COMMON STOCK INTO SERIES A
TCI GROUP COMMON STOCK AND SERIES B LIBERTY MEDIA GROUP COMMON STOCK INTO SERIES
B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At the option of
the Corporation by action of its Board of Directors, (A) all shares of Series A
Liberty Media Group Common Stock shall be convertible into a number (or
fraction) of fully paid and nonassessable shares of Series A TCI Group Common
Stock equal to the Liberty Media Group Optional Conversion Ratio, and (B) all
shares of Series B Liberty Media Group Common Stock shall be convertible into a
number (or fraction) of fully paid and nonassessable shares of Series B TCI
Group Common Stock equal to the Liberty Media Group Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(d), the "Liberty Media Group Optional
Conversion Ratio" shall mean the quotient (calculated to the nearest five
decimal places) obtained by dividing (A) the Liberty Media Group Common Stock
Per Share Value by (B) the average Market Value of one share of Series A TCI
Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.
(iii) In the event that the Corporation determines to establish the Liberty
Media Group Private Market Value, the Corporation shall designate the First
Appraiser, and the Independent Committee shall designate the Second Appraiser.
Not later than 20 days after the Selection Date, the First Appraiser and the
Second Appraiser shall each determine its initial view as to the private market
value of the Liberty Media Group as of the Appraisal Date and shall consult with
one another with respect thereto. Not later than the 30th day after the
Selection Date, the First Appraiser and the Second Appraiser shall each have
determined its final view as to such private market value. If the Higher
Appraised Amount is not more than 120% of the Lower Appraised Amount, the
Liberty Media Group Private Market Value (subject to any adjustment provided in
subparagraph (iv) of this paragraph 2(d)) shall be the average of those two
amounts. If the Higher Appraised Amount is more than 120% of the Lower Appraised
Amount, the First Appraiser and the Second Appraiser shall agree upon and
jointly designate the Mutually Designated Appraiser to determine such private
market value. The Mutually Designated Appraiser shall not be provided with any
of the work of the First Appraiser and Second Appraiser. The Mutually Designated
Appraiser shall, no later than the 20th day after the date the Mutually
Designated Appraiser is designated, determine the Mutually Appraised Amount, and
the Liberty Media Group Private Market Value (subject to any adjustment provided
in subparagraph (iv) of this paragraph 2(d)) shall be (A) if the Mutually
Appraised Amount is between the Lower Appraised Amount and the Higher Appraised
Amount, (I) the average of (1) the Mutually Appraised Amount and (2) the Lower
Appraised Amount or the Higher Appraised Amount, whichever is closer to the
Mutually Appraised Amount, or (II) the Mutually Appraised Amount, if neither the
Lower Appraised Amount nor the Higher Appraised Amount is closer to the Mutually
Appraised Amount, or (B) if the Mutually Appraised Amount is greater than the
Higher Appraised Amount or less than the Lower Appraised Amount, the average of
the Higher Appraised Amount and the Lower Appraised Amount. For these purposes,
if any such Appraiser expresses its final view of the private market value of
the Liberty Media Group as a range of values, such Appraiser's final view of
such private market value shall be deemed to be the midpoint of such range of
values.
(iv) Following the determination of the Liberty Media Group Private Market
Value, the Appraiser or Appraisers whose final views of the private market value
of the Liberty Media Group were used in the calculation of the Liberty Media
Group Private Market Value shall determine the Adjusted Outstanding Shares of
Liberty Media Group Common Stock together with any further appropriate
adjustments to the
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Liberty Media Group Private Market Value resulting from such determination. The
"Adjusted Outstanding Shares of Liberty Media Group Common Stock" shall mean a
number, as determined by such Appraiser(s) as of the Appraisal Date, equal to
the sum of the number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock outstanding, the Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group Interest, the
number of Committed Acquisition Shares issuable, the number of shares of Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
issuable upon the conversion, exercise or exchange of all Pre-Distribution
Convertible Securities and the number of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock issuable upon the
conversion, exercise or exchange of those Convertible Securities (other than
Pre-Distribution Convertible Securities and other than Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares) the holders of which would derive an economic benefit from
conversion, exercise or exchange of such Convertible Securities which exceeds
the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Liberty Media Group Common Stock Per Share Value"
shall mean the quotient obtained by dividing the Liberty Media Group Private
Market Value by the Adjusted Outstanding Shares of Liberty Media Group Common
Stock, provided that if such Appraiser(s) do not agree on the determinations
provided for in this subparagraph (iv), the Liberty Media Group Common Stock Per
Share Value shall be the average of the quotients so obtained on the basis of
the respective determinations of such firms.
(v) If the Corporation determines to convert shares of Series A Liberty
Media Group Common Stock into Series A TCI Group Common Stock and shares of
Series B Liberty Media Group Common Stock into Series B TCI Group Common Stock
at the Liberty Media Group Optional Conversion Ratio, such conversion shall
occur on a Conversion Date on or prior to the 120th day following the Appraisal
Date. If the Corporation determines not to undertake such conversion, the
Corporation may at any time thereafter undertake to reestablish the Liberty
Media Group Common Stock Per Share Value as of a subsequent date.
(vi) The Corporation shall not convert shares of Series A Liberty Media
Group Common Stock into shares of Series A TCI Group Common Stock without
converting shares of Series B Liberty Media Group Common Stock into shares of
Series B TCI Group Common Stock, and the Corporation shall not convert shares of
Series B Liberty Media Group Common Stock into shares of Series B TCI Group
Common Stock without converting shares of Series A Liberty Media Group Common
Stock into shares of Series A TCI Group Common Stock. The Series A Liberty Media
Group Common Stock and the Series B Liberty Media Group Common Stock shall also
be convertible at the option of the Corporation in accordance with paragraph
5(b)(iii) of this Section E.
(e) CONVERSION OF SERIES A TELEPHONY GROUP COMMON STOCK INTO SERIES A TCI
GROUP COMMON STOCK AND SERIES B TELEPHONY GROUP COMMON STOCK INTO SERIES B TCI
GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At the option of the
Corporation by action of its Board of Directors, (A) all shares of Series A
Telephony Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series A TCI Group Common Stock equal to
the Telephony Group Optional Conversion Ratio, and (B) all shares of Series B
Telephony Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series B TCI Group Common Stock equal to
the Telephony Group Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(e), the "Telephony Group Optional
Conversion Ratio" shall mean the quotient (calculated to the nearest five
decimal places) obtained by dividing (A) the Telephony Group Common Stock Per
Share Value by (B) the average Market Value of one share of Series A TCI Group
Common Stock over the 20-Trading Day period ending on the Trading Day preceding
the Appraisal Date.
(iii) In the event that the Corporation determines to establish the
Telephony Group Private Market Value, the Corporation shall designate the First
Appraiser, and the Independent Committee shall designate the Second Appraiser.
Not later than 20 days after the Selection Date, the First Appraiser and the
Second Appraiser shall each determine its initial view as to the private market
value of the Telephony Group as of the Appraisal Date and shall consult with one
another with respect thereto. Not later than the 30th day after the Selection
Date, the First Appraiser and the Second Appraiser shall each have determined
its final view as to
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such private market value. If the Higher Appraised Amount is not more than 120%
of the Lower Appraised Amount, the Telephony Group Private Market Value (subject
to any adjustment provided in subparagraph (iv) of this paragraph 2(e)) shall be
the average of those two amounts. If the Higher Appraised Amount is more than
120% of the Lower Appraised Amount, the First Appraiser and the Second Appraiser
shall agree upon and jointly designate the Mutually Designated Appraiser to
determine such private market value. The Mutually Designated Appraiser shall not
be provided with any of the work of the First Appraiser and Second Appraiser.
The Mutually Designated Appraiser shall, no later than the 20th day after the
date the Mutually Designated Appraiser is designated, determine the Mutually
Appraised Amount and the Telephony Group Private Market Value (subject to any
adjustment provided in subparagraph (iv) of this paragraph 2(e)) shall be (A) if
the Mutually Appraised Amount is between the Lower Appraised Amount and the
Higher Appraised Amount, (I) the average of (1) the Mutually Appraised Amount
and (2) the Lower Appraised Amount or the Higher Appraised Amount, whichever is
closer to the Mutually Appraised Amount, or (II) the Mutually Appraised Amount,
if neither the Lower Appraised Amount nor the Higher Appraised Amount is closer
to the Mutually Appraised Amount, or (B) if the Mutually Appraised Amount is
greater than the Higher Appraised Amount or less than the Lower Appraised
Amount, the average of the Higher Appraised Amount and the Lower Appraised
Amount. For these purposes, if any such Appraiser expresses its final view of
the private market value of the Telephony Group as a range of values, such
Appraiser's final view of such private market value shall be deemed to be the
midpoint of such range of values.
(iv) Following the determination of the Telephony Group Private Market
Value, the Appraiser or Appraisers whose final views of the private market value
of the Telephony Group were used in the calculation of the Telephony Group
Private Market Value shall determine the Adjusted Outstanding Shares of
Telephony Group Common Stock together with any further appropriate adjustments
to the Telephony Group Private Market Value resulting from such determination.
The "Adjusted Outstanding Shares of Telephony Group Common Stock" shall mean a
number, as determined by such Appraiser(s) as of the Appraisal Date, equal to
the sum of the number of shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock outstanding, the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest, and the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock issuable upon the conversion, exercise or exchange of those
Convertible Securities the holders of which would derive an economic benefit
from conversion, exercise or exchange of such Convertible Securities which
exceeds the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Telephony Group Common Stock Per Share Value" shall
mean the quotient obtained by dividing the Telephony Group Private Market Value
by the Adjusted Outstanding Shares of Telephony Group Common Stock, provided
that if such Appraiser(s) do not agree on the determinations provided for in
this subparagraph (iv), the Telephony Group Common Stock Per Share Value shall
be the average of the quotients so obtained on the basis of the respective
determinations of such firms.
(v) If the Corporation determines to convert shares of Series A Telephony
Group Common Stock into Series A TCI Group Common Stock and shares of Series B
Telephony Group Common Stock into Series B TCI Group Common Stock at the
Telephony Group Optional Conversion Ratio, such conversion shall occur on a
Conversion Date on or prior to the 120th day following the Appraisal Date. If
the Corporation determines not to undertake such conversion, the Corporation may
at any time thereafter undertake to reestablish the Telephony Group Common Stock
Per Share Value as of a subsequent date.
(vi) The Corporation shall not convert shares of Series A Telephony Group
Common Stock into shares of Series A TCI Group Common Stock without converting
shares of Series B Telephony Group Common Stock into shares of Series B TCI
Group Common Stock, and the Corporation shall not convert shares of Series B
Telephony Group Common Stock into shares of Series B TCI Group Common Stock
without converting shares of Series A Telephony Group Common Stock into shares
of Series A TCI Group Common Stock. The Series A Telephony Group Common Stock
and the Series B Telephony Group Common Stock shall also be convertible at the
option of the Corporation in accordance with paragraph 6(b)(iii) of this Section
E.
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3. Dividends.
(a) DIVIDENDS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI GROUP
COMMON STOCK. Dividends on the Series A TCI Group Common Stock and the Series B
TCI Group Common Stock may be declared and paid only out of the lesser of (i)
assets of the Corporation legally available therefor and (ii) the TCI Group
Available Dividend Amount. Subject to paragraph 4 of this Section E, whenever a
dividend is paid to the holders of Series A TCI Group Common Stock, the
Corporation shall also pay to the holders of Series B TCI Group Common Stock a
dividend per share equal to the dividend per share paid to the holders of Series
A TCI Group Common Stock, and whenever a dividend is paid to the holders of
Series B TCI Group Common Stock, the Corporation shall also pay to the holders
of Series A TCI Group Common Stock a dividend per share equal to the dividend
per share paid to the holders of Series B TCI Group Common Stock.
(b) DIVIDENDS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND SERIES B
LIBERTY MEDIA GROUP COMMON STOCK. Dividends on the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock may be declared
and paid only out of the lesser of (i) assets of the Corporation legally
available therefor and (ii) the Liberty Media Group Available Dividend Amount.
Subject to paragraph 4 and the last sentence of paragraph 5(b) of this Section
E, whenever a dividend is paid to the holders of Series A Liberty Media Group
Common Stock, the Corporation shall also pay to the holders of Series B Liberty
Media Group Common Stock a dividend per share equal to the dividend per share
paid to the holders of Series A Liberty Media Group Common Stock, and whenever a
dividend is paid to the holders of Series B Liberty Media Group Common Stock,
the Corporation shall also pay to the holders of Series A Liberty Media Group
Common Stock a dividend per share equal to the dividend per share paid to the
holders of Series B Liberty Media Group Common Stock.
(c) DIVIDENDS ON SERIES A TELEPHONY GROUP COMMON STOCK AND SERIES B
TELEPHONY GROUP COMMON STOCK. Dividends on the Series A Telephony Group Common
Stock and the Series B Telephony Group Common Stock may be declared and paid
only out of the lesser of (i) assets of the Corporation legally available
therefor and (ii) the Telephony Group Available Dividend Amount. Subject to
paragraph 4 and the last sentence of paragraph 6(b) of this Section E, whenever
a dividend is paid to the holders of Series A Telephony Group Common Stock, the
Corporation shall also pay to the holders of Series B Telephony Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A Telephony Group Common Stock, and whenever a dividend is paid to the
holders of Series B Telephony Group Common Stock, the Corporation shall also pay
to the holders of Series A Telephony Group Common Stock a dividend per share
equal to the dividend per share paid to the holders of Series B Telephony Group
Common Stock.
(d) DISCRIMINATION BETWEEN OR AMONG SERIES OF COMMON STOCK. The Board of
Directors, subject to the provisions of paragraph 3(a), 3(b) and 3(c) of this
Section E, shall have the authority and discretion to declare and pay dividends
on (i) the Series A TCI Group Common Stock and Series B TCI Group Common Stock,
(ii) the Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock, or (iii) the Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, in equal or unequal amounts,
notwithstanding the relationship between the TCI Group Available Dividend
Amount, the Liberty Media Group Available Dividend Amount and the Telephony
Group Available Dividend Amount, the respective amounts of prior dividends
declared on, or the liquidation rights of, the Series A TCI Group Common Stock
and Series B TCI Group Common Stock, the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, or the Series A Telephony
Group Common Stock and the Series B Telephony Group Common Stock, or any other
factor.
4. Share Distributions.
The Corporation may declare and pay a distribution consisting of shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock,
Series A Telephony Group Common Stock, Series B Telephony Group Common Stock or
any other securities of the Corporation or any other Person (hereinafter
sometimes called a "share distribution") to holders of the Common Stock only in
accordance with the provisions of this paragraph 4.
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(a) DISTRIBUTIONS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI GROUP
COMMON STOCK. If at any time a share distribution is to be made with respect to
the Series A TCI Group Common Stock or Series B TCI Group Common Stock, such
share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A TCI Group
Common Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
equal per share basis; or consisting of shares of Series B TCI Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
equal per share basis; or consisting of shares of Series A TCI Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Series B TCI Group Common
Stock) to holders of Series B TCI Group Common Stock;
(ii) subsequent to the Liberty Media Group Distribution, a share
distribution consisting of shares of Series A Liberty Media Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A Liberty Media Group Common Stock) to
holders of Series A TCI Group Common Stock and Series B TCI Group Common
Stock, on an equal per share basis; provided that the sum of (A) the
aggregate number of shares of Series A Liberty Media Group Common Stock to
be so issued (or the number of such shares which would be issuable upon
conversion, exercise or exchange of any Convertible Securities to be so
issued) and (B) the number of shares of such series that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group (other
than Pre-Distribution Convertible Securities and other than Convertible
Securities convertible into or exercisable or exchangeable for Committed
Acquisition Shares) is less than or equal to the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest;
(iii) a share distribution consisting of shares of Series A Telephony
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Telephony Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, on an equal per share basis; or consisting of shares of
Series B Telephony Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony Group Common Stock) to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series A Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of Series A Telephony Group Common Stock) to holders of Series A TCI
Group Common Stock and, on an equal per share basis, shares of Series B
Telephony Group Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Series B Telephony Group
Common Stock) to holders of Series B TCI Group Common Stock; provided that
the sum of (A) the aggregate number of shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock to be so distributed
(or the number of such shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock which would be issuable upon
conversion, exercise or exchange of any Convertible Securities to be so
distributed) and (B) the number of shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock that are subject to
issuance upon conversion, exercise or exchange of any Convertible
Securities then outstanding that are attributed to the TCI Group, is less
than or equal to the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest.
(iv) a share distribution consisting of any class or series of
securities of the Corporation or any other Person other than Series A TCI
Group Common Stock, Series B TCI Group Common Stock, Series A Liberty Media
Group Common Stock, Series B Liberty Media Group Common Stock, Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock (or
Convertible
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Securities convertible into or exercisable or exchangeable for shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock), either on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock or on the basis of a
distribution of one class or series of securities to holders of Series A
TCI Group Common Stock and another class or series of securities to holders
of Series B TCI Group Common Stock, provided that the securities so
distributed (and, if the distribution consists of Convertible Securities,
the securities into which such Convertible Securities are convertible or
for which they are exercisable or exchangeable) do not differ in any
respect other than their relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions, with
holders of shares of Series B TCI Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to whether
such rights differ to a greater or lesser extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock), provided that if the securities so
distributed constitute capital stock of a Subsidiary of the Corporation,
such rights shall not differ to a greater extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series A TCI
Group Common Stock without reclassifying, subdividing or combining the Series B
TCI Group Common Stock, on an equal per share basis, and the Corporation shall
not reclassify, subdivide or combine the Series B TCI Group Common Stock without
reclassifying, subdividing or combining the Series A TCI Group Common Stock, on
an equal per share basis.
(b) DISTRIBUTIONS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND SERIES B
LIBERTY MEDIA GROUP COMMON STOCK. If at any time a share distribution is to be
made with respect to the Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, such share distribution may be declared and
paid only as follows (or as permitted by paragraph 5 of this Section E with
respect to the redemptions and other distributions referred to therein):
(i) a share distribution consisting of shares of Series A Liberty
Media Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Liberty Media Group
Common Stock) to holders of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, on an equal per share basis; or
consisting of shares of Series B Liberty Media Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of Series B Liberty Media Group Common Stock) to holders of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock, on an equal per share basis; or consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A Liberty Media
Group Common Stock) to holders of Series A Liberty Media Group Common Stock
and, on an equal per share basis, shares of Series B Liberty Media Group
Common Stock (or like Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B Liberty Media Group
Common Stock) to holders of Series B Liberty Media Group Common Stock; and
(ii) a share distribution consisting of any class or series of
securities of the Corporation or any other Person other than as described
in clause (i) of this paragraph 4(b) and other than Series A TCI Group
Common Stock, Series B TCI Group Common Stock, Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock)
either on the basis of a distribution of identical securities, on an equal
per share basis, to holders of Series A Liberty
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Media Group Common Stock and Series B Liberty Media Group Common Stock or
on the basis of a distribution of one class or series of securities to
holders of Series A Liberty Media Group Common Stock and another class or
series of securities to holders of Series B Liberty Media Group Common
Stock, provided that the securities so distributed (and, if the
distribution consists of Convertible Securities, the securities into which
such Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than their
relative voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares of
Series B Liberty Media Group Common Stock receiving the class or series
having the higher relative voting rights (without regard to whether such
rights differ to a greater or lesser extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Liberty Media Group Common
Stock and the Series B Liberty Media Group Common Stock), provided that if
the securities so distributed constitute capital stock of a Subsidiary of
the Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock,
and provided in each case that such distribution is otherwise made on an
equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series A
Liberty Media Group Common Stock without reclassifying, subdividing or combining
the Series B Liberty Media Group Common Stock, on an equal per share basis, and
the Corporation shall not reclassify, subdivide or combine the Series B Liberty
Media Group Common Stock without reclassifying, subdividing or combining the
Series A Liberty Media Group Common Stock, on an equal per share basis.
(c) DISTRIBUTIONS ON SERIES A TELEPHONY GROUP COMMON STOCK AND SERIES B
TELEPHONY GROUP COMMON STOCK. If at any time a share distribution is to be made
with respect to the Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock, such share distribution may be declared and paid only as
follows (or as permitted by paragraph 6 of this Section E with respect to the
redemptions and other distributions referred to therein):
(i) a share distribution consisting of shares of Series A Telephony
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Telephony Group Common
Stock) to holders of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, on an equal per share basis; or consisting of
shares of Series B Telephony Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony Group Common Stock) to holders of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, on an equal per share
basis; or consisting of shares of Series A Telephony Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of Series A Telephony Group Common Stock) to holders of Series A
Telephony Group Common Stock and, on an equal per share basis, shares of
Series B Telephony Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
Telephony Group Common Stock) to holders of Series B Telephony Group Common
Stock; and
(ii) a share distribution consisting of any class or series of
securities of the Corporation or any other Person other than as described
in clause (i) of this paragraph 4(c) and other than Series A TCI Group
Common Stock, Series B TCI Group Common Stock, Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock (or Convertible
Securities convertible into or exercisable or exchangeable for shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common
Stock) either on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock, or on the basis of a
distribution of one class or series of securities to holders of Series A
Telephony Group Common Stock and another class or series of securities to
holders of Series B Telephony Group Common Stock, provided that the
securities so distributed (and, if the distribution consists of Convertible
Securities, the securities
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into which such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders of
shares of Series B Telephony Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to whether
such rights differ to a greater or lesser extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Telephony Group Common Stock
and the Series B Telephony Group Common Stock), provided that if the
securities so distributed constitute capital stock of a Subsidiary of the
Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A Telephony
Group Common Stock and the Series B Telephony Group Common Stock, and
provided in each case that such distribution is otherwise made on an equal
per share basis.
The Corporation shall not reclassify, subdivide or combine the Series A
Telephony Group Common Stock without reclassifying, subdividing or combining the
Series B Telephony Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B Telephony
Group Common Stock without reclassifying, subdividing or combining the Series A
Telephony Group Common Stock, on an equal per share basis.
5. Redemption and Other Provisions Relating to the Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF LIBERTY MEDIA GROUP SUBSIDIARIES.
At any time at which all of the assets and liabilities attributed to the Liberty
Media Group have become and continue to be held directly or indirectly by any
one or more corporations all of the capital stock of which is owned by the
Corporation (the "Liberty Media Group Subsidiaries"), the Board of Directors
may, subject to the availability of assets of the Corporation legally available
therefor, redeem, on a pro rata basis, all of the outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
in exchange for an aggregate number of outstanding fully paid and nonassessable
shares of common stock of each Liberty Media Group Subsidiary equal to the
product of the Adjusted Liberty Media Group Outstanding Interest Fraction and
the number of outstanding shares of common stock of such Liberty Media Group
Subsidiary held by the Corporation. Any such redemption shall occur on a
Redemption Date set forth in a notice to holders of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities) pursuant to paragraph 5(d)(vi). In effecting
such a redemption, the Board of Directors may determine either to (i) redeem
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock in exchange for shares of separate classes or series of
common stock of each Liberty Media Group Subsidiary with relative voting rights
and related differences in designation, conversion, redemption and share
distribution provisions not greater than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution provisions
between the Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock, with holders of shares of Series B Liberty Media Group
Common Stock receiving the class or series having the higher relative voting
rights, or (ii) redeem shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock in exchange for shares of a single
class of common stock of each Liberty Media Group Subsidiary without distinction
between the shares distributed to the holders of the Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock. If the
Corporation determines to undertake a redemption as described in clause (i) of
the preceding sentence, the outstanding shares of common stock of each Liberty
Media Group Subsidiary not distributed to holders of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock shall consist
solely of the class or series having the lower relative voting rights.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF DISPOSITION OF
LIBERTY MEDIA GROUP ASSETS. In the event of the Disposition, in one transaction
or a series of related transactions, by the Corporation
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and its subsidiaries of all or substantially all of the properties and assets of
the Liberty Media Group to one or more persons, entities or groups (other than
(w) in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 7 of this Section E, (x) a
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4, paragraph 5(a) or paragraph 7 of this Section E, (y)
to any person, entity or group which the Corporation, directly or indirectly,
after giving effect to the Disposition, controls or (z) in connection with a
Related Business Transaction), the Corporation shall, on or prior to the 85th
Trading Day following the consummation of such Disposition, either:
(i) subject to paragraph 3(b) of this Section E, declare and pay a
dividend in cash and/or in securities or other property (other than a
dividend or distribution of Common Stock) to the holders of the outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock equally on a share for share basis (subject to the
last sentence of this Section 5(b)), in an aggregate amount equal to the
product of the Liberty Media Group Outstanding Interest Fraction as of the
record date for determining the holders entitled to receive such dividend
and the Liberty Media Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation legally
available therefor and the Liberty Media Group Available Dividend Amount
would have been sufficient to pay a dividend in lieu thereof pursuant to
clause (i) of this paragraph 5(b), then:
(A) if such Disposition involves all (not merely substantially all)
of the properties and assets of the Liberty Media Group, redeem all
outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock in exchange for cash and/or
securities or other property (other than Common Stock) in an aggregate
amount equal to the product of the Adjusted Liberty Media Group
Outstanding Interest Fraction as of the date of such redemption and the
Liberty Media Group Net Proceeds, such aggregate amount to be allocated
(subject to the last sentence of this paragraph 5(b)) to shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock in the ratio of the number of shares of each such
series outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group Common Stock
and each share of Series B Liberty Media Group Common Stock is the
same); or
(B) if such Disposition involves substantially all (but not all) of
the properties and assets of the Liberty Media Group, apply an aggregate
amount of cash and/or securities or other property (other than Common
Stock) equal to the product of the Liberty Media Group Outstanding
Interest Fraction as of the date shares are selected for redemption and
the Liberty Media Group Net Proceeds to the redemption of outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock, such aggregate amount to be allocated (subject
to the last sentence of this paragraph 5(b)) to shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock in the ratio of the number of shares of each such series
outstanding, and the number of shares of each such series to be redeemed
to equal the lesser of (x) the whole number nearest the number
determined by dividing the aggregate amount so allocated to the
redemption of such series by the average Market Value of one share of
Series A Liberty Media Group Common Stock during the ten-Trading Day
period beginning on the 16th Trading Day following the consummation of
such Disposition and (y) the number of shares of such series outstanding
(so that the amount of consideration paid for the redemption of each
share of Series A Liberty Media Group Common Stock and each share of
Series B Liberty Media Group Common Stock is the same);
such redemption to be effected in accordance with the applicable provisions
of paragraph 5(d) of this Section E; or
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(iii) convert (A) each outstanding share of Series A Liberty Media
Group Common Stock into a number (or fraction) of fully paid and
nonassessable shares of Series A TCI Group Common Stock and (B) each
outstanding share of Series B Liberty Media Group Common Stock into a
number (or fraction) of fully paid and nonassessable shares of Series B TCI
Group Common Stock, in each case equal to 110% of the average daily ratio
(calculated to the nearest five decimal places) of the Market Value of one
share of Series A Liberty Media Group Common Stock to the Market Value of
one share of Series A TCI Group Common Stock during the ten-Trading Day
period referred to in clause (ii)(B) of this paragraph 5(b).
For purposes of this paragraph 5(b):
(x) as of any date, "substantially all of the properties and assets of
the Liberty Media Group" shall mean a portion of such properties and assets
that represents at least 80% of the then-current market value (as
determined by the Board of Directors) of the properties and assets of the
Liberty Media Group as of such date;
(y) in the case of a Disposition of properties and assets in a series
of related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions; and
(z) the Corporation may pay the dividend or redemption price referred
to in clause (i) or (ii) of this subparagraph 5(b) either in the same form
as the proceeds of the Disposition were received or in any other
combination of cash or securities or other property (other than Common
Stock) that the Board of Directors determines will have an aggregate market
value on a fully distributed basis, of not less than the amount of the
Liberty Media Group Net Proceeds. If the dividend or redemption price is
paid in the form of securities of an issuer other than the Corporation, the
Board of Directors may determine either to (1) pay the dividend or
redemption price in the form of separate classes or series of securities,
with one class or series of such securities to holders of Series A Liberty
Media Group Common Stock and another class or series of securities to
holders of Series B Liberty Media Group Common Stock, provided that such
securities (and, if such securities are convertible into or exercisable or
exchangeable for shares of another class or series of securities, the
securities so issuable upon such conversion, exercise or exchange) do not
differ in any respect other than their relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions, with holders of shares of Series B Liberty Media Group Common
Stock receiving the class or series having the higher relative voting
rights (without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series
A Liberty Media Group Common Stock and the Series B Liberty Media Group
Common Stock), provided that if such securities constitute capital stock of
a Subsidiary of the Corporation, such rights shall not differ to a greater
extent than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock, and otherwise such securities shall be distributed on an equal per
share basis, or (2) pay the dividend or redemption price in the form of a
single class of securities without distinction between the shares received
by the holders of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless the
provisions of any class or series of Pre-Distribution Convertible Securities or
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares provide specifically to the contrary, after any
Conversion Date or Redemption Date on which all outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
were converted or redeemed, any share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that is issued on conversion,
exercise or exchange of any Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares shall, immediately upon issuance pursuant to
such conversion, exercise or exchange and without any notice or any other action
on the part of the Corporation or its Board of Directors or the holder of such
share of Series A Liberty
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Media Group Common Stock or Series B Liberty Media Group Common Stock, be
converted into (in case all such outstanding shares were converted) or redeemed
in exchange for (in case all such outstanding shares were redeemed) the kind and
amount of shares of capital stock, cash and/or other securities or property that
a holder of such Pre-Distribution Convertible Securities or any Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares would have been entitled to receive pursuant to the
terms of such securities had such terms provided that the conversion, exercise
or exchange privilege in effect immediately prior to any such conversion or
redemption of all outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock would be adjusted so that
the holder of any such Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or exchangeable
for Committed Acquisition Shares thereafter surrendered for conversion, exercise
or exchange would be entitled to receive the kind and amount of shares of
capital stock, cash and/or other securities or property such holder would have
received as a result of such action had such securities been converted,
exercised or exchanged immediately prior thereto. With respect to any
Convertible Securities which are created, established or otherwise first
authorized for issuance subsequent to the record date for the Liberty
Distribution (other than Pre-Distribution Convertible Securities and Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares), the terms and provisions of which do not provide
for adjustments specifying the kind and amount of capital stock, cash and/or
securities or other property that such holder would be entitled to receive upon
the conversion, exercise or exchange of such Convertible Securities following
any Conversion Date or Redemption Date on which all outstanding shares of Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
were converted or redeemed, then upon such conversion, exercise or exchange of
such Convertible Securities, any share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that is issued on conversion,
exercise or exchange of any such Convertible Securities shall, immediately upon
issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, be redeemed in exchange for,
to the extent assets of the Corporation are legally available therefor, the
amount of $.01 per share in cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation of a
Disposition referred to in subparagraph 5(b) of this Section E, the Corporation
shall announce publicly by press release (A) the Liberty Media Group Net
Proceeds of such Disposition, (B) the number of outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
(C) the number of shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock into or for which Convertible Securities are
then convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable, (D) the Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice and (E) the Adjusted Liberty Media
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice. Not earlier than the 26th Trading Day and not later than the 30th
Trading Day following the consummation of such Disposition, the Corporation
shall announce publicly by press release which of the actions specified in
clauses (i), (ii) or (iii) of paragraph 5(b) of this Section E it has
irrevocably determined to take.
(ii) If the Corporation determines to pay a dividend pursuant to clause (i)
of subparagraph 5(b) of this Section E, the Corporation shall, not later than
the 30th Trading Day following the consummation of such Disposition, cause to be
given to each holder of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) the record date for determining holders entitled to receive such dividend,
which shall be not earlier than the 40th Trading
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Day and not later than the 50th Trading Day following the consummation of such
Disposition, (B) the anticipated payment date of such dividend (which shall not
be more than 85 Trading Days following the consummation of such Disposition),
(C) the kind of shares of capital stock, cash and/or other securities or
property to be distributed in respect of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, (D) the Liberty
Media Group Net Proceeds of such Disposition, (E) the Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (F) the number of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and the number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (G) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to receive such dividend only if they
appropriately convert, exercise or exchange such Convertible Securities prior to
the record date referred to in clause (A) of this sentence. Such notice shall be
sent by first-class mail, postage prepaid, at such holder's address as the same
appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock following a Disposition of all (not merely substantially all) of
the properties and assets of the Liberty Media Group pursuant to clause (ii) (A)
of paragraph 5(b) of this Section E, the Corporation shall cause to be given to
each holder of outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities), a notice setting forth (A) a statement that all
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock outstanding on the Redemption Date shall be redeemed, (B) the
Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (C) the kind of shares of capital stock, cash
and/or other securities or property to be paid as a redemption price in respect
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock outstanding on the Redemption Date, (D) the Liberty
Media Group Net Proceeds of such Disposition, (E) the Adjusted Liberty Media
Group Outstanding Interest Fraction as of a recent date preceding the date of
such notice, (F) the place or places where certificates for shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property, (G) the number of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (H) in the
case of a notice to holders of Convertible Securities, a statement to the effect
that holders of such Convertible Securities shall be entitled to participate in
such redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 5(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following such
Redemption Date. Such notice shall be sent by first-class mail, postage prepaid,
not less than 35 Trading Days nor more than 45 Trading Days prior to the
Redemption Date, at such holder's address as the same appears on the transfer
books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock following a Disposition of substantially all (but not all) of the
properties and assets of the Liberty Media Group pursuant to clause
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(ii)(B) of paragraph 5(b) of this Section E, the Corporation shall, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption Date (which shall not be
more than 85 Trading Days following the consummation of such Disposition), (C)
the kind of shares of capital stock, cash and/or other securities or property to
be paid as a redemption price in respect of shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock selected for
redemption, (D) the Liberty Media Group Net Proceeds of such Disposition, (E)
the Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice, (F) the number of outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock and the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion or exercise prices thereof, (G) in the case of a
notice to holders of Convertible Securities, a statement to the effect that
holders of such Convertible Securities shall be entitled to participate in such
selection for redemption only if such holders appropriately convert, exercise or
exchange such Convertible Securities on or prior to the date referred to in
clause (A) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities if such holders convert, exercise or exchange such Convertible
Securities following such date and (H) a statement that the Corporation will not
be required to register a transfer of any shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock for a period of 15
Trading Days next preceding the date referred to in clause (A) of this sentence.
Promptly following the date referred to in clause (A) of the preceding sentence,
but not earlier than the 40th Trading Day and not later than the 50th Trading
Day following the consummation of such Disposition, the Corporation shall cause
to be given to each holder of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock to be so redeemed, a notice
setting forth (A) the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock held by such holder to be
redeemed, (B) a statement that such shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock shall be redeemed,
(C) the Redemption Date (which shall not be more than 85 Trading Days following
the consummation of such Disposition), (D) the kind and per share amount of
shares of capital stock, cash and/or other securities or property to be received
by such holder with respect to each share of such Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock to be redeemed,
including details as to the calculation thereof, and (E) the place or places
where certificates for shares of such Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), are to be surrendered
for delivery of certificates for shares of such capital stock, cash and/or other
securities or property. The notices referred to in this clause (iv) shall be
sent by first-class mail, postage prepaid, at such holder's address as the same
appears on the transfer books of the Corporation. The outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock to be redeemed shall be redeemed by the Corporation pro rata among
the holders of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock or by such other method as may be determined by the
Board of Directors to be equitable.
(v) In the event of any conversion pursuant to paragraph 2(d) of this
Section E or pursuant to this paragraph 5 (other than pursuant to paragraph
5(c)), the Corporation shall cause to be given to each holder of outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock and to each holder of Convertible Securities convertible into
or exercisable or exchangeable for shares of either such series (unless
provision for such notice is otherwise made pursuant to the terms of such
Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A
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Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
shall be converted, (B) the Conversion Date (which shall not be more than 85
Trading Days following the consummation of such Disposition in the event of a
conversion pursuant to paragraph 5(b) and which shall not be more than 120 days
after the Appraisal Date in the event of a conversion pursuant to paragraph
2(d)), (C) the per share number of shares of Series A TCI Group Common Stock or
Series B TCI Group Common Stock, as applicable, to be received with respect to
each share of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock, including details as to the calculation thereof, (D)
the place or places where certificates for shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive such
requirement), are to be surrendered, (E) the number of outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, the number of Committed Acquisition Shares issuable and the number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion, exercise
or exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to participate in such conversion only
if such holders appropriately convert, exercise or exchange such Convertible
Securities on or prior to the Conversion Date referred to in clause (B) of this
sentence and a statement as to what, if anything, such holders shall be entitled
to receive pursuant to the terms of such Convertible Securities or, if
applicable, paragraph 5(c) of this Section E if such holders convert, exercise
or exchange such Convertible Securities following such Conversion Date. Such
notice shall be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the Conversion Date, at such
holder's address as the same appears on the transfer books of the Corporation.
(vi) If the Corporation determines to redeem shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock pursuant
to subparagraph (a) of this paragraph 5, the Corporation shall promptly cause to
be given to each holder of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such series
(unless provision for such notice is otherwise made pursuant to the terms of
such Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock shall be redeemed in exchange for shares of
common stock of the Liberty Media Group Subsidiaries, (B) the Redemption Date,
(C) the Adjusted Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (D) the place or places where
certificates for shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be surrendered for
delivery of certificates for shares of common stock of the Liberty Media Group
Subsidiaries, (E) the number of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock and the number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock into or for which outstanding Convertible Securities
are then convertible, exercisable or exchangeable and the conversion, exercise
or exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable, and (F) in the case of a notice to holders of Convertible Securities,
a statement to the effect that holders of such Convertible Securities shall be
entitled to participate in such redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
Redemption Date referred to in clause (B) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, paragraph 5(c) of this
Section E if such holders convert, exercise or exchange such Convertible
Securities following the Redemption Date. Such notice shall be sent by
first-class mail, postage prepaid, not less than 35 Trading Days nor more than
45 Trading Days prior to the Redemption Date, at such holder's address as the
same appears on the transfer books of the Corporation.
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(vii) Neither the failure to mail any notice required by this paragraph
5(d) to any particular holder of Series A Liberty Media Group Common Stock,
Series B Liberty Media Group Common Stock or of Convertible Securities nor any
defect therein shall affect the sufficiency thereof with respect to any other
holder of outstanding shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock or of Convertible Securities, or the
validity of any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver fractional
shares of any class of capital stock or any fractional securities to any holder
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock upon any conversion, redemption, dividend or other distribution
pursuant to paragraph 2(d) of this Section E or pursuant to this paragraph 5. In
connection with the determination of the number of shares of any class of
capital stock that shall be issuable or the amount of securities that shall be
deliverable to any holder of record upon any such conversion, redemption,
dividend or other distribution (including any fractions of shares or
securities), the Corporation may aggregate the number of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued or
delivered to any holder of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock is a fraction, the Corporation shall, if such
fraction is not issued or delivered to such holder, pay a cash adjustment in
respect of such fraction in an amount equal to the fair market value of such
fraction on the fifth Trading Day prior to the date such payment is to be made
(without interest). For purposes of the preceding sentence, "fair market value"
of any fraction shall be (A) in the case of any fraction of a share of capital
stock of the Corporation, the product of such fraction and the Market Value of
one share of such capital stock and (B) in the case of any other fractional
security, such value as is determined by the Board of Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock at
the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding the
conversion or redemption of such shares or the Corporation's default in payment
of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock shall be entitled to receive
certificates representing shares of any kind of capital stock or cash and/or
securities or other property to be received by such holder with respect to
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock pursuant to paragraph 2(d) of this Section E or pursuant to
this paragraph 5, such holder shall surrender at such place as the Corporation
shall specify certificates for such shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement). The
Corporation shall as soon as practicable after such surrender of certificates
representing shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock deliver to the person for whose account shares
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock were so surrendered, or to the nominee or nominees of such person,
certificates representing the number of whole shares of the kind of capital
stock or cash and/or securities or other property to which such person shall be
entitled as aforesaid, together with any payment for fractional securities
contemplated by paragraph 5(d)(viii). If less than all of the shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
represented by any one certificate are to be redeemed, the Corporation shall
issue and deliver a new certificate for the shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock not redeemed.
The Corporation shall not be required to register a transfer of (1) any shares
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock for a period of 15
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Trading Days next preceding any selection of shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock to be redeemed
or (2) any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock selected or called for redemption. Shares
selected for redemption may not thereafter be converted pursuant to paragraph
2(b) of this Section E.
(xi) From and after any applicable Conversion Date or Redemption Date, all
rights of a holder of shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock that were converted or redeemed shall
cease except for the right, upon surrender of the certificates representing
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, to receive certificates representing shares of the kind and
amount of capital stock or cash and/or securities or other property for which
such shares were converted or redeemed, together with any payment for fractional
securities contemplated by paragraph 5(d)(viii) of this Section E and such
holder shall have no other or further rights in respect of the shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
so converted or redeemed, including, but not limited to, any rights with respect
to any cash, securities or other properties which are reserved or otherwise
designated by the Corporation as being held for the satisfaction of the
Corporation's obligations to pay or deliver any cash, securities or other
property upon the conversion, exercise or exchange of any Convertible Securities
outstanding as of the date of such conversion or redemption or any Committed
Acquisition Shares which may then be issuable. No holder of a certificate that,
immediately prior to the applicable Conversion Date or Redemption Date for the
Series A Liberty Media Group Common Stock or Series B Liberty Media Group Common
Stock, represented shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock shall be entitled to receive any dividend or
other distribution with respect to shares of any kind of capital stock into or
in exchange for which the Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock was converted or redeemed until surrender of
such holder's certificate for a certificate or certificates representing shares
of such kind of capital stock. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
which theretofore became payable with respect to a record date after the
Conversion Date or Redemption Date, as the case may be, but that were not paid
by reason of the foregoing, with respect to the number of whole shares of the
kind of capital stock represented by the certificate or certificates issued upon
such surrender. From and after a Conversion Date or Redemption Date, as the case
may be, for any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, the Corporation shall, however, be entitled to
treat the certificates for shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock that have not yet been surrendered
for conversion or redemption as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock for which the shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
represented by such certificates shall have been converted or redeemed,
notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of any shares of capital stock and/or other securities on conversion or
redemption of shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect of
any transfer involved in the issue and delivery of any shares of capital stock
in a name other than that in which the shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount of
any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
6. Redemption and Other Provisions Relating to the Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF TELEPHONY GROUP SUBSIDIARIES. At
any time at which all of the assets and liabilities attributed to the Telephony
Group have become and continue to be held directly or indirectly by any one or
more Qualifying Subsidiaries (the "Telephony Group Subsidiaries"), the Board of
Directors may, subject to the availability of assets of the Corporation legally
available therefor, redeem, on a
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pro rata basis, all of the outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock in exchange for an aggregate
number of outstanding fully paid and nonassessable shares of common stock of
each Telephony Group Subsidiary equal to the product of the Telephony Group
Outstanding Interest Fraction and the number of outstanding shares of common
stock of such Telephony Group Subsidiary held by the Corporation. Any such
redemption shall occur on a Redemption Date set forth in a notice to holders of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
and Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities) pursuant to paragraph
6(d)(vi). In effecting such a redemption, the Board of Directors may determine
either to (i) redeem shares of Series A Telephony Group Common Stock and Series
B Telephony Group Common Stock in exchange for shares of separate classes or
series of common stock of each Telephony Group Subsidiary with relative voting
rights and related differences in designation, conversion, redemption and share
distribution provisions not greater than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution provisions
between the Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock, with holders of shares of Series B Telephony Group Common Stock
receiving the class or series having the higher relative voting rights, or (ii)
redeem shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock in exchange for shares of a single class of common stock of
each Telephony Group Subsidiary without distinction between the shares
distributed to the holders of the Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF DISPOSITION OF
TELEPHONY GROUP ASSETS. In the event of the Disposition, in one transaction or a
series of related transactions, by the Corporation and its subsidiaries of all
or substantially all of the properties and assets of the Telephony Group to one
or more persons, entities or groups (other than (w) in connection with the
Disposition by the Corporation of all of the Corporation's properties and assets
in one transaction or a series of related transactions in connection with the
liquidation, dissolution or winding up of the Corporation within the meaning of
paragraph 7 of this Section E, (x) a dividend, other distribution or redemption
in accordance with any provision of paragraph 3, paragraph 4, paragraph 6(a) or
paragraph 7 of this Section E, (y) to any person, entity or group which the
Corporation, directly or indirectly, after giving effect to the Disposition,
controls or (z) in connection with a Related Business Transaction), the
Corporation shall, on or prior to the 85th Trading Day following the
consummation of such Disposition, either:
(i) subject to paragraph 3(c) of this Section E, declare and pay a
dividend in cash and/or in securities or other property (other than a
dividend or distribution of Common Stock) to the holders of the outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock equally on a share for share basis (subject to the last
sentence of this Section 6(b)), in an aggregate amount equal to the product
of the Telephony Group Outstanding Interest Fraction as of the record date
for determining the holders entitled to receive such dividend and the
Telephony Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation legally
available therefor and the Telephony Group Available Dividend Amount would
have been sufficient to pay a dividend in lieu thereof pursuant to clause
(i) of this paragraph 6(b), then:
(A) if such Disposition involves all (not merely substantially all)
of the properties and assets of the Telephony Group, redeem all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock in exchange for cash and/or securities or
other property (other than Common Stock) in an aggregate amount equal to
the product of the Telephony Group Outstanding Interest Fraction as of
the date of such redemption and the Telephony Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence of this
paragraph 6(b)) to shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock in the ratio of the number of
shares of each such series outstanding (so that the amount of
consideration paid for the redemption of each share of Series A
Telephony Group Common Stock and each share of Series B Telephony Group
Common Stock is the same); or
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(B) if such Disposition involves substantially all (but not all) of
the properties and assets of the Telephony Group, apply an aggregate
amount of cash and/or securities or other property (other than Common
Stock) equal to the product of the Telephony Group Outstanding Interest
Fraction as of the date shares are selected for redemption and the
Telephony Group Net Proceeds to the redemption of outstanding shares of
Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock, such aggregate amount to be allocated (subject to the last
sentence of this paragraph 6(b)) to shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock in the ratio of
the number of shares of each such series outstanding, and the number of
shares of each such series to be redeemed to equal the lesser of (x) the
whole number nearest the number determined by dividing the aggregate
amount so allocated to the redemption of such series by the average
Market Value of one share of Series A Telephony Group Common Stock
during the ten-Trading Day period beginning on the 16th Trading Day
following the consummation of such Disposition and (y) the number of
shares of such series outstanding (so that the amount of consideration
paid for the redemption of each share of Series A Telephony Group Common
Stock and each share of Series B Telephony Group Common Stock is the
same);
such redemption to be effected in accordance with the applicable provisions
of paragraph 6(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A Telephony Group
Common Stock into a number (or fraction) of fully paid and nonassessable
shares of Series A TCI Group Common Stock and (B) each outstanding share of
Series B Telephony Group Common Stock into a number (or fraction) of fully
paid and nonassessable shares of Series B TCI Group Common Stock, in each
case equal to 110% of the average daily ratio (calculated to the nearest
five decimal places) of the Market Value of one share of Series A Telephony
Group Common Stock to the Market Value of one share of Series A TCI Group
Common Stock during the ten-Trading Day period referred to in clause
(ii)(B) of this paragraph 6(b).
For purposes of this paragraph 6(b):
(x) as of any date, "substantially all of the properties and assets of
the Telephony Group" shall mean a portion of such properties and assets
that represents at least 80% of the then-current market value (as
determined by the Board of Directors) of the properties and assets of the
Telephony Group as of such date;
(y) in the case of a Disposition of properties and assets in a series
of related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions; and
(z) the Corporation may pay the dividend or redemption price referred
to in clause (i) or (ii) of this subparagraph 6(b) either in the same form
as the proceeds of the Disposition were received or in any other
combination of cash or securities or other property (other than Common
Stock) that the Board of Directors determines will have an aggregate market
value on a fully distributed basis, of not less than the amount of the
Telephony Group Net Proceeds. If the dividend or redemption price is paid
in the form of securities of an issuer other than the Corporation, the
Board of Directors may determine either to (1) pay the dividend or
redemption price in the form of separate classes or series of securities,
with one class or series of such securities to holders of Series A
Telephony Group Common Stock and another class or series of securities to
holders of Series B Telephony Group Common Stock, provided that such
securities (and, if such securities are convertible into or exercisable or
exchangeable for shares of another class or series of securities, the
securities so issuable upon such conversion, exercise or exchange) do not
differ in any respect other than their relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions, with holders of shares of Series B Telephony Group Common Stock
receiving the class or series having the higher relative voting rights
(without regard to whether such rights differ to a greater or lesser extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Series
A Telephony Group Common Stock and the Series B Telephony Group Common
Stock), provided that if such
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securities constitute capital stock of a Subsidiary of the Corporation,
such rights shall not differ to a greater extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock, and otherwise such securities
shall be distributed on an equal per share basis, or (2) pay the dividend
or redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless the
provisions of any class or series of Convertible Securities which are or become
convertible into or exercisable or exchangeable for shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock provide specifically
to the contrary, after any Conversion Date or Redemption Date on which all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock were converted or redeemed, any share of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock that is
issued on conversion, exercise or exchange of any such Convertible Securities
will, immediately upon issuance pursuant to such conversion, exercise or
exchange and without any notice or any other action on the part of the
Corporation or its Board of Directors or the holder of such share of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock, be
redeemed in exchange for, to the extent assets of the Corporation are legally
available therefor, the amount of $.01 per share in cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation of a
Disposition referred to in subparagraph 6(b) of this Section E, the Corporation
shall announce publicly by press release (A) the Telephony Group Net Proceeds of
such Disposition, (B) the number of outstanding shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, (C) the number of
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock into or for which Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof, and (D) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice. Not earlier than the 26th Trading
Day and not later than the 30th Trading Day following the consummation of such
Disposition, the Corporation shall announce publicly by press release which of
the actions specified in clauses (i), (ii) or (iii) of paragraph 6(b) of this
Section E it has irrevocably determined to take.
