<PAGE>
As filed with the Securities and Exchange Commission on December 18, 1997
REGISTRATION NO. 333-38689
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
FOX/LIBERTY NETWORKS, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4841 95-4609407
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
---------------
FLN FINANCE, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4841 95-4647456
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
---------------
<TABLE>
<S> <C>
1440 SOUTH SEPULVEDA BOULEVARD JEFF SHELL
LOS ANGELES, CALIFORNIA 90025 1440 SOUTH SEPULVEDA BOULEVARD
(310) 444-8123 LOS ANGELES, CALIFORNIA 90025
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (310) 444-8123
NUMBER, FACSIMILE (310) 479-8199
INCLUDING AREA CODE, OF REGISTRANT'S AND CO- (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
---------------
WITH COPIES TO:
<TABLE>
<S> <C>
ARTHUR M. SISKIND, ESQ. STEPHEN H. KAY, ESQ.
THE NEWS CORPORATION LIMITED SQUADRON, ELLENOFF, PLESENT & SHEINFELD, LLP
1211 AVENUE OF THE AMERICAS 551 FIFTH AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10176
(212) 852-7000 (212) 661-6500
FACSIMILE (212) 852-7145 FACSIMILE (212) 697-6686
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
---------------
If the Notes being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [_]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE NOTES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE NOTES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+NOTES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1997
PROSPECTUS
FOX/LIBERTY NETWORKS, LLC [LOGO OF FOX SPORTS NET]
FLN FINANCE, INC.
OFFER FOR ANY AND ALL OUTSTANDING
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR, RESPECTIVELY,
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998, UNLESS EXTENDED .
Fox/Liberty Networks, LLC, a Delaware limited liability company (the
"Company") and FLN Finance, Inc. ("FLN"), a wholly owned subsidiary of the
Company, hereby offer (the "Exchange Offer"), jointly and severally, upon the
terms and subject to the conditions set forth herein and in the related Letter
of Transmittal, to exchange up to $500,000,000 aggregate principal amount of 8
7/8% Senior Notes Due 2007 (the "Senior Notes") of the Company and FLN for a
like amount of the privately placed 8 7/8% Senior Notes Due 2007 (the "Old
Senior Notes") of the Company and FLN issued on August 25, 1997, from the
holders thereof (together with the holders of Senior Notes, "Senior
Noteholders") and to exchange up to $405,000,000 aggregate principal amount at
maturity of 9 3/4% Senior Discount Notes Due 2007 (the "Senior Discount Notes")
of the Company and FLN for a like amount of the privately placed 9 3/4% Senior
Discount Notes Due 2007 (the "Old Senior Discount Notes") of the Company and
FLN issued on August 25, 1997, from the holders thereof (together with the
holders of Senior Discount Notes, "Discount Noteholders"). The Senior Notes and
the Senior Discount Notes are registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part. The Old Senior Notes and the Old Senior Discount
Notes are referred to collectively herein as the "Old Notes" and the Senior
Notes and the Senior Discount Notes are referred to collectively herein as the
"Notes."
The Notes are being offered by the Company and FLN hereunder in order to
satisfy the obligations of the Company under two separate and substantially
identical Registration Rights Agreements with respect to the Old Senior Notes
and the Old Senior Discount Notes, respectively, each dated August 25, 1997
(together, the "Registration Rights Agreement"), and each by and among the
Company, FLN and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bear,
Stearns & Co. Inc. (together the "Initial Purchasers"). Upon
(cover continued on following page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 15 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER AND AN INVESTMENT IN THE NOTES OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
(cover continued from previous page)
consummation of the Exchange Offer, certain rights under the Registration
Rights Agreement, including registration rights and the right to receive the
contingent increases in interest rates, will terminate, except under certain
limited circumstances. The Exchange Offer is designed to provide to Senior
Noteholders and Discount Noteholders (collectively, "Holders" or
"Noteholders") an opportunity to acquire Notes which, unlike the Old Notes,
are expected to be freely transferable at all times, subject to state "blue
sky" law restrictions; provided, however, that the Holder is not an
"affiliate" of the Company within the meaning of the Securities Act, and
represents that the Notes are being acquired in the ordinary course of such
Holder's business and the Holder is not engaged in, and does not intend to
engage in a distribution of the Notes. With the exception of the freely
transferable nature of the Notes, the Notes are substantially identical to the
Old Notes. See "The Exchange Offer--Purpose of the Exchange Offer."
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 P.M., New York City time, on , 1998,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes made pursuant to the Exchange Offer may be withdrawn at
any time prior to 5:00 P.M., New York City time, on the Expiration Date unless
previously accepted for exchange by the Company. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Company and to the terms and provisions of the
Registration Rights Agreement. In the event the Company terminates the
Exchange Offer and does not accept any Old Notes with respect to the Exchange
Offer, the Company will promptly return such Old Notes to the Holders thereof.
Old Notes may be tendered for exchange only in integral multiples of $1,000
principal amount at maturity. See "The Exchange Offer."
Any waiver, extension or termination of the Exchange Offer will be publicly
announced by the Company through a release to the Dow Jones News Service and
as otherwise required by applicable law or regulations.
The Notes will be senior unsecured obligations of the Company and FLN and
will rank pari passu in right of payment to all future subordinated
indebtedness of the Company and FLN, if any. The Notes will not be guaranteed
by any of the Company's subsidiaries or any third parties (including
affiliates of the Company). The Notes will be effectively subordinated to all
secured indebtedness of the Company. The Company is a holding company with no
direct operations, and therefore, the Notes will also be effectively
subordinated to all existing and future indebtedness of the Company's
subsidiaries. As of September 30, 1997, after giving pro forma effect to the
application of the net proceeds of the Offering, the Exchange Offer, the
Rainbow Transaction (as defined herein) and borrowings under the Bank Facility
(as defined herein) and the application of the proceeds thereof, the Company
and its subsidiaries would have had an aggregate of approximately $1.3 billion
of indebtedness outstanding, including the Notes, of which $586 million of
indebtedness would have been effectively senior to the Notes. See "Description
of Bank Facility" and "Description of the Notes."
Cash interest on the Senior Notes will accrue at a rate of 8 7/8% per annum
and will be payable semiannually in arrears on each February 15 and August 15,
commencing February 15, 1998. The Old Senior Discount Notes were issued at a
substantial discount from their principal amount. Accordingly, cash interest
will not accrue or be payable on the Senior Discount Notes prior to August 15,
2002. Thereafter, cash interest on the Senior Discount Notes will accrue at a
rate of 9 3/4% per annum and will be payable semiannually in arrears on each
February 15 and August 15, commencing February 15, 2003; provided, however,
that at any time on or prior to August 15, 2002, the Company may make a Cash
Interest Election (as defined herein), in which case the outstanding principal
amount at maturity of each Senior Discount Note will on such interest payment
date be reduced to the Accreted Value (as defined herein) of such Senior
Discount Note as of such interest payment date, and cash interest (accruing at
a rate of 9 3/4% per annum from the Cash Interest Election Date) will be
payable with respect to such Senior Discount Note on each interest payment
date thereafter.
The Old Notes were sold by the Company on August 25, 1997 to the Initial
Purchasers in a transaction not registered under the Securities Act in
reliance upon an exemption from the registration requirements of the
Securities Act (the "Offering). The Initial Purchasers subsequently placed the
Old Notes with qualified
i
<PAGE>
(cover continued from previous page)
institutional buyers in reliance upon Rule 144A promulgated under the
Securities Act and with a limited number of accredited investors that agreed
to comply with certain transfer restrictions and other conditions.
Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available.
The net proceeds from the Offering were held on deposit as security for the
Notes prior to the consummation of the Rainbow Transaction. Upon consummation
of the Rainbow Transaction in December 1997, the net proceeds of the Offering
held on deposit were released to the Company and a portion of such net
proceeds were used, along with available proceeds under the Bank Facility, to
fund the Company's cash contribution to RPP (as defined herein). The Notes are
no longer secured.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after August 15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the date of redemption. In
addition, on or prior to August 15, 2000, the Company may redeem up to 35% of
the originally issued aggregate principal amount of the Senior Notes at a
redemption price of 108 7/8% of the principal amount thereof, plus accrued and
unpaid interest thereon to the date of redemption, and may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 109 3/4% of the Accreted Value at the
redemption date of the Senior Discount Notes so redeemed (or, if a Cash
Interest Election has been made, 109 3/4% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest to
the redemption date), in each case with the net cash proceeds of one or more
Public Equity Offerings or sales of Qualified Equity Interests to Strategic
Equity Investors (as defined herein); provided, however, that not less than
65% of the originally issued principal amount of Senior Notes and 65% of the
originally issued principal amount at maturity of the Senior Discount Notes is
outstanding immediately after giving effect to such redemption.
Following the occurrence of a Change of Control (as defined herein), each
Holder will have the right to require the Company to purchase all or a portion
of such Holder's Notes at a purchase price equal to 101% of the aggregate
principal amount of the Senior Notes, plus accrued and unpaid interest thereon
to the date of purchase, and at a purchase price equal to 101% of the Accreted
Value of the Senior Discount Notes at the date of purchase (unless the date of
purchase is on or after the earlier to occur of August 15, 2002 or the Cash
Election Date in which case such purchase price shall be equal to 101% of the
aggregate principal amount at maturity thereof, plus accrued and unpaid
interest thereon to the date of purchase). See "Description of the Notes."
The Old Notes are, and the Notes will be, joint and several obligations of
the Company and FLN entitled to the benefits of the Indentures (as defined
herein). However, FLN has, and will have, no assets, liabilities (other than
as co-obligor on the Notes) or operations of any kind, and the Indentures
prohibit FLN from engaging in any other business activities. As a result, the
Company will make all payments of principal, interest and premium (if any)
with respect to the Old Notes and Notes, as the case may be.
The form and terms of the Notes will be identical in all material respects
to the form and terms of the Old Notes except that (i) the Notes have been
registered under the Securities Act and (ii) Holders of Notes will not be
entitled to certain rights of Holders of Old Notes under the Registration
Rights Agreement (which rights will terminate upon consummation of the
Exchange Offer, except under certain limited circumstances). Any Old Notes not
tendered and accepted in the Exchange Offer will remain outstanding and will
be entitled to all the rights and preferences and will be subject to the
limitations applicable thereto under the Indentures (except for those rights
which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, Holders of Old Notes will continue to be
subject to the existing restrictions upon transfers
ii
<PAGE>
(cover continued from previous page)
thereof, and the Company will have no further obligation to such Holders
(other than under certain limited circumstances) to provide for the
registration under the Securities Act of the Old Notes held by them. The Notes
are not, and upon consummation of the Exchange Offer, the Old Notes will not
be, entitled to the contingent increases in interest rate provided pursuant to
the Registration Rights Agreement, the Old Notes, and the Indentures. See "The
Exchange Offer."
The Company and FLN are making the Exchange Offer in reliance on the
position of the staff of the Securities and Exchange Commission (the
"Commission") as set forth in no-action letters issued to third parties in
other transactions. However, the Company has not sought its own no-action
letter and there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer as in such
other circumstances. Based on those interpretations by the staff of the
Commission, the Company believes Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any Holder thereof (other than broker-dealers, as set forth
below, and any such Holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Notes are acquired in the ordinary course of such Holder's
business and that such Holder is not participating, does not intend to
participate and has no arrangement or understanding with any person to
participate, in the distribution of such Notes. Any Holder who participates in
the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the Notes may not rely upon the position
of the staff of the Commission as set forth in these no-action letters and, in
the absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction, and any such secondary resale transaction must
be covered by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K promulgated
under the Securities Act. Holders of Old Notes wishing to accept the Exchange
Offer must represent to the Company in the Letter of Transmittal that such
conditions have been met.
Each broker-dealer (other than an affiliate of the Company) that receives
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it acquired the Old Notes as the result of market-making activities or other
trading activities and will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Notes received in exchange for Old Notes (other than Old Notes
which represent an unsold allotment from the initial sale of the Old Notes)
where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any broker-dealer who is an affiliate of
the Company may not participate in the Exchange Offer and may not rely on the
no-action letters referred to above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. See "The Exchange Offer."
The Notes constitute new issues of securities with no established trading
market. Although the Old Notes have been approved for trading in The Private
Offerings, Resales and Trading through Automatic Linkages (PORTAL) Market of
The Nasdaq Stock Market, Inc., there has been no public market for the Old
Notes and it is not currently anticipated that an active public market for the
Notes will develop. The Company currently does not intend to apply for the
listing of the Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. The Initial Purchasers have
advised the Company that each of the Initial Purchasers currently intends to
make a market in the Notes; however, none are obligated to do so and any
market-making may be discontinued by any Initial Purchasers at any time
without notice. Accordingly, no assurance can be given as to the liquidity or
the trading market for the Notes. The Notes will settle through the book-entry
facilities of The Depository Trust Company. See "Description of the Notes."
iii
<PAGE>
(cover continued from previous page)
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of December , 1997. As of such date,
there was one registered Holder of the Old Senior Notes and one registered
Holder of the Old Senior Discount Notes.
The Company will not receive any proceeds from the Exchange Offer. No
dealer-manager is being used in connection with the Exchange Offer. See "Use
of Proceeds" and "Plan of Distribution."
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements. All statements, other
than statements of historical facts, included in this Prospectus that address
activities, events or developments that the Company expects or anticipates
will or may occur in the future, including such things as future capital
expenditures (including the amount and nature thereof), business strategy and
measures to implement strategy, competitive strengths, goals, expansion and
growth of the Company's and its subsidiaries' business and operations, plans,
references to future success and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses
made by the Company as of the date of this Prospectus and in light of its
experience and its perception of historical trends, current conditions and
expected future developments as well as other factors it believes are
appropriate in the circumstances. However, whether actual results and
developments will conform to the Company's expectations and predictions is
subject to a number of risks and uncertainties, including the significant
considerations and risks discussed in this Prospectus; general economic,
market or business conditions; the opportunities (or lack thereof) that may be
presented to and pursued by the Company and its subsidiaries, competitive
actions by other companies; changes in laws or regulations; and other factors,
many of which are beyond the control of the Company and its subsidiaries.
Consequently, all of the forward-looking statements made in this Prospectus
are qualified by these cautionary statements and there can be no assurance
that the actual results or developments anticipated by the Company will be
realized or, even if substantially realized, that they will have the expected
consequences to or effects on the Company and its subsidiaries or their
business or operations.
AVAILABLE INFORMATION
The Company and FLN have filed with the Commission a registration statement
relating to the Notes offered hereby (together with all amendments, exhibits,
schedules and supplements thereto, the "Registration Statement") under the
Securities Act. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company, FLN, the Exchange Offer and the Notes, reference is
hereby made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract, agreement or other document
referred to accurately describe all material terms so referred to, but are not
necessarily a complete description of the contents of any such contract,
agreement or other document. The Registration Statement and the exhibits and
schedules thereto and any periodic reports or other information filed by the
Company pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), may be inspected without charge and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at Seven World Trade Center, Suite 1300, New York, New York 10048 and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, Washington, D.C.
20549, at prescribed rates. The Commission maintains a website at
http://www.sec.gov that contains reports, proxy and information statements and
other information filed electronically with the Commission.
iv
<PAGE>
Upon effectiveness of the Registration Statement, the Company and FLN will
be subject to the reporting requirements of the Exchange Act, and in
accordance therewith, the Company must file periodic reports and other
information with the Commission. In the event the Company ceases to be subject
to the informational requirements of the Exchange Act, the Company will be
required under the Indentures to continue to file with the Commission the
annual and quarterly reports, information, documents or other reports,
including, without limitation, reports on Forms 10-K, 10-Q, 8-K, which would
be required pursuant to the informational requirements of the Exchange Act.
The Company will also furnish such other reports as may be required by law. In
addition, for so long as any of the Notes are restricted securities within the
meaning of Rule 144(a)(3) under the Securities Act, the Company has agreed to
make available to any prospective purchaser of the Notes or beneficial owner
of the Notes, in connection with any sale thereof, the information required by
Rule 144(d)(4) under the Securities Act.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OF OLD NOTES FOR EXCHANGE FROM, HOLDERS THEREOF IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT
THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE
OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE ATTORNEY GENERAL OR THE
SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE
AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE ATTORNEY
GENERAL HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER,
OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
SECTION.
v
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Unless the context
otherwise requires, the terms of the Notes are identical in all material
respects to the Old Notes, except for certain transfer restrictions and certain
rights under the Registration Rights Agreement, including registration rights
and the right to receive the contingent increases in interest rates, (which
rights will terminate upon consummation of the Exchange Offer, except under
certain limited circumstances). The description of the Notes contained herein
assumes that all Old Notes are exchanged for Notes in the Exchange Offer.
References to the "Company" are to Fox/Liberty Networks, LLC and its
subsidiaries. References to "News Corporation" and "Fox" are to The News
Corporation Limited and to its indirect subsidiary, Fox, Inc., respectively.
References to "Fox/Liberty Sports" and "Fox/Liberty FX" are to Fox Sports Net,
LLC, and FX Networks, LLC, respectively, each of which is a direct subsidiary
of the Company. References to "TCI" and to "Liberty" are to Tele-
Communications, Inc., and its wholly owned subsidiary, Liberty Media
Corporation, respectively. References to the "NBA," the "NHL" and "MLB" are to
the National Basketball Association, the National Hockey League and Major
League Baseball, respectively.
THE COMPANY
OVERVIEW
Fox/Liberty Networks, LLC (the "Company") is the largest regional sports
network ("RSN") programmer in the United States, focusing on live professional
and major collegiate home team sports events. The Company owns and operates 12
RSNs (the "O&O RSNs") and has direct or indirect equity interests ranging from
12% to 70% in an additional nine RSNs (together with the O&O RSNs, the
"Company's RSNs"). The Company's RSNs are complemented by a national
programming service, Fox Sports Net ("FSN"), which provides national
programming for distribution by RSNs. The O&O RSNs have rights to telecast live
games of 36 professional sports teams in the NBA, the NHL, MLB and numerous
collegiate sports teams.
Because of their home team programming, RSNs have strong local appeal in
their respective markets, generating high prime time ratings and attractive
subscriber fees from cable operators. The Company's strategy is to utilize its
RSNs to build a national cable sports network under the Fox brand name based on
the "broadcast network affiliate" model. The Company believes that telecasting
local sports events, together with network quality programming and production,
will provide a powerful 24 hour per day advertising vehicle for national as
well as local advertisers. The Company is also engaged in the ownership and
operation of the FX Network ("FX"), a general entertainment and sports
programming network with approximately 31 million subscribers.
The Company is a 50%-50% domestic joint venture (the "Fox/Liberty Joint
Venture") between Fox, Inc. ("Fox"), an indirect subsidiary of The News
Corporation Limited ("News Corporation"), and Liberty Media Corporation
("Liberty"), a wholly owned subsidiary of Tele-Communications, Inc. ("TCI").
News Corporation is a diversified international communications company. TCI is
the nation's largest cable operator and, through Liberty, holds interests in 18
other cable networks.
RAINBOW TRANSACTION
In December 1997, the Company consummated a transaction (the "Rainbow
Transaction") with Rainbow Media Sports Holdings, Inc. ("Rainbow"), an indirect
subsidiary of Cablevision Systems Corporation ("Cablevision"), pursuant to
which the Company acquired a 40% interest in Regional Programming Partners
("RPP"), which holds interests in eight RSNs (the "Rainbow RSNs"), the Madison
Square Garden entertainment complex, Radio City Productions LLC, the New York
Rangers, a professional hockey team, and the New York Knicks, a professional
basketball team. RPP has a controlling interest in seven of the eight Rainbow
RSNs, two of which were partially owned by the Company prior to the Rainbow
Transaction. Upon consummation of the Rainbow Transaction, a portion of the net
proceeds of the Offering was used, along with available proceeds under the Bank
Facility (as defined herein), to fund the Company's $850 million cash
contribution to RPP. See "Use of Proceeds" and "Certain Transactions--Rainbow
Transaction."
1
<PAGE>
After giving effect to the consummation of the Rainbow Transaction, the
Company owns interests in, or is affiliated with, 26 RSNs and its network
programming covers each of the top 14 designated market areas ("DMAs") and 22
of the top 25 DMAs in the United States. These RSNs have rights to telecast
live games of 69 professional sports teams in the NBA, the NHL and MLB (out of
a total of 75 such teams in the United States) and numerous collegiate sports
teams to approximately 55 million households out of a total of 70 million
households receiving basic cable or direct to home satellite ("DTH") service.
As part of the Rainbow Transaction, the Company and Rainbow established
National Sports Partners (the "National Sports Partnership"), a 50%-50%
partnership, to operate FSN. FSN provides its affiliated RSNs with 24 hour per
day national sports programming featuring live sporting events and original
programming, as well as a national sports news program, Fox Sports News, which
telecasts pre-game and post-game sports programming. The Company and Rainbow
also established a national advertising representative firm, National
Advertising Partners (the "National Advertising Partnership"), a 50%-50%
partnership, to sell advertising time during both the regional affiliates'
local programming and national network programming carried by RSNs. The Company
manages both the National Sports Partnership and the National Advertising
Partnership. Through its affiliations with RSNs across the United States, FSN
is able to access three advertising markets at once: network, national spot and
local.
BUSINESS STRATEGY
Currently the largest owner and operator of RSNs in the United States, the
Company's strategic objective is to be the leading national provider of sports
programming in the United States. In order to achieve this objective, the
Company plans to focus on the following strategies:
. Increase Distribution of Fox Sports Net
The Company intends to increase the distribution of FSN through two
principal strategies: increasing penetration in geographic regions adjacent
to existing markets; and affiliating with, acquiring or launching networks
in unserved markets. In order to achieve this objective, the Company
expects that, in conjunction with its RSNs, it will continue to market its
programming services to distributors and subscribers and pursue
acquisitions of sports programming rights.
. Increase Advertising Revenues
FSN has been structured based on the "broadcast network affiliate" model,
in which each RSN airs a slate of local programming, which is supplemented
by a schedule of network-provided national programming, consistent across
all regions. Unlike the typical "broadcast network affiliate" model, the
Company's programming is anchored by highly rated local programming during
prime time, with national FSN programming during the balance of the
schedule.
FSN's model is designed to increase the number of viewers before and after,
as well as during, local sports events. An increased viewership base is
likely to command both higher advertising rates and absolute audience
delivery. By providing national programming that is consistent across all
regions, the Company believes that it will be able to penetrate the
approximately $5 billion national advertising market in which the Company's
RSNs have not traditionally participated. In so doing, the Company will be
able to allocate advertising units between national and local inventories
to optimize price and increase the likelihood of selling all of its
advertising units. The Company's approach offers national advertisers the
unique opportunity to purchase national and local advertising from one
source in each of the top DMAs. The Company believes that sports
programming is extremely attractive to both national and local advertisers
due to the high ratings such programming generally achieves in the key male
18-49 demographic.
. Increase Ownership of RSNs
As is the case with the national broadcast networks, a national cable
sports network can derive significant economic benefits by owning its
affiliates. The Company may seek to acquire a majority interest in those
RSNs that it does not already own and operate, or in which it currently
owns a minority interest. For
2
<PAGE>
example, in October 1996, the Company acquired from an affiliate of Turner
Broadcasting System, Inc. ("Turner"), an additional 44% in the South RSN,
increasing the Company's ownership in this RSN to 88%. Furthermore, in
March 1997, an affiliate of the Company purchased from Group W, a
subsidiary of Westinghouse/CBS, Inc. ("Group W"), additional indirect
ownership interests in the D.C./Baltimore, Midwest, Rocky Mountain,
Southwest and Sunshine RSNs, and in Fox Sports Direct, a satellite services
provider. Upon the consummation of the Rainbow Transaction, the Company
increased its aggregate direct and indirect ownership interests in each of
the Chicago and San Francisco RSNs to 70% and acquired indirect minority
interests in six additional RSNs in new markets. The Company will continue
to carefully identify and pursue other acquisition opportunities.
. Launch Second RSNs in Selected Markets
In markets where there are a sufficient number of sports teams such that
programming conflicts may occur, the Company may launch second local
networks. This would enable the Company to telecast two different
professional or collegiate games that are being played in one region on the
same night at the same time.
. Achieve Operating Economies of Scale Among FSN Affiliates
As a national cable sports network, FSN will seek to realize economies of
scale by centralizing management and administrative tasks as well as
certain programming, marketing and public relations functions. For example,
FSN programming will be available to affiliates 24 hours per day to
supplement regionally produced programming. Previously, each RSN was
required to produce or acquire such programming themselves. Also, the
Company intends to cross-promote FSN and its affiliates on the national Fox
broadcast network.
BANK FACILITY
In connection with the consummation of the Rainbow Transaction, the Company
and a group of banks led by The Chase Manhattan Bank ("Chase") amended and
restated an existing credit agreement to permit borrowings by Fox Sports Net,
LLC ("Fox/Liberty Sports"), Fox Sports RPP Holdings, LLC ("Fox Sports RPP") and
FX Networks, LLC ("Fox/Liberty FX"), each a subsidiary of the Company
(together, the "Co-Borrowers"), in the amount of $800 million (the "Bank
Facility"). The Bank Facility is comprised of a $400 million revolving credit
facility and a $400 million term loan facility. The proceeds from the loans
under the Bank Facility were used to finance, in part, the Rainbow Transaction
and the Company currently expects that remaining amounts will be used for
investments in certain subsidiaries of the Company and for working capital
purposes. See "Risk Factors--Potential Need for Additional Capital; Future
Commitments" and "Description of Bank Facility."
Borrowings under the Bank Facility are unconditionally guaranteed by each RSN
that is wholly owned, directly or indirectly, by the Co-Borrowers and by each
of the Co-Borrowers' subsidiaries that hold the direct interest in an RSN that
is not wholly owned, directly or indirectly, by the Co-Borrowers. The Company
also provides a downstream guarantee. In addition, borrowings under the Bank
Facility and the guarantees are secured by substantially all of the equity
interests of the Co-Borrowers (other than Fox Sports RPP) and the equity
interests held by the Co-Borrowers (other than Fox Sports RPP) and their
subsidiaries in certain related entities.
FLN FINANCE, INC.
FLN Finance, Inc. is a Delaware corporation and a wholly owned subsidiary of
the Company formed in connection with the Offering for the sole purpose of
acting as co-issuer of the Old Notes. The Company believes that certain
purchasers of the Old Notes, as well as prospective purchasers of the Notes,
may be restricted in their ability to purchase debt securities of a limited
liability company, such as the Company, unless such debt securities are jointly
issued by a corporation. FLN has, and will have, no assets, liabilities (other
than as co-obligor on the Notes) or operations of any kind, and the Indentures
prohibited FLN from engaging in any other business activities. As a result, the
Company will make all payments of principal, interest and premium (if any) with
respect to the Old Notes and the Notes, as the case may be.
3
<PAGE>
THE OFFERING
On August 25, 1997, the Company consummated an offering (the "Offering") of
the Old Notes. The Old Notes were sold to the Initial Purchasers in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements of the Securities Act.
THE EXCHANGE OFFER
Issuers..................... Fox/Liberty Networks, LLC and FLN Finance, Inc.
Notes Offered............... $500,000,000 aggregate principal amount of 8 7/8%
Senior Notes due 2007.
$405,000,000 aggregate principal amount at
maturity of 9 3/4% Senior Discount Notes due
2007. The yield to maturity on the Senior
Discount Notes is 9 3/4% (computed on a semi-
annual bond equivalent basis), calculated from
August 25, 1997. See "Certain United States
Federal Income Tax Considerations."
Maturity.................... August 15, 2007.
The Exchange Offer..........
Pursuant to the Exchange Offer, the Notes are
being offered in exchange for a like principal
amount of Old Notes. Old Notes may be exchanged
only in integral multiples of $1,000 principal
amount at maturity. The issuance of Notes is
intended to satisfy obligations of the Company
contained in the Registration Rights Agreement.
Upon consummation of the Exchange Offer, certain
rights under the Registration Rights Agreement,
including registration rights and the right to
receive the contingent increases in interest
rates, will terminate, except under certain
limited circumstances. As of December , 1997,
there was one registered Holder of the Old Senior
Notes and one registered Holder of the Old Senior
Discount Notes. On such date, $500,000,000
aggregate principal amount of Old Senior Notes
were outstanding and $405,000,000 aggregate
principle amount at maturity of Old Senior
Discount Notes were outstanding. See "The
Exchange Offer."
Holders of Old Notes whose Old Notes are not
tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be
entitled to all the rights and preferences
(except for those rights which terminate upon
consummation of the Exchange Offer) and will be
subject to the limitations applicable thereto
under the Indentures governing the Old Notes and
the Notes, each dated as of August 25, 1997, and
each among the Company, FLN and The Bank of New
York, as trustee (together the "Indentures").
Following
4
<PAGE>
consummation of the Exchange Offer, the holders
of Old Notes will continue to be subject to the
existing restrictions upon transfer thereof, and
the Company will have no further obligation to
such holders (other than under certain limited
circumstances) to provide for the registration
under the Securities Act of the Old Notes held by
them. The Notes are not, and upon consummation of
the Exchange Offer, the Old Notes will not be,
entitled to the contingent increases in interest
rates provided pursuant to the Registration
Rights Agreement, the Old Notes and the
Indentures. See "Risk Factors--Consequences of
Failure to Exchange" and "The Exchange Offer--
Purpose of the Exchange Offer."
Resale...................... Based on interpretations by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes the Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold
and otherwise transferred by any Holder thereof
(other than broker-dealers, as set forth below,
and any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405
promulgated under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Notes are acquired in the
ordinary course of such Holder's business and
that such Holder is not participating, does not
intend to participate, and has no arrangement or
understanding with any person to participate, in
the distribution of such Notes. Any Holder who
tenders in the Exchange Offer with the intention
to participate, or for the purpose of
participating, in a distribution of the Notes may
not rely upon such interpretations by the staff
of the Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction, and any such
secondary resale transaction must be covered by
an effective registration statement containing
the selling security holder information required
by Item 507 of Regulation S-K promulgated under
the Securities Act. Failure to comply with such
requirements in such instance may result in such
Holder incurring liabilities under the Securities
Act for which the Holder is not indemnified by
the Company. Each broker-dealer (other than an
affiliate of the Company) that receives Notes for
its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a
prospectus in connection with any resale of such
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for
a period of 90 days after the Expiration Date, it
will make this Prospectus available to any
broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Any broker-
dealer who is an affiliate of the Company may not
participate in the Exchange Offer and may not
rely on the no-action letters referred to above
and must comply with
5
<PAGE>
the registration and prospectus delivery
requirements of the Securities Act in connection
with a secondary resale transaction. See "The
Exchange Offer."
Expiration Date.............
The Exchange Offer will expire at 5:00 P.M., New
York City time, on , 1998 (20 Business
Days after notice is mailed to Holders), unless
extended by the Company in its sole discretion,
in which case the term "Expiration Date" shall
mean the latest date and time to which the
Exchange Offer is extended. Any extension, if
made, will be publicly announced through a
release to the Dow Jones News Service and as
otherwise required by applicable law or
regulations.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer....................... conditions, which may be waived by the Company.
See "The Exchange Offer--Conditions of the
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
Procedures for Tendering
Old Notes..................
Brokers, dealers, commercial banks, trust
companies and other nominees who hold Old Notes
through The Depository Trust Company ("DTC") may
effect tenders by book-entry transfer in
accordance with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
are urged to contact such person promptly if they
wish to tender Old Notes. In order for Old Notes
to be tendered by a means other than by book-
entry transfer, each Holder of Old Notes wishing
to participate in the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or a facsimile thereof,
together with such Old Notes and any other
documents required by such Letter of Transmittal
to The Bank of New York, the Exchange Agent, at
the address set forth herein and therein. By
executing a Letter of Transmittal, a Holder will
represent to the Company that, among other
things, the Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Notes, whether or not such person is the Holder,
that neither the Holder nor any such other person
has an arrangement or understanding with any
person to participate in the distribution of such
Notes, if the Holder is not a broker-dealer, or
is a broker-dealer but will not receive Notes for
its own account in exchange for Old Notes,
neither the Holder nor any such other person is
engaged in or intends to participate in the
distribution of such Notes and that neither the
Holder nor any such other person is an
"affiliate" of the Company within the meaning of
Rule 405 promulgated under the Securities Act.
See "The Exchange Offer--Terms of the Exchange
Offer--Procedures for Tendering Old Notes" and
"The Exchange Offer--Terms of the Exchange
Offer--Guaranteed Delivery Procedures."
6
<PAGE>
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by such Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, must
tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Terms of the Exchange Offer--
Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of Notes..........
Subject to certain conditions (as described more
fully in "The Exchange Offer--Conditions of the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 P.M., New York City time, on the
Expiration Date. The Notes issued pursuant to the
Exchange Offer will be delivered as promptly as
practicable following the Expiration Date.
Withdrawal Rights...........
Except as otherwise provided herein, tenders of
Old Notes may be withdrawn at any time prior to
5:00 P.M., New York City time, on the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Taxation.................... There will be no United States federal income tax
consequences to a U.S. Holder exchanging an Old
Note for a Note. Each Note will be treated as
having been issued at the time the Old Note
exchanged therefor was originally issued, and
therefore a U.S. Holder will have the same
adjusted basis and holding period in the Note as
it had in the Old Note immediately before the
exchange. See "Certain United States Federal
Income Tax Consequences."
