<PAGE>
RULE NO. 424(b)(2)
REGISTRATION NO. 333-44745
PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED FEBRUARY 19, 1998)
$750,000,000
TCI COMMUNICATIONS, INC.
MEDIUM-TERM NOTES, SERIES D
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------
TCI Communications, Inc. (the "Company") may from time to time offer its
unsecured Medium-Term Notes, Series D (the "Notes"), for an aggregate
principal amount of up to $750,000,000 (or the equivalent thereof denominated
in one or more foreign currencies or currency units), subject to reduction as
a result of the sale of other Debt Securities (other than the Notes) pursuant
to the accompanying Prospectus. The Notes will be offered at varying
maturities from nine months or more from their dates of issue. Unless
otherwise set forth in a Pricing Supplement to this Prospectus Supplement
(each, a "Pricing Supplement"), the Notes may not be redeemed at the option of
the Company or repaid at the option of the holder thereof prior to maturity.
See "Description of Debt Securities--Senior Debt Securities" in the
accompanying Prospectus. The Notes will bear interest at fixed rates, which
may be zero in the case of certain Notes issued at a price representing a
discount from the principal amount payable at maturity, or variable rates
("Fixed Rate Notes" and "Floating Rate Notes", respectively). The interest
rate in the case of Fixed Rate Notes, the method of determining the interest
rate in the case of Floating Rate Notes, and the issue price and stated
maturity date of each Note will be established at the time of issuance of such
Note and will be set forth in the applicable Pricing Supplement. Interest
rates, the methods of determining interest rates and issue prices are subject
to change by the Company, but no such change will affect any Note theretofore
issued or as to which an offer to purchase has been accepted by the Company.
Unless otherwise described in the applicable Pricing Supplement, Notes
denominated in U.S. Dollars will be issued in denominations of $1,000 or any
integral multiple of $1,000. If the Notes are to be denominated in one or more
foreign currencies or currency units (each a "Specified Currency"), then the
provisions with respect thereto (including authorized denominations) will be
set forth in the applicable Pricing Supplement and currency exchange rate
information will be set forth in the applicable Pricing Supplement.
Each Note will be in fully registered form and represented either by a
global certificate registered in the name of a nominee of The Depository Trust
Company ("DTC") or another depositary (DTC or such other depositary, if any,
described in the applicable Pricing Supplement is herein referred to as the
"Depository") (each a "Book-Entry Note"), or a certificate issued in
definitive form ("Certificated Note"), as set forth in the applicable Pricing
Supplement. Beneficial ownership interests in a Book-Entry Note will be shown
on, and the transfer thereof will be effected only through, records maintained
by the Depository's participants. Owners of beneficial interests in Book-Entry
Notes will be entitled to physical delivery of Notes in certificated form
equal in principal amount to their respective beneficial interests only under
the limited circumstances described herein. See "Book-Entry System". Owners of
beneficial interests in Book-Entry Notes will not be considered the holders
thereof.
Unless otherwise described in the applicable Pricing Supplement, interest on
each Fixed Rate Note will accrue from its Original Issue Date (as defined
herein) and will be payable semiannually on each February 15 and August 15 and
at maturity or, if applicable, upon redemption or repayment. The interest rate
on Floating Rate Notes will be calculated by reference to one or more of the
"CD Rate," the "Commercial Paper Rate," the "Federal Funds Rate," the "Prime
Rate," "LIBOR," the "Treasury Rate," the "CMT Rate," or such other interest
rate basis or formula as may be specified in the applicable Pricing
Supplement, and may be adjusted by a "Spread" or "Spread Multiplier," if any,
each as defined herein. Interest on each Floating Rate Note will accrue from
its Original Issue Date and will be payable as set forth therein and in the
applicable Pricing Supplement and at maturity or, if applicable, upon
redemption or repayment.
SEE "RISK FACTORS" ON PAGE S-2 OF THIS PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note............... 100% .125%-.925% 99.875%-99.075%
- --------------------------------------------------------------------------------------------
Total.................. $750,000,000 $937,500-$6,937,500 $749,062,500-$743,062,500
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Each Note will be sold at 100% of its principal amount except as may be
provided in the applicable Pricing Supplement.
(2) The Company will pay a commission to Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, Lehman Brothers, Lehman Brothers Inc. or Salomon Brothers Inc
or such other agents as the Company may select (each an "Agent" and
together the "Agents") in the form of a discount, ranging from .125% to
.925% of the principal amount of the Notes sold through such Agent,
depending upon the Stated Maturity Date (as herein defined) and the rating
assigned to such Notes by nationally recognized securities rating
agencies. The Company has reserved the right to sell Notes directly to
investors on its own behalf, in which case no commission will be payable.
The Company may sell Notes to an Agent, as principal. Unless otherwise
indicated in the applicable Pricing Supplement, any Note sold to an Agent
as principal will be purchased by such Agent at a price equal to 100% of
the principal amount thereof less a percentage equal to the commission
applicable to an agency sale of a Note with an identical Stated Maturity
Date, and may be resold by such Agent to investors or other purchasers at
prevailing market prices at the time or times of resale, to be determined
by the Agent or, if so agreed, at a fixed public offering price.
(3) Before deduction of expenses payable by the Company estimated to be
$200,000. The Company has agreed to indemnify each Agent against certain
liabilities, including liabilities under the Securities Act of 1933.
---------------
The Notes are being offered on a continuous basis by the Company through the
Agents, each of which has agreed to use its reasonable best efforts to solicit
offers to purchase the Notes. Notes may also be sold to an Agent, as
principal, for resale to investors or other purchasers. The Company reserves
the right to sell Notes directly to investors on its own behalf in those
jurisdictions where it is authorized to do so. Unless otherwise specified in
an applicable Pricing Supplement, the Notes will not be listed on any
securities exchange, and there can be no assurance that the Notes offered
hereby will be sold or that there will be a secondary market for the Notes.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice. The Company or any Agent, if it solicits such offer,
may reject any offer to purchase Notes, in whole or in part. See "Plan of
Distribution."
---------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
SALOMON SMITH BARNEY
---------------
The date of this Prospectus Supplement is February 24, 1998.
<PAGE>
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY ONE OR MORE AGENTS (AS
DEFINED HEREIN) AS PRINCIPAL(S) ON A FIXED PRICE OFFERING BASIS, SUCH AGENT(S)
MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE
PRICE OF NOTES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF
NOTES TO COVER SHORT POSITIONS OF SUCH AGENT(S). FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
RISK FACTORS
The Company incurred net losses of $452 million and $120 million for the
years ended December 31, 1996 and 1995, respectively, and net losses of $12
million and $268 million for the nine months ended September 30, 1997 and
1996, respectively. The Company had net earnings of $94 million for the year
ended December 31, 1994. Notwithstanding the losses it has incurred, the
Company has been able to, and expects to continue to be able to, satisfy its
debt service and other obligations as and when they become due. The Company's
operating cash flow (operating income before depreciation, amortization and
other non-cash credits or charges) ($2,230 million, $2,043 million and $1,801
million for the years ended December 31, 1996, 1995 and 1994, respectively,
and $2,031 million and $1,632 million for the nine months ended September 30,
1997 and 1996, respectively) has historically been sufficient to cover its
interest expense ($1,041 million, $962 million and $777 million for the years
ended December 31, 1996, 1995 and 1994, respectively, and $803 million and
$760 million for the nine months ended September 30, 1997 and 1996,
respectively). The Company's interest coverage ratios for the years ended
December 31, 1996, 1995 and 1994 were 214%, 212% and 232%, respectively, and
for each of the nine month periods ended September 30, 1997 and 1996 were 253%
and 215%, respectively. Operating cash flow is a measure of value and
borrowing capacity within the cable television industry and is not intended to
be a substitute for cash flows provided by operating activities, a measure of
performance prepared in accordance with generally accepted accounting
principles, and should not be relied upon as such. Operating cash flow, as
defined, does not take into consideration substantial costs of doing business,
such as interest expense, and should not be considered in isolation to other
measures of performance.
Another measure of liquidity is net cash provided by operating activities as
reflected in the Company's consolidated statements of cash flows. Net cash
provided by operating activities ($1,247 million, $1,263 million and $1,142
million for the years ended December 31, 1996, 1995 and 1994, respectively,
and $1,285 million and $769 million for the nine months ended September 30,
1997 and 1996, respectively) reflects net cash from the operations of the
Company available for the Company's liquidity needs after taking into
consideration the aforementioned substantial costs of doing business not
reflected in operating cash flow. Amounts expended by the Company for its
investing activities exceeded net cash provided by operating activities for
the years ended December 31, 1996, 1995 and 1994 and the nine months ended
September 30, 1996.
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as the "Offered Securities"
and "Senior Debt Securities") supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
Debt Securities set forth under the heading "Description of Debt Securities"
in the Prospectus, to which reference is hereby made. The following
description will apply to each Note unless otherwise specified in the
applicable Pricing Supplement. Capitalized terms not defined herein have the
meanings ascribed to them in the accompanying Prospectus.
GENERAL
The Notes are a series of Senior Debt Securities to be issued under the
Indenture, dated as of February 19, 1998 (the "Indenture"), between the
Company and The Bank of New York, as trustee (the "Trustee"), which Indenture
is more fully described in the accompanying Prospectus. Whenever any term
defined in the Indenture or the Notes is referred to, such term is
incorporated by reference as part of the statements made herein and such
statements are qualified in their entirety by such reference.
The Indenture does not limit the aggregate principal amount of Senior Debt
Securities that may be issued thereunder, and provides that Senior Debt
Securities may be issued in one or more series up to the aggregate principal
amount that may be authorized from time to time by the Company. The Notes
constitute a single series
S-2
<PAGE>
of Senior Debt Securities for purposes of the Indenture, which series is
unlimited in aggregate principal amount. As of the date of this Prospectus
Supplement, the Company has authorized the issuance and sale of up to
$750,000,000 (or the equivalent thereof denominated in one or more foreign
currencies or currency units) aggregate principal amount of Notes, and the
aggregate principal amount of Notes that may be offered for sale and sold
pursuant to this Prospectus Supplement and the accompanying Prospectus is
limited to such amount, subject to reduction as a result of the sale after the
date hereof of other Debt Securities (other than the Notes) pursuant to the
accompanying Prospectus. Unless otherwise indicated in the applicable Pricing
Supplement, currency amounts in this Prospectus Supplement, the accompanying
Prospectus and any Pricing Supplement are stated in United States dollars
("$", "U.S.$" or "U.S. Dollars").
The Notes are being offered on a continuous basis and each Note will mature
on a day nine months or more from its date of issue, as selected by the
initial purchaser and agreed to by the Company and as specified in the
applicable Pricing Supplement. Unless otherwise specified in a Note and
described in the applicable Pricing Supplement, a Note may not be redeemed at
the option of the Company or repaid at the option of the holder thereof prior
to its Stated Maturity Date (as defined below). See "Repayment and
Redemption." If so provided in a Note and described in the applicable Pricing
Supplement, the Stated Maturity Date of a Note may be extended at the option
of the Company. See "Extension of Maturity" below. The Notes will be unsecured
and unsubordinated obligations of the Company, will rank equally and ratably
with other unsecured and unsubordinated indebtedness of the Company and will
not be convertible into common stock of the Company or Tele-Communications,
Inc. (the "Parent").
Unless otherwise specified in such Note and the applicable Pricing
Supplement, the Notes will be denominated in U.S. Dollars and payments of
principal of, premium, if any, and any interest on the Notes will be made in
U.S. Dollars. If any Note is to be denominated other than exclusively in U.S.
Dollars, or if the principal of, premium, if any, or any interest on any Note
is to be payable in one or more currencies (or currency units or in amounts
determined by reference to an index or indices) other than that in which such
Note is denominated, additional information with respect thereto (including
authorized denominations and applicable exchange rate information) will be
provided in the applicable Pricing Supplement. Unless otherwise described in
the applicable Pricing Supplement, Notes denominated in U.S. Dollars will be
issued in denominations of $1,000 or any integral multiple of $1,000.
Each Note will be issued initially as either a Book-Entry Note or a
Certificated Note in fully registered form without coupons. Except as set
forth under "Book-Entry System," owners of beneficial interests in Book-Entry
Notes will not be entitled to physical delivery of Notes in certificated form.
All references herein to holders will be, with respect to Book-Entry Notes, to
the Depository or its nominee.
Certificated Notes will be exchangeable for Certificated Notes in other
authorized denominations, in an equal aggregate principal amount and otherwise
bearing identical terms and provisions, in accordance with the provisions of
the Indenture. Certificated Notes may be presented for registration of
transfer or for exchange at the office of the Registrar in The City of New
York designated for such purpose (currently the corporate trust department of
the Trustee, 101 Barclay Street, Floor 21 West, New York, New York 10286).
Beneficial interests in Book-Entry Notes may be transferred through a
participating member of the Depository. See "Book-Entry System." No service
charge will be made for any registration of transfer or exchange of any
Certificated Note, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith.
Each Note will bear interest at either (i) a fixed rate, which may be zero
in the case of Fixed Rate Notes issued at an Issue Price (as defined below)
representing a discount from the principal amount payable at maturity (a "Zero
Coupon Note"), or (ii) a floating rate determined by reference to an interest
rate basis or combination of interest rate bases (the "Interest Rate Basis" or
"Interest Rate Bases," as applicable) specified in such Floating Rate Note and
described in the applicable Pricing Supplement, which may be adjusted by a
Spread
S-3
<PAGE>
and/or Spread Multiplier (each as defined below), if any. See "Fixed Rate
Notes" and "Floating Rate Notes." Interest rates offered by the Company with
respect to the Notes may differ depending upon, among other things, the
aggregate principal amount of Notes purchased in any single transaction.
Unless otherwise specified in a Note and the applicable Pricing Supplement,
"Business Day" means any day, other than a Saturday or Sunday, that is not a
day on which banking institutions are authorized or required by law,
regulation or executive order to be closed in The City of New York, and with
respect to LIBOR Notes (as defined below), that is also a London Business Day.
"London Business Day" means any day on which dealings in deposits in U.S.
Dollars are transacted in the London interbank market.
"Original Issue Discount Note" means (i) a Note, including any Zero Coupon
Note, that has a stated redemption price at maturity that exceeds its Issue
Price by at least 0.25% of its principal amount multiplied by the number of
full years from the Original Issue Date to the Stated Maturity Date (each as
defined below) for such Note and (ii) any other Note issued with original
issue discount for United States federal income tax purposes as determined
pursuant to Section 1273 of the Internal Revenue Code of 1986, as amended (the
"Code").
The Pricing Supplement relating to each Note will describe the following
terms: (i) the price (which may be expressed as a percentage of the aggregate
principal amount thereof) at which such Note will be issued (the "Issue
Price"); (ii) the date on which such Note will be issued (the "Original Issue
Date"); (iii) the date on which such Note will mature (the "Stated Maturity
Date") and whether the Stated Maturity Date may be extended by the Company,
and if so, the Final Maturity Date (as defined under "Extension of Maturity");
(iv) whether such Note is a Fixed Rate Note or a Floating Rate Note; (v) if
such Note is a Fixed Rate Note, the rate per annum at which such Note will
bear interest, if any, the interest payment date or dates (if different from
those set forth below under "Fixed Rate Notes") and whether such rate may be
changed by the Company prior to the Stated Maturity Date; (vi) if such Note is
a Floating Rate Note, the Interest Rate Basis or Interest Rate Bases, as
applicable, the Initial Interest Rate, the Interest Reset Period, the Interest
Reset Dates, the Interest Payment Period, the Interest Payment Dates, the
Index Maturity, the Maximum Interest Rate, if any, the Minimum Interest Rate,
if any, the Spread, if any, the Spread Multiplier, if any (all as defined
under "Interest Rate" and "Floating Rate Notes" below), and any other terms
relating to the particular method of calculating the interest rate for such
Note, and whether any such Spread and/or Spread Multiplier may be changed by
the Company prior to the Stated Maturity Date; (vii) whether such Note is an
Original Issue Discount Note, and if so, the yield to maturity; (viii) whether
such Note will be issued initially as a Book-Entry Note or a Certificated
Note; (ix) whether such Note may be redeemed at the option of the Company, or
repaid at the option of the holder, prior to the Stated Maturity Date, and, if
so, the provisions relating to such redemption or repayment; and (x) any other
terms of such Note not inconsistent with the provisions of the Indenture.
REPAYMENT AND REDEMPTION
If agreed to by the initial purchaser of a Note and the Company, such Note
will be subject to repayment at the option of the holder thereof in accordance
with its terms on each optional repayment date therefor, if any (each an
"Optional Repayment Date"). Optional Repayment Dates, if any, will be fixed at
the time of sale and set forth in the applicable Pricing Supplement and
specified in the applicable Note. If no Optional Repayment Date is so
specified with respect to a Note, such Note will not be repayable at the
option of the holder thereof prior to its Stated Maturity Date. Unless
otherwise specified in the Note and described in the applicable Pricing
Supplement, on an Optional Repayment Date, if any, the related Note will be
repayable in whole or in part (provided that the principal amount of the Note
remaining outstanding after a partial repayment is an authorized denomination)
at the option of the holder thereof at a price equal to 100% of the principal
amount to be repaid, together with accrued and unpaid interest thereon up to,
but excluding, the date of repayment (except as
S-4
<PAGE>
otherwise provided below in the case of an Original Issue Discount Note). In
order for a Note to be repaid upon exercise of such repayment option, the
Paying Agent must receive, not more than 60 nor less than 30 days prior to an
Optional Repayment Date at the office in The City of New York designated for
such purpose (currently the corporate trust department of the Trustee, at 101
Barclay Street, Floor 21 West, New York, New York 10286), either (i) the Note,
with the form entitled "Option to Elect Repayment" included in the Note duly
completed, or (ii) a telegram, telex, facsimile transmission or letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States setting forth the name of the holder of the Note, the principal amount
of the Note, the principal amount of the Note to be repaid, the certificate
number or a description of the tenor and terms of the Note, a statement that
the option to elect repayment is being exercised thereby and a guarantee that
the Note to be repaid with the form entitled "Option to Elect Repayment"
included in the Note duly completed will be received by the Paying Agent not
later than five Business Days after the date of such facsimile transmission or
letter and such Note and form duly completed are received by the Paying Agent
by such fifth Business Day. Exercise of such repayment option by the holder
thereof will be irrevocable with respect to each Note for which such repayment
election is made. No transfer or exchange of any Note (or, in the event that
any Note is to be repaid in part, the portion of the Note to be repaid) will
be permitted after exercise of a repayment option. All questions as to the
validity, eligibility (including time of receipt) and acceptance of any Note
for repayment will be determined by the Company, which determination will be
final, binding and non-appealable.
In the case of a Book-Entry Note, the Depository's nominee will be the
holder of such Note and therefore will be the only entity that can exercise a
right to repayment. In order to ensure that the Depository's nominee will
timely exercise a right to repayment with respect to a beneficial owner's
interest in a Book-Entry Note, such beneficial owner must instruct the broker
or other direct or indirect participant through which it holds an interest in
such Note to notify the Depository of its desire to exercise a right to
repayment. Different firms have different cut-off times for accepting
instructions from their customers and, accordingly, each beneficial owner
should consult the broker or other direct or indirect participant through
which it holds an interest in a Book-Entry Note in order to ascertain the cut-
off time by which such an instruction must be given in order for timely notice
to be delivered to the Depository.
The Notes will not have a sinking fund unless otherwise described in the
applicable Pricing Supplement. If agreed to by the initial purchaser of a Note
and the Company, such Note will be subject to redemption at the option of the
Company in accordance with its terms on and after a date, if any, fixed at the
time of sale and set forth in the applicable Pricing Supplement and specified
in the applicable Note ("Initial Redemption Date"). If no Initial Redemption
Date is so specified with respect to a Note, such Note will not be redeemable
prior to its Stated Maturity Date. Unless otherwise specified in the Note and
described in the applicable Pricing Supplement, on and after the Initial
Redemption Date, if any, the related Note will be redeemable at any time in
whole or from time to time in part (provided that the principal amount of the
Note remaining outstanding after a partial redemption is an authorized
denomination) at the option of the Company at the applicable Redemption Price
(as defined below), together with accrued and unpaid interest on the principal
amount to be redeemed to but excluding the date of redemption, on notice given
by the Company or the Trustee to the holder thereof not more than 60 nor less
than 30 days prior to the date of redemption. Unless otherwise specified in
the Note and described in the applicable Pricing Supplement, and except as
otherwise provided below in the case of an Original Issue Discount Note, the
"Redemption Price" will initially be the Initial Redemption Percentage, if
any, specified in the Note and described in the applicable Pricing Supplement,
of the principal amount of such Note to be redeemed and, if the Initial
Redemption Percentage is greater than 100%, the Redemption Price will decline
at each anniversary of the Initial Redemption Date by the Annual Redemption
Percentage Reduction, if any, specified in the Note and described in the
applicable Pricing Supplement, of the principal amount thereof to be redeemed
until the Redemption Price is 100% of such principal amount. Whenever less
than all of the Notes of the Company at any time outstanding are to be
redeemed, the Company will select the particular Notes to be so redeemed,
provided that if less than all the Notes of the Company with identical terms
at any time outstanding are to be redeemed, the Notes to be so redeemed will
be selected by the Trustee by lot or such method as the Trustee considers fair
and appropriate.
S-5
<PAGE>
Notwithstanding anything in this Prospectus Supplement to the contrary,
unless otherwise specified in a Note and described in the applicable Pricing
Supplement, if a Note is an Original Issue Discount Note, the amount payable
on such Note in the event of redemption at the option of the Company or
repayment at the option of a holder on an Optional Repayment Date prior to its
Stated Maturity Date shall be the Amortized Face Amount (as defined under
"Payment of Principal and Interest" below) of such Note calculated as of the
date of such redemption or the date of such repayment, as the case may be.
REPURCHASE
The Company may at any time purchase Notes at any price in the open market
or otherwise. Notes so purchased by the Company may be held or resold or, at
the discretion of the Company, may be surrendered to the Trustee for
cancellation.
PAYMENT OF PRINCIPAL AND INTEREST
The principal of, premium, if any, and interest, if any, on each Note are
payable by the Company in U.S. Dollars, unless otherwise specified in a Note
and described in the applicable Pricing Supplement.
Principal of, premium, if any, and interest, if any, on any Certificated
Note will be payable when due upon presentation and surrender of such Note at
the office of the Paying Agent in The City of New York designated for such
purpose (currently the corporate trust department of the Trustee, 101 Barclay
Street, Floor 21 West, New York, New York 10286); provided, however, that
payment of interest, other than interest payable on the Stated Maturity Date
or on the date of redemption or repayment if a Note is redeemed or repaid
prior to maturity (such Stated Maturity Date or date of redemption or
repayment with respect to any Note, as the case may be, being collectively
referred to herein as the "Maturity Date" with respect to the amount of
principal and any premium and interest payable on such date) may be made by
mailing a check to the holder at the address of such holder appearing on the
security register for the Notes at the close of business on the applicable
Regular Record Date (as defined below). Notwithstanding the foregoing, a
holder of $10,000,000 or more in aggregate principal amount of Certificated
Notes having the same Interest Payment Dates (as defined below) shall be
entitled to receive such interest payments in U.S. Dollars by wire transfer of
immediately available funds to an account at a bank in The City of New York
(or other bank consented to by the Paying Agent and the Company) designated by
such holder (provided that such bank has appropriate facilities therefor), but
only if appropriate payment instructions in writing have been received by the
Paying Agent not less than 16 calendar days prior to the applicable Interest
Payment Date. Unless otherwise specified in the applicable Pricing Supplement
(and subject to extension as provided under "Extension of Maturity"), payments
of principal of and any premium and interest on Certificated Notes will be
made on the Maturity Date in immediately available funds, provided that the
Certificated Notes to be paid are presented and surrendered to the Paying
Agent as provided above in time for the Paying Agent to make such payments in
such funds in accordance with its normal procedures. Such payments will be
made by wire transfer to an account at a bank in The City of New York (or
other bank consented to by the Paying Agent and the Company) designated by the
holder of the Notes (provided that such bank has appropriate facilities
therefor), provided that wire transfer instructions in writing have been
received by the Paying Agent not less than 16 calendar days prior to such
Maturity Date. Beneficial owners of Book-Entry Notes will be paid in
accordance with the Depository's and its participants' procedures in effect
from time to time. See "Book-Entry System." If required by applicable law or
instructed by the Company or any governmental agency that taxes or other
governmental charges should be withheld, the Paying Agent shall withhold any
such taxes or other governmental charges on any payments made in connection
with any Note.
Unless otherwise specified in a Note and described in the applicable Pricing
Supplement, if the principal of any Original Issue Discount Note is declared
to be, or automatically becomes, due and payable immediately as described in
the accompanying Prospectus under "Description of Debt Securities--Defaults
and Remedies," the amount of principal due and payable with respect to such
Note shall be the Amortized Face Amount of such Note calculated as of the date
of such acceleration of the maturity of such Note. The "Amortized Face Amount"
of an Original Issue Discount Note as of any date for which a calculation is
being made shall be an amount
S-6
<PAGE>
equal to (i) the Issue Price set forth in the applicable Pricing Supplement
plus (ii) the portion of the difference between the Issue Price and the
principal amount of such Note that has accrued at the yield to maturity set
forth in the Pricing Supplement (computed in accordance with generally
accepted United States bond yield computation principles) to the date with
respect to which such calculation is being made, but in no event shall the
Amortized Face Amount of an Original Issue Discount Note exceed its principal
amount.
Interest on any Note will be payable on each date specified on which an
installment of interest is due and payable ("Interest Payment Date") and at
the Maturity Date. Unless otherwise indicated in the applicable Pricing
Supplement and specified in the Note, the Interest Payment Dates for Fixed
Rate Notes will be as described below under "Fixed Rate Notes" and the
Interest Payment Dates for Floating Rate Notes will be determined in the
manner described below under "Floating Rate Notes." Unless otherwise indicated
in the applicable Pricing Supplement and specified in the Note, interest
payable and punctually paid or duly provided for on any Interest Payment Date
will be paid to the person in whose name such Note is registered at the close
of business on the Regular Record Date immediately preceding such Interest
Payment Date; provided, however, that unless otherwise specified in such Note
and the applicable Pricing Supplement the first payment of interest on any
Note with an Original Issue Date between a Regular Record Date and the next
succeeding Interest Payment Date or on an Interest Payment Date will be made
on the Interest Payment Date following the next succeeding Regular Record Date
to the registered holder on such next succeeding Regular Record Date;
provided, further, that interest payable at the Maturity Date will be payable
to the person to whom principal shall be payable. "Regular Record Date" means
the date as of which a Note must be registered in a person's name in order for
such person to receive an interest payment on the next succeeding Interest
Payment Date. Unless otherwise indicated in the applicable Pricing Supplement
and specified in the Note, the Regular Record Date for an Interest Payment
Date will be the fifteenth calendar day (whether or not a Business Day)
immediately preceding such Interest Payment Date.
Unless otherwise specified in a Note and described in the applicable Pricing
Supplement, all percentages resulting from any calculations will be rounded,
if necessary, to the nearest one hundred-thousandth of a percentage point
(with five one-millionths of a percentage point being rounded upward), and all
U.S. Dollar amounts used in or resulting from such calculation shall be
rounded to the nearest cent (with one-half cent being rounded upward).
The interest rate on the Notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States
law of general application. Under present New York law, the maximum rate of
interest is 25% per annum on a simple interest basis, with certain exceptions.
This limit may not apply to Notes in which $2,500,000 or more has been
invested.
INTEREST RATE
The applicable Pricing Supplement relating to Fixed Rate Notes will
designate a fixed rate of interest per annum (which may be zero in the event
such Notes are Zero Coupon Notes) payable on such Notes. See "Fixed Rate
Notes" and "Zero Coupon Notes" below.
Each Floating Rate Note will bear interest at a rate determined by reference
to an Interest Rate Basis or two or more interest Rate Bases which may be
adjusted in either case by adding or subtracting a Spread ("Spread" is the
number of basis points (one basis point equals one-hundredth of a percentage
point) specified in a Note and described in the applicable Pricing Supplement
as being applicable to the interest rate for such Floating Rate Note), if any,
or by multiplying by the Spread Multiplier ("Spread Multiplier" is the
percentage specified in a Note and described in the applicable Pricing
Supplement as being applicable to the interest rate for such Floating Rate
Note), if any. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the Interest Rate Basis or
Bases will be calculated. A Floating Rate Note may also have either or both of
the following: (i) a maximum limitation, or ceiling, on the rate of interest
which may accrue during any interest period ("Maximum Interest Rate"); and
(ii) a minimum limitation, or floor, on the rate of interest which may accrue
during any interest period ("Minimum Interest Rate").
S-7
<PAGE>
The applicable Pricing Supplement relating to Floating Rate Notes will
designate, and each Floating Rate Note will specify, one or more of the
following Interest Rate Bases as applicable to the relevant Note: (a) the
Commercial Paper Rate, in which case such Note will be a Commercial Paper Rate
Note, (b) the Certificate of Deposit Rate (the "CD Rate"), in which case such
Note will be a CD Rate Note; (c) the Federal Funds Rate, in which case such
Note will be a Federal Funds Rate Note; (d) the Prime Rate, in which case such
Note will be a Prime Rate Note; (e) London Interbank Offered Rate ("LIBOR"),
in which case such Note will be a LIBOR Note; (f) the Treasury Rate, in which
case such Note will be a Treasury Rate Note; (g) the CMT Rate, in which case
such Note will be a CMT Note; or (h) such other interest rate basis or formula
as is set forth in such Pricing Supplement. A Floating Rate Note may bear
interest at a rate determined by reference to two or more Interest Rate Bases
(other than the Treasury Rate) and, if so, the applicable Pricing Supplement
will describe the Interest Rate Bases applicable to such Note.
Interest rates, interest rate formulas and other variable terms of a Note
are subject to change by the Company from time to time, but no such change
will affect any Note already issued or as to which an offer to purchase has
been accepted by the Company.
FIXED RATE NOTES
Unless otherwise described in the applicable Pricing Supplement, each Fixed
Rate Note will bear interest (which may be zero in the event such Note is a
Zero Coupon Note) from the Original Issue Date at the rate per annum stated on
the face thereof until the principal thereof is paid or made available for
payment. Unless otherwise specified in the Note and described in the
applicable Pricing Supplement and except as described below under "Extension
of Maturity," interest, to the extent payable, will be payable semiannually on
the "Interest Payment Dates" therefor (which will be on February 15 and August
15 of each year) and on the Maturity Date. Interest will be computed on the
basis of a 360-day year of twelve, 30-day months. Interest payments on a Fixed
Rate Note shall include interest accrued from and including the Original Issue
Date of such Note, or the most recent date to which interest has been paid or
duly provided for, as the case may be, to, but excluding, the related Interest
Payment Date or Maturity Date, as the case may be. If any Interest Payment
Date or Maturity Date for a Fixed Rate Note falls on a day that is not a
Business Day, the related payment of principal, premium, if any, and interest,
if any, will be made on the next succeeding Business Day as if it were made on
the date such payment were due, and no interest will accrue on the amount so
payable for the period from and after such Interest Payment Date or Maturity
Date, as the case may be.
FLOATING RATE NOTES
Each Floating Rate Note will specify and the applicable Pricing Supplement
will describe the Interest Rate Basis or Bases and the Spread and/or Spread
Multiplier, if any, and the Maximum Interest Rate and/or Minimum Interest
Rate, in each case if any, applicable to such Floating Rate Note. In addition,
each Floating Rate Note will specify and the applicable Pricing Supplement
will describe or particularize all applicable variable terms of such Floating
Rate Note. Unless otherwise described in the applicable Pricing Supplement,
each Floating Rate Note will bear interest at the rate or rates per annum
determined in accordance with the interest rate formula so specified therein
and described in the applicable Pricing Supplement from the Original Issue
Date until the principal thereof is paid or made available for payment.
Floating Rate Notes will have daily, weekly, monthly, quarterly, semiannual
or annual resets of the rate of interest (such period applicable to a Note
being the "Interest Reset Period" for such Note, and the first day of each
Interest Reset Period being an "Interest Reset Date"), which will be described
in the applicable Pricing Supplement and specified in the Note. Unless
otherwise so specified, the Interest Reset Date will be, in the case of
Floating Rate Notes which reset daily, each Business Day; in the case of
Floating Rate Notes which reset weekly, Wednesday of each week (with the
exception of weekly reset Treasury Rate Notes which will reset Tuesday of each
week, except as specified below); in the case of Floating Rate Notes which
reset monthly, the third Wednesday of each month; in the case of Floating Rate
Notes which reset quarterly, the third Wednesday of March, June, September and
December; in the case of Floating Rate Notes which reset semiannually, the
third
S-8
<PAGE>
Wednesday of the two months specified in such Note and described in the
applicable Pricing Supplement; and in the case of Floating Rate Notes which
reset annually, the third Wednesday of the month specified in such Note and
described in the applicable Pricing Supplement. If any Interest Reset Date for
any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Reset Date will be postponed to the next succeeding day that is
a Business Day, except that in the case of a LIBOR Note, if such Business Day
is in the next succeeding calendar month, such Interest Reset Date shall be
the next preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
Interest Reset Date with respect to such Interest Reset Period will be the
rate determined by reference to the Interest Rate Basis or Bases on the
applicable "Interest Determination Date." The Interest Determination Date with
respect to the Commercial Paper Rate, the CD Rate, the Federal Funds Rate, the
Prime Rate and the CMT Rate will be the second Business Day preceding each
Interest Reset Date for the related Note. The Interest Determination Date with
respect to LIBOR will be the second London Business Day preceding each
Interest Reset Date for the related Note. The Interest Determination Date with
respect to the Treasury Rate, unless otherwise specified in the related
Treasury Rate Note, will be the day of the week in which the related Interest
Reset Date falls on which Treasury Bills (as defined under "Treasury Rate"
below) of the applicable Index Maturity are auctioned. Treasury Bills are
normally sold at auction on Monday of each week unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as a result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Interest Determination Date for the Interest Reset Date occurring
in the next succeeding week. If an auction date falls on any Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date will instead be
the first Business Day following such auction date. The Interest Determination
Date for a Floating Rate Note the interest rate of which is determined by
reference to two or more Interest Rate Bases will be the first Business Day
which is at least two Business Days prior to the related Interest Reset Date
for such Note on which each Interest Rate Basis shall be determinable. Each
Interest Rate Basis will be determined on the Interest Determination Date, and
the applicable interest rate shall take effect on the related Interest Reset
Date.
Except as set forth above or in the applicable Pricing Supplement, the
interest rate in effect on each day shall be (i) if such day is an Interest
Reset Date, the interest rate determined as of the Interest Determination Date
immediately preceding such Interest Reset Date or (ii) if such day is not an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the most recent Interest Reset Date.
Interest on each Floating Rate Note will be payable monthly, quarterly,
semiannually or annually (the "Interest Payment Period"). Except as provided
below or in the applicable Pricing Supplement, interest will be payable in the
case of Floating Rate Notes which reset: (i) daily, weekly or monthly, on the
third Wednesday of each month or on the third Wednesday of March, June,
September and December of each year as specified in such Note and the
applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in such Note and the
applicable Pricing Supplement; and (iv) annually, on the third Wednesday of
the month of each year specified in such Note and the applicable Pricing
Supplement (each, with respect to Floating Rate Notes, an "Interest Payment
Date") and, in each case, at maturity. If any Interest Payment Date for any
Floating Rate Note (other than the Maturity Date of such Note) would otherwise
be a day that is not a Business Day, such Interest Payment Date will be
postponed to the next day that is a Business Day except, in the case of a
LIBOR Note, if such Business Day is in the next succeeding calendar month,
such Interest Payment Date will be the immediately preceding Business Day. If
the Maturity Date of any Floating Rate Note falls on a day that is not a
Business Day, the related payment of principal, premium, if any, and interest
will be made on the next succeeding Business Day as if it were made on the
date such payment was due, and no interest will accrue on the amounts so
payable for the period from and after such date.
Interest payments on each Interest Payment Date for Floating Rate Notes will
include accrued interest from and including the Original Issue Date, or the
most recent date to which interest has been paid or duly provided for, as the
case may be, to, but excluding, such Interest Payment Date or the Maturity
Date, as the case may be.
S-9
<PAGE>
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used
in or resulting from such calculation on Floating Rate Notes will be rounded,
in the case of United States dollars, to the nearest cent, or in the case of a
foreign currency or composite currency, to the nearest unit (with one-half
cent or unit being rounded upwards).
With respect to each Floating Rate Note, accrued interest will be calculated
by multiplying the principal amount thereof by an accrued interest factor.
Such accrued interest factor will be computed by adding the interest factors
calculated for each day in the period for which accrued interest is being
calculated. The interest factor (expressed as a decimal) for each such day
will be computed by dividing the interest rate in effect for such day by 360,
in the case of Notes having as their Interest Rate Basis the CD Rate,
Commercial Paper Rate, Federal Funds Rate, LIBOR or the Prime Rate, or by the
actual number of days in the year, in the case of Notes having as their
Interest Rate Basis the Treasury Rate or the CMT Rate. The interest rate in
effect on each day will be (a) if such day is an Interest Reset Date, the
interest rate with respect to the Interest Determination Date pertaining to
such Interest Reset Date, or (b) if such day is not an Interest Reset Date,
the interest rate with respect to the Interest Determination Date pertaining
to the next preceding Interest Reset Date, subject in either case to any
Maximum Interest Rate or Minimum Interest Rate limitation and to any
adjustment by a Spread and/or Spread Multiplier; provided, however, that the
interest rate in effect for the period from the Original Issue Date to the
initial Interest Reset Date ("Initial Interest Reset Rate") will be the rate
specified as such in the Floating Rate Note ("Initial Interest Rate").
Unless otherwise specified in a Floating Rate Note and described in the
applicable Pricing Supplement, the Trustee will be the Calculation Agent with
respect to each Floating Rate Note. The Calculation Agent is currently located
at 101 Barclay Street, New York, New York 10286 (telephone number: (212) 815-
5375; facsimile number: (212) 815-5915). Upon request of the holder of any
Floating Rate Note, the Calculation Agent will provide the interest rate then
in effect and, if determined, the interest rate that will become effective on
the next Interest Reset Date with respect to such Floating Rate Note. Any such
calculation by the Calculation Agent shall, absent manifest error, be
conclusive and binding for all purposes.
The "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after
such Interest Determination Date, or, if such day is not a Business Day, the
next succeeding Business Day or (ii) the Business Day immediately preceding
the applicable Interest Payment Date or Maturity Date, as the case may be.
CD RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "CD Rate" means, with respect to any Interest
Determination Date relating to a CD Rate Note or any Interest Determination
Date for a Floating Rate Note for which one of the Interest Rate Bases is the
CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable certificates of deposit having the Index Maturity described in the
applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates" or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)" or, if
not so published by 3:00 p.m., New York City time, on the Calculation Date
pertaining to such CD Rate Interest Determination Date, the CD Rate will be
the rate on such CD Rate Interest Determination Date for negotiable
certificates of deposit of the Index Maturity described in the applicable
Pricing Supplement as published by the Federal Reserve Bank of New York in its
daily statistical release "Composite 3:30 p.m. Quotations for U.S. Government
Securities" or any successor publication of the Federal Reserve Bank of New
York ("Composite Quotations") under the heading "Certificates of Deposit." If
such rate is not yet published in either H.15(519) or Composite Quotations by
3:00 p.m., New York City time, on the Calculation Date pertaining to such CD
Rate Interest Determination Date, then the CD Rate for such CD Rate Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the secondary market offered rates, as of
S-10
<PAGE>
approximately 10:00 a.m., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers (which, unless otherwise
described in the applicable Pricing Supplement, may include an affiliate of
the Calculation Agent or an Agent) in negotiable U.S. Dollar certificates of
deposit in The City of New York selected by the Calculation Agent, for
negotiable certificates of deposit of major United States money center banks
(in the market for negotiable certificates of deposit) with a remaining
maturity closest to the Index Maturity designated in the Pricing Supplement in
a denomination of U.S. $5,000,000; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate will be the CD Rate determined with respect to the
immediately preceding CD Rate Interest Determination Date or, in the case of
the first CD Rate Interest Determination Date, the Initial Interest Rate.
CD Rate Notes and other Notes are not deposit obligations of a bank and are
not insured by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any
Interest Determination Date relating to a Commercial Paper Rate Note or any
Interest Determination Date for a Floating Rate Note for which one of the
Interest Rate Bases is the Commercial Paper Rate (a "Commercial Paper Rate
Interest Determination Date"), the Money Market Yield (as defined below) of
the rate on such date for commercial paper having the Index Maturity described
in the applicable Pricing Supplement as published in H.15(519) under the
caption "Commercial Paper--Non-financial." In the event that such rate is not
so published prior to 3:00 p.m., New York City time, on the Calculation Date
pertaining to such Commercial Paper Rate Interest Determination Date, then the
Commercial Paper Rate will be the Money Market Yield of the rate on such
Commercial Paper Rate Interest Determination Date for commercial paper of the
Index Maturity described in the applicable Pricing Supplement as published in
Composite Quotations under the heading "Commercial Paper." If by 3:00 p.m.,
New York City time, on the Calculation Date pertaining to such Commercial
Paper Rate Interest Determination Date such rate is not yet published in
either H.15(519) or Composite Quotations, the Commercial Paper Rate for such
Commercial Paper Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the Money Market Yield of the arithmetic mean of
the offered rates, as of approximately 11:00 a.m., New York City time, on such
Commercial Paper Rate Interest Determination Date, of three leading dealers of
commercial paper (which, unless otherwise described in the applicable Pricing
Supplement, may include an affiliate of the Calculation Agent or an Agent) in
The City of New York selected by the Calculation Agent, for commercial paper
having the Index Maturity described in the applicable Pricing Supplement
placed for a non-financial entity whose bond rating is "AA" or its equivalent,
from a nationally recognized securities rating organization; provided,
however, that if the dealers selected as aforesaid by the Calculation Agent
are not quoting as mentioned in this sentence, the Commercial Paper Rate will
be the Commercial Paper Rate determined with respect to the immediately
preceding Commercial Paper Rate Interest Determination Date or, in the case of
the first Commercial Paper Rate Interest Determination Date, the Initial
Interest Rate.
"Money Market Yield" shall be a yield (expressed as a percentage rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point)
calculated in accordance with the following formula:
D X 360
MONEY MARKET YIELD = -------------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
FEDERAL FUNDS RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Federal Funds Rate Note or
S-11
<PAGE>
any Interest Determination Date for a Floating Rate Note for which one of the
Interest Rate Bases is the Federal Funds Rate (a "Federal Funds Rate Interest
Determination Date"), the rate on such date for Federal Funds as published in
H.15(519) under the heading "Federal Funds (Effective)" or, if not so
published by 3:00 p.m., New York City time, on the Calculation Date pertaining
to such Federal Funds Rate Interest Determination Date, the Federal Funds Rate
will be the rate on such Federal Funds Rate Interest Determination Date for
Federal Funds as published in Composite Quotations under the heading "Federal
Funds/Effective Rate." If such rate is not yet published in either H.15(519)
or Composite Quotations by 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Federal Funds Rate Interest Determination Date, the
Federal Funds Rate for such Federal Funds Rate Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the rates, as of approximately 9:00 a.m., New York City time, on such Federal
Funds Rate Interest Determination Date, for the last transaction in overnight
Federal Funds arranged by three leading brokers of Federal Funds transactions
in The City of New York selected by the Calculation Agent; provided, however,
that if the brokers selected as aforesaid by the Calculation Agent are not
quoting as mentioned in this sentence, the Federal Funds Rate will be the
Federal Funds Rate determined with respect to the immediately preceding
Federal Funds Rate Interest Determination Date or, in the case of the first
Federal Funds Rate Interest Determination Date, the Initial Interest Rate.
PRIME RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "Prime Rate" means, with respect to any Interest
Determination Date relating to a Prime Rate Note or any Interest Determination
Date for a Floating Rate Note for which one of the Interest Rate Bases is the
Prime Rate (a "Prime Rate Interest Determination Date"), the rate on such date
for the Prime Rate as published in H.15(519) under the heading "Bank Prime
Loan." In the event that such rate is not so published prior to 3:00 p.m., New
York City time, on the Calculation Date pertaining to such Prime Rate Interest
Determination Date, the Prime Rate will be the arithmetic mean of the rates of
interest publicly announced by each bank that appears on the Reuters Screen
USPRIME1 Page (as defined below) as such bank's prime rate or base lending
rate as in effect for such Prime Rate Interest Determination Date. If fewer
than four such rates appear on the Reuters Screen USPRIME1 Page for such Prime
Rate Interest Determination Date, then the Prime Rate shall be the arithmetic
mean, as calculated by the Calculation Agent, of the prime rates quoted on the
basis of the actual number of days in the year divided by 360 as of the close
of business on such Prime Rate Interest Determination Date by four major money
center banks in The City of New York selected by the Calculation Agent (after
consultation with the Company). If fewer than four quotations are so provided,
the Prime Rate will be calculated by the Calculation Agent (as described
above) on the basis of the prime rates quoted by the major money center banks
so selected and the prime rates quoted in The City of New York by the
appropriate number of substitute banks or trust companies organized and doing
business under the laws of the United States, or any state thereof, each
having total equity capital of at least $500 million and being subject to
supervision or examination by a Federal or state authority, selected by the
Calculation Agent (after consultation with the Company) to quote such rate or
rates; provided, however, that if the banks or trust companies selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Prime Rate will be the Prime Rate determined with respect to the
immediately preceding Prime Rate Interest Determination Date or, in the case
of the first Prime Rate Interest Determination Date, the Initial Interest
Rate.