(ii) If the Corporation determines to pay a dividend pursuant to clause (i)
of subparagraph 6(b) of this Section E, the Corporation shall, not later than
the 30th Trading Day following the consummation of such Disposition, cause to be
given to each holder of outstanding shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock, and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) the record date for determining holders entitled to receive such dividend,
which shall be not earlier than the 40th Trading Day and not later than the 50th
Trading Day following the consummation of such Disposition, (B) the anticipated
payment date of such dividend (which shall not be more than 85 Trading Days
following the consummation of such Disposition), (C) the kind of shares of
capital stock, cash and/or other securities or property to be distributed in
respect of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, (D) the Telephony Group Net Proceeds of such
Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and the number of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof and (G) in the case of a notice
to holders of Convertible Securities, a statement to the effect that holders of
such Convertible Securities shall be entitled to receive such dividend only if
they appropriately convert, exercise or exchange such Convertible Securities
prior to the record date referred to in clause (A) of this sentence. Such notice
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shall be sent by first-class mail, postage prepaid, at such holder's address as
the same appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of all (not merely substantially all) of the properties
and assets of the Telephony Group pursuant to clause (ii)(A) of paragraph 6(b)
of this Section E, the Corporation shall cause to be given to each holder of
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such series
(unless provision for notice is otherwise made pursuant to the terms of such
Convertible Securities), a notice setting forth (A) a statement that all shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock outstanding on the Redemption Date shall be redeemed, (B) the Redemption
Date (which shall not be more than 85 Trading Days following the consummation of
such Disposition), (C) the kind of shares of capital stock, cash and/or other
securities or property to be paid as a redemption price in respect of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
outstanding on the Redemption Date, (D) the Telephony Group Net Proceeds of such
Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the place or places where
certificates for shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), are to be surrendered for delivery of
certificates for shares of such capital stock, cash and/or other securities or
property, (G) the number of outstanding shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock and the number of shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock into or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof, and (H) in the case of a notice to holders of Convertible Securities, a
statement to the effect that holders of such Convertible Securities shall be
entitled to participate in such redemption only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
Redemption Date referred to in clause (B) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, paragraph 6(c) of this
Section E if such holders convert, exercise or exchange such Convertible
Securities following such Redemption Date. Such notice shall be sent by
first-class mail, postage prepaid, not less than 35 Trading Days nor more than
45 Trading Days prior to the Redemption Date, at such holder's address as the
same appears on the transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
following a Disposition of substantially all (but not all) of the properties and
assets of the Telephony Group pursuant to clause (ii)(B) of paragraph 6(b) of
this Section E, the Corporation shall, not later than the 30th Trading Day
following the consummation of such Disposition, cause to be given to each holder
of record of outstanding shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock, and to each holder of Convertible
Securities convertible into or exercisable or exchangeable for shares of either
such series (unless provision for notice is otherwise made pursuant to the terms
of such Convertible Securities), a notice setting forth (A) a date not earlier
than the 40th Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition which shall be the date on which shares of the
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock
then outstanding shall be selected for redemption, (B) the anticipated
Redemption Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition), (C) the kind of shares of capital stock, cash
and/or other securities or property to be paid as a redemption price in respect
of shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock selected for redemption, (D) the Telephony Group Net Proceeds of
such Disposition, (E) the Telephony Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and the number of shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and the
conversion or
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exercise prices thereof, (G) in the case of a notice to holders of Convertible
Securities, a statement to the effect that holders of such Convertible
Securities shall be entitled to participate in such selection for redemption
only if such holders appropriately convert, exercise or exchange such
Convertible Securities on or prior to the date referred to in clause (A) of this
sentence and a statement as to what, if anything, such holders shall be entitled
to receive pursuant to the terms of such Convertible Securities if such holders
convert, exercise or exchange such Convertible Securities following such date
and (H) a statement that the Corporation will not be required to register a
transfer of any shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock for a period of 15 Trading Days next preceding the
date referred to in clause (A) of this sentence. Promptly following the date
referred to in clause (A) of the preceding sentence, but not earlier than the
40th Trading Day and not later than the 50th Trading Day following the
consummation of such Disposition, the Corporation shall cause to be given to
each holder of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock to be so redeemed, a notice setting forth (A) the
number of shares of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock held by such holder to be redeemed, (B) a statement that such
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock shall be redeemed, (C) the Redemption Date (which shall not be more
than 85 Trading Days following the consummation of such Disposition), (D) the
kind and per share amount of shares of capital stock, cash and/or other
securities or property to be received by such holder with respect to each share
of such Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock to be redeemed, including details as to the calculation thereof,
and (E) the place or places where certificates for shares of such Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock, properly
endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property. The notices
referred to in this clause (iv) shall be sent by first-class mail, postage
prepaid, at such holder's address as the same appears on the transfer books of
the Corporation. The outstanding shares of Series A Telephony Group Common Stock
and Series B Telephony Group Common Stock to be redeemed shall be redeemed by
the Corporation pro rata among the holders of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock or by such other method as may
be determined by the Board of Directors to be equitable.
(v) In the event of any conversion pursuant to paragraph 2(e) of this
Section E or pursuant to this paragraph 6 (other than pursuant to paragraph
6(c)), the Corporation shall cause to be given to each holder of outstanding
shares of Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and to each holder of Convertible Securities convertible into or
exercisable or exchangeable for shares of either such series (unless provision
for such notice is otherwise made pursuant to the terms of such Convertible
Securities), a notice setting forth (A) a statement that all outstanding shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock shall be converted, (B) the Conversion Date (which shall not be more than
85 Trading Days following the consummation of such Disposition in the event of a
conversion pursuant to paragraph 6(b) and which shall not be more than 120 days
after the Appraisal Date in the event of a conversion pursuant to paragraph
2(e)), (C) the per share number of shares of Series A TCI Group Common Stock or
Series B TCI Group Common Stock, as applicable, to be received with respect to
each share of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock, including details as to the calculation thereof, (D) the place or
places where certificates for shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock, properly endorsed or assigned for
transfer (unless the Corporation shall waive such requirement), are to be
surrendered, (E) the number of outstanding shares of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock and the number of shares
of Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock into or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof and (F) in the case of a notice to holders of Convertible Securities, a
statement to the effect that holders of such Convertible Securities shall be
entitled to participate in such conversion only if such holders appropriately
convert, exercise or exchange such Convertible Securities on or prior to the
Conversion Date referred to in clause (B) of this sentence and a statement as to
what, if anything, such holders shall be entitled to receive pursuant to the
terms of such Convertible Securities or, if applicable, paragraph 6(c) of this
Section E if such
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holders convert, exercise or exchange such Convertible Securities following such
Conversion Date. Such notice shall be sent by first-class mail, postage prepaid,
not less than 35 Trading Days nor more than 45 Trading Days prior to the
Conversion Date, at such holder's address as the same appears on the transfer
books of the Corporation.
(vi) If the Corporation determines to redeem shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock pursuant to
subparagraph (a) of this paragraph 6, the Corporation shall promptly cause to be
given to each holder of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such series
(unless provision for such notice is otherwise made pursuant to the terms of
such Convertible Securities), a notice setting forth (A) a statement that all
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock shall be redeemed in exchange for shares of common
stock of the Telephony Group Subsidiaries, (B) the Redemption Date, (C) the
Telephony Group Outstanding Interest Fraction as of a recent date preceding the
date of such notice, (D) the place or places where certificates for shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for shares
of common stock of the Telephony Group Subsidiaries, (E) the number of
outstanding shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock and the number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion, exercise or exchange prices thereof, and (F) in
the case of a notice to holders of Convertible Securities, a statement to the
effect that holders of such Convertible Securities shall be entitled to
participate in such redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the Redemption
Date referred to in clause (B) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, paragraph 6(c) of this Section E
if such holders convert, exercise or exchange such Convertible Securities
following the Redemption Date. Such notice shall be sent by first-class mail,
postage prepaid, not less than 35 Trading Days nor more than 45 Trading Days
prior to the Redemption Date, at such holder's address as the same appears on
the transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this paragraph
6(d) to any particular holder of Series A Telephony Group Common Stock, Series B
Telephony Group Common Stock or of Convertible Securities nor any defect therein
shall affect the sufficiency thereof with respect to any other holder of
outstanding shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock or of Convertible Securities, or the validity of
any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver fractional
shares of any class of capital stock or any fractional securities to any holder
of Series A Telephony Group Common Stock or Series B Telephony Group Common
Stock upon any conversion, redemption, dividend or other distribution pursuant
to paragraph 2(e) of this Section E or pursuant to this paragraph 6. In
connection with the determination of the number of shares of any class of
capital stock that shall be issuable or the amount of securities that shall be
deliverable to any holder of record upon any such conversion, redemption,
dividend or other distribution (including any fractions of shares or
securities), the Corporation may aggregate the number of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock held at
the relevant time by such holder of record. If the number of shares of any class
of capital stock or the amount of securities remaining to be issued or delivered
to any holder of Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock is a fraction, the Corporation shall, if such fraction is not
issued or delivered to such holder, pay a cash adjustment in respect of such
fraction in an amount equal to the fair market value of such fraction on the
fifth Trading Day prior to the date such payment is to be made (without
interest). For purposes of the preceding sentence, "fair market value" of any
fraction shall be (A) in the case of any fraction of a share of capital stock of
the Corporation, the product of such fraction and the Market Value of one share
of such capital stock and (B) in the case of any other fractional security, such
value as is determined by the Board of Directors.
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(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Telephony Group Common Stock
or Series B Telephony Group Common Stock; provided, however, that if the
Conversion Date or the Redemption Date with respect to the Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock shall be subsequent
to the record date for the payment of a dividend or other distribution thereon
or with respect thereto, the holders of shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock at the close of business
on such record date shall be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set for
payment of such dividend or other distribution, notwithstanding the conversion
or redemption of such shares or the Corporation's default in payment of the
dividend or distribution due on such date.
(x) Before any holder of shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock shall be entitled to receive certificates
representing shares of any kind of capital stock or cash and/or securities or
other property to be received by such holder with respect to shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock pursuant
to paragraph 2(e) of this Section E or pursuant to this paragraph 6, such holder
shall surrender at such place as the Corporation shall specify certificates for
such shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement). The Corporation shall as soon as practicable
after such surrender of certificates representing shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock deliver to the
person for whose account shares of Series A Telephony Group Common Stock or
Series B Telephony Group Common Stock were so surrendered, or to the nominee or
nominees of such person, certificates representing the number of whole shares of
the kind of capital stock or cash and/or securities or other property to which
such person shall be entitled as aforesaid, together with any payment for
fractional securities contemplated by paragraph 6(d)(viii). If less than all of
the shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock represented by any one certificate are to be redeemed, the
Corporation shall issue and deliver a new certificate for the shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock not
redeemed. The Corporation shall not be required to register a transfer of (1)
any shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock for a period of 15 Trading Days next preceding any selection of
shares of Series A Telephony Group Common Stock or Series B Telephony Group
Common Stock to be redeemed or (2) any shares of Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock selected or called for
redemption. Shares selected for redemption may not thereafter be converted
pursuant to paragraph 2(c) of this Section E.
(xi) From and after any applicable Conversion Date or Redemption Date, all
rights of a holder of shares of Series A Telephony Group Common Stock or Series
B Telephony Group Common Stock that were converted or redeemed shall cease
except for the right, upon surrender of the certificates representing shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common Stock,
to receive certificates representing shares of the kind and amount of capital
stock or cash and/or securities or other property for which such shares were
converted or redeemed, together with any payment for fractional securities
contemplated by paragraph 6(d)(viii) of this Section E and such holder shall
have no other or further rights in respect of the shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock so converted or
redeemed, including, but not limited to, any rights with respect to any cash,
securities or other properties which are reserved or otherwise designated by the
Corporation as being held for the satisfaction of the Corporation's obligations
to pay or deliver any cash, securities or other property upon the conversion,
exercise or exchange of any Convertible Securities outstanding as of the date of
such conversion or redemption. No holder of a certificate that, immediately
prior to the applicable Conversion Date or Redemption Date for the Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock,
represented shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock shall be entitled to receive any dividend or other
distribution with respect to shares of any kind of capital stock into or in
exchange for which the Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock was converted or redeemed until surrender of such
holder's certificate for a certificate or certificates representing shares of
such kind of capital stock. Upon such
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surrender, there shall be paid to the holder the amount of any dividends or
other distributions (without interest) which theretofore became payable with
respect to a record date after the Conversion Date or Redemption Date, as the
case may be, but that were not paid by reason of the foregoing, with respect to
the number of whole shares of the kind of capital stock represented by the
certificate or certificates issued upon such surrender. From and after a
Conversion Date or Redemption Date, as the case may be, for any shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common Stock, the
Corporation shall, however, be entitled to treat the certificates for shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common Stock
that have not yet been surrendered for conversion or redemption as evidencing
the ownership of the number of whole shares of the kind or kinds of capital
stock for which the shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock represented by such certificates shall have been
converted or redeemed, notwithstanding the failure to surrender such
certificates.
(xii) The Corporation shall pay any and all documentary, stamp or similar
issue or transfer taxes that may be payable in respect of the issue or delivery
of any shares of capital stock and/or other securities on conversion or
redemption of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock pursuant to this Section E. The Corporation shall
not, however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of any shares of capital stock in a
name other than that in which the shares of Series A Telephony Group Common
Stock or Series B Telephony Group Common Stock so converted or redeemed were
registered and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any such
tax, or has established to the satisfaction of the Corporation that such tax has
been paid.
7. Liquidation.
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to the
prior payment in full of the preferential amounts to which any class or series
of Preferred Stock is entitled, (a) the holders of the shares of Series A TCI
Group Common Stock and the holders of the shares of Series B TCI Group Common
Stock shall share equally, on a share for share basis, in a percentage of the
funds of the Corporation remaining for distribution to its common stockholders
equal to 100% multiplied by the average daily ratio (expressed as a decimal) of
W/Z for the 20-Trading Day period ending on the Trading Day prior to the date of
the public announcement of such liquidation, dissolution or winding up, (b) the
holders of the shares of Series A Liberty Media Group Common Stock and the
holders of the shares of Series B Liberty Media Group Common Stock shall share
equally, on a share for share basis, in a percentage of the funds of the
Corporation remaining for distribution to its common stockholders equal to 100%
multiplied by the average daily ratio (expressed as a decimal) of X/Z for such
20-Trading Day period, and (c) the holders of the shares of Series A Telephony
Group Common Stock and the holders of the Series B Telephony Group Common Stock
shall share equally, on a share for share basis, in a percentage of the funds of
the Corporation remaining for distribution to its common stockholders equal to
100% multiplied by the average daily ratio (expressed as a decimal) of Y/Z for
such 20-Trading Day period, where W is the aggregate Market Capitalization of
the Series A TCI Group Common Stock and the Series B TCI Group Common Stock, X
is the aggregate Market Capitalization of the Series A Liberty Media Group
Common Stock and the Series B Liberty Media Group Common Stock, Y is the
aggregate Market Capitalization of the Series A Telephony Group Common Stock and
the Series B Telephony Group Common Stock, and Z is the aggregate Market
Capitalization of the Series A TCI Group Common Stock, the Series B TCI Group
Common Stock, the Series A Liberty Media Group Common Stock, the Series B
Liberty Media Group Common Stock, the Series A Telephony Group Common Stock and
the Series B Telephony Group Common Stock. Neither the consolidation or merger
of the Corporation with or into any other corporation or corporations nor the
sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this paragraph 7.
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8. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision in
this Section E shall be final and binding on all stockholders of the
Corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the Corporation.
9. Certain Definitions.
Unless the context otherwise requires, the terms defined in this paragraph
9 shall have, for all purposes of this Section E, the meanings herein specified:
"Adjusted Liberty Media Group Outstanding Interest Fraction," as of
any date, shall mean a fraction the numerator of which is the aggregate
number of shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock outstanding on such date and the
denominator of which is the sum of (a) such aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding on such date, (b) the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such
date, (c) the aggregate number of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock issuable,
determined as of such date, upon conversion, exercise or exchange of
Pre-Distribution Convertible Securities and (d) the number of Committed
Acquisition Shares issuable, determined as of such date.
"Appraisal Date," with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market
Value, shall mean the last day of the calendar month preceding the month in
which the Selection Date occurs.
"Appraiser" means each of the First Appraiser, the Second Appraiser
and the Mutually Designated Appraiser.
"Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation had, prior to the
record date for the Liberty Media Group Distribution, agreed to issue, but
as of such record date had not issued, and (b) the shares of Series A
Liberty Media Group Common Stock that are issuable upon conversion,
exercise or exchange of Convertible Securities that the Corporation had,
prior to the record date for the Liberty Media Group Distribution, agreed
to issue, but as of such record date has not issued, in each case including
obligations of the Corporation to issue shares of the Corporation's Class A
Common Stock, par value $1.00 per share, which as a result of the Liberty
Media Group Distribution, constitute obligations to issue, among other
securities, Series A Liberty Media Group Common Stock or Convertible
Securities which are convertible into or exercisable or exchangeable for
Series A Liberty Media Group Common Stock; provided, however, that
Committed Acquisition Shares shall not include any shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common
Stock issuable upon conversion, exercise or exchange of Pre-Distribution
Convertible Securities. The type and amount of Committed Acquisition Shares
issuable shall be appropriately adjusted to reflect subdivisions and
combinations of the Series A Liberty Media Group Common Stock and dividends
or distributions of shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock to holders of Series A Liberty
Media Group Common Stock and other reclassifications of the Series A
Liberty Media Group Common Stock, in each case occurring (or the record
date for which it occurs) after the Liberty Media Group Distribution.
"Conversion Date" shall mean any date fixed by the Board of Directors
for a conversion of shares of (i) Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, or (ii) Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock, as the case
may be, as set forth in a notice to holders of the applicable series of
Common Stock pursuant to paragraph 5(d) or 6(d), as applicable, of this
Section E.
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"Convertible Securities" shall mean any securities of the Corporation
(other than any series of Common Stock) that are convertible into,
exchangeable for or evidence the right to purchase any shares of any series
of Common Stock, whether upon conversion, exercise, exchange, pursuant to
antidilution provisions of such securities or otherwise.
"Corporation Earnings (Loss) Attributable to the Liberty Media
Group," for any period, shall mean the net earnings or loss of the Liberty
Media Group for such period determined on a basis consistent with the
determination of the net earnings or loss of the Liberty Media Group for
such period as presented in the combined financial statements of the
Liberty Media Group for such period, including income and expenses of the
Corporation attributed to the operations of the Liberty Media Group on a
substantially consistent basis, including without limitation, corporate
administrative costs, net interest and income taxes.
"Corporation Earnings (Loss) Attributable to the TCI Group," for any
period, shall mean the net earnings or loss of the TCI Group for such
period determined on a basis consistent with the determination of the net
earnings or loss of the TCI Group for such period as presented in the
combined financial statements of the TCI Group for such period, including
income and expenses of the Corporation attributed to the operations of the
TCI Group on a substantially consistent basis, including without
limitation, corporate administrative costs, net interest and income taxes.
"Corporation Earnings (Loss) Attributable to the Telephony Group," for
any period, shall mean the net earnings or loss of the Telephony Group for
such period determined on a basis consistent with the determination of the
net earnings or loss of the Telephony Group for such period as presented in
the combined financial statements of the Telephony Group for such period,
including income and expenses of the Corporation attributed to the
operations of the Telephony Group on a substantially consistent basis,
including without limitation, corporate administrative costs, net interest
and income taxes.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of properties or assets.
"First Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Corporation to make such determination.
"Higher Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, the higher of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Independent Committee" means a committee of the Board of Directors of
the Corporation formed in order to select the Second Appraiser, all of
whose members are "independent directors" as determined under Nasdaq
National Market rules.
"Liberty Media Group" shall mean, as of any date that any shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its subsidiaries
in Liberty Media Corporation or any of its subsidiaries (including any
successor thereto by merger, consolidation or sale of all or
substantially all of its assets, whether or not in connection with a
Related Business Transaction) and their respective properties and
assets,
(b) all assets and liabilities of the Corporation or any of its
subsidiaries to the extent attributed to any of the properties or assets
referred to in clause (a) of this sentence, whether or not such assets
or liabilities are assets and liabilities of Liberty Media Corporation
or any of its subsidiaries (or a successor as described in clause (a) of
this sentence),
(c) all assets and properties contributed or otherwise transferred
to the Liberty Media Group from the TCI Group, and
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(d) the interest of the Corporation or any of its subsidiaries in
the businesses, assets and liabilities acquired by the Corporation or
any of its subsidiaries for the Liberty Media Group, as determined by
the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock (other than a dividend or other
distribution payable in shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock, with respect to which
adjustment shall be made as provided in clause (a) of the definition of
"Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest," or in other securities of the Corporation attributed
to the Liberty Media Group for which provision shall be made as set forth
in the penultimate sentence of this definition), the Liberty Media Group
shall no longer include an amount of assets or properties equal to the
aggregate amount of such kind of assets or properties so paid in respect of
shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock multiplied by a fraction the numerator of which is
equal to the Liberty Media Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and (ii) from and after
any transfer of assets or properties from the Liberty Media Group to the
TCI Group, the Liberty Media Group shall no longer include the assets or
properties so transferred. If the Corporation shall pay a dividend or make
any other distribution with respect to shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock payable in
securities of the Corporation attributed to the Liberty Media Group other
than Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock, the TCI Group shall be deemed to hold an amount of such
other securities equal to the amount so distributed multiplied by the
fraction specified in clause (i) of this definition (determined as of a
time immediately prior to the record date for such dividend or other
distribution), and to the extent interest or dividends are paid or other
distributions are made on such other securities so distributed to the
holders of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock, the Liberty Media Group shall no longer include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in respect of such securities so deemed to
be held by the TCI Group. The Corporation may also, to the extent any such
other securities constitute Convertible Securities which are at the time
convertible, exercisable or exchangeable, cause such Convertible Securities
deemed to be held by the TCI Group to be deemed to be converted, exercised
or exchanged (and to the extent the terms of such Convertible Securities
require payment or delivery of consideration in order to effect such
conversion, exercise or exchange, the Liberty Media Group shall in such
case include an amount of the kind of properties or assets required to be
paid or delivered as such consideration for the amount of the Convertible
Securities deemed converted, exercised or exchanged as if such Convertible
Securities were outstanding), in which case such Convertible Securities
shall no longer be deemed to be held by the TCI Group or attributed to the
Liberty Media Group.
"Liberty Media Group Available Dividend Amount," as of any date, shall
mean the product of the Liberty Media Group Outstanding Interest Fraction
and either: (a) the excess of (i) an amount equal to the total assets of
the Liberty Media Group less the total liabilities (not including preferred
stock) of the Liberty Media Group as of such date over (ii) the aggregate
par value of, or any greater amount determined to be capital in respect of,
all outstanding shares of Series A Liberty Media Group Common Stock, Series
B Liberty Media Group Common Stock and each class or series of Preferred
Stock attributed to the Liberty Media Group or (b) in case there is no such
excess, an amount equal to the Corporation Earnings (Loss) Attributable to
the Liberty Media Group (if positive) for the fiscal year in which such
date occurs and/or the preceding fiscal year.
"Liberty Media Group Distribution" shall mean the share distribution
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock made to the holders of record of Series A TCI
Group Common Stock and Series B TCI Group Common Stock as of the close of
business on August 4, 1995.
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"Liberty Media Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares
Issuable with Respect to the Liberty Media Group Inter-Group Interest as of
such date and the denominator of which is the sum of (a) such Number of
Shares Issuable with Respect to the Liberty Media Group Inter-Group
Interest as of such date and (b) the aggregate number of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock outstanding as of such date.
"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the
Liberty Media Group, an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (a) any
taxes payable by the Corporation in respect of such Disposition or in
respect of any resulting dividend or redemption pursuant to clause (i) or
(ii), respectively, of paragraph 5(b) of this Section E (or which would
have been payable but for the utilization of tax benefits attributable to
the TCI Group or the Telephony Group), (b) any transaction costs,
including, without limitation, any legal, investment banking and accounting
fees and expenses and (c) any liabilities and other obligations (contingent
or otherwise) of, or attributed to, the Liberty Media Group, including,
without limitation, any indemnity or guarantee obligations incurred in
connection with the Disposition or any liabilities for future purchase
price adjustments and any preferential amounts plus any accumulated and
unpaid dividends and other obligations (without duplication of amounts
allocated for the satisfaction of the Corporation's obligations with
respect to Pre-Distribution Convertible Securities and Committed
Acquisition Shares issuable which are included in the determination of the
Adjusted Liberty Media Group Outstanding Interest Fraction) in respect of
Preferred Stock attributed to the Liberty Media Group. For purposes of this
definition, any properties and assets of the Liberty Media Group remaining
after such Disposition shall constitute "reasonable provision" for such
amount of taxes, costs and liabilities (contingent or otherwise) as can be
supported by such properties and assets. To the extent the proceeds of any
Disposition include any securities or other property other than cash, the
Board of Directors shall determine the value of such securities or
property, including for the purpose of determining the equivalent value
thereof if the Board of Directors determines to pay a dividend or
redemption price in cash or securities or other property as provided in
clause (z) of paragraph 5(b) of this Section E.
"Liberty Media Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of
shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock outstanding on such date and the denominator of
which is the sum of (a) such aggregate number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock
outstanding on such date and (b) the Number of Shares Issuable with Respect
to the Liberty Media Group Inter-Group Interest as of such date.
"Liberty Media Group Private Market Value" shall mean an amount equal
to the private market value of the Liberty Media Group as of the Appraisal
Date. Each of the First Appraiser, the Second Appraiser and the Mutually
Designated Appraiser, if any, shall be instructed to determine the private
market value of the Liberty Media Group as of the Appraisal Date based upon
the amount a willing purchaser would pay to a willing seller, in an arm's
length transaction, if it were acquiring the Liberty Media Group, as if the
Liberty Media Group were a publicly traded non-controlled corporation and
the purchaser was acquiring all of the capital stock of such corporation,
and without consideration of any potential regulatory constraints limiting
the potential purchasers of the Liberty Media Group other than that which
would have existed if the Liberty Media Group were a publicly traded
non-controlled entity.
"Lower Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, the lower of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (i) the Market
Value of one share of such class or series on such Trading Day and (ii) the
number of shares of such class or series outstanding on such Trading Day.
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"Market Value" of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported
sales prices regular way of a share of such class or series on such day (if
such day is a Trading Day, and if such day is not a Trading Day, on the
Trading Day immediately preceding such day) or in case no such reported
sale takes place on such Trading Day the average of the reported closing
bid and asked prices regular way of a share of such class or series on such
Trading Day, in either case on the Nasdaq National Market, or if the shares
of such class or series are not quoted on such Nasdaq National Market on
such Trading Day, the average of the closing bid and asked prices of a
share of such class or series in the over-the-counter market on such
Trading Day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation, or if such closing bid and
asked prices are not made available by any such New York Stock Exchange
member firm on such Trading Day, the market value of a share of such class
or series as determined by the Board of Directors; provided that for
purposes of determining the ratios set forth in paragraphs 2(d), 2(e),
5(b), 6(b) and 7 of this Section E, (a) the "Market Value" of any share of
any series of Common Stock on any day prior to the "ex" date or any similar
date for any dividend or distribution paid or to be paid with respect to
such series of Common Stock shall be reduced by the fair market value of
the per share amount of such dividend or distribution as determined by the
Board of Directors and (b) the "Market Value" of any share of any series of
Common Stock on any day prior to (i) the effective date of any subdivision
(by stock split or otherwise) or combination (by reverse stock split or
otherwise) of outstanding shares of such series of Common Stock or (ii) the
"ex" date or any similar date for any dividend or distribution with respect
to any such series of Common Stock in shares of such series of Common Stock
shall be appropriately adjusted to reflect such subdivision, combination,
dividend or distribution.
"Mutually Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, the determination by the Mutually Designated Appraiser of
such private market value.
"Mutually Designated Appraiser" shall mean, if required with respect
to any determination of the Liberty Media Group Private Market Value or the
Telephony Group Private Market Value, the investment banking firm of
recognized national standing jointly designated by the First Appraiser and
the Second Appraiser to make such determination.
"Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest" after the Liberty Media Group Distribution shall be
zero and shall from time to time thereafter, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by stock split
or otherwise) and combinations (by reverse stock split or otherwise) of
the Series A Liberty Media Group Common Stock and dividends or
distributions of shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock to holders of Series A Liberty
Media Group Common Stock and other reclassifications of Series A Liberty
Media Group Common Stock,
(b) decreased (but not to less than zero) by (i) the aggregate
number of shares of Series A Liberty Media Group Common Stock issued or
sold by the Corporation after the Liberty Media Group Distribution other
than Committed Acquisition Shares, the proceeds of which are attributed
to the TCI Group, (ii) the aggregate number of shares of Series A
Liberty Media Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities (other than
Pre-Distribution Convertible Securities and Convertible Securities which
are convertible into or exercisable or exchangeable for Committed
Acquisition Shares), the proceeds of which are attributed to the TCI
Group, (iii) the aggregate number of shares of Series A Liberty Media
Group Common Stock issued or delivered by the Corporation as a dividend
or distribution to holders of Series A TCI Group Common Stock and Series
B TCI Group Common Stock, (iv) the aggregate number of shares of Series
A Liberty Media Group Common Stock issued or delivered upon the
conversion, exercise or exchange of any Convertible Securities (other
than Pre-Distribution Convertible Securities and Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares) issued or delivered by the Corporation after the
Liberty Media Group Distribution as a dividend or distribution or by
reclassification or exchange to
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holders of Series A TCI Group Common Stock and Series B TCI Group Common
Stock and (v) the aggregate number of shares of Series A Liberty Media
Group Common Stock (rounded, if necessary, to the nearest whole number),
equal to the aggregate fair value (as determined by the Board of
Directors) of assets or properties attributed to the Liberty Media Group
that are transferred from the Liberty Media Group to the TCI Group in
consideration of a reduction in the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest, divided by the
Market Value of one share of Series A Liberty Media Group Common Stock
as of the date of such transfer, and
(c) increased by (i) the aggregate number of any shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock which are retired or otherwise cease to be outstanding following
their purchase with funds attributed to the TCI Group, (ii) a number
(rounded, if necessary, to the nearest whole number), equal to the fair
value (as determined by the Board of Directors) of assets or properties
theretofore attributed to the TCI Group that are contributed to the
Liberty Media Group in consideration of an increase in the Number of
Shares Issuable with Respect to the Liberty Media Group Inter-Group
Interest, divided by the Market Value of one share of Series A Liberty
Media Group Common Stock as of the date of such contribution and (iii)
the aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock into or for which
Convertible Securities are deemed to be converted, exercised or
exchanged pursuant to the last sentence of the definition of "TCI Group"
in this paragraph 9. The Corporation shall not issue or sell shares of
Series B Liberty Media Group Common Stock in respect of a reduction in
the Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest.
Whenever a change in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest occurs, the Corporation shall
prepare and file a statement of such change with the Secretary of the
Corporation.
"Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest" shall initially be that number of shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock
which represent 100% of the common stockholders' equity value of the
Corporation attributable to the Telephony Group, as determined by the Board
of Directors of the Corporation prior to the first issuance of shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common
Stock, and shall from time to time thereafter, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by stock split
or otherwise) and combinations (by reverse stock split or otherwise) of
the Series A Telephony Group Common Stock and Series B Telephony Group
Common Stock and dividends or distributions of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock to
holders of Series A Telephony Group Common Stock and Series B Telephony
Group Common Stock and other reclassifications of the Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock,
(b) decreased (but not to less than zero) by (i) the aggregate
number of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock issued or sold by the Corporation the
proceeds of which are attributed to the TCI Group, (ii) the aggregate
number of shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities, the proceeds of which
are attributed to the TCI Group, (iii) the aggregate number of shares of
Series A Telephony Group Common Stock or Series B Telephony Group Common
Stock issued or delivered by the Corporation as a dividend or
distribution to holders of Series A TCI Group Common Stock and Series B
TCI Group Common Stock, (iv) the aggregate number of shares of Series A
Telephony Group Common Stock or Series B Telephony Group Common Stock
issued or delivered upon the conversion, exercise or exchange of any
Convertible Securities issued or delivered by the Corporation as a
dividend or distribution or by reclassification or exchange to holders
of Series A
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TCI Group Common Stock and Series B TCI Group Common Stock and (v) the
aggregate number of shares of Series A Telephony Group Common Stock and
Series B Telephony Group Common Stock (rounded, if necessary, to the
nearest whole number), equal to the aggregate fair value (as determined
by the Board of Directors) of assets or properties attributed to the
Telephony Group that are transferred from the Telephony Group to the TCI
Group in consideration of a reduction in the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest, divided by the
Market Value of one share of Series A Telephony Group Common Stock as of
the date of such transfer, and
(c) increased by (i) the aggregate number of any shares of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock
which are retired or otherwise cease to be outstanding following their
purchase with funds attributed to the TCI Group, (ii) a number (rounded,
if necessary, to the nearest whole number), equal to the fair value (as
determined by the Board of Directors) of assets or properties,
theretofore attributed to the TCI Group that are contributed to the
Telephony Group in consideration of an increase in the Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest,
divided by the Market Value of one share of Series A Telephony Group
Common Stock as of the date of such contribution and (iii) the aggregate
number of shares of Series A Telephony Group Common Stock and Series B
Telephony Group Common Stock into or for which Convertible Securities
are deemed to be converted, exercised or exchanged pursuant to the last
sentence of the definition of "TCI Group" in this paragraph 9.
Whenever a change in the Number of Shares Issuable with Respect to the
Telephony Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.
"Pre-Distribution Convertible Securities" shall mean Convertible
Securities that were outstanding on the record date for the Liberty Media
Group Distribution and were, prior to such date, convertible into or
exercisable or exchangeable for shares of the Class A Common Stock, par
value $1.00 per share, of the Corporation.
"Qualifying Subsidiary" shall mean a Subsidiary of the Corporation in
which (x) the Corporation's ownership and voting interest is sufficient to
satisfy the requirements of the Internal Revenue Service for a distribution
of the Corporation's interest in such Subsidiary to the holders of Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock that
is tax free to such holders or (y) the Corporation owns, directly or
indirectly, all of the issued and outstanding capital stock.
"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of (i) Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock or (ii) Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock, as the case may be,
as set forth in a notice to holders of such series pursuant to this
Certificate.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group
or the Telephony Group, as the case may be, in which the Corporation
receives as proceeds of such Disposition primarily equity securities
(including, without limitation, capital stock, convertible securities,
partnership or limited partnership interests and other types of equity
securities, without regard to the voting power or contractual or other
management or governance rights related to such equity securities) of the
purchaser or acquiror of such assets and properties of the Liberty Media
Group or the Telephony Group, as the case may be, any entity which succeeds
(by merger, formation of a joint venture enterprise or otherwise) to such
assets and properties of the Liberty Media Group or the Telephony Group, as
the case may be, or a third party issuer, which purchaser, acquiror or
other issuer is engaged or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by the
Liberty Media Group or the Telephony Group, as the case may be, prior to
such Disposition, as determined in good faith by the Board of Directors.
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"Second Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the Telephony Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Independent Committee to make such determination.
"Selection Date," with respect to any determination of the Liberty
Media Group Private Market Value or the Telephony Group Private Market
Value, shall mean the date upon which the Second Appraiser for such
determination is selected by the Independent Committee.
"Subsidiary" shall mean, with respect to any person or entity, any
corporation or partnership 50% or more of whose outstanding voting
securities or partnership interests, as the case may be, are directly or
indirectly owned by such person or entity.
"TCI Group" shall mean, as of any date:
(a) the interest of the Corporation or any of its subsidiaries in
all of the businesses in which the Corporation or any of its
subsidiaries (or any of their predecessors or successors) is or has been
engaged, directly or indirectly, and the respective assets and
liabilities of the Corporation or any of its subsidiaries, other than
any businesses, assets or liabilities of the Liberty Media Group or the
Telephony Group;
(b) a proportionate interest in the businesses, assets and
liabilities of the Liberty Media Group equal to the Liberty Media Group
Inter-Group Interest Fraction as of such date;
(c) a proportionate interest in the businesses, assets and
liabilities of the Telephony Group equal to the Telephony Group
Inter-Group Interest Fraction as of such date;
(d) from and after any dividend or other distribution with respect
to shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock (other than a dividend or other
distribution payable in shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, with respect to
which adjustment shall be made as provided in clause (a) of the
definition of "Number of Shares Issuable with Respect to the Liberty
Media Group Inter-Group Interest," or in other securities of the
Corporation attributed to the Liberty Media Group, for which provision
shall be made as set forth in the penultimate sentence of this
definition), an amount of assets or properties theretofore included in
the Liberty Media Group equal to the aggregate amount of such kind of
assets or properties so paid in respect of such dividend or other
distribution with respect to shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock multiplied by
a fraction the numerator of which is equal to the Liberty Media Group
Inter-Group Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and the denominator of
which is equal to the Liberty Media Group Outstanding Interest Fraction
in effect immediately prior to the record date for such dividend or
other distribution; and
(e) from and after any dividend or other distribution with respect
to shares of Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock (other than a dividend or other distribution payable
in shares of Series A Telephony Group Common Stock or Series B Telephony
Group Common Stock, with respect to which adjustment shall be made as
provided in clause (a) of the definition of "Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest," or in other
securities of the Corporation attributed to the Telephony Group, for
which provision shall be made as set forth in the penultimate sentence
of this definition), an amount of assets or properties theretofore
included in the Telephony Group equal to the aggregate amount of such
kind of assets or properties so paid in respect of such dividend or
other distribution with respect to shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock multiplied by a
fraction the numerator of which is equal to the Telephony Group
Inter-Group Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and the denominator of
which is equal to the Telephony Group Outstanding Interest Fraction in
effect immediately prior to the record date for such dividend or other
distribution; and
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(f) any assets or properties transferred from the Liberty Media
Group or the Telephony Group to the TCI Group;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the Telephony
Group, the TCI Group shall no longer include such assets or properties so
contributed or transferred (other than pursuant to its interest in the
businesses, assets and liabilities of the Liberty Media Group or the
Telephony Group pursuant to clauses (b) or (c), respectively, above). If
(1) the Corporation shall pay a dividend or make any other distribution
with respect to shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock payable in other securities of
the Corporation attributed to the Liberty Media Group, the TCI Group shall
be deemed to hold an amount of such other securities equal to the amount so
distributed multiplied by the fraction specified in clause (d) of this
definition (determined as of a time immediately prior to the record date
for such dividend or other distribution), and to the extent interest or
dividends are paid or other distributions are made on such other securities
so distributed to holders of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, the TCI Group shall include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in respect of such securities so deemed to
be held by the TCI Group, or (2) the Corporation shall pay a dividend or
make any other distribution with respect to shares of Series A Telephony
Group Common Stock or Series B Telephony Group Common Stock payable in
other securities of the Corporation attributed to the Telephony Group, the
TCI Group shall be deemed to hold an amount of such other securities equal
to the amount so distributed multiplied by the fraction specified in clause
(e) of this definition (determined as of a time immediately prior to the
record date for such dividend or other distribution), and to the extent
interest or dividends are paid or other distributions are made on such
other securities so distributed to holders of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock, the TCI Group shall
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities
so deemed to be held by the TCI Group. The Corporation may also, to the
extent any such other securities constitute Convertible Securities which
are at the time convertible, exercisable or exchangeable, cause such
Convertible Securities deemed to be held by the TCI Group to be deemed to
be converted, exercised or exchanged (and to the extent the terms of such
Convertible Securities require payment or delivery of consideration in
order to effect such conversion, exercise or exchange, the TCI Group shall
in such case no longer include an amount of the kind of properties or
assets required to be paid or delivered as such consideration for the
amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which
case such Convertible Securities shall no longer be deemed to be held by
the TCI Group or attributed to the Liberty Media Group or the Telephony
Group.
"TCI Group Available Dividend Amount," as of any date, shall mean
either: (a) the excess of (i) an amount equal to the total assets of the
TCI Group less the total liabilities (not including preferred stock) of the
TCI Group as of such date over (ii) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding
shares of Series A TCI Group Common Stock, Series B TCI Group Common Stock
and each class or series of Preferred Stock attributed to the TCI Group or
(b) in case there is no such excess, an amount equal to the Corporation
Earnings (Loss) Attributable to the TCI Group (if positive) for the fiscal
year in which such date occurs and/or the preceding fiscal year.
"Telephony Group" shall mean, as of any date that any shares of Series
A Telephony Group Common Stock or Series B Telephony Group Common Stock
have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its subsidiaries
in TCI Telephony Services, Inc. ("TCI Telephony") or any of its
subsidiaries (including any successor thereto by merger, consolidation
or sale of all or substantially all of its assets, whether or not in
connection with a Related Business Transaction) and their respective
properties and assets,
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<PAGE> 265
(b) all assets and liabilities of the Corporation or any of its
subsidiaries to the extent attributed to any of the properties or assets
referred to in clause (a) of this sentence, whether or not such assets
or liabilities are assets and liabilities of TCI Telephony or any of its
subsidiaries (or a successor as described in clause (a) of this
sentence),
(c) all assets and properties contributed or otherwise transferred
to the Telephony Group from the TCI Group, and
(d) the interest of the Corporation or any of its subsidiaries in
the businesses, assets and liabilities acquired by the Corporation or
any of its subsidiaries for the Telephony Group, as determined by the
Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock (other than a dividend or other distribution
payable in shares of Series A Telephony Group Common Stock or Series B
Telephony Group Common Stock, with respect to which adjustment shall be
made as provided in clause (a) of the definition of "Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest," or in
other securities of the Corporation attributed to the Telephony Group for
which provision shall be made as set forth in the penultimate sentence of
this definition), the Telephony Group shall no longer include an amount of
assets or properties equal to the aggregate amount of such kind of assets
or properties so paid in respect of shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock multiplied by a
fraction the numerator of which is equal to the Telephony Group Inter-Group
Interest Fraction in effect immediately prior to the record date for such
dividend or other distribution and the denominator of which is equal to the
Telephony Group Outstanding Interest Fraction in effect immediately prior
to the record date for such dividend or other distribution and (ii) from
and after any transfer of assets or properties from the Telephony Group to
the TCI Group, the Telephony Group shall no longer include the assets or
properties so transferred. If the Corporation shall pay a dividend or make
any other distribution with respect to shares of Series A Telephony Group
Common Stock or Series B Telephony Group Common Stock payable in securities
of the Corporation attributed to the Telephony Group other than Series A
Telephony Group Common Stock and Series B Telephony Group Common Stock, the
TCI Group shall be deemed to hold an amount of such other securities equal
to the amount so distributed multiplied by the fraction specified in clause
(i) of this definition (determined as of a time immediately prior to the
record date for such dividend or other distribution), and to the extent
interest or dividends are paid or other distributions are made on such
other securities so distributed to the holders of Series A Telephony Group
Common Stock and Series B Telephony Group Common Stock, the Telephony Group
shall no longer include a corresponding ratable amount of the kind of
assets paid as such interest or dividends or other distributions in respect
of such securities so deemed to be held by the TCI Group. The Corporation
may also, to the extent any such other securities constitute Convertible
Securities which are at the time convertible, exercisable or exchangeable,
cause such Convertible Securities deemed to be held by the TCI Group to be
deemed to be converted, exercised or exchanged (and to the extent the terms
of such Convertible Securities require payment or delivery of consideration
in order to effect such conversion, exercise or exchange, the Telephony
Group shall in such case include an amount of the kind of properties or
assets required to be paid or delivered as such consideration for the
amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which
case such Convertible Securities shall no longer be deemed to be held by
the TCI Group or attributed to the Telephony Group.
"Telephony Group Available Dividend Amount," as of any date, shall
mean the product of the Telephony Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the
Telephony Group less the total liabilities (not including preferred stock)
of the Telephony Group as of such date over (ii) the aggregate par value
of, or any greater amount determined to be capital in respect of, all
outstanding shares of Series A Telephony Group Common Stock, Series B
Telephony Group Common Stock and each class or series of Preferred Stock
attributed to the Telephony
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<PAGE> 266
Group or (b) in case there is no such excess, an amount equal to the
Corporation Earnings (Loss) Attributable to the Telephony Group (if
positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year.
"Telephony Group Inter-Group Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the Telephony Group Inter-Group Interest as of such date
and the denominator of which is the sum of (a) such Number of Shares
Issuable with Respect to the Telephony Group Inter-Group Interest as of
such date and (b) the aggregate number of shares of Series A Telephony
Group Common Stock and Series B Telephony Group Common Stock outstanding as
of such date.
"Telephony Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the
Telephony Group, an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (a) any
taxes payable by the Corporation in respect of such Disposition or in
respect of any resulting dividend or redemption pursuant to clause (i) or
(ii), respectively, of paragraph 6(b) of this Section E (or which would
have been payable but for the utilization of tax benefits attributable to
the TCI Group or the Liberty Media Group), (b) any transaction costs,
including, without limitation, any legal, investment banking and accounting
fees and expenses and (c) any liabilities and other obligations (contingent
or otherwise) of, or attributed to, the Telephony Group, including, without
limitation, any indemnity or guarantee obligations incurred in connection
with the Disposition or any liabilities for future purchase price
adjustments and any preferential amounts plus any accumulated and unpaid
dividends and other obligations in respect of Preferred Stock attributed to
the Telephony Group. For purposes of this definition, any properties and
assets of the Telephony Group remaining after such Disposition shall
constitute "reasonable provision" for such amount of taxes, costs and
liabilities (contingent or otherwise) as can be supported by such
properties and assets. To the extent the proceeds of any Disposition
include any securities or other property other than cash, the Board of
Directors shall determine the value of such securities or property,
including for the purpose of determining the equivalent value thereof if
the Board of Directors determines to pay a dividend or redemption price in
cash or securities or other property as provided in clause (z) of paragraph
6(b) of this Section E.
"Telephony Group Outstanding Interest Fraction," as of any date, shall
mean a fraction the numerator of which is the aggregate number of shares of
Series A Telephony Group Common Stock and Series B Telephony Group Common
Stock outstanding on such date and the denominator of which is the sum of
(a) such aggregate number of shares of Series A Telephony Group Common
Stock and Series B Telephony Group Common Stock outstanding on such date
and (b) the Number of Shares Issuable with Respect to the Telephony Group
Inter-Group Interest as of such date.
"Telephony Group Private Market Value" shall mean an amount equal to
the private market value of the Telephony Group as of the Appraisal Date.
Each of the First Appraiser, the Second Appraiser and the Mutually
Designated Appraiser, if any, shall be instructed to determine the private
market value of the Telephony Group as of the Appraisal Date based upon the
amount a willing purchaser would pay to a willing seller, in an arm's
length transaction, if it were acquiring the Telephony Group, as if the
Telephony Group were a publicly traded non-controlled corporation and the
purchaser was acquiring all of the capital stock of such corporation, and
without consideration of any potential regulatory constraints limiting the
potential purchasers of the Telephony Group other than that which would
have existed if the Telephony Group were a publicly traded non-controlled
entity.
"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not traded
on the Nasdaq National Market System or in the over-the-counter market.""
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(IV)SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of Preferred
Stock, directors may be removed from office only for cause (as hereinafter
defined) upon the affirmative vote of the holders of 66 2/3% of the total voting
power of the then outstanding shares of Series A TCI Group Common Stock, Series
B TCI Group Common Stock, Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock, Series A Telephony Group Common Stock, Series
B Telephony Group Common Stock and any class or series of Preferred Stock
entitled to vote at an election of directors, voting together as a single class.