Exchange Agent.............. The Bank of New York is the Exchange Agent. The
address, telephone number and facsimile number of
the Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
SUMMARY OF TERMS OF THE NOTES
Interest Payment Dates:
The Senior Notes............ February 15 and August 15 of each year,
commencing February 15, 1998.
The Senior Discount Notes... Cash interest will not accrue or be payable on
the Senior Discount Notes prior to August 15,
2002. Thereafter, cash interest on the Senior
Discount Notes will accrue at a rate of 9 3/4%
per annum and will be payable semi-annually in
arrears on each February 15 and August 15,
commencing February 15, 2003; provided, however,
that at any time on or prior to August 15, 2002,
the Company may make a Cash Interest Election on
any interest payment date to commence the accrual
of cash interest from and after the Cash Interest
Election Date, in which case the outstanding
principal amount at maturity of each Senior
Discount Note will on such interest payment date
be reduced to the Accreted Value of such Senior
Discount Note as of
7
<PAGE>
such interest payment date, and cash interest
(accruing at a rate of 9 3/4% per annum from the
Cash Interest Election Date) shall be payable
with respect to such Senior Discount Note on each
interest payment date thereafter.
Optional Redemption......... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after August 15, 2002, at the redemption prices
set forth herein, plus accrued and unpaid
interest thereon to the date of redemption. See
"Description of the Notes--Optional Redemption."
In addition, on or prior to August 15, 2000, the
Company may redeem up to 35% of the originally
issued aggregate principal amount of the Senior
Notes at a redemption price of 108 7/8% of the
principal amount thereof, plus accrued and unpaid
interest thereon to the date of redemption, and
may redeem up to 35% of the originally issued
principal amount at maturity of the Senior
Discount Notes at a redemption price equal to 109
3/4% of the Accreted Value at the redemption date
of the Senior Discount Notes so redeemed (or, if
a Cash Interest Election has been made, 109 3/4%
of the principal amount at maturity of the Senior
Discount Notes so redeemed, plus accrued and
unpaid interest to the redemption date), in each
case with the net cash proceeds of one or more
Public Equity Offerings or sales of Qualified
Equity Interests to Strategic Equity Investors;
provided, however, that not less than 65% of the
originally issued aggregate principal amount of
Senior Notes and not less than 65% of the
originally issued principal amount at maturity of
Senior Discount Notes is outstanding immediately
after giving effect to such redemption. See
"Description of the Notes--Optional Redemption."
Ranking..................... The Notes will be senior unsecured obligations of
the Company and will rank pari passu in right of
payment with all existing and future unsecured
and unsubordinated indebtedness of the Company
and senior in right of payment to all future
subordinated indebtedness of the Company. The
Notes will be effectively subordinated to all
secured indebtedness of the Company to the extent
of the assets securing such indebtedness. The
Company is a holding company with no direct
operations and, therefore, the Notes will also be
effectively subordinated to all existing and
future indebtedness of the subsidiaries of the
Company, including indebtedness under the Bank
Facility. As of September 30, 1997, as adjusted
for the application of the net proceeds of the
Offering, the Exchange Offer, the Rainbow
Transaction and borrowings under the Bank
Facility (and the application of the proceeds
thereof), the Company and its subsidiaries would
have had approximately $1.3 billion of
indebtedness outstanding, including the Notes, of
which $586 million in indebtedness would have
been effectively senior to the Notes. See "Risk
Factors--Risks Associated with Holding Company
Structure; Structural Subordination of the
Notes," "Description of Bank Facility" and
"Description of the Notes."
8
<PAGE>
Change of Control........... Following the occurrence of a Change of Control,
each Holder will have the right to require the
Company to purchase all or a portion of such
Holder's Notes at a purchase price equal to (i)
with respect to the Senior Notes, 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest thereon to the date of
purchase and (ii) with respect to the Senior
Discount Notes, 101% of the Accreted Value on the
date of purchase (unless the date of purchase is
on or after the earlier to occur of August 15,
2002 or the Cash Interest Election Date, in which
case such purchase price shall be equal to 101%
of the aggregate principal amount at maturity
thereof, plus accrued and unpaid interest to the
date of purchase). There can be no assurance that
sufficient funds will be available following the
occurrence of a Change of Control to make any
required repurchases. As of September 30, after
giving pro forma effect to the application of the
net proceeds of the Offering, the Exchange Offer,
the Rainbow Transaction and borrowings under the
Bank Facility (and the application of the
proceeds thereof), the Company and its
subsidiaries would have had approximately $1.3
billion of indebtedness outstanding, including
the Notes, of which $586 million in indebtedness
would have been effectively senior to the Notes.
See "Risk Factors--Purchase of Notes Upon Change
of Control" and "Description of the Notes--Change
of Control."
Certain Covenants........... The Indentures pursuant to which the Old Notes
were issued and the Notes will be issued contain
certain covenants, including (i) limitations on
indebtedness, (ii) limitations on restricted
payments, (iii) limitations on liens, (iv)
limitations on dividends and other payment
restrictions affecting Restricted Subsidiaries
(as defined under "Description of the Notes--
Certain Definitions"), (v) limitations on
preferred stock of Restricted Subsidiaries,
(vi) limitations on transactions with affiliates,
(vii) limitations on issuances of guarantees by
Restricted Subsidiaries, (viii) limitations on
sale leasebacks, (ix) limitations on the
disposition of proceeds of asset sales and (x)
limitations on designations of Unrestricted
Subsidiaries (as defined under "Description of
the Notes--Certain Definitions"). In addition,
the Indentures limits the ability of the Company
and FLN to consolidate, merge or sell all or
substantially all of their assets. These
covenants are subject to important exceptions and
qualifications. See "Description of the Notes--
Certain Covenants."
Absence of Public Market The Notes will constitute new issues of
for Notes................... securities for which there is no established
public trading market. Although the Old Notes
have been designated for trading in the PORTAL
market, there has been no public market for the
Old Notes and it is not currently anticipated
that an active public market for the Notes will
develop. The Company currently does not intend to
apply for the listing of the Notes on any
securities exchange or to seek approval for
quotation through any automated quotation system.
Although the Initial Purchasers have informed the
Company that they currently intend to
9
<PAGE>
make a market in the Notes, they are not
obligated to do so and any such market making may
be discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Notes. See "Risk Factors--Absence of Public
Market for the Notes" and "Plan of Distribution."
For additional information regarding the Notes, see "Description of the
Notes" and "Certain United States Federal Income Tax Considerations."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Notes
pursuant to this Prospectus. See "Use of Proceeds."
RISK FACTORS
An investment in the Notes involves a high degree of risk. Prospective
investors should carefully consider the matters set forth under "Risk Factors"
beginning on page 15. Investors should also consider that since its inception,
the Company has incurred substantial operating losses and negative cash flows.
Furthermore, the Company's future capital requirements are expected to be
substantial. The Company anticipates having substantial negative cash flow for
at least the next several years, as well as a net loss in 1997 and 1998, as the
Company services its indebtedness (including the Notes), implements its
strategic plan of achieving national distribution for its national network
programming and funds its operations and general working capital needs,
including start-up RSNs. See "Management's Discussion and Analysis--Liquidity
and Capital Resources."
10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
In April 1996, Fox and Liberty entered into the Fox/Liberty Joint Venture,
pursuant to which the Company was formed as a holding company with ownership
interests in two principal business units: (i) a sports programming business,
consisting of interests in RSNs and a national sports programming service, and
(ii) FX, a general entertainment and sports programming network. Prior to the
formation of the Company, FX was operated as a division of Fox and the sports
programming business was operated as the domestic operations of Liberty Sports,
Inc., a subsidiary of Liberty.
The following tables set forth, for the periods presented and on the dates
indicated, summary historical and pro forma consolidated financial data derived
from the financial statements included elsewhere in this Prospectus. The
unaudited pro forma financial data for the Company gives effect to the Offering
(and the application of the net proceeds thereof), the Exchange Offer, the
Rainbow Transaction, borrowings under the Bank Facility (and the application of
the proceeds thereof) and other events as further described in footnote 1 to
this summary historical and pro forma consolidated financial data. The
information presented below should be read together with the historical
financial statements and pro forma financial information included elsewhere
herein. The pro forma information is not necessarily indicative of the actual
results of operations and financial position that would have been achieved had
the Rainbow Transaction been consummated as of the dates indicated, and are not
necessarily indicative of the future results of operations or financial
condition.
THE COMPANY
<TABLE>
<CAPTION>
NINE MONTHS PRO FORMA
EIGHT MONTHS ENDED PRO FORMA FOR THE NINE
ENDED SEPTEMBER 30, 1997 FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, 1996 (UNAUDITED) DECEMBER 31, 1996(1) SEPTEMBER 30, 1997(1)
----------------- ------------------ -------------------- ---------------------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 144,792 $327,258 $385,601 $357,171
Operating (loss) income. (92,769) (12,144) (68,419) (10,213)
Net (loss) income....... (117,149) (25,659) (196,909) (93,593)
OTHER DATA:
Programming revenues.... $ 85,288 $164,272 $174,958 $171,412
Net cash (used in)
provided by:
Operating activities.. (149,433) 14,311 -- --
Investing activities.. (49,542) (38,799) -- --
Financing activities.. (283,824) 25,181 -- --
Consolidated EBITDA (2)
(3).................... (84,262) 1,243 (46,516) 3,789
Annualized Restricted
Subsidiaries EBITDA
(4).................... 114,464 137,575 -- --
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------
ACTUAL PRO FORMA(1)
------------ ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................. $ 358,722 $ 359,668
Total assets................................ 1,809,405 1,929,723
Long-term debt (including current
maturities)................................ 1,220,240 1,340,558
Shareholders' equity........................ 205,069 205,069
</TABLE>
(notes to follow)
11
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) The pro forma information for the Company gives effect to the formation of
the Company, the Offering (and the application of the net proceeds
thereof), the Exchange Offer, the Rainbow Transaction and borrowings under
the Bank Facility (and the application of the proceeds thereof), as though
these events had occurred on January 1, 1996 (with respect to the Statement
of Operations and Other Data for the year ended December 31, 1996), on
January 1, 1997 (with respect to the Statement of Operations and Other Data
for the nine months ended September 30, 1997) and on September 30, 1997
(with respect to the Balance Sheet Data).
The pro forma information also gives effect to the impact on the results of
operations of the consolidation of Affiliated Regional Communications, Ltd.
("ARC Ltd.") and affiliates together with ARC Ltd., ("ARC") as of January
1, 1996 (with respect to the Statement of Operations and Other Data for the
year ended December 31, 1996) and as of January 1, 1997 (with respect to
the Statement of Operations and Other Data for the nine months ended
September 30, 1997). Upon formation of the Company in April 1996, Liberty
Sports, Inc., a subsidiary of Liberty, retained a minority controlling
interest in ARC and therefore the operations of ARC were not consolidated
with the Company for the eight month period ended December 31, 1996. On
March 13, 1997, upon the acquisition of the remaining interest in ARC by
Liberty/Fox ARC LP, the Company assumed management control of the
consolidated subsidiaries of Liberty/Fox ARC LP, and from that date the
consolidated subsidiaries of ARC and their operations were consolidated.
(2) The operating (loss) income and EBITDA for the Company, for the eight
months ended December 31, 1996 and on a pro forma basis for the year ended
December 31, 1996, include a one-time write down of $80 million related to
additional amortization recorded with respect to long term sports
programming rights contracts it holds with MLB. The Company generally
amortizes sports rights on an event by event basis, if for a specified
number of events, and over the course of the season on a straight line
basis, if for a specific season. At the inception of these sports rights
contracts, the Company evaluates the recoverability of the costs associated
therewith against the advertising revenues directly associated with the
program material. Where an evaluation indicates that a multi-year contract
will result in an ultimate loss, additional amortization is provided to
recognize that loss.
(3) EBITDA represents income from operations before interest, taxes,
depreciation and amortization (excluding amortization related to sports
programming rights contracts). EBITDA is presented because the Company
believes it is a standard financial statistic commonly reported and widely
used by analysts and other interested parties in the cable and television
industries. The Company believes that EBITDA, while providing a useful
financial statistic, should not be considered in isolation or as a
substitute for net income (loss), as an indicator of operating performance
or as an alternative to cash flow as a measure of liquidity.
(4) Restricted Subsidiaries EBITDA (as defined in the Indentures) represents
Consolidated Cash Flow (as defined in the Indentures) of the Company plus
cash distributions received from minority owned investments and investments
in Unrestricted Subsidiaries (as defined hereinafter). As the Company's
operations are seasonal, annualized Restricted Subsidiaries' EBITDA may not
be indicative of actual results.
12
<PAGE>
THE COMPANY
In April 1996, Fox and Liberty entered into the Fox/Liberty Joint Venture,
pursuant to which the Company was formed as a holding company with ownership
interests in two principal business units: (i) a sports programming business,
consisting of interests in RSNs and a national sports programming service, and
(ii) FX, a general entertainment and sports programming network. The Company's
interests in the sports programming business are derived through its 99%
ownership interests in Fox/Liberty Sports and Fox Sports RPP, and its interest
in FX is derived through its 99% ownership interest in Fox/Liberty FX. The
Company was formed to operate as the United States telecasting arm of a world-
wide sports alliance between News Corporation and TCI. In establishing the
Company, Fox contributed certain assets related to the operation of a regional
sports business and all of the assets and liabilities of FX. Liberty
contributed its interests in regional sports programming businesses (which
then operated under the name "Prime Sports"), interests in non-managed sports
businesses, satellite distribution services and technical facilities. See
"Business" and "Certain Transactions."
In December 1997, the Company consummated a transaction with Rainbow,
pursuant to which (i) Regional Programming Partners ("RPP") was formed to hold
interests in Rainbow's then existing RSNs and certain other businesses, (ii)
the National Sports Partnership was formed to operate FSN and other national
sports programming services, and (iii) the National Advertising Partnership
was formed to act as a national advertising sales representative for the RSNs
which are affiliated with FSN. RPP is managed by Rainbow, while the National
Sports Partnership and the National Advertising Partnership are managed by the
Company. In connection with the consummation of the Rainbow Transaction, (i)
the Company contributed $850 million to RPP in exchange for a 40% partnership
interest held by Fox Sports RPP and Rainbow contributed its interests in
certain RSNs, the Madison Square Garden entertainment complex, Radio City
Productions LLC, the New York Rangers, a professional hockey team, and the New
York Knicks, a professional basketball team, to RPP in exchange for a 60%
partnership interest, (ii) the parties each contributed certain business
interests and other assets related to national sports programming to the
National Sports Partnership in exchange for 50% partnership interests, and
(iii) the parties each contributed certain assets related to advertising sales
to the National Advertising Partnership in exchange for 50% partnership
interests. See "Certain Transactions--Rainbow Transaction."
RPP is principally comprised of Madison Square Garden, L.P. and the regional
SportsChannel companies reflected in the combined financial statements titled
"Regional SportsChannel Companies." There are no material changes to these
historical entities upon contribution to RPP. The National Sports Partnership
and the National Advertising Partnership were formed with various assets and
operations contributed by the Company and Rainbow and consequently, no
financial statements have been included for these partnerships.
For purposes of the Indentures, the Company's subsidiaries are divided into
a restricted group (the "Restricted Subsidiaries") and an unrestricted group
(the "Unrestricted Subsidiaries"). The operating entities of FSN and each of
the Chicago, San Francisco, Sunshine, Rocky Mountain, West 2, Detroit and
Arizona RSNs will comprise the initial Unrestricted Subsidiaries of the
Company.
The following chart shows the ownership structure of the Company and the
Company's interests in RSNs, FSN and FX, after giving effect to the
consummation of the Rainbow Transaction. For more detailed discussions of the
ownership structure of the Fox/Liberty Joint Venture, the Company's RSNs, FSN
and FX, see "Business," "Certain Transactions" and "Arrangements Regarding
Ownership Interests."
13
<PAGE>
LOGO
14
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should carefully review the following risk factors in
evaluating an investment in the Notes.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
As of September 30, 1997, after giving pro forma effect to the application
of the net proceeds of the Offering, the Exchange Offer, the Rainbow
Transaction and borrowings under the Bank Facility (and the application of the
proceeds thereof), the Company's total amount of debt outstanding would have
been $1.3 billion. In addition, after giving pro forma effect to the formation
of the Company, the Offering (and the application of the net proceeds
thereof), the Exchange Offer, the Rainbow Transaction and borrowings under the
Bank Facility (and the application of the proceeds thereof), for the year
ended December 31, 1996, the Company's deficiency of earnings available to
cover fixed charges and interest expense would have been $196.9 million and
$92.5 million, respectively. The Indentures permit the Company and its
subsidiaries to incur additional debt, subject to certain limitations. The
Company currently plans to finance future acquisitions with the incurrence of
additional debt, subject to the limitations set forth in the Indentures and
the Bank Facility. See "Capitalization," "Selected Historical and Pro Forma
Consolidated Financial Data" and "Description of the Notes--Certain
Covenants--Limitations on Incurrence of Debt." The Company is a holding
company and its ability to obtain funds from its subsidiaries and affiliates
could be limited. See "Risk Factors--Risks Associated with Holding Company
Structure" and "--Limitations on Control of Affiliated Companies."
The degree to which the Company is leveraged following the Exchange Offer
could have important consequences to Holders, including, but not limited to,
the following: (i) the Company's ability to obtain financing in the future for
working capital, capital expenditures or general corporate purposes may be
impaired; (ii) a substantial portion of cash flows from the operation of the
Company's subsidiaries will be dedicated to the payment of the principal of
and interest on its debt and will not be available for other purposes; and
(iii) certain of the Company's borrowings are at variable rates of interest,
which could result in higher interest expense in the event of increases in
interest rates. Further, the agreements governing the Company's long-term
debt, including the Indentures and the Bank Facility, contain certain
restrictive financial and operating covenants which do or will affect, and in
many respects significantly limit or prohibit, among other things, the ability
of the Company to incur indebtedness, make prepayments of certain
indebtedness, pay dividends, make investments, engage in transactions with
affiliates, create liens, sell assets and engage in mergers and
consolidations. These covenants may significantly limit the operating and
financial flexibility of the Company and may limit its ability to respond to
changes in its business or competitive activities. The failure by the Company
to comply with such covenants could result in an event of default under the
applicable instrument, which could permit acceleration of the debt under such
instrument and in some cases acceleration of debt under other instruments that
contain cross-default or cross-acceleration provisions. See "Description of
the Notes--Certain Covenants--Limitation on Indebtedness" and "--Events of
Default."
The Company holds its interests in RSNs through various limited liability
companies, general and limited partnerships and corporations in which the
Company and affiliates of Fox and Liberty hold direct and indirect interests.
Although the agreements between the Company and its partners contemplate the
payment of distributions, the Company may not be able to cause its
subsidiaries or affiliates to make distributions when it may have a need for
distributions, and the Company may not be able to dispose of its investments
in any of its RSNs if required for financial or other reasons. See "Risk
Factors--Limitations on Control of Affiliated Companies."
The Company's ability to make scheduled payments of principal of, or to pay
interest on or to refinance its debt (including the Notes) depends on its
future financial performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond its control. Based upon the Company's current level of
operations, management believes that available cash, together with the net
15
<PAGE>
proceeds of the Offering and available borrowings pursuant to the Bank
Facility, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments
of interest on its debt (including the Notes) for the foreseeable future.
There can be no assurance, however, that the Company's business will generate
sufficient cash flow from operations or that future working capital borrowings
will be available in an amount sufficient to enable the Company to service its
debt (including the Notes) or to make necessary capital expenditures or other
expenditures. Furthermore, there can be no assurance that the Company will be
able to raise additional capital for any such refinancing in the future. See
"Risk Factors--Potential Need for Additional Capital; Future Commitments" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Notes are being jointly issued by the Company and FLN, which are the
sole obligors thereunder. However, FLN has, and will have, no assets,
liabilities (other than the Notes) or operations of any kind, and the
Indentures prohibit FLN from engaging in any other business activities. As a
result, the Company will make all payments of principal, interest and premium
(if any) with respect to the Notes. The Notes will not be guaranteed by any of
the Company's subsidiaries or any third parties (including any affiliates of
the Company). Therefore, there should be no expectation that any person other
than the Company will in the future make payment of principal, interest or
premium (if any) with respect to the Notes. See "Description of the Notes."
POTENTIAL NEED FOR ADDITIONAL CAPITAL; FUTURE COMMITMENTS
The Company anticipates having substantial negative cash flow for at least
the next several years, as well as a net loss in 1997 and 1998, as the Company
services its indebtedness (including the Notes), implements its strategic plan
of achieving national distribution for its national network programming and
funds its operations and general working capital needs, including start-up
RSNs. Although the Company believes that the net proceeds from the Offering,
together with existing funds, operating cash flows from existing businesses
and the proceeds from borrowings under the Bank Facility, will be sufficient
to implement its plans to achieve national distribution, the Company may
require additional financing to service its indebtedness and fund its
operations and general working capital needs. There can be no assurance that
any such financing will be available at all or on terms acceptable to the
Company. In addition, the Company's ability to secure additional financing
will be limited by the terms of the Notes and the Bank Facility. Pursuant to
the terms of the Indentures, except for Permitted Indebtedness, the Company
may not, and may not permit any of its Restricted Subsidiaries to incur
Indebtedness unless, after giving effect to such Indebtedness, it is able to
meet a prescribed debt/cash flow ratio. See "Description of the Notes--Certain
Covenants." Additionally, the Bank Facility contains provisions which restrict
the Company's and all of its subsidiaries' ability to incur additional debt,
including indebtedness for borrowed money, obligations to purchase, redeem,
retire or otherwise acquire its capital stock and certain guarantee
obligations, subject to certain permitted exceptions. The inability to obtain
additional debt financing, if necessary, due to these restrictions or
otherwise, could impair the Company's ability to meet its obligations under
the Notes. Moreover, the requirement to service any additional debt financing
could also impair the Company's ability to meet its obligations under the
Notes.
The Company has ongoing capital expenditures related to the operation of its
businesses. Such expenditures will include payments under long-term
transponder leases and expenditures associated with a planned transition from
analog transponder equipment to digital transponder equipment. In addition,
the acquisition of programming rights to broadcast sports pursuant to rights
agreements requires a substantial capital investment over an extended period
of time. Keen competition for sports rights, together with increasing players'
salaries and other team expenses, has escalated the cost associated with the
acquisition of sports programming rights. There can be no assurance that the
Company will have sufficient capital available to compete for sports
programming rights.
RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE; STRUCTURAL SUBORDINATION OF
THE NOTES
The Company is a holding company and its assets consist solely of
investments in its subsidiaries and affiliates. As a holding company, the
Company's ability to meet its financial obligations, including its obligations
16
<PAGE>
under the Notes and the Bank Facility and its funding and other commitments to
its subsidiaries and affiliates, is dependent upon the earnings of such
subsidiaries and affiliates and the distribution or other payment of such
earnings to the Company in the form of dividend distributions, loans or other
advances, payment or reimbursement for management fees and expenses, and
repayment of loans and advances from the Company. Accordingly, the Company's
ability to pay interest on the Notes and to otherwise meet its liquidity
requirements may be limited as a result of its dependence upon the
distribution of earnings and advances of funds by its subsidiaries and
affiliates. The payment of dividends or the making of loans or advances to the
Company by its subsidiaries and its affiliates may be subject to statutory,
regulatory or contractual restrictions, are contingent upon the earnings of
those subsidiaries and affiliates, and are subject to various business
considerations. Moreover, the Company does not have voting control over
certain of the entities in which it has ownership interests and the Company
will have limited ability to cause such entities to make any funds available
to the Company, whether by dividends, advances, loans or other payments.
Certain of the Company's subsidiaries or affiliates are, or may in the future
be, subject to loan agreements that prohibit or limit the transfer of funds to
the Company in the form of dividends, loans, or advances and/or require that
any indebtedness of such subsidiaries or affiliates to the Company be
subordinate to the indebtedness under such loan agreements. The Company holds
its interests in RSNs through various limited liability companies, general and
limited partnerships and corporations in which the Company and affiliates of
Fox and Liberty hold direct and indirect interests. Although the agreements
between the Company and its partners contemplate the payment of distributions,
the Company may not be able to cause its subsidiaries or affiliates to make
distributions when it may have a need for distributions, and the Company may
not be able to dispose of its investments in any of its RSNs if required for
financial or other reasons. See "Risk Factors--Limitations on Control of
Affiliated Companies."
Other than the cash flows of certain of its consolidated subsidiaries, the
Company has no significant sources of cash flow. The Company anticipates,
therefore, that it will be dependent upon its current cash reserves, a portion
of the net proceeds from the sale of the Notes and borrowings under the Bank
Facility to meet its debt service and other liquidity requirements for the
foreseeable future. See "Risk Factors--Potential Need for Additional Capital;
Future Commitments." In order to obtain additional sources from which to meet
its debt service and other liquidity requirements, the Company may (i) seek
additional or other external financing, (ii) invest in companies that, in the
opinion of management, have a prospect of making cash flow available to the
Company and (iii) seek to cause certain of its subsidiaries or affiliates to
pay dividends or distributions to the Company. There can be no assurance,
however, that the Company will be able to successfully obtain additional
sources of funds through any of the foregoing means.
In addition, because the Company is a holding company, the Notes will be
effectively subordinated to all existing and future liabilities, including the
Bank Facility, and trade payables of the Company's subsidiaries, except to the
extent that the Company may itself be a creditor with recognized claims
against such subsidiary. Any right of the Company as an equity holder to
participate in the distribution of the assets of any subsidiary upon its
liquidation or reorganization will be subject to the prior claims of the
creditors (including trade creditors) of such subsidiary. As of September 30,
1997, after giving pro forma effect to the application of the net proceeds of
the Offering, the Exchange Offer, the Rainbow Transaction, and borrowings
under the Bank Facility (and the application of the proceeds thereof), the
Company and its subsidiaries would have had an aggregate of approximately $1.3
billion of indebtedness outstanding, including the Notes, of which $586
million would have been effectively senior to the Notes.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Following the occurrence of a Change of Control, each Holder will have the
right to require the Company to purchase all or a portion of such Holder's
Notes at a purchase price equal to (i) with respect to the Senior Notes, 101%
of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon to the date of purchase and (ii) with respect to the Senior Discount
Notes, 101% of the Accreted Value on the date of purchase (unless the date of
purchase is on or after the earlier to occur of August 15, 2002, or the Cash
Interest Election Date, in which case such purchase price shall be equal to
101% of the aggregate principal amount at maturity
17
<PAGE>
thereof, plus accrued and unpaid interest to the date of purchase). There can
be no assurance that the Company will have available funds sufficient to
purchase the Notes following a Change of Control. The inability of the Company
to effect a purchase of the Notes following a Change of Control could result
in an event of default under the Indentures, causing the principal, interest
and premium, if any, on the Notes to become immediately due and payable. See
"Description of the Notes." In addition, any Change of Control, and any
repurchase of the Notes required under the Indenture upon a Change of Control,
would constitute an event of default under the Bank Facility, with the result
that the borrowings thereunder could be declared due and payable.
POTENTIAL OF LOSS OR ESCALATING COSTS OF SPORTS RIGHTS; ATTAINABILITY OF
ADVERTISING RATE INCREASES
The Company's RSNs' sports rights contracts with professional sports teams
have varying maturities and renewal terms. As these contracts near expiration,
the Company's RSNs may seek to renew such contracts on favorable terms;
however, the Company's RSNs could be outbid for such rights contracts or the
renewal costs could substantially exceed the original contract cost. The loss
of rights could impact the extent of the Company's regional sports coverage,
which could adversely affect the Company's ability to sell national
advertising time and, in some cases, to maintain affiliate fees. In
anticipation of this, the Company's O&O RSNs, whenever possible, will
negotiate rights to match within its rights agreements and attempt to offset
increases in the cost of securing sports rights by increasing advertising
rates. See "Business--Regional Sports Networks--Affiliated Cable Systems and
Subscribers."
The Company's strategy is to offer national advertisers the opportunity to
advertise on a national basis via coordinated regional sports programming. The
Company anticipates that this strategy may allow it to capture increasingly
attractive advertising rates relative to other sports programmers. Should such
increases in advertising rates not materialize, be slow to materialize, or if
any escalation in sports programming rights costs is unmatched by increases in
advertising rates, then the Company's business, financial condition and
results of operations could be adversely affected. See "Business--Regional
Sports Networks--Advertising."
RELIANCE ON SPORTS BUSINESS
The Company's RSNs are dependent upon, and subject to certain risks
associated with, professional sports in general. The ratings of the Company's
RSNs and, to a lesser extent, FX are dependent upon the ability to telecast
live professional sports events. The inability to telecast such events could
materially adversely affect the Company's RSNs and FX. Disruptions in or
losses of telecasting rights could arise from the suspension of professional
sports events of a particular league due to labor unrest or the relocation of
a professional sports team from the market served by an RSN. In the event of a
disruption of the telecasting of live professional sports events, ratings and,
consequently, advertising revenues would be expected to decrease. Furthermore,
in any such case, advertisers may be entitled to receive credits or refunds
for prepaid advertising. There can be no assurance that, in the event of a
disruption of the telecasting of live professional sports events, the
Company's financial condition and results of operations would not be adversely
affected. See "Business--Regional Sports Networks--Advertising."
LIMITATIONS ON CONTROL OF AFFILIATED COMPANIES
The Company holds its interests in RSNs through various limited liability
companies, general and limited partnerships and corporations in which the
Company and affiliates of Fox and Liberty hold direct or indirect interests.
Many of the Company's interests in RSNs are held in partnership with
nonaffiliated third parties, including Rainbow. As a result of such
arrangements with third parties, the Company often will be unable to control
the operations, strategies and financial decisions of the companies in which
it has acquired, or will acquire, an economic interest without the concurrence
of one or more of its partners, this could result in limitations on the
Company's ability to implement strategies that the Company may favor, or to
cause dividends or distributions to be paid. The Company has limited abilities
to control the operations, strategies and financial
18
<PAGE>
decisions of RPP or the RSNs in which RPP holds interests, because an
affiliate of Rainbow serves as the managing partner of RPP, and RPP manages
the Rainbow RSNs interests, including RSNs which are jointly owned by
subsidiaries of the Company and RPP. Moreover, the ability of the Company to
sell its interest in many of its RSNs, including the RSNs owned jointly with
Rainbow, is subject to partnership or similar agreements that severely limit
the ability of the parties (including the Company) to transfer their equity
interests. Accordingly, although the agreements between the Company and its
partners contemplate the payment of distributions, the Company may not be able
to cause its subsidiaries or affiliates to make distributions when it may have
a need for such distributions, and the Company may not be able to timely
dispose of its investment in many of its RSNs if required for financial or
other reasons. See "Certain Transactions" and "Certain Arrangements Regarding
Ownership Interests."
DEPENDENCE UPON AFFILIATION AGREEMENTS
The Company is seeking to establish FSN as a national provider of sports
programming based upon a "broadcast network affiliate" model. To achieve this
strategic objective, FSN must maintain affiliation agreements with RSNs across
the country which reach a large percentage of cable subscribers through
distribution arrangements with cable system operators. Accordingly, the
Company's strategy is dependent upon the establishment and maintenance of
affiliation agreements with the RSNs and upon the maintenance by the Company's
RSNs of satisfactory contractual relations with Multiple System Operators
("MSOs") and local cable system operators. The loss of such arrangements could
reduce FSN's distribution, adversely affecting the Company's ability to sell
national advertising time. See "Business--Regional Sports Networks--Affiliated
Cable Systems and Subscribers" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
POTENTIAL CONFLICTS OF INTEREST WITH NEWS CORPORATION, TCI AND CABLEVISION;
STRATEGIC RELATIONSHIPS WITH NEWS CORPORATION AND CERTAIN OF ITS SUBSIDIARIES
AND AFFILIATES
Under agreements with the Company that were entered into in connection with
the formation of the Company, Fox, Liberty, and their respective affiliates
may provide certain technical, administrative, financial, treasury,
accounting, tax, legal and other services to the Company and may make
available certain of their respective employee benefit plans to officers and
other employees of the Company. To date, except as hereinafter disclosed, the
charges for any such services have been immaterial. In addition, Fox, Liberty,
and their respective affiliates, and the Company have entered into a number of
intercompany agreements covering matters such as lending arrangements, tax
sharing, and the use of certain trade names and service marks by the Company.
The terms of many of these agreements were not the result of arms' length
negotiations. Accordingly, there is no assurance that the terms and conditions
of these agreements are as favorable to the Company as those that might be
obtained from unaffiliated third parties. Conflicts could arise in the
interpretation, extension or renegotiation of the foregoing agreements. See
"Business," "Management" and "Certain Transactions."
The Company, News Corporation, TCI and Cablevision, through their respective
subsidiaries and affiliates, each own or have interests in television
programming entities. The presence of all such companies in the television
programming business could give rise to potential conflicts of interest
between them, including conflicts which may arise with respect to business
dealings between them and when more than one of them may be pursuing the same
business opportunity. Although News Corporation and TCI have agreed to conduct
all of their future cable television sports programming activities in the
United States through the Company so long as they both maintain their
interests therein, Cablevision is not contractually obligated to do so, and
such arrangements between News Corporation and TCI may be waived or modified
at any time without the Company's consent.