"Reuters Screen USPRIME1 Page" means the display designated as page
"USPRIME1" on the Reuter Monitor Money Rates Service (or such other page as
may replace the USPRIME1 page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks).
LIBOR
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "LIBOR" will be determined by the Calculation Agent in
accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a LIBOR
Note or any Interest Determination Date for a Floating Rate Note for which
one of the Interest Rate Bases is LIBOR ("LIBOR
S-12
<PAGE>
Interest Determination Date"), LIBOR will be, as specified in the Note and
described in the applicable Pricing Supplement, the arithmetic mean of the
offered rates, as calculated by the Calculation Agent, for deposits in the
Designated LIBOR Currency (as defined below) of not less than U.S.
$1,000,000 (or the equivalent thereof in one or more other currencies)
having the Index Maturity described in the applicable Pricing Supplement,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date, which appear on the Designated LIBOR
Page (as defined below) as of approximately 11:00 a.m., London time, on
such LIBOR Interest Determination Date, if at least two such offered rates
appear on the Designated LIBOR Page. If fewer than two offered rates appear
on the Designated LIBOR Page, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified the
rate described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear on the Designated LIBOR Page as described in
(i) above, the Calculation Agent shall request the principal London offices
of each of four major reference banks (which may include affiliates of the
Agents) in the London interbank market selected by the Calculation Agent to
provide the Calculation Agent with a quotation of the rate at which
deposits in the Designated LIBOR Currency for the period of the Index
Maturity described in the applicable Pricing Supplement, commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date, are offered by it to prime banks in the London
interbank market as of approximately 11:00 a.m., London time, on such LIBOR
Interest Determination Date and in a principal amount equal to an amount of
not less than U.S. $1,000,000 (or the equivalent thereof in one or more
other currencies) that is representative for a single transaction in such
market at such time. If at least two such quotations are provided, LIBOR in
respect of such LIBOR Interest Determination Date will be the arithmetic
mean of such quotations as calculated by the Calculation Agent. If fewer
than two quotations are provided, LIBOR for such LIBOR Interest
Determination Date will be the arithmetic mean (rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point) of the rates
quoted as of approximately 11:00 a.m., New York City time, on such LIBOR
Interest Determination Date by three major banks (which may include
affiliates of the Agents) in The City of New York selected by the
Calculation Agent (after consultation with the Company) for loans in the
Designated LIBOR Currency to leading European banks, having the Index
Maturity described in the applicable Pricing Supplement commencing on the
second London Business Day immediately following such LIBOR Interest
Determination Date and in a principal amount equal to an amount of not less
than U.S. $1,000,000 (or the equivalent thereof in one or more other
currencies) that is representative for a single transaction in such market
at such time; provided, however, that if the banks selected as aforesaid by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
will be the LIBOR determined with respect to the immediately preceding
LIBOR Interest Determination Date or, in the case of the first LIBOR
Interest Determination Date, the Initial Interest Rate.
As used herein the following terms have the following definitions:
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service (or any successor service) on the page specified in such
Pricing Supplement (or any other page as may replace such page on such
service) for the purpose of displaying the London interbank rates of major
banks for the Designated LIBOR Currency, or (b) if "LIBOR Telerate" is
specified in the applicable Pricing Supplement or neither "LIBOR Reuters"
nor "LIBOR Telerate" is specified in the applicable Pricing Supplement as
the method for calculating LIBOR, the display on the Dow Jones Markets
Limited (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service), or
if no such page is specified the applicable page, for the purpose of
displaying the London interbank rates of major banks for the Designated
LIBOR Currency.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in
the applicable Pricing Supplement, U.S. Dollars.
S-13
<PAGE>
TREASURY RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "Treasury Rate" means, with respect to any Interest
Determination Date relating to a Treasury Rate Note (a "Treasury Rate Interest
Determination Date"), the rate for the most recent auction of direct
obligations of the United States ("Treasury Bills") having the Index Maturity
described in the applicable Pricing Supplement, as such rate is
published in H.15(519) under the heading "U.S. Government Securities--Treasury
Bills--auction average (investment)," or if not so published by 3:00 p.m., New
York City time, on the Calculation Date relating to such Treasury Rate
Interest Determination Date, the Treasury Rate will be the auction average
rate (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) as otherwise announced by
the United States Department of the Treasury. In the event that the results of
the auction of Treasury Bills having the Index Maturity described in the
applicable Pricing Supplement are not published or announced as described
above by 3:00 p.m., New York City time, on such Calculation Date, or if no
such auction is held in a particular week, then the Treasury Rate for such
Treasury Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean (rounded, if necessary, to
the nearest one hundred-thousandth of a percentage point) of the secondary
market bid rates, as of approximately 3:30 p.m., New York City time, on such
Treasury Rate Interest Determination Date, of three leading primary United
States government securities dealers (which, unless otherwise described in the
applicable Pricing Supplement, may include an affiliate of the Calculation
Agent or an Agent) selected by the Calculation Agent (after consultation with
the Company), for the issue of Treasury Bills with a remaining maturity
closest to the Index Maturity described in the applicable Pricing Supplement;
provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate will be the Treasury Rate determined with respect to the immediately
preceding Treasury Rate Interest Determination Date or, in the case of the
first Treasury Rate Interest Determination Date, the Initial Interest Rate.
CMT RATE
Unless otherwise specified in such Note and described in the applicable
Pricing Supplement, "CMT Rate" means, with respect to any Interest
Determination Date relating to a CMT Note or any Interest Determination Date
for a Floating Rate Note for which one of the Interest Rate Bases is the CMT
Rate (a "CMT Rate Interest Determination Date"), the rate that appears on the
Designated CMT Telerate Page (as defined below) under the caption
"....Treasury Constant Maturities ... Federal Reserve Board Release
H.15(519)... Monday Approximately 3:45 p.m.," under the column for the
Designated CMT Maturity Index (as defined below) for (i) such CMT Rate
Interest Determination Date, if the Designated CMT Telerate Page is 7055, or
(ii) the week, or the month, as applicable, ended immediately preceding the
week in which such CMT Rate Interest Determination Date occurs, if the
Designated CMT Telerate Page is 7052. In the event such rate is not displayed
on the applicable page by 3:00 p.m., New York City time, on the Calculation
Date pertaining to such CMT Rate Interest Determination Date, the CMT Rate for
such CMT Rate Interest Determination Date will be the treasury constant
maturity rate on such CMT Rate Interest Determination Date for the Designated
CMT Maturity Index as published in H.15(519) under the heading "Treasury
Constant Maturities." If by 3:00 p.m., New York City time, on the Calculation
Date pertaining to such CMT Rate Interest Determination Date such rate is not
published in H.15(519), the CMT Rate for such CMT Rate Interest Determination
Date will be the treasury constant maturity rate for the Designated CMT
Maturity Index (or other United States treasury rate for the Designated CMT
Maturity Index if the treasury constant maturity rate is not published) with
respect to such date as published by either the Board of Governors of the
Federal Reserve System or the United States Department of the Treasury that
the Calculation Agent determines to be comparable to the rate previously
displayed on the Designated CMT Telerate Page or published in H.15(519). If
such rate is not so published by 3:00 p.m., New York City time, on the
Calculation Date pertaining to such CMT Rate Interest Determination Date, then
the CMT Rate for such CMT Rate Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity, based on the
arithmetic mean of the secondary market offered rates as of approximately 3:30
p.m., New York City time, on such CMT Rate Interest Determination Date of
three leading primary United States
S-14
<PAGE>
government securities dealers (which, unless otherwise described in the
Prospectus Supplement, may include an affiliate of the Calculation Agent or an
Agent) (each, a "Reference Dealer") in The City of New York selected by the
Calculation Agent (such three Reference Dealers to be selected from a pool of
five Reference Dealers selected by the Calculation Agent (after consultation
with the Company), with the Reference Dealers providing the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation
(or, in the event of equality, one of the lowest) being eliminated), for the
most recently issued direct noncallable fixed rate obligations of the United
States ("Treasury Notes") with an original maturity of approximately the
Designated CMT Maturity Index and a remaining term to maturity of not less
than such Designated CMT Maturity Index minus one year. If the Calculation
Agent is unable to obtain three such Treasury Note quotations, the CMT Rate
for such CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity based on the arithmetic mean
of the secondary market offered rates as of approximately 3:30 p.m., New York
City time, on such CMT Rate Interest Determination Date of three Reference
Dealers in The City of New York (such three Reference Dealers to be selected
from a pool of five References Dealers selected by the Calculation Agent
(after consultation with the Company), with the Reference Dealers providing
the highest quotation (or, in the event of equality, one of the highest) and
the lowest quotation (or, in the event of equality, one of the lowest) being
eliminated) for Treasury Notes with an original maturity of the number of
years that is the next highest to the Designated CMT Maturity Index and a
remaining term to maturity closest to the Designated CMT Maturity Index and in
an amount of at least $100 million. If at least three (but not five) of such
Reference Dealers are quoting as described above, then the CMT Rate will be
based on the arithmetic mean of the offer side prices obtained as provided in
the preceding sentence and neither the highest nor the lowest of such quotes
will be eliminated; provided however, that if at least three Reference Dealers
selected by the Calculation Agent (after consultation with the Company), are
not quoting as described in this sentence, the CMT Rate will be the CMT Rate
determined with respect to the immediately preceding CMT Rate Interest
Determination Date or, in the case of the first CMT Rate Interest
Determination Date, the Initial Interest Rate. If two Treasury Notes with an
original maturity as described in the second preceding sentence have remaining
terms to maturity equally close to the Designated CMT Maturity Index, the
Calculation Agent will obtain from the Reference Dealers selected in the
manner described quotations for the Treasury Note with the shorter remaining
term to maturity.
"Designated CMT Telerate Page" means the display on the Dow Jones Markets
Limited (or any successor service) on the page specified in the applicable
Pricing Supplement for the purpose of displaying "Treasury Constant
Maturities" as reported in H.15(519) (or any other page as may replace such
page on such service for the purpose of displaying "Treasury Constant
Maturities" as reported in H.15(519)). If no such page is specified in the
applicable Pricing Supplement, the Designated CMT Telerate Page shall be 7052.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will
be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
ZERO COUPON NOTES
Each Zero Coupon Note will be offered at a substantial discount from its
principal amount at maturity. There will be no periodic payments of interest
with respect to a Zero Coupon Note. The calculation of the accrual of Original
Issue Discount (the difference between the Issue Price and the principal
amount at maturity of a Zero Coupon Note) in the period during which a Zero
Coupon Note remains outstanding will be on a semiannual bond equivalent basis
using a 360-day year composed of twelve 30-day months. Upon maturity, Original
Issue Discount will cease to accrue on a Zero Coupon Note. Each Zero Coupon
Note will set forth, among other things, the Original Issue Date, the Issue
Price, the yield to maturity, and the amount of Original Issue Discount
applicable to such Note. If a bankruptcy proceeding is commenced in respect of
the Company, the claim of the holder of a Zero Coupon Note is, under Title 11
of the United States Code, limited to the Amortized Face Amount of such Zero
Coupon Note calculated as of the date of commencement of the proceeding.
S-15
<PAGE>
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Maturity Date or any other term relating thereto, may be modified and/or
supplemented as specified under "Other/Additional Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face
thereof. Such provisions will be described in the applicable Pricing
Supplement.
AMORTIZING NOTES
The Company may from time to time offer Notes with the amount of principal
thereof and interest thereon payable in installments over the term of such
Notes ("Amortizing Notes"). Unless otherwise specified in the applicable
Pricing Supplement, interest on each Amortizing Note will be computed on the
basis of a 360-day year of twelve 30-day months. Payments with respect to
Amortizing Notes will be applied first to interest due and payable thereon and
then to the reduction of the unpaid principal amount thereof. Further
information concerning additional terms and provisions of Amortizing Notes
will be specified in the applicable Pricing Supplement, including a table
setting forth repayment information for such Amortizing Notes.
EXTENSION OF MATURITY
Each Note will specify and the Pricing Supplement relating to each Note will
describe whether the Company has the option to extend the Stated Maturity Date
of such Note for one or more whole year periods (each an "Extension Period")
up to but not beyond the date (the "Final Maturity Date") specified in such
Note and described in such Pricing Supplement and the basis or formula, if
any, for setting the interest rate or the Spread and/or Spread Multiplier, if
any, as the case may be, applicable to any such Extension Period.
The Company may exercise such option with respect to a Note by notifying the
Trustee of such exercise at least 45 but not more than 60 days prior to the
Stated Maturity Date of such Note in effect prior to the exercise of such
option (the "Original Stated Maturity Date"). No later than 40 days prior to
the Original Stated Maturity Date, the Trustee will mail to the holder of such
Note a notice (the "Extension Notice") relating to such Extension Period, by
first class mail, postage prepaid, setting forth (i) the election of the
Company to extend the Stated Maturity Date of such Note, (ii) the new Stated
Maturity Date, (iii) in the case of a Fixed Rate Note, the interest rate
applicable to the Extension Period or, in the case of a Floating Rate Note,
the Spread and/or Spread Multiplier, if any, applicable to the Extension
Period, (iv) the provisions, if any, for redemption at the option of the
Company during the Extension Period, including the date or dates on which or
the period or periods during which and the price or prices at which such
redemption may occur during the Extension Period and (v) in the case of a Note
that is subject to repayment at the option of the Holder hereof, the
provisions, if any, for repayment of this Note at the option of the Holder on
the Original Stated Maturity Date for such Note, the price at which such
repurchase shall occur, and the period within which such Note, with the
"Option to Elect Repayment" form completed, must be surrendered to the Paying
Agent. Upon the mailing by the Trustee of an Extension Notice to the holder of
a Note, the Stated Maturity Date of such Note shall be extended automatically
as set forth in the Extension Notice, and except as modified by the Extension
Notice and as described in the next paragraph, such Note will have the same
terms as prior to the mailing of such Extension Notice.
Notwithstanding the foregoing, not later than 20 days prior to the Original
Stated Maturity Date for a Note, the Company may, at its option, revoke the
interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, provided for in the Extension
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a higher Spread and/or Spread Multiplier in the case of a Floating Rate
Note, for the Extension Period by mailing or causing the Trustee to mail
notice of such higher interest rate or higher Spread and/or Spread Multiplier,
as the case may be, first class mail, postage prepaid, to the holder of such
Note. Such notice shall be irrevocable. All Notes with identical terms with
respect to which the Stated Maturity Date is extended will bear such higher
interest rate, in the case of a Fixed Rate Note, or higher Spread and/or
Spread Multiplier, as the case may be, in the case of a Floating Rate Note,
for the Extension Period.
S-16
<PAGE>
INDEXED NOTES
If any Note is not to be denominated in U.S. Dollars, certain provisions
with respect thereto will be set forth in an applicable Pricing Supplement
which will specify the currency or currencies, including composite currencies
such as the European Currency Unit ("ECU"), in which the principal, premium,
if any, and interest, if any, with respect to such Note are to be paid, along
with any other terms relating to the non-U.S. Dollar denomination.
Notes may be issued with the amount of principal, premium and/or interest
payable in respect thereof to be determined with reference to the price or
prices of specified commodities or stocks, to the exchange rate of one or more
designated currencies (including a composite currency such as the ECU)
relative to an indexed currency or to other price(s) or exchange rate(s)
("Indexed Notes"), in each case as specified in the applicable Pricing
Supplement. In certain cases, Holders of Indexed Notes may receive a principal
payment on the Maturity Date that is greater than or less than the principal
amount of such Indexed Notes depending upon the relative value on the Maturity
Date of the specified indexed item. Information as to the method for
determining the amount of principal, premium, if any, and/or interest, if any,
payable in respect of Indexed Notes, certain historical information with
respect to the specified indexed item and certain additional risks and
material tax considerations associated with an investment in Indexed Notes
will be specified in the applicable Pricing Supplement.
BOOK-ENTRY SYSTEM
The Notes may be issued in whole or in part as Book-Entry Notes represented
by a Global Security (as defined in the accompanying Prospectus) deposited
with, or on behalf of, the Depository and registered in the name of the
Depository or a nominee of the Depository. Unless otherwise specified in the
applicable Pricing Supplement, DTC will be the Depository.
So long as the Depository for a Global Security, or a nominee of the
Depository, is the registered owner of the Global Security, the Depository or
its nominee, as the case may be, will be considered the sole owner or holder
of the Book-Entry Notes represented by such Global Security for all purposes
under the Indenture. Except as provided below, owners of beneficial interests
in Book-Entry Notes represented by a Global Security will not be considered
the owners or holders thereof under the Indenture, will not be entitled to
have Book-Entry Notes represented by such Global Security registered in their
names and will not be entitled to physical delivery of Notes in certificated
form evidencing their respective beneficial interests therein. A Global
Security may not be transferred except as a whole by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository or by the Depository or any nominee to a
successor of the Depository of a nominee of such successor.
Payments of principal of and any premium and interest on Book-Entry Notes
represented by a Global Security registered in the name of the Depository or
its nominee will be made to the Depository or its nominee, as the case may be,
as the registered owner of the Global Security. Neither the Company, the
Trustee, any Paying Agent nor the Registrar will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in Book-Entry Notes represented by a
Global Security or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal, premium, if any, or interest, if any, in respect of a
Global Security, will credit immediately participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records of such
Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in Book-Entry Notes represented
by such Global Security held through such participants will be governed by
standing customer instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants.
If the Depository with respect to any Global Security is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 days of such time, the
Company will issue Certificated Notes in exchange for each Book-Entry Note
represented by such Global
S-17
<PAGE>
Security. In addition, the Company may at any time and in its sole discretion
determine not to have the Notes represented by a Global Security and, in such
event, will issue Certificated Notes in exchange for the Book-Entry Notes
represented by such Global Security. In either instance, an owner of a
beneficial interest in a Book-Entry Note will be entitled to have a
Certificated Note or Notes equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery of
such Note or Notes.
DTC has advised the Company and the Agents as follows: DTC is a limited-
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC was created to hold securities for persons that have
accounts with DTC ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movements of
securities certificates. DTC's participants include securities brokers and
dealers (including the Agents), banks, trust companies, clearing corporations,
and certain other organizations, some of whom (and/or their representatives)
own DTC. Access to DTC's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly.
Persons who are not participants may beneficially own securities held by DTC
only through participants.
DTC has also advised the Company and the Agents that, upon the issuance by
the Company of Book-Entry Notes represented by a Global Security, DTC will
credit on its book-entry registration and transfer system the respective
principal amounts of the Book-Entry Notes represented by such Global Security
to the accounts of participants. The accounts to be credited shall be
designated by the applicable Agent or by the Company if such Notes are offered
and sold directly by the Company. Ownership of beneficial interests in Book-
Entry Notes represented by a Global Security registered in the name of DTC or
its nominee will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in Book-Entry Notes
represented by a Global Security registered in the name of DTC or its nominee
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to beneficial
interests of participants), or by participants or persons that may hold
interests through participants (with respect to beneficial interests of
persons other than participants). The laws of some states may require that
certain purchasers of securities take physical delivery of such securities in
certificated form. Such limits and such laws may impair the ability to
transfer beneficial interests in Book-Entry Notes.
S-18
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS
UNITED STATES HOLDERS
The following is a summary of certain United States federal income tax
considerations that may be relevant to a holder of a Note that is a United
States person (as defined in the Code), or that otherwise is subject to United
States federal income taxation on a net income basis in respect of a Note.
This summary is based on laws, regulations, rulings and decisions now in
effect, all of which are subject to change. This summary deals only with
holders that will hold Notes as capital assets and does not address tax
considerations applicable to investors that may be subject to special tax
rules, such as financial institutions, tax-exempt organizations, insurance
companies or dealers in securities or currencies, or persons that will hold
Notes as a position in a "straddle" or as part of a hedging transaction for
tax purposes. This summary does not include a discussion of tax consequences
to holders of any Note in which principal, premium, if any, and interest, if
any, with respect to such Note are to be paid in a Specified Currency or which
is an Indexed Note. Additional United States federal income tax considerations
applicable to particular Notes may be set forth in the applicable Pricing
Supplement.
Investors should consult their own tax advisors in determining the tax
consequences to them of holding and disposing of Notes, including the
application to their particular situation of the tax considerations discussed
below, as well as the application of state, local, foreign or other tax laws.
Payments of Interest. Payments of Qualified Stated Interest (as defined
below) on a Note will be taxable to a holder as ordinary interest income at
the time that such payments are accrued or are received (in accordance with
the holder's method of tax accounting). In general, Qualified Stated Interest
is stated interest which is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually at a single fixed rate.
(For a special rule in the case of Floating Rate Notes, see below.)
Purchase, Sale and Retirement of Notes. A holder's tax-basis in a Note
generally will equal the cost of such Note to such holder, increased by any
amounts includible in income by the holder as original issue discount (and
accrued market discount, if any, if the holder has included such market
discount in income) and reduced by any amortized premium (each as described
below) and any payments other than payments of Qualified Stated Interest made
on such Note.
Upon the sale, exchange or retirement of a Note, a holder generally will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale, exchange or retirement (less any accrued and unpaid
interest, which will be taxable as such) and the holder's tax basis in the
Note.
Except as otherwise discussed below, gain or loss recognized by certain
noncorporate holders on the sale, exchange or retirement of a Note could be
taxed at a rate lower than ordinary income. Different tax rates may be
applicable to such taxpayers based upon the period that such Note was held
(for one year or less, for more than one year but not more than eighteen
months, for more than eighteen months, and for certain taxpayers in taxable
years beginning after December 31, 2000, for more than five years). The
distinction between capital gain or loss and ordinary income is also relevant
for purposes of, among other things, the limitation on the deductibility of
capital losses.
Original Issue Discount. Holders of Original Issue Discount Notes generally
will be subject to the special tax accounting rules for original issue
discount obligations provided by the Code and certain Treasury Regulations
issued on January 27, 1994 (the "OID Regulations"). Holders of such Notes
should be aware that, as described in greater detail below, they generally
must include original issue discount in ordinary gross income for United
States federal income tax purposes as it accrues, in advance of the receipt of
cash attributable to that income.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimus amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date). The issue price of an
issue of Notes equals the first price at which a substantial
S-19
<PAGE>
amount of such Notes has been sold. The stated redemption price at maturity of
a Note is the sum of all payments provided by the Note other than payments of
Qualified Stated Interest. In addition, under the OID Regulations, if a Note
bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates
or interest holidays), and if the greater of either the resulting foregone
interest on such Note or any "true" discount on such Note (i.e., the excess of
the Note's stated principal amount over its issue price) equals or exceeds a
specified de minimis amount, then part or all of the stated interest on the
Note would be treated entirely as original issue discount rather than
Qualified Stated Interest.
In general, each holder of an Original Issue Discount Note, whether such
holder uses the cash or the accrual method of tax accounting, will be required
to include in ordinary gross income the sum of the "daily portions" of
original issue discount on that Note for all days during the taxable year on
which the holder owns the Note. The daily portions of original issue discount
on an Original Issue Discount Note are determined by allocating to each day in
any accrual period a ratable portion of the original issue discount allocable
to that accrual period. An accrual period may be any length of time, and the
lengths may vary during the time the Note is outstanding, so long as no
accrual period is greater than one year and provided that each scheduled
payment of principal or interest occurs either on the final day of an accrual
period or on the first day of an accrual period. In the case of an initial
holder, the amount of original issue discount on an Original Issue Discount
Note allocable to each accrual period is determined by (i) multiplying the
"adjusted issue price" (as defined below) of the Note by the yield to maturity
of the Note (as adjusted for the length of the accrual period) and (ii)
subtracting from that product the amount, if any, of Qualified Stated Interest
allocable to that accrual period.
The "adjusted issue price" of an Original Issue Discount Note at the
beginning of any accrual period will generally be the sum of its issue price
and the amount of original issue discount allocable to all prior accrual
periods, reduced by the amount of all payments other than payments of
Qualified Stated Interest, if any, made with respect to such Note in all prior
accrual periods. As discussed above, in order to determine the amount of
original issue discount allocable to an accrual period, the adjusted issue
price of an Original Issue Discount Note will be multiplied by the Note's
yield to maturity (as adjusted for the length of the accrual period). As a
result of this "constant yield" method of including original issue discount
into income, the amounts so includible in income by a holder, in respect of an
Original Issue Discount Note, are generally lesser in the early years and
greater in the later years than the amounts that would be includible on a
straight-line basis.
In the case of Floating Rate Notes, special rules apply. Such a Note will
qualify as a "variable rate debt instrument" if it (i) has an issue price
which does not exceed the total noncontingent principal payments by more than
an amount equal to the lesser of (a) .015 multiplied by the product of the
total noncontingent principal payments and the number of complete years to the
Floating Rate Note's maturity from its issue date or (b) 15 percent of the
total noncontingent principal payments; (ii) provides for stated interest,
paid or compounded at least annually, at current values of (a) one or more
qualified floating rates, (b) a single fixed rate and one or more qualified
floating rates, (c) a single fixed rate and a single objective rate that is a
qualified inverse floating rate or (d) a single objective rate. A floating
rate is a qualified floating rate if variations in the rate can reasonably be
expected to measure contemporaneous variations in the cost of newly borrowed
funds in the currency in which the Floating Rate Note is denominated. A
multiple of a qualified floating rate is generally not a qualified floating
rate, except that a multiple greater than .65 and not more than 1.35 is
permissible (and the product can be decreased or increased by a fixed rate).
An objective rate is a rate (other than a qualified floating rate) that is
determined using a single fixed formula and that is based on objective
financial or economic information (i.e., an objective rate generally includes
a rate that is based on one or more qualified floating rates or on the yield
of actively traded personal property (within the meaning of Section 1092(d)(1)
of the Code), unless the rate is based on information that is within the
control of the issuer (or certain related parties) or that is unique to the
circumstances of the issuer (or certain related parties), such as dividends,
profits, or the value of the issuer's stock). A qualified inverse floating
rate is an objective rate in which (i) the rate is equal to a fixed rate minus
a qualified floating rate and (ii) variations in the rate can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds. The fact that a Floating Rate Note has a Maximum Interest Rate
or a Minimum Interest Rate will not affect the qualification of such Floating
Rate Note
S-20
<PAGE>
as a "variable rate debt instrument" if such Maximum or Minimum Interest Rates
are fixed throughout the term of the debt instruments, or such Maximum or
Minimum Interest Rates are not reasonably expected as of the issue date to
cause the yield on the Note to be significantly more or less than the yield
would be without the restriction of the Maximum or Minimum Interest Rate. The
OID Regulations also provide that if a Floating Rate Note provides for stated
interest at a fixed rate for an initial period of less than one year followed
by a variable rate that is either a qualified floating rate or an objective
rate and if the variable rate on the Floating Rate Note's issue date is
intended to approximate the fixed rate (e.g., the value of the variable rate
on the issue date does not differ from the value of the fixed rate by more
than 25 basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Floating Rate Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute Qualified Stated Interest and will be taxed accordingly. Thus, a
Floating Rate Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Floating Rate Note is issued at a "true" discount
(i.e., at a price below the Note's stated principal amount) in excess of a
specified de minimis amount. Original issue discount on such a Floating Rate
Note arising from "true" discount is allocated to an accrual period using the
constant yield method described above.
In general, any other Floating Rate Note that qualifies as a "variable rate
debt instrument" will be deemed to be converted into an "equivalent" fixed
rate debt instrument for purposes of determining the amount and accrual of
original issue discount and Qualified Stated Interest on the Floating Rate
Note. The OID Regulations generally require that such a Floating Rate Note be
treated as converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Floating Rate Note with a fixed rate equal
to the value of the qualified floating rate or qualified inverse floating
rate, as the case may be, as of the Floating Rate Note's issue date. Any
objective rate (other than a qualified inverse floating rate) provided for
under the terms of the Floating Rate Note is converted into a fixed rate that
reflects the yield that is reasonably expected for the Floating Rate Note. In
the case of a Floating Rate Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate in addition to
either one or more qualified floating rates or a qualified inverse floating
rate, the fixed rate is initially converted into a qualified floating rate (or
a qualified inverse floating rate, if the Floating Rate Note provides for a
qualified inverse floating rate). Under such circumstances, the qualified
floating rate or qualified inverse floating rate that replaces the fixed rate
must be such that the fair market value of the Floating Rate Note as of the
Floating Rate Note's issue date is approximately the same as the fair market
value of an otherwise identical debt instrument that provides for either the
qualified floating rate or qualified inverse floating rate rather than the
fixed rate. Subsequent to converting the fixed rate into either a qualified
floating rate or a qualified inverse floating rate, the Floating Rate Note is
then treated as converted into an "equivalent" fixed rate debt instrument in
the manner described above.
Once the Floating Rate Note is deemed converted into an "equivalent" fixed
rate debt instrument pursuant to the foregoing rules, the amount of original
issue discount and Qualified Stated Interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a United
States holder of the Floating Rate Note will account for such original issue
discount and qualified stated interest as if the United States holder held the
"equivalent" fixed rate debt instrument. Each accrual period appropriate
adjustments will be made to the amount of qualified stated interest or
original issue discount assumed to have been accrued or paid with respect to
the "equivalent" fixed rate debt instrument in the event that such amounts
differ from the actual amount of interest accrued or paid on the Floating Rate
Note during the accrual period.
If a Floating Rate Note does not qualify for the above treatment, then the
Note will be an Original Issue Discount Note and the interest on such Note
will be treated as contingent interest. Contingent interest is generally
S-21
<PAGE>
includible in income over time based on a projected payment schedule and the
issuer's cost of capital for fixed rate debt instruments, and gain or loss
from the sale, exchange or retirement of a Note providing for contingent
interest will generally be treated as ordinary gain or loss. The regulations
governing contingent interest are quite complex, and the application of these
regulations to particular Notes may be set forth in the applicable Pricing
Supplement.
A subsequent holder of an Original Issue Discount Note that does not
purchase the Note at a cost which exceeds its stated redemption price at
maturity, reduced by the amount of any payment made on the Note prior to the
date of purchase other than payments of Qualified Stated Interest, also
generally will be required to include in gross income the daily portions of
original issue discount, calculated as described above. However, if the
subsequent holder acquires the Original Issue Discount Note at a lower yield
to maturity than the yield of the Note for original issue discount purposes
with respect to the initial holder of the Note, the subsequent holder may
reduce its periodic inclusions of original issue discount income to reflect
the lower yield to maturity of the Note.
In general, an individual or other cash method holder of an Original Issue
Discount Note that matures one year or less from the date of its issuance (a
"short-term Original Issue Discount Note") is not required to accrue original
issue discount for United States federal income tax purposes unless an
election is made to do so. United States holders who report income for federal
income tax purposes on the accrual method and certain other holders, including
banks and dealers in securities, are required to include original issue
discount on such short-term Original Issue Discount Notes on a straight-line
basis, unless an election is made to accrue the original issue discount
according to a constant interest method based on daily compounding. In the
case of a holder who is not required, and does not elect, to include original
issue discount in income currently, any gain realized on the sale, exchange or
retirement of the short-term Original Issue Discount Note will be ordinary
income to the extent of the original issue discount accrued on a straight-line
basis (or, if elected, according to a constant interest method based on daily
compounding) through the date of sale, exchange or retirement. In addition,
such non-electing holders which are not subject to the current inclusion
requirement described in this paragraph will be required to defer deductions
for any interest paid on indebtedness incurred or continued to purchase or
carry such short-term Original Issue Discount Notes in an amount not exceeding
the deferred interest income, until such deferred interest income is realized.
If any Note is issued with Optional Repayment Dates, the yield and maturity
on the Note will be calculated by assuming that the Note will be repaid on the
first Optional Repayment Date if such repayment would increase the yield on
the Note. If the Note is deemed to be repaid on the first Optional Repayment
Date, but is not in fact repaid on such date, then for purposes of calculating
original issue discount, a new Note will be deemed issued on such date for the
Note's adjusted issue price on such date, and the rules outlined in this and
the previous sentence will apply with respect to al subsequent Optional
Repayment Dates.
If any Note is issued with multiple redemption dates, the yield and maturity
on such Note will be calculated by assuming that the Note will be redeemed on
the Initial Redemption Date if such redemption would decrease the yield on the
Note. If the Note is deemed to be redeemed on the Initial Redemption Date, but
is not in fact redeemed on such date, then for purposes of calculating
original issue discount, a new Note will be deemed issued on such date for the
Note's adjusted issue price on such date, and the rules outlined in this and
the previous sentence will apply with respect to all subsequent redemption
dates.
If any Note is subject to an Extension Period, then the yield and maturity
on such Note shall be calculated by deeming the Final Maturity Date to be the
Stated Maturity Date of the Note and treating the Original Stated Maturity
Date as being the date on which the Company has a call option on the Note.
Such call option will be deemed to be exercised on the Original Stated
Maturity Date if, and only if, by utilizing the Original Stated Maturity Date
as the Maturity Date and the redemption price on such date as the stated
redemption price at maturity, the yield to maturity of the Note is lower than
it would be if the Note were not redeemed on such date. If the Note is deemed
to be repaid on the Original Stated Maturity Date and is not in fact repaid on
such date, then for purposes of calculating original issue discount a new Note
will be deemed issued on the Original Stated
S-22
<PAGE>
Maturity Date for the Note's adjusted issue price on such date and the rules
outlined in this and the previous sentence will apply with respect to all
subsequent maturity dates. If the deemed call option is not considered to be
exercised, the option to extend shall be presumed to be exercised.
Premium and Market Discount. A holder of a Note that purchases the Note at a
cost greater than the sum of all amounts payable on the Note after the
purchase (other than payments of Qualified Stated Interest) will be considered
to have purchased the Note at a premium and may amortize such premium, using a
constant yield method, over the remaining term of the Note.
If a holder of a Note purchases the Note at a price that produces a yield to
maturity higher than the yield to maturity at which such Note first was
issued, the Note generally will be considered to bear "market discount" in the
hands of such holder. In such case, the gain realized by the holder on the
sale or retirement of the Note generally will be treated as ordinary income to
the extent of the market discount that accrued on the Note while held by such
holder, unless such holder elected to accrue market discount into income
currently. In general terms, market discount on a Note will be treated as
accruing ratably over the term of such Note, or, at the election of the
holder, under a constant yield method. In addition, a portion of the interest
expense incurred or continued to purchase or carry a Note with market discount
may be deferred unless the holder elects to accrue market discount into income
currently.
The OID Regulations provide for an election whereby a holder may choose to
treat all stated interest, original issue discount, and market discount as
original issue discount.
Treatment of Certain Interest. The treatment to a holder of income from an
Original Issue Discount Note may be affected by a provision of the Omnibus
Budget Reconciliation Act of 1989. To the extent this provision applies to an
Original Issue Discount Note and the holder of such Note is a corporation,
then solely for purposes of the deduction allowed by the Code to corporations
for dividends received from a domestic corporation, all or a portion of the
original issue discount from such Note may be treated as a dividend to such
holder. For this provision to apply (i) the maturity date of a debt instrument
must be more than 5 years from the date of issue, (ii) the yield to maturity
on such instrument must equal or exceed the sum of (A) the applicable federal
rate in effect under Section 1274(d) of the Code for the calendar month in
which the obligation is issued, plus (B) 5 percentage points, and (iii) such
instrument must have "significant original issue discount." A debt instrument
will be treated as having "significant original issue discount" if (i) the
aggregate amount which would be includible in gross income with respect to
such instrument for periods before the close of any accrual period ending
after the date five years after the date of issue exceeds (ii) the sum of (A)
the aggregate amount of interest to be paid under the instrument before the
close of such accrual period, and (B) the product of the issue price of such
instrument and its yield to maturity. For purposes of applying this provision
to a debt instrument, any payment under the instrument will be assumed to be
made on the last day permitted under such instrument. The specific application
of this provision to an Original Issue Discount Note will depend upon the
terms of such Note.
NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(i) payments of principal and interest, including premium or original
issue discount ("Discount") on an Original Issue Discount Note, made by the
Company or any of its paying agents on a Note to any holder that is a
corporation, individual, fiduciary or partnership that is, as to the United
States, a foreign corporation, a nonresident alien individual, a
nonresident fiduciary of a foreign estate or trust, or a foreign
partnership (a "United States Alien") will not be subject to United States
withholding tax, provided that in the case of Discount or interest, (a) the
holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote, (b) the holder is not a controlled foreign corporation that is
related to the Company through stock ownership, (c) the holder is not a
bank receiving interest described in Section 881(c)(3) of the Code, and (d)
either (1) the beneficial owner of the Note certifies to the Company or its
agent, under penalties of perjury, that it is not a United States
S-23
<PAGE>
person (as defined in the Code) and provides its name and address or (2) a
securities clearing organization, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business
(a "financial institution"), and holds the Note on behalf of the beneficial
owner, certifies to the Company or its agent, under penalties of perjury,
that such a certification from the beneficial owner has been received by it
or by a financial institution between it and the beneficial owner and
furnishes the payor with a copy thereof;
(ii) a holder of a Note who is a United States Alien will not be subject
to United States federal income tax on gain realized on the sale, exchange
or retirement of the Note, unless (a) such gain is derived within the
United States and such holder is an individual who is present in the United
States for 183 days or more during the taxable year in which the gain
occurred or (b) such gain is effectively connected with a United States
trade or business of such holder; and
(iii) a Note held by an individual who at the time of death is not a
citizen or resident of the United States (as defined in the Code) will not
be subject to United States federal estate tax as a result of such
individual's death if the individual does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote and, at the time of the individual's death,
payments with respect to the Note would not have been effectively connected
to the conduct of a trade or business by the individual in the United
States.
If a United States Alien is engaged in a trade or business in the United
States and interest, including Discount, on the Note is effectively connected
with the conduct of such trade or business, the United States Alien, although
exempt from the withholding tax discussed in the preceding paragraph, may be
subject to United States income tax on such interest and Discount in the same
manner as if it were a United States holder. In addition, if such a holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30%
of its effectively connected earnings and profits for the taxable year,
subject to adjustments. For this purpose, interest, including Discount, on a
Note will be included in earnings and profits if such interest and Discount is
effectively connected with the conduct by the United States Alien of a trade
or business in the United States.
Notwithstanding the above, certain contingent interest will be taxable to
non-resident alien individuals and foreign corporations unless such interest
is subject to a treaty exemption. For this purpose, subject to certain
exceptions, interest is deemed to be contingent if the amount of interest is
determined by reference to:
1. any receipts, sales or other cash flow of the issuer or a related
person;
2. any income or profits of the issuer or a related person;
3. any change in value of any property of the issuer or a related person;
or
4. any dividend, partnership distribution or similar payments made by the
issuer or a related person.
A "related person" for this purpose includes not only persons who would be
related under the rules of Section 267(b) and Section 707(b)(1) of the Code,
but also anyone who is a party to any arrangement undertaken for a tax
avoidance purpose. In addition, the Internal Revenue Service (the "IRS") may
designate in regulations other types of contingent interest which will fall
under the scope of this law.
Also, a Note providing only for contingent interest will be considered
situated within the United States for estate tax purposes, and will thus be
included in a decedent's gross estate. If a Note provides for both contingent
and non-contingent interest, an appropriate portion of the value of such an
instrument, as determined in a manner prescribed by the IRS, will be treated
as property within the United States and will thus be included in a decedent's
gross estate. Until regulations are issued to provide guidance as to the
proper method for determining the appropriate portion of such an instrument
that is to be treated as situated in the United States, taxpayers will be
permitted to use any reasonable method for making such determination.
The exact scope of the law relating to contingent interest Notes remains to
be determined by regulations. Prospective holders of Notes are urged to
consult their personal tax advisors with respect to the scope of the law.
S-24
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of principal (including Discount, if any) of and any premium and
interest on a Note made within the United States by the Company or a Paying
Agent are generally subject to information reporting and possibly to "backup
withholding" at a rate of 31%. Information reporting and "backup withholding"
generally do not apply to payments to certain "exempt recipients" such as
corporations. Also, information reporting and backup withholding do not apply
to payments of principal (including Discount, if any) of and any premium and
interest on a Note made outside the United States by the Company or a Paying
Agent if the certification described in clause (i) (d) under "Non-United
States Holders" is received, provided in each case that the payor does not
have actual knowledge that the holder is a United States person.
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that, if the broker is a United States person, a
controlled foreign corporation for United States tax purposes or a foreign
person 50% or more of whose gross income is from a United States trade or
business, information reporting and possibly backup withholding will apply to
such payments unless such broker has documentary evidence in its files of the
owner's foreign status and has no actual knowledge to the contrary (or the
owner otherwise establishes an exemption from information reporting and backup
withholding). Payment of the proceeds from the sale of a Note to or through
the United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner certifies as to its
United States Alien status or otherwise establishes an exemption from
information reporting and backup withholding.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the U.S. Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations are generally effective for payments made after
December 31, 1998, subject to certain transition rules. Prospective investors
are urged to consult their own tax advisors regarding the New Regulations.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis by the Company through
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation, Lehman Brothers, Lehman Brothers Inc.
or Salomon Brothers Inc (each an "Agent" and together the "Agents"). The
Company reserves the right to sell Notes through agents other than the Agents
subject to the terms of the Distribution Agreement between the Company and the
Agents. The Company will pay the applicable Agent a commission which,
depending on the maturity of the Notes and the rating assigned to the Notes by
nationally recognized statistical rating agencies, will range from .125% to
.925% of the principal amount or, in the case of an Original Issue Discount
Note, the Issue Price of any Note of the Company sold through such Agent. The
Company may sell the Notes to each of the Agents, as principal, at a discount
for their own account or for resale to investors or other purchasers at
varying prices related to prevailing market prices at the time of resale, to
be determined by such Agent or, if so agreed, at a fixed public offering
price.
In addition, the Agents may offer the Notes they have purchased as principal
to other dealers. The Agents may sell Notes to any dealer at a discount and,
unless otherwise specified in an applicable Pricing Supplement, such discount
allowed to any dealer will not be in excess of the discount to be received by
such Agent from the Company. Unless otherwise indicated in an applicable
Pricing Supplement, any Note sold to an Agent as principal will be purchased
by such Agent at a price equal to 100% of the principal amount thereof less a
percentage of the principal amount equal to the commission applicable to an
agency sale of a Note of identical maturity. An Agent may sell Notes it has
purchased from the Company as principal to certain dealers less a concession
equal to all or any portion of the discount received in connection with such
purchase. Such Agent may allow, and such dealers may reallow, a discount to
certain other dealers. After the initial offering of Notes, the offering price
(in the case of Notes to be resold on a fixed offering price basis), the
concession and the reallowance may be changed.
S-25
<PAGE>
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and, in its sole discretion, may accept or reject orders
in whole or in part whether placed directly with Company or through an Agent.
Each Agent will have the right, in its discretion reasonably exercised, to
reject any offer to purchase Notes received by it, in whole or in part.
Payment of the purchase price of the Notes will be required to be made in
immediately available funds in The City of New York, on the date of
settlement.
In connection with an offering of Notes purchased by one or more Agents as
principal(s) on a fixed price offering basis, such Agent(s) will be permitted
to engage in certain transactions that stabilize the price of Notes. Such
transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of Notes. If the Agent creates or the Agents
create, as the case may be, a short position in Notes, i.e., if it sells or
they sell Notes in an aggregate principal amount exceeding that set forth in
the applicable Pricing Supplement, such Agent(s) may reduce that short
position by purchasing Notes in the open market. In general, purchases of
Notes for the purpose of stabilization or to reduce a short position could
cause the price of Notes to be higher than it might be in the absence of such
purchases.
Neither the Company nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described in the immediately preceding paragraph may have on the
price of Notes. In addition, neither the Company nor any of the Agents makes
any representation that the Agents will engage in any such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Credit Suisse First Boston Corporation, Lehman Brothers Inc. and Salomon
Brothers Inc and certain affiliates thereof engage in transactions with and
perform services for the Company and the Parent and certain of their
subsidiaries in the ordinary course of business.
The Company has agreed to indemnify the Agents against, or to contribute to
payments the Agents may be required to make in respect of, certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended. The Agents may be deemed to be underwriters within the meaning of
such Act. The Company has agreed to reimburse the Agents for certain expenses.
The Agents may engage in transactions with or perform services for the Company
in the ordinary course of business.
The Agents may from time to time purchase and sell Notes in the secondary
market, but they are not obligated to do so, and there can be no assurance
that there will be a secondary market for the Notes of the Company or
liquidity in the secondary market if one develops. From time to time, the
Agents may make a market in the Notes.
The Company has reserved the right to sell Notes directly to investors in
those jurisdictions where it is authorized to do so.
S-26
<PAGE>
PROSPECTUS
TCI COMMUNICATIONS, INC.
DEBT SECURITIES
TELE-COMMUNICATIONS, INC.