Except as may be provided by law, "cause" for removal, for purposes of this
Section C, shall exist only if: (i) the director whose removal is proposed has
been convicted of a felony, or has been granted immunity to testify in an action
where another has been convicted of a felony, by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; (ii)
such director has become mentally incompetent, whether or not so adjudicated,
which mental incompetence directly affects his ability as a director of the
Corporation, as determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director); or (iii) such director's
actions or failure to act have been determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director) to
be in derogation of the director's duties."
(V)SECTION A OF ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION OF THE
CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of Preferred
Stock, stockholder action may be taken only at an annual or special meeting.
Except as otherwise provided in the terms of any class or series of Preferred
Stock or unless otherwise prescribed by law or by another provision of this
Certificate, special meetings of the stockholders of the Corporation, for any
purpose or purposes, shall be called by the Secretary of the Corporation (i)
upon the written request of the holders of not less than 66 2/3% of the total
voting power of the outstanding Voting Securities (as hereinafter defined) or
(ii) at the request of at least 75% of the members of the Board of Directors
then in office. The term "Voting Securities" shall include the Series A TCI
Group Common Stock, the Series B TCI Group Common Stock, the Series A Liberty
Media Group Common Stock, the Series B Liberty Media Group Common Stock, the
Series A Telephony Group Common Stock, the Series B Telephony Group Common Stock
and any class or series of Preferred Stock entitled to vote with the holders of
Common Stock generally upon all matters which may be submitted to a vote of
stockholders at any annual meeting or special meeting thereof.
SECOND: That said amendments were duly adopted by the Board of Directors of
the Corporation, and pursuant to resolution of the Board of Directors of the
Corporation, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute and the Restated Certificate of Incorporation
of the Corporation were voted in favor of said amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware."
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IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 7th day of April, 1997.
TELE-COMMUNICATIONS, INC.
By: /s/ JOHN C. MALONE
------------------------------------
Name: John C. Malone
Title: Chief Executive Officer
ATTEST:
By: /s/ STEPHEN M. BRETT
- ------------------------------------
Name: Stephen M. Brett
Title: Secretary
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<PAGE> 269
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
-----------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF
AUGUST, A.D. 1997, AT 1 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATION HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
-----------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8627798
-----------------
DATE: 08-28-97
<PAGE> 270
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
TELE-COMMUNICATIONS, INC.
TELE-COMMUNICATIONS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: That the Restated Certificate of Incorporation of the Corporation is
hereby amended as follows:
(I) SECTION E OF ARTICLE IV OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION E
SERIES A TCI GROUP COMMON STOCK, SERIES B TCI GROUP COMMON
STOCK, SERIES A LIBERTY MEDIA GROUP COMMON STOCK,
SERIES B LIBERTY MEDIA GROUP COMMON STOCK,
SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK
One billion seven hundred fifty million (1,750,000,000) shares of
Common Stock shall be of a series designated Tele-Communications, Inc. Series A
TCI Group Common Stock (the "Series A TCI Group Common Stock"), one hundred
fifty million (150,000,000) shares of Common Stock shall be of a series
designated Tele-Communications, Inc. Series B TCI Group Common Stock (the
"Series B TCI Group Common Stock"), seven hundred fifty million (750,000,000)
shares of Common Stock shall be of a series designated Tele-Communications,
Inc. Series A Liberty Media Group Common Stock (the "Series A Liberty Media
Group Common Stock"), seventy-five million (75,000,000) shares of Common Stock
shall be of a series designated Tele-Communications, Inc. Series B Liberty
Media Group Common Stock (the "Series B Liberty Media Group Common Stock"),
seven hundred fifty million (750,000,000) shares of Common Stock shall be of a
series designated Tele-Communications, Inc. Series A TCI Ventures Group Common
Stock (the "Series A TCI Ventures Group Common Stock") and seventy five million
(75,000,000) shares of Common Stock shall be of a series designated
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock (the
"Series B TCI Ventures Group Common Stock").
Each share of Series A TCI Group Common Stock and each share of Series
B TCI Group Common Stock shall, except as otherwise provided in this Section E,
be identical in all respects and shall have equal rights, powers and
privileges.
Each share of Series A Liberty Media Group Common Stock and each share
of Series B Liberty Media Group Common Stock shall, except as otherwise
provided in this Section E, be identical in all respects and shall have equal
rights, powers and privileges.
Each share of Series A TCI Ventures Group Common Stock and each share
of Series B TCI Ventures Group Common Stock shall, except as otherwise provided
in this Section E, be identical in all respects and shall have equal rights,
powers and privileges.
1. Voting Rights.
Holders of Series A TCI Group Common Stock shall be entitled to one
vote for each share of such stock held, holders of Series B TCI Group Common
Stock shall be entitled to ten votes for each share of such stock held, holders
of Series A Liberty Media Group Common Stock shall be entitled to one vote for
each share of such stock held, holders of Series B Liberty Media Group Common
Stock shall be entitled to ten votes for each share of such stock held, holders
of Series A TCI Ventures Group Common Stock shall be entitled to one vote for
each share of such stock held, and holders of Series B TCI Ventures Group
Common Stock shall be entitled to ten votes for each share of such stock held,
on all matters presented to such stockholders. Except as may otherwise be
required by the laws of the State of Delaware or, with respect to any class of
Preferred Stock or any series of such a class, in this
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Certificate (including any resolution or resolutions providing for the
establishment of such class or series pursuant to authority vested in the Board
of Directors by this Certificate), the holders of shares of Series A TCI Group
Common Stock, the holders of shares of Series B TCI Group Common Stock, the
holders of shares of Series A Liberty Media Group Common Stock, the holders of
shares of Series B Liberty Media Group Common Stock, the holders of shares of
Series A TCI Ventures Group Common Stock, the holders of shares of Series B TCI
Ventures Group Common Stock and the holders of shares of each class or series
of Preferred Stock, if any, entitled to vote thereon, shall vote as one class
with respect to the election of directors and with respect to all other matters
to be voted on by stockholders of the Corporation (including, without
limitation, any proposed amendment to this Certificate that would increase the
number of authorized shares of Common Stock or any series thereof or of any
other class or series of stock or decrease the number of authorized shares of
any class or series of stock (but not below the number of shares thereof then
outstanding)), and no separate vote or consent of the holders of shares of
Series A TCI Group Common Stock, the holders of shares of Series B TCI Group
Common Stock, the holders of shares of Series A Liberty Media Group Common
Stock, the holders of shares of Series B Liberty Media Group Common Stock, the
holders of shares of Series A TCI Ventures Group Common Stock, the holders of
shares of Series B TCI Ventures Group Common Stock, or the holders of shares of
any such class or series of Preferred Stock shall be required for the approval
of any such matter.
2. Conversion Rights.
(a) CONVERSION OF SERIES B TCI GROUP COMMON STOCK INTO SERIES A
TCI GROUP COMMON STOCK. Each share of Series B TCI Group Common Stock shall be
convertible, at the option of the holder thereof, into one share of Series A
TCI Group Common Stock. Any such conversion may be effected by any holder of
Series B TCI Group Common Stock by surrendering such holder's certificate or
certificates for the Series B TCI Group Common Stock to be converted, duly
endorsed, at the office of the Corporation or any transfer agent for the Series
B TCI Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B TCI Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Group Common Stock to be issued. If so required
by the Corporation, any certificate for shares surrendered for conversion shall
be accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder of such shares or the duly authorized
representative of such holder. Promptly thereafter, the Corporation shall
issue and deliver to such holder or such holder's nominee or nominees, a
certificate or certificates for the number of shares of Series A TCI Group
Common Stock to which such holder shall be entitled as herein provided. Such
conversion shall be deemed to have been made at the close of business on the
date of receipt by the Corporation or any such transfer agent of the
certificate or certificates, notice and, if required, instruments of transfer
referred to above, and the person or persons entitled to receive the Series A
TCI Group Common Stock issuable on such conversion shall be treated for all
purposes as the record holder or holders of such Series A TCI Group Common
Stock on that date. A number of shares of Series A TCI Group Common Stock
equal to the number of shares of Series B TCI Group Common Stock outstanding
from time to time shall be set aside and reserved for issuance upon conversion
of shares of Series B TCI Group Common Stock. Shares of Series A TCI Group
Common Stock shall not be convertible into shares of Series B TCI Group Common
Stock.
(b) CONVERSION OF SERIES B LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A LIBERTY MEDIA GROUP COMMON STOCK. Each share of Series B Liberty
Media Group Common Stock shall be convertible, at the option of the holder
thereof, into one share of Series A Liberty Media Group Common Stock. Any
such conversion may be effected by any holder of Series B Liberty Media Group
Common Stock by surrendering such holder's certificate or certificates for the
Series B Liberty Media Group Common Stock to be converted, duly endorsed, at
the office of the Corporation or any transfer agent for the Series B Liberty
Media Group Common Stock, together with a written notice to the Corporation at
such office that such holder elects to convert all or a specified number of
shares of Series B Liberty Media Group Common Stock represented by such
certificate and stating the name or names in which such holder desires the
certificate or certificates for Series A Liberty Media Group Common Stock to be
issued. If so required by the Corporation, any certificate for shares
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder of such
shares or the duly authorized representative of such holder. Promptly
thereafter, the Corporation shall issue and deliver to such holder or such
holder's nominee or nominees, a certificate or certificates for the number of
shares of Series A Liberty Media Group Common Stock to which such holder shall
be entitled as herein provided. Such conversion shall be deemed to have been
made at the close of business on the date of receipt by the Corporation or
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any such transfer agent of the certificate or certificates, notice and, if
required, instruments of transfer referred to above, and the person or persons
entitled to receive the Series A Liberty Media Group Common Stock issuable on
such conversion shall be treated for all purposes as the record holder or
holders of such Series A Liberty Media Group Common Stock on that date. A
number of shares of Series A Liberty Media Group Common Stock equal to the
number of shares of Series B Liberty Media Group Common Stock outstanding from
time to time shall be set aside and reserved for issuance upon conversion of
shares of Series B Liberty Media Group Common Stock. Shares of Series A
Liberty Media Group Common Stock shall not be convertible into shares of Series
B Liberty Media Group Common Stock.
(c) CONVERSION OF SERIES B TCI VENTURES GROUP COMMON STOCK INTO
SERIES A TCI VENTURES GROUP COMMON STOCK. Each share of Series B TCI Ventures
Group Common Stock shall be convertible, at the option of the holder thereof,
into one share of Series A TCI Ventures Group Common Stock. Any such
conversion may be effected by any holder of Series B TCI Ventures Group Common
Stock by surrendering such holder's certificate or certificates for the Series
B TCI Ventures Group Common Stock to be converted, duly endorsed, at the office
of the Corporation or any transfer agent for the Series B TCI Ventures Group
Common Stock, together with a written notice to the Corporation at such office
that such holder elects to convert all or a specified number of shares of
Series B TCI Ventures Group Common Stock represented by such certificate and
stating the name or names in which such holder desires the certificate or
certificates for Series A TCI Ventures Group Common Stock to be issued. If so
required by the Corporation, any certificate for shares surrendered for
conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such shares or
the duly authorized representative of such holder. Promptly thereafter, the
Corporation shall issue and deliver to such holder or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Series A
TCI Ventures Group Common Stock to which such holder shall be entitled as
herein provided. Such conversion shall be deemed to have been made at the
close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled
to receive the Series A TCI Ventures Group Common Stock issuable on such
conversion shall be treated for all purposes as the record holder or holders of
such Series A TCI Ventures Group Common Stock on that date. A number of shares
of Series A TCI Ventures Group Common Stock equal to the number of shares of
Series B TCI Ventures Group Common Stock outstanding from time to time shall be
set aside and reserved for issuance upon conversion of shares of Series B TCI
Ventures Group Common Stock. Shares of Series A TCI Ventures Group Common
Stock shall not be convertible into shares of Series B TCI Ventures Group
Common Stock.
(d) CONVERSION OF SERIES A LIBERTY MEDIA GROUP COMMON STOCK INTO
SERIES A TCI GROUP COMMON STOCK AND SERIES B LIBERTY MEDIA GROUP COMMON STOCK
INTO SERIES B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At
the option of the Corporation by action of its Board of Directors, (A) all
shares of Series A Liberty Media Group Common Stock shall be converted into a
number (or fraction) of fully paid and nonassessable shares of Series A TCI
Group Common Stock equal to the Liberty Media Group Optional Conversion Ratio,
and (B) all shares of Series B Liberty Media Group Common Stock shall be
convertible into a number (or fraction) of fully paid and nonassessable shares
of Series B TCI Group Common Stock equal to the Liberty Media Group Optional
Conversion Ratio.
(ii) For purposes of this paragraph 2(d), the "Liberty Media Group
Optional Conversion Ratio" shall mean the quotient (calculated to the nearest
five decimal places) obtained by dividing (A) the Liberty Media Group Common
Stock Per Share Value by (B) the average Market Value of one share of Series A
TCI Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.
(iii) In the event that the Corporation determines to establish the
Liberty Media Group Private Market Value, the Corporation shall designate the
First Appraiser, and the Independent Committee shall designate the Second
Appraiser. Not later than 20 days after the Selection Date, the First
Appraiser and the Second Appraiser shall each determine its initial view as to
the private market value of the Liberty Media Group as of the Appraisal Date
and shall consult with one another with respect thereto. Not later than the
30th day after the Selection Date, the First Appraiser and the Second Appraiser
shall each have determined its final view as to such private market value. If
the Higher Appraised Amount is not more than 120% of the Lower Appraised
Amount, the Liberty Media Group Private Market Value (subject to any adjustment
provided in subparagraph (iv) of this paragraph 2(d)) shall be the average of
those two amounts. If the Higher Appraised Amount is more than 120% of the
Lower Appraised
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Amount, the First Appraiser and the Second Appraiser shall agree upon and
jointly designate the Mutually Designated Appraiser to determine such private
market value. The Mutually Designated Appraiser shall not be provided with any
of the work of the First Appraiser and Second Appraiser. The Mutually
Designated Appraiser shall, no later than the 20th day after the date the
Mutually Designated Appraiser is designated, determine the Mutually Appraised
Amount, and the Liberty Media Group Private Market Value (subject to any
adjustment provided in subparagraph (iv) of this paragraph 2(d)) shall be (A)
if the Mutually Appraised Amount is between the Lower Appraised Amount and
the Higher Appraised Amount, (I) the average of (1) the Mutually Appraised
Amount and (2) the Lower Appraised Amount or the Higher Appraised Amount,
whichever is closer to the Mutually Appraised Amount, or (II) the Mutually
Appraised Amount, if neither the Lower Appraised Amount nor the Higher
Appraised Amount is closer to the Mutually Appraised Amount, or (B) if the
Mutually Appraised Amount is greater than the Higher Appraised Amount or less
than the Lower Appraised Amount, the average of the Higher Appraised Amount
and the Lower Appraised Amount. For these purposes, if any such Appraiser
expresses its final view of the private market value of the Liberty Media Group
as a range of values, such Appraiser's final view of such private market value
shall be deemed to be the midpoint of such range of values.
(iv) Following the determination of the Liberty Media Group Private
Market Value, the Appraiser or Appraisers whose final views of the private
market value of the Liberty Media Group were used in the calculation of the
Liberty Media Group Private Market Value shall determine the Adjusted
Outstanding Shares of Liberty Media Group Common Stock together with any
further appropriate adjustments to the Liberty Media Group Private Market Value
resulting from such determination. The "Adjusted Outstanding Shares of Liberty
Media Group Common Stock" shall mean a number, as determined by such
Appraiser(s) as of the Appraisal Date, equal to the sum of the number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding, the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, the number of Committed Acquisition
Shares issuable, the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock issuable upon the
conversion, exercise or exchange of all Pre-Distribution Convertible Securities
and the number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock issuable upon the conversion,
exercise or exchange of those Convertible Securities (other than
Pre-Distribution Convertible Securities and other than Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares) the holders of which would derive an economic benefit from
conversion, exercise or exchange of such Convertible Securities which exceeds
the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Liberty Media Group Common Stock Per Share Value"
shall mean the quotient obtained by dividing the Liberty Media Group Private
Market Value by the Adjusted Outstanding Shares of Liberty Media Group Common
Stock, provided that if such Appraiser(s) do not agree on the determinations
provided for in this subparagraph (iv), the Liberty Media Group Common Stock
Per Share Value shall be the average of the quotients so obtained on the basis
of the respective determinations of such firms.
(v) If the Corporation determines to convert shares of Series A
Liberty Media Group Common Stock into Series A TCI Group Common Stock and
shares of Series B Liberty Media Group Common Stock into Series B TCI Group
Common Stock at the Liberty Media Group Optional Conversion Ratio, such
conversion shall occur on a Conversion Date on or prior to the 120th day
following the Appraisal Date. If the Corporation determines not to undertake
such conversion, the Corporation may at any time thereafter undertake to
reestablish the Liberty Media Group Common Stock Per Share Value as of a
subsequent date.
(vi) The Corporation shall not convert shares of Series A Liberty
Media Group Common Stock into shares of Series A TCI Group Common Stock without
converting shares of Series B Liberty Media Group Common Stock into shares of
Series B TCI Group Common Stock, and the Corporation shall not convert shares
of Series B Liberty Media Group Common Stock into shares of Series B TCI Group
Common Stock without converting shares of Series A Liberty Media Group Common
Stock into shares of Series A TCI Group Common Stock. The Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock
shall also be convertible at the option of the Corporation in accordance with
paragraph 5(b)(iii) of this Section E.
(e) CONVERSION OF SERIES A TCI VENTURES GROUP COMMON STOCK INTO
SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI VENTURES GROUP COMMON STOCK
INTO SERIES B TCI GROUP COMMON STOCK AT THE OPTION OF THE CORPORATION. (i) At
the option of the Corporation by action of its Board of Directors, (A) all
shares of Series A TCI Ventures Group Common Stock shall be converted into a
number (or fraction) of fully paid
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and nonassessable shares of Series A TCI Group Common Stock equal to the TCI
Ventures Group Optional Conversion Ratio, and (B) all shares of Series B TCI
Ventures Group Common Stock shall be convertible into a number (or fraction) of
fully paid and nonassessable shares of Series B TCI Group Common Stock equal to
the TCI Ventures Group Optional Conversion Ratio.
(ii) For purposes of this paragraph 2(e), the "TCI Ventures Group
Optional Conversion Ratio" shall mean the quotient (calculated to the nearest
five decimal places) obtained by dividing (A) the TCI Ventures Group Common
Stock Per Share Value by (B) the average Market Value of one share of Series A
TCI Group Common Stock over the 20-Trading Day period ending on the Trading Day
preceding the Appraisal Date.
(iii) In the event that the Corporation determines to establish the
TCI Ventures Group Private Market Value, the Corporation shall designate the
First Appraiser, and the Independent Committee shall designate the Second
Appraiser. Not later than 20 days after the Selection Date, the First
Appraiser and the Second Appraiser shall each determine its initial view as to
the private market value of the TCI Ventures Group as of the Appraisal Date and
shall consult with one another with respect thereto. Not later than the 30th
day after the Selection Date, the First Appraiser and the Second Appraiser
shall each have determined its final view as to such private market value. If
the Higher Appraised Amount is not more than 120% of the Lower Appraised
Amount, the TCI Ventures Group Private Market Value (subject to any adjustment
provided in subparagraph (iv) of this paragraph 2(e)) shall be the average of
those two amounts. If the Higher Appraised Amount is more than 120% of the
Lower Appraised Amount, the First Appraiser and the Second Appraiser shall
agree upon and jointly designate the Mutually Designated Appraiser to determine
such private market value. The Mutually Designated Appraiser shall not be
provided with any of the work of the First Appraiser and Second Appraiser. The
Mutually Designated Appraiser shall, no later than the 20th day after the date
the Mutually Designated Appraiser is designated, determine the Mutually
Appraised Amount and the TCI Ventures Group Private Market Value (subject to
any adjustment provided in subparagraph (iv) of this paragraph 2(e)) shall be
(A) if the Mutually Appraised Amount is between the Lower Appraised Amount and
the Higher Appraised Amount, (I) the average of (1) the Mutually Appraised
Amount and (2) the Lower Appraised Amount or the Higher Appraised Amount,
whichever is closer to the Mutually Appraised Amount, or (II) the Mutually
Appraised Amount, if neither the Lower Appraised Amount nor the Higher
Appraised Amount is closer to the Mutually Appraised Amount, or (B) if the
Mutually Appraised Amount is greater than the Higher Appraised Amount or less
than the Lower Appraised Amount, the average of the Higher Appraised Amount and
the Lower Appraised Amount. For these purposes, if any such Appraiser
expresses its final view of the private market value of the TCI Ventures Group
as a range of values, such Appraiser's final view of such private market value
shall be deemed to be the midpoint of such range of values.
(iv) Following the determination of the TCI Ventures Group Private
Market Value, the Appraiser or Appraisers whose final views of the private
market value of the TCI Ventures Group were used in the calculation of the TCI
Ventures Group Private Market Value shall determine the Adjusted Outstanding
Shares of TCI Ventures Group Common Stock together with any further adjustments
to the TCI Ventures Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of TCI Ventures Group Common
Stock" shall mean a number, as determined by such Appraiser(s) as of the
Appraisal Date, equal to the sum of the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
outstanding, the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest, the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock issuable upon the
conversion, exercise or exchange of all Pre-Exchange Offer Securities and the
number of shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock issuable upon the conversion, exercise or exchange
of those Convertible Securities (other than Pre-Exchange Offer Securities) the
holders of which would derive an economic benefit from conversion, exercise or
exchange of such Convertible Securities which exceeds the economic benefit of
not converting, exercising or exchanging such Convertible Securities. The "TCI
Ventures Group Common Stock Per Share Value" shall mean the quotient obtained by
dividing the TCI Ventures Group Private Market Value by the Adjusted Outstanding
Shares of TCI Ventures Group Common Stock, provided that if such Appraiser(s) do
not agree on the determinations provided for in this subparagraph (iv), the TCI
Ventures Group Common Stock Per Share Value shall be the average of the
quotients so obtained on the basis of the respective determinations of such
firms.
(v) If the Corporation determines to convert shares of Series A
TCI Ventures Group Common Stock into Series A TCI Group Common Stock and shares
of Series B TCI Ventures Group Common Stock into Series B
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TCI Group Common Stock at the TCI Ventures Group Optional Conversion Ratio,
such conversion shall occur on a Conversion Date on or prior to the 120th day
following the Appraisal Date. If the Corporation determines not to undertake
such conversion, the Corporation may at any time thereafter undertake to
reestablish the TCI Ventures Group Common Stock Per Share Value as of a
subsequent date.
(vi) The Corporation shall not convert shares of Series A TCI
Ventures Group Common Stock into shares of Series A TCI Group Common Stock
without converting shares of Series B TCI Ventures Group Common Stock into
shares of Series B TCI Group Common Stock, and the Corporation shall not
convert shares of Series B TCI Ventures Group Common Stock into shares of
Series B TCI Group Common Stock without converting shares of Series A TCI
Ventures Group Common Stock into shares of Series A TCI Group Common Stock.
The Series A TCI Ventures Group Common Stock and the Series B TCI Ventures
Group Common Stock shall also be convertible at the option of the Corporation
in accordance with paragraph 6(b)(iii) of this Section E.
3. Dividends.
(a) DIVIDENDS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B TCI
GROUP COMMON STOCK. Dividends on the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock may be declared and paid only out of the lesser
of (i) assets of the Corporation legally available therefor and (ii) the TCI
Group Available Dividend Amount. Subject to paragraph 4 of this Section E,
whenever a dividend is paid to the holders of Series A TCI Group Common Stock,
the Corporation shall also pay to the holders of Series B TCI Group Common
Stock a dividend per share equal to the dividend per share paid to the holders
of Series A TCI Group Common Stock, and whenever a dividend is paid to the
holders of Series B TCI Group Common Stock, the Corporation shall also pay to
the holders of Series A TCI Group Common Stock a dividend per share equal to
the dividend per share paid to the holders of Series B TCI Group Common Stock.
(b) DIVIDENDS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. Dividends on the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock may
be declared and paid only out of the lesser of (i) assets of the Corporation
legally available therefor and (ii) the Liberty Media Group Available Dividend
Amount. Subject to paragraph 4 and the last sentence of paragraph 5(b) of this
Section E, whenever a dividend is paid to the holders of Series A Liberty Media
Group Common Stock, the Corporation shall also pay to the holders of Series B
Liberty Media Group Common Stock a dividend per share equal to the dividend per
share paid to the holders of Series A Liberty Media Group Common Stock, and
whenever a dividend is paid to the holders of Series B Liberty Media Group
Common Stock, the Corporation shall also pay to the holders of Series A Liberty
Media Group Common Stock a dividend per share equal to the dividend per share
paid to the holders of Series B Liberty Media Group Common Stock.
(c) DIVIDENDS ON SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK. Dividends on the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common Stock
may be declared and paid only out of the lesser of (i) assets of the
Corporation legally available therefor and (ii) the TCI Ventures Group
Available Dividend Amount. Subject to paragraph 4 and the last sentence of
paragraph 6(b) of this Section E, whenever a dividend is paid to the holders of
Series A TCI Ventures Group Common Stock, the Corporation shall also pay to the
holders of Series B TCI Ventures Group Common Stock a dividend per share equal
to the dividend per share paid to the holders of Series A TCI Ventures Group
Common Stock, and whenever a dividend is paid to the holders of Series B TCI
Ventures Group Common Stock, the Corporation shall also pay to the holders of
Series A TCI Ventures Group Common Stock a dividend per share equal to the
dividend per share paid to the holders of Series B TCI Ventures Group Common
Stock.
(d) DISCRIMINATION BETWEEN OR AMONG SERIES OF COMMON STOCK. The
Board of Directors, subject to the provisions of paragraph 3(a), 3(b) and 3(c)
of this Section E, shall have the authority and discretion to declare and pay
dividends on (i) the Series A TCI Group Common Stock and Series B TCI Group
Common Stock, (ii) the Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock, or (iii) the Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, in equal or unequal
amounts, notwithstanding the relationship between the TCI Group Available
Dividend Amount, the Liberty Media Group Available Dividend Amount and the TCI
Ventures Group Available Dividend Amount, the respective amounts of prior
dividends declared on, or the liquidation rights of, the Series A TCI Group
Common Stock and Series B TCI Group Common Stock, the Series A Liberty Media
Group Common Stock and Series B Liberty
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Media Group Common Stock, or the Series A TCI Ventures Group Common Stock and
the Series B TCI Ventures Group Common Stock, or any other factor.
4. Share Distributions.
The Corporation may declare and pay a distribution consisting of
shares of Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group
Common Stock or any other securities of the Corporation or any other Person
(hereinafter sometimes called a "share distribution") to holders of the Common
Stock only in accordance with the provisions of this paragraph 4.
(a) DISTRIBUTIONS ON SERIES A TCI GROUP COMMON STOCK AND SERIES B
TCI GROUP COMMON STOCK. If at any time a share distribution is to be made with
respect to the Series A TCI Group Common Stock or Series B TCI Group Common
Stock, such share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A
TCI Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock) to holders of Series A TCI Group Common Stock and Series B TCI
Group Common Stock, on an equal per share basis; or consisting of
shares of Series B TCI Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series A TCI Group Common Stock
and Series B TCI Group Common Stock, on an equal per share basis; or
consisting of shares of Series A TCI Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable
for shares of Series A TCI Group Common Stock) to holders of Series A
TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Group Common Stock) to holders of Series B TCI Group Common Stock;
(ii) subsequent to the Liberty Media Group Distribution, a
share distribution consisting of shares of Series A Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Liberty Media Group
Common Stock) to holders of Series A TCI Group Common Stock and Series
B TCI Group Common Stock, on an equal per share basis; provided that
the sum of (A) the aggregate number of shares of Series A Liberty
Media Group Common Stock to be so issued (or the number of such shares
which would be issuable upon conversion, exercise or exchange of any
Convertible Securities to be so issued) and (B) the number of shares
of such series that are subject to issuance upon conversion, exercise
or exchange of any Convertible Securities then outstanding that are
attributed to the TCI Group (other than Pre-Distribution Convertible
Securities and other than Convertible Securities convertible into or
exercisable or exchangeable for Committed Acquisition Shares) is less
than or equal to the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest;
(iii) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Group Common
Stock and Series B TCI Group Common Stock, on an equal per share
basis; or consisting of shares of Series B TCI Ventures Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B TCI Ventures Group Common Stock)
to holders of Series A TCI Group Common Stock and Series B TCI Group
Common Stock, on an equal per share basis; or consisting of shares of
Series A TCI Ventures Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
TCI Ventures Group Common Stock) to holders of Series A TCI Group
Common Stock and, on an equal per share basis, shares of Series B TCI
Ventures Group Common Stock (or like Convertible Securities
convertible into or exercisable or exchangeable for shares of Series B
TCI Ventures Group Common Stock) to holders of Series B TCI Group
Common Stock; provided that the sum of (A) the aggregate number of
shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock to be so distributed (or the number of
such shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock which would be issuable upon
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conversion, exercise or exchange of any Convertible Securities to be
so distributed) and (B) the number of shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock that
are subject to issuance upon conversion, exercise or exchange of any
Convertible Securities then outstanding that are attributed to the TCI
Group (other than Pre-Exchange Offer Securities), is less than or
equal to the Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest.
(iv) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock, Series B Liberty Media
Group Common Stock, Series A TCI Ventures Group Common Stock or Series
B TCI Ventures Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Media Group Common Stock, Series B Liberty Media Group Common
Stock, Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock), either on the basis of a distribution of
identical securities, on an equal per share basis, to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock or
on the basis of a distribution of one class or series of securities to
holders of Series A TCI Group Common Stock and another class or series
of securities to holders of Series B TCI Group Common Stock, provided
that the securities so distributed (and, if the distribution consists
of Convertible Securities, the securities into which such Convertible
Securities are convertible or for which they are exercisable or
exchangeable) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B TCI Group Common Stock receiving the class or series
having the higher relative voting rights (without regard to whether
such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Group Common Stock and the Series B TCI Group Common Stock), provided
that if the securities so distributed constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Group Common Stock and the Series B TCI Group
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A TCI Group Common Stock without reclassifying, subdividing or combining the
Series B TCI Group Common Stock, on an equal per share basis, and the
Corporation shall not reclassify, subdivide or combine the Series B TCI Group
Common Stock without reclassifying, subdividing or combining the Series A TCI
Group Common Stock, on an equal per share basis.
(b) DISTRIBUTIONS ON SERIES A LIBERTY MEDIA GROUP COMMON STOCK AND
SERIES B LIBERTY MEDIA GROUP COMMON STOCK. If at any time a share distribution
is to be made with respect to the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, such share distribution may be
declared and paid only as follows (or as permitted by paragraph 5 of this
Section E with respect to the redemptions and other distributions referred to
therein):
(i) a share distribution consisting of shares of Series A
Liberty Media Group Common Stock (or Convertible Securities
convertible into or exercisable or exchangeable for shares of Series A
Liberty Media Group Common Stock) to holders of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock, on
an equal per share basis; or consisting of shares of Series B Liberty
Media Group Common Stock (or Convertible Securities convertible into
or exercisable or exchangeable for shares of Series B Liberty Media
Group Common Stock) to holders of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, on an equal per
share basis; or consisting of shares of Series A Liberty Media Group
Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A Liberty Media Group
Common Stock) to holders of Series A Liberty Media Group Common Stock
and, on an equal per share basis, shares of Series B Liberty Media
Group Common Stock (or like Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B Liberty Media Group
Common Stock) to holders of Series B Liberty Media Group Common Stock;
and
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(ii) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
as described in clause (i) of this paragraph 4(b) and other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock) either on
the basis of a distribution of identical securities, on an equal per
share basis, to holders of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock or on the basis of a
distribution of one class or series of securities to holders of Series
A Liberty Media Group Common Stock and another class or series of
securities to holders of Series B Liberty Media Group Common Stock,
provided that the securities so distributed (and, if the distribution
consists of Convertible Securities, the securities into which such
Convertible Securities are convertible or for which they are
exercisable or exchangeable) do not differ in any respect other than
their relative voting rights and related differences in designation,
conversion, redemption and share distribution provisions, with holders
of shares of Series B Liberty Media Group Common Stock receiving the
class or series having the higher relative voting rights (without
regard to whether such rights differ to a greater or lesser extent
than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the
Series A Liberty Media Group Common Stock and the Series B Liberty
Media Group Common Stock), provided that if the securities so
distributed constitute capital stock of a Subsidiary of the
Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group
Common Stock, and provided in each case that such distribution is
otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series B Liberty Media Group Common Stock, on an equal per share
basis, and the Corporation shall not reclassify, subdivide or combine the
Series B Liberty Media Group Common Stock without reclassifying, subdividing or
combining the Series A Liberty Media Group Common Stock, on an equal per share
basis.
(c) DISTRIBUTIONS ON SERIES A TCI VENTURES GROUP COMMON STOCK AND
SERIES B TCI VENTURES GROUP COMMON STOCK. If at any time a share distribution
is to be made with respect to the Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, such share distribution may be
declared and paid only as follows (or as permitted by paragraph 6 of this
Section E with respect to the redemptions and other distributions referred to
therein):
(i) a share distribution consisting of shares of Series A
TCI Ventures Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of Series A TCI
Ventures Group Common Stock) to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, on an equal
per share basis; or consisting of shares of Series B TCI Ventures
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series B TCI Ventures Group
Common Stock) to holders of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, on an equal per share
basis; or consisting of shares of Series A TCI Ventures Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Ventures Group Common Stock)
to holders of Series A TCI Ventures Group Common Stock and, on an
equal per share basis, shares of Series B TCI Ventures Group Common
Stock (or like Convertible Securities convertible into or exercisable
or exchangeable for shares of Series B TCI Ventures Group Common
Stock) to holders of Series B TCI Ventures Group Common Stock; and
(ii) a share distribution consisting of any class or
series of securities of the Corporation or any other Person other than
as described in clause (i) of this paragraph 4(c) and other than
Series A TCI Group Common Stock, Series B TCI Group Common Stock,
Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock (or Convertible Securities convertible into or
exercisable or exchangeable for shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common
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Stock) either on the basis of a distribution of identical securities,
on an equal per share basis, to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, or on the
basis of a distribution of one class or series of securities to
holders of Series A TCI Ventures Group Common Stock and another class
or series of securities to holders of Series B TCI Ventures Group
Common Stock, provided that the securities so distributed (and, if the
distribution consists of Convertible Securities, the securities into
which such Convertible Securities are convertible or for which they
are exercisable or exchangeable) do not differ in any respect other
than their relative voting rights and related differences in
designation, conversion, redemption and share distribution provisions,
with holders of shares of Series B TCI Ventures Group Common Stock
receiving the class or series having the higher relative voting rights
(without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Ventures Group Common Stock and the Series B
TCI Ventures Group Common Stock), provided that if the securities so
distributed constitute capital stock of a Subsidiary of the
Corporation, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common
Stock, and provided in each case that such distribution is otherwise
made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Series
A TCI Ventures Group Common Stock without reclassifying, subdividing or
combining the Series B TCI Ventures Group Common Stock, on an equal per share
basis, and the Corporation shall not reclassify, subdivide or combine the
Series B TCI Ventures Group Common Stock without reclassifying, subdividing or
combining the Series A TCI Ventures Group Common Stock, on an equal per share
basis.
5. Redemption and Other Provisions Relating to the Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF LIBERTY MEDIA GROUP
SUBSIDIARIES. At any time at which all of the assets and liabilities
attributed to the Liberty Media Group have become and continue to be held
directly or indirectly by any one or more Qualifying Subsidiaries (the "Liberty
Media Group Subsidiaries"), the Board of Directors may, subject to the
availability of assets of the Corporation legally available therefor, redeem,
on a pro rata basis, all of the outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock in exchange
for an aggregate number of outstanding fully paid and nonassessable shares of
common stock of each Liberty Media Group Subsidiary equal to the product of the
Adjusted Liberty Media Group Outstanding Interest Fraction and the number of
outstanding shares of common stock of such Liberty Media Group Subsidiary held
by the Corporation. Any such redemption shall occur on a Redemption Date set
forth in a notice to holders of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock and Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for notice is otherwise made pursuant to the terms of
such Convertible Securities) pursuant to paragraph 5(d)(vi). In effecting such
a redemption, the Board of Directors may determine either to (i) redeem shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock in exchange for shares of separate classes or series of common
stock of each Liberty Media Group Subsidiary with relative voting rights and
related differences in designation, conversion, redemption and share
distribution provisions not greater than the corresponding differences in
voting rights, designation, conversion, redemption and share distribution
provisions between the Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock, with holders of shares of Series B Liberty
Media Group Common Stock receiving the class or series having the higher
relative voting rights, or (ii) redeem shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock in exchange for
shares of a single class of common stock of each Liberty Media Group Subsidiary
without distinction between the shares distributed to the holders of the Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock. If the Corporation determines to undertake a redemption as described in
clause (i) of the preceding sentence, the outstanding shares of common stock of
each Liberty Media Group Subsidiary not distributed to holders of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
shall consist solely of the class or series having the lower relative voting
rights.
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(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF
DISPOSITION OF LIBERTY MEDIA GROUP ASSETS. In the event of the Disposition, in
one transaction or a series of related transactions, by the Corporation and its
subsidiaries of all or substantially all of the properties and assets of the
Liberty Media Group to one or more persons, entities or groups (other than (w)
in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 7 of this Section E, (x) a
dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4, paragraph 5(a) or paragraph 7 of this Section E, (y)
to any person, entity or group which the Corporation, directly or indirectly,
after giving effect to the Disposition, controls or (z) in connection with a
Related Business Transaction), the Corporation shall, on or prior to the 85th
Trading Day following the consummation of such Disposition, either:
(i) subject to paragraph 3(b) of this Section E, declare
and pay a dividend in cash and/or in securities or other property
(other than a dividend or distribution of Common Stock) to the holders
of the outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock equally on a share for
share basis (subject to the last sentence of this Section 5(b)), in an
aggregate amount equal to the product of the Liberty Media Group
Outstanding Interest Fraction as of the record date for determining
the holders entitled to receive such dividend and the Liberty Media
Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation
legally available therefor and the Liberty Media Group Available
Dividend Amount would have been sufficient to pay a dividend in lieu
thereof pursuant to clause (i) of this paragraph 5(b), then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the Liberty
Media Group, redeem all outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted Liberty Media Group
Outstanding Interest Fraction as of the date of such
redemption and the Liberty Media Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 5(b)) to shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same); or
(B) if such Disposition involves substantially all
(but not all) of the properties and assets of the Liberty
Media Group, apply an aggregate amount of cash and/or
securities or other property (other than Common Stock) equal
to the product of the Liberty Media Group Outstanding Interest
Fraction as of the date shares are selected for redemption and
the Liberty Media Group Net Proceeds to the redemption of
outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 5(b)) to shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common
Stock in the ratio of the number of shares of each such series
outstanding, and the number of shares of each such series to
be redeemed to equal the lesser of (x) the whole number
nearest the number determined by dividing the aggregate amount
so allocated to the redemption of such series by the average
Market Value of one share of Series A Liberty Media Group
Common Stock during the ten-Trading Day period beginning on
the 16th Trading Day following the consummation of such
Disposition and (y) the number of shares of such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A Liberty Media Group
Common Stock and each share of Series B Liberty Media Group
Common Stock is the same);
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such redemption to be effected in accordance with the applicable
provisions of paragraph 5(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A
Liberty Media Group Common Stock into a number (or fraction) of fully
paid and nonassessable shares of Series A TCI Group Common Stock and
(B) each outstanding share of Series B Liberty Media Group Common
Stock into a number (or fraction) of fully paid and nonassessable
shares of Series B TCI Group Common Stock, in each case equal to 110%
of the average daily ratio (calculated to the nearest five decimal
places) of the Market Value of one share of Series A Liberty Media
Group Common Stock to the Market Value of one share of Series A TCI
Group Common Stock during the ten-Trading Day period referred to in
clause (ii)(B) of this paragraph 5(b).
For purposes of this paragraph 5(b):
(x) as of any date, "substantially all of the properties
and assets of the Liberty Media Group" shall mean a portion of such
properties and assets that represents at least 80% of the then-current
market value (as determined by the Board of Directors) of the
properties and assets of the Liberty Media Group as of such date;
(y) in the case of a Disposition of properties and assets
in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of
such transactions; and
(z) the Corporation may pay the dividend or redemption
price referred to in clause (i) or (ii) of this subparagraph 5(b)
either in the same form as the proceeds of the Disposition were
received or in any other combination of cash or securities or other
property (other than Common Stock) that the Board of Directors
determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the Liberty Media Group Net
Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than the Corporation, the Board of
Directors may determine either to (1) pay the dividend or redemption
price in the form of separate classes or series of securities, with
one class or series of such securities to holders of Series A Liberty
Media Group Common Stock and another class or series of securities to
holders of Series B Liberty Media Group Common Stock, provided that
such securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise
or exchange) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B Liberty Media Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A
Liberty Media Group Common Stock and the Series B Liberty Media Group
Common Stock), provided that if such securities constitute capital
stock of a Subsidiary of the Corporation, such rights shall not differ
to a greater extent than the corresponding differences in voting
rights, designation, conversion, redemption and share distribution
provisions between the Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, and otherwise such
securities shall be distributed on an equal per share basis, or (2)
pay the dividend or redemption price in the form of a single class of
securities without distinction between the shares received by the
holders of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless
the provisions of any class or series of Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares provide specifically to the
contrary, after any Conversion Date or Redemption Date on which all outstanding
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock were converted or redeemed, any share of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock that is
issued on conversion, exercise or exchange of any Pre-Distribution Convertible
Securities or any Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares shall, immediately
upon issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the Corporation or its
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Board of Directors or the holder of such share of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, be converted into
(in case all such outstanding shares were converted) or redeemed in exchange
for (in case all such outstanding shares were redeemed) the kind and amount of
shares of capital stock, cash and/or other securities or property that a holder
of such Pre-Distribution Convertible Securities or any Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares would have been entitled to receive pursuant to the terms of
such securities had such terms provided that the conversion, exercise or
exchange privilege in effect immediately prior to any such conversion or
redemption of all outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock would be adjusted so that
the holder of any such Pre-Distribution Convertible Securities or any
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares thereafter surrendered for
conversion, exercise or exchange would be entitled to receive the kind and
amount of shares of capital stock, cash and/or other securities or property
such holder would have received as a result of such action had such securities
been converted, exercised or exchanged immediately prior thereto. With respect
to any Convertible Securities which are created, established or otherwise first
authorized for issuance subsequent to the record date for the Liberty
Distribution (other than Pre-Distribution Convertible Securities and
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), the terms and provisions of
which do not provide for adjustments specifying the kind and amount of capital
stock, cash and/or securities or other property that such holder would be
entitled to receive upon the conversion, exercise or exchange of such
Convertible Securities following any Conversion Date or Redemption Date on
which all outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock were converted or redeemed, then upon
such conversion, exercise or exchange of such Convertible Securities, any share
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock that is issued on conversion, exercise or exchange of any such
Convertible Securities shall, immediately upon issuance pursuant to such
conversion, exercise or exchange and without any notice or any other action on
the part of the Corporation or its Board of Directors or the holder of such
share of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock, be redeemed in exchange for, to the extent assets of the
Corporation are legally available therefor, the amount of $.01 per share in
cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation
of a Disposition referred to in subparagraph 5(b) of this Section E, the
Corporation shall announce publicly by press release (A) the Liberty Media
Group Net Proceeds of such Disposition, (B) the number of outstanding shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, (C) the number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock into or for which
Convertible Securities are then convertible, exercisable or exchangeable and
the conversion, exercise or exchange prices thereof (and stating which, if any,
of such Convertible Securities constitute Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares) and the number of Committed
Acquisition Shares issuable, (D) the Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice and (E) the
Adjusted Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice. Not earlier than the 26th Trading Day and
not later than the 30th Trading Day following the consummation of such
Disposition, the Corporation shall announce publicly by press release which of
the actions specified in clauses (i), (ii) or (iii) of paragraph 5(b) of this
Section E it has irrevocably determined to take.
(ii) If the Corporation determines to pay a dividend pursuant to
clause (i) of subparagraph 5(b) of this Section E, the Corporation shall, not
later than the 30th Trading Day following the consummation of such Disposition,
cause to be given to each holder of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such Disposition,
(B) the anticipated payment date of such dividend (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be
distributed in respect of shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock, (D) the Liberty Media
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Group Net Proceeds of such Disposition, (E) the Liberty Media Group Outstanding
Interest Fraction as of a recent date preceding the date of such notice, (F)
the number of outstanding shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (G) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to receive such dividend only if they
appropriately convert, exercise or exchange such Convertible Securities prior
to the record date referred to in clause (A) of this sentence. Such notice
shall be sent by first-class mail, postage prepaid, at such holder's address as
the same appears on the transfer books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the Liberty Media Group pursuant to clause
(ii) (A) of paragraph 5(b) of this Section E, the Corporation shall cause to be
given to each holder of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all shares of Series A Liberty Media Group Common Stock
and Series B Liberty Media Group Common Stock outstanding on the Redemption
Date shall be redeemed, (B) the Redemption Date (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be paid
as a redemption price in respect of shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock outstanding on the
Redemption Date, (D) the Liberty Media Group Net Proceeds of such Disposition,
(E) the Adjusted Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the place or places where
certificates for shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation waives such requirement), are to be surrendered for
delivery of certificates for shares of such capital stock, cash and/or other
securities or property, (G) the number of outstanding shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
and the number of shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock into or for which outstanding
Convertible Securities are then convertible, exercisable or exchangeable and
the conversion, exercise or exchange prices thereof (and stating which, if any,
of such Convertible Securities constitute Pre-Distribution Convertible
Securities or Convertible Securities which are convertible into or exercisable
or exchangeable for Committed Acquisition Shares) and the number of Committed
Acquisition Shares issuable, and (H) in the case of a notice to holders of
Convertible Securities (other than Pre-Distribution Convertible Securities or
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), a statement to the effect that
holders of such Convertible Securities shall be entitled to participate in such
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 5(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following such
Redemption Date. Such notice shall be sent by first-class mail, postage
prepaid, not less than 35 Trading Days nor more than 45 Trading Days prior to
the Redemption Date, at such holder's address as the same appears on the
transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock following a Disposition of substantially all (but not all)
of the properties and assets of the Liberty Media Group pursuant to clause
(ii)(B) of paragraph 5(b) of this Section E, the Corporation shall, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, and to
each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption
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Date (which shall not be more than 85 Trading Days following the consummation
of such Disposition), (C) the kind of shares of capital stock, cash and/or
other securities or property to be paid as a redemption price in respect of
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock selected for redemption, (D) the Liberty Media Group Net
Proceeds of such Disposition, (E) the Liberty Media Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (F) the number
of outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion or exercise prices thereof, (G) in the case
of a notice to holders of Convertible Securities, a statement to the effect
that holders of such Convertible Securities shall be entitled to participate in
such selection for redemption only if such holders appropriately convert,
exercise or exchange such Convertible Securities on or prior to the date
referred to in clause (A) of this sentence and a statement as to what, if
anything, such holders shall be entitled to receive pursuant to the terms of
such Convertible Securities if such holders convert, exercise or exchange such
Convertible Securities following such date and (H) a statement that the
Corporation will not be required to register a transfer of any shares of Series
A Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
for a period of 15 Trading Days next preceding the date referred to in clause
(A) of this sentence. Promptly following the date referred to in clause (A) of
the preceding sentence, but not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
to be so redeemed, a notice setting forth (A) the number of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
held by such holder to be redeemed, (B) a statement that such shares of Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock shall be redeemed, (C) the Redemption Date (which shall not be more than
85 Trading Days following the consummation of such Disposition), (D) the kind
and per share amount of shares of capital stock, cash and/or other securities
or property to be received by such holder with respect to each share of such
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock to be redeemed, including details as to the calculation thereof,
and (E) the place or places where certificates for shares of such Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation waives such
requirement), are to be surrendered for delivery of certificates for shares of
such capital stock, cash and/or other securities or property. The notices
referred to in this clause (iv) shall be sent by first-class mail, postage
prepaid, at such holder's address as the same appears on the transfer books of
the Corporation. The outstanding shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock to be redeemed shall be
redeemed by the Corporation pro rata among the holders of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock or by
such other method as may be determined by the Board of Directors to be
equitable.
