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As filed with the Securities and Exchange Commission on May 11, 2000
Registration No. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
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 each of:
Charles Y. Tanabe, Esq. Frederick H. McGrath, Esq.
Liberty Media Corporation Baker Botts L.L.P.
9197 South Peoria Street and 599 Lexington Avenue
Englewood, Colorado 80112 New York, New York 10022-6030
(720) 875-5400 (212) 705-5000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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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CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum aggregate Amount of
securities to be registered registered offering price per unit offering price (1)(2) registration fee
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Series A Common Stock, 1,836,491 $27.75 $50,962,625 $13,454
$0.01 par value
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(1) Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the
"Act"), this registration statement shall be deemed to cover additional
securities that may be offered or issued to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low prices of the
Registrant's Series A Common Stock, as reported on the Nasdaq National Market on
May 4, 2000.
_________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Prospectus
Subject to Completion, dated May 11, 2000
LIBERTY DIGITAL, INC.
1,836,491 Shares of Series A Common Stock
________________________
This prospectus relates to the resale, from time to time, by the selling
stockholders named in this prospectus, of up to 1,836,491 shares of our Series A
Common Stock. We issued these shares to the selling stockholders in connection
with our acquisition of certain interests in businesses owned, wholly or in
part, by the selling stockholders named in this prospectus. We will not receive
any of the proceeds from the sale of the shares sold pursuant to this prospectus
and we will bear certain expenses incident to their registration. The price to
the public for the shares and the proceeds to the selling stockholders will
depend upon the market price of the securities when sold. See "Selling
Stockholders" and "Plan of Distribution."
Our Series A Common Stock is traded on the National Market tier of the Nasdaq
Stock Market under the trading symbol "LDIG." On May 4, 2000, the last reported
sale price for the Series A common stock on the Nasdaq National Market was
$27.75 per share.
The address of our principal executive offices is 12312 West Olympic Blvd., Los
Angeles, CA 90064, and our telephone number is (310) 979-5000.
________________________
Investing in our Series A Common Stock involves risks.
See "Risk Factors" beginning on page 3.
________________________
You should rely only on the information incorporated by reference or provided in
this prospectus or any supplement to this prospectus. We have not authorized
anyone else to provide you with different information. Neither the delivery of
this prospectus nor any distribution of the shares of Series A Common Stock
shall, under any circumstances, create any implication that there has been no
change in our affairs since the date of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. IT IS A CRIMINAL OFFENSE TO MAKE
ANY REPRESENTATION TO THE CONTRARY.
This prospectus is dated May 11, 2000.
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TABLE OF CONTENTS
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SUMMARY INFORMATION......................................... 1
RISK FACTORS................................................ 3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 16
USE OF PROCEEDS............................................. 16
SELLING STOCKHOLDERS........................................ 16
PLAN OF DISTRIBUTION........................................ 17
LEGAL MATTERS............................................... 19
EXPERTS..................................................... 19
WHERE YOU CAN FIND MORE INFORMATION......................... 19
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SUMMARY INFORMATION
We are a diversified new media company with investments in Internet content
and infrastructure and interactive television. In addition to our investments
we operate music services delivered to commercial and residential customers via
cable, satellite, the Internet and other platforms.
Our business consists of:
. our existing music services business;
. developing and providing interactive television and new media services
to consumers through all interactive television pathways, including
cable television, satellite direct to home services (DTH) and digital
subscriber line (DSL) systems; and
. investing in Internet and new media companies, including companies
whose product can be utilized in connection with our development of
interactive television services.
Our audio music business consists of the operations of our wholly-owned
subsidiary DMX, LLC. DMX is primarily engaged in programming, distributing and
marketing its digital music service, Digital Music Express(R). The DMX service
provides continuous, commercial-free, CD-quality music programming to homes and
businesses. The DMX service currently is available to approximately 24 million
households and 11 million business locations in the United States. DMX also
distributes music in Canada, Mexico, Latin America, the Caribbean and Sub-
Saharan Africa.
We believe that there will be a substantial demand for interactive
television and interactive new media to provide access to the entertainment,
information and communications that consumers seek. We intend to pursue this
business by developing interactive television programming and distributing it to
consumers through the access agreement we have with AT&T Corp. and through other
arrangements we hope to enter into with distributors to the home, including
multiple cable television system operators (MSOs) and DTH and DSL providers. In
addition, we intend to create interactive television programming both for the
currently available version of interactive television, which typically involves
"store and forward" technology and a telephone return connection, and the
anticipated next generation of interactive television which will incorporate
real time two-way connectivity.