SERIES PREFERRED STOCK
DEPOSITARY SHARES
TELE-COMMUNICATIONS, INC. SERIES A TCI GROUP COMMON STOCK
TCI Communications, Inc., a Delaware corporation (the "Company"), and Tele-
Communications, Inc., a Delaware corporation (the "Parent" or "TCI"), as the
case may be, from time to time may offer the following: (i) debentures, notes,
bonds or other evidences of indebtedness of the Company (the "Debt
Securities"), (ii) shares of the Series Preferred Stock, par value $.01 per
share, of the Parent (the "Series Preferred Stock"), which may be issued in
the form of depositary shares ("Depositary Shares") evidenced by depositary
receipts, (iii) shares of the Parent's Tele-Communications, Inc. Series A TCI
Group Common Stock, par value $1.00 per share (the "Series A TCI Group Common
Stock") (Debt Securities, Series Preferred Stock, Depositary Shares and Series
A TCI Group Common Stock in respect of which this Prospectus is being
delivered are collectively referred to as the "Offered Securities"), or any
combination of the foregoing, at an aggregate initial offering price not to
exceed $3 billion (or the equivalent thereof denominated in one or more
foreign currencies, foreign currency units or composite currencies) at prices
and on terms to be determined at the time of sale and to be set forth in
supplements to this Prospectus.
The Debt Securities may be offered as convertible Debt Securities
("Convertible Debt Securities") which, unless previously redeemed or otherwise
purchased, will be convertible at any time during the conversion period
specified in a supplement to this Prospectus into shares of Series A TCI Group
Common Stock. Debt Securities may be issued as Original Issue Discount
Securities to be sold at a substantial discount below their principal amount
and, if issued, certain terms thereof will be set forth in a supplement to
this Prospectus. The Debt Securities may be issued in registered form without
coupons attached ("Registered Debt Securities"), in bearer form with or
without coupons attached ("Bearer Debt Securities") and in the form of one or
more global securities ("Global Securities"). See "Description of Debt
Securities." Bearer Debt Securities will be offered only to non-United States
persons (subject to certain exceptions) and to branches, located outside the
United States, of certain United States financial institutions. See
"Description of Debt Securities--Limitations on Issuance of Bearer Debt
Securities." The Debt Securities may be offered as separate series in amounts,
at prices and on terms to be determined at the time of sale and set forth in a
supplement to this Prospectus. Series Preferred Stock may be issued as a
series of convertible Series Preferred Stock which, unless previously redeemed
or otherwise purchased, will be convertible at any time during the conversion
period specified in a supplement to this Prospectus into shares of Series A
TCI Group Common Stock. Series Preferred Stock may be offered as separate
series in amounts, at prices and on terms to be determined at the time of sale
and set forth in a supplement to this Prospectus. See "Description of Series
Preferred Stock." If the Parent elects to issue fractional interests in shares
of a series of Series Preferred Stock, such fractional interests will be
represented by Depositary Shares evidenced by depositary receipts, each
Depositary Share equivalent to a fractional interest in a share of such series
of Series Preferred Stock. See "Description of Depositary Shares." Shares of
Series A TCI Group Common Stock may be offered in amounts, at market prices
prevailing at the time of sale or at prices and on terms to be determined at
or prior to the time of sale and set forth in a supplement to this Prospectus.
See "Description of Parent Capital Stock--Common Stock."
Certain terms of the Offered Securities in respect of which this Prospectus
is being delivered will be set forth in an accompanying supplement to this
Prospectus (a "Prospectus Supplement"). In the case of Debt Securities, the
Prospectus Supplement will include, where applicable, the specific designation
(including whether senior, senior subordinated or subordinated and whether
convertible), aggregate principal amount, maturity (which may be fixed or
extendible), interest rate or rates (which may be fixed or variable), if any,
and time of payment of interest, if any, authorized denominations, currency or
currencies in which principal, premium, if any, and interest are payable,
initial conversion price or conversion rate and any specific terms relating to
the adjustment thereof that are in addition to or different from those
described herein, the period during which any convertible Debt Securities may
be converted, any terms for a sinking fund or for redemption, purchase or
exchange at the option of the Company or the holder (including the form or
method of payment, which may include cash, Debt Securities of another series
or other forms of consideration), the terms of any guarantee of any Debt
Securities by the Parent, any covenants or events of default that are in
addition to or different from those described herein, the designation and
qualification (to the extent not already designated and qualified and
described herein) of any trustee with respect to the Debt Securities, and any
other specific terms of the Debt Securities, and the terms of the offer and
sale thereof. In the case of Series Preferred Stock, the Prospectus Supplement
will include the designation, the number of shares being offered, the initial
public offering price, any redemption provisions, any conversion rights, the
liquidation preference per share, the dividend rate (or method of calculation
thereof), dates on which dividends shall be payable and dates from which
dividends shall accrue, and the terms of the offering and sale thereof. In the
case of Depositary Shares, the Prospectus Supplement will include the
designation of the Series Preferred Stock represented thereby, the fraction of
a share of such Series Preferred Stock represented by each Depositary Share,
the number of Depositary Shares offered, the name of the depositary and the
terms of the offering and sale thereof. In the case of Series A TCI Group
Common Stock, the Prospectus Supplement will include the number of shares
being offered, the initial public offering price and terms of the offering and
sale thereof.
The Company or the Parent may sell Offered Securities to or through
underwriters or dealers designated from time to time, which may be a group of
underwriters represented by one or more managing underwriters. In addition,
the Offered Securities may be sold directly by the Company to other purchasers
or through agents. See "Plan of Distribution." The names of any such
underwriters, dealers, managing underwriters, purchasers or agents involved in
the sale of the Offered Securities in respect of which this Prospectus is
being delivered, the amounts of Offered Securities, if any, to be purchased by
such persons, the purchase price of the Offered Securities sold, the proceeds
to the Company or the Parent from such sale, and the compensation, if any, of
such underwriters, dealers, managing underwriters, purchasers or agents will
be set forth in the Prospectus Supplement. The Company and the Parent reserve
the sole right to accept and, together with their agents, from time to time,
to reject in whole or in part any proposed purchase of the Offered Securities
to be made directly or through agents. See "Plan of Distribution" for possible
indemnification arrangements for agents, dealers and underwriters.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by the Prospectus Supplement applicable to the Offered
Securities being sold.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------
The date of this Prospectus is February 19, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company and the Parent have filed with the Securities and Exchange
Commission (the "Commission"), Washington, D.C., a registration statement on
Form S-3 (Registration No. 333-44745) (together with all amendments and
exhibits, referred to as the "Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Offered
Securities, the shares of Series A TCI Group Common Stock that may be issuable
upon conversion of any convertible Debt Securities or Series Preferred Stock
and the guarantees that may be issued by the Parent in respect of Debt
Securities. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company, the Parent, the Offered Securities, and
the guarantees of the Parent offered hereby, reference is made to the
Registration Statement. Statements contained herein concerning the provisions
of any document are not necessarily complete and, in each instance, reference
is made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference.
Each of the Company and the Parent is subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements,
information statements and other information with the Commission. Such
reports, proxy statements, information statements and other information filed
with the Commission under the Exchange Act by the Company and/or the Parent
can be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and
at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a site on the World Wide Web that contains reports, proxy
and information statements and other information regarding registrants
(including the Company and the Parent) that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
(File No. 0-5550) and by the Parent (File No. 0-20421) and are incorporated
into this Prospectus by reference and made a part hereof:
1. The Annual Report on Form 10-K of the Parent for the fiscal year ended
December 31, 1996, as amended by Form 10-K/A (Amendment No.1).
2. The Annual Report on Form 10-K of the Company for the fiscal year
ended December 31, 1996, as amended by Form 10-K/A (Amendment No.1).
3. The Quarterly Reports on Form 10-Q of the Parent for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997, as
amended by Form 10-Q/A (Amendment No. 1).
4. The Quarterly Reports on Form 10-Q of the Company for the quarterly
periods ended March 31, 1997, June 30, 1997 and September 30, 1997.
5. The Current Reports on Form 8-K of the Parent dated January 22, 1997,
March 5, 1997, August 28, 1997 and September 9, 1997.
6. The Current Reports on Form 8-K of the Company dated January 22, 1997,
March 11, 1997 and September 22, 1997.
7. The financial statements and notes thereto of "VII Cable" which appear
in the Current Report on Form 8-K of the Parent, dated June 19, 1996.
2
<PAGE>
All documents filed by the Company and/or the Parent with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the termination of the offering of the securities
offered hereby shall be deemed to be incorporated herein by reference and to
be a part hereof from the respective dates of the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such previous
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company and the Parent will provide without charge to each person,
including any beneficial owner, to whom this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents incorporated by reference herein, other than certain exhibits to
such documents (unless such exhibits are specifically incorporated by
reference into the documents that this Prospectus incorporates). Such requests
should be addressed to Stephen M. Brett, Esq., Executive Vice President of TCI
Communications, Inc. and Executive Vice President and General Counsel of Tele-
Communications, Inc., Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado
80111-3000; telephone (303) 267-5500.
3
<PAGE>
THE COMPANY AND THE PARENT
The Company is one of the largest providers of cable television services in
the United States. The Company, through its subsidiaries and affiliates,
operates cable television systems throughout the continental United States and
Hawaii. The Parent owns all of the common stock of the Company.
The Parent, through its subsidiaries (including the Company) and affiliates,
is principally engaged in the construction, acquisition, ownership and
operation of cable television systems and in the provision of satellite-
delivered video entertainment, information and home shopping programming
services to various distribution media, principally cable television systems.
The Parent also has investments in cable and telecommunications operations and
television programming in certain international markets, as well as
investments in companies and joint ventures involved in developing and
providing programming for new television and telecommunications technologies.
The Parent is organized into four principal business groups: Domestic Cable
and Communications; Programming; International Cable and Programming; and
Technology/Venture Capital.
Both the Company and the Parent are Delaware corporations. The executive
offices of the Company and the Parent are located at Terrace Tower II, 5619
DTC Parkway, Englewood, Colorado 80111-3000; telephone (303) 267-5500. Unless
the context indicates otherwise and except as used in the discussion under the
caption "Description of Debt Securities," the "Company" means TCI
Communications, Inc. and its consolidated subsidiaries and the "Parent" means
Tele-Communications, Inc. and its consolidated subsidiaries.
USE OF PROCEEDS
The net proceeds from the sale of the Offered Securities, together with
internally generated funds, may be used (i) to repay, redeem or repurchase
outstanding indebtedness of the Company or the Parent, as the case may be;
(ii) for general operations of the Company or the Parent, as the case may be,
including acquisitions, capital expenditures and working capital requirements;
or (iii) for such other purposes as may be specified in the Prospectus
Supplement. All or a portion of such proceeds received by the Company or the
Parent, as the case may be, may be advanced to affiliates of the Company or
the Parent, as the case may be, in the form of dividends, loans or as a
contribution to capital, as applicable.
A brief description of any indebtedness to be repaid with the proceeds of
the Offered Securities will be set forth in the Prospectus Supplement.
The amount of the Company's future capital expenditures for cable television
operations will be determined by acquisitions of additional cable television
systems, contractual obligations under existing franchises, expansions of
existing systems through rebuilds and upgrades, technological developments and
various other economic factors and market conditions. Specific plans,
arrangements or agreements, written or oral, with respect to any material
acquisitions by the Company by merger or otherwise, or with respect to any
material disposition of assets by the Company, if any, will, to the extent not
disclosed in a document incorporated by reference herein, be disclosed in the
Prospectus Supplement.
Pending application of the net proceeds to the foregoing uses, the net
proceeds will be added to the Company's working capital and invested in short-
term interest-bearing obligations. Such investments will be subject to
fluctuating interest rates which may be lower than the rates applicable to the
Offered Securities.
The Company may borrow additional funds from time to time from public and
private sources on both a long-term and short-term basis and may sell
commercial paper to fund its future capital and working capital requirements
in excess of internally generated funds. Certain of such borrowings may rank
senior in right of payment to the indebtedness represented by the Offered
Securities but only if such Offered Securities are not "Senior Debt
Securities." See "Description of Debt Securities."
4
<PAGE>
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Company. The ratio of earnings to combined fixed charges and preferred stock
dividends of the Company was 1.21, 1.22 and 1.00 for the years ended December
31, 1994, 1993 and 1992, respectively, and 1.01 for the nine months ended
September 30, 1997. The ratio of earnings to combined fixed charges and
preferred stock dividends of the Company was less than 1.00 for the years
ended December 31, 1996 and 1995, and for the nine months ended September 30,
1996; thus, earnings available for combined fixed charges and preferred stock
dividends were inadequate to cover combined fixed charges and preferred stock
dividends for such periods. The amounts of the coverage deficiencies were $394
million and $170 million for the years ended December 31, 1996 and 1995,
respectively, and $366 million for the nine months ended September 30, 1996.
For the ratio calculations, earnings available for combined fixed charges and
preferred stock dividends consists of earnings (losses) before income taxes
plus fixed charges (minus capitalized interest and preferred stock dividend
requirements of the Company), distributions from and losses of less than 50%-
owned affiliates with debt not guaranteed by the Company (net of earnings not
distributed of less than 50%-owned affiliates), minority interests in earnings
(losses) of consolidated subsidiaries, the elimination of preferred stock
dividend requirements of consolidated subsidiaries to 50%-owned affiliates,
and preferred stock dividend requirements of 50%-owned affiliates, other than
dividends payable to the Company. Combined fixed charges and preferred stock
dividends consist of (i) interest (including capitalized interest) on debt,
including interest related to debt guaranteed by the Company of less than 50%-
owned affiliates where the investment in such affiliates results in the
recognition of a loss, (ii) the elimination of interest of consolidated
subsidiaries to 50%-owned affiliates, (iii) the Company's proportionate share
of interest of 50%-owned affiliates, (iv) that portion of rental expense the
Company believes to be representative of interest (one-third of rental
expense), (v) amortization of debt expense, (vi) that portion of minority
interests in earnings (losses) of consolidated subsidiaries that represent the
amount of pretax earnings that would be required to cover preferred stock
dividend requirements of consolidated subsidiaries, (vii) that portion of
minority interests in earnings (losses) of consolidated subsidiaries that
represents dividend requirements on Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely subordinated debt
securities of a subsidiary, (viii) the amount of pretax earnings that would be
required to cover preferred stock dividend requirements of the Company, (ix)
the elimination of preferred stock dividend requirements of consolidated
subsidiaries to 50%-owned affiliates, and (x) the preferred stock dividend
requirements of 50%-owned affiliates, other than dividends payable to the
Company. The Company has guaranteed the debt of certain less than 50%-owned
affiliates and certain unaffiliated entities in which it has an interest.
Fixed charges of $13 million, $5 million, $5 million, $14 million and $3
million relating to such guarantees for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively, and fixed charges of $10 million and
$3 million relating to such guarantees for the nine months ended September 30,
1997 and 1996, respectively, have not been included in fixed charges because
the investment in such entity does not result in the recognition of a loss and
it is not probable that the Company will be required to honor the guarantee.
Parent. The ratio of earnings to combined fixed charges and preferred stock
dividends of the Parent was 1.44, 1.17, 1.22 and 1.00 for the years ended
December 31, 1996, 1994, 1993 and 1992, respectively, and 1.21 for the nine
months ended September 30, 1997. The ratio of earnings to combined fixed
charges and preferred stock dividends of the Parent was less than 1.00 for the
year ended December 31, 1995 and for the nine months ended September 30, 1996;
thus, earnings available for combined fixed charges and preferred stock
dividends were inadequate to cover combined fixed charges and preferred stock
dividends for such periods. The amounts of the coverage deficiencies were $246
million for the year ended December 31, 1995 and $503 million for the nine
months ended September 30, 1996. For the ratio calculations, earnings
available for combined fixed charges and preferred stock dividends consists of
earnings (losses) before income taxes plus fixed charges (minus capitalized
interest and preferred stock dividend requirements of the Parent),
distributions from and losses of less than 50%-owned affiliates with debt not
guaranteed by the Parent (net of earnings not distributed of less than 50%-
owned affiliates), minority interests in earnings (losses) of consolidated
subsidiaries, the elimination of preferred stock dividend requirements of
consolidated subsidiaries to 50%-owned affiliates, and preferred stock
dividend requirements of 50%-owned affiliates, other than dividends payable to
the Parent. Combined fixed charges and preferred stock dividends consist of
(i) interest (including capitalized interest) on debt, including
5
<PAGE>
interest related to debt guaranteed by the Parent of less than 50%-owned
affiliates where the investment in such affiliates results in the recognition
of a loss, (ii) the elimination of interest of consolidated subsidiaries to
50%-owned affiliates, (iii) the Parent's proportionate share of interest of
50%-owned affiliates, (iv) that portion of rental expense the Parent believes
to be representative of interest (one-third of rental expense), (v)
amortization of debt expense, (vi) that portion of minority interests in
earnings (losses) of consolidated subsidiaries that represent the amount of
pretax earnings that would be required to cover preferred stock dividend
requirements of consolidated subsidiaries, (vii) that portion of minority
interests in earnings (losses) of consolidated subsidiaries that represents
dividend requirements on Parent-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely subordinated debt securities of
a subsidiary, (viii) the amount of pretax earnings that would be required to
cover preferred stock dividend requirements of the Parent, (ix) the
elimination of preferred stock dividend requirements of consolidated
subsidiaries to 50%-owned affiliates, and (x) the preferred stock dividend
requirements of 50%-owned affiliates, other than dividends payable to the
Parent. The Parent has guaranteed the debt of certain less than 50%-owned
affiliates and certain unaffiliated entities in which it has an interest.
Fixed charges of $8 million, $8 million, $6 million, $14 million and $3
million relating to such guarantees for the years ended December 31, 1996,
1995, 1994, 1993 and 1992, respectively, and fixed charges of $14 million and
$9 million relating to such guarantees for the nine months ended September 30,
1997 and 1996, respectively, have not been included in fixed charges because
the investment in such entity does not result in the recognition of a loss and
it is not probable that the Parent will be required to honor the guarantee.
DESCRIPTION OF DEBT SECURITIES
The Company may offer Debt Securities consisting of Senior Debt Securities,
Senior Subordinated Debt Securities or Subordinated Debt Securities, any of
which Debt Securities may be issued as Convertible Debt Securities, or any
combination of the foregoing.
The Debt Securities will represent unsecured general obligations of the
Company. The Senior Debt Securities will be senior to all subordinated
indebtedness of the Company, and pari passu (equally and ratably) with other
unsecured, unsubordinated indebtedness of the Company. The Senior Subordinated
Debt Securities will be subordinate in right of payment to certain other debt
obligations of the Company, pari passu with certain other senior subordinated
indebtedness of the Company and senior to certain other subordinated
indebtedness of the Company. The Subordinated Debt Securities will be
subordinate in right of payment to certain other debt obligations of the
Company and pari passu with certain other subordinated indebtedness of the
Company. At September 30, 1997, the Company had an aggregate of approximately
$13.955 billion of total Debt (as defined under "Senior Debt Securities--
Definitions") (including guarantees of indebtedness of others and the
unaccreted portion of indebtedness issued at a discount, but excluding
indebtedness owed to subsidiaries), substantially all of which would rank on a
parity in right of payment with the Senior Debt Securities. At that date, the
Company and its subsidiaries also had an aggregate of approximately $1.6
billion in undrawn lines of credit (excluding amounts related to lines of
credit which provide availability to support commercial paper).
The Company is a holding company and its assets consist primarily of
investments in its subsidiaries. A substantial portion of the consolidated
liabilities of the Company have been incurred by its subsidiaries. Therefore,
the Company's rights and the rights of its creditors, including holders of
Debt Securities, to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
prior claims of the subsidiary's creditors, including trade creditors, except
to the extent that the Company may itself be a creditor with recognized claims
against the subsidiary (in which case the claims of the Company would still be
subject to the prior claims of any secured creditor of such subsidiary and of
any holder of indebtedness of such subsidiary that is senior to that held by
the Company). At September 30, 1997, the Company's subsidiaries had total Debt
of approximately $4.912 billion (including guarantees of indebtedness of
others and the unaccreted portion of indebtedness issued at a discount, but
excluding indebtedness owed to the Company).
The Debt Securities will be obligations exclusively of the Company. The
Company's ability to service its indebtedness, including the Debt Securities,
is dependent primarily upon the earnings of its subsidiaries and the
6
<PAGE>
distribution or other payment of such earnings to the Company in the form of
dividends, loans or advances, payment or reimbursement for management fees and
expenses, and repayment of loans and advances from the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Debt
Securities or to make any funds available therefor, whether by dividends,
loans or other payments. The payment of dividends or the making of loans and
advances to the Company by its subsidiaries may be subject to statutory or
regulatory restrictions, are contingent upon the earnings of those
subsidiaries and are subject to various business considerations. Further,
certain of the Company's subsidiaries are subject to loan agreements that
prohibit or limit the transfer of funds by such subsidiaries to the Company in
the form of loans, advances or dividends and require that such subsidiaries'
indebtedness to the Company be subordinate to the indebtedness under such loan
agreements. The amount of net assets of subsidiaries subject to such
restrictions exceeds the Company's consolidated net assets. The Parent is also
a separate and distinct legal entity and it has no obligation, contingent or
otherwise, to pay any amounts due pursuant to the Debt Securities or to make
any funds available therefor, whether by loans or other payments, except for
any Offered Securities which the Parent has specifically elected to guarantee
as set forth in an applicable Prospectus Supplement. See "--Guarantees of Debt
Securities" below.
The Senior Debt Securities will be issued under an Indenture, dated as of
February 19, 1998, executed by the Company and The Bank of New York, as
Trustee (the "Senior Indenture"); the Senior Subordinated Debt Securities will
be issued under an Indenture to be executed by the Company and a trustee
designated in accordance with the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act") (the "Senior Subordinated Indenture"); and the
Subordinated Debt Securities will be issued under an Indenture to be executed
by the Company and a trustee designated in accordance with the Trust Indenture
Act (the "Subordinated Indenture"). In this Prospectus, the Senior Indenture,
the Senior Subordinated Indenture and the Subordinated Indenture are sometimes
collectively referred to as the Indentures and individually as an Indenture
and the Trustee under the Senior Indenture, the Trustee under the Senior
Subordinated Indenture and the Trustee under the Subordinated Indenture are
sometimes collectively referred to as the Trustees and individually as a
Trustee. In the event that any particular series of Debt Securities are
guaranteed by the Parent, the applicable Indenture will be supplemented by a
supplemental indenture among the Company, as issuer, the Parent, as guarantor,
and the Trustee. Any such supplemental indenture will be filed as an exhibit
to a Current Report on Form 8-K to be filed by the Company and Parent
following the issuance of such series of guaranteed Debt Securities. See "--
Guarantees of Debt Securities" below. The terms of the Senior Debt Securities,
the Senior Subordinated Debt Securities and the Subordinated Debt Securities
include those stated in the respective Indentures and in any supplemental
indenture, and those made part of the Indentures by reference to the Trust
Indenture Act, as in effect on the date of the applicable Indenture. The
Indentures (or form thereof, as the case may be) are filed as exhibits to the
Registration Statement. The Debt Securities are subject to all such terms and
holders of Debt Securities are referred to the respective Indentures and the
Trust Indenture Act for a statement of such terms. See "Additional
Information."
The following summaries of certain provisions of the Indentures do not
purport to be complete and are subject to, and qualified in their entirety by
reference to, all provisions of the Indentures. As used in this section
"Description of Debt Securities," unless the context indicates otherwise, the
term "Company" means TCI Communications, Inc. and does not include any of its
subsidiaries. All other capitalized terms used in this section and not
otherwise defined have the meanings assigned to them in the Indentures.
GENERAL
The Indentures do not limit the amount of Debt Securities which can be
issued thereunder and provide that Debt Securities may be issued in one or
more series, in such form, with such terms and up to the aggregate principal
amount authorized from time to time by the Company. (Sections 2.01 and 2.02 of
the Indentures)
Reference is made to the Prospectus Supplement for the following terms of
the Offered Securities: (i) the designation (including whether they are Senior
Debt Securities, Senior Subordinated Debt Securities or
7
<PAGE>
Subordinated Debt Securities), aggregate principal amount, authorized
denominations and currency or currencies in which principal, premium, if any,
and interest on the Offered Securities are payable; (ii) whether the Offered
Securities are to be issuable initially in temporary global form and whether
any of the Offered Securities are issuable in permanent global form as Global
Securities; (iii) whether the Offered Securities are to be issuable as
Registered Debt Securities or Bearer Debt Securities or both; (iv) the index
or indices used to determine the amount of payments of principal, premium, if
any, and interest on the Offered Securities; (v) the percentage of their
principal amount at which such Offered Securities will be issued; (vi) the
date on which the Offered Securities will mature (which may be fixed or
extendible); (vii) the rate or rates (which may be fixed or variable) per
annum, if any, at which the Offered Securities will bear interest and the date
from which such interest will accrue; (viii) the times at which any such
interest will be payable and with respect to Registered Debt Securities the
record date for the interest payable on any interest payment date; (ix) any
mandatory or optional sinking fund or analogous provisions; (x) the date or
dates, if any, on or after which, or the circumstances under which, and the
price or prices (and form or method of payment thereof) at which the Offered
Securities may be redeemed, purchased or exchanged at the option of the
Company or any holder; (xi) the initial conversion price per share or
conversion rate at which Offered Securities that are convertible will be
converted into Series A TCI Group Common Stock, any specific terms relating to
the adjustment thereof that are in addition to or different from those
described herein and the period during which such Offered Securities may be so
converted; (xii) the terms of any guarantee by the Parent of the payment of
principal, premium, if any, or interest on the Offered Debt Securities; (xiii)
any covenants or Events of Default that are in addition to or different from
those described herein; (xiv) whether such Offered Securities will be
initially issued in book-entry or certificated form; and (xv) any other
specific terms. Reference is made to the Prospectus Supplement with respect to
the designation and qualification of the Trustee under the Senior Subordinated
Indenture and the Subordinated Indenture.
If the purchase price of any Offered Securities is denominated in one or
more foreign currencies, foreign currency units or composite currencies, or if
the principal, premium, if any, and interest on any Offered Securities are
payable in one or more foreign currencies, foreign currency units or composite
currencies, the restrictions, elections, general tax considerations, specific
terms and other information with respect to such Offered Securities and such
foreign currency or currencies or foreign currency unit or units or composite
currencies will be set forth in the applicable Prospectus Supplement.
Debt Securities may be issued under the Indentures as Original Issue
Discount Securities to be sold at a substantial discount below their principal
amount ("original issue discount"). The issue price of Offered Securities that
are Original Issue Discount Securities, the amount of the original issue
discount with respect thereto, the manner and rate or rates per annum (which
may be fixed or variable) at which such original issue discount shall accrue,
the yield to maturity represented thereby, the date or dates from or to which
or period or periods during which such original issue discount shall accrue,
the portion of the principal amount of such Offered Securities that will be
payable upon acceleration of the maturity thereof or upon the optional or
mandatory redemption, purchase or exchange thereof, and any other specific
terms thereof will be described in the Prospectus Supplement relating thereto,
together with special federal income tax and other considerations applicable
to such Offered Securities.
SENIOR DEBT SECURITIES
The Senior Indenture contains, among others, the following covenants which
will apply to Offered Securities that are Senior Debt Securities unless
otherwise provided in the Prospectus Supplement for such Offered Securities
(certain defined terms used in the Senior Indenture are described under the
caption "--Definitions" below):
Limitation on Restricted Subsidiary Funded Debt. As long as any Senior Debt
Securities of a series entitled to the benefit of this covenant are
outstanding, the Company will not permit any Restricted Subsidiary to incur or
assume any Funded Debt if immediately after the incurrence or assumption of
such Funded Debt, the aggregate outstanding principal amount of all Funded
Debt of the Restricted Subsidiaries would exceed fifteen percent (15%) of the
Maximum Funded Debt Amount. Notwithstanding the foregoing, any Restricted
Subsidiary
8
<PAGE>
may incur Funded Debt to extend, refinance, renew or replace Funded Debt of
such Restricted Subsidiary, provided that the principal amount of the Funded
Debt so incurred does not exceed the principal amount of the Funded Debt
extended, refinanced, renewed or replaced thereby immediately prior to such
extension, refinancing, renewal or replacement plus any premium, accrued and
unpaid interest or capitalized interest payable thereon, reasonable fees
incurred in connection therewith, and the amount of any prepayment premium
necessary to accomplish any refinancing. (Section 4.02 of the Senior
Indenture) The Senior Indenture does not limit the incurrence of Funded Debt,
or any other debt, secured or unsecured, by the Company, except as described
under "Limitation on Liens," or by any Unrestricted Subsidiary.
Designation of Restricted Subsidiaries. As long as any Senior Debt
Securities entitled to the benefit of this covenant are outstanding, with
respect to the Senior Debt Securities of any series, the Company may designate
an Unrestricted Subsidiary as a Restricted Subsidiary or designate a
Restricted Subsidiary as an Unrestricted Subsidiary at any time, provided that
(1) immediately after giving effect to such designation, the Leverage Ratio of
the Restricted Group is not greater than 8.0:1 and the Company and the
Restricted Subsidiaries are in compliance with the "Limitation on Liens" and
"Limitation on Restricted Subsidiary Funded Debt" covenants, and (2) an
Officers' Certificate with respect to such designation is delivered to the
Trustee within 75 days after the end of the fiscal quarter of the Company in
which such designation is made (or, in the case of a designation made during
the last fiscal quarter of the Company's fiscal year, within 120 days after
the end of such fiscal year), which Officers' Certificate shall state the
effective date of such designation; the Company shall make the initial
designation of Restricted Subsidiaries with respect to the Senior Debt
Securities of any series, and deliver the required Officers' Certificate with
respect thereto to the Trustee, on or prior to the date of initial issuance of
Senior Debt Securities of such series. (Section 4.03 of the Senior Indenture)
Limitation on Liens. As long as any Senior Debt Securities of a series
entitled to the benefit of this covenant are outstanding, the Company will
not, and will not permit any Subsidiary to, create, incur or assume any Lien,
except for Permitted Liens (defined below), on any Property to secure the
payment of Funded Debt of the Company or any Subsidiary if, immediately after
the creation, incurrence or assumption of such Lien, the aggregate outstanding
principal amount of all Funded Debt of the Company and the Subsidiaries that
is secured by Liens (other than Permitted Liens) on Property would exceed ten
percent (10%) of Total Consolidated Assets, unless effective provision is made
whereby the Senior Debt Securities (together with, if the Company shall so
determine, any other Funded Debt ranking equally with the Senior Debt
Securities, whether then existing or thereafter created) are secured equally
and ratably with (or prior to) such Funded Debt (but only for so long as such
Funded Debt is so secured). (Section 4.04 of the Senior Indenture)
The foregoing limitation on Liens shall not apply to the creation,
incurrence or assumption of the following Liens ("Permitted Liens"):
(1) Any Lien which arises out of a judgment or award against the Company
or any Subsidiary with respect to which the Company or such Subsidiary at
the time shall be prosecuting an appeal or proceeding for review (or with
respect to which the period within which such appeal or proceeding for
review may be initiated shall not have expired) and with respect to which
it shall have secured a stay of execution pending such appeal or
proceedings for review or with respect to which the Company or such
Subsidiary shall have posted a bond and established adequate reserves (in
accordance with generally accepted accounting principles) for the payment
of such judgment or award;
(2) Liens on assets or property of a person existing at the time such
person is merged into or consolidated with the Company or any Subsidiary or
becomes a Subsidiary; provided, that such Liens were in existence prior to
the contemplation of such merger, consolidation or acquisition and do not
secure any Property of the Company or any Subsidiary other than the
property and assets subject to the Liens prior to such merger,
consolidation or acquisition;
9
<PAGE>
(3) With respect to Senior Debt Securities of any series, Liens existing
on the date of original issuance of such Senior Debt Securities;
(4) Liens securing Funded Debt (including in the form of Capitalized
Lease Obligations and purchase money indebtedness) incurred for the purpose
of financing the cost (including without limitation the cost of design,
development, site acquisition, construction, integration, manufacture or
acquisition) of real or personal Property (tangible or intangible) which is
incurred contemporaneously therewith or within 60 days thereafter; provided
(i) such Liens secure Funded Debt in an amount not in excess of the cost of
such Property (plus an amount equal to the reasonable fees and expenses
incurred in connection with the incurrence of such Funded Debt) and (ii)
such Liens do not extend to any Property of the Company or any Subsidiary
other than the Property for which such Funded Debt was incurred;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure the Senior Debt Securities;
(7) Liens granted in favor of the Company or any Subsidiary; and
(8) Any Lien representing the extension, refinancing, renewal or
replacement (or successive extensions, refinancings, renewals or
replacements) of Liens referred to in clauses (2), (3), (4), (5), (6) and
(7) above, provided that the principal of the Funded Debt secured thereby
does not exceed the principal of the Funded Debt secured thereby
immediately prior to such extension, renewal or replacement, plus any
accrued and unpaid interest or capitalized interest payable thereon,
reasonable fees and expenses incurred in connection therewith, and the
amount of any prepayment premium necessary to accomplish any refinancing;
provided, that such extension, renewal or replacement shall be limited to
all or a part of the Property (or interest therein) subject to the Lien so
extended, renewed or replaced (plus improvements and construction on such
Property). (Section 4.04 of the Senior Indenture)
Definitions. The following are certain of the terms defined in the Senior
Indenture (Section 1.01):
"Capitalized Lease Obligation" of any person means any obligation of such
person to pay rent or other amounts under a lease with respect to any property
(whether real, personal or mixed) acquired or leased by such person and used
in its business that is required to be accounted for as a liability on the
balance sheet of such person in accordance with generally accepted accounting
principles and the amount of such Capitalized Lease Obligation shall be the
amount so required to be accounted for as a liability.
"Company" means TCI Communications, Inc., a Delaware corporation, until a
successor replaces it pursuant to the applicable provisions of the Senior
Indenture and thereafter means the successor.
"Debt" of any person means:
(1) any indebtedness of such person (i) for borrowed money or (ii)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any property
or assets, including securities;
(2) any guarantee by such person of any indebtedness of others described
in the preceding clause (1); and
(3) any amendment, renewal, extension or refunding of any such
indebtedness or guarantee.
"Funded Debt" of any person means, as of the date as of which the amount
thereof is to be determined, without duplication, all indebtedness of such
person for borrowed money or for the deferred purchase price of property or
assets in respect of which such person is liable and all guaranties by such
person of any indebtedness of others for borrowed money, and all Capitalized
Lease Obligations of such person, which by the terms thereof have a final
maturity, duration or payment date more than one year from the date of
determination thereof (including, without limitation, any balance of such
indebtedness or obligation which was Funded Debt at the time of its creation
maturing within one year from such date of determination) or which has a final
maturity,
10
<PAGE>
duration or payment date within one year from such date of determination but
which by its terms may be renewed or extended at the option of such person for
more than one year from such date of determination, whether or not theretofore
renewed or extended. The term "Funded Debt" excludes (A) for purposes of the
"Limitation on Liens" covenant and determining Events of Default, (1) any
indebtedness of the Company or any Subsidiary to the Company or another
Subsidiary, (2) any guarantee by the Company or any Subsidiary of indebtedness
of the Company or another Subsidiary, provided that such guarantee is not
secured by a Lien on any Property, and (3) any guarantee by the Company or any
Subsidiary of the indebtedness of any person (including, without limitation, a
business trust), if the obligation of the Company or such Subsidiary under
such guaranty is limited in amount to the amount of funds held by or on behalf
of such person that are available for the payment of such indebtedness, and
(B) for purposes of each of the "Limitation on Restricted Subsidiary Funded
Debt" and the "Designation of Restricted Subsidiaries" covenants, (1) any
indebtedness of the Company or any Restricted Subsidiary to the Company or
another Restricted Subsidiary, (2) any guarantee by the Company or any
Restricted Subsidiary of indebtedness of the Company or another Restricted
Subsidiary, provided that such guarantee is not secured by a Lien on
Restricted Property, (3) any guarantee by the Company or any Restricted
Subsidiary of the indebtedness of any person (including, without limitation, a
business trust), if the obligation of the Company or such Restricted
Subsidiary under such guarantee is limited in amount to the amount of funds
held by or on behalf of such person that are available for the payment of such
indebtedness and (4) any indebtedness of the Company or any Restricted
Subsidiary to any Unrestricted Subsidiary which indebtedness is subordinated
in right of payment to the prior payment in full of the outstanding Senior
Debt Securities of such series on terms no less favorable to the holders of
such Senior Debt Securities than those contained in Article Ten of that
certain Indenture, dated as of April 1, 1991, between the Company and Chemical
Bank, as Trustee, pursuant to which the Company's subordinated debt securities
are subordinated to all Senior Debt of the Company (as defined therein),
without giving effect to any amendment, modification or supplement to, or
discharge of such Indenture after the date of the Senior Indenture, and which
indebtedness is not secured by a Lien on Restricted Property. For purposes of
determining the outstanding principal amount of Funded Debt at any date, the
amount of indebtedness issued at a price less than the principal amount
thereof shall be equal to the amount of the liability in respect thereof at
such date determined in accordance with generally accepted accounting
principles.
"Leverage Ratio" with respect to the Restricted Group means, as of the date
of and after giving effect to any designation of an Unrestricted Subsidiary as
a Restricted Subsidiary and/or any designation of a Restricted Subsidiary as
an Unrestricted Subsidiary, in each case in accordance with the "Designation
of Restricted Subsidiaries" covenant, the ratio of (1) the aggregate
outstanding principal amount of all Funded Debt of the Restricted Group as of
such date to (2) the product of four times the Restricted Group Cash Flow for
the most recent full fiscal quarter for which financial information is
available on such date.
"Lien" means any mortgage, pledge, lien, security interest, or other similar
encumbrance.
"Maximum Funded Debt Amount" means, as of any date of determination thereof,
that amount which is equal to the product of (i) eight and (ii) the product of
(x) the Restricted Group Cash Flow for the most recent full fiscal quarter for
which financial information is available on such date and (y) four.
"Parent" means Tele-Communications, Inc., a Delaware corporation, and any
successor thereof.
"Principal Property" means, as of any date of determination, any property or
assets owned by any Restricted Subsidiary other than (1) any such property
which, in the good faith opinion of the Board of Directors, is not of material
importance to the business conducted by the Company and its Restricted
Subsidiaries taken as a whole and (2) any shares of any class of stock or any
other security of any Unrestricted Subsidiary.
"Property" means all assets and properties of the Company and its
Subsidiaries (real, personal, tangible, intangible or mixed), including any
shares of capital stock or indebtedness of, or other interests (including
partnership interests) in, a Subsidiary owned by the Company or a Subsidiary.
11
<PAGE>
"Restricted Group" means, as of any date of determination, the Company and
the Restricted Subsidiaries as of such date after giving effect to any
designation being made on such date in accordance with the "Designation of
Restricted Subsidiaries" covenant.
"Restricted Group Cash Flow" for any period means the Restricted Group Net
Income (as defined below) for such period, plus (A) the sum (without
duplication) of the aggregate of each of the following items of the Company
and the Restricted Subsidiaries for such period to the extent taken into
account as charges to Restricted Group Net Income for such period: (i)
interest expense, (ii) income tax expense, (iii) depreciation and amortization
expense and other noncash charges, (iv) extraordinary or non-recurring items
and (v) after-tax losses on sales of assets outside of the ordinary course of
business not otherwise included in extraordinary items in accordance with
generally accepted accounting principles, minus (B) the sum (without
duplication) of the aggregate of each of the following items of the Company
and the Restricted Subsidiaries for such period to the extent taken into
account as credits to Restricted Group Net Income for such period: (i) noncash
credits, (ii) extraordinary or non-recurring items, and (iii) after-tax gains
on sales of assets outside of the ordinary course of business not otherwise
included in extraordinary items in accordance with generally accepted
accounting principles.
For purposes of this definition, (1) "Restricted Group Net Income" for any
period means the aggregate of the net income (loss) for such period of the
Company and the Restricted Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that (i) the net income (loss) of any person accounted for by the equity
method of accounting and the net income (loss) of any Unrestricted Subsidiary
shall be excluded, except that the net income of any such person or
Unrestricted Subsidiary shall be included to the extent of the amount of
dividends or distributions paid by such person or Unrestricted Subsidiary to
the Company or a Restricted Subsidiary during such period, and (ii) except as
otherwise provided in clause (2) below, the net income (loss) of any other
person acquired by the Company or any Restricted Subsidiary in a transaction
accounted for as a pooling of interests for any period prior to the date of
such acquisition shall be excluded; and (2) if the Company or any Restricted
Subsidiary consummated any acquisition or disposition of assets during the
period for which Restricted Group Cash Flow is being calculated, or
consummated any acquisition or disposition of assets subsequent to such period
and on or prior to the date as of which the Leverage Ratio or Maximum Funded
Debt Amount, as applicable, is to be determined, then, in each such case, the
Restricted Group Cash Flow for such period shall be calculated on a pro forma
basis as if such acquisition or disposition had occurred at the beginning of
such period.
"Restricted Property" means, as of any date of determination, any Principal
Property and any shares of stock of a Restricted Subsidiary owned by the
Company or a Restricted Subsidiary.
"Restricted Subsidiary" means, as of any date of determination, a
corporation a majority of whose voting stock is owned by the Company and/or
one or more Restricted Subsidiaries, which corporation has been, or is then
being, designated a Restricted Subsidiary in accordance with the "Designation
of Restricted Subsidiaries" covenant, unless and until designated an
Unrestricted Subsidiary in accordance with such covenant.
"Subsidiary" means any corporation, association, partnership or other
business entity of which a majority of the total voting power of the capital
stock or other interests (including partnership interests) entitled (without
regard to the occurrence of a contingency) to vote in the election of
directors, managers, or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
of its Subsidiaries or (iii) one or more Subsidiaries of the Company.
"Total Consolidated Assets" means the total assets (real, personal,
tangible, intangible and mixed) that would be shown on a balance sheet of the
Company and its Subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied, as of any date selected by the
Company not more than 45 days prior to the taking of the action for the
purpose of which Total Consolidated Assets is to be determined.
"Unrestricted Subsidiary" means, as of any date of determination, any
Subsidiary of the Company that is not a Restricted Subsidiary.
12
<PAGE>
Nothing in the Senior Indenture affords holders of Senior Debt Securities
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company or in the
event of a change of control of the Company or the Parent.
SENIOR SUBORDINATED DEBT SECURITIES
The following provisions will apply to Offered Securities that are Senior
Subordinated Debt Securities unless otherwise provided in the Prospectus
Supplement for such Offered Securities.
Subordination. The indebtedness evidenced by the Senior Subordinated Debt
Securities will be subordinate to the prior payment in full of all Senior Debt
as described below. The Senior Subordinated Indenture does not limit Senior
Debt or any other debt, secured or unsecured, of the Company or any
subsidiary, except as described under "Limitation on Subordinated Debt
Superior to the Senior Subordinated Debt Securities" below. Upon maturity (by
acceleration or otherwise) of any Senior Debt, payment in full must be made on
such Senior Debt (or duly provided for) before any payment is made on or in
respect of the Senior Subordinated Debt Securities (except payments made in
capital stock of the Company or in warrants, rights or options to purchase or
acquire capital stock of the Company, sinking fund payments made in Senior
Subordinated Debt Securities acquired by the Company before the maturity of
such Senior Debt, and payments made through the exchange of other debt
obligations of the Company for such Senior Subordinated Debt Securities in
accordance with the terms of such Senior Subordinated Debt Securities provided
that such Debt obligations are subordinated to Senior Debt at least to the
extent that the Senior Subordinated Debt Securities for which they are
exchanged are so subordinated in accordance with the Senior Subordinated
Indenture). During the continuance of any default in payment of the principal
of, premium, if any, interest on, or other amounts due in respect of, any
Senior Debt, no payment may be made by the Company on, or in respect of, the
Senior Subordinated Debt Securities (except payments made in capital stock of
the Company or in warrants, rights or options to purchase or acquire capital
stock of the Company, sinking fund payments made in Senior Subordinated Debt
Securities acquired by the Company before such default and notice thereof, and
payments made through the exchange of other debt obligations of the Company
for such Senior Subordinated Debt Securities in accordance with the terms of
such Senior Subordinated Debt Securities provided that such debt obligations
are subordinated to Senior Debt at least to the extent that the Senior
Subordinated Debt Securities for which they are exchanged are so subordinated
in accordance with the Senior Subordinated Indenture). Upon any distribution
of assets of the Company in any dissolution, winding up, liquidation or
reorganization of the Company, payment of all amounts due in respect of the
Senior Subordinated Debt Securities will be subordinated, to the extent and in
the manner set forth in the Senior Subordinated Indenture, to the prior
payment in full of all Senior Debt. Such subordination will not prevent the
occurrence of any Event of Default. (Sections 10.01, 10.02, 10.03 and 10.11 of
the Senior Subordinated Indenture) The Indenture for the Senior Debt
Securities contains a cross-acceleration provision that would, among other
things, permit the acceleration of the maturity of any outstanding Senior Debt
Securities in the event that the maturity of any outstanding Senior
Subordinated Debt Securities or Subordinated Debt Securities were accelerated.
See "Defaults and Remedies" below. The instruments and agreements pursuant to
which all or substantially all of the Company's Senior Debt has been incurred
also contain cross-default or cross-acceleration provisions.