(v) In the event of any conversion pursuant to paragraph 2(d) of
this Section E or pursuant to this paragraph 5 (other than pursuant to
paragraph 5(c)), the Corporation shall cause to be given to each holder of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for such notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock shall be converted, (B) the
Conversion Date (which shall not be more than 85 Trading Days following the
consummation of such Disposition in the event of a conversion pursuant to
paragraph 5(b) and which shall not be more than 120 days after the Appraisal
Date in the event of a conversion pursuant to paragraph 2(d)), (C) the per
share number of shares of Series A TCI Group Common Stock or Series B TCI Group
Common Stock, as applicable, to be received with respect to each share of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock, including details as to the calculation thereof, (D) the place or
places where certificates for shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement),
are to be surrendered, (E) the number of outstanding shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the
number of Committed Acquisition Shares issuable and the number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities
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shall be entitled to participate in such conversion only if such holders
appropriately convert, exercise or exchange such Convertible Securities on or
prior to the Conversion Date referred to in clause (B) of this sentence and a
statement as to what, if anything, such holders shall be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following such Conversion Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Conversion Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(vi) If the Corporation determines to redeem shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock
pursuant to subparagraph (a) of this paragraph 5, the Corporation shall
promptly cause to be given to each holder of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock and to each holder
of Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), a notice setting
forth (A) a statement that all outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock shall be
redeemed in exchange for shares of common stock of the Liberty Media Group
Subsidiaries, (B) the Redemption Date, (C) the Adjusted Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (D) the place or places where certificates for shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for
shares of common stock of the Liberty Media Group Subsidiaries, (E) the number
of outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock and the number of shares of Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock into or
for which outstanding Convertible Securities are then convertible, exercisable
or exchangeable and the conversion, exercise or exchange prices thereof (and
stating which, if any, of such Convertible Securities constitute
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares) and the number of Committed Acquisition Shares issuable, and (F) in the
case of a notice to holders of Convertible Securities (other than
Pre-Distribution Convertible Securities or Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares), a statement to the effect that holders of such Convertible Securities
shall be entitled to participate in such redemption only if such holders
appropriately convert, exercise or exchange such Convertible Securities on or
prior to the Redemption Date referred to in clause (B) of this sentence and a
statement as to what, if anything, such holders shall be entitled to receive
pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 5(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following the Redemption Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Redemption Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this
paragraph 5(d) to any particular holder of Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to any
other holder of outstanding shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock or of Convertible Securities, or
the validity of any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to paragraph 2(d) of this Section E or pursuant to this
paragraph 5. In connection with the determination of the number of shares of
any class of capital stock that shall be issuable or the amount of securities
that shall be deliverable to any holder of record upon any such conversion,
redemption, dividend or other distribution (including any fractions of shares
or securities), the Corporation may aggregate the number of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock is a fraction, the Corporation shall,
if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth
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Trading Day prior to the date such payment is to be made (without interest).
For purposes of the preceding sentence, "fair market value" of any fraction
shall be (A) in the case of any fraction of a share of capital stock of the
Corporation, the product of such fraction and the Market Value of one share of
such capital stock and (B) in the case of any other fractional security, such
value as is determined by the Board of Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock shall be
subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
at the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding
the conversion or redemption of such shares or the Corporation's default in
payment of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock pursuant to paragraph 2(d) of this Section E or
pursuant to this paragraph 5, such holder shall surrender at such place as the
Corporation shall specify certificates for such shares of Series A Liberty
Media Group Common Stock or Series B Liberty Media Group Common Stock, properly
endorsed or assigned for transfer (unless the Corporation shall waive such
requirement). The Corporation shall as soon as practicable after such
surrender of certificates representing shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock deliver to the person
for whose account shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock were so surrendered, or to the nominee or
nominees of such person, certificates representing the number of whole shares
of the kind of capital stock or cash and/or securities or other property to
which such person shall be entitled as aforesaid, together with any payment for
fractional securities contemplated by paragraph 5(d)(viii). If less than all
of the shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock represented by any one certificate are to be redeemed,
the Corporation shall issue and deliver a new certificate for the shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock not redeemed. The Corporation shall not be required to register a
transfer of (1) any shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock for a period of 15 Trading Days next
preceding any selection of shares of Series A Liberty Media Group Common Stock
or Series B Liberty Media Group Common Stock to be redeemed or (2) any shares
of Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock selected or called for redemption. Shares selected for redemption
may not thereafter be converted pursuant to paragraph 2(b) of this Section E.
(xi) From and after any applicable Conversion Date or Redemption
Date, all rights of a holder of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock that were converted or
redeemed shall cease except for the right, upon surrender of the certificates
representing shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, to receive certificates representing shares
of the kind and amount of capital stock or cash and/or securities or other
property for which such shares were converted or redeemed, together with any
payment for fractional securities contemplated by paragraph 5(d)(viii) of this
Section E and such holder shall have no other or further rights in respect of
the shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock so converted or redeemed, including, but not limited
to, any rights with respect to any cash, securities or other properties which
are reserved or otherwise designated by the Corporation as being held for the
satisfaction of the Corporation's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption or any Committed Acquisition Shares which may then be issuable. No
holder of a certificate that, immediately prior to the applicable Conversion
Date or Redemption Date for the Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock, represented shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
shall be entitled to receive any dividend or other distribution with respect to
shares of any kind of capital stock into or in exchange for which the Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
was converted or redeemed until surrender of such holder's certificate for a
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certificate or certificates representing shares of such kind of capital stock.
Upon such surrender, there shall be paid to the holder the amount of any
dividends or other distributions (without interest) which theretofore became
payable with respect to a record date after the Conversion Date or Redemption
Date, as the case may be, but that were not paid by reason of the foregoing,
with respect to the number of whole shares of the kind of capital stock
represented by the certificate or certificates issued upon such surrender.
From and after a Conversion Date or Redemption Date, as the case may be, for
any shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock, the Corporation shall, however, be entitled to treat
the certificates for shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock that have not yet been surrendered
for conversion or redemption as evidencing the ownership of the number of whole
shares of the kind or kinds of capital stock for which the shares of Series A
Liberty Media Group Common Stock or Series B Liberty Media Group Common Stock
represented by such certificates shall have been converted or redeemed,
notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on conversion
or redemption of shares of Series A Liberty Media Group Common Stock or Series
B Liberty Media Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of any shares of capital
stock in a name other than that in which the shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
6. Redemption and Other Provisions Relating to the Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock.
(a) REDEMPTION IN EXCHANGE FOR STOCK OF TCI VENTURES GROUP
SUBSIDIARIES. At any time at which all of the assets and liabilities
attributed to the TCI Ventures Group have become and continue to be held
directly or indirectly by any one or more Qualifying Subsidiaries (the "TCI
Ventures Group Subsidiaries"), the Board of Directors may, subject to the
availability of assets of the Corporation legally available therefor, redeem,
on a pro rata basis, all of the outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock in exchange for
an aggregate number of outstanding fully paid and nonassessable shares of
common stock of each TCI Ventures Group Subsidiary equal to the product of the
Adjusted TCI Ventures Group Outstanding Interest Fraction and the number of
outstanding shares of common stock of such TCI Ventures Group Subsidiary held
by the Corporation. Any such redemption shall occur on a Redemption Date set
forth in a notice to holders of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock and Convertible Securities convertible
into or exercisable or exchangeable for shares of either such series (unless
provision for notice is otherwise made pursuant to the terms of such
Convertible Securities) pursuant to paragraph 6(d)(vi). In effecting such a
redemption, the Board of Directors may determine either to (i) redeem shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock in exchange for shares of separate classes or series of common stock of
each TCI Ventures Group Subsidiary with relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions not greater than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions between
the Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock, with holders of shares of Series B TCI Ventures Group Common
Stock receiving the class or series having the higher relative voting rights,
or (ii) redeem shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock in exchange for shares of a single class of
common stock of each TCI Ventures Group Subsidiary without distinction between
the shares distributed to the holders of the Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock.
(b) MANDATORY DIVIDEND, REDEMPTION OR CONVERSION IN CASE OF
DISPOSITION OF TCI VENTURES GROUP ASSETS. In the event of the Disposition, in
one transaction or a series of related transactions, by the Corporation and its
subsidiaries of all or substantially all of the properties and assets of the
TCI Ventures Group to one or more persons, entities or groups (other than (w)
in connection with the Disposition by the Corporation of all of the
Corporation's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Corporation within the meaning of paragraph 7 of this Section E, (x) a
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dividend, other distribution or redemption in accordance with any provision of
paragraph 3, paragraph 4, paragraph 6(a) or paragraph 7 of this Section E, (y)
to any person, entity or group which the Corporation, directly or indirectly,
after giving effect to the Disposition, controls or (z) in connection with a
Related Business Transaction), the Corporation shall, on or prior to the 85th
Trading Day following the consummation of such Disposition, either:
(i) subject to paragraph 3(c) of this Section E, declare
and pay a dividend in cash and/or in securities or other property
(other than a dividend or distribution of Common Stock) to the holders
of the outstanding shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock equally on a share for
share basis (subject to the last sentence of this Section 6(b)), in an
aggregate amount equal to the product of the TCI Ventures Group
Outstanding Interest Fraction as of the record date for determining
the holders entitled to receive such dividend and the TCI Ventures
Group Net Proceeds of such Disposition; or
(ii) provided that there are assets of the Corporation
legally available therefor and the TCI Ventures Group Available
Dividend Amount would have been sufficient to pay a dividend in lieu
thereof pursuant to clause (i) of this paragraph 6(b), then:
(A) if such Disposition involves all (not merely
substantially all) of the properties and assets of the TCI
Ventures Group, redeem all outstanding shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock in exchange for cash and/or securities or other
property (other than Common Stock) in an aggregate amount
equal to the product of the Adjusted TCI Ventures Group
Outstanding Interest Fraction as of the date of such
redemption and the TCI Ventures Group Net Proceeds, such
aggregate amount to be allocated (subject to the last sentence
of this paragraph 6(b)) to shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common
Stock in the ratio of the number of shares of each such series
outstanding (so that the amount of consideration paid for the
redemption of each share of Series A TCI Ventures Group Common
Stock and each share of Series B TCI Ventures Group Common
Stock is the same); or
(B) if such Disposition involves substantially all
(but not all) of the properties and assets of the TCI Ventures
Group, apply an aggregate amount of cash and/or securities or
other property (other than Common Stock) equal to the product
of the TCI Ventures Group Outstanding Interest Fraction as of
the date shares are selected for redemption and the TCI
Ventures Group Net Proceeds to the redemption of outstanding
shares of Series A TCI Ventures Group Common Stock and Series
B TCI Ventures Group Common Stock, such aggregate amount to be
allocated (subject to the last sentence of this paragraph
6(b)) to shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock in the ratio of
the number of shares of each such series outstanding, and the
number of shares of each such series to be redeemed to equal
the lesser of (x) the whole number nearest the number
determined by dividing the aggregate amount so allocated to
the redemption of such series by the average Market Value of
one share of Series A TCI Ventures Group Common Stock during
the ten-Trading Day period beginning on the 16th Trading Day
following the consummation of such Disposition and (y) the
number of shares of such series outstanding (so that the
amount of consideration paid for the redemption of each share
of Series A TCI Ventures Group Common Stock and each share of
Series B TCI Ventures Group Common Stock is the same);
such redemption to be effected in accordance with the applicable
provisions of paragraph 6(d) of this Section E; or
(iii) convert (A) each outstanding share of Series A TCI
Ventures Group Common Stock into a number (or fraction) of fully paid
and nonassessable shares of Series A TCI Group Common Stock and (B)
each outstanding share of Series B TCI Ventures Group Common Stock
into a number (or fraction) of fully paid and nonassessable shares of
Series B TCI Group Common Stock, in each case equal to 110% of the
average daily ratio (calculated to the nearest five decimal places) of
the Market Value of one share of Series A TCI Ventures Group Common
Stock to the Market Value of one share of Series A TCI Group Common
Stock during the ten-Trading Day period referred to in clause (ii)(B)
of this paragraph 6(b).
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For purposes of this paragraph 6(b):
(x) as of any date, "substantially all of the properties
and assets of the TCI Ventures Group" shall mean a portion of such
properties and assets that represents at least 80% of the then-current
market value (as determined by the Board of Directors) of the
properties and assets of the TCI Ventures Group as of such date;
(y) in the case of a Disposition of properties and assets
in a series of related transactions, such Disposition shall not be
deemed to have been consummated until the consummation of the last of
such transactions; and
(z) the Corporation may pay the dividend or redemption
price referred to in clause (i) or (ii) of this subparagraph 6(b)
either in the same form as the proceeds of the Disposition were
received or in any other combination of cash or securities or other
property (other than Common Stock) that the Board of Directors
determines will have an aggregate market value on a fully distributed
basis, of not less than the amount of the TCI Ventures Group Net
Proceeds. If the dividend or redemption price is paid in the form of
securities of an issuer other than the Corporation, the Board of
Directors may determine either to (1) pay the dividend or redemption
price in the form of separate classes or series of securities, with
one class or series of such securities to holders of Series A TCI
Ventures Group Common Stock and another class or series of securities
to holders of Series B TCI Ventures Group Common Stock, provided that
such securities (and, if such securities are convertible into or
exercisable or exchangeable for shares of another class or series of
securities, the securities so issuable upon such conversion, exercise
or exchange) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion,
redemption and share distribution provisions, with holders of shares
of Series B TCI Ventures Group Common Stock receiving the class or
series having the higher relative voting rights (without regard to
whether such rights differ to a greater or lesser extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
Ventures Group Common Stock and the Series B TCI Ventures Group Common
Stock), provided that if such securities constitute capital stock of a
Subsidiary of the Corporation, such rights shall not differ to a
greater extent than the corresponding differences in voting rights,
designation, conversion, redemption and share distribution provisions
between the Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock, and otherwise such securities shall be
distributed on an equal per share basis, or (2) pay the dividend or
redemption price in the form of a single class of securities without
distinction between the shares received by the holders of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock.
(c) CERTAIN PROVISIONS RESPECTING CONVERTIBLE SECURITIES. Unless
the provisions of any class or series of Pre-Exchange Offer Securities provide
specifically to the contrary, after any Conversion Date or Redemption Date on
which all outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock were converted or redeemed, any share
of Series A TCI Ventures Group Common Stock that is issued on conversion,
exercise or exchange of any Pre-Exchange Offer Securities shall, immediately
upon issuance pursuant to such conversion, exercise or exchange and without any
notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of Series A TCI Ventures Group Common
Stock, be converted into (in case all such outstanding shares were converted)
or redeemed in exchange for (in case all such outstanding shares were redeemed)
the kind and amount of shares of capital stock, cash and/or other securities or
property that a holder of such Pre-Exchange Offer Securities would have been
entitled to receive pursuant to the terms of such securities had such terms
provided that the conversion, exercise or exchange privilege in effect
immediately prior to any such conversion or redemption of all outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock would be adjusted so that the holder of any such
Pre-Exchange Offer Securities thereafter surrendered for conversion, exercise
or exchange would be entitled to receive the kind and amount of shares of
capital stock, cash and/or other securities or property such holder would have
received as a result of such action had such securities been exchanged
immediately prior thereto. Unless the provisions of any class or series of
Convertible Securities (other than Pre-Exchange Offer Securities) which are or
become convertible into or exercisable or exchangeable for shares of Series A
TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock
provide specifically to the contrary, after any Conversion Date or Redemption
Date on which all outstanding shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock were converted or redeemed,
any share of Series
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A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock
that is issued on conversion, exercise or exchange of any such Convertible
Securities will, immediately upon issuance pursuant to such conversion,
exercise or exchange and without any notice or any other action on the part of
the Corporation or its Board of Directors or the holder of such share of Series
A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock,
be redeemed in exchange for, to the extent assets of the Corporation are
legally available therefor, the amount of $.01 per share in cash.
(d) GENERAL.
(i) Not later than the 10th Trading Day following the consummation
of a Disposition referred to in subparagraph 6(b) of this Section E, the
Corporation shall announce publicly by press release (A) the TCI Ventures Group
Net Proceeds of such Disposition, (B) the number of outstanding shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock, (C) the number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock into or for which Convertible
Securities are then convertible, exercisable or exchangeable and the
conversion, exercise or exchange prices thereof (and stating which, if any, of
such Convertible Securities constitute Pre-Exchange Offer Securities), (D) the
TCI Ventures Group Outstanding Interest Fraction as of a recent date preceding
the date of such notice, and (E) the Adjusted TCI Ventures Group Outstanding
Interest Fraction as of a recent date preceding the date of such notice. Not
earlier than the 26th Trading Day and not later than the 30th Trading Day
following the consummation of such Disposition, the Corporation shall announce
publicly by press release which of the actions specified in clauses (i), (ii)
or (iii) of paragraph 6(b) of this Section E it has irrevocably determined to
take.
(ii) If the Corporation determines to pay a dividend pursuant to
clause (i) of subparagraph 6(b) of this Section E, the Corporation shall, not
later than the 30th Trading Day following the consummation of such Disposition,
cause to be given to each holder of outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock, and to each
holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) the record date for determining holders entitled to receive
such dividend, which shall be not earlier than the 40th Trading Day and not
later than the 50th Trading Day following the consummation of such Disposition,
(B) the anticipated payment date of such dividend (which shall not be more than
85 Trading Days following the consummation of such Disposition), (C) the kind
of shares of capital stock, cash and/or other securities or property to be
distributed in respect of shares of Series A TCI Ventures Group Common Stock
and Series B TCI Ventures Group Common Stock, (D) the TCI Ventures Group Net
Proceeds of such Disposition, (E) the TCI Ventures Group Outstanding Interest
Fraction as of a recent date preceding the date of such notice, (F) the number
of outstanding shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock and the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock into
or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof and (G) in the case of a notice to holders of Convertible Securities, a
statement to the effect that holders of such Convertible Securities shall be
entitled to receive such dividend only if they appropriately convert, exercise
or exchange such Convertible Securities prior to the record date referred to in
clause (A) of this sentence. Such notice shall be sent by first-class mail,
postage prepaid, at such holder's address as the same appears on the transfer
books of the Corporation.
(iii) If the Corporation determines to undertake a redemption of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock following a Disposition of all (not merely substantially
all) of the properties and assets of the TCI Ventures Group pursuant to clause
(ii) (A) of paragraph 6(b) of this Section E, the Corporation shall cause to be
given to each holder of outstanding shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for notice is otherwise made
pursuant to the terms of such Convertible Securities), a notice setting forth
(A) a statement that all shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock outstanding on the Redemption Date
shall be redeemed, (B) the Redemption Date (which shall not be more than 85
Trading Days following the consummation of such Disposition), (C) the kind of
shares of capital stock, cash and/or other securities or property to be paid as
a redemption price in respect of shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock outstanding on the
Redemption
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Date, (D) the TCI Ventures Group Net Proceeds of such Disposition, (E) the
Adjusted TCI Ventures Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice, (F) the place or places where certificates
for shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock, properly endorsed or assigned for transfer (unless
the Corporation waives such requirement), are to be surrendered for delivery of
certificates for shares of such capital stock, cash and/or other securities or
property, (G) the number of outstanding shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and the number of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock into or for which outstanding Convertible Securities are
then convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Exchange Offer Securities), and (H) in the case of a
notice to holders of Convertible Securities (other than Pre-Exchange Offer
Securities), a statement to the effect that holders of such Convertible
Securities shall be entitled to participate in such redemption only if such
holders appropriately convert, exercise or exchange such Convertible Securities
on or prior to the Redemption Date referred to in clause (B) of this sentence
and a statement as to what, if anything, such holders shall be entitled to
receive pursuant to the terms of such Convertible Securities or, if applicable,
paragraph 6(c) of this Section E if such holders convert, exercise or exchange
such Convertible Securities following such Redemption Date. Such notice shall
be sent by first-class mail, postage prepaid, not less than 35 Trading Days nor
more than 45 Trading Days prior to the Redemption Date, at such holder's
address as the same appears on the transfer books of the Corporation.
(iv) If the Corporation determines to undertake a redemption of
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock following a Disposition of substantially all (but not all)
of the properties and assets of the TCI Ventures Group pursuant to clause
(ii)(B) of paragraph 6(b) of this Section E, the Corporation shall, not later
than the 30th Trading Day following the consummation of such Disposition, cause
to be given to each holder of record of outstanding shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock, and
to each holder of Convertible Securities convertible into or exercisable or
exchangeable for shares of either such series (unless provision for notice is
otherwise made pursuant to the terms of such Convertible Securities), a notice
setting forth (A) a date not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition which
shall be the date on which shares of the Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock then outstanding shall be
selected for redemption, (B) the anticipated Redemption Date (which shall not
be more than 85 Trading Days following the consummation of such Disposition),
(C) the kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
selected for redemption, (D) the TCI Ventures Group Net Proceeds of such
Disposition, (E) the TCI Ventures Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice, (F) the number of outstanding
shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock and the number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock into or for which
outstanding Convertible Securities are then convertible, exercisable or
exchangeable and the conversion or exercise prices thereof, (G) in the case of
a notice to holders of Convertible Securities, a statement to the effect that
holders of such Convertible Securities shall be entitled to participate in such
selection for redemption only if such holders appropriately convert, exercise
or exchange such Convertible Securities on or prior to the date referred to in
clause (A) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities if such holders convert, exercise or exchange such Convertible
Securities following such date and (H) a statement that the Corporation will
not be required to register a transfer of any shares of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock for a period of
15 Trading Days next preceding the date referred to in clause (A) of this
sentence. Promptly following the date referred to in clause (A) of the
preceding sentence, but not earlier than the 40th Trading Day and not later
than the 50th Trading Day following the consummation of such Disposition, the
Corporation shall cause to be given to each holder of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock to be
so redeemed, a notice setting forth (A) the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock held
by such holder to be redeemed, (B) a statement that such shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock shall
be redeemed, (C) the Redemption Date (which shall not be more than 85 Trading
Days following the consummation of such Disposition), (D) the kind and per
share amount of shares of capital stock, cash and/or other securities or
property to be received by such holder with respect to each share of such
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock to be redeemed, including
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details as to the calculation thereof, and (E) the place or places where
certificates for shares of such Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, properly endorsed or assigned for
transfer (unless the Corporation waives such requirement), are to be
surrendered for delivery of certificates for shares of such capital stock, cash
and/or other securities or property. The notices referred to in this clause
(iv) shall be sent by first-class mail, postage prepaid, at such holder's
address as the same appears on the transfer books of the Corporation. The
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock to be redeemed shall be redeemed by the Corporation
pro rata among the holders of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock or by such other method as may be
determined by the Board of Directors to be equitable.
(v) In the event of any conversion pursuant to paragraph 2(e) of
this Section E or pursuant to this paragraph 6 (other than pursuant to
paragraph 6(c)), the Corporation shall cause to be given to each holder of
outstanding shares of Series A TCI Ventures Group Common Stock and Series B TCI
Ventures Group Common Stock and to each holder of Convertible Securities
convertible into or exercisable or exchangeable for shares of either such
series (unless provision for such notice is otherwise made pursuant to the
terms of such Convertible Securities), a notice setting forth (A) a statement
that all outstanding shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock shall be converted, (B) the Conversion
Date (which shall not be more than 85 Trading Days following the consummation
of such Disposition in the event of a conversion pursuant to paragraph 6(b) and
which shall not be more than 120 days after the Appraisal Date in the event of
a conversion pursuant to paragraph 2(e)), (C) the per share number of shares of
Series A TCI Group Common Stock or Series B TCI Group Common Stock, as
applicable, to be received with respect to each share of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock, including
details as to the calculation thereof, (D) the place or places where
certificates for shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock, properly endorsed or assigned for transfer
(unless the Corporation shall waive such requirement), are to be surrendered,
(E) the number of outstanding shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock and the number of shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock into or for which outstanding Convertible Securities are then
convertible, exercisable or exchangeable and the conversion, exercise or
exchange prices thereof and (F) in the case of a notice to holders of
Convertible Securities, a statement to the effect that holders of such
Convertible Securities shall be entitled to participate in such conversion only
if such holders appropriately convert, exercise or exchange such Convertible
Securities on or prior to the Conversion Date referred to in clause (B) of this
sentence and a statement as to what, if anything, such holders shall be
entitled to receive pursuant to the terms of such Convertible Securities or, if
applicable, paragraph 6(c) of this Section E if such holders convert, exercise
or exchange such Convertible Securities following such Conversion Date. Such
notice shall be sent by first-class mail, postage prepaid, not less than 35
Trading Days nor more than 45 Trading Days prior to the Conversion Date, at
such holder's address as the same appears on the transfer books of the
Corporation.
(vi) If the Corporation determines to redeem shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock
pursuant to subparagraph (a) of this paragraph 6, the Corporation shall
promptly cause to be given to each holder of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock and to each holder of
Convertible Securities convertible into or exercisable or exchangeable for
shares of either such series (unless provision for such notice is otherwise
made pursuant to the terms of such Convertible Securities), a notice setting
forth (A) a statement that all outstanding shares of Series A TCI Ventures
Group Common Stock and Series B TCI Ventures Group Common Stock shall be
redeemed in exchange for shares of common stock of the TCI Ventures Group
Subsidiaries, (B) the Redemption Date, (C) the Adjusted TCI Ventures Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (D) the place or places where certificates for shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement), are to be surrendered for delivery of certificates for
shares of common stock of the TCI Ventures Group Subsidiaries, (E) the number
of outstanding shares of Series A TCI Ventures Group Common Stock and Series B
TCI Ventures Group Common Stock and the number of shares of Series A TCI
Ventures Group Common Stock and Series B TCI Ventures Group Common Stock into
or for which outstanding Convertible Securities are then convertible,
exercisable or exchangeable and the conversion, exercise or exchange prices
thereof (and stating which, if any, of such Convertible Securities constitute
Pre-Exchange Offer Securities), and (F) in the case of a notice to holders of
Convertible Securities (other than Pre-Exchange Offer Securities), a statement
to the effect that
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holders of such Convertible Securities shall be entitled to participate in such
redemption only if such holders appropriately convert, exercise or exchange
such Convertible Securities on or prior to the Redemption Date referred to in
clause (B) of this sentence and a statement as to what, if anything, such
holders shall be entitled to receive pursuant to the terms of such Convertible
Securities or, if applicable, paragraph 6(c) of this Section E if such holders
convert, exercise or exchange such Convertible Securities following the
Redemption Date. Such notice shall be sent by first-class mail, postage
prepaid, not less than 35 Trading Days nor more than 45 Trading Days prior to
the Redemption Date, at such holder's address as the same appears on the
transfer books of the Corporation.
(vii) Neither the failure to mail any notice required by this
paragraph 6(d) to any particular holder of Series A TCI Ventures Group Common
Stock, Series B TCI Ventures Group Common Stock or of Convertible Securities
nor any defect therein shall affect the sufficiency thereof with respect to any
other holder of outstanding shares of Series A TCI Ventures Group Common Stock
or Series B TCI Ventures Group Common Stock or of Convertible Securities, or
the validity of any conversion or redemption.
(viii) The Corporation shall not be required to issue or deliver
fractional shares of any class of capital stock or any fractional securities to
any holder of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock upon any conversion, redemption, dividend or other
distribution pursuant to paragraph 2(e) of this Section E or pursuant to this
paragraph 6. In connection with the determination of the number of shares of
any class of capital stock that shall be issuable or the amount of securities
that shall be deliverable to any holder of record upon any such conversion,
redemption, dividend or other distribution (including any fractions of shares
or securities), the Corporation may aggregate the number of shares of Series A
TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock
held at the relevant time by such holder of record. If the number of shares of
any class of capital stock or the amount of securities remaining to be issued
or delivered to any holder of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock is a fraction, the Corporation shall,
if such fraction is not issued or delivered to such holder, pay a cash
adjustment in respect of such fraction in an amount equal to the fair market
value of such fraction on the fifth Trading Day prior to the date such payment
is to be made (without interest). For purposes of the preceding sentence,
"fair market value" of any fraction shall be (A) in the case of any fraction of
a share of capital stock of the Corporation, the product of such fraction and
the Market Value of one share of such capital stock and (B) in the case of any
other fractional security, such value as is determined by the Board of
Directors.
(ix) No adjustments in respect of dividends shall be made upon the
conversion or redemption of any shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock; provided, however, that if
the Conversion Date or the Redemption Date with respect to the Series A TCI
Ventures Group Common Stock or Series B TCI Ventures Group Common Stock shall
be subsequent to the record date for the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of Series A
TCI Ventures Group Common Stock or Series B TCI Ventures Group Common Stock at
the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on or with respect to such shares on the
date set for payment of such dividend or other distribution, notwithstanding
the conversion or redemption of such shares or the Corporation's default in
payment of the dividend or distribution due on such date.
(x) Before any holder of shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock shall be entitled to
receive certificates representing shares of any kind of capital stock or cash
and/or securities or other property to be received by such holder with respect
to shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock pursuant to paragraph 2(e) of this Section E or pursuant to
this paragraph 6, such holder shall surrender at such place as the Corporation
shall specify certificates for such shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock, properly endorsed or
assigned for transfer (unless the Corporation shall waive such requirement).
The Corporation shall as soon as practicable after such surrender of
certificates representing shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock deliver to the person for whose
account shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock were so surrendered, or to the nominee or nominees
of such person, certificates representing the number of whole shares of the
kind of capital stock or cash and/or securities or other property to which such
person shall be entitled as aforesaid, together with any payment for fractional
securities contemplated by paragraph 6(d)(viii). If less than all of the
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock represented by any one certificate are to be redeemed, the
Corporation shall issue and deliver a new certificate for
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the shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock not redeemed. The Corporation shall not be required to
register a transfer of (1) any shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock for a period of 15 Trading
Days next preceding any selection of shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock to be redeemed or (2)
any shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock selected or called for redemption. Shares selected for
redemption may not thereafter be converted pursuant to paragraph 2(c) of this
Section E.
(xi) From and after any applicable Conversion Date or Redemption
Date, all rights of a holder of shares of Series A TCI Ventures Group Common
Stock or Series B TCI Ventures Group Common Stock that were converted or
redeemed shall cease except for the right, upon surrender of the certificates
representing shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock, to receive certificates representing shares of the
kind and amount of capital stock or cash and/or securities or other property
for which such shares were converted or redeemed, together with any payment for
fractional securities contemplated by paragraph 6(d)(viii) of this Section E
and such holder shall have no other or further rights in respect of the shares
of Series A TCI Ventures Group Common Stock or Series B TCI Ventures Group
Common Stock so converted or redeemed, including, but not limited to, any
rights with respect to any cash, securities or other properties which are
reserved or otherwise designated by the Corporation as being held for the
satisfaction of the Corporation's obligations to pay or deliver any cash,
securities or other property upon the conversion, exercise or exchange of any
Convertible Securities outstanding as of the date of such conversion or
redemption. No holder of a certificate that, immediately prior to the
applicable Conversion Date or Redemption Date for the Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock, represented
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock shall be entitled to receive any dividend or other
distribution with respect to shares of any kind of capital stock into or in
exchange for which the Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock was converted or redeemed until surrender of such
holder's certificate for a certificate or certificates representing shares of
such kind of capital stock. Upon such surrender, there shall be paid to the
holder the amount of any dividends or other distributions (without interest)
which theretofore became payable with respect to a record date after the
Conversion Date or Redemption Date, as the case may be, but that were not paid
by reason of the foregoing, with respect to the number of whole shares of the
kind of capital stock represented by the certificate or certificates issued
upon such surrender. From and after a Conversion Date or Redemption Date, as
the case may be, for any shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock, the Corporation shall, however, be
entitled to treat the certificates for shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock that have not yet been
surrendered for conversion or redemption as evidencing the ownership of the
number of whole shares of the kind or kinds of capital stock for which the
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock represented by such certificates shall have been converted
or redeemed, notwithstanding the failure to surrender such certificates.
(xii) The Corporation shall pay any and all documentary, stamp or
similar issue or transfer taxes that may be payable in respect of the issue or
delivery of any shares of capital stock and/or other securities on conversion
or redemption of shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock pursuant to this Section E. The Corporation
shall not, however, be required to pay any tax that may be payable in respect
of any transfer involved in the issue and delivery of any shares of capital
stock in a name other than that in which the shares of Series A TCI Ventures
Group Common Stock or Series B TCI Ventures Group Common Stock so converted or
redeemed were registered and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount
of any such tax, or has established to the satisfaction of the Corporation that
such tax has been paid.
7. Liquidation.
In the event of a liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation and subject to
the prior payment in full of the preferential amounts to which any class or
series of Preferred Stock is entitled, (a) the holders of the shares of Series
A TCI Group Common Stock and the holders of the shares of Series B TCI Group
Common Stock shall share equally, on a share for share basis, in a percentage
of the funds of the Corporation remaining for distribution to its common
stockholders equal to 100% multiplied by the average daily ratio
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(expressed as a decimal) of W/Z for the 20-Trading Day period ending on the
Trading Day prior to the date of the public announcement of such liquidation,
dissolution or winding up, (b) the holders of the shares of Series A Liberty
Media Group Common Stock and the holders of the shares of Series B Liberty
Media Group Common Stock shall share equally, on a share for share basis, in a
percentage of the funds of the Corporation remaining for distribution to its
common stockholders equal to 100% multiplied by the average daily ratio
(expressed as a decimal) of X/Z for such 20-Trading Day period, and (c) the
holders of the shares of Series A TCI Ventures Group Common Stock and the
holders of the Series B TCI Ventures Group Common Stock shall share equally, on
a share for share basis, in a percentage of the funds of the Corporation
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of Y/Z for such 20-Trading
Day period, where W is the aggregate Market Capitalization of the Series A TCI
Group Common Stock and the Series B TCI Group Common Stock, X is the aggregate
Market Capitalization of the Series A Liberty Media Group Common Stock and the
Series B Liberty Media Group Common Stock, Y is the aggregate Market
Capitalization of the Series A TCI Ventures Group Common Stock and the Series B
TCI Ventures Group Common Stock, and Z is the aggregate Market Capitalization
of the Series A TCI Group Common Stock, the Series B TCI Group Common Stock,
the Series A Liberty Media Group Common Stock, the Series B Liberty Media Group
Common Stock, the Series A TCI Ventures Group Common Stock and the Series B TCI
Ventures Group Common Stock. Neither the consolidation or merger of the
Corporation with or into any other corporation or corporations nor the sale,
transfer or lease of all or substantially all of the assets of the Corporation
shall itself be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this paragraph 7.
8. Determinations by the Board of Directors.
Any determinations made by the Board of Directors under any provision
in this Section E shall be final and binding on all stockholders of the
Corporation, except as may otherwise be required by law. The Corporation shall
prepare a statement of any such determination by the Board of Directors
respecting the fair market value of any properties, assets or securities and
shall file such statement with the Secretary of the Corporation.
9. Certain Definitions.
Unless the context otherwise requires, the terms defined in this
paragraph 9 shall have, for all purposes of this Section E, the meanings herein
specified:
"Adjusted Liberty Media Group Outstanding Interest Fraction," as of
any date, shall mean a fraction the numerator of which is the aggregate number
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock outstanding on such date and the denominator of which
is the sum of (a) such aggregate number of shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock outstanding on
such date, (b) the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest as of such date, (c) the aggregate number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock issuable, determined as of such date, upon conversion, exercise or
exchange of Pre-Distribution Convertible Securities and (d) the number of
Committed Acquisition Shares issuable, determined as of such date.
"Adjusted TCI Ventures Group Outstanding Interest Fraction", as of
any date, shall mean a fraction the numerator of which is the aggregate number
of shares of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock outstanding on such date and the denominator of which is the
sum of (a) such aggregate number of shares of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock outstanding on such
date, (b) the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest as of such date, and (c) the aggregate number of shares of
Series A TCI Ventures Group Common Stock issuable, determined as of such date,
upon conversion, exercise or exchange of Pre-Exchange Offer Securities.
"Appraisal Date," with respect to any determination of the Liberty
Media Group Private Market Value or the TCI Ventures Group Private Market
Value, shall mean the last day of the calendar month preceding the month in
which the Selection Date occurs.
"Appraiser" means each of the First Appraiser, the Second Appraiser
and the Mutually Designated Appraiser.
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"Committed Acquisition Shares" shall mean (a) the shares of Series A
Liberty Media Group Common Stock that the Corporation had, prior to the record
date for the Liberty Media Group Distribution, agreed to issue, but as of such
record date had not issued, and (b) the shares of Series A Liberty Media Group
Common Stock that are issuable upon conversion, exercise or exchange of
Convertible Securities that the Corporation had, prior to the record date for
the Liberty Media Group Distribution, agreed to issue, but as of such record
date has not issued, in each case including obligations of the Corporation to
issue shares of the Corporation's Class A Common Stock, par value $1.00 per
share, which as a result of the Liberty Media Group Distribution, constitute
obligations to issue, among other securities, Series A Liberty Media Group
Common Stock or Convertible Securities which are convertible into or
exercisable or exchangeable for Series A Liberty Media Group Common Stock;
provided, however, that Committed Acquisition Shares shall not include any
shares of Series A Liberty Media Group Common Stock or Series B Liberty Media
Group Common Stock issuable upon conversion, exercise or exchange of
Pre-Distribution Convertible Securities. The type and amount of Committed
Acquisition Shares issuable shall be appropriately adjusted to reflect
subdivisions and combinations of the Series A Liberty Media Group Common Stock
and dividends or distributions of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock to holders of Series A
Liberty Media Group Common Stock and other reclassifications of the Series A
Liberty Media Group Common Stock, in each case occurring (or the record date
for which occurs) after the Liberty Media Group Distribution.
"Conversion Date" shall mean any date fixed by the Board of Directors
for a conversion of shares of (i) Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock, or (ii) Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, as the case may be,
as set forth in a notice to holders of the applicable series of Common Stock
pursuant to paragraph 5(d) or 6(d), as applicable, of this Section E.
"Convertible Securities" shall mean any securities of the Corporation
(other than any series of Common Stock) or any Subsidiary thereof that are
convertible into, exchangeable for or evidence the right to purchase any shares
of any series of Common Stock, whether upon conversion, exercise, exchange,
pursuant to antidilution provisions of such securities or otherwise.
"Corporation Earnings (Loss) Attributable to the Liberty Media Group"
for any period, shall mean the net earnings or loss of the Liberty Media Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the Liberty Media Group for such period as presented in
the combined financial statements of the Liberty Media Group for such period,
including income and expenses of the Corporation attributed to the operations
of the Liberty Media Group on a substantially consistent basis, including
without limitation, corporate administrative costs, net interest and income
taxes.
"Corporation Earnings (Loss) Attributable to the TCI Group" for any
period, shall mean the net earnings or loss of the TCI Group for such period
determined on a basis consistent with the determination of the net earnings or
loss of the TCI Group for such period as presented in the combined financial
statements of the TCI Group for such period, including income and expenses of
the Corporation attributed to the operations of the TCI Group on a
substantially consistent basis, including without limitation, corporate
administrative costs, net interest and income taxes.
"Corporation Earnings (Loss) Attributable to the TCI Ventures Group"
for any period, shall mean the net earnings or loss of the TCI Ventures Group
for such period determined on a basis consistent with the determination of the
net earnings or loss of the TCI Ventures Group for such period as presented in
the combined financial statements of the TCI Ventures Group for such period,
including income and expenses of the Corporation attributed to the operations
of the TCI Ventures Group on a substantially consistent basis, including
without limitation, corporate administrative costs, net interest and income
taxes.
"Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of assets
or stock or otherwise) of properties or assets.
"Exchange Offers" means those certain offers made by the Corporation to
exchange shares of Series A TCI Ventures Group Common Stock for shares of
Series A TCI Group Common Stock, and to exchange shares of Series
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B TCI Ventures Group Common Stock for shares of Series B TCI Group Common
Stock, on the terms and subject to the conditions set forth in the Offering
Circular, dated August 7, 1997, and the related Letter of Transmittal.
"First Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Corporation to make such determination.
"Higher Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the higher of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Independent Committee" means a committee of the Board of Directors of
the Corporation formed in order to select the Second Appraiser, all of whose
members are "independent directors" as determined under Nasdaq National Market
rules.
"Initial Ventures Options" means those certain options to purchase
shares of Series A TCI Ventures Group Common Stock that are issued effective
upon the consummation of the Exchange Offers, in connection with the adjustment
of the Adjustable Options. For purposes of this definition, the term
"Adjustable Options" means those options to purchase shares of Series A TCI
Group Common Stock that are outstanding immediately prior to the consummation
of the Exchange Offers under any Existing Stock Plan (as defined below), which
options the Board of Directors and, if applicable, the committee of the Board
of Directors charged with the administration of such Existing Stock Plan,
determined to adjust for the effects of the Exchange Offers by the issuance, in
substitution for and in cancellation of each such Adjustable Option effective
upon the consummation of the Exchange Offers, of an Initial Ventures Option to
purchase a number of shares of Series A TCI Ventures Group Common Stock
initially equal to 30% (rounded up to the next whole number) of the number of
shares of Series A TCI Group Common Stock that would have been issuable upon
exercise of such Adjustable Option immediately prior to the consummation of the
Exchange Offers, and an option to purchase a number shares of Series A TCI Group
Common Stock equal to 70% (rounded down to the next whole number) of the
number of shares of Series A TCI Group Common Stock that would have been
issuable upon exercise of such Adjustable Option immediately prior to the
consummation of the Exchange Offers, together with such other securities as
were then issuable upon exercise of such Adjustable Option (and in each case,
having such other terms consistent with the terms of the Adjustable Option for
which they are exchanged as the Board of Directors or the committee, as
applicable, determines). The term "Existing Stock Plans" means each of the
following: the Tele-Communications, Inc. 1994 Stock Incentive Plan, the
Tele-Communications, Inc. 1995 Employee Stock Incentive Plan and the
Tele-Communications, Inc. 1996 Incentive Plan.
"Liberty Media Group" shall mean, as of any date that any shares of
Series A Liberty Media Group Common Stock or Series B Liberty Media Group
Common Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its
subsidiaries in Liberty Media Corporation or any of its subsidiaries
(including any successor thereto by merger, consolidation or sale of
all or substantially all of its assets, whether or not in connection
with a Related Business Transaction) and their respective properties
and assets,
(b) all assets and liabilities of the Corporation or any
of its subsidiaries to the extent attributed to any of the properties
or assets referred to in clause (a) of this sentence, whether or not
such assets or liabilities are assets and liabilities of Liberty Media
Corporation or any of its subsidiaries (or a successor as described in
clause (a) of this sentence),
(c) all assets and properties contributed or otherwise
transferred to the Liberty Media Group from the TCI Group, and
(d) the interest of the Corporation or any of its
subsidiaries in the businesses, assets and liabilities acquired by the
Corporation or any of its subsidiaries for the Liberty Media Group, as
determined by the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock (other than a dividend or other distribution
payable in shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock, with respect to which adjustment shall be
made as provided in clause (a) of the definition of "Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest," or in other
securities of the Corporation attributed to the Liberty Media Group for which
provision shall be made as set forth in the penultimate sentence of this
definition), the Liberty Media Group shall no longer include an amount of
assets or properties equal to the aggregate amount of such kind of assets or
properties so paid in respect of shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock multiplied by a fraction the
numerator of which is equal to the Liberty Media Group Inter-Group Interest
Fraction in effect immediately prior to the record date for such dividend or
other distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and (ii) from and after any
transfer of assets or properties from the Liberty Media Group to the TCI Group,
the Liberty Media Group shall no longer include the assets or properties so
transferred. If the Corporation shall pay a dividend or make any other
distribution with respect to shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock payable in securities of the
Corporation attributed to the Liberty Media Group other than Series A Liberty
Media Group Common Stock and Series B Liberty Media Group Common Stock, the TCI
Group shall be deemed to hold an amount of such other securities equal to the
amount so distributed multiplied by the fraction specified in clause (i) of
this definition (determined as of a time immediately prior to the record date
for such dividend or other distribution), and to the extent interest or
dividends are paid or other distributions are made on such other securities so
distributed to the holders of Series A Liberty
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Media Group Common Stock and Series B Liberty Media Group Common Stock, the
Liberty Media Group shall no longer include a corresponding ratable amount of
the kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group. The
Corporation may also, to the extent any such other securities constitute
Convertible Securities which are at the time convertible, exercisable or
exchangeable, cause such Convertible Securities deemed to be held by the TCI
Group to be deemed to be converted, exercised or exchanged (and to the extent
the terms of such Convertible Securities require payment or delivery of
consideration in order to effect such conversion, exercise or exchange, the
Liberty Media Group shall in such case include an amount of the kind of
properties or assets required to be paid or delivered as such consideration for
the amount of the Convertible Securities deemed converted, exercised or
exchanged as if such Convertible Securities were outstanding), in which case
such Convertible Securities shall no longer be deemed to be held by the TCI
Group or attributed to the Liberty Media Group.
"Liberty Media Group Available Dividend Amount," as of any date, shall
mean the product of the Liberty Media Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the
Liberty Media Group less the total liabilities (not including preferred stock)
of the Liberty Media Group as of such date over (ii) the aggregate par value
of, or any greater amount determined to be capital in respect of, all
outstanding shares of Series A Liberty Media Group Common Stock, Series B
Liberty Media Group Common Stock and each class or series of Preferred Stock
attributed to the Liberty Media Group or (b) in case there is no such excess,
an amount equal to the Corporation Earnings (Loss) Attributable to the Liberty
Media Group (if positive) for the fiscal year in which such date occurs and/or
the preceding fiscal year.
"Liberty Media Group Distribution" shall mean the share distribution
of shares of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock made to the holders of record of Series A TCI Group
Common Stock and Series B TCI Group Common Stock as of the close of business on
August 4, 1995.
"Liberty Media Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date
and the denominator of which is the sum of (a) such Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date
and (b) the aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group Common Stock outstanding as of such
date.
"Liberty Media Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the Liberty
Media Group, an amount, if any, equal to the gross proceeds of such Disposition
after any payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of
paragraph 5(b) of this Section E (or which would have been payable but for the
utilization of tax benefits attributable to the TCI Group or the TCI Ventures
Group), (b) any transaction costs, including, without limitation, any legal,
investment banking and accounting fees and expenses and (c) any liabilities and
other obligations (contingent or otherwise) of, or attributed to, the Liberty
Media Group, including, without limitation, any indemnity or guarantee
obligations incurred in connection with the Disposition or any liabilities for
future purchase price adjustments and any preferential amounts plus any
accumulated and unpaid dividends and other obligations (without duplication of
amounts allocated for the satisfaction of the Corporation's obligations with
respect to Pre-Distribution Convertible Securities and Committed Acquisition
Shares issuable which are included in the determination of the Adjusted Liberty
Media Group Outstanding Interest Fraction) in respect of Preferred Stock
attributed to the Liberty Media Group. For purposes of this definition, any
properties and assets of the Liberty Media Group remaining after such
Disposition shall constitute "reasonable provision" for such amount of taxes,
costs and liabilities (contingent or otherwise) as can be supported by such
properties and assets. To the extent the proceeds of any Disposition include
any securities or other property other than cash, the Board of Directors shall
determine the value of such securities or property, including for the purpose
of determining the equivalent value thereof if the Board of Directors
determines to pay a dividend or redemption price in cash or securities or other
property as provided in clause (z) of paragraph 5(b) of this Section E.
"Liberty Media Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of shares
of Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock outstanding on such date and the denominator of which is the sum
of (a) such aggregate number of shares of Series A Liberty Media Group Common
Stock and Series B Liberty Media Group
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Common Stock outstanding on such date and (b) the Number of Shares Issuable
with Respect to the Liberty Media Group Inter-Group Interest as of such date.
"Liberty Media Group Private Market Value" shall mean an amount equal
to the private market value of the Liberty Media Group as of the Appraisal
Date. Each of the First Appraiser, the Second Appraiser and the Mutually
Designated Appraiser, if any, shall be instructed to determine the private
market value of the Liberty Media Group as of the Appraisal Date based upon the
amount a willing purchaser would pay to a willing seller, in an arm's length
transaction, if it were acquiring the Liberty Media Group, as if the Liberty
Media Group were a publicly traded non-controlled corporation and the purchaser
was acquiring all of the capital stock of such corporation, and without
consideration of any potential regulatory constraints limiting the potential
purchasers of the Liberty Media Group other than that which would have existed
if the Liberty Media Group were a publicly traded non-controlled entity.
"Lower Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the lower of the respective final views of the First
Appraiser and the Second Appraiser as to such private market value.
"Market Capitalization" of any class or series of capital stock of the
Corporation on any Trading Day shall mean the product of (i) the Market Value
of one share of such class or series on such Trading Day and (ii) the number of
shares of such class or series outstanding on such Trading Day.
