LIBERTY DIGITAL INC
8-K, 1999-11-05
COMMUNICATIONS SERVICES, NEC
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<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported): September 9, 1999

                              LIBERTY DIGITAL, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

    Delaware                       0-22815                       84-1380293
- ---------------                  ------------                -------------------
State or other                   (Commission                    (IRS Employer
jurisdiction of                  File Number)                Identification No.)
incorporation)

          67 Irving Place North, 4th Floor
                    New York, NY                      10003
       ---------------------------------------      ----------
       (Address of principal executive office)      (Zip Code)

        Registrant's telephone number, including area code (212) 387-7700
                                                           --------------

 (Former name or former address, if changed since last report): TCI Music, Inc.


<PAGE>   2







Item 2. ACQUISITION OR DISPOSITION OF ASSETS

         On September 9, 1999, the transactions contemplated by the Contribution
Agreement, as amended, dated April 23, 1999 by and among the Company, Liberty
Media Corporation ("Liberty") and certain of its affiliates were completed.
Pursuant to the Contribution Agreement, Liberty DMX, Inc. ("Liberty DMX"), a
wholly owned subsidiary of Liberty, contributed to the Company all of the
outstanding stock of its wholly owned subsidiaries that were formed solely to
hold some of Liberty's investments in interactive programming and content
related assets (the "Contributed Subsidiaries"). In addition, Liberty (through
Liberty DMX) assigned to the Company certain of its rights under the Access
Agreement regarding the provision of certain interactive video services over the
cable television systems of AT&T and its controlled affiliates (the "AT&T
Systems"). The Access Agreement establishes a framework to negotiate definitive
agreements for digital channel capacity on the AT&T Systems equal to one
six-megahertz channel (which, under current digital compression technology, will
enable carriage of between 12 and 15 video channels) to be used for interactive,
category specific channels providing entertainment, information and merchandise
programming, subject to certain conditions ("Interactive Video Services"). The
material terms of the definitive agreements, other than those included in the
Access Agreement, are subject to negotiation between the Company and AT&T.
Pursuant to this assignment, the Company became subject to certain obligations
imposed by the Access Agreement, including, but not limited to, AT&T's option to
enter into joint ventures with the Company regarding the provision of such
Interactive Video Services on the AT&T Systems, and, if such ventures are
formed, AT&T's right to acquire the Company's interest in such joint ventures at
their fair market value after a three year period. In connection with the
Contribution Agreement, the Board of Directors of Liberty adopted a policy that
the Company will be the primary (but not exclusive) vehicle for the pursuit of
corporate opportunities relating to interactive programming and content related
services in the United States and Canada, subject to certain limitations.

         Liberty has also agreed in the Contribution Agreement that it will use
reasonable efforts to make available to the Company for its Interactive Video
Services the benefits of the "preferred vendor status" to which Liberty is
entitled under the Access Agreement with respect to the access, timing and
placement of new programming services on the AT&T Systems. Both the assignment
of rights with respect to Interactive Video Services and the agreement to make
such benefits available to the Company are subject to the terms, conditions and
obligations set forth in the Access Agreement, the Contribution Agreement and
the assignment.

         In addition, Liberty DMX contributed to the Company a combination of
cash and notes payable to Liberty or one or more of its affiliates (which notes
were assigned to Liberty DMX prior to the closing of the Contribution
Transaction) by the Contributed Subsidiaries and the Company equal to $150
million.

                                        2

<PAGE>   3



         Finally, the Company adopted the Deferred Compensation and Stock
Appreciation Rights Plan and entered into Deferred Compensation and Stock
Appreciation Rights Agreements with Lee Masters, a director, President and Chief
Executive Officer of the Company and Bruce W. Ravenel, a director and Executive
Vice president of the Company. The Deferred Compensation and Stock Appreciation
Rights Plan is comprised of a deferred compensation component and stock
appreciation rights grants. The deferred compensation component provides Messrs.
Masters and Ravenel with the right to receive an aggregate of 9 1/2% of the
appreciation in the Series A common stock (as reflected by its market price)
over a base price, subject to a maximum amount payable; and the stock
appreciation rights provide them with the appreciation in the market price of
the Series A common stock above the maximum amount payable under the deferred
compensation component.

         In consideration of the foregoing, the Company issued to Liberty DMX
(1) 109,450,167 shares of Series B common stock and (2) 150,000 shares of Series
B convertible preferred stock having an initial liquidation aggregate preference
of $150 million.

         The effective issue price of the shares of Series B common stock issued
pursuant to the Contribution Agreement was based on the average of the daily
closing prices of the Series A common stock on the Nasdaq SmallCap Market for
the 30 day period ended April 5, 1999 (the day before the public announcement of
the transaction) rounded down to the nearest cent. That average market price was
$4.66 per share. The conversion price for the Series B preferred stock issued
pursuant to the Contribution Agreement was 125% of the average market price used
to calculate the issue price of the Series B Common Stock, or $5.825.

         Liberty and the Company agreed that the aggregate net value of the
transaction is $600 million. The value of the Contributed Subsidiaries that hold
stock of public companies was based on the closing trading price of the stock
held by the Contributed Subsidiaries in publicly traded companies on April 5,
1999; and the value of the Contributed Subsidiaries that do not hold publicly
traded investments was based on the most recent purchase price paid for such
investment, in both cases less the amount of any liabilities to be assumed by
the Company. The value of the assignment of the rights with respect to
Interactive Video Services under the Access Agreement was determined based on a
discounted cash flow analysis using projections made by Liberty of the operating
income of the interactive television business for the term of the Access
Agreement.

         A copy of the Contribution Agreement is included as Exhibit 2.1, the
Amendment to the Contribution Agreement dated September 7, 1999 is included as
Exhibit 2.2, a copy of the Certificate of Designations for the Series B
convertible preferred stock is included as Exhibit 4.1 and a copy of the
Company's and Liberty's press release with respect to the Contribution

                                        3


<PAGE>   4







Agreement is included as Exhibit 99.1 to this Form 8-K. Such documents are
incorporated by reference into this Item 5, and the foregoing description of
such documents is qualified in its entirety by reference to such Exhibits.

Item 7. FINANCIAL STATEMENTS AND EXHIBITS.

         (b) Pro Forma Financial Information.

         Pursuant to paragraph (b)(2) of Item 7 of Form 8-K, the Company hereby
files the financial pro forma information as Exhibit 99.2.

         Unaudited Pro Forma Condensed Combined Financial Information
                   1.     Pro forma Condensed Introductory Paragraphs
                   2.     Unaudited Pro forma Condensed Combined Balance Sheet
                          as of June 30, 1999
                   3.     Unaudited Pro forma Condensed Combined Statement of
                          Operations - six months ended June 30, 1999
                   4.     Unaudited Pro forma Condensed Combined Statement of
                          Operations - year ended December 31, 1998

         (c) Exhibits.

             Exhibit 2.1  Contribution Agreement dated April 23, 1999 by and
                          among TCI Music, Inc., Liberty Media Corporation and
                          certain affiliates of Liberty Media Corporation
                          (incorporated by reference to Appendix I to the
                          Company's Proxy Statement dated July 30, 1999 for its
                          1999 Annual Meeting). The Exhibits and Schedules of
                          this Exhibit have been omitted pursuant to the rules
                          promulgated by the Commission and will be provided to
                          the Commission upon request.

             Exhibit 2.2  Amendment to Contribution Agreement, dated as of
                          September 7, 1999, among Liberty Media Corporation,
                          certain affiliates of Liberty Media Corporation and
                          TCI Music, Inc. The Exhibits and Schedules of this
                          Exhibit have been omitted pursuant to the rules
                          promulgated by the Commission and will be provided to
                          the Commission upon request.

                                        4


<PAGE>   5







             Exhibit 4.1  Certificate of Designations of Convertible Preferred
                          Stock, Series B.

             Exhibit 99.1 Liberty Media Corporation and TCI Music, Inc. Press
                          Release issued September 10, 1999

             Exhibit 99.2 Pro Forma Financial Information


                                        5


<PAGE>   6









Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                               LIBERTY DIGITAL, INC.

Date: November 5, 1999                         By:  /s/ Ralph J. Sorrentino
                                                    ----------------------------
                                                    Ralph J. Sorrentino
                                                    Executive Vice President and
                                                    Chief Financial Officer


                                        6


<PAGE>   7

                                 EXHIBIT INDEX

             Exhibit 2.1  Contribution Agreement dated April 23, 1999 by and
                          among TCI Music, Inc., Liberty Media Corporation and
                          certain affiliates of Liberty Media Corporation
                          (incorporated by reference to Appendix I to the
                          Company's Proxy Statement dated July 30, 1999 for its
                          1999 Annual Meeting). The Exhibits and Schedules of
                          this Exhibit have been omitted pursuant to the rules
                          promulgated by the Commission and will be provided to
                          the Commission upon request.

             Exhibit 2.2  Amendment to Contribution Agreement, dated as of
                          September 7, 1999, among Liberty Media Corporation,
                          certain affiliates of Liberty Media Corporation and
                          TCI Music, Inc. The Exhibits and Schedules of this
                          Exhibit have been omitted pursuant to the rules
                          promulgated by the Commission and will be provided to
                          the Commission upon request.

             Exhibit 4.1  Certificate of Designations of Convertible Preferred
                          Stock, Series B.

             Exhibit 99.1 Liberty Media Corporation and TCI Music, Inc. Press
                          Release issued September 10, 1999


             Exhibit 99.2 Pro Forma Financial Information


<PAGE>   1
                                                                     EXHIBIT 2.2

                       AMENDMENT TO CONTRIBUTION AGREEMENT

     This AMENDMENT TO CONTRIBUTION AGREEMENT (this "Amendment"), dated as of
September 7, 1999, is entered into by and among Liberty Media Corporation, a
Delaware corporation ("LMC"), LMC Capital, LLC, a Delaware limited liability
company ("LMC Capital"), Liberty DMX, Inc., a Colorado corporation ("Liberty
DMX"), Liberty Interactive, Inc., a Delaware corporation (formerly known as TCI
Interactive, Inc.) ("TCI-I"), ETC w/tci, Inc., a Delaware corporation ("ETC")
(collectively, the "Contributing Parties"), and TCI Music, Inc., a Delaware
corporation ("TCI Music").

                                  R E C I T A L

     A. The parties to this Amendment have entered into the Contribution
Agreement (the "Contribution Agreement") made on the 23rd day of April, 1999.

     B. The parties have agreed to amend the Contribution Agreement in
accordance with the terms of this Amendment.

                                A G R E E M E N T

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth below and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties agree as set forth below.
Capitalized terms used and not otherwise defined in this Amendment shall have
the meanings assigned to such terms in the Contribution Agreement.

     SECTION A. Amendments to the Contribution Agreement. Effective as of the
date hereof, the Contribution Agreement shall be amended as follows:

     1. Exhibit A to the Contribution Agreement is amended by deleting such
Exhibit in its entirety and replacing it with Exhibit A attached to this
Amendment.

                                       -7-


<PAGE>   2







     2. Schedule 4.14 to the Contribution Agreement is amended by deleting such
Schedule in its entirety and replacing it with Schedule 4.14 attached to this
Amendment.

     SECTION B. Miscellaneous.

     1. Reference to and Effect on the Contribution Agreement. Except as
specifically amended by this Amendment, the Contribution Agreement shall remain
in full force and effect and is hereby ratified and confirmed. This Amendment
shall be construed as one with the Contribution Agreement, and the Contribution
Agreement shall, where the context requires, be read and construed throughout so
as to incorporate this Amendment.

     2. Headings. Section headings in this Amendment are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect.

     3. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.

     4. Governing Law. This Second Amendment shall be governed by and construed
according to the laws of the State of Colorado.

     IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the date first above written.

                                             LIBERTY MEDIA CORPORATION

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------

                                       -8-


<PAGE>   3


                                             LMC CAPITAL, LLC

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------


                                             LIBERTY DMX, INC.

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------



                                             LIBERTY INTERACTIVE, INC.

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------


                                             ETC W/TCI, INC.

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------


                                             TCI MUSIC, INC.

                                             By:
                                                --------------------------------
                                             Name:
                                                  ------------------------------
                                             Title:
                                                   -----------------------------



                                       -9-


<PAGE>   1

                                                                     EXHIBIT 4.1

                                                        Series B Preferred Stock


                                 TCI MUSIC, INC.

