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As filed with the Securities and Exchange Commission on JuLY 3, 2000
Registration No. 333-39100
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________
LIBERTY DIGITAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1380293
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12312 West Olympic Blvd.
Los Angeles, CA 90064
(310) 979-5000
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Lee Masters
President and Chief Executive Officer
12312 West Olympic Blvd.
Los Angeles, CA 90064
(310) 979-5000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
<TABLE>
<S> <C> <C>
Charles Y. Tanabe, Esq. Frederick H. McGrath, Esq. Eric S. Haueter, Esq.
Liberty Media Corporation Robert W. Murray Jr., Esq. Brown & Wood LLP
9197 South Peoria Street Baker Botts L.L.P. 555 California Street
Englewood, Colorado 80112 599 Lexington Avenue San Francisco, CA 94104-1715
(720) 875-5400 New York, New York 10022-6030 (415) 772-1200
(212) 705-5000
</TABLE>
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement as determined by
the Registrant.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [_]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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P R O S P E C T U S
LIBERTY DIGITAL, INC.
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From time to time, we may sell any of the following securities:
. Series A Common Stock
. Debt Securities
. Preferred Stock
. Warrants
We will provide the specific terms of these securities in one or more
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest.
Our Series A Common Stock is quoted on the Nasdaq National Market under the
trading symbol "LDIG." The applicable prospectus supplement will contain
information, where applicable, as to any other trading market for, or listing on
any securities exchange of, the securities covered by the prospectus supplement.
The securities may be sold directly by us to investors, through agents
designated from time to time or to or through underwriters or dealers. See
"Plan of Distribution." If any underwriters are involved in the sale of any
securities in respect of which this prospectus is being delivered, the names of
those underwriters and any applicable commissions or discounts will be set forth
in a prospectus supplement. The net proceeds we expect to receive from a sale
also will be set forth in a prospectus supplement.
This prospectus may not be used to offer or sell any securities unless
accompanied by a prospectus supplement. We urge you to read carefully this
prospectus and the accompanying prospectus supplement, which will describe the
specific terms of the securities being offered to you, as well as the documents
incorporated and deemed to be incorporated by reference in this prospectus
before you make your investment decision.
INVESTING IN THE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Our principal executive offices are located at 12312 West Olympic Blvd.,
Los Angeles, CA 90064. Our telephone number at that location is (310) 979-5000.
The date of this prospectus is July 3, 2000.
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TABLE OF CONTENTS
Page
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Risk Factors...................................................... 3
Cautionary Statement Regarding Forward-Looking Statements......... 19
About This Prospectus............................................. 20
Business.......................................................... 21
Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.. 21
Use of Proceeds................................................... 23
Description of Debt Securities.................................... 23
Description of Capital Stock...................................... 32
Description of Warrants........................................... 36
Plan of Distribution.............................................. 38
Validity of Securities............................................ 39
Experts........................................................... 39
Where You Can Find More Information............................... 39
Incorporation of Information We File with the SEC................. 40
______________
The documents incorporated or deemed to be incorporated by reference in
this prospectus contain, and any prospectus supplement may contain, statistical,
demographic and other data concerning our markets and other matters affecting
our business. That information has been derived principally from publicly
available information and from industry sources and, to a lesser extent, from
studies prepared by market research firms at our request. Although we believe
that the information derived from these sources is reliable, we have not
independently verified the accuracy of any of this information and we therefore
cannot assure you that it is accurate.
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RISK FACTORS
An investment in our securities involves a high degree of risk. You should
carefully consider the risks and uncertainties and other information in this
prospectus, in the accompanying prospectus supplement and in the documents
incorporated and deemed to be incorporated by reference in this prospectus
before deciding to buy any of the securities being offered to you. Our
business, financial condition and results of operations could be harmed were any
of the following risks or uncertainties to develop into actual events. In such
case, the value of our securities could decline and you might lose all or part
of your investment.
Risks Relating to Our Business
Our business focus has recently changed and our new business is uncertain.
We are a subsidiary of Liberty Media Corporation, which is in turn a
subsidiary of AT&T Corp. On September 9, 1999, Liberty Media contributed to us
a group of investments made by Liberty Media in companies involved in
interactive television technologies and Internet e-commerce and content, and
assigned to us its rights relating to the provision of interactive video
services over AT&T's cable television systems under an inter-company agreement
between AT&T Corp. and Liberty Media. We refer to the portions of this inter-
company agreement which were assigned to us as our access agreement with AT&T.
Liberty Media has also agreed with us that it will use reasonable efforts to
make available to us for our interactive video services the benefits of the
"preferred vendor status" to which Liberty Media is entitled under the inter-
company agreement with respect to the access, timing and placement of new
programming services on the AT&T cable systems. As a result of this
contribution and assignment and the addition of our new management, we have
changed the focus of our business to concentrate on creating interactive
television channels and services, including making investments in and forming
strategic relationships with companies whose technology, services or content may
contribute to any interactive television business we develop. As a result, our
operating history offers little information to serve as a basis for evaluating
our long-term prospects.
Our interactive television business is in a very preliminary stage of its
development and to date has not generated any revenues. Although we are
currently developing and seeking to acquire interactive programming and related
services for our interactive television business, as yet we do not have
interactive television services available for distribution. In addition, we are
still developing the business plan for our interactive television business and
we have not yet begun to take many of the steps that will be necessary to
implement that business plan once it is finalized. For example, the development
of our interactive business will require, among other things, that we:
. enter into definitive agreements with the operators of cable
television systems, direct-to-home satellite systems and other
distribution platforms to carry any channels that we may develop;
. acquire or develop programming, which may result in us entering into
joint ventures with content providers and other third parties; and
. enter into agreements with vendors of goods and services to be sold
through our interactive television channels and with other
fulfillment service providers.
"Interactive television" is a general term used to describe an enhanced
television product which will permit viewers to interact with traditional video
programming in a number of ways. We anticipate that interactive television
services will combine elements of Internet communication and e-commerce with
traditional television viewing practices to create a system which permits
viewers to be given additional information about the programming they are
viewing as well as enabling them to purchase goods or services or perform other
tasks over their television sets. For example, by clicking a button on their
remote control, a viewer might receive background information concerning the
programming (s)he is watching, order goods from a store in response to a
traditional video commercial, or receive or write e-mail or pay bills, all
through a set-top box or other television-based instrument.
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The type of interactive television service currently available to satellite
television subscribers and subscribers to "digital" cable television requires
that information be downloaded to the set-top box through cable or satellite
transmission and that a separate return path, usually through the subscriber's
telephone line, be used to send information from the subscriber to the service
provider. In order to minimize use of the telephone line, information (such as
ordering information) to be sent from the subscriber to the service provider may
be stored in the set-top box until late at night when it is automatically
forwarded to a processing center. Thus, this type of interactive television
service generally does not permit the viewer to interact with video programming
in real time.
The other type of interactive television service, which is currently in the
testing phase, provides real-time interactive functionality but requires that a
subscriber have an advanced digital set-top box and be located in an upgraded
cable system having two-way capability. In this type of service, all of the
information exchanged between the service provider and the subscriber travels
over the two-way cable plant, rather than subscriber responses being transmitted
over a separate telephone return path. We believe that similar real-time
functionality may be obtainable by combining satellite television distribution
to the subscriber together with a digital subscriber line, or DSL, return path
from the subscriber.
Several cable system operators have announced their intention to begin
making real-time, two-way interactive television services available to their
subscribers in late 2000 or early 2001. We believe that deployment of
interactive television services will increase as high-speed two-way
communications services become available to more potential customers and as
improvements in digital set-top boxes and related technology and software enable
service providers to deliver more interactive functions at greater speeds. If
the deployment of advanced digital set-top boxes is delayed or they are not
deployed, or if high-speed data networks, such as upgraded cable systems and
digital subscriber line systems, are not broadly deployed or adopted by
consumers, our business will suffer.
The interactive television business is largely undeveloped, will require
substantial additional funding and is subject to many risks and uncertainties,
including technological risks. It is uncertain whether this business can be
successfully developed. As a result, we cannot assure you that we will be able
to offer interactive television services as currently planned or at all, that
the development of our interactive television business will not be subject to
substantial delays and other unforeseen difficulties, or that our interactive
television services, if commercially introduced, will be successful.
We have generated net losses from our recent operations and we expect these
losses to continue in the future.
Our business has generated net losses for the last several years, and we do
not expect our business to be profitable for the foreseeable future. Our net
operating income for the three-month period ended March 31, 2000 was $118.5
million, while our net income for that period was $63.8 million. These positive
amounts reported for the first quarter of 2000 resulted primarily from the
reversal of a portion of the stock compensation expense accrued in prior
periods. Without this reversal of stock compensation expense, we would have had
both a net operating loss and a net loss for the first quarter of 2000. Our net
operating loss for the ten-month period ended December 31, 1999 was $721.6
million, while our net loss for that period was $463.0 million. Because of the
recent changes in our business, our operating history offers little information
to serve as the basis for evaluating our long-term prospects.
We depend on AT&T Corp. for a significant portion of our revenue.
A large portion of our revenues are derived from payments made to DMX Music
Inc., our wholly-owned subsidiary that is engaged in the subscription music
business, under a contribution agreement entered into with Tele-Communications,
Inc. (TCI) in November 1997. Subsequent to AT&T's acquisition of TCI, TCI was
converted into a limited liability company and renamed AT&T Broadband, LLC (AT&T
Broadband). Consequently, the obligations under this agreement have become
obligations of AT&T Broadband. Pursuant to this agreement, AT&T Broadband is to
make monthly payments to us aggregating $18 million per annum, adjusted annually
by any increase in the consumer price index for the prior year, for a term of 20
years. The adjusted payments for the quarter ended March 31, 2000 and the year
ended December 31, 1999 were approximately $4.8 million and $19.5 million,
respectively. In addition, a subsidiary of AT&T Broadband paid us an additional
$2.9 million and $11.1 million in fees during the quarter ended March 31, 2000
and the year ended December 31, 1999, respectively, pursuant to an
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affiliation agreement executed in July 1997 relating to carriage of the DMX
service on AT&T's cable systems. In the aggregate, these payments were $7.7
million and $30.6 million for the quarter ended March 31, 2000 and the year
ended December 31, 1999, respectively, which represented approximately 46.5% and
47.0%, respectively, of our total revenues during those periods.
Our interactive television business depends upon our obtaining carriage
over AT&T's cable television systems; the terms and conditions of agreements to
be entered into in connection with the AT&T access agreement are uncertain and
may not be favorable to us.
The success of our interactive television business depends upon our
obtaining carriage over cable television systems, direct-to-home, or DTH,
satellite services and other distribution platforms of programming we create or
obtain the right to distribute. We currently do not have any carriage
agreements with cable television system operators, satellite providers or other
distributors. Our access agreement with AT&T does not constitute a definitive
carriage agreement, but instead establishes a framework to negotiate an
agreement or agreements with AT&T for carriage of our interactive video services
over AT&T's cable television systems.
Our access agreement with AT&T provides that we and AT&T shall negotiate in
good faith the terms and conditions of a definitive agreement with respect to
our providing interactive video services on AT&T's cable television systems. We
cannot assure you that, we will ultimately enter into any agreement or
agreements with AT&T for the distribution of our interactive video services over
AT&T's cable television systems, that we will not experience substantial delays
in negotiating any such agreements with AT&T or that we will be successful in
obtaining access to all or any of the channel capacity referenced in the access
agreement. Moreover, we and AT&T may decide that circumstances require that we
negotiate separate agreements for each digitally compressed channel rather than
one agreement covering all of the potential channels we may offer.
The access agreement contemplates two different types of arrangements, with
AT&T entitled to elect which type of arrangement it wishes to pursue. The first
would provide us with access to 6 megahertz ("MHz") of channel capacity on the
AT&T cable television systems for the distribution of interactive video services
for an initial term of five years, renewable for an additional four years. We
cannot assure you that, following the expiration of this term, we would be able
to obtain continued access to AT&T's cable television systems on favorable terms
or at all. Based upon currently anticipated digital compression ratios, we
estimate that this 6 MHz of capacity would permit carriage of between 12 and 15
separate digital channels. In lieu of this arrangement, AT&T could require us to
enter into separate joint ventures with it as to specific interactive channels
for a reasonable commercial term. Each of these joint ventures would be owned in
equal proportions by us and AT&T. If the joint venture option is chosen, the
access agreement provides that neither we nor AT&T may provide interactive video
services in the categories of interactive video services provided through such
joint ventures while they are in effect, other than through the joint ventures.
Accordingly, we may be prevented from offering interactive video services for
those specified categories other than through these joint ventures.
If AT&T elects the joint venture alternative, the access agreement provides
that AT&T will share revenues and expenses pro rata based on its ownership
interest in the joint venture. Under the joint venture alternative, AT&T may
purchase our ownership interest in the venture at fair market value at the third
anniversary after the formation of the venture. We believe that, because
interactive television is a new medium that has not been broadly or successfully
developed in any market, the success of our interactive television development
efforts may not be fully realized until after such third anniversary. If AT&T
elects to purchase our interest in any joint venture, we would not participate
in the future value and growth, if any, of such interactive television venture.
Even if we are able to enter into definitive agreements or joint ventures
with AT&T, there can be no assurance that we will obtain access to the currently
estimated 12 to 15 digital interactive television channels on AT&T's cable
television system because the access agreement provides that AT&T is not
obligated to disrupt other channel arrangements on its cable television
systems. Similarly, the access agreement does not require AT&T to upgrade its
cable television systems to accommodate real-time interactive television,
deploy advanced digital set-top boxes capable of providing interactive video
services or provide interactive video services to its subscribers. In addition,
the access agreement does not require AT&T to utilize digital compression ratios
which would maximize the number of channels which could be distributed over the
6 MHz of bandwidth referenced in the access agreement or reserve bandwidth for
us. Instead, the access agreement grants to us certain rights should AT&T elect
to make interactive television services available to its subscribers. Therefore,
we anticipate that obtaining access to AT&T's cable television systems will
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require that we develop commercially viable interactive television programming
and services which provide economic and other benefits both to AT&T and to us,
and we cannot assure you that we will be able to do so.
The success of our interactive television business will depend upon our
obtaining broader distribution than is available from AT&T, which we may not be
able to obtain.
Although our arrangement with AT&T potentially provides us with
distribution to a large number of customers, we believe that the success of our
interactive television business will be greatly limited if we do not obtain
distribution of any interactive television programming we develop from other
multiple cable system operators (MSOs), satellite providers and other
distributors. In order to obtain such distribution, we will have to create
services that will make interactive television attractive to a wide array of
customers and develop pricing, revenue splits and other strategies which will
create an incentive for cable, DSL, satellite and other providers to carry our
programming and provide the other related services, such as sufficient return
path capacity and network interfaces, necessary to provide interactive
television services. We may not be able to enter into arrangements with other
distribution providers regarding distribution of these services, and the terms
of any such arrangement and the amount of channel capacity we may be able to
acquire from other distribution providers may not be sufficient for us to
implement our business model and eventually achieve profitability. As of the
date of this prospectus, we have not entered into distribution agreements with
any MSOs or satellite or DSL providers.