"Market Value" of any class or series of capital stock of the
Corporation on any day shall mean the average of the high and low reported
sales prices regular way of a share of such class or series on such day (if
such day is a Trading Day, and if such day is not a Trading Day, on the Trading
Day immediately preceding such day) or in case no such reported sale takes
place on such Trading Day the average of the reported closing bid and asked
prices regular way of a share of such class or series on such Trading Day, in
either case on the Nasdaq National Market, or if the shares of such class or
series are not quoted on such Nasdaq National Market on such Trading Day, the
average of the closing bid and asked prices of a share of such class or series
in the over-the-counter market on such Trading Day as furnished by any New York
Stock Exchange member firm selected from time to time by the Corporation, or if
such closing bid and asked prices are not made available by any such New York
Stock Exchange member firm on such Trading Day, the market value of a share of
such class or series as determined by the Board of Directors; provided that for
purposes of determining the ratios set forth in paragraphs 2(d), 2(e), 5(b),
6(b) and 7 of this Section E, (a) the "Market Value" of any share of any series
of Common Stock on any day prior to the "ex" date or any similar date for any
dividend or distribution paid or to be paid with respect to such series of
Common Stock shall be reduced by the fair market value of the per share amount
of such dividend or distribution as determined by the Board of Directors and
(b) the "Market Value" of any share of any series of Common Stock on any day
prior to (i) the effective date of any subdivision (by stock split or
otherwise) or combination (by reverse stock split or otherwise) of outstanding
shares of such series of Common Stock or (ii) the "ex" date or any similar date
for any dividend or distribution with respect to any such series of Common
Stock in shares of such series of Common Stock shall be appropriately adjusted
to reflect such subdivision, combination, dividend or distribution.
"Mutually Appraised Amount," with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, shall mean the determination by the Mutually Designated Appraiser
of such private market value.
"Mutually Designated Appraiser" shall mean, if required with respect
to any determination of the Liberty Media Group Private Market Value or the TCI
Ventures Group Private Market Value, the investment banking firm of recognized
national standing jointly designated by the First Appraiser and the Second
Appraiser to make such determination.
"Number of Shares Issuable with Respect to the Liberty Media Group
Inter-Group Interest" after the Liberty Media Group Distribution shall be zero
and shall from time to time thereafter, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A Liberty Media Group Common Stock and
dividends or distributions of shares of Series A Liberty Media Group
Common Stock or Series B
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Liberty Media Group Common Stock to holders of Series A Liberty Media
Group Common Stock and other reclassifications of Series A Liberty
Media Group Common Stock,
(b) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or sold by the Corporation after the Liberty Media Group
Distribution other than Committed Acquisition Shares, the proceeds of
which are attributed to the TCI Group, (ii) the aggregate number of
shares of Series A Liberty Media Group Common Stock issued or
delivered upon conversion, exercise or exchange of Convertible
Securities (other than Pre-Distribution Convertible Securities and
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares), the proceeds of which
are attributed to the TCI Group, (iii) the aggregate number of shares
of Series A Liberty Media Group Common Stock issued or delivered by
the Corporation as a dividend or distribution to holders of Series A
TCI Group Common Stock and Series B TCI Group Common Stock, (iv) the
aggregate number of shares of Series A Liberty Media Group Common
Stock issued or delivered upon the conversion, exercise or exchange of
any Convertible Securities (other than Pre-Distribution Convertible
Securities and Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares) issued
or delivered by the Corporation after the Liberty Media Group
Distribution as a dividend or distribution or by reclassification or
exchange to holders of Series A TCI Group Common Stock and Series B
TCI Group Common Stock and (v) the aggregate number of shares of
Series A Liberty Media Group Common Stock (rounded, if necessary, to
the nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the Liberty Media Group that are transferred from the
Liberty Media Group to the TCI Group in consideration of a reduction
in the Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest, divided by the Market Value of one share
of Series A Liberty Media Group Common Stock as of the date of such
transfer, and
(c) increased by (i) the aggregate number of any shares
of Series A Liberty Media Group Common Stock and Series B Liberty
Media Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (ii) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties theretofore attributed to the TCI
Group that are contributed to the Liberty Media Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest, divided by the Market Value
of one share of Series A Liberty Media Group Common Stock as of the
date of such contribution and (iii) the aggregate number of shares of
Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock into or for which Convertible Securities are deemed
to be converted, exercised or exchanged pursuant to the last sentence
of the definition of "TCI Group" in this paragraph 9. The Corporation
shall not issue or sell shares of Series B Liberty Media Group Common
Stock in respect of a reduction in the Number of Shares Issuable with
Respect to the Liberty Media Group Inter-Group Interest.
Whenever a change in the Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.
"Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest" shall initially be 204,927,700 and, immediately following
the consummation of the Exchange Offers and the attribution of the TCI Ventures
Group Preferred Interest to the TCI Group, shall be zero and thereafter shall
from time to time, as applicable, be
(a) adjusted as appropriate to reflect subdivisions (by
stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the Series A TCI Ventures Group Common Stock and Series
B TCI Ventures Group Common Stock and dividends or distributions of
shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock and other
reclassifications of the Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock,
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(b) decreased (but not to less than zero) by (i) the
aggregate number of shares of Series A TCI Ventures Group Common Stock
or Series B TCI Ventures Group Common Stock issued or sold by the
Corporation after the consummation of the Exchange Offers the proceeds
of which are attributed to the TCI Group, (ii) the aggregate number of
shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock issued or delivered upon conversion,
exercise or exchange of Convertible Securities (other than Pre-
Exchange Offer Securities), the proceeds of which are attributed to
the TCI Group, (iii) the aggregate number of shares of Series A TCI
Ventures Group Common Stock or Series B TCI Ventures Group Common
Stock issued or delivered by the Corporation as a dividend or
distribution to holders of Series A TCI Group Common Stock and Series
B TCI Group Common Stock, (iv) the aggregate number of shares of
Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock issued or delivered upon the conversion, exercise
or exchange of any Convertible Securities (other than Pre-Exchange
Offer Securities) issued or delivered by the Corporation after the
consummation of the Exchange Offers as a dividend or distribution or
by reclassification or exchange to holders of Series A TCI Group
Common Stock and Series B TCI Group Common Stock and (v) the aggregate
number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock (rounded, if necessary, to
the nearest whole number), equal to the aggregate fair value (as
determined by the Board of Directors) of assets or properties
attributed to the TCI Ventures Group that are transferred from the TCI
Ventures Group to the TCI Group in consideration of a reduction in the
Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest, divided by the Market Value of one share of
Series A TCI Ventures Group Common Stock as of the date of such
transfer, and
(c) increased by (i) the aggregate number of any shares
of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock which are retired or otherwise cease to be
outstanding following their purchase with funds attributed to the TCI
Group, (ii) a number (rounded, if necessary, to the nearest whole
number), equal to the fair value (as determined by the Board of
Directors) of assets or properties theretofore attributed to the TCI
Group that are contributed to the TCI Ventures Group in consideration
of an increase in the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest, divided by the Market Value
of one share of Series A TCI Ventures Group Common Stock as of the
date of such contribution and (iii) the aggregate number of shares of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock into or for which Convertible Securities are deemed
to be converted, exercised or exchanged pursuant to the last sentence
of the definition of "TCI Group" in this paragraph 9.
Whenever a change in the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest occurs, the Corporation shall prepare
and file a statement of such change with the Secretary of the Corporation.
"Pre-Distribution Convertible Securities" shall mean Convertible
Securities that were outstanding on the record date for the Liberty Media Group
Distribution and were, prior to such date, convertible into or exercisable or
exchangeable for shares of the Class A Common Stock, par value $1.00 per share,
of the Corporation.
"Pre-Exchange Offer Securities" shall mean the TCI-UA Notes and the
Initial Ventures Options.
"Qualifying Subsidiary" shall mean a Subsidiary of the Corporation in
which (i) the Corporation's ownership and voting interest is sufficient to
satisfy the requirements of the Internal Revenue Service for (x), in the case
of a Subsidiary that holds assets attributed to the Liberty Media Group, a
distribution of the Corporation's interest in such Subsidiary to the holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock that is tax free to such holders or (y), in the case of a
Subsidiary that holds assets attributed to the TCI Ventures Group, a
distribution of the Corporation's interest in such Subsidiary to the holders of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group Common
Stock that is tax free to such holders or (ii) the Corporation owns, directly
or indirectly, all of the issued and outstanding capital stock.
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"Redemption Date" shall mean any date fixed for a redemption or
purchase of shares of (i) Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock or (ii) Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock, as the case may be, as set
forth in a notice to holders of such series pursuant to this Certificate.
"Related Business Transaction" shall mean any Disposition of all or
substantially all of the properties and assets of the Liberty Media Group or
the TCI Ventures Group, as the case may be, in which the Corporation receives
as proceeds of such Disposition primarily equity securities (including, without
limitation, capital stock, convertible securities, partnership or limited
partnership interests and other types of equity securities, without regard to
the voting power or contractual or other management or governance rights
related to such equity securities) of the purchaser or acquiror of such assets
and properties of the Liberty Media Group or the TCI Ventures Group, as the
case may be, any entity which succeeds (by merger, formation of a joint venture
enterprise or otherwise) to such assets and properties of the Liberty Media
Group or the TCI Ventures Group, as the case may be, or a third party issuer,
which purchaser, acquiror or other issuer is engaged or proposes to engage
primarily in one or more businesses similar or complementary to the businesses
conducted by the Liberty Media Group or the TCI Ventures Group, as the case may
be, prior to such Disposition, as determined in good faith by the Board of
Directors.
"Second Appraiser" means, with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures Group Private
Market Value, an investment banking firm of recognized national standing
selected by the Independent Committee to make such determination.
"Selection Date," with respect to any determination of the Liberty
Media Group Private Market Value or the TCI Ventures Group Private Market
Value, shall mean the date upon which the Second Appraiser for such
determination is selected by the Independent Committee.
"Subsidiary" shall mean, with respect to any person or entity, any
corporation or partnership 50% or more of whose outstanding voting securities
or partnership interests, as the case may be, are directly or indirectly owned
by such person or entity.
"TCI Group" shall mean, as of any date:
(a) the interest of the Corporation or any of its
subsidiaries in all of the businesses in which the Corporation or any
of its subsidiaries (or any of their predecessors or successors) is or
has been engaged, directly or indirectly, and the respective assets
and liabilities of the Corporation or any of its subsidiaries, other
than any businesses, assets or liabilities of the Liberty Media Group
or the TCI Ventures Group;
(b) a proportionate interest in the businesses, assets
and liabilities of the Liberty Media Group equal to the Liberty Media
Group Inter-Group Interest Fraction as of such date;
(c) a proportionate interest in the businesses, assets
and liabilities of the TCI Ventures Group equal to the TCI Ventures
Group Inter-Group Interest Fraction as of such date;
(d) from and after any dividend or other distribution
with respect to shares of Series A Liberty Media Group Common Stock or
Series B Liberty Media Group Common Stock (other than a dividend or
other distribution payable in shares of Series A Liberty Media Group
Common Stock or Series B Liberty Media Group Common Stock, with
respect to which adjustment shall be made as provided in clause (a) of
the definition of "Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest," or in other securities of
the Corporation attributed to the Liberty Media Group, for which
provision shall be made as set forth in the penultimate sentence of
this definition), an amount of assets or properties theretofore
included in the Liberty Media Group equal to the aggregate amount of
such kind of assets or properties so paid in respect of such dividend
or other distribution with respect to shares of Series A Liberty Media
Group Common Stock or Series B Liberty Media Group Common Stock
multiplied by a fraction the numerator of which is equal to the
Liberty Media Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other
distribution and the
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denominator of which is equal to the Liberty Media Group Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution; and
(e) from and after any dividend or other distribution
with respect to shares of Series A TCI Ventures Group Common Stock or
Series B TCI Ventures Group Common Stock (other than a dividend or
other distribution payable in shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock, with respect
to which adjustment shall be made as provided in clause (a) of the
definition of "Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest," or in other securities of the
Corporation attributed to the TCI Ventures Group, for which provision
shall be made as set forth in the penultimate sentence of this
definition), an amount of assets or properties theretofore included in
the TCI Ventures Group equal to the aggregate amount of such kind of
assets or properties so paid in respect of such dividend or other
distribution with respect to shares of Series A TCI Ventures Group
Common Stock or Series B TCI Ventures Group Common Stock multiplied by
a fraction the numerator of which is equal to the TCI Ventures Group
Inter-Group Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution and the
denominator of which is equal to the TCI Ventures Group Outstanding
Interest Fraction in effect immediately prior to the record date for
such dividend or other distribution;
(f) any assets or properties transferred from the Liberty
Media Group or the TCI Ventures Group to the TCI Group; and
(g) the TCI Ventures Group Preferred Interest;
provided that, from and after any contribution or transfer of any assets or
properties from the TCI Group to the Liberty Media Group or the TCI Ventures
Group, the TCI Group shall no longer include such assets or properties so
contributed or transferred (other than pursuant to its interest in the
businesses, assets and liabilities of the Liberty Media Group or the TCI
Ventures Group pursuant to clauses (b) or (c), respectively, above). If (1)
the Corporation shall pay a dividend or make any other distribution with
respect to shares of Series A Liberty Media Group Common Stock or Series B
Liberty Media Group Common Stock payable in other securities of the Corporation
attributed to the Liberty Media Group, the TCI Group shall be deemed to hold an
amount of such other securities equal to the amount so distributed multiplied
by the fraction specified in clause (d) of this definition (determined as of a
time immediately prior to the record date for such dividend or other
distribution), and to the extent interest or dividends are paid or other
distributions are made on such other securities so distributed to holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock, the TCI Group shall include a corresponding ratable amount of the
kind of assets paid as such interest or dividends or other distributions in
respect of such securities so deemed to be held by the TCI Group, or (2) the
Corporation shall pay a dividend or make any other distribution with respect to
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock payable in other securities of the Corporation attributed to
the TCI Ventures Group, the TCI Group shall be deemed to hold an amount of such
other securities equal to the amount so distributed multiplied by the fraction
specified in clause (e) of this definition (determined as of a time immediately
prior to the record date for such dividend or other distribution), and to the
extent interest or dividends are paid or other distributions are made on such
other securities so distributed to holders of Series A TCI Ventures Group
Common Stock and Series B TCI Ventures Group Common Stock, the TCI Group shall
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities so
deemed to be held by the TCI Group. The Corporation may also, to the extent
any such other securities constitute Convertible Securities which are at the
time convertible, exercisable or exchangeable, cause such Convertible
Securities deemed to be held by the TCI Group to be deemed to be converted,
exercised or exchanged (and to the extent the terms of such Convertible
Securities require payment or delivery of consideration in order to effect such
conversion, exercise or exchange, the TCI Group shall in such case no longer
include an amount of the kind of properties or assets required to be paid or
delivered as such consideration for the amount of the Convertible Securities
deemed converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities shall no longer be
deemed to be held by the TCI Group or attributed to the Liberty Media Group or
the TCI Ventures Group.
"TCI Group Available Dividend Amount," as of any date, shall mean
either: (a) the excess of (i) an amount equal to the total assets of the TCI
Group less the total liabilities (not including preferred stock) of the TCI
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Group as of such date over (ii) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding
shares of Series A TCI Group Common Stock, Series B TCI Group Common
Stock and each class or series of Preferred Stock attributed to the
TCI Group or (b) in case there is no such excess, an amount equal to
the Corporation Earnings (Loss) Attributable to the TCI Group (if
positive) for the fiscal year in which such date occurs and/or the
preceding fiscal year.
"TCI-UA Notes" shall mean those certain convertible notes due December
12, 2021 issued by TCI UA, Inc., a Subsidiary of the Corporation, which notes
were, prior to the consummation of the Exchange Offers, exchangeable for shares
of Series A TCI Group Common Stock and Series A Liberty Media Group Common
Stock.
"TCI Ventures Group" shall mean, as of any date that any shares of
Series A TCI Ventures Group Common Stock or Series B TCI Ventures Group Common
Stock have been issued and continue to be outstanding:
(a) the interest of the Corporation or of any of its
subsidiaries in any of the following Persons or any of their respective
subsidiaries (including any successor thereto by merger, consolidation
or sale of all or substantially all of its assets, whether or not in
connection with a Related Business Transaction) and their respective
properties and assets: TCI Ventures Group, LLC, Tele-Communications
International, Inc., TCI Telephony Holdings, Inc., New Jersey Fiber
Technologies, L.P., Louisville Lightwave, Western Tele-Communications,
Inc., TCI GCI, Inc., TCI UVSG, Inc., Acclaim Entertainment, Inc., TCI
TSX, Inc., Intessera, Inc., TCI-TVGOS, Inc., TCI MCNS Holdings, Inc.,
TCI ETC Holdings, Inc., TCI Internet Holdings, Inc., TCI Online Sports
Holdings, Inc., TCI Online Village Holdings, Inc., TCI INZ Sports
Holdings, Inc., TCI Netscape Holdings, Inc., TCI Java, Inc., National
Digital Television Center, Inc., TCI SUMMITRAK of Texas, Inc., TCI
SUMMITrak LLC, DigiVentures, LLC, Kitty Hawk Capital Limited
Partners, II, New Enterprise Associates IV, Limited Partnership,
Venture First II, L.P., TVSM, Inc.,
(b) all assets and liabilities of the Corporation or any
of its subsidiaries to the extent attributed to any of the properties
or assets referred to in clause (a) of this sentence, whether or not
such assets or liabilities are assets and liabilities of any of the
Persons named in clause (a) or any of their respective subsidiaries
(or any successor as described in clause (a) of this sentence),
(c) the proceeds of exercise of the Initial Ventures
Options and the expense of exercise of any related stock appreciation
rights,
(d) all assets and properties contributed or otherwise
transferred to the TCI Ventures Group from the TCI Group, and
(e) the interest of the Corporation or any of its
subsidiaries in the businesses, assets and liabilities acquired by the
Corporation or any of its subsidiaries for the TCI Ventures Group, as
determined by the Board of Directors;
provided that (i) from and after any dividend or other distribution with
respect to any shares of Series A TCI Ventures Group Common Stock or Series B
TCI Ventures Group Common Stock (other than a dividend or other distribution
payable in shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock, with respect to which adjustment shall be made as
provided in clause (a) of the definition of "Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest," or in other securities
of the Corporation attributed to the TCI Ventures Group for which provision
shall be made as set forth in the penultimate sentence of this definition), the
TCI Ventures Group shall no longer include an amount of assets or properties
equal to the aggregate amount of such kind of assets or properties so paid in
respect of shares of Series A TCI Ventures Group Common Stock or Series B TCI
Ventures Group Common Stock multiplied by a fraction the numerator of which is
equal to the TCI Ventures Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other distribution
and the denominator of which is equal to the TCI Ventures Group Outstanding
Interest Fraction in effect immediately prior to the record date for such
dividend or other distribution and (ii) from and after any transfer of assets
or properties from the TCI Ventures Group to the TCI Group, the TCI Ventures
Group shall no longer include the assets or properties so transferred. If the
Corporation shall pay a dividend or make any other distribution with respect to
shares of Series A TCI Ventures Group Common Stock or Series B TCI Ventures
Group Common Stock payable in securities of the Corporation attributed to the
TCI Ventures Group other than Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock, the TCI Group shall be deemed to hold
an amount of such other securities equal to the amount so distributed
multiplied by the fraction specified in clause (i) of this definition
(determined as of a time immediately prior to the record date for such dividend
or other distribution), and to the extent interest or dividends are paid or
other distributions are made on such other securities so distributed to the
holders of Series A TCI Ventures Group Common Stock and Series B TCI Ventures
Group Common Stock, the TCI Ventures Group shall no longer include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in
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respect of such securities so deemed to be held by the TCI Group. The
Corporation may also, to the extent any such other securities constitute
Convertible Securities which are at the time convertible, exercisable or
exchangeable, cause such Convertible Securities deemed to be held by the TCI
Group to be deemed to be converted, exercised or exchanged (and to the extent
the terms of such Convertible Securities require payment or delivery of
consideration in order to effect such conversion, exercise or exchange, the TCI
Ventures Group shall in such case include an amount of the kind of properties
or assets required to be paid or delivered as such consideration for the amount
of the Convertible Securities deemed converted, exercised or exchanged as if
such Convertible Securities were outstanding), in which case such Convertible
Securities shall no longer be deemed to be held by the TCI Group or attributed
to the TCI Ventures Group.
"TCI Ventures Group Available Dividend Amount," as of any date, shall
mean the product of the TCI Ventures Group Outstanding Interest Fraction and
either: (a) the excess of (i) an amount equal to the total assets of the TCI
Ventures Group less the total liabilities (not including preferred stock) of
the TCI Ventures Group as of such date over (ii) the aggregate par value of, or
any greater amount determined to be capital in respect of, all outstanding
shares of Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group
Common Stock, each class or series of Preferred Stock attributed to the TCI
Ventures Group and the TCI Ventures Group Preferred Interest or (b) in case
there is no such excess, an amount equal to the Corporation Earnings (Loss)
Attributable to the TCI Ventures Group (if positive) for the fiscal year in
which such date occurs and/or the preceding fiscal year.
"TCI Ventures Group Inter-Group Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the Number of Shares Issuable
with Respect to the TCI Ventures Group Inter-Group Interest as of such date and
the denominator of which is the sum of (a) such Number of Shares Issuable with
Respect to the TCI Ventures Group Inter-Group Interest as of such date and (b)
the aggregate number of shares of Series A TCI Ventures Group Common Stock and
Series B TCI Ventures Group Common Stock outstanding as of such date.
"TCI Ventures Group Net Proceeds" shall mean, as of any date, with
respect to any Disposition of any of the properties and assets of the TCI
Ventures Group, an amount, if any, equal to the gross proceeds of such
Disposition after any payment of, or reasonable provision for, (a) any taxes
payable by the Corporation in respect of such Disposition or in respect of any
resulting dividend or redemption pursuant to clause (i) or (ii), respectively,
of paragraph 6(b) of this Section E (or which would have been payable but for
the utilization of tax benefits attributable to the TCI Group or the Liberty
Media Group), (b) any transaction costs, including, without limitation, any
legal, investment banking and accounting fees and expenses and (c) any
liabilities and other obligations (contingent or otherwise) of, or attributed
to, the TCI Ventures Group, including, without limitation, any indemnity or
guarantee obligations incurred in connection with the Disposition or any
liabilities for future purchase price adjustments and any preferential amounts
plus any accumulated and unpaid dividends and other obligations (without
duplication of amounts allocated for the satisfaction of the Corporation's
obligations with respect to Pre-Exchange Offer Securities which are included in
the determination of the Adjusted TCI Ventures Group Outstanding Interest
Fraction) in respect of Preferred Stock attributed to the TCI Ventures Group
and in respect of the TCI Ventures Group Preferred Interest. For purposes of
this definition, any properties and assets of the TCI Ventures Group remaining
after such Disposition shall constitute "reasonable provision" for such amount
of taxes, costs and liabilities (contingent or otherwise) as can be supported
by such properties and assets. To the extent the proceeds of any Disposition
include any securities or other property other than cash, the Board of
Directors shall determine the value of such securities or property, including
for the purpose of determining the equivalent value thereof if the Board of
Directors determines to pay a dividend or redemption price in cash or
securities or other property as provided in clause (z) of paragraph 6(b) of
this Section E.
"TCI Ventures Group Outstanding Interest Fraction," as of any date,
shall mean a fraction the numerator of which is the aggregate number of shares
of Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock outstanding on such date and the denominator of which is the sum
of (a) such aggregate number of shares of Series A TCI Ventures Group Common
Stock and Series B TCI Ventures Group Common Stock outstanding on such date and
(b) the Number of Shares Issuable with Respect to the TCI Ventures Group
Inter-Group Interest as of such date.
"TCI Ventures Group Preferred Interest" means the preferred equity
interest in the TCI Ventures Group that shall be attributed to the TCI Group
following the consummation of the Exchange Offers if the number of shares of
Series A TCI Group Common Stock validly tendered pursuant to the Exchange
Offers and not withdrawn is less
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<PAGE> 306
than 188,661,300 (the amount of such shortfall being the "Series A Number"), or
if the number of shares of Series B TCI Group Common Stock validly tendered
pursuant to the Exchange Offers and not withdrawn is less than 16,266,400 (the
amount of such shortfall being the "Series B Number"). The stated liquidation
value of the TCI Ventures Group Preferred Interest, if any, shall equal the
product of (x) the sum of the Series A Number and the Series B Number,
multiplied by (y) the Market Value of the Series A TCI Group Common Stock on
the last Trading Day preceding the consummation of the Exchange Offers. The
TCI Group will be entitled to receive cumulative dividends on the TCI Ventures
Group Preferred Interest, which shall accrue at the rate of 5% per annum of the
Liquidation Preference thereof, from the date the Exchange Offers are
consummated to and including the date that the TCI Ventures Group makes the
Liquidation Preference available to the TCI Group. Accrued dividends on the TCI
Venture Group Preferred Interest shall accumulate and compound annually (but
not be payable currently) until the fifth anniversary of the closing of the
Exchange Offers. On and after such fifth anniversary, accrued dividends shall
be payable annually on each anniversary of the closing of the Exchange Offers
and will accumulate and compound to the extent not paid on any such
anniversary. When dividends become payable currently they could be paid (i)
through the transfer of cash or other assets from the TCI Ventures Group to the
TCI Group, (ii) through the reduction of amounts owed by the TCI Group to the
TCI Ventures Group, (iii) through the deemed transfer of taxable losses of the
TCI Ventures Group to the TCI Group pursuant to the tax sharing agreement among
the TCI Ventures Group, the TCI Group and the Liberty Media Group, effective
for periods after October 1, 1997 (in an amount equal to the highest corporate
tax rate in effect at the time of the dividend multiplied by the amount of
taxable losses deemed transferred), but only if such taxable losses have not
been utilized in any calculation under such tax sharing agreement or (iv)
through the cancellation of amounts owed by the TCI Group under such tax
sharing agreement with respect to utilized tax benefits of the TCI Ventures
Group. The Liquidation Preference of the TCI Ventures Group Preferred Interest
as of any relevant date shall be an amount equal to the sum of (a) the stated
liquidation value of the TCI Ventures Group Preferred Interest plus (b) an
amount equal to all dividends accrued thereon as of any annual dividend payment
date that have not been paid on such date (which dividends shall remain a part
of the Liquidation Preference until such accrued dividends and all dividends
accrued thereon have been paid in full), plus (c) for purposes of determining
the amounts payable with respect to the TCI Ventures Group Preferred Interest
upon redemption thereof or the liquidation, dissolution and winding up of the
TCI Ventures Group, an amount equal to all unpaid dividends accrued on the sum
of the amounts specified in clauses (a) and (b) during the period from the
immediately preceding dividend payment date to such date. The TCI Ventures
Group Preferred Interest shall be redeemed in full on the fifteenth (15th)
anniversary of the consummation of the Exchange Offers, and may be redeemed, in
whole or in part, at the discretion of the Board of Directors at any time prior
thereto, for a redemption price, payable in cash, equal to the Liquidation
Preference thereof as of the redemption date.
"TCI Ventures Group Private Market Value" shall mean an amount equal
to the private market value of the TCI Ventures Group as of the Appraisal Date.
Each of the First Appraiser, the Second Appraiser and the Mutually Designated
Appraiser, if any, shall be instructed to determine the private market value of
the TCI Ventures Group as of the Appraisal Date based upon the amount a willing
purchaser would pay to a willing seller, in an arm's length transaction, if it
were acquiring the TCI Ventures Group, as if the TCI Ventures Group were a
publicly traded non-controlled corporation and the purchaser was acquiring all
of the capital stock of such corporation, and without consideration of any
potential regulatory constraints limiting the potential purchasers of the TCI
Ventures Group other than that which would have existed if the TCI Ventures
Group were a publicly traded non-controlled entity.
"Trading Day" shall mean each weekday other than any day on which any
relevant class or series of capital stock of the Corporation is not traded on
the Nasdaq National Market System or in the over-the-counter market.
(II) SECTION C OF ARTICLE V OF THE RESTATED CERTIFICATE OF INCORPORATION OF
THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS FOLLOWS:
"SECTION C
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any class or series of
Preferred Stock, directors may be removed from office only for cause (as
hereinafter defined) upon the affirmative vote of the holders of 66 2/3% of the
total voting power of the then outstanding shares of Series A TCI Group Common
Stock, Series B TCI Group Common Stock, Series A Liberty Media Group Common
Stock, Series B Liberty Media Group Common Stock, Series A TCI Ventures Group
Common Stock, Series B TCI Ventures Group Common Stock and any class or series
of Preferred Stock entitled to vote at an election of directors, voting
together as a single class. Except as may be provided by law, "cause" for
removal, for purposes of this Section C, shall exist only if: (i) the director
whose removal is proposed has been convicted of a felony, or has been granted
immunity to testify in an action where another has been convicted of a felony,
by a court of competent jurisdiction and such conviction is no longer subject
to direct appeal; (ii) such director has become mentally incompetent, whether
or not so adjudicated, which mental incompetence directly affects his ability
as a director of the Corporation, as determined by at least 66 2/3% of the
members of the Board of Directors then in office (other than such director); or
(iii) such director's actions or failure
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<PAGE> 307
to act have been determined by at least 66 2/3% of the members of the Board of
Directors then in office (other than such director) to be in derogation of the
director's duties."
(III) SECTION A OF ARTICLE VIII OF THE RESTATED CERTIFICATE OF INCORPORATION
OF THE CORPORATION IS HEREBY AMENDED TO READ IN ITS ENTIRETY AS
FOLLOWS:
"ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any class or series of
Preferred Stock, stockholder action may be taken only at an annual or special
meeting. Except as otherwise provided in the terms of any class or series of
Preferred Stock or unless otherwise prescribed by law or by another provision
of this Certificate, special meetings of the stockholders of the Corporation,
for any purpose or purposes, shall be called by the Secretary of the
Corporation (i) upon the written request of the holders of not less than 66
2/3% of the total voting power of the outstanding Voting Securities (as
hereinafter defined) or (ii) at the request of at least 75% of the members of
the Board of Directors then in office. The term "Voting Securities" shall
include the Series A TCI Group Common Stock, the Series B TCI Group Common
Stock, the Series A Liberty Media Group Common Stock, the Series B Liberty
Media Group Common Stock, the Series A TCI Ventures Group Common Stock, the
Series B TCI Ventures Group Common Stock and any class or series of Preferred
Stock entitled to vote with the holders of Common Stock generally upon all
matters which may be submitted to a vote of stockholders at any annual meeting
or special meeting thereof."
SECOND: That said amendments were duly adopted by the Board of Directors of
the Corporation, and pursuant to resolution of the Board of Directors of the
Corporation, the annual meeting of the stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute and the Restated Certificate of Incorporation
of the Corporation were voted in favor of said amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware."
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<PAGE> 308
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Amendment this 28th day of August, 1997.
TELE-COMMUNICATIONS, INC.
By: /s/ LEO J. HINDERY, JR.
------------------------------------
Name: Leo J. Hindery, Jr.
Title: President
ATTEST:
By: /s/ STEPHEN M. BRETT
- ------------------------------------
Name: Stephen M. Brett
Title: Secretary
<PAGE> 309
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF DECEMBER, A.D. 1997, AT 9:01 O'CLOCK A.M.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8843698
DATE: 12-31-97
<PAGE> 310
Series C-TCI Group
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PREFERRED STOCK, SERIES C-TCI GROUP"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------------
The undersigned, an Executive Vice President of
TELE-COMMUNICATIONS, INC., a Delaware corporation (this "Corporation"), HEREBY
CERTIFIES that the Board of Directors of this Corporation on December 16, 1997,
duly adopted the following resolutions creating a new series of this
Corporation's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted
by the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of this Corporation, the Board of Directors hereby creates and
authorizes the issuance of a new series of this Corporation's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of this Corporation's preferred
stock, par value $.01 per share ("Preferred Stock")), as follows:
1. Designation and Number. The designation of
the series of Series Preferred Stock, par value $.01 per share, of this
Corporation authorized hereby is "Convertible Preferred Stock, Series C-TCI
Group" (the "Series C-TCI Group Preferred Stock"). The number of shares
constituting the Series C-TCI Group Preferred Stock shall be 70,575.
<PAGE> 311
Series C-TCI Group
2. Certain Definitions. Unless the context
otherwise requires, the terms defined in this paragraph 2 shall, for all
purposes of this Certificate of Designations, have the meanings herein
specified:
"Board of Directors": The Board of Directors of this
Corporation and, to the extent permitted by law, unless the context indicates
otherwise, any committee thereof authorized with respect to any particular
matter to exercise the power of the Board of Directors of this Corporation with
respect to such matter.
"Capital Stock": Any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
this Corporation.
"Class B Preferred Stock": The Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
this Corporation.
"Closing Price": Of any security for any day, the
last reported sale price of such security regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the composite tape, or if such
security is not quoted on the composite tape, on the principal United States
securities exchange registered under the Exchange Act on which such security is
listed or admitted to trading, or if such security is not listed or admitted to
trading on any such exchange, the last reported sale price (or the average of
the quoted closing bid and asked prices if there were no reported sales) on The
Nasdaq Stock Market or any comparable quotation system, or if such security is
not quoted on The Nasdaq Stock Market or any comparable system, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors shall from time to
time deem to be fair.
"Common Stock": The Common Stock, $1.00 par value per
share, of this Corporation, and all series thereof now existing or hereafter
created.
"Conversion Rate": The kind and amount of securities,
assets or other property that as of any date are issuable or deliverable upon
conversion of a share of Series C-TCI Group Preferred Stock. The Conversion
Rate of Series C-TCI Group Preferred Stock shall initially be as set forth in
paragraph 4(b), subject to adjustment as set forth in paragraph 4 of this
Certificate of Designations. In the event that pursuant to paragraph 4 the
Series C-TCI Group Preferred Stock becomes convertible into more than one class
or series of capital stock of this Corporation, the term Conversion Rate, when
used with respect to any such class or series, shall mean the number or
fraction of shares or other units of such capital stock that as of any date
would be issued upon conversion of a share of Series C-TCI Group Preferred
Stock.
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<PAGE> 312
Series C-TCI Group
"Convertible Securities": Securities, other than the
Series B TCI Group Common Stock, that are convertible at the option of the
holder into Series A TCI Group Common Stock.
"Debt Instrument": Any bond, debenture, note,
indenture, guarantee or other instrument or agreement evidencing any
Indebtedness, whether existing at the Issue Date or thereafter created,
incurred, assumed or guaranteed.
"Determination Date": For any issuance of rights or
warrants or any distribution to which paragraph 4(d) or 4(e) applies, the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights or warrants or the distribution to which such paragraph
applies and (ii) the Ex-Dividend Date for such rights, warrants or
distribution.
"Exchange Act": The Securities Exchange Act of 1934,
as amended.
"Exchange Offer": An issuer tender offer (within
the meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by
the Securities and Exchange Commission under the Exchange Act, as such Rule is
in effect on the date hereof), including, without limitation, one that is
effected through the distribution of rights or warrants, made to holders of
Series A TCI Group Common Stock (or to holders of other stock of this
Corporation receivable by a holder of Series C-TCI Group Preferred Stock upon
conversion thereof), to issue stock of this Corporation or of a Subsidiary of
this Corporation and/or other property to a tendering stockholder in exchange
for shares of Series A TCI Group Common Stock (or such other stock) validly
tendered pursuant to such issuer tender offer.
"Exchange Preferred Stock": A series of convertible
preferred stock of this Corporation, having terms, conditions, designations,
dividend rights, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Board of Directors, to those of the Series
C-TCI Group Preferred Stock for which such Exchange Preferred Stock is
exchanged, except that (i) the liquidation preference will be determined as
provided in paragraph 4(h) or 4(i), as applicable, (ii) the running of any time
periods pursuant to the terms of the Series C-TCI Group Preferred Stock shall
be tacked to the corresponding time periods in the Exchange Preferred Stock and
(iii) the Exchange Preferred Stock will not be convertible into, and the
holders will have no conversion rights thereunder with respect to, (x) in the
case of a redemption of Redeemable Capital Stock, the Redeemable Capital Stock
redeemed, or the Redemption Securities issued, in the Redemption Event, and (y)
in the case of a Spin Off, the Spin Off Securities.
3
<PAGE> 313
Series C-TCI Group
"Exchange Securities": Stock of this Corporation or
of a Subsidiary of this Corporation that is issued in exchange for shares of
Series A TCI Group Common Stock (or other stock of this Corporation receivable
by a holder of Series C-TCI Group Preferred Stock upon conversion thereof)
pursuant to an Exchange Offer.
"Ex-Dividend Date": The date on which "ex-dividend"
trading commences for a dividend, an issuance of rights or warrants or a
distribution to which paragraph 4(c), 4(d) or 4(e) applies in the
over-the-counter market or the principal exchange on which the Series A TCI
Group Common Stock is then quoted or listed.
"Indebtedness": Any (i) liability, contingent or
otherwise, of this Corporation (x) for borrowed money whether or not the
recourse of the lender is to the whole of the assets of this Corporation or
only to a portion thereof), (y) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given other than in
connection with the acquisition of inventory or similar property in the
ordinary course of business, or (z) for the payment of money relating to an
obligation under a lease that is required to be capitalized for financial
accounting purposes in accordance with generally accepted accounting
principles; (ii) liability of others described in the preceding clause (i)
which this Corporation has guaranteed or which is otherwise its legal
liability; (iii) obligations secured by a mortgage, pledge, lien, charge or
other encumbrance to which the property or assets of this Corporation are
subject whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be this Corporation's legal liability; and (iv) any
amendment, renewal, extension or refunding of any liability of the types
referred to in clauses (i), (ii) and (iii) above.
"Issue Date": December 31, 1997, such date being the
first date on which any shares of the Series C-TCI Group Preferred Stock are
first issued or deemed to have been issued.
"Junior Securities": All shares of Class B Preferred
Stock, Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series
A Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock,
Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group Common
Stock, any other series of Common Stock and, for purposes of paragraph 3
hereof, any class or series of stock of this Corporation not entitled to
receive any assets upon liquidation, dissolution or winding up of the affairs
of this Corporation until the Series C-TCI Group Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
"Liquidation Value": Measured per Share of the
Series C-TCI Group Preferred Stock as of any particular date, $2,208.35.
4
<PAGE> 314
Series C-TCI Group
"Mirror Preferred Stock": Convertible preferred
stock issued by (a) in the case of a redemption of Redeemable Capital Stock,
the issuer of the applicable Redemption Securities, (b) in the case of a Spin
Off, the issuer of the applicable Spin Off Securities, and (c) in the case of
an Exchange Offer, the issuer of the applicable Exchange Securities, and having
terms, conditions, designations, dividend rights, voting powers, rights on
liquidation and other preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof
that are identical, or as nearly so as practicable in the judgment of the Board
of Directors, to those of the Series C-TCI Group Preferred Stock for which such
Mirror Preferred Stock is exchanged, except that (i) the liquidation preference
will be determined as provided in paragraph 4(h), 4(i) or 5, as applicable,
(ii) the running of any time periods pursuant to the terms of the Series C-TCI
Group Preferred Stock shall be tacked to the corresponding time periods in the
Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be
convertible into the kind and amount of Redemption Securities, Spin Off
Securities or Exchange Securities, as applicable, and other securities and
property that the holder of a share of Series C-TCI Group Preferred Stock in
respect of which such Mirror Preferred Stock is issued pursuant to the terms
hereof would have received (x) in the case of the redemption of Redeemable
Capital Stock, upon such redemption had such share of Series C-TCI Group
Preferred Stock been converted immediately prior to the effective date of the
Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such
share of Series C-TCI Group Preferred Stock been converted immediately prior to
the record date for such Spin Off and (z) in the case of an Exchange Offer,
upon consummation thereof had such share of Series C-TCI Group Preferred Stock
that such holder elects to tender pursuant to Section 5 been converted and the
shares of Series A TCI Group Common Stock received upon such conversion been
tendered in full pursuant to such Exchange Offer prior to the expiration
thereof and the same percentage of such tendered shares had been accepted for
exchange as the percentage of validly tendered shares of Series A TCI Group
Common Stock were accepted for exchange pursuant to such Exchange Offer, as the
case may be.
"Parity Securities": Any class or series of stock of
this Corporation entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Series C-TCI
Group Preferred Stock. The Series C-Liberty Media Group Preferred Stock, the
Series D Preferred Stock, the Series F Preferred Stock, the Series G Preferred
Stock and the Series H Preferred Stock rank on a parity with the Series C-TCI
Group Preferred Stock as to rights to receive assets upon liquidation,
dissolution or winding up of the affairs of this Corporation and accordingly,
constitute "Parity Securities" for purposes of this Certificate of
Designations.
"person": A natural person, corporation, limited
liability company, partnership or other legal entity.
5
<PAGE> 315
Series C-TCI Group
"Redeemable Capital Stock": A class or series of
Capital Stock of this Corporation that provides by its terms a right in favor
of this Corporation to call, redeem, exchange or otherwise acquire all of the
outstanding shares or units of such class or series.
"Redemption Date": As to any Share, the date fixed
for redemption of such Share as specified in the notice of redemption given in
accordance with paragraph 6(c), provided that no such date will be a Redemption
Date unless the applicable Redemption Price is actually paid on such date or
the consideration sufficient for the payment thereof, and for no other purpose,
has been set apart, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so set apart then the Redemption Date will be
the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart.
"Redemption Price": As to any Share that is to be
redeemed on any Redemption Date, the Liquidation Value as in effect on such
Redemption Date.
"Redemption Securities": With respect to the
redemption of any Redeemable Capital Stock, stock of a Subsidiary of this
Corporation that is distributed by this Corporation in payment, in whole or in
part, of the redemption price of such Redeemable Capital Stock.
"Senior Securities": Any class or series of stock of
this Corporation ranking senior to the Series C-TCI Group Preferred Stock in
respect of the right to participate in any distribution upon liquidation,
dissolution or winding up of the affairs of this Corporation.
"Series A Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Liberty Media Group Common Stock may thereafter have been changed.
"Series A TCI Group Common Stock": The
Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series A TCI Group
Common Stock may thereafter have been changed.
"Series A TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A TCI Ventures Group Common Stock may thereafter have been changed.
"Series B Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the
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Series C-TCI Group
date of this Certificate of Designations, and Capital Stock of any other class
or series into which such Series B Liberty Media Group Common Stock may
thereafter have been changed.
"Series B TCI Group Common Stock": The
Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series B TCI Group
Common Stock may thereafter have been changed.
"Series B TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B TCI Ventures Group Common Stock may thereafter have been changed.
"Series C-Liberty Media Group Preferred Stock": The
Convertible Preferred Stock, Series C-Liberty Media Group, par value $.01 per
share, of this Corporation.
"Series D Preferred Stock": The Convertible Preferred
Stock, Series D, par value $.01 per share, of this Corporation.
"Series F Preferred Stock": The Convertible
Redeemable Participating Preferred Stock, Series F, par value $.01 per share,
of this Corporation.
"Series G Preferred Stock": The Redeemable
Convertible TCI Group Preferred Stock, Series G, par value $.01 per share, of
this Corporation.
"Series H Preferred Stock": The Redeemable
Convertible Liberty Media Group Preferred Stock, Series H, par value $.01 per
share, of this Corporation.
"Share": A share of Series C-TCI Group Preferred
Stock.
"Spin Off": The distribution of stock of a
Subsidiary of this Corporation as a dividend to all holders of Series A TCI
Group Common Stock.
"Spin Off Securities": Stock of a Subsidiary of this
Corporation that is distributed to holders of Series A TCI Group Common Stock
in a Spin Off.
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Series C-TCI Group
"Subsidiary": With respect to any person, any
corporation, limited liability company, partnership or other legal entity more
than 50% of whose outstanding voting securities or membership, partnership or
other ownership interests, as the case may be, are directly or indirectly owned
by such person.
3. Liquidation. Upon any liquidation,
dissolution or winding up of this Corporation, whether voluntary or
involuntary, the holders of Series C-TCI Group Preferred Stock shall be
entitled to be paid an amount in cash equal to the aggregate Liquidation Value
at the date fixed for liquidation of all Shares outstanding before any
distribution or payment is made upon any Junior Securities, which payment shall
be made pari passu with any such payment made to the holders of any Parity
Securities. The holders of Series C-TCI Group Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of this Corporation after receiving the Liquidation Value per
Share. If upon such liquidation, dissolution or winding up, the assets of this
Corporation to be distributed among the holders of Series C-TCI Group Preferred
Stock and to all holders of Parity Securities are insufficient to permit
payment in full to such holders of the aggregate preferential amounts which
they are entitled to be paid, then the entire assets of this Corporation to be
distributed to such holders shall be distributed ratably among them based upon
the full preferential amounts to which the shares of Series C-TCI Group
Preferred Stock and such Parity Securities would otherwise respectively be
entitled. Upon any such liquidation, dissolution or winding up, after the
holders of Series C-TCI Group Preferred Stock and Parity Securities have been
paid in full the amounts to which they are entitled, the remaining assets of
this Corporation may be distributed to the holders of Junior Securities. This
Corporation shall mail written notice of such liquidation, dissolution or
winding up to each record holder of Series C-TCI Group Preferred Stock not less
than 30 days prior to the payment date stated in such written notice. Neither
the consolidation or merger of this Corporation into or with any other
corporation or corporations, nor the sale, transfer or lease by this
Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of this Corporation within the meaning
of this paragraph 3.
4. Conversion.
(a) Unless previously called for
redemption as provided in paragraph 6 hereof, the Series C-TCI Group Preferred
Stock may be converted at any time or from time to time, in such manner and
upon such terms and conditions as hereinafter provided in this paragraph 4 into
fully paid and non-assessable full shares of Series A TCI Group Common Stock.
In the case of Shares called for redemption by this Corporation pursuant to
paragraph 6(a) hereof, the conversion right provided by this paragraph 4 shall
terminate at the close of business on the fifteenth day preceding the date
fixed for redemption. In the case of Shares required to be redeemed pursuant
to paragraph 6(b), the conversion right provided by this paragraph 4 shall
terminate immediately upon receipt by this Corporation of a notice given
pursuant to said paragraph. In case
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Series C-TCI Group
cash, securities or property other than Series A TCI Group Common Stock shall
be payable, deliverable or issuable upon conversion as provided herein, then
all references to Series A TCI Group Common Stock in this paragraph 4 shall be
deemed to apply, so far as appropriate and as nearly as may be, to such cash,
property or other securities.
(b) Subject to the provisions for
adjustment hereinafter set forth in this paragraph 4, the Series C-TCI Group
Preferred Stock may be converted into Series A TCI Group Common Stock at the
initial conversion rate of 132.86 fully paid and non-assessable shares of
Series A TCI Group Common Stock for one share of the Series C-TCI Group
Preferred Stock.
(c) In case this Corporation shall, on
or after the Issue Date, (i) pay a dividend or make a distribution on its then
outstanding shares of Series A TCI Group Common Stock in shares of Series A TCI
Group Common Stock, (ii) subdivide the then outstanding shares of Series A TCI
Group Common Stock into a greater number of shares of Series A TCI Group Common
Stock, (iii) combine the then outstanding shares of Series A TCI Group Common
Stock into a smaller number of shares of Series A TCI Group Common Stock, (iv)
pay a dividend or make a distribution on its then outstanding shares of Series
A TCI Group Common Stock in shares of its Capital Stock (other than Series A
TCI Group Common Stock or rights, warrants or options for its Capital Stock),
or (v) issue by reclassification of its then outstanding shares of Series A TCI
Group Common Stock (other than a reclassification by way of merger or binding
share exchange that is subject to paragraph 4(g)) any shares of any other class
or series of Capital Stock of this Corporation (other than rights, warrants or
options for its Capital Stock), then, subject to the following sentence and to
paragraph 4(k), the conversion privilege and the Conversion Rate in effect
immediately prior to the opening of business on the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that the holder of each share of the
Series C-TCI Group Preferred Stock thereafter surrendered for conversion shall
be entitled to receive the number and kind of shares of Capital Stock of this
Corporation that such holder would have owned or been entitled to receive
immediately following such action had such shares of Series C-TCI Group
Preferred Stock been converted immediately prior to such time.
An adjustment made pursuant to this paragraph 4(c) for a
dividend or distribution shall become effective immediately after the record
date for the dividend or distribution and an adjustment made pursuant to this
paragraph 4(c) for a subdivision, combination or reclassification shall become
effective immediately after the effective date of the subdivision, combination
or reclassification. Such adjustment shall be made successively whenever any
action listed above shall be taken.
Any shares of Series A TCI Group Common Stock issuable in
payment of a dividend shall be deemed to have been issued immediately prior to
the time of the record date for such
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Series C-TCI Group
dividend for purposes of calculating the number of outstanding shares of Series
A TCI Group Common Stock under paragraph 4(d) below.