In addition to our interest in DMX, LLC, we have acquired minority equity
interests in companies that exploit the opportunities presented by the Internet
and new media. We will evaluate future potential investments on the basis of
the viability of the company and its business, and the potential for us to enter
into a strategic relationship with that company for our use of its products or
technologies in connection with our interactive television and new media
business or our digital music business.
These equity interests are held indirectly by us through our wholly-owned
subsidiaries, partnerships and joint ventures. Most of these interests are in
privately held companies and/or were acquired prior to such companies going
public. As a result, the interests we own are usually not freely transferable
and will not become transferable until the interests are registered or we are
otherwise permitted to sell pursuant to an exemption from registration. In some
cases, the interests are also subject to buy-sell procedures, repurchase rights
and other restrictions. The public and private companies in which we own
interests (which consist of common stock, convertible preferred stock or debt
securities, and warrants to purchase common stock) include ACTV, Inc., Active
Software, Inc., Alloy Online, Inc., BET.com, LLC, CarsDirect.com, Inc., Digital
Health Group, drugstore.com, Inc., Food.com, Inc., HomeGrocer.com, Inc., iBEAM
Broadcasting Corporation, Internet Pictures Corporation (formerly Interactive
Pictures Corporation), iFilm Corp., Intraware, Inc., iVillage, Inc., ISS Group,
Inc., Kaleidoscope Interactive, LLC, Kaleidoscope Network, Inc., Katalyst
Venture Partners I, LP, Kozmo.com, Inc., KPCB Java Fund, L.P., Lifescape, LLC,
The Lightspan Partnership, Inc., Mixed Signals Technologies, Inc., Move.com
Group, Inc., MTVi Online, LP, netLibrary, Inc., OrderTrust, Inc., Online Retail
Partners, Inc., OpenTV Inc., pogo.com, Inc. (formerly Total Entertainment
Network, Inc.), OurHouse.com,
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priceline.com Incorporated, Replay Networks, Inc., Quokka Sports, Inc.,
Sportsline USA, Inc., TiVo, Inc., UGO Networks, Inc., and Viant Corporation.
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.
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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
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. On September 9, 1999
Liberty Media contributed to us a group of investments made by Liberty Media in
the internet and new media areas and assigned to us its rights under the access
agreement between AT&T Corp. and Liberty Media concerning the provision of
interactive video services over AT&T's cable television systems. As a result of
this contribution and the addition of our new senior management, we have changed
the focus of our business to concentrate on creating interactive television
channels and service, including making investments in and forming strategic
relationships with internet and new media companies whose services and products
may be included in any interactive television service we develop. The success
of our interactive television business will be dependent upon a number of
factors, many of which are not within our control.
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, our operating history offers little
information to serve as a basis for evaluating our long-term prospects.
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 generate net income for the foreseeable future. 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, LLC,
our wholly owned subsidiary, under an agreement with AT&T. Pursuant to this
agreement, AT&T makes monthly payments to us aggregating $18 million annually.
The annual amount payable is subject to annual adjustment throughout the term of
the agreement, which runs through 2017. The adjusted payment for fiscal 1999
was approximately $19.5 million. In addition, AT&T paid us $11.1 million in
license fees during fiscal 1999. In the aggregate, these payments were $30.6
million, which represents approximately 46.9% of our total revenues during that
year.
Our interactive television business depends upon access to AT&T's cable
systems and 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 in part upon our
obtaining carriage over cable television systems and/or on DTH satellite
services of programming we create or obtain rights to distribute. We currently
do not have any carriage agreements with cable television system operators or
satellite providers, other than our rights under an access agreement with AT&T.
The access agreement establishes a framework to negotiate
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definitive agreements for digital channel capacity on AT&T's cable television
systems sufficient to carry between 12 and 15 video channels to be used for our
interactive video services.
Our access agreement with AT&T provides that we and AT&T will 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 systems. It is
possible that we will not be able to agree on those terms and that no definitive
agreement will be entered into. If no definitive agreement is entered into, we
may have to negotiate a separate agreement with AT&T, without the full benefit
of the framework provided by the access agreement. In addition, we anticipate
that we may be required to negotiate a separate agreement for each digitally
compressed channel that is developed, rather than one agreement covering all of
the 12 to 15 digital channels that may be carried on the six-megahertz of
bandwidth provided for in the access agreement.