We face challenges managing our operations and we depend on key
personnel.
We may not be able to successfully manage any future periods of rapid
growth or expansion, which we expect would place a significant strain on our
managerial, operating, financial and other resources. As of the date of this
prospectus, we have a total of five officers whose primary responsibilities
involve the development of our interactive television business, and we are
highly dependent upon the efforts of this core management team. Our future
performance will depend, in part, upon the ability of our management to manage
growth effectively. This will require us:
. to implement management information systems capabilities;
. to further develop our operating, administrative, financial and
accounting systems and controls;
. to maintain close coordination among engineering, accounting, finance,
marketing, sales and operations; and
. to hire and train additional technical and marketing personnel.
There is intense competition for management, technical and marketing
personnel in the areas of our activities. The loss of the services of any of
our senior management team or the failure to attract and retain additional key
employees could significantly harm our business.
We will require financing to sustain our operations and execute our
business strategy.
We will need to obtain substantial financing in order to sustain our
operations and execute our business strategy. We also may need to raise funds
to respond to competitive pressures, make acquisitions or respond to
unanticipated requirements. We cannot assure you that funding will be available
to us in amounts or on terms acceptable to us, or at all. If sufficient funds
are not available or are not available on acceptable terms, our ability to
sustain our operations, execute our business strategy, take advantage of
acquisition opportunities, develop or enhance our products or services, or
otherwise respond to competitive pressures would be significantly impaired. If
we obtain additional financing, the terms may include operating and financial
restrictions that restrict our ability to incur further indebtedness, to acquire
investments in other companies or to otherwise engage in business activities
that we deem necessary or desirable to the development of our interactive
television business.
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The covenants and restrictions in our existing and future debt instruments
could have a negative effect on our business.
The covenants and restrictions in our existing and future debt instruments
could have a negative effect on our business, including impairing our ability to
obtain additional financing and reducing our operational flexibility and ability
to respond to changing business and economic conditions. We currently have a
$100 million revolving loan agreement with several banks. All loans under this
agreement mature on June 30, 2005. In addition, on June 30, 2000, we are
required to begin making semiannual repayments of principal in addition to
quarterly payments of interest pursuant to this agreement. This agreement has
been used primarily to finance the business of DMX. At May 31, 2000, the
available amount under this agreement had been drawn upon and no further
borrowings under it were permitted. The terms of the agreement relating to this
$100 million revolving loan agreement require that we comply with a number of
financial and other restrictive covenants.
We intend to either amend or refinance our revolving loan agreement to
provide us increased flexibility in managing our operations and funding the
development of our interactive television business, including increased
flexibility in acquiring or making minority investments in interactive
technology and Internet e-commerce and content businesses. However, we cannot
assure you that we will be able to do so or that the terms of any amended loan
agreement or any new credit agreement will not be more restrictive than those
currently in effect. So long as these restrictions remain in effect, our ability
to make cash investments in other companies will be limited.
The revolving loan agreement also contains financial covenants, including
requirements that we maintain specified leverage and debt coverage ratios. In
addition, if AT&T Broadband, Liberty Media, John C. Malone (the Chairman of the
Board of Liberty Media and a director of AT&T) or his heirs or the estate of Bob
Magness (founder of TCI) cease to own at least 50.1% of all voting rights
related to our capital stock, we will be in default under the loan agreement and
the lenders will be able to declare our outstanding borrowings immediately due
and payable.
Any failure to comply with the restrictions and covenants in our $100
million revolving loan agreement or any other present or future credit agreement
would generally result in a default under the agreement, permitting the lenders
to declare all debt outstanding under that agreement to be immediately due and
payable. Further, a default under any debt agreement could, under cross-default
provisions, result in defaults under other debt agreements, entitling other
lenders to declare all debt outstanding under those other agreements to be
immediately due and payable. If any declaration of acceleration were to occur,
we might be unable to make those required payments or to raise sufficient funds
from other sources to make those payments. In addition, to the extent that any
of our indebtedness is secured by collateral, the lenders will generally have
the right to foreclose upon the collateral upon a default. Accordingly, a
default under any debt instrument could have a material adverse effect on our
business.
Risks relating to the development of our interactive television business
The development of our interactive television business depends upon the
deployment of advanced communications systems and digital set-top boxes that
support interactive television services.
Interactive television services are currently available to customers of
certain DTH satellite services and to cable television subscribers located in
cable systems equipped with first-generation digital set-top boxes. These
services typically utilize "store and forward" and other techniques using the
customer's telephone line as a return path to the person processing the
information. These services offer limited interactivity in that customer
responses may be stored in the set-top box and later communicated by telephone
to the service provider and, therefore, may not provide customers with a
compelling interactive experience. Several cable system operators have
announced
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their intention to begin making real-time, two-way interactive television
services available to their subscribers in late 2000 or early 2001. In order to
receive such services, subscribers would need to be located in an upgraded cable
system and have an advanced digital set-top box. Broad deployment of two-way
real-time interactive television services will depend upon the cable operators'
continued upgrading of their cable systems and the availability of advanced
digital set top boxes. Therefore, the growth of our interactive television
business will be dependent upon the deployment of advanced digital set-top
boxes, as well as the upgrading and deployment of cable and other high-speed
data systems, all of which are outside our control. Any delay in system upgrades
or the availability of advanced digital set-top boxes will adversely affect our
ability to develop an interactive television business.
Our interactive television business will not succeed unless third parties
deploy digital set-top boxes that support interactive television.
The success of our interactive television business depends on the
deployment of digital set-top boxes that support interactive television. AT&T,
other MSOs and satellite television system operators have no obligation to
deploy set-top boxes capable of supporting interactive television. AT&T, other
MSOs and satellite providers, based on their own business plans, may elect not
to deploy digital set-top boxes or not to do so within a time frame that would
benefit our goal to develop and profit from the provision of interactive
television services. In addition, the digital set-top box deployed by AT&T and
other MSOs could be of a type that supports new services that they intend to
provide to their subscribers, such as telephony, but not interactive television.
The failure to deploy digital set-top boxes that support interactive television
will have a material adverse effect on our ability to develop an interactive
television business.
The physical plant upgrades necessary for interactive television may not
occur on a timely basis.
In addition to the deployment of advanced digital set-top boxes, the
success of interactive television will require the availability of high-speed
two-way communications systems. AT&T and many MSOs are in the process of
upgrading the hardware and wiring of their cable television systems to two-way
capability for their own business purposes, such as providing local telephony
and Internet access services. Other providers, including local telephone
companies, are upgrading their plant in order to make DSL services available to
their customers. The availability of DSL services, however, depends on a number
of factors, including the distance between the customer's location and the local
telephone switching station, the quality of the copper wiring running to the
customer's location and certain required plant upgrades and hardware additions.
If the system upgrades are not completed in a timely fashion or are undertaken
only in limited geographical areas, our interactive television business may not
reach enough viewers to be successful. If a sufficient number of systems are
not upgraded or the upgrades do not occur in a timely manner we will not be able
to successfully implement an interactive television business.
In addition, the availability of interactive television services will
depend upon the willingness of cable operators or other service providers to
make certain of their resources available to providers of interactive television
services. These resources include sufficient downstream and return path
bandwidth to provide real time interactivity, network interfaces and systems
integration services. Cable operators and other service providers are under no
obligation to provide these services and may choose to devote their resources to
products and services other than interactive television.
We may not be able to fund the development of our interactive television
business or investments in interactive television technology or Internet e-
commerce or content business.
Currently, revenues generated by our business operations are not sufficient
to cover the anticipated expenses of developing our interactive television
business and will not be sufficient to fund our operations and investments. We
will have to expend a significant amount of funds on the development of
interactive television before revenues, if any, will be derived from such
development efforts. In addition, we will need additional funds in order to
take advantage of opportunities to invest in interactive television or related
businesses. To date, we have not generated any significant cash flow from our
operations and have primarily relied on capital contributions and advances from
Liberty Media to fund our investment strategy and development of our interactive
television business and on our bank line of credit to fund our music services
operations. At May 31, 2000, we had borrowed the full amount available under
our revolving credit agreement and we had only limited availability under our
existing borrowing agreements with Liberty Media. Liberty Media has no
obligation to make funds available to us beyond
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the amounts contemplated by these agreements. If in the future Liberty Media
were to agree to provide us funds, such advances may take the form of additional
equity purchases or indebtedness. The terms under which such funds are made
available would be separately negotiated between us and Liberty Media. Because
we are controlled by Liberty Media, any such negotiations would not be
considered to be on an arm's-length basis; however, our directors, including the
officers or directors of Liberty Media who are members of our board, have
fiduciary duties to act in the best interests of our company and all of its
stockholders. Moreover, we cannot assure you that Liberty Media will agree to
advance any additional funds required by us. It is likely that we will need
money from sources other than Liberty Media in order to develop our business,
and we may not be able to find a source to provide us with the needed funds on
terms which are acceptable, or at all, or which would not restrict our ability
to develop our interactive television business.
We may be required to pay premium prices to those providing services which
are critical to our interactive television business.
Providing interactive television services will require the integration of
services provided by a number of separate service providers. Although there are
currently a number of separate companies providing each of these services, we
can offer no assurance that this competition will continue in the future. If a
provider of a critical service ceases to have effective competition, it may be
able to extract premium prices for the services it provides. If we were
required to pay these higher fees and are not able to pass them along to others,
our ability to generate profits may be adversely affected.
The creation of an interactive television business depends on our ability
to enter into strategic content alliances and agreements for network and
fulfillment services, which we may not be able to achieve.
In order to develop interactive television channels, we must obtain or
create programming optimized for interactive television and integrate the
various network and fulfillment services necessary to provide interactive video
services for each channel developed. Although we have made investments in
several entities which we believe may provide some of the basic programming and
network services required for our interactive television service, we have not
yet entered into any strategic alliances or other agreements for such
programming or network or fulfillment services. The content for any interactive
television channels we develop depends on our ability to enter into strategic
alliances, on favorable terms, pursuant to which we would be entitled to use the
provider's content, brand name and other resources. In addition, we will need
to enter into arrangements with providers of the network services necessary to
provide interactive television services to customers and with companies
providing packaging, shipping and other fulfillment services required to
complete transactions initiated through our interactive television services. We
may not be able to enter into these agreements on terms favorable to us or at
all. The failure to obtain or a delay in obtaining these services will
adversely affect our ability to develop an interactive television business.
Our success in developing an interactive television business depends on
customer acceptance.
The interactive television business is in its early stage of development.
It is uncertain whether this business can be successfully developed. While the
current version of interactive television using a telephone return is being
deployed with some success, we believe that the interactive television business
will not fulfill its potential until high-speed two-way communication services
are broadly available. Interactive television using the two-way capability of
upgraded cable systems or DSL systems has not yet been broadly or successfully
deployed in the United States. Previous attempts to develop and market
interactive television have failed for a variety of reasons, including lack of
customer acceptance. Customer acceptance will depend upon, among other factors,
. the amount of any additional cable or service provider fees charged to
customers who wish to receive interactive television;
. third party or service provider charges to purchase or rent the
components necessary to receive interactive television services, such as
advanced set-top boxes, additional telephone lines or cable or DSL
modems;
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. our ability to develop interactive television programming that is user-
friendly, attractive to consumers and economically beneficial to us;
. our ability to develop and implement software and other capabilities to
provide customers with a ready-to-use electronic commerce experience,
including fulfillment of orders; and
. customer satisfaction with security and subscriber privacy.
Even if two-way interactive television is developed, there is no certainty
that consumers will accept this new offering in numbers sufficient to provide
economic success, which means that the timing and amount of any return on our
investment in interactive television cannot be determined at this time.
Our new business depends on key personnel.
Our interactive television business is in the developmental stage. We have
a core management group, but in order to develop and expand our business, we
will need to retain the services of our existing management and recruit
additional management and other personnel and develop the managerial structures
necessary to operate our interactive television business.
Our ability to recruit and retain additional management and other personnel
will be critical to the development of our interactive television business.
Existing management's familiarity with developing and distributing programming,
and in developing investment strategies and strategic alliances with companies
engaged in businesses that may provide services or content to any interactive
television channels we develop, make them especially valuable to us. The loss
of the services of Lee Masters, our President and Chief Executive Officer, in
particular, could harm our ability to develop our new business. We have an
employment agreement with Mr. Masters with a term through December 15, 2003.
This employment agreements prohibits Mr. Masters from competing with us while
he is employed by us and, if he voluntarily terminates his employment
agreement with us or is terminated by us for "good cause" (as defined in the
employment agreement), until the earlier of two years after the date of his
termination or December 31, 2003. Mr. Masters may terminate his employment with
us at any time by giving notice to us. In addition, we have adopted a Deferred
Compensation and Stock Appreciation Rights Plan in which Mr. Masters is the sole
participant. Any amounts payable to Mr. Masters under the deferred compensation
portion of the Deferred Compensation and Stock Appreciation Rights Plan are
payable only upon termination of his employment. Depending on the value
attributable to the deferred compensation portion of the Deferred Compensation
and Stock Appreciation Rights Plan upon vesting, Mr. Masters may have an
incentive to terminate his employment in order to receive these deferred
compensation payments. We maintain no key-person life insurance.
Others may develop competing interactive television services, which would
compete with any services we eventually develop.
We may face competition from third parties in our efforts to develop our
interactive television services business. Our potential competitors include
MSOs, including AT&T, satellite distributors, DSL providers, major movie and
television studios, broadcast and cable television programming companies,
technology companies, including Microsoft Corporation, Internet companies, such
as America Online Inc., and entertainment companies. Potential competitors may
have resources, including access to capital, that will provide them with a
competitive advantage over us. Further, if MSOs, satellite and/or DSL providers
develop their own interactive television programming for distribution on their
systems or foreign companies begin to distribute their interactive television
programming in the United States, the potential market for our programming will
be reduced.
Although Liberty Media has adopted a policy that we will be the primary
vehicle for its pursuit of opportunities in interactive programming, there can
be no assurance that this policy will not change in the future. There are also
exceptions to Liberty Media's policy.
Liberty Media has adopted a policy that we will be the primary (but not
exclusive) vehicle of Liberty Media for the pursuit of corporate interactive
programming opportunities that are provided or otherwise made
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available to Liberty Media. The policy is subject to a number of exclusions and
limitations and may be changed or terminated by Liberty Media. Benefits that we
may derive from the policy may be limited or less than expected for any number
of reasons.
We may not be able to dispose of our equity investments in a timely manner
or when it would be most advantageous for us to do so.