Securities Senior to Junior Subordinated Debt. The indebtedness evidenced by
the Senior Subordinated Debt Securities will be superior in right of payment
to all Junior Subordinated Debt as described below. Upon maturity (by
acceleration or otherwise) of the Senior Subordinated Debt Securities of any
series, payment in full must be made thereon, or duly provided for, before any
payment is made on or in respect of any Junior Subordinated Debt (except
payments made in capital stock of the Company or in warrants, rights or
options to purchase or acquire capital stock of the Company, sinking fund
payments made in instruments evidencing Junior Subordinated Debt of the same
issue acquired before the maturity of the Senior Subordinated Debt Securities
of such series, and payments made through the exchange of other debt
obligations of the Company for such Junior Subordinated Debt in accordance
with the terms of such Junior Subordinated Debt provided that such debt
obligations are subordinated to the Senior Subordinated Debt Securities at
least to the extent that the Junior Subordinated Debt for which they are
exchanged is so subordinated in accordance with the Senior Subordinated
13
<PAGE>
Indenture). During the continuance of any default in payment of the principal
of, premium, if any, interest on, or other amounts due in respect of, the
Senior Subordinated Debt Securities of any series, no payment may be made by
the Company on, or in respect of, any Junior Subordinated Debt (except
payments made in capital stock of the Company or in warrants, rights or
options to purchase or acquire capital stock of the Company, sinking fund
payments made in instruments evidencing Junior Subordinated Debt of the same
issue acquired before such default and notice thereof, and payments made
through the exchange of other debt obligations of the Company for such Junior
Subordinated Debt in accordance with the terms of such Junior Subordinated
Debt provided that such debt obligations are subordinated to the Senior
Subordinated Debt Securities at least to the extent that the Junior
Subordinated Debt for which they are exchanged is so subordinated in
accordance with the Senior Subordinated Indenture). Upon any distribution of
assets of the Company in any dissolution, winding up, liquidation or
reorganization of the Company, holders of the Senior Subordinated Debt
Securities will be entitled to receive payment in full of all amounts due in
respect thereof before the holders of any Junior Subordinated Debt are
entitled to receive any payment on account of such Junior Subordinated Debt.
(Section 4.05 of the Senior Subordinated Indenture)
Limitation on Subordinated Debt Superior to the Senior Subordinated Debt
Securities. As long as any Senior Subordinated Debt Securities remain
outstanding, the Company may not create or incur any Debt which is subordinate
or junior in right of payment to any Senior Debt if such Debt is superior in
right of payment to the Senior Subordinated Debt Securities. (Section 4.06 of
the Senior Subordinated Indenture)
Definitions. The following are certain of the terms defined in the Senior
Subordinated Indenture (Sections 4.06 and 10.01):
"Junior Subordinated Debt" means the principal of (premium, if any) and
interest on Debt of the Company created or incurred after the date of the
Senior Subordinated Indenture which by its terms is subordinate in right of
payment to the Senior Subordinated Debt Securities, including any Subordinated
Debt Securities issued under the Subordinated Indenture.
"Senior Debt" means the principal of (premium, if any) and interest on Debt
of the Company outstanding at any time other than (i) the Senior Subordinated
Debt Securities, (ii) the Company's outstanding 11 1/8% senior subordinated
debentures due October 1, 2003, which shall rank pari passu with the Senior
Subordinated Debt Securities, (iii) any Subordinated Debt Securities issued
under the Subordinated Indenture, and (iv) Debt which by its terms is not
superior in right of payment to the Senior Subordinated Debt Securities.
The definition of "Debt" in the Senior Subordinated Indenture is the same as
that in the Senior Indenture.
Nothing in the Senior Subordinated Indenture affords holders of Senior
Subordinated Debt Securities protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company or in the event of a change of control of the Company or
the Parent.
SUBORDINATED DEBT SECURITIES
The following provisions will apply to Offered Securities that are
Subordinated Debt Securities unless otherwise provided in the Prospectus
Supplement for such Offered Securities:
Subordination. The indebtedness evidenced by the Subordinated Debt
Securities will be subordinate to the prior payment in full of all Senior Debt
as described below. The Subordinated Indenture does not limit Senior Debt or
any other debt, secured or unsecured, of the Company or any subsidiary. Upon
maturity (by acceleration or otherwise) of any Senior Debt, payment in full
must be made on such Senior Debt (or duly provided for) before any payment is
made on or in respect of the Subordinated Debt Securities (except payments
made in capital stock of the Company or in warrants, rights or options to
purchase or acquire capital stock of the Company, sinking fund payments made
in Subordinated Debt Securities acquired by the Company before the maturity of
such Senior Debt, and payments made through the exchange of other debt
obligations of the
14
<PAGE>
Company for such Subordinated Debt Securities in accordance with the terms of
such Subordinated Debt Securities provided that such debt obligations are
subordinated to Senior Debt at least to the extent that the Subordinated Debt
Securities for which they are exchanged are so subordinated in accordance with
the Subordinated Indenture). During the continuance of any default in payment
of the principal of, premium, if any, interest on, or other amounts due in
respect of, any Senior Debt, no payment may be made by the Company on, or in
respect of, the Subordinated Debt Securities (except payments made in capital
stock of the Company or in warrants, rights or options to purchase or acquire
capital stock of the Company, sinking fund payments made in Subordinated Debt
Securities acquired by the Company before such default and notice thereof, and
payments made through the exchange of other debt obligations of the Company
for such Subordinated Debt Securities in accordance with the terms of such
Subordinated Debt Securities provided that such debt obligations are
subordinated to Senior Debt at least to the extent that the Subordinated Debt
Securities for which they are exchanged are so subordinated in accordance with
the Subordinated Indenture). Upon any distribution of assets of the Company in
any dissolution, winding up, liquidation or reorganization of the Company,
payment of all amounts due in respect of the Subordinated Debt Securities will
be subordinated, to the extent and in the manner set forth in the Subordinated
Indenture, to the prior payment in full of all Senior Debt. Such subordination
will not prevent the occurrence of any Event of Default. (Sections 10.01,
10.02, 10.03 and 10.11 of the Subordinated Indenture) The Indenture for the
Senior Debt Securities contains a cross-acceleration provision that would,
among other things, permit the acceleration of the maturity of any outstanding
Senior Debt Securities in the event that the maturity of any outstanding
Senior Subordinated Debt Securities or Subordinated Debt Securities were
accelerated. See "Defaults and Remedies" below. The instruments and agreements
pursuant to which all or substantially all of the Company's Senior Debt has
been incurred also contain cross-default or cross-acceleration provisions.
"Senior Debt" means the principal of (premium, if any) and interest on Debt
of the Company outstanding at any time other than (i) the Subordinated Debt
Securities and (ii) Debt which by its terms is not superior in right of
payment to the Subordinated Debt Securities. The definition of "Debt" in the
Subordinated Indenture is the same as that in the Senior Indenture.
Nothing in the Subordinated Indenture affords holders of Subordinated Debt
Securities protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company or in the event of a change of control of the Company or the Parent.
CONVERTIBLE DEBT SECURITIES
In addition to the provisions described under the applicable of "Senior Debt
Securities", "Senior Subordinated Debt Securities" or "Subordinated Debt
Securities" above, the following provisions will apply to Offered Securities
that are convertible Debt Securities unless otherwise provided in the
Prospectus Supplement for such Offered Securities:
For purposes of the conversion provisions of each Indenture, "Parent Stock"
means the Series A TCI Group Common Stock and any other capital stock into
which the Parent Stock may be changed after the date of such Indenture.
(Section 1.01 of the Indentures)
Conversion. The holder of any convertible Debt Security will have the right,
exercisable at any time up to and including the maturity date thereof (or such
shorter period as may be specified for any series of convertible Debt
Securities in the Prospectus Supplement relating thereto), unless previously
redeemed or otherwise purchased, to convert such Debt Security at the
principal amount thereof (or, if such Debt Security is an Original Issue
Discount Security, such portion of the principal amount thereof as is
specified in the terms of such Debt Security) into shares of Parent Stock at
the conversion price or conversion rate set forth in the Prospectus
Supplement, subject to adjustment as described below. The holder of a
convertible Debt Security may convert a portion thereof if the portion to be
converted and the remaining portion of such Debt Security are in denominations
issuable for that series of Debt Securities. (Section 10.01 of the Senior
Indenture and Section
15
<PAGE>
11.01 of the Senior Subordinated and Subordinated Indentures) In the case of
Debt Securities called for redemption, conversion rights will expire at the
close of business on such day on or prior to the redemption date as may be
specified in the Prospectus Supplement.
The conversion price or conversion rate of the convertible Debt Securities,
or the securities or other property to be received on conversion, is subject
to adjustment upon the occurrence of certain events, including (i) the payment
of a dividend or the making of a distribution in shares of Parent Stock to
holders of Parent Stock or the payment of a dividend or the making of a
distribution to holders of Parent Stock payable in shares of the Parent's
capital stock other than Parent Stock; (ii) the subdivision, combination or
reclassification of outstanding shares of Parent Stock; (iii) the issuance to
all holders of Parent Stock of rights or warrants entitling them (for a period
not exceeding 45 days or such other period as may be specified in the
Prospectus Supplement) to purchase shares of Parent Stock (or, unless
otherwise provided in the Prospectus Supplement, securities (other than the
convertible Debt Securities and shares of Tele-Communications, Inc. Series B
TCI Group Common Stock) convertible into Parent Stock) at a price per share
(or, in the case of such convertible securities, having a conversion price per
share after adding thereto an allocable portion of the exercise price of the
right or warrant to purchase such convertible securities) less than the
Average Market Price on the Determination Date (each as defined in the
Indentures) per share of such Parent Stock; (iv) the distribution to all
holders of Parent Stock of evidences of indebtedness or assets (excluding cash
dividends or distributions unless otherwise provided in the Prospectus
Supplement) or certain rights or warrants (other than those referred to
above); and (v) certain mergers, consolidations or sales of assets. In the
case of any such dividend or distribution on the Parent Stock of shares of
capital stock, subdivision, combination or reclassification, the holder of
each outstanding convertible Debt Security will have the right to convert such
Debt Security into the kind and amount of securities which he would have owned
immediately after such event if he had converted such Debt Security
immediately before the record date for or effective date of, as the case may
be, such event. In the case of any such merger, consolidation or sale of
assets, the holder of each outstanding convertible Debt Security will have the
right to convert such Debt Security into the kind and amount of securities,
cash or other assets receivable upon such merger, consolidation or sale by a
holder of the number of shares of Parent Stock into which such Debt Security
could have been converted immediately before the effective date of such
transaction (assuming such holder of Parent Stock failed to exercise any
rights of election and received per share of Parent Stock the kind and amount
of securities, cash or other assets received per share by a plurality of the
non-electing shares). In the case of any such issuance of rights or warrants
which expire within 45 days (or such other period as may be specified in the
Prospectus Supplement) after the record date for the determination of
stockholders entitled to receive the rights or warrants, or any such
distribution of evidences of indebtedness or assets or other rights or
warrants, the conversion price or conversion rate will be adjusted pursuant to
formulas contained in the Indentures. However, no adjustment to the conversion
price or conversion rate need be made if the holders may participate in the
transaction or in certain other cases.
In addition to the foregoing adjustments, the Company will be permitted to
make such reductions in the conversion price or increases in the conversion
rate as it considers to be advisable. Unless otherwise provided in the
Prospectus Supplement, the Company is not required to make adjustments in the
conversion price or conversion rate of less than 1% of the initial conversion
price or conversion rate, as the case may be, but any adjustment that would
otherwise be required to be made will be taken into account in the computation
of any subsequent adjustment. No adjustment is required in respect of the
issuance of Parent Stock under any dividend or interest reinvestment plan of
the Parent. Fractional shares of Parent Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment. No
payment or adjustment will be made upon any conversion on account of any
interest (or, in the case of Original Issue Discount Securities, original
issue discount) accrued on the convertible Debt Securities surrendered for
conversion or on account of any dividends on the Parent Stock issued upon
conversion. Convertible Debt Securities surrendered for conversion between the
record date for an interest payment, if any, and the interest payment date
(except convertible Debt Securities called for redemption on a redemption date
during such period) may be required to be accompanied by payment of an amount
equal to the interest thereon which the registered holder is to receive.
(Article Ten of the Senior Indenture and Article Eleven of the Senior
Subordinated and Subordinated Indentures)
16
<PAGE>
GUARANTEES OF DEBT SECURITIES
The Parent may, at its option, unconditionally guarantee to the holders of
Offered Securities the full and prompt payment of principal, premium, if any,
and interest on such Offered Securities when and as the same shall become due
and payable, whether at maturity, upon redemption or otherwise. The terms of
any such guarantee (a "Guarantee") will be set forth in a supplement to the
applicable Indenture. Any such Guarantee will be an unsecured obligation of
the Parent. Any right of payment of the holders of Senior Debt Securities
under a Guarantee will be prior to any right of payment of the holders of
Senior Subordinated Debt Securities and Subordinated Debt Securities under a
Guarantee, and any right of payment of the holders of Senior Subordinated Debt
Securities under a Guarantee will be prior to any right of payment of the
holders of Subordinated Debt Securities under a Guarantee.
If a Guarantee is issued by the Parent with respect to any Offered
Securities, reference is made to the Prospectus Supplement for such Offered
Securities for a description of the specific terms of such Guarantee,
including events of default relating thereto and, where applicable,
subordination provisions of such Guarantee and covenants of the Parent. Unless
otherwise specified in the applicable Prospectus Supplement, Offered
Securities will not be guaranteed by the Parent.
DENOMINATION AND FORM
Unless otherwise indicated in the Prospectus Supplement, the Offered
Securities will be Registered Debt Securities denominated in U.S. Dollars and
will be issued only in denominations of $1,000 and integral multiples of
$1,000. (Section 2.03 of the Senior Subordinated and Subordinated Indentures
and Sections 2.01 and 2.03 of the Senior Indenture) Under the Senior
Indenture, Debt Securities of any series may be issuable as Registered Debt
Securities, Bearer Debt Securities (with or without coupons attached) or both,
and may be issuable in whole or in part in the form of one or more Global
Securities. In addition, the Senior Indenture provides that Debt Securities
may be denominated or payable in one or more foreign currencies, foreign
currency units or composite currencies. (Sections 2.01 and 2.02 of the Senior
Indenture) Unless otherwise indicated in the applicable Prospectus Supplement,
Bearer Debt Securities denominated in U.S. Dollars will be issued only in the
denomination of $5,000 with coupons attached. (Sections 2.01 and 2.03 of the
Senior Indenture) A Global Security will be issued in a denomination equal to
the aggregate principal amount of outstanding Debt Securities represented by
such Global Security. (Section 2.10 of the Senior Indenture and Section 2.15
of the Senior Subordinated and the Subordinated Indentures) The Prospectus
Supplement relating to a series of Debt Securities denominated other than in
U.S. Dollars will specify the authorized denominations thereof.
During the "restricted period," as defined in Treasury Regulation Section
1.163-5(c)(2)(i)(D)(7), no Bearer Debt Security may be offered or sold (or
resold in connection with its original issuance) in the United States or its
possessions or to a United States person (subject to certain exceptions).
Further, no Bearer Debt Security may be mailed or otherwise delivered to any
location in the United States or its possessions in connection with a sale
that occurred during the restricted period. Offered Securities that are Bearer
Debt Securities will be subject to certification requirements as to the
ownership of such Bearer Debt Security (including beneficial interests in a
Global Security representing such Bearer Debt Security) which will be
described in the applicable Prospectus Supplement. See "Limitations on
Issuance of Bearer Debt Securities."
REGISTRAR, PAYING AGENT, CONVERSION AGENT
The Company will maintain an office or agency where Registered Debt
Securities of each series may be presented for registration of transfer or for
exchange ("Registrar"), an office or agency where Debt Securities of each
series may be presented for payment ("Paying Agent") and an office or agency
where Debt Securities of each series that is convertible may be presented for
conversion ("Conversion Agent"). The Company may have one or more co-
Registrars, one or more additional Paying Agents and one or more additional
Conversion Agents with respect to any series of Debt Securities and the
Company or any of its subsidiaries may act as Paying Agent, Registrar or co-
Registrar or Conversion Agent. Unless otherwise indicated in an applicable
Prospectus Supplement, each Trustee will initially act as Paying Agent and
Registrar for each series of Debt Securities
17
<PAGE>
issued under its respective Indenture and as Conversion Agent for any series
that is convertible. The Company may change any Paying Agent, Registrar or co-
Registrar or Conversion Agent at any time without notice to the holders of
Debt Securities, except as described below with respect to Debt Securities
issued under the Senior Indenture. The Company will promptly notify the
Trustee of the name and address of any such Agent. (Section 2.05 of the
Indentures)
The Senior Indenture also provides that if Debt Securities of a series are
issuable as Bearer Debt Securities, the Company will maintain (i) in the
Borough of Manhattan, The City of New York, an office or agency where any
Registered Debt Securities of that series may be presented or surrendered for
payment and for registration of transfer, where Debt Securities of that series
may be surrendered for exchange and where Bearer Debt Securities of that
series and related coupons may be presented or surrendered for payment in the
circumstances described under "Payment" below, and (ii) subject to any laws or
regulations applicable thereto, in a place of payment for Debt Securities of
that series located outside the United States, an office or agency where any
Registered Debt Securities of that series may be surrendered for registration
of transfer, where Debt Securities of that series may be surrendered for
exchange and where Debt Securities of that series and any related coupons may
be presented and surrendered for payment, provided that if the Debt Securities
of that series are listed on The International Stock Exchange of the United
Kingdom and the Republic of Ireland, the Luxembourg Stock Exchange or any
other stock exchange located outside the United States and such stock exchange
shall so require, the Company will maintain a Paying Agent for the Debt
Securities of that series in London, Luxembourg or any other required city
located outside the United States, as the case may be, so long as the Debt
Securities of that series are listed on such exchange. Any Paying Agents
outside the United States initially designated by the Company for the Offered
Securities will be named in the applicable Prospectus Supplement. The Company
will promptly notify the Trustee and the holders of Senior Debt Securities of
a series of the location and any change in the location of any office or
agency which it is required to maintain for the Senior Debt Securities of such
series. (Section 4.01 of the Senior Indenture)
TRANSFER AND EXCHANGE
Registered Debt Securities of any series (other than a Global Security,
except as provided under "Global Securities") will be exchangeable at the
option of the holder for other Registered Debt Securities of the same series
of any authorized denominations and of a like aggregate principal amount and
tenor. (Section 2.08 of the Indenture) In addition, if Debt Securities of any
series issued under the Senior Indenture are issuable as both Registered Debt
Securities and Bearer Debt Securities, then, if so provided with respect to
the Debt Securities of such series, at the option of the holder and subject to
the terms of such Indenture, Bearer Debt Securities (with, except as provided
below, all related unmatured coupons and all related matured coupons in
default) of such series will be exchangeable for Registered Debt Securities of
the same series of any authorized denominations and of a like aggregate
principal amount and tenor. Bearer Debt Securities surrendered in exchange for
Registered Debt Securities between a regular record date or, in certain
circumstances, a special record date, for an interest payment and the relevant
interest payment date shall be surrendered without the coupon relating to such
interest payment date attached and interest will not be payable on such
interest payment date in respect of the Registered Debt Security issued in
exchange for such Bearer Debt Security, but will be payable only to the holder
of such coupon in accordance with the terms of the Senior Indenture. Unless
otherwise specified in the applicable Prospectus Supplement, Bearer Debt
Securities will not be issued in exchange for Registered Debt Securities.
(Section 2.08 of the Senior Indenture)
Debt Securities of any series may be surrendered for exchange as provided
above, and Registered Debt Securities of any series (other than a Global
Security, except as provided under "Global Securities") may be surrendered for
registration of transfer, at the office or agency designated by the Company
for such purpose with respect to such series of Debt Securities. Bearer Debt
Securities will be transferable by delivery. (Section 2.14 of the Senior
Indenture) Every Registered Debt Security presented or surrendered for
registration of transfer or for exchange shall be duly endorsed or accompanied
by appropriate transfer documents duly executed. No service charge will be
made for any registration of transfer or exchange of Debt Securities, but the
Company may require
18
<PAGE>
payment of a sum sufficient to cover any taxes and other governmental charges
that may be imposed in relation thereto. (Section 2.08 of the Indentures)
The Company and the Registrar need not transfer or exchange any Debt
Securities selected for redemption or purchase (except, in the case of Debt
Securities to be redeemed or purchased in part, the portion thereof not to be
redeemed or purchased) or any Debt Securities in respect of which a notice
requiring the purchase or redemption thereof by the Company at the option of
the holder thereof has been given and not withdrawn by such holder in
accordance with the terms of such Debt Securities (as described, if
applicable, in the Prospectus Supplement) (except, in the case of Debt
Securities to be so purchased or redeemed in part, the portion thereof not to
be so purchased or redeemed). (Section 2.08 of the Indentures) A Bearer Debt
Security so selected for redemption or purchase or in respect of which a
notice requiring the redemption or purchase thereof by the Company at the
option of the holder thereof has been given and not so withdrawn may however,
if so provided with respect to the Debt Securities of such series, be
exchanged for a Registered Debt Security of that series and like tenor,
provided that such Registered Debt Security is simultaneously surrendered for
redemption or purchase, as the case may be. (Section 2.08 of the Senior
Indenture)
The Senior Subordinated Indenture and the Subordinated Indenture also
provide that the Registrar need not transfer or exchange any Debt Securities
of a particular series during a period of 15 days before a selection of Debt
Securities of such series to be redeemed. (Section 2.08 of the Senior
Subordinated and the Subordinated Indentures) The Senior Indenture provides
that the Company shall not be required to issue, register the transfer of or
exchange Debt Securities of any series during a period beginning at the
opening of business 15 days before any selection of Debt Securities of that
series to be redeemed and ending at the close of business on (i) if Debt
Securities of that series are issuable only as Registered Debt Securities, the
date of the mailing of the relevant notice of redemption, and (ii) if Debt
Securities of that series are issuable as Bearer Debt Securities, the date of
the first publication of the relevant notice of redemption or, if Debt
Securities of that series are also issuable as Registered Debt Securities and
there is no publication, the mailing of the relevant notice of redemption.
(Section 2.08 of the Senior Indenture)
Prior to due presentment of a Registered Debt Security for registration of
transfer, the person in whose name such Registered Debt Security is registered
may be treated as the owner of it for all purposes. (Section 2.14 of the
Indentures) The bearer of any Bearer Debt Security and the bearer of any
coupon appertaining thereto may be treated as the owner of such Bearer Debt
Security or coupon for all purposes. (Section 2.14 of the Senior Indenture)
GLOBAL SECURITIES
The Indentures provide that the Debt Securities of any series thereunder may
be issued in whole or in part in the form of one or more Global Securities,
which Global Securities may be issued in registered form (or, in the case of
Senior Debt Securities, bearer form) and in either temporary or permanent
form. (Sections 2.10 and 2.11 of the Senior Indenture and Sections 2.11 and
2.15 of the Senior Subordinated and Subordinated Indentures) Each Global
Security will be deposited with and, if it is issued in registered form, will
be registered in the name of the depositary (or a nominee of the depositary)
identified in the applicable Prospectus Supplement. (Section 2.10 of the
Senior Indenture and Section 2.15 of the Senior Subordinated and Subordinated
Indentures) So long as the depositary for a Global Security in registered
form, or its nominee, is the registered owner of the Global Security, the
depositary or its nominee, as the case may be, will be considered the sole
owner of the Debt Securities represented by such Global Security for all
purposes under the Indenture. (Section 2.14 of the Indentures) Unless and
until it is exchanged in whole or in part for Debt Securities in definitive
form, a Global Security may not be transferred except as a whole by the
depositary for such Global Security to a nominee of such depositary or by a
nominee of such depositary to such depositary or another nominee of such
depositary or by the depositary or any nominee to a successor depositary or
any nominee of such successor. (Section 2.08 of the Indentures) Unless
otherwise specified in the applicable Prospectus Supplement, if the depositary
with respect to any Global Security is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days of such time, or if the Company, in
its sole discretion, at any time determines that any series of Debt Securities
issued or issuable in the form of a Global Security shall
19
<PAGE>
no longer be represented by such Global Security, then in either such event
the Global Security shall be exchanged for Debt Securities in definitive form
pursuant to the applicable Indenture. Further, if so specified by the Company
with respect to the Debt Securities of a series and described in the
applicable Prospectus Supplement, an owner of a beneficial interest in a
Global Security representing Debt Securities of such series may, on terms
acceptable to the Company and the depositary for such Global Security, receive
Debt Securities of such series in definitive form. In any such instance, an
owner of a beneficial interest in a Global Security will be entitled to
physical delivery in definitive form of Debt Securities in authorized
denominations and of like tenor of the series represented by such Global
Security, equal in principal amount to such beneficial interest, and to have
such Debt Securities registered in its name (if the Debt Securities of such
series are issuable as Registered Debt Securities). (Section 2.08 of the
Indentures) See, however, "Limitations on Issuance of Bearer Debt Securities"
below for a discussion of certain restrictions on the delivery of a Bearer
Debt Security in definitive form in exchange for an interest in a Global
Security. Except as described above, unless otherwise specified in the
applicable Prospectus Supplement, owners of beneficial interests in a Global
Security will not be entitled to have Debt Securities of the series
represented by such Global Security registered in their names, will not
receive or be entitled to receive physical delivery of Debt Securities of such
series in definitive form and will not be considered the owners or holders
thereof under the applicable Indenture.
Any specific terms of the depositary arrangement with respect to a series of
Debt Securities or any part thereof will be described in the applicable
Prospectus Supplement. The Company anticipates that the following provisions
will apply to all depositary arrangements.
Upon the issuance of a Global Security, the depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts
of the Debt Securities represented by such Global Security to the accounts of
participants. Ownership of beneficial interests in a Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary (with respect to beneficial interests of
participants in the depositary), or by participants in the depositary or
persons that may hold interest through such participants (with respect to
beneficial interests of persons other than participants in the depositary).
Ownership of beneficial interests in a Global Security will be limited to
participants or persons that hold interests through participants.
Subject to the restrictions discussed under "Limitations on Issuance of
Bearer Debt Securities" below, payments of the principal of and any premium
and interest on Debt Securities registered in the name of or held by a
depositary or its nominee will be made to the depositary or its nominee, as
the case may be, as the registered owner or the holder of the Global Security
representing such Debt Securities. None of the Company, the Trustee, any
Paying Agent or the Registrar for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests. (Section 2.14 of
the Indentures)
The Company expects that the depositary for Debt Securities of a series,
upon receipt of any payment of principal, premium or interest in respect of a
Global Security, will credit immediately participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security as shown on the records of such
depositary. The Company also expects that payments by participants to owners
of beneficial interests in such Global Security held through such participants
will be governed by standing instructions and customary practices, as is now
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such
participants. With respect to a Global Security that represents in whole or in
part Debt Securities of a series that are issuable as Bearer Debt Securities,
receipt by owners of beneficial interests in such Global Security of payments
in respect of such Global Security will be subject to the restrictions
discussed under "Limitations on Issuance of Bearer Debt Securities" below.
LIMITATIONS ON ISSUANCE OF BEARER DEBT SECURITIES
In compliance with United States federal tax laws and regulations, Bearer
Debt Securities (including beneficial interests in a Global Security that
represents Bearer Debt Securities) may not be offered or sold (or
20
<PAGE>
resold in connection with their original issuance) during the "restricted
period," as defined in Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7), in
the United States or its possessions or to United States persons (each as
defined below) other than to (i) a Qualifying Foreign Branch of a United
States Financial Institution (as defined below), (ii) a United States person
who acquires and holds the obligation through the Qualifying Foreign Branch of
a United States Financial Institution, (iii) a United States office of an
"exempt distributor," as defined in Treasury Regulation Section 1.163-
5(c)(2)(i)(D)(5), (iv) the United States office of an international
organization, as defined in Section 7701(a)(18) of the Internal Revenue Code
of 1986, as amended (the "Code") and the regulations thereunder, or (v) the
United States office of a foreign central bank, as defined in Section 895 of
the Code and the regulations thereunder. In addition, Bearer Debt Securities
may not be delivered within the United States or its possessions in connection
with a sale that occurred during the restricted period. Any underwriters,
agents and dealers participating in the offering of Offered Securities must
agree that they will not offer any Bearer Debt Securities for sale or resale
in the United States or its possessions or to United States persons (other
than a person specified in clause (i), (ii), (iii), (iv) or (v) above) or
deliver Bearer Debt Securities within the United States or its possessions.
The term "Qualifying Foreign Branch of a United States Financial Institution"
means a branch located outside the United States of a United States financial
institution (as defined in Treasury Regulation Section 1.165-12(c)(1)(v)) that
provides a certificate within a reasonable time (or a blanket certificate in
the year the Debt Security is issued or either of the preceding two calendar
years) stating that it agrees to comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Code and the regulations thereunder. The term
"United States person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate the
income of which is subject to United States federal income taxation regardless
of its source, and a trust if (i) a court within the United States is able to
exercise primary supervision over the administration of the trust, and (ii)
one or more United States fiduciaries have the authority to control all
substantial decisions of the trust; the term "United States" means the United
States of America (including the States and the District of Columbia), and the
term "possessions" includes, but is not limited to, Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands.
United States federal tax laws and regulations also require that the owner
of an obligation issuable in bearer form or the financial institution (as
defined in the preceding paragraph) or clearing organization through which the
owner directly or indirectly holds such obligation must provide the issuer of
the obligation with a certificate on the earlier of the date of the first
actual payment of interest on the obligation or the date of delivery by the
issuer of the obligation in definitive form stating that on such date the
obligation is owned by (a) a person that is not a United States person, (b) a
person described in clause (i) or (ii) of the preceding paragraph, or (c) a
financial institution for purposes of resale during the restricted period, but
not for resale directly or indirectly to a United States person or to a person
within the United States or its possessions. A certificate described in clause
(a) or (b) above may not be given with respect to an obligation that is owned
by a financial institution for purposes of resale during the restricted
period. When the required certificate is provided by a clearing organization,
the certificate must be based upon statements provided to it by its member
organizations. For purposes of the foregoing, a "temporary global security,"
as defined in Treasury Regulation Section 1.163-5(c)(1)(ii)(B), is not
considered to be an obligation in definitive form. In compliance with the
foregoing, if the Offered Securities are of a series of Debt Securities
issuable as Bearer Debt Securities, the delivery thereof (including delivery
in exchange for an interest in a Global Security) and the payment of interest
thereon, as applicable, will be subject to the satisfaction of certification
requirements that will be specified by the Company in accordance with the
Senior Indenture in connection with the establishment of such series and will
be described in the applicable Prospectus Supplement. (Sections 2.02 and 2.04
of the Senior Indenture) The Senior Indenture also provides that no Bearer
Debt Security (including a Global Security that represents Bearer Debt
Securities) will be mailed or otherwise delivered to any location in the
United States or its possessions. (Section 2.04 of the Senior Indenture)
Bearer Debt Securities and any coupons appertaining thereto will bear a
legend substantially to the following effect: "Any United States person who
holds this obligation will be subject to limitations under the United States
income tax laws, including the limitations provided in Sections 165(j) and
1287(a) of the Internal Revenue Code." Under Sections 165(j) and 1287(a) of
the Code, holders that are United States persons, with certain exceptions,
21
<PAGE>
will not be entitled to deduct any loss on Bearer Debt Securities and must
treat as ordinary income any gain realized on the sale or other disposition
(including the receipt of principal) of Bearer Debt Securities.
PAYMENT
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any premium and interest on Bearer Debt Securities (other
than a Global Security) will be made, subject to any applicable laws and
regulations, at the offices of such Paying Agent or Paying Agents outside the
United States as the Company may designate from time to time, except that, at
the option of the Company (or, if so specified in the applicable Prospectus
Supplement, at the option of the holder), payment of interest may be made by
check (provided the same is not mailed to an address inside the United States)
or by wire transfer to an account located outside the United States maintained
by the payee. (Sections 2.13 and 4.01 of the Senior Indenture) Unless
otherwise indicated in an applicable Prospectus Supplement, payment of
interest on Bearer Debt Securities on any interest payment date will be made
only against surrender of the coupon relating to such interest payment date.
(Section 2.13 of the Senior Indenture) No payment with respect to any Bearer
Debt Security will be made at any office or agency of the Company in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained in the United States. Notwithstanding the
foregoing, payments of principal of and any premium and interest on Bearer
Debt Securities denominated and payable in U.S. Dollars will be made at the
office of the Company's Paying Agent in the Borough of Manhattan, The City of
New York, if (but only if) payment of the full amount thereof in U.S. Dollars
at all offices or agencies outside the United States is illegal or effectively
precluded by exchange controls or other similar restrictions. (Section 4.01 of
the Senior Indenture)
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and any premium and interest on Registered Debt Securities
(other than a Global Security) will be made at the office of such Paying Agent
or Paying Agents as the Company may designate from time to time, except that
at the option of the Company payment of any interest may be made by check
mailed to the address of the person entitled thereto as such address shall
appear in the security register or, if so specified with respect to the
Registered Debt Securities of any series issued under the Senior indenture, by
wire transfer to an account designated by such person. Payment of any
installment of interest on Registered Debt Securities will be made to the
person in whose name such Registered Debt Security is registered at the close
of business on the regular record date (or, in the case of defaulted interest,
special record date) for such interest payment. (Section 2.13 of the
Indentures)
All moneys paid by the Company to a Paying Agent for the payment of
principal of or any premium or interest on any Debt Security which remain
unclaimed at the end of two years after such principal, premium or interest
shall have become due and payable will be repaid to the Company and the holder
of such Debt Security or any coupon appertaining thereto will thereafter look
only to the Company for payment thereof unless an applicable abandoned
property law designates another person. (Section 8.03 of the Indentures)
AMENDMENT, SUPPLEMENT, WAIVER
Subject to certain exceptions, the Indentures or the Debt Securities may be
amended or supplemented, and any past default or compliance with any provision
may be waived, insofar as the Debt Securities of any series are concerned,
with the consent of the holders of a majority in aggregate principal amount of
the outstanding Debt Securities of such series. (Sections 6.04 and 9.02 of the
Indentures) Without the consent of any holder of Debt Securities, the Company
and the Trustee may amend or supplement the Indentures or the Debt Securities
to cure any ambiguity, defect or inconsistency, to permit or facilitate the
issuance of Debt Securities in bearer form or to provide for uncertificated
Debt Securities in global form in addition to certificated Debt Securities (so
long as any "registration-required obligation," within the meaning of Section
163(f)(2) of the Code, is in registered form for purposes of the Code) or to
make certain other specified changes or any change that does not materially
adversely affect the rights of any holder of Debt Securities. (Section 9.01 of
the Indentures)
SUCCESSOR CORPORATION
The Company may not consolidate with or merge into, or transfer its
properties and assets substantially as an entirety to, another corporation
unless (i) the successor corporation, which shall be a corporation organized
22
<PAGE>
under the laws of the United States or a State thereof, assumes by
supplemental indenture all the obligations of the Company under the Debt
Securities and the Indentures, and (ii) after giving effect to such
transaction, no Event of Default shall have occurred and be continuing.
Thereafter, unless otherwise specified in the Prospectus Supplement, all such
obligations of the Company terminate. (Section 5.01 of the Indentures)
DEFAULTS AND REMEDIES
An Event of Default with respect to Debt Securities of any series is: (i)
default for 30 days in payment of any interest on the Debt Securities of that
series; (ii) default in payment of principal, premium or any other amount
(other than interest) due in respect of the Debt Securities of that series at
maturity, upon redemption (including default in the making of any mandatory
sinking fund payment), upon purchase by the Company at the option of the
holder or otherwise; (iii) failure by the Company for 30 days after receipt of
written notice as provided in the Indentures to comply with any of its other
agreements in the Indentures (other than agreements expressly included in the
Indentures solely for the benefit of a series of Debt Securities other than
that series or expressly made inapplicable to the Debt Securities of such
series) or the Debt Securities of that series; (iv) (for purposes of the
Senior Indenture only) acceleration of the maturity of any Debt of the Company
(including Senior Debt Securities of any other series) if the aggregate
principal amount (or, if applicable, issue price plus accrued original issue
discount) of the Debt the maturity of which has been accelerated exceeds five
percent (5%) of the aggregate principal amount of the Company's Funded Debt
then outstanding and such Debt is not paid, or such acceleration is not
rescinded or annulled or such acceleration is not contested by appropriate
proceedings and all consequences thereof that would have a material adverse
effect on the Company stayed, within 30 days after receipt of written notice
as provided in the Senior Indenture; provided, however, that if, after the
expiration of such 30-day period, the event of default that resulted in the
acceleration of the maturity of such Debt of the Company is remedied or cured
by the Company or waived by the holders of such Debt in any authorized manner
or otherwise ceases to exist, then the Event of Default described in this
clause (iv) resulting from such acceleration will be deemed cured and not
continuing; and (v) certain events of bankruptcy or insolvency. (Section 6.01
of the Indentures) If an Event of Default occurs with respect to the Debt
Securities of any series and is continuing, the Trustee or the holders of at
least 25% in aggregate principal amount of the Debt Securities of that series
may declare to be due and payable immediately (i) the principal amount of that
series (or, if the Debt Securities of that series are Original Issue Discount
Securities, that portion of the principal amount specified in the terms of
that series) and (ii) accrued interest, if any, thereon. The Indentures
provide for automatic acceleration of the maturity of such amounts upon the
occurrence of certain events of bankruptcy or insolvency. (Section 6.02 of the
Indentures) The Senior Indenture provides that a declaration of acceleration
of the maturity of the Senior Debt Securities of any series as a result of an
Event of Default described in clause (iv) above will be automatically annulled
if (x) the acceleration of the Debt that is the subject of such Event of
Default is declared void ab initio as a result of the Company's contest
thereof or (y) the declaration of acceleration of such Debt is rescinded or
annulled in any manner authorized by the instrument evidencing or creating
such Debt within 90 days of the declaration of acceleration of the Senior Debt
Securities of such series and, in the case of clause (y), the annulment of the
declaration of acceleration under the Senior Indenture would not conflict with
any judgment or decree, and, in the case of either clause (x) or (y), all
other existing Events of Default (other than the non-payment of amounts that
have become due with respect to such Senior Debt Securities solely by such
acceleration) with respect to Senior Debt Securities of that series have been
cured or waived. (Section 6.02 of the Senior Indenture) Holders of Debt
Securities may not enforce the Indentures or the Debt Securities except as
provided in the Indentures. (Section 6.06 of the Indentures) The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Debt Securities. (Section 7.01 of the Indentures) Subject to certain
limitations, holders of a majority in aggregate principal amount of the Debt
Securities of any series may direct the Trustee in its exercise of any trust
or power with respect to the Debt Securities of that series. (Section 6.05 of
the Indentures) The Trustee may withhold from holders of Debt Securities
notice of any continuing default (except a default in payment of principal,
premium, if any, interest or other amounts due) if it determines that
withholding notice is in their interest. (Section 7.05 of the Indentures) The
Company is required to file periodic reports with the Trustee as to the
absence of default. (Section 4.07 of the Senior Indenture and Section 4.03 of
the Senior Subordinated and Subordinated Indentures)
23
<PAGE>
NO PERSONAL LIABILITY
No past, present or future director, officer, employee or stockholder, as
such, of the Company or any successor thereof shall have any liability for any
obligations of the Company under the Debt Securities or the Indentures or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Debt Securities by accepting a Debt Security waives
and releases all such liability. The waiver and release are part of the
consideration for the issue of the Debt Securities. (Section 11.11 of the
Senior Indenture and Section 12.11 of the Senior Subordinated and Subordinated
Indentures)
SATISFACTION AND DISCHARGE
The Company's obligations under the Debt Securities of any series and the
applicable Indenture with respect to such series (except for the obligation to
pay the principal of and premium and interest, if any, on the Debt Securities
of such series and certain other specified obligations) will be satisfied and
discharged in accordance with the provisions of the Indenture if either (i)
all Debt Securities of such series and coupons, if any, appertaining thereto
previously authenticated and delivered (other than destroyed, lost or
wrongfully-taken Debt Securities or coupons which have been replaced or paid,
Debt Securities or coupons for whose payment money has theretofore been held
in trust and, after remaining unclaimed for two years, has been repaid to the
Company, and certain coupons appertaining to Bearer Securities surrendered for
exchange, redemption or purchase) have been delivered to the Trustee for
cancellation or (ii) the Company irrevocably deposits in trust with the
Trustee money or U.S. Government Obligations (or, in the case of the Senior
Indenture, Government Obligations) sufficient to pay the principal of and
premium and interest, if any, on all Debt Securities of such series and
coupons, if any, appertaining thereto not theretofore cancelled or delivered
to the Trustee for cancellation (other than Debt Securities and coupons
referred to in the parenthetical in clause (i) above) to maturity or
redemption, as the case may be. (Section 2.01 of the Indentures)
THE TRUSTEES
The Trustee under the Senior Indenture is The Bank of New York. The Bank of
New York acts as depositary for funds of, makes loans to, and performs other
services for the Company and the Parent and certain of their affiliates in the
normal course of business and acts as trustee with respect to certain
outstanding senior indebtedness of the Company. The Bank of New York serves as
transfer agent and registrar for each series of the Parent's common stock and
for the Parent's Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock. John C. Malone, a director of the Company and the Parent, is
a director of The Bank of New York.
Information with respect to the Trustees under the Senior Subordinated
Indenture and the Subordinated Indenture will be provided in the applicable
Prospectus Supplement.
Any Trustee in its individual or any other capacity may become the owner or
pledgee of Debt Securities and may otherwise deal with the Company or its
affiliates with the same rights it would have if it were not the Trustee
provided it complies with the terms of the Indenture. (Section 7.03 of the
Indentures)
ADDITIONAL INFORMATION
The Indentures (or form thereof, as the case may be) are exhibits to the
Registration Statement. Anyone who receives this Prospectus may obtain copies
of the Indentures (or form thereof, as the case may be) without charge by
writing to Stephen M. Brett, Esq., Executive Vice President of the Company, at
the address set forth under "The Company and the Parent." The foregoing
summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Indentures, including the definitions of certain terms.
Wherever particular provisions or defined terms of the Indentures are referred
to, such provisions or defined terms are incorporated herein by reference.
24
<PAGE>
DESCRIPTION OF SERIES PREFERRED STOCK
The Parent is authorized to issue up to 50,000,000 shares of Series
Preferred Stock. The Series Preferred Stock is issuable, 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 is stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the Board
of Directors. All shares of any one series of the Series Preferred Stock are
required to 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 will
have no voting rights except as may be required by Delaware law. As of the
date of this Prospectus, there are six series of Series Preferred Stock
outstanding. See "Description of Parent Capital Stock--Preferred Stock."
As described under "Description of Depositary Shares" below, the Parent may,
at its option, elect to offer Depositary Shares evidenced by depositary
receipts, each representing an interest in a fraction (to be specified in the
Prospectus Supplement relating to the particular series of Series Preferred
Stock) of a share of the particular series of Series Preferred Stock, issued
and deposited with a depositary, in lieu of offering any shares of such Series
Preferred Stock. See "Description of Depositary Shares."
Series Preferred Stock constituting Offered Securities shall have the
dividend, liquidation, redemption, and voting rights set forth below unless
otherwise provided in a Prospectus Supplement relating to such Series
Preferred Stock. Reference is made to the Prospectus Supplement relating to a
particular series of the Series Preferred Stock offered thereby for specific
terms, including: (a) the designation of such series of Series Preferred Stock
and the number of shares offered; (b) the amount of liquidation preference per
share; (c) the initial public offering price at which such series of Series
Preferred Stock will be issued; (d) the dividend rate (or method of
calculation), the dates on which dividends shall be payable and the dates from
which dividends shall commence to cumulate, if any; (e) any redemption or
sinking fund provisions; (f) any conversion or exchange rights; (g) any voting
rights; (h) whether the Parent has elected to offer Depositary Shares as
described under "Description of Depositary Shares"; and (i) any other rights,
preferences, privileges, limitations, and restrictions of such series of
Series Preferred Stock.
Each series of Series Preferred Stock, when issued, will be fully paid and
nonassessable and will have no preemptive rights. The rights of the holders of
each series of the Series Preferred Stock to receive dividends and
distributions of assets will be subordinate to those of the Parent's general
creditors, but superior to the rights of holders of any capital stock of the
Parent ranking junior to such series of Series Preferred Stock as to the
payment of dividends, rights of redemption and rights on liquidation,
including any series of common stock of the Parent.
DIVIDEND RIGHTS
Holders of a series of Series Preferred Stock constituting Offered
Securities will be entitled to receive, when, as, and if declared by the Board
of Directors, out of funds of the Parent legally available therefor, cash
dividends on such dates and at such rates as are set forth in, or as are
determined by the method described in, the Prospectus Supplement relating to
such series of Series Preferred Stock. Such rate may be fixed or variable or
both. Each such dividend will be payable to the holders of record as they
appear on the stock books of the Parent (or, if applicable, the records of the
Depositary (as hereinafter defined) referred to under "Description of
Depositary Shares") on such record dates, fixed by the Board of Directors, as
specified in the Prospectus Supplement relating to such series of Series
Preferred Stock.