The Company has had, and continues to have, a close strategic relationship
with News Corporation and certain of its subsidiaries and affiliates,
including Fox Broadcasting Company ("Fox Broadcasting"), and believes that
this relationship is materially important to its business and business
strategies. However, except as
19
<PAGE>
may be provided in the agreements between them, or in the agreements between
News Corporation and TCI, or their respective subsidiaries or affiliates,
which are discussed elsewhere in this Prospectus, neither News Corporation or
its subsidiaries and affiliates, nor the Company are obligated to engage in
any business transactions or jointly participate in any opportunities with the
other, and the possibility exists that the current strategic relationships
between the parties could materially change in the future. See "Certain
Transactions."
DEPENDENCE UPON SATELLITES
The Company's business depends upon the launch and operation of satellites
by third parties. Upon consummation of the Rainbow Transaction, the Company
will lease 20 full-time transponders. Fifteen of the 20 transponders, with
leases expiring between 1998 and 2005, are used by its domestic sports
networks. Of these 15 transponders, 11 are on Satcom C-1, with six leases
direct from GE Americom ("GE"), three leases from GE via a WTCI sublease, one
lease from GE via a Fox Broadcasting sublease, and one lease from GE via a
Keystone/Globecast sublease. With respect to the remaining four full-time
domestic sports transponders, three are also leased from GE (one on GE-1, one
on Satcom C-3 and one on SpaceNet 3) and one from Primestar on its Ku-band
service. The remaining five of the 20 transponders are used by entities other
than the Company's domestic sports networks. Of these five transponders, one
is leased from GE on SpaceNet 3 and subleased to Fox Sports International,
three are leased from PanAmSat Corporation on the Hughes Galaxy VII satellite
and one is leased from Broadcast Development, Inc. on the Hughes Galaxy VII
satellite. FX uses two of these transponders and two are subleased to each of
Fox News Channel and FXM (both cable programming servicers affiliated with
Fox). See "Certain Transactions."
Commencing in 1998, the Company intends to digitally compress its
transmissions to three of the four transponders on Galaxy VII and to one of
the Satcom C-3 transponders. This will improve signal quality and programming
flexibility and significant cost savings are expected to result from such
transponder consolidation (i.e., moving from 20 transponders to 4
transponders).
Satellites are subject to significant risks that may prevent or impair
proper commercial operations, including satellite defects, launch failure,
destruction and damage and incorrect orbital placement. Because the Company's
primary satellites (Galaxy VII and Satcom C-1) are already in orbit, the
Company does not expect to face any significant launch risks over the medium
term. In 2006, which is the projected end of useful life for Galaxy VII, the
Company might again face satellite launch risk, depending on the selected
transponder migration plans at that time. Failure or disruption of satellites
that are already operational, such as Satcom C-1 and Galaxy VII, could have a
material adverse effect on the Company. The Satcom C-1 transponder leases have
minimal back-up in the event of transponder or satellite failure, and the
Company would have to rely on spare transponder capacity (available internally
as well as via third parties) and alternative program scheduling methods in
the event of loss of one or more Satcom C-1 transponders. The Galaxy VII and
Satcom C-3 transponder leases are "protected," in that these leases provide
for transmission on a back-up satellite should a serious transmission or
reception fault occur. With the full implementation of the Company's digital
compression plans during 1998-1999, all of the Company's services will be
either on Galaxy VII or Satcom C-3 and, thus "protected."
RISK OF COMPETITION
The business of distributing programming for cable television is highly
competitive. The Company's RSNs and FX compete with other programmers for
carriage of their programs on a limited number of channels. When such
distribution is obtained, the programming distributed by the Company's RSNs
and FX compete, in varying degrees, for viewers and advertisers with other
cable and over-the-air broadcast television programming services as well as
with other entertainment media. The Company's management believes that
important competitive factors include the prices charged for programming, the
quantity, quality and variety of the programming offered and the effectiveness
of marketing efforts. In addition to competing for cable distribution, viewers
and advertisers, the Company's RSNs and FX compete, in varying degrees, for
product with other programming companies that distribute similar types of
programs. Many of the Company's competitors and potential competitors have
greater financial resources than the Company.
20
<PAGE>
The Company is the only cable network distributing a full range of sports
programming on both a national and regional level. If another full service
network targeting national and regional sports were to become available, it
could have a material adverse effect on the Company. The Company believes that
it is unlikely that another programming service would attempt to establish
such a full service network; however, certain technological advances that
allow programming services to offer more than one feed of their programming to
cable systems may make this form of competition more likely. Although there
can be no assurance, the Company believes that it will be able to compete
effectively against other programming services distributing sports programming
because of its long-term professional home-team sports programming rights
contracts and its affiliation agreements with MSOs and local cable system
operators.
It is expected that certain other technological advances will eventually
allow cable systems to greatly expand existing channel capacity. Such
expansion may lead to increased competition from existing or new programming
services. See "Business--Competition."
POTENTIAL ADVERSE IMPACT OF REGULATION
The United States Congress and the Federal Communications Commission (the
"FCC") currently have under consideration, and may in the future consider and
adopt, new laws, regulations and policies regarding a wide variety of matters
that may affect, directly or indirectly, the operation, ownership and
profitability of the Company's business. These proposed changes include, for
example, the imposition of closed captioning obligations, expansion of program
access requirements and potential must-carry rights for digital television
broadcast stations (which could limit the capacity of multichannel video
programming distributors available for the Company's programming). Cable
systems are subject to regulation at the state and/or local level. State
and/or local authorities could adopt laws or regulations in this area that
could further restrict the operations of the Company. It is impossible to
predict the outcome of federal legislation currently under consideration or
the potential effect thereof on the Company's business. See "Business--
Regulation and Legislation."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will constitute new issues of securities for which there is no
established public trading market. Although the Old Notes are eligible for
trading on PORTAL, the Company does not intend to apply for listing of the
Notes on a national securities exchange or quotation of the Notes on any
automated quotation system. The Initial Purchasers have advised the Company
that they currently intend to make a market in the Notes, although the Initial
Purchasers are not obligated to do so, and any such market making with respect
to the Notes, may be discontinued at any time without notice. Accordingly,
there can be no assurance as to the development or liquidity of any market
that may develop for the Notes, the ability of the holders of the Notes to
sell their Notes or the price at which such holders would be able to sell
their Notes. If a market were to exist, the Notes could trade at prices that
may be lower than the initial offering price thereof, depending on many
factors, including prevailing interest rates and the markets for similar
securities, general economic conditions and the financial condition and
performance of, and prospects for, the Company. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
The Notes will be issued in exchange for Old Notes only after timely receipt
by the Exchange Agent of such Old Notes or a book-entry confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC,
including an Agent's Message (as defined under "The Exchange Offer--
Procedures for Tendering") if the tendering Holder does not deliver a Letter
of Transmittal, a properly completed and duly executed Letter of Transmittal,
or, in the case of book-entry transfer, an Agent's Message (as defined herein)
in lieu of the Letter of Transmittal, including all other documents required
by such Letter of Transmittal. Therefore, Holders of Old Notes desiring to
tender such Old Notes in exchange for Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Company is under
any duty to give notification of defects or irregularities with respect to
tenders of Old Notes for exchange. Old Notes that are not tendered or are
21
<PAGE>
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof (as
set forth in the legend thereon) as a consequence of the issuance of the Old
Notes pursuant to exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state laws or
pursuant to an exemption therefrom. Subject to the obligation by the Company
to file a shelf registration statement covering resales of Old Notes in
certain limited circumstances, the Company does not intend to register the Old
Notes under the Securities Act and, after consummation of the Exchange Offer,
will not be obligated to do so. Upon consummation of the Exchange Offer,
certain rights under the Registration Rights Agreement, including registration
rights and the rights to receive the contingent increases in interest rates,
will terminate, except under certain limited circumstances. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Notes will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer who holds Old Notes
acquired for its own account as a result of market-making or other trading
activities and who receives Notes for its own account in exchange for
activities and who receives Notes for its own account in exchange for such Old
Notes pursuant to the Exchange Offer, must acknowledge that it will deliver a
prospectus in connection with any resale of such Notes. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected
due to the limited amount, or "float," of the Old Notes that are expected to
remain outstanding following the Exchange Offer. Generally, a lower "float" of
a security could result in less demand to purchase such security and could,
therefore, result in lower prices for such security. For the same reason, to
the extent that a large amount of Old Notes are not tendered or are tendered
and not accepted in the Exchange Offer, the trading market for the Notes could
be adversely affected. See "The Exchange Offer."
22
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is designed to provide Holders of Old Notes with an
opportunity to acquire Notes which, unlike the Old Notes, will be freely
tradable at all times, subject to any restrictions on transfer imposed by
state "blue sky" laws and provided that the Holder is not an affiliate of the
Company within the meaning of the Securities Act and represents that the Notes
are being acquired in the ordinary course of such Holder's business and the
Holder is not engaged in, and does not intend to engage in a distribution of
the Notes. The outstanding Old Senior Notes in the aggregate principal amount
at maturity of $500,000,000 and Old Senior Discount Notes in the aggregate
principal amount at maturity of $405,000,000 were originally issued and sold
on August 25, 1997 (the "Issue Date"). The original sale to the Initial
Purchasers was not registered under the Securities Act in reliance upon the
exemption provided by Section 4(2) of the Securities Act and the concurrent
resale of the Old Notes to investors was not registered under the Securities
Act in reliance upon the exemption provided by Rule 144A promulgated under the
Securities Act. The Old Notes may not be reoffered, resold or transferred
other than pursuant to a registration statement filed pursuant to the
Securities Act or unless an exemption from the registration requirements of
the Securities Act is available. Pursuant to Rule 144 promulgated under the
Securities Act, the Old Notes may generally be resold (a) commencing one year
after the Issue Date, in an amount up to, for any three-month period, the
greater of 1% of the Old Notes then outstanding or the average weekly trading
volume of the Old Notes during the four calendar weeks immediately preceding
the filing of the required notice of sale with the Commission and (b)
commencing two years after the Issue Date, in any amount and otherwise without
restriction by a Holder who is not, and has not been for the preceding 90
days, an affiliate of the Company. The Old Notes are eligible for trading in
the PORTAL Market, and may be resold to certain Qualified Institutional Buyers
pursuant to Rule 144A promulgated under the Securities Act. Certain other
exemptions may also be available under other provisions of the federal
securities laws for the resale of the Old Notes.
In connection with the original issue and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, pursuant to which it agreed to
file with the Commission a registration statement covering the exchange by the
Company of the Notes for the Old Notes (the "Registration Statement"). The
Registration Rights Agreement provides that (i) the Company will file the
Registration Statement with the Commission on or prior to October 24, 1997,
(ii) the Company will use its best efforts to cause the Registration Statement
to become effective under the Securities Act on or prior to December 23, 1997
and to effect the Exchange Offer before January 22, 1998, (iii) if the
Exchange Offer is not effected before January 22, 1998, or if certain holders
of the Old Notes notify the Company they are not permitted to participate in,
or would not receive freely tradeable Notes pursuant to the Exchange Offer,
the Company will use its best efforts to cause to become effective a
registration statement (the "Shelf Registration Statement") with respect to
the resale of the Old Notes and to keep the Shelf Registration Statement
effective until up to two years after the effective date thereof, or such
shorter period as the Old Notes may become eligible for sale to the public
without volume or manner of sale restrictions under Rule 144(k) promulgated
under the Securities and Exchange Act of 1934, as amended.
If (i) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (ii) any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (iii) the Exchange Offer is required to be
consummated under the Registration Rights Agreement and the Company fails to
issue Notes in exchange for all Old Notes properly tendered and not withdrawn
in the Exchange Offer within 45 days of the Effectiveness Target Date with
respect to the Registration Statement, or (iv) the Shelf Registration
Statement or the Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with the Exchange Offer or
resales of Transfer Restricted Notes, as the case may be, during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (i) through (iv) above, a "Registration Default"), then the Company
shall pay as liquidated damages additional interest ("Additional Interest") on
the Notes as to which the Registration Default exists as set forth herein. If
a
23
<PAGE>
Registration Default exists with respect to the Senior Notes (or with respect
to the Senior Discount Notes if it occurs after the Cash Interest Election
Date), the interest rate on such Transfer Restricted Notes will increase, with
respect to the first 90-day period (or portion thereof) while a Registration
Default is continuing immediately following the occurrence of such
Registration Default, .25% per annum, such interest rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day period
(or portion thereof) while a Registration Default is continuing until all
Registration Defaults have been cured, up to a maximum rate of Additional
Interest of 1.00% per annum. If a Registration Default exists with respect to
the Senior Discount Notes prior to the Cash Interest Election Date, the
Company will make cash payments of Additional Interest on each interest
payment date on the Senior Discount Notes which are Transfer Restricted Notes
at the rates set forth in the preceding sentence multiplied by the Accreted
Value of the Senior Discount Notes as of the interest payment date on which
such payment is made. Upon (w) the filing of the applicable registration
statement (in the case of clause (i) of the preceding sentence), (x) the
effectiveness of the applicable registration statement (in the case of clause
(ii) of the preceding sentence), (y) the issuance of Notes in exchange for all
Old Notes properly tendered and not withdrawn in the Exchange Offer (in the
case of clause (iii) of the preceding sentence) or (z) the effectiveness of
the Registration Statement or the Shelf Registration Statement, as the case
may be, which had ceased to be effective (in the case of clause (iv) of the
preceding sentence), Additional Interest as a result of the Registration
Default described in such clause shall cease to accrue (but any accrued amount
shall be payable) and the interest rate on the Notes will revert to the
original rate if no other Registration Default has occurred and is continuing.
Except under certain limited circumstances, registration rights and the right
to receive Additional Interest will terminate upon consummation of the
Exchange Offer.
For purposes of the foregoing, "Transfer Restricted Notes" means each Old
Note until (i) the date on which such Old Note has been exchanged by a person
other than a broker-dealer referred to in (ii) below for a Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of an Old Note for a Note, the date on which such Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, as amended or supplemented, (iii) the date on which such Old Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, (iv) the date on which such
Old Note is eligible for distribution to the public pursuant to Rule 144(k)
promulgated under the Securities Act (or any similar provision then in force,
but not Rule 144A promulgated under the Securities Act), (v) the date on which
such Old Note shall have been otherwise transferred by the holder-thereof and
a Note not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of such Note shall not
require registration or qualification under the Securities Act or any similar
state law then in force or (vi) such Note ceases to be outstanding.
Under existing interpretations by the Staff of the Commission as set forth
in no-action letters issued to third parties in other transactions, the Notes
would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided, however, that in the
case of broker-dealers participating in the Exchange Offer, a prospectus
meeting the requirements of the Securities Act must be delivered by such
broker-dealers in connection with resales of the Notes. The Company has
agreed, for a period of 90 days after consummation of the Exchange Offer, to
make available a prospectus meeting the requirements of the Securities Act to
any such broker-dealer for use in connection with any resale of any Notes
acquired in the Exchange Offer. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Registration Rights Agreement (including
certain indemnification rights and obligations). Any broker-dealer who is an
affiliate of the Company may not participate in the Exchange Offer and may not
rely on the no-action letters referred to above and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 P.M., New York
24
<PAGE>
City time, on the Expiration Date. Subject to the minimum denomination
requirements of the Notes, the Notes are being offered in exchange for a like
principal amount of Old Notes. Old Notes may be exchanged only in integral
multiples of $1,000 principal amount at maturity. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer.
The form and terms of the Notes will be identical in all material respects
to the form and terms of the Old Notes except that (i) the Notes will be
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) Holders of the Notes will not be
entitled to certain rights of Holders of Old Notes under the Registration
Rights Agreement. The Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indentures. The Notes will be treated
as a single class under the Indentures with any Old Notes that remain
outstanding. The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for exchange.
As of December , 1997, $500,000,000 aggregate principal amount of Old
Senior Notes were outstanding and $405,000,000 aggregate principal amount at
maturity of Old Senior Discount Notes were outstanding. This Prospectus, the
Letter of Transmittal and Notice of Guaranteed Delivery are being sent to all
registered Holders of Old Notes as of December 24. Tendering Holders will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain transfer taxes which may be imposed,
in connection with the Exchange Offer. See "--Payment of Expenses."
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Exchange Offer will expire at 5:00 P.M., New York City time, on ,
1998 (20 Business Days following the date notice of the Exchange Offer was
mailed to the Holders). The Company reserves the right to extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the time and date on which the Exchange Offer as so extended shall expire. The
Company shall notify the Exchange Agent of any extension by oral or written
notice and shall mail to the registered Holders of Old Notes an announcement
thereof, each prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company reserves the right to extend or terminate the Exchange Offer and
not accept for exchange any Old Notes if any of the events set forth below
under the caption "Conditions to the Exchange Offer" occur and are not waived
by the Company, by giving oral or written notice of such delay or termination
to the Exchange Agent. See "--Conditions to the Exchange Offer." The rights
reserved by the Company in this paragraph are in addition to the Company's
rights set forth below under the caption "--Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a Holder thereof pursuant to one
of the procedures set forth below and the acceptance thereof by the Company
will constitute an agreement between such Holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
Except as set forth below, a Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit an Agent's Message (as
defined below) or a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the
25
<PAGE>
address set forth below under "Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if such procedure is available, into the Exchange Agent's account
at DTC pursuant to the procedure of book-entry transfer described below, must
be received by the Exchange Agent prior to the Expiration Date, or (iii) the
Holder must comply with the guaranteed delivery procedures described below.
LETTERS OF TRANSMITTAL AND OLD NOTES SHOULD NOT BE SENT TO THE COMPANY.
The term "Agent's Message" means a message, transmitted by DTC to and
received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgement
from the tendering participant, which acknowledgment states that such
participant has received and agrees to be bound by the Letter of Transmittal
and that the Company may enforce such Letter of Transmittal against such
participant.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old
Notes who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of any firm
that is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. (the "NASD") or a
commercial bank or trust company having an office in the United States (an
"Eligible Institution"). In the event that signatures on a Letter of
Transmittal are required to be guaranteed, such guarantee must be by an
Eligible Institution.
The method of delivery of Old Notes and other documents to the Exchange
Agent is at the election and risk of the Holder, but if delivery is by mail it
is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent before the Expiration
Date.
If the Letter of Transmittal is signed by a person other than a registered
Holder of any Old Note tendered therewith, such Old Note must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name of the registered Holder appears on the Old Note.
If the Letter of Transmittal or any Old Note or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
the Company shall determine. Neither the Company nor the Exchange Agent shall
be under any duty to give notification of defects in such tenders or shall
incur liabilities for failure to give such notification. Tenders of Old Notes
will not be deemed to have been made until such irregularities have been cured
or waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering Holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
The Company's acceptance for exchange of Old Notes tendered pursuant to the
Exchange Offer will constitute a binding agreement between the tendering
person and the Company upon the terms and subject to the conditions of the
Exchange Offer.
26
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus, and any financial institution that is
a participant in DTC's book-entry transfer facility systems may make book-
entry delivery of Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the DTC, an Agent's
Message or a duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, must in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under the caption "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes, or a Book-
Entry Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery (as well
as a copy of this Prospectus and the Letter of Transmittal) will be sent to
Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or
amend the Exchange Offer, if any of the following conditions have occurred or
exists or have not been satisfied:
(a) there shall occur a change in the current interpretation by the staff
of the Commission which permits the Notes issued pursuant to the Exchange
Offer in exchange for Old Notes to be offered for resale, resold and
otherwise transferred by Holders thereof (other than broker-dealers and any
such Holder which is an "affiliate" of the Company within the meaning of
Rule 405 promulgated under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided
27
<PAGE>
that such Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement or understanding with any
person to participate in the distribution of such Notes; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of the Company would reasonably be expected
to impair its ability to proceed with the Exchange Offer; or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement, or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose, or any governmental approval has
not been obtained, which approval the Company shall, in its sole
discretion, deem necessary for the consummation of the Exchange Offer as
contemplated hereby; or
(d) the Company shall receive an opinion of counsel experienced in such
matters to the effect that there exists any actual or threatened legal
impediment (including a default or prospective default under an agreement,
indenture or other instrument or obligation to which the Company is a party
or by which it is bound) to the consummation of the transactions
contemplated by the Exchange Offer.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, it may, subject to applicable law, terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) or
may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver
or amendment by means of a prospectus supplement that will be distributed to
the registered Holders of the Old Notes and will extend the Exchange Offer to
the extent required by Rule 14e-1 promulgated under the Exchange Act.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its reasonable discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept all Old Notes validly tendered and not withdrawn prior to
5:00 P.M., New York City time, on the Expiration Date. The Company will
deliver Notes in exchange for Old Notes promptly following the Expiration
Date.
Subject to the conditions set forth under the caption "--Conditions to the
Exchange Offer," delivery of Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for Old Notes or a Book-
Entry Confirmation of a book-entry transfer of Old Notes into the Exchange
Agent's account at DTC, including an Agent's Message if the tendering Holder
does not deliver a Letter of Transmittal, a completed Letter of Transmittal,
or, in the case of a book-entry transfer, an Agent's Message in lieu of the
Letter of Transmittal and any other documents required by such Letter of
Transmittal. Accordingly, the delivery of Notes might not be made to all
tendering Holders at the same time, and will depend upon when certificates for
Old Notes, Book-Entry Confirmations with respect to Old Notes and other
required documents are received by the Exchange Agent.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of such Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering
Holders for the purpose of receiving Old Notes, Letters of Transmittal and
related documents and transmitting Notes which will not be held in global form
by DTC or a nominee of DTC to validly tendered Holders. Such exchange will be
made promptly after the Expiration Date. If for any reason whatsoever,
acceptance for exchange or the exchange of any Old Notes tendered pursuant to
the Exchange Offer is delayed (whether before or after the Company's
acceptance for exchange of Old Notes) or the Company extends the
28
<PAGE>
Exchange Offer or is unable to accept for exchange or exchange tendered
pursuant to the Exchange Offer, then, without prejudice to the Company's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of
the Company and subject to Rule 14e-1(c) promulgated under the Exchange Act,
retain tendered Old Notes and such Old Notes may not be withdrawn except to
the extent tendering holders are entitled to withdrawal rights as described
under the caption "--Withdrawal Rights."
Pursuant to an Agent's Message or a Letter of Transmittal, a Holder of Old
Notes will represent, warrant and agree in the Letter of Transmittal that it
has full power and authority to tender, exchange, sell, assign and transfer
Old Notes, that the Company will acquire good, marketable and unencumbered
title to the tendered Old Notes, free and clear of all liens, restrictions,
charges and encumbrances, and the Old Notes tendered for exchange are not
subject to any adverse claims or proxies. The Holder also will warrant and
agree that it will, upon request, execute and deliver any additional documents
deemed by the Company or the Exchange Agent to be necessary or desirable to
complete the exchange, sale, assignment, and transfer of the Old Notes
tendered pursuant to the Exchange Offer.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, at the Company's
expense, to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under the
caption "--Exchange Agent." Any such notice of withdrawal must specify the
name of the person having tendered the Old Notes to be withdrawn, identify the
Old Notes to be withdrawn (including the principal amount of such Old Notes),
and (where certificates for Old Notes have been transmitted) specify the name
in which such Old Notes are registered, if different from that of the
withdrawing Holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with DTC for the Old Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described above under the caption "--Procedures for
Tendering" above at any time on or prior to the Expiration Date.
29
<PAGE>
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All correspondence in connection with the Exchange Offer and the Letter
of Transmittal should be addressed to the Exchange Agent as follows:
By Registered or Certified Mail, or
Hand Delivery or Overnight Courier
101 Barclay Street
Reorganization Section/7E
New York, New York 10286
Facsimile Transmission:
(212) 815-6339
Confirm by Telephone:
(212) 815-3738
Requests for additional copies of the Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
PAYMENT OF EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company, however, will pay reasonable and customary fees and reasonable out-
of-pocket expenses to the Exchange Agent in connection therewith. The Company
will also pay the cash expenses to be incurred in connection with the Exchange
Offer, including accounting, legal, printing, and related fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
Upon consummation of the Exchange Offer, certain rights under the
Registration Rights Agreement, including registration rights and the right to
receive the contingent increases in interest rate, will terminate. The Old
Notes that are not exchanged for Notes pursuant to the Exchange Offer will
remain restricted securities within the meaning of Rule 144 promulgated under
the Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Company or any subsidiary thereof, (ii) to a qualified institutional buyer in
compliance with Rule 144A promulgated under the Securities Act, (iii) to an
institutional accredited investor that, prior to such transfer, furnishes to
the Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Old Notes (the form of which
letter can be obtained from the Trustee) and, if such transfer is in respect
of an aggregate principal amount of Old Notes in the time of transfer of less
than $100,000, an opinion of counsel acceptable to the Company that such
transfer is in compliance with the Securities Act, (iv) pursuant to the
exemption from registration provided by Rule 144 promulgated under the
Securities Act (if available) or (v) pursuant to an effective registration
statement under the Securities Act. The liquidity of the Old Notes could be
adversely affected by the Exchange Offer. See "Risk Factors--Consequences of
Failure to Exchange."
ACCOUNTING TREATMENT
The Notes will be recorded at the same carrying value as the Old Notes, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized. See
"Certain United States Federal Income Tax Considerations."
30
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Notes in the Exchange
Offer. In consideration for issuing the Notes as contemplated in this
Prospectus, the Company will receive Old Notes in like principal amount. The
form and terms of the Notes are identical in all material respects to the form
and terms of the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes and except for certain
provisions providing for an increase in the interest rate on the Old Notes
under certain circumstances relating to the timing of the Exchange Offer. The
Old Notes surrendered in exchange for the Notes will be retired and canceled
and cannot be reissued. Accordingly, issuance of the Notes will not result in
any increase in the outstanding debt of the Company.
The net proceeds to the Company from the Offering were $489.2 million with
respect to the Old Senior Notes and $245.2 million with respect to the Old
Senior Discount Notes, in each case, after deducting selling discounts,
commissions and estimated offering expenses. On August 25, 1997, such net
proceeds were deposited with the Senior Notes Deposit Agent and the Senior
Discount Notes Deposit Agent, respectively, and were being held by each
Deposit Agent in accordance with the applicable Deposit Agreement, to fund an
offer to purchase the Notes if the Rainbow Transaction was not consummated by
December 30, 1997. Upon consummation of the Rainbow Transaction, the amounts
held on deposit were released to the Company. The Company used a portion of
such released amounts, along with available proceeds under the Bank Facility,
to fund the Company's cash contribution of $850.0 million to RPP upon the
consummation of the Rainbow Transaction, and currently intends to use the
remaining net proceeds, along with available proceeds under the Bank Facility,
to repay certain existing indebtedness and for general corporate purposes.
With respect to certain outstanding indebtedness, the Company anticipates that
it will: (i) repay in full approximately $13.0 million of outstanding
indebtedness under a revolving credit facility with Toronto Dominion Bank (the
"South RSN--Revolving Credit Facility"); (ii) repay in full approximately
$65.3 million of indebtedness incurred in connection with the Company's
acquisition of an additional ownership interest in the South RSN (the "South
RSN--Note Payable"); and (iii) repay $1.7 million of other indebtedness
incurred in connection with the cancellation of an advertising sales
representation agreement.
Certain information regarding outstanding principal amounts and interest
with respect to the indebtedness to be repaid is set forth below:
<TABLE>
<CAPTION>
INTEREST RATE
(AS OF
PRINCIPAL AMOUNT SEPTEMBER 30,
LENDER OUTSTANDING 1997)(/1/)
- ------ ---------------- -------------
<S> <C> <C> <C>
South RSN--Revolving Credit Facility............. $13,000,000 LIBOR+ 0.625%
South RSN--Note Payable.......................... 65,334,146 7.500%
Other Indebtedness............................... 1,720,000 8.500%
-----------
Total............................................ $80,054,146
===========
</TABLE>
- --------
(1) Margin rates above LIBOR may vary depending on certain leverage ratios of
borrower.
31
<PAGE>
CAPITALIZATION
The following table sets forth, on an unaudited basis, the capitalization of
the Company as of September 30, 1997, (i) on a historical basis and (ii) pro
forma as adjusted to reflect the application of the net proceeds of the
Offering, the Exchange Offer, the Rainbow Transaction and borrowings under the
Bank Facility (and the application of the proceeds thereof). This table should
be read in conjunction with the Selected Consolidated Financial Data, the
Company's audited and unaudited Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
(DOLLARS IN THOUSANDS)
PRO FORMA AS ADJUSTED
---------------------
SUBSEQUENT TO THE
RAINBOW
ACTUAL CONSUMMATION(1)
---------- ---------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS...................... $ 92,813 $ 93,759
========== ==========
RESTRICTED CASH(2)............................. $ 738,039 $ --
========== ==========
SHORT-TERM DEBT................................ $ 373,667 $ 7,619
========== ==========
LONG-TERM DEBT
South RSN--Note Payable...................... $ 65,334 $ --
Bank Facility(3)............................. -- 560,372
Senior Notes................................. 500,000 500,000
Senior Discount Notes(4)..................... 254,628 254,628
Other........................................ 26,611 17,939
---------- ----------
Total long-term debt..................... 846,573 1,332,939
MINORITY INTEREST.............................. 952 952
SHAREHOLDERS' EQUITY........................... 205,069 205,069
---------- ----------
TOTAL CAPITALIZATION..................... $1,426,261 $1,546,579
========== ==========
</TABLE>
- --------
(1) The "Pro Forma As Adjusted--Subsequent to the Rainbow Consummation" column
represents the pro forma capitalization of the Company, as adjusted to
give effect to the application of the net proceeds of the Offering upon
the release of the deposited funds, the Exchange Offer, repayment of
outstanding debt and application of $560 million of borrowings under the
Bank Facility.
(2) Pending the occurrence of the Rainbow Transaction, the net proceeds from
the Offering were held by the Deposit Agents in separate accounts, and
pledged to the Deposit Agents as security for the Notes.
(3) In connection with the Rainbow Transaction, the Company entered into the
Bank Facility which permits borrowings of up to $800 million therefrom, of
which approximately $560 million was drawn prior to or upon consummation
of the Rainbow Transaction. See "Description of Bank Facility."
(4) Reflects gross proceeds from the issuance of the Old Senior Discount Notes
plus the accreted value since issuance.
32
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1996 reflects, on a consolidated basis, the
results of operations of the Company (and its predecessor entities, Liberty
Sports, Inc.--Domestic Operations and Fox/Liberty FX) as if the formation of
the Company, the Offering (and the application of the net proceeds thereof),
the Exchange Offer, the Rainbow Transaction and borrowings under the Bank
Facility (and the application of the proceeds thereof) each had occurred as of
January 1, 1996. The unaudited pro forma consolidated statement of operations
for the nine month period ended September 30, 1997 reflects these same
transactions as if they had occurred as of January 1, 1997. The pro forma
information is based on the historical financial statements of the Company,
Liberty Sports, Inc.--Domestic Operations, Fox/Liberty FX, Madison Square
Garden, L.P. and the other Rainbow RSNs giving effect to the adjustments
described in the accompanying notes to the unaudited pro forma consolidated
financial statements.
The following unaudited pro forma consolidated balance sheet reflects the
Rainbow Transaction and the financing of the Rainbow Transaction as if they
had occurred as of September 30, 1997.
Included in the pro forma consolidated statement of operations for the year
ended December 31, 1996 are the consolidated statement of operations of the
Company for the eight month period ended December 31, 1996, the statement of
operations of Liberty Sports, Inc.--Domestic Operations for the period January
1, 1996 to April 29, 1996 and the statement of operations of Fox/Liberty FX
for the four month period ended April 29, 1996. The pro forma equity income of
RPP is derived from the financial statements of Madison Square Garden, LP and
the other Rainbow RSNs, included elsewhere herein, giving pro forma effect to
the Rainbow Transaction.
The pro forma consolidated financial statements have been prepared by the
Company's management based upon the financial statements of the Company,
Liberty Sports, Inc.--Domestic Operations and Fox/Liberty FX, included
elsewhere herein. These pro forma consolidated financial statements may not be
indicative of the results of operations or financial position that actually
would have occurred had the formation of the Company, the Offering (and the
application of the net proceeds thereof), the Exchange Offer, the Rainbow
Transaction and borrowings under the Bank Facility (and the application of the
proceeds thereof) occurred as of the dates indicated or which may be obtained
in the future. The pro forma consolidated financial statements should be read
in conjunction with the audited and unaudited financial statements and notes
thereto included elsewhere in this Prospectus.