(d) In case this Corporation shall, on
or after the Issue Date, distribute any rights or warrants to all holders of
shares of Series A TCI Group Common Stock entitling them (for a period expiring
within 45 days after the record date for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or purchase
shares of Series A TCI Group Common Stock (or Convertible Securities) at a
price per share of Series A TCI Group Common Stock (or having an initial
exercise price or conversion price per share of Series A TCI Group Common
Stock, after adding thereto an allocable portion of the exercise price of the
right or warrant to purchase such Convertible Securities, computed on the basis
of the maximum number of shares of Series A TCI Group Common Stock issuable
upon conversion of such Convertible Securities) less than the current market
price per share of Series A TCI Group Common Stock (as determined in accordance
with the provisions of paragraph 4(f) below) on the Determination Date, the
number of shares of Series A TCI Group Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on such record date by
a fraction of which the numerator shall be the number of shares of Series A TCI
Group Common Stock outstanding on such record date plus the number of
additional shares of Series A TCI Group Common Stock offered for subscription
or purchase (or into which the Convertible Securities so offered are initially
convertible) and of which the denominator shall be the number of shares of
Series A TCI Group Common Stock outstanding on such record date plus the number
of shares of Series A TCI Group Common Stock which the aggregate offering price
of the total number of shares of Series A TCI Group Common Stock so offered (or
the aggregate initial conversion or exercise price of the Convertible
Securities so offered, after adding thereto the aggregate exercise price of the
rights or warrants to purchase such Convertible Securities) would purchase at
the current market price per share of Series A TCI Group Common Stock (as
determined in accordance with the provisions of paragraph 4(f) below) on the
Determination Date. Such adjustment shall be made successively whenever any
such rights or warrants are issued and shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
rights or warrants. In the event that all of the shares of Series A TCI Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares of Series A TCI Group Common Stock issuable upon
conversion of such Convertible Securities have not been issued prior to the
expiration of the conversion right thereof), then the Conversion Rate shall be
readjusted retroactively to be the Conversion Rate which would then be in
effect had the adjustment upon the issuance of such rights or warrants been
made on the basis of the actual number of shares of Series A TCI Group Common
Stock (or Convertible Securities) issued upon the exercise of such rights or
warrants (or the conversion of such Convertible Securities); but such
subsequent adjustment shall not affect the
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Series C-TCI Group
number of shares of Series A TCI Group Common Stock issued upon the conversion
of any Share prior to the date such subsequent adjustment is made.
(e) In case this Corporation, on or
after the Issue Date, shall distribute to all holders of shares of Series A TCI
Group Common Stock any evidences of its indebtedness or assets or rights or
warrants to purchase shares of Series A TCI Group Common Stock or Series B TCI
Group Common Stock or securities convertible into shares of Series A TCI Group
Common Stock or Series B TCI Group Common Stock (excluding (x) dividends or
distributions referred to in paragraph 4(c), distributions of rights or
warrants referred to in paragraph 4(d), distributions of Spin Off Securities
referred to in paragraph 4(i) and distributions of rights or warrants
exercisable for Exchange Securities (which shall be governed by paragraph 5)
and (y) cash dividends or distributions unless such cash dividends or cash
distributions are Extraordinary Cash Dividends), then in each such case the
number of shares of Series A TCI Group Common Stock into which each Share shall
thereafter be convertible shall be determined by multiplying the number of
shares of Series A TCI Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on (A) the record date
for the determination of stockholders entitled to receive the distribution or
(B) in the case of a reclassification, the effective date of such
reclassification, by a fraction of which the numerator shall be the current
market price per share of the Series A TCI Group Common Stock (as determined in
accordance with the provisions of paragraph 4(f) below) on the Determination
Date and of which the denominator shall be such current market price per share
of Series A TCI Group Common Stock less the fair market value (as determined by
the Board of Directors of this Corporation, whose determination shall be
conclusive) on such record date or effective date of the portion of the assets
or evidences of indebtedness or rights or warrants so to be distributed
applicable to one share of Series A TCI Group Common Stock; provided, however,
that in the event the denominator of the foregoing fraction is zero or
negative, in lieu of the foregoing adjustment, adequate provision shall be made
so that each holder of a Share shall have the right to receive upon conversion
of such Share, in addition to the shares of Series A TCI Group Common Stock to
which the holder is entitled, the assets or evidences of indebtedness or rights
or warrants such holder would have received had such holder converted such
Share immediately prior to the record date for such distribution. Such
adjustment shall be made successively whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
For purposes of this paragraph 4(e), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A TCI
Group Common Stock the amount of which, together with the aggregate amount of
cash dividends on the Series A TCI Group Common Stock to be aggregated with
such cash dividend in accordance with the following provisions of this
paragraph, equals or exceeds the threshold percentage set forth below in the
following sentence. If, upon the date prior to the Ex-Dividend Date with
respect to a cash dividend on Series A TCI Group Common Stock, the aggregate of
the amount of such cash dividend together with the amounts of all
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Series C-TCI Group
cash dividends on the Series A TCI Group Common Stock with Ex-Dividend Dates
occurring in the 365 consecutive day period ending on the date prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied (other than any such other cash dividends with Ex-Dividend Dates
occurring in such period for which a prior adjustment in the Conversion Rate
was previously made under this paragraph 4(e)) equals or exceeds on a per share
basis 10% of the average of the Closing Prices during the period beginning on
the date after the first such Ex-Dividend Date in such period and ending on the
date prior to the Ex-Dividend Date with respect to the cash dividend to which
this provision is being applied (except that if no other cash dividend has had
an Ex-Dividend Date occurring in such period, the period for calculating the
average of the Closing Prices shall be the period commencing 365 days prior to
the date immediately prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied), such cash dividend together
with each other cash dividend with an Ex-Dividend Date occurring in such
365-day period that is aggregated with such cash dividend in accordance with
this paragraph shall be deemed to be an Extraordinary Cash Dividend.
(f) For the purpose of any computation
under paragraph 4(d), 4(e) or 4(m), the current market price per share of
Series A TCI Group Common Stock on any Determination Date or date of issuance,
as the case may be, shall be deemed to be the average of the daily Closing
Prices for a share of Series A TCI Group Common Stock for the ten (10)
consecutive trading days before the Determination Date or date of issuance, as
applicable, in question.
(g) If this Corporation consolidates
with any other entity or merges into another entity, or in case of any sale or
transfer to another entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, or if the
Corporation is a party to a merger or binding share exchange which reclassifies
or changes its outstanding Series A TCI Group Common Stock, this Corporation
(or its successor in such transaction) or the purchaser of such properties and
assets shall make appropriate provision so that the holder of a Share shall
have the right thereafter to convert such Share into the kind and amount of
shares of stock and other securities and property that such holder would have
owned immediately after such consolidation, merger, sale or transfer if such
holder had converted such Share into Series A TCI Group Common Stock
immediately prior to the effective date of such consolidation, merger, sale or
transfer (taking into account for this purpose (to the extent applicable) the
valid exercise by such holder of any rights of election made available to
holders of Series A TCI Group Common Stock, which rights of election shall
simultaneously be made available to holders of Shares on the same basis as if
such Shares had theretofore been converted into shares of Series A TCI Group
Common Stock), and the holders of the Series C-TCI Group Preferred Stock shall
have no other conversion rights under these provisions; provided, that
effective provision shall be made, in the Articles or Certificate of
Incorporation of the resulting or surviving corporation or otherwise or in any
contracts of sale or transfer, so that the provisions set forth herein for the
protection of the conversion rights of the Series C-TCI Group Preferred Stock
shall thereafter be made applicable, as
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Series C-TCI Group
nearly as reasonably may be, to any such other shares of stock and other
securities and property deliverable upon conversion of the Series C-TCI Group
Preferred Stock remaining outstanding or other convertible preferred stock or
other Convertible Securities received by the holders of Series C-TCI Group
Preferred Stock in place thereof; and provided, further, that any such
resulting or surviving corporation or purchaser shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series C-TCI Group
Preferred Stock remaining outstanding, or other convertible preferred stock or
other convertible securities received by the holders in place thereof, shall be
entitled to receive pursuant to the provisions hereof, and to make provision
for the protection of the conversion rights as above provided.
(h) Subject to paragraph 4(k) and to the
remaining provisions of this paragraph 4(h), in the event that a holder of
Series C-TCI Group Preferred Stock would be entitled to receive upon conversion
thereof pursuant to this paragraph 4 any Redeemable Capital Stock and this
Corporation redeems, exchanges or otherwise acquires all of the outstanding
shares or other units of such Redeemable Capital Stock (such event being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series C-TCI Group Preferred Stock then
outstanding shall be entitled to receive upon conversion of such shares, in
lieu of shares or units of such Redeemable Capital Stock, the kind and amount
of shares of stock and other securities and property receivable upon the
Redemption Event by a holder of the number of shares or units of such
Redeemable Capital Stock into which such shares of Series C-TCI Group Preferred
Stock could have been converted immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed
to exercise any rights of election with respect thereto and received per share
or unit of such Redeemable Capital Stock the kind and amount of stock and other
securities and property received per share or unit by a plurality of the
non-electing shares or units of such Redeemable Capital Stock), and (from and
after the effective date of such Redemption Event) the holders of the Series
C-TCI Group Preferred Stock shall have no other conversion rights under these
provisions with respect to such Redeemable Capital Stock.
Notwithstanding the foregoing, if the redemption price for the
shares of such Redeemable Capital Stock is paid in whole or in part in
Redemption Securities, and the Mirror Preferred Stock Condition is met, the
Series C-TCI Group Preferred Stock shall not be convertible into such
Redemption Securities and, from and after the applicable redemption date, the
holders of any shares of Series C-TCI Group Preferred Stock that have not been
exchanged for Mirror Preferred Stock and Exchange Preferred Stock shall have no
conversion rights under these provisions except for any conversion right that
may have existed immediately prior to the effective date of the Redemption
Event with respect to any shares of stock (including the Series A TCI Group
Common Stock) or other securities or property other than the Redeemable Capital
Stock so redeemed. This Corporation shall use all commercially reasonable
efforts to ensure that the Mirror Preferred Stock
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Series C-TCI Group
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of any Redeemable Capital Stock into which the
Series C-TCI Group Preferred Stock is then convertible if appropriate provision
is made so that the holders of the Series C-TCI Group Preferred Stock have the
right to exchange their shares of Series C-TCI Group Preferred Stock on the
effective date of the Redemption Event for Exchange Preferred Stock of this
Corporation and Mirror Preferred Stock of the issuer of the Redemption
Securities. The sum of the initial liquidation preferences of the shares of
Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a
share of Series C-TCI Group Preferred Stock will equal the Liquidation Value of
a share of Series C-TCI Group Preferred Stock on the effective date of the
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation Value
of the shares of Series C-TCI Group Preferred Stock exchanged therefor and the
quotient of (x) the product of the Conversion Rate for the Redeemable Capital
Stock to be redeemed (determined immediately prior to the effective date of the
Redemption Event) and the average of the daily Closing Prices of the Redeemable
Capital Stock for the period of ten consecutive trading days ending on the
third trading day prior to the effective date of the Redemption Event, divided
by (y) the sum of the amount determined pursuant to clause (x), plus the fair
value of the shares of stock or other securities or property (other than the
Redeemable Capital Stock being redeemed) that would have been receivable by a
holder of Series C-TCI Group Preferred Stock upon conversion thereof
immediately prior to the effective date of the Redemption Event (such fair
value to be determined in the case of stock or other securities with a Closing
Price in the same manner as provided in clause (x) and otherwise by the Board
of Directors in the exercise of its judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Value of the shares of Series
C-TCI Group Preferred Stock exchanged therefor and the aggregate initial
liquidation preference of the Mirror Preferred Stock.
(i) If this Corporation effects a Spin
Off, this Corporation shall make appropriate provision so that the holders of
the Series C-TCI Group Preferred Stock have the right to exchange their shares
of Series C-TCI Group Preferred Stock on the effective date of the Spin Off for
Exchange Preferred Stock of this Corporation and Mirror Preferred Stock of the
issuer of the Spin Off Securities. The sum of the initial liquidation
preferences of the shares of Exchange Preferred Stock and Mirror Preferred
Stock delivered in exchange for a share of Series C-TCI Group Preferred Stock
will equal the Liquidation Value of a share of Series C-TCI Group Preferred
Stock on the effective date of the Spin Off. The Mirror Preferred Stock will
have an aggregate liquidation preference equal to the product of the aggregate
Liquidation Value of the shares of Series C-TCI Group Preferred Stock exchanged
therefor and the quotient of (x) the product of the number (or fraction) of
Spin Off Securities that would have been receivable upon such Spin Off by a
holder of the number of shares of Series A TCI Group Common Stock issuable upon
conversion of a share of Series C-TCI Group Preferred Stock immediately prior
to the effective date of the Spin Off and the average of the daily Closing
Prices of the Spin Off Securities for the period of ten consecutive
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Series C-TCI Group
trading days commencing on the tenth trading day following the effective date
of the Spin Off, divided by (y) the sum of the amount determined pursuant to
clause (x), plus the fair value of the shares of Series A TCI Group Common
Stock and other securities or property (other than Spin Off Securities) that
would have been receivable by a holder of a share of Series C-TCI Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Spin Off (such fair value to be determined in the case of Series A TCI
Group Common Stock or other securities with a Closing Price in the same manner
as provided in clause (x) and otherwise by the Board of Directors in the
exercise of its judgment). The shares of Exchange Preferred Stock will have an
aggregate initial liquidation preference equal to the difference between the
aggregate Liquidation Value of the shares of Series C-TCI Group Preferred Stock
exchanged therefor and the aggregate initial liquidation preference of the
Mirror Preferred Stock. From and after the effective date of such Spin Off,
the holders of any shares of Series C-TCI Group Preferred Stock that have not
been exchanged for Mirror Preferred Stock and Exchange Preferred Stock as
provided above shall have no conversion rights under these provisions with
respect to such Spin Off Securities.
(j) Whenever the Conversion Rate or the
conversion privilege shall be adjusted as provided in this paragraph 4, this
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series C-TCI Group Preferred Stock describing the nature of the event
requiring such adjustment, the Conversion Rate in effect immediately thereafter
and the kind and amount of stock or other securities or property into which the
Series C-TCI Group Preferred Stock shall be convertible after such event.
Where appropriate, such notice may be given in advance and included as a part
of a notice required to be mailed under the provisions of paragraph 4(l).
(k) This Corporation may, but shall not
be required to, make any adjustment of the Conversion Rate if such adjustment
would require an increase or decrease of less than 1% in such Conversion Rate;
provided, however, that any adjustments which by reason of this paragraph 4(k)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
In any case in which this paragraph 4(k) shall require that an adjustment shall
become effective immediately after a record date for such event, the
Corporation may defer until the occurrence of such event (x) issuing to the
holder of any shares of Series C-TCI Group Preferred Stock converted after such
record date and before the occurrence of such event the additional shares of
Series A TCI Group Common Stock or other Capital Stock issuable upon such
conversion by reason of the adjustment required by such event over and above
the shares of Series A TCI Group Common Stock, or other Capital Stock issuable
upon such conversion before giving effect to such adjustment and (y) paying to
such holder cash in lieu of any fractional interest to which such holder is
entitled pursuant to paragraph 4(p); provided, however, that, if requested by
such holder, this Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares of Series A
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Series C-TCI Group
TCI Group Common Stock or other Capital Stock, and such cash, upon the
occurrence of the event requiring such adjustment.
To the extent the shares of Series C-TCI Group Preferred Stock
become convertible into cash, no adjustment need be made thereafter as to the
cash. Interest will not accrue on the cash.
(l) In case at any time:
(i) this Corporation shall take any
action which would require an adjustment in the Conversion
Rate pursuant to this paragraph;
(ii) there shall be any capital
reorganization or reclassification of the Series A TCI Group
Common Stock (other than a change in par value), or any
consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of this Corporation
is required, or any sale, transfer or lease of all or
substantially all of the properties and assets of the
Corporation, or a tender offer for shares of Series A TCI
Group Common Stock representing at least a majority of the
total voting power represented by the outstanding shares of
Series A TCI Group Common Stock which has been recommended by
the Board of Directors as being in the best interests of the
holders of Series A TCI Group Common Stock; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of this
Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in the first sentence of paragraph 6(c) hereof, to the holders
of the Series C-TCI Group Preferred Stock at their respective addresses as the
same appear on the books of the Corporation, at least twenty days (or ten days
in the case of a recommended tender offer as specified in clause (ii) above)
prior to any record date for such action, dividend or distribution or the date
as of which it is expected that holders of Series A TCI Group Common Stock of
record shall be entitled to exchange their shares of Series A TCI Group Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer, lease,
tender offer, dissolution, liquidation or winding up; provided, however, that
any notice required by any event described in clause (ii) of this paragraph
4(l) shall be given in the manner and at the time that such notice is given to
the holders of Series A TCI Group Common Stock. Without limiting the
obligations of this Corporation to provide notice of corporate actions
hereunder, the failure to give the notice required by this paragraph 4(l) or
any defect therein shall not affect the legality or validity of any such
corporate action of the Corporation or the vote upon such action.
16
<PAGE> 326
Series C-TCI Group
(m) Before any holder of Series C-TCI
Group Preferred Stock shall be entitled to convert the same into Series A TCI
Group Common Stock, such holder shall surrender the certificate or certificates
for such Series C-TCI Group Preferred Stock at the office of this Corporation
or at the office of the transfer agent for the Series C-TCI Group Preferred
Stock, which certificate or certificates, if this Corporation shall so request,
shall be duly endorsed to this Corporation or in blank or accompanied by proper
instruments of transfer to this Corporation or in blank (such endorsements or
instruments of transfer to be in form satisfactory to this Corporation), and
shall given written notice to this Corporation at said office that it elects to
convert all or a part of the Shares represented by said certificate or
certificates in accordance with the terms of this paragraph 4, and shall state
in writing therein the name or names in which such holder wishes the
certificates for Series A TCI Group Common Stock to be issued. Every such
notice of election to convert shall constitute a contract between the holder of
such Series C-TCI Group Preferred Stock and the Corporation, whereby the
holder of such Series C-TCI Group Preferred Stock shall be deemed to subscribe
for the amount of Series A TCI Group Common Stock which such holder shall be
entitled to receive upon conversion of the number of shares of Series C-TCI
Group Preferred Stock to be converted, and, in satisfaction of such
subscription, to deposit the shares of Series C-TCI Group Preferred Stock to be
converted, and thereby this Corporation shall be deemed to agree that the
surrender of the shares of Series C-TCI Group Preferred Stock to be converted
shall constitute full payment of such subscription for Series A TCI Group
Common Stock to be issued upon such conversion. This Corporation will as soon
as practicable after such deposit of a certificate or certificates for Series
C-TCI Group Preferred Stock, accompanied by the written notice and the
statement above prescribed, issue and deliver at the office of this Corporation
or of said transfer agent to the person for whose account such Series C-TCI
Group Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates
for the number of full shares of Series A TCI Group Common Stock to which such
holder shall be entitled, together with cash in lieu of any fraction of a share
as hereinafter provided. If surrendered certificates for Series C-TCI Group
Preferred Stock are converted only in part, this Corporation will issue and
deliver to the holder, or to his nominee(s), without charge therefor, a new
certificate or certificates representing the aggregate of the unconverted
Shares. Such conversion shall be deemed to have been made as of the date of
such surrender of the Series C-TCI Group Preferred Stock to be converted; and
the person or persons entitled to receive the Series A TCI Group Common Stock
issuable upon conversion of such Series C-TCI Group Preferred Stock shall be
treated for all purposes as the record holder or holders of such Series A TCI
Group Common Stock on such date.
The issuance of certificates for shares of Series A TCI Group
Common Stock upon conversion of shares of Series C-TCI Group Preferred Stock
shall be made without charge for any issue, stamp or other similar tax in
respect of such issuance, provided, however, if any such certificate is to be
issued in a name other than that of the registered holder of the share or
shares of Series C-TCI Group Preferred Stock converted, the person or persons
requesting the issuance thereof
17
<PAGE> 327
Series C-TCI Group
shall pay to this Corporation the amount of any tax which may be payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of this Corporation that such tax has been paid.
This Corporation shall not be required to convert any shares
of Series C-TCI Group Preferred Stock, and no surrender of Series C-TCI Group
Preferred Stock shall be effective for that purpose, while the stock transfer
books of this Corporation are closed for any purpose; but the surrender of
Series C-TCI Group Preferred Stock for conversion during any period while such
books are so closed shall become effective for conversion immediately upon the
reopening of such books, as if the conversion had been made on the date such
Series C-TCI Group Preferred Stock was surrendered.
(n) This Corporation shall at all times
reserve and keep available, solely for the purpose of issuance upon conversion
of the outstanding shares of Series C-TCI Group Preferred Stock, such number of
shares of Series A TCI Group Common Stock (or other Capital Stock) as shall be
issuable upon the conversion of all outstanding Shares, provided that nothing
contained herein shall be construed to preclude this Corporation from
satisfying its obligations in respect of the conversion of the outstanding
shares of Series C-TCI Group Preferred Stock by delivery of shares of Series A
TCI Group Common Stock (or such other Capital Stock) which are held in the
treasury of this Corporation. This Corporation shall take all such corporate
and other actions as from time to time may be necessary to insure that all
shares of Series A TCI Group Common Stock (or other Capital Stock) issuable
upon conversion of shares of Series C-TCI Group Preferred Stock at the
Conversion Rate in effect from time to time will, upon issue, be duly and
validly authorized and issued, fully paid and nonassessable and free of any
preemptive or similar rights.
(o) All shares of Series C-TCI Group
Preferred Stock received by this Corporation upon conversion thereof into
Series A TCI Group Common Stock shall be retired and shall be restored to the
status of authorized and unissued shares of preferred stock (and may be
reissued as part of another series of the preferred stock of this Corporation,
but such shares shall not be reissued as Series C-TCI Group Preferred Stock).
(p) This Corporation shall not be
required to issue fractional shares of Series A TCI Group Common Stock or scrip
upon conversion of the Series C-TCI Group Preferred Stock. As to any final
fraction of a share of Series A TCI Group Common Stock which a holder of one or
more Shares would otherwise be entitled to receive upon conversion of such
Shares in the same transaction, this Corporation shall pay a cash adjustment in
respect of such final fraction in an amount equal to the same fraction of the
market value of a full share of Series A TCI Group Common Stock. For purposes
of this paragraph 4(p), the market value of a share of Series
18
<PAGE> 328
Series C-TCI Group
A TCI Group Common Stock shall be the Closing Price thereof on the trading day
immediately preceding the date of conversion.
5. Exchange Option.
(a) In the event an Exchange Offer is
made by this Corporation or a Subsidiary thereof (the applicable of the
foregoing being the "Offeror"), the Offeror shall concurrently therewith make
an equivalent offer to the holders of Series C-TCI Group Preferred Stock
pursuant to which such holders may tender Shares, based upon the number of
shares of Series A TCI Group Common Stock into which such tendered Shares are
then convertible (and in lieu of tendering outstanding shares of Series A TCI
Group Common Stock), together with such other consideration as may be required
to be tendered pursuant to such Exchange Offer, and receive in exchange
therefor, in lieu of Exchange Securities (and other property, if applicable),
Mirror Preferred Stock with an aggregate liquidation preference equal to the
aggregate Liquidation Value of the shares of Series C-TCI Group Preferred Stock
exchanged therefor. Whether or not a holder of Shares elects to accept such
offer and tender Shares, no adjustment to the Conversion Rate of the Shares
will be made pursuant to paragraph 4 in connection with the Exchange Offer.
(b) If an Exchange Offer is made as
discussed above, the Offeror shall, concurrently with the distribution of the
offering circular or prospectus and related documents to holders of Series A
TCI Group Common Stock, provide each holder of Series C-TCI Group Preferred
Stock with a notice setting forth the offer described in paragraph 5(a) above
and describing the Exchange Offer, the Exchange Securities and the Mirror
Preferred Stock. Such notice shall be accompanied by the offering circular,
prospectus or similar document provided to holders of Series A TCI Group Common
Stock in respect of the Exchange Offer and a copy of the certificate of
designations (or similar document) proposed to be filed by the Offeror in order
to establish the Mirror Preferred Stock. No failure to mail the notice
contemplated by this paragraph 5(b) or any defect therein or in the mailing
thereof shall affect the validity of the applicable Exchange Offer.
6. Redemption.
(a) Subject to the provisions of
paragraph 6(f), the shares of Series C-TCI Group Preferred Stock may be
redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, at any time after August 8, 2001 at the Redemption Price per Share as
of the applicable Redemption Date. If less than all outstanding Shares are to
be redeemed, Shares shall be redeemed ratably among the holders thereof.
(b) Subject to the rights of any Parity
Securities and the provisions of paragraph 6(f) and subject to any prohibitions
or restrictions contained in any Debt Instrument,
19
<PAGE> 329
Series C-TCI Group
at any time on or after August 8, 2001, any holder shall have the right, at
such holder's option, to require redemption by this Corporation at the
Redemption Price per Share as of the applicable Redemption Date of all or any
portion of his Shares having an aggregate Liquidation Value in excess of
$1,000,000, by written notice to this Corporation stating the number of Shares
to be redeemed. This Corporation shall redeem, out of funds legally available
therefor and not restricted in accordance with the first sentence of this
paragraph 6(b) or, at this Corporation's election, through the issuance of
fully paid and nonassessable shares of Series A TCI Group Common Stock (the
value of which for this purpose shall be deemed to be equal to, on a per share
basis, the average of the daily Closing Prices of the Series A TCI Group Common
Stock for the 20 consecutive trading days ending on and including the fifth
trading day preceding the date fixed for redemption pursuant to this sentence),
the Shares so requested to be redeemed on such date within 60 days following
this Corporation's receipt of such notice as this Corporation shall state in
its notice given pursuant to paragraph 6(c). If the funds of this Corporation
legally available for redemption of Shares and not restricted in accordance
with the first sentence of this paragraph 6(b) are insufficient to redeem the
total number of Shares required to be redeemed pursuant to this paragraph 6(b)
and the Corporation has not elected to pay the Redemption Price or the
applicable portion thereof in shares of Series A TCI Group Common Stock, then,
those funds which are legally available for redemption of such Shares and not
so restricted will be used to redeem the maximum possible number of such Shares
ratably among the holders who have required Shares to be redeemed under this
paragraph 6(b). At any time thereafter when additional funds of this
Corporation are legally available and not so restricted for such purpose, such
funds will immediately be used to redeem the Shares this Corporation failed to
redeem on such Redemption Date until the balance of such Shares are redeemed.
Further, if the funds of this Corporation legally available for redemption of
Shares are sufficient to pay the Redemption Price of the Shares requested to be
redeemed in full, then any portion of such Redemption Price not paid when due
as provided in this paragraph 6(b) shall thereupon become immediately due and
payable by this Corporation in cash only, notwithstanding that payment thereof
is restricted pursuant to any Debt Instrument in accordance with the first
sentence of this paragraph 6(b), and shall constitute indebtedness of this
Corporation for borrowed money, the payment of which indebtedness the holders
requesting such redemption shall be entitled to enforce by the exercise of any
and all rights at law or in equity
(c) Notice of any redemption pursuant to
this paragraph 6 shall be mailed, first class, postage prepaid, not less than
30 days nor more than 60 days prior to the Redemption Date, to the holders of
record of the shares of Series C-TCI Group Preferred Stock to be redeemed, at
their respective addresses as the same appear upon the books of this
Corporation or are supplied by them in writing to this Corporation for the
purpose of such notice (with telephonic or facsimile confirmation of notice to
Bill Daniels so long as he is a holder of record); but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of the Series
C-TCI Group Preferred Stock. Such notice shall set forth the Redemption Price,
the Redemption Date, the number of Shares to be
20
<PAGE> 330
Series C-TCI Group
redeemed and the place at which the Shares called for redemption will, upon
presentation and surrender of the stock certificates evidencing such Shares, be
redeemed. In case fewer than the total number of shares of Series C-TCI Group
Preferred Stock represented by any certificate are redeemed, a new certificate
representing the number of unredeemed Shares will be issued to the holder
thereof without cost to such holder.
(d) If notice of any redemption by this
Corporation pursuant to this paragraph 6 shall have been mailed as provided in
paragraph 6(c) and if on or before the Redemption Date specified in such notice
the consideration necessary for such redemption shall have been set apart so as
to be available therefor and only therefor, then on and after the close of
business on the Redemption Date, the Shares called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and all rights with
respect to such Shares shall forthwith cease and terminate, except the right of
the holders thereof to receive upon surrender of their certificates the
consideration payable upon redemption thereof.
(e) All shares of Series C-TCI Group
Preferred Stock redeemed, retired, purchased or otherwise acquired by this
Corporation shall be retired and shall be restored to the status of authorized
and unissued shares of preferred stock (and may be reissued as part of another
series of the preferred stock of this Corporation, but such shares shall not be
reissued as Series C-TCI Group Preferred Stock).
(f) If and so long as this Corporation
shall fail to redeem on a Redemption Date pursuant to this paragraph 6 all
shares of Series C-TCI Group Preferred Stock required to be redeemed on such
date, this Corporation shall not redeem, or discharge any sinking fund
obligation with respect to, any Junior Securities, unless all then outstanding
shares of Series C-TCI Group Preferred Stock are redeemed, and shall not
purchase or otherwise acquire any shares of Series C-TCI Group Preferred Stock
or Junior Securities. Nothing contained in this paragraph 6(f) shall prevent
the purchase or acquisition of shares of Series C-TCI Group Preferred Stock
pursuant to a purchase or exchange offer or offers made to holders of all
outstanding shares of Series C-TCI Group Preferred Stock, provided that as to
holders of all outstanding shares of Series C-TCI Group Preferred Stock, the
terms of the purchase or exchange offer for all such shares are identical. The
provisions of this paragraph 6(f) are for the benefit of holders of Series
C-TCI Group Preferred Stock and accordingly the provisions of this paragraph
6(f) shall not restrict any redemption by this Corporation of Shares held by
any holder, provided that all other holders of Shares shall have waived in
writing the benefits of this provision with respect to such redemption.
(g) If this Corporation has elected to
issue shares of Series A TCI Group Common Stock in payment, in whole or in
part, of the Redemption Price of all or any of the Shares pursuant to paragraph
6(b) and if, as of the Redemption Date, Bill Daniels is deceased and
21
<PAGE> 331
Series C-TCI Group
the Shares redeemed are held by or for the benefit of an inter vivos or
testamentary trust or public or private foundation established by Bill Daniels,
then the provisions of this paragraph 6(g) shall apply. If the net proceeds to
the holder of sales in the open market of the shares of Series A TCI Group
Common Stock issued in payment of the Redemption Price during the 30-day period
following the later of the Redemption Date and, if this Corporation is required
to effect the registration of the sale of such shares pursuant to a
Registration Rights Agreement, the effective date of such registration (or if
the holder has provided written notice to this Corporation of its intention to
sell such shares prior to the expiration of such 30-day period, then during the
90-day period following the later of such dates), are in the aggregate (x) less
than the dollar amount of the portion of the Redemption Price paid by this
Corporation in the shares so sold, then this Corporation shall pay to the
holder the amount of the shortfall in cash or (y) greater than the dollar
amount of the portion of the Redemption Price paid by this Corporation in the
shares so sold, then the holder shall pay to this Corporation the amount of the
excess in cash. For purposes of the foregoing, "net proceeds" shall mean the
gross sale price for each sale, less the amount of all customary and reasonable
selling expenses incurred by the holder in making such sale (e.g., customary
broker discounts). The holder shall notify this Corporation promptly in
writing of each sale of shares of Series A TCI Group Common Stock made by the
holder during the 30-day or 90-day, as applicable, period referred to above,
the method of sale, the gross proceeds of such sale, and the kind and amount of
expenses deducted in determining the net proceeds of the applicable sale. If,
during such applicable period, the holder has sold a greater number of shares
of Series A TCI Group Common Stock than the number issued by this Corporation
in payment of the Redemption Price, then those sales that yielded the highest
net proceeds shall be deemed to be sales of the shares issued in payment of the
Redemption Price. Within five days after the expiration of the 30-day or
90-day, as applicable, period, this Corporation or the holder, as applicable,
shall make the payment to the other required by this paragraph 6(g).
7. Voting Rights. The holders of the Series
C-TCI Group Preferred Stock shall be entitled to vote on all matters submitted
to a vote of the holders of the Capital Stock of this Corporation which is
entitled to vote generally on the election of directors. Each Share shall
entitle the registered holder thereof to such number of votes as is equal to
the number of shares of Series A TCI Group Common Stock or other voting
securities of this Corporation into which such Share is then convertible.
Holders of Series C-TCI Group Preferred Stock shall vote together with holders
of Common Stock and shall not be entitled to vote as a class except as
otherwise required by law or this Corporation's Restated Certificate of
Incorporation.
8. Amendment. No amendment or modification of
the designation, rights, preferences, and limitations of the Shares set forth
herein shall be binding or effective without the prior consent of the holders
of record of Shares representing 66 2/3% of the Liquidation Value of all Shares
outstanding at the time such action is taken.
22
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Series C-TCI Group
9. Preemptive Rights. The holders of the Series
C-TCI Group Preferred Stock will not have any preemptive right to subscribe for
or purchase any shares of stock or any other securities which may be issued by
this Corporation.
10. Senior Securities. The Series C-TCI Group
Preferred Stock shall not rank junior to any other classes or series of stock
of this Corporation in respect of the right to receive dividends or the right
to participate in any distribution upon liquidation, dissolution or winding up
of this Corporation. Without the prior consent of the holders of record of
Shares representing 66 2/3% of the Liquidation Value of all Shares then
outstanding, this Corporation shall not issue any Senior Securities.
11. Exclusion of Other Rights. Except as may
otherwise be required by law and for the equitable rights and remedies that may
otherwise be available to holders of Series C-TCI Group Preferred Stock, the
shares of Series C-TCI Group Preferred Stock shall not have any designations,
preferences, limitations or relative rights, other than those specifically set
forth in these resolutions (as such resolutions may, subject to paragraph 8, be
amended from time to time) and in the Restated Certificate of Incorporation of
this Corporation.
12. Headings. The headings of the various
paragraphs and subparagraphs hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."
23
<PAGE> 333
Series C-TCI Group
The undersigned has signed this Certificate of Designations on
this 30th day of December, 1997.
/s/ STEPHEN M. BRETT
----------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
24
<PAGE> 334
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
---------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TELE-COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE
THIRTY-FIRST DAY OF DECEMBER, A.D. 1997, AT 9 O'CLOCK A.M.
[SEAL]
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8843677
DATE: 12-31-97
<PAGE> 335
Series C-Liberty Media Group
TELE-COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
-------------------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CONVERTIBLE PREFERRED STOCK, SERIES C-LIBERTY MEDIA GROUP"
ADOPTED BY THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
-------------------------
The undersigned, an Executive Vice President of
TELE-COMMUNICATIONS, INC., a Delaware corporation (this "Corporation"), HEREBY
CERTIFIES that the Board of Directors of this Corporation on December 16, 1997,
duly adopted the following resolutions creating a new series of this
Corporation's Series Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted
by the provisions of Article IV, Section D of the Restated Certificate of
Incorporation of this Corporation, the Board of Directors hereby creates and
authorizes the issuance of a new series of this Corporation's Series Preferred
Stock, par value $.01 per share ("Series Preferred Stock"), and hereby fixes
the powers, designations, dividend rights, voting powers, rights on
liquidation, conversion rights, redemption rights and other preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation
that are applicable to each class and series of this Corporation's preferred
stock, par value $.01 per share ("Preferred Stock")), as follows:
1. Designation and Number. The designation of
the series of Series Preferred Stock, par value $.01 per share, of this
Corporation authorized hereby is "Convertible Preferred Stock, Series C-Liberty
Media Group" (the "Series C-Liberty Media Group Preferred Stock"). The number
of shares constituting the Series C-Liberty Media Group Preferred Stock shall
be 70,575.
<PAGE> 336
Series C-Liberty Media Group
2. Certain Definitions. Unless the context
otherwise requires, the terms defined in this paragraph 2 shall, for all
purposes of this Certificate of Designations, have the meanings herein
specified:
"Board of Directors": The Board of Directors of this
Corporation and, to the extent permitted by law, unless the context indicates
otherwise, any committee thereof authorized with respect to any particular
matter to exercise the power of the Board of Directors of this Corporation with
respect to such matter.
"Capital Stock": Any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
this Corporation.
"Class B Preferred Stock": The Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share, of
this Corporation.
"Closing Price": Of any security for any day, the
last reported sale price of such security regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the composite tape, or if such
security is not quoted on the composite tape, on the principal United States
securities exchange registered under the Exchange Act on which such security is
listed or admitted to trading, or if such security is not listed or admitted to
trading on any such exchange, the last reported sale price (or the average of
the quoted closing bid and asked prices if there were no reported sales) on The
Nasdaq Stock Market or any comparable quotation system, or if such security is
not quoted on The Nasdaq Stock Market or any comparable system, the average of
the closing bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by this
Corporation for that purpose or, in the absence of such quotations, such other
method of determining market value as the Board of Directors shall from time to
time deem to be fair.
"Common Stock": The Common Stock, $1.00 par value per
share, of this Corporation, and all series thereof now existing or hereafter
created.
"Conversion Rate": The kind and amount of securities,
assets or other property that as of any date are issuable or deliverable upon
conversion of a share of Series C-Liberty Media Group Preferred Stock. The
Conversion Rate of Series C-Liberty Media Group Preferred Stock shall initially
be as set forth in paragraph 4(b), subject to adjustment as set forth in
paragraph 4 of this Certificate of Designations. In the event that pursuant to
paragraph 4 the Series C-Liberty Media Group Preferred Stock becomes
convertible into more than one class or series of capital stock of this
Corporation, the term Conversion Rate, when used with respect to any such class
or series, shall mean the number or fraction of shares or other units of such
capital stock that as of any date would be issued upon conversion of a share of
Series C-Liberty Media Group Preferred Stock.
2
<PAGE> 337
Series C-Liberty Media Group
"Convertible Securities": Securities, other than the
Series B Liberty Media Group Common Stock, that are convertible at the option
of the holder into Series A Liberty Media Group Common Stock.
"Debt Instrument": Any bond, debenture, note,
indenture, guarantee or other instrument or agreement evidencing any
Indebtedness, whether existing at the Issue Date or thereafter created,
incurred, assumed or guaranteed.
"Determination Date": For any issuance of rights or
warrants or any distribution to which paragraph 4(d) or 4(e) applies, the
earlier of (i) the record date for the determination of stockholders entitled
to receive the rights or warrants or the distribution to which such paragraph
applies and (ii) the Ex-Dividend Date for such rights, warrants or
distribution.
"Exchange Act": The Securities Exchange Act of 1934,
as amended.
"Exchange Offer": An issuer tender offer (within the
meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by the
Securities and Exchange Commission under the Exchange Act, as such Rule is in
effect on the date hereof), including, without limitation, one that is effected
through the distribution of rights or warrants, made to holders of Series A
Liberty Media Group Common Stock (or to holders of other stock of this
Corporation receivable by a holder of Series C-Liberty Media Group Preferred
Stock upon conversion thereof), to issue stock of this Corporation or of a
Subsidiary of this Corporation and/or other property to a tendering stockholder
in exchange for shares of Series A Liberty Media Group Common Stock (or such
other stock) validly tendered pursuant to such issuer tender offer.
"Exchange Preferred Stock": A series of convertible
preferred stock of this Corporation, having terms, conditions, designations,
dividend rights, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as is
practicable in the judgment of the Board of Directors, to those of the Series
C-Liberty Media Group Preferred Stock for which such Exchange Preferred Stock
is exchanged, except that (i) the liquidation preference will be determined as
provided in paragraph 4(h) or 4(i), as applicable, (ii) the running of any time
periods pursuant to the terms of the Series C-Liberty Media Group Preferred
Stock shall be tacked to the corresponding time periods in the Exchange
Preferred Stock and (iii) the Exchange Preferred Stock will not be convertible
into, and the holders will have no conversion rights thereunder with respect
to, (x) in the case of a redemption of Series A Liberty Media Group Common
Stock
3
<PAGE> 338
Series C-Liberty Media Group
or Redeemable Capital Stock, the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock, as applicable, redeemed, or the Redemption Securities
issued, in the Redemption Event, and (y) in the case of a Spin Off, the Spin
Off Securities.
"Exchange Securities": Stock of this Corporation or
of a Subsidiary of this Corporation that is issued in exchange for shares of
Series A Liberty Media Group Common Stock (or other stock of this Corporation
receivable by a holder of Series C-Liberty Media Group Preferred Stock upon
conversion thereof) pursuant to an Exchange Offer.
"Ex-Dividend Date": The date on which "ex-dividend"
trading commences for a dividend, an issuance of rights or warrants or a
distribution to which paragraph 4(c), 4(d) or 4(e) applies in the
over-the-counter market or the principal exchange on which the Series A Liberty
Media Group Common Stock is then quoted or listed.
"Indebtedness": Any (i) liability, contingent or
otherwise, of this Corporation (x) for borrowed money whether or not the
recourse of the lender is to the whole of the assets of this Corporation or
only to a portion thereof), (y) evidenced by a note, debenture or similar
instrument (including a purchase money obligation) given other than in
connection with the acquisition of inventory or similar property in the
ordinary course of business, or (z) for the payment of money relating to an
obligation under a lease that is required to be capitalized for financial
accounting purposes in accordance with generally accepted accounting
principles; (ii) liability of others described in the preceding clause (i)
which this Corporation has guaranteed or which is otherwise its legal
liability; (iii) obligations secured by a mortgage, pledge, lien, charge or
other encumbrance to which the property or assets of this Corporation are
subject whether or not the obligations secured thereby shall have been assumed
by or shall otherwise be this Corporation's legal liability; and (iv) any
amendment, renewal, extension or refunding of any liability of the types
referred to in clauses (i), (ii) and (iii) above.
"Issue Date": December 31, 1997, such date being the
first date on which any shares of the Series C-Liberty Media Group Preferred
Stock are first issued or deemed to have been issued.
"Junior Securities": All shares of Class B Preferred
Stock, Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series
A Liberty Media Group Common Stock, Series B Liberty Media Group Common Stock,
Series A TCI Ventures Group Common Stock, Series B TCI Ventures Group Common
Stock, any other series of Common Stock and for purposes of paragraph 3 hereof,
any class or series of stock of this Corporation not entitled to receive any
assets upon liquidation, dissolution or winding up of the affairs of this
Corporation until the Series C-Liberty Media Group Preferred Stock shall have
received the entire amount to which such stock is entitled upon such
liquidation, dissolution or winding up.
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Series C-Liberty Media Group
"Liquidation Value": Measured per Share of the Series
C-Liberty Media Group Preferred Stock as of any particular date, $579.31.
"Mirror Preferred Stock": Convertible preferred stock
issued by (a) in the case of a redemption of Series A Liberty Media Group
Common Stock or Redeemable Capital Stock, the issuer of the applicable
Redemption Securities, (b) in the case of a Spin Off, the issuer of the
applicable Spin Off Securities, and (c) in the case of an Exchange Offer, the
issuer of the applicable Exchange Securities, and having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof that are identical, or as
nearly so as practicable in the judgment of the Board of Directors, to those of
the Series C-Liberty Media Group Preferred Stock for which such Mirror
Preferred Stock is exchanged, except that (i) the liquidation preference will
be determined as provided in paragraph 4(h), 4(i) or 5, as applicable, (ii) the
running of any time periods pursuant to the terms of the Series C-Liberty Media
Group Preferred Stock shall be tacked to the corresponding time periods in the
Mirror Preferred Stock, and (iii) the Mirror Preferred Stock shall be
convertible into the kind and amount of Redemption Securities, Spin Off
Securities or Exchange Securities, as applicable, and other securities and
property that the holder of a share of Series C-Liberty Media Group Preferred
Stock in respect of which such Mirror Preferred Stock is issued pursuant to the
terms hereof would have received (x) in the case of the redemption of Series A
Liberty Media Group Common Stock or Redeemable Capital Stock, as the case may
be, upon such redemption had such share of Series C-Liberty Media Group
Preferred Stock been converted immediately prior to the effective date of the
Redemption Event, (y) in the case of a Spin Off, in such Spin Off had such
share of Series C-Liberty Media Group Preferred Stock been converted
immediately prior to the record date for such Spin Off and (z) in the case of
an Exchange Offer, upon consummation thereof had such share of Series C-Liberty
Media Group Preferred Stock that such holder elects to tender pursuant to
Section 5 been converted and the shares of Series A Liberty Media Group Common
Stock received upon such conversion been tendered in full pursuant to such
Exchange Offer prior to the expiration thereof and the same percentage of such
tendered shares had been accepted for exchange as the percentage of validly
tendered shares of Series A Liberty Media Group Common Stock were accepted for
exchange pursuant to such Exchange Offer, as the case may be.
"Parity Securities": Any class or series of stock of
this Corporation entitled to receive assets upon liquidation, dissolution or
winding up of the affairs of this Corporation on a parity with the Series C-
Liberty Media Preferred Group Preferred Stock. The Series C-TCI Group Preferred
Stock, the Series D Preferred Stock, the Series F Preferred Stock, the Series G
Preferred Stock and the Series H Preferred Stock rank on a parity with the
Series C-Liberty Media Group Preferred Stock as to rights to receive assets
upon liquidation, dissolution or winding up of the affairs of this Corporation
and accordingly, constitute "Parity Securities" for purposes of this
Certificate of Designations.
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Series C-Liberty Media Group
"person": A natural person, corporation, limited
liability company, partnership or other legal entity.
"Redeemable Capital Stock": A class or series of
Capital Stock of this Corporation that provides by its terms a right in favor
of this Corporation to call, redeem, exchange or otherwise acquire all of the
outstanding shares or units of such class or series.
"Redemption Date": As to any Share, the date fixed
for redemption of such Share as specified in the notice of redemption given in
accordance with paragraph 6(c), provided that no such date will be a Redemption
Date unless the applicable Redemption Price is actually paid on such date or
the consideration sufficient for the payment thereof, and for no other purpose,
has been set apart, and if the Redemption Price is not so paid in full or the
consideration sufficient therefor so set apart then the Redemption Date will be
the date on which such Redemption Price is fully paid or the consideration
sufficient for the payment thereof, and for no other purpose, has been set
apart.
"Redemption Price": As to any Share that is to be
redeemed on any Redemption Date, the Liquidation Value as in effect on such
Redemption Date.
"Redemption Securities": With respect to the
redemption of the Series A Liberty Media Group Common Stock or any Redeemable
Capital Stock, stock of a Subsidiary of this Corporation that is distributed by
this Corporation in payment, in whole or in part, of the redemption price for
the Series A Liberty Media Group Common Stock or such Redeemable Capital Stock,
as the case may be.
"Senior Securities": Any class or series of stock of
this Corporation ranking senior to the Series C-Liberty Media Group Preferred
Stock in respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of this Corporation.
"Series A Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series A Liberty Media Group Common Stock may thereafter have been changed.
"Series A TCI Group Common Stock": The
Tele-Communications, Inc. Series A TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series A TCI Group
Common Stock may thereafter have been changed.
"Series A TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the
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Series C-Liberty Media Group
date of this Certificate of Designations, and Capital Stock of any other class
or series into which such Series A TCI Ventures Group Common Stock may
thereafter have been changed.
"Series B Liberty Media Group Common Stock": The
Tele-Communications, Inc. Series B Liberty Media Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B Liberty Media Group Common Stock may thereafter have been changed.
"Series B TCI Group Common Stock": The
Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per
share, as such exists on the date of this Certificate of Designations, and
Capital Stock of any other class or series into which such Series B TCI Group
Common Stock may thereafter have been changed.
"Series B TCI Ventures Group Common Stock": The
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock, par value
$1.00 per share, as such exists on the date of this Certificate of
Designations, and Capital Stock of any other class or series into which such
Series B TCI Ventures Group Common Stock may thereafter have been changed.
"Series C-TCI Group Preferred Stock": The Convertible
Preferred Stock, Series C-TCI Group, par value $.01 per share, of this
Corporation.
"Series D Preferred Stock": The Convertible Preferred
Stock, Series D, par value $.01 per share, of this Corporation.
"Series F Preferred Stock": The Convertible
Redeemable Participating Preferred Stock, Series F, par value $.01 per share,
of this Corporation.
"Series G Preferred Stock": The Redeemable
Convertible TCI Group Preferred Stock, Series G, par value $.01 per share, of
this Corporation.
"Series H Preferred Stock": The Redeemable
Convertible Liberty Media Group Preferred Stock, Series H, par value $.01 per
share, of this Corporation.
"Share": A share of Series C-Liberty Media Group
Preferred Stock.
"Spin Off": The distribution of stock of a Subsidiary
of this Corporation as a dividend to all holders of Series A Liberty Media
Group Common Stock.
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Series C-Liberty Media Group
"Spin Off Securities": Stock of a Subsidiary of this
Corporation that is distributed to holders of Series A Liberty Media Group
Common Stock in a Spin Off.
"Subsidiary": With respect to any person, any
corporation, limited liability company, partnership or other legal entity more
than 50% of whose outstanding voting securities or membership, partnership or
other ownership interests, as the case may be, are directly or indirectly owned
by such person.