AT&T, in its sole discretion, may elect that these separate agreements be
entered into under one of two arrangements. The first would provide us with
access to the AT&T cable systems for the distribution of interactive television
channels for a certain period of time. The second arrangement would require us
to enter into separate joint ventures as to specific interactive channels with
AT&T for a reasonable commercial term. Each of these joint ventures will be the
sole vehicle of AT&T and us for interactive video services in the specified
categories of channels which are the subject of the joint venture.
If AT&T elects to form a joint venture with us, AT&T will share revenues
and expenses pro rata based on its ownership interest in the joint venture in
lieu of our being required to pay AT&T a fee for use of its bandwidth. However,
under this arrangement, 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 of such
interactive television venture.
Accordingly, we cannot assure you that we will obtain access to the AT&T
cable system on favorable terms, or at all, which could have a material adverse
effect on our operating results and the growth of our business.
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 provides us with distribution to a large
number of potential 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 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, or the terms of
any such arrangement or 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 other 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 to place a significant strain on our
managerial, operating, financial and other resources. We are highly dependent
upon the efforts of our senior management team, and our future performance will
depend, in part, upon the ability of senior management to manage growth
effectively. This will require us:
. to implement management information systems capabilities;
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. 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 senior 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 maintain no key-person life
insurance.
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 direct to home satellite services and to cable television subscribers
located in cable systems equipped with 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.
This type of interactive television service has been deployed outside the United
States, primarily to satellite customers, with some success. Although these
services are now becoming available in the United States, we believe that the
interactive television experience will become more compelling and will gain
wider customer acceptance and usage when and if cable television systems are
upgraded for two-way communication capability and/or DSL services become broadly
available and advanced digital set top boxes capable of handling real time two
way communication are rolled out. Therefore, the growth of our interactive
television business will be dependent upon the deployment of current-model
digital set top boxes for limited interactive services, as well as the upgrading
of cable and other systems and the development and availability of advanced
digital set top boxes, all of which are outside our control. Any delay in
system upgrades or the availability of 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 also 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 deployment could also be affected by the number of set top boxes that are
available from suppliers and shortages of trained personnel necessary to install
the set top boxes. Advanced digital set top boxes are not yet commercially
available and it is uncertain when they will become available or the prices
manufacturers will charge for them. 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. In addition, until
advanced digital set top boxes are deployed in locations where high speed two
way communications systems are present, only limited forms of interactive
television services will be available to customers. Our business strategy
depends in large part upon the deployment of advanced digital set top boxes
which are capable of supporting a substantially greater range of interactive
television services.
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
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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. The availability of
DSL services 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. 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 Internet content and interactive television related
assets; the terms of any financing we receive may restrict development of our
business.
Currently, revenues generated by our business operations are not sufficient
to cover the anticipated expenses of developing interactive television 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 the opportunities, if any, to invest in Internet content and interactive
television related companies and other 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 and our bank
line of credit to fund our operations. As of the date of this prospectus, we
have borrowed the full amount under our bank line of credit and no amounts are
available to us under such line of credit. Liberty Media has no obligation to
make additional funds available to us. 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, and there can be no
assurance that Liberty Media will agree to advance any or all of the funds
required by us or, if funds are advanced, there is no assurance with respect to
the terms upon which such amounts may be provided. If we need money from other
sources we may not be able to find a source to provide us with the needed funds
on terms which are acceptable and which would not restrict our ability to
develop our business.
Our bank line of credit matures on June 30, 2005. On June 30, 2000,
however, we must begin making semiannual repayments of principal in addition to
quarterly payments of interest. The bank line of credit contains restrictions
on the amount and type of investments we may make and the amount of other debt
we may incur. In addition, the existing bank line of credit contains certain
financial performance tests based upon our cash flow. We currently intend to
refinance the bank line of credit. If we are unable to refinance this debt on
terms acceptable to us or obtain amendments to or waivers of the restrictive
provisions of the existing bank line of credit, we will not be able to develop
our business as planned.
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 effected.
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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 will 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 the 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 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;
- our ability to develop interactive television programming that is user-
friendly and 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 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 development stage. We have a
core management group, but in order to develop and expand our business, we will
need to recruit additional senior management personnel and develop the
managerial structures necessary to operate our business.
Our ability to recruit additional senior management and retain our existing
management group, as well as other members of senior management, will be
critical to the development of our interactive television business and our
acquisition of interests in Internet, content and interactive television related
assets. Existing management's familiarity with developing and distributing
programming and developing investment strategies and strategic
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alliances 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. 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.