At the present time we do not have any plans to sell any of the minority
equity interests in the various companies in which we have interests. However,
in the future we may determine that it is appropriate to sell all or a portion
of those interests for any number of reasons, including to provide funds for
development of our interactive television business or for other strategic
investments. Buy-sell procedures, repurchase rights and other transfer
restrictions, as well as market and other conditions largely beyond our control,
will affect our ability to engage in such sales, the timing of such sales and
the amount of proceeds from such sales. As a result, we may not be able to sell
all or any portion of our investments or, if we are able to sell, we may not be
able to sell at favorable prices. If we are unable to sell our investment
assets quickly and at favorable prices, our ability to fund the development of
our interactive television business could be harmed.
The liquidity and value of our investments in the entities in which we hold
interests may be adversely affected by stockholder agreements and similar
agreements to which we are a party.
A significant number of the equity securities we own are held pursuant to
stockholder agreements, partnership agreements and other instruments and
agreements that contain provisions that affect the liquidity, and consequently
the realizable value, of those securities. Most of these agreements subject the
transfer of the stock, partnership or other interests which we own to rights of
first refusal of the other stockholders or partners or other buy/sell
arrangements. In addition, these securities were purchased in private
transactions and have not been registered under the securities laws. As a
result, even though the type of security we own may be publicly-traded, we would
have to request registration or wait until a sale under Rule 144 became
available in order to sell our interest publicly. Exercise of our registration
rights would usually require other holders to join with us in order to require
an issuer to effect registration of our interest. These provisions restrict our
ability to sell those equity securities and may adversely affect the price at
which those securities may be sold. For example, in the event buy/sell
procedures are initiated at a time when we are not in a financial position to
buy the initiating party's interest, we could be forced to sell our interest at
a price based on the value established by the initiating party, and that price
might be significantly less than what we might otherwise obtain.
We do not have the right to manage the entities in which we hold interests,
which means we cannot cause those entities to operate in a manner that is
favorable to us.
Other than our wholly-owned subsidiary DMX Music Inc., we do not have the
right to manage the businesses or affairs of any of the entities in which we
hold interests. Rather, our rights, at most, may take the form of
representation on the board of directors or a partners' or similar committee
that supervises management or possession, usually in conjunction with other
equity holders, or veto rights over significant or extraordinary actions. The
scope of these veto rights varies from agreement to agreement. The ability to
exercise these rights will often depend upon the amount of our equity ownership
and the presence of other investors willing to join with us in vetoing an
action. Although our board representation and veto rights may enable us to
prevent an entity from undertaking an extraordinary corporate transaction, such
as a merger, or from paying a dividend or making a distribution on its
securities, it would not enable us to cause these actions to be taken.
Risks relating to our music business
Our music services business depends on music rights licensed from third
parties.
We license rights to rerecord, program and distribute music from a variety
of sources, and pay royalties to record companies, songwriters and publishers
through contracts negotiated with record companies and performing rights
societies such as the Recording Industry Association of America, or RIAA, the
American Society of Composers, Authors and Publishers, known as ASCAP, Broadcast
Music, Inc., known as BMI, and the Society of
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European Stage Authors and Composers, known as SESAC. Our agreements with
several of these performing rights societies have expired and our licenses are
continuing under interim agreements while new terms are being negotiated. In
addition, certain of these agreements limit our rights to specific distribution
platforms and may not cover distribution platforms we may seek to use in the
future. Our failure to enter into new agreements on favorable terms with the
performing rights societies could have an adverse impact on us.
The amounts we pay for licensed rights may increase as a result of ongoing
negotiations and pending rate court proceedings.
In general, when our license agreements with the performing rights
societies expire we seek to negotiate new license agreements with the societies
and, if we are unable to agree, seek arbitration or commence rate court
proceedings. We currently have several rate court proceedings pending. These
proceedings focus primarily on the license fees payable and are generally done
on an industry-wide basis. The level of our participation in these proceedings
varies from case to case. The outcome of these proceedings will affect the
amount of license fees we will be required to pay in the future and may require
retroactive adjustments to the fees we have been paying under our interim
agreements. We are unable to predict what the terms of our new arrangements
with the rights societies will be or when agreements will be reached or rate
court proceedings concluded. If the new agreements or the results of rate court
proceedings require us to pay greater royalties and license fees, our operating
results may be adversely impacted.
We depend on satellite delivery capabilities of third parties to deliver
our music services, and a failure of any of such satellites could have an
adverse impact on us.
Our DMX music services are delivered to cable television system operators
and DTH satellite customers via satellite transmissions from commercial
satellites on which we lease transmission capacity. We rely upon the owners of
the satellites to provide the tracking, maintenance and repair necessary to
maintain transmission capacity and signal quality. We cannot assure you that we
will not experience satellite failures, or that the satellites we use will
remain in operation through their projected useful lives. Satellite failure
could result in disruptions in service to our customers, additional expenditures
for satellite receiver re-pointing and new receiving equipment, and could damage
our relationships with our clients. As a result, satellite failure could have a
material adverse effect on our financial condition and results of operations.
There are a limited number of satellites with orbital positions suitable
for transmission of our signals and a limited number of available transponders
on those satellites. Satellite transponders receive signals, translate signal
frequencies and transmit signals to receiving satellite dish antennas. If
signals become unavailable due to satellite failure or if third parties are
unable to provide transponder services to us we would have to seek alternative
satellite or transponder facilities. However, alternative facilities may not be
available on a timely or cost-effective basis, or may be available only on a
satellite that is not positioned as favorably as our current satellites and may
therefore require us to expend money to re-direct subscribers' satellite dishes
or may require a change in the frequency currently used to transmit and receive
our signal.
When our existing transponder lease agreements expire, we may be unable to
renew these agreements on terms as favorable as we currently have in place. If
we are required to enter into new transponder lease agreements with other
satellite providers, we cannot assure you that we will be able to do so on terms
as favorable as those in our current agreements. Any one or more of these
events could require us to incur additional expenditures and could degrade our
ability to serve our customer base and have a material adverse effect on our
financial condition and results of operations.
We may be unable to successfully compete in the music services industry.
We compete with many local, regional, national and international providers
of music services to residential and commercial locations. National and
international competitors such as AEI Music Network, Inc., Muzak Limited
Partnership and Music Choice are typically large, well-capitalized entities that
target customers with multiple locations. Local and regional competitors are
typically small entities that target businesses with few locations. Some of our
competitors have substantially greater financial, technical, personnel and other
resources than we do.
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In addition, "Internet radio" and similar services have begun to be offered
over the Internet. As "always on" Internet connections, such as DSL and cable
modem services, become more prevalent, Internet music services, many of which
are currently offered for free to customers, may compete with DMX's subscription
service.
We may be unable to keep pace with technological change affecting the
production and delivery of our products.
There are numerous methods by which our existing and future competitors can
deliver programming, including various forms of direct broadcast satellite
services, wireless services, fiber optic services, digital compression over
existing telephone lines, advanced television broadcast channels, digital audio
radio service and the Internet. Competitors may use different forms of delivery
for the services we offer, and customers may prefer these alternative delivery
methods. We may not have the financial or technological resources to adapt to
changes in available technology and our clients' preferences.
We cannot assure you that we will be able to use, or compete effectively
with competitors that adopt, new delivery methods and technologies, or keep pace
with discoveries or improvements in the communications, media and entertainment
industries. We also cannot assure you that the technology we currently rely
upon will not become obsolete. Adopting new technologies may require us to make
significant expenditures in order to compete effectively. Advances in
telecommunications technology and Internet music delivery systems could lower
the barriers to entry in the business music industry and result in increased
competitive pressure on us.
Changes in the regulation of the transmission of our music services could
adversely affect our business.
We are subject to regulation by the United States government. Our business
prospects could be adversely affected by the adoption of new laws, policies or
regulations that change the present regulatory environment. The Federal
Communications Commission (FCC) licenses the radio frequencies used by
satellites on which we transmit our services in the United States. If the FCC
or any other person revokes or refuses to extend authorizations for the
frequencies used by any of these satellites, we would be required to seek
alternate satellite facilities. To the extent that our international activities
require distribution of our music services over satellites licensed by foreign
countries, our use of such satellites will be subject to regulation by these
foreign governmental entities.
Risks related to our company
We are controlled by Liberty Media Corporation.
As of May 31, 2000, Liberty Media beneficially owned approximately 40.0% of
the outstanding shares of our Series A Common Stock, all of the outstanding
shares of our Series B Common Stock and all of the outstanding shares of our
Series B Convertible Preferred Stock, which, assuming conversion of the Series B
Convertible Preferred Stock held by Liberty Media into Series B Common Stock,
collectively represented approximately 99.1% of the voting power of all
outstanding shares of our capital stock at that date. Therefore, Liberty Media
currently has the voting power to control all matters requiring approval of our
stockholders voting as a single class. For example, Liberty Media can elect our
entire board of directors and approve or reject any matter submitted to a vote
of our stockholders. This concentration of ownership would prevent any third
party from effecting a change of control of our company, absent Liberty Media's
approval. Liberty Media's interests may not be the same as yours.
Our officers and directors may have conflicts of interest.
Certain members of our management and board of directors are also members
of the management and board of directors of Liberty Media. Robert R. Bennett,
one of our directors, is a director, President and Chief Executive Officer of
Liberty Media. Gary S. Howard, one of our directors, is also a director,
Executive Vice President and Chief Operating Officer of Liberty Media. David B.
Koff, our Vice President and one of our directors, is a Senior Vice President of
Liberty Media. Our directors have fiduciary obligations under Delaware law to
us and all of our stockholders. Messrs. Bennett and Howard, as directors of
Liberty Media, also have fiduciary obligations to Liberty Media and to AT&T, as
the sole stockholder of Liberty Media. Messrs. Bennett, Howard and
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Koff hold options to acquire shares or hold restricted shares (or both) of AT&T
Class A Liberty Media Group common stock, and options to acquire shares of our
Series A Common Stock.
Our quarterly results may fluctuate, which may adversely affect the trading
price of our securities.
Our quarterly operating results have varied significantly in the past and
are likely to vary from quarter to quarter in the future. Quarterly revenues
and operating results may fluctuate as a result of a variety of factors,
including:
. fluctuations in expense accruals related to our Deferred Compensation
and Stock Appreciation Rights Plan and our incentive stock plan, which
accruals are directly related to the trading prices of our Series A
Common Stock at the end of each quarter, are reflected on our
quarterly statement of operations and have in the past produced
significant fluctuations in our reported results of operations;
. the introduction, development, timing, competitive pricing and market
acceptance of our products and services and those of our competitors;
. budgeting, purchasing and payment cycles of our customers;
. changes in general economic conditions, such as recessions, that could
affect capital expenditures and recruiting efforts in the new media
business;
. the magnitude and timing of our marketing initiatives;
. the maintenance and development of our strategic relationships;
. the attraction, retention and training of key personnel; and
. our ability to manage our anticipated growth and expansion.
We intend to focus our business efforts on developing our interactive
television business, and we expect to expend a significant amount of funds on
those efforts. To date, our historical results of operations have been largely
confined to our audio music business. Hence, you should not rely on our past
financial performance, nor should you rely on quarter-to-quarter comparisons of
our results of operations, as an indication of our future financial performance.
It is likely that in some future quarters our revenues or operating results
may be below the expectations of securities analysts and investors. For
example, because we plan to significantly increase our operating expenses to
develop our interactive television business, any unanticipated falloff in our
revenues in any quarter could result in our operating results being lower than
expected. This risk is heightened by the fact that we have not to date derived
any revenues from our interactive television business and cannot predict when or
if our interactive television business will generate any revenues. If our
revenues or operating results are below analysts' or investors' expectations,
the trading price of our securities is likely to decline, perhaps significantly.
Our operating income is impacted by changes in the trading price of our
Series A Common Stock, which affects accruals relating to an employee
compensation arrangement; an increase in our trading price will negatively
impact our reported results of operations.
Our quarterly results can be significantly affected by accruals relating to
employee benefit plans caused by changes in the trading price of our Series A
Common Stock. An increase in the trading price of the Series A Common Stock
over the previous quarter will result in an increase in our stock compensation
expense accruals, thereby decreasing our net operating income (or increasing our
net operating loss) to the extent of the accrual. Conversely, a decrease in the
price of our Series A Common Stock over the previous quarter will result in the
reversal of a portion of the expenses accrued for the previous quarter or
quarters, thereby increasing our net
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operating income (or decreasing our net operating loss) to the extent of the
reversal. For example, for the twelve months ended December 31, 1999 stock
compensation expense totaled $692.7 million. By contrast, for the quarter ended
March 31, 2000, stock compensation expense accruals in the amount of $132.0
million were reversed primarily due to a decline in the trading price of our
Series A Common Stock. At March 31, 2000, total accrued stock compensation
liabilities were $463.9 million.
The fluctuating value of our minority equity interests in publicly-traded
and private companies and market fluctuations generally may affect the trading
price of our Series A Common Stock.
We hold minority equity interests in publicly-traded and private
interactive television technology and Internet e-commerce and content companies.
In addition, it is possible that some investors may view our company primarily
as a new media business. The trading prices of new media and Internet stocks in
general have experienced extreme price and volume fluctuations in recent months.
The valuations of many new media and Internet stocks are extraordinarily high
based on conventional valuation standards such as price-to-earnings and price-
to-sales ratios. These valuations may not be sustained. Any negative change in
the public's perception of the prospects of new media or Internet companies
could, in turn, have an adverse impact on the perceived value of our company and
could depress the trading price of our securities. Other broad market and
industry factors may also result in a decrease in the trading price of our
securities, regardless of our operating performance. In the past, securities
classaction litigation often have been instituted following significant
declines in the market price of a company's common stock. Litigation of this
type, if instituted against us, could result in substantial costs and diversion
of management's attention and resources, which could harm our business.
We anticipate continuing to issue shares of our Series A Common Stock in
exchange for equity interests in other companies, which could be dilutive to our
existing stockholders.
Since the contribution by Liberty Media, we have acquired our investments
in Internet and interactive television businesses for cash or for shares of our
Series A Common Stock. To the extent that we continue to acquire investments in
exchange for our Series A Common Stock, such transactions could be dilutive to
existing stockholders.
Our operations are subject to constraints imposed by the Investment Company
Act.
Our operations are subject to constraints imposed by the Investment Company
Act of 1940. While we are primarily engaged in the business of developing
interactive programming and services and operating our subscription music
services business, we hold minority equity interests in companies engaged in the
interactive television technology business and in Internet businesses.
Under the Investment Company Act, a company which owns investment
securities, as defined, with a value exceeding 40% of the value of its total
unconsolidated assets is deemed to be an investment company subject to
regulation under that Act, unless it can rely on an available exemption.
Investment securities include all securities except, among others, securities of
majority-owned subsidiaries that are not themselves investment companies.