33
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AS REPORTED
--------------------------------------------------------
LIBERTY SPORTS, INC.--
FOX/LIBERTY FX DOMESTIC OPERATIONS COMPANY
--------------- ---------------------- -----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1996 JANUARY 1, 1996 APRIL 30, 1996 LIBERTY/FOX
TO TO TO ARC LP PRO PRO FORMA PRO FORMA
APRIL 29, 1996 APRIL 29, 1996 DECEMBER 31, 1996 FORMA(C) ADJUSTMENTS CONSOLIDATED
--------------- ---------------------- ----------------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Programming............ $24,291 $37,484 $ 85,288 $27,895 $ -- $ 174,958
Advertising............ 8,287 27,696 37,685 9,598 -- 83,266
Direct Broadcast....... -- 23,709 5,711 57,319 -- 86,739
Network Support........ -- 2,471 -- -- -- 2,471
Infomercial............ 947 -- 4,261 1,763 -- 6,971
Merchandising.......... -- -- 5,077 -- -- 5,077
Other.................. -- 8,393 6,770 10,956 -- 26,119
------- ------- --------- ------- -------- ---------
Total revenues....... 33,525 99,753 144,792 107,531 -- 385,601
Expenses:
Operating.............. 26,220 60,664 197,445 73,074 -- 357,403
General and
administrative........ 7,941 27,993 31,609 7,171 -- 74,714
Depreciation and
amortization.......... 201 10,788 8,507 2,407 -- 21,903
------- ------- --------- ------- -------- ---------
Total expenses....... 34,362 99,445 237,561 82,652 -- 454,020
------- ------- --------- ------- -------- ---------
OPERATING (LOSS) INCOME. (837) 308 (92,769) 24,879 -- (68,419)
Other expenses (income):
Interest, net.......... 3,354 1,872 3,819 267 83,151 (a) 92,463
Subsidiaries' income
tax expense........... -- (217) 3,437 211 -- 3,431
Loss on sale of
assets................ -- -- 4,913 34 -- 4,947
Equity in income of
affiliates, net....... -- (219) (16,976) 22,417 (7,837)(b) (2,615)
Equity in loss of
affiliates related to
additional
amortization of
program rights........ -- -- 29,000 -- -- 29,000
Minority interest...... -- 1,076 187 1,468 -- 2,731
Other, net............. -- (1,467) -- -- -- (1,467)
------- ------- --------- ------- -------- ---------
NET LOSS................ $(4,191) $ (737) $(117,149) $ 482 $(75,314) $(196,909)
======= ======= ========= ======= ======== =========
</TABLE>
(notes to follow)
34
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMPANY LIBERTY/FOX ARC LP PRO FORMA PRO FORMA
AS REPORTED PRO FORMA(C) ADJUSTMENTS CONSOLIDATED
----------- ------------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
Programming........... $164,272 $ 7,140 $ -- $171,412
Advertising........... 73,949 3,763 -- 77,712
Direct broadcast...... 70,162 16,635 -- 86,797
Informercial.......... 11,273 495 -- 11,768
Other................. 7,602 1,880 -- 9,482
-------- ------- -------- --------
Total revenues...... 327,258 29,913 -- 357,171
Expenses:
Operating............. 281,192 25,942 -- 307,134
General and
administrative....... 44,823 1,425 -- 46,248
Depreciation and
amortization......... 13,387 615 -- 14,002
-------- ------- -------- --------
Total expenses...... 339,402 27,982 -- 367,384
-------- ------- -------- --------
OPERATING INCOME (LOSS). (12,144) 1,931 -- (10,213)
Other (income) expenses:
Interest, net......... 16,666 1,007 68,269(a) 85,942
Subsidiaries income
tax expense.......... 3,422 -- -- 3,422
Equity income in
affiliates, net...... (6,722) 1,850 (1,152)(b) (6,024)
Other................. (2,462) -- -- (2,462)
Minority interest..... 2,611 (109) -- 2,502
-------- ------- -------- --------
NET LOSS................ $(25,659) $ (817) $(67,117) $(93,593)
======== ======= ======== ========
</TABLE>
(notes to follow)
35
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS CONSOLIDATED
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 92,813 $ 946 (a) $ 93,759
Accounts receivable, net........... 163,813 -- 163,813
Receivables from affiliates........ 8,941 -- 8,941
Prepaid program rights............. 75,700 -- 75,700
Notes receivable, current.......... 1,990 -- 1,990
Prepaid expenses and other current
assets............................ 15,465 -- 15,465
---------- --------- ----------
Total current assets............. 358,722 946 359,668
Restricted cash...................... 738,039 (738,039)(a) --
Property and equipment, net.......... 53,064 -- 53,064
Investment in affiliates............. (1,104) 850,000(a)(b) 848,896
Note receivable, long term........... 11,790 -- 11,790
Program rights....................... 107,746 -- 107,746
Excess cost, net..................... 513,578 -- 513,578
Other assets......................... 27,570 7,411(a) 34,981
---------- --------- ----------
TOTAL ASSETS......................... $1,809,405 $ 120,318 $1,929,723
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expense........................... $ 235,949 $ -- $ 235,949
Program rights payable, current.... 12,794 -- 12,794
Current portion of long-term debt.. 373,667 (366,048)(a) 7,619
Accrued interest................... 937 -- 937
Other current liabilities.......... 9,042 -- 9,042
---------- --------- ----------
Total current liabilities........ 632,389 (366,048) 266,341
Non-current program rights payable... 124,422 -- 124,422
Long-term debt, net of current
portion............................. 846,573 486,366(a) 1,332,939
Minority interest.................... 952 -- 952
Commitments and contingencies........
Shareholders' equity................. 205,069 -- 205,069
---------- --------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.............................. $1,809,405 $ 120,318 $1,929,723
========== ========= ==========
</TABLE>
(notes to follow)
36
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) The Company issued $500 million of Old Senior Notes, $405 million
principal amount at maturity of Old Senior Discount Notes and intends to
borrow up to $800 million under the Bank Facility. The net proceeds from
the Offering were held on deposit until the consummation of the Rainbow
Transaction. At that time, those proceeds were released to the Company to
be used, along with the available proceeds under the Bank Facility, to
fund the Company's cash contribution due upon consummation of the Rainbow
Transaction, to repay certain existing indebtedness and for general
corporate purposes. See Note (b) below.
The pro forma interest charges for the year ended December 31, 1996 and the
nine months ended September 30, 1997 are $88.7 million and $88.6 million,
respectively, based on assumed interest rates of 6.5% for the Bank
Facility, 8.875% for the Senior Notes and 9.75% for the Senior Discount
Notes. A change of 100 basis points in such interest rate would change the
annual interest expense by approximately $1.3 million. The pro forma
adjustment to interest expense, net reflected in the Pro Forma Consolidated
Statement of Operations is net of interest on indebtedness existing during
the respective period which would be extinguished by the application of the
net proceeds from the Offering and the application of proceeds from
borrowings under the Bank Facility, and amounted to $8.2 million and $22.4
million for the year ended December 31, 1996 and the nine month period
ended September 30, 1997, respectively. In addition, estimated transaction
costs of $24 million amortized over the periods ended December 31, 1996 and
September 30, 1997 was $2.6 million and $2.1 million, respectively.
(b) In June 1997, the Company entered into an agreement with Rainbow, a
subsidiary of Cablevision, to acquire a 40% interest in Rainbow's sports
properties. Such properties include interests in the Rainbow RSNs (eight
RSNs in total), the Madison Square Garden entertainment complex, the New
York Rangers and the New York Knicks. Rainbow has a controlling interest
in seven of the Rainbow RSNs, two of which were partially owned by the
Company prior to the Rainbow Transaction.
The pro forma adjustments give effect at September 30, 1997 to the
Company's cash contribution of $850 million due upon consummation of the
Rainbow Transaction. The pro forma operating income for the periods ended
December 31, 1996 and September 30, 1997 include pro forma equity income
for RPP of $16.2 and $7.4 million, respectively, net of excess cost
amortization, of $8.4 and $6.3 million, respectively.
The pro forma adjustments assume that $781.0 million of the cash
contributed by the Company to RPP is used to repay the MSG debt outstanding
at September 30, 1997. There are limitations on the use of the cash
contributed by the Company to RPP. RPP is not, however, obligated to repay
any outstanding debt. To the extent that the cash is not used to repay the
MSG debt, the pro forma equity in income of affiliates will decrease for
the periods ended December 31, 1996 and September 30, 1997 by $26.6 million
and $19.9 million, respectively. The pro forma adjustments are based on the
interim financial statements of MSG and information provided by Rainbow and
may not be indicative of the results of operations and financial position
actually achieved.
(c) Prior to ARC being contributed to the Company, ARC was (i) majority owned
by (and consolidated with) Liberty Sports, Inc. and (ii) minority owned by
Group W. Upon Liberty's contribution to the Company in connection with the
Company's formation, Liberty, through its subsidiary Liberty Sports, Inc.,
retained control of ARC through a general partnership interest. As a
result of Liberty's general partnership interest in ARC, ARC's operations
were not consolidated with the Company. On March 13, 1997, upon the
acquisition of the remaining interests in ARC by Liberty/Fox ARC LP, the
Company assumed management control of the consolidated subsidiaries of
Liberty/Fox ARC LP, and from that date the consolidated subsidiaries of
ARC and their operations were consolidated.
The ARC pro forma columns adjust the operating results as if the
transaction had occurred at the beginning of the periods and hence ARC had
been consolidated for the full periods. The column also eliminates the
related equity income for the periods it was equity accounted, eliminates
the 12.78% Group W interest for the full year, includes amortization of
excess costs and charges interest on the $40 million borrowing incurred in
connection with the purchase of ARC.
37
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company as of December 31, 1996 and for
the eight month period then ended are derived from the Company's consolidated
financial statements audited by Arthur Andersen LLP, independent auditors,
included elsewhere in this Prospectus. The selected financial data of the
Company for the nine month period ended September 30, 1997 are derived from
the Company's consolidated financial statements, included elsewhere in this
Prospectus.
The selected financial data of Liberty Sports, Inc. and subsidiaries--
Domestic Operations set forth below as of December 31, 1995 and for the two
year period ended December 31, 1995 and for the period January 1, 1996 to
April 29, 1996 are derived from the combined financial statements of Liberty
Sports, Inc. and subsidiaries--Domestic Operations ("LSI Domestic") audited by
KPMG Peat Marwick LLP, independent auditors, included elsewhere in this
Prospectus. The selected financial data of LSI Domestic presented below as of
December 31, 1992, 1993 and 1994 and for the two years ended December 31, 1993
are derived from the unaudited combined financial statements of LSI Domestic.
The unaudited combined financial statements from which such selected financial
data are derived include all adjustments which management considers necessary
for a fair presentation.
The selected financial data of Fox/Liberty FX set forth below as of June 30,
1995 and for the two year period ended June 30, 1995 and the ten month period
ended April 29, 1996 are derived from Fox/Liberty FX's financial statements
audited by Arthur Andersen LLP, independent auditors, included elsewhere in
this Prospectus. Fox/Liberty FX was not in existence prior to June 30, 1993.
The selected financial data of Fox/Liberty FX presented below as of June 30,
1994 is derived from the financial statements of Fox/Liberty FX, which include
all adjustments which management considers necessary for a fair presentation.
The selected financial data presented below and under "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
The unaudited pro forma financial information for the Company gives effect
to the Offering (and the application of the net proceeds thereof), the
Exchange Offer, the Rainbow Transaction, borrowings under the Bank Facility
(and the application of the proceeds thereof) and other events as further
described in footnote 1 to this selected historical and pro forma consolidated
financial data.
THE COMPANY
<TABLE>
<CAPTION>
NINE MONTHS PRO FORMA PRO FORMA
ENDED FOR THE FOR THE NINE
APRIL 30 TO SEPTEMBER 30, YEAR ENDED MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, SEPTEMBER 30,
1996 (UNAUDITED) 1996(1) 1997(1)
------------ ------------- ------------ -------------
STATEMENT OF OPERATIONS: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................. $ 144,792 $ 327,258 $ 385,601 $ 357,171
--------- ---------- --------- ----------
Expenses:
Operating............... 117,445 281,192 357,403 307,134
Additional amortization
of program rights...... 80,000 -- -- --
General and
administrative......... 31,609 44,823 74,714 46,248
Depreciation and
amortization........... 8,507 13,387 21,903 14,002
--------- ---------- --------- ----------
237,561 339,402 454,020 367,384
--------- ---------- --------- ----------
Operating (loss) income.. (92,769) (12,144) (68,419) (10,213)
--------- ---------- --------- ----------
Other (income) expenses:
Interest, net.......... 3,819 16,666 92,463 85,942
Subsidiaries' income
tax expense........... 3,437 3,422 3,431 3,422
Loss on sale of assets. 4,913 -- 4,947 --
Equity income of
affiliates, net....... (16,976) (6,722) (2,615) (6,024)
Equity in loss of
affiliates related to
additional
amortization of
program rights........ 29,000 -- 29,000 --
Minority interest...... 187 2,611 2,731 2,502
Other, net............. -- (2,462) (1,467) (2,462)
--------- ---------- --------- ----------
Net (loss) income........ $(117,149) $ (25,659) $(196,909) $ (93,593)
========= ========== ========= ==========
BALANCE SHEET DATA (END
OF PERIOD):
Total assets............. $ 610,982 $1,809,405 $1,929,723
Long-term debt........... 145,304 846,573 1,332,939
Stockholders' equity
(deficit)............... 230,728 205,069 205,069
Deficiency of earnings
available to cover fixed
charges................. $(117,149) $ (25,659) $(196,909) $ (93,593)
</TABLE>
38
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS (PREDECESSOR)
<TABLE>
<CAPTION>
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 TO
------------------------------------- APRIL 29,
1992 1993 1994 1995 1996
-------- ------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues..................... $ 84,607 $93,547 $134,695 $224,373 $99,753
-------- ------- -------- -------- -------
Expenses:
Operating expenses.......... 68,083 68,463 84,710 133,804 60,664
General and administrative
expenses................... 16,396 13,735 43,709 73,389 27,993
Depreciation and
amortization............... 12,697 10,425 22,412 39,006 10,788
-------- ------- -------- -------- -------
97,176 92,623 150,831 246,199 99,445
-------- ------- -------- -------- -------
Operating income (loss)...... (12,569) 924 (16,136) (21,826) 308
-------- ------- -------- -------- -------
Other income (expenses):
Interest expense............ (2,095) (2,901) (5,090) (4,921) (1,963)
Interest income............. 813 136 629 1,343 91
Equity in earnings of
affiliates................. (165) (3,986) 7,430 7,852 219
Minority interest in
earnings of subsidiaries... 102 (84) (464) (705) (1,076)
Other, net.................. (319) (176) 21 (204) 1,467
-------- ------- -------- -------- -------
(1,664) (7,011) 2,526 3,365 (1,262)
-------- ------- -------- -------- -------
Loss before income taxes.... (14,233) (6,087) (13,610) (18,461) (954)
Income tax benefit........... -- -- 5,220 6,086 217
-------- ------- -------- -------- -------
Net loss................. $(14,233) $(6,087) $ (8,390) $(12,375) $ (737)
======== ======= ======== ======== =======
Deficiency of earnings
available to cover fixed
charges..................... $(14,233) $(6,087) $(13,610) $(18,461) $ (954)
BALANCE SHEET DATA (END OF
PERIOD):
Total assets................. $ 81,575 $78,956 $445,141 $444,186
Long-term debt............... 54,793 54,768 55,127 75,806
Stockholders' equity......... 5,073 2,906 289,046 236,788
</TABLE>
39
<PAGE>
FX NETWORKS, LLC (PREDECESSOR)
<TABLE>
<CAPTION>
INCEPTION FOUR MONTHS
(JULY 1, 1993) YEAR ENDED TEN MONTHS ENDED APRIL 29,
TO JUNE 30, JUNE 30, ENDED APRIL 29, 1996
1994 1995 1996 (UNAUDITED)
-------------- ---------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenues................ $ 4,110 $ 68,271 $ 75,401 $33,525
-------- -------- -------- -------
Expenses:
Operating............. 29,194 83,579 63,369 26,220
General and
administrative....... 10,331 23,677 19,936 7,941
Depreciation and
amortization......... 58 436 480 201
-------- -------- -------- -------
Total operating
expenses........... 39,583 107,692 83,785 34,362
-------- -------- -------- -------
Interest expense........ 407 3,497 7,898 3,354
-------- -------- -------- -------
Net loss............ $(35,880) $(42,918) $(16,282) $(4,191)
======== ======== ======== =======
Deficiency of earnings
available to cover
fixed charges.......... $(35,880) $(42,918) $(16,282) $(4,191)
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
------------------------
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Total assets.......................................... $ 53,224 $ 52,762
Long-term debt........................................ 17,424 74,949
Shareholders' equity (deficit)........................ (35,880) (78,798)
</TABLE>
NOTE TO SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) The pro forma information for the Company gives effect to the formation of
the Company, the Offering (and the application of the net proceeds thereof),
the Exchange Offer, the Rainbow Transaction and borrowings under the Bank
Facility (and the application of the proceeds thereof), as though these
events had occurred on January 1, 1996 (with respect to the Statement of
Operations and Other Data for the year ended December 31, 1996), on January
1, 1997 (with respect to the Statement of Operations and Other Data for the
nine months ended September 30, 1997) and on September 30, 1997 (with
respect to the Balance Sheet Data).
The pro forma information also gives effect to the impact on the results of
operations of the consolidation of Affiliated Regional Communications, Ltd.
("ARC Ltd.") and affiliates together with ARC Ltd., ("ARC") as of January 1,
1996 (with respect to the Statement of Operations and Other Data for the
year ended December 31, 1996) and as of January 1, 1997 (with respect to the
Statement of Operations and Other Data for the nine months ended September
30, 1997). Upon formation of the Company in April 1996, Liberty Sports,
Inc., a subsidiary of Liberty, retained a minority controlling interest in
ARC and therefore the operations of ARC were not consolidated with the
Company for the eight month period ended December 31, 1996. On March 13,
1997, upon the acquisition of the remaining interest in ARC by Liberty/Fox
ARC LP, the Company assumed management control of the consolidated
subsidiaries of Liberty/Fox ARC LP, and from that date the consolidated
subsidiaries of ARC and their operations were consolidated.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes set forth elsewhere herein.
INTRODUCTION
In April 1996, Fox and Liberty entered into the Fox/Liberty Joint Venture,
pursuant to which the Company was formed as a holding company with ownership
interests in two principal business units: (i) a sports programming business,
consisting of interests in RSNs and a national sports programming service, and
(ii) FX, a general entertainment and sports programming network. After giving
effect to the Rainbow Transaction, the Company's interests in the sports
programming business are derived through its 99% ownership interests in
Fox/Liberty Sports and Fox Sports RPP, while its interests in FX are derived
through its 99% ownership interest in Fox/Liberty FX. The Company was formed to
operate as the United States telecasting arm of a world-wide sports alliance
between News Corporation and TCI. In establishing the Company, Fox contributed
certain assets related to the operation of a regional sports business and all
of the assets and liabilities of FX. Liberty contributed its interests in
regional sports programming businesses (which then operated under the name
"Prime Sports"), interests in non-managed sports businesses, satellite
distribution services and technical facilities. See "Business" and "Certain
Transactions."
In December 1997, the Company consummated the Rainbow Transaction, pursuant
to which (i) RPP was formed to hold interests in Rainbow's then existing RSNs
and certain other businesses, (ii) the National Sports Partnership was formed
to operate FSN and other national sports programming services, and (iii) the
National Advertising Partnership was formed to act as a national advertising
sales representative for the RSNs which are affiliated with FSN. RPP is managed
by Rainbow, while the National Sports Partnership and the National Advertising
Partnership are managed by the Company. In connection with the consummation of
the Rainbow Transaction, (i) the Company contributed $850 million to RPP in
exchange for a 40% partnership interest held by Fox Sports RPP and Rainbow
contributed its interests in certain RSNs, the Madison Square Garden
entertainment complex, Radio City Productions LLC, the New York Rangers and the
New York Knicks to RPP in exchange for a 60% partnership interest, (ii) the
parties each contributed certain business interests and other assets related to
national sports programming to the National Sports Partnership in exchange for
50% partnership interests, and (iii) the parties each contributed certain
assets related to advertising sales to the National Advertising Partnership in
exchange for 50% partnership interests. See "Certain Transactions--Rainbow
Transaction."
Included in this Prospectus are: (i) pro forma consolidated statements of
operations of the Company for the year ended December 31, 1996 and the nine
months ended September 30, 1997 and a consolidated statement of financial
position as of September 30, 1997, giving effect to the formation of the
Company, the Offering (and the application of the net proceeds thereof), the
Exchange Offer, the Rainbow Transaction and borrowings under the Bank Facility
(and the application of the proceeds thereof), (ii) the consolidated financial
statements of the Company for the eight months ended December 31, 1996 and for
the nine months ended September 30, 1997, (iii) the combined financial
statements of Liberty Sports, Inc.--Domestic Operations for each of the years
in the two year period ended December 31, 1994 and 1995 and for the period
January 1, 1996 to April 29, 1996, and (iv) the financial statements of
Fox/Liberty FX for the two years ended June 30, 1994 and 1995 and for the ten
months ended April 29, 1996.
The following discussion provides information and analysis with respect to
results of operations reflected in the financial statements included in this
Prospectus, as well as the liquidity and capital resources of the Company. This
discussion should be read in conjunction with the historical and pro forma
financial statements and related
41
<PAGE>
notes, "Summary Historical and Pro Forma Consolidated Financial Data" and
"Unaudited Pro Forma Consolidated Financial Information" included elsewhere in
this Prospectus.
GENERAL PROGRAMMING OPERATIONS
Basic cable networks generally recognize revenue from two principle sources:
the payment of affiliate fees from pay television distributors and the sale of
advertising time.
Basic cable networks typically enter into long-term contracts with pay
television distributors such as cable system operators, DTH operators,
multisystem multipoint distribution systems ("MMDS") operators and other
hybrid pay television platforms. These operators provide for the delivery of
the network's programming to subscribers. Contracts between networks and
distributors generally vary in length and provide for a monthly programming
fee ("affiliate license fee") to be paid by the distributor, on a per
subscriber basis, to the cable network for the right to distribute programming
on a non-exclusive basis. Affiliate license fees are generally based on the
popularity of the cable network and distribution contracts will generally set
forth the manner in which fees will change throughout the life of the
contract. The affiliate license fee schedule during the contract term
typically varies based on the number of subscribers to whom the distributor
delivers the network (volume) and/or penetration of the network among a
distributor's total subscriber base. Affiliate license fees paid by a
distributor will typically increase in aggregate as the number of subscribers
served by the distributor increases, and will increase, on a per subscriber
basis, by an escalator based on a consumer price index ("CPI") for a fixed
number of years until the contract expiration date. Upon the contract's
expiration, the parties can renegotiate the license fee to the extent that
market forces will allow. In exchange for distribution and affiliate license
fees, distribution contracts often require the cable network to provide its
distributor with various forms of consideration, including advertising time
that the operator may sell locally, marketing programs and materials, and in
recent years, substantial per subscriber launch funds.
Basic cable networks also receive revenues from the sale of advertising time
on the network. Advertising is sold in time increments and is priced primarily
on the basis of a program's popularity among the specific audience that the
advertiser desires to reach. Advertising rates are affected by the number of
advertisers competing for available time, the total audience reached, as
measured by the number of subscribers to the network, and to the extent that
the network is targeted to a particular audience, the size and demographic
makeup of the subscriber base targeted by the network. Generally, most
advertising contracts are short-term in nature. Cable networks generally pay a
commission both to advertising agencies for placement of local or national
advertising and to their in-house sales force (or the national sales
representative for national advertising).
Cable networks expenses primarily include five general types of expenses:
programming expenses production and technical expenses, marketing expenses,
advertising expenses and general and administrative expenses.
Programming expenses are generally the largest component of a cable
programmer's expenses and include expenses related to originally produced
programming, acquired programming and rights to programming obtained by
contract. Production and technical expenses typically include expenses related
to operating the technical facilities of the network, the equipment required
to uplink the signal to the satellite and, in the case of RSNs, the production
crews who film and announce the games. Marketing expenses include all
promotional expenses related to improving the market visibility and awareness
of the network. Advertising expenses include sales commissions paid to the in-
house sales force involved in the sale of advertising and commissions paid to
outside representatives. General and administrative expenses include salaries,
employee benefits, rent and other routine overhead expenses as well as legal,
accounting and consulting fees.
THE COMPANY'S PROGRAMMING OPERATIONS
Each of the Company's RSNs receive revenues from both affiliate license fees
and from the sale of air time to local and national spot advertisers. The
Company's RSN's have rights agreements with professional sports
42
<PAGE>
teams and colleges, within its region of operation. For professional teams,
these rights agreements generally grant the RSN the exclusive right to air a
specified number of games of the professional team per season, plus playoff
games, for a specified fixed fee. The average term of these contracts (from
commencement to scheduled termination) is 6.2 years for the Company's O&O RSNs
and such contracts have specified mechanisms for the increase of the rights
fee per game over the term of the contract.
FSN, the Company's national programming service, also receives revenue from
both affiliate license fees and from the sale of advertising time to national
network advertisers. FSN's affiliate license fees are received from affiliated
RSNs or broadcast stations for the right to distribute FSN's national
programming within their region of operations. Similar to the RSNs, FSN has
various rights agreements for its national sports programming, most notably
national rights from MLB and various college conferences for football and
basketball. FSN also produces its own daily sports news program, Fox Sports
News. Upon consummation of the Rainbow Transaction, FSN became a service of
the National Sports Partnership.
Fox Sports Direct, the Company's satellite services operation, provides
sports programming from the RSN's to residential and commercial C-band
satellite owners and to the direct broadcast service providers, such as
DirecTv and PRIMESTAR, for Ku-band satellite owners. Fox Sports Direct's
revenues are received generally through an upfront annual subscription fee
from C-band customers and from a monthly per subscriber fee to the direct
broadcast service providers. Fox Sports Direct acquires its sports programming
through a license agreement with the RSNs whereby Fox Sports Direct splits a
percentage of its revenues received from its subscribers with the "home
territory" RSN in which the specific satellite subscriber resides.
Fox Sports Ad Sales receives a commission from the sale of air time on
behalf of RSNs, both the Company's and third party RSNs, as well as on behalf
of FSN. Expenses consist of sales personnel and other sales-related costs.
Upon consummation of the Rainbow Transaction, sales of national advertising
became a function of the National Advertising Partnership.
FX receives revenue from both affiliate license fee contracts and the sale
of advertising time and acquires programming from various sources. FX has
entered into contracts with various Hollywood studios, including Twentieth
Century Fox, an affiliate of News Corporation, for the exclusive cable rights
to telecast specific programming, including both feature films and off network
television programming, within a specified term. These contracts are generally
long-term in nature. Under generally accepted accounting principles, FX
capitalizes its film rights and amortizes the asset over the life of the
contract. As a result, the amount of cash payments made for a film contract in
a particular reporting period may differ from the amount amortized.
SIGNIFICANT ACCOUNTING PRACTICES
Basis of Presentation
The Company's ownership interests in the RSNs are held either directly or
indirectly and have different voting rights attached thereto. The Company
consolidates all subsidiaries in which it has a majority interest and voting
control. The percentage of ownership, together with the degree to which the
Company controls the management and operation of an RSN, determines the
appropriate accounting treatment for the Company's interest in that particular
RSN. If the Company owns a majority interest in a particular RSN, but does not
have voting control, the ownership interest is accounted for using the equity
method of accounting. Under the equity method of accounting, the financial
condition and results of operations of entities are not reflected on a
consolidated basis and, accordingly, the consolidated revenues and expenses of
the Company, as reported on its consolidated statements of operations, do not
include revenues and expenses related to the entities accounted for under the
equity method. As of December 31, 1996, the following RSNs, together with Fox
Sports Direct, are accounted for using the equity method of accounting:
Southwest RSN, Pittsburgh RSN, Rocky Mountain RSN, Midwest RSN, Sunshine RSN,
Chicago RSN, San Francisco RSN and D.C./Baltimore RSN, as well as certain
operations within Fox Sports Net. Prior to the formation of the Company, the
Southwest RSN, Pittsburgh RSN, Rocky Mountain RSN and Midwest RSN, as well as
Fox Sports Direct, were consolidated in Liberty Sports, Inc.'s financial
statements, while the others have historically always been accounted for under
the equity method.
43
<PAGE>
Entities that are consolidated in the financial statements of the Company,
at December 31, 1996, include subsidiary entities which own Fox/Liberty FX,
West RSN, West 2 RSN, Northwest RSN, Utah RSN, Arizona RSN, South RSN and Fox
Sports Ad Sales, as well as certain operations within Fox Sports Net.
On March 13, 1997, upon the acquisition of the remaining interests in
Affiliated Regional Communications, Ltd. and affiliates ("ARC") by Liberty/Fox
ARC LP, the Company assumed management control of the consolidated
subsidiaries of Liberty/Fox ARC LP, and from that date the consolidated
subsidiaries of ARC and their operations were consolidated.
Because the Company reports the results of a significant number of its
subsidiary entities on the equity method, its financial results do not
represent the total combined revenues and expenses of the entire Company. As a
result of the various acquisitions and sales in recent years, which in turn
impact the accounting treatment of many of the Company's subsidiary entities,
comparability of the Company's historical financial results is not possible.
Program Rights
The Company has multi-year contracts for telecast rights of syndicated
entertainment programs and sporting events. Program rights for entertainment
programs are amortized over the term of the contract using the straight-line
method. Program rights for sporting events which are for a specified number of
games are amortized on an event-by-event basis, and those which are for a
specified season are amortized over the term of the season on a straight-line
basis.
At the inception of these contracts and periodically thereafter, the Company
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss.
Excess Cost
Excess cost represents the difference between the cost of acquiring
programming entities and amounts assigned to their tangible and intangible
assets. Such amounts are amortized on a straight-line basis over 40 years.
The Company periodically reviews the propriety of the carrying amount of its
excess cost as well as the related amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or the estimates of useful lives. This evaluation consists of the
Company's projection of undiscounted operating income before depreciation,
amortization and interest over the remaining lives of the excess cost.
RESULTS OF OPERATIONS
Fox/Liberty Networks, LLC
Nine months ended September 30, 1997
The Company was formed in April, 1996 pursuant to the Fox/Liberty Joint
Venture. The consolidated statement of operations of the Company reflects the
RSNs and other sports businesses, formerly owned by Liberty and its affiliates
and Fox.
The Company has certain subsidiaries that are consolidated and others which
are accounted for on the equity method of accounting. On March 13, 1997, upon
the acquisition of the remaining interests in ARC by Liberty/Fox ARC LP, the
Company assumed management control of the consolidated subsidiaries of
Liberty/Fox ARC LP, and from that date the consolidated subsidiaries of ARC
and their operations were consolidated. Had
44
<PAGE>
the additional 12.78% interest been acquired at the beginning of the period
(January 1, 1997), the Company's consolidated revenue and income would have
increased by $29.9 million and $0.3 million, respectively.
Total revenue for the nine months ended September 30, 1997 was $327.3
million. Programming revenue is the largest source of revenue, representing
50% of total revenues, or $164.3 million. Advertising revenue represents 22%
of total revenues, or $73.9 million. For the eight months ended December 31,
1996, programming revenue was $85.3 million and advertising revenue was $37.7
million, or 59% and 26% of total revenues, respectively. The primary reason
for this change in the mix of revenues as compared to total revenue is due to
the consolidation of ARC in which direct satellite broadcast revenue
represents 52% of ARC's total revenues. For the nine months ended September
30, 1997, direct satellite broadcast revenue represented 21% of total
revenues, or $70.1 million. For the eight months ended December 31, 1996,
direct satellite broadcast revenue was $5.7 million, or 4% of total revenues
reflecting the impact of ARC being accounted for on the equity method during
this period.
Operating expenses totaled $281.2 million for the nine months ended
September 30, 1997, which represented 86% of total revenues. These expenses
consist primarily of programming and production costs. Operating expenses for
the eight months ended December 31, 1996 totaled $117.4 million, or 81% of
total revenues. The increase can be attributed to acquisition and renewals of
programming rights during the first half of 1997 and direct telecast rights to
third party RSNs that were not previously consolidated.
General and administrative expenses totaled $44.8 million for the nine
months ended September 30, 1997, which represented 14% of total revenues.
General and administrative expenses for the eight months ended December 31,
1996 totaled $31.6 million, or 22% of total revenues. In 1996, the Company
incurred significant costs relative to severance and relocation expenses in
connection with the Company's decision to relocate its corporate offices from
Dallas, Texas to Los Angeles, California. The Company offered a severance
package based upon years of service to those employees who elected not to
transfer, and a relocation package to those employees who elected to relocate
to Los Angeles. Similar costs were not incurred in 1997. In addition, deferred
compensation expenses under a Liberty deferred compensation plan were accrued
in 1996 with respect to certain former employees of Liberty. These individuals
will be fully vested under the plan in 1998. See "Management--Executive
Compensation."
Depreciation and amortization expenses totaled $13.4 million for the nine
months ended September 30, 1997. Of this amount, $8.2 million was related to
amortization of excess cost from acquisitions of programming entities.
Interest expense for the nine months ended September 30, 1997 totaled $16.7
million as a result of $1.2 billion of debt outstanding. Interest expense for
the eight months ended December 31, 1996 totaled $3.8 million which related to
$171.7 million of outstanding indebtedness. The increase in the amount of debt
is attributable to (i) the Offering, pursuant to which the Company incurred
$752.3 million of debt; (ii) the consolidation of ARC's consolidated
subsidiaries, pursuant to which the Company incurred $9.0 million of debt;
(iii) the purchase of the remaining interest in ARC pursuant to which the
Company incurred $40.0 million of debt; (iv) the arrangement of an advertising
sales and carriage agreement pursuant to which the Company incurred $30.0
million of debt; (v) the receipt of an interim credit facility from Chase and
indebtedness thereunder in the amount of $360.0 million; (vi) the acquisition
of certain assets in connection with the commencement of operations of the
Detroit RSN, pursuant to which the Company incurred $25.6 million of debt; and
(vii) additional borrowings of approximately $40.0 million to fund operations
for the nine months ended September 30, 1997, net of the extinguishment of
debt of $201.2 million during the period.