Such dividends may be cumulative or noncumulative, as provided in the
Prospectus Supplement relating to such series of Series Preferred Stock. If
the Board of Directors fails to declare a dividend payable on a dividend
payment date on any series of Series Preferred Stock for which dividends are
noncumulative, then the right to receive a dividend in respect of the dividend
period ending on such dividend payment date will be lost, and the Parent will
have no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
dates. Dividends on the shares of each series of
25
<PAGE>
Series Preferred Stock for which dividends are cumulative will accrue from the
date on which the Parent initially issues shares of such series.
Unless otherwise specified in the applicable Prospectus Supplement, if at
any time the Parent shall have failed to pay, or declare and set aside the
consideration sufficient to pay, full dividends on any series of Series
Preferred Stock constituting Offered Securities for the immediately preceding
dividend period (or, if such series is cumulative, for all prior dividend
periods), and until such dividends (or, if such series of Series Preferred
Stock is cumulative, full cumulative dividends) are paid, or declared and the
consideration sufficient to pay the same in full is set aside for such purpose
and for no other purpose, the Parent may not (i) declare or pay any dividend
on or make any distribution with respect to any class or series of capital
stock of the Parent ranking pari passu with or junior to such series of Series
Preferred Stock, except for dividends declared and paid on any such stock
ranking on a parity basis with such series of Series Preferred Stock
contemporaneously and on a pro rata basis with dividends declared and paid on
such series of Series Preferred Stock, or (ii) redeem or otherwise acquire any
shares of such series of Series Preferred Stock, any parity stock, or any
junior stock unless all then outstanding shares of such series of Series
Preferred Stock and 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. Unless otherwise
specified in the applicable Prospectus Supplement, the failure of the Parent
to pay, or declare and set aside the consideration sufficient to pay, full
dividends (or, if such series of Series Preferred Stock is cumulative, full
cumulative dividends) on any series of Series Preferred Stock shall not
prevent the Parent from (i) paying any dividends on junior stock solely in
shares of junior stock or the redemption 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) paying any dividends on parity stock
solely in shares of parity stock or junior stock (or both) or the redemption
or other acquisition of shares of such series of Series Preferred Stock or
parity stock solely in exchange for shares of junior stock.
LIQUIDATION PREFERENCES
In the event of any liquidation, dissolution, or winding up of the Parent,
whether voluntary or involuntary, the holders of each series of Series
Preferred Stock constituting Offered Securities will be entitled to receive
out of the assets of the Parent available for distribution to stockholders,
before any distribution of assets is made to the holders of any capital stock
of the Parent ranking junior to the shares of such series of Series Preferred
Stock, the amount set forth in the Prospectus Supplement relating to such
series of Series Preferred Stock. If, upon any voluntary or involuntary
liquidation, dissolution, or winding up of the Parent, the assets of the
Parent available for distribution to the holders of shares of such series of
Series Preferred Stock and any other shares of capital stock of the Parent
ranking on a parity with shares of such series of Series Preferred Stock upon
liquidation will not be sufficient to pay in full all amounts to which such
holders are entitled, no such distribution will be made on account of any
other class or series of capital stock ranking on a parity as to liquidation
preference with the shares of such series of Series Preferred Stock unless
proportionate distributative amounts are paid on account of shares of such
series of Series Preferred Stock and shares of such parity stock ratably in
proportion to the full respective preferential amounts to which they are
entitled. After payment to the holders of such series of Series Preferred
Stock of the full preferential amounts of the liquidating distribution to
which they are entitled, the holders thereof will be entitled to no further
participation in any distribution of assets by the Parent.
REDEMPTION
Offered Securities consisting of a series of Series Preferred Stock may be
redeemable, in whole or from time to time in part, at the option of the Parent
or the holder (or both), and may be subject to mandatory redemption pursuant
to a sinking fund or otherwise, in each case upon terms, at the times, and at
the redemption prices set forth in the Prospectus Supplement relating to such
series. Unless otherwise provided in the applicable Prospectus Supplement,
shares of a series of Series Preferred Stock redeemed by the Parent will be
restored to the status of authorized but unissued shares of Series Preferred
Stock.
Unless otherwise specified in the applicable Prospectus Supplement, in the
event that fewer than all of the outstanding shares of a series of Series
Preferred Stock are to be redeemed, whether by mandatory or optional
26
<PAGE>
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Parent in its sole discretion to be equitable. From and after the
redemption date (unless default is made by the Parent in providing for the
payment of the redemption price plus accumulated and unpaid dividends, if any)
dividends will cease to accumulate on the shares of such series of Series
Preferred Stock called for redemption and all rights of the holders thereof
(except the right to receive the redemption price plus accumulated and unpaid
dividends, if any) will cease.
Unless otherwise specified in the applicable Prospectus Supplement, if the
Parent fails to redeem any shares of a series of Series Preferred Stock
constituting Offered Securities required to be redeemed on a redemption date,
and until such shares are redeemed in full, the Parent may not declare or pay
any dividend on or make any distribution with respect to any class or series
of capital stock ranking junior to such series of Series Preferred Stock, and
neither the Parent nor any subsidiary may redeem any parity stock or junior
stock, or purchase or otherwise acquire any shares of such series of Series
Preferred Stock, parity stock or junior stock. Unless otherwise specified in
the applicable Prospectus Supplement, the failure of the Parent to so redeem
shares of such series of Series Preferred stock shall not prevent the Parent
from (i) paying any dividends on junior stock solely in shares of junior stock
or the redemption 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 redemption or other acquisition of shares of such
series of Series Preferred Stock or parity stock solely in exchange for shares
of parity stock or junior stock (or both).
VOTING RIGHTS
No series of Series Preferred Stock constituting Offered Securities will
entitle the holder to any voting rights, unless otherwise specified in the
applicable Prospectus Supplement.
For a discussion of certain terms of the outstanding preferred stock of the
Parent see "Description of Parent Capital Stock--Preferred Stock."
27
<PAGE>
DESCRIPTION OF DEPOSITARY SHARES
Offered Securities may consist of Depositary Shares represented by
Depositary Receipts (as defined below), with each Depositary Share equivalent
to a fractional interest in a share of a particular series of Series Preferred
Stock as specified in an accompanying Prospectus Supplement. The description
set forth below and in any Prospectus Supplement of certain provisions of the
Deposit Agreement (as defined below) and of the Depositary Shares and
Depositary Receipts does not purport to be complete and is subject to and
qualified in its entirety by reference to the Deposit Agreement and Depositary
Receipts relating to such series of Series Preferred Stock, forms of which are
filed as exhibits to the Registration Statement of which this Prospectus forms
a part.
GENERAL
The Parent may, at its option, elect to offer interests in fractions of
shares of a series of Series Preferred Stock in lieu of shares of such series
of Series Preferred Stock. In such event, the Parent will provide for the
issuance by a Depositary of receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent an interest in a fraction (to be set
forth in the related Prospectus Supplement) of a share of a particular series
of the Series Preferred Stock as described below.
The shares of any series of Series Preferred Stock underlying the Depositary
Shares will be deposited under a separate Deposit Agreement (the "Deposit
Agreement") between the Parent and a bank or trust company selected by the
Parent having its principal office in the United States and having a combined
capital and surplus of at least $50,000,000 (the "Depositary"). The Prospectus
Supplement relating to such Depositary Shares and the series of Series
Preferred Stock represented thereby will set forth the name and address of the
Depositary. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Share will be entitled, in proportion to the applicable fraction of
a share of a series of Series Preferred Stock underlying such Depositary
Share, to all the rights and preferences of the series of Series Preferred
Stock underlying such Depositary Share (including dividend, voting,
redemption, conversion, and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement.
Pending the preparation of definitive Depositary Receipts, the Depositary
may, upon the written order of the Parent, issue temporary Depositary Receipts
substantially identical to (and entitling the holders thereof to all the
rights pertaining to) the definitive Depositary Receipts but not in definitive
form. Definitive Depositary Receipts will be prepared thereafter without
unreasonable delay, and temporary Depositary Receipts will be exchangeable for
definitive Depositary Receipts at the Parent's expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash
distributions in respect of shares of a series of Series Preferred Stock to
the record holders of Depositary Shares in proportion, insofar as practicable,
to the number of Depositary Shares owned by such holders.
In the event of a distribution other than cash in respect of shares of a
series of Series Preferred Stock, the Depositary will distribute property
received by it to the record holders of Depositary Shares in proportion,
insofar as practicable, to the number of Depositary Shares owned by such
holders, unless the Depositary determines that it is not feasible to make such
distribution, in which case the Depositary may, with the approval of the
Parent, adopt such method as it deems equitable and practicable for the
purpose of effecting such distribution, including sale (at public or private
sale) of such property and distribution of the net proceeds from such sale to
such holders.
The amount distributed in any of the foregoing cases will be reduced by any
amount required to be withheld by the Parent or the Depositary on account of
taxes.
28
<PAGE>
REDEMPTION OF DEPOSITARY SHARES
If a series of Series Preferred Stock underlying the Depositary Shares is
subject to redemption, the Depositary Shares will be redeemed from the
proceeds received by the Depositary resulting from the redemption, in whole or
in part, of such series of Series Preferred Stock held by the Depositary. The
redemption price per Depositary Share will be equal to the applicable fraction
of the redemption price per share payable with respect to such series of
Series Preferred Stock. Whenever the Parent redeems shares of a series of
Series Preferred Stock held by the Depositary, the Depositary will redeem as
of the same redemption date the number of Depositary Shares relating to shares
of such series of Series Preferred Stock so redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed
will be selected by lot or pro rata as may be determined by the Depositary to
be equitable.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which
the holders of such Depositary Shares were entitled upon such redemption upon
surrender to the Depositary of the Depositary Receipts evidencing such
Depositary Shares.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences, or privileges shall be offered with respect to the shares of a
series of Series Preferred Stock underlying the Depositary Shares, or (ii) the
Depositary shall receive notice of any meeting at which holders of shares of
such series of Series Preferred Stock are entitled to vote or of which holders
of shares of such series of Series Preferred Stock are entitled to notice, or
of any election on the part of the Parent to call for redemption any shares of
such series of Series Preferred Stock, the Depositary shall in each such
instance fix a record date (which shall be the same date as the record date
for the shares of such series of Series Preferred Stock) for the determination
of the holders of Depositary Shares (x) who shall be entitled to receive such
dividend, distribution, rights, preferences, or privileges, (y) who shall be
entitled to give instructions for the exercise of voting rights at any such
meeting or to receive notice of such meeting, or (z) whose interests shall be
subject to such redemption, subject to the provisions of the Deposit
Agreement.
VOTING
Upon receipt of notice of any meeting at which holders of shares of a series
of Series Preferred Stock underlying the Depositary Shares are entitled to
vote, the Depositary will mail the information contained in such notice of
meeting to the record holders of Depositary Shares relating to such series of
Series Preferred Stock. Each record holder of Depositary Shares on the record
date (which will be the same date as the record date for the underlying series
of Series Preferred Stock) will be entitled to instruct the Depositary as to
the exercise of the voting rights pertaining to the number of shares of the
series of Series Preferred Stock represented by such holder's Depositary
Shares. The Depositary will endeavor, insofar as practicable, to vote the
number of shares of the series of Series Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Parent has
agreed to take all reasonable action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so.
The Depositary will abstain from voting shares of a series of Series
Preferred Stock to the extent it does not receive specific written voting
instructions from the holders of Depositary Shares representing such series of
Series Preferred Stock.
WITHDRAWAL OF UNDERLYING PREFERRED STOCK
Upon surrender of Depositary Receipts at the Corporate Office (as defined in
the Deposit Agreement) of the Depositary, the owner of the Depositary Shares
evidenced thereby will be entitled to delivery at such office of certificates
evidencing the number of shares of the series of Series Preferred Stock (but
only in whole shares of
29
<PAGE>
such series of Series Preferred Stock) represented by such Depositary
Receipts. If the Depositary Receipts delivered by a holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the number of whole shares of the series of Series Preferred Stock to be
withdrawn, the Depositary will at the same time deliver to such holder a new
Depositary Receipt or Receipts evidencing such excess number of Depositary
Shares.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The form of Depositary Receipts and any provision of the Deposit Agreement
may at any time be amended by agreement between the Parent and the Depositary.
However, any amendment that imposes any fees, taxes, or other charges payable
by holders of Depositary Shares (other than taxes and other governmental
charges, fees, and other expenses payable by such holders as stated under
"Charges of Depositary"), or that otherwise prejudices any substantial
existing right of holders of Depositary Shares, will not take effect as to
outstanding Depositary Shares until the expiration of 90 days after notice of
such amendment has been mailed to the record holders of outstanding Depositary
Shares. Every holder of Depositary Shares at the time any such amendment
becomes effective shall be deemed to consent and agree to such amendment and
to be bound by the Deposit Agreement, as so amended.
Whenever so directed by the Parent, the Depositary will terminate the
Deposit Agreement after mailing notice of such termination to the record
holders of all Depositary Shares then outstanding at least 30 days prior to
the date fixed in such notice for such termination. The Depositary may
likewise terminate the Deposit Agreement if at any time 45 days shall have
expired after the Depositary shall have delivered to the Parent a written
notice of its election to resign and a successor depositary shall not have
been appointed and accepted its appointment. If any Depositary Shares remain
outstanding after the date of termination, the Depositary thereafter will
discontinue the transfer of Depositary Shares, will suspend the distribution
of dividends to the holders thereof, and will not give any further notices
(other than notice of such termination) or perform any further acts under the
Deposit Agreement except as provided below and except that the Depositary will
continue to collect dividends on the series of Series Preferred Stock
underlying such Depositary Shares and any other distributions with respect
thereto. At any time after the expiration of two years from the date of
termination, the Depositary may sell shares of the series of Series Preferred
Stock then held by it at public or private sale, at such place or places and
upon such terms as it deems proper and may thereafter hold the net proceeds of
any such sale, together with any money and other property then held by it,
without liability for interest thereon, for the pro rata benefit of the
holders of Depositary Shares. The Parent does not presently intend to
terminate any Deposit Agreement or to permit the resignation of any Depositary
without appointing a successor depositary.
CHARGES OF DEPOSITARY
The Parent will pay all charges of the Depositary, including charges in
connection with the initial deposit of shares of any series of Series
Preferred Stock, the initial execution and delivery of the Depositary
Receipts, the distribution of information to the holders of Depositary
Receipts with respect to matters on which such series of Series Preferred
Stock is entitled to vote, withdrawals of shares of such series of Series
Preferred Stock, or redemption or conversion of shares of such series of
Series Preferred Stock, except for taxes (including transfer taxes, if any)
and other governmental charges and such other charges as are provided in the
Deposit Agreement to be at the expense of holders of Depositary Receipts.
MISCELLANEOUS
The Depositary will make available for inspection by holders of Depositary
Receipts at its Corporate Office any reports and communications from the
Parent that are delivered to the Depositary and made generally available to
the holders of shares of the series of Series Preferred Stock underlying the
Depositary Shares.
Neither the Depositary nor the Parent will be liable if it is prevented or
delayed by law or any circumstance beyond its control from or in performing
its obligations under the Deposit Agreement.
30
<PAGE>
DESCRIPTION OF PARENT CAPITAL STOCK
The following description of certain terms of the Parent's common stock, par
value $1.00 per share (the "Common Stock"), and Preferred Stock (defined
below) does not purport to be complete and is qualified in its entirety by
reference to the Restated Certificate of Incorporation, as amended, of TCI
(including the Certificates of Designations with respect to outstanding series
of Series Preferred Stock) (the "Charter"), each of which is incorporated
herein by reference.
GENERAL
The Charter currently provides that the Parent is authorized to issue
3,602,375,096 shares of capital stock, including (i) 3,550,000,000 shares of
Common Stock, of which 1,750,000,000 shares are designated Series A TCI Group
Common Stock, 150,000,000 shares are designated Tele-Communications, Inc.
Series B TCI Group Common Stock (the "Series B TCI Group Common Stock" and,
together with the Series A TCI Group Common Stock, the "TCI Group Common
Stock"), 750,000,000 shares are designated Tele-Communications, Inc. Series A
Liberty Media Group Common Stock (the "Series A Liberty Media Group Common
Stock"), 75,000,000 shares are designated Tele-Communications, Inc. Series B
Liberty Media Group Common Stock (the "Series B Liberty Media Group Common
Stock" and, together with the Series A Liberty Media Group Common Stock, the
"Liberty Media Group Common Stock"), 750,000,000 shares are designated Tele-
Communications, Inc. Series A TCI Ventures Group Common Stock (the "Series A
TCI Ventures Group Common Stock") and 75,000,000 shares are designated Tele-
Communications, Inc. Series B TCI Ventures Group Common Stock (the "Series B
TCI Ventures Group Common Stock" and, together with the Series A TCI Ventures
Group Common Stock, the "TCI Ventures Group Common Stock") and (ii) 52,375,096
shares of preferred stock (the "Preferred Stock"), of which 700,000 shares are
designated Class A Preferred Stock, par value $.01 per share (the "Class A
Preferred Stock"), 1,675,096 shares are designated Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock, par value $.01 per share (the
"Class B Preferred Stock") and 50,000,000 shares are designated as Series
Preferred Stock, issuable in series. Of the Series Preferred Stock, 80,000
shares are designated as Convertible Preferred Stock, Series C (the "Series C
Preferred Stock"), 70,575 shares are designated as Convertible Preferred
Stock, Series C-TCI Group (the "Series C-TCI Group Preferred Stock"), 70,575
shares are designated as Convertible Preferred Stock, Series C-Liberty Media
Group (the "Series C-Liberty Media Group Preferred Stock"), 1,000,000 shares
are designated as Convertible Preferred Stock, Series D (the "Series D
Preferred Stock"), 400,000 shares are designated as Redeemable Convertible
Preferred Stock, Series E (the "Series E Preferred Stock"), 500,000 shares are
designated Convertible Redeemable Participating Preferred Stock, Series F (the
"Series F Preferred Stock"), 7,259,380 shares are designated as Redeemable
Convertible TCI Group Preferred Stock, Series G (the "Series G Preferred
Stock"), and 7,259,380 shares are designated as Redeemable Convertible Liberty
Media Group Preferred Stock, Series H (the "Series H Preferred Stock"). All of
the shares of Class A Preferred Stock have previously been redeemed and
retired and may not be reissued, thereby reducing the number of authorized
shares of Preferred Stock. 70,575 shares of Series C Preferred Stock have
previously been retired by the Parent, with the effect that such shares have
been restored to the status of authorized and unissued shares of Series
Preferred Stock, and may be reissued as shares of another series of Series
Preferred Stock but may not be reissued as Series C Preferred Stock. The
Parent does not intend to issue any additional shares of Series C Preferred
Stock and intends to remove any remaining shares of Series Preferred Stock
designated as Series C Preferred Stock from such designation as soon as
practicable. All of the shares of Series E Preferred Stock have previously
been redeemed and retired, with the effect that such shares have been restored
to the status of authorized and unissued shares of Series Preferred Stock, and
may be reissued as shares of another series of Series Preferred Stock but may
not be reissued as Series E Preferred Stock.
COMMON STOCK
As of September 30, 1997, 472,480,384 shares of Series A TCI Group Common
Stock (net of treasury stock and shares held by subsidiaries of the Parent),
38,544,680 shares of Series B TCI Group Common Stock (net of treasury stock
and shares held by subsidiaries of the Parent), 223,203,786 shares of Series A
Liberty Media Group Common Stock (net of treasury stock and shares held by
subsidiaries of the Parent), 21,175,465 shares of
31
<PAGE>
Series B Liberty Media Group Common Stock (net of shares held by subsidiaries
of the Parent), 188,661,300 shares of Series A TCI Ventures Group Common Stock
and 16,266,400 shares of Series B TCI Ventures Group Common Stock had been
issued and were outstanding and 125,645,656 shares of Series A TCI Group
Common Stock, 9,112,500 shares of Series B TCI Group Common Stock, 4,436,245
shares of Series A Liberty Media Group Common Stock and 2,278,125 shares of
Series B Liberty Media Group Common Stock were held by subsidiaries of the
Parent. As of that date, 114,611,215 shares of Series A TCI Group Common
Stock, 31,584,184 shares of Series A Liberty Media Group Common Stock and
18,547,213 shares of Series A TCI Ventures Group Common Stock were reserved
for issuance upon conversion, exchange or exercise of outstanding convertible
or exchangeable securities (other than the Series B TCI Group Common Stock,
the Series B Liberty Media Group Common Stock and the Series B TCI Ventures
Group Common Stock, and other than the Series F Preferred Stock held by
subsidiaries of the Parent) and options. In addition, the Parent has reserved
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, 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 and 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, in either case for
issuance upon conversion, at the option of the holder, of the Series B TCI
Group Common Stock, the Series B Liberty Media Group Common Stock and the
Series B TCI Ventures Group Common Stock, respectively. Additionally,
subsidiaries of the Parent own shares of Series F Preferred Stock, which are
convertible into an aggregate of 416,528,172 shares of Series A TCI Group
Common Stock.
Certain Definitions
As used herein, the following terms have the meanings specified below:
"Adjusted Liberty Media Group Outstanding Interest Fraction" means a
fraction the numerator of which is the number of outstanding shares of Liberty
Media Group Common Stock and the denominator of which is the sum of (a) such
number of outstanding shares, (b) the Number of Shares Issuable with Respect
to the Liberty Media Group Inter-Group Interest, (c) the number of shares of
Liberty Media Group Common Stock issuable upon conversion, exercise or
exchange of Pre-Distribution Convertible Securities and (d) the number of
Committed Acquisition Shares issuable.
"Adjusted TCI Ventures Group Outstanding Interest Fraction" means a fraction
the numerator of which is the number of outstanding shares of TCI Ventures
Group Common Stock and the denominator of which is the sum of (a) such number
of outstanding shares, (b) the Number of Shares Issuable with Respect to the
TCI Ventures Group Inter-Group Interest and (c) the number of shares of TCI
Ventures Group Common Stock issuable 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.
"Committed Acquisition Shares" means (i) the shares of Series A Liberty
Media Group Common Stock that the Parent had, prior to the record date for the
Liberty Media Group Distribution on August 10, 1995, agreed to issue, but as
of such record date had not issued, and (ii) the shares of Series A Liberty
Media Group Common Stock that are issuable upon conversion, exercise or
exchange of Convertible Securities that the Parent had, prior to the record
date for the Liberty Media Group Distribution, agreed to issue, but as of such
record date had not issued, in each case including obligations of the Parent
to issue shares of the Parent's Class A Common Stock, par value $1.00 per
share (which has been redesignated SeriesA TCI Group Common Stock), which as a
result of the Liberty Media Group Distribution, constitute obligations to
issue, among other securities, Series A Liberty
32
<PAGE>
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 will not include any
shares of Liberty Media Group Common Stock issuable upon conversion, exercise
or exchange of Pre-Distribution Convertible Securities. The type and amount of
Committed Acquisition Shares issuable will be appropriately adjusted to
reflect subdivisions and combinations of the Series A 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. The shares of Series A Liberty Media Group Common Stock
issuable upon conversion of the Series H Preferred Stock constitute Committed
Acquisition Shares.
"Convertible Securities" means any securities of the Parent (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.
"Disposition" means the sale, transfer, assignment or other disposition
(whether by merger, consolidation, sale or contribution of assets or stock or
otherwise) of properties or assets.
"DGCL" means the General Corporation Law of the State of Delaware.
"Exchange Offers" means those certain offers made by the Parent to exchange
(i) one share of Series A TCI Ventures Group Common Stock for each share of
Series A TCI Group Common Stock properly tendered and not validly withdrawn,
up to 188,661,300 shares of Series A TCI Group Common Stock (the "Series A
Maximum"), and (ii) one share of Series B TCI Ventures Group Common Stock for
each share of Series B TCI Group Common Stock properly tendered and not
validly withdrawn, up to 16,266,400 shares of Series B TCI Group Common Stock
(the "Series B Maximum"), upon the terms and subject to the conditions set
forth in the Offering Circular of the Parent, dated August 7, 1997, and the
related letters 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 Parent to make such determination.
"Higher Appraised Amount" means, with respect to any determination of the
Liberty Media Group Private Market Value or the TCI Ventures 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.
"Initial Ventures Options" means those certain options to purchase shares of
Series A TCI Ventures Group Common Stock that were 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 were 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 of
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
33
<PAGE>
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.
"Inter-Group Interest" of the TCI Group in the Liberty Media Group or the
TCI Ventures Group means any common stockholders' equity value of the Parent
attributable to the Liberty Media Group or the TCI Ventures Group, as the case
may be, that is not represented by outstanding shares of Liberty Media Group
Common Stock or TCI Ventures Group Common Stock, as the case may be. The TCI
Group's Inter-Group Interest in the Liberty Media Group is represented by the
Number of Shares Issuable with Respect to the Liberty Media Group Inter-Group
Interest and the TCI Group's Inter-Group Interest in the TCI Ventures Group is
represented by the Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest.
"Liberty Media Group" means as of any date of determination thereof:
(i) the interest of the Parent or any of its subsidiaries in Liberty
Media Corporation or any of its subsidiaries (including any successor
thereto by merger, consolidation or sale of all or substantially all of its
assets, whether or not in connection with a Related Business Transaction)
and their respective properties and assets,
(ii) all assets and liabilities of the Parent or any of its subsidiaries
to the extent attributed to any of the properties or assets referred to in
clause (i) of this sentence, whether or not such assets or liabilities are
assets and liabilities of Liberty Media Corporation or any of its
subsidiaries (or a successor as described in clause (i) of this sentence),
(iii) all assets and properties contributed or otherwise transferred to
the Liberty Media Group from the TCI Group, and
(iv) the interest of the Parent or any of its subsidiaries in the
businesses, assets and liabilities acquired by the Parent or any of its
subsidiaries for the Liberty Media Group, as determined by the Board of
Directors;
provided that (a) from and after any dividend or other distribution with
respect to any shares of Liberty Media Group Common Stock (other than a
dividend or other distribution payable in shares of Liberty Media Group Common
Stock, with respect to which adjustment will be made as described in clause
(i) of the definition of "Number of Shares Issuable with Respect to the
Liberty Media Group Inter-Group Interest," or in other securities of the
Parent attributed to the Liberty Media Group for which provision will be made
as described in the penultimate sentence of this definition), the Liberty
Media Group will no longer include an amount of assets or properties equal to
the aggregate amount of such kind of assets or properties so paid in respect
of shares of Liberty Media Group Common Stock multiplied by a fraction the
numerator of which is equal to the Liberty Media Group Inter-Group Interest
Fraction in effect immediately prior to the record date for such dividend or
other distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the record
date for such dividend or other distribution and (b) from and after any
transfer of assets or properties from the Liberty Media Group to the TCI
Group, the Liberty Media Group will no longer include the assets or properties
so transferred. If the Parent pays a dividend or makes any other distribution
with respect to shares of Liberty Media Group Common Stock payable in
securities of the Parent attributed to the Liberty Media Group other than
Liberty Media Group Common Stock, the TCI Group will be deemed to hold an
amount of such other securities equal to the amount so distributed multiplied
by the fraction specified in clause (a) of this definition (determined as of a
time immediately prior to the record date for such dividend or other
distribution), and to the extent interest or dividends are paid or other
distributions are made on such other securities so distributed to the holders
of Liberty Media Group Common Stock, the Liberty Media Group will no longer
include a corresponding ratable amount of the kind of assets paid as such
interest or dividends or other distributions in respect of such securities so
deemed to be held by the TCI Group. The Parent may also, to the extent any
such other securities constitute Convertible Securities which are at the time
34
<PAGE>
convertible, exercisable or exchangeable, cause such Convertible Securities
deemed to be held by the TCI Group to be deemed to be converted, exercised or
exchanged (and to the extent the terms of such Convertible Securities require
payment or delivery of consideration in order to effect such conversion,
exercise or exchange, the Liberty Media Group will in such case include an
amount of the kind of properties or assets required to be paid or delivered as
such consideration for the amount of the Convertible Securities deemed
converted, exercised or exchanged as if such Convertible Securities were
outstanding), in which case such Convertible Securities will no longer be
deemed to be held by the TCI Group or attributed to the Liberty Media Group.
"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 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 Parent in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of the
second paragraph under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of Liberty Media Group Common Stock" (or which would
have been payable but for the utilization of tax benefits attributable to the
TCI Group or the 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 Parent'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 the penultimate
paragraph under "--Conversion and Redemption-- Mandatory Dividend, Redemption
or Conversion of Liberty Media Group Common Stock."
"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
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 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.
"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.
35
<PAGE>
"Market Capitalization" of any class or series of capital stock of the
Parent 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 Parent on any
day shall mean the average of the high and low reported sales prices regular
way of a share of such class or series on such day (if such day is a Trading
Day, and if such day is not a Trading Day, on the Trading Day immediately
preceding such day) or in case no such reported sale takes place on such
Trading Day the average of the reported closing bid and asked prices regular
way of a share of such class or series on such Trading Day, in either case on
the Nasdaq National Market, or if the shares of such class or series are not
quoted on the Nasdaq National Market on such Trading Day, the average of the
closing bid and asked prices of a share of such class or series in the over-
the-counter market on such Trading Day as furnished by any New York Stock
Exchange member firm selected from time to time by the Parent, or if such
closing bid and asked prices are not made available by any such New York Stock
Exchange member firm on such Trading Day, the market value of a share of such
class or series as determined by the Board of Directors; provided that for
purposes of determining the ratios described under "--Conversion and
Redemption--Conversion of Liberty Media Group Common Stock at the Option of
the Parent," "--Conversion and Redemption--Conversion of TCI Ventures Group
Common Stock at the Option of the Parent," "--Mandatory Dividend, Redemption
or Conversion of Liberty Media Group Common Stock," and "--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock" and as described
under "--Liquidation Rights," (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" is currently zero and will from time to time be
(i) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of the
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,
(ii) decreased (but not to less than zero) by (a) the aggregate number of
shares of Series A Liberty Media Group Common Stock issued or sold by the
Parent after the Liberty Media Group Distribution other than Committed
Acquisition Shares, the proceeds of which are attributed to the TCI Group,
(b) 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, (c) the aggregate
36
<PAGE>
number of shares of Series A Liberty Media Group Common Stock issued or
delivered by the Parent as a dividend or distribution to holders of Series
A TCI Group Common Stock and Series B TCI Group Common Stock, (d) 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
Parent 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 (e) 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
(iii) increased by (a) 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, (b) 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 (c) 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."
The Parent will 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 Parent will prepare and file a statement of such
change with the Secretary of the Parent.
"Number of Shares Issuable with Respect to the TCI Ventures Group Inter-
Group Interest" is currently zero and will from time to time, as applicable,
be
(i) 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,
(ii) decreased (but not to less than zero) by (a) 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 Parent after the consummation of
the Exchange Offers the proceeds of which are attributed to the TCI Group,
(b) 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, (c) 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 Parent as a dividend or distribution to holders of Series
A TCI Group Common Stock and Series B TCI Group Common Stock, (d) 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 Parent after the
37
<PAGE>
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 (e) 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
(iii) increased by (a) 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, (b) 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 (c) 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."
Whenever a change in the Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest occurs, the Parent shall prepare and file
a statement of such change with the Secretary of the Parent.
"Pre-Distribution Convertible Securities" means 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 Parent's Class A Common Stock, par value $1.00 per share
(which has been redesignated Series A TCI Group Common Stock).
"Pre-Exchange Offer Securities" means the TCI-UA Notes and the Initial
Ventures Options.
"Qualifying Subsidiary" shall mean a Subsidiary of the Parent in which (i)
the Parent'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 Parent'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 Parent'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 Parent owns,
directly or indirectly, all of the issued and outstanding capital stock.
"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 Parent receives as
proceeds of such Disposition primarily equity securities (including, without
limitation, capital stock, convertible securities, partnership or limited
partnership interests and other types of equity securities, without regard to
the voting power or contractual or other management or governance rights
related to such equity securities) of the purchaser or 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.
38
<PAGE>
"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" means as of any date of determination thereof:
(i) the interest of the Parent or any of its subsidiaries in all of the
businesses in which the Parent or any of its subsidiaries (or any of their
predecessors or successors) is or has been engaged, directly or indirectly,
and the respective assets and liabilities of the Parent or any of its
subsidiaries, other than any businesses, assets or liabilities of the
Liberty Media Group or the TCI Ventures Group;
(ii) a proportionate interest in the businesses, assets and liabilities
of the Liberty Media Group equal to the Liberty Media Group Inter-Group
Interest Fraction as of such date and a proportionate interest in the
businesses, assets and liabilities of the TCI Ventures Group equal to the
TCI Ventures Group Inter-Group Interest Fraction as of such date;
(iii) from and after any dividend or other distribution with respect to
shares of Liberty Media Group Common Stock (other than a dividend or other
distribution payable in shares of Liberty Media Group Common Stock, with
respect to which adjustment will be made as described in clause (i) of the
definition of "Number of Shares Issuable with Respect to the Liberty Media
Group Inter-Group Interest," or in other securities of the Parent
attributed to the Liberty Media Group, for which provision will be made as
described in the second sentence of this definition), an amount of assets
or properties theretofore included in the Liberty Media Group equal to the
aggregate amount of such kind of assets or properties so paid in respect of
such dividend or other distribution with respect to shares of Liberty Media
Group Common Stock multiplied by a fraction the numerator of which is equal
to the Liberty Media Group Inter-Group Interest Fraction in effect
immediately prior to the record date for such dividend or other
distribution and the denominator of which is equal to the Liberty Media
Group Outstanding Interest Fraction in effect immediately prior to the
record date for such dividend or other distribution;
(iv) from and after any dividend or other distribution with respect to
shares of TCI Ventures Group Common Stock (other than a dividend or other
distribution payable in shares of TCI Ventures Group Common Stock, with
respect to which adjustment will be made as described in clause (i) of the
definition of "Number of Shares Issuable with Respect to the TCI Ventures
Group Inter-Group Interest," or in other securities of the Parent
attributed to the TCI Ventures Group, for which provision will be made as
described in the penultimate sentence of this definition), an amount of
assets or properties theretofore included in the 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
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
(v) any assets or properties transferred from the Liberty Media Group or
the TCI Ventures 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 TCI Ventures
Group, the TCI Group will no longer include such assets or properties so
contributed or transferred (other than pursuant to its interest in the
businesses, assets and liabilities of the
39
<PAGE>
Liberty Media Group or the TCI Ventures Group, as applicable, described in
clause (ii) above). If the Parent pays a dividend or makes any other
distribution with respect to shares of Liberty Media Group Common Stock
payable in other securities of the Parent attributed to the Liberty Media
Group, the TCI Group will be deemed to hold an amount of such other securities
equal to the amount so distributed multiplied by the fraction specified in
clause (iii) of this definition (determined as of a time immediately prior to
the record date for such dividend or other distribution), and to the extent
interest or dividends are paid or other distributions are made on such other
securities so distributed to holders of Liberty Media Group Common Stock, the
TCI Group will include a corresponding ratable amount of the kind of assets
paid as such interest or dividends or other distributions in respect of such
securities so deemed to be held by the TCI Group. If the Parent pays a
dividend or makes any other distribution with respect to shares of TCI
Ventures Group Common Stock payable in other securities of the Parent
attributed to the TCI Ventures Group, the TCI Group will be deemed to hold an
amount of such other securities equal to the amount so distributed multiplied
by the fraction specified in clause (iv) of this definition (determined as of
a time immediately prior to the record date for such dividend or other
distribution), and to the extent interest or dividends are paid or other
distributions are made on such other securities so distributed to holders of
TCI Ventures Group Common Stock, the TCI Group will include a corresponding
ratable amount of the kind of assets paid as such interest or dividends or
other distribution in respect of such securities so deemed to be held by the
TCI Group. The Parent may also, to the extent any such other securities
constitute Convertible Securities which are at the time convertible,
exercisable or exchangeable, cause such Convertible Securities deemed to be
held by the TCI Group to be deemed to be converted, exercised or exchanged
(and to the extent the terms of such Convertible Securities require payment or
delivery of consideration in order to effect such conversion, exercise or
exchange, the TCI Group will in such case no longer include an amount of the
kind of properties or assets required to be paid or delivered as such
consideration for the amount of the Convertible Securities deemed converted,
exercised or exchanged as if such Convertible Securities were outstanding), in
which case such Convertible Securities will no longer be deemed to be held by
the TCI Group or attributed to the Liberty Media Group or the TCI Ventures
Group, as applicable.
"TCI-UA Notes" shall mean those certain convertible notes due December 12,
2021 issued by TCI UA, Inc., a Subsidiary of the Parent, 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:
(i) the interest of the Parent 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.,
(ii) all assets and liabilities of the Parent or any of its subsidiaries
to the extent attributed to any of the properties or assets referred to in
clause (i) of this sentence, whether or not such assets or liabilities are
assets and liabilities of any of the Persons named in clause (i) or any of
their respective subsidiaries (or any successor as described in clause (i)
of this sentence),
(iii) the proceeds of exercise of the Initial Ventures Options and the
expense of exercise of any related stock appreciation rights,
40
<PAGE>
(iv) all assets and properties contributed or otherwise transferred to
the TCI Ventures Group from the TCI Group, and
(v) the interest of the Parent or any of its subsidiaries in the
businesses, assets and liabilities acquired by the Parent or any of its
subsidiaries for the TCI Ventures Group, as determined by the Board of
Directors;
provided that (a) from and after any dividend or other distribution with
respect to any shares of TCI Ventures Group Common Stock (other than a
dividend or other distribution payable in shares of TCI Ventures Group Common
Stock, with respect to which adjustment shall be made as provided in clause
(i) of the definition of "Number of Shares Issuable with Respect to the TCI
Ventures Group Inter-Group Interest," or in other securities of the Parent
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
will no longer include an amount of assets or properties equal to the
aggregate amount of such kind of assets or properties so paid in respect of
shares of 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 (b) 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 Parent pays a dividend or makes any other distribution
with respect to shares of TCI Ventures Group Common Stock payable in
securities of the Parent attributed to the TCI Ventures Group other than 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 (a) of this definition (determined as of a time
immediately prior to the record date for such dividend or other distribution),
and to the extent interest or dividends are paid or other distributions are
made on such other securities so distributed to the holders of TCI Ventures
Group Common Stock, the TCI Ventures Group will no longer include a
corresponding ratable amount of the kind of assets paid as such interest or
dividends or other distributions in respect of such securities so deemed to be
held by the TCI Group. The Parent may also, to the extent any such other
securities constitute Convertible Securities which are at the time
convertible, exercisable or exchangeable, cause such Convertible Securities
deemed to be held by the TCI Group to be deemed to be converted, exercised or
exchanged (and to the extent the terms of such Convertible Securities require
payment or delivery of consideration in order to effect such conversion,
exercise or exchange, the 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 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 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 Parent in respect of such Disposition or in respect of any resulting
dividend or redemption pursuant to clause (i) or (ii), respectively, of the
second paragraph under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of TCI Ventures Group Common Stock" (or which would
have been payable but for the utilization of tax benefits attributable to the
TCI Group or the Liberty Media Group), (b) any transaction costs, including,
without limitation, any legal, investment banking and accounting fees and
expenses and (c) any liabilities and other obligations (contingent or
otherwise) of, or attributed to, the 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
41
<PAGE>
and other obligations (without duplication of amounts allocated for the
satisfaction of the Parent'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. 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 the third paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock."
"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
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 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.
"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.
Voting Rights
Holders of Series A TCI Group Common Stock, Series A Liberty Media Group
Common Stock and Series A TCI Ventures Group Common Stock, in each case, are
entitled to one vote for each share of such stock held, and holders of Series
B TCI Group Common Stock, Series B Liberty Media Group Common Stock and Series
B TCI Ventures Group Common Stock, in each case, are entitled to ten votes for
each share of such stock held, on all matters presented to such stockholders.
Except as may otherwise be required by the laws of the State of Delaware or,
with respect to any class of Preferred Stock or any series of such a class, in
the Charter (including any resolution or resolutions providing for the
establishment of such class or series pursuant to authority vested in the
Board of Directors by the Charter), the holders of TCI Group Common Stock, the
holders of Liberty Media Group Common Stock, the holders of TCI Ventures Group
Common Stock and the holders of each class or series of Preferred Stock, if
any, entitled to vote thereon will vote as one class with respect to all
matters to be voted on by stockholders of the Parent.
None of the holders 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 have any rights to vote as a separate class or
series on any matter coming before the stockholders of the Parent, except with
respect to certain limited class and series voting rights provided under the
Delaware General Corporation Law ("DGCL"). Under the DGCL, the approval of the
holders of a majority of the outstanding shares of any class of capital stock
of a corporation, voting separately as a class, is required to approve any
amendment to the charter of such corporation that would alter or change the
powers, preferences or special rights of the shares of such class so as to
affect them adversely, provided that, if any amendment would alter or change
the powers, preferences or special rights of one or more series of the class
so as to affect them adversely, but would not so affect the entire class, then
only the shares of the series so affected by the amendment would be entitled
to vote thereon separately as a class. Because 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
are each a separate series of a single class of stock, each series will be
entitled to vote separately as a class upon an amendment to the Charter that
would alter or change the powers, preferences or special rights of such series
so as to affect them adversely only if the other series were not so affected.
The DGCL does not provide for any other separate voting rights of a class or
series of capital stock (other than with respect to a change in par value or,
in certain
42
<PAGE>
circumstances not applicable in the case of the Parent's outstanding stock, an
increase or decrease in the authorized shares of such class or series).
Consequently, because most matters brought to a stockholder vote will require
the approval of only a specified percentage of all of the Parent's outstanding
capital stock entitled to vote on such matters (including the TCI Group Common
Stock, the Liberty Media Group Common Stock and the TCI Ventures Group Common
Stock) voting together as a single class, if the holders of one or more series
of Common Stock have more than the number of votes required to approve any
such matter, such holders would be in a position to control the outcome of the
vote on such matter.
Dividends
Subject to the prior payment of dividends on, and other rights of, any of
the outstanding shares of Preferred Stock, dividends may be paid as determined
by the Board of Directors (i) on the TCI Group Common Stock out of the lesser
of (x) the TCI Group Available Dividend Amount and (y) funds of the Parent
legally available therefor under the DGCL, (ii) on the Liberty Media Group
Common Stock out of the lesser of (x) the Liberty Media Group Available
Dividend Amount and (y) funds of the Parent legally available therefor under
the DGCL, and (iii) on the TCI Ventures Group Common Stock out of the lesser
of (x) the TCI Ventures Group Available Dividend Amount and (y) funds of the
Parent legally available therefor under the DGCL. Under the DGCL, the amount
of the funds of the Parent legally available for the payment of dividends on
any series of Common Stock is determined on the basis of the entire
corporation and not just the TCI Group, the Liberty Media Group or the TCI
Ventures Group. Consequently, the amount of legally available funds will be
reduced by the amount of any net losses of the TCI Group, the Liberty Media
Group or the TCI Ventures Group and any dividends or distributions on, or
repurchases of, the TCI Group Common Stock, the Liberty Media Group Common
Stock or the TCI Ventures Group Common Stock, if any, and dividends on, or
certain repurchases of, Preferred Stock. Certain loan agreements to which
certain subsidiaries of the Parent are parties or are subject contain
restricted payment provisions that limit the amount of dividends, other than
stock dividends, that those companies may pay. Future loan agreements may also
contain similar restrictions and limits.
The "TCI Group Available Dividend Amount," as of any date, means either (i)
the excess of (a) an amount equal to the total assets of the TCI Group less
the total liabilities (not including preferred stock) of the TCI Group as of
such date over (b) the aggregate par value of, or any greater amount
determined to be capital in respect of, all outstanding shares of TCI Group
Common Stock and each class or series of Preferred Stock attributed to the TCI
Group or (ii) in case there is no such excess, an amount equal to the
Corporation Earnings (Loss) Attributable to the TCI Group (if positive) for
the fiscal year in which such date occurs and/or the preceding fiscal year.
The "Corporation Earnings (Loss) Attributable to the TCI Group," for any
period, means the net earnings or loss of the TCI Group for such period,
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, including income and expenses of TCI attributed
to the operations of the TCI Group on a substantially consistent basis,
including, without limitation, corporate administrative costs, net interest
and income taxes. The TCI Group Available Dividend Amount is intended to be
similar to the amount that would be legally available for the payment of
dividends on the TCI Group Common Stock under the DGCL if the TCI Group were a
separate Delaware corporation. There can be no assurance that there will be a
TCI Group Available Dividend Amount.