                           CERTIFICATE OF DESIGNATIONS

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

                      SETTING FORTH A COPY OF A RESOLUTION
                      CREATING AND AUTHORIZING THE ISSUANCE
                  OF A SERIES OF PREFERRED STOCK DESIGNATED AS
                     "CONVERTIBLE PREFERRED STOCK, SERIES B"
                        ADOPTED BY THE BOARD OF DIRECTORS
                               OF TCI MUSIC, INC.

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

              The undersigned, a Vice President of TCI MUSIC, INC., a Delaware
corporation (this "Corporation"), HEREBY CERTIFIES that the Board of Directors
of this Corporation on June 22, 1999, duly adopted the following resolutions
creating a new series of this Corporation's Series Preferred Stock:

              "BE IT RESOLVED, that pursuant to authority expressly granted by
the provisions of Article IV, Section B of the Certificate of Incorporation of
this Corporation, the Board of Directors hereby creates and authorizes the
issuance of a new series of this Corporation's Series Preferred Stock, par value
$.01 per share ("Series Preferred Stock"), and hereby fixes the powers,
designations, dividend rights, voting powers, rights on liquidation, conversion
rights, redemption rights and other preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of such series (in addition to the powers,
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof set forth in
the Certificate of Incorporation that are applicable to each class and series of
this Corporation's preferred stock, par value $.01 per share ("Preferred
Stock")), as follows:

              C. Designation and Number. The designation of the series of Series
Preferred Stock, par value $.01 per share, of this Corporation authorized hereby
is



<PAGE>   2

                                                        Series B Preferred Stock

"Convertible Preferred Stock, Series B" (the "Series B Preferred Stock"). The
number of shares constituting the Series B Preferred Stock shall be 150,000.

              D. Certain Definitions. Unless the context otherwise requires, the
terms defined in this paragraph 2 shall, for all purposes of this Certificate of
Designations, have the meanings herein specified:

              "Board of Directors": The Board of Directors of this Corporation
and, to the extent permitted by law, unless the context indicates otherwise, any
committee thereof authorized with respect to any particular matter to exercise
the power of the Board of Directors of this Corporation with respect to such
matter.

              "Business Day: Any day other than a Saturday, Sunday or a day on
which banking institutions in Denver, Colorado are not required to be open.

              "Capital Stock": Any and all shares, interests, participations or
other equivalents (however designated) of corporate stock of this Corporation.

              "Closing Price": Of any security for any day, the last reported
sale price of such security regular way or, in case no such reported sale takes
place on such day, the average of the reported closing bid and asked prices
regular way, in either case on the composite tape, or if such security is not
quoted on the composite tape, on the principal United States securities exchange
registered under the Exchange Act on which such security is listed or admitted
to trading, or if such security is not listed or admitted to trading on any such
exchange, the last reported sale price (or the average of the quoted closing bid
and asked prices if there were no reported sales) on The Nasdaq Stock Market or
any comparable quotation system, or if such security is not quoted on The Nasdaq
Stock Market or any comparable system, the average of the closing bid and asked
prices as furnished by any member of the National Association of Securities
Dealers, Inc. selected from time to time by this Corporation for that purpose
or, in the absence of such quotations, such other method of determining market
value as the Board of Directors shall from time to time deem to be fair.

              "Common Stock": The Common Stock, $.01 par value per share, of
this Corporation, and all series thereof now existing or hereafter created,
including the Series A Common Stock and the Series B Common Stock.


                                       2
<PAGE>   3


                                                        Series B Preferred Stock

              "Conversion Date": Of a share of Series B Preferred Stock, the
date on which the requirements for conversion of such Share set forth in
paragraph 5(m) have been satisfied by the holder thereof.

              "Conversion Rate": The kind and amount of securities, cash or
other assets that as of any date are issuable or deliverable upon conversion of
a share of Series B Preferred Stock. The Conversion Rate of a Share of Series B
Preferred Stock shall initially be as set forth in paragraph 5(b), subject to
adjustment as set forth in paragraph 5 of this Certificate of Designations. In
the event that pursuant to paragraph 5 the Series B Preferred Stock becomes
convertible into more than one class or series of capital stock of this
Corporation, the term Conversion Rate, when used with respect to any such class
or series, shall mean the number or fraction of shares or other units of such
capital stock that as of any date would be issued upon conversion of a share of
Series B Preferred Stock.

              "Convertible Securities": The Series A Convertible Securities and
the Series B Convertible Securities.

              "Debt Instrument": Any bond, debenture, note, indenture, guarantee
or other instrument or agreement evidencing any Indebtedness, whether existing
at the Issue Date or thereafter created, incurred, assumed or guaranteed.

              "Default":  The occurrence of any of the following events:

              1. the existence of a Default or Event of Default under and as
defined in the Loan Agreement for $100 million Revolving Credit Facility among
the Corporation and the signatory banks thereto, with Bank of America National
Trust and Saving Association , as Administrative Agent, and Credit Lyonnaise,
New York Branch and Royal Bank of Canada, as Syndication Agents, dated as of
December 30, 1997, as the same may be amended or modified (the "Loan
Agreement"), or any default or event of default under and as defined in any
other Debt Instrument evidencing Indebtedness in an amount equal to or greater
than $20 million;

              2. the failure of the Corporation to declare and, on or within
five days of the applicable Dividend Payment Date, pay any portion of the
accrued dividends on the Series B Preferred Stock for any Dividend Period;

              3. there shall be entered a decree or order for relief in respect
of the Corporation under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other applicable federal or state bankruptcy law or
other similar law, or


                                       3

<PAGE>   4

                                                        Series B Preferred Stock

appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or similar official of the Corporation or of any substantial part of its
properties, or ordering the winding-up or liquidation of the affairs of the
Corporation or an involuntary petition shall be filed against the Corporation
and a temporary stay entered, and (i) such petition and stay shall not be
diligently contested, or (ii) any such petition and stay shall continue
undismissed for a period of sixty (60) consecutive days; or

              4. the Corporation shall file a petition, answer, or consent
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy law or
other similar law, or the Corporation shall consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment or taking of possession of a receiver, liquidator, assignee,
trustee, custodian, sequestrator, or other similar official, of the Corporation
or of any substantial part of its properties, or the Corporation shall fail
generally to pay its debts as they become due, or shall take any action in
furtherance of any such action.

              "Determination Date": For any issuance of rights or warrants or
any distribution to which paragraph 5(d) or 5(e) applies, the earlier of (i) the
record date for the determination of stockholders entitled to receive the rights
or warrants or the distribution to which such paragraph applies and (ii) the
Ex-Dividend Date for such rights, warrants or distribution.

              "Dividend Payment Date": The last day of each March, June,
September and December, commencing with December 1999, or the next succeeding
Business Day if any such date is not a Business Day.

              "Dividend Period": The period from and including the Issue Date to
but excluding the first Dividend Payment Date and, thereafter, each quarterly
period from and including a Dividend Payment Date to but excluding the next
Dividend Payment Date.

              "Exchange Act": The Securities Exchange Act of 1934, as amended.

              "Exchange Offer": An issuer tender offer (within the meaning of
Rule 13e- 4(a)(2) of the rules and regulations promulgated by the Securities and
Exchange Commission under the Exchange Act, as such Rule is in effect on the
date hereof), including, without limitation, one that is effected through the
distribution of rights or warrants, made to holders of Series B Common Stock (or
to holders of other stock of this Corporation receivable by a holder of Shares
upon conversion thereof ( or upon conversion of securities receivable by a
holder of Shares upon conversion of such Shares)), to issue stock of this
Corporation or of a Subsidiary of this Corporation and/or other property to a
tendering stockholder in exchange

                                       4
<PAGE>   5

                                                        Series B Preferred Stock

for shares of Series B Common Stock (or such other stock) validly tendered
pursuant to such issuer tender offer.

              "Exchange Preferred Stock": A series of convertible preferred
stock of this Corporation, having terms, conditions, designations, dividend
rights, voting powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof that are identical, or as nearly so as is practicable in
the judgment of the Board of Directors, to those of the Series B Preferred Stock
for which such Exchange Preferred Stock is exchanged, except that (i) the
liquidation preference will be determined as provided in paragraph 5(h) or 5(i),
as applicable, (ii) the running of any time periods pursuant to the terms of the
Series B Preferred Stock shall be tacked to the corresponding time periods in
the Exchange Preferred Stock and (iii) the Exchange Preferred Stock will not be
convertible into, and the holders will have no conversion rights thereunder with
respect to, (x) in the case of a redemption of Redeemable Capital Stock, the
Redeemable Capital Stock redeemed, or the Redemption Securities issued, in the
Redemption Event, and (y) in the case of a Spin Off, the Spin Off Securities.

              "Exchange Securities": Stock of this Corporation or of a
Subsidiary of this Corporation that is issued in exchange for shares of Series B
Common Stock (or other stock of this Corporation receivable by a holder of
Shares upon conversion thereof (or upon conversion of securities receivable by a
holder of Shares upon conversion of such Shares)) pursuant to an Exchange Offer
; provided, however, that in the case of an Exchange Offer made to holders of
Series A Common Stock and Series B Common Stock, if the same kind and quantity
of stock is issued in exchange for shares of both Series A Common Stock and
Series B Common Stock or if stock of one class or series is issued in exchange
for Series A Common Stock and the same quantity of stock of a different class or
series is issued in exchange for Series B Common Stock and the differences
between such classes or series are no less favorable to the holders of Series B
Common Stock than the differences between the Series A Common Stock and the
Series B Common Stock, then the Exchange Securities shall be the stock issued in
exchange for shares of Series B Common Stock and not the stock issued in
exchange for shares of Series A Common Stock.

              "Ex-Dividend Date": The date on which "ex-dividend" trading
commences for a dividend, an issuance of rights or warrants or a distribution to
which paragraph 5(c), 5(d) or 5(e) applies in the over-the-counter market or the
principal exchange on which the Series A Common Stock is then quoted or listed.

              "Indebtedness": Any: (i) liability, contingent or otherwise, of
this Corporation (x) for borrowed money whether or not the recourse of the
lender is to the whole of the assets


                                       5
<PAGE>   6


                                                        Series B Preferred Stock

of this Corporation or only to a portion thereof), (y) evidenced by a note,
debenture or similar instrument (including a purchase money obligation) given
other than in connection with the acquisition of inventory or similar property
in the ordinary course of business, or (z) for the payment of money relating to
an obligation under a lease that is required to be capitalized for financial
accounting purposes in accordance with generally accepted accounting principles;
(ii) liability of others described in the preceding clause (i) which this
Corporation has guaranteed or which is otherwise its legal liability; (iii)
obligations secured by a mortgage, pledge, lien, charge or other encumbrance to
which the property or assets of this Corporation are subject whether or not the
obligations secured thereby shall have been assumed by or shall otherwise be
this Corporation's legal liability; and (iv) any amendment, renewal, extension
or refunding of any liability of the types referred to in clauses (i), (ii) and
(iii) above.

              "Issue Date":September 9, 1999, such date being the first date on
which any shares of the Series B Preferred Stock are first issued or deemed to
have been issued.

              "Junior Securities": All shares of Series A Preferred Stock,
Series A Common Stock, Series B Common Stock, and any class or series of stock
of this Corporation, whether now existing or hereafter created, to the extent
that it ranks junior to the Series B Preferred Stock as to dividend rights or
rights on liquidation. A class or series of Junior Stock shall rank junior to
the Series B Preferred Stock as to dividend rights or rights on liquidation if
the holders of shares of Series B Preferred Stock shall be entitled to dividend
payments or payments of amounts distributable upon liquidation, dissolution or
winding up of the affairs of this Corporation, as the case may be, in preference
or priority to the holders of shares of such class or series.

              "Liquidation Preference": Measured per Share of the Series B
Preferred Stock as of any date in question (the "Relevant Date") shall mean an
amount equal to the sum of (a) the Stated Value of such Share, plus (b) an
amount equal to all dividends accrued on such Share which pursuant to paragraph
3(d) of this Certificate of Designations have been added to and remain a part of
the Liquidation Preference as of the Relevant Date, plus (c) for purposes of
paragraph 4, paragraph 5 (except as otherwise provided in paragraph 5(m)) and
paragraph 7 of this Certificate of Designations and the definition of Redemption
Price, an amount equal to all unpaid dividends accrued on the sum of the amounts
specified in clauses (a) and (b) above during the period from and including the
immediately preceding Dividend Payment Date (or the Issue Date if the Relevant
Date is on or prior to the first Dividend Payment Date) to but excluding the
Relevant Date, and, in the case of clauses (b) and (c) hereof, whether or not
such unpaid dividends have been declared or there are any unrestricted funds of
the Corporation legally available for the payment of dividends. In connection
with

                                       6
<PAGE>   7


                                                        Series B Preferred Stock

the determination of the Liquidation Preference of a Share of Series B Preferred
Stock upon redemption, or upon liquidation, dissolution or winding up of the
Corporation or upon a conversion of Shares, the Relevant Date shall be the
applicable date of redemption or the date of distribution of amounts payable to
stockholders in connection with any such liquidation, dissolution or winding up
or the applicable Conversion Date.