3. Liquidation. Upon any liquidation,
dissolution or winding up of this Corporation, whether voluntary or
involuntary, the holders of Series C-Liberty Media Group Preferred Stock shall
be entitled to be paid an amount in cash equal to the aggregate Liquidation
Value at the date fixed for liquidation of all Shares outstanding before any
distribution or payment is made upon any Junior Securities, which payment shall
be made pari passu with any such payment made to the holders of any Parity
Securities. The holders of Series C-Liberty Media Group Preferred Stock shall
be entitled to no other or further distribution of or participation in any
remaining assets of this Corporation after receiving the Liquidation Value per
Share. If upon such liquidation, dissolution or winding up, the assets of this
Corporation to be distributed among the holders of Series C-Liberty Media Group
Preferred Stock and to all holders of Parity Securities are insufficient to
permit payment in full to such holders of the aggregate preferential amounts
which they are entitled to be paid, then the entire assets of this Corporation
to be distributed to such holders shall be distributed ratably among them based
upon the full preferential amounts to which the shares of Series C-Liberty
Media Group Preferred Stock and such Parity Securities would otherwise
respectively be entitled. Upon any such liquidation, dissolution or winding up,
after the holders of Series C-Liberty Media Group Preferred Stock and Parity
Securities have been paid in full the amounts to which they are entitled, the
remaining assets of this Corporation may be distributed to the holders of
Junior Securities. This Corporation shall mail written notice of such
liquidation, dissolution or winding up to each record holder of Series
C-Liberty Media Group Preferred Stock not less than 30 days prior to the
payment date stated in such written notice. Neither the consolidation or merger
of this Corporation into or with any other corporation or corporations, nor the
sale, transfer or lease by this Corporation of all or any part of its assets,
shall be deemed to be a liquidation, dissolution or winding up of this
Corporation within the meaning of this paragraph 3.
4. Conversion.
(a) Unless previously called for
redemption as provided in paragraph 6 hereof, the Series C-Liberty Media Group
Preferred Stock may be converted at any time or from time to time, in such
manner and upon such terms and conditions as hereinafter provided in this
paragraph 4 into fully paid and non-assessable full shares of Series A Liberty
Media Group Common Stock. In the case of Shares called for redemption by this
Corporation pursuant to paragraph 6(a) hereof, the conversion right provided by
this paragraph 4 shall terminate at the close
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Series C-Liberty Media Group
of business on the fifteenth day preceding the date fixed for redemption. In
the case of Shares required to be redeemed pursuant to paragraph 6(b), the
conversion right provided by this paragraph 4 shall terminate immediately upon
receipt by this Corporation of a notice given pursuant to said paragraph. In
case cash, securities or property other than Series A Liberty Media Group
Common Stock shall be payable, deliverable or issuable upon conversion as
provided herein, then all references to Series A Liberty Media Group Common
Stock in this paragraph 4 shall be deemed to apply, so far as appropriate and
as nearly as may be, to such cash, property or other securities.
(b) Subject to the provisions for
adjustment hereinafter set forth in this paragraph 4, the Series C-Liberty
Media Group Preferred Stock may be converted into Series A Liberty Media Group
Common Stock at the initial conversion rate of 37.5 fully paid and
non-assessable shares of Series A Liberty Media Group Common Stock for one
share of the Series C-Liberty Media Group Preferred Stock.
(c) In case this Corporation shall, on
or after the Issue Date, (i) pay a dividend or make a distribution on its then
outstanding shares of Series A Liberty Media Group Common Stock in shares of
Series A Liberty Media Group Common Stock, (ii) subdivide the then outstanding
shares of Series A Liberty Media Group Common Stock into a greater number of
shares of Series A Liberty Media Group Common Stock, (iii) combine the then
outstanding shares of Series A Liberty Media Group Common Stock into a smaller
number of shares of Series A Liberty Media Group Common Stock, (iv) pay a
dividend or make a distribution on its then outstanding shares of Series A
Liberty Media Group Common Stock in shares of its Capital Stock (other than
Series A Liberty Media Group Common Stock or rights, warrants or options for
its Capital Stock), or (v) issue by reclassification of its then outstanding
shares of Series A Liberty Media Group Common Stock (other than a
reclassification by way of merger or binding share exchange that is subject to
paragraph 4(g)) any shares of any other class or series of Capital Stock of
this Corporation (other than rights, warrants or options for its Capital
Stock), then, subject to the following sentence and to paragraph 4(k), the
conversion privilege and the Conversion Rate in effect immediately prior to the
opening of business on the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted so that the holder of each share of the Series C-Liberty Media Group
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number and kind of shares of Capital Stock of this Corporation that
such holder would have owned or been entitled to receive immediately following
such action had such shares of Series C-Liberty Media Group Preferred Stock
been converted immediately prior to such time.
An adjustment made pursuant to this paragraph 4(c) for a
dividend or distribution shall become effective immediately after the record
date for the dividend or distribution and an adjustment made pursuant to this
paragraph 4(c) for a subdivision, combination or reclassification shall become
effective immediately after the effective date of the subdivision, combination
or reclassification. Such adjustment shall be made successively whenever any
action listed above shall be taken.
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Series C-Liberty Media Group
Any shares of Series A Liberty Media Group Common Stock
issuable in payment of a dividend shall be deemed to have been issued
immediately prior to the time of the record date for such dividend for purposes
of calculating the number of outstanding shares of Series A Liberty Media Group
Common Stock under paragraph 4(d) below.
(d) In case this Corporation shall, on
or after the Issue Date, distribute any rights or warrants to all holders of
shares of Series A Liberty Media Group Common Stock entitling them (for a
period expiring within 45 days after the record date for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for or
purchase shares of Series A Liberty Media Group Common Stock (or Convertible
Securities) at a price per share of Series A Liberty Media Group Common Stock
(or having an initial exercise price or conversion price per share of Series A
Liberty Media Group Common Stock, after adding thereto an allocable portion of
the exercise price of the right or warrant to purchase such Convertible
Securities, computed on the basis of the maximum number of shares of Series A
Liberty Media Group Common Stock issuable upon conversion of such Convertible
Securities) less than the current market price per share of Series A Liberty
Media Group Common Stock (as determined in accordance with the provisions of
paragraph 4(f) below) on the Determination Date, the number of shares of Series
A Liberty Media Group Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Series A
Liberty Media Group Common Stock into which such Share was theretofore
convertible immediately prior to the opening of business on such record date by
a fraction of which the numerator shall be the number of shares of Series A
Liberty Media Group Common Stock outstanding on such record date plus the
number of additional shares of Series A Liberty Media Group Common Stock
offered for subscription or purchase (or into which the Convertible Securities
so offered are initially convertible) and of which the denominator shall be the
number of shares of Series A Liberty Media Group Common Stock outstanding on
such record date plus the number of shares of Series A Liberty Media Group
Common Stock which the aggregate offering price of the total number of shares
of Series A Liberty Media Group Common Stock so offered (or the aggregate
initial conversion or exercise price of the Convertible Securities so offered,
after adding thereto the aggregate exercise price of the rights or warrants to
purchase such Convertible Securities) would purchase at the current market
price per share of Series A Liberty Media Group Common Stock (as determined in
accordance with the provisions of paragraph 4(f) below) on the Determination
Date. Such adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such rights or
warrants. In the event that all of the shares of Series A Liberty Media Group
Common Stock (or all of the Convertible Securities) subject to such rights or
warrants have not been issued when such rights or warrants expire (or, in the
case of rights or warrants to purchase Convertible Securities which have been
exercised, all of the shares
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Series C-Liberty Media Group
of Series A Liberty Media Group Common Stock issuable upon conversion of such
Convertible Securities have not been issued prior to the expiration of the
conversion right thereof), then the Conversion Rate shall be readjusted
retroactively to be the Conversion Rate which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Series A Liberty Media Group Common Stock (or
Convertible Securities) issued upon the exercise of such rights or warrants (or
the conversion of such Convertible Securities); but such subsequent adjustment
shall not affect the number of shares of Series A Liberty Media Group Common
Stock issued upon the conversion of any Share prior to the date such subsequent
adjustment is made.
(e) In case this Corporation, on or
after the Issue Date, shall distribute to all holders of shares of Series A
Liberty Media Group Common Stock any evidences of its indebtedness or assets or
rights or warrants to purchase shares of Series A Liberty Media Group Common
Stock or Series B Liberty Media Group Common Stock or securities convertible
into shares of Series A Liberty Media Group Common Stock or Series B Liberty
Media Group Common Stock (excluding (x) dividends or distributions referred to
in paragraph 4(c), distributions of rights or warrants referred to in paragraph
4(d), distributions of Spin Off Securities referred to in paragraph 4(i) and
distributions of rights or warrants exercisable for Exchange Securities (which
shall be governed by paragraph 5) and (y) cash dividends or distributions
unless such cash dividends or cash distributions are Extraordinary Cash
Dividends), then in each such case the number of shares of Series A Liberty
Media Group Common Stock into which each Share shall thereafter be convertible
shall be determined by multiplying the number of shares of Series A Liberty
Media Group Common Stock into which such Share was theretofore convertible
immediately prior to the opening of business on (A) the record date for the
determination of stockholders entitled to receive the distribution or (B) in
the case of a reclassification, the effective date of such reclassification, by
a fraction of which the numerator shall be the current market price per share
of the Series A Liberty Media Group Common Stock (as determined in accordance
with the provisions of paragraph 4(f) below) on the Determination Date and of
which the denominator shall be such current market price per share of Series A
Liberty Media Group Common Stock less the fair market value (as determined by
the Board of Directors of this Corporation, whose determination shall be
conclusive) on such record date or effective date of the portion of the assets
or evidences of indebtedness or rights or warrants so to be distributed
applicable to one share of Series A Liberty Media Common Stock; provided,
however, that in the event the denominator of the foregoing fraction is zero or
negative, in lieu of the foregoing adjustment, adequate provision shall be made
so that each holder of a Share shall have the right to receive upon conversion
of such Share, in addition to the shares of Series A Liberty Media Group Common
Stock to which the holder is entitled, the assets or evidences of indebtedness
or rights or warrants such holder would have received had such holder converted
such Share immediately prior to the record date for such distribution. Such
adjustment shall be made successively whenever any such distribution is made
and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
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Series C-Liberty Media Group
For purposes of this paragraph 4(e), the term "Extraordinary
Cash Dividend" shall mean any cash dividend with respect to the Series A
Liberty Media Group Common Stock the amount of which, together with the
aggregate amount of cash dividends on the Series A Liberty Media Group Common
Stock to be aggregated with such cash dividend in accordance with the following
provisions of this paragraph, equals or exceeds the threshold percentage set
forth below in the following sentence. If, upon the date prior to the
Ex-Dividend Date with respect to a cash dividend on Series A Liberty Media
Group Common Stock, the aggregate of the amount of such cash dividend together
with the amounts of all cash dividends on the Series A Liberty Media Group
Common Stock with Ex-Dividend Dates occurring in the 365 consecutive day period
ending on the date prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied (other than any such other
cash dividends with Ex-Dividend Dates occurring in such period for which a
prior adjustment in the Conversion Rate was previously made under this
paragraph 4(e)) equals or exceeds on a per share basis 10% of the average of
the Closing Prices during the period beginning on the date after the first such
Ex-Dividend Date in such period and ending on the date prior to the Ex-Dividend
Date with respect to the cash dividend to which this provision is being applied
(except that if no other cash dividend has had an Ex-Dividend Date occurring in
such period, the period for calculating the average of the Closing Prices shall
be the period commencing 365 days prior to the date immediately prior to the
Ex-Dividend Date with respect to the cash dividend to which this provision is
being applied), such cash dividend together with each other cash dividend with
an Ex-Dividend Date occurring in such 365-day period that is aggregated with
such cash dividend in accordance with this paragraph shall be deemed to be an
Extraordinary Cash Dividend.
(f) For the purpose of any computation
under paragraph 4(d), 4(e) or 4(m), the current market price per share of
Series A Liberty Media Group Common Stock on any Determination Date or date of
issuance, as the case may be, shall be deemed to be the average of the daily
Closing Prices for a share of Series A Liberty Media Group Common Stock for the
ten (10) consecutive trading days before the Determination Date or date of
issuance, as applicable, in question.
(g) If this Corporation consolidates
with any other entity or merges into another entity, or in case of any sale or
transfer to another entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of this Corporation, or if the
Corporation is a party to a merger or binding share exchange which reclassifies
or changes its outstanding Series A Liberty Media Group Common Stock, this
Corporation (or its successor in such transaction) or the purchaser of such
properties and assets shall make appropriate provision so that the holder of a
Share shall have the right thereafter to convert such Share into the kind and
amount of shares of stock and other securities and property that such holder
would have owned immediately after such consolidation, merger, sale or transfer
if such holder had converted such Share into Series A Liberty Media Group
Common Stock immediately prior to the effective date of such
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Series C-Liberty Media Group
consolidation, merger, sale or transfer (taking into account for this purpose
(to the extent applicable) the valid exercise by such holder of any rights of
election made available to holders of Series A Liberty Media Group Common
Stock, which rights of election shall simultaneously be made available to
holders of Shares on the same basis as if such Shares had theretofore been
converted into shares of Series A Liberty Media Group Common Stock), and the
holders of the Series C-Liberty Media Group Preferred Stock shall have no other
conversion rights under these provisions; provided, that effective provision
shall be made, in the Articles or Certificate of Incorporation of the resulting
or surviving corporation or otherwise or in any contracts of sale or transfer,
so that the provisions set forth herein for the protection of the conversion
rights of the Series C-Liberty Media Group Preferred Stock shall thereafter be
made applicable, as nearly as reasonably may be, to any such other shares of
stock and other securities and property deliverable upon conversion of the
Series C-Liberty Media Group Preferred Stock remaining outstanding or other
convertible preferred stock or other Convertible Securities received by the
holders of Series C-Liberty Media Group Preferred Stock in place thereof; and
provided, further, that any such resulting or surviving corporation or
purchaser shall expressly assume the obligation to deliver, upon the exercise
of the conversion privilege, such shares, securities or property as the holders
of the Series C-Liberty Media Group Preferred Stock remaining outstanding, or
other convertible preferred stock or other convertible securities received by
the holders in place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provision for the protection of the conversion
rights as above provided.
(h) Subject to paragraph 4(k) and to the
remaining provisions of this paragraph 4(h), in the event that (i) this
Corporation redeems all, and not less than all, of the outstanding shares of
Series A Liberty Media Group Common Stock in accordance with the terms thereof
or (ii) a holder of Series C-Liberty Media Group Preferred Stock would be
entitled to receive upon conversion thereof pursuant to this paragraph 4 any
Redeemable Capital Stock and this Corporation redeems, exchanges or otherwise
acquires all of the outstanding shares or other units of such Redeemable
Capital Stock (each event referred to in clause (i) and (ii) being a
"Redemption Event"), then, from and after the effective date of such Redemption
Event, the holders of shares of Series C-Liberty Media Group Preferred Stock
then outstanding shall be entitled to receive upon conversion of such shares,
in lieu of shares or units of Series A Liberty Media Group Common Stock or of
such Redeemable Capital Stock, as the case may be, the kind and amount of
shares of stock and other securities and property receivable upon the
Redemption Event by a holder of the number of shares or units of Series A
Liberty Media Group Common Stock or such Redeemable Capital Stock, as the case
may be, into which such shares of Series C-Liberty Media Group Preferred Stock
could have been converted immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed
to exercise any rights of election with respect thereto and received per share
or unit of Series A Liberty Media Group Common Stock or such Redeemable Capital
Stock the kind and amount of stock and other securities and property received
per share or unit by a plurality of the non-electing shares or units of Series
A Liberty Media Group Common
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Series C-Liberty Media Group
Stock or such Redeemable Capital Stock, as the case may be), and (from and
after the effective date of such Redemption Event) the holders of the Series
C-Liberty Media Group Preferred Stock shall have no other conversion rights
under these provisions with respect to the Series A Liberty Media Group Common
Stock or such Redeemable Capital Stock, as the case may be.
Notwithstanding the foregoing, if the redemption price for the
shares of Series A Liberty Media Group Common Stock or such Redeemable Capital
Stock is paid in whole or in part in Redemption Securities, and the Mirror
Preferred Stock Condition is met, the Series C-Liberty Media Group Preferred
Stock shall not be convertible into such Redemption Securities and, from and
after the applicable redemption date, the holders of any shares of Series
C-Liberty Media Group Preferred Stock that have not been exchanged for Mirror
Preferred Stock shall have no conversion rights under these provisions except
for any conversion right that may have existed immediately prior to the
effective date of the Redemption Event with respect to any shares of stock or
other securities or property other than the Series A Liberty Media Group Common
Stock or Redeemable Capital Stock so redeemed. This Corporation shall use all
commercially reasonable efforts to ensure that the Mirror Preferred Stock
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of the Series A Liberty Media Group Common
Stock or the Redeemable Capital Stock into which the Series C-Liberty Media
Group Preferred Stock is then convertible, assuming that the Series C-Liberty
Media Group Preferred Stock is not then convertible into any other shares of
stock or other securities or property, if appropriate provision is made so that
the holders of the Series C-Liberty Media Group Preferred Stock have the right
to exchange their shares of Series C-Liberty Media Group Preferred Stock on the
effective date of the Redemption Event for shares of Mirror Preferred Stock of
the issuer of the Redemption Securities, which Mirror Preferred Stock shall
have an aggregate liquidation preference equal to the aggregate Liquidation
Value of the shares of Series C-Liberty Media Group Preferred Stock to be
exchanged therefor.
If, before giving effect to a Redemption Event, a holder of
Series C-Liberty Media Group Preferred Stock would be entitled to receive upon
conversion of such Series C-Liberty Media Group Preferred Stock any shares of
stock or other securities or property (other than cash in lieu of fractional
securities) in addition to the Series A Liberty Media Group Common Stock or
Redeemable Capital Stock being redeemed, and the redemption price payable upon
such Redemption Event will include Redemption Securities, then the Mirror
Preferred Stock Condition will be satisfied if appropriate provision is made so
that the holders of the Series C-Liberty Media Group Preferred Stock have the
right to exchange their shares of Series C-Liberty Media Group Preferred Stock
on the effective date of the Redemption Event for Exchange Preferred Stock of
this Corporation and Mirror Preferred Stock of the issuer of the Redemption
Securities. The sum of the initial liquidation preferences of the shares of
Exchange Preferred Stock and Mirror Preferred Stock delivered in exchange for a
share of Series C-Liberty Media Group Preferred Stock will equal the
Liquidation Value of a share of Series C-Liberty Media Group Preferred Stock on
the effective date of the
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Series C-Liberty Media Group
Redemption Event. The Mirror Preferred Stock will have an aggregate initial
liquidation preference equal to the product of the aggregate Liquidation Value
of the shares of Series C-Liberty Media Group Preferred Stock exchanged
therefor and the quotient of (x) the product of the Conversion Rate for the
Series A Liberty Media Group Common Stock or Redeemable Capital Stock to be
redeemed (determined immediately prior to the effective date of the Redemption
Event) and the average of the daily Closing Prices of the Series A Liberty
Media Group Common Stock or Redeemable Capital Stock, as the case may be, for
the period of ten consecutive trading days ending on the third trading day
prior to the effective date of the Redemption Event, divided by (y) the sum of
the amount determined pursuant to clause (x), plus the fair value of the shares
of stock or other securities or property (other than those being redeemed) that
would have been receivable by a holder of Series C-Liberty Media Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Redemption Event (such fair value to be determined in the case of stock
or other securities with a Closing Price in the same manner as provided in
clause (x) and otherwise by the Board of Directors in the exercise of its
judgment). The shares of Exchange Preferred Stock will have an aggregate
initial liquidation preference equal to the difference between the aggregate
Liquidation Value of the shares of Series C-Liberty Media Group Preferred Stock
exchanged therefor and the aggregate initial liquidation preference of the
Mirror Preferred Stock.
(i) If this Corporation effects a Spin
Off, this Corporation shall make appropriate provision so that the holders of
the Series C-Liberty Media Group Preferred Stock have the right to exchange
their shares of Series C-Liberty Media Group Preferred Stock on the effective
date of the Spin Off for Exchange Preferred Stock of this Corporation and
Mirror Preferred Stock of the issuer of the Spin Off Securities. The sum of the
initial liquidation preferences of the shares of Exchange Preferred Stock and
Mirror Preferred Stock delivered in exchange for a share of Series C-Liberty
Media Group Preferred Stock will equal the Liquidation Value of a share of
Series C-Liberty Media Group Preferred Stock on the effective date of the Spin
Off. The Mirror Preferred Stock will have an aggregate liquidation preference
equal to the product of the aggregate Liquidation Value of the shares of Series
C-Liberty Media Group Preferred Stock exchanged therefor and the quotient of
(x) the product of the number (or fraction) of Spin Off Securities that would
have been receivable upon such Spin Off by a holder of the number of shares of
Series A Liberty Media Group Common Stock issuable upon conversion of a share
of Series C-Liberty Media Group Preferred Stock immediately prior to the
effective date of the Spin Off and the average of the daily Closing Prices of
the Spin Off Securities for the period of ten consecutive trading days
commencing on the tenth trading day following the effective date of the Spin
Off, divided by (y) the sum of the amount determined pursuant to clause (x),
plus the fair value of the shares of Series A Liberty Media Group Common Stock
and other securities or property (other than Spin Off Securities) that would
have been receivable by a holder of a share of Series C-Liberty Media Group
Preferred Stock upon conversion thereof immediately prior to the effective date
of the Spin Off (such fair value to be determined in the case of Series A
Liberty Media Group Common Stock or other securities with a Closing Price in
the same manner as provided in clause (x) and otherwise by the
15
<PAGE> 350
Series C-Liberty Media Group
Board of Directors in the exercise of its judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Value of the shares of Series
C-Liberty Media Group Preferred Stock exchanged therefor and the aggregate
initial liquidation preference of the Mirror Preferred Stock. From and after
the effective date of such Spin Off, the holders of any shares of Series
C-Liberty Media Group Preferred Stock that have not been exchanged for Mirror
Preferred Stock and Exchange Preferred Stock as provided above shall have no
conversion rights under these provisions with respect to such Spin Off
Securities.
(j) Whenever the Conversion Rate or the
conversion privilege shall be adjusted as provided in this paragraph 4, this
Corporation shall promptly cause a notice to be mailed to the holders of record
of the Series C-Liberty Media Group Preferred Stock describing the nature of
the event requiring such adjustment, the Conversion Rate in effect immediately
thereafter and the kind and amount of stock or other securities or property
into which the Series C-Liberty Media Group Preferred Stock shall be
convertible after such event. Where appropriate, such notice may be given in
advance and included as a part of a notice required to be mailed under the
provisions of paragraph 4(l).
(k) This Corporation may, but shall not
be required to, make any adjustment of the Conversion Rate if such adjustment
would require an increase or decrease of less than 1% in such Conversion Rate;
provided, however, that any adjustments which by reason of this paragraph 4(k)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this paragraph 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
In any case in which this paragraph 4(k) shall require that an adjustment shall
become effective immediately after a record date for such event, the
Corporation may defer until the occurrence of such event (x) issuing to the
holder of any shares of Series C-Liberty Media Group Preferred Stock converted
after such record date and before the occurrence of such event the additional
shares of Series A Liberty Media Group Common Stock or other Capital Stock
issuable upon such conversion by reason of the adjustment required by such
event over and above the shares of Series A Liberty Media Group Common Stock,
or other Capital Stock issuable upon such conversion before giving effect to
such adjustment and (y) paying to such holder cash in lieu of any fractional
interest to which such holder is entitled pursuant to paragraph 4(p); provided,
however, that, if requested by such holder, this Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares of Series A Liberty Media Group Common
Stock or other Capital Stock, and such cash, upon the occurrence of the event
requiring such adjustment.
To the extent the shares of Series C-Liberty Media Group
Preferred Stock become convertible into cash, no adjustment need be made
thereafter as to the cash. Interest will not accrue on the cash.
16
<PAGE> 351
Series C-Liberty Media Group
(l) In case at any time:
(i) this Corporation shall take any
action which would require an adjustment in the Conversion
Rate pursuant to this paragraph;
(ii) there shall be any capital
reorganization or reclassification of the Series A Liberty
Media Group Common Stock (other than a change in par value),
or any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of this
Corporation is required, or any sale, transfer or lease of all
or substantially all of the properties and assets of the
Corporation, or a tender offer for shares of Series A Liberty
Media Group Common Stock representing at least a majority of
the total voting power represented by the outstanding shares
of Series A Liberty Media Group Common Stock which has been
recommended by the Board of Directors as being in the best
interests of the holders of Series A Liberty Media Group
Common Stock; or
(iii) there shall be a voluntary or
involuntary dissolution, liquidation or winding up of this
Corporation;
then, in any such event, this Corporation shall give written notice, in the
manner provided in the first sentence of paragraph 6(c) hereof, to the holders
of the Series C-Liberty Media Group Preferred Stock at their respective
addresses as the same appear on the books of the Corporation, at least twenty
days (or ten days in the case of a recommended tender offer as specified in
clause (ii) above) prior to any record date for such action, dividend or
distribution or the date as of which it is expected that holders of Series A
Liberty Media Group Common Stock of record shall be entitled to exchange their
shares of Series A Liberty Media Group Common Stock for securities or other
property, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, sale, transfer, lease, tender offer, dissolution,
liquidation or winding up; provided, however, that any notice required by any
event described in clause (ii) of this paragraph 4(l) shall be given in the
manner and at the time that such notice is given to the holders of Series A
Liberty Media Group Common Stock. Without limiting the obligations of this
Corporation to provide notice of corporate actions hereunder, the failure to
give the notice required by this paragraph 4(l) or any defect therein shall not
affect the legality or validity of any such corporate action of the Corporation
or the vote upon such action.
(m) Before any holder of Series
C-Liberty Media Group Preferred Stock shall be entitled to convert the same
into Series A Liberty Media Group Common Stock, such holder shall surrender the
certificate or certificates for such Series C-Liberty Media Group Preferred
Stock at the office of this Corporation or at the office of the transfer agent
for the Series C-Liberty Media Group Preferred Stock, which certificate or
certificates, if this Corporation shall so request, shall be duly endorsed to
this Corporation or in blank or accompanied by proper instruments of
17
<PAGE> 352
Series C-Liberty Media Group
transfer to this Corporation or in blank (such endorsements or instruments of
transfer to be in form satisfactory to this Corporation), and shall given
written notice to this Corporation at said office that it elects to convert all
or a part of the Shares represented by said certificate or certificates in
accordance with the terms of this paragraph 4, and shall state in writing
therein the name or names in which such holder wishes the certificates for
Series A Liberty Media Group Common Stock to be issued. Every such notice of
election to convert shall constitute a contract between the holder of such
Series C-Liberty Media Group Preferred Stock and the Corporation, whereby the
holder of such Series C-Liberty Media Group Preferred Stock shall be deemed to
subscribe for the amount of Series A Liberty Media Group Common Stock which
such holder shall be entitled to receive upon conversion of the number of
shares of Series C-Liberty Media Group Preferred Stock to be converted, and, in
satisfaction of such subscription, to deposit the shares of Series C-Liberty
Media Group Preferred Stock to be converted, and thereby this Corporation shall
be deemed to agree that the surrender of the shares of Series C-Liberty Media
Group Preferred Stock to be converted shall constitute full payment of such
subscription for Series A Liberty Media Group Common Stock to be issued upon
such conversion. This Corporation will as soon as practicable after such
deposit of a certificate or certificates for Series C-Liberty Media Group
Preferred Stock, accompanied by the written notice and the statement above
prescribed, issue and deliver at the office of this Corporation or of said
transfer agent to the person for whose account such Series C-Liberty Media
Group Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates
for the number of full shares of Series A Liberty Media Group Common Stock to
which such holder shall be entitled, together with cash in lieu of any fraction
of a share as hereinafter provided. If surrendered certificates for Series
C-Liberty Media Group Preferred Stock are converted only in part, this
Corporation will issue and deliver to the holder, or to his nominee(s), without
charge therefor, a new certificate or certificates representing the aggregate
of the unconverted Shares. Such conversion shall be deemed to have been made as
of the date of such surrender of the Series C-Liberty Media Group Preferred
Stock to be converted; and the person or persons entitled to receive the Series
A Liberty Media Group Common Stock issuable upon conversion of such Series
C-Liberty Media Group Preferred Stock shall be treated for all purposes as the
record holder or holders of such Series A Liberty Media Group Common Stock on
such date.
The issuance of certificates for shares of Series A Liberty
Media Group Common Stock upon conversion of shares of Series C-Liberty Media
Group Preferred Stock shall be made without charge for any issue, stamp or
other similar tax in respect of such issuance, provided, however, if any such
certificate is to be issued in a name other than that of the registered holder
of the share or shares of Series C-Liberty Media Group Preferred Stock
converted, the person or persons requesting the issuance thereof shall pay to
this Corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish to the satisfaction of
this Corporation that such tax has been paid.
18
<PAGE> 353
Series C-Liberty Media Group
This Corporation shall not be required to convert any shares
of Series C-Liberty Media Group Preferred Stock, and no surrender of Series
C-Liberty Media Group Preferred Stock shall be effective for that purpose,
while the stock transfer books of this Corporation are closed for any purpose;
but the surrender of Series C-Liberty Media Group Preferred Stock for
conversion during any period while such books are so closed shall become
effective for conversion immediately upon the reopening of such books, as if
the conversion had been made on the date such Series C-Liberty Media Group
Preferred Stock was surrendered.
(n) This Corporation shall at all times
reserve and keep available, solely for the purpose of issuance upon conversion
of the outstanding shares of Series C-Liberty Media Group Preferred Stock, such
number of shares of Series A Liberty Media Group Common Stock (or other Capital
Stock) as shall be issuable upon the conversion of all outstanding Shares,
provided that nothing contained herein shall be construed to preclude this
Corporation from satisfying its obligations in respect of the conversion of the
outstanding shares of Series C-Liberty Media Group Preferred Stock by delivery
of shares of Series A Liberty Media Group Common Stock (or such other Capital
Stock) which are held in the treasury of this Corporation. This Corporation
shall take all such corporate and other actions as from time to time may be
necessary to insure that all shares of Series A Liberty Media Group Common
Stock (or other Capital Stock) issuable upon conversion of shares of Series
C-Liberty Media Group Preferred Stock at the Conversion Rate in effect from
time to time will, upon issue, be duly and validly authorized and issued, fully
paid and nonassessable and free of any preemptive or similar rights.
(o) All shares of Series C-Liberty Media
Group Preferred Stock received by this Corporation upon conversion thereof into
Series A Liberty Media Group Common Stock shall be retired and shall be
restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Series C-Liberty Media
Group Preferred Stock).
(p) This Corporation shall not be
required to issue fractional shares of Series A Liberty Media Group Common
Stock or scrip upon conversion of the Series C-Liberty Media Group Preferred
Stock. As to any final fraction of a share of Series A Liberty Media Group
Common Stock which a holder of one or more Shares would otherwise be entitled
to receive upon conversion of such Shares in the same transaction, this
Corporation shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the market value of a full share of Series
A Liberty Media Group Common Stock. For purposes of this paragraph 4(p), the
market value of a share of Series A Liberty Media Group Common Stock shall be
the Closing Price thereof on the trading day immediately preceding the date of
conversion.
19
<PAGE> 354
Series C-Liberty Media Group
5. Exchange Option.
(a) In the event an Exchange Offer is
made by this Corporation or a Subsidiary thereof (the applicable of the
foregoing being the "Offeror"), the Offeror shall concurrently therewith make
an equivalent offer to the holders of Series C-Liberty Media Group Preferred
Stock pursuant to which such holders may tender Shares, based upon the number
of shares of Series A Liberty Media Group Common Stock into which such tendered
Shares are then convertible (and in lieu of tendering outstanding shares of
Series A Liberty Media Group Common Stock), together with such other
consideration as may be required to be tendered pursuant to such Exchange
Offer, and receive in exchange therefor, in lieu of Exchange Securities (and
other property, if applicable), Mirror Preferred Stock with an aggregate
liquidation preference equal to the aggregate Liquidation Value of the shares
of Series C-Liberty Media Group Preferred Stock exchanged therefor. Whether or
not a holder of Shares elects to accept such offer and tender Shares, no
adjustment to the Conversion Rate of the Shares will be made pursuant to
paragraph 4 in connection with the Exchange Offer.
(b) If an Exchange Offer is made as
discussed above, the Offeror shall, concurrently with the distribution of the
offering circular or prospectus and related documents to holders of Series A
Liberty Media Group Common Stock, provide each holder of Series C-Liberty Media
Group Preferred Stock with a notice setting forth the offer described in
paragraph 5(a) above and describing the Exchange Offer, the Exchange Securities
and the Mirror Preferred Stock. Such notice shall be accompanied by the
offering circular, prospectus or similar document provided to holders of Series
A Liberty Media Group Common Stock in respect of the Exchange Offer and a copy
of the certificate of designations (or similar document) proposed to be filed
by the Offeror in order to establish the Mirror Preferred Stock. No failure to
mail the notice contemplated by this paragraph 5(b) or any defect therein or in
the mailing thereof shall affect the validity of the applicable Exchange Offer.
6. Redemption.
(a) Subject to the provisions of
paragraph 6(f), the shares of Series C-Liberty Media Group Preferred Stock may
be redeemed out of funds legally available therefor, at the option of this
Corporation by action of the Board of Directors, in whole or from time to time
in part, at any time after August 8, 2001 at the Redemption Price per Share as
of the applicable Redemption Date. If less than all outstanding Shares are to
be redeemed, Shares shall be redeemed ratably among the holders thereof.
(b) Subject to the rights of any Parity
Securities and the provisions of paragraph 6(f) and subject to any prohibitions
or restrictions contained in any Debt Instrument, at any time on or after
August 8, 2001, any holder shall have the right, at such holder's option, to
20
<PAGE> 355
Series C-Liberty Media Group
require redemption by this Corporation at the Redemption Price per Share as of
the applicable Redemption Date of all or any portion of his Shares having an
aggregate Liquidation Value in excess of $1,000,000, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in
accordance with the first sentence of this paragraph 6(b) or, at this
Corporation's election, through the issuance of fully paid and nonassessable
shares of Series A Liberty Media Group Common Stock (the value of which for
this purpose shall be deemed to be equal to, on a per share basis, the average
of the daily Closing Prices of the Series A Liberty Media Group Common Stock
for the 20 consecutive trading days ending on and including the fifth trading
day preceding the date fixed for redemption pursuant to this sentence), the
Shares so requested to be redeemed on such date within 60 days following this
Corporation's receipt of such notice as this Corporation shall state in its
notice given pursuant to paragraph 6(c). If the funds of this Corporation
legally available for redemption of Shares and not restricted in accordance
with the first sentence of this paragraph 6(b) are insufficient to redeem the
total number of Shares required to be redeemed pursuant to this paragraph 6(b)
and the Corporation has not elected to pay the Redemption Price or the
applicable portion thereof in shares of Series A Liberty Media Group Common
Stock, then, those funds which are legally available for redemption of such
Shares and not so restricted will be used to redeem the maximum possible number
of such Shares ratably among the holders who have required Shares to be
redeemed under this paragraph 6(b). At any time thereafter when additional
funds of this Corporation are legally available and not so restricted for such
purpose, such funds will immediately be used to redeem the Shares this
Corporation failed to redeem on such Redemption Date until the balance of such
Shares are redeemed. Further, if the funds of this Corporation legally
available for redemption of Shares are sufficient to pay the Redemption Price
of the Shares requested to be redeemed in full, then any portion of such
Redemption Price not paid when due as provided in this paragraph 6(b) shall
thereupon become immediately due and payable by this Corporation in cash only,
notwithstanding that payment thereof is restricted pursuant to any Debt
Instrument in accordance with the first sentence of this paragraph 6(b), and
shall constitute indebtedness of this Corporation for borrowed money, the
payment of which indebtedness the holders requesting such redemption shall be
entitled to enforce by the exercise of any and all rights at law or in equity.
(c) Notice of any redemption pursuant to
this paragraph 6 shall be mailed, first class, postage prepaid, not less than
30 days nor more than 60 days prior to the Redemption Date, to the holders of
record of the shares of Series C-Liberty Media Group Preferred Stock to be
redeemed, at their respective addresses as the same appear upon the books of
this Corporation or are supplied by them in writing to this Corporation for the
purpose of such notice (with telephonic or facsimile confirmation of notice to
Bill Daniels so long as he is a holder of record); but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the
validity of the proceedings for the redemption of any shares of the Series
C-Liberty Media Group Preferred Stock. Such notice shall set forth the
Redemption Price, the Redemption Date, the number of Shares to be redeemed and
the place at which the Shares called for redemption will, upon
21
<PAGE> 356
Series C-Liberty Media Group
presentation and surrender of the stock certificates evidencing such Shares, be
redeemed. In case fewer than the total number of shares of Series C-Liberty
Media Group Preferred Stock represented by any certificate are redeemed, a new
certificate representing the number of unredeemed Shares will be issued to the
holder thereof without cost to such holder.
(d) If notice of any redemption by this
Corporation pursuant to this paragraph 6 shall have been mailed as provided in
paragraph 6(c) and if on or before the Redemption Date specified in such notice
the consideration necessary for such redemption shall have been set apart so as
to be available therefor and only therefor, then on and after the close of
business on the Redemption Date, the Shares called for redemption,
notwithstanding that any certificate therefor shall not have been surrendered
for cancellation, shall no longer be deemed outstanding, and all rights with
respect to such Shares shall forthwith cease and terminate, except the right of
the holders thereof to receive upon surrender of their certificates the
consideration payable upon redemption thereof.
(e) All shares of Series C-Liberty Media
Group Preferred Stock redeemed, retired, purchased or otherwise acquired by
this Corporation shall be retired and shall be restored to the status of
authorized and unissued shares of preferred stock (and may be reissued as part
of another series of the preferred stock of this Corporation, but such shares
shall not be reissued as Series C-Liberty Media Group Preferred Stock).
(f) If and so long as this Corporation
shall fail to redeem on a Redemption Date pursuant to this paragraph 6 all
shares of Series C-Liberty Media Group Preferred Stock required to be redeemed
on such date, this Corporation shall not redeem, or discharge any sinking fund
obligation with respect to, any Junior Securities, unless all then outstanding
shares of Series C-Liberty Media Group Preferred Stock are redeemed, and shall
not purchase or otherwise acquire any shares of Series C-Liberty Media Group
Preferred Stock or Junior Securities. Nothing contained in this paragraph 6(f)
shall prevent the purchase or acquisition of shares of Series C-Liberty Media
Group Preferred Stock pursuant to a purchase or exchange offer or offers made
to holders of all outstanding shares of Series C-Liberty Media Group Preferred
Stock, provided that as to holders of all outstanding shares of Series
C-Liberty Media Group Preferred Stock, the terms of the purchase or exchange
offer for all such shares are identical. The provisions of this paragraph 6(f)
are for the benefit of holders of Series C-Liberty Media Group Preferred Stock
and accordingly the provisions of this paragraph 6(f) shall not restrict any
redemption by this Corporation of Shares held by any holder, provided that all
other holders of Shares shall have waived in writing the benefits of this
provision with respect to such redemption.
(g) If this Corporation has elected to
issue shares of Series A Liberty Media Group Common Stock in payment, in whole
or in part, of the Redemption Price of all or any of the Shares pursuant to
paragraph 6(b) and if, as of the Redemption Date, Bill Daniels
22
<PAGE> 357
Series C-Liberty Media Group
is deceased and the Shares redeemed are held by or for the benefit of an inter
vivos or testamentary trust or public or private foundation established by Bill
Daniels, then the provisions of this paragraph 6(g) shall apply. If the net
proceeds to the holder of sales in the open market of the shares of Series A
Liberty Media Group Common Stock issued in payment of the Redemption Price
during the 30-day period following the later of the Redemption Date and, if
this Corporation is required to effect the registration of the sale of such
shares pursuant to a Registration Rights Agreement, the effective date of such
registration (or if the holder has provided written notice to this Corporation
of its intention to sell such shares prior to the expiration of such 30-day
period, then during the 90-day period following the later of such dates), are
in the aggregate (x) less than the dollar amount of the portion of the
Redemption Price paid by this Corporation in the shares so sold, then this
Corporation shall pay to the holder the amount of the shortfall in cash or (y)
greater than the dollar amount of the portion of the Redemption Price paid by
this Corporation in the shares so sold, then the holder shall pay to this
Corporation the amount of the excess in cash. For purposes of the foregoing,
"net proceeds" shall mean the gross sale price for each sale, less the amount
of all customary and reasonable selling expenses incurred by the holder in
making such sale (e.g., customary broker discounts). The holder shall notify
this Corporation promptly in writing of each sale of shares of Series A Liberty
Media Group Common Stock made by the holder during the 30-day or 90-day, as
applicable, period referred to above, the method of sale, the gross proceeds of
such sale, and the kind and amount of expenses deducted in determining the net
proceeds of the applicable sale. If, during such applicable period, the holder
has sold a greater number of shares of Series A Liberty Media Group Common
Stock than the number issued by this Corporation in payment of the Redemption
Price, then those sales that yielded the highest net proceeds shall be deemed
to be sales of the shares issued in payment of the Redemption Price. Within
five days after the expiration of the 30-day or 90-day, as applicable, period,
this Corporation or the holder, as applicable, shall make the payment to the
other required by this paragraph 6(g).
7. Voting Rights. The holders of the Series
C-Liberty Media Group Preferred Stock shall be entitled to vote on all matters
submitted to a vote of the holders of the Capital Stock of this Corporation
which is entitled to vote generally on the election of directors. Each Share
shall entitle the registered holder thereof to such number of votes as is equal
to the number of shares of Series A Liberty Media Group Common Stock or other
voting securities of this Corporation into which such Share is then
convertible. Holders of Series C-Liberty Media Group Preferred Stock shall vote
together with holders of Common Stock and shall not be entitled to vote as a
class except as otherwise required by law or this Corporation's Restated
Certificate of Incorporation.
8. Amendment. No amendment or modification of
the designation, rights, preferences, and limitations of the Shares set forth
herein shall be binding or effective without the prior consent of the holders
of record of Shares representing 66 2/3% of the Liquidation Value of all Shares
outstanding at the time such action is taken.
23
<PAGE> 358
Series C-Liberty Media Group
9. Preemptive Rights. The holders of the Series
C-Liberty Media Group Preferred Stock will not have any preemptive right to
subscribe for or purchase any shares of stock or any other securities which may
be issued by this Corporation.
10. Senior Securities. The Series C-Liberty Media
Group Preferred Stock shall not rank junior to any other classes or series of
stock of this Corporation in respect of the right to receive dividends or the
right to participate in any distribution upon liquidation, dissolution or
winding up of this Corporation. Without the prior consent of the holders of
record of Shares representing 66 2/3% of the Liquidation Value of all Shares
then outstanding, this Corporation shall not issue any Senior Securities.
11. Exclusion of Other Rights. Except as may
otherwise be required by law and for the equitable rights and remedies that may
otherwise be available to holders of Series C-Liberty Media Group Preferred
Stock, the shares of Series C-Liberty Media Group Preferred Stock shall not
have any designations, preferences, limitations or relative rights, other than
those specifically set forth in these resolutions (as such resolutions may,
subject to paragraph 8, be amended from time to time) and in the Restated
Certificate of Incorporation of this Corporation.
12. Headings. The headings of the various
paragraphs and subparagraphs hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions hereof.
FURTHER RESOLVED, that the appropriate officers of this
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."
The undersigned has signed this Certificate of Designations on
this 30th day of December, 1997.
/s/ Stephen M. Brett
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
24
<PAGE> 359
CERTIFICATE OF ELIMINATION
OF THE
CONVERTIBLE PREFERRED STOCK, SERIES C
OF
TELE-COMMUNICATIONS, INC.
Tele-Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), in accordance with the
provisions of Section 151(g) of the General Corporation Law of the State of
Delaware ("DGCL"), hereby certifies as follows:
1. That, pursuant to Section 151 of the DGCL and authority
granted in the Restated Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation"), the Board of Directors of the Company, by
resolution duly adopted, authorized the issuance of a series of eighty thousand
(80,000) shares of Convertible Preferred Stock, Series C, par value $1.00 per
share, of the Company (the "Series C Preferred Stock"), and established the
voting powers, designations, preferences and relative, participating and other
rights, and the qualifications, limitations or restrictions thereof, and, on
August 4, 1994, filed a Certificate of Designation (the "Certificate of
Designation") with respect to the Series C Preferred Stock in the office of the
Secretary of State of the State of Delaware.
2. That no shares of Series C Preferred Stock are outstanding and
no shares thereof will be issued subject to the Certificate of Designation.
3. That the Board of Directors of the Company has adopted
resolutions in the form of Exhibit A (which is attached hereto and made a part
hereof).
4. That, accordingly, all matters set forth in the Certificate of
Designation with respect to the Series C Preferred Stock be, and hereby are,
eliminated from the Certificate of Incorporation.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Elimination to be signed by Stephen M. Brett, its Executive Vice President, as
of the 17th day of January, 1998.
TELE-COMMUNICATIONS, INC.
By: /s/ STEPHEN M. BRETT
----------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
<PAGE> 360
EXHIBIT A
FORM OF
RESOLUTIONS OF THE
BOARD OF DIRECTORS OF
TELE-COMMUNICATIONS, INC.
RESOLVED, that the seventy thousand five hundred seventy-five (70,575)
shares of reacquired Series C Preferred Stock be, and they hereby are, retired
and restored to the status of authorized and unissued shares of preferred stock
of the Company; and it is further
RESOLVED, that as of the date hereof no shares of Series C Preferred Stock
are outstanding and no shares of Series C Preferred Stock will be issued subject
to the Certificate of Designation; and it is further
RESOLVED, that all matters set forth in the Certificate of Designation with
respect to the Series C Preferred Stock be eliminated from the Certificate of
Incorporation; and it is further
RESOLVED, that the officers of the Company be, and each of them hereby is,
authorized and directed to file a Certificate with the office of the Secretary
of State of the State of Delaware setting forth a copy of these resolutions
whereupon all matters set forth in the Certificate of Designation with respect
to the Series C Preferred Stock shall be eliminated from the Certificate of
Incorporation.
<PAGE> 361
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/08/1998
981220597 - 2371729
CERTIFICATE OF ELIMINATION
OF THE
CONVERTIBLE PREFERRED STOCK, SERIES D
OF
TELE-COMMUNICATIONS, INC.
Tele-Communications, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Company"), in accordance with the
provisions of Section 151(g) of the General Corporation Law of the State of
Delaware ("DGCL"), hereby certifies as follows:
1. That, pursuant to Section 151 of the DGCL and authority
granted in the Restated Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation"), the Board of Directors of the Company, by
resolution duly adopted, authorized the issuance of a series of one million
(1,000,000) shares of Convertible Preferred Stock, Series D, par value $.01 per
share, of the Company (the "Series D Preferred Stock"), and established the
voting powers, designations, preferences and relative, participating and other
rights, and the qualifications, limitations or restrictions thereof, and, on
January 26, 1995, filed a Certificate of Designation (the "Certificate of
Designation") with respect to the Series D Preferred Stock in the office of the
Secretary of State of the State of Delaware.
2. That no shares of Series D Preferred Stock are outstanding and
no shares thereof will be issued subject to the Certificate of Designation.
3. That the Board of Directors of the Company has adopted
resolutions in the form of Exhibit A (which is attached hereto and made a part
hereof).
4. That, accordingly, all matters set forth in the Certificate of
Designation with respect to the Series D Preferred Stock be, and hereby are,
eliminated from the Certificate of Incorporation.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Elimination to be signed by Stephen M. Brett, its Executive Vice President, as
of the 24th day of April, 1998.
TELE-COMMUNICATIONS, INC.
By: /s/ STEPHEN M. BRETT
-------------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
<PAGE> 362
EXHIBIT A
UNANIMOUS WRITTEN CONSENT
OF THE EXECUTIVE COMMITTEE
OF THE BOARD OF DIRECTORS
OF TELE-COMMUNICATIONS, INC.
DATED AS OF FEBRUARY 12, 1998
RESOLVED, that this Corporation redeem on or after April 1, 1998 (the
"Redemption Date") all of the outstanding shares of the Series D Preferred Stock
at the Redemption Price thereof on the Redemption Date;
RESOLVED, that in connection with the redemption of the Series D Preferred
Stock, the Corporation shall instruct The Bank of New to mail a notice of
redemption to all the holders of the Series D Preferred Stock and to accept
and make payment for tendered shares of Series D Preferred Stock on behalf of
the Corporation in accordance with the terms of the Certificate of Designation;
RESOLVED, that the Chairman of the Board, the President or any Executive
Senior Vice President (each an "Authorized Officer") be, and they hereby are,
and each of them with full authority to act without the others hereby is,
authorized and empowered to take any and all actions in the name and on behalf
of the Corporation necessary or desirable in connection with the redemption of
all the outstanding shares of Series D Preferred Stock;
RESOLVED, that the Authorized Officers of the Corporation be, and each of
them acting without the others hereby is, authorized and empowered, in the name
and on behalf of the Corporation, to take or cause to be taken such further
action and to execute and deliver or cause to be executed and delivered such
further instruments and documents in connection with the redemption of the
outstanding shares of Series D Preferred Stock (including, without limitation,
preparing the notice of redemption and any required notifications to and
making any necessary filings with the Securities and Exchange Commission, the
National Market Tier of the Nasdaq Stock Market and/or the Delaware Secretary
of State) as any Authorized Officer shall deem necessary or expedient in order
to effectuate the full intent of the foregoing resolutions.