The "Liberty Media Group Available Dividend Amount," as of any date, means
the product of the Liberty Media Group Outstanding Interest Fraction and
either (i) the excess of (a) an amount equal to the total assets of the
Liberty Media Group less the total liabilities (not including preferred stock)
of the Liberty Media Group as of such date over (b) the aggregate par value
of, or any greater amount determined to be capital in respect of, all
outstanding shares of Liberty Media Group Common Stock and each class or
series of Preferred Stock attributed to the Liberty Media Group or (ii) in
case there is no such excess, an amount equal to the Corporation Earnings
(Loss) Attributable to the Liberty Media Group (if positive) for the fiscal
year in which such date occurs and/or the preceding fiscal year. The
"Corporation Earnings (Loss) Attributable to the Liberty Media Group," for any
period, means the net earnings or loss of the Liberty Media Group for such
period determined on a basis consistent with the determination of the net
earnings or loss of the Liberty Media Group for such period as
43
<PAGE>
presented in the combined financial statements of the Liberty Media Group,
including income and expenses of the Parent attributed to the operations of
the Liberty Media Group on a substantially consistent basis, including,
without limitation, corporate administrative costs, net interest and income
taxes. The Liberty Media Group Available Dividend Amount is intended to be
similar to the amount that would be legally available for the payment of
dividends on the Liberty Media Group Common Stock under the DGCL if the
Liberty Media Group were a separate Delaware corporation. There can be no
assurance that there will be a Liberty Media Group Available Dividend Amount.
The "TCI Ventures Group Available Dividend Amount," as of any date, means
the product of the TCI Ventures Group Outstanding Interest Fraction and either
(i) the excess of (a) 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 (b) the aggregate par value of, or any
greater amount determined to be capital in respect of, all outstanding shares
of TCI Ventures Group Common Stock and each class or series of Preferred Stock
attributed to the TCI Ventures Group or (ii) 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. The "Corporation Earnings (Loss)
Attributable to the TCI Ventures Group," for any period, means 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, including income and expenses of the
Parent 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. The TCI Ventures Group
Available Dividend Amount is intended to be similar to the amount that would
be legally available for the payment of dividends on the TCI Ventures Group
Common Stock under the DGCL if the TCI Ventures Group were a separate Delaware
corporation. There can be no assurance that there will be a TCI Ventures Group
Available Dividend Amount.
Except for dividends declared or paid as described below under "--Share
Distributions," "--Conversion and Redemption--Mandatory Dividend, Redemption
or Conversion of Liberty Media Group Common Stock," and "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of TCI Ventures Group
Common Stock," any dividends paid on the Series A TCI Group Common Stock or
the Series B TCI Group Common Stock will be paid only on both series, in equal
amounts per share; any dividends paid on the Series A Liberty Media Group
Common Stock or the Series B Liberty Media Group Common Stock will be paid
only on both series, in equal amounts per share; and any dividends paid on the
Series A TCI Ventures Group Common Stock or the Series B TCI Ventures Group
Common Stock will be paid only on both series, in equal amounts per share.
The Board of Directors, subject to the provisions described above and under
"--Share Distributions" below, has the authority and discretion to declare and
pay dividends on the TCI Group Common Stock, the Liberty Media Group Common
Stock or the TCI Ventures Group Common Stock in equal or unequal amounts,
notwithstanding the relationship among 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 liquidation rights of, the TCI Group Common Stock, the Liberty
Media Group Common Stock or the TCI Ventures Group Common Stock or any other
factor.
At the time of any dividend or other distribution on the outstanding shares
of Liberty Media Group Common Stock (including any dividend of Liberty Media
Group Net Proceeds from the Disposition of all or substantially all of the
properties and assets of the Liberty Media Group as described below under "--
Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
Liberty Media Group Common Stock"), the TCI Group will (if at such time there
is an Inter-Group Interest in the Liberty Media Group) be credited, and the
Liberty Media Group will be charged (in addition to the charge for the
dividend or other distribution paid or distributed in respect of outstanding
shares of Liberty Media Group Common Stock), with an amount equal to the
product of (i) the aggregate amount of such dividend or distribution paid or
distributed in respect of outstanding shares of Liberty Media Group Common
Stock times (ii) a fraction the numerator of which is the
44
<PAGE>
Liberty Media Group Inter-Group Interest Fraction and the denominator of which
is the Liberty Media Group Outstanding Interest Fraction.
At the time of any dividend or other distribution on the outstanding shares
of TCI Ventures Group Common Stock (including any dividend of TCI Ventures
Group Net Proceeds from the Disposition of all or substantially all of the
properties and assets of the TCI Ventures Group as described under "--
Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of TCI
Ventures Group Common Stock"), the TCI Group will (if at such time there is an
Inter-Group Interest in the TCI Ventures Group) be credited, and the TCI
Ventures Group will be charged (in addition to the charge for the dividend or
other distribution paid or distributed in respect of outstanding shares of TCI
Ventures Group Common Stock), with an amount equal to the product of (i) the
aggregate amount of such dividend or distribution paid or distributed in
respect of outstanding shares of TCI Ventures Group Common Stock times (ii) 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.
Share Distributions
Distributions on TCI Group Common Stock. If at any time after the initial
issuance of shares of TCI Ventures Group Common Stock, a distribution paid in
TCI Group Common Stock, TCI Ventures Group Common Stock, Liberty Media Group
Common Stock, or any other securities of the Parent or any other person (a
"share distribution"), is made with respect to the TCI Group Common Stock,
such share distribution will be declared and paid only as follows:
(i) a share distribution consisting of shares of Series A TCI Group
Common Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
equal per share basis; or consisting of shares of Series B TCI Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series B TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and Series B TCI Group Common Stock, on an
equal per share basis; or consisting of shares of Series A TCI Group Common
Stock (or Convertible Securities convertible into or exercisable or
exchangeable for shares of Series A TCI Group Common Stock) to holders of
Series A TCI Group Common Stock and, on an equal per share basis, shares of
Series B TCI Group Common Stock (or like Convertible Securities convertible
into or exercisable or exchangeable for shares of Series B TCI Group Common
Stock) to holders of Series B TCI Group Common Stock;
(ii) a share distribution consisting of shares of Series A 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
45
<PAGE>
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 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 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; and
(iv) a share distribution consisting of any class or series of securities
of the Parent or any other person other than TCI Group Common Stock,
Liberty Media Group Common Stock or TCI Ventures Group Common Stock (or
Convertible Securities convertible into or exercisable or exchangeable for
shares of TCI Group Common Stock, Liberty Media Group Common Stock or 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 Parent, such
rights will not differ to a greater extent than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Series A TCI Group Common Stock and the
Series B TCI Group Common Stock, and provided in each case that such
distribution is otherwise made on an equal per share basis.
The Parent will not reclassify, subdivide or combine the Series A TCI Group
Common Stock without reclassifying, subdividing or combining the Series B TCI
Group Common Stock, on an equal per share basis, and the Parent will not
reclassify, subdivide or combine the Series B TCI Group Common Stock without
reclassifying, subdividing or combining the Series A TCI Group Common Stock,
on an equal per share basis.
Distributions on Liberty Media Group Common Stock. If at any time a share
distribution is to be made with respect to the Liberty Media Group Common
Stock, such share distribution will be declared and paid only as follows (or
as described under "--Conversion and Redemption" with respect to the
redemptions and other distributions referred to therein):
(i) a share distribution consisting of shares of Series A 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
46
<PAGE>
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 Parent or any other person other than as described in the
immediately preceding clause (i) and other than TCI Group Common Stock or
TCI Ventures Group Common Stock (or Convertible Securities convertible into
or exercisable or exchangeable for shares of TCI Group Common Stock or 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 Parent, such rights will not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A 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.
Because under the Charter the Liberty Media Group is not permitted to have
an Inter-Group Interest in either the TCI Group or the TCI Ventures Group, no
distributions on the Liberty Media Group Common Stock of shares of TCI Group
Common Stock (or related Convertible Securities) or TCI Ventures Group Common
Stock (or related Convertible Securities) are permitted.
The Parent will 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 Parent will 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.
Distributions on TCI Ventures Group Common Stock. If at any time a share
distribution is to be made with respect to the TCI Ventures Group Common
Stock, such share distribution will be declared and paid only as follows (or
as described under "--Conversion and Redemption" with respect to the
redemptions and other distributions referred to therein):
(i) a share distribution consisting of shares of Series A 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
47
<PAGE>
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 Parent or any other person other than as described in the
immediately preceding clause (i) and other than TCI Group Common Stock or
Liberty Media Group Common Stock (or Convertible Securities convertible
into or exercisable or exchangeable for shares of TCI Group Common Stock or
Liberty Media Group Common Stock), either on the basis of a distribution of
identical securities, on an equal per share basis, to holders of 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 Parent, such rights will not differ to a greater extent than the
corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI
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.
Because under the Charter the TCI Ventures Group is not permitted to have an
Inter-Group Interest in either the TCI Group or the Liberty Media Group, no
distributions on the TCI Ventures Group Common Stock of shares of TCI Group
Common Stock (or related Convertible Securities) or Liberty Media Group Common
Stock (or related Convertible Securities) are permitted.
The Parent will 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 Parent will 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.
Conversion and Redemption
Conversion at the Option of the Holder. Each share of Series B TCI Group
Common Stock is convertible, at the option of the holder thereof, into one
share of Series A TCI Group Common Stock. Each share of Series B Liberty Media
Group Common Stock is convertible, at the option of the holder thereof, into
one share of Series A Liberty Media Group Common Stock. Each share of Series B
TCI Ventures Group Common Stock is convertible, at the option of the holder
thereof, into one share of Series A TCI Ventures Group Common Stock. Shares of
Series A TCI Group Common Stock are not convertible into shares of Series B
TCI Group Common Stock; shares of Series A Liberty Media Group Common Stock
are not convertible into shares of Series B Liberty Media Group Common Stock;
and shares of Series A TCI Ventures Group Common Stock are not convertible
into shares of Series B TCI Ventures Group Common Stock.
Conversion of Liberty Media Group Common Stock at the Option of the
Parent. The Board of Directors may at any time declare that (i) all of the
outstanding shares of Series A Liberty Media Group Common Stock will be
converted into a number (or fraction) of fully paid and nonassessable shares
of Series A TCI Group Common Stock equal to the Liberty Media Group Optional
Conversion Ratio, and (ii) all of the outstanding shares of Series B Liberty
Media Group Common Stock will be converted into a number (or fraction) of
fully
48
<PAGE>
paid and nonassessable shares of Series B TCI Group Common Stock equal to the
Liberty Media Group Optional Conversion Ratio. As more fully described below,
the Liberty Media Group Optional Conversion Ratio is the ratio of the private
market value of a share of Liberty Media Group Common Stock determined by
appraisal to the public trading price of a share of TCI Group Common Stock.
Under the Charter, the "Liberty Media Group Optional Conversion Ratio" means
the quotient (calculated to the nearest five decimal places) obtained by
dividing (x) the Liberty Media Group Common Stock Per Share Value by (y) the
average Market Value of one share of Series A TCI Group Common Stock over the
20-Trading Day period ending on the Trading Day preceding the Appraisal Date.
The Liberty Media Group Common Stock Per Share Value will equal the quotient
obtained by dividing the Liberty Media Group Private Market Value by the
Adjusted Outstanding Shares of Liberty Media Group Common Stock, which will be
determined in the manner described below.
The "Liberty Media Group Private Market Value" means an amount equal to the
private market value of the Liberty Media Group as of the Appraisal Date. In
the event that the Parent determines to establish the Liberty Media Group
Private Market Value, the Parent shall designate the First Appraiser and a
committee of the Board of Directors all of whose members are independent
directors as determined under the Nasdaq National Market rules (the "
Independent Committee") shall designate the Second Appraiser. Not later than
20 days after the Selection Date, the First Appraiser and the Second Appraiser
will each determine its initial view as to the private market value of the
Liberty Media Group as of the Appraisal Date and will consult with one another
with respect thereto. Not later than the 30th day after the Selection Date,
the First Appraiser and the Second Appraiser will each have determined its
final view as to such private market value. If the Higher Appraised Amount is
not more than 120% of the Lower Appraised Amount, the Liberty Media Group
Private Market Value (subject to any adjustment described in the second
succeeding paragraph) will be the average of those two amounts. If the Higher
Appraised Amount is more than 120% of the Lower Appraised Amount, the First
Appraiser and the Second Appraiser will agree upon and jointly designate the
Mutually Designated Appraiser to determine such private market value. The
Mutually Designated Appraiser will not be provided with any of the work of the
First Appraiser and the Second Appraiser. The Mutually Designated Appraiser
will, no later than the 20th day after the date the Mutually Designated
Appraiser is designated, determine the Mutually Appraised Amount, and the
Liberty Media Group Private Market Value (subject to any adjustment described
in the second succeeding paragraph) will be (i) if the Mutually Appraised
Amount is between the Lower Appraised Amount and the Higher Appraised Amount,
(a) the average of (1) the Mutually Appraised Amount and (2) the Lower
Appraised Amount or the Higher Appraised Amount, whichever is closer to the
Mutually Appraised Amount, or (b) the Mutually Appraised Amount, if neither
the Lower Appraised Amount nor the Higher Appraised Amount is closer to the
Mutually Appraised Amount, or (ii) if the Mutually Appraised Amount is greater
than the Higher Appraised Amount or less than the Lower Appraised Amount, the
average of the Higher Appraised Amount and the Lower Appraised Amount. For
these purposes, if any such investment banking firm expresses its final view
of the private market value of the Liberty Media Group as a range of values,
such investment banking firm's final view of such private market value will be
deemed to be the midpoint of such range of values.
Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value
of the Liberty Media Group as of the Appraisal Date based upon the amount a
willing purchaser would pay to a willing seller, in an arm's-length
transaction, if it were acquiring the Liberty Media Group, as if the Liberty
Media Group were a publicly traded non-controlled corporation and the
purchaser was acquiring all of the capital stock of such corporation and
without consideration of any potential regulatory constraints limiting the
potential purchasers of the Liberty Media Group other than that which would
have existed if the Liberty Media Group were a publicly traded non-controlled
entity.
Following the determination of the Liberty Media Group Private Market Value,
the investment banking firms whose final views of the private market value of
the Liberty Media Group were used in the calculation of the Liberty Media
Group Private Market Value will determine the Adjusted Outstanding Shares of
Liberty Media Group Common Stock together with any further appropriate
adjustments to the Liberty Media Group Private
49
<PAGE>
Market Value resulting from such determination. The "Adjusted Outstanding
Shares of Liberty Media Group Common Stock" means a number, as determined by
such investment banking firms as of the Appraisal Date, equal to the sum of
the number of shares of Liberty Media Group Common Stock outstanding, the
Number of Shares Issuable with Respect to the Liberty Media Group Inter-Group
Interest, the number of Committed Acquisition Shares issuable, the number of
shares of Liberty Media Group Common Stock issuable upon the conversion,
exercise or exchange of all Pre-Distribution Convertible Securities and the
number of shares of Liberty Media Group Common Stock issuable upon the
conversion, exercise or exchange of those Convertible Securities (other than
Pre-Distribution Convertible Securities and other than Convertible Securities
which are convertible into or exercisable or exchangeable for Committed
Acquisition Shares) the holders of which would derive an economic benefit from
conversion, exercise or exchange of such Convertible Securities which exceeds
the economic benefit of not converting, exercising or exchanging such
Convertible Securities. The "Liberty Media Group Common Stock Per Share Value"
means the quotient obtained by dividing the Liberty Media Group Private Market
Value by the Adjusted Outstanding Shares of Liberty Media Group Common Stock,
provided that if such investment banking firms do not agree on the
determinations provided for in this paragraph, the Liberty Media Group Common
Stock Per Share Value will be the average of the quotients so obtained on the
basis of the respective determinations of such firms.
If the Parent 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 will occur on a
conversion date on or prior to the 120th day following the Appraisal Date. If
the Parent determines not to undertake such conversion, the Parent may at any
time thereafter undertake to reestablish the Liberty Media Group Common Stock
Per Share Value as of a subsequent date.
Any such conversion would dilute the interests of holders of TCI Group
Common Stock and would preclude holders of Liberty Media Group Common Stock
from retaining their interest in a security reflecting separately the business
of the Liberty Media Group. In addition, the adjustments in respect of Pre-
Distribution Convertible Securities and Committed Acquisition Shares would
dilute the interests of holders of Liberty Media Group Common Stock upon any
conversion of shares of Liberty Media Group Common Stock into TCI Group Common
Stock at the Liberty Media Group Optional Conversion Ratio.
Conversion of TCI Ventures Group Common Stock at the Option of the
Parent. The Board of Directors may at any time declare that (i) all of the
outstanding shares of Series A TCI Ventures Group Common Stock will be
converted into a number (or fraction) of fully paid and nonassessable shares
of Series A TCI Group Common Stock equal to the TCI Ventures Group Optional
Conversion Ratio, and (ii) all of the outstanding shares of Series B TCI
Ventures Group Common Stock will be converted into a number (or fraction) of
fully paid and nonassessable shares of Series B TCI Group Common Stock equal
to the TCI Ventures Group Optional Conversion Ratio. As more fully described
below, the TCI Ventures Group Optional Conversion Ratio is the ratio of the
private market value of a share of TCI Ventures Group Common Stock determined
by appraisal to the public trading price of a share of TCI Group Common Stock.
Under the Charter, the "TCI Ventures Group Optional Conversion Ratio" means
the quotient (calculated to the nearest five decimal places) obtained by
dividing (x) the TCI Ventures Group Common Stock Per Share Value by (y) the
average Market Value of one share of Series A TCI Group Common Stock over the
20-Trading Day period ending on the Trading Day preceding the Appraisal Date.
The TCI Ventures Group Common Stock Per Share Value will equal the quotient
obtained by dividing the TCI Ventures Group Private Market Value by the
Adjusted Outstanding Shares of TCI Ventures Group Common Stock, which will be
determined in the manner described below.
The "TCI Ventures Group Private Market Value" means an amount equal to the
private market value of the TCI Ventures Group as of the Appraisal Date. In
the event that the Parent determines to establish the TCI Ventures Group
Private Market Value, the Parent shall designate the First Appraiser and the
Independent
50
<PAGE>
Committee shall designate the Second Appraiser. Not later than 20 days after
the Selection Date, the First Appraiser and the Second Appraiser will each
determine its initial view as to the private market value of the TCI Ventures
Group as of the Appraisal Date and will consult with one another with respect
thereto. Not later than the 30th day after the Selection Date, the First
Appraiser and the Second Appraiser will each have determined its final view as
to such private market value. If the Higher Appraised Amount is not more than
120% of the Lower Appraised Amount, the TCI Ventures Group Private Market
Value (subject to any adjustment described in the second succeeding paragraph)
will be the average of those two amounts. If the Higher Appraised Amount is
more than 120% of the Lower Appraised Amount, the First Appraiser and the
Second Appraiser will agree upon and jointly designate the Mutually Designated
Appraiser to determine such private market value. The Mutually Designated
Appraiser will not be provided with any of the work of the First Appraiser and
the Second Appraiser. The Mutually Designated Appraiser will, no later than
the 20th day after the date the Mutually Designated Appraiser is designated,
determine the Mutually Appraised Amount, and the TCI Ventures Group Private
Market Value (subject to any adjustment described in the second succeeding
paragraph) will be (i) if the Mutually Appraised Amount is between the Lower
Appraised Amount and the Higher Appraised Amount, (a) the average of (1) the
Mutually Appraised Amount and (2) the Lower Appraised Amount or the Higher
Appraised Amount, whichever is closer to the Mutually Appraised Amount, or (b)
the Mutually Appraised Amount, if neither the Lower Appraised Amount nor the
Higher Appraised Amount is closer to the Mutually Appraised Amount, or (ii) if
the Mutually Appraised Amount is greater than the Higher Appraised Amount or
less than the Lower Appraised Amount, the average of the Higher Appraised
Amount and the Lower Appraised Amount. For these purposes, if any such
investment banking firm expresses its final view of the private market value
of the TCI Ventures Group as a range of values, such investment banking firm's
final view of such private market value will be deemed to be the midpoint of
such range of values.
Each of the investment banking firms referred to in the immediately
preceding paragraph will be instructed to determine the private market value
of the 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.
Following the determination of the TCI Ventures Group Private Market Value,
the investment banking firms 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 will determine the Adjusted Outstanding Shares of TCI
Ventures Group Common Stock together with any further appropriate adjustments
to the TCI Ventures Group Private Market Value resulting from such
determination. The "Adjusted Outstanding Shares of TCI Ventures Group Common
Stock" means a number, as determined by such investment banking firms as of
the Appraisal Date, equal to the sum of the number of shares of 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 TCI
Ventures Group Common Stock issuable upon the conversion, exercise or exchange
of all Pre-Exchange Offer Securities, and the number of shares of 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" means 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
investment banking firms do not agree on the determinations provided for in
this paragraph, the TCI Ventures Group Common Stock Per Share Value will be
the average of the quotients so obtained on the basis of the respective
determinations of such firms.
If the Parent determines to convert shares of Series A 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 TCI Group
51
<PAGE>
Common Stock at the TCI Ventures Group Optional Conversion Ratio, such
conversion will occur on a conversion date on or prior to the 120th day
following the Appraisal Date. If the Parent determines not to undertake such
conversion, the Parent may at any time thereafter undertake to reestablish the
TCI Ventures Group Common Stock Per Share Value as of a subsequent date.
Any such conversion would dilute the interests of holders of TCI Group
Common Stock and would preclude holders of TCI Ventures Group Common Stock
from retaining their interest in a security reflecting separately the business
of the TCI Ventures Group. In addition, the adjustments in respect of Pre-
Exchange Offer Securities would dilute the interests of holders of TCI
Ventures Group Common Stock upon any conversion of shares of TCI Ventures
Group Common Stock into TCI Group Common Stock at the TCI Ventures Group
Optional Conversion Ratio.
Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common
Stock. Upon the Disposition, in one transaction or a series of related
transactions by the Parent and its subsidiaries of all or substantially all of
the properties and assets of the Liberty Media Group to one or more persons,
entities or groups, the Parent is required, on or prior to the 85th Trading
Day following the consummation of such Disposition, to take one of the actions
listed in the following paragraph. This requirement does not apply to a
Disposition (a) in connection with the Disposition by the Parent of all of the
Parent's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Parent, (b) by dividend, other distribution or redemption in accordance
with any provision described under "--Conversion and Redemption--Redemption of
Liberty Media Group Common Stock in Exchange for Stock of Subsidiary," "--
Dividends," "--Share Distributions," or "--Liquidation Rights," (c) to any
person, entity or group which the Parent, directly or indirectly, after giving
effect to the Disposition, controls or (d) in connection with a Related
Business Transaction. For these purposes, "substantially all of the properties
and assets of the Liberty Media Group" means a portion of such properties and
assets that represents at least 80% of the then-current market value (as
determined by the Board of Directors) of the properties and assets of the
Liberty Media Group as of such date.
The action the Parent is required to take is to either:
(i) subject to the limitations described under "--Dividends," declare and
pay a dividend in cash and/or securities or other property (other than a
dividend or distribution of Common Stock) to the holders of the outstanding
shares of Liberty Media Group Common Stock equally on a share for share
basis (subject to the provisions described in the last sentence of the
penultimate paragraph under this caption "--Mandatory Dividend, Redemption
or Conversion of Liberty Media Group Common Stock"), in an aggregate amount
equal to the product of the Liberty Media Group Outstanding Interest
Fraction as of the record date for determining the holders entitled to
receive such dividend and the Liberty Media Group Net Proceeds;
(ii) provided that there are assets of the Parent legally available
therefor and the Liberty Media Group Available Dividend Amount would have
been sufficient to pay a dividend in lieu thereof as described in clause
(i) of this paragraph, 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 provisions described in the last sentence of the
penultimate paragraph under this caption) 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
52
<PAGE>
(B) if such Disposition involves substantially all (but not all) of
the properties and assets of the Liberty Media Group, apply an
aggregate amount of cash and/or securities or other property (other
than Common Stock) equal to the product of the Liberty Media Group
Outstanding Interest Fraction as of the date shares are selected for
redemption and the Liberty Media Group Net Proceeds of such Disposition
to the redemption of outstanding shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock, such
aggregate amount to be allocated (subject to the provisions described
in the last sentence of the penultimate paragraph under this caption)
to shares of 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); 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.
The Parent may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the second paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion or Liberty Media Group Common Stock" either
in the same form as the proceeds of the Disposition were received or in any
other combination of cash or securities or other property (other than Common
Stock) that the 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 Parent, the Board of Directors
may determine either to (i) pay the dividend or redemption price in the form
of separate classes or series of securities, with one class or series of such
securities to holders of Series A 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 Parent, such rights will not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A Liberty
Media Group Common Stock and the Series B Liberty Media Group Common Stock,
and otherwise such securities will be distributed on an equal per share basis,
or (ii) pay the dividend or redemption price in the form of a single class of
securities without distinction between the shares received by the holders of
Series A Liberty Media Group Common Stock and Series B Liberty Media Group
Common Stock. The Related Business Transaction exception to the foregoing
requirements would enable the Parent to enter into transactions in which the
properties or assets of the Liberty Media Group may be considered to be
"disposed of" in exchange for equity securities of an entity engaged or
proposing to engage in similar or complementary business areas to those of the
Liberty Media Group while maintaining the capital structure and delineation of
business groups of the Liberty Media Group.
53
<PAGE>
The effect of using the Adjusted Liberty Media Group Outstanding Interest
Fraction, instead of the Liberty Media Group Outstanding Interest Fraction, in
the determination of amounts to be paid in redemption of shares of Liberty
Media Group Common Stock following a Disposition of all of the properties and
assets of the Liberty Media Group is to allocate to the TCI Group a portion of
the Liberty Media Group Net Proceeds of the Disposition, in addition to the
amount so allocated in respect of any Inter-Group Interest, sufficient to
provide for the delivery of the portion of the consideration deliverable by
the Parent upon any post-Disposition conversion, exercise or exchange of Pre-
Distribution Convertible Securities that is in substitution for shares of
Liberty Media Group Common Stock that would have been issuable upon such
conversion, exercise or exchange if it had occurred prior to such Distribution
and to make similar provision for the Parent's obligation in respect of any
Committed Acquisition Shares that remain issuable. To the extent such Pre-
Distribution Convertible Securities and Committed Acquisition Shares are
included in the determination of the Adjusted Liberty Media Group Outstanding
Interest Fraction, the Parent's obligations in respect of such securities
would not be a reduction in the calculation of the Liberty Media Group Net
Proceeds. In the event any redemption of the Liberty Media Group Common Stock
or conversion of the Liberty Media Group Common Stock into TCI Group Common
Stock is made in circumstances in which securities or property are allocated
to the TCI Group in respect of Pre-Distribution Convertible Securities,
Committed Acquisition Shares or other Convertible Securities entitled to
receive such securities or property upon conversion, exercise or exchange, the
TCI Group will segregate and hold such securities or other property separate
(in the case of any securities or property other than TCI Group Common Stock),
or duly reserve shares of TCI Group Common Stock issuable upon such
conversion, exercise or exchange, for the benefit of the holders of Pre-
Distribution Convertible Securities, Committed Acquisition Shares or other
Convertible Securities. In the event the holders of any such Pre-Distribution
Convertible Securities or other Convertible Securities do not convert,
exercise or exchange such securities prior to the expiration of any conversion
or exercise right or the retirement of such security, or the acquisition
relating to such Committed Acquisition Shares is not consummated (or any
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares are not converted, exercised or
exchanged), then the securities or other property so reserved shall revert to
the TCI Group and the former holders of Liberty Media Group Common Stock shall
have no interest in such securities or property.
At the time of any dividend made as a result of a Disposition referred to
above, the TCI Group will be credited, and the Liberty Media Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of Liberty Media Group Common Stock), with an amount equal
to the product of (i) the aggregate amount paid in respect of such dividend
times (ii) a fraction the numerator of which is the Liberty Media Group Inter-
Group Interest Fraction and the denominator of which is the Liberty Media
Group Outstanding Interest Fraction.
The option to convert the Liberty Media Group Common Stock into TCI Group
Common Stock in the event of a Disposition provides the Parent with additional
flexibility by allowing the Parent to deliver consideration in the form of
shares of TCI Group Common Stock rather than cash or securities or other
properties. This alternative could be used, for example, in circumstances when
the Parent did not have sufficient legally available assets under the DGCL to
pay the full amount of an otherwise required dividend or redemption or when
the Parent desired to retain such proceeds.
If less than substantially all of the properties and assets of the Liberty
Media Group were disposed of by the Parent in one transaction, the Parent
would not be required to pay a dividend on, redeem or convert the outstanding
shares of Liberty Media Group Common Stock, even if an additional transaction
were consummated at a later time in which additional properties and assets of
the Liberty Media Group were disposed of by the Parent, which, together with
the properties and assets disposed of in the first transaction, would have
constituted substantially all of the properties and assets of the Liberty
Media Group at the time of the first transaction, unless such transactions
constituted a series of related transactions. The second transaction, however,
could trigger such a requirement if, at the time of the second transaction,
the properties and assets disposed of in such transaction constituted at least
substantially all of the properties and assets of the Liberty Media Group at
such time. If less than substantially all of the properties and assets of the
Liberty Media Group were disposed of by the Parent, the
54
<PAGE>
holders of the Liberty Media Group Common Stock would not be entitled to
receive any dividend or have their shares redeemed or converted for TCI Group
Common Stock, although the Board of Directors could determine, in its sole
discretion, to pay a dividend on the Liberty Media Group Common Stock in an
amount related to the proceeds of such Disposition.
Mandatory Dividend, Redemption or Conversion of TCI Ventures Group Common
Stock. Upon the Disposition in one transaction or a series of related
transactions by the Parent and its subsidiaries of all or substantially all of
the properties and assets of the TCI Ventures Group to any one or more
persons, entities or groups, the Parent is required, on or prior to the 85th
Trading Day following the consummation of such Disposition, to take one of the
actions listed in the following paragraph. This requirement does not apply to
a Disposition (a) in connection with the Disposition by the Parent of all of
the Parent's properties and assets in one transaction or a series of related
transactions in connection with the liquidation, dissolution or winding up of
the Parent, (b) by dividend, other distribution or redemption in accordance
with any provision described under "--Conversion and Redemption--Redemption of
TCI Ventures Group Common Stock in Exchange for Stock of Subsidiary" "--
Dividends," "--Share Distributions," or "--Liquidation Rights," (c) to any
person, entity or group which the Parent, directly or indirectly, after giving
effect to the Disposition, controls or (d) in connection with a Related
Business Transaction. For these purposes, "substantially all of the properties
and assets of the TCI Ventures Group" means 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.
The action the Parent is required to take is to either:
(i) subject to the limitations described above under "--Dividends,"
declare and pay a dividend in cash and/or securities or other property
(other than a dividend or distribution of Common Stock) to the holders of
the outstanding shares of TCI Ventures Group Common Stock equally on a
share for share basis (subject to the provisions described in the second
sentence of the third paragraph under this caption "--Mandatory Dividends,
Redemption or Conversion of TCI Ventures Group Common Stock,") 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;
(ii) provided that there are assets of the Parent legally available
therefor and the TCI Ventures Group Available Dividend Amount would have
been sufficient to pay a dividend in lieu thereof as described in clause
(i) of this paragraph, then:
(A) if such Disposition involves all (not merely substantially all)
of the properties and assets of the 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 of such Disposition, such aggregate
amount to be allocated (subject to the provisions described in the
second sentence of the following paragraph) 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 of such Disposition 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 provisions described in the
second sentence of the following paragraph) to shares of Series A TCI
55
<PAGE>
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, with 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); 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.
The Parent may elect to pay the dividend or redemption price referred to in
clause (i) or (ii) of the second paragraph under this caption "--Mandatory
Dividend, Redemption or Conversion of TCI Ventures Group Common Stock" either
in the same form as the proceeds of the Disposition were received or in any
other combination of cash or securities or other property (other than Common
Stock) that the 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 Parent, the Board of
Directors may determine either to (i) pay the dividend or redemption price in
the form of separate classes or series of securities, with one class or series
of such securities to holders of Series A 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 Parent, such rights will not differ to a greater extent
than the corresponding differences in voting rights, designation, conversion,
redemption and share distribution provisions between the Series A TCI Ventures
Group Common Stock and the Series B TCI Ventures Group Common Stock, and
otherwise such securities will be distributed on an equal per share basis, or
(ii) pay the dividend or redemption price in the form of a single class of
securities without distinction between the shares received by the holders of
Series A TCI Ventures Group Common Stock and Series B TCI Ventures Group
Common Stock. The Related Business Transaction exception to the foregoing
requirements would enable the Parent to enter into transactions in which the
properties or assets of the TCI Ventures Group may be considered to be
"disposed of" in exchange for equity securities of an entity engaged or
proposing to engage in similar or complementary business areas to those of the
TCI Ventures Group while maintaining the capital structure and delineation of
business groups of the TCI Ventures Group.
The effect of using the Adjusted TCI Ventures Group Outstanding Interest
Fraction, instead of the TCI Ventures Group Outstanding Interest Fraction, in
the determination of amounts to be paid in redemption of shares of TCI
Ventures Group Common Stock following a Disposition of all of the properties
and assets of the TCI Ventures Group is to allocate to the TCI Group a portion
of the TCI Ventures Group Net Proceeds of the Disposition, in addition to the
amount so allocated in respect of any Inter-Group Interest, sufficient to
provide for the delivery of the portion of the consideration deliverable by
the Parent upon any post-Disposition
56
<PAGE>
conversion, exercise or exchange of Pre-Exchange Offer Securities that is in
substitution for shares of TCI Ventures Group Common Stock that would have
been issuable upon such conversion, exercise or exchange if it had occurred
prior to such Disposition. To the extent such Pre-Exchange Offer Securities
are included in the determination of the Adjusted TCI Ventures Group
Outstanding Interest Fraction, the Parent's obligations in respect of such
securities would not be a reduction in the calculation of the TCI Ventures
Group Net Proceeds. In the event any redemption of the TCI Ventures Group
Common Stock or conversion of the TCI Ventures Group Common Stock into TCI
Group Common Stock is made in circumstances in which securities or property
are allocated to the TCI Group in respect of Pre-Exchange Offer Securities or
other Convertible Securities entitled to receive such securities or property
upon conversion, exercise or exchange, the TCI Group will segregate and hold
such securities or other property separate (in the case of any securities or
property other than TCI Group Common Stock), or duly reserve shares of TCI
Group Common Stock issuable upon such conversion, exercise or exchange, for
the benefit of the holders of Pre-Exchange Offer Securities or other
Convertible Securities. In the event the holders of any such Pre-Exchange
Offer Securities or other Convertible Securities do not convert, exercise or
exchange such securities prior to the expiration of any conversion, exercise
or exchange right or the retirement of such security, then the securities or
other property so reserved shall revert to the TCI Group and the former
holders of TCI Ventures Group Common Stock shall have no interest in such
securities or property.
At the time of any dividend made as a result of a Disposition referred to
above, the TCI Group will be credited, and the TCI Ventures Group will be
charged (in addition to the charge for the dividend paid in respect of
outstanding shares of TCI Ventures Group Common Stock), with an amount equal
to the product of (i) the aggregate amount paid in respect of such dividend
times (ii) a fraction the numerator of which is the TCI Ventures Group Inter-
Group Interest Fraction and the denominator of which is the TCI Ventures Group
Outstanding Interest Fraction.
The option to convert the TCI Ventures Group Common Stock into TCI Group
Common Stock in the event of a Disposition provides the Parent with additional
flexibility by allowing the Parent to deliver consideration in the form of
shares of TCI Group Common Stock rather than cash or securities or other
properties. This alternative could be used, for example, in circumstances when
the Parent did not have sufficient legally available assets under the DGCL to
pay the full amount of an otherwise required dividend or redemption or when
the Parent desired to retain such proceeds.
If less than substantially all of the properties and assets of the TCI
Ventures Group were disposed of by the Parent in one transaction, the Parent
would not be required to pay a dividend on, redeem or convert the outstanding
shares of TCI Ventures Group Common Stock, even if an additional transaction
were consummated at a later time in which additional properties and assets of
the TCI Ventures Group were disposed of by the Parent, which, together with
the properties and assets disposed of in the first transaction, would have
constituted substantially all of the properties and assets of the TCI Ventures
Group at the time of the first transaction, unless such transactions
constituted a series of related transactions. The second transaction, however,
could trigger such a requirement if, at the time of the second transaction,
the properties and assets disposed of in such transaction constituted at least
substantially all of the properties and assets of the TCI Ventures Group at
such time. If less than substantially all of the properties and assets of the
TCI Ventures Group were disposed of by the Parent, the holders of the TCI
Ventures Group Common Stock would not be entitled to receive any dividend or
have their shares redeemed or converted for TCI Group Common Stock, although
the Board of Directors could determine, in its sole discretion, to pay a
dividend on the TCI Ventures Group Common Stock in an amount related to the
proceeds of such Disposition.
Redemption of Liberty Media Group Common Stock in Exchange for Stock of
Subsidiary. At any time at which all of the assets and liabilities attributed
to the Liberty Media Group have become and continue to be held directly or
indirectly by any one or more corporations that are Qualifying Subsidiaries
(the "Liberty Media Group Subsidiaries"), the Board of Directors may, subject
to the availability of assets of the Parent legally available therefor,
redeem, on a pro rata basis, all of the outstanding shares of Liberty Media
Group Common
57
<PAGE>
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 that are owned by the Parent. The effect of using the
Adjusted Liberty Media Group Outstanding Interest Fraction, instead of the
Liberty Media Group Outstanding Interest Fraction, in the determination of the
number of shares of the Liberty Media Group Subsidiaries deliverable in such a
redemption is to allocate to the TCI Group a portion of the shares of the
Liberty Media Group Subsidiaries, in addition to the number of such shares so
allocated in respect of any Inter-Group Interest, sufficient to provide for
the delivery of the consideration deliverable by the Parent upon any post-
redemption conversion, exercise or exchange of Pre-Distribution Convertible
Securities that become so payable in substitution for shares of Liberty Media
Group Common Stock that would have been issuable upon such conversion,
exercise or exchange if it had occurred prior to such redemption and to make
similar provision for the Parent's obligations in respect of any Committed
Acquisition Shares that remain issuable.
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 two series of Liberty Media Group Common Stock. If the Parent
determines to undertake a redemption as described in clause (i) of the
preceding sentence, the outstanding shares of common stock of each Liberty
Media Group Subsidiary not distributed to holders of Liberty Media Group
Common Stock shall consist solely of the class or series having the lower
relative voting rights.
Redemption of TCI Ventures Group Common Stock in Exchange for Stock of
Subsidiary. 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 corporations that are Qualifying Subsidiaries
(the "TCI Ventures Group Subsidiaries"), the Board of Directors may, subject
to the availability of assets of the Parent legally available therefor, redeem
on a pro rata basis, all of the outstanding shares of 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 that are owned by the Parent. The effect of using
the Adjusted TCI Ventures Group Outstanding Interest Fraction, instead of the
TCI Ventures Group Outstanding Interest Fraction, in the determination of the
number of shares of the TCI Ventures Group Subsidiaries deliverable in such a
redemption is to allocate to the TCI Group a portion of the shares of the TCI
Ventures Group Subsidiaries, in addition to the number of such shares so
allocated in respect of any Inter-Group Interest, sufficient to provide for
the delivery of the consideration deliverable by the Parent upon any post-
redemption conversion, exercise or exchange of Pre-Exchange Offer Securities
that become so payable in substitution for shares of TCI Ventures Group Common
Stock that would have been issuable upon such conversion, exercise or exchange
if it had occurred prior to such redemption.
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
58
<PAGE>
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 two series of TCI Ventures Group
Common Stock.
Certain Provisions Respecting Convertible Securities. Unless the provisions
of any class or series of Pre-Distribution Convertible Securities or
Convertible Securities which are convertible into or exercisable or
exchangeable for Committed Acquisition Shares provide specifically to the
contrary, after any conversion date or redemption date on which all
outstanding shares of Liberty Media Group Common Stock were converted or
redeemed, any share of Liberty Media Group Common Stock that is issued on
conversion, exercise or exchange of any Pre-Distribution Convertible
Securities or any Convertible Securities which are convertible into or
exercisable or exchangeable for Committed Acquisition Shares will, immediately
upon issuance pursuant to such conversion, exercise or exchange and without
any notice or any other action on the part of the Parent or the Board of
Directors or the holder of such share of Liberty Media Group Common Stock, be
converted into or redeemed in exchange for, as applicable, the kind and amount
of shares of capital stock, cash and/or other securities or property that a
holder of such Pre-Distribution Convertible Securities or any Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares would have been entitled to receive as a result
of such conversion and redemption had such securities been converted,
exercised or exchanged immediately prior to such action. With respect to any
Convertible Securities that are convertible into or exercisable or
exchangeable for shares of Liberty Media Group Common Stock and which are
created, established or otherwise first authorized for issuance subsequent to
the record date for the Liberty Media Group Distribution (other than Pre-
Distribution Convertible Securities and Convertible Securities which are
convertible into or exercisable or exchangeable for Committed Acquisition
Shares), the terms and provisions of which do not provide for adjustments
specifying the kind and amount of capital stock, cash and/or securities or
other property that such holder would be entitled to receive upon the
conversion, exercise or exchange of such Convertible Securities following any
conversion date or redemption date on which all outstanding shares of Liberty
Media Group Common Stock were converted or redeemed, then upon such
conversion, exercise or exchange of such Convertible Securities, any share of
Liberty Media Group Common Stock that is issued on conversion, exercise or
exchange of any such Convertible Securities will, immediately upon issuance
and without any notice or any other action on the part of the Parent or the
Board of Directors or the holder of such share of Liberty Media Group Common
Stock, be redeemed in exchange for, to the extent assets of the Parent are
legally available therefor, the amount of $.01 per share in cash.
Unless the provisions of the Pre-Exchange Offer Securities provide
specifically to the contrary, after any conversion date or redemption date on
which all outstanding shares of TCI Ventures Group Common Stock were converted
or redeemed, any share of TCI Ventures Group Common Stock that is issued on
conversion, exercise or exchange of any Pre-Exchange Offer Securities will,
immediately upon issuance pursuant to such conversion, exercise or exchange
and without any notice or any other action on the part of the Parent or its
Board of Directors or the holder of such share of TCI Ventures Group Common
Stock, be converted into or redeemed in exchange for, as applicable, the kind
and amount of shares of capital stock, cash and/or securities or other
property that a holder of such Pre-Exchange Offer Securities would have been
entitled to receive as a result of such conversion and redemption had such
Pre-Exchange Offer Securities been converted, exercised or exchanged
immediately prior to such action. Unless the provisions of any class or series
of Convertible Securities (other than Pre-Exchange Offer Securities) which are
convertible into or exercisable or exchangeable for shares of TCI Ventures
Group Common Stock provide specifically to the contrary, after any conversion
date or redemption date on which all outstanding shares of TCI Ventures Group
Common Stock were converted or redeemed, any share of 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 Parent or its Board of Directors or the holder of such share
of TCI Ventures Group Common Stock, be redeemed in exchange for, to the extent
assets of the Parent are legally available therefor, the amount of $.01 per
share in cash.
59
<PAGE>
General Conversion and Redemption Provisions. Not later than the 10th
Trading Day following the consummation of a Disposition referred to above
under "--Conversion and Redemption--Mandatory Dividend, Redemption or
Conversion of Liberty Media Group Common Stock," the Parent will announce
publicly by press release (i) the Liberty Media Group Net Proceeds of such
Disposition, (ii) the number of outstanding shares of Series A Liberty Media
Group Common Stock and Series B Liberty Media Group Common Stock, (iii) 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, (iv) the Liberty Media Group Outstanding Interest Fraction as of a
recent date preceding the date of such notice and (v) the Adjusted Liberty
Media Group Outstanding Interest Fraction as of a recent date preceding the
date of such notice. Not earlier than the 26th Trading Day and not later than
the 30th Trading Day following the consummation of such Disposition, the
Parent will announce publicly by press release which of the actions described
in clause (i), (ii) or (iii) of the second paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of Liberty Media
Group Common Stock" it has irrevocably determined to take.
If the Parent determines to pay a dividend described in clause (i) of the
second paragraph under "--Conversion and Redemption--Mandatory Dividend,
Redemption or Conversion of Liberty Media Group Common Stock," the Parent
will, not later than the 30th Trading Day following the consummation of such
Disposition, cause to be given to each holder of outstanding shares of Series
A Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock, a notice setting forth (i) the record date for determining holders
entitled to receive such dividend, which will be not earlier than the 40th
Trading Day and not later than the 50th Trading Day following the consummation
of such Disposition, (ii) the anticipated payment date of such dividend (which
will not be more than 85 Trading Days following the consummation of such
Disposition), (iii) the kind of shares of capital stock, cash and/or other
securities or property to be distributed in respect of shares of Series A
Liberty Media Group Common Stock and Series B Liberty Media Group Common
Stock, (iv) the Liberty Media Group Net Proceeds of such Disposition, (v) the
Liberty Media Group Outstanding Interest Fraction as of a recent date
preceding the date of such notice, and (vi) the number of outstanding shares
of 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.