Eight months ended December 31, 1996
The Company was formed as a 50%-50% joint venture in April 1996 from the
contribution of assets from Liberty and Fox. The consolidated statement of
operations of the Company reflects the RSNs and other sports businesses,
formerly owned by Liberty and Fox.
45
<PAGE>
The Company has certain subsidiaries that are consolidated and others which
are accounted for under the equity method of accounting. The key criteria used
to determine the accounting treatment are ownership and voting control. For
comparative purposes to a pro forma combined Liberty Sports and Fox/Liberty FX
statement of operations prior to the formation of the Company, it is important
to realize that certain subsidiary entities were accounted for under the
equity method after formation of the Company in April 1996 which were
previously consolidated in Liberty Sports, Inc. financial statements. These
significant subsidiary entities are Liberty/Fox KBL LP (Pittsburgh RSN),
Liberty/Fox ARC LP (Southwest, Midwest and Rocky Mountain RSNs, and Fox Sports
Direct), and Liberty/Fox Distribution LP (primarily national rights for
college football).
If these operating subsidiaries had been consolidated for the eight months
ended December 31, 1996, as they were under Liberty Sports Inc. prior to the
formation of the Company, the effect on total consolidated revenues and
expenses would have been significant. For the eight months ended December 31,
1996, total revenues for these operating subsidiaries were $138.6 million,
consisting of the following: programming--$40.7 million, advertising--$19.3
million, direct broadcast--$55.1 million and other--$23.5 million. Total
expenses for the same period were $163.3 million, consisting of the following:
operating--$150.0 million, general and administrative--$10.4 million, and
depreciation and amortization--$2.9 million. The operating loss for these non-
consolidated subsidiaries was $24.7 million, which is included on the
Company's financial statements as equity income of affiliates, net and equity
in loss of affiliates related to additional amortization of program rights.
For comparability purposes, the following discussion will make reference to
comparisons between calendar 1996 and 1995 for the O&O RSNs. To achieve
comparability, these calculations were made by summing the specific revenues
and expenses for all owned and operated regional sports networks, whether
consolidated or accounted for under the equity method for financial statement
purposes, for 1996 and 1995.
Total revenues for the eight months ended December 31, 1996 were $144.8
million. Programming revenue is the largest revenue source, representing 59%
of total revenue or $85.3 million. Programming revenues for RSNs increased 30%
in calendar 1996 compared to calendar 1995 due to rate increases and
increasing subscribers. Advertising revenue totaled $37.7 million or 26% of
total revenues. For RSNs, advertising revenues increased 15% in calendar 1996
due to new sports contracts and higher advertising rates and sell-out
percentages in certain events. Direct satellite broadcast revenue represented
only 4% of total revenues or $5.7 million due to the Company's direct
satellite broadcast division, Fox Sports Direct, not being consolidated. The
remaining revenue sources account for 11% of total revenues and consist of
infomercials, merchandising, and other.
Operating expenses totaled $117.4 million for the eight months ended
December 31, 1996, which represented 81% of total revenues. These expenses
consisted primarily of programming and production costs. For RSNs, programming
and production costs increased 17% in calendar 1996 from calendar 1995 due
primarily to escalating and/or renegotiated costs in certain existing sports
contracts, and, to a lesser extent, new sports contracts.
In 1996 the Company finalized a long-term agreement with MLB for national
cable rights. In accordance with the Company's accounting policies as
described above, an evaluation of the recoverability of the costs associated
with this agreement was performed. Additional amortization of program rights
totaling $80.0 million was recorded associated with this contract, as a result
of the evaluation of projected future advertising revenues in comparison to
future program rights. Depreciation and amortization expenses totaled $8.5
million for the period. Of this amount, $5.2 million was related to
amortization of excess cost from acquisitions of programming entities. An
additional amortization of program rights totaling $29.0 million was also
recorded with respect to a projected loss to an affiliate on college football
contracts.
General and administrative expenses totaled $31.6 million, or 22% of total
revenues, for the eight months ended December 31, 1996. Included in this total
for the period was $1.3 million for deferred compensation to certain employees
and $1.2 million in severance costs associated with the announced relocation
in August 1996 of the Company's corporate offices from Dallas to Los Angeles.
The actual relocation was completed in March 1997.
Interest expense was $3.8 million for the period with substantially all of
the Company's debt bearing interest at floating rates.
46
<PAGE>
Subsidiaries income tax expense totaled $3.4 million for the period which
related to estimated federal and state tax liabilities.
In September 1996, the Company sold its merchandising division for $3.8
million to a company owned by former executives of Liberty. A loss on sale of
$4.9 million was realized in conjunction with this transaction.
The Company has numerous significant investments accounted for under the
equity method. For the eight months ended December 31, 1996, net equity income
of affiliates was $17.0 million.
Liberty Sports, Inc.--Domestic Operations
Period from January 1, 1996 to April 29, 1996
Revenues for the four months ended April 29, 1996 totaled $99.8 million.
Programming, advertising, and direct broadcast revenues were 38%, 28%, and
24%, respectively, of total revenues for the four month period compared to
38%, 30%, and 23%, respectively, of total revenues for the calendar year ended
December 31, 1995 ("Liberty Calendar 1995"). The slight percentage decrease in
advertising revenues was offset by an increase in the percentage of other
revenues as other revenues were 10% of total revenues for the four month
period compared to 9% for Liberty Calendar 1995.
Operating expenses for the four months ended April 29, 1996 were $60.7
million, or 61% of total revenues for the period. Operating expenses for
Liberty Calendar 1995, as a percentage of total revenues, were comparable at
60%.
General and administrative expenses for the four months ended April 29, 1996
were $28.0 million, or 28% of total revenues for the period. General and
administrative expenses for the preceding fiscal year, as a percentage of
total revenues, were 33%. The decreased percentage cost is attributable to the
sale of certain unprofitable business divisions in January 1996 and overall
efficiencies in Liberty Sports, Inc.--Domestic Operations' existing
operations.
Year ended December 31, 1995 ("Liberty Calendar 1995") compared with the year
ended December 31, 1994 ("Liberty Calendar 1994")
Revenues for Liberty Calendar 1995 increased 67% to $224.4 million from
$134.7 million for the prior calendar year. Approximately 54%, or $49 million,
of the increase is due to the acquisition of Prime Ticket Networks, L.P.
("Prime Ticket," the owner of the West RSN) in August 1994. The remainder of
the revenue increase is attributed to the result of more subscribers, higher
subscriber rates, no major sports league strikes, and new sports contracts.
The primary revenue sources consisting of programming, advertising, and direct
broadcast increased 59%, 119%, and 56%, respectively, in 1995 compared to
1994.
Operating expenses for Liberty Calendar 1995 increased 58% to $133.8 million
from $84.7 million in Liberty Calendar 1994. This increase is attributable to
the Prime Ticket acquisition, new sports programming, higher costs for
existing sports contracts, and no major sports leagues strikes during 1995. As
a percentage of total revenues, operating expenses declined in 1995 to 60%
compared to 63% of revenues in 1994.
General and administrative expenses for Liberty Calendar 1995 increased 68%
to $73.4 million from $43.7 million for the prior calendar year. This increase
is primarily attributable to the Prime Ticket acquisition and to increased
costs associated with the growth of Liberty Sports, Inc.--Domestic Operations.
Depreciation and amortization expenses increased 74% to $38.9 million from
$22.4 million in the prior year. This increase is related to a full year of
depreciation and amortization of fixed assets and intangible assets related to
Prime Ticket.
Interest expense for 1995 totaled $4.9 million which was a decrease of 4%
from the prior year as lower interest rates offset the increase in the level
of outstanding indebtedness during 1995. Interest income increased
47
<PAGE>
to $1.3 million from $.6 million in the prior year due to interest earned on a
note receivable with a sports franchise.
In 1995, Liberty Sports, Inc.--Domestic Operations had an income tax benefit
of $6.1 million due to loss carryforwards generated for income tax purposes.
Year ended December 31, 1994 ("Liberty Calendar 1994") compared with the year
ended December 31, 1993 ("Liberty Calendar 1993")
Revenues for Liberty Calendar 1994 increased 44% to $134.7 million from
$93.5 million for the prior calendar year. Approximately 51%, or $21 million,
of the increase is due to the acquisition of Prime Ticket in August 1994. The
remainder of the revenue increase is attributed to the result of more
subscribers, higher subscriber rates, and new sports contracts.
Operating expenses for Liberty Calendar 1994 increased 20% to $84.7 million
from $70.3 million in Liberty Calendar 1993. This increase is attributable to
the Prime Ticket acquisition, new sports programming, and higher costs for
existing sports contracts which more than offset the baseball and hockey
strikes in the last half of 1994. As a percentage of total revenues, operating
expenses declined in 1994 to 63% compared to 75% of revenues in 1993.
General and administrative expenses for Liberty Calendar 1994 increased 226%
to $43.7 million from $13.4 million for the prior calendar year. This increase
is primarily attributable to the Prime Ticket acquisition and to increased
costs associated with the growth of Liberty Sports, Inc.--Domestic Operations.
Depreciation and amortization expenses increased 71% to $22.4 million from
$13.1 million in the prior year. This increase is primarily related to the
depreciation and amortization of fixed assets and intangible assets associated
with the Prime Ticket acquisition.
Interest expense for 1994 totaled $5.1 million, an increase of 71% from the
prior year. This increase is attributable to debt incurred under two new
credit facilities in 1994, one of which was assumed with the Prime Ticket
acquisition.
Equity in earnings of affiliates increased 100% to $7.4 million from $3.7
million for Liberty Calendar 1993. This increase was attributed to the growth
in net income of certain equity affiliates, such as SportSouth Network, Ltd.
(the South RSN) and SportsChannel Chicago Associates (the Chicago RSN).
In 1994, Liberty Sports, Inc.--Domestic Operations had an income tax benefit
of $5.2 million due to loss carryforwards generated for income tax purposes.
FX
Ten Months ended April 29, 1996
Revenues for the ten months ended April 29, 1996 totaled $75.4 million, of
which approximately 74% represented revenues attributable to programming
revenue, as compared to 77% of FX's total revenue for the fiscal year ended
June 30, 1995 ("FX Fiscal 1995"). Increased advertising revenues due to the
maturing of the programming service and increased awareness among viewers and
advertisers since the June 1994 launch resulted in a decrease in the
percentage. Advertising revenue (net of commissions) contributed approximately
23% of revenues for the ten month period, and Infomercial revenue contributed
3%.
Operating expenses for the ten months ended April 29, 1996 were $63.4
million, or 84% of total revenues for the period. Operating expenses for FX
Fiscal 1995, as percentage of total revenues, was 122%. This improvement in
operating expenses as a percentage of revenues is attributable to a decrease
in original programming production.
48
<PAGE>
General and administrative expenses for the ten months ended April 29, 1996
were $19.9 million, or approximately 26% of revenues for the period. General
and administrative expenses for FX Fiscal 1995 were approximately 35% of
revenues. This decrease in general and administrative expenses as a percentage
of revenues is attributable to an overall increase in programming and
advertising revenues as compared to FX Fiscal 1995.
Year ended June 30 1995 ("FX Fiscal 1995") compared with the year ended June
30, 1994 ("FX Fiscal 1994")
FX Fiscal 1995 is not comparable to FX Fiscal 1994 due to FX launching June
1, 1994. Startup costs leading up to launch were amortized as incurred during
FX Fiscal 1994.
Revenues for FX Fiscal 1995 increased 1,561% to $68.3 million from $4.1
million for the prior fiscal year. This increase is primarily attributable to
only one month of revenue during FX Fiscal 1994. During FX Fiscal 1995
programming revenue increased to $55.2 million from $3.7 million, accounting
for 76% of the increase in total revenues for the year. Advertising revenue
(net of commissions) contributed approximately 20% of revenues for the FX
Fiscal 1995, and infomercial revenue contributed 4%.
Fox Sport Direct expenses in FX Fiscal 1995 increased 186% to $83.6 million
from $29.2 million for the prior year. This increase is primarily attributable
to a full year of programming production and amortization.
General and administrative expenses for FX Fiscal 1995 increased 129% to
$23.7 million from $10.3 million for the prior year. This increase is primarily
attributable to the fact that the majority of FX Fiscal 1994 general and
administrative costs did not start until January 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from (i) the funding of operating
losses and other general working capital needs, (ii) its strategic plan to
secure national distribution for its network programming, either through the
acquisition of existing third party-owned RSNs or through the launch of a new
RSN, (iii) the acquisition of additional programming rights, and (iv) its
capital expenditure requirements, which include the Company's plans to convert
to digital transmission.
Net cash provided by (used in) operating activities of the Company for the
nine months ended September 30, 1997 and for the eight months ended December
31, 1996 was ($149.4 million) and $14.3 million, respectively.
Net cash provided by (used in) investing activities of the Company for the
nine months ended September 30, 1997 and for the eight months ended December
31, 1996 was ($49.5 million) and ($38.8 million), respectively.
Net cash provided by (used in) financing activities of the Company for the
nine months ended September 30, 1997 and for the eight months ended December
31, 1996 was $283.8 million and $25.2 million, respectively.
In June 1997, the Company entered into an agreement with Rainbow to acquire a
40% interest in Rainbow's sports properties, including economic interests in
eight RSNs, Madison Square Garden entertainment complex, Radio City Productions
LLC, the New York Knicks, and the New York Rangers in exchange for $850 million
in cash from the Company. In December 1997 the Rainbow Transaction was
consummated and a portion of the net proceeds from the Offering, along with
available proceeds under the Bank Facility, were used to fund the Company's
cash contribution of $850 million to RPP.
The Company has several credit facilities with different banks. The credit
facilities restrict the payment of dividends, and contain certain restrictive
covenants regarding, among other things, the maintenance of certain financial
ratios and restrictions on the distribution of assets. At September 30, 1997,
the total amounts borrowed under these credit facilities were $373.0 million.
The total commitments pursuant to these credit facilities were $464.1 million
as of September 30, 1997. In September 1997, the Company entered into a credit
agreement
49
<PAGE>
which permits borrowings of up to $450 million. The proceeds of such credit
agreement are being used to retire amounts borrowed under previously existing
credit facilities and for working capital purposes. Upon consummation of the
Rainbow Transaction, the Company amended and restated this $450 million credit
agreement to permit borrowings of up to $800 million under the Bank Facility.
The Bank Facility was used to finance, in part, the Rainbow Transaction. See
"Description of Bank Facility."
Future capital requirements are substantial. At September 30, 1997, the
Company has future minimum payments on operating leases, including
transponders totaling $72.6 million, and commitments under long-term program
rights contracts totaling $1,154.7 million. Also, within the next several
years, the Company has plans to transition from analog transponder equipment
to digital transponder equipment. Obligations for the Company's fleet of
transponders currently in use total $1.5 million per month and upon
consummation of the Rainbow Transaction, will total approximately $1.8 million
per month. Upon transition to the digital transponder equipment, the Company
will use four transponders at a cost of approximately $0.6 million per month.
In order to transition to the digital system, the Company will purchase four
signal compression systems. In addition, the Company anticipates purchasing
satellite receivers which will allow cable operators to convert the digital
signal back into a single channel feed for distribution across their system.
The total cost of this equipment will be approximately $20 million. The
transition to digital transponder equipment will commence in 1998 and continue
into 1999. In addition, the cost of acquiring sports programming rights
continues to escalate. Furthermore, the Company intends to continue to explore
opportunities to expand its distribution.
The Company is a holding company and its assets consist solely of
investments in its subsidiaries and affiliates. As a holding company, the
Company's ability to meet its financial obligations, including its obligations
under the Notes and the Bank Facility and its funding and other commitments to
its subsidiaries and affiliates, is dependent on the earnings of such
subsidiaries and affiliates and the distribution or other payment of such
earnings to the Company in the form of dividend distributions, loans or other
advances, payment or reimbursement for management fees and expenses, and
repayment of loans and advances from the Company. Accordingly, the Company's
ability to pay interest on the Notes and to otherwise meet its liquidity
requirements may be limited as a result of its dependence upon the
distribution of earnings and advances of funds by its subsidiaries and
affiliates. The payment of dividends or the making of loans or advances to the
Company by its subsidiaries and its affiliates may be subject to statutory,
regulatory or contractual restrictions, are contingent upon the earnings of
those subsidiaries and affiliates, and are subject to various business
considerations. Although the agreements between the Company and its partners
contemplate the payment of distributions, the Company may not be able to cause
its subsidiaries or affiliates to make distributions when it may have a need
for distributions, and the Company may not be able to dispose of its
investments in any of its RSNs if required for financial or other reasons. See
"Risk Factors--Risks Associated with Holding Company Structure; Structural
Subordination of Notes" and "--Limitations on Control of Affiliated
Companies."
Sources of funding for the Company's future financing requirements, if any,
may include public or private offerings of equity and/or debt securities,
commercial bank loans, and partner capital contributions. The extent of the
additional financing required, if any, will depend on the success of the
Company's business. There can be no assurance that additional financing, if
needed, will be available to the Company or, if available, that such financing
can be obtained on terms acceptable to the Company and within the limitations
contained in the terms of any future financing arrangements. Failure to obtain
any such financing could delay or prevent the Company's development and growth
plans, impair the Company's ability to meet its debt service requirements, and
have a material adverse effect on the Company's business. See "Risk Factors--
Potential Need for Additional Capital; Future Commitments."
The Company believes that the net proceeds from the Offering, together with
existing funds and the proceeds from borrowings under the proposed Bank
Facility, will be sufficient to meet its plan to secure national distribution,
maintain and/or acquire programming, make anticipated capital expenditures,
and meet its projected working capital requirements, although no assurances
can be given in this regard. See "Risk Factors--Potential Need for Additional
Capital; Future Commitments."
50
<PAGE>
BUSINESS
OVERVIEW
The Company
The Company is the largest RSN programmer in the United States, focusing on
live professional and major collegiate home team sports events. The Company
owns and operates 12 RSNs (the "O&O RSNs") and has direct or indirect equity
interests ranging from 12% to 70% in an additional nine RSNs (together with
the O&O RSNs, the "Company's RSNs"). The Company's RSNs are complemented by
FSN, which provides national programming for distribution by RSNs. The O&O
RSNs have rights to telecast live games of 36 professional sports teams in the
NBA, the NHL, MLB and numerous collegiate sports teams.
Because of their home team programming, RSNs have strong local appeal in
their respective markets, generating high prime time ratings and attractive
subscriber fees from cable operators. The Company's strategy is to utilize its
RSNs to build a national cable sports network under the Fox brand name based
on the "broadcast network affiliate" model. The Company believes that
telecasting local sports events, together with network quality programming and
production, will provide a powerful 24 hour per day advertising vehicle for
national as well as local advertisers. The Company is also engaged in the
ownership and operation of FX, a general entertainment and sports programming
network with approximately 31 million subscribers.
Rainbow Transaction
In December 1997, the Company consummated the Rainbow Transaction with
Rainbow, pursuant to which the Company acquired a 40% interest in RPP, which
holds interests in the Rainbow RSNs and Madison Square Garden L.P. (which owns
the Madison Square Garden entertainment complex, Radio City Productions LLC,
the New York Rangers, a professional hockey team, and the New York Knicks, a
professional basketball team). RPP has a controlling interest in seven of the
eight Rainbow RSNs, two of which were partially owned by the Company prior to
the Rainbow Transaction. Upon consummation of the Rainbow Transaction, a
portion of the net proceeds of the Offering was used to fund the Company's
$850 million cash contribution to RPP. See "Use of Proceeds" and "Certain
Transactions--Rainbow Transaction."
After giving effect to the Rainbow Transaction, the Company owns interests
in, or is affiliated with, 26 RSNs and its network programming covers each of
the top 14 DMAs and 22 of the top 25 DMAs in the United States. These RSNs
have rights to telecast live games of 69 professional sports teams in the NBA,
the NHL and MLB (out of a total of 75 such teams in the United States) and
numerous collegiate sports teams to approximately 55 million households out of
a total of 70 million households receiving basic cable or direct to home
satellite ("DTH") service.
As part of the Rainbow Transaction, the Company and Rainbow established
National Sports Partners (the "National Sports Partnership"), a 50%-50%
partnership, to operate FSN. FSN provides its affiliated RSNs with 24 hour per
day national sports programming featuring live sporting events and original
programming, as well as a national sports news program, Fox Sports News, which
telecasts pre-game and post-game sports programming. The Company and Rainbow
also established a national advertising representative firm, National
Advertising Partners (the "National Advertising Partnership"), a 50%-50%
partnership, to sell advertising time during both the regional affiliates'
local programming and national network programming carried by RSNs. The
Company manages both the National Sports Partnership and the National
Advertising Partnership. Through its affiliations with RSNs across the United
States, FSN is able to access three advertising markets at once: network,
national spot and local.
Bank Facility
In connection with the consummation of the Rainbow Transaction, the Company
and a group of banks led by Chase, amended and restated an existing credit
agreement to permit borrowings by the Co-Borrowers, in the amount of $800
million under the Bank Facility. The Bank Facility is comprised of a $400
million revolving
51
<PAGE>
credit facility and a $400 million term loan facility. The proceeds of the
loans under the Bank Facility were used to finance, in part, the Rainbow
Transaction, and the Company currently expects that remaining amounts will be
used for investments in certain subsidiaries of the Company and for working
capital purposes. See "Risk Factors--Potential Need for Additional Capital;
Future Commitments" and "Description of Bank Facility."
Borrowings under the Bank Facility are unconditionally guaranteed by each
RSN that is wholly owned, directly or indirectly, by the Co-Borrowers and by
each of the Co-Borrowers' subsidiaries that hold the direct interest in an RSN
that is not wholly owned, directly or indirectly, by the Co-Borrowers. The
Company also provides a downstream guarantee. In addition, borrowings under
the Bank Facility and the guarantees are secured by substantially all of the
equity interests of the Co-Borrowers (other than Fox Sports RRP) and the
equity interests held by the Co-Borrowers (other than Fox Sports RPP) and
their subsidiaries in certain related entities.
BUSINESS STRATEGY
Currently the largest owner and operator of RSNs in the United States, the
Company's strategic objective is to be the leading national provider of
regional sports programming in the United States. In order to achieve this
objective, the Company plans to focus on the following strategies:
. Increase Distribution of Fox Sports Net
The Company intends to increase the distribution of FSN through two
principal strategies: increasing penetration in geographic regions adjacent
to existing markets; and affiliating with, acquiring or launching networks
in unserved markets. In order to achieve this objective, the Company
expects that, in conjunction with its RSNs, it will continue to market its
programming services to distributors and subscribers and pursue
acquisitions of sports programming rights.
. Increase Advertising Revenues
FSN has been structured based on the "broadcast network affiliate" model,
in which each RSN airs a slate of local programming, which is supplemented
by a schedule of network-provided national programming, consistent across
all regions. Unlike the typical "broadcast network affiliate" model, the
Company's programming is anchored by highly rated local programming during
prime time, with national FSN programming during the balance of the
schedule.
FSN's model is designed to increase the number of viewers before and after,
as well as during, local sports events. An increased viewership base is
likely to command both higher advertising rates and absolute audience
delivery. By providing national programming that is consistent across all
regions, the Company believes that it will be able to penetrate the
approximately $5 billion national advertising market in which the Company's
RSNs have not traditionally participated. In so doing, the Company will be
able to allocate advertising units between national and local inventories
to optimize price and increase the likelihood of selling all of its
advertising units. The Company's approach offers national advertisers the
unique opportunity to purchase national and local advertising from one
source in each of the top DMAs. The Company believes that sports
programming is extremely attractive to both national and local advertisers
due to the high ratings such programming generally achieves in the key male
18-49 demographic.
. Increase Ownership of RSNs
As is the case with the national broadcast networks, a national cable
sports network can derive significant economic benefits by owning its
affiliates. The Company may seek to acquire a majority interest in those
RSNs that it does not already own and operate, or in which it currently
owns a minority interest. For example, in October 1996, the Company
acquired from an affiliate of Turner, an additional 44% in the South RSN,
increasing the Company's ownership in this RSN to 88%. Furthermore, in
March 1997, an affiliate of the Company purchased from Group W, a
subsidiary of Westinghouse/CBS Inc., additional indirect ownership
interests in the D.C./Baltimore, Midwest, Rocky Mountain, Southwest and
Sunshine RSNs, and in Fox Sports Direct, a satellite services provider.
Upon the consummation of the Rainbow Transaction, the Company increased its
aggregate direct and indirect ownership interests in each of the Chicago
and San Francisco RSNs to 70% and acquired indirect minority interests in
six additional RSNs in new markets. The Company will continue to carefully
identify and pursue other acquisition opportunities.
52
<PAGE>
. Launch Second RSNs in Selected Markets
In markets where there are a sufficient number of sports teams such that
programming conflicts may occur, the Company may launch second local
networks. This would enable the Company to telecast two different
professional or major collegiate games that are being played in one region
on the same night at the same time.
. Achieve Operating Economies of Scale Among FSN Affiliates
As a national cable sports network, FSN will seek to realize economies of
scale by centralizing management and administrative tasks as well as
certain programming, marketing and public relations functions. For example,
FSN programming will be available to affiliates 24 hours per day to
supplement regionally produced programming. Previously, each RSN was
required to produce or acquire such programming themselves. Also, the
Company intends to cross-promote FSN and its affiliates on the national Fox
broadcast network.
53
<PAGE>
REGIONAL SPORTS NETWORKS
The following table lists the O&O RSNs, the Company's ownership interests in
such RSNs, such RSNs' DMAs, the number of subscribers for each of the O&O RSNs
(as of September 30, 1997, except as indicated in footnote 2 below) and the
professional sports teams with which each O&O RSN has sports programming
rights agreements.
<TABLE>
<CAPTION>
OWNERSHIP SUBSCRIBERS
RSN INTEREST(1) DMA (IN MILLIONS) TEAM
---------- ----------- ------------------ -------------------------------------------------------- (LEAGUE)
<S> <C> <C> <C> <C>
Fox Sports 100% Dallas/ 4.9 Houston Rockets (NBA)
Southwest Ft. Worth; Dallas Mavericks (NBA)
Houston; Houston Astros (MLB)
San Antonio Dallas Stars (NHL)
San Antonio Spurs (NBA)
Texas Rangers (MLB)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Los Angeles; 3.9 Los Angeles Lakers (NBA)
West San Diego Anaheim Angels (MLB)
Los Angeles Kings (NHL)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Los Angeles; 1.8 Los Angeles Clippers (NBA)
West 2 San Diego Mighty Ducks of Anaheim (NHL)
Los Angeles Dodgers (MLB)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Pittsburgh 1.9 Pittsburgh Pirates (MLB)
Pittsburgh Pittsburgh Penguins (NHL)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Denver; 1.9 Denver Nuggets (NBA)
Rocky Kansas City Colorado Avalanche (NHL)
Mountain Colorado Rockies (MLB)
Kansas City Royals (MLB)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Seattle/Tacoma; 2.1 Seattle Mariners (MLB)
Northwest Portland, OR Seattle SuperSonics (NBA)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Salt Lake City 0.6 Utah Jazz (NBA)
Utah
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% St. Louis; 1.3 St. Louis Cardinals (MLB)
Midwest Indianapolis St. Louis Blues (NHL)
Indiana Pacers (NBA)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Phoenix 0.8 Arizona Diamondbacks (MLB)
Arizona Phoenix Coyotes (NHL)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 100% Detroit 2.1 Detroit Red Wings (NHL)
Detroit(2) Detroit Pistons (NBA)
Detroit Tigers (MLB)
- -------------------------------------------------------------------------------------------------------------------------
Fox Sports 88% Charlotte; Atlanta 5.6 Atlanta Braves (MLB)
South Atlanta Hawks (NBA)
Charlotte Hornets (NBA)
Carolina Hurricanes (NHL)
- -------------------------------------------------------------------------------------------------------------------------
Sunshine 53.7% Tampa/ 3.7 Orlando Magic (NBA)
Network St. Petersburg/ Tampa Bay Lightning (NHL)
Sarasota; Miami/ Miami Heat (NBA)
Ft. Lauderdale;
Orlando/Daytona/
Melbourne
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) The Fox/Liberty Joint Venture consists of numerous limited liability
companies, general and limited partnerships and corporations. For a
variety of tax and corporate reasons, the equity ownership of individual
entities in the chain of entities holding interests in RSNs and FX include
interests held directly by affiliates of Liberty and Fox. See "Certain
Arrangements Regarding Ownership Interests."
(2) Fox Sports Detroit began operations on September 17, 1997 and as of
November 15, 1997 had 2.1 million subscribers.
In addition, a contract with MLB allows FX and FSN each to nationally
telecast 26 games per year.
54
<PAGE>
The following table lists the RSNs in which the Company owns equity
interests, but does not manage, the Company's ownership interests in such
RSNs, the DMAs in which such RSNs operate, the number of subscribers of such
RSNs (as of September 30, 1997), and the professional sports teams with which
each RSN has sports programming rights agreements.
<TABLE>
<CAPTION>
OWNERSHIP SUBSCRIBERS TEAM
RSN INTEREST(1) DMA (IN MILLIONS) (LEAGUE)
- ------------- ----------- ------------------------ ------------- -------------------------------
<S> <C> <C> <C> <C>
SportsChannel 70% Chicago 2.7 Chicago Bulls (NBA)
Chicago Chicago Blackhawks (NHL)
Chicago White Sox (MLB)
- -------------------------------------------------------------------------------------------------
Home Team 34.3% Washington, DC; 4.2 Baltimore Orioles (MLB)
Sports Baltimore Washington Capitals (NHL)
Washington Wizards (NBA)
- -------------------------------------------------------------------------------------------------
SportsChannel 70% San Francisco/ 2.5 San Francisco Giants (MLB)
Pacific Oakland/San Jose; Oakland A's (MLB)
Sacramento/ Golden State Warriors (NBA)
Stockton/Modesto San Jose Sharks (NHL)
- -------------------------------------------------------------------------------------------------
SportsChannel 40% Boston; 2.4 Boston Celtics (NBA)
New England Providence;
Hartford
- -------------------------------------------------------------------------------------------------
SportsChannel 12% Tampa/ 2.3 Florida Marlins (MLB)
Florida St. Petersburg/Sarasota; Florida Panthers (NHL)
Miami/Ft. Lauderdale; Tampa Bay Devil Rays (MLB)
Orlando/Daytona/
Melbourne
- -------------------------------------------------------------------------------------------------
SportsChannel 40% Cleveland; 1.6 Cleveland Indians (MLB)
Ohio Columbus Cleveland Cavaliers (NBA)
- -------------------------------------------------------------------------------------------------
SportsChannel 40% Cincinnati 1.9 Cincinnati Reds (MLB)
Cincinnati
- -------------------------------------------------------------------------------------------------
SportsChannel 35.9% New York City 3.3 New York Mets (MLB)
New York New Jersey Nets (NBA)
New York Islanders (NHL)
New Jersey Devils (NHL)
- -------------------------------------------------------------------------------------------------
MSG Network 35.9% New York City 5.6 New York Yankees (MLB)
New York Knicks (NBA)
New York Rangers (NHL)
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------
(1) All ownership interests are indirect.
55
<PAGE>
The following table lists, as of November 15, 1997, third-party-owned RSNs
currently affiliated with FSN, the DMAs in which such RSNs operate and the
professional sports teams currently associated with such RSNs.
<TABLE>
<CAPTION>
RSN DMA TEAM (LEAGUE)
- ---------------- ------------ ---------------------------------
<S> <C> <C>
Comcast Philadelphia Philadelphia Phillies (MLB)
SportsNet Philadelphia 76ers (NBA)
Philadelphia Flyers (NHL)
- ---------------------------------------------------------------
Midwest Sports Minneapolis/ Minnesota Twins (MLB)
Channel St. Paul Minnesota Timberwolves (NBA)
- ---------------------------------------------------------------
Wisconsin Milwaukee Milwaukee Bucks (NBA)
Sports Channel
- ---------------------------------------------------------------
Empire Buffalo Buffalo Sabres (NHL)
- ---------------------------------------------------------------
New England Boston Boston Red Sox (MLB)
Sports(1) Boston Bruins (NHL)
- ---------------------------------------------------------------
</TABLE>
- --------
(1) It is anticipated that FSN will enter into an affiliation agreement with
SportsChannel New England upon the expiration or earlier termination of
its existing affiliation agreement with New England Sports Network.
Owned and Operated RSNs
The Company manages, and, together with affiliates of Fox and Liberty, owns
100% of, the following FSN-affiliated RSNs:
Southwest. Launched in 1983, the Southwest RSN's coverage area includes
Texas, Oklahoma, Arkansas, Louisiana and parts of New Mexico. As of
September 30, 1997, there were approximately 4.9 million subscribers,
representing 94% penetration of total basic cable subscribers in the
region. The Southwest RSN currently has professional rights agreements with
the Dallas Mavericks (NBA), the Houston Astros (MLB), the Dallas Stars
(NHL), the San Antonio Spurs (NBA), the Houston Rockets (NBA) and the Texas
Rangers (MLB) and collegiate contracts covering the Big 12.