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
interactive television. Our potential competitors include MSOs (including
AT&T), major movie and television studios, 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 develop their own interactive television programming for
distribution on their systems, 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 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 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. The effect of these
provisions will be to restrict our ability to sell those equity securities and
may adversely affect the price at which those securities may be sold. For
example, in
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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, LLC, 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 holders, of 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 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, known as RIAA,
the American Society of Composers, Authors and Publishers, known as ASCAP,
Broadcast Music, Inc., known as BMI, and the Society of 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 methods and may not cover
distribution methods 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 direct to home 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
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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 our 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.
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 cable, fiber optic cable, 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
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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.
Risks Relating to Our Series A Common Stock
The market for our Series A Common Stock is volatile.
Since the completion of the contribution transaction with Liberty Media and
the announcement of our intention to expand our business to include the
development of the interactive television business and investment in Internet
content and interactive television related assets, we believe that we may be
perceived by the market as an Internet company. As a result, the trading price
for our Series A Common Stock has risen sharply overall and has been extremely
volatile, and is likely to continue to be extremely volatile.
The market price of our Series A Common Stock could decline as a result of
sales by our existing stockholders of a large number of shares of Series A
Common Stock in the market or the perception that these sales may occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. In addition, sales of
shares by the selling stockholders pursuant to this offering could adversely
affect the price of our Series A Common Stock.
The price of the Company's Series A Common Stock is made even more volatile
by the fact that the public held only 54.9% of the outstanding Series A Common
Stock and that there were only approximately 3,561 beneficial owners as of
December 31, 1999. If Liberty Media converted all of our Series B Common Stock
beneficially owned by it (including our Series B Convertible Preferred Stock)
into Series A Common Stock, the public would hold only 6.5% of the Series A
Common Stock. As a result, the price of the Series A Common Stock can be
materially affected by a rather limited trading volume.
Our quarterly results may fluctuate, which may adversely affect the trading
price of our Series A Common Stock.
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 Agreement with Mr. Masters and our
Incentive Stock Plan, which accruals are directly related to the
trading prices of our common stock at the end of each quarter;
. 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.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance.
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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, thereby
increasing our net operating income (or decreasing our net operating loss) to
the extent of the reversal. For example, for the fiscal quarter ended September
30, 1999, expense accruals with respect to these arrangements were $188.9
million based on the trading price of $23.31 for the Series A Common Stock at
the end of that quarter, whereas for the quarter ended December 31, 1999,
expense accruals were $639.2 million, based on the trading price of $74.25 for
Series A Common Stock at the end of that quarter.
As a result of the factors listed above and elsewhere in this "Risk
Factors" section of this prospectus and discussed in the documents incorporated
and deemed to be incorporated by reference in this prospectus, it is possible
that in some future quarters our revenues or operating results may be below the
expectations of securities analysts and investors. In that case, the trading
price of securities would likely be materially adversely affected. In addition,
we plan to significantly increase our operating expenses to develop interactive
television. If revenues fall below our expectations in any quarter and we are
unable to quickly reduce our spending in response, our operating results would
be lower than expected and the price of our Series A Common Stock would likely
be materially adversely affected.
The fluctuating value of our assets and other factors may affect the
trading price of our Series A Common Stock.
We hold minority equity interests in publicly-traded and private Internet
and new media companies. The trading prices of Internet stocks in general have
experienced extreme price and volume fluctuations in recent months. These
fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. The valuations of many 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 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 result in a decrease in the trading price of our
securities regardless of our operating performance. Market fluctuations, as
well as general political and economic conditions such as recession or interest
rate or currency rate fluctuations, also may cause a decrease in the trading
price of our securities. In the past, following declines in the market price of
a company's securities, securities class-action litigation often has been
instituted against the company. Litigation of this type, if instituted, could
result in substantial costs and a diversion of management's attention and
resources.
Future sales of our common stock may depress our stock price.
The market price of our Series A Common Stock could decline as a result of
sales by Liberty Media or the perception that those sales could occur. As of
April 28, 2000, Liberty Media beneficially owned approximately 11,919,974 shares
of our Series A Common Stock and 171,950,167 shares of our Series B Common
Stock. Each share of Series B Common Stock is convertible into one share of
Series A Common Stock. In addition, as of that date Liberty Media also
beneficially owned shares of our Series B Preferred Stock, each of which shares
is convertible into 171.674 shares of Series B Common Stock, subject to anti-
dilution adjustments.
Risks related to our company
We are controlled by Liberty Media Corporation.
As of December 31, 1999, Liberty Media beneficially owned approximately
45.1% of the outstanding shares of 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 Preferred Stock, which, assuming conversion of the Series B Preferred
Stock held by Liberty Media into Series B Common Stock, collectively represent
approximately 99.3% of the voting power of all outstanding capital stock.