If the Parent determines to undertake a redemption of shares of Liberty
Media Group Common Stock following a Disposition of all (not merely
substantially all) of the properties and assets of the Liberty Media Group as
described in clause (ii)(A) of the second paragraph under "--Conversion and
Redemption--Mandatory Dividend, Redemption or Conversion of Liberty Media
Group Common Stock," the Parent will 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 a notice setting forth (i) a statement that
all shares of Liberty Media Group Common Stock outstanding on the redemption
date will be redeemed, (ii) the redemption date (which will not be more than
85 Trading Days following the consummation of such Disposition), (iii) the
kind of shares of capital stock, cash and/or other securities or property to
be paid as a redemption price in respect of shares of Liberty Media Group
Common Stock outstanding on the redemption date, (iv) the Liberty Media Group
Net Proceeds of such Disposition, (v) the Adjusted Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (vi) the place or places where certificates for shares of Liberty
Media Group Common Stock, properly endorsed or assigned for transfer (unless
the Parent waives such requirement), are to be surrendered for delivery of
certificates for shares of such capital stock, cash and/or other securities or
property, and (vii) 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
60
<PAGE>
are then convertible, exercisable or exchangeable and the conversion, exercise
or exchange prices thereof (and stating which, if any, of such Convertible
Securities constitute Pre-Distribution Convertible Securities or Convertible
Securities which are convertible into or exercisable or exchangeable for
Committed Acquisition Shares) and the number of Committed Acquisition Shares
issuable. Such notice will be sent not less than 35 Trading Days nor more than
45 Trading Days prior to the redemption date.
If the Parent determines to undertake a redemption of shares of Liberty
Media Group Common Stock following a Disposition of substantially all (but not
all) of the properties and assets of the Liberty Media Group as described in
clause (ii)(B) of the second paragraph under "--Conversion and Redemption--
Mandatory Dividend, Redemption or Conversion of Liberty Media Group Common
Stock," the Parent will, not later than the 30th Trading Day following the
consummation of such Disposition, cause to be given to each holder of record
of outstanding shares of Series A Liberty Media Group Common Stock and Series
B Liberty Media Group Common Stock a notice setting forth (i) a date not
earlier than the 40th Trading Day and not later than the 50th Trading Day
following the consummation of such Disposition which will be the date on which
shares of the Liberty Media Group Common Stock then outstanding will be
selected for redemption, (ii) the anticipated redemption date (which will not
be more than 85 Trading Days following the consummation of such Disposition),
(iii) the kind of shares of capital stock, cash and/or other securities or
property to be paid as a redemption price in respect of shares of Liberty
Media Group Common Stock selected for redemption, (iv) the Liberty Media Group
Net Proceeds of such Disposition, (v) the Liberty Media Group Outstanding
Interest Fraction as of a recent date preceding the date of such notice, (vi)
the number of outstanding shares of 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 (vii) a statement that the Parent will not be
required to register a transfer of any shares of Liberty Media Group Common
Stock for a period of 15 Trading Days next preceding the date referred to in
clause (i) of this sentence. Promptly following the date referred to in clause
(i) of the preceding sentence, but not earlier than the 40th Trading Day and
not later than the 50th Trading Day following the consummation of such
Disposition, the Parent will 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 redeemed, a notice setting forth (i) 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, (ii) a statement that such
shares of Series A Liberty Media Group Common Stock and Series B Liberty Media
Group Common Stock will be redeemed, (iii) the redemption date (which will not
be more than 85 Trading Days following the consummation of such Disposition),
(iv) the kind and per share amount of shares of capital stock, cash and/or
other securities or property to be received by such holder with respect to
each share of such Liberty Media Group Common Stock to be redeemed, including
details as to the calculation thereof, and (v) the place or places where
certificates for shares of such Liberty Media Group Common Stock, properly
endorsed or assigned for transfer (unless the Parent waives such requirement),
are to be surrendered for delivery of certificates for shares of such capital
stock, cash and/or other securities or property. The outstanding shares of
Liberty Media Group Common Stock to be redeemed will be redeemed by the Parent
pro rata among the holders of Liberty Media Group Common Stock or by such
other method as may be determined by the Board of Directors to be equitable.
In the event of any conversion as described above under "--Conversion and
Redemption--Conversion of Liberty Media Group Common Stock at the Option of
the Parent" or "--Conversion and Redemption-Mandatory Dividend, Redemption or
Conversion of Liberty Media Group Common Stock," the Parent will 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 a notice setting
forth (i) a statement that all outstanding shares of Liberty Media Group
Common Stock will be converted, (ii) the conversion date (which will not be
more than 85 Trading Days following the consummation of such Disposition in
the event of a conversion pursuant to the provisions described under "--
Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
Liberty Media Group Common Stock" and which will not be more than 120 days
after the Appraisal Date in the event of a conversion pursuant to the
provisions described under "--Conversion and Redemption--Conversion of Liberty
61
<PAGE>
Media Group Common Stock at the Option of the Parent"), (iii) the per share
number (or fraction) 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, (iv) the
place or places where certificates for shares of Liberty Media Group Common
Stock, properly endorsed or assigned for transfer (unless the Parent waives
such requirement), are to be surrendered, and (v) 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. Such notice will be sent not
less than 35 Trading Days nor more than 45 Trading Days prior to the
conversion date.
If the Parent determines to redeem shares of Series A Liberty Media Group
Common Stock and Series B Liberty Media Group Common Stock as described above
under "--Conversion and Redemption--Redemption of Liberty Media Group Common
Stock in Exchange for Stock of Subsidiary," the Parent will promptly cause to
be given to each holder of Series A Liberty Media Group Common Stock and
Series B Liberty Media Group Common Stock a notice setting forth (i) a
statement that all outstanding shares of Liberty Media Group Common Stock will
be redeemed in exchange for shares of common stock of the Liberty Media Group
Subsidiaries, (ii) the redemption date, (iii) the Adjusted Liberty Media Group
Outstanding Interest Fraction as of a recent date preceding the date of such
notice, (iv) the place or places where certificates for shares of Liberty
Media Group Common Stock, properly endorsed or assigned for transfer (unless
the Parent waives such requirement), are to be surrendered for delivery of
certificates for shares of common stock of the Liberty Media Group
Subsidiaries, and (v) the number of outstanding shares of 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. Such notice will be sent by not less than 35
Trading Days nor more than 45 Trading Days prior to the redemption date.
In each case in which a notice is required to be given to holders of
outstanding shares of Series A Liberty Media Group Common Stock and Series B
Liberty Media Group Common Stock in accordance with the preceding five
paragraphs (other than a notice to holders of shares selected for redemption),
notice shall also be given, within the required time period, to each holder of
Convertible Securities that are convertible into or exercisable or
exchangeable for shares of either such series (unless provision for such
notice is otherwise made pursuant to the terms of such Convertible
Securities), which notice shall include, in addition to all of the information
set forth in the corresponding notice to holders of Liberty Media Group Common
Stock, a statement to the effect that the holders of such Convertible
Securities will be entitled to receive the dividend, participate in the
redemption of shares following a Disposition or in the selection of shares for
redemption, participate in the conversion of shares or participate in the
redemption of shares in exchange for stock of the Liberty Media Group
Subsidiaries only if such holder appropriately converts, exercises or
exchanges such Convertible Securities on or prior to the record date for the
dividend, redemption date, date fixed for selection of shares to be redeemed
or conversion date, as applicable, set forth in such notice. In the case of a
redemption or conversion of shares of Liberty Media Group Common Stock, the
notice to holders of Convertible Securities shall also state what, if
anything, such holders will be entitled to receive pursuant to the terms of
such Convertible Securities or, if applicable, the provision described under
"--Conversion and Redemption--Certain Provisions Respecting Convertible
Securities" if such holders convert, exercise or exchange such Convertible
Securities following the redemption date or conversion date, as applicable.
All notices required to be given in accordance with the preceding paragraphs
will be sent to a holder by first-class mail, postage prepaid, at the holder's
address as the same appears on the transfer books of the Parent.
62
<PAGE>
Neither the failure to mail any notice to any particular holder of Liberty
Media Group Common Stock or of Convertible Securities nor any defect therein
will affect the sufficiency thereof with respect to any other holder of
outstanding shares of Liberty Media Group Common Stock or of Convertible
Securities, or the validity of any conversion or redemption.
The Parent will not be required to issue or deliver fractional shares of any
class of capital stock or any fractional securities to any holder of Liberty
Media Group Common Stock upon any conversion, redemption, dividend or other
distribution described above. In connection with the determination of the
number of shares of any class of capital stock that is issuable or the amount
of securities that is deliverable to any holder of record upon any such
conversion, redemption, dividend or other distribution (including any
fractions of shares or securities), the Parent may aggregate the number of
shares of Liberty Media Group Common Stock held at the relevant time by such
holder of record. If the number of shares of any class of capital stock or the
amount of securities remaining to be issued or delivered to any holder of
Liberty Media Group Common Stock is a fraction, the Parent will, if such
fraction is not issued or delivered to such holder, pay a cash adjustment in
respect of such fraction in an amount equal to the fair market value of such
fraction on the fifth Trading Day prior to the date such payment is to be made
(without interest). For purposes of the preceding sentence, "fair market
value" of any fraction will be (i) in the case of any fraction of a share of
capital stock of the Parent, the product of such fraction and the Market Value
of one share of such capital stock and (ii) in the case of any other
fractional security, such value as is determined by the Board of Directors.
No adjustments in respect of dividends will be made upon the conversion or
redemption of any shares of Liberty Media Group Common Stock; provided,
however, that if the conversion date or the redemption date with respect to
the Liberty Media Group Common Stock is subsequent to the record date for the
payment of a dividend or other distribution thereon or with respect thereto,
the holders of shares of Liberty Media Group Common Stock at the close of
business on such record date will be entitled to receive the dividend or other
distribution payable on or with respect to such shares on the date set for
payment of such dividend or other distribution, notwithstanding the conversion
or redemption of such shares or the Parent's default in payment of the
dividend or distribution due on such date.
Before any holder of shares of Liberty Media Group Common Stock will be
entitled to receive certificates representing shares of any kind of capital
stock or cash and/or securities or other property to be received by such
holder with respect to any conversion or redemption of shares of Liberty Media
Group Common Stock, such holder is required to surrender at such place as the
Parent will specify certificates for such shares, properly endorsed or
assigned for transfer (unless the Parent waives such requirement). The Parent
will as soon as practicable after surrender of certificates representing
shares of Liberty Media Group Common Stock deliver to the person for whose
account such shares were so surrendered, or to the nominee or nominees of such
person, certificates representing the number of whole shares of the kind of
capital stock or cash and/or securities or other property to which such person
is entitled, together with any payment for fractional securities referred to
above. If less than all of the shares of Liberty Media Group Common Stock
represented by any one certificate are to be redeemed, the Parent will issue
and deliver a new certificate for the shares of Liberty Media Group Common
Stock not redeemed. The Parent will not be required to register a transfer of
(i) any shares of Liberty Media Group Common Stock for a period of 15 Trading
Days next preceding any selection of shares of Liberty Media Group Common
Stock to be redeemed or (ii) any shares of Liberty Media Group Common Stock
selected or called for redemption. Shares selected for redemption may not
thereafter be converted pursuant to the provisions described under the caption
"--Conversion at the Option of the Holder."
From and after any applicable conversion date or redemption date, all rights
of a holder of shares of Liberty Media Group Common Stock that were converted
or redeemed will cease except for the right, upon surrender of the
certificates representing shares of Liberty Media Group Common Stock, to
receive certificates representing shares of the kind and amount of capital
stock or cash and/or securities or other property for which such shares were
converted or redeemed, together with any payment for fractional securities,
and such holder will have no other or further rights in respect of the shares
of Liberty Media Group Common Stock so converted or redeemed,
63
<PAGE>
including, but not limited to, any rights with respect to any cash, securities
or other property which are reserved or otherwise designated by the Parent as
being held for the satisfaction of the Parent's obligations to pay or deliver
any cash, securities or other property upon the conversion, exercise or
exchange of any Convertible Securities outstanding as of the date of such
conversion or redemption or any Committed Acquisition Shares which may then be
issuable. No holder of a certificate that, immediately prior to the applicable
conversion date or redemption date for the Liberty Media Group Common Stock,
represented shares of Liberty Media Group Common Stock will be entitled to
receive any dividend or other distribution with respect to shares of any kind
of capital stock into or in exchange for which the Liberty Media Group Common
Stock was converted or redeemed until surrender of such holder's certificate
for a certificate or certificates representing shares of such kind of capital
stock. Upon such surrender, there will be paid to the holder the amount of any
dividends or other distributions (without interest) which theretofore became
payable with respect to a record date after the conversion date or redemption
date, as the case may be, but that were not paid by reason of the foregoing,
with respect to the number of whole shares of the kind of capital stock
represented by the certificate or certificates issued upon such surrender.
From and after a conversion date or redemption date, as the case may be, of
Liberty Media Group Common Stock, the Parent will, however, be entitled to
treat the certificates for shares of Liberty Media Group Common Stock that
have not yet been surrendered for conversion or redemption as evidencing the
ownership of the number of whole shares of the kind or kinds of capital stock
for which the shares of Liberty Media Group Common Stock represented by such
certificates have been converted or redeemed, notwithstanding the failure to
surrender such certificates.
The Parent will pay any and all documentary, stamp or similar issue or
transfer taxes that may be payable in respect of the issue or delivery of any
shares of capital stock and/or other securities on conversion or redemption of
shares of Liberty Media Group Common Stock. The Parent will not, however, be
required to pay any tax that may be payable in respect of any transfer
involved in the issue and delivery of any shares of capital stock in a name
other than that in which the shares of Liberty Media Group Common Stock so
converted or redeemed were registered and no such issue or delivery will be
made unless and until the person requesting such issue has paid to the Parent
the amount of any such tax, or has established to the satisfaction of the
Parent that such tax has been paid.
Provisions substantially the same as those described under this caption "--
General Conversion and Redemption Provisions," apply in the event of a
Disposition of all or substantially all of the properties and assets of the
TCI Ventures Group and a determination of the Parent to pay a dividend on or
undertake a partial or complete redemption of the TCI Ventures Group Common
Stock following such Disposition, in the event of any conversion of the TCI
Ventures Group Common Stock as described under "--Conversion and Redemption--
Conversion of TCI Ventures Group Common Stock at the Option of the Parent" or
"--Conversion and Redemption--Mandatory Dividend, Redemption or Conversion of
TCI Ventures Group Common Stock," and in the event of a redemption of the TCI
Ventures Group Common Stock in exchange for stock of one or more subsidiaries
as described under "--Conversion and Redemption--Redemption of TCI Ventures
Group Common Stock in Exchange for Stock of Subsidiary."
Liquidation Rights
In the event of a liquidation, dissolution or winding up of the Parent,
whether voluntary or involuntary, after payment or provision for payment of
the debts and other liabilities of the Parent and subject to the prior payment
in full of the preferential amounts to which any class or series of Preferred
Stock is entitled, (i) the holders of the shares of TCI Group Common Stock
will share equally, on a share for share basis, in a percentage of the funds
of the Parent remaining for distribution to its common stockholders equal to
100% multiplied by the average daily ratio (expressed as a decimal) of W/Z for
the 20-Trading Day period ending on the Trading Day prior to the date of the
public announcement of such liquidation, dissolution or winding up, (ii) the
holders of the shares of Liberty Media Group Common Stock will share equally,
on a share for share basis, in a percentage of the funds of the Parent
remaining for distribution to its common stockholders equal to 100% multiplied
by the average daily ratio (expressed as a decimal) of X/Z for such 20-Trading
Day period and (iii) the holders of the
64
<PAGE>
shares of TCI Ventures Group Common Stock will share equally, on a share for
share basis, in a percentage of the funds of the Parent remaining for
distribution to its common stockholders equal to 100% multiplied by the
average daily ratio (expressed as a decimal) of Y/Z for such 20-Trading Day
period, where 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 a consolidation,
merger nor sale of assets will be construed to be a "liquidation,"
"dissolution" or "winding up" of the Parent.
No holder of Liberty Media Group Common Stock or TCI Ventures Group Common
Stock will have any special right to receive specific assets of the Liberty
Media Group or the TCI Ventures Group, as the case may be, in the case of any
dissolution, liquidation or winding up of the Parent.
Determinations by the Board of Directors
The Charter provides that any determinations made by the Board of Directors
under any provision described under "Common Stock" will be final and binding
on all stockholders of the Parent, except as may otherwise be required by law.
Such a determination would not be binding if it were established that the
determination was made in breach of a fiduciary duty of the Board of
Directors. The Parent will prepare a statement of any such determination by
the Board of Directors respecting the fair market value of any properties,
assets or securities and will file such statement with the Secretary of the
Parent.
Preemptive Rights
Holders of the TCI Group Common Stock, the Liberty Media Group Common Stock
and the TCI Ventures Group Common Stock do not have any preemptive rights to
subscribe for any additional shares of capital stock or other obligations
convertible into or exercisable for shares of capital stock that may hereafter
be issued by the Parent.
PREFERRED STOCK
General
As of December 31, 1997, 1,620,026 shares of Class B Preferred Stock, 70,575
shares of Series C-TCI Group Preferred Stock, 70,575 shares of Series C-
Liberty Media Group Preferred Stock, 994,876 shares of Series D Preferred
Stock, 278,307 shares of Series F Preferred Stock, 6,693,027 shares of Series
G Preferred Stock and 6,693,127 shares of Series H Preferred Stock were
outstanding. On December 31, 1997, all of the issued and outstanding shares of
Series C Preferred Stock were retired. All of the outstanding shares of Series
F Preferred Stock and 67,536 shares of Class B Preferred Stock are held by
subsidiaries of the Parent.
Class B Preferred Stock
The holders of Class B Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the TCI Board of Directors out of
unrestricted funds legally available therefor, in preference to dividends on
Common Stock. Dividends accrue cumulatively (but without compounding) at an
annual rate of 6% of the stated liquidation value of $100 per share (the
"Stated Liquidation Value"), whether or not such dividends are declared or
funds are legally available for payment of dividends. Accrued dividends are
payable annually and, in the sole discretion of the TCI Board of Directors,
may be declared and paid in cash, in shares of Series A TCI Group Common Stock
or in any combination of the foregoing. Accrued dividends not paid as provided
above on any dividend payment date accumulate and such accumulated unpaid
dividends may be declared and paid in cash, shares of Series A TCI Group
Common Stock or any combination thereof at any time without reference to any
65
<PAGE>
regular dividend payment date, to holders of record of Class B Preferred Stock
as of a special record date fixed by the TCI Board of Directors. No interest
or additional dividends will accrue or be payable 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.
Upon the liquidation, dissolution or winding up of TCI, the holders of Class
B Preferred Stock will be entitled, after payment of preferential amounts on
any class or series of Preferred Stock ranking prior to the Class B Preferred
Stock with respect to liquidating distributions, to receive from the assets of
TCI available for distribution to stockholders an amount in cash or property
or a combination thereof, per share, equal to the Stated Liquidation Value
thereof, plus all accumulated and accrued but unpaid dividends thereon to the
date of payment.
The Class B Preferred Stock is redeemable at the option of TCI, in whole at
any time or in part from time to time, for a redemption price per share
payable in cash equal to the Stated Liquidation Value thereof, plus all
accumulated and accrued but unpaid dividends thereon to and including the
redemption date.
The Class B Preferred Stock is exchangeable at the option of TCI in whole
but not in part at any time for junior subordinated debt securities of TCI
("Junior Exchange Notes"). If TCI exercises its optional exchange right, each
holder of outstanding shares of Class B Preferred Stock will be entitled to
receive in exchange therefor newly issued Junior Exchange Notes of a series
authorized and established for the purpose of such exchange, the aggregate
principal amount of which will be equal to the aggregate Stated Liquidation
Value of the shares of Class B Preferred Stock so exchanged by such holder,
plus all accumulated and accrued but unpaid dividends thereon to and including
the exchange date. The Junior Exchange Notes will mature on the 15th
anniversary of the date of issuance and will be subject to earlier redemption
at the option of TCI, in whole or in part, for a redemption price equal to the
principal amount thereof plus accrued but unpaid interest. Interest will
accrue, and be payable annually, on the principal amount of the Junior
Exchange Notes at a rate per annum to be determined prior to issuance by
adding a spread of 215 basis points to the "Fifteen Year Treasury Rate" (as
defined in the Indenture pursuant to which the Junior Exchange Notes will be
issued). Interest will accrue on overdue principal at the same rate, but will
not accrue on overdue interest.
The Class B Preferred Stock ranks senior to the Common Stock and ranks
junior to 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 as to
dividend rights, rights to redemption and rights on liquidation.
The holders of Class B Preferred Stock have the right to vote, on the basis
of one vote per share, together with the Common Stock and any class or series
of Preferred Stock of TCI entitled to vote thereon, in any general election of
directors of TCI. Except as provided above or required by the DGCL, the Class
B Preferred Stock has no voting rights.
Series Preferred Stock
The Series Preferred Stock is issuable, 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 is stated and expressed in a resolution or
resolutions providing for the issue of each such series adopted by the TCI
Board of Directors.
All shares of any one series of the Series Preferred Stock are required to
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 will have no voting
rights except as may be required by Delaware law.
66
<PAGE>
Series C Preferred Stock, Series C-TCI Group Preferred Stock and Series C-
Liberty Media Group Preferred Stock
Series C Preferred Stock. TCI will not issue any additional shares of Series
C Preferred Stock and will remove any remaining shares of Series Preferred
Stock designated as Series C Preferred Stock from such designation as soon as
practicable.
Series C-TCI Group Preferred Stock. The liquidation value of the Series C-
TCI Group Preferred Stock is $2,208.35 per share. The liquidation and
redemption features of the Series C-TCI Group Preferred Stock, each of which
is discussed in greater detail below, are determined by reference to such
liquidation value. No dividends are required to be paid on the Series C-TCI
Group Preferred Stock.
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-TCI Group Preferred Stock will be entitled to receive from the assets
of TCI available for distribution to stockholders an amount in cash, per
share, equal to the liquidation value of the Series C-TCI Group Preferred
Stock. The Series C-TCI Group Preferred Stock shall not rank junior to any
other classes or series of stock of TCI in respect of the right to participate
in any distribution upon liquidation, dissolution or winding up of TCI.
The Series C-TCI Group Preferred Stock is subject to optional redemption by
TCI at any time after August 8, 2001, in whole or in part, at a redemption
price, per share, equal to the liquidation value per share of the Series C-TCI
Group Preferred Stock. The Series C-TCI Group Preferred Stock is required to
be redeemed by TCI at any time on or after August 8, 2001 at the option of the
holder, in whole or in part (provided that the aggregate liquidation value of
the shares to be redeemed is in excess of $1 million), in each case at a
redemption price, per share, equal to the liquidation value. In the case of a
redemption of shares of Series C-TCI Group Preferred Stock at the option of
the holder, TCI may elect to pay the redemption price in cash or through the
issuance of shares of Series A TCI Group Common Stock. In the event that TCI
elects to issue shares of Series A TCI Group Common Stock in payment of the
redemption price and, as of the redemption date, Bill Daniels, the original
holder of all outstanding shares of Series C-TCI Group Preferred Stock, is
deceased and the shares required to be redeemed are held by or for the benefit
of a trust, regardless of whether such trust became effective during Mr.
Daniel's lifetime or is a testamentary trust, or a public or private
foundation established by Mr. Daniels, the net proceeds from any open-market
sale (within a period of time set forth in the certificate of designations for
the Series C-TCI Group Preferred Stock) of the shares of Series A TCI Group
Common Stock acquired by such holder in the redemption (and in certain
circumstances, other shares of Series A TCI Group Common Stock) shall be
adjusted, such that any net proceeds in excess of the redemption price shall
be paid by the holder to TCI and any deficit between the net proceeds and the
redemption price shall be paid by TCI to the holder.
The Series C-TCI Group Preferred Stock ranks senior to the Common Stock and
the Class B Preferred Stock and on a parity with all other currently
outstanding classes and series of Preferred Stock as to rights to receive
assets upon liquidation, dissolution or winding up of the affairs of TCI.
As of December 31, 1997, subject to anti-dilution adjustments, each share of
Series C-TCI Group Preferred Stock is currently convertible, at the option of
the holder, into 132.86 shares of Series A TCI Group Common Stock. Subject to
the provisions described in the immediately following paragraph, if the
holders of Series C-TCI Group Preferred Stock would be entitled to receive
upon conversion thereof any TCI capital stock that is redeemable or
exchangeable at the election of TCI ("Series C-TCI Group Redeemable Capital
Stock"), and all of the outstanding shares or other units of such Series C-TCI
Group Redeemable Capital Stock are redeemed, exchanged or otherwise acquired
in full, then, from and after such event (a "Series C-TCI Group Redemption
Event"), the holders of Series C-TCI Group Preferred Stock then outstanding
shall be entitled to receive upon conversion of such shares, in lieu of shares
of such Series C-TCI Group Redeemable Capital Stock, the kind and amount of
shares of stock and other securities and property receivable upon such Series
C-TCI Group Redemption Event by a holder of the number of shares or units of
Series C-TCI Group Redeemable Capital Stock into which such shares of Series
C-TCI Group Preferred Stock could have been converted immediately prior to
67
<PAGE>
the effectiveness of such Series C-TCI Group Redemption Event (assuming that
such holder failed to exercise any applicable right of election with respect
thereto and received per share or unit of such Series C-TCI Group Redeemable
Capital Stock the kind and amount of stock and other securities and property
received per share or unit by the holders of a plurality of the non-electing
shares or units thereof) and, thereafter, the holders of the Series C-TCI
Group Preferred Stock shall have no other conversion rights with respect to
such Series C-TCI Group Redeemable Capital Stock.
Notwithstanding the foregoing, the provisions described in the immediately
preceding paragraph shall not apply, and the holders of Series C-TCI Group
Preferred Stock that are not exchanged as described in the third sentence of
this paragraph shall not have conversion rights with respect to Series C-TCI
Group Redeemable Capital Stock so redeemed, exchanged or otherwise acquired,
after the Series C-TCI Group Redemption Event relating thereto, if (i) the
redemption price for the shares of such Series C-TCI Group Redeemable Capital
Stock is paid in whole or in part in stock ("Series C-TCI Group Redemption
Securities") of a subsidiary of TCI and (ii) in connection with such Series C-
TCI Group Redemption Event, the "Mirror Preferred Stock Condition" is met, as
such term is defined in the certificate of designations for the Series C-TCI
Group Preferred Stock. TCI is obligated to use all commercially reasonable
efforts to ensure that the Mirror Preferred Stock Condition is satisfied.
Generally, the Mirror Preferred Stock Condition will be satisfied if TCI makes
appropriate provisions so that holders of Series C-TCI Group Preferred Stock
shall have the right, exercisable on the effective date of the Series C-TCI
Group Redemption Event, to exchange their shares of Series C-TCI Group
Preferred Stock for convertible preferred stock of TCI and convertible
preferred stock of the issuer of the Series C-TCI Group Redemption Securities
that together have an aggregate liquidation preference equal to the aggregate
liquidation preference of the Series C-TCI Group Preferred Stock to be so
exchanged (as in effect on the effective date of the Series C-TCI Group
Redemption Event) and that otherwise each have terms, conditions,
designations, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-TCI Group Preferred Stock
for which such convertible preferred stock is to be exchanged, except that
applicable time periods under the Series C-TCI Group Preferred Stock will be
tacked to corresponding time periods under such convertible preferred stock,
and except that (x) the convertible preferred stock of the issuer of the
Series C-TCI Group Redemption Securities will be convertible into the kind and
amount of Series C-TCI Group Redemption Securities, cash and other assets that
the holder of a share of Series C-TCI Group Preferred Stock in respect of
which such convertible preferred stock is issued would have received in the
Series C-TCI Group Redemption Event, had such shares of Series C-TCI Group
Preferred Stock been converted prior to the Series C-TCI Group Redemption
Event, and (y) the convertible preferred stock of TCI will not be convertible
into, and the holders thereof will have no conversion rights thereunder with
respect to, the Series C-TCI Group Redeemable Capital Stock redeemed, or the
Series C-TCI Group Redemption Securities issued, in the Series C-TCI Group
Redemption Event.
If TCI distributes the stock of a subsidiary of TCI as a dividend to all
holders of Series A TCI Group Common Stock (a "TCI Group Spin Off"), TCI shall
make appropriate provision so 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 TCI Group Spin Off for convertible
preferred stock of TCI and convertible preferred stock of such subsidiary that
together have an aggregate liquidation preference equal to the liquidation
preference of a share of Series C-TCI Group Preferred Stock on the effective
date of the TCI Group Spin Off and that otherwise each have terms, conditions,
designations, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-TCI Group Preferred Stock
for which such convertible preferred stock is to be exchanged, except that
applicable time periods under the Series C-TCI Group Preferred Stock will be
tacked to corresponding time periods under such convertible preferred stock,
and except that (x) the convertible preferred stock of the subsidiary whose
stock is distributed in such TCI Group Spin Off will be convertible into the
kind and amount of stock of such subsidiary, and other securities and
68
<PAGE>
property that the holder of a share of Series C-TCI Group Preferred Stock in
respect of which such convertible preferred stock is issued would have
received in the TCI Group Spin Off, had such shares of Series C-TCI Group
Preferred Stock been converted prior to the record date for such TCI Group
Spin Off, and (y) the convertible preferred stock of TCI will not be
convertible into, and the holders thereof will have no conversion rights
thereunder with respect to, the stock of such subsidiary. From and after the
effective date of the TCI Group Spin Off, holders of any shares of Series C-
TCI Group Preferred Stock that have not been exchanged for convertible
preferred stock of TCI and convertible preferred stock of such subsidiary
shall have no conversion rights with respect to the stock of the subsidiary
distributed in the TCI Group Spin Off.
In the event an "Exchange Offer" is made by TCI or a subsidiary of TCI (the
applicable of the foregoing being the "Series C-TCI Group Offeror"), the
Series C-TCI Group 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 of Series C-TCI Group Preferred Stock, 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 securities of the Series
C-TCI Group Offeror offered in such Exchange Offer ("Exchange Securities")
(and other property, if applicable), convertible preferred stock of the issuer
of the Exchange Securities with an aggregate liquidation preference equal to
the aggregate liquidation preference of the shares of Series C-TCI Group
Preferred Stock exchanged therefor and that otherwise has terms, conditions,
designations, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-TCI Group Preferred Stock
for which such convertible preferred stock is to be exchanged, except that
applicable time periods under the Series C-TCI Group Preferred Stock will be
tacked to corresponding time periods under such convertible preferred stock,
and except that such convertible preferred stock will be convertible into the
kind and amount of Exchange Securities and other property that the holder of a
share of Series C-TCI Group Preferred Stock in respect of which such
convertible preferred stock is issued would have received upon the
consummation of the Exchange Offer, had such shares of Series C-TCI Group
Preferred Stock that such holder elects to tender 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 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. Whether or not a holder of shares of
Series C-TCI Group Preferred Stock elects to accept such offer and tender such
shares, no adjustment to the conversion rate will be made in connection with
the Exchange Offer. For the purposes of the foregoing, "Exchange Offer" means
an issuer tender offer (within the meaning of Rule 13e-4(a)(2) under the
Exchange Act), 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 TCI receivable by a holder of
Series C-TCI Group Preferred Stock upon conversion thereof), to issue stock of
TCI or of a subsidiary of TCI and/or other property to a tendering stockholder
in exchange for shares of Series A TCI Group Common Stock (or such other
stock).
The holders of Series C-TCI Group Preferred Stock are entitled to vote on an
as converted basis on all matters submitted to a vote of holders of the
capital stock of TCI entitled to vote generally on the election of directors.
Holders of Series C-TCI Group Preferred Stock are not entitled to vote as a
separate class except as otherwise may be required by the DGCL.
Series C-Liberty Media Group Preferred Stock. The liquidation value of the
Series C-Liberty Media Group Preferred Stock is $579.31 per share. The
liquidation and redemption features of the Series C-Liberty Media Group
Preferred Stock, each of which is discussed in greater detail below, are
determined by reference to such liquidation value. No dividends are required
to be paid on the Series C-Liberty Media Group Preferred Stock.
69
<PAGE>
Upon the liquidation, dissolution or winding up of TCI, holders of the
Series C-Liberty Media Group Preferred Stock will be entitled to receive from
the assets of TCI available for distribution to stockholders an amount in
cash, per share, equal to the liquidation value of the Series C-Liberty Media
Group Preferred Stock. The Series C-Liberty Media Group Preferred Stock shall
not rank junior to any other classes or series of stock of TCI in respect of
the right to participate in any distribution upon liquidation, dissolution or
winding up of TCI.
The Series C-Liberty Media Group Preferred Stock is subject to optional
redemption by TCI at any time after August 8, 2001, in whole or in part, at a
redemption price, per share, equal to the liquidation value per share of the
Series C-Liberty Media Group Preferred Stock. The Series C-Liberty Media Group
Preferred Stock is required to be redeemed by TCI at any time on or after
August 8, 2001 at the option of the holder, in whole or in part (provided that
the aggregate liquidation value of the shares to be redeemed is in excess of
$1 million), in each case at a redemption price, per share, equal to the
liquidation value. In the case of a redemption of shares of Series C-Liberty
Media Group Preferred Stock at the option of the holder, TCI may elect to pay
the redemption price in cash or through the issuance of shares of Series A
Liberty Media Group Common Stock. In the event that TCI elects to issue shares
of Series A Liberty Media Group Common Stock in payment of the redemption
price and, as of the redemption date, Bill Daniels, the original holder of all
outstanding shares of Series C-Liberty Media Group Preferred Stock, is
deceased and the shares required to be redeemed are held by or for the benefit
of a trust, regardless of whether such trust became effective during Mr.
Daniel's lifetime or is a testamentary trust, or a public or private
foundation established by Mr. Daniels, the net proceeds from any open-market
sale (within a period of time set forth in the certificate of designations for
the Series C-Liberty Media Group Preferred Stock) of the shares of Series A
Liberty Media Group Common Stock acquired by such holder in the redemption
(and in certain circumstances, other shares of Series A Liberty Media Group
Common Stock) shall be adjusted, such that any net proceeds in excess of the
redemption price shall be paid by the holder to TCI and any deficit between
the net proceeds and the redemption price shall be paid by TCI to the holder.
The Series C-Liberty Media Group Preferred Stock ranks senior to the Common
Stock and the Class B Preferred Stock and on a parity with all other currently
outstanding classes and series of Preferred Stock as to rights to receive
assets upon liquidation, dissolution or winding up of the affairs of TCI.
As of December 31, 1997, subject to anti-dilution adjustments, each share of
Series C-Liberty Media Group Preferred Stock is currently convertible, at the
option of the holder, into 37.5 shares of Series A Liberty Media Group Common
Stock. Subject to the provisions described in the immediately following
paragraph, if (i) TCI redeems all the outstanding shares of Series A Liberty
Media Group Common Stock in accordance with the terms thereof, or (ii) the
holders of Series C-Liberty Media Group Preferred Stock would be entitled to
receive upon conversion thereof any TCI capital stock that is redeemable or
exchangeable at the election of TCI ("Series C-Liberty Media Group Redeemable
Capital Stock"), and all of the outstanding shares or other units of such
Series C-Liberty Media Group Redeemable Capital Stock are redeemed, exchanged
or otherwise acquired in full, then, from and after either such event (each
event referred to in clause (i) and (ii) being a "Series C-Liberty Media Group
Redemption Event"), the holders of Series C-Liberty Media Group Preferred
Stock then outstanding shall be entitled to receive upon conversion of such
shares of Series C-Liberty Media Group Preferred Stock, in lieu of shares of
Series A Liberty Media Group Common Stock or such Series C-Liberty Media Group
Redeemable Capital Stock, as the case may be, the kind and amount of shares of
stock and other securities and property receivable upon such Series C-Liberty
Media Group Redemption Event by a holder of the number of shares of Series A
Liberty Media Group Common Stock or shares or units of such Series C-Liberty
Media Group 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 effectiveness of such Series C-Liberty
Media Group Redemption Event (assuming that such holder failed to exercise any
applicable right of election with respect thereto and received per share of
Series A Liberty Media Group Common Stock or per share or unit of such Series
C-Liberty Media Group Redeemable Capital Stock, as the case may be, the kind
and amount of stock and other securities and property received per share or
unit by the holders of a plurality of the non-electing shares or units
thereof) and, thereafter, the holders of the Series C-Liberty Media Group
Preferred Stock shall have no other conversion rights with respect to the
Series A Liberty Media Group Common Stock or such Series C-Liberty Media Group
Redeemable Capital Stock, as the case may be.
70
<PAGE>
Notwithstanding the foregoing, the provisions described in the immediately
preceding paragraph shall not apply, and the holders of Series C-Liberty Media
Group Preferred Stock that are not exchanged as described in the third
sentence of this paragraph shall not have conversion rights with respect to
Series A Liberty Media Group Common Stock or Series C-Liberty Media Group
Redeemable Capital Stock so redeemed, exchanged or otherwise acquired, after
the Series C-Liberty Media Group Redemption Event relating thereto, if (i) the
redemption price for the shares of Series A Liberty Media Group Common Stock
or such Series C-Liberty Media Group Redeemable Capital Stock, as the case may
be, is paid in whole or in part in securities ("Series C-Liberty Media Group
Redemption Securities") of a subsidiary of TCI and (ii) in connection with
such Series C-Liberty Media Group Redemption Event, the "Mirror Preferred
Stock Condition" is met, as such term is defined in the certificate of
designations for the Series C-Liberty Media Group Preferred Stock. TCI is
obligated to use all commercially reasonable efforts to ensure that the Mirror
Preferred Stock Condition is satisfied. Generally, the Mirror Preferred Stock
Condition will be satisfied in connection with a redemption of the Series A
Liberty Media Group Common Stock or the Series C-Liberty Media Group
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 Series C-Liberty Media Group Redemption Event for shares
of convertible preferred stock of the issuer of the Series C-Liberty Media
Group Redemption Securities, which convertible preferred stock shall have an
aggregate liquidation preference equal to the aggregate liquidation preference
of the shares of Series C-Liberty Media Group Preferred Stock to be exchanged
therefor and that otherwise has terms, conditions, designations, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-Liberty Media Group
Preferred Stock for which such convertible preferred stock is to be exchanged,
except that applicable time periods under the Series C-Liberty Media Group
Preferred Stock will be tacked to corresponding time periods under such
convertible preferred stock, and except that the convertible preferred stock
of the issuer of the Series C-Liberty Media Group Redemption Securities will
be convertible into the kind and amount of Series C-Liberty Media Group
Redemption Securities, cash and other assets that the holder of a share of
Series C-Liberty Media Group Preferred Stock in respect of which such
convertible preferred stock is issued would have received in the Series C-
Liberty Media Group Redemption Event, had such shares of Series C-Liberty
Media Group Preferred Stock been converted prior to the Series C-Liberty Media
Group Redemption Event.
If, before giving effect to a Series C-Liberty Media Group 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 Series C-Liberty Media Group Redeemable Capital Stock being
redeemed, and the redemption price payable upon such Series C-Liberty Media
Group Redemption Event will include Series C-Liberty Media Group 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 Series C-
Liberty Media Group Redemption Event for convertible preferred stock of TCI
and convertible preferred stock of the issuer of the Series C-Liberty Media
Group Redemption Securities. The sum of the initial liquidation preferences of
the shares of convertible preferred stock of TCI and convertible preferred
stock of the issuer of the Series C-Liberty Media Group Redemption Securities
delivered in exchange for a share of Series C-Liberty Media Group Preferred
Stock will equal the liquidation preference of a share of Series C-Liberty
Media Group Preferred Stock on the effective date of the Series C-Liberty
Media Group Redemption Event and that otherwise each have terms, conditions,
designations, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-Liberty Media Group
Preferred Stock for which such convertible preferred stock is to be exchanged,
except that
71
<PAGE>
applicable time periods under the Series C-Liberty Media Group Preferred Stock
will be tacked to corresponding time periods under such convertible preferred
stock, and except that (x) the convertible preferred stock of the issuer of
the Series C-Liberty Media Group Redemption Securities will be convertible
into the kind and amount of Series C-Liberty Media Group Redemption
Securities, cash and other assets that the holder of a share of Series C-
Liberty Media Group Preferred Stock in respect of which such convertible
preferred stock is issued would have received in the Series C-Liberty Media
Group Redemption Event, had such shares of Series C-Liberty Media Group
Preferred Stock been converted prior to the Series C-Liberty Media Group
Redemption Event, and (y) the convertible preferred stock of TCI will not be
convertible into, and the holders thereof will have no conversion rights
thereunder with respect to, the Series C-Liberty Media Group Redeemable
Capital Stock redeemed, or the Series C-Liberty Media Group Redemption
Securities issued, in the Series C-Liberty Media Group Redemption Event.
If TCI distributes the stock of a subsidiary of TCI as a dividend to all
holders of Series A Liberty Media Group Common Stock (a "Liberty Media Group
Spin Off"), TCI shall make appropriate provision so 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
Liberty Media Group Spin Off for convertible preferred stock of TCI and
convertible preferred stock of such subsidiary that together have an aggregate
liquidation preference equal to the liquidation preference of a share of
Series C-Liberty Media Group Preferred Stock on the effective date of the
Liberty Media Group Spin Off and that otherwise each have terms, conditions,
designations, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-Liberty Media Group
Preferred Stock for which such convertible preferred stock is to be exchanged,
except that applicable time periods under the Series C-Liberty Media Group
Preferred Stock will be tacked to corresponding time periods under such
convertible preferred stock, and except that (x) the convertible preferred
stock of the subsidiary whose stock is distributed in such Liberty Media Group
Spin Off will be convertible into the kind and amount of stock of such
subsidiary, and other securities and property that the holder of a share of
Series C-Liberty Media Group Preferred Stock in respect of which such
convertible preferred stock is issued would have received in the Liberty Media
Group Spin Off, had such shares of Series C-Liberty Media Group Preferred
Stock been converted prior to the record date for such Liberty Media Group
Spin Off, and (y) the convertible preferred stock of TCI will not be
convertible into, and the holders thereof will have no conversion rights
thereunder with respect to, the stock of such subsidiary. From and after the
effective date of the Liberty Media Group Spin Off, holders of any shares of
Series C-Liberty Media Group Preferred Stock that have not been exchanged for
convertible preferred stock of TCI and convertible preferred stock of such
subsidiary shall have no conversion rights with respect to the stock of the
subsidiary distributed in the Liberty Media Group Spin Off.
In the event an "Exchange Offer" is made by TCI or a subsidiary of TCI (the
applicable of the foregoing being the "Series C-Liberty Media Group Offeror"),
the Series C-Liberty Media Group 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 of Series C-Liberty
Media Group Preferred Stock, 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 securities of the Series C-Liberty Media Group
Offeror offered in such Exchange Offer ("Liberty Media Group Exchange
Securities") (and other property, if applicable), convertible preferred stock
of the issuer of such Liberty Media Group Exchange Securities with an
aggregate liquidation preference equal to the aggregate liquidation preference
of the shares of Series C-Liberty Media Group Preferred Stock exchanged
therefor and that otherwise has terms, conditions, designations, voting
powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the judgment of the
Board of Directors of TCI, to those of the Series C-Liberty Media Group
72
<PAGE>
Preferred Stock for which such convertible preferred stock is to be exchanged,
except that applicable time periods under the Series C-Liberty Media Group
Preferred Stock will be tacked to corresponding time periods under such
convertible preferred stock, and except that such convertible preferred stock
will be convertible into the kind and amount of Exchange Securities and other
property that the holder of a share of Series C-Liberty Media Group Preferred
Stock in respect of which such convertible preferred stock is issued would
have received upon the consummation of the Exchange Offer, had such shares of
Series C-Liberty Media Group Preferred Stock that such holder elects to tender
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 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. Whether or not a holder of shares of Series C-Liberty Media Group
Preferred Stock elects to accept such offer and tender such shares, no
adjustment to the conversion rate will be made in connection with the Exchange
Offer. For the purposes of the foregoing, "Exchange Offer" means an issuer
tender offer (within the meaning of Rule 13e-4(a)(2) under the Exchange Act),
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 TCI receivable by a holder of Series C-
Liberty Media Group Preferred Stock upon conversion thereof), to issue stock
of TCI or of a subsidiary of TCI and/or other property to a tendering
stockholder in exchange for shares of Series A Liberty Media Group Common
Stock (or such other stock).
The holders of Series C-Liberty Media Group Preferred Stock are entitled to
vote on an as converted basis on all matters submitted to a vote of holders of
the capital stock of TCI entitled to vote generally on the election of
directors. Holders of Series C-Liberty Media Group Preferred Stock are not
entitled to vote as a separate class except as otherwise may be required by
the DGCL.
Series D Preferred Stock
The dividend, liquidation and redemption features of the Series D Preferred
Stock, each of which is discussed below, are determined by reference to the
liquidation value of the Series D Preferred Stock, which as of any date of
determination is equal, on a per share basis, to the sum of (i) $300, plus
(ii) all dividends accrued on such share through the dividend payment date on
or immediately preceding such date of determination to the extent not paid on
or before such date, plus (iii) for purposes of determining liquidation and
redemption payments, an amount equal to all unpaid dividends accrued on the
sum of clauses (i) and (ii) above, to such date of determination.
The holders of Series D Preferred Stock are entitled to receive cumulative
cash dividends out of funds legally available therefor. Dividends accrue on a
daily basis at an annual rate of 5 1/2% of the liquidation value per share,
whether or not such dividends are declared or funds are legally or
contractually available for payment of dividends, except that if TCI fails to
redeem shares of Series D Preferred Stock required to be redeemed on a
redemption date, dividends thereafter will accrue cumulatively at an annual
rate of 10% of the liquidation value per share until such shares are redeemed.