West/West2. Launched in 1985, the West RSN's coverage area includes
southern California, Nevada and Hawaii. As of September 30, 1997, there
were approximately 3.9 million subscribers, representing 99% penetration of
total basic subscribers in the region. The West RSN currently has
professional rights agreements with the Los Angeles Lakers (NBA), the Los
Angeles Kings (NHL) and the Anaheim Angels (MLB) as well as collegiate
contracts covering the University of Southern California, the University of
California/Los Angeles and other PAC 10 teams.
The West2 RSN, a second channel in the southern California region, was
launched by the Company on January 31, 1997. As of September 30, 1997,
there were approximately 1.8 million subscribers, representing 46%
penetration of total basic subscribers in the region. The West2 RSN
currently has professional rights agreements with the Los Angeles Dodgers
(MLB), the Anaheim Mighty Ducks (NHL) and the Los Angeles Clippers (NBA).
Pittsburgh. Launched in 1986, the Pittsburgh RSN's coverage area includes
Pennsylvania, eastern Ohio, West Virginia and parts of New York and
Maryland. As of September 30, 1997, there were approximately 1.9 million
subscribers, representing 88% penetration of total basic subscribers in the
region. The Pittsburgh RSN currently has professional rights agreements
with the Pittsburgh Pirates (MLB) and the Pittsburgh Penguins (NHL) and
collegiate sublicenses for games of the University of Pittsburgh and The
Pennsylvania State University.
56
<PAGE>
Rocky Mountain. Launched in 1988, the Rocky Mountain RSN's coverage area
includes Colorado, Kansas, Missouri, Nebraska, New Mexico, South Dakota and
Wyoming. As of September 30, 1997, there were approximately 1.9 million
subscribers, representing 94% penetration of total basic subscribers in the
region. The Rocky Mountain RSN currently has professional rights agreements
with the Denver Nuggets (NBA), the Colorado Avalanche (NHL), the Colorado
Rockies (MLB) and the Kansas City Royals (MLB) and collegiate contracts
covering the Big 12 and Western Athletic Conferences.
Northwest. Launched in 1988, the Northwest RSN's coverage area includes
Washington, Oregon, Idaho, Alaska and western Montana. As of September 30,
1997, there were approximately 2.1 million subscribers, representing 87%
penetration of total basic subscribers in the region. The Northwest RSN
currently has professional rights agreements with the Seattle Mariners
(MLB) and the Seattle SuperSonics (NBA) and collegiate contracts covering
Washington State University, the University of Oregon and Oregon State
University.
Utah. Launched in 1989, the Utah RSN's coverage area includes Utah,
southern Idaho, Montana, Nevada and western Wyoming. As of September 30,
1997, there were approximately 0.6 million subscribers, representing 95%
penetration of total basic subscribers in the region. The Utah RSN
currently has a professional rights agreement with the only professional
sports team in the region, the Utah Jazz (NBA), and collegiate contracts
covering the Western Athletic and Big Sky Conferences.
Midwest. Although it was launched in 1989, the Midwest RSN's coverage
area was recently expanded from Missouri to include Indiana, Kentucky,
Ohio, eastern Wisconsin and southern Illinois. As of September 30, 1997,
there were approximately 1.3 million subscribers, representing 95%
penetration of total basic subscribers in this expanded region. The Midwest
RSN currently has professional rights agreements with the St. Louis
Cardinals (MLB), the Indiana Pacers (NBA) and the St. Louis Blues (NHL) and
collegiate contracts covering the Big 12 Conference.
Arizona. Launched in 1996, the Arizona RSN's coverage area includes
Arizona and parts of Nevada. As of September 30, 1997, there were
approximately 0.8 million subscribers, representing 99% penetration of
total basic subscribers in the region. The Arizona RSN has professional
rights agreements with the Phoenix Coyotes (NHL) and the Arizona
Diamondbacks (an expansion MLB team starting in 1998) and collegiate
contracts covering the University of Arizona, Arizona State University and
other PAC 10 teams.
Detroit. Launched in September 1997, the Detroit RSN, as of November 15,
1997, had approximately 2.1 million subscribers, representing 88%
penetration of total basic subscribers in the region. The Detroit RSN's
coverage area includes Michigan and northern Ohio. The Detroit RSN has
professional rights agreements with the Detroit Red Wings (NHL), the
Detroit Pistons (NBA) and the Detroit Tigers (MLB) and collegiate contracts
covering teams from the Big 10 Conference.
The Company manages, and, together with affiliates of Fox and Liberty, owns
substantial equity interests in, the following RSNs:
South. The Company owns 88% of the South RSN and the remaining 12% of the
South RSN is owned by E.W. Scripps Company. Launched in 1990, the South
RSN's coverage area includes Georgia, Alabama, Kentucky, Mississippi, North
Carolina, South Carolina and Tennessee. As of September 30, 1997, there
were approximately 5.6 million total subscribers, representing 99%
penetration of total basic subscribers in the region. The South RSN
currently has professional rights agreements with the Atlanta Braves (MLB),
the Atlanta Hawks (NBA), the Charlotte Hornets (NBA) and the Carolina
Hurricanes (NHL) and collegiate contracts covering the South East and
Atlantic Coast Conferences.
Sunshine. The Company owns 53.7% of the Sunshine RSN and the remaining
46.3% of the Sunshine RSN is owned by various MSOs operating in the region,
such as Comcast Corporation and Time Warner Inc. Launched in 1988, the
Sunshine RSN coverage area includes most of Florida. As of September 30,
1997, there were approximately 3.7 million subscribers, representing 98%
penetration of total basic
57
<PAGE>
subscribers in the region. The Sunshine RSN currently has professional
rights agreements with the Orlando Magic (NBA), the Miami Heat (NBA) and
the Tampa Bay Lightning (NHL) and collegiate contracts covering the
University of Florida, Florida State University and the University of
Miami.
Non-Managed RSNs
The Company owns equity interests in, but does not manage, the following
RSNs:
Chicago. The Company owns directly 50% of the Chicago RSN and owns a
total of 70% of the Chicago RSN through RPP. A subsidiary of Rainbow
currently owns the other 50% of the Chicago RSN and is the managing
partner. Launched in 1986, the Chicago RSN's coverage area includes
Illinois, Iowa, Indiana and Wisconsin. Upon consummation of the Rainbow
Transaction, the Chicago RSN became an FSN affiliate, and will be rebranded
as Fox Sports Chicago. As of September 30, 1997, there were approximately
2.7 million subscribers, representing 96% penetration of total basic
subscribers in the region. Featured teams in this region include the
Chicago Bulls (NBA), the Chicago Blackhawks (NHL) and the Chicago White Sox
(MLB). Collegiate contracts cover DePaul University as well as the Big 10
Conference.
D.C./Baltimore. The Company owns 34.3% of the D.C./Baltimore RSN, which
operates under the name Home Team Sports ("HTS"), and the remaining 65.7%
of the D.C./Baltimore RSN is owned by Group W. Launched in 1984 and
affiliated with FSN since 1996, the D.C./Baltimore RSN's coverage area
includes Maryland, parts of Washington, D.C., Delaware and Virginia. As of
September 30, 1997, there were approximately 4.2 million subscribers,
representing 93% penetration of total basic subscribers in the region.
Featured teams include the Baltimore Orioles (MLB), the Washington Capitals
(NHL) and the Washington Wizards, formerly known as the Washington Bullets
(NBA), and college contracts covering teams in the Big East Conference.
San Francisco. The Company owns directly 50% of the San Francisco RSN and
owns a total of 70% of the San Francisco RSN through RPP. A subsidiary of
Rainbow currently owns the other 50% of the San Francisco RSN and is the
managing partner. Launched in 1990, the San Francisco RSN's coverage area
includes northern California, southern Oregon, Hawaii and northern Nevada.
It is anticipated that, upon the expiration or earlier termination of FSN's
existing affiliation agreement with Bay TV, a third-party-owned RSN in this
region, the San Francisco RSN will become an FSN affiliate and be re-
branded Fox Sports San Francisco. As of September 30, 1997, there were
approximately 2.5 million subscribers, representing 88% penetration of
total basic subscribers in the region. Featured professional teams include
the San Francisco Giants (MLB), the Oakland A's (MLB), the Golden State
Warriors (NBA) and the San Jose Sharks (NHL), while collegiate contracts
cover Stanford University, the University of California, Berkeley and other
PAC 10 teams.
Upon the consummation of the Rainbow Transaction, the Company acquired
indirect ownership interests in the following RSNs owned by Rainbow:
New England. The Company and Rainbow own 40% and 60%, respectively, of the
New England RSN through RPP. A subsidiary of Rainbow is the managing
partner of the New England RSN. Launched in 1984, the New England RSN's
coverage area includes Massachusetts, Rhode Island, Vermont, New Hampshire,
Maine and parts of Connecticut. It is anticipated that, upon the
consummation of the expiration or earlier termination of FSN's existing
affiliation agreement with New England Sports Network, a third-party-owned
RSN in this region, the New England RSN will become an affiliate of FSN and
will be re-branded Fox Sports New England. As of September 30, 1997, there
were approximately 2.4 million subscribers, representing 71% penetration of
total basic subscribers in the region. The featured professional team is
the Boston Celtics (NBA). Media One, Inc. has an option, expiring at the
end of 1997, to purchase 50% of the New England RSN.
58
<PAGE>
Florida. The Company and Rainbow own 12% and 18%, respectively, of the
Florida RSN through RPP and the remaining 70% of the Florida RSN is owned
by Front Row Communications, Inc. ("Front Row"). Front Row is the managing
partner of the Florida RSN. Launched in 1993, the Florida RSN's coverage
area includes northern and southern Florida. As of September 30, 1997,
there were approximately 2.3 million subscribers, representing 60%
penetration of total basic subscribers in the region. Featured professional
teams include the Florida Marlins (MLB), the Florida Panthers (NHL) and the
Tampa Bay Devil Rays (an expansion MLB team starting in 1998). The Tampa
Bay Devil Rays, Inc. has an option to acquire 10% of the Florida RSN.
Ohio. The Company and Rainbow own 40% and 60%, respectively, of the Ohio
RSN through RPP. A subsidiary of Rainbow is the managing partner of the
Ohio RSN. Launched in 1989, the Ohio RSN's coverage area includes Ohio,
western Pennsylvania, northwest New York, West Virginia and Kentucky. Upon
consummation of the Rainbow Transaction, the Ohio RSN became an affiliate
of FSN and will be re-branded Fox Sports Ohio. As of September 30, 1997,
there were approximately 1.6 million subscribers, representing 81%
penetration of total basic subscribers in the region. Featured professional
teams include the Cleveland Indians (MLB) and the Cleveland Cavaliers
(NBA).
Cincinnati. The Company and Rainbow own 40% and 60%, respectively, of the
Cincinnati RSN through RPP. A subsidiary of Rainbow is the managing partner
of the Cincinnati RSN. Launched in 1989, the Cincinnati RSN's coverage area
includes Ohio, Kentucky and Indiana. Upon consummation of the Rainbow
Transaction, the Cincinnati RSN became an affiliate of FSN and will be re-
branded Fox Sports Cincinnati. As of September 30, 1997, there were
approximately 1.9 million subscribers, representing 82% penetration of
total basic subscribers in the region. The featured professional team is
the Cincinnati Reds (MLB).
New York. The Company and Rainbow own and operate two RSNs in the New
York region: The Madison Square Garden Network ("MSG") and SportsChannel
New York. The Company and Rainbow own 35.9% and 53.9%, respectively, of
each of MSG and SportsChannel New York through RPP. The remaining 10.2% of
each of MSG and SportsChannel New York is owned by ITT. ITT has an option,
expiring on June 17, 1999, to require Cablevision to purchase its interest
in MSG. If ITT does not exercise its option, commencing on June 17, 2000,
Cablevision will have an option to purchase ITT's interest in MSG. In the
event that any option regarding the acquisition of ITT's interests in MSG
is exercised, such transaction will be structured as a redemption of ITT's
interests by Madison Square Garden, L.P., a subsidiary of RPP. ITT may
acquire an additional 2.3% ownership interest in MSG, subject to a
previously agreed upon contribution to MSG. A subsidiary of RPP is the
managing partner of the New York RSNs. See "Certain Transactions."
Acquired in 1994 as Madison Square Garden Network, MSG's coverage area
includes New York and parts of New Jersey and Connecticut. As of September
30, 1997, there were approximately 5.6 million subscribers in the region.
Featured professional teams include the New York Knicks (NBA), the New York
Rangers (NHL) and the New York Yankees (MLB).
Launched in 1982, SportsChannel New York coverage area includes New York
and parts of New Jersey and Connecticut. As of September 30, 1997, there
were approximately 3.3 million subscribers in the region. Featured
professional teams include the New Jersey Nets (NBA), the New York
Islanders (NHL), the New Jersey Devils (NHL) and the New York Mets (MLB).
Upon the consummation of the Rainbow Transaction, through its indirect
ownership in MSG, RPP acquired an 89.8% ownership interest in the New York
Knicks (NBA), the New York Rangers (NHL), the Madison Square Garden
facilities and Radio City Productions LLC. RPP also acquired 100% ownership
interest in Metro Channel LLC, a company established by Rainbow to own and
operate the Metro Channel. The Metro Channel is intended to provide
programming of particular interest to a region, such as local news,
business, entertainment and sports. Accordingly, upon the consummation of
the Rainbow Transaction, the Company through its ownership interest in RPP
will indirectly own interests in the New York Knicks (NBA), the New York
Rangers (NHL) and the Metro Channel of 35.9%, 35.9% and 40%, respectively.
59
<PAGE>
Rights Agreements
The right to broadcast professional sports events is obtained through rights
agreements entered into between an RSN and an individual professional sports
team. Rights agreements are generally for a specified number of games per
season at specified locations (i.e., either at the team's home arena and/or
away), for a specified number of years and for a specified market area as
determined by the respective leagues. The acquisition of programming rights
pursuant to a rights agreement allows an RSN to broadcast those games which
are subject to the agreement on an exclusive basis. The average term of the
O&O RSNs' rights agreements (from commencement to scheduled termination) is
6.2 years; however, in its more recent negotiations, the Company is attempting
to acquire longer-term rights agreements. The average term of rights
agreements (from commencement to scheduled termination) entered into by the
O&O RSNs in 1997 is 7.2 years. Certain of the rights agreements contain
provisions for early termination or renegotiation of the terms therein prior
to their scheduled termination. In addition, the O&O RSNs' rights agreements
generally contain forward-looking rights such as rights of first refusal,
rights of first negotiation or rights to match offers made by third parties.
Traditionally, the Company's strategy has been to avoid having multiple rights
in any given region expire in the same year, thereby reducing the risk that a
competitor could secure all relevant rights in that region.
The O&O RSNs' collection of rights agreements is well-diversified, with a
total of 36 professional rights contracts. These contracts include rights to
12 MLB teams, 14 NBA teams and 10 NHL teams. The O&O RSNs also have rights to
three of the country's top collegiate football conferences, the PAC 10, Big 12
and Conference USA. This rights contract portfolio establishes the Company as
the leading regional sports network programming provider in the United States.
This large base of professional and collegiate rights allows the Company to
provide its viewing audience with more than 1,200 live professional and
collegiate games per year and more than 3,000 hours of live and local event
programming annually. In the NBA alone, the O&O RSNs deliver more than 300
games per year. No other competitor provides such comprehensive coverage. See
"Business--Competition."
Fox Sport Direct
Formerly launched as Liberty Sports Satellite in 1988, Fox Sports Direct
distributes via satellite sports programming packages produced by various
RSNs. In addition to providing sports programming produced by the Company's
RSNs, Fox Sports Direct also distributes sports programming produced by third-
party-owned RSNs pursuant to arrangements with such RSNs. The Company is
currently the nation's largest provider of sports programming for the DTH
market, reaching approximately five million DTH households. Fox Sports Direct
distributes two packages of regional sports networks to the residential and
commercial C-band marketplace. In addition, Fox Sports Direct handles the
distribution of Ku-Band sports programming services offered by DTH
distributors Primestar and DirecTv.
Fox Sports Net
FSN was formerly operated by the Company, however, since the consummation of
the Rainbow Transaction, it has been operated by the National Sports
Partnership. The primary function of FSN is to complement regional sports
programs with a synchronized schedule of quality national programming,
anchored by Fox Sports News. Fox Sports News is broadcast to the RSNs from its
studio in Los Angeles. Fox Sports News provides comprehensive coverage of all
sports news nationwide presenting a consistent brand image with high quality
on-air graphics. Fox Sports News consists of a half hour pre-game news show
aired at 6:30 p.m. and a two hour wrap-up news program aired at 10 p.m., each
of which is shown locally in each time zone. Fox Sports News further attracts
viewers by providing in-depth analysis by popular retired professional
athletes such as James Worthy and Craig Simpson before and immediately
following the regional games. FSN also provides other sports programming
events, including nationally televised MLB games, boxing, PGA golf, classic
sports, volleyball, surfing, and other outdoor programming events. In addition
to providing national programming, FSN also supplies corporate, marketing and
technical operations to the Company's RSNs, helping to create one cohesive
network. After giving effect to the Rainbow Transaction, FSN has distribution
in each of the top 14 DMAs and 22 of the top 25 DMAs thereby enabling the
creation of greater advertising opportunities for national advertisers.
Providing national programming such as Fox Sports News consistently across all
regions is intended
60
<PAGE>
to further allow FSN to penetrate the over $5 billion national advertising
market in which the Company's RSNs have not traditionally participated.
FSN has entered into affiliation agreements with the Company's RSNs and, in
certain regions where the Company does not hold interests in RSNs, with third-
party-owned RSNs. These agreements allow the RSNs to carry certain programming
and promotions in exchange for a per subscriber fee. Furthermore, pursuant to
such agreements, FSN is permitted to sell advertising time for the RSN during
a portion of the RSN's regional sports programming. The affiliation agreements
also permit FSN to market and sell advertising time during the national
portions of the RSN's programming schedule. The Company is currently party to
such Company affiliation agreements with certain of the Company's RSNs and
party to such third party affiliation agreements with the following RSNs: New
England Sports Network (Boston); Empire (Buffalo); Comcast Sports Net
(Philadelphia); Wisconsin Sports Channel (Milwaukee); Midwest Sports Channel
(Minneapolis); and Bay TV (San Francisco). Upon the consummation of the
Rainbow Transaction, the Company acquired indirect interests in RSNs in the
Boston and San Francisco markets through its interest RPP. In these markets,
it is anticipated that FSN may enter into affiliation agreements with the RSNs
owned by RPP upon the expiration or earlier termination of the existing
affiliation agreements with the third-party-owned RSNs referred to above.
Affiliated Cable Systems and Subscribers
The O&O RSNs currently generate approximately 62% of their revenues from
subscriber fees paid by affiliated cable systems. The Company's O&O RSNs
transmit programming to approximately 1,100 local affiliated systems in 35
states.
Each of the Company's RSNs enters into affiliation agreements with MSOs
and/or individual cable system operators. Such agreements typically run for
five to seven years and generally provide for annual rate increases. Under
affiliation agreements, cable system operators must distribute the network
service to a certain number of subscribers and/or maintain a certain
subscriber base penetration level. The same criteria are generally used as the
basis for calculating the monthly fees paid by the cable operator to the
Company for its programming. As advertiser supported networks, the RSNs depend
on achieving and maintaining carriage within the basic cable programming
package, as the subscriber penetration rate for pay-per-view or a la carte
programming packages is substantially less than the penetration rate achieved
by basic programming packages.
At present, the affiliation agreements with the Company's RSNs stipulate
monthly subscriber fees with annual increases. The Company's RSNs command
license fees in excess of average fees charged by basic cable networks
overall, but generally consistent with fees charged by other cable network
providers of live sports programming. The Company's affiliation agreements
have staggered expiration dates, with an average maturity of six years.
The Company's RSNs' programming meets many subscribers' demands for
increased local and national sports programming. Current industry trends
suggest that any new channels offered by cable system operators will be on a
pay-per-view, a la carte basis or digital tier as the operators seek to
compete against the extensive choices offered by DTH distribution systems.
However, the strong demand for the Company's RSNs' unique sports programming
has allowed the Company's RSNs to either maintain or establish a presence on
the basic programming package while expanding within the DTH market.
Advertising
FSN and the Company's RSNs derive significant revenues from selling a fixed
supply of advertising inventory, comprised of advertising time slots ("units")
shown during the Company's national and regional programming. The inventory is
divided between national network, national spot and local advertising. Local
non-game RSN programming currently carries local advertising. Regional
professional sports events such as basketball, hockey, and baseball currently
carry both national spot and local advertising. Upon consummation of
61
<PAGE>
the Rainbow Transaction, the Company commenced sales of national network
advertising during local team programming. Network programming such as Fox
Sports News, nationally televised MLB games and PGA golf carries national
network, national spot and local advertising. The Company's approach offers
national advertisers the unique ability to purchase national and local
advertising from one source in each of the top DMAs.
Local advertising is sold at the RSN level, and national network and
national spot units are sold at the national level by Fox Sports Ad Sales, LLC
("Fox Sports Ad Sales"), a subsidiary of the Company. Upon consummation of the
Rainbow Transaction, Fox Sports Ad Sales was combined with Rainbow's national
advertising sales business to form the National Advertising Partnership. The
Company is the managing partner of the National Advertising Partnership.
In general, basic cable programming services generate over half of their
revenues from advertising. Advertising agency media buyers generally require
cable networks to have at least 25 million subscribers as well as coverage of
major markets before they will recommend to their clients that such clients'
national advertising budgets be directed to a particular network. Currently,
the Company's RSNs and other FSN affiliates have approximately 46 million
subscribers and its network programming covers 19 of the top 25 DMAs in the
United States. While FSN previously met both the subscriber threshold and
market coverage criteria, affiliation with the Rainbow RSNs is expected to
greatly strengthen FSN's ability to sell national advertising. Upon
consummation of the Rainbow Transaction, the Company's network programming
will cover the top 14 DMAs and 22 of the top 25 DMAs in the United States.
Total advertising revenues are a function of the audience viewing level, the
average cost of each incremental viewer and the number of advertising units
sold. The audience viewing level, or audience delivery, is determined by the
number of subscribers to whom the programming is available and the portion of
those subscribers who are tuned into the programming, as measured by ratings
achieved by FSN and the RSNs. FSN uses A.C. Nielsen, Inc. ("Nielsen") to
provide metered estimates of audience viewing levels which are widely accepted
by advertisers as a basis for measuring audience delivery. The cost of each
incremental viewer is quantified by the cost per thousand homes ("CPM") or the
cost per point ("CPP"). The CPM or CPP is negotiated by the advertiser and the
telecaster, and will vary depending on the type and schedule of the program
that will carry the advertisement and the overall reach or ubiquity of the
network (i.e. cable networks with more subscribers are generally able to
command higher CPMs). CPMs are used in selling national network and national
spot advertising while CPPs are used in the local advertising market.
The National Advertising Partnership centralizes control over pricing and
allocation of demand across the national network, national spot and local
advertising categories of inventory. This centralized inventory management
will enable the Company to maximize revenue by responding to supply and
demand, and allocating inventory across advertising categories, such that
units are sold to the advertiser willing to pay the highest rate, regardless
of market. Accordingly, the split of advertising time between national
network, national spot and local advertising varies across markets dictated by
pricing conditions in each specific market at any point in time. This ability
to buy units across advertising categories and across regions from one source
also provides advertisers with a more efficient purchasing mechanism.
The Company's advertising revenues are derived primarily from sales of
advertising units, and to a lesser extent, from 30 to 60 minute program
advertising. Advertisers on FSN include nationally known companies in the
entertainment, beverage, packaged goods, fast food, automotive, retail,
insurance and travel industries.
Production and Distribution
Distribution of live sporting events is accomplished by a combination of
satellite and fiber transmissions. A production crew in a mobile remote
facility is stationed at the venue to produce and direct the event. The
various camera shots, pre-produced tape elements and graphics packages are
integrated by the mobile remote facility
62
<PAGE>
and then formatted to be delivered to a technical operations center ("Master
Control"). The telecast is delivered to the Master Control via remote
satellite uplink, direct fiber transmission, or a microwave network depending
upon the location of the event.
After receiving the remote feed, the Master Control "traffics" the event,
inserting commercial inventory and on-air promotion spots in formatted
positions. The signal is then uplinked from the Master Control to the RSN's
transponder, where the local cable system operator, or MSO, can downlink the
signal. After accessing the feed from the transponder, the cable system
operator delivers the signal to the cable subscriber via hard-wired coaxial
cable.
FSN provides 24 hours of national programming each day, which is made
available for all RSNs. Each RSN has the opportunity to receive and deliver
the national programming when no regional professional sports event or
locally-produced programming is available. This national service is treated
like a separate RSN with its own Master Control and technical operations.
Fox Sports News, the cornerstone of FSN's programming, is produced live
daily from 3:00 p.m. until 12:00 a.m. Pacific time zone. The show is delivered
to the Company's uplink facility located in Houston via a direct fiber optic
connection. A separate news integration control studio, which uses technology
similar to a Master Control, brings each RSN into and out of the live news
telecast. Once a professional sports event or other regularly scheduled
program ends, the RSN joins the news telecast. The integration studio makes
sure that each RSN joins Fox Sports News during a commercial break only, and
never during the program in progress. Commercial inserts and on-air
promotional materials are handled through each RSN's Master Control.
FX
FX was launched in June 1994, with the objective of becoming a leading cable
network. As of September 30, 1997, FX had approximately 31.2 million
subscribers and has quickly become a popular choice among cable viewers. FX's
strength has been derived from its ability to bring award-winning television
series to cable and from its access to the Twentieth Century Fox film library.
In addition, FX has leading cable sports programming with coverage of MLB,
college football and basketball, World League of American Football and the
World Cup of Hockey.
FX's line-up for the Fall 1997 season includes "In Living Color," "The X-
Files" and "NYPD Blue." FX's extensive programming library also includes TV
hits like "Batman," "The A-Team" and "Mission: Impossible." FX also provides a
wide selection of more than 2,200 films from the Twentieth Century Fox film
library including "Alien," "Independence Day," "Predator" and "Star Wars."
FX also provides cable viewers with a line-up of sports coverage. MLB was
recently introduced with live coverage of national games airing one night per
week. FX also airs live coverage of college football games for the PAC 10, Big
12 and Conference USA. During the regular 1997-1998 season, FX also has live
coverage of PAC 10 college basketball on Thursday nights. FX currently
provides coverage of The World League of American Football, from April through
June, every Saturday and Sunday. The World Cup of Hockey was shown live on FX
during August 1996.
FX has an excellent ratings performance history and continues to be a strong
leader in cable ratings. A.C. Nielsen Inc. began providing ratings for FX in
December 1994 with a 0.6 average prime time rating, one of the strongest sign-
on performances of any cable network. For calendar 1996 FX received a 0.67
average prime time rating. The Company expects FX's ratings will continue to
strengthen and build upon its strong subscriber base as its competitive
position is enhanced by the addition of "The X-Files," "NYPD Blue" and MLB.
The "X-Files" debuted in August 1997 with a 3.3 rating. In 1995, "The X-Files"
was the critically-acclaimed winner of the Golden Globe Award for Outstanding
Drama Series and recipient of seven Emmy Award nominations, including
Outstanding Drama Series. Additionally, NYPD Blue, which debuted in August
1997 as well, opened with a 2.2 rating. In its first season on broadcast
television, "NYPD Blue" was nominated for 26 Emmy Award nominations and won a
number of Best Series Awards.
63
<PAGE>
FX is distributed from a Master Control located in Los Angeles. FX has two
transponders to provide alternate programming feeds for the east and west
coast time zones. Each feed has its own dedicated transponder which cable
system operators access via their system head-ends and distribute to
subscribers via co-axial cable. Overall, FX's distribution functions just like
an RSN, with the exception of the dual feeds for the two different time zones.
COMPETITION
General
The business of distributing sports programming for cable television is
highly competitive. A number of basic and pay television programming services
(such as ESPN) as well as free over-the-air broadcast networks provide
programming that targets the Company's RSNs' audience. The business of
distributing general entertainment programming for cable television is also
highly competitive. A number of basic and pay television programming services
(such as USA Network and Turner Network Television) as well as free over-the-
air broadcast networks provide programming that targets the same viewing
audience as FX.
The Company's RSNs and FX directly compete with other programming services
for distribution and, when distribution is obtained, the Company's RSNs and FX
compete, in varying degrees, for viewers and advertisers with other cable
programming services and over-the-air broadcast television, radio, print
media, motion picture theaters, video cassettes and other sources of
information and entertainment. Important competitive factors are the prices
charged for programming, the quantity, quality and variety of the programming
offered and the effectiveness of marketing efforts.
RSNs
The Company is currently the only national network distributing a full range
of sports programming on both a national and regional level. On a national
level, the Company's primary competitor is ESPN, and to a lesser extent,
ESPN2. However, while ESPN and ESPN2 currently focus exclusively on the
national television and cable market, national programming is only a part of
the Company's overall objective. The Company's major focus is regional sports
programming. Since ESPN and ESPN2 do not currently program specifically for
local audiences, or solicit regional or local advertisers, they do not
directly compete with the Company's RSNs. Moreover, given the Company's
extensive and diversified portfolio of sports rights contracts, it is unlikely
that ESPN, ESPN2 or any other potential sports programmer could, in the near
term, acquire a sufficient number of sports rights contracts to effectively
compete with the Company as a national provider of regional sports
programming. However, ESPNews and CNN/SI, basic cable networks launched in the
last year, each offer a 24 hour sports news format which competes directly
with Fox Sports News.
In addition to competition for cable distribution, viewers and advertisers,
the Company's RSNs also compete, to varying degrees, for programming. With
respect to the acquisition of sports programming rights, FSN competes for
national rights principally with the national broadcast television networks, a
number of national cable services that specialize in or carry sports
programming, and television "superstations," which distribute sports and other
programming to cable television systems by satellite, and with independent
syndicators that acquire and resell such rights nationally, regionally and
locally. The Company's RSNs also compete for local and regional rights with
those competitors, with local broadcast television stations and with other
local and regional sports networks. The owners of distribution outlets such as
cable television systems may also contract directly with the sports teams in
their service area for the right to distribute a number of such teams' games
on their systems.
FX
FX faces competition in the acquisition of distribution rights to
programming produced by other diversified media companies, due to industry
consolidation and the elimination of the financial interest and syndication
rules. Many of FX's competitors are larger and have financial and other
resources substantially greater than those of
64
<PAGE>
the Company. Certain of these organizations are "vertically integrated" (i.e.,
producing, distributing and exhibiting their own programming). Industry
integration may impact FX's ability to acquire programming distribution
rights, as it is likely that vertically integrated media companies will sell
programming distribution rights to their cable network subsidiaries. The
effect of such distribution patterns would be to reduce the availability of
such programming and to increase the cost of programming that is available for
acquisitions by FX. With the repeal of certain governmental regulations which
formerly prohibited the broadcast networks from acquiring financial interests
in, and syndication rights to, television programming, this trend towards
vertical integration and, accordingly, competition in the industry, is
expected to increase. See "Regulation and Legislation."
Increased competition for viewers in the cable industry may result from
technological advances, such as digital compression technology, which allows
cable systems to expand channel capacity; the further deployment of fiber
optic cable, which has the capacity to carry a much greater number of channels
than co-axial cable; and "multiplexing," in which programming services offer
more than one feed of their programming. The increased number of choices
available to the Company's viewing audience as a result of such technological
advances may lead to a reduction in the Company's market share. The Company
competes or expects to compete in the future for advertising revenue with the
television programming services described above, as well as with other
national television programming services, superstations, broadcast television
networks, local over-the-air television stations, radio and print media. More
generally, the Company competes with various other leisure-time activities
such as home videos, movie theaters, personal computers and other alternative
sources of entertainment and information.
SATELLITE DISTRIBUTION
All programming for the Company is transmitted from the Company's facilities
located in Houston, Los Angeles, Pittsburgh and Seattle. Local teleports near
each facility provide uplink services to deliver the Company's programming to
transponders on various geosynchronous satellites which, in turn, are received
by cable system operators, DTH services and other customers.
Presently, each regional sports network has a dedicated feed which is
transmitted to a transponder as an analog signal. In addition, a network feed
is transmitted to a transponder as a means of distributing certain programming
(including Fox Sports News) to the Company's RSNs. Each cable system head-end
has equipment which is controlled remotely from the Company's Houston
location. This provides the Company with substantial flexibility to "switch"
the programming for an individual region or sub-region to alternative
programming in order to accommodate regional variations in broadcast rights
for certain teams and events.
Programming for FX is distributed using two separate feeds on two separate
satellite transponders, one for the Eastern, Central and certain Mountain time
zones and one for all other Mountain time zones and the Pacific time zones.
Upon consummation of the Rainbow Transaction, the Company will lease 20
full-time transponders: 15 for use by its domestic sports networks; two for
use by the FX cable network; two for sublease to cable programming services
affiliated with Fox; and one for sublease to Fox Sports International.
Commencing in 1998, the Company will begin to digitally compress its
transmissions to three of the four transponders on Galaxy VII and to one
transponder on Satcom C-3. Through compression, the Company will be able to
combine up to eight services on one transponder, using bit rates ranging from
4-7 megabits per second. This will improve signal quality, programming and
"switching" capability, growth opportunities, and will also result in
significant cost savings due to the reduced transponder requirements. See
"Risk Factors--Dependence upon Satellites" and "Certain Transactions."