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 will be able to elect our entire board of
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directors and approve or reject any matter submitted to a vote of the
stockholders. Liberty Media's interests may not be the same as yours. This
concentration of ownership could also delay or prevent a change of control.
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. Mr. Bennett and Mr. Howard also have fiduciary
obligations to Liberty Media and to AT&T, as the sole stockholder of Liberty
Media. Mr. Bennett, Mr. Koff and Mr. Howard hold options to acquire shares
and/or restricted shares of AT&T Class A Liberty Media Group common stock, and
options to acquire shares of our Series A Common Stock.
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. Our operations are primarily conducted through subsidiaries and
business affiliates, and certain of our investments in those companies have been
made with strategic partners where we have a less than 50% voting interest.
Under the Investment Company Act, 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.
Under the Investment Company Act, a company which owns investment
securities, as defined, with a value exceeding 40% of the value of its
unconsolidated assets is deemed to be an investment company subject to
regulation under that Act. Investment securities are defined to include all
securities except, among others, securities of majority owned subsidiaries which
are not themselves investment companies and securities in entities in which the
holder exercises "primary control" over the issuer. We have made significant
investments in internet, new media and related companies whose service and
products may be included in our interaction television services. As a result,
we are subject to the risk that we will be considered in investment company as a
result of these investments.
We believe that our current holdings in our subsidiaries and business
affiliates 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
manner designed to avoid becoming subject to regulation under the Investment
Company Act. To avoid regulation under the Investment Company Act, our
operations will to an extent be limited by concerns that we acquire investments
in companies that assure to us majority ownership or primary control of a
magnitude sufficient to cause us not to 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, including the addition of
strategic partners in our current majority-owned subsidiaries and business
affiliates that we primarily control. In addition, events beyond our control,
including significant appreciation in the market value of certain of our
publicly traded investments that may be deemed investment securities, could
result in our becoming an inadvertent investment company. If we were to become
an inadvertent investment company, we would have one year to divest of a
sufficient amount of investment securities and/or acquire other assets
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 or that third parties
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could seek to obtain rescission of transactions with us undertaken during the
period it was established that we were an unregistered investment company.
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 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 the interactive television channels we develop and the regulatory
carriage requirements could adversely affect the number of channels available to
carry our music services or 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. 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 which are applicable to commercial online
services and the Internet. The adoption of such laws or regulations in the
future may decrease the growth of such services and the Internet, which could in
turn decrease the demand for the services and products of the Internet companies
in which we have interests and increase such companies' costs of doing business
or otherwise have an adverse effect on their businesses, operating results and
financial conditions.
Delaware law and provisions in our charter and bylaws and under Delaware
law 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 Series A Common Stock without our prior approval
may become subject to restrictions on engaging in a merger or other business
combination with us. Liberty Media acquired its shares of Series A Common
Stock, Series B Common Stock and Series B 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:
. 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;
. 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;
. 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;
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. 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 By-laws;
and
. that Directors may only be removed for cause 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.
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CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risk and
uncertainties. The statements contained in this prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used
in this prospectus, or in the documents 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."
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 by reference in this prospectus
supplement might not occur.
USE OF PROCEEDS
This prospectus relates to shares of our Series A Common Stock being
offered and sold for the accounts of the selling stockholders named in this
prospectus. We will not receive any proceeds from the sale of Series A Common
Stock by the selling stockholders in this offering, but will pay certain
expenses related to the registration of the shares of the Series A Common Stock.
See "Plan of Distribution."
SELLING STOCKHOLDERS
Based upon information available to us as of May 10, 2000, the following
table sets forth the name of each selling stockholder, and with respect to each
selling stockholder, the number of shares owned, the number of shares registered
by this prospectus and the number and percent of outstanding shares that will be
owned after the sale of the registered shares, assuming all of the shares are
sold:
<TABLE>
<CAPTION>
Shares Beneficially % of Class after
Owned Prior to the Shares Being Completion of this
Name Offering Offered /1/ Offering
- ---- -------- ----------- --------
<S> <C> <C> <C>
Cendant Corporation 813,215 813,215 *
Kozmo.com, Inc. 185,536 185,536 *
Alloy Online, Inc. 837,740 837,740 *
</TABLE>
___________________
/1/ Sales of such shares may also be restricted pursuant to agreements entered
into by us with each such holder. See "Plan of Distribution."
* Less than 1%.