              "Mirror Preferred Stock": Convertible preferred stock issued by
(a) in the case of a redemption of Redeemable Capital Stock, the issuer of the
applicable Redemption Securities, (b) in the case of a Spin Off, the issuer of
the applicable Spin Off Securities, and (c) in the case of an Exchange Offer,
the issuer of the applicable Exchange Securities, and having terms, conditions,
designations, dividend rights, voting powers, rights on liquidation and other
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof that are identical, or as
nearly so as practicable in the judgment of the Board of Directors, to those of
the Series B Preferred Stock for which such Mirror Preferred Stock is exchanged,
except that (i) the liquidation preference will be determined as provided in
paragraph 5 (h), 5(i) or 6, as applicable, (ii) the running of any time periods
pursuant to the terms of the Series B Preferred Stock shall be tacked to the
corresponding time periods in the Mirror Preferred Stock, and (iii) the Mirror
Preferred Stock shall be convertible into the kind and amount of Redemption
Securities, Spin Off Securities or Exchange Securities, as applicable, and other
securities and property that the holder of a share of Series B Preferred Stock
in respect of which such Mirror Preferred Stock is issued pursuant to the terms
hereof would have received (x) in the case of the redemption of Redeemable
Capital Stock, upon such redemption had such shares of Series B Preferred Stock
been converted immediately prior to the effective date of the Redemption Event,
(y) in the case of a Spin Off, in such Spin Off had such share of Series B
Preferred Stock been converted immediately prior to the record date for such
Spin Off and (z) in the case of an Exchange Offer, upon consummation thereof had
such share of Series B Preferred Stock that such holder elects to tender
pursuant to Section 6 been converted and the shares of Series B Common Stock
received upon such conversion been tendered in full pursuant to such Exchange
Offer prior to the expiration thereof and the same percentage of such tendered
shares had been accepted for exchange as the percentage of validly tendered
shares of Series B Common Stock were accepted for exchange pursuant to such
Exchange Offer, as the case may be.

              "Parity Securities": Any class or series of stock of this
Corporation, whether now existing or hereafter created, ranking on a parity
basis with the Series B Preferred Stock as to dividend rights or rights on
liquidation. Stock of any class or series shall rank on a parity basis as to
dividend rights or rights on liquidation with the Series B Preferred Stock,
whether or not the dividend rates, dividend payment dates or liquidation prices
per share are different

                                       7
<PAGE>   8

                                                        Series B Preferred Stock

from those of the Series B Preferred Stock, if the holders of shares of such
class or series shall be entitled to dividend payments or payments of amounts
distributable upon liquidation, dissolution or winding up of the affairs of this
Corporation, as the case may be, in proportion to their respective accumulated
and accrued and unpaid dividends or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series B Preferred Stock.. No class or
series of capital stock that ranks junior to the Series B Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Series B Preferred Stock as to dividend rights unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly provides.

              "person": A natural person, corporation, limited liability
company, partnership or other legal entity.

              "Record Date": For the dividends payable on any Dividend Payment
Date, the 15th day of the month during which such Dividend Payment Date shall
occur as and if designated by the Board of Directors.

              "Redeemable Capital Stock": A class or series of Capital Stock of
this Corporation that provides by its terms a right in favor of this Corporation
to call, redeem, exchange or otherwise acquire all of the outstanding shares or
units of such class or series.

              "Redemption Date": As to any Share, the date, which shall be a
Business Day, fixed for redemption of such Share as specified in the notice of
redemption given in accordance with paragraph 7(c), provided that no such date
will be a Redemption Date unless the applicable Redemption Price is actually
paid on such date or the consideration sufficient for the payment thereof, and
for no other purpose, has been set apart, and if the Redemption Price is not so
paid in full or the consideration sufficient therefor so set apart then the
Redemption Date will be the date, which shall be a Business Day, on which such
Redemption Price is fully paid or the consideration sufficient for the payment
thereof, and for no other purpose, has been set apart.

              "Redemption Price": As to any Share that is to be redeemed on any
Redemption Date, the Liquidation Preference as in effect on such Redemption
Date.

              "Redemption Securities": With respect to the redemption of any
Redeemable Capital Stock, stock of a Subsidiary of this Corporation that is
distributed by this Corporation in payment, in whole or in part, of the
redemption price of such Redeemable Capital Stock.



                                       8
<PAGE>   9



                                                        Series B Preferred Stock

              "Senior Securities": Any class or series of stock of this
Corporation, whether now existing or hereafter created, ranking senior to the
Series B Preferred Stock as to dividend rights or rights on liquidation. Stock
of any class or series shall rank senior to the Series B Preferred Stock as to
dividend rights or rights on liquidation if the holders of shares of such class
or series shall be entitled to dividend payments or payments of amounts
distributable upon dissolution, liquidation or winding up of the affairs of this
Corporation, as the case may be, in preference or priority to the holders of
shares of Series B Preferred Stock. No class or series of capital stock that
ranks on a parity basis with or junior to the Series B Preferred Stock as to
rights on liquidation shall rank or be deemed to rank prior to the Series B
Preferred Stock as to dividend rights, notwithstanding that the dividend rate or
dividend payment dates thereof are different from those of the Series B
Preferred Stock, unless the instrument creating or evidencing such class or
series of capital stock otherwise expressly provides.

              "Series A Common Stock": The Series A Common Stock, par value $.01
per share, of this Corporation, as such exists on the date of this Certificate
of Designations, and Capital Stock of any other class or series into which such
Series Common Stock may thereafter have been changed.

              "Series A Convertible Securities": Securities, other than the
Series B Common Stock, that are convertible into or exercisable or exchangeable
for Series A Common Stock at the option of the holder thereof, or which
otherwise entitle the holder thereof to subscribe for, purchase or otherwise
acquire Series A Common Stock.

              "Series A Preferred Stock": The Series A Convertible Preferred
Stock, par value $.01 per share, of this Corporation.

              "Series B Common Stock": The Series B Common Stock, par value $.01
per share, of this Corporation, as such exists on the date of this Certificate
of Designations, and Capital Stock of any other class or series into which such
Series B Common Stock may thereafter have been changed.

              "Series B Convertible Securities": Securities that are convertible
into or exercisable or exchangeable for Series B Common Stock at the option of
the holder thereof or which otherwise entitle the holder thereof to subscribe
for, purchase or otherwise acquire Series B Common Stock.

              "Share": A share of Series B Preferred Stock.


                                       9
<PAGE>   10
                                                        Series B Preferred Stock

              "Spin Off": The distribution of stock of a Subsidiary of this
Corporation as a dividend to all holders of Series B Common Stock (or to holders
of other stock of this Corporation receivable by a holder of Shares upon
conversion thereof (or upon conversion of securities receivable by a holder of
Shares upon conversion of such Shares)).

              "Spin Off Securities": Stock of a Subsidiary of this Corporation
that is distributed to holders of Series B Common Stock (or to holders of other
stock of this Corporation receivable by a holder of Shares upon conversion
thereof (or upon conversion of securities receivable by a holder of Shares upon
conversion of such Shares)) in a Spin Off; provided, however, that in the case
of a Spin Off distribution made to holders of Series A Common Stock and Series B
Common Stock, if the same kind and quantity of stock is distributed with respect
to both Series A Common Stock and Series B Common Stock or if stock of one class
or series is distributed with respect to Series A Common Stock and the same
quantity of stock of a different class or series is distributed with respect to
Series B Common Stock and the differences between such classes or series are no
less favorable to the holders of Series B Common Stock than the differences
between the Series A Common Stock and the Series B Common Stock, then the Spin
Off Securities shall be the stock distributed with respect to shares of Series B
Common Stock and not the stock distributed with respect to shares of Series A
Common Stock.

              "Stated Value": Of a Share of the Series B  Preferred Stock,
$1,000.

              "Subsidiary": With respect to any person, any corporation, limited
liability company, partnership or other legal entity more than 50% of whose
outstanding voting securities or membership, partnership or other ownership
interests, as the case may be, are directly or indirectly owned by such person.

              E. Dividends.

                 1.  Subject to the prior preferences and other rights of any
Senior Securities, the holders of Series B Preferred Stock shall be entitled to
receive cumulative cash dividends, in preference to dividends on any Junior
Securities, which shall accrue as provided herein. Dividends on each Share will
accrue on a daily basis at the rate of 5% per annum of the Liquidation
Preference of such Share from and including the Issue Date to but excluding the
date on which the Liquidation Preference or Redemption Price of such Share is
made available pursuant to paragraph 4 or 7, respectively, of this Certificate
of Designations or the Conversion Date of such Share pursuant to paragraph 5
hereof, as applicable, provided, however, that on and after the occurrence of a
Default, the dividend rate shall be 7% per annum, rather than 5% per annum.
Dividends shall accrue as provided

                                       10
<PAGE>   11



                                                        Series B Preferred Stock

herein whether or not such dividends have been declared and whether or not there
are any unrestricted funds of this Corporation legally available for the payment
of dividends. Accrued dividends on the Series B Preferred Stock shall be payable
quarterly on each Dividend Payment Date to the holders of record of the Series B
Preferred Stock as of the close of business on the applicable Record Date. For
purposes of determining the amount of dividends "accrued" (i) as of the first
Dividend Payment Date and as of any date that is not a Dividend Payment Date,
such amount shall be calculated on the basis of the rate per annum specified
above in this paragraph 3(a) for the actual number of days elapsed from and
including the Issue Date (in the case of the first Dividend Payment Date and any
date prior to the first Dividend Payment Date) or the last preceding Dividend
Payment Date (in the case of any other date) to but excluding the date as of
which such determination is to be made, based on a 365-day year, and (ii) as of
any Dividend Payment Date after the first Dividend Payment Date, such amount
shall be calculated on the basis of such rate per annum based on a 360-day year
of twelve 30-day months. For so long as the Liquidation Preference of a Share of
Series B Preferred Stock is equal to the Stated Value per Share, the amount of
the dividend payable per Share on the Dividend Payment Date for each full
quarterly Dividend Period shall be $12.50.

                 2. All dividends payable with respect to the Shares shall be
declared and paid in cash, except as otherwise provided in paragraph 5 in
connection with the conversion of a Share. Payment of such dividends as provided
herein shall be deemed to have been made when such payment has been delivered by
wire transfer of immediately available funds to the record holders of the Series
B Preferred Stock entitled to receive the same, in accordance with the
instructions of such holders delivered in writing to the Corporation at least
two Business Days prior to any Dividend Payment Date (or if no such instructions
are received, by mail to the address of such record holder on the books of the
Corporation). All dividends paid with respect to the Shares pursuant to this
paragraph 3 shall be paid pro rata to all the holders of Shares outstanding on
the applicable Record Date or Special Record Date, as the case may be.

                 3. If on any Dividend Payment Date this Corporation, pursuant
to applicable law or otherwise, shall be prohibited or restricted from paying
the full dividends to which holders of Series B Preferred Stock, and any Parity
Securities ranking on a parity basis with the Series B Preferred Stock with
respect to the right to receive dividend payments, shall be entitled, the amount
available for such payment pursuant to applicable law and which is not otherwise
restricted (if any) shall be distributed among the holders of Series B Preferred
Stock and any such Parity Securities ratably in proportion to the full amounts
to which they would otherwise be entitled. On each Dividend Payment Date, all
dividends that have accrued on each share of Series B Preferred Stock during the
Dividend

                                       11
<PAGE>   12



                                                        Series B Preferred Stock

Period ending on such Dividend Payment Date shall, to the extent not paid on
such Dividend Payment Date for any reason (whether or not such unpaid dividends
have been declared or there are any unrestricted funds of this Corporation
legally available for the payment of dividends), be added cumulatively to the
Liquidation Preference of such Share and will remain a part thereof until such
dividends are paid. That portion of the Liquidation Preference of a Share that
consists of accrued unpaid dividends, together with all dividends accrued in
respect thereof, may be declared and paid at any time (subject to the rights of
any Senior Securities and to the concurrent satisfaction of any dividend
arrearages then existing with respect to any Parity Securities that rank on a
parity basis with the Series B Preferred Stock as to the payment of dividends),
without reference to any regular Dividend Payment Date, to holders of record as
of the close of business on such date, not more than 45 days nor less than 10
days preceding the payment date thereof, as may be fixed by the Board of
Directors (the "Special Record Date"). Notice of each Special Record Date shall
be given, not more than 45 days nor less than 10 days prior thereto, to the
holders of record of the Shares. Any dividend payment made on the Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to such Shares.