REGULATION AND LEGISLATION
Certain aspects of the Company's sports programming and FX operations are
subject, directly or indirectly, to federal, state, and local regulation. At
the federal level, the operations of cable television systems, satellite
distribution systems, other multichannel distribution systems, broadcast
television stations, and, in some respects,
65
<PAGE>
vertically integrated cable programmers are subject to the Communications Act
of 1934, as amended, by the Cable Communications Policy Act of 1984 (the "1984
Act"), the Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Act"), which amended the 1984 Act, and the Telecommunications Act
of 1996 (the "1996 Act") and regulations promulgated thereunder by the Federal
Communications Commission (the "FCC"). Cable television systems are also
subject to regulation at the state and local level.
The following does not purport to be a summary of all present and proposed
federal, state, and local regulations and legislation relating to the cable
television industry and other industries involved in the video marketplace.
Other existing legislation and regulations, copyright licensing, and, in many
jurisdictions, state and local franchise requirements are currently the
subject of a variety of judicial proceedings, legislative hearings, and
administrative and legislative proposals which could change, in varying
degrees, the manner in which the cable television industry and other
industries involved in the video marketplace operate.
Federal Regulation and Legislation
The 1996 Act. The 1996 Act took effect in February 1996, altering the
network of federal, state, and local laws and regulations pertaining to
telecommunications providers and services. The following is a summary of
certain provisions of the 1996 Act that affect the cable television industry,
and particularly the cable and telecommunications services provided by the
Company. The FCC is in the process of promulgating rules interpreting and
implementing the provisions of the 1996 Act. At this time, it is impossible to
state with precision the full impact the 1996 Act will have on the Company.
The 1996 Act seeks to promote facilities-based competition between telephone
companies and cable operators. To this end, it eliminates the FCC's cable-
telco cross-ownership prohibition, which barred the common ownership of
telephone companies and cable systems serving overlapping areas. It also
preempts and prohibits state and local regulations that prevent cable
operators from providing telephone service, and it requires telephone
companies to interconnect with cable operators and other alternative providers
of telecommunications service. While telephone companies and cable operators
are now permitted to offer competing services, the 1996 Act generally
prohibits telephone companies from acquiring existing cable systems operating
in their telephone service areas, and vice versa.
The 1996 Act eliminates the FCC's rule prohibiting broadcast networks from
owning cable systems. It removes the statutory ban on common ownership of
broadcast television stations and cable systems in overlapping areas.
Nevertheless, the FCC has in effect a regulatory restriction barring such
common ownership.
The 1996 Act phases out cable rate regulation, except with respect to the
"basic" tier (which must include all local broadcast stations and public,
educational, and governmental access channels and must be provided to all
subscribers). Rate regulation of all non-basic services (including the
"expanded basic" tiers that commonly include satellite-delivered programming
networks) will be completely eliminated on March 31, 1999. The 1996 Act
eliminated such regulation for small cable operators immediately upon
enactment. In the interim, the 1996 Act liberalizes the 1992 Act's definition
of "effective competition" to expand the circumstances under which rate
regulation will cease immediately. The local franchising authorities ("LFAs")
remain primarily responsible for regulating the basic tier of cable service.
Furthermore, the 1996 Act eliminates the right of an individual subscriber to
bring a rate complaint, providing that any rate complaint must be filed by an
LFA, and then only after the LFA has received multiple subscriber complaints
regarding the rate adjustment in question. Thus, beyond the basic tier of
cable service, which continues to be regulated by the LFAs, rate regulation of
other cable services between now and 1999 will only be triggered by a valid
rate complaint by an LFA, and only in an area where no effective competition
exists.
The 1996 Act addresses obscenity, indecency, and violence in connection with
telecommunications services in several respects, including the establishment
of a television rating code to be created voluntarily by the industry, or, in
the event a voluntary industry agreement is not reached, by an FCC advisory
committee. In January 1997, industry representatives submitted a joint
proposal to the FCC describing a voluntary rating system for video
programming, which was subsequently implemented by the industry. This rating
system is currently under review by the FCC and may be changed as a result of
future FCC action. In addition, the 1996 Act
66
<PAGE>
addresses the need to create wider availability of access to
telecommunications services for persons with disabilities. Specifically, the
FCC is directed to study and promulgate rules on closed captioning services.
To the extent the 1996 Act fosters greater competition for the provision of
cable programming network services to individual subscribers, the Company
should generally be impacted either neutrally or advantageously, as additional
providers are additional potential customers for the Company. To the extent,
however, that rate deregulation causes a material increase in cable rates, the
individual subscriber base could be decreased, potentially affecting the
Company's subscriber revenues. Further, the Company may be called upon to
provide increased closed captioning to assist in complying with rules
promulgated under the 1996 Act and may be required to provide assistance or
information to establish ratings for its programming. Both of these
undertakings could increase the Company's operating expenses.
The 1992 Act Rate Regulation. The 1992 Act subjected all cable television
operators not subject to "effective competition" to rate regulation. Under the
1992 Act, effective competition was deemed to exist where (i) fewer than 30%
of households in the franchise area subscribe to a cable service, (ii) at
least 50% of the homes in the franchise area are passed by at least two
unaffiliated multichannel video programming distributors, where the
penetration of at least one distributor, other than the largest, is at least
15%, or (iii) a multichannel video programming distributor operated by the LFA
for that area passes at least 50% of the households in the franchise area. The
1996 Act expanded this definition by providing that effective competition
would also be deemed to exist where a local exchange carrier or its affiliate
offers comparable video programming services in the franchise area of an
unaffiliated cable operator.
The basic tier of cable service is subject to rate regulation by LFAs that
certify to the FCC their intention and ability to regulate rates. The basic
tier consists, at a minimum, of all local broadcast signals carried by the
system, all non-satellite-delivered distant broadcast signals that the system
chooses to carry, and all public, educational, and governmental access
channels. Under the 1992 Act, the rates of "non-basic" programming service
tiers (other than per-channel or per-program services) were regulated by the
FCC in response to complaints by a subscriber or by an LFA. The 1996 Act
eliminated non-basic rate regulation of small cable operators' systems. Non-
basic rate regulation of all other systems will terminate on March 31, 1999.
In the interim, the FCC will review rates only upon complaint by an LFA. An
LFA may only file such a complaint if it receives complaints from subscribers.
The 1996 Act thus eliminates the power of one individual subscriber to bring a
rate complaint and trigger rate regulation.
The FCC's initial rules implementing the 1992 Act's rate regulation
provisions became effective on September 1, 1993. The FCC's existing
regulations contain standards for the regulation of basic tier and non-basic
tier cable service rates (other than per-channel or per-program services). The
rate regulations adopt a benchmark price cap system for measuring the
reasonableness of existing rates and a formula for evaluating future rate
increases. Alternatively, cable operators have the opportunity to make cost-
of-service showings, which, in some cases, may justify rates above the
applicable benchmarks. The rules also require that charges for cable-related
equipment (e.g., converter boxes and remote control devices) and installation
services be unbundled from the provision of cable service and based upon
actual costs plus a reasonable profit. LFAs and/or the FCC are empowered to
order a reduction of existing rates that exceed the maximum permitted level
for cable services and associated equipment.
Once a system's rates are initially set the rules permit subsequent
increases that reflect inflation and increases in programming costs and
certain other costs. The rules thus permit cable operators that carried a
given programming service when their rates were initially regulated to pass
through to subscribers any subsequent increases in licensing fees, subject to
a cap which will expire this year. Systems may also increase rates when they
add new channels to regulated tiers, but there is a cap on such increases.
Alternatively, systems may create "new product tiers" consisting entirely of
services not previously offered on regulated tiers, and these new product
tiers will generally not be subject to rate regulations.
Rate regulation under the 1992 Act resulted in a reduction of rates to some
subscribers in some markets. The deregulation under the 1996 Act may, however,
result in an immediate increase in rates in some markets. In
67
<PAGE>
response to the 1992 Act and the FCC's implementing regulations, many cable
systems retiered channels to create an attractively priced basic tier
consisting exclusively of broadcast and public, educational, and governmental
access channels, while offering satellite-delivered programming services such
as the Company's on a different service tier or on an a la carte basis. To the
extent that such retiering or repricing of the Company's networks induces
customers to discontinue their subscriptions, the Company's financial
performance could be adversely affected. Deregulation of rates pursuant to the
1996 Act may reverse such tiering and pricing decisions by cable system
operators and, correspondingly, reverse or ameliorate any adverse effects of
the 1992 Act, although the impact of the 1996 Act and its implementing
regulations cannot be predicted at this time.
Must-Carry and Retransmission Consent. The 1992 Act subjects cable systems
to "must carry" rules, pursuant to which local broadcast stations may elect to
demand carriage. It also provides favorable channel positioning rights for
broadcasters electing to exercise their must carry rights. The 1992 Act also
gives television broadcast stations the right to withhold consent to be
carried by a cable system, which may result in the station receiving
compensation for carriage.
Regulation of Cable System Operators Affiliated With Video Programming
Vendors. The 1992 Act prohibits a cable operator from engaging in unfair
methods of competition that prevent or significantly hinder competing
multichannel video programming distributors such as MMDS, satellite master
antenna televisions ("SMATV") services, and DTH operators from providing cable
programming to their subscribers. The stated purpose of this law is to
increase competition in the multichannel video programming market. The FCC has
adopted regulations to prevent a cable operator that has an "attributable
interest" (including voting or non-voting stock ownership of at least 5%) in a
programming vendor from exercising improper influence over the programming
vendor in the latter's dealings with competitors to cable, and to prevent a
programmer in which a cable operator has an "attributable interest" from
discriminating between cable operators and their competitors, or among cable
operators.
The FCC's rules may have the effect, in some cases, of requiring vertically
integrated programmers to offer their programming to MMDS, SMATV, DTH, and
other competitors of cable television, and of prohibiting certain exclusive
contracts between such programmers and cable system operators. The rules also
permit multichannel video programming distributors (such as MMDS, SMATV, and
DTH operators) to bring complaints before the FCC if they are unable to obtain
cable programming on non-discriminatory terms because of "unfair practices" by
the programmer.
With respect to cable systems having channel capacity of less than 76
channels, the FCC, acting pursuant to the 1992 Act, has limited to 40% the
number of programming channels that may be occupied by video programs in which
the cable operator has an "attributable interest." As a result of TCI's
ownership of Liberty, TCI will be deemed to have an attributable interest in
the Company. Similarly, Cablevision will be deemed to have an attributable
interest in RPP. Accordingly, any cable system in which TCI has a 5% or
greater ownership interest will be restricted with respect to the carriage of
channels offered by the Company, and any cable television system in which
Cablevision has a 5% or greater ownership interest will be restricted with
respect to the carriage of any channel in which Rainbow has an interest. While
cable systems are expanding their capacity, there may be instances in which a
TCI or a Cablevision system with 75 channels or less will not be able to carry
one or more of the Company's channels (or in the case of Cablevision, an RPP
channel) or will have to remove another affiliated channel.
State and Local Regulation
Cable television systems are generally constructed and operated under non-
exclusive franchises granted by a municipality or other state or local
governmental entity. Franchises are granted for fixed terms and are subject to
periodic renewal. The 1984 Act places certain limitations on an LFA's ability
to control the operations of a cable operator, and the courts from time to
time have reviewed the constitutionality of several franchise requirements,
often with inconsistent results. The 1992 Act prohibits exclusive franchises,
and allows LFAs to exercise greater control over the operation of franchised
cable television systems, especially in the areas of customer service and rate
regulation. The 1992 Act also allows LFAs to operate their own multichannel
video
68
<PAGE>
distribution systems without having to obtain franchises. Moreover, LFAs are
immunized from monetary damage awards arising from their regulation of cable
television systems or their decisions on franchise grants, renewals,
transfers, and amendments.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Cable franchises generally contain provisions governing time
limitations on the commencement and completion of construction, and governing
conditions of service, including the number of channels, the types of
programming (but not the actual cable programming channels to be carried), and
the provision of free service to schools and certain other public
institutions. The specific terms and conditions of a franchise and the laws
and regulations under which it is granted directly affect the profitability of
the cable television system, and thus the cable television system's financial
ability to carry programming. Local governmental authorities also may certify
to regulate basic cable rates. Local rate regulation for a particular system
could result in resistance on the part of the cable operator to the amount of
subscriber fees charged by the Company for its programming.
Various proposals have been introduced at the state and local level with
regard to the regulation of cable television systems, and a number of states
have enacted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies.
PATENTS, TRADEMARKS AND LICENSES
In connection with the formation of the Company and the Rainbow Transaction,
Twentieth Century Fox Film Corporation and Fox Broadcasting Company have
agreed to grant the Company a non-exclusive, royalty free license, with the
right to sublicense to RSNs, to use the "Fox" name and certain related
artwork. See "Certain Transactions."
In their telecast rights agreements with the professional sports teams in
their markets, RSNs are granted certain rights to use the name, logos,
symbols, seals, emblem, and insignia and other trademarks of the team and its
opponents. Generally, such agreements restrict such usage to the actual game
telecasts, and for other purposes incident thereto (news and highlight shows
and on-air promotional spots), and for other purposes (e.g., print
advertisements) so long as the use is limited to the marketing and promotion
of the teams and the RSNs. Generally, such promotional usages may be
"sponsored" (e.g., a particular company sponsoring a particular RSNs telecast
of a professional sports team with the visual use of team and sponsor logos),
but such promotional uses cannot imply endorsements by the team. Typically the
RSNs also have the contractual right to use the pictorial representations and
the names and likenesses of the players, managers, coaches and officials of
the team, its opponents, and the applicable league in the telecasts and for
promotional purposes incident thereto. As a protection of their proprietary
property, the teams generally reserve certain approval rights of trademark
usages and other rights reservations. Because the telecast rights agreements
are limited to the "home territories" of the teams, and the RSNs only operate
within such territories, the rights to use a teams logo are generally limited
to such territories.
The Company has an agreement with MLB to telecast certain of its games on a
national basis on FSN and FX, and has the same general rights under the
agreement for use of the MLB logo and those of its teams as are in the team
contracts, but such usages are permitted on a national basis.
FACILITIES
The Company's corporate facilities are located in Los Angeles, California
where it leases approximately 60,809 square feet of office space from New
World Communications Group Incorporated, an indirect, wholly-owned subsidiary
of News Corporation. See "Certain Transactions."
In addition to the corporate facilities, the Company also leases office
facilities located in the market of each of the Company's RSNs, technical and
uplink facilities located in Houston, Texas and Los Angeles, California and
various sales offices located throughout the United States. The Company has
national ad sales offices in New York, Atlanta, Detroit, Chicago, Dallas, Los
Angeles and San Francisco. The Company's RSNs have sales
69
<PAGE>
offices in Ft. Lauderdale, Kansas City, Tallahassee, Tampa and Tulsa. The O&O
RSNs lease office space within the market that they serve and are summarized
as follows:
RSN LOCATION
Southwest....... Irving, Texas
West/West 2..... Los Angeles, California
Pittsburgh...... Pittsburgh, Pennsylvania
Rocky Mountain.. Denver, Colorado
Northwest....... Bellevue, Washington
Utah............ Salt Lake City, Utah
Midwest......... St. Louis, Missouri
Arizona......... Phoenix, Arizona
Detroit......... Detroit, Michigan
South........... Atlanta, Georgia
Sunshine........ Orlando, Florida
Fox Sports Direct leases its corporate office space in Irving, Texas. FX
also leases sales offices in Atlanta, Chicago and New York.
The Company does not own any real property. The Company believes that its
current office and production space, together with space readily available in
the markets in which it operates, are adequate to meet its needs for the
foreseeable future.
EMPLOYEES
As of September 30, 1997, the Company, together with its O&O RSNs and other
subsidiaries, had 1,217 full-time employees. The Company also regularly
engages freelance creative staff and other part-time employees. None of the
Company's employees are covered by collective bargaining agreements. The
Company believes its relations with its employees are good.
LEGAL PROCEEDINGS
On October 27, 1997, Echostar Communications Corporation ("Echostar") filed
a complaint with the FCC against the Company alleging that the Company had
violated Section 548 of the Communications Act of 1934, as amended (the "1934
Act") and Sections 76.1000 et seq. of the FCC's Rules (the "FCC Rules") by
discriminating against Echostar in the prices and other terms and conditions
for distribution of regional sports programming to Echostar's subscribers by
direct broadcast satellite. Echostar's claim is based on allegations that the
Company licenses cable operators to distribute regional sports programming at
lower prices and on more favorable terms than those contained in Echostar's
contract with the Company. Echostar's complaint requests the FCC to order the
Company to offer Echostar regional sports programming at rates and on terms
that are no worse than those offered to other cable operators, to award
damages in an unspecified amount, and to impose future reporting requirements
to ensure non-discrimination. On December 10, 1997, the Company filed a
response to the Echostar complaint denying any violation of the 1934 Act or
the FCC Rules. Although the Company cannot predict with certainty the outcome
of this proceeding, it intends to vigorously defend this action and believes
that the ultimate outcome will not have a material adverse effect on its
consolidated financial position or results of operations.
On November 24, 1997, Echostar filed another complaint with the FCC against
the Company alleging that the Company had violated Section 548 of the 1934 Act
and Sections 76.1000 et seq. of the FCC Rules by refusing to provide other
programming to Echostar due to exclusive distribution rights it had previously
granted cable operators. The complaint alleges that even though the exclusive
contracts were valid when executed, such contracts cannot be enforced because
the Company became a "vertically integrated programming vendor" and is
therefore obligated by law to make its programming available to all
distributors. Echostar requests the FCC to declare that the Company's
exclusive contracts violate the 1934 Act and the FCC Rules, to immediately
require the Company to make its programming available to Echostar on
nondiscriminatory terms and conditions, and for damages in an unspecified
amount. The Company's response to this complaint is due on December 24, 1997,
and it intends to vigorously defend this proceeding as well. The Company
cannot predict with certainty the outcome of this proceeding, however it
believes that the ultimate outcome will not have a material adverse effect on
its consolidated financial position or results of operations.
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. Except as described above, the
Company is not currently a party to any material legal proceedings.
70
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The current executive officers and certain key employees of the Company
and/or certain of its subsidiaries are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
David Hill....................... 50 Chairman
Anthony F.E. Ball................ 41 President and Chief Executive Officer
Executive Vice President, Head of
James A. Martin.................. 43 Business Operations
Senior Vice President, Finance and
Jeff Shell....................... 32 Development
Louis LaTorre.................... 43 Senior Vice President
Joint Chief Operating Officer of
Tracy Dolgin..................... 39 Fox/Liberty Sports
Executive Vice President of Fox/Liberty
Robert L. Thompson............... 39 Sports
</TABLE>
David Hill has served as Chairman of the Company since April 1996. From
April 1996 through October 1997, Mr. Hill also served as the Company's Chief
Executive Officer. In addition, since October 1997 he has served as Chairman
and Chief Executive Officer of Fox Broadcasting Company. Prior thereto, from
July 1996 until October 1997, Mr. Hill served as Chief Operating Officer of
Fox Television and from December 1993 until October 1997 as President of Fox
Sports, a division of Fox Television. From April 1988 until October 1993, Mr.
Hill was employed at Sky Television and its successor company, British Sky
Broadcasting Group plc ("BSkyB"), in various capacities, including Head of Sky
Sports, a subsidiary of BSkyB.
Anthony F.E. Ball has served as President of the Company since March 1997
and additionally as its Chief Executive Officer since October 1997. From March
1997 until October 1997, Mr. Ball also served as Chief Operating Officer of
the Company. Mr. Ball has also served as President and Chief Executive Officer
of Fox/Liberty Sports and Fox/Liberty FX since October 1997. In addition,
since June 1996 he has served as President and Chief Operating Officer of Fox
Sports International. From December 1993 until June 1996, Mr. Ball was
employed by BSkyB in various capacities, including as its General
Manager/Broadcasting and as Head of Production and Operations of Sky Sports.
Prior thereto, from March 1991 until December 1993, Mr. Ball served as Senior
International Vice President and Head of European Productions at TransWorld
International, a subsidiary of International Management Group.
Jeff Shell has served as Senior Vice President, Finance and Development of
the Company since June 1996. From October 1994 until November 1996, he served
as Vice President of Business Development for Fox, Inc. Prior thereto, from
September 1991 until October 1994, Mr. Shell served in various capacities in
the Strategic Planning and Corporate Development Group at The Walt Disney
Company.
James A. Martin has served as Executive Vice President, Head of Business
Operations of each of the Company, Fox/Liberty Sports and Fox/Liberty FX since
June 1997. From September 1996 until June 1997, he served as Executive Vice
President and Chief Operating Officer of Fox/Liberty Sports. From January 1995
until September 1996, Mr. Martin served as Executive Vice President and
President of Regional Network Operations of Liberty Sports, Inc. Prior
thereto, from August 1991 until December 1994 Mr. Martin served as Vice
President and Chief Operating Officer of Liberty.
Louis LaTorre has served as Senior Vice President of the Company, President,
Advertising Sales of Fox/Liberty Sports and President, Advertising Sales of
Fox/Liberty FX since January 1997. From July 1994 until December 1996, he
served as President and Chief Operating Officer for the Sales and Marketing
Division of New World Communications, Inc. From October 1993 until June 1994,
Mr. LaTorre served as President, Sales and Marketing for Pro Star
Entertainment Inc., a satellite encryption and entertainment company. From
March 1993 until September 1993, he served as President of Platinum
Productions, Inc., a pay-per-view entertainment company. Prior thereto, from
June 1981 until February 1993, Mr. LaTorre served in various capacities at
Turner Broadcasting System, Inc. including, most recently, as Executive Vice
President, Advertising Sales and Marketing, for the Turner Entertainment
Group, a subsidiary of Turner Broadcasting System, Inc.
71
<PAGE>
Tracy Dolgin has served as Joint Chief Operating Officer of Fox/Liberty
Sports since July 1997. In addition, he has served as Executive Vice
President, Marketing for Fox Sports, a division of Fox Broadcasting Company,
since December 1993. Prior thereto, from December 1992 until December 1993,
Mr. Dolgin served as Executive Vice President, Marketing of Fox Broadcasting
Company, and from May 1989 until December 1992, Mr. Dolgin served as Senior
Vice President, Marketing of Home Box Office, a subsidiary of Time Warner Inc.
Robert L. Thompson has served as Executive Vice President of Fox/Liberty
Sports since October 1997 and from July 1996 through October 1997 he served as
its Senior Vice President, Rights and Acquisitions and Regional Network
Operations. From October 1994 through July 1996, Mr. Thompson served as Senior
Vice President, Regional Network Operations for Liberty Sports, Inc. and from
January 1994 until October 1994 he served as Group Vice President of Liberty
Sports, Inc. Prior thereto, from February 1989 until October 1994.
Mr. Thompson served as Vice President/General Manager of the Rocky Mountain
Prime Sports Network.
There are no family relationships between any of the executive officers or
key employees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid for the eight months
ended December 31, 1996 to those persons who were, at December 31, 1996, the
Company's Chief Executive Officer and the next three most highly compensated
executive officers and/or key employees of the Company and/or its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ --------------------- ---------
RESTRICTED SECURITIES INCENTIVE
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING PLAN ALL OTHER
OCCUPATION YEAR SALARY BONUS COMPENSATION AWARDS OPTION PAYOUTS COMPENSATION
------------------ ---- -------- -------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David Hill.............. 1996 $333,333(2) $100,000(2) -- -- -- -- --
Chairman and Former
Chief Executive Offi-
cer(1)
Jeff Shell.............. 1996 $140,000(3) $ 45,000(3) -- -- -- -- --
Senior Vice President,
Finance and Development
James A. Martin......... 1996 $215,625(5) $ 63,333(5) $300,000(6) -- -- -- $900,000(6)
Executive Vice President
and Former Chief Operat-
ing Officer of
Fox/Liberty Sports(4)
Robert L. Thompson...... 1996 $193,282(8) $ 55,000(8) $180,000(6) -- -- -- $540,000(6)
Former Senior Vice Pres-
ident, Rights and Acqui-
sitions and Regional
Network Operations of
Fox/Liberty Sports(7)
</TABLE>
- --------
(1) In October 1997, Mr. Ball succeeded Mr. Hill as Chief Executive Officer of
the Company.
(2) Reflects the compensation received by Mr. Hill for the services he
rendered to the Company as its Chairman and Chief Executive Officer from
the Company's inception in April 1996 through December 31, 1996. During
fiscal year 1996, Mr. Hill was, and currently remains employed by Fox
Broadcasting Company. Fox Broadcasting Company grants the Company the
right to utilize Mr. Hill's services. The above disclosure does not
include compensation information for Mr. Hill with respect to the services
he performed at Fox Broadcasting Company. See "Certain Transactions."
(3) During fiscal year 1996, Mr. Shell was employed by Fox, Inc., which
granted the Company the right to utilize Mr. Shell's services as its
Senior Vice President, Finance and Development. The above disclosure only
reflects the compensation received by Mr. Shell from June 1996 through
December 1996 for the services he rendered to the Company. See "Certain
Transactions."
(4) Mr. Martin served as Executive Vice President and Chief Operating Officer
of Fox/Liberty Sports until June 1997.
(5) Reflects compensation received by Mr. Martin for the services he rendered
to the Company from the Company's inception in April 1996 through December
1996. During fiscal year 1996, Mr. Martin was employed by Liberty Sports,
Inc., which granted the Company the right to utilize Mr. Martin's
services. See "Certain Transactions."
72
<PAGE>
(6) In connection with the formation of the Company, a deferred compensation
incentive plan (the "Plan") with an effective date of January 1, 1996, was
approved and adopted by the Company. A substantially similar plan existed
at Liberty Sports, Inc. ("LSI"), then a subsidiary of Liberty (the "LSI
Plan"), prior to the formation of the Company. The Plan was adopted by the
Company in anticipation of certain LSI employees performing services for
the Company. Such employees, including Messrs. Martin and Thompson, were
beneficiaries under the LSI Plan. Pursuant to the Plan, deferred
compensation vests annually at a 20% rate and will be fully vested in
1998. Upon full vesting of the deferred compensation under the Plan, the
Company will have incurred a charge against earnings in the amounts of
$900,000 and $540,000 with respect to Messrs. Martin and Thompson,
respectively.
(7) Mr. Thompson served as Senior Vice President, Rights and Acquisitions and
Regional Network Operations of Fox/Liberty Sports until October 1997, at
which time he was appointed as one of its Executive Vice Presidents.
(8) Reflects compensation received by Mr. Thompson for the services he
rendered to the Company from the Company's inception in April 1996 through
December 1996. During fiscal year 1996 Mr. Thompson was employed by LSI,
which granted the Company the right to utilize Mr. Thompson's services.
See "Certain Transactions."
The Company does not have a stock option plan and no long term compensation
awards were made in the fiscal year ended 1996, except as disclosed above. In
October 1997, the Company adopted the Fox Liberty Networks, LLC Equity
Appreciation Rights Plan for Management and Key Employees (the "Plan"). The
Plan is designed to provide a flexible mechanism to permit management and key
employees of the Company and its subsidiaries to obtain significant interests
in the equity of the Company, thereby increasing their proprietary interest in
the growth and success of the Company. To date, no grants under the Plan have
been awarded.
EMPLOYMENT ARRANGEMENTS
During fiscal year 1996 Mr. Hill was, and currently remains, employed by Fox
Broadcasting Company, which grants the Company the right to utilize Mr. Hill's
services. Fox Broadcasting Company currently allocates to the Company $650,000
annually for the services Mr. Hill renders to the Company. See "Certain
Transactions."
The Company entered into an agreement granting to the Company the exclusive
right to utilize Mr. Ball's services for a term of four years, which commenced
on March 1, 1997. Pursuant to the agreement, Mr. Ball renders services to the
Company and to International Sports Programming Partners ("ISPP"), the
international telecasting arm of the world-wide sports alliance between News
Corporation and TCI. The agreement provides that the Company will pay a pro
rata share of Mr. Ball's compensation, based on the number of days services
are provided to the Company and its affiliates during the contract year. The
portion of Mr. Ball's salary which is allocable to the Company for fiscal year
1997 is estimated to be approximately $600,000. Mr. Ball is eligible to
participate in all employee benefit plans available to other comparable
executives of the Company, including vacation, personal travel, and medical,
disability and life insurance. The agreement also provides for additional
benefits, including the reimbursement of certain expenses and an annual bonus
similar to the bonus of comparable executives. Further, the agreement provides
that in the event of the termination of Mr. Ball's services by the Company,
the Company shall be obligated to make payments under the agreement to pay for
the balance of the term, reduced by the amount Mr. Ball earns upon finding new
employment. The agreement contains provisions prohibiting the disclosure of
confidential or proprietary information of the Company. In addition, Mr. Ball
is prohibited during the term of the agreement and for a period of two years
thereafter, from inducing any managerial, sales or supervisory employee of the
Company or its affiliates to render services to another entity.
The Company entered into a three year employment agreement with Mr. Jeff
Shell which commenced on June 1, 1996 and will terminate on May 31, 1999.
During fiscal year 1996 however, Mr. Shell was employed by Fox, Inc.,
which granted the Company the right to utilize Mr. Shell's services as its
Senior Vice President, Finance and Development from June 1996 through December
1996. Commencing in January 1997, Mr. Shell became an employee of the Company.
Pursuant to the agreement, Mr. Shell is entitled to receive an annual salary
of $240,000 for the period of June 1, 1996 to May 31, 1997, $265,000 for the
period of June 1, 1997 to May 31, 1998 and $290,000 for the period of June 1,
1998 to May 31, 1999. Mr. Shell is entitled to participate in all employee
benefit plans available to other comparable executives of the Company. The
agreement contains provisions prohibiting the disclosure of confidential or
proprietary information of the Company. In addition, Mr. Shell is prohibited
during the term of his employment and for a period of two years thereafter,
from inducing any managerial, sales or supervisory employee of the Company or
its affiliates to render services to another entity.
73
<PAGE>
The Company entered into an employment agreement with Mr. Louis LaTorre,
which commenced on January 27, 1997 and will end on April 30, 1999. Pursuant
to the agreement, Mr. LaTorre is entitled to receive an annual base salary
will be $400,000 for the period of January 27, 1997 to April 30, 1997,
$425,000 for the period of May 1, 1997 to April 30, 1998 and $450,000 for the
period of May 1, 1998 to April 30, 1999. In addition, upon achieving certain
goals, Mr. LaTorre is entitled to receive an annual bonus (as specified in the
agreement) based on the performance of the Company, Fox/Liberty Sports and
Fox/Liberty FX. The agreement provides for additional benefits, including
vacation, medical benefits, and long-term disability. Further, the agreement
provides that in the event Mr. LaTorre is terminated without cause (as defined
in the agreement), or if the Company breaches the agreement, the Company shall
pay Mr. LaTorre an amount equal to the sum of (i) all earned but unpaid
amounts of base salary and bonuses to the date of termination, (ii) the
applicable bonus amount, if any, with respect to the year in which termination
occurs, and (iii) the lessor of (a) one year's base salary calculated at the
then prevailing rate or (b) the remaining base salary to be paid for the
balance of the term as then in effect. The agreement contains provisions
requiring Mr. LaTorre not to disclose confidential or proprietary information
of the Company. In addition, the agreement prohibits him from competing or
inducing others to compete with the Company, its subsidiaries or affiliates,
during the term of his employment and for a period of twelve months following
termination.
Fox/Liberty Sports entered into a two year employment agreement with Mr.
Tracy Dolgin which commenced on July 1, 1997. Pursuant to the agreement, Mr.
Dolgin is entitled to receive an annual salary of $500,000 for the period of
July 1, 1997 to June 30, 1998 and $537,500 for the period of July 1, 1998 to
June 30, 1999. The agreement provides for participation in all employee
benefit plans available to other comparable executives. The agreement contains
provisions prohibiting the disclosure of confidential or proprietary
information of Fox/Liberty Sports. In addition, Mr. Dolgin is prohibited
during the term of his employment and for a period of one year thereafter,
from inducing any managerial, sales or supervisory employee of Fox/Liberty
Sports or its affiliates to render services to another entity.
The Company entered into an employment agreement, as amended, with Mr.
Robert Thompson, which commenced on July 23, 1996 and extends to February 1,
1999, unless the Company exercises an option for an additional one-year
period. Pursuant to the agreement, Mr. Thompson is entitled to receive an
annual salary of $310,000 for the period of July 23, 1996 to July 22, 1997,
$330,000 for the period of July 23, 1997 to August 31, 1997, $350,000 for the
period of September 1, 1997 to August 31, 1998, $370,000 for the period of
September 1, 1998 to August 31, 1999 and $370,000, increased by an amount
equal to the percentage increase in the consumer price index, for the period
of September 1, 1999 to August 31, 2000, if the option period is exercised.
Mr. Thompson is eligible to participate in all employee benefit plans
available to other comparable executives. The agreement contains provisions
prohibiting the disclosure of confidential or proprietary information of the
Company. In addition, Mr. Thompson is prohibited during the term of his
employment and for a period of two years thereafter, from inducing any
managerial, sales or supervisory employee of the Company or its affiliates to
render services to another entity.