1
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of June 23, 1998, between
TELE-COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
and Leo J. Hindery, Jr. ("Executive").
This Agreement is intended to set forth the terms and conditions of
the employment by the Company of Executive from and after January 1, 1998. In
consideration of the mutual covenants and agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, do hereby
agree as follows:
1. Term and Termination.
(a) Term. The term of Executive's employment (the "Employment
Term") under this Agreement shall commence on January 1, 1998, and end on
December 31, 2002, and, pursuant to the terms of this Agreement, will be
extended daily so that the remainder of the Employment Term shall, at all times
on and prior to the effective date of the termination of Executive's employment
as provided herein, and will be five (5) years. During the Employment Term, the
Company agrees to employ Executive, and Executive agrees to serve the Company,
upon and subject to the terms and conditions set forth in this Agreement.
(b) Termination by the Company. Executive's employment by the
Company may terminated by the Company only as provided in clauses (i), (ii) and
(iii) below.
(i) Upon the death of Executive.
(ii) Effective as of December 31 of any year, upon giving written notice of
such termination of Executive six (6) months prior to the effective date
thereof and by paying to Executive in a lump sum upon such termination all
remaining compensation (other than compensation the payment of which was
deferred by Executive prior to such termination) that would have been
payable under Section 4 hereof if this Agreement remained in full force and
effect for the full five-year balance of the Employment Term.
(iii) At any time for "cause," which for purposes of this Agreement shall be
deemed to have occurred only on the happening of any of the following:
(A) the plea of guilty to, or conviction for, the commission of
a felony offense by Executive; provided, however, that after
indictment the Company may suspend Executive from the rendition
of services but
<PAGE> 2
without limiting or modifying in any other way the Company's
obligations under this Agreement;
(B) a material breach by Executive of a material fiduciary duty
owed to the Company;
(C) a material breach by Executive of the covenants made by him
in Sections 9, 10 and 11 hereof; or
(D) the willful and gross neglect by Executive of the material
duties specifically and expressly required by this Agreement
provided, however, that any claim that "cause," within the meaning of
clause (B), (C) or (D) above, exists for the termination of Executive's
employment may be asserted on behalf of the Company only by a duly adopted
resolution of the Board of Directors of the Company and only after thirty
(30) days' prior written notice to Executive during which period he may
cure the breach or neglect that is the basis of any such claim, if curable;
provided, further, that during the period of twelve (12) months following a
change in control of the Company (as defined below), "cause" shall be
deemed to have occurred only upon the happening of an event referred to in
clause (A) above; and provided, further, that the term "material" as used
in clauses (B), (C) and (D) above and in Section 13 hereof shall be
construed by reference to the effect of the relevant action or omission on
the Company taken as a whole. For purposes of the foregoing, a change in
control of the Company will be considered to have occurred if the group in
control of the Company shall no longer include John C. Malone, members of
his family or representatives thereof. The term "family" as used herein
means the named person's estate, spouse and lineal descendants and any
trust or other investment vehicle for the primary benefit of such named
person or members of his family; and the term "representatives" includes
executors and trustees.
(c) Effect of Termination by the Company. If Executive's employment
by the Company is terminated by the Company pursuant to Section 1(b) hereof, all
compensation under Section 4 of this Agreement (other than compensation the
payment of which was deferred by Executive prior to such termination) that has
accrued in favor of Executive as of the date of such termination, to the extent
unpaid or undelivered, shall be paid or delivered to Executive on the date of
termination. Upon such termination of Executive's employment and payment of
such amount (and, if applicable, the full amount payable pursuant to clause (ii)
of Section 1(b)), the Company's obligations under this Agreement shall
terminate, except as provided in Section 4 (as it relates to compensation the
payment of which was deferred by Executive prior to such termination), Section
5, Section 6 (as it relates to expenses incurred prior to such termination) and
Section 8 of this Agreement. Executive acknowledges that his obligations under
Sections 9, 10, 11 and 12 hereof will survive any such termination.
(d) Termination by Executive. Executive shall have the right to
terminate his employment by the Company and be relieved of any obligation to
render or provide any further services hereunder as provided in clauses (i) and
(ii) below:
2
<PAGE> 3
(i) Upon six (6) months' prior written notice to the Company of the
effective date of such termination.
(ii) Immediately, upon the giving of notice of termination by Executive to
the Company following a change in control of the Company (as defined in
Section 1(b) above).
If Executive's employment by the Company is terminated by Executive pursuant to
this Section 1(d), all compensation under Section 4 of this Agreement (other
than compensation the payment of which was deferred by Executive prior to such
termination) that has accrued in favor of Executive as of the date of such
termination, to the extent unpaid or undelivered, and, if Executive terminates
his employment pursuant to clause (ii) above, all remaining compensation (other
than compensation the payment of which Executive elected prior to such
termination to defer) that would have been payable under Section 4 hereof if
this Agreement remained in full force and effect for the full five-year balance
of the Employment Term, shall be paid or delivered to Executive in a lump sum
on the date of termination. Upon such termination of Executive's employment and
payment of such amounts, Executive and the Company shall each be relieved of any
further obligations under this Agreement, except (in the case of Executive) as
provided in Sections 9, 10, 11 and 12 of this Agreement, and except (in the
case of the Company) as provided in Section 4 (as it relates to compensation
the payment of which was deferred by Executive prior to such termination),
Section 5, Section 6 (as it relates to expenses incurred prior to such
termination) and Section 8 of this Agreement.
2. Services to Be Rendered by Executive. Executive agrees to serve the
Company as President and Chief Operating Officer of the Company. In such
capacity, Executive shall perform all reasonable acts customarily associated
with such positions, or necessary or desirable to protect and advance the best
interests of the Company. Executive shall perform such acts and carry out such
duties, and shall in all other respects serve the Company faithfully and to the
best of his ability. If Executive is elected a director or an officer of any of
the Company's subsidiaries during the Employment Term, Executive will serve in
any such capacities without further compensation except as may be decided by
the Company at the Company's sole election. The Company agrees that Executive
shall, during the Employment Term, be based at the Company's principal
executive office, which shall be located in the Denver area, with the
understanding that Executive will travel as reasonably required in the
performance of his duties hereunder.
3. Time to Be Devoted by Executive. Executive agrees to devote substantially
all of his business time, attention, efforts and abilities to the business of
the Company and to use his best efforts to promote the interests of the Company.
4. Compensation Payable to Executive.
(a) Commencing on the date of this Agreement and thereafter during
the Employment Term, the Company shall pay to Executive a salary at the rate of
$900,000 per annum. The Board of Directors shall review Executive's
compensation annually to determine, in its sole discretion, whether any
increase in Executive's salary is appropriate.
3
<PAGE> 4
(b) Executive's annual compensation shall be paid to Executive in
accordance with the Company's regular policy but not less frequently than once
a month. With respect to the employment year commencing January 1, 1998,
Executive shall defer 0% of each monthly payment of Executive's annual
compensation for such year; and with respect to each employment year
thereafter, Executive shall be entitled to elect, by written notice to the
Company received no later than thirty (30) days prior to the commencement of
such employment year, to defer such percentage (not in excess of 40%) as
Executive may specify in such notice, of each monthly payment of Executive's
annual compensation for such year (in each case, the "monthly deferred
amount"). Each such monthly deferred amount shall bear interest, compounded
annually, at the rate of 8% per annum, from the first day of the month of
deferral to, but not including, the Determination Date. As used herein,
"Determination Date" shall mean the first business day of the first full
calendar month following the termination of Executive's employment with the
Company.
(c) The sum of the monthly deferred amounts pursuant to Section 4(b)
above plus all interest accrued thereon the Determination Date (the "total
deferred amount") shall be calculated as of the Determination Date and shall be
paid to Executive in substantially equal monthly payments over a 120-month
period commencing on the Determination Date and continuing on the first day of
each calendar month thereafter until paid in full. Each monthly payment of the
total deferred amount shall be accompanied by a payment of interest thereon
computed at the rate of 8% per annum, compounded annually, from and including
the Determination Date to the date of such payment.
(d) If Executive dies while he is a full time employee of the
Company or before the expiration of the period during which such deferred
payments are to be paid to him, the remaining deferred payments shall be paid
forthwith in a lump sum to Executive's designated beneficiary or beneficiaries.
The phrase "designated beneficiary or beneficiaries" shall mean Executive's
spouse, if she shall survive Executive, or such other person or persons named
from time to time by Executive in a signed instrument filed with the Company.
If the designation made in any such signed instrument shall for any reason be
ineffective, the phrase "designated beneficiary or beneficiaries" shall mean
Executive's estate.
(e) The amount of deferred compensation payable hereunder (together
with the interest applicable thereto) shall not in any way be reserved or held
in trust by the Company. Neither Executive nor any designated beneficiary or
personal representative shall have any rights against the Company in respect of
such deferred payments other than the rights of an unsecured creditor of the
Company. Deferred payments provided for herein shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, and shall not in any manner be liable or subject to the
debts, contracts, liabilities, engagements or torts of Executive, nor of any
designated beneficiary or personal representative. The payment to Executive of
such deferred payments shall be subject to the further condition that Executive
shall comply with the provisions of Section 10 of this Agreement during the
entire payment period; and Executive shall comply with the provisions of
Sections 9 and 12 of this Agreement, if said provisions are applicable by their
terms, for the first two (2) years of the payment period.
4
<PAGE> 5
5. Bonus Plan. The Compensation Committee of the Board of Directors will
grant to Executive, for each calendar year or portion thereof that Executive is
employed by the Company, a Performance Award under the terms of the Amended
and Restated Tele-Communications, Inc. 1996 Incentive Plan (or any successor
plan) with a target bonus opportunity for Executive of not less than
$2,100,000, determined as of the commencement of the employment period. The
Compensation Committee will specify the maximum amount that may be paid to
Executive in respect to a Performance Award, shall determine the performance
criteria applicable to the award and, upon the conclusion of the employment
period, shall determine whether performance goals have been achieved and the
amount to be paid to Executive in respect of such award. Executive shall have
the right to receive, at Executive's election, all or any part of the
Performance Award in shares of the Company's Common Stock.
6. Expenses. The Company shall reimburse Executive for the reasonable amount
of dining, hotel, traveling, entertainment and other expenses necessarily
incurred by Executive in the discharge of his duties hereunder.
7. Executive Benefit Plans. During the Employment Term, Executive shall be
entitled to participate in and to be accorded all rights and benefits under all
formal incentive compensation plans, stock incentive plans, employee stock
purchase plans, retirement plans, disability insurance, life insurance, health
and major medical insurance policy or policies, and other plans or benefits
(including, without limitation, any insurance covering officers or directors
against errors or omissions) now in existence or that may hereafter be adopted
by the Company for the benefit of its executive officers or key employees
generally or for the benefit of its employees generally, provided that Executive
is eligible by the terms thereof to participate therein. On June 23, 1998, the
Company granted to Executive 1,000,000 restricted stock units for the Company's
Series A TCI Group Common Stock, which shall vest 50% on each of the fourth and
fifth anniversaries of the date of grant. In the event of the consummation of
the merger contemplated by the Agreement and Plan of Restructuring and Merger
among AT&T Corp., Italy Merger Corp. and Tele-Communications, Inc., dated as of
June 23, 1998 (the "Merger Agreement"), such restricted stock units shall be
equitably converted into restricted stock units for AT&T Corp. Common Stock
pursuant to the terms of the Merger Agreement, unless the terms of the agreement
to assume this Agreement between AT&T Corp. and Executive, dated as of June 23,
1998, result in conversion of the restricted stock units into tracking stock of
AT&T Corp.'s consumer organization as of the consummation of such merger.
8. Indemnification. The Company will indemnify and hold harmless Executive,
to the fullest extent permitted by applicable law, in respect of any liability,
damage, cost or expense (including reasonable counsel fees) incurred in
connection with the defense of any claim, action, suit or proceeding to which
he is a party, or threat thereof, by reason of his being or having been an
officer or director of the Company or any subsidiary of the Company, or his
serving or having served at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, business organization, enterprise or other entity, including service
with respect to employee benefit plans. Without limiting the generality of the
foregoing, the Company will pay the expenses (including reasonable counsel
fees) of defending any such claim, action, suit or proceeding in advance of its
final disposition, upon
5
<PAGE> 6
receipt of an undertaking by Executive to repay all amounts advanced if it
should ultimately be determined that Executive is not entitled to be
indemnified under this Section.
9. Non-Competition. Executive agrees that, while in the employ of the Company
and for a period of two (2) years following the effective date of the
termination of his employment with the Company, unless such termination results
from a change in control of the Company (as defined in Section 1(b) hereof), he
will not, directly or indirectly, as principal or agent, or in any other
capacity, own, manage, operate, participate in or be employed by or otherwise be
interested in, or connected in any manner with, any person, firm, corporation or
other enterprise which directly competes in a material respect with the business
of the Company or any of its majority-owned subsidiaries as it is conducted
while Executive is employed by the Company. Nothing herein contained shall be
construed as denying Executive the right to own securities of any such
corporation which is listed on a national securities exchange or quoted in the
NASDAQ System to the extent of an aggregate of 5% of the amount of such
securities outstanding.
10. Confidentiality. Executive agrees, while in the employ of the Company
(otherwise than in the performance of his duties hereunder) and thereafter, not
to, directly or indirectly, make use of, or divulge to any person, firm,
corporation, entity or business organization, and he shall use his best efforts
to prevent the publication or disclosure of, any confidential or proprietary
information concerning the business, accounts or finances of, or any of the
methods of doing business used by the Company or of the dealings, transactions
or affairs of the Company or any of its customers which have or which may have
come to his knowledge during his employment with the Company; but this Section
10 shall not prevent Executive from responding to any subpoena, court order or
threat of other legal duress, provided Executive notifies the Company thereof
with reasonable promptness so that the Company may seek a protective order or
other appropriate relief.
11. Delivery of Materials. Executive agrees that, upon the termination of his
employment, he will deliver to the Company all documents, papers, materials and
other property of the Company relating to its affairs which may then be in his
possession or under his control.
12. Non-Interference. Executive agrees that he will not, while in the employ
of the Company and for a period of two (2) years following the effective date of
the termination of his employment with the Company, unless such termination
results from a change in control of the Company (as defined in Section 1(b)
hereof), solicit the employment of any employee of the Company on behalf of any
other person, firm, corporation, entity or business organization or otherwise
interfere with the employment relationship between any employee or officer of
the Company and the Company.
13. Remedies of the Company. Executive agrees that, in the event of a material
breach by Executive of this Agreement, in addition to any other rights that the
Company may have pursuant to this Agreement, the Company shall be entitled, if
it so elects, to institute and prosecute proceedings, at law or in equity, to
obtain damages with respect to such breach or to enforce the specific
performance of this Agreement by Executive or to enjoin Executive from engaging
in any activity in violation hereof. Executive agrees that because Executive's
services to the
6
<PAGE> 7
Company are of such a unique and extraordinary character, a suit at law may be
an inadequate remedy with respect to a breach by Executive of Sections 9, 10,
11 and 12 hereof and that, upon any such breach or threatened breach by him of
such Sections, the Company shall be entitled, in addition to any other lawful
remedies that may be available to it, to injunctive relief.
14. Notices. All notices to be given hereunder shall be deemed duly given
when delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid, and addressed as follows:
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Chairman of the Board
with a copy similarly addressed and
marked to the attention of the Legal
Department
(b) If to be given to Executive:
Leo J. Hindery, Jr.
---------------------------------
---------------------------------
or to such other address as a party may request by notice given in accordance
with this Section 14.
15. Miscellaneous. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and replaces and supersedes
as of the date hereof any and all prior agreements and understandings with
respect to Executive's employment by the Company, whether oral or written,
between the parties hereto. This Agreement may not be changed, nor may any
provision hereof be waived, except by an instrument in writing duly signed by
the party to be charged. This Agreement shall be interpreted, governed and
controlled by the law of the State of Colorado, without reference to principles
of conflict of laws.
7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
--------------------------
/s/ Leo J. Hindery, Jr.
--------------------------
Leo J. Hindery, Jr.
8
<PAGE> 9
AGREEMENT
AGREEMENT by and between AT&T Corp., a New York corporation (the
"Parent"), and Leo J. Hindery, Jr. ("Executive"), dated as of June 23, 1998.
Effective upon consummation of the merger contemplated by the
Agreement and Plan of Restructuring and Merger Among the Parent, Italy merger
Corp. and Tele-Communications, Inc. (the "Company"), dated as of June 23, 1998
(the "Merger Agreement"), the Parent shall assume the Executive's employment
agreement with the Company, dated as of June 23, 1998 (the "Employment
Agreement"), and the obligations thereunder, and the Employment Agreement shall
be amended as follows:
1. Section 1(a) of the Employment Agreement is amended by deleting
the first sentence thereof and adding the following sentence to the beginning
of such Section:
The term of Executive's employment hereunder (the "Employment Term")
shall commence upon consummation of the merger (the "Effective Date")
contemplated by the Agreement and Plan of Restructuring and Merger
Among AT&T Corp., Italy Merger Corp. and Tele-Communications, Inc.,
dated as of June 23, 1998 (the "Merger Agreement"), and shall end on
the fifth anniversary of the Effective Date.
2. Section 1(b)(ii) of the Employment Agreement is amended to read
in its entirety as follows:
(ii) Upon giving written notice of such termination to Executive
thirty (30) days prior to the effective date thereof and by paying to
Executive in a lump sum upon such termination the greater of (a) two
(2) years' compensation (other than compensation the payment of which
was deferred by Executive prior to such termination) that would have
been payable under Section 4 hereof or (b) all remaining compensation
(other than compensation the payment of which was deferred by
Executive prior to such termination) that would have been payable
under Section 4 hereof if this Agreement remained in full force and
effect for the remainder of the Employment Term.
3. Section 1(b)(iii) of the Employment Agreement is amended by
adding the following to the end thereof:
<PAGE> 10
Notwithstanding the foregoing, the consummation of the transactions
contemplated by the Merger Agreement shall not constitute a change in
control of the Company, and following the Effective Date, the change
in control provisions of this Agreement shall have no effect.
4. Section 2 of the Employment Agreement is amended by deleting the
first sentence of such Section and adding the following sentence to the
beginning of such Section:
Executive agrees to serve the Parent as President and Chief Operating
Officer of the Parent's consumer organization (the "Unit"), reporting
to the Chief Executive Officer of the Unit.
5. The last sentence of Section 2 of the Employment Agreement is
amended to read in its entirety as follows:
The Parent agrees that the Executive shall, during the Employment
Term, be based at the Unit's principal executive office, which shall
be located in Basking Ridge, New Jersey, and at the principal
executive office of the Unit's cable operations organization, which
shall be located in the Denver area.
6. Section 7 of the Employment Agreement is amended by adding the
following sentences to the end thereof:
The Parent may, during the sixty (60) day period commencing with the
day a tracking stock for the Unit first becomes publicly traded
(including on the Effective Date, if applicable), equitably convert
all or a portion of the restricted stock units into restricted stock
units for such tracking stock. Notwithstanding anything in this
Section 7 to the contrary, Executive may be provided with the benefits
and plans described above that are provided to the key employees
providing services for the Unit. During the Employment Term, Executive
shall be provided with an appropriate apartment and automobile for his
use in Basking Ridge, New Jersey, and in Denver, Colorado, and will be
permitted by the Company to make reasonable use of the Company's
aircraft and flight crew from time to time for commuting purposes.
7. Section 9 of the Employment Agreement is amended by adding the
following sentence to the end thereof:
For purposes of this Section 9 and Sections 10, 11, and 12, "Company"
shall include AT&T Corp. and its affiliates.
-2-
<PAGE> 11
8. Executive hereby agrees that the modifications to the Employment
Agreement set forth in this Agreement shall not constitute "good reason" with
respect to any of Executive's equity awards.
9. This Agreement shall become effective upon the consummation of
the merger contemplated by the Merger Agreement, and shall be void and of no
effect upon termination of the Merger Agreement.
-3-
<PAGE> 12
IN WITNESS WHEREOF, this Agreement has been executed as of the day
and year first above written.
AT&T CORP.
By: /s/ Hal Burlingame
----------------------------
/s/ Leo J. Hindery, Jr.
----------------------------
Leo J. Hindery, Jr.
-4-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
Employment Agreement dated as of June 1, 1998, between TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), and STEPHEN M. BRETT, now residing
at (home address redacted) ("Executive").
This Agreement sets forth the terms and conditions of the
employment by the Company of Executive.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination.
(a) Term. The term of Executive's employment (the "Employment Term")
under this Agreement shall commence on June 1, 1998, and end on May 31,
2003, and, pursuant to the terms of this Agreement, and will be
extended daily so that the remainder of the Employment Term shall, at
all times on and prior to the effective date of the termination of
Executive's employment as provided herein, be five (5) years. During
the Employment Term, the Company agrees to employ Executive, and
Executive agrees to serve the Company, upon and subject to the terms
and conditions set forth in this Agreement.
(b) Termination by the Company. Executive's employment by the Company
may be terminated by the Company only as provided in clauses (i), (ii),
(iii) and (iv) below.
(i) Upon the death of Executive;
(ii) Upon six (6) months' prior written notice from the Company to
Executive (the "Notice Period"), in the event of an illness or
other disability which has incapacitated Executive from
performing his duties hereunder, as determined in good faith
by the Board of Directors of the Company, for an aggregate of
one hundred eighty (180) consecutive days during the twelve
calendar months preceding the month in which such notice is
give; provided, however, that in the event that, prior to the
end of the Notice Period, Executive recovers from such illness
or other disability to an extent permitting him to perform his
duties hereunder, the notice of termination pursuant to this
clause (ii) shall be of no further force and effect;
<PAGE> 2
(iii) Effective as of December 31 of any year, upon giving written
notice of such termination of Executive six (6) months prior
to the effective date thereof and by paying to Executive in a
lump sum upon such termination five years' compensation under
Section 4(a) of this Agreement calculated at the annual rate
then in effect;
(iv) At any time for "cause," which for purposes of this Agreement
shall be deemed to have occurred only on the happening of any
of the following:
(A) the plea of guilty to, or conviction for, the commission
of a felony offense by Executive, provided, however, that
after indictment the Company may suspend Executive from
the rendition of services but without limiting or
modifying in any other way the Company's obligations
under this Agreement;
(B) a material breach by Executive of a material fiduciary
duty owed to the Company;
(C) a material breach by Executive of any of the covenants
made by him in Sections 8 and 9 hereof; or
(D) the willful and gross neglect by Executive of the
material duties specifically and expressly required by
this Agreement;
provided, however, that any claim that "cause," within the
meaning of clause (B), (C) or (D) above, exists for the
termination of Executive's employment may be asserted on
behalf of the Company only by a duly adopted resolution of the
Board of Directors of the Company and only after thirty (30)
days' prior written notice to Executive during which period he
may cure the breach or neglect that is the basis of any such
claim, if curable; provided, further, that no state of facts
that, with or without notice to Executive or the passage of
time or both, would give rise to the right of the Company to
terminate Executive's employment pursuant to clause (ii) of
this Section 1(b) may, directly or indirectly, in whole or in
part, be the basis for a claim that "cause," within the
meaning of clause (D) above, exists for the termination of
Executive's employment; provided, further, that during the
period of twelve (12) months following a change in control of
the Company (as defined below), "cause" shall be deemed to
have occurred only upon the happening of an event referred to
in clause (A) above; and provided, further, that the term
"material" as used in clauses (B), (C) and (D) above and in
Section 12 hereof shall be construed be reference to the
effect of the relevant action or omission on the Company taken
as a whole. For purposes of the foregoing, a change in
2
<PAGE> 3
control of the Company will be considered to have occurred if
the group in control of the Company shall no longer include
John C. Malone, members of his family or representatives
thereof. The term "family" as used herein means John C.
Malone's estate, spouse and lineal descendants and any trust
or other investment vehicle for the primary benefit of such
named persons or members of his family; and the term
"representatives" includes executors and trustees.
(c) Effect of Termination by the Company. If Executive's employment by the
Company is terminated by the Company pursuant to Section 1(b) hereof,
all compensation under Section 4 of this Agreement that has accrued in
favor of Executive as of the date of such termination, to the extent
unpaid or undelivered, shall be paid or delivered to Executive on the
date of termination. Upon such termination of Executive's employment
and payment of such amount (and, if applicable, the full amount
payable pursuant to clause (iii) of Section 1(b)), the Company's
obligations under this Agreement shall terminate, except as provided
in the last three sentences of this Section 1(c) (if and to the extent
applicable), Section 5 (as it relates to expenses incurred prior to
such termination) and Section 7 of this Agreement. Executive
acknowledges that his obligations under Section 8, 9, 10 and 11 hereof
will survive any such termination. If Executive dies while employed by
the Company or during the period that he is receiving payments
pursuant to the immediately succeeding sentence, the Company shall, as
promptly as practicable following Executive's death, pay to
Executive's designated beneficiary or beneficiaries in a lump sum an
amount equal to one year's compensation under Section 4(a) of this
Agreement, calculated that the annual rate in effect at the time of
Executive's death. If Executive's employment is terminated pursuant to
Section 1(b)(ii) of this Agreement, the Company shall continue to pay
to Executive his annual salary (at the rate in effect at the time of
termination of his employment) as and when the same would otherwise be
due in accordance with Section 4 of this Agreement for five years from
such date of termination. The phrase "designated beneficiary or
beneficiaries" shall mean the person or persons named from time to
time by Executive in a signed instrument filed with the Company;
provided, however, that if a designation made in any such instrument
shall for any reason be ineffective, or if no such designation has
been made, the phrase "designated beneficiary or Beneficiaries" shall
mean the Executive's estate.
2. Services to Be Rendered by Executive. Executive agrees to serve the Company
as Executive Vice President, General Counsel and Secretary; provided,
however, that Executive's position shall correspond in rank,
responsibility, authority, and access to information as Executive's
position with the Company during the three-year period immediately
preceding June 1, 1998. In such capacity, Executive shall discharge such
3
<PAGE> 4
senior executive responsibilities as are commensurate with his title and
designated by the Company's Chairman of the Board, Chief Executive Officer
or President. Executive shall report directly to, and only to, the
Company's Chairman of the Board, Chief Executive Officer or President and,
if requested by the Company's Board of Directors, to the Board of Directors
and/or Executive Committee of the Board of Directors. If Executive is
elected a director of the Company or a director or an officer of any of the
Company's subsidiaries or affiliates, Executive will serve in any such
capacities without further compensation except as may be decided by the
Company at the Company's sole election. Executive shall discharge his
responsibilities, and shall in all other respects serve the Company,
faithfully and to the best of his ability. The Company agrees that
Executive shall, during the Employment Term, be based at the Company's
principal executive office, which shall be located in the Denver area, with
the understanding that Executive will travel as reasonably required in the
performance of his duties hereunder.
3. Time to Be Devoted by Executive. Executive agrees to devote substantially
all of his business time, attention, efforts and abilities to the business
of the Company. Executive confirms that he has no business interests of any
kind which will require a substantial portion of his business time other
than his employment by the Company; but nothing herein contained is
intended nor shall be construed as preventing Executive from spending an
insubstantial amount of time as a director of, or otherwise in connection
with investments he may have in, other entities or business organizations.
4. Compensation Payable to Executive.
(a) During the Employment Term, the Company shall pay to Executive a salary
at the rate of $560,000.00 per annum. The Board of Directors shall review
Executive's compensation annually to determine, in its sole discretion,
whether any increase in Executive's salary is appropriate.
(b) Executive's annual compensation shall be paid to Executive in
accordance with the Company's regular policy but not less frequently than
once a month.
5. Expenses. The Company shall reimburse Executive for the reasonable amount
of dining, hotel, traveling, entertainment and other expenses (consistent
with the Company's reimbursement standards for its most senior officers)
necessarily incurred by Executive in the discharge of his duties hereunder.
6. Executive Benefit Plans. While he is employed by the Company pursuant to
this Agreement, Executive shall be entitled to participate in, and to be
accorded all rights and benefits under, all formal incentive compensation
plans, stock incentive plans, employee stock purchase plans, retirement
plans, disability insurance, life insurance, health and major medical
insurance policy or policies, and other plans or benefits (including,
without limitation, any insurance covering Officers and Directors against
errors or omissions) now in existence or that may hereafter be adopted by
the Company for the benefit of its executive officers or key employees
4
<PAGE> 5
generally or for the benefit of its employees generally, provided that
Executive is eligible by the terms thereof to participate therein. Further,
during the period that any deferred compensation is payable to Executive,
Executive shall continue to be entitled to participate in, and to be
accorded all rights and benefits under, all group insurance policies
maintained or established by the Company for the benefit of its employees,
and for this purpose Executive shall be deemed to be a full-time employee
of the Company during such period. Executive shall be entitled to four (4)
weeks of paid vacation per year or, if greater, the maximum amount of paid
vacation per year to which any other employee of the Company of comparable
rank and responsibility is entitled.
7. Indemnification. The Company will indemnify and hold harmless Executive, to
the fullest extent permitted by applicable law, in respect of any
liability, damage, cost or expense (including reasonable counsel fees)
incurred in connection with the defense of any claim, action, suit or
proceeding to which he is a party, or threat thereof, by reason of his
being or having been an officer or director of the Company or any
subsidiary of the Company, or his serving or having served at the request
of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, business
organization, enterprise or other entity, including service with respect to
employee benefit plans. Without limiting the generality of the foregoing,
the Company will pay the expenses (including reasonable counsel fees) of
defending any such claim, action, suit or proceeding in advance of its
final disposition, upon receipt of an undertaking by Executive to repay all
amounts advanced if it should ultimately be determined that Executive is
not entitled to be indemnified under this Section.
8. Noncompetition. Executive agrees that while in the employ of the Company
and for the Applicable Period (as defined below) following the termination
of his employment, he will not, directly or indirectly, as principal or
agent, or in any other capacity, own, manage, operate, participate in or be
employed by or otherwise be interested in, or connected in any manner with,
any person, firm, corporation or other enterprise which directly competes
in a material respect with the business of the Company or any of its
majority-owned subsidiaries as it is conducted while Executive is employed
by the Company. Nothing herein contained shall be construed as denying
Executive the right to own securities of any such corporation which is
listed on a national securities exchange or quoted in the NASDAQ System to
the extent of an aggregate of 5% of the amount of such securities
outstanding. For purposes hereof, the term "Applicable Period" means the
period beginning on the effective date of the termination of Executive's
employment with the Company (the "Effective Date") and ending on the second
anniversary of the Effective Date.
9. Confidentiality. Executive agrees that while in the employ of the Company
(otherwise than in the performance of his duties hereunder) and thereafter,
not to, directly or indirectly, make use of, or divulge to any person,
firm, corporation, entity or business organization, and he shall use his
best efforts to prevent the publication or disclosure of, any confidential
5
<PAGE> 6
or proprietary information concerning the business, accounts or finances
of, or any of the methods of doing business used by the Company or of the
dealings, transactions or affairs of the Company or any of its customers
which have or which may have come to his knowledge during his employment
with the Company; but this Section 9 shall not prevent Executive from
responding to any subpoena, court order or threat of other legal duress,
provided Executive notifies the Company hereof with reasonable promptness
so that the Company may seek a protective order or other appropriate
relief.
10. Delivery of Materials. Executive agrees that upon the termination of his
employment he will deliver to the Company all documents, papers, materials
and other property of the Company relating to its affairs, which may then
be in his possession or under his control.
11. Noninterference. Executive agrees that he will not, while in the employ of
the Company and for the Applicable Period following the termination of his
employment, solicit the employment of any employee of the Company on behalf
of any other person, firm, corporation, entity or business organization, or
otherwise interfere with the employment relationship between any employee
or officer of the Company and the Company.
12. Remedies. Executive agrees that, in the event of a material breach by
Executive of this Agreement, in addition to any other rights that the
Company may have pursuant to this Agreement, the Company shall be entitled,
if it so elects, to institute and prosecute proceedings, at law or in
equity, to obtain damages with respect to such breach or to enforce the
specific performance of this Agreement by Executive or to enjoin Executive
from engaging in any activity in violation hereof. Executive agrees that,
because Executive's services to the Company are of such a unique and
extraordinary character, a suit at law may be an inadequate remedy with
respect to a breach by Executive of Sections 8, 9, 10 and 11 hereof, and
that upon any such breach or threatened breach by him of such Sections the
Company shall be entitled, in addition to any other lawful remedies that
may be available to it, to injunctive relief. In the event of a breach by
the Company of this Agreement (which is not cured within 30 days from the
date of notice of such breach), Executive may declare that the Company has
terminated Executive pursuant to Section 1(b)(iii) hereof, and Executive
shall be entitled to the benefits and remedies as set forth in Section 1(c)
hereof.
13. Notices. All notices to be given hereunder shall be deemed duly given when
delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid and addressed as follows:
a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Dr. John C. Malone
6
<PAGE> 7
with a copy similarly addressed and marked to the attention of the
Legal Department
b) If to be given to Executive:
Stephen M. Brett
(home address redacted)
or to such other address as a party may request by notice given in accordance
with this Section 13.
14. Miscellaneous. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and replaces and
supersedes as of the date hereof any and all prior agreements and
understandings with respect to Executive's employment by the Company,
whether oral or written, between the parties hereto. This Agreement may not
be changed nor may any provision hereof be waived except by an instrument
in writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
TELE-COMMUNICATIONS, INC.
By /s/ John C. Malone
-----------------------------------
/s/ Stephen M. Brett
-----------------------------------
Stephen M. Brett
7
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Employment Agreement dated as of January 1, 1998, between TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company"), and LARRY E. ROMRELL, now residing
at (home address redacted) ("Executive").
Executive and the Company were parties to an employment
agreement dated as of January 1, 1993 (the "Prior Agreement"). This Agreement is
intended to set forth the terms and conditions of the employment by the Company
of Executive from and after January 1, 1998, and is intended to supersede the
Prior Agreement.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination
a) Term. The term of Executive's employment under this Agreement (the
"Employment Term") shall commence on the date hereof and end on
December 31, 2007. During the Employment Term, the Company agrees to
employ Executive, and Executive agrees to serve the Company, upon and
subject to the terms and conditions set forth in this Agreement. The
Company acknowledges that its obligations under Sections 4 and 7
hereof shall survive any termination of Executive's employment and
will survive the Employment Term.
b) Termination by the Company. Executive's employment by the Company
may be terminated by the Company only as provided in clauses (i),
(ii), (iii) and (iv) below.
i) Upon the death of Executive.
ii) Upon six (6) months' prior written notice from the Company
to Executive (the "Notice Period"), in the event of an
illness or other disability which has incapacitated
Executive from performing his duties hereunder, as
determined in good faith by the Board of Directors of the
Company, for an aggregate of one hundred eighty (180)
consecutive days during the twelve calendar months preceding
the month in which such notice is give; provided, however,
that in the event that prior to the end of the Notice Period
Executive recovers from such illness or other disability to
an extent permitting him to perform his duties hereunder,
the notice of termination pursuant to this clause (ii) shall
be of no further force and effect.
<PAGE> 2
iii) Effective as of December 31 of any year, upon giving written
notice of such termination to Executive six (6) months prior
to the effective date thereof and by paying to Executive in
a lump sum in cash upon such termination all remaining
compensation (other than compensation the payment of which
was deferred by Executive prior to such termination) that
would have been payable under Section 4 hereof if this
Agreement remained in full force and effect for the balance
of the Employment Term.
iv) At any time for "cause," which for purposes of this
Agreement shall be deemed to have occurred only on the
happening of any of the following:
A) the plea of guilty to, or conviction for, the
commission of a felony offense by Executive; provided,
however, that after indictment, the Company may suspend
Executive from the rendition of services but without
limiting or modifying in any other way the Company's
obligations under this Agreement;
B) a material breach by Executive of a material fiduciary
duty owed to the Company;
C) a material breach by Executive of the covenants made by
him in Sections 8 and 9 hereof; or
D) the willful and gross neglect by Executive of the
material duties specifically and expressly required by
this Agreement;
provided,however, that any claim that "cause," within the
meaning of clause (B), (C) or (D) above, exists for the
termination of Executive's employment may be asserted on
behalf of the Company only by a duly adopted resolution of
the Board of Directors of the Company and only after thirty
(30) days' prior written notice to Executive during which
period he may cure the breach or neglect that is the basis
of any such claim, if curable; provided, further, that no
state of facts that, with or without notice to Executive or
the passage of time or both, would give rise to the right of
the Company to terminate Executive's employment pursuant to
clause (ii) of this Section 1(b) may, directly or
indirectly, in whole or in part, be the basis for a claim
that "cause," within the meaning of clause (D) above, exists
for termination of Executive's employment; provided,
further, that during the period of twelve (12) months
following a change in control of the Company (as defined
below), "cause" shall be deemed to have occurred only upon
the happening of an event referred to in clause (A) above;
and provided, further, that the term "material" as used in
2
<PAGE> 3
clauses (B), (C) and (D) above and in Section 12 hereof
shall be construed by reference to the effect of the
relevant action or omission on the Company taken as a whole.
For purposes of the foregoing, a change in control of the
Company will be considered to have occurred if the group in
control of the Company shall no longer include John C.
Malone, members of his family or representatives thereof.
The term "family" as used herein means John C. Malone's
estate, spouse and lineal descendants and any trust or other
investment vehicle for the primary benefit of such named
person or members of his family; and the term
"representatives" includes executors and trustees.
c) Effect of Termination by the Company. If Executive's employment by the
Company is terminated by the Company pursuant to Section 1(b) hereof,
all compensation under Section 4 of this Agreement (other than
compensation the payment of which was deferred by Executive prior to
such termination) that has accrued in favor of Executive as of the
date of such termination, to the extent unpaid or undelivered, shall
be paid or delivered in cash to Executive on the date of termination.
Upon such termination of Executive's employment and payment of such
amount (and, if applicable, the full amount payable pursuant to clause
(iii) of Section 1(b)), the Company's obligations under this Agreement
shall terminate, except as provided in the last three sentences of
this Section 1(c) (if and to the extent applicable), Section 5 (as it
relates to expenses incurred prior to such termination) and Section 7
of this Agreement. Executive acknowledges that his obligations under
Sections 8, 9, 10 and 11 hereof will survive any such termination. If
Executive dies while employed by the Company or during the period that
he is receiving payments pursuant to the immediately succeeding
sentence and, in either case, prior to December 31, 2007, the Company
shall, as promptly as practicable following Executive's death, pay to
Executive's designated beneficiary or beneficiaries in a lump sum in
cash an amount equal to the lesser of (i) the compensation that would
have been payable to Executive under Section 4(a) of this Agreement
had his employment by the Company continued until December 31, 2007,
and (ii) one year's compensation under Section 4(a) of this Agreement,
in each case calculated at the annual rate in effect at the time of
Executive's death. If Executive's employment is terminated pursuant to
Section 1(b)(ii) of this Agreement, the Company shall continue to pay
to Executive his annual salary (at the rate in effect at the time of
termination of his employment) as and when the same would otherwise be
due in accordance with Section 4 of this Agreement until the first to
occur of December 31, 2007, or the date of Executive's death. The
phrase "designated beneficiary or beneficiaries" shall mean the person
or persons named from time to time by Executive in a signed instrument
filed with the Company; provided, however, that if a designation made
3
<PAGE> 4
in any such instrument shall for any reason be ineffective, or if no
such designation has been made, the phrase "designated beneficiary or
beneficiaries" shall mean the Executive's estate.
2. Services to Be Rendered by Executive. Executive agrees to serve the Company
as a senior technical officer of the Company providing such services as
described by the Chief Executive Officer or Chief Operating Officer of the
Company; provided, however, that Executive's position shall correspond in
rank, responsibility, authority, and access to information as Executive's
position with the Company during the three-year period immediately
preceding January 1, 1998. In such capacity, Executive shall discharge such
senior executive responsibilities as are designated by the Company's Chief
Executive Officer or Chief Operating Officer. Executive shall report
directly to, and only to, the Company's Chairman of the Board, its Chief
Executive Officer and its Chief Operating Officer and, if requested by the
Company's Board of Directors, to the Board of Directors and/or Executive
Committee of the Board of Directors. If Executive is elected a director of
the Company or a director or an officer of any of the Company's
subsidiaries or affiliates, Executive will serve in any such capacities
without further compensation except as may be decided by the Company at the
Company's sole election. Executive shall discharge his responsibilities and
shall in all other respects serve the Company faithfully and to the best of
his ability. The Company agrees that Executive shall, during the Employment
Term, be based at the Company's principal executive office, which shall be
located in the Denver area, with the understanding that Executive will
travel as reasonably required in the performance of his duties hereunder.
3. Time to Be Devoted by Executive. Executive agrees to devote substantially
all of his business time, attention, efforts and abilities to the business
of the Company. Executive confirms that he has no business interests of any
kind which will require a substantial portion of his business time other
than his employment by the Company, but nothing herein contained is
intended, nor shall be construed, as preventing Executive from spending an
insubstantial amount of time as a director of, or otherwise in connection
with investments he may have in, other entities or business organizations.
4. Compensation Payable to Executive.
a) During the Employment Term, the Company shall pay to Executive a salary
at the rate of $560,000 per annum. The Board of Directors shall review
Executive's compensation annually to determine, in its sole discretion,
whether any increase in the Executive's salary is appropriate.
b) Executive's annual compensation shall be paid to Executive in accordance
with the Company's regular policy but not less frequently than once a
month.
5. Expenses. The Company shall reimburse Executive for the reasonable amount
of dining, hotel, traveling, entertainment and other expenses (consistent
with the Company's reimbursement standards for its most senior officers)
necessarily incurred by Executive in the discharge of his duties hereunder.
4
<PAGE> 5
6. Executive Benefit Plans. While he is employed by the Company pursuant to
this Agreement, Executive shall be entitled to participate in, and to be
accorded all rights and benefits under, all formal incentive compensation
plans, stock incentive plans, employee stock purchase plans, retirement
plans, disability insurance, life insurance, health and major medical
insurance policy or policies, and other plans or benefits (including,
without limitation, any insurance covering Officers or Directors against
errors or omissions) now in existence or that may hereafter be adopted by
the Company for the benefit of its executive officers or key employees
generally or for the benefit of its employees generally, provided that
Executive is eligible by the terms thereof to participate therein.
Executive shall be entitled to four (4) weeks of paid vacation per year or,
if greater, the maximum amount of paid vacation per year to which any other
employee of the Company of comparable rank and responsibility is entitled.
7. Indemnification. The Company will indemnify and hold harmless Executive, to
the fullest extent permitted by applicable law, in respect of any
liability, damage, cost or expense (including reasonable counsel fees)
incurred in connection with the defense of any claim, action, suit or
proceeding to which he is a party, or threat thereof, by reason of his
being or having been an officer, director, employee or agent of the Company
or any subsidiary of the Company, or his serving or having served at the
request of the Company as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust, business
organization, enterprise or other entity, including service with respect to
employee benefit plans. Without limiting the generality of the foregoing,
the Company will pay the expenses (including reasonable counsel fees) of
defending any such claim, action, suit or proceeding in advance of its
final disposition, upon receipt of an undertaking by Executive to repay all
amounts advanced if it should ultimately be determined that Executive is
not entitled to be indemnified under this Section.
8. Noncompetition. Executive agrees that while in the employ of the Company
and for the Applicable Period (as defined below) following the termination
of his employment, he will not, directly or indirectly, as principal or
agent, or in any other capacity, own, manage, operate, participate in or be
employed by or otherwise be interested in, or connected in any manner with,
any person, firm, corporation or other enterprise which directly competes
in a material respect with the business of the Company or any of its
majority-owned subsidiaries as it is conducted while Executive is employed
by the Company. Nothing herein contained shall be construed as denying
Executive the right to own securities of any such corporation which is
listed on a national securities exchange or quoted in the NASDAQ System to
the extent of an aggregate of 5% of the amount of such securities
outstanding. For purposes hereof, the term "Applicable Period" means the
period beginning on the effective date of the termination of Executive's
employment with the Company (the "Effective Date") and ending on the second
anniversary of the Effective Date.
5
<PAGE> 6
9. Confidentiality. Executive agrees that while in the employ of the Company
(otherwise than in the performance of his duties hereunder) and thereafter,
not to, directly or indirectly, make use of, or divulge to any person,
firm, corporation, entity or business organization, and he shall use his
best efforts to prevent the publication or disclosure of, any confidential
or proprietary information concerning the business, accounts or finances
of, or any of the methods of doing business used by the Company or of the
dealings, transactions or affairs of the Company or any of its customers
which have or which may have come to his knowledge during his employment
with the Company; but this Section 9 shall not prevent Executive from
responding to any subpoena, court order or threat of other legal duress,
provided Executive notifies the Company hereof with reasonable promptness
so that the Company may seek a protective order or other appropriate
relief.
10. Delivery of Materials. Executive agrees that, upon the termination of his
employment, he will deliver to the Company all documents, papers, materials
and other property of the Company relating to its affairs which may then be
in his possession or under his control.
11. Noninterference. Executive agrees that he will not, while in the employ of
the Company and for the Applicable Period following the termination of his
employment, solicit the employment of any employee of the Company on behalf
of any other person, firm, corporation, entity or business organization, or
otherwise materially interfere with the employment relationship between any
employee or officer of the Company and the Company.
12. Remedies. Executive agrees that, in the event of a material breach by
Executive of this Agreement, in addition to any other rights that the
Company may have pursuant to this Agreement, the Company shall be entitled,
if it so elects, to institute and prosecute proceedings, at law or in
equity, to obtain damages with respect to such breach or to enforce the
specific performance of this Agreement by Executive or to enjoin Executive
from engaging in any activity in violation hereof. Executive agrees that,
because Executive's services to the Company are of such a unique and
extraordinary character, a suit at law may be an inadequate remedy with
respect to a breach by Executive of Sections 8, 9, 10 and 11 hereof, and
that upon any such breach or threatened breach by him of such Sections the
Company shall be entitled, in addition to any other lawful remedies that
may be available to it, to injunctive relief. In the event of a breach by
the Company of this Agreement (which is not cured within 30 days from the
date of notice of such breach), Executive may declare that the Company has
terminated Executive pursuant to Section 1(b)(iii) hereof, and Executive
shall be entitled to the benefits and remedies as set forth in Section 1(c)
hereof.
6
<PAGE> 7
13. Notices. All notices to be given hereunder shall be deemed duly given when
delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid and addressed as follows:
a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dr. John C. Malone
with a copy similarly addressed
and marked to the attention of the Legal Department
b) If to be given to Executive:
Mr. Larry E. Romrell
(home address redacted)
or to such other address as a party may request by notice given in
accordance with this Section 13.
14. Miscellaneous.
a) This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and replaces and supersedes as of the
date hereof any and all prior agreements and understandings with respect to
Executive's employment by the Company, whether oral or written, between the
parties hereto, including, without limitation, the Prior Agreement.
b) This Agreement may not be changed, nor may any provision hereof be
waived, except by an instrument in writing duly signed by the party to be
charged.
c) This Agreement shall be interpreted, governed and controlled by the law
of the State of Colorado, without reference to principles of conflict of
laws.
d) Executive shall have the right to resign as an officer, director and
employee of the Company, its subsidiaries and controlled affiliates, and to
convert this Agreement to a consulting agreement upon giving the Company
sixty (60) days' prior written notice of his intention to do so, whereupon
Executive shall serve as a consultant to the Company for the balance of the
term of this Agreement, during which time he will perform such services as
may be required by the Chief Executive Officer of the Company. All other
terms and conditions of this Agreement, including, but not limited to,
those relating to the compensation of Executive shall remain in full force
and effect for the duration of this Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
TELE-COMMUNICATIONS, INC.
By: /s/ John C. Malone
-------------------------------------
/s/ Larry E. Romrell
------------------------------------
Larry E. Romrell
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. PRIMARY AND DILUTED EARNINGS PER SHARE
REPRESENT EARNINGS PER SHARE OF THE COMPANY'S TCI GROUP STOCK, SEE THE COMPANY'
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 578
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,665
<DEPRECIATION> 4,789
<TOTAL-ASSETS> 33,277
<CURRENT-LIABILITIES> 0
<BONDS> 14,422
299
0
<COMMON> 1,500
<OTHER-SE> 4,318
<TOTAL-LIABILITY-AND-EQUITY> 33,277
<SALES> 0
<TOTAL-REVENUES> 3,685
<CGS> 0
<TOTAL-COSTS> 1,423
<OTHER-EXPENSES> 926
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 536
<INCOME-PRETAX> 190
<INCOME-TAX> 165
<INCOME-CONTINUING> 25
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25
<EPS-PRIMARY> .16
<EPS-DILUTED> .15
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