                 4. If at any time this Corporation shall have failed to pay, or
declare and set aside the consideration sufficient to pay, full cumulative
dividends on the Series B Preferred Stock for all Dividend Periods ending on or
before the immediately preceding Dividend Payment Date, and until full
cumulative dividends on the Series B Preferred Stock for all Dividend Periods
ending on or before the immediately preceding Dividend Payment Date are paid, or
declared and the consideration sufficient to pay the same in full is set aside
so as to be available for such purpose and no other purpose, (i) this
Corporation shall not redeem, or discharge any sinking fund obligation with
respect to, any Shares, Parity Securities or Junior Securities, or set aside any
money or assets for any such purpose, unless all then outstanding Shares are
redeemed pursuant to the terms hereof, (ii) this Corporation shall not declare
or pay any dividend on or make any distribution with respect to any Junior
Securities or Parity Securities or set aside any money or assets for any such
purpose, except that this Corporation may declare and pay a dividend on any
Parity Securities ranking on a parity basis with the Series B Preferred Stock
with respect to the right to receive dividend payments, contemporaneously with
the declaration and payment of a dividend on the Series B Preferred Stock,
provided that such dividends are declared and paid pro rata so that the amount
of dividends declared and paid per share of Series B Preferred Stock and such
Parity Securities shall in all cases bear to each other the same ratio that
accumulated and accrued and unpaid dividends per share on the Series B Preferred
Stock and such Parity Securities bear to each other, and (iii) neither this
Corporation nor any Subsidiary thereof shall purchase or otherwise acquire any
Shares, Parity Securities or Junior Securities.

                                       12
<PAGE>   13



                                                        Series B Preferred Stock

              Nothing contained in the preceding paragraph of this paragraph
3(d) shall prevent (x) the payment of dividends on any Junior Securities solely
in shares of Junior Securities or the redemption, purchase or other acquisition
of Junior Securities solely in exchange for shares of Junior Securities, (y) the
payment of dividends on any Parity Securities solely in shares of Junior
Securities or the redemption, exchange, purchase or other acquisition of Series
B Preferred Stock or Parity Securities solely in exchange for (together with a
cash adjustment for fractional shares, if any) shares of Junior Securities; or
(z) the purchase or acquisition of Shares pursuant to a purchase or exchange
offer or offers made to all holders of outstanding shares of Series B Preferred
Stock, provided that the terms of the purchase or exchange offer shall be
identical for all shares of Series B Preferred Stock and all accrued dividends
on such Shares shall have been paid or shall have been declared and irrevocably
set apart in trust for the benefit of the holders of shares of Series B
Preferred Stock and for no other purpose. The provisions of this paragraph 3(d)
are for the benefit of the holders of Series B Preferred Stock and accordingly
the provisions of this paragraph 3(d) shall not restrict any redemption or
purchase by this Corporation or a Subsidiary thereof of Shares held by any
holder, provided that all other holders of Shares shall have waived in writing
the benefits of this provision with respect to such redemption.

              F. Liquidation. Upon any liquidation, dissolution or winding up of
this Corporation, whether voluntary or involuntary, the holders of Series B
Preferred Stock shall be entitled to be paid an amount in cash equal to the
aggregate Liquidation Preference at the date of payment of all Shares
outstanding, which amounts shall be paid (x) before any distribution or payment
upon any such liquidation, dissolution or winding up of this Corporation is made
upon any Junior Securities, (y) on a pari passu basis with any such payment made
to the holders of any Parity Securities, and (z) after any such payment is made
upon any Senior Securities. The holders of Series B Preferred Stock shall be
entitled to no other or further distribution of or participation in any
remaining assets of this Corporation after receiving the full preferential
amounts provided for in the preceding sentence. If upon such liquidation,
dissolution or winding up, the assets of this Corporation to be distributed
among the holders of Series B Preferred Stock and to all holders of Parity
Securities are insufficient to permit payment in full to such holders of the
aggregate preferential amounts which they are entitled to be paid, then the
entire assets of this Corporation to be distributed to such holders shall be
distributed ratably among them based upon the full preferential amounts to which
the shares of Series B Preferred Stock and such Parity Securities would
otherwise respectively be entitled. Upon any such liquidation, dissolution or
winding up, after the holders of Series B Preferred Stock and Parity Securities
have been paid in full the amounts to which they are entitled, the remaining
assets of this Corporation may be distributed to the holders of Junior
Securities. This Corporation shall mail written notice of such liquidation,
dissolution or winding up to each record holder of Series B Preferred Stock

                                       13

<PAGE>   14



                                                        Series B Preferred Stock

not less than 20 days prior to the payment date stated in such written notice.
Neither the consolidation or merger of this Corporation into or with any other
corporation or corporations, nor the sale, transfer or lease by this Corporation
of all or any part of its assets, shall be deemed to be a liquidation,
dissolution or winding up of this Corporation within the meaning of this
paragraph 4.

              G. Conversion.

                 1. Except as provided below in this paragraph 5(a) with respect
to Shares previously called for redemption as provided in paragraph 7 hereof,
the Series B Preferred Stock may be converted at any time or from time to time,
at the option of the holder thereof, in such manner and upon such terms and
conditions as hereinafter provided in this paragraph 5 into fully paid and
non-assessable full shares of Series B Common Stock. In the case of Shares
called for redemption by this Corporation pursuant to paragraph 7(a) hereof, the
conversion right provided by this paragraph 5 shall terminate at the close of
business on the Redemption Date. In the case of Shares required to be redeemed
pursuant to paragraph 7(b), the conversion right provided by this paragraph 5
shall terminate immediately upon receipt by this Corporation of a notice given
pursuant to said paragraph; provided, however, that such right shall be
reinstated as of the day following the date fixed for redemption of such Share
as specified in the notice of redemption given in accordance with paragraph 7(c)
unless the applicable Redemption Price is actually paid on such date or the
consideration sufficient for the payment thereof, and for no other purpose, has
been set apart. In case securities, cash or other assets other than Series B
Common Stock shall be payable, deliverable or issuable upon conversion as
provided herein, then all references to Series B Common Stock in this paragraph
5 shall be deemed to apply, so far as appropriate and as nearly as may be, to
such securities, cash or other assets.

                 2. Subject to the provisions for adjustment hereinafter set
forth in this paragraph 5, the Series B Preferred Stock may be converted into
Series B Common Stock at the initial conversion rate of 171.674 fully paid and
non-assessable shares of Series B Common Stock for one share of the Series B
Preferred Stock, which rate was determined by dividing the Stated Value of a
Share of Series B Preferred Stock by $5.825 (the "initial conversion price"). If
on any Conversion Date, the Liquidation Preference of a Share of Series B
Preferred Stock is greater than the Stated Value of such Share (the amount of
such difference, the "Differential Amount"), then the number of shares of Series
B Common Stock or units of securities, cash or other assets otherwise issuable
or deliverable upon conversion of such Share shall be increased by an amount
determined by dividing the Differential Amount by the Effective Conversion Price
of such Share. The "Effective Conversion Price" of a Share as of a Conversion
Date means the quotient obtained by


                                       14


<PAGE>   15

                                                        Series B Preferred Stock

dividing the Stated Value of such Share by the Conversion Rate then in effect
before giving effect to the adjustment contemplated by the preceding sentence.

                 3. In case this Corporation shall, on or after the Issue Date,
(i) pay a dividend or make a distribution on its then outstanding shares of
Series B Common Stock in shares of Series B Common Stock, (ii) subdivide the
then outstanding shares of Series B Common Stock into a greater number of shares
of Series B Common Stock, (iii) combine the then outstanding shares of Series B
Common Stock into a smaller number of shares of Series B Common Stock, (iv) pay
a dividend or make a distribution on its then outstanding shares of Series B
Common Stock in shares of its Capital Stock or Convertible Securities (other
than Series B Common Stock or rights or warrants for its Capital Stock or for
its Convertible Securities), or (v) issue by reclassification of its then
outstanding shares of Series B Common Stock (other than a reclassification by
way of merger or binding share exchange that is subject to paragraph 5(g)) any
shares of any other class or series of Capital Stock of this Corporation (other
than rights, warrants or options for its Capital Stock), then, subject to the
following sentence and to paragraph 5(k), the conversion privilege and the
Conversion Rate in effect immediately prior to the opening of business on the
record date for such dividend or distribution or the effective date of such
subdivision, combination or reclassification shall be adjusted so that the
holder of each share of the Series B Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number and kind of shares of Capital
Stock of this Corporation that such holder would have owned or been entitled to
receive immediately following such action had such shares of Series B Preferred
Stock been converted immediately prior to the record date for, or effective date
of, as the case may be, such event.

              An adjustment made pursuant to this paragraph 5(c) for a dividend
or distribution shall become effective immediately after the record date for the
dividend or distribution and an adjustment made pursuant to this paragraph 5(c)
for a subdivision, combination or reclassification shall become effective
immediately after the effective date of the subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any action
listed above shall be taken.

              Any shares of Series B Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the time of
the record date for such dividend for purposes of calculating the number of
outstanding shares of Series B Common Stock under paragraph 5(d) below.

                 4. In case this Corporation shall, on or after the Issue Date,
distribute any rights or warrants to all holders of shares of Series B Common
Stock entitling

                                       15

<PAGE>   16



                                                        Series B Preferred Stock

them (for a period expiring within 45 days after the record date for the
determination of stockholders entitled to receive such rights or warrants) to
subscribe for or purchase shares of Series B Common Stock (or Series B
Convertible Securities) at a price per share of Series B Common Stock (or having
an initial exercise price or conversion price per share of Series B Common
Stock, after adding thereto an allocable portion of the exercise price of the
right or warrant to purchase such Series B Convertible Securities, computed on
the basis of the maximum number of shares of Series B Common Stock issuable upon
conversion of such Series B Convertible Securities) less than the current market
price per share of Series B Common Stock (as determined in accordance with the
provisions of paragraph 5(f) below) on the Determination Date, the number of
shares of Series B Common Stock into which each Share shall thereafter be
convertible shall be determined by multiplying the number of shares of Series B
Common Stock into which such Share was theretofore convertible immediately prior
to the opening of business on such record date by a fraction of which the
numerator shall be the number of shares of Series B Common Stock outstanding on
such record date plus the number of additional shares of Series B Common Stock
offered for subscription or purchase (or into which the Series B Convertible
Securities so offered are initially convertible) and of which the denominator
shall be the number of shares of Series B Common Stock outstanding on such
record date plus the number of shares of Series B Common Stock which the
aggregate offering price of the total number of shares of Series B Common Stock
so offered (or the aggregate initial conversion or exercise price of the Series
B Convertible Securities so offered, after adding thereto the aggregate exercise
price of the rights or warrants to purchase such Series B Convertible
Securities) would purchase at the current market price per share of Series B
Common Stock (as determined in accordance with the provisions of paragraph 5(f)
below) on the Determination Date. Such adjustment shall be made successively
whenever any such rights or warrants are issued and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. In the event that all of the shares of
Series B Common Stock (or all of the Series B Convertible Securities) subject to
such rights or warrants have not been issued when such rights or warrants expire
(or, in the case of rights or warrants to purchase Series B Convertible
Securities which have been exercised, all of the shares of Series B Common Stock
issuable upon conversion of such Series B Convertible Securities have not been
issued prior to the expiration of the conversion right thereof), then the
Conversion Rate shall be readjusted retroactively to be the Conversion Rate
which would then be in effect had the adjustment upon the issuance of such
rights or warrants been made on the basis of the actual number of shares of
Series B Common Stock (or Series B Convertible Securities) issued upon the
exercise of such rights or warrants (or the conversion of such Series B
Convertible Securities); but such subsequent adjustment shall not affect the
number of shares of Series B Common Stock issued upon the conversion of any
Share prior to the date such subsequent adjustment is made. No adjustment shall
be made under this paragraph 5(d) if

                                       16

<PAGE>   17



                                                        Series B Preferred Stock

the adjusted Conversion Rate would be lower than the Conversion Rate in effect
immediately prior to such adjustment.