Substantially all of our minority investments in interactive technology and
Internet companies are considered "investment securities." As a result, we are
subject to the risk that we will be considered an investment company as a result
of these investments.
A company that is deemed to be an "investment company," and which is not
exempt from the provisions of the Investment Company Act, is required to
register as an investment company under the Investment Company Act. Registered
investment companies are subject to extensive, restrictive and potentially
adverse regulation relating to, among other things, operating methods,
management, capital structure, dividends and transactions with affiliates.
Registered investment companies are not permitted to operate their business in
the manner we operate our business, nor are registered investment companies
permitted to have many of the relationships that we have with our affiliated
companies.
We believe that our business and the composition of our assets are such
that we are not an "investment company" required to register under the
Investment Company Act, and we intend to conduct our business in a
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manner designed to avoid becoming subject to regulation under the Investment
Company Act. However, this belief is based upon an analysis that involves
certain subjective judgments, and is therefore subject to risks and
uncertainties. To avoid regulation under the Investment Company Act, our
operations will to an extent be limited by concerns that we not acquire
investments in companies where the nature and size of our investments are such
that we may fall within the definition of an investment company. These
considerations could require us to dispose of otherwise desirable assets at
disadvantageous prices, structure transactions in a manner that assures that we
have a majority interest or primary control, irrespective of whether such a
structure is the one that is most desirable, or avoid otherwise economically
desirable transactions. In addition, events beyond our control, including
significant appreciation in the market value of certain of our publicly-traded
investments that are investment securities, could result in our becoming an
inadvertent investment company. If we were to become an inadvertent investment
company, we generally would have one year to divest a sufficient amount of
investment securities and/or acquire other assets or businesses sufficient to
cause us to no longer be an investment company subject to registration under the
Investment Company Act.
If it were established that we are an unregistered investment company,
there would be a risk, among other material adverse consequences, that we could
become subject to monetary penalties or injunctive relief, or both, in an action
brought by the SEC, that we would be unable to enforce contracts with third
parties (unless a court finds that enforcement would be more equitable and
consistent with the Investment Company Act), or that third parties could rescind
transactions or agreements with us undertaken or entered into during the period
it was established that we were an unregistered investment company.
We may not have sufficient funds with which to redeem our Series B
Convertible Preferred Stock upon any requested redemption of that stock by the
holders.
Under the certificate of designation establishing the terms of our Series B
Convertible Preferred Stock, at any time on and after June 30, 2006, or prior
thereto if a "default" (as defined in the certificate) has occurred and is
continuing, the dividend rate on the Series B Convertible Preferred Stock would
increase from 5% to 7% per year and any holder of our Series B Convertible
Preferred Stock would have the right to require us to redeem all or a portion of
its shares at a redemption price per share equal to the liquidation preference.
The liquidation preference per share of our Series B Convertible Preferred Stock
as of any date is equal to the sum of:
(1) the stated value per share of $1,000;
(2) an amount equal to all quarterly dividends accrued on such share of
Series B Convertible Preferred Stock which have not been paid; and
(3) for purposes of the liquidation, redemption and conversion provisions
of the Series B Convertible Preferred Stock, an amount equal to all
unpaid dividends accrued on the sum of the amounts specified in
clauses (1) and (2) above during the period from and including the
immediately preceding dividend payment date to but excluding the date
in question.
A "default" is defined in the certificate of designations as:
. the existence of an event of default or event that, with notice or
lapse of time of both, would become an event of default under our $100
million revolving credit agreement, or any default or event of default
under and as defined in any other debt instrument evidencing
indebtedness of ours equal to or greater than $20 million;
. our failure 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 Convertible Preferred Stock; or
. specified events of bankruptcy, insolvency or reorganization with
respect to our company.
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Our $100 million revolving loan agreement currently prohibits us from
paying cash dividends on or redeeming our capital stock unless we meet certain
financial leverage ratios, and there can be no assurance that we will meet such
ratios.
Dividends on the Series B Convertible Preferred Stock are calculated as a
percentage of the liquidation preference as in effect on the immediately
preceding dividend payment date. So long as we do not pay cash dividends on the
Series B Convertible Preferred Stock, the redemption price per share will
increase each quarter by an amount equal to accrued and unpaid dividends for
that quarter. The amount of this quarterly increase per share will be larger
with each successive quarter, through quarterly compounding, because the
quarterly dividend amount is computed based upon the liquidation preference of
the Series B Convertible Preferred Stock as in effect on the immediately
preceding dividend payment date, which includes accrued and unpaid dividends for
previous quarters. We cannot assure you that we will have sufficient funds
available to redeem all of the outstanding shares of our Series B Convertible
Preferred Stock at such time as the holder(s) of those shares are entitled to
demand redemption.
Liberty Media, which, as of the date of this prospectus, owns all of the
outstanding shares of the Series B Convertible Preferred Stock, has waived its
right to require that we redeem all or any portion of the shares of Series B
Convertible Preferred Stock as a result of a default caused by our failure to
declare and pay cash dividends on such shares when due. This waiver will
terminate on January 1, 2001 unless sooner terminated because of a failure by
us to declare and pay any quarterly dividend either in cash or by adding the
applicable amount of the dividend to the liquidation preference of the Series B
Convertible Preferred Stock as required by the certificate of designation. In
addition, the waiver will terminate in the event that Liberty Media ceases to
own shares representing a majority of the voting power of our common stock. We
cannot predict what will happen when this waiver is terminated, or if Liberty
Media will extend this waiver beyond January 1, 2001.
The conversion of Series B Convertible Preferred Stock may be dilutive to
other stockholders.
The conversion of Series B Convertible Preferred Stock may be dilutive to
our stockholders. The number of shares of Series B Common Stock issuable upon
conversion of our Series B Convertible Preferred Stock is computed by dividing
the liquidation preference of the shares of Series B Convertible Preferred Stock
surrendered for conversion by the conversion price as in effect from time to
time. The conversion price is currently $5.825 per share, which is
substantially below the market price of our Series A Common Stock on the date of
this prospectus. So long as the conversion price is less than the market price,
the conversion of shares of Series B Convertible Preferred Stock will be
dilutive to other stockholders.
In addition, because accrued and unpaid quarterly dividends on the
Series B Convertible Preferred Stock are added to the liquidation preference,
our failure to pay such dividends will result in a quarterly increase in the
number of shares of Series B Common Stock issuable on conversion of each share
of Series B Convertible Preferred Stock. To the extent that such cash dividends
are paid in any quarter, the number of shares of our Series B Common Stock
issuable upon conversion will not increase further. We may cure the default
caused by our failure to pay cash dividends by paying all such accrued dividends
in cash, at which time the dividend rate on our Series B Convertible Preferred
Stock would return to 5% and the number of shares of our Series B Common Stock
issuable upon conversion of our Series B Convertible Preferred Stock would
return to the amount issuable on the issue date. We are also entitled to
partially cure our failure to pay cash dividends by paying a portion of the
accrued and unpaid dividends. If we make a partial payment, the liquidation
preference will decrease by the amount of accrued and unpaid dividends paid at
such time. At May 31, 2000, the total liquidation preference of the Series B
Convertible Preferred Stock was approximately $156.8 million, and, accordingly,
26,911,416 shares of Series B Common Stock would have been issuable if all
shares of Series B Convertible Preferred Stock had been converted to shares of
Series B Common Stock on that date.
Our business is subject to risks of adverse government regulation.
The Federal Communications Commission regulates the providers of satellite
communications services and facilities for the transmission of programming
services, the television systems that carry such services, and, to some extent,
the availability of the programming services themselves through its regulation
of program licensing. Cable
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television systems and other forms of video distribution are also regulated by
municipalities or other state and local government authorities. Cable television
companies are currently subject to federal rate regulation on the provision of
basic service. Continued rate regulation or other franchise conditions could
place downward pressure on the fees cable television companies are willing or
able to pay for our music services or any interactive television channels we may
develop and the regulatory carriage requirements could adversely affect the
number of channels available to carry our music services or any interactive
television channels we develop.
The regulation of programming services, cable television systems, satellite
carriers and television stations is subject to the political process and has
been in constant flux over the past decade. Further material changes in the law
and regulatory requirements must be anticipated and there can be no assurance
that our business will not be adversely affected by future legislation, new
regulation or deregulation.
The Internet companies in which we have interests are subject, both
directly and indirectly, to various laws and governmental regulations relating
to their respective businesses. There are currently few laws or regulations
directly applicable to access to or commerce on commercial online services or
the Internet. For example, the Digital Millennium Copyright Act, enacted into
law in 1998, protects certain qualifying online service providers from copyright
infringement liability, the Internet Tax Freedom Act, also enacted in 1998,
placed a three-year moratorium on new state and local taxes on Internet access
and commerce, and under the Communications Decency Act, an Internet service
provider will not be treated as the publisher or speaker of any information
provided by another information content provider. However, due to the
increasing popularity and use of commercial online services and the Internet, it
is possible that a number of laws and regulations may be adopted with respect to
commercial online services and the Internet. A number of states also have been
considering legislation which would impose restrictions on the Internet such as
privacy protection. Such laws and regulations may cover issues such as user
privacy, defamatory speech, copyright infringement, pricing and characteristics
and quality of products and services. The adoption of such laws and regulations
in the future may slow the growth of commercial online services and the
Internet. Moreover, the applicability to commercial online services and the
Internet of existing laws governing issues such as property ownership, libel,
personal privacy and taxation is uncertain and could expose such online services
to substantial liability. Finally, the global nature of the Internet could
subject us to laws of a foreign jurisdiction in an unpredictable manner.
Because the interactive television industry is in its early stages and, to some
degree, combines elements of several industries, each of which may be subject to
varying degrees of governmental regulation, we are unable to predict the degree
to which our interactive television business will be affected by governmental
regulation.
Delaware law and provisions in our charter and bylaws may discourage a
change of control of Liberty Digital.
Liberty Digital is a Delaware corporation and is subject to Section 203 of
the Delaware General Corporation law. Section 203 provides that persons
acquiring 15% or more of our common stock without our prior approval may become
subject to restrictions on engaging in certain transactions with us, including
mergers or other business combinations. Liberty Media acquired its shares of
Series A Common Stock, Series B Common Stock and Series B Convertible Preferred
Stock in transactions approved by us and, therefore, it is not subject to these
statutory restrictions.
Some of the provisions of our certificate of incorporation and bylaws may
have the effect of making more difficult an acquisition of control of Liberty
Digital in a transaction that is not approved by our board of directors and
Liberty Media. These provisions include:
. that stockholder action may be taken by written consent, which would
enable Liberty Media, acting by itself, to approve certain actions
without having a stockholder meeting;
. the disparate voting rights of our Series A Common Stock, which is
entitled to one vote per share, and Series B Common Stock, which is
entitled to ten votes per share, and that such series vote together on
matters presented to stockholders except as otherwise required by law;
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. provisions giving our board of directors the power to issue up to 5
million shares of preferred stock (inclusive of all of our currently
designated preferred stock), and to fix the rights and preferences of
the preferred stock, without further authorization of our common
stockholders;
. the requirement of a supermajority vote to approve specified actions;
. the requirement that a stockholder desiring to nominate any person for
election to our board of directors comply with certain procedures,
including an advance notice requirement;
. provisions requiring a supermajority vote of our directors to increase
the size of our board of directors and to amend our bylaws; and
. that directors may only be removed for "cause" (as defined in our
certificate of incorporation) and upon a two-thirds vote of our
stockholders.
In addition, our board of directors is divided into three classes, each of
which serves for a staggered three-year term, which may make it more difficult
for a third party to gain control of our board of directors.
Many of these provisions generally are designed to permit us to develop our
businesses and foster our long-term growth without the disruption caused by the
threat of a takeover not deemed by our board of directors to be in our and our
stockholders' best interests. These provisions may also have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of us even though these attempts might be economically beneficial
to us and our stockholders. In addition, for so long as Liberty Media owns a
majority of the voting power of our common stock, no tender offer or other
attempt by a third party to obtain control of our company can be successful
without Liberty Media's participation or approval.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement, and the documents
incorporated or deemed to be incorporated by reference into this prospectus
contain forward-looking statements that involve risk and uncertainties.
Statements that are not purely historical are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this prospectus, any accompanying prospectus supplement or the documents
incorporated or deemed to be incorporated by reference into this prospectus, the
words "anticipate," "believe," "estimate," "intend" and "expect" and similar
expressions are intended to identify such forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that may cause our actual results, performance,
achievements, plans and objectives to differ materially from any future results,
performance, achievements, plans and objectives expressed or implied by these
forward-looking statements. Such risks, uncertainties and other factors include
those described under the heading "Risk Factors" in this prospectus.
You should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is
made and we undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for us to predict what
factors will arise or when. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
For a discussion of important risks of an investment in our securities,
including factors that could cause actual results to differ materially from
results referred to in the forward-looking statements, see "Risk Factors." You
should carefully consider the information set forth under the caption "Risk
Factors." In light of these risks, uncertainties and assumptions, the forward-
looking events discussed in or incorporated or deemed to be incorporated by
reference in this prospectus or an accompanying prospectus supplement might not
occur.
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf" registration process. Under this shelf process, we may
sell any combination of the securities described in this prospectus in one or
more offerings up to a total initial offering price of $500,000,000.
This prospectus provides you with a general description of the securities
we may offer. Each time we offer specific securities, we will provide a
prospectus supplement that will contain information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus. You should read both this prospectus and any
prospectus supplement together with the additional information described under
the heading "Where You Can Find More Information."
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BUSINESS
We are a diversified new media company with interests in interactive
television technology and Internet e-commerce and content businesses. We also
own and operate a subscription music business, which provides continuous,
commercial-free music programming to homes and businesses.
It is our goal to become a leading provider of interactive programming,
delivering entertainment, information, communication, and transactional services
to viewers through the television. We intend to create and develop programming
and services that can be delivered over multiple distribution systems, such as
cable television and DTH systems, and which will provide appealing programming
and services to consumers and economic benefits to distribution and other
service providers.
In developing our businesses we seek to leverage:
. our relationship with Liberty Media, our parent company, and its
subsidiaries and affiliates. Liberty Media's management has
significant experience in television programming, and has a wide range
of industry relationships;
. the relationships formed with the interactive television technology
and Internet e-commerce and content companies in which we hold equity
interests and the related technology, content and other services
created or developed by these companies; and
. our access agreement with AT&T Corp., the parent of Liberty Media,
which provides the framework for our negotiating arrangements with
AT&T for the carriage of interactive programming channels over AT&T's
cable television systems.
Our principal executive offices are located at 12312 West Olympic Blvd.,
Los Angeles, CA 90064. Our telephone number at that location is (310) 979-5000.