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PLAN OF DISTRIBUTION
We are registering the shares offered under this prospectus on behalf of
the selling stockholders. As used in this prospectus, "selling stockholder"
includes donees, pledgees, transferees or other successors-in-interest selling
shares received after the date of this prospectus from the named selling
stockholders as a gift, pledge, partnership distribution or other non-sale
related transfer. All costs, expenses and fees in connection with the
registration of the shares offered hereby will be borne by us. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
shares will be borne by the selling stockholders, subject to reimbursement as
described below.
Sales of shares may be effected by the selling stockholders from time to
time in one or more types of transactions (which may include block transactions)
on the Nasdaq National Market, in the over-the-counter market, in negotiated
transactions otherwise than on the Nasdaq National Market or in the over-the-
counter market, through put or call options transactions relating to the shares,
through short sales of shares, or a combination of such methods of sale, at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers. The selling stockholders
have advised us that they have not, as of the date of this prospectus, entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares and that no underwriter or
coordinating broker is acting in connection with the proposed sale of shares by
the selling stockholder.
In connection with the sale of shares, the selling stockholder may: (i)
enter into hedging transactions with brokers, dealers or others, who in turn may
engage in short sales of the shares in the course of hedging the positions they
assume; (ii) sell short or deliver shares to close out positions; or (iii) loan
shares to brokers, dealers or others that may in turn sell such shares.
The selling stockholders may effect transactions by selling shares directly
to purchasers or to or through broker-dealers, which may act as agents or
principals. Those broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling stockholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both (that compensation as to a particular broker-
dealer might be in excess of customary commissions).
Each selling stockholder and any broker-dealers that act in connection with
the sale of shares may be deemed to be an "underwriter" within the meaning of
Section 2(11) of the Securities Act, and any commissions received by those
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
Because each selling stockholder may be deemed to be an "underwriter"
within the meaning of Section 2(11) of the Securities Act, each selling
stockholder will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the selling stockholders that the anti-
manipulative provisions of Regulation M promulgated under the Exchange Act may
apply to their sales in the market.
Each selling stockholder also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided he meets the criteria and conforms to the requirements of Rule 144.
Upon notification to us by a selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act. That supplement will disclose:
. the name of the selling stockholder and of the participating broker-
dealer(s),
. the number of shares involved,
. the price at which such shares were sold,
17
<PAGE>
. the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
. that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, and
. other facts material to the transaction.
Cendant Corporation acquired the shares of our Series A Common Stock that
they are offering for sale on March 27, 2000, as part of a transaction in which
we purchased from Cendant 1,598,030 shares of Cendant's Move.com Group tracking
stock. The shares that may be offered by Cendant are subject to specified
restrictions on transfer set forth in the purchase agreement dated March 24,
2000, pursuant to which Cendant acquired the shares. These restrictions include
the requirement that, until March 27, 2002, Cendant will not sell, transfer or
otherwise dispose of the shares they received from us in this transaction other
than in an amount of up to one-seventh of the total number of shares they
acquired in that transaction in each fiscal quarter, beginning April 1, 2000.
This restriction terminates if, at any time, Liberty Media, together with its
affiliates, fails to own at least 50% of the combined voting power of our
securities. Cendant's right to sell shares in any quarter does not cumulate,
except that if the registration statement of which this prospectus is a part
does not become effective on or before July 24, 2000, the sale right will
cumulate for each fiscal quarter for which Cendant was unable to sell their
shares as a result of the failure of the registration statement to be declared
effective. We have a one-time right to request, and Cendant has agreed to comply
with such request, that Cendant not sell its shares for a period not to exceed
42 days.
Kozmo.com, Inc. received the shares that it is offering for sale in March
2000, pursuant to an exchange agreement with us. The shares owned by Kozmo are
subject to certain restrictions on transfer set forth in such agreement. These
restrictions include the requirement that prior to the 181st day after the
effectiveness of the registration statement of which this prospectus forms a
part, Kozmo will not, during any 90 consecutive day period, sell in a
transaction recorded on the Nasdaq National Market a number of shares greater
than one-half of the total number of shares it acquired in that transaction. We
have a one-time right to request, and Kozmo has agreed to comply with such
request, that Kozmo not sell its shares for a period not to exceed 45 days.