To the extent any cash dividends are not paid on any dividend payment date,
the amount of such dividends will be automatically converted, to the extent
permissible under the DGCL, into shares of Series A TCI Group Common Stock at
a conversion rate equal to 95% of the then "current market price" (as defined
in the certificate of designation establishing the Series D Preferred Stock)
of the Series A TCI Group Common Stock, and upon issuance of shares of Series
A TCI Group Common Stock to holders of Series D Preferred Stock in respect of
such conversion such dividend will be deemed paid for all purposes. Dividends
not so paid or deemed paid on any dividend payment date are added to the
liquidation value on such date and remain a part thereof until such dividends
and all dividends accrued thereon are paid in full. Dividends will accrue on
such unpaid dividends at the rate of 5 1/2% per annum (10% under the
circumstances described above), unless such dividends remain unpaid for two
consecutive quarters, in which event such rate will increase to 10% per annum
until such dividends and all dividends accrued thereon are paid in full.
Upon the liquidation, dissolution or winding up of TCI, holders of Series D
Preferred Stock will be entitled to receive from the assets of TCI available
for distribution to stockholders an amount in cash, per share, equal to the
liquidation value of the Series D Preferred Stock.
73
<PAGE>
The Series D Preferred Stock is subject to optional redemption by TCI at any
time after January 26, 2000, in whole or from time to time in part, at a
redemption price, per share, equal to the then liquidation value of the Series
D Preferred Stock. Shares of Series D Preferred Stock may also be redeemed at
the option of TCI after January 26, 1998, in whole or from time to time in
part, at a redemption price per share equal to the then liquidation value of
the Series D Preferred Stock, if the market value per share of the Series A
TCI Group Common Stock has exceeded $37.50 (as adjusted for dividends on the
Series A TCI Group Common Stock payable in Series A TCI Group Common Stock,
stock splits and reverse stock splits in respect of the Series A TCI Group
Common Stock) for the period specified in the certificate of designation
establishing the Series D Preferred Stock. The Series D Preferred Stock is
also subject to redemption, in whole or in part, at the holder's option, at
any time after January 26, 2005, provided that the aggregate liquidation value
of the shares to be redeemed is in excess of $50,000 (or, if all of the shares
of Series D Preferred Stock held by such holder have an aggregate liquidation
value of less than $50,000, all but not less than all of such shares of Series
D Preferred Stock), in each case at a redemption price, per share, equal to
the then liquidation value of the Series D Preferred Stock. If TCI fails to
effect any redemption of Series D Preferred Stock called for redemption or
which a holder has validly requested be redeemed, the holders thereof will
have the option to convert their shares of Series D Preferred Stock into
Series A TCI Group Common Stock at a conversion rate equal to the quotient
obtained by dividing the redemption price by 95% of the "current market price"
of the Series A TCI Group Common Stock on the redemption date, provided that
in the case of a failure by TCI to redeem shares at the request of a holder,
the exercise of the foregoing conversion right will be delayed for one year.
The Series D Preferred Stock ranks senior to the Common Stock and the Class
B Preferred Stock, and ranks on a parity basis with the Series C-TCI Group
Preferred Stock, the Series C-Liberty Media Group Preferred Stock, the Series
F Preferred Stock, the Series G Preferred Stock and the Series H Preferred
Stock as to dividend rights, rights to redemption and rights on liquidation.
As of December 31, 1997, subject to anti-dilution adjustments, each share of
Series D Preferred Stock is convertible, at the option of the holder, into 10
shares of Series A TCI Group Common Stock, two and one-half shares of Series A
Liberty Media Group Common Stock (and, upon conversion of shares of the Series
D Preferred Stock, each holder of Series D Preferred Stock is entitled to
receive one additional share of Series A Liberty Media Group Common Stock for
every two such shares received upon conversion), and one share of TCI
Satellite Entertainment, Inc. Series A Common Stock. If TCI distributes to all
holders of Series A TCI Group Common Stock rights or warrants to subscribe for
or purchase shares of capital stock of TCI (other than shares of Series A TCI
Group Common Stock or Series B TCI Group Common Stock) or a subsidiary of TCI,
which capital stock (a) is common stock of its issuer 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
Securities"), each holder of Series D Preferred Stock will have the option, in
lieu of any anti-dilution adjustment that would otherwise apply to the
conversion rate of the Series D Preferred Stock, to exchange a specified
portion of its shares of Series D Preferred Stock for shares of a new series
of convertible preferred stock of the issuer of the Special Securities having
terms similar to the Series D Preferred Stock but convertible into Special
Securities.
The Series D Preferred Stock has no voting rights, except as required by the
DGCL and except that without the consent of the holders of 66 2/3% in
liquidation value of the Series D Preferred Stock, TCI may not create any
series of Preferred Stock that is senior as to dividend rights, rights to
redemption, or rights on liquidation to the Series D Preferred Stock.
Series F Preferred Stock
The holders of the Series F Preferred Stock are entitled to participate, on
an as-converted basis, with the holders of the Series A TCI Group Common
Stock, with respect to any cash dividends or distributions declared and paid
on the Series A TCI Group Common Stock. Dividends or distributions on the
Series A TCI Group Common Stock which are not paid in cash would result in
adjustment of the rate at which the Series F Preferred Stock is convertible
into Series A TCI Group Common Stock.
74
<PAGE>
Upon the liquidation, dissolution or winding up of TCI, holders of Series F
Preferred Stock will be entitled to receive from the assets of TCI available
for distribution to stockholders an amount in cash or property or a
combination thereof, per share, equal to $.01. After receipt of their
liquidation preference and subject to the preferential rights of any other
class or series of Preferred Stock, the holders of Series F Preferred Stock
are entitled to receive from the assets of TCI available for distribution to
common stockholders an amount equal to the amount to be distributed per share
of Series A TCI Group Common Stock in such liquidation, dissolution or winding
up multiplied by the number of shares of Series A TCI Group Common Stock into
which a share of Series F Preferred Stock is then convertible.
The Series F Preferred Stock is subject to optional redemption by TCI at any
time after the 30th business day following issuance, in whole or in part, at a
redemption price, per share, equal to $24,875 (as adjusted in respect of stock
splits, reverse splits and other events affecting the shares of Series F
Preferred Stock), plus any dividends which have been declared but are unpaid
as of the date fixed for such redemption. TCI will pay the redemption price
(or designated portion thereof) 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 the
shares to be redeemed divided by the average market price of the Series A TCI
Group Common Stock for a period specified, and subject to the adjustments
described, in the certificate of designations establishing the Series F
Preferred Stock.
The Series F Preferred Stock ranks senior to the Common Stock and the Class
B Preferred Stock, and ranks on a parity basis with the Series C-TCI Group
Preferred Stock, the Series C-Liberty Media Group Preferred Stock, the Series
D Preferred Stock, the Series G Preferred Stock and the Series H Preferred
Stock as to dividend rights, rights to redemption and rights on liquidation.
Shares of Series F Preferred Stock are currently convertible, at the option
of the holder, into Series A TCI Group Common Stock at a rate of 1,496.65
shares of Series A TCI Group Common Stock for each share of Series F Preferred
Stock, subject to anti-dilution adjustments. In addition, any shares of Series
F Preferred Stock which cease to be held by TCI or a subsidiary of TCI will
automatically be converted into shares of Series A TCI Group Common Stock.
The holders of Series F Preferred Stock have the right to vote, on the basis
of one vote per share, together with the Common Stock and any class or series
of Preferred Stock entitled to vote thereon, in any general election of
directors of TCI. Except as provided above or required by the DGCL, the Series
F Preferred Stock has no voting rights.
Series G Preferred Stock
The dividend, liquidation and redemption features of the Series G Preferred
Stock, each of which is discussed below, are determined by reference to the
liquidation preference of the Series G Preferred Stock, which as of any date
of determination is equal, on a per share basis, to the sum of (i) $21.60,
plus (ii) an amount equal to all dividends accrued on such share which have
been added to and remain a part of the liquidation preference as of such date,
plus (iii) for purposes of determining liquidation and redemption payments, an
amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (i) and (ii) above during the period from the immediately
preceding dividend payment date through and including the date in question.
The holders of Series G Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the TCI Board of Directors out of
unrestricted funds legally available therefor, in preference to dividends on
the Common Stock and the Class B Preferred Stock. Dividends accrue on the
Series G Preferred Stock from and after January 25, 1997, on a daily basis at
the rate of 4% per annum of the liquidation preference per share, whether or
not such dividends are declared or funds are available for payment of
dividends. Dividends not paid on any dividend payment date are added to the
liquidation preference on such date and remain a part thereof until such
dividends are paid. The rate per annum at which dividends will accrue on that
portion of the liquidation
75
<PAGE>
preference that consists of unpaid dividends that were added to the
liquidation preference on a dividend payment date and that remain unpaid on
the next succeeding dividend payment date will increase to 8.625% per annum
from and after such next succeeding dividend payment date. Accrued dividends
are payable semiannually and, in the sole discretion of the TCI Board of
Directors, may be declared and paid in cash, in shares of Series A TCI Group
Common Stock or in any combination of the foregoing. Accrued dividends not
paid as provided above on any dividend payment date accumulate and such
accumulated unpaid dividends may be declared and paid in cash, shares of
Series A TCI Group Common Stock or any combination thereof at any time without
reference to any regular dividend payment, to holders of record of Series G
Preferred Stock as of a special record date fixed by the TCI Board of
Directors.
Upon the liquidation, dissolution or winding up of TCI, the holders of
Series G Preferred Stock will be entitled, after payment of preferential
amounts on any class or series of Preferred Stock ranking prior to the Series
G Preferred Stock with respect to liquidating distributions, to receive from
the assets of TCI available for distribution to stockholders an amount in cash
or property or a combination thereof, per share, equal to the liquidation
preference thereof as of the date of payment or distribution.
The Series G Preferred Stock is redeemable at the option of TCI, in whole at
any time or in part from time to time on or after February 1, 2001 for a
redemption price per share payable in cash equal to the liquidation preference
thereof on such redemption date. TCI is required to redeem the Series G
Preferred Stock out of funds legally available therefor on February 1, 2016,
for a redemption price per share payable in cash equal to the liquidation
preference thereof on such redemption date.
The Series G Preferred Stock ranks senior to the Common Stock and the Class
B Preferred Stock and on a parity with all other currently outstanding classes
and series of Preferred Stock as to dividend rights, rights to redemption and
rights on liquidation.
As of December 31, 1997, subject to antidilution adjustments, each share of
Series G Preferred Stock is convertible, at the option of the holder, into
1.190 shares of Series A TCI Group Common Stock. Subject to the provisions
described in the immediately following paragraph, if the holders of Series G
Preferred Stock would be entitled to receive upon conversion thereof any
shares of a class or series of TCI capital stock, which is redeemable or
exchangeable at the election of TCI ("Series G Redeemable Capital Stock"), and
such Series G Redeemable Capital Stock is redeemed, exchanged or otherwise
acquired in full, then, from and after such event (a "Series G Redemption
Event"), the holders of Series G Preferred Stock then outstanding shall be
entitled to receive upon conversion of such shares, in lieu of shares of such
Series G Redeemable Capital Stock, the kind and amount of securities, cash or
other assets receivable upon such Series G Redemption Event by a holder of the
number of shares of Series G Redeemable Capital Stock into which such shares
of Series G Preferred Stock could have been converted immediately prior to the
effectiveness of such Series G Redemption Event (assuming that such holder
failed to exercise any applicable right of election with respect thereto and
received per share of such Series G Redeemable Capital Stock the kind and
amount of securities, cash or other assets received per share by the holders
of a plurality of the non-electing shares thereof) and, thereafter, the
holders of the Series G Preferred Stock shall have no other conversion rights
with respect to such Series G Redeemable Capital Stock.
Notwithstanding the foregoing, the provisions described in the immediately
preceding paragraph shall not apply, and the holders of any shares of Series G
Preferred Stock that are not exchanged as described in the second sentence of
this paragraph shall not have any conversion rights with respect to Series G
Redeemable Capital Stock so redeemed, exchanged or otherwise acquired, after
the Series G Redemption Event relating thereto, if (i) the redemption price
for the shares of such Series G Redeemable Capital Stock is paid in whole or
in part in securities ("Series G Redemption Securities") of an issuer other
than TCI (the "Series G Other Issuer") and (ii) in connection with such Series
G Redemption Event, the "Mirror Preferred Stock Condition" is met, as such
term is defined in the certificate of designations for the Series G Preferred
Stock. Generally, the Mirror Preferred Stock Condition shall be satisfied if
TCI makes appropriate provisions so that holders of Series G Preferred Stock
shall have the right, exercisable on the effective date of the Series G
Redemption Event, to exchange their shares of Series G Preferred Stock for
convertible preferred stock of TCI and convertible preferred stock of the
Series
76
<PAGE>
G Other Issuer that together have an aggregate liquidation preference equal to
the liquidation preference of the Series G Preferred Stock to be so exchanged
(as in effect on the effective date of the Series G Redemption Event) and that
otherwise each 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 applicable to such convertible preferred stock
that are identical, or as nearly so as is practicable in the good faith
judgment of the Board of Directors of TCI, to those of the Series G Preferred
Stock for which such convertible preferred stock is to be exchanged, except
that applicable time periods under the Series G Preferred Stock will be tacked
to corresponding time periods under such convertible preferred stock, and
except that (x) the convertible preferred stock of the Series G Other Issuer
will be convertible into the kind and amount of Series G Redemption
Securities, cash and other assets that the holder of a share of Series G
Preferred Stock in respect of which such convertible preferred stock is issued
would have received in the Series G Redemption Event, had such shares of
Series G Preferred Stock been converted prior to the Series G Redemption
Event, and (y) the convertible preferred stock of TCI will not be convertible
into, and the holders thereof will have no conversion rights thereunder with
respect to, the Series G Redeemable Capital Stock subject to the Series G
Redemption Event. The Mirror Preferred Stock Condition shall be deemed to have
been satisfied in connection with any Series G Redemption Event only if the
Board of Directors of TCI determines (i) that receipt of such convertible
preferred stock of TCI and/or the Series G Other Issuer in exchange for the
Series G Preferred Stock in connection with such Series G Redemption Event
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)
that an adjustment made in the conversion rate of the Series G Preferred Stock
with respect to such Series G Redemption Event, as described in the
immediately preceding paragraph, would result in the recognition of gain or
loss by the holders of Series G Preferred Stock for United States federal
income tax purposes; or (iii) that receipt of Series G Redemption Securities
in redemption of the Series G Redeemable Capital Stock to be redeemed in such
Series G Redemption Event would result in the recognition of gain or loss by
the holders of such Series G Redeemable Capital Stock.
The holders of Series G Preferred Stock have the right to vote, on the basis
of one vote per share, together with the Common Stock, the Class B Preferred
Stock and any other class or series of Preferred Stock entitled to vote
thereon, in any general election of directors of TCI. 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 then
outstanding Voting Securities (as defined in the Charter) voting together as a
single class. Except as provided above or required by the DGCL, the Series G
Preferred Stock has no voting rights.
Series H Preferred Stock
The dividend, liquidation and redemption features of the Series H Preferred
Stock, each of which is discussed below, are determined by reference to the
liquidation preference of the Series H Preferred Stock, which as of any date
of determination is equal, on a per share basis, to the sum of (i) $5.40, plus
(ii) an amount equal to all dividends accrued on such share which have been
added to and remain a part of the liquidation preference as of such date, plus
(iii) for purposes of determining liquidation and redemption payments, an
amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (i) and (ii) above during the period from the immediately
preceding dividend payment date through and including the date in question.
The holders of Series H Preferred Stock are entitled to receive cumulative
dividends, when and as declared by the TCI Board of Directors out of
unrestricted funds legally available therefor, in preference to dividends on
the Common Stock and the Class B Preferred Stock. Dividends accrue on the
Series H Preferred Stock from and after January 25, 1997, on a daily basis at
the rate of 4% per annum of the liquidation preference per share, whether or
not such dividends are declared or funds are available for payment of
dividends. Dividends not paid on any dividend payment date are added to the
liquidation preference on such date and remain a part thereof until such
dividends are paid. The rate per annum at which dividends will accrue on that
portion of the liquidation preference that consists of unpaid dividends that
were added to the liquidation preference on a dividend payment date and that
remain unpaid on the next succeeding dividend payment date will increase to
8.625% per annum from and after such next succeeding dividend payment date.
Accrued dividends are payable semiannually and,
77
<PAGE>
in the sole discretion of the TCI Board of Directors, may be declared and paid
in cash, in shares of Series A TCI Group Common Stock or in any combination of
the foregoing. Accrued dividends not paid as provided above on any dividend
payment date accumulate and such accumulated unpaid dividends may be declared
and paid in cash, shares of Series A TCI Group Common Stock or any combination
thereof at any time without reference to any regular dividend payment, to
holders of record of Series H Preferred Stock as of a special record date
fixed by the TCI Board of Directors.
Upon the liquidation, dissolution or winding up of TCI, the holders of
Series H Preferred Stock will be entitled, after payment of preferential
amounts on any class or series of Preferred Stock ranking prior to the Series
H Preferred Stock with respect to liquidating distributions, to receive from
the assets of TCI available for distribution to stockholders an amount in cash
or property or a combination thereof, per share, equal to the liquidation
preference thereof as of the date of payment or distribution.
The Series H Preferred Stock is redeemable at the option of TCI, in whole at
any time or in part from time to time on or after February 1, 2001, for a
redemption price per share payable in cash equal to the liquidation preference
thereof on such redemption date. TCI is required to redeem the Series H
Preferred Stock out of funds legally available therefor on February 1, 2016,
for a redemption price per share payable in cash equal to the liquidation
preference thereof on such redemption date.
The Series H Preferred Stock ranks senior to the Common Stock and the Class
B Preferred Stock and on a parity with all other currently outstanding classes
and series of Preferred Stock as to dividend rights, rights to redemption and
rights on liquidation.
As of December 31, 1997, subject to antidilution adjustments, each share of
Series H Preferred Stock is convertible, at the option of the holder, into
.2625 of one share of Series A Liberty Media Group Common Stock, and, upon
conversion of shares of the Series H Preferred Stock each holder of Series H
Preferred Stock is entitled to receive one additional share of Series A
Liberty Media Group Common Stock for every two such shares received upon such
conversion. Subject to the provisions described in the immediately following
paragraph, if (i) TCI redeems all the outstanding shares of Series A Liberty
Media Group Common Stock in accordance with the terms thereof, or (ii) the
holders of Series H Preferred Stock would be entitled to receive upon
conversion thereof any shares of a class or series of TCI capital stock, which
is redeemable or exchangeable at the election of TCI ("Series H Redeemable
Capital Stock"), and such Series H Redeemable Capital Stock is redeemed,
exchanged or otherwise acquired in full, then, from and after either such
event (a "Series H Redemption Event"), the holders of Series H Preferred Stock
then outstanding shall be entitled to receive upon conversion of such shares
of Series H Preferred Stock, in lieu of shares of Series A Liberty Media Group
Common Stock or such Series H Redeemable Capital Stock, as the case may be,
the kind and amount of securities, cash or other assets receivable upon such
Series H Redemption Event by a holder of the number of shares of Series A
Liberty Media Group Common Stock or such Series H Redeemable Capital Stock, as
the case may be, into which such shares of Series H Preferred Stock could have
been converted immediately prior to the effectiveness of such Series H
Redemption Event (assuming that such holder failed to exercise any applicable
right of election with respect thereto and received per share of Series A
Liberty Media Group Common Stock or per share of such Series H Redeemable
Capital Stock, as the case may be, the kind and amount of securities, cash or
other assets received per share by the holders of a plurality of the non-
electing shares thereof) and, thereafter, the holders of the Series H
Preferred Stock shall have no other conversion rights with respect to the
Series A Liberty Media Group Common Stock or such Series H Redeemable Capital
Stock, as the case may be.
Notwithstanding the foregoing, the provisions described in the immediately
preceding paragraph shall not apply, and the holders of any shares of Series H
Preferred Stock that are not exchanged as described in the second sentence of
this paragraph shall not have any conversion rights with respect to the Series
A Liberty Media Group Common Stock or such Series H Redeemable Capital Stock,
as the case may be, after the Series H Redemption Event relating thereto, if
(i) the redemption price for the shares of Series A Liberty Media Group Common
Stock or such Series H Redeemable Capital Stock, as the case may be, is paid
in whole or in part in securities ("Series H Redemption Securities") of an
issuer other than TCI (the "Series H Other Issuer") and (ii) in connection
with
78
<PAGE>
such Series H Redemption Event, the "Mirror Preferred Stock Condition" is met,
as such term is defined in the certificate of designations for the Series H
Preferred Stock. Generally, the Mirror Preferred Stock Condition shall be
satisfied if TCI makes appropriate provisions so that holders of Series H
Preferred Stock shall have the right, exercisable on the effective date of the
Series H Redemption Event, to exchange their shares of Series H Preferred
Stock for (A) if the Series H Preferred Stock is not then convertible into any
security, cash or assets other than the stock that is the subject of the
Series H Redemption Event (i.e., Series A Liberty Media Group Common Stock or
such Series H Redeemable Capital Stock, as the case may be), convertible
preferred stock of the Series H Other Issuer having a liquidation preference
equal to the liquidation preference of the Series H Preferred Stock to be so
exchanged, as in effect on the effective date of the Series H Redemption
Event, or (B) if the Series H Preferred Stock is then convertible into any
security, cash or assets in addition to the stock that is the subject of the
Series H Redemption Event (any such additional securities, cash or assets,
collectively, the "Additional Conversion Property"), convertible preferred
stock of TCI and convertible preferred stock of the Series H Other Issuer
having an aggregate liquidation preference equal to the liquidation preference
of the Series H Preferred Stock to be so exchanged, as in effect on the
effective date of the Series H Redemption Event; provided, however, that in
either case, the convertible preferred stock into which shares of Series H
Preferred Stock may be exchanged shall otherwise 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 applicable to such convertible
preferred stock that are identical, or as nearly so as is practicable in the
good faith judgment of the Board of Directors of TCI, to those of the Series H
Preferred Stock for which such convertible preferred stock is to be exchanged,
except that applicable time periods under the Series H Preferred Stock will be
tacked to corresponding time periods under such convertible preferred stock,
and except that (x) the convertible preferred stock of the Series H Other
Issuer will be convertible into the kind and amount of Series H Redemption
Securities, cash and other assets that the holders of shares of Series H
Preferred Stock in respect of which such convertible preferred stock is issued
would have received in the Series H Redemption Event had such shares of Series
H Preferred Stock been converted in full prior to the Series H Redemption
Event, and (y) any convertible preferred stock of TCI will be convertible into
the Additional Conversion Property, and will not be convertible into, and the
holders thereof will have no conversion rights thereunder with respect to, the
Series A Liberty Media Group Common Stock or Series H Redeemable Capital
Stock, as the case may be, subject to the Series H Redemption Event. The
Mirror Preferred Stock Condition shall be deemed to have been satisfied in
connection with any Series H Redemption Event only if the Board of Directors
of TCI determines (i) that receipt of such convertible preferred stock of TCI
and/or the Series H Other Issuer in exchange for Series H Preferred Stock in
connection with such Series H Redemption Event 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) that an adjustment made in
the conversion rate of the Series H Preferred Stock with respect to such
Series H Redemption Event, as described in the immediately preceding
paragraph, 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) that receipt of Series H Redemption Securities in redemption of the
Series A Liberty Media Group Common Stock or Series H Redeemable Capital Stock
to be redeemed in such Series H Redemption Event would result in the
recognition of gain or loss by the holders of such Series A Liberty Media
Group Common Stock or Series H Redeemable Capital Stock, as the case may be.
The holders of Series H Preferred Stock have the right to vote, on the basis
of one vote per share, together with the Common Stock, the Class B Preferred
Stock and any other class or series of Preferred Stock entitled to vote
thereon, in any general election of directors of TCI. 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 then
outstanding Voting Securities (as defined in the Charter) voting together as a
single class. Except as provided above or required by the DGCL, the Series H
Preferred Stock has no voting rights.
Limitations on Rights of Holders of Parity Stock and Junior Stock
For so long as any dividends are in arrears on any outstanding class or
series of Preferred Stock, and until all dividends accrued up to the
immediately preceding dividend payment date on such Preferred Stock and on
79
<PAGE>
any class or series of Preferred Stock ranking on a parity with such Preferred
Stock ("Parity Stock") shall have been paid or declared and set apart so as to
be available for payment in full thereof and for no other purpose, neither TCI
nor any subsidiary thereof may purchase or otherwise acquire any shares of
such Preferred Stock, Parity Stock or any class or series of capital stock
ranking junior to such Preferred Stock ("Junior Stock"), or set aside any
money or assets for any such purpose, unless all of the outstanding shares of
such Preferred Stock and Parity Stock are redeemed. For so long as any
dividends are in arrears on any outstanding class or series of Preferred Stock
and until all dividends accrued up to the immediately preceding dividend
payment date on such Preferred Stock shall have been paid or declared and set
apart so as to be available for payment in full thereof and for no other
purpose, TCI may not declare or pay any dividend on or make any distribution
with respect to the Parity Stock or Junior Stock or set aside any money or
assets for any such purpose.
If TCI fails to redeem shares of Class B Preferred Stock or Series F
Preferred Stock required to be redeemed on a redemption date, TCI may 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 money or assets for any such purpose, and neither TCI nor any subsidiary
thereof may purchase or otherwise acquire any shares of such Preferred Stock,
Parity Stock or Junior Stock or set aside any money or assets for any such
purpose, until all shares of such class or series of Preferred Stock are
redeemed in full. If TCI fails to redeem shares of Series C-TCI Group
Preferred Stock, Series C-Liberty Media Group Preferred Stock or Series D
Preferred Stock required to be redeemed on a redemption date, neither TCI nor
any subsidiary thereof may purchase or otherwise acquire any shares of such
series of Preferred Stock or Junior Stock or redeem, or discharge any sinking
fund obligation with respect to, any Junior Stock, until all shares of such
series of Preferred Stock are redeemed in full. If TCI fails to redeem shares
of Series G Preferred Stock or Series H Preferred Stock required to be
redeemed on a redemption date, TCI may not redeem any Junior Stock or Parity
Stock or 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, and neither TCI nor any subsidiary thereof may purchase or
otherwise acquire any shares of such series of Preferred Stock, Parity Stock
or Junior Stock, or set aside any money or assets for any such purpose, until
all such shares are redeemed in full. Neither TCI nor any subsidiary thereof
may redeem, exchange, purchase or otherwise acquire any shares of Parity Stock
or Junior Stock, or set aside any money or assets for such purpose, if after
giving effect to such purchase or acquisition the amount that would be
available for distribution to the holders of Class B Preferred Stock and
Series F Preferred Stock upon liquidation, dissolution or winding up of TCI,
if such liquidation, dissolution or winding up were to occur on the date fixed
for such purchase or acquisition of shares of Parity Stock or Junior Stock,
would be less than the aggregate liquidation preference of all then
outstanding shares of such class or series of Preferred Stock. The failure of
TCI (i) to redeem on any date fixed for redemption any outstanding shares of
Class B Preferred Stock or Series F Preferred Stock or (ii) to pay dividends
on, in the case of Class B Preferred Stock, any Parity Stock, and, in the case
of Series F Preferred Stock, such series of Preferred Stock, shall not prevent
TCI from paying any dividends on Parity Stock solely in shares of Parity Stock
or Junior Stock or on Junior Stock solely in exchange for shares of Junior
Stock or the purchase or other acquisition of such Preferred Stock or Parity
Stock solely in shares of Parity Stock or Junior Stock or of Junior Stock
solely in exchange for shares of Junior Stock. The failure of TCI to (i) to
redeem on any date fixed for redemption any outstanding shares of Series G
Preferred Stock or Series H Preferred Stock or (ii) to pay dividends on any
Parity Stock, shall not prevent TCI from paying dividends on any Junior Stock
solely in shares of Junior Stock, paying dividends on any Parity Stock solely
in shares of Parity Stock and/or Junior Stock or the redemption, exchange,
purchase or acquisition of such series of Preferred Stock or Parity Stock
solely in exchange for shares of Parity Stock and/or Junior Stock.
ANTI-TAKEOVER CONSIDERATIONS
The DGCL, the Charter and the Parent's Bylaws contain provisions which may
serve to discourage or make more difficult a change in control of the Parent
without the support of the Board of Directors or without meeting various other
conditions. The principal provisions of the DGCL, the Charter and the Parent's
Bylaws with respect to the foregoing are outlined below.
DGCL Section 203, in general, prohibits a "business combination" between a
corporation and an "interested stockholder" within three years of the time
such stockholder became an "interested stockholder,"
80
<PAGE>
unless (i) prior to such time the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
exclusive of shares owned by directors who are also officers and by certain
employee stock plans or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized by the
affirmative vote at a stockholders' meeting of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. The
term "business combination" is defined to include, among other transactions
between the interested stockholder and the corporation or any direct or
indirect majority-owned subsidiary thereof, a merger or consolidation; a sale,
pledge, transfer or other disposition (including as part of a dissolution) of
assets having an aggregate market value equal to 10% or more of either the
aggregate market value of all assets of the corporation on a consolidated
basis or the aggregate market value of all the outstanding stock of the
corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or
series of the corporation or such subsidiary; and any receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation or
any such subsidiary. In general, and subject to certain exceptions, an
"interested stockholder" is any person who is the owner of 15% or more of the
outstanding voting stock (or, in the case of a corporation with classes of
voting stock with disparate voting power, 15% or more of the voting power of
the outstanding voting stock) of the corporation, and the affiliates and
associates of such person. The term "owner" is broadly defined to include any
person or entity that individually or with or through such person or entity's
affiliates or associates, among other things, beneficially owns such stock, or
has the right to acquire such stock (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement or
understanding or upon the exercise of warrants or options or otherwise or has
the right to vote such stock pursuant to any agreement or understanding, or
has an agreement or understanding with the beneficial owner of such stock for
the purpose of acquiring, holding, voting or disposing of such stock. The
restrictions of DGCL Section 203 do not apply to corporations that have
elected, in the manner provided therein, not to be subject to such section or,
with certain exceptions, which do not have a class of voting stock that is
listed on a national securities exchange or authorized for quotation on The
Nasdaq Stock Market or held of record by more than 2,000 stockholders.
The Charter does not contain any provision "opting out" of the application
of DGCL Section 203 and the Parent has not taken any of the actions necessary
for it to "opt out" of such provision. As a result, the provisions of Section
203 will remain applicable to transactions between the Parent and any of its
"interested stockholders."
The Charter also contains certain provisions which could make a change in
control of the Parent more difficult. For example, the Charter requires,
subject to the rights, if any, of any class or series of Preferred Stock, the
affirmative vote of 66 2/3% of the total voting power of the outstanding
shares of Voting Securities, voting together as a single class, to approve (i)
a merger or consolidation of the Parent with, or into, another corporation,
other than a merger or consolidation which does not require the consent of
stockholders under the DGCL or a merger or consolidation which has been
approved by 75% of the members of the Board of Directors (in which case, in
accordance with the DGCL, the affirmative vote of a majority of the total
voting power of the outstanding Voting Securities would, with certain
exceptions, be required for approval), (ii) the sale, lease or exchange of all
or substantially all of the property and assets of the Parent or (iii) the
dissolution of the Parent. "Voting Securities" is defined in the Charter as
the TCI Group Common Stock, the Liberty Media Group Common Stock, the TCI
Ventures Group Common Stock and any class or series of Preferred Stock
entitled to vote generally with the holders of Common Stock on matters
submitted to stockholders for a vote, which currently would include the Series
C-TCI Group Preferred Stock and the Series C-Liberty Media Group Preferred
Stock. The Charter also provides for a Board of Directors of not less than
three members, divided into three classes of approximately equal size, with
each class to be elected for a three-year term at the annual meeting of
stockholders at which such class of directors' term expires. The exact number
of directors, currently ten, is fixed by the Board of Directors. The holders
of Voting Securities and of Class B Preferred Stock, Series G Preferred Stock
and
81
<PAGE>
Series H Preferred Stock, voting together as a single class, vote in elections
for directors. (The holders of the Parent's Series F Preferred Stock are
entitled to vote in the election of directors; however, the DGCL prohibits the
voting of such shares because such shares are held by subsidiaries of the
Parent.) Stockholders of the Parent do not have cumulative voting rights.
The Charter authorizes the issuance of 50,000,000 shares of Series Preferred
Stock, of which 33,901,240 remain available for issuance as of September 30,
1997. On December 31, 1997, TCI issued 70,575 shares of Series C-TCI Group
Preferred Stock and 70,575 shares of Series C-Liberty Media Group Preferred
Stock, and retired 70,575 shares of Series C Preferred Stock (with the effect
that such retired shares have been restored to the status of authorized and
unissued shares of Series Preferred Stock, and may be reissued as shares of
another series of Series Preferred Stock but may not be reissued as Series C
Preferred Stock). Under the Charter, the Board of Directors is authorized,
without further action by the stockholders of the Parent, to establish the
preferences, limitations and relative rights of the Series Preferred Stock. In
addition, 1,900,000,000 shares of TCI Group Common Stock, 825,000,000 shares
of Liberty Media Group Common Stock and 825,000,000 shares of TCI Ventures
Group Common Stock are currently authorized by the Charter, of which
1,043,774,248 shares of TCI Group Common Stock, 561,120,509 shares of Liberty
Media Group Common Stock and 620,072,300 shares of TCI Ventures Group Common
Stock remain available for issuance as of September 30, 1997 (in each case
without taking into consideration shares reserved for issuance upon
conversion, exchange or exercise of outstanding convertible or exchangeable
securities and options). The issue and sale of shares of TCI Group Common
Stock, Liberty Media Group Common Stock, TCI Ventures Group Common Stock
and/or Series Preferred Stock could occur in connection with an attempt to
acquire control of the Parent, and the terms of such shares of Series
Preferred Stock could be designed in part to impede the acquisition of such
control.
The Charter requires the affirmative vote of 66 2/3% of the total voting
power of the outstanding shares of Voting Securities, voting together as a
single class, to approve any amendment, alteration or repeal of any provision
of the Charter or the addition or insertion of other provisions therein.
The Charter and the Parent's Bylaws provide that a special meeting of
stockholders will be held at any time, subject to the rights of the holders of
any class or series of Preferred Stock, upon the call of the Secretary of the
Parent upon (i) the written request of the holders of not less than 66 2/3% of
the total voting power of the outstanding shares of Voting Securities or (ii)
at the request of not less than 75% of the members of the Board of Directors.
Subject to the rights of any class or series of Preferred Stock, the Parent's
Bylaws require that written notice of the intent to make a nomination at a
meeting of stockholders must be received by the Secretary of the Parent, at
the Parent's principal executive offices, not later than (a) with respect to
an election of directors to be held at an annual meeting of stockholders, 90
days in advance of such meeting, and (b) with respect to an election of
directors to be held at a special meeting of stockholders, the close of
business on the seventh day following the day on which notice of such meeting
is first given to stockholders. The notice must contain: (1) the name and
address of the stockholder who intends to make the nomination and of the
person or persons to be nominated; (2) a representation that the stockholder
is a holder of record of the Parent's Voting Securities entitled to vote at
the meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (3) a description of
all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nomination or nominations are to be made by the stockholder; (4)
such other information regarding each nominee proposed by such stockholder as
would have been required to be included in a proxy statement filed pursuant to
the proxy rules of the Commission had each proposed nominee been nominated, or
intended to be nominated, by the Board of Directors; and (5) the consent of
each nominee to serve as a director of the Parent if so elected. Any action to
remove directors is required to be for "cause" (as defined in the Charter) and
be approved by the holders of 66 2/3% of the total voting power of the
outstanding shares entitled to vote in the election of directors (which would
include the Class B Preferred Stock, the Series G Preferred Stock and the
Series H Preferred Stock, in addition to the Voting Securities).
82
<PAGE>
PLAN OF DISTRIBUTION
The Company or the Parent (or both) may sell the Offered Securities to or
through underwriters or dealers, which may be a group of underwriters
represented by one or more managing underwriters, and also may sell the
Offered Securities directly to other purchasers or through agents.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If an underwriter or underwriters are utilized in the sale, the Company or
the Parent (or both) will execute an underwriting agreement with such
underwriters and the names of the underwriters and the terms of the
transaction will be set forth in the Prospectus Supplement, which will be used
by the underwriters to make resales of the Offered Securities. Unless
otherwise indicated in the Prospectus Supplement, the obligations of any
underwriters to purchase the Offered Securities will be subject to certain
conditions precedent and the underwriters will be obligated to purchase all of
the Offered Securities if any are purchased.
If a dealer is utilized in the sale, the Company or the Parent (or both)
will sell the Offered Securities to the dealer as principal. The dealer may
then resell the Offered Securities to the public at varying prices to be
determined by such dealer at the time of resale.
Offers to purchase Offered Securities may be solicited by the Company or the
Parent (or both) or agents designated by the Company or the Parent (or both)
from time to time. Unless otherwise indicated in the Prospectus Supplement,
any such agent will be acting on a best efforts basis for the period of its
appointment.
Each underwriter, dealer and agent participating in the distribution of any
Offered Securities which are issuable in bearer form will agree that it will
not, directly or indirectly, offer any Offered Securities in bearer form for
sale or resale in the United States or its possessions or to United States
persons (subject to certain exceptions) or deliver any Offered Securities in
bearer form within the United States or its possessions. See "Description of
Debt Securities--Limitations on Issuance of Bearer Debt Securities."
In connection with the sale of the Offered Securities, underwriters, dealers
and agents may receive compensation in the form of discounts, concessions or
commissions from the Company or the Parent (or both) or from purchasers of the
Offered Securities for whom they may act as agents. Underwriters, dealers and
agents that participate in the distribution of the Offered Securities may be
deemed to be underwriters as that term is defined in the Securities Act, and
any discounts, concessions or commissions received by them from the Company or
the Parent (or both) and any profits on the resale of the Offered Securities
by them may be deemed to be underwriting discounts and commissions under the
Securities Act. Any such person who may be deemed to be an underwriter will be
identified and any such compensation received from the Company or the Parent
(or both) will be described in the Prospectus Supplement.
If so indicated in the Prospectus Supplement, the Company or the Parent (or
both) will authorize agents and underwriters to solicit offers by certain
specified institutions to purchase Offered Securities from the Company or the
Parent (or both) at the public offering price set forth in the Prospectus
Supplement pursuant to contracts providing for payment and delivery on a
specified date in the future. Institutions with whom such contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions and other institutions but shall in all cases be subject to the
approval of the Company or the Parent (or both). The obligations of any
purchaser under any such contract will not be subject to any conditions except
that (i) the purchase by such purchaser of the Offered Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject, and (ii) if the Offered Securities being sold to
such purchaser are also being sold to underwriters, the Company or the Parent
(or both) shall have sold to such underwriters the Offered Securities, not
sold for delayed delivery, pursuant to the underwriting agreement referred to
in the related Prospectus Supplement. The agents and
83
<PAGE>
underwriters will not have any responsibility in respect of the validity of
performance of such contracts. The Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
Agents, underwriters and dealers may be entitled under agreements entered
into with the Company or the Parent to indemnification by the Company or the
Parent against certain civil liabilities, including liabilities under the
Securities Act, or to contribution with respect to payments which the agents,
underwriters or dealers may be required to make in respect thereof. Agents,
underwriters and dealers may be customers of, engage in transactions with, or
perform services for the Company and the Parent in the ordinary course of
business.
The anticipated place and time of delivery for the Offered Securities will
be set forth in the Prospectus Supplement.
LEGAL MATTERS
The validity of the Offered Securities and the Guarantees, if any, offered
hereby will be passed upon for the Company and the Parent by Stephen M. Brett,
Esq., Executive Vice President of the Company and Executive Vice President and
General Counsel of the Parent. If agents or underwriters are utilized, the
legality of the Offered Securities and the Guarantees, if any, offered hereby
will be passed upon for such agents or underwriters by such counsel, which
will be named in the Prospectus Supplement, as such agents or underwriters may
select.
EXPERTS
The consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, and all related
financial statement schedules, which appear in the December 31, 1996 Annual
Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-K/A
(Amendment No. 1), have been incorporated by reference herein and in the
Registration Statement in reliance upon the reports, dated March 24, 1997, of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated balance sheets of TCI Communications, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, and all related financial statement
schedules, which appear in the December 31, 1996 Annual Report on Form 10-K of
TCI Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have
been incorporated by reference herein and in the Registration Statement in
reliance upon the reports, dated March 24, 1997, of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The combined balance sheets of TCI Group as of December 31, 1996 and 1995,
and the related combined statements of operations, equity, and cash flows for
each of the years in the three-year period ended December 31, 1996, which
appear in the December 31, 1996 Annual Report on Form 10-K of Tele-
Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have been
incorporated by reference herein and in the Registration Statement in reliance
upon the report, dated March 24, 1997, of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the combined financial statements above refers
to the effects of not consolidating TCI Group's interest in Liberty Media
Group for all periods that TCI Group has an interest in Liberty Media Group.
The combined balance sheets of Liberty Media Group as of December 31, 1996
and 1995, and the related combined statements of operations, equity, and cash
flows for each of the years in the three-year period ended December 31, 1996,
which appear in the December 31, 1996 Annual Report on Form 10-K of Tele-
Communications, Inc., as amended by Form 10-K/A (Amendment No. 1), have been
incorporated by reference
84
<PAGE>
herein and in the Registration Statement in reliance upon the report, dated
March 24, 1997, of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheet of Telewest Communications plc and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations and cash flows for each of the years in three-year
period ended December 31, 1996, which appear in the December 31, 1996 Annual
Report on Form 10-K of Tele-Communications, Inc., as amended by Form 10-K/A
(Amendment No. 1), have been incorporated by reference herein and in the
Registration Statement in reliance upon the report, dated March 11, 1997, of
KPMG Audit Plc, chartered accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated balance sheets of Sprint Spectrum Holding Company, L.P. and
subsidiaries, development stage enterprises, as of December 31, 1996 and 1995
and the related consolidated statements of operations, changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1996, for the period from October 24, 1994 (date of inception) to December
31, 1994 and for the cumulative period from October 24, 1994 (date of
inception) to December 31, 1996, incorporated in this prospectus by reference
from Tele-Communications, Inc. Annual Report on Form 10-K, as amended on Form
10-K/A (Amendment No. 1), for the year ended December 31, 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes an explanatory
paragraph referring to the developmental stage of Sprint Spectrum Holding
Company, L.P. and subsidiaries), which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of American PCS, L.P., not separately presented in
this Prospectus, have been audited by Price Waterhouse LLP, independent
accountants, whose report thereon has been incorporated by reference herein.
Such financial statements, to the extent they have been included in the
financial statements of Sprint Spectrum Holding Company, L.P., have been so
included in the Annual Report on Form 10-K, as amended on Form 10-K/A
(Amendment No. 1), of Tele-Communications, Inc. in reliance on their report
given on the authority of said firm as experts in auditing and accounting.
American PCS, L.P. has agreed to indemnify Price Waterhouse LLP for the
payment of all legal costs and expenses incurred in Price Waterhouse LLP's
successful defense of any legal action or proceeding that arises as a result
of the consent of Price Waterhouse LLP to the incorporation of its audit
report on American PCS, L.P.'s 1996 financial statements in the Registration
Statement, of which this Prospectus comprises a part, of Tele-Communications,
Inc. and TCI Communications, Inc.
The combined financial statements of VII Cable which appear in TCI's Current
Report on Form 8-K dated June 19, 1996, have been incorporated by reference
herein in reliance on the report dated February 14, 1996 of Price Waterhouse
LLP, independent accountants, incorporated by reference herein, given on the
authority of said firm as experts in auditing and accounting.
85
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY PRICING SUPPLEMENT IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY PRICING
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY AGENT. THIS PRO-
SPECTUS SUPPLEMENT, THE PROSPECTUS AND ANY PRICING SUPPLEMENT DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUP-
PLEMENT, THE PROSPECTUS OR ANY PRICING SUPPLEMENT NOR ANY SALE MADE HEREUNDER
OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE IN-
FORMATION HEREIN OR IN THE PROSPECTUS OR ANY PRICING SUPPLEMENT IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
---------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors............................................................. S-2
Description of Notes..................................................... S-2
Book-Entry System........................................................ S-17
Certain United States Tax Considerations................................. S-19
Plan of Distribution..................................................... S-25
PROSPECTUS
Available Information.................................................... 2
Incorporation of Documents by Reference.................................. 2
The Company and the Parent............................................... 4
Use of Proceeds.......................................................... 4
Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends............................................................... 5
Description of Debt Securities........................................... 6
Description of Series Preferred Stock.................................... 25
Description of Depositary Shares......................................... 28
Description of Parent Capital Stock...................................... 31
Common Stock............................................................ 31
Preferred Stock......................................................... 65
Plan of Distribution..................................................... 83
Legal Matters............................................................ 84
Experts.................................................................. 84
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TCI COMMUNICATIONS, INC.
$750,000,000
MEDIUM-TERM NOTES, SERIES D
DUE NINE MONTHS OR
MORE FROM DATE OF ISSUE
----------------------
PROSPECTUS SUPPLEMENT
----------------------
MERRILL LYNCH & CO.
CREDIT SUISSE FIRST BOSTON
LEHMAN BROTHERS
SALOMON SMITH BARNEY
FEBRUARY 24, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