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
The following table sets forth our consolidated ratio of earnings to fixed
charges, the deficiency of our consolidated earnings to cover fixed charges, our
consolidated ratio of earnings to combined fixed charges and preferred stock
dividends and the deficiency of our consolidated earnings to cover combined
fixed charges and preferred stock dividends for the periods indicated. On May
24, 1999, we called for redemption, effective June 11, 1999, of all of the
outstanding shares of our Series A Convertible Preferred Stock. On June 11,
1999, all of the shares of that stock, except for 6,404 shares, were converted
into shares of Series A Common Stock. The remaining shares were redeemed. As
of the date of this prospectus, the only preferred stock we have outstanding is
our Series B Convertible Preferred Stock, all of which is beneficially owned by
Liberty Media. The Series B Convertible Preferred Stock has accrued dividends
at the rate of 7% per annum since January 1, 2000. Prior to that date, it
accrued dividends at the rate of 5% per annum. See "Description of Capital
Stock--Preferred Stock." Unless otherwise indicated, the amounts in the
following table are given in thousands of dollars.
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<TABLE>
<CAPTION>
Liberty
Liberty Digital TCI Music, Inc. Digital TCI Music, Inc. TCI Music, Inc.
--------------- --------------- ------- --------------- ---------------
Two Ten Two Six
Three One Months Months Months Year Months
Months Month Ended Ended Ended Ended Ended
Ended Ended February December February December December
March 31, March 31, 28, 31, 28, 31, 31,
--------- --------- --- --- --- --- ---
2000 1999 1999 1999 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated ratio of
earnings to fixed
charges .......................... 30.3 -- 1.1 -- 1.1 -- . 2.8
Deficiency of
consolidated earnings
to cover fixed charges ........... -- $2,219 -- $726,135 -- $1,474 . --
Consolidated ratio of
earnings to combined
fixed charges and
preferred stock
dividends ........................ 14.2 -- -- -- -- -- . 2.4
Deficiency of
consolidated earnings
to cover combined fixed
charges and preferred
stock dividends .................. -- $ 2,429 $ 269 $730,120 $ 269 $3,731 . --
<CAPTION>
DMX, LLC
--------
Nine
Months
Ended
June
30, Years Ended September 30,
--- ------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Consolidated ratio of
earnings to fixed
charges ......................... -- -- --
Deficiency of
consolidated earnings
to cover fixed charges .......... $14,911 $ 34,052 $ 23,386
Consolidated ratio of
earnings to combined
fixed charges and
preferred stock
dividends ....................... -- -- --
Deficiency of
consolidated earnings
to cover combined fixed
charges and preferred
stock dividends ................. $14,911 $ 34,052 $ 23,386
</TABLE>
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For purposes of computing the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends, earnings
represent income (loss) before income taxes and fixed charges. Fixed charges
consist of interest expensed and capitalized, amortized premiums, discounts,
capitalized expenses related to indebtedness and an estimate of the interest
within rental expense. Earnings include our pre-tax income from continuing
operations before adjustment for minority interest in consolidated subsidiaries
or income or loss from equity investments; fixed charges; amortization of
capitalized interest; distributed income of equity investments; our share of
pre-tax losses of equity investments for which charges arising from guarantees
are included in fixed charges; capitalized interest; preference security
dividend requirement of consolidated subsidiaries; and the minority interest in
pre-tax income of subsidiaries that have not incurred fixed charges. For
purposes of the foregoing, equity investments are investments that we account
for using the equity method of accounting. The deficiency in the above table
represents the amount by which consolidated earnings were insufficient to cover
fixed charges or combined fixed charges and preferred stock dividends for the
relevant periods.
USE OF PROCEEDS
We will use the net proceeds from our sale of the securities described in
this prospectus for general corporate purposes, which may include funding the
development (including startup expenses) of our interactive television business,
to acquire equity interests in interactive television technology and Internet e-
commerce and content companies, for working capital or to repay indebtedness.
We may also use such net proceeds for any other purpose we describe in the
applicable prospectus supplement.
DESCRIPTION OF DEBT SECURITIES
The following is a summary of the general terms of the debt securities that
we may offer. We will file a prospectus supplement that will contain additional
terms when we issue debt securities. The terms presented here, together with
the terms in a related prospectus supplement, could be different from, and if
so, will supersede the terms described below. You should also read the related
Indenture. We have filed the Indenture with the SEC as an exhibit to the
registration statement of which this prospectus is a part. All capitalized
terms we use below which we do not define have the meanings specified in the
Indenture. The terms and provisions of the debt securities below will most
likely be modified by the prospectus supplement that sets forth the specific
terms of the debt securities issued.
The summary of selected provisions of the Indenture and the debt securities
included in this prospectus and the applicable prospectus supplement is not
complete and is qualified by reference to the Indenture, any officers'
certificate or supplemental indenture establishing the terms of a series of debt
securities and the certificates evidencing the debt securities. A copy of the
Indenture, any applicable officers' certificate or supplemental indenture and
the certificate evidencing any series of debt securities has been or will be
filed with the SEC and may be obtained as described under "Where You Can Find
More Information."
We may issue, from time to time, debt securities, in one or more series,
that will consist of either our senior debt securities ("Senior Debt
Securities"), our senior subordinated debt securities ("Senior Subordinated Debt
Securities"), our subordinated debt securities ("Subordinated Debt Securities")
or our junior subordinated debt securities ("Junior Subordinated Debt
Securities" and, together with the Senior Subordinated Debt Securities and the
Subordinated Debt Securities, the "Subordinated Securities"). The debt
securities we offer will be issued under an Indenture between us and a trustee.
Debt securities, whether senior, senior subordinated, subordinated or junior
subordinated, may be issued as convertible debt securities.
HOLDING COMPANY STRUCTURE
As of the date of this prospectus, our principal assets consist of cash and
cash equivalents, our access agreement with AT&T, our wholly-owned subsidiary
DMX Music Inc. and our minority equity investments in companies engaged in the
interactive television technology business and in Internet e-commerce and
content businesses. Our subsidiaries and other companies in which we have an
investment are separate and distinct legal entities and will have no obligation,
contingent or otherwise, to pay any amounts due under any debt securities that
we issue or to make any funds available for those payments.
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All of the liabilities of our subsidiaries will effectively rank senior to
any debt securities we issue. The Indenture does not limit the amount of
indebtedness that may be incurred by our subsidiaries in the future. The rights
of Liberty Digital and of its creditors, including holders of any debt
securities we issue, to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or reorganization will be subject to
prior claims of the subsidiary's creditors, including trade creditors, except to
the extent Liberty Digital may itself be a creditor with recognized claims
against the subsidiary. As of March 31, 2000, the aggregate amount of the total
liabilities of our consolidated subsidiaries was approximately $18.7 million.
For the year ended December 31, 1999 and the first quarter of 2000,
substantially all of our consolidated revenues were generated by our subsidiary,
DMX Music Inc. Accordingly, for the foreseeable future our cash flow and the
consequent ability to service our debt, including any debt securities issued
under the Indenture, will largely be dependent upon the results of operations of
DMX and the distribution of funds by DMX to us.
SENIOR DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on Senior Debt
Securities will rank on a parity with all of our other unsecured and
unsubordinated debt.
SENIOR SUBORDINATED DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on Senior
Subordinated Debt Securities will be junior in right of payment to the prior
payment in full of all of our unsubordinated debt, including Senior Debt
Securities. We will state in the applicable prospectus supplement relating to
any Senior Subordinated Debt Securities the subordination terms of the
securities as well as the aggregate amount of outstanding debt, as of the most
recent practicable date, that by its terms would be senior to the Senior
Subordinated Debt Securities.
SUBORDINATED DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on Subordinated
Debt Securities will be subordinated and junior in right of payment to the prior
payment in full of all of our senior and senior subordinated debt, including any
Senior Debt Securities and Senior Subordinated Debt Securities. We will state
in the applicable prospectus supplement relating to any Subordinated Debt
Securities the subordination terms of the securities as well as the aggregate
amount of outstanding indebtedness, as of the most recent practicable date, that
by its terms would be senior to the Subordinated Debt Securities.
JUNIOR SUBORDINATED DEBT SECURITIES
Payment of the principal of, premium, if any, and interest on Junior
Subordinated Debt Securities will be subordinated and junior in right of payment
to the prior payment in full of all of our senior, senior subordinated and
subordinated debt, including any Senior Debt Securities, Senior Subordinated
Debt Securities and Subordinated Debt Securities. We will state in the
applicable prospectus supplement relating to any Junior Subordinated Debt
Securities the subordination terms of the securities as well as the aggregate
amount of outstanding debt, as of the most recent practicable date, that by its
terms would be senior to the Junior Subordinated Debt Securities.
CONVERSION RIGHTS
Debt securities may be convertible into shares of our Series A Common Stock
or preferred stock. The terms and conditions of conversion will be stated in
the applicable prospectus supplement. The terms will include, among others, the
following:
. the conversion price or rate;
. the conversion period, if any;
. events requiring adjustment to the conversion price or rate, if any;
and
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<PAGE>
. provisions, if any, affecting conversion in the event of our
redemption of the debt securities.
THE INDENTURE
General Terms. The Indenture does not limit the amount of debt securities
that we may issue under the Indenture. It provides that we may issue debt
securities under the Indenture in one or more series from time to time, each up
to the principal amount that we may authorize. Debt securities may be issued by
us in any currency or currency unit that we may designate. Except to the
limited extent described below under the "Merger," the terms of the Indenture do
not contain any covenants or other provisions designed to give holders of any
debt securities protection against changes in our operations or financial
condition or in the event of a change in control of our company, but such
provisions may be included in the documents that set forth the specific terms of
the debt securities.
We may issue the debt securities issued under the Indenture as "discount
securities," which means they may be sold at a discount below their stated
principal amount. These debt securities, as well as other debt securities that
are not issued at a discount, may, for United States federal income tax
purposes, be treated as if they were issued with "original issue discount"
("OID") because of interest payment and other characteristics. Special United
States federal income tax considerations applicable to debt securities issued
with original issue discount will be described in more detail in any applicable
prospectus supplement.
The applicable prospectus supplement for a series of debt securities that
we issue will describe, among other things, the following terms of the offered
debt securities:
. the title;
. any limit on the aggregate principal amount of that series;
. whether issued in fully registered form without coupons or in a form
registered as to principal only with coupons or in bearer form with
coupons;
. whether issued in the form of one or more global securities and
whether all or a portion of the principal amount of the debt
securities will be represented thereby;
. the price or prices at which the debt securities of that series will
be issued;
. the date or dates on which principal is payable;
. the place or places where and the manner in which principal, premium
or interest will be payable and the place or places where the debt
securities may be presented for transfer and, if applicable,
conversion;
. interest rates, and the dates from which interest, if any, will
accrue, and the dates when interest is payable and the maturity;
. the right, if any, to extend the interest payment periods and the
duration of the extensions;
. our rights or obligations to redeem or purchase the debt securities;
. any sinking fund provisions;
. conversion provisions, if any, including conversion prices or rates
and adjustments thereto;
. the currency or currencies of payment of principal, premium or
interest, if other than U.S. dollars;
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<PAGE>
. the terms, if any, applicable to any debt securities issued at a
discount from their stated principal amount;
. the terms, if any, under which any debt securities will rank junior to
any of our other debt;
. if the amount of payments of principal, premium or interest is to be
determined by reference to an index or formula, or based on a coin or
currency other than that in which the debt securities of that series
are stated to be payable, the manner in which these amounts will be
determined and the calculation agent, if any, with respect thereto;
. if other than the entire principal amount of the debt securities of
that series, the portion of the principal amount payable upon
acceleration of maturity as a result of an Event of Default with
respect to that series;
. if applicable, financial covenants or other covenants for the benefit
of the debt securities of that series;
. if applicable, additional Events of Default applicable to the debt
securities of that series;
. if other than U.S. dollars, the coin, currency or currencies in which
the series of debt securities are denominated; and
. any other specific terms of the offered debt securities.
Events of Default. Unless otherwise provided for in the prospectus
supplement, the term "Event of Default" means, with respect to any series of
debt securities issued under the Indenture, any of the following:
. failure to pay interest on any debt securities of that series for 30
days after the date payment is due and payable; provided that if we
extend an interest payment period in accordance with the terms of the
debt securities of that series, the extension will not be a failure to
pay interest;
. failure to pay principal or premium, if any, on any debt security of
that series when due, whether at maturity, upon any redemption, by
declaration or otherwise;
. failure to make sinking fund payments, if any, on any debt securities
of that series when due;
. failure by Liberty Digital to perform any other covenant in the
Indenture or in the debt securities of that series, except a covenant
included solely for the benefit of another series of debt securities,
for 60 days after notice by the trustee or the holders of at least 25%
in aggregate principal amount of the outstanding debt securities of
that series;
. specified events in bankruptcy, insolvency or reorganization of our
company; or
. any other Event of Default established for the debt securities of that
series.
An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under the Indenture. If an Event of Default involving any
series of debt securities has occurred and is continuing, other than an Event of
Default relating to events of bankruptcy, insolvency or reorganization of our
company, the trustee or the holders of not less than 25% in aggregate principal
amount of the outstanding debt securities of that series may declare the entire
principal of and accrued interest, if any, on all the debt securities of that
series to be due and payable immediately. If an Event of Default relating to
events in bankruptcy, insolvency or reorganization of our company occurs and is
continuing, then the principal amount of all of the debt securities outstanding,
and any accrued interest, will automatically become due and payable immediately,
without any declaration or other act by the trustee or any holder. However,
under specified
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<PAGE>
conditions, the holders of a majority in outstanding principal amount of the
debt securities of a series may rescind and annul a declaration of acceleration
with respect to that series and its consequences.
The Indenture imposes limitations on suits brought by holders of debt
securities against us. Except for actions for payment of overdue principal,
premium, if any, or interest or to enforce a holders' right, if any, to convert
debt securities, no holder of debt securities of any series may institute any
action against us under the Indenture unless:
. the holder has previously given to the trustee written notice of
default and continuance of such default,
. the holders of at least 25% in principal amount of the outstanding
debt securities of that series have requested that the trustee
institute the action,
. the requesting holders have offered the trustee reasonable indemnity
for expenses and liabilities that may be incurred by bringing the
action,
. the trustee has not instituted the action within 60 days of the
request, and
. the trustee has not received inconsistent directions from the holders
of a majority in principal amount of the outstanding debt securities
of that series.
Notwithstanding any other provision of the Indenture, the holder of a debt
security will have the right, which is absolute and unconditional, to receive
payment of the principal of, premium, if any, and interest on that debt security
on the respective due dates for those payments and to institute suit for
enforcement of those payments. In addition, a holder of a convertible debt
security, on its own behalf, may enforce and institute proceedings suitable to
enforce its right to convert its debt securities into other securities.
We will be required to file annually with the trustee a certificate, signed
by an officer of our company, stating whether or not the officer knows of any
default by us in the performance, observance or fulfillment of any condition or
covenant of the Indenture.