Alloy Online, Inc. acquired the shares of our stock that it is offering
for sale in April 2000, as part of a transaction in which one of our wholly
owned subsidiaries acquired a 19.87% equity interest in Alloy. The shares that
may be offered by Alloy are subject to specified restrictions on transfer set
forth in an exchange agreement dated March 10, 2000. These restrictions include
the requirement that prior to the first anniversary of the effectiveness of the
registration statement of which this prospectus is a part, Alloy will not,
during any 90 consecutive day period, sell in a transaction recorded on the
Nasdaq National Market, a number of shares greater than one-quarter of the total
number of shares it acquired in that transaction. We have a one-time right to
request, and Alloy has agreed to comply with such request, that Alloy not sell
its shares for a period not to exceed 45 days.
18
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Baker Botts L.L.P., New York, New York.
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 at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. 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 concerning any document filed as an
exhibit are not necessarily complete and, in each instance, we refer you to the
copy of the document filed as an exhibit to the registration statement.
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 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 selling stockholders sell all of
the shares offered by this prospectus:
. 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
. the description of our Series A Common Stock contained in the
Registration Statement on Form 8-B filed by us on July 9, 1997 with
the SEC under the Exchange Act including any amendment or report filed
for the purpose of updating such description.
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
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN 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 and the NASD filing fee.
SEC registration fee................................. $ 13,454
NASD filing fee...................................... 5,596
Nasdaq National Market listing fee................... 17,500
Accounting fees and expenses......................... 5,000
Legal fees and expenses.............................. 50,000
Printing and engraving expenses...................... 8,000
Miscellaneous........................................ 10,000
--------
Total................................................ $109,550
========
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 he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of claims, issues and matters as
to which such person shall have been adjudged liable to the corporation,
provided that a court shall have determined, upon application, that, despite the
adjudication of liability but in view of all of the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which such court shall deem proper.
Section 102(b)(7) of the Delaware 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.
II-1
<PAGE>
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 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.
---------------
(a) Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section E. The Corporation shall be
required to indemnify 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.
(b) Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred in defending any proceeding in advance of
its final disposition, provided, however, that the payment of expenses incurred
by a director or officer in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the director or officer to
repay all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this paragraph or
otherwise.
(c) Claims. If a claim for indemnification or payment of expenses
under this paragraph is not paid in full within 60 days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
(d) Non-Exclusivity of Rights. The rights conferred on any person by
this paragraph shall not be exclusive of any other rights which such person may
or hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
(e) Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation, partnership, joint
venture, trust, enterprise or nonprofit entity.
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
II-2
<PAGE>
and successors in interest for or on our 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.
Item 16. Exhibits.
The exhibits included in the Exhibit Index appearing on page II-5 are
incorporated herein by reference.
Item 17. Undertakings.
(a) We hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
--------
however, that paragraphs (1)(a)(i) and (1)(a)(ii) do not apply if the
- -------
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by us with the Commission
pursuant to Section 13(a) or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement.
(iv) 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; and
(v) 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.
(b) 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 (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 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 hereof.
(c) 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 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
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<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 Englewood, State of Colorado, on May 11, 2000.
LIBERTY DIGITAL, INC.
(Registrant)
By: /s/ LEE MASTERS
----------------
Name: Lee Masters
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints David B. Koff, Robert R. Bennett and
Frederick H. McGrath, and each of them, as his or her true and lawful attorneys-
in-fact and agent, with full power of substitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to sign any registration statement for the same offering covered by this
registration statement that is to be effective upon filing pursuant to Rule 462
promulgated under the Securities Act, and all post-effective amendments thereto,
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
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 Director May 11, 2000
- ----------------------------------------- (Principal Executive Officer)
Lee Masters
/s/ ROBERT R. BENNETT Chairman of the Board May 11, 2000
- -----------------------------------------
Robert R. Bennett
/s/ GARY S. HOWARD Director May 11, 2000
- -----------------------------------------
Gary S. Howard
/s/ DAVID B. KOFF Director May 11, 2000
- -----------------------------------------
David B. Koff
/s/ PETER M. KERN Director May 11, 2000
- -----------------------------------------
Peter M. Kern
/s/ J. DAVID WARGO Director May 11, 2000
- -----------------------------------------
J. David Wargo
/s/ FLORANTE PANGILINAN (Principal Accounting Officer, May 11, 2000
- ----------------------------------------- Principal Financial Officer)
Florante Pangilinan
</TABLE>
II-4
<PAGE>
Exhibit Index
-------------
EXHIBIT DESCRIPTION
-----------
NUMBER
------
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)
4.1 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))
4.2 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))
4.3 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)
5 Opinion of Baker Botts L.L.P. as to the legality of the
securities being registered.
II-5
<PAGE>
21 Subsidiaries of Liberty Digital, Inc.
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 pages of the
registration statement.