                 5. In case this Corporation, on or after the Issue Date, shall
distribute to all holders of shares of Series B Common Stock any evidences of
its indebtedness or assets or rights or warrants to purchase shares of Series A
Common Stock (or Series A Convertible Securities) or Series B Common Stock (or
Series B Convertible Securities) (excluding (x) dividends or distributions
referred to in paragraph 5(c), distributions of rights or warrants referred to
in paragraph 5(d), distributions of Spin Off Securities referred to in paragraph
5(i) and distributions of rights or warrants exercisable for Exchange Securities
(which shall be governed by paragraph 6) and (y) cash dividends or distributions
unless such cash dividends or cash distributions are Extraordinary Cash
Dividends), then in each such case the number of shares of Series B Common Stock
into which each Share shall thereafter be convertible shall be determined by
multiplying the number of shares of Series B Common Stock into which such Share
was theretofore convertible immediately prior to the opening of business on (A)
the record date for the determination of stockholders entitled to receive the
distribution or (B) in the case of a reclassification, the effective date of
such reclassification, by a fraction of which the numerator shall be the current
market price per share of the Series B Common Stock (as determined in accordance
with the provisions of paragraph 5(f) below) on the Determination Date and of
which the denominator shall be such current market price per share of Series B
Common Stock less the fair market value (as determined by the Board of Directors
of this Corporation, whose determination shall be conclusive) on such record
date or effective date of the portion of the assets or evidences of indebtedness
or rights or warrants so to be distributed applicable to one share of Series B
Common Stock; provided, however, that in the event the denominator of the
foregoing fraction is zero or negative, in lieu of the foregoing adjustment,
adequate provision shall be made so that each holder of a Share shall have the
right to receive upon conversion of such Share, in addition to the shares of
Series B Common Stock to which the holder is entitled, the assets or evidences
of indebtedness or rights or warrants such holder would have received had such
holder converted such Share immediately prior to the record date for such
distribution. Such adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution. No adjustment shall be made under this paragraph 5(e) if the
adjusted Conversion Rate would be lower than the Conversion Rate in effect
immediately prior to such adjustment.

              For purposes of this paragraph 5(e), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to the Series B Common Stock
the amount of which,

                                       17
<PAGE>   18


                                                        Series B Preferred Stock

together with the aggregate amount of cash dividends on the Series B Common
Stock to be aggregated with such cash dividend in accordance with the following
provisions of this paragraph, equals or exceeds the threshold percentage set
forth below in the following sentence. If, upon the date prior to the
Ex-Dividend Date with respect to a cash dividend on Series B Common Stock, the
aggregate of the amount of such cash dividend together with the amounts of all
cash dividends on the Series B Common Stock with Ex-Dividend Dates occurring in
the 365 consecutive day period ending on the date prior to the Ex-Dividend Date
with respect to the cash dividend to which this provision is being applied
(other than any such other cash dividends with Ex-Dividend Dates occurring in
such period for which a prior adjustment in the Conversion Rate was previously
made under this paragraph 5(e)) equals or exceeds on a per share basis 10% of
the average of the Closing Prices during the period beginning on the date after
the first such Ex-Dividend Date in such period and ending on the date prior to
the Ex-Dividend Date with respect to the cash dividend to which this provision
is being applied (except that if no other cash dividend has had an Ex-Dividend
Date occurring in such period, the period for calculating the average of the
Closing Prices shall be the period commencing 365 days prior to the date
immediately prior to the Ex-Dividend Date with respect to the cash dividend to
which this provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Date occurring in such 365-day period
that is aggregated with such cash dividend in accordance with this paragraph
shall be deemed to be an Extraordinary Cash Dividend.

                 6. For the purpose of any computation under paragraph 5(d) or
5(e) the current market price per share of Series B Common Stock on any
Determination Date or date of issuance, as the case may be, shall be deemed to
be the product of (i) the number of shares of Series A Common Stock into which a
share of Series B Common Stock is then convertible at the option of the holder
thereof times (ii) the average of the daily Closing Prices for a share of Series
A Common Stock for the ten (10) consecutive trading days before the
Determination Date in question.

                 7. If this Corporation consolidates with any other entity or
merges into another entity, or in case of any sale or transfer to another entity
(other than by mortgage or pledge) of all or substantially all of the properties
and assets of this Corporation, or if the Corporation is a party to a merger or
binding share exchange which reclassifies or changes its outstanding Series B
Common Stock, this Corporation (or its successor in such transaction) or the
purchaser of such properties and assets shall make appropriate provision so that
the holder of a Share shall have the right thereafter to convert such Share into
the kind and amount of securities, cash or other assets that such holder would
have owned immediately after such consolidation, merger, sale or transfer if
such holder had converted such Share into Series B Common Stock immediately
prior to the effective date of such

                                       18
<PAGE>   19



                                                        Series B Preferred Stock

consolidation, merger, sale or transfer (taking into account for this purpose
(to the extent applicable) the valid exercise by such holder of any rights of
election made available to holders of Series B Common Stock, which rights of
election shall simultaneously be made available to holders of Shares on the same
basis as if such Shares had theretofore been converted into shares of Series B
Common Stock), and the holders of the Series B Preferred Stock shall have no
other conversion rights under these provisions; provided that effective
provision shall be made, in the Articles or Certificate of Incorporation of the
resulting or surviving corporation or otherwise or in any contracts of sale or
transfer, so that the provisions set forth herein for the protection of the
conversion rights of the Series B Preferred Stock shall thereafter be made
applicable, as nearly as reasonably may be, to any such other securities and
other assets deliverable upon conversion of the Series B Preferred Stock
remaining outstanding or other convertible preferred stock or other convertible
securities received by the holders of Series B Preferred Stock in place thereof;
and provided, further, that any such resulting or surviving corporation or
purchaser shall expressly assume the obligation to deliver, upon the exercise of
the conversion privilege, such securities, cash or other assets as the holders
of the Series B Preferred Stock remaining outstanding, or other convertible
preferred stock or other convertible securities received by the holders in place
thereof, shall be entitled to receive pursuant to the provisions hereof, and to
make provision for the protection of the conversion rights as above provided.

                 8. Subject to paragraph 5(k) and to the remaining provisions of
this paragraph 5(h), in the event that a holder of Series B Preferred Stock
would be entitled to receive upon conversion thereof pursuant to this paragraph
5 any Redeemable Capital Stock and this Corporation redeems, exchanges or
otherwise acquires all of the outstanding shares or other units of such
Redeemable Capital Stock (such event being a "Redemption Event"), then, from and
after the effective date of such Redemption Event, the holders of Shares of
Series B Preferred Stock then outstanding shall be entitled to receive upon
conversion of such Shares, in lieu of shares or units of such Redeemable Capital
Stock, the kind and amount of securities, cash and other assets receivable upon
the Redemption Event by a holder of the number of shares or units of such
Redeemable Capital Stock into which such Shares of Series B Preferred Stock
could have been converted immediately prior to the effective date of such
Redemption Event (assuming, to the extent applicable, that such holder failed to
exercise any rights of election with respect thereto and received per share or
unit of such Redeemable Capital Stock the kind and amount of securities, cash
and other assets received per share or unit by a plurality of the non-electing
shares or units of such Redeemable Capital Stock), and (from and after the
effective date of such Redemption Event) the holders of the Series B Preferred
Stock shall have no other conversion rights under these provisions with respect
to such Redeemable Capital Stock.

                                       19
<PAGE>   20



                                                        Series B Preferred Stock

             Notwithstanding the foregoing, if the redemption price for the
shares of such Redeemable Capital Stock is paid in whole or in part in
Redemption Securities, and the Mirror Preferred Stock Condition is met, the
Series B Preferred Stock shall not be convertible into such Redemption
Securities and, from and after the applicable redemption date, the holders of
any shares of Series B Preferred Stock that have not been exchanged for Mirror
Preferred Stock and Exchange Preferred Stock shall have no conversion rights
under these provisions except for any conversion right that may have existed
immediately prior to the effective date of the Redemption Event with respect to
any securities (including the Series B Common Stock), cash or other assets other
than the Redeemable Capital Stock so redeemed. This Corporation shall use all
commercially reasonable efforts to ensure that the Mirror Preferred Stock
Condition is satisfied. The Mirror Preferred Stock Condition will be satisfied
in connection with a redemption of any Redeemable Capital Stock into which the
Series B Preferred Stock is then convertible if appropriate provision is made so
that the holders of the Series B Preferred Stock have the right to exchange
their shares of Series B Preferred Stock on the effective date of the Redemption
Event for Exchange Preferred Stock of this Corporation and Mirror Preferred
Stock of the issuer of the Redemption Securities. The sum of the initial
liquidation preferences of the shares of Exchange Preferred Stock and Mirror
Preferred Stock delivered in exchange for a Share of Series B Preferred Stock
will equal the Liquidation Preference of a share of Series B Preferred Stock on
the effective date of the Redemption Event. The Mirror Preferred Stock will have
an aggregate initial liquidation preference equal to the product of the
aggregate Liquidation Preference of the Shares of Series B Preferred Stock
exchanged therefor and the quotient of (x) the product of the Conversion Rate
for the Redeemable Capital Stock to be redeemed (determined immediately prior to
the effective date of the Redemption Event) and the average of the daily Closing
Prices of the Redeemable Capital Stock for the period of ten consecutive trading
days ending on the third trading day prior to the effective date of the
Redemption Event, divided by (y) the sum of the amount determined pursuant to
clause (x), plus the fair value of the securities (other than the Redeemable
Capital Stock being redeemed), cash or other assets that would have been
receivable by a holder of Series B Preferred Stock upon conversion thereof
immediately prior to the effective date of the Redemption Event (such fair value
to be determined in the case of stock or other securities with a Closing Price
in the same manner as provided in clause (x) and otherwise by the Board of
Directors in the exercise of its good faith judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference equal to
the difference between the aggregate Liquidation Preference of the Shares of
Series B Preferred Stock exchanged therefor and the aggregate initial
liquidation preference of the Mirror Preferred Stock.

                 9. If this Corporation effects a Spin Off, this Corporation
shall make appropriate provision so that the holders of the Series B Preferred
Stock have the

                                       20

<PAGE>   21



                                                        Series B Preferred Stock

right to exchange their Shares of Series B Preferred Stock on the effective date
of the Spin Off for Exchange Preferred Stock of this Corporation and Mirror
Preferred Stock of the issuer of the Spin Off Securities. The sum of the initial
liquidation preferences of the shares of Exchange Preferred Stock and Mirror
Preferred Stock delivered in exchange for a Share of Series B Preferred Stock
will equal the Liquidation Preference of a Share of Series B Preferred Stock on
the effective date of the Spin Off. The Mirror Preferred Stock will have an
aggregate liquidation preference equal to the product of the aggregate
Liquidation Preference of the Shares of Series B Preferred Stock exchanged
therefor and the quotient of (x) the product of the number (or fraction) of Spin
Off Securities that would have been receivable upon such Spin Off by a holder of
the number of shares of Series B Common Stock issuable upon conversion of a
Share of Series B Preferred Stock immediately prior to the effective date of the
Spin Off and the average of the daily Closing Prices of the Spin Off Securities
for the period of ten consecutive trading days commencing on the tenth trading
day following the effective date of the Spin Off, divided by (y) the sum of the
amount determined pursuant to clause (x), plus the fair value of the shares of
Series B Common Stock and other securities (other than Spin Off Securities),
cash or other assets that would have been receivable by a holder of a Share of
Series B Preferred Stock upon conversion thereof immediately prior to the
effective date of the Spin Off (such fair value to be determined in the case of
Series B Common Stock or other securities with a Closing Price in the same
manner as provided in clause (x) and otherwise by the Board of Directors in the
exercise of its good faith judgment). The shares of Exchange Preferred Stock
will have an aggregate initial liquidation preference equal to the difference
between the aggregate Liquidation Preference of the Shares of Series B Preferred
Stock exchanged therefor and the aggregate initial liquidation preference of the
Mirror Preferred Stock. From and after the effective date of such Spin Off, the
holders of any Shares of Series B Preferred Stock that have not been exchanged
for Mirror Preferred Stock and Exchange Preferred Stock as provided above shall
have no conversion rights under these provisions with respect to such Spin Off
Securities.

                 10. Whenever the Conversion Rate or the conversion privilege
shall be adjusted as provided in this paragraph 5, this Corporation shall
promptly cause a notice to be mailed to the holders of record of the Series B
Preferred Stock describing the nature of the event requiring such adjustment,
the Conversion Rate in effect immediately thereafter and the kind and amount of
Capital Stock or other securities or cash or other assets into which the Series
B Preferred Stock shall be convertible after such event. Where appropriate, such
notice may be given in advance and included as a part of a notice required to be
mailed under the provisions of paragraph 5(l).