Merger. We generally may consolidate with, or sell, lease or convey all or
substantially all of our assets to, or merge with or into, any other corporation
if:
. we are the continuing corporation; or
. we are not the continuing corporation, and the successor corporation
expressly assumes all payments on all the debt securities and the
performance and observance of all the covenants and conditions of the
Indenture and each series of debt securities outstanding; and
. immediately after giving effect to the transaction, no Event of
Default or event which, with notice or lapse of time or both, would
constitute an Event of Default under the Indenture or any series of
outstanding debt securities has occurred and is continuing.
Discharge, Defeasance and Covenant Defeasance. We can discharge or defease
our obligations under the Indenture as stated below or as provided in the
prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, we may
discharge obligations to holders of any series of debt securities that have not
already been delivered to the trustee for cancellation and that have either
become due and payable or are by their terms to become due and payable, or are
scheduled for redemption, within one year. We may effect a discharge by
irrevocably depositing with the trustee cash, as trust funds, in an amount
certified to be enough to pay when due, whether at maturity or upon redemption,
the principal of, premium, if any, and interest on the debt securities of that
series and any mandatory sinking fund payments.
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Unless otherwise provided in the applicable prospectus supplement, we may
also discharge any and all of our obligations to holders of any series of debt
securities at any time ("defeasance"). We may also be released from the
obligations imposed by specified covenants applicable to any series of debt
securities, and we may omit to comply with those covenants without creating an
event of default under the Indenture ("covenant defeasance"). We may effect
defeasance and covenant defeasance with respect to any series of debt securities
only if, among other things:
. we irrevocably deposit with the trustee cash or U.S. government
obligations, as trust funds, in an amount certified to be enough to
pay at maturity, or upon redemption, the principal, premium, if any,
and interest on all outstanding debt securities of the series;
. we deliver to the trustee an opinion of counsel from a nationally
recognized law firm to the effect that (i) in the case of covenant
defeasance, the holders of that series of debt securities will not
recognize income, gain or loss for U.S. federal income tax purposes as
a result of such covenant defeasance, and will be subject to U.S.
federal income tax in the same manner, at the same times and in the
same amounts as if no covenant defeasance had occurred and (ii) in the
case of defeasance, either we have received from, or there has been
published by, the Internal Revenue Service a ruling or there has been
a change in applicable U.S. federal income tax law subsequent to the
date of the Indenture, and based thereon, the holders of that series
of debt securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance, and will
be subject to U.S. federal income tax in the same manner, at the same
times and in the same amounts as if no defeasance had occurred;
. no Event of Default or event which, with notice or lapse of time or
both, would become an Event of Default with respect to the debt
securities of that series has occurred and is continuing on the date
of the irrevocable deposit referred to above, and, solely in the case
of defeasance, no Event of Default arising from specified events of
bankruptcy, insolvency or reorganization of our company or event
which, with notice or lapse of time or both, would become such an
Event of Default has occurred and is continuing at any time during the
period ending on the 91st day after the deposit date; and
. in the case of subordinated debt securities of any series, no event or
condition shall exist that, based on the subordination provisions
applicable to the series, would prevent us from making payments of
principal of, premium, if any, or interest on any of the subordinated
debt securities of that series at the date of the irrevocable deposit
referred to above or at any time during the period ending on the 91st
day after the deposit date.
Although we may discharge or decrease our obligations under the Indenture
as described in the two preceding paragraphs, we may not avoid, among other
things, our duty to register the transfer or exchange of any series of debt
securities, to replace any temporary, mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of any series of debt
securities, to hold monies for payment of any series of debt securities in
trust, the obligation, if applicable, to convert any series of debt securities
into other securities in accordance with their terms and the obligation, if any,
to repurchase or redeem debt securities of any series at the option of the
holders thereof.
Modification of the Indenture. Except as may be provided in the prospectus
supplement applicable to any series of debt securities, the Indenture provides
that we and the trustee may enter into supplemental indentures without the
consent of the holders of debt securities to, among other things:
. secure the debt securities of any series,
. evidence the assumption by a successor corporation of our obligations,
. add covenants or Events of Default for the protection of the holders
of debt securities of any series,
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. cure any ambiguity or correct any inconsistency in the Indenture,
. establish the forms or terms of debt securities of any series,
. evidence and provide for the acceptance of appointment by a successor
trustee; and
. make any change that does not materially adversely affect the rights
of any holder of debt securities.
The Indenture also provides that we and the trustee may, with the consent
of the holders of not less than a majority in aggregate principal amount of debt
securities of each series of debt securities then outstanding and affected, add
any provisions to, or change in any manner, or eliminate or modify in any way
the provisions of, the Indenture or modify in any manner the rights of the
holders of the debt securities of that series. The Indenture further provides
that the holders of at least a majority in aggregate principal amount of the
debt securities of any series then outstanding may waive our compliance in a
particular instance with any provision of the Indenture applicable to those debt
securities or of those debt securities (including any restrictive covenant). We
and the trustee may not, however, without the consent of the holder of each
outstanding debt security affected thereby:
. extend the final maturity of any debt security or the date of any sinking
fund payment or any repurchase or redemption at the option of any holder;
. reduce the principal amount or premium, if any;
. reduce the rate or extend the time of payment of interest;
. reduce any amount payable on redemption at our option or repurchase at
the option of any holder;
. modify any conversion or subordination provisions or provisions for
repurchase or repayment at the option of the holder in a manner
adverse to the holders of the debt securities or impair the right of
any holder to convert debt securities or otherwise to receive any
cash, securities or other property receivable upon conversion;
. unless otherwise provided in the prospectus supplement, change the
currency in which the principal, premium, if any, or interest is
payable;
. reduce the amount of the principal of any debt security issued with an
original issue discount that is payable upon acceleration or provable
in bankruptcy;
. impair the right to institute suit for the enforcement of any payment
on any debt security when due; or
. reduce the percentage of holders of debt securities of any series
whose consent is required for any modification or amendment of the
Indenture or any waiver of compliance by us with any of our
obligations under the Indenture or any debt securities or to rescind
and annul a declaration of acceleration.
Registration, Transfer, Payment and Paying Agent. Unless otherwise
indicated in the applicable prospectus supplement, the debt securities will be
payable and may be surrendered for registration of transfer, exchange and, if
applicable, conversion into other securities at an office or agency maintained
by Liberty Digital in the Borough of Manhattan, The City of New York. However,
Liberty Digital, at its option and unless otherwise specified in the applicable
prospectus supplement with respect to the debt securities of any series, may
make payment of interest on any registered debt security by check mailed to the
address of the persons entitled to receive that payment or by wire transfer to
an account maintained by the payee with a bank located in the United States. No
service charge shall be made for a registration of transfer or exchange,
redemption, repayment or conversion of debt
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securities, but Liberty Digital may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange.
Unless otherwise indicated in the applicable prospectus supplement, we will
not be required to issue, register the transfer of or exchange debt securities
of any series during the period beginning at the opening of business 15 days
before any selection of debt securities of that series of like tenor and terms
to be redeemed and ending at the close of business on the day of that selection,
or to register the transfer of or exchange any registered debt security, or
portion thereof, called for redemption, except the unredeemed portion of any
debt security being redeemed in part.
Concerning the Trustee. The Indenture provides that there may be more than
one trustee under the Indenture, each for one or more series of debt securities.
If there are different trustees for different series of debt securities, each
trustee will be a trustee of a trust under the Indenture separate and apart from
the trust administered by any other trustee under the Indenture. Except as
otherwise indicated in this prospectus or any prospectus supplement, any action
permitted to be taken by a trustee may be taken by such trustee only on the one
or more series of debt securities for which it is the trustee under the
Indenture. Any trustee under the Indenture may resign or be removed from one or
more series of debt securities for which it is acting as trustee.
If the trustee becomes a creditor of our company, the Indenture places
limitations on the right of the trustee to obtain payment of claims or to
realize on property received in respect of any such claim as security or
otherwise. The trustee may engage in other transactions with us. If it
acquires any conflicting interest relating to any duties concerning the debt
securities, however, it must eliminate the conflict or resign as trustee.
The holders of a majority in aggregate principal amount of any series of
debt securities then outstanding will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy available to
the trustee concerning the applicable series of debt securities, provided that
the direction:
. would not conflict with any rule of law or with the Indenture,
. would not be unduly prejudicial to the rights of another holder of the
debt securities, and
. would not involve any trustee in personal liability.
The Indenture provides that in case an Event of Default with respect to a
series of debt securities shall occur, not be cured and be known to the trustee
for that series, the trustee must use the same degree of care as a prudent
person would use in the conduct of his or her own affairs in the exercise of the
trustee's power. The trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the holders of the
debt securities of any series, unless they shall have offered to the trustee
security and indemnity reasonably satisfactory to the trustee. Subject to the
foregoing, holders of a majority in principal amount of the outstanding debt
securities of any series will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee under
the Indenture with respect to that series.
No Individual Liability of Incorporators, Shareholders, Officers or
Directors. The Indenture provides that no incorporator and no past, present or
future shareholder, officer or director of our company or any successor
corporation in their capacity as such shall have any individual liability for
any of our obligations, covenants or agreements under the debt securities or the
Indenture.
Governing Law. The Indenture and the debt securities will be governed by,
and construed in accordance with, the laws of the State of New York.
REGISTERED GLOBAL SECURITIES
We may issue the debt securities of a series in whole or in part in the
form of one or more fully registered global securities. We will deposit any
registered global securities with a depositary or with a nominee for a
depositary identified in the applicable prospectus supplement and registered in
the name of such depositary or
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nominee. In such case, we will issue one or more registered global securities
denominated in an amount equal to the aggregate principal amount of all of the
debt securities of the series to be issued and represented by such registered
global security or securities.
Unless and until it is exchanged in whole or in part for debt securities in
definitive registered form, a registered global security may not be transferred
except as a whole:
. by the depositary for such registered global security to its nominee,
. by a nominee of the depositary to the depositary or another nominee of
the depositary, or
. by the depositary or its nominee to a successor of the depositary or a
nominee of the successor.
The prospectus supplement relating to a series of debt securities will
describe the specific terms of the depositary arrangement involving any portion
of the series represented by a registered global security.
We anticipate that the following provisions will apply to all depositary
arrangements for debt securities:
. ownership of beneficial interests in a registered global security will
be limited to persons that have accounts with the depositary for such
registered global security, these persons being referred to as
"participants," or persons that may hold interests through
participants;
. upon the issuance of a registered global security, the depositary for
the registered global security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
respective principal amounts of the debt securities represented by the
registered global security beneficially owned by the participants;
. any dealers, underwriters, or agents participating in the distribution
of the debt securities will designate the accounts to be credited; and
. ownership of beneficial interest in such registered global security
will be shown on, and the transfer of such ownership interest will be
effected only through, records maintained by the depositary for such
registered global security for interests of participants, and on the
records of participants for interests of persons holding through
participants.
The laws of some states may require that specified purchasers of securities
take physical delivery of the securities in definitive form. These laws may
limit the ability of those persons to own, transfer or pledge beneficial
interests in registered global securities.
So long as the depositary for a registered global security, or its nominee,
is the registered owner of such registered global security, the depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the debt securities represented by the registered global security for all
purposes under the Indenture. Except as stated below, owners of beneficial
interests in a registered global security:
. will not be entitled to have the debt securities represented by a
registered global security registered in their names,
. will not receive or be entitled to receive physical delivery of the
debt securities in the definitive form, and
. will not be considered the owners or holders of the debt securities
under the Indenture.
Accordingly, each person owning a beneficial interest in a registered
global security must rely on the procedures of the depositary for the registered
global security and, if the person is not a participant, on the
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procedures of the participant through which the person owns its interest, to
exercise any rights of a holder under the Indenture.
We understand that under existing industry practices, if we request any
action of holders or if an owner of a beneficial interest in a registered global
security desires to give or take any action that a holder is entitled to give or
take under the Indenture, the depositary for the registered global security
would authorize the participants holding the relevant beneficial interests to
give or take the action, and the participants would authorize beneficial owners
owning through the participants to give or take the action or would otherwise
act upon the instructions of beneficial owners holding through them.
We will make payments of principal and premium, if any, and interest, if
any, on debt securities represented by a registered global security registered
in the name of a depositary or its nominee to the depositary or its nominee, as
the case may be, as the registered owner of the registered global security.
None of our company, the trustee or any other agent of our company or the
trustee will be responsible or liable for any aspect of the records relating to,
or payments made on account of, beneficial ownership interests in the registered
global security or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
We expect that the depositary for any debt securities represented by a
registered global security, upon receipt of any payments of principal and
premium, if any, and interest, if any, in respect of the registered global
security, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the registered
global security as shown on the records of the depositary. We also expect that
standing customer instructions and customary practices will govern payments by
participants to owners of beneficial interests in the registered global security
held through the participants, as is now the case with the securities held for
the accounts of customers in bearer form or registered in "street name." We also
expect that any of these payments will be the responsibility of the
participants.
No depositary will be under an obligation to provide its services as
depositary for any registered global security of any series and may discontinue
providing its services at any time. If the depositary for any debt securities
represented by a registered global security is at any time unwilling or unable
to continue as depositary or stops being a clearing agency registered under the
Securities Exchange Act of 1934, we will appoint an eligible successor
depositary. If we fail to appoint an eligible successor depositary within 90
days, we will issue debt securities in definitive form in exchange for the
registered global security. In addition, we may at any time and in our sole
discretion decide not to have the debt securities of a series represented by one
or more registered global securities. In that event or if any Event of Default
has occurred and is continuing with respect to the debt securities of the
series, we will issue debt securities of the series in definitive form in
exchange for all of the registered global securities representing the debt
securities. We expect that the trustee will register any debt securities issued
in definitive form in exchange for a registered global security in the name or
names that the depositary, based upon instructions from its participants, shall
instruct the trustee.
We may also issue bearer debt securities of a series in the form of one or
more global securities, referred to as "bearer global securities." We will
deposit these securities with a common depositary for Euroclear System and
Clearstream Banking (a company formerly known as Cedel Bank), or with a nominee
for the depositary identified in the prospectus supplement relating to the
series. The prospectus supplement relating to a series of debt securities
represented by a bearer global security will describe the applicable terms and
procedures. These will include the specific terms of the depositary arrangement
and any specific procedures for the issuance of debt securities in definitive
form in exchange for a bearer global security.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 1,750,000,000 shares of common
stock, par value $.01 per share, and 5,000,000 shares of preferred stock, par
value $.01 per share. Our common stock is divided into 1,000,000,000 authorized
shares of Series A Common Stock, of which 28,027,921 shares were issued and
outstanding on March 31, 2000, and 750,000,000 shares of Series B Common Stock,
of which 171,950,167 shares were issued and outstanding on March 31, 2000. Our
preferred stock is issuable, by resolution of our board of directors, in series.