II-6
<PAGE>
Exhibit 5
May 11, 2000
Liberty Digital, Inc.
Board of Directors
12312 West Olympic Blvd.
Los Angeles, CA 90064
Gentlemen:
We have acted as special counsel for Liberty Digital, Inc. (the "Company")
in connection with the preparation, execution and filing of a Registration
Statement under the Securities Act of 1933 on Form S-3 (the "Registration
Statement") relating to the registration of 1,836,491 shares of the Company's
Series A Common Stock, $.01 par value ("Common Stock"), which may be sold by the
selling stockholders named in the prospectus included in the Registration
Statement.
In connection with the opinion expressed below, we have made such factual
inquiries and have examined or caused to be examined such documents, records and
instruments and such questions of law as we have considered necessary or
appropriate for the purpose of such opinion. On the basis of such inquiries and
examinations, it is our opinion that the shares of Common Stock which may be
sold by the selling stockholders named in the prospectus included in the
Registration Statement have been duly authorized and validly issued by the
Company and are fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement referred to above.
Very truly yours,
Baker Botts L.L.P.
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES STATE OF INCORPORATION
DMX, LLC Delaware
450714B.C., Ltd. British Columbia, Canada
DMX-Europe N.V. Netherlands
Tempo Sound, Inc. Oklahoma
Advanced Audio, LLC Georgia
LD Bondnet, Inc. Delaware
LDIG Aloy, Inc. Delaware
LDIG Cars, Inc. Delaware
LDIG Film, Inc. Delaware
LDIG Financing LLC Delaware
LDIG Food, Inc. Delaware
LDIG Koz, Inc. Delaware
LDIG Move, Inc. Delaware
LDIG Music Online, Inc. Delaware
LDIG Music Online II, Inc. Delaware
LDIG NL, Inc. Delaware
LDIG Online Retail, Inc. Delaware
LDIG Order, Inc. Delaware
LDIG OTV, Inc. Delaware
LDIG UGON, Inc. Delaware
Liberty Academic Systems Holdings, Inc. Colorado
Liberty BETI, Inc. Delaware
Liberty Digital, LLC Delaware
Liberty DS, Inc. Delaware
Liberty HG, Inc. Delaware
Liberty IATV Events, Inc. Delaware
Liberty IATV, Inc. Delaware
Liberty IB, Inc. Delaware
Liberty IP, Inc. Delaware
Liberty Java, Inc. Colorado
Liberty KI, Inc. Delaware
Liberty KV Holdings, Inc. Delaware
Liberty KV Partners I, LLC Delaware
Liberty Lightspan Holdings, Inc. Colorado
Liberty Medscholar, Inc. Delaware
Liberty Online Health KI Holdings, Inc. Colorado
Liberty Online Health RN Holdings, Inc. Colorado
Liberty Online Sports Holdings, Inc. Colorado
Liberty Online Village Holdings, Inc. Colorado
Liberty PL, Inc. Delaware
Liberty QS, Inc. Delaware
Liberty Replay, Inc. Delaware
Liberty TE, Inc. Delaware
Liberty TIV, Inc. Delaware
LMC Digital Inc. Colorado
LMC IATV Events, LLC Delaware
Page 1 of 2
<PAGE>
LIST OF SUBSIDIARIES STATE OF INCORPORATION
Paradigm Music Entertainment Company Delaware
SonicNet, Inc. Delaware
The Box Worldwide, Inc. Florida
The Box Worldwide-Europe, B.V. Netherlands
The Box Holland, B.V. Netherlands
The Box Music Network S.L. Spain
Video Jukebox Network Europe, Ltd. United Kingdom
Page 2 of 2
<PAGE>
EXHIBIT 23.1
The Board of Directors
Liberty Digital, Inc.:
We consent to the incorporation by reference on Form S-3 of Liberty Digital,
Inc. (formerly TCI Music, Inc.) and subsidiaries of our report dated February
23, 2000, with respect to the consolidated balance sheets of Liberty Digital,
Inc. as of December 31, 1999 and 1998, and the related statements of operations
and comprehensive earnings, stockholders' equity (deficit) and cash flows 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 related statements of operations and comprehensive earnings, stockholders'
equity (deficit) and cash flows of DMX, LLC and subsidiaries (Predecessor) for
the nine months ended June 30, 1997, which report appears in the Annual Report
(Form 10-K) of Liberty Digital, Inc. for the year ended December 31, 1999.
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.
KPMG LLP
Los Angeles, California
May 10, 2000