                                       21
<PAGE>   22



                                                        Series B Preferred Stock

                 11. This Corporation may, but shall not be required to, make
any adjustment of the Conversion Rate if such adjustment would require an
increase or decrease of less than 1% in such Conversion Rate; provided, however,
that any adjustments which by reason of this paragraph 5(k) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this paragraph 5 shall be made to the nearest
cent or the nearest 1/1000th of a share, as the case may be. In any case in
which this paragraph 5(k) shall require that an adjustment shall become
effective immediately after a record date for such event, the Corporation may
defer until the occurrence of such event (x) issuing to the holder of any Shares
of Series B Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Series B Common Stock or other
Capital Stock issuable upon such conversion by reason of the adjustment required
by such event over and above the shares of Series B Common Stock or other
Capital Stock issuable upon such conversion before giving effect to such
adjustment and (y) paying to such holder cash in lieu of any fractional interest
to which such holder is entitled pursuant to paragraph 5(p); provided, however,
that, if requested by such holder, this Corporation shall deliver to such holder
a due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares of Series B Common Stock or other Capital Stock,
and such cash, upon the occurrence of the event requiring such adjustment.

              To the extent the shares of Series B Preferred Stock become
convertible into cash, no adjustment need be made thereafter as to the cash.
Interest will not accrue on the cash.

                 12. In case at any time:

                     (i)  this Corporation shall take any action which would
     require an adjustment in the Conversion Rate pursuant to this paragraph;

                     (ii) there shall be any capital reorganization or
     reclassification of the Series B Common Stock (other than a change in par
     value), or any consolidation, merger or binding share exchange to which the
     Corporation is a party and for which approval of any stockholders of this
     Corporation is required, or any sale, transfer or lease of all or
     substantially all of the assets of the Corporation, or a tender offer for
     shares of Common Stock of any series representing at least a majority of
     the total voting power represented by the outstanding shares of Common
     Stock of such series which has been recommended by the Board of Directors
     as being in the best interests of the holders of Common Stock; or

                                       22
<PAGE>   23


                                                        Series B Preferred Stock

                     (iii) there shall be a voluntary or involuntary
     dissolution, liquidation or winding up of this Corporation;

then, in any such event, this Corporation shall give written notice, in the
manner provided in the first sentence of paragraph 7(c) hereof, to the holders
of the Series B Preferred Stock at their respective addresses as the same appear
on the books of the Corporation, at least twenty days (or ten days in the case
of a recommended tender offer as specified in clause (ii) above) prior to any
record date for such action, dividend or distribution or the date as of which it
is expected that holders of Series B Common Stock of record shall be entitled to
exchange their shares of Series B Common Stock for securities, cash or other
assets, if any, deliverable upon such reorganization, reclassification,
consolidation, merger, binding share exchange, sale, transfer, lease, tender
offer, dissolution, liquidation or winding up; provided, however, that any
notice required by any event described in clause (ii) of this paragraph 5(l)
shall be given in the manner and at the time that such notice is given to the
holders of Common Stock. Without limiting the obligations of this Corporation to
provide notice of corporate actions hereunder, the failure to give the notice
required by this paragraph 5(l) or any defect therein shall not affect the
legality or validity of any such corporate action of the Corporation or the vote
upon such action.

                 13. Before any holder of Series B Preferred Stock shall be
entitled to convert the same into Series B Common Stock, such holder shall
surrender the certificate or certificates for such Series B Preferred Stock at
the office of this Corporation or at the office of the transfer agent for the
Series B Preferred Stock, which certificate or certificates, if this Corporation
shall so request, shall be duly endorsed to this Corporation or in blank or
accompanied by proper instruments of transfer to this Corporation or in blank
(such endorsements or instruments of transfer to be in form satisfactory to this
Corporation), and shall give written notice to this Corporation at said office
that it elects to convert all or a part of the Shares represented by said
certificate or certificates in accordance with the terms of this paragraph 5,
and shall state in writing therein the name or names in which such holder wishes
the certificates for Series B Common Stock to be issued. Every such notice of
election to convert shall constitute a contract between the holder of such
Series B Preferred Stock and the Corporation, whereby the holder of such Series
B Preferred Stock shall be deemed to subscribe for the amount of Series B Common
Stock which such holder shall be entitled to receive upon conversion of the
number of shares of Series B Preferred Stock to be converted, and, in
satisfaction of such subscription, to deposit the shares of Series B Preferred
Stock to be converted, and thereby this Corporation shall be deemed to agree
that the surrender of the shares of Series B Preferred Stock to be converted
shall constitute full payment of such subscription for Series B Common Stock to
be issued upon such conversion. This Corporation will as soon as practicable
after such deposit of a certificate


                                       23
<PAGE>   24


                                                        Series B Preferred Stock

or certificates for Series B Preferred Stock, accompanied by the written notice
and the statement above prescribed, issue and deliver at the office of this
Corporation or of said transfer agent to the person for whose account such
Series B Preferred Stock was so surrendered, or to his nominee(s) or, subject to
compliance with applicable law, transferee(s), a certificate or certificates for
the number of full shares of Series B Common Stock to which such holder shall be
entitled, together with cash or its check in lieu of any fraction of a share as
hereinafter provided. If surrendered certificates for Series B Preferred Stock
are converted only in part, this Corporation will issue and deliver to the
holder, or to his nominee(s), without charge therefor, a new certificate or
certificates representing the aggregate of the unconverted Shares.

              The person or persons entitled to receive the Series B Common
Stock issuable upon conversion of such Series B Preferred Stock shall be treated
for all purposes as the record holder or holders of such Series B Common Stock
on the Conversion Date. Notwithstanding the foregoing, this Corporation shall
not be required to convert any Shares of Series B Preferred Stock, and no
surrender of Series B Preferred Stock shall be effective for that purpose, while
the stock transfer books of this Corporation are closed for any purpose; but
such surrender shall be effective (assuming all other requirements of this
paragraph 5(m) have been satisfied) for conversion, and to constitute the person
or persons entitled to receive the Series B Common Stock issuable upon such
conversion as the record holder(s) of such shares of Series B Common Stock, for
all purposes immediately upon the reopening of such books. Upon conversion of
Shares, the rights of the holder of the Shares so converted, as a holder
thereof, will cease; provided, however, that if the Board of Directors declares
any dividend on the Series B Preferred Stock pursuant to paragraph 3(a) of this
Certificate of Designations and the Conversion Date for any Shares of Series B
Preferred Stock occurs after the Record Date and before the Dividend Payment
Date for such dividend, then the holder of such Shares on such Record Date shall
be entitled to receive such dividend on such Dividend Payment Date as if such
Conversion Date had not occurred and the amount of such declared dividend that
would otherwise have been added to the Liquidation Preference of such converted
Shares pursuant to clause (c) of the definition of "Liquidation Preference"
shall not be added thereto.

              The issuance of certificates for shares of Series B Common Stock
upon conversion of Shares of Series B Preferred Stock shall be made without
charge for any issue, stamp or other similar tax in respect of such issuance;
provided, however, if any such certificate is to be issued in a name other than
that of the registered holder of the Share or Shares of Series B Preferred Stock
converted, the person or persons requesting the issuance thereof shall pay to
this Corporation the amount of any tax which may be payable in respect

                                       24
<PAGE>   25



                                                        Series B Preferred Stock

of any transfer involved in such issuance or shall establish to the satisfaction
of this Corporation that such tax has been paid.

                 14. This Corporation shall at all times reserve and keep
available, solely for the purpose of issuance upon conversion of the outstanding
shares of Series B Preferred Stock, such number of shares of Series B Common
Stock (or other Capital Stock) as shall be issuable upon the conversion of all
outstanding Shares, provided that nothing contained herein shall be construed to
preclude this Corporation from satisfying its obligations in respect of the
conversion of the outstanding shares of Series B Preferred Stock by delivery of
shares of Series B Common Stock (or such other Capital Stock) which are held in
the treasury of this Corporation. This Corporation shall take all such corporate
and other actions as from time to time may be necessary to insure that all
shares of Series B Common Stock (or other Capital Stock) issuable upon
conversion of shares of Series B Preferred Stock from time to time will, upon
issue, be duly and validly authorized and issued, fully paid and nonassessable
and free of any preemptive or similar rights.

                 15. All shares of Series B Preferred Stock received by this
Corporation upon conversion thereof into Series B Common Stock shall be retired
and shall be restored to the status of authorized and unissued shares of
preferred stock (and may be reissued as part of another series of the preferred
stock of this Corporation, but such shares shall not be reissued as Series B
Preferred Stock).

                 16. This Corporation shall not be required to issue fractional
shares of Series B Common Stock or scrip upon conversion of the Series B
Preferred Stock. As to any final fraction of a share of Series B Common Stock
which a holder of one or more Shares would otherwise be entitled to receive upon
conversion of such Shares in the same transaction, this Corporation shall pay a
cash adjustment in respect of such final fraction in an amount equal to the same
fraction of the market value of a full share of Series B Common Stock. For
purposes of this paragraph 5(p), the market value of a share of Series B Common
Stock shall be the product of (i) the Closing Price of a share of Series A
Common Stock on the trading day immediately preceding the Conversion Date times
(ii) the number of shares of Series A Common Stock into which a share of Series
B Common Stock is then convertible at the option of the holder.

                 17. This Corporation shall not, by amendment of this
Certificate of Designations or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, other than as expressly permitted by
this Certificate of Designations or approved by the requisite vote or written
consent of the holders of Series B Preferred Stock taken or given in


                                       25
<PAGE>   26



                                                        Series B Preferred Stock

accordance with this Certificate, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by this
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this paragraph 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion rights of the
holders of Series B Preferred Stock against impairment.

              H. Exchange Option.

                 1. In the event an Exchange Offer is made by this Corporation
or a Subsidiary thereof (the applicable of the foregoing being the "Offeror"),
the Offeror shall concurrently therewith make an equivalent offer to the holders
of Series B Preferred Stock pursuant to which such holders may tender Shares,
based upon the number of shares of Series B Common Stock into which such
tendered Shares are then convertible (or other stock of this Corporation
receivable by a holder of tendered Shares upon conversion thereof (or upon
conversion of securities receivable by a holder of Shares upon conversion of
such tendered Shares)) (and in lieu of tendering outstanding shares of Series B
Common Stock (or such other stock)), together with such other consideration as
may be required to be tendered pursuant to such Exchange Offer, and receive in
exchange therefor, in lieu of Exchange Securities (and other property, if
applicable), Mirror Preferred Stock with an aggregate liquidation preference
equal to the aggregate Liquidation Preference of the shares of Series B
Preferred Stock exchanged therefor. Whether or not a holder of Shares elects to
accept such offer and tender Shares, no adjustment to the Conversion Rate of the
Shares will be made pursuant to paragraph 5 in connection with the Exchange
Offer.

                 2. If an Exchange Offer is made as discussed above, the Offeror
shall, concurrently with the distribution of the offering circular or prospectus
and related documents to holders of Common Stock, provide each holder of Series
B Preferred Stock with a notice setting forth the offer described in paragraph
6(a) above and describing the Exchange Offer, the Exchange Securities and the
Mirror Preferred Stock. Such notice shall be accompanied by the offering
circular, prospectus or similar document provided to holders of Common Stock in
respect of the Exchange Offer and a copy of the certificate of designations (or
similar document) proposed to be filed by the Offeror in order to establish the
Mirror Preferred Stock. No failure to mail the notice contemplated by this
paragraph 6(b) or any defect therein or in the mailing thereof shall affect the
validity of the applicable Exchange Offer.



                                       26
<PAGE>   27



                                                        Series B Preferred Stock

              I. Redemption

                 1. Subject to paragraph 7(f), the shares of Series B Preferred
Stock may be redeemed out of funds legally available therefor, at the option of
this Corporation by action of the Board of Directors, in whole or from time to
time in part, on any Business Day after June 30, 2006 at the Redemption Price
per Share as of the applicable Redemption Date. If less than all outstanding
Shares are to be redeemed, Shares shall be redeemed ratably (as nearly as may be
practicable) among the holders thereof.