As of the date of this prospectus, 150,000 shares of our preferred stock were
designated as Series B Convertible Preferred Stock, of which 150,000 shares were
issued and outstanding.
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As of May 31, 2000, Liberty Media beneficially owned approximately 40.0% of
the outstanding shares of our Series A Common Stock, all of the outstanding
shares of our Series B Common Stock and all of the outstanding shares of our
Series B Convertible Preferred Stock, which, assuming conversion of the Series B
Convertible Preferred Stock held by Liberty Media into Series B Common Stock,
collectively represented approximately 99.1% of the voting power of all
outstanding shares of our capital stock at that date.
The following summary describes selected provisions of our certificate of
incorporation and is not complete. The following summary is subject to and
qualified in its entirety by reference to the provisions of our certificate of
incorporation, which has been filed with the SEC and is available as described
under "Where You Can Find More Information."
COMMON STOCK
Voting. Holders of Series A Common Stock are entitled to one vote for each
share held, and holders of Series B Common Stock are be entitled to ten votes
for each share held, on all matters presented to those stockholders. Except as
may otherwise be required by Delaware law or by the terms of any series of
preferred stock, the holders of outstanding shares of Series A Common Stock and
Series B Common Stock and the holders of outstanding shares of each series of
preferred stock entitled to vote thereon, if any, vote as one class with respect
to the election of directors and with respect to all other matters to be voted
on by our stockholders.
Dividends. Subject to the matters discussed below under "Share
Distributions," holders of Series A Common Stock and Series B Common Stock are
entitled to receive dividends at the same rate if, as and when such dividends
are declared by our board of directors out of assets legally available therefor
and after payment of any dividends required to be paid on shares of any
outstanding series of preferred stock. We may not make a cash dividend on one
series of common stock unless simultaneously with such dividend we make the same
dividend per share on the other series of common stock.
Share Distributions. If at any time a distribution is paid in Series A
Common Stock or Series B Common Stock, or in any of our other securities or
securities of another person, on the Series A Common Stock or Series B Common
Stock, such share distribution may be declared and paid only as follows:
. a share distribution consisting of shares of Series A Common Stock (or
securities that are convertible into, exercisable or exchangeable for,
or evidence the right to purchase any such shares) to holders of
Series A Common Stock and Series B Common Stock, on an equal per share
basis;
. a share distribution consisting of shares of Series B Common Stock (or
securities that are convertible into, exercisable or exchangeable for,
or evidence the right to purchase any such shares) to the holders of
Series A Common Stock and Series B Common Stock, on an equal per share
basis;
. a share distribution consisting of shares of Series A Common Stock (or
securities that are convertible into, exercisable or exchangeable for,
or evidence the right to purchase any such shares) to holders of
Series A Common Stock and, on an equal per share basis, shares of
Series B Common Stock (or securities that are convertible into,
exercisable or exchangeable for, or evidence to the right to purchase
any such shares) to holders of Series B Common Stock; and
. a share distribution consisting of securities other than Series A
Common Stock or Series B Common Stock (or securities that are
convertible into, exercisable or exchangeable for, or evidence the
right to purchase any such shares) either
(1) on the basis of a distribution of identical securities, on an
equal per share basis, to holders of Series A Common Stock and
Series B Common Stock; or
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(2) on the basis of a distribution of one class or series of
securities to holders of Series A Common Stock and another class
or series of securities to holders of Series B Common Stock,
provided that the securities so distributed (and, if applicable,
the securities into which the distributed securities are
convertible, or for which they are exercisable or exchangeable,
or which the distributed securities evidence the right to
purchase) do not differ in any respect other than their relative
voting rights and related differences in designation, conversion
and share distribution provisions with holders of shares of
Series B Common Stock receiving the class or series having the
higher relative voting rights (without regard to whether such
rights differ to a greater or lesser extent than the
corresponding differences in voting rights and related
differences in designation, conversion and share distribution
provisions between the Series A Common Stock and the Series B
Common Stock), provided that if the securities so distributed
constitute capital stock of a majority-owned or controlled
subsidiary of Liberty Digital, such rights shall not differ to a
greater extent than the corresponding differences in voting
rights, designation, conversion and share distribution provisions
between the Series A Common Stock and the Series B Common Stock,
and provided in each case that such distribution is otherwise
made on an equal per share basis.
Conversion. Each share of Series B Common Stock is convertible, at the
option of the holder, into one share of Series A Common Stock. Shares of Series
B Common Stock that are converted become treasury shares that may be reissued or
retired by resolution of our board of directors. Shares of Series A Common
Stock are not convertible into shares of Series B Common Stock or any other
securities.
Redemption. Neither our Series A Common Stock nor the Series B Common
Stock may be redeemed by us.
Reclassification. We may not reclassify, subdivide or combine the Series A
Common Stock without reclassifying, subdividing or combining the Series B Common
Stock, on an equal per share basis, and we may not reclassify, subdivide or
combine the Series B Common Stock without reclassifying, subdividing or
combining the Series A Common Stock, on an equal per share basis.
Liquidation. In the event of our liquidation, dissolution or winding-up,
after payment or provision for payment of our debts and other liabilities and
subject to the prior payment of all preferential amounts to which any shares of
preferred stock are entitled, our remaining assets will be distributable
ratably, on a share for share basis, among the holders of the Series A Common
Stock and Series B Common Stock.
No Preemptive Rights. The holders of the Series A Common Stock and Series
B Common Stock are not entitled to preemptive rights.
PREFERRED STOCK
Our preferred stock is issuable, from time to time, in one or more series
with such powers, designations, preferences, rights, qualifications, limitations
and restrictions thereof, including voting rights, dividend rights, dividend
rates, conversion rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series, as is stated and
expressed in a resolution or resolutions of our board of directors.
Our board of directors is authorized to establish the terms of and to issue
preferred stock in one or more series from time to time, without the need for
any vote or other consent of our stockholders. The issuance of preferred stock
with voting rights could have an adverse effect on the voting power of holders
of common stock by increasing the number of outstanding shares having voting
rights. In addition, if the board of directors authorizes a series of preferred
stock with conversion rights, the number of shares of common stock outstanding
would be increased upon conversion of those shares. Any such issuance could
also have the effect of delaying, deterring or preventing a change in control of
our company and may adversely affect the rights of holders of our common stock.
Series B Convertible Preferred Stock. As of the date of this prospectus,
our only series of outstanding preferred stock is our Series B Convertible
Preferred Stock.
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Voting Rights. Holders of Series B Convertible Preferred Stock are not
-------------
entitled to vote on any matter, except as required by Delaware law and except
that Liberty Digital may not, without the consent of the holders of at least 66-
2/3% of the shares of Series B Convertible Preferred Stock then outstanding,
take any action (including by merger, consolidation or binding share exchange)
to amend, alter or repeal (i) any of the provisions of the Series B Convertible
Preferred Stock, (ii) any of the provisions of our certificate of incorporation
so as to affect adversely any preference or any relative or other right given to
the Series B Convertible Preferred Stock or the Series B Common Stock, or (iii)
other selected provisions of our certificate of incorporation.
Dividends. The Series B Convertible Preferred Stock accrues cumulative
---------
cash dividends at the rate of 5% per annum on the liquidation preference (as
described below) per share. Such dividends are payable quarterly when and if
declared by our board of directors out of assets legally available therefor and
before payment of dividends on our common stock. Dividends not paid on any
dividend payment date are added to the liquidation preference on that date and
remain a part of the liquidation preference until the dividends are paid. Upon
a default under the terms of the Series B Convertible Preferred Stock, which
includes the non-payment of cash dividends, the rate per annum at which
dividends accrue increases to 7% per annum. We did not pay the quarterly cash
dividend due on December 31, 1999. As a result, the dividend rate on the Series
B Convertible Preferred Stock increased to 7% per annum, effective January 1,
2000, and will remain at that rate until all dividends that are in arrears have
been paid in cash. We have not paid any subsequent quarterly dividends on the
Series B Convertible Preferred Stock. Accrued and unpaid quarterly dividends on
the Series B Convertible Preferred Stock are added to the liquidation
preference, as described below, and therefore are compounded quarterly.
Conversion. The Series B Convertible Preferred Stock may be converted by
----------
the holder at any time into shares of Series B Common Stock. See "Risk Factors--
The conversion of Series B Convertible Preferred Stock may be dilutive to other
stockholders; and the number of shares of Series B Common Stock issuable on
conversion of the shares of Series B Convertible Preferred Stock will increase
if cash dividends on the Series B Common Stock are not paid when due."
Redemption. Shares of Series B Convertible Preferred Stock are redeemable,
----------
in whole or in part, at our option at any time after June 30, 2006, at a
redemption price per share payable in cash equal to the liquidation preference
of such share on the redemption date. Any redemptions by us are required to be
made pro rata if less than all shares of Series B Convertible Preferred Stock
are to be redeemed.
At any time on or after June 30, 2006, or at any time prior to that date if
a "default" with respect to the Series B Convertible Preferred Stock has
occurred and is continuing, any holder of Series B Convertible Preferred Stock
has the right to require us to redeem all or any portion of such holder's shares
of Series B Convertible Preferred Stock for a redemption price per share payable
in cash equal to the liquidation preference of that share on the redemption
date. Under the certificate of designations for the Series B Convertible
Preferred Stock, a "default" means any of the following events:
. the existence of an event of default or event that, with notice or
lapse of time of both, would become an event of default under our $100
million revolving credit agreement, or any default or event of default
under and as defined in any other debt instrument evidencing
indebtedness of ours equal to or greater than $20 million;
. our failure 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 Convertible Preferred Stock; or
. specified events of bankruptcy, insolvency or reorganization with
respect to our company.
We did not pay the quarterly cash dividend that was due on December 31,
1999 or March 31, 2000, which constituted defaults under the Series B
Convertible Preferred Stock. Liberty Media, which at the date of this
prospectus is the sole holder of the Series B Convertible Preferred Stock, has
waived its right to require redemption of the Series B Convertible Preferred
Stock until January 1, 2001. Liberty Media may revoke its waiver if we do not
declare any future quarterly dividend on the Series B Convertible Preferred
Stock or if that dividend is not paid in cash or added to the liquidation
preference in accordance with the terms of our Series B Convertible Preferred
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Stock. In addition, the waiver will terminate in the event that Liberty Media
ceases to own shares representing a majority of the voting power of our common
stock. See "Risk Factors - We may not have sufficient funds with which to
redeem our Series B Convertible Preferred Stock upon any requested redemption of
that stock by the holders."
Liquidation Preference. The liquidation preference of each share of the
----------------------
Series B Convertible Preferred Stock as of any date of determination is equal to
the sum of (a) the stated value per share of $1,000, plus (b) an amount equal to
all accrued quarterly dividends on the Series B Convertible Preferred Stock
which have not been paid on the applicable quarterly dividend payment dates,
plus (c) for purposes of the liquidation, redemption and conversion provisions
of the Series B Convertible Preferred Stock, 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 to but excluding the date in question.
No Preemptive Rights. The holders of the Series B Convertible Preferred
--------------------
Stock are not entitled to preemptive rights.
ANTI-TAKEOVER PROVISIONS
See "Risk Factors--Risks related to our company--Provisions in our
charter and bylaws may discourage a change in control of Liberty Digital" for a
description of the classification of our board of directors and other provisions
in our charter and bylaws that could limit the ability of any person to effect a
change in control of our company.
TRANSFER AGENT
The transfer agent and registrar for our Series A Common Stock is The Bank
of New York.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of Series A Common Stock, preferred
stock or debt securities. Warrants may be issued independently or together with
Series A Common Stock, preferred stock or debt securities offered by any
prospectus supplement and may be attached to or separate from any such offered
securities. Each series of warrants will be issued under a separate warrant
agreement to be entered into between us and a bank or trust company, as warrant
agent. The warrant agent will act solely as our agent in connection with the
warrants and will not assume any obligation or relationship of agency or trust
for or with any holders or beneficial owners of warrants. The following summary
of selected provisions of the warrants does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
warrant agreement that will be filed with the SEC in connection with the
offering of such warrants.
STOCK WARRANTS
The prospectus supplement relating to any particular issue of warrants for
the purchase of Series A Common Stock or preferred stock will describe the terms
of the warrants, including the following:
. the title of the warrants;
. the offering price for the warrants, if any;
. the aggregate number of warrants being offered;
. the number of shares of Series A Common Stock or preferred stock
purchasable upon exercise of a warrant and the price at which the
shares may be purchased upon exercise;
. if applicable, the designation and terms of the preferred stock
purchasable upon exercise of the warrants;
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. if applicable, the designation and terms of the offered securities
with which the warrants are issued and the number of warrants issued
with each such offered security;
. if applicable, the date from and after which the warrants and any
offered securities issued therewith will be separately transferable;
. the date on which the right to exercise the warrants shall commence
and the date on which that right shall expire;
. if applicable, the minimum or maximum amount of the warrants that may
be exercised at any one time;
. the currency or currency units in which the offering price, if any,
and the exercise price are payable,
. if applicable, a discussion of material United States federal income
tax considerations;
. the antidilution provisions of the warrants, if any;
. the redemption or call provisions, if any, applicable to the warrants;
and
. any additional terms of the warrants, including terms, procedures and
limitations relating to the exercise of the warrants.
DEBT WARRANTS
The prospectus supplement relating to a particular issue of warrants for
the purchase of debt securities will describe the terms of the debt warrants,
including the following:
. the title of the debt warrants;
. the offering price for the debt warrants, if any;
. the aggregate number of debt warrants being offered;
. the designation and terms of the debt securities purchasable upon
exercise of the debt warrants;
. if applicable, the designation and terms of the debt securities with
which the debt warrants are issued and the number of debt warrants
issued with each debt security;
. if applicable, the date from and after which the debt warrants and any
debt securities issued therewith will be separately transferable;
. the principal amount of debt securities purchasable upon exercise of a
debt warrant and the price at which that principal amount of debt
securities may be purchased upon exercise (which price may be payable
in cash, securities, or other property);
. the date on which the right to exercise the debt warrants shall
commence and the date on which that right shall expire;
. if applicable, the minimum or maximum amount of the debt warrants that
may be exercised at any one time;
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<PAGE>
. whether the debt warrants represented by the debt warrant certificates
or debt securities that may be issued upon exercise of the debt
warrants will be issued in registered or bearer form;
. information with respect to book-entry procedures, if any;
. if applicable, the minimum or maximum amount of the debt warrants that
may be exercised at any one time;
. the currency or currency units in which the offering price, if any,
and the exercise price are payable;
. if applicable, a discussion of material United States federal income
tax considerations;
. the antidilution provisions of the debt warrants, if any;
. the redemption or call provisions, if any, applicable to the debt
warrants; and
. any additional terms of the debt warrants, including terms,
procedures, and limitations relating to the exercise of the debt
warrants.