OPERATING AGREEMENT
The Company is a limited liability company organized under the Delaware
Limited Liability Company Act. The Company is governed by an operating
agreement (the "Operating Agreement") dated April 29, 1996 among its members,
LMC Newco U.S., Inc. ("LMCI") (a wholly-owned subsidiary of Liberty Sports,
Inc.), Fox Regional Sports Holdings, Inc. ("FRSH") (an indirect wholly-owned
subsidiary of News America Holdings Incorporated ("NAHI")) and Fox/Liberty
Sports Financing LLC (a 50%/50% Delaware limited liability company owned by
each of LMCI and NAHI) (LMCI, FRSH and Fox/Liberty Sports Financing LLC are
collectively, the "Members"). See "Certain Arrangements Regarding Ownership
Interests."
The Company is managed by the Members. The day-to-day activities of the
Company are directed by its officers, subject to the supervision of the
Members. The Company's chief executive officer, chief financial officer and
chief operating officer are nominated and elected by the Members of the
Company at the direction of FRSH and subject to the approval of LMCI. The
chief executive officer has the authority to select such other officers as may
be necessary or desirable to carry out the day-to-day operations of the
Company.
74
<PAGE>
CERTAIN TRANSACTIONS
FOX/LIBERTY TRANSACTION
The Company was formed on April 29, 1996, through the Fox/Liberty Joint
Venture, to own and operate programming services featuring predominantly
sports and sports-related programming for distribution in the United States.
News America Holdings Incorporated, a wholly-owned subsidiary of News
Corporation, and LMC Newco U.S., Inc., a wholly-owned subsidiary of Liberty,
each own 50% of the Company. The Company owns a 99% interest in each of
Fox/Liberty Sports and Fox/Liberty FX. The remaining 1% interests in each of
Fox/Liberty Sports and Fox/Liberty FX are owned by affiliates of Fox and
Liberty.
In accordance with the Fox/Liberty Joint Venture Formation and Contribution
Agreement, Fox contributed $244 million in cash, certain assets related to the
operation of a regional sports business and all of the assets and liabilities
of FX to the Fox/Liberty Joint Venture in exchange for a 50% ownership
interest. Liberty contributed its interests in the RSNs, programming assets
and rights in return for a 50% ownership interest.
Pursuant to the Fox/Liberty Joint Venture formation documents, at any time
after October 3, 2000, if the members of the Company fail to approve an annual
budget for Fox/Liberty Sports and Fox Sports RPP or Fox/Liberty FX for two
consecutive fiscal years or fail to appoint a chief executive officer of the
Company for such period, or at any time after April 20, 2002, either Fox or
Liberty may initiate a buy/sell procedure. Upon a Change of Control (as
defined in the Agreement Regarding Ownership Interests dated as of April 29,
1996, as amended, by and among Liberty, News America Holdings Incorporated
("NAHI"), Fox Regional Sports Holdings, Inc., LMC Newco and FX Holdings,
Inc.), the party not experiencing the Change of Control has a call option on
all the interests held by the other party.
RAINBOW TRANSACTION
On June 22, 1997, Rainbow and the Company entered into a Formation Agreement
pursuant to which they agreed to form RPP, to hold various programming
interests in connection with the operation of certain RSNs. In accordance with
the terms of the Formation Agreement, upon consummation of the Rainbow
Transaction Rainbow contributed various interests in RSNs to the partnership
in exchange for a 60% partnership interest in RPP and the Company contributed
$850 million in cash for a 40% partnership interest in RPP. Rainbow serves as
managing partner of RPP.
Pursuant to the partnership agreement of RPP (the "RPP Agreement"), after
the third anniversary of the closing of the Rainbow Transaction, upon the
occurrence of a Buy-Out Trigger (as defined in the RPP Agreement), or upon the
date on which Fox Sports RPP, a subsidiary of the Company, submits a notice,
pursuant to the RPP Agreement, to remove the managing partner of RPP following
a Change of Control of RPP (as defined in the RPP Agreement), Rainbow Regional
Holdings, Inc. ("RRH"), a subsidiary of Rainbow, has the right to purchase
from Fox Sports RPP all of Fox Sports RPP's interests in RPP.
Additionally, for each of the (i) 30 days following the fifth anniversary of
the closing of the Rainbow Transaction, (ii) 30 days following each third year
anniversary of the fifth anniversary of the closing of the Rainbow Transaction
and (iii) 30 days following receipt of a notice initiating the buy-out
procedure described above, so long as RPP has not commenced an initial public
offering of its securities, RPP has the right to cause RRH, at RRH's option,
to either (i) purchase all of its interests in Fox Sports RPP or
(ii) consummate an initial public offering of RPP's securities.
In connection with the Rainbow Transaction, Rainbow National Sports
Holdings, Inc. ("RNSH"), a subsidiary of Cablevision, and Fox Sports NSP
Holdings LLC ("Fox Sports NSP"), a subsidiary of the Company, agreed to form
the National Sports Partnership to operate FSN. The National Sports
Partnership is owned 50% by RNSH and 50% by Fox Sports NSP. Fox Sports NSP is
the managing partner of the National
75
<PAGE>
Sports Partnership. For the 30 days following the fifth anniversary of the
closing of the Rainbow Transaction and for the 30 days following each third
year anniversary of the first anniversary of the closing of the Rainbow
Transaction, so long as the National Sports Partnership has not consummated an
initial public offering of its securities, RNSH has the right to cause Fox
Sports NSP, at Fox Sports NSP's option, to either (i) purchase all of its
interests in the National Sports Partnership or (ii) consummate an initial
public offering of the National Sports Partnership's securities. Further, upon
a Change of Control (as defined in the Partnership Agreement of the National
Sports Partnership), the party not experiencing the Change of Control has a
call option on all the interests held by the other party.
Also in connection with the Rainbow Transaction, a subsidiary of Rainbow and
Fox Sports Ad Sales agreed to form the National Advertising Partnership to act
as the national advertising sales representative for the O&O RSNs and the RPP-
owned and managed RSNs. The National Advertising Partnership is owned 50% by a
subsidiary of Rainbow ("Rainbow Ad Sales") and 50% by Fox Sports Ad Sales. Fox
Sports Ad Sales is the managing partner of the National Advertising
Partnership.
For the 30 days following the fifth anniversary of the closing of the
Rainbow Transaction and for the 30 days following each third year anniversary
of the fifth anniversary of the closing of the Rainbow Transaction, so long as
the National Advertising Partnership has not consummated an initial public
offering of its securities, Rainbow Ad Sales has the right to cause Fox Sports
Ad Sales, at Fox Sports Ad Sales' option, to either (i) purchase all of its
interests in the National Advertising Partnership or (ii) consummate an
initial public offering of the National Advertising Partnership's securities.
Further, upon a Change of Control (as defined in the Partnership Agreement of
the National Advertising Partnership), the party not experiencing the Change
of Control has a call option on all the interests held by the other party.
OTHER TRANSACTIONS
Under agreements with the Company in connection with its formation, Fox,
Liberty, and their respective affiliates provide technical, administrative,
financial, treasury, accounting, tax, legal and other services to the Company
and may make available certain of their respective employee benefit plans to
officers and other employees of the Company. To date, except as disclosed
below, the charges for any such services have been immaterial. In addition,
Fox, Liberty, and their respective affiliates, and the Company have entered
into a number of intercompany agreements covering matters such as lending
arrangements, tax sharing, and the use of trade names and service marks by the
Company. To date, except as disclosed below, the charges for any such
arrangements have been immaterial. The terms of many of these agreements were
not the result of arms' length negotiation. See "Business."
The Company is currently utilizing three transponders it subleases from
WTCI, a subsidiary of TCI and one transponder it subleases from Fox
Broadcasting. The rental payment for the three transponders subleased from
WTCI is approximately $270,000 per month and the rental payment for the
transponder subleased from Fox Broadcasting is $125,000 per month. Two of the
WTCI subleases expire on December 31, 1999 and the remaining WTCI sublease
expires on December 31, 2000. The Fox Broadcasting sublease expires May 30,
1999. In addition, the Company currently subleases one transponder to each of
Fox News Channel, FXM and Fox Sports International (all of which are
affiliates of Fox). The monthly rental payment paid to the Company pursuant to
each of these subleases is $185,000, $135,000 and $98,500 respectively. The
Company believes that the sublease arrangements described above are on terms
no less favorable than could have been obtained from an unaffiliated third
party. See "Business--Satellite Distribution."
Fox Broadcasting Company and certain affiliates render marketing, public
relations, promotional, management and other business services to the Company
for which the Company pays an allocated fee. The expenses recognized by the
Company for the provision of the above services for the eight months ended
December 31, 1996 and the nine months ended September 30, 1997 were
approximately $1,184,900 and $1,460,500, respectively. Included in these
amounts are salaries, benefits and other related costs charged to the Company
in connection with the services rendered to it by Mr. Hill and other
individuals. Certain individuals, including Messrs. Martin, Shell and
Thompson, rendering services to the Company for the eight months ended
December 31, 1996 were employed by either News Corporation or its affiliates
or TCI or its affiliates.
76
<PAGE>
Compensation and benefits paid to such individuals and related payroll costs
were charged to the Company at cost. In addition, Fox, Inc. provides legal
services to the Company, for which the Company pays an allocated fee. There
was no expense recognized by the Company for the provision of legal services
for the eight months ended December 31, 1996. For the nine months ended
September 30, 1997 the expense recognized by the Company for the provision of
legal services was approximately $300,000. Similarly, the Company and certain
of its affiliates provide production, programming, accounting, legal,
marketing, public relations, promotional, management and other business
services to an affiliate of Fox Broadcasting Company. The charges for these
services to this affiliate for the eight months ended December 31, 1996 and
the nine months ended September 30, 1997 were approximately $750,000 for each
period. The Company believes that all of the above-described arrangements are
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
Fox Broadcasting Company and certain of its affiliates provide production
facilities, production and post production related services and technical
operations to the Company in connection with the Company's production of Fox
Sports News and other original programming. The services are provided at
competitive market rates and the Company believes that the arrangements are on
terms no less favorable than could have been obtained from an unaffiliated
third party. Expenses related to these services for the eight months ended
December 31, 1996 and the nine months ended September 30, 1997 were
approximately $8,545,000 and $15,533,600, respectively.
Fox, Inc. and its affiliates collect certain revenues and pay certain
expenses on behalf of the Company. The Company charges interest to Fox, Inc.
on amounts due the Company which have been collected by Fox, Inc., and, in
turn, Fox, Inc. and its affiliates charge interest to the Company on amounts
paid by Fox, Inc. in connection with expenses of the Company. All interest
rates pursuant to these arrangements are at market rate. Interest income
recognized by the Company for the eight month period ended December 31, 1996
and the nine month period ended September 30, 1997 was approximately $785,500
and $1,767,900, respectively, and interest expense incurred by the Company
during these periods was $451,300 and $1,081,600, respectively.
Certain of the O&O RSNs have entered into affiliation agreements with
various MSOs and/or individual cable systems which are either owned or
operated by TCI. For the eight months ended December 31, 1996 and the nine
months ended September 30, 1997 revenue recognized from such MSOs and/or
individual cable systems pursuant to these affiliation agreements was
approximately $28,788,000 and $31,531,000, respectively. FX has also entered
into affiliation agreements with various MSOs and/or individual cable systems
which are either owned or operated by TCI. For the eight months ended December
31, 1996 and the nine months ended September 30, 1997 revenue recognized from
such MSOs and/or individual cable systems pursuant to these affiliation
agreements was approximately $21,388,000 and $30,810,000, respectively. The
Company believes that all of the above described affiliation agreements
contain terms no less favorable than could have been obtained from an
unaffiliated third party.
Twentieth Century Fox Film Corporation and its affiliates purchase
advertising time which is shown during the Company's programming. The
advertising revenues recognized for the eight months ended December 31, 1996
and for the nine months ended September 30, 1997 were approximately $408,200
and $563,200, respectively.
The Company licenses television and feature film programming from Twentieth
Century Fox and affiliates. Expense recognized by the Company related to film
amortization for the eight months ended December 31, 1996 and the nine months
ended September 30, 1997 was approximately $7,624,000 and $10,979,200,
respectively. Additionally, the Company has a non exclusive, royalty-free
license from Twentieth Century Fox Film Corporation and Fox Broadcasting
Company to use the "Fox" name and certain related artwork in connection with
the Company's business.
The Company leases its corporate facilities in Los Angeles from New World
Communications Group Incorporated, an indirect wholly-owned subsidiary of News
Corporation. The Company has the ability to increase office space in this
facility as the need arises. As of September 30, 1997 the Company rented a
total of 60,809 square feet at a rental rate of $4.18 per square foot per
month for a total of $254,182. Commencing on December 1, 1997, the Company
began sub-leasing 22,869 square feet of office space in New York from News
Corporation.
77
<PAGE>
Pursuant to this sublease, the Company has also subleased back to News
Corporation 7,368 square feet at the same rate. The net monthly rental for the
New York office space is approximately $50,120.
The Company and International Family Entertainment, Inc. ("IFE"), a related
party, are currently in discussions regarding a potential transaction pursuant
to which the Company would acquire from an affiliate of IFE an 80% interest in
Fit TV Partnership, a Delaware general partnership, which develops health and
fitness related programming. If such transaction is consummated, the aggregate
amount payable by the Company to IFE's affiliate for such interest would be
approximately $15 million.
78
<PAGE>
CERTAIN ARRANGEMENTS REGARDING OWNERSHIP INTERESTS
FOX/LIBERTY JOINT VENTURE
Fox/Liberty Networks, LLC
Fox/Liberty Networks, LLC is the principal holding company for the
Fox/Liberty Joint Venture. Liberty/Fox Sports Financing LLC, an entity in
which LMC Newco and NAHI, each hold 50% membership interests, holds a 38.314%
membership interest and each of LMC Newco and Fox Regional Sports Holdings,
Inc., an affiliate of Fox, holds 30.848% membership interests.
Fox/Liberty Sports
Fox/Liberty Sports is a holding company which holds the Company's interests
in its cable sports telecasting business, including its interests in the
Company's RSNs. The Company holds a 99% membership interest in Fox/Liberty
Sports, Liberty Sports Member, Inc., an affiliate of Liberty, holds a .5%
membership interest in Fox/Liberty Sports and Fox Regional Sports Member
("FRSM"), an affiliate of Fox, holds a .5% membership interest in Fox/Liberty
FX.
Fox/Liberty FX
Fox/Liberty FX owns and operates FX. The Company holds a 99% membership
interest in Fox/Liberty FX. Liberty FX, Inc., an affiliate of Liberty, holds a
.5% membership interest and FX Holdings, Inc., an affiliate of Fox, holds a
.5% membership interest.
OWNED AND OPERATED RSNS
Southwest. The Southwest RSN is operated through ARC Holding, Ltd. ("ARC
Holding"). Affiliated Regional Communications, Ltd. ("ARC Ltd.") holds a 99%
limited partnership interest in ARC Holding and Sports Holding Inc., a wholly
owned subsidiary of ARC Ltd. holds a 1% limited partnership interest.
Liberty/Fox ARC L.P. ("ARC L.P.") holds a 100% equity interest and 62.6799%
capital limited partnership interest in ARC Ltd. and LMC Regional Sports,
Inc., an affiliate of Liberty, holds a 37.3201% capital general partnership
interest. Fox/Liberty Sports holds a 98% limited partnership interest in ARC
L.P., New LMC ARC, Inc., an affiliate of Liberty, holds a 1% general
partnership interest and FRSM holds a 1% limited partnership interest.
West. The West RSN is operated through Prime Sports West, L.P. ("West LP").
Prime Ticket Networks, L.P. ("West2 LP") holds a 99% limited partnership
interest in West LP and Liberty/Fox West LLC holds a 1% general partnership
interest. Fox/Liberty Sports holds a 99% membership interest in Liberty/Fox
West LLC, LMC West Sports Inc., an affiliate of Liberty, holds a .5%
membership interest and FRSM holds a .5% membership interest.
West2. The West2 RSN is operated through West2 LP. Liberty/Fox West LLC
holds a 99% limited partnership interest in West2 LP, LMC West Sports Inc., an
affiliate of Liberty, holds a .5% general partnership interest and Fox West
Sports Member, Inc., an affiliate of Fox, holds a .5% general partnership
interest.
Pittsburgh. The Pittsburgh RSN is operated through Liberty/Fox KBL L.P.
("Pittsburgh LP"). Fox/Liberty Sports holds a 60% limited partnership interest
in Pittsburgh LP, New LMC KBL, Inc., an affiliate of Liberty, holds a 20%
general partnership interest and FRSM holds a 20% limited partnership
interest.
Rocky Mountain. The Rocky Mountain RSN is operated through Rocky Mountain
Prime Sports Network ("Rocky Mountain Network"). ARC Ltd. holds a 66.67%
general partnership interest in Rocky Mountain Network and ARC L.P. holds a
33.33% general partnership interest.
Northwest. The Northwest RSN is operated through Prime Sports Northwest
Network ("Northwest Network"). Liberty/Fox Northwest L.P. holds an 89.9%
capital general partnership interest and a 100% equity
79
<PAGE>
interest in Northwest Network. LMC Northwest Cable Sports, Inc., an affiliate
of Liberty, holds a 10.1% capital general partnership interest in Northwest
Network. Fox/Liberty Sports holds a 98% limited partnership interest in
Liberty/Fox Northwest L.P., New LMC Northwest, Inc., an affiliate of Liberty,
holds a 1% general partnership interest and FRSM holds a 1% limited
partnership interest.
Utah. The Utah RSN is operated through Liberty/Fox Utah LLC ("Utah LLC").
Fox/Liberty Sports holds a 99% membership interest in Utah LLC, New LMC Utah
Sports, Inc., an affiliate of Liberty, holds a .5% membership interest and
FRSM holds a .5% membership interest.
Midwest. The Midwest RSN is operated through ARC Holding. ARC Ltd. holds a
99% limited partnership interest in ARC Holding and Sports Holding Inc., a
wholly-owned subsidiary of ARC Ltd., holds a 1% general partnership interest.
Arizona. The Arizona RSN is operated through Liberty/Fox Arizona LLC
("Arizona LLC"). Fox/Liberty Sports holds a 99% membership interest in Arizona
LLC, LMC Arizona Sports, Inc., an affiliate of Liberty, holds a .5% membership
interest and FRSM holds a .5% membership interest.
Detroit. The Detroit RSN is operated through Fox Sports Detroit, LLC
("Detroit LLC"). Fox/Liberty Sports holds a 99% membership interest in Detroit
LLC, an affiliate of Liberty holds a .5% membership interest and FRSM holds a
.5% membership interest. Pursuant to the terms of the Rainbow Transaction,
Rainbow has the right to acquire a 50% interest in the Detroit RSN.
South. The South RSN is operated through SportSouth Network, Ltd. ("South
Ltd."). Each of LMC Southeast Sports, Inc. ("LMC Southeast") and Liberty
SportSouth, Inc., a wholly-owned subsidiary of LMC Southeast, hold 1% limited
partnership and 43% general partnership interests in South Ltd. The remaining
12% general partnership interest in South Ltd. is held by E.W. Scripps
Company. Liberty/Fox Southeast LLC holds 100% of the equity interest and 49%
of the voting interest of LMC Southeast and Liberty Sports, Inc., an affiliate
of Liberty, holds 51% of the voting interest. Fox/Liberty Sports holds a 99%
membership interest in Liberty/Fox Southeast LLC, New LMC Southeast, Inc., an
affiliate of Liberty, holds a .5% membership interest and FRSM holds a .5%
membership interest.
The partners of South Ltd. are subject to a buy/sell procedure which may be
initiated at any time by any general partner of South Ltd. The partner
initiating the buy/sell procedure (the "Initiating Partner") must notify the
other general partner (the "Responding Partner") of South Ltd. of its
intention to initiate the buy/sell procedure, such notification to include a
statement by the Initiating Partner of the value of South Ltd. Within 90 days
after receipt of such notice, the Responding Partner shall notify the
Initiating Partner of its election to either purchase the Initiating Partner's
interest in South Ltd. or sell its interest in South Ltd. to the Initiating
Partner. If the Responding Partner does not respond within 90 days, it shall
be deemed to be an election of the Responding Partner to sell its interest in
South Ltd. to the Initiating Partner.
Sunshine. The Sunshine RSN is operated through Sunshine Network ("Sunshine
Network"), a joint venture with ARC Ltd. holding a 49% interest and Sunshine
Network of Florida, Ltd. holding a 51% interest. LMC Sunshine, Inc. holds a
9.064% limited partnership interest in Sunshine Network of Florida, Ltd.,
Sunshine Network, Inc., an entity in which LMC Sunshine, Inc. holds a 9.176%
limited partnership interest, holds a 1% general partnership interest. The
remaining interests in Sunshine Network of Florida, Ltd. are held by various
regional cable MSOs. Liberty/Fox Sunshine LLC holds 100% of the equity
interest and 49% of the voting interest of LMC Sunshine, Inc. and Liberty
Sports, Inc., an affiliate of Liberty, holds 51% of the voting interest.
Fox/Liberty Sports holds a 99% membership interest in Liberty/Fox Sunshine
LLC, New LMC Sunshine, Inc., an affiliate of Liberty, holds a .5% membership
interest and FRSM holds a .5% membership interest.
The joint venturers of Sunshine Network are subject to a buy/sell procedure
which may be initiated at any time by any joint venturer. The venturer
initiating the buy/sell procedure (the "Initiating Venturer") must notify the
other venturer (the "Responding Venturer") of Sunshine Network of its
intention to initiate the buy/sell procedure, such notification to include a
statement by the Initiating Venturer of the value of Sunshine Network. Either
within 60 days after receipt of such notice if Sunshine Network of Florida,
Ltd. is the Initiating Venturer,
80
<PAGE>
or, if ARC Ltd. is the Initiating Venturer, within 120 days of the date that
Sunshine Network of Florida, Ltd. receives an appraisal of Sunshine Network
(provided that such appraisal is requested by Sunshine Network of Florida,
Ltd. within 10 days of the receipt of the buy/sell notice and such appraisal
is completed no later than 21 days after such request), the Responding
Venturer shall notify the Initiating Venturer of its election to either
purchase the Initiating Venturer's interest in Sunshine Network or sell its
interest in Sunshine Network to the Initiating Venturer. If the Responding
Venturer fails to timely notify the Initiating Venturer of its election, the
Initiating Venturer shall have the right, at its option, to either purchase
the Responding Venturer's interest in Sunshine Network or require the
Responding Venturer to purchase its interest in Sunshine Network.
NON-MANAGED RSNS
Chicago. The Chicago RSN is operated through SportsChannel Chicago
Associates ("Chicago Associates"). Prior to the Rainbow Transaction, Rainbow
held a 50% interest in Chicago Associates and Fox/Liberty Chicago, LLC held a
50% interest. Fox/Liberty Sports holds a 98% membership interest in
Fox/Liberty Chicago, LLC, New LMC Chicago, Inc., an affiliate of Liberty,
holds a 1% membership interest and FRSM holds a 1% membership interest.
Upon consummation of the Rainbow Transaction, Rainbow contributed its 50%
interest in Chicago Associates to RPP. Rainbow holds a 60% general partnership
interest in RPP and Fox Sports RPP holds a 40% general partnership interest.
The Company holds a 99% membership interest in Fox Sports RPP, Liberty Sports
Member, Inc., an affiliate of Liberty, holds a .5% membership interest and
FRSM holds a .5% membership interest.
D.C./Baltimore. The D.C. Baltimore RSN is operated through Home Team Sports
Limited Partnership ("D.C./Baltimore LP"). ARC Ltd. holds a 34.3% limited
partnership interest in D.C./Baltimore LP and the remaining interest is held
by Group W.
San Francisco. The San Francisco RSN is operated through SportsChannel
Pacific Associates ("San Francisco Associates"). Prior to the Rainbow
Transaction, Rainbow held a 50% interest in San Francisco Associates and
Fox/Liberty Bay Area, LLC held a 50% interest. Fox/Liberty Sports holds a 98%
membership interest in Fox/Liberty Bay Area, LLC, New LMC Bay Area, Inc., an
affiliate of Liberty, holds a 1% membership interest and FRSM holds a 1%
membership interest.
Upon consummation of the Rainbow Transaction, Rainbow contributed its 50%
interest in San Francisco Associates to RPP.
THE REGIONAL PROGRAMMING PARTNERS
New England. The New England RSN is operated through SportsChannel New
England, a wholly owned subsidiary of Rainbow. Upon consummation of the
Rainbow Transaction, Rainbow contributed its interest in SportsChannel New
England to RPP. Media One has an option, which expires at the end of 1997, to
purchase 50% of the New England RSN.
Florida. The Florida RSN is operated through SportsChannel Florida
Associates ("Florida Associates"). Rainbow holds a 30% interest in Florida
Associates and the remaining 70% of Florida Associates is held by Front Row.
Upon consummation of the Rainbow Transaction, Rainbow contributed its 30%
interest in Florida Associates to RPP. The Tampa Bay Devil Rays, Inc. has an
option to purchase 10% of the Florida RSN.
Ohio. The Ohio RSN is operated through SportsChannel Ohio Associates ("Ohio
Associates"), a wholly owned subsidiary of Rainbow. Upon consummation of the
Rainbow Transaction, Rainbow contributed its interest in Ohio Associates to
RPP.
Cincinnati. The Cincinnati RSN is operated through SportsChannel Cincinnati
Associates ("Cincinnati Associates"), a wholly owned subsidiary of Rainbow.
Upon consummation of the Rainbow Transaction, Rainbow contributed its interest
in Cincinnati Associates to RPP.
81
<PAGE>
New York. Rainbow currently owns and operates two RSNs in the New York
region: The Madison Square Garden Network, operated through Madison Square
Garden L.P. ("MSG"), and SportsChannel New York, operated through
SportsChannel Associates ("SportsChannel New York Associates"). Rainbow holds
a 89.8% interest in MSG and ITT holds the remaining 10.2% interest. ITT has an
option, expiring on June 17, 1999, to require Cablevision to purchase its
interest in MSG. If ITT does not exercise its option, commencing on June 17,
2000, Cablevision will have an option to purchase ITT's interest in MSG. Upon
consummation of the Rainbow Transaction, Rainbow contributed its 89.8%
interest in MSG to RPP. In the event that any option regarding the acquisition
of ITT's interest in MSG is exercised, it is anticipated that such transaction
will be structured as a redemption of such interest by Madison Square Garden,
L.P.
SportsChannel New York Associates is a wholly owned subsidiary of MSG. Upon
consummation of the Rainbow Transaction, RPP acquired all of the outstanding
interest in SportsChannel New York Associates.
82
<PAGE>
DESCRIPTION OF BANK FACILITY
On September 12, 1997, Fox/Liberty Sports and Fox/Liberty FX (together, the
"Co-Borrowers"), and the Company and certain subsidiaries of Fox/Liberty
Sports, as guarantors (collectively, the Guarantors, and together with the Co-
Borrowers, the "Credit Parties") entered into a credit agreement (the "Credit
Agreement") with The Chase Manhattan Bank ("Chase") and Toronto Dominion
(Texas) Inc. ("Toronto Dominion"), as Lenders (together with any other party
who becomes a lender under the Credit Agreement, the "Lenders"), The Chase
Manhattan Bank, as Administrative Agent (the "Administrative Agent"), Chase
Securities Inc., as Syndication Agent ("Chase Securities"), and TD Securities
(USA) Inc., as Documentation Agent ("TD Securities"), pursuant to which the
Lenders agreed to make one or more loans to the Co-Borrowers in the aggregate
principal amount of $450,000,000. Said loans become due and payable upon the
earliest to occur of (i) demand made by the Administrative Agent on behalf of
the Lenders, (ii) October 31, 1997, (iii) a Change of Control (as defined in
the Credit Agreement) of either of the Co-Borrowers, or (iv) certain events of
bankruptcy affecting either of the Co-Borrowers. The loans bear interest, at
the election of the Co-Borrowers, at a rate based upon the prime rate of
interest charged by the Administrative Agent, or a one-month eurodollar rate
selected by the Administrative Agent plus 1.25%. The proceeds of these loans
are being used to repay certain indebtedness and for general purposes. To
date, the proceeds of the loans have been used to repay in full (i) $126.2
million of outstanding indebtedness under a revolving credit facility with
Bank of America; (ii) $75.0 million of outstanding indebtedness under a
revolving credit facility with The Toronto-Dominion Bank; and (iii) $40.0
million of outstanding indebtedness under an interim credit facility with
Chase. The loans under the Credit Agreement are jointly and severally
guaranteed by the Guarantors and are secured by a first priority security
interest in substantially all of the equity interests of any subsidiary
directly owned by each of the Credit Parties (except to the extent such pledge
is not permitted by any such subsidiary's organizational documents or
otherwise).
On September 19, 1997, the Co-Borrowers entered into a commitment letter
with Chase, Chase Securities and TD Securities, for itself and as agent for
Toronto Dominion, pursuant to which the Lenders, Chase Securities and TD
Securities agreed to restructure and modify, arrange and syndicate the loans
provided under the Credit Agreement to provide the Co-Borrowers with up to
$800,000,000 of term loans and revolving credit facilities (including the
$450,000,000 originally provided under the Credit Agreement) as described
below (the "Bank Facility").
Upon consummation of the Rainbow Transaction, the Company entered into the
Bank Facility. The Bank Facility is comprised of a $400 million secured
reducing revolving credit facility (the "Revolving Credit Facility") and a
$400 million secured term loan facility (the "Term Facility"). The Revolving
Credit Facility will be used for general corporate purposes, including
refinancing of existing indebtedness, permitted dividends and distributions,
investments and acquisitions, working capital needs and tax distributions. The
Company used the proceeds of the Term Facility, along with a portion of the
net proceeds of the Offering, to fund the Company's cash contribution to RPP
upon consummation of the Rainbow Transaction.
Borrowings under the Bank Facility are guaranteed by the Company and the
other Guarantors under the Bank Facility and any other RSNs owned (directly or
indirectly) by a Co-Borrower or any of its subsidiaries from and after the end
of the first period of four consecutive fiscal quarters for which such RSN has
positive operating cash flow, determined on a pro forma basis after giving
effect to executed programming contracts (whether or not then in effect).
Borrowings under the Bank Facility are also secured by a first priority pledge
of all of the equity interests owned by the Company in the Co-Borrowers. Upon
consummation of the Rainbow Transaction, Fox Sports RPP became a Co-Borrower
under the Bank Facility. Furthermore, all of the equity interests of the
Company and all of the equity interests of any subsidiary of the Company which
owns any of the equity of RPP are subject to a prohibition against pledging
such interests to any person or any of the other entities formed in connection
with the Rainbow Transaction that are directly owned by any Credit Party.
Borrowings under the Bank Facility bear interest, at the Company's option,
at rates which are based upon the highest of a number of base rates or the
rates for eurodollar deposits for between one and nine months. The Company
also pays a commitment fee on the unused and available amounts under the
Revolving Credit Facility.
83
<PAGE>
Revolving credit commitments will reduce on a quarterly basis commencing
with the quarter ending December 31, 2000. Principal under the Term Facility
will be payable in quarterly installment also commencing with the quarter
ending December 31, 2000. Subject to certain conditions, the Co-Borrowers will
be required to make certain mandatory prepayments under the Bank Facility from
sales of assets, additional borrowings and upon certain other events.
The Bank Facility contains a number of significant covenants that, among
other things, limit the ability of the Co-Borrowers and their respective
subsidiaries to incur additional indebtedness, create liens and other
encumbrances, make certain payments and investments, make distributions to
owners and repurchase debt and equity. In addition, the Bank Facility requires
the maintenance of certain specified financial and operating covenants,
including, without limitation, ratios of EBITDA to total fixed charges, total
debt to EBITDA and EBITDA to total interest expense. The Bank Facility also
contains representations, warranties, covenants, and events of default
customary for credit facilities of similar size and nature. See "Risk
Factors--Potential Need for Additional Capital; Future Commitments."
84
<PAGE>
DESCRIPTION OF THE NOTES
THE TERMS OF THE NOTES ARE IDENTICAL IN ALL MATERIAL RESPECTS TO THE OLD
NOTES, EXCEPT FOR CERTAIN TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS
RELATING TO THE OLD NOTES. THE DESCRIPTION OF THE NOTES CONTAINED HEREIN
ASSUMES THAT ALL OLD NOTES ARE EXCHANGED FOR NOTES IN THE EXCHANGE OFFER. TO
THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER THE CONSUMMATION OF THE
EXCHANGE OFFER, OLD NOTES AND NOTES WILL BE REDEEMED OR REPURCHASED PRO RATA
PURSUANT TO THE PROVISIONS CONTAINED IN THE INDENTURES AND DESCRIBED HEREIN.
IN ADDITION, AS THE OLD NOTES WERE, AND THE NOTES WILL BE, ISSUED UNDER THE
INDENTURES, TO THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER CONSUMMATION
OF THE EXCHANGE OFFER, ANY ACTION DESCRIBED HEREIN AS PERMITTED OR REQUIRED TO
BE TAKEN THEREUNDER BY A SPECIFIED PORTION OF THE HOLDERS OF THE NOTES MAY
ONLY BE TAKEN BY SUCH PORTION OF THE HOLDERS OF THE OLD NOTES AND THE NOTES,
COUNTED AS A SINGLE SERIES.
The Old Senior Notes were issued, and the Senior Notes will be issued, under
an Indenture dated as of August 25, 1997 (the "Senior Notes Indenture") among
the Company, FLN Finance, Inc