                 2. Subject to the rights of any Parity Securities and the
provisions of paragraph 7(f) and subject to any prohibitions or restrictions
contained in any Debt Instrument, at any time on or after June 30, 2006 or prior
thereto if a Default has occurred and during the continuance thereof, any holder
shall have the right, at such holder's option, to require redemption by this
Corporation at the Redemption Price per Share as of the applicable Redemption
Date of all or any portion of such holder's Shares, by written notice to this
Corporation stating the number of Shares to be redeemed. This Corporation shall
redeem, out of funds legally available therefor and not restricted in accordance
with the first sentence of this paragraph 7(b), the Shares so requested to be
redeemed on such date within 60 days following this Corporation's receipt of
such notice as this Corporation shall state in its notice given pursuant to
paragraph 7(c). If the funds of this Corporation legally available for
redemption of Shares and not restricted in accordance with the first sentence of
this paragraph 7(b) are insufficient to redeem the total number of Shares
required to be redeemed pursuant to this paragraph 7(b), then, those funds which
are legally available for redemption of such Shares and not so restricted will
be used to redeem the maximum possible number of such Shares ratably among the
holders who have required Shares to be redeemed under this paragraph 7(b). At
any time thereafter when additional funds of this Corporation are legally
available and not so restricted for such purpose, such funds will immediately be
used to redeem the Shares this Corporation failed to redeem on such Redemption
Date until the balance of such Shares are redeemed. Further, if the funds of
this Corporation legally available for redemption of Shares are sufficient to
pay the Redemption Price of the Shares requested to be redeemed in full, then
any portion of such Redemption Price not paid when due as provided in this
paragraph 7(b), notwithstanding that payment thereof is restricted pursuant to
any Debt Instrument in accordance with the first sentence of this paragraph
7(b), shall constitute indebtedness of this Corporation for borrowed money, the
payment of which indebtedness the holders requesting such redemption shall be
entitled to enforce by the exercise of any and all rights at law or in equity.

                 3. Notice of any redemption pursuant to this paragraph 7 shall
be mailed, first class, postage prepaid, not less than 30 days nor more than 60
days prior to

                                       27

<PAGE>   28



                                                        Series B Preferred Stock

the Redemption Date, to the holders of record of the shares of Series B
Preferred Stock to be redeemed, at their respective addresses as the same appear
upon the books of this Corporation or are supplied by them in writing to this
Corporation for the purpose of such notice; but no failure to mail such notice
or any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any shares of the Series B Preferred Stock.
Such notice shall set forth the Redemption Price, the Redemption Date, the
number of Shares to be redeemed and the place at which the Shares called for
redemption will, upon presentation and surrender of the stock certificates
evidencing such Shares, be redeemed. In case fewer than the total number of
shares of Series B Preferred Stock represented by any certificate are redeemed,
a new certificate representing the number of unredeemed Shares will be issued to
the holder thereof without cost to such holder.

                 4. If notice of any redemption by this Corporation pursuant to
this paragraph 7 shall have been mailed as provided in paragraph 7(c) and if on
or before the Redemption Date specified in such notice the consideration
necessary for such redemption shall have been set apart so as to be available
therefor and only therefor, then on and after the close of business on the
Redemption Date, the Shares called for redemption, notwithstanding that any
certificate therefor shall not have been surrendered for cancellation, shall no
longer be deemed outstanding, and all rights with respect to such Shares shall
forthwith cease and terminate, except the right of the holders thereof to
receive upon surrender of their certificates the consideration payable upon
redemption thereof.

                 5. All shares of Series B Preferred Stock redeemed, retired,
purchased or otherwise acquired by this Corporation shall be retired and shall
be restored to the status of authorized and unissued shares of preferred stock
(and may be reissued as part of another series of the preferred stock of this
Corporation, but such shares shall not be reissued as Series B Preferred Stock).

                 6. If and so long as this Corporation shall fail to redeem on a
Redemption Date pursuant to this paragraph 7 all shares of Series B Preferred
Stock required to be redeemed on such date, this Corporation shall not redeem,
or discharge any sinking fund obligation with respect to, any Shares, Junior
Securities or Parity Securities, or set aside any money or assets for any such
purpose, unless all then outstanding Shares required to be redeemed are redeemed
pursuant to the terms hereof, and shall not declare or pay any dividend on or
make any distribution with respect to any Junior Securities or set aside any
money or assets for any such purpose, and neither this Corporation nor any
Subsidiary thereof shall purchase or otherwise acquire any Shares, Parity
Securities or Junior Securities. Nothing contained in this paragraph 7(f) shall
prevent (i) the payment of dividends on any Junior Securities solely in shares
of Junior Securities or the redemption, purchase or other acquisition of Junior
Securities solely in exchange for shares of Junior

                                       28
<PAGE>   29



                                                        Series B Preferred Stock

Securities, (ii) the redemption, exchange, purchase or other acquisition of
Series B Preferred Stock or Parity Securities solely in exchange for (together
with a cash adjustment for fractional shares, if any), shares of Junior
Securities, or (iii) the purchase or acquisition of shares of Series B Preferred
Stock pursuant to a purchase or exchange offer or offers made to all holders of
outstanding shares of Series B Preferred Stock, provided that the terms of the
purchase or exchange offer shall be identical for all Shares and all accrued
dividends on such Shares shall have been declared and irrevocably set apart in
trust for the benefit of the holders of Shares and for no other purpose. The
provisions of this paragraph 7(f) are for the benefit of holders of Series B
Preferred Stock and accordingly the provisions of this paragraph 7(f) shall not
restrict any redemption or purchase by this Corporation or a Subsidiary thereof
of Shares held by any holder, provided that all other holders of Shares shall
have waived in writing the benefits of this provision with respect to such
redemption.

              J. Voting Rights. The holders of the Series B Preferred Stock
shall have no voting rights whatsoever, except as required by law and except
that, for so long as any Shares remain outstanding, this Corporation will not,
either directly or indirectly, without the consent of the holders of record of
at least 662/3% of the number of Shares then outstanding, take any action
(including by merger, consolidation or binding share exchange with any other
corporation or entity) to amend, alter or repeal (i) any of the provisions
hereof, (ii) any of the provisions of the Certificate of Incorporation of this
Corporation so as to affect adversely any preference or any relative or other
right given to the Series B Preferred Stock or the Series B Common Stock, or
(iii) any of paragraphs 3 or 4 or the first sentence of paragraph 2 of Section A
of Article IV of the Certificate of Incorporation of this Corporation.

              K. Waiver. Any provision of this Certificate of Designations
which, for the benefit of the holders of Series B Preferred Stock, prohibits,
limits or restricts actions by the Corporation, or imposes obligations on the
Corporation, including but not limited to provisions relating to the obligation
of the Corporation to redeem or convert such Shares, may be waived in whole or
in part, or the application of all or any part of such provision in any
particular circumstance or generally may be waived, in each case by the
affirmative vote or with the consent of the holders of record of at least 662/3%
of the number of Shares then outstanding (or such greater percentage thereof as
may be required by this Certificate of Designations, applicable law or any
applicable rules of any national securities exchange or national interdealer
quotation system), either in writing or by vote at an annual meeting or a
special meeting called for such purpose at which the holders of Series B
Preferred Stock shall vote as a separate class.


                                       29

<PAGE>   30



                                                        Series B Preferred Stock

              L. Preemptive Rights. The holders of the Series B Preferred Stock
will not have any preemptive right to subscribe for or purchase any shares of
stock or any other securities which may be issued by this Corporation.

              M. Senior Securities. The Series B Preferred Stock shall not rank
junior to any other classes or series of stock of this Corporation in respect of
the right to receive dividends or the right to participate in any distribution
upon liquidation, dissolution or winding up of this Corporation. Without the
prior consent of the holders of record of at least 662/3% of the number of
Shares then outstanding, this Corporation shall not issue any Senior Securities.

              N. Claims. In the event of any action at law or suit in equity
with respect to the Series B Preferred Stock, this Corporation, in addition to
all other sums which it may be required to pay, will pay a reasonable sum for
attorney's fees incurred by the holders of the Series B Preferred Stock in
connection with such action or suit and all other costs of collection. The
Corporation shall not assert its right to trial by jury in any action, suit or
proceeding arising from or related to this Series B Preferred Stock.

              O. Exclusion of Other Rights. Except as may otherwise be required
by law and for the equitable rights and remedies that may otherwise be available
to holders of Series B Preferred Stock, the shares of Series B Preferred Stock
shall not have any designations, preferences, limitations or relative rights,
other than those specifically set forth in these resolutions (as such
resolutions may, subject to paragraph 8, be amended from time to time) and in
the Certificate of Incorporation of this Corporation.

              P. Headings.  The headings of the various paragraphs and
subparagraphs hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.

              FURTHER RESOLVED, that the appropriate officers of this
Corporation are hereby authorized to execute and acknowledge a certificate
setting forth these resolutions and to cause such certificate to be filed and
recorded, in accordance with the requirements of Section 151(g) of the General
Corporation Law of the State of Delaware."

                                       30
<PAGE>   31



                                                        Series B Preferred Stock

              The undersigned has signed this Certificate of Designations on
this 8th day of September, 1999.

                                               /s/  David B. Koff
                                               ---------------------------------
                                               Name: David B. Koff
                                               Title: Vice President


                                       31

<PAGE>   1


                                                                    EXHIBIT 99.1

TCI Music and Liberty Media Complete Transaction

TCI Music Renamed Liberty Digital, Inc. Trading Symbol changed to LDIG Moves to
Nasdaq National Market Tier

NEW YORK, Sept. 9 /PRNewswire/ -- Liberty Media Group (NYSE: LMG.A and LMG.B)
TCI Music, Inc. (Nasdaq:TUNE) announced today that they have completed a
transaction pursuant to which:

             -- Liberty contributed to TCI Music substantially all of its
internet content and interactive television assets, its rights to provide
interactive video services on AT&T's cable television systems and a combination
of cash and notes receivable equal to $150 million;

            -- TCI Music issued to a subsidiary of Liberty 109,450,167 shares of
its Series B common stock and 150,000 shares of a newly authorized Series B
convertible preferred stock having an initial liquidation preference of $150
million, convertible into 25,751,073 shares of Series B common stock; and

             -- TCI Music changed its name to Liberty Digital, Inc. ("Liberty
Digital").

As a result of the transaction and assuming conversion of the preferred stock,
Liberty holds approximately 12 million shares of Liberty Digital Series A common
stock and approximately 197.7 million shares of Liberty Digital Series B common
stock resulting in approximately an 95% equity interest and 99% voting interest
in Liberty Digital.

The Series B preferred stock to be issued to Liberty is convertible into shares
of Series B common stock at $5.825 per share. The assets contributed to Liberty
Digital include equity investments in various internet companies such as ACTV,
Inc., drugstore.com, iVillage, priceline.com, Quokka.com and Sportsline USA.

In connection with the name change, Liberty Digital will change its trading
symbol from "TUNE" to "LDIG" beginning September 10, 1999. Also, effective
Friday, September 10, 1999, Liberty Digital Series A common stock will begin
trading on the National Market tier of The Nasdaq Stock Market.

In connection with the transaction, Liberty adopted a policy that Liberty
Digital will be its primary vehicle to pursue corporate opportunities relating
to interactive programming and content related services in the U.S. and Canada,
subject to certain exceptions.



<PAGE>   2




The transaction was approved by shareholders of Liberty Digital at its annual
meeting held on September 8, 1999.

Liberty Media Group holds interests in a broad range of video programming,
communications, technology and internet businesses in the United States, Europe,
South America and Asia. Liberty Media Group Class A and Class B Common Stock are
traded on the New York Stock Exchange under the symbols LMG.A and LMG.B,
respectively.

Liberty Digital, Inc. is a diversified new media company with investments in
Internet content and interactive television businesses, as well as music
services delivered to commercial and residential customers via cable, satellite,
the Internet and other platforms. Liberty Digital's Series A common stock is
traded on the National Market tier of The Nasdaq Stock Market under the symbol
LDIG.


                                       2


<PAGE>   1


                                                                    EXHIBIT 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

              The following unaudited proforma condensed combined financial
information has been prepared to give pro forma effect to the transactions
contemplated by a Contribution Agreement dated as of April 23, 1999 among TCI
Music, Inc. (n/k/a Liberty Digital, Inc.) ("Liberty Digital"), Liberty Media
Corporation ("Liberty") and wholly owned subsidiaries of Liberty, as amended
(collectively, "the Contribution Transaction"), the investment in MTVN Online
L.P., a Delaware limited partnership (the "MTVN Partnership") and the conversion
of the Series A preferred stock prior to redemption and the redemption of the
Series A preferred stock. The Contribution Transaction has been accounted for in
a manner similar to a pooling of interests, as Liberty and Liberty Digital are
entities under common control, while the investment in MTVN Partnership has been
accounted for as a sale between unaffiliated parties.