PLAN OF DISTRIBUTION
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices (which may be changed from time
to time), at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. Each prospectus supplement
will describe the method of distribution of the securities offered therein.
Each prospectus supplement will describe the terms of the securities to
which the prospectus supplement relates, the name or names of any underwriters
or agents with whom we have entered into agreements with respect to the sale of
the securities, the public offering or purchase price of the securities and the
net proceeds we will receive from the sale. In addition, each prospectus
supplement will describe any underwriting discounts and other items constituting
underwriters' compensation, any discounts and commissions allowed or paid to
dealers, if any, any commissions allowed or paid to agents, and the securities
exchange or exchanges, if any, on which the securities will be listed.
If so indicated in the applicable prospectus supplement, we will authorize
underwriters or agents to solicit offers by certain institutions to purchase
securities from us pursuant to delayed delivery contracts providing for payment
and delivery at a future date. Institutions with which the contracts may be
made include, among others:
. commercial and savings banks;
. insurance companies;
. pension funds;
. investment companies; and
. educational and charitable institutions.
Unless otherwise set forth in the applicable prospectus supplement, the
obligations of any purchaser under any contract will not be subject to any
conditions except that (i) the purchase of the securities will not at the time
of delivery be prohibited under the laws of the jurisdiction to which the
purchaser is subject and (ii) if the securities are also being sold to
underwriters acting as principals for their own account, the underwriters will
have purchased the
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<PAGE>
securities not sold for delayed delivery. The underwriters will not have any
responsibility in respect of the validity or performance of such contracts.
We may sell any of the securities through agents designated by us from time
to time. We will name any agent involved in the offer or sale of these
securities and will list commissions payable by us to those agents in the
prospectus supplement. These agents will be acting on a best efforts basis to
solicit purchases for the period of their engagement, unless we state otherwise
in the prospectus supplement.
We may sell any of the securities directly to purchasers. In this case, we
will not engage underwriters or agents in the offer and sale of those
securities.
Under agreements which may be entered into by us, the underwriters, dealers
and agents who participate in the distribution of securities may be entitled to
indemnification by us against or contribution toward some liabilities, including
liabilities under the Securities Act.
Except as indicated in the applicable prospectus supplement, the securities
are not expected to be listed on a securities exchange, except for the Series A
Common Stock, which is listed on the Nasdaq National Market, and any
underwriters or dealers will not be obligated to make a market in securities.
We cannot predict the trading activity or liquidity of any trading in the
securities.
VALIDITY OF SECURITIES
The validity of the securities offered hereby will be passed upon for us by
Baker Botts L.L.P., New York, New York. Brown & Wood LLP, San Francisco,
California, will act as counsel for any underwriters or agents. Baker Botts
L.L.P. has represented us on other matters and represents Liberty Media from
time to time.
EXPERTS
The financial statements of Liberty Digital, Inc. (formerly TCI Music,
Inc.) and subsidiaries as of December 31, 1999 and 1998, and for the ten months
ended December 31, 1999, the two months ended February 28, 1999, the year ended
December 31, 1998 and the six months ended December 31, 1997, and the financial
statements for DMX, LLC and subsidiaries (Predecessor) for the nine months ended
June 30, 1997, have been incorporated by reference herein in reliance upon the
report of KPMG LLP, independent certified public accountants, and upon the
authority of said Firm as experts in accounting and auditing. Effective March
9, 1999, AT&T Corp. acquired Tele-Communications, Inc., the parent company of
Liberty Media Corporation (which is the parent of Liberty Digital, Inc.), in a
business combination accounted for as a purchase. As a result of the
acquisition, the consolidated financial information for the period after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and therefore, is not comparable.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at the SEC's following public reference
facilities:
<TABLE>
<CAPTION>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Room of the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on
the operations of the public reference facilities. Our SEC filings are also
available at the
39
<PAGE>
offices of The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006. Our Series A Common Stock is listed and traded on the Nasdaq National
Market under the symbol "LDIG."
This prospectus, which constitutes a part of a registration statement on
Form S-3 filed by us with the SEC under the Securities Act, omits certain of the
information set forth in the registration statement. Accordingly, you should
refer to the registration statement and its exhibits for further information
with respect to us and our Series A Common Stock. Copies of the registration
statement and its exhibits are on file at the offices of the SEC. Furthermore,
statements contained in this prospectus and any prospectus supplement concerning
any document filed or incorporated by reference as an exhibit are not
necessarily complete and, in each instance, we refer you to the copy of the
document filed or incorporated by reference as an exhibit to the registration
statement.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated or deemed to be
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supersede the information in this prospectus. We incorporate by reference the
documents listed below and any future filings we make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
the securities offered by this prospectus have been sold:
. Annual Report on Form 10-K for the fiscal year ended December 31,
1999;
. Amendment No. 1 to Annual Report on Form 10-K for the fiscal year
ended December 31, 1999; and
. Quarterly Report on Form 10-Q for the three months ended March 31,
2000. You may request a copy of any of these filings at no cost, by
writing or telephoning us at the following address:
Liberty Digital, Inc.
12312 West Olympic Blvd.
Los Angeles, CA 90064
(310) 979-5000
Attention: Lee Masters
If you request any incorporated documents from us, we will mail them to you
by first class mail, or another equally prompt means, within one business day
after we receive your request.
You should rely only on the information incorporated or deemed to be
incorporated by reference or provided in this prospectus or in any supplement to
this prospectus.
40
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses, all of which will be
borne by us, in connection with the sale and distribution of the securities
being registered, other than the discounts and commissions payable to
underwriters and agents. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $132,000
Blue Sky fees and expenses.............................................. 10,000
Transfer Agent and Registrar fees....................................... 25,000
Trustee fees and expenses............................................... 16,000
Warrant Agent fees and expenses......................................... 8,500
Accounting fees and expenses............................................ 150,000
Legal fees and expenses................................................. 200,000
Printing and engraving expenses......................................... 100,000
Miscellaneous........................................................... 8,500
__________
Total................................................................... $650,000
</TABLE>
Item 15. Indemnification of Directors and Officers.
We are a Delaware corporation. Generally, Section 145 of the General
Corporation Law of the State of Delaware (the "Delaware Corporation Law")
permits a corporation to indemnify certain persons made a party or threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of the corporation
or is or was serving at the request of the corporation as a director or officer
of another corporation or enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him/her in connection with any such action, suit or proceeding if
(s)he acted in good faith and in a manner that (s)he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, if (s)he had no reasonable cause to believe
that his/her conduct was unlawful. A corporation may similarly indemnify such
person for expenses actually and reasonably incurred by such person in
connection with the defense or settlement of any action or suit by or in the
right of the corporation, provided such person acted in good faith and in a
manner (s)he reasonably believed to be in or not opposed to the best interests
of the corporation, and, in the case of claims, issues and matters as to which
such person shall have been adjudged liable to the corporation, provided that a
court shall have determined, upon application, that, despite the adjudication of
liability but in view of all of the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
Section 102(b)(7) of the Delaware Corporation Law enables a Delaware
corporation to include a provision in its certificate of incorporation limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breaches of fiduciary duty as a director, except that such
provision may not eliminate or limit the liability of a director (1) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(2) for acts or omissions that are not in good faith or which involve
intentional misconduct or a knowing violation of the law, (3) under Section 174
of the Delaware Corporation Law or (4) for any transaction from which the
director derived an improper personal benefit. No such provision may eliminate
or limit the liability of a director for any act or omission occurring prior to
the date when such provision became effective.
Article V, Section E of our certificate of incorporation provides as
follows:
1. Limitation on Liability. To the fullest extent permitted by the Delaware
-----------------------
General Corporation Law as the same exists or may hereafter be amended, a
director of the Corporation shall not be liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director.
Any repeal or modification of
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<PAGE>
this paragraph 1 shall be prospective only and shall not adversely affect any
limitation, right or protection of a director of the Corporation existing at the
time of such repeal or modification.
2. Indemnification.
---------------
. Right to Indemnification. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact
that (s)he, or a person for whom (s)he is the legal representative, is
or was a director or officer of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect
to employee benefit plans, against all liability and loss suffered and
expenses (including attorneys' fees) reasonably incurred by such
person. Such right of indemnification shall inure whether or not the
claim asserted is based on matters which antedate the adoption of this
Section E. The Corporation shall be required to indemnify or make
advances to a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was
authorized by the board of directors of the Corporation.
. Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in
advance of its final disposition, provided, however, that the payment
of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an
undertaking by the director or officer to repay all amounts advanced
if it should be ultimately determined that the director or officer is
not entitled to be indemnified under this paragraph or otherwise.
. Claims. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written
claim therefor has been received by the Corporation, the claimant may
file suit to recover the unpaid amount of such claim and, if
successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the Corporation
shall have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable
law.
. Non-Exclusivity of Rights. The rights conferred on any person by this
paragraph shall not be exclusive of any other rights which such person
may or hereafter acquire under any statute, provision of this
Certificate, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
. Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust, enterprise or nonprofit entity
shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
3. Amendment or Repeal.
-------------------
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
Article II, Section 2.9 of our Bylaws also contains an indemnity provision,
requiring us to indemnify members of our board of directors and our officers and
their respective heirs, personal representatives and successors in interest for
or on account of any action performed on our behalf, to the fullest extent
provided by the laws of the State of Delaware and our Certificate of
Incorporation, as then or thereafter in effect.
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<PAGE>
Item 16. Exhibits.
The exhibits included in the Exhibit Index appearing on page II-5 are
incorporated herein by reference.
Item 17. Undertakings.
We hereby undertake:
1. (a) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (i) and (ii) do not apply if
the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports by
us with the Commission pursuant to Section 13(a) or Section 15(d)
of the Exchange Act that are incorporated or deemed to be
incorporated by reference in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
2. We hereby undertake that, for the purpose of determining any liability
under the Securities Act, each filing of our annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act of (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated or deemed to be
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person of our company in the successful
defense of any action, suit or proceeding) is asserted by such
II-3
<PAGE>
director, officer or controlling person in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
4. We hereby undertake to file an application for the purpose of determining
the eligibility of the trustee to act under subsection (a) of section 310
of the Trust Indenture Act (the "Act") in accordance with the rules and
regulations prescribed by the Commission under section 305(b)(2) of the
Act.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on July 3, 2000.
LIBERTY DIGITAL, INC.
(Registrant)
By: /s/ LEE MASTERS
---------------
Name: Lee Masters
Title: President and Chief Executive Officer
In accordance with the requirements of the Securities Act, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
----------------------------------------- ------------------------------------------ ----------------------------
<S> <C> <C>
/s/ LEE MASTERS President, Chief Executive Officer and July 3, 2000
----------------------------------------- Director
Lee Masters (Principal Executive Officer)
/s/ ROBERT R. BENNETT Chairman of the Board July 3, 2000
-----------------------------------------
Robert R. Bennett
* Director
-----------------------------------------
Gary S. Howard
* Director
-----------------------------------------
David B. Koff
* Director
-----------------------------------------
Peter M. Kern
* Director
-----------------------------------------
J. David Wargo
* Executive Vice President, Chief Financial July 3, 2000
----------------------------------------- Officer and Treasurer (Principal
Mark D. Rozells Accounting Officer, Principal Financial
Officer)
/s/ LEE MASTERS As attorney-in-fact for each of the July 3, 2000
----------------------------------------- officers and directors designated by an
Lee Masters asterisk (*)
</TABLE>
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<PAGE>
Exhibit Index
-------------
EXHIBIT
NUMBER DESCRIPTION
------ -----------
1.1 Underwriting agreement for Series A Common Stock.
1.2 Underwriting agreement for other equity securities.*
1.3 Underwriting agreement for debt securities.*
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.
(Incorporated by reference to Exhibit 2.1 to Liberty Digital's
Quarterly Report on Form 10Q dated September 30, 1999).
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. (Incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form
8-K dated September 9, 1999). 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. (Incorporated by reference to Exhibit 2.2 to Liberty
Digital's Quarterly Report on Form 10-Q dated September 30,
1999).
2.3 Letter Agreement dated May 19, 1999 between MTV Networks, Inc., a
Division of Viacom International Inc. and TCI Music, Inc.
(Incorporated by reference to Exhibit 2.3 to Liberty Digital's
Annual Report on Form 10-K dated December 31, 1999).
3.1 Certificate of Incorporation of Liberty Digital, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of TCI Music, Inc. and Tele-Communications,
Inc., filed with the Securities and Exchange Commission on June
6, 1997 (Commission File Nos. 333-28613 and 333-28613-01)).
3.2 Certificate of Amendment to Certificate of Incorporation of
Liberty Digital (Incorporated by reference to Exhibit 3.1 to
Liberty Digital's Quarterly Report on Form 10-Q dated September
30, 1999).
3.3 Bylaws of Liberty Digital, Inc., as amended July 13, 1998
(Incorporated by reference to Exhibit 3.2 to Liberty Digital's
Quarterly Report on Form 10-Q dated June 30, 1998).
3.4 Certificate of Designations of Convertible Preferred Stock,
Series B (Incorporated by reference to Exhibit 4.1 to the
Company's Current report on Form 8-K dated September 9, 1999).
4.1 Form of Indenture for debt securities.**
4.2 Form of certificate evidencing debt securities.*
-------------------
* To be filed by post-effective amendment or as an exhibit to a document to be
incorporated or deemed to be incorporated by reference in the Registration
Statement.
** Previously filed.
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<PAGE>
4.3 Form of Warrant Agreement.*
4.4 Form of certificate of designations for Preferred Stock.*
4.5 Specimen Stock Certificate for Series A Common Stock, par value
$.01 per share, of Liberty Digital, Inc. (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on Form
S-4 of Liberty Digital, Inc. filed with the Securities and
Exchange Commission on November 12, 1997 (Commission File No.
333-39943)).
4.6 Specimen Stock Certificate for the Series B Common Stock, par
value $.01 per share, of TCI Music, Inc. (Incorporated by
reference to Exhibit 4.2 to the Amendment No. 1 to the
Registration Statement on Form S-4 of Liberty Digital, Inc. and
Tele-Communications, Inc. filed with the Securities and Exchange
Commission on June 12, 1997 (Commission File Nos. 333-28613 and
33-28613-01)).
5 Opinion of Baker Botts L.L.P. as to the legality of the
securities being registered.
12 Computation of Ratio of Earnings to Fixed Charges and Computation
of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends for the three months ended March 31, 2000, the
one month ended March 31, 1999, the two months ended February 28,
1999 and each period in the five years ended December 31, 1999.**
23.1 Consent of KPMG LLP.
23.2 Consent of Baker Botts L.L.P. (See Exhibit 5).
24 Power of Attorney is included on the signature page of the
Registration Statement.**
25 Form T-1 Statement of Eligibility of trustee for debt
securities.***
-------------------
*** To be filed in accordance with Section 305(b)(2) of the Trust Indenture
Act of 1939.
II-7