              The unaudited proforma condensed combined balance sheet as of June
30, 1999 and the unaudited proforma condensed combined statements of operations
for the six months ended June 30, 1999 and for the year ended December 31, 1998
give proforma effect to (1) the Contribution Transaction, which includes (A) the
contribution of the contributed assets and (B) the assignment of the rights to
provide Interactive Video Services (as described in Item 2) under a letter
agreement dated March 9, 1999 between Liberty and AT&T Corp. (the "Access
Agreement") entered into in connection with the merger of AT&T Corp. and
Tele-Communications, Inc., the former parent of Liberty, in exchange for common
and preferred stock, (2) the exchange of the assets of Sonic Net, Inc. and The
Box Worldwide, Inc., for a 10% ownership interest in MTVN Partnership, (3) the
conversion of the Series A preferred stock prior to redemption and the
redemption of the Series A preferred stock and (4) the related tax effects of
the transactions. The unaudited proforma information gives effect to the
transactions as if they had occurred as of June 30, 1999, for the unaudited
condensed combined balance sheet and as of January 1, 1998 for the unaudited
condensed combined statements of operations.

              The unaudited proforma condensed combined balance sheet and
condensed combined statements of operations do not purport to represent what
Liberty Digital's results of operations would have actually been if the
foregoing transactions had, in fact occurred on January 1, 1998. The unaudited
proforma condensed combined balance sheet and condensed

<PAGE>   2



combined statements of operations should be read in conjunction with the
historical audited consolidated financial statements of Liberty Digital.


                                       2
<PAGE>   3

                        LIBERTY DIGITAL AND SUBSIDIARIES
               UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET
                               AS OF JUNE 30, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                     ADD:
                                                                      ADD:           LESS:      INVESTMENT IN
                                                                   CONTRIBUTED     EXCHANGED        MTVN
                                                      HISTORICAL     ASSETS        ASSETS (f)   PARTNERSHIP (g)    PROFORMA
                                                     -----------   ------------    ----------   ---------------  -------------
<S>                                                 <C>            <C>             <C>          <C>              <C>
Assets

Total current assets                                   $ 92,586         50,000 (a)        --               --          142,586
Net assets of discontinued operations                    75,500             --        75,500               --               --
Investments in affiliates and
   other cost investments                                    --        617,714 (b)        --          150,000          767,714
Property, plant and equipment, net                       14,921             --            --               --           14,921
Intangible assets, net                                   99,681             --            --               --           99,681
Other assets                                             19,916        250,000 (c)        --               --          269,916
                                                     ----------    -----------     ---------     ------------    -------------
     Total assets                                       302,604        917,714        75,500          150,000        1,294,818
                                                     ==========    ===========     =========     ============    =============


Liabilities and stockholder's equity

Stock appreciation rights payable, short term           196,015             --            --               --          196,015
Other current liabilities                                15,623             --            --               --           15,623
                                                     ----------    -----------     ---------     ------------    -------------
Total current liabilities                               211,638             --            --               --          211,638

Debt, including related party                           107,963             --            --               --          107,963
Stock appreciation rights payable, long term             49,857             --            --               --           49,857
Other liabilities                                        10,929        343,180 (d)        --           47,800          401,909
                                                     ----------    -----------     ---------     ------------    -------------
     Total liabilities                                  380,387        343,180            --           47,800          771,367

Redeemable convertible
   preferred stock                                           --        150,000 (a)        --               --          150,000

Stockholder's equity                                    (77,783)       424,534 (e)    75,500          102,200          373,451
                                                     ----------    -----------     ---------     ------------    -------------
     Total liabilities and stockholder's
       equity                                           302,604        917,714        75,500          150,000        1,294,818
                                                     ==========    ===========     =========     ============    =============


Weighted average common shares                           82,075        109,450                                         191,525
                                                     ==========    ===========                                   =============

Book value per share                                      (0.95)                                                          1.95
                                                     ==========                                                  =============
</TABLE>


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

CONTRIBUTED ASSETS

(a)  Assumes $50 million in cash will be received from Liberty in connection
     with the Contribution Agreement.

(b)  Amount represents the carrying value of the investments contributed to
     Liberty Digital by Liberty under the Contribution Agreement.

(c)  Amount reflects the carrying value of the Access Agreement to provide
     Interactive Video Services under the Contribution Agreement.

(d)  Amount reflects the deferred tax liability associated with the assets
     contributed to Liberty Digital.

(e)  Reflects the issuance of $150 million of Liberty Digital Series B
     convertible preferred stock and 109.4 million shares of Series B common
     stock to Liberty in exchange for net assets and liabilities contributed to
     Liberty Digital under the Contribution Agreement.

EXCHANGED ASSETS

(f)  Amounts reflect the carrying value of the assets and liabilities of
     SonicNet and The Box (contributed by Liberty Digital to the MTV Partnership
     in exchange for a 10% ownership interest in the MTV Partnership) as if such
     assets were deconsolidated from Liberty Digital on June 30, 1998.

INVESTMENT IN THE MTV PARTNERSHIP

(g)  Liberty Digital will record its 10% ownership interest in the MTV
     Partnership at its ascribed fair value of $150 million (such ascribed fair
     value has been estimated by management and is subject to final valuation
     procedures). Liberty Digital will account for its investment in the MTV
     Partnership under the cost method. The contribution of SonicNet and The Box
     in exchange for the 10% interest in the MTV Partnership will be accounted
     for a sale for financial reporting purposes, and accordingly, it is
     expected that Liberty Digital will recognize a gain on the transaction. An
     illustration of the gain computation, on a proforma basis at June 30, 1999
     is as follows:

<TABLE>
<S>                                                                               <C>
    Ascribed fair value of the MTV Partnership investment                          $ 150,000
    Less: Net assets of SonicNet and The Box                                          75,500
    Less: Make-well liability to AT&T (reflected in other liabilities above)          30,000
                                                                                   ---------
    Pre-tax gain on sale                                                              44,500

    Less: Deferred income taxes (reflected in other liabilities above)                17,800
                                                                                   ---------
    Proforma effect on net income                                                     26,700
                                                                                   =========
</TABLE>

    The above proforma gain has not been reflected in the accompanying unaudited
proforma condensed statements of operations due to its nonrecurring nature.


<PAGE>   4


                        LIBERTY DIGITAL AND SUBSIDIARIES
          UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                      ADD:             LESS:           ADD:
                                                                   CONTRIBUTED       EXCHANGED   PREFERRED STOCK
                                                     HISTORICAL      ASSETS          ASSETS (5)     CONVERSION         PROFORMA
                                                     ----------    -----------       ----------    ------------     -------------
<S>                                                 <C>            <C>                 <C>          <C>                <C>
Revenue                                                 33,728              --           14,572              --            19,156

  Accrued stock compensation                           244,059              --           10,253              --           233,806
  Other operating expenses                              21,711              --           16,886              --             4,825
                                                     ---------     -----------       ----------    ------------     -------------
Operating expenses                                     265,770              --           27,139              --           238,631
Depreciation and amortization                            8,335          13,888 (1)        2,111              --            20,112
                                                     ---------     -----------       ----------    ------------     -------------
  Operating income (loss)                             (240,377)        (13,888)         (14,678)             --          (239,587)
Interest income (expense)                               (3,225)             --           (1,124)             --            (2,101)
Share of losses of affiliates                               --          (1,068)(2)         (223)             --              (845)
Other, net                                                  59              --             (157)             --               216
                                                     ---------     -----------       ----------    ------------     -------------
   Income (loss) before income taxes                  (243,543)        (14,956)         (16,182)             --          (242,317)
Income tax benefit (expense)                            92,912           5,982 (3)           (1)             --            98,895
                                                     ----------    ------------      -----------   ------------     -------------
   Net income (loss) from continuing operations       (150,631)         (8,974)         (16,183)             --          (143,422)

Accretion of redeemable convertible
  preferred stock                                         (609)             --               --             609 (6)            --
                                                     ---------     -----------       ----------    ------------     -------------
                                                                                                                               --
Net income (loss) attributable to common
   stockholder's from continuing operations           (151,240)         (8,974)         (16,183)            609          (143,422)
                                                     =========     ===========       ==========    ============     =============
                                                                                                                               --
Weighted average common shares                          82,075         109,450 (4)                        4,853           196,378
                                                     =========     ===========                     ============     =============

Basic and diluted loss to common
  stockholders per common share                          (1.84)                                                             (0.73)
                                                     =========                                                      =============
</TABLE>

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

CONTRIBUTED ASSETS

(1)  Amount reflects the amortization expense under the Access Agreement, using
     a life of nine years.

(2)  Amount reflects Liberty's share of losses and net gains recognized by
     Liberty on certain equity transactions of equity affiliates, contributed in
     the Contribution Transaction.

(3)  Amount reflects the tax effect of the proforma adjustments, using an
     assumed tax rate of 40%.

(4)  Amount reflect the issuance of 109.4 million shares of Series B common
     stock to Liberty DMX in connection with the Contribution Transaction.

EXCHANGED ASSETS

(5)  Amounts reflect historical results from operations of SonicNet and The Box
     for the six months ended June 30, 1999. The amounts have been revised to
     reflect the results of operations of Liberty Digital as if the transaction
     had occurred on January 1, 1998. The effective tax rate has been assumed to
     be 40%.

PREFERRED SHARE CONVERSION

(6)  Amount reflects the reversal of accretion on historical Liberty Digital
     preferred shares as if the conversion of such shares had occurred on
     January 1, 1998.



<PAGE>   5


                        LIBERTY DIGITAL AND SUBSIDIARIES
          UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                        ADD:          LESS:           ADD:
                                                                    CONTRIBUTED     EXCHANGED   PREFERRED STOCK
                                                       HISTORICAL      ASSETS        ASSETS (5)    CONVERSION          PROFORMA
                                                       ----------   -----------     ---------     ------------      -------------
<S>                                                   <C>           <C>             <C>          <C>                 <C>
Revenue                                                   84,452                       27,899               --             56,553

Operating expenses                                        77,822                       39,628               --             38,194
Depreciation and amortization                             24,120         27,777 (1)     9,403               --             42,494
                                                       ---------    -----------     ---------     ------------      -------------
  Operating income (loss)                                (17,490)       (27,777)      (21,132)              --            (24,135)
Interest income (expense)                                 (5,370)                                                          (5,370)
Share of losses of affiliates                               (526)          (494)(2)      (676)              --               (344)
Other, net                                                  (135)           751 (2)        --               --                616
                                                       ---------    -----------     ---------     ------------      -------------

   Income (loss) before income taxes                     (23,521)       (27,520)      (21,808)              --            (29,233)
Income tax benefit (expense)                               1,229         11,008 (3)     8,723 (3)           --              3,514
                                                       ----------   ------------    ----------    -------------     --------------
   Net income (loss) from continuing operations          (22,292)       (16,512)      (13,085)              --            (25,719)

Accretion of redeemable convertible
  preferred stock                                         (1,354)            --            --            1,354 (6)             --
                                                       ---------    -----------     ---------     ------------      -------------
Preferred stock dividends                                     --         (7,500)           --               --             (7,500)
                                                       ---------    -----------     ---------     ------------      -------------

Net income (loss) attributable to common
   stockholder's from continuing operations              (23,646)       (24,012)      (13,085)           1,354            (33,219)
                                                       =========    ===========     =========     ============      -------------
                                                                                                                               --
Weighted average common shares                            81,046        109,450 (4)                      4,853            195,349
                                                       =========    ===========                   ============      =============

Basic and diluted loss to common
  stockholders per common share                            (0.29)                                                           (0.17)
                                                       =========                                                    =============
</TABLE>


- --------------------------------------------------------------------------------
CONTRIBUTED ASSETS

(1)  Amount reflects the amortization expense under the Access Agreement, using
     a life of nine years.

(2)  Amount reflects Liberty's share of losses and net gains recognized by
     Liberty on certain equity transactions of equity affiliates, contributed in
     the Contribution Transaction.

(3)  Amount reflects the tax effect of the proforma adjustments, using an
     assumed tax rate of 40%.

(4)  Amount reflect the issuance of 109.4 million shares of Series B common
     stock to Liberty DMX in connection with the Contribution Transaction.

EXCHANGED ASSETS

(5)  Amounts reflect historical results from operations of SonicNet and The Box
     for the year ended December 31, 1998. The amounts have been reversed to
     reflect the results of operations of Liberty Digital as if the transaction
     had occurred on January 1, 1998. The effective tax rate has been assumed to
     be 40%.

PREFERRED SHARE CONVERSION

(6)  Amount reflects the reversal of accretion on historical Liberty Digital
     preferred shares as if the conversion of such shares had occurred on
     January 1, 1998.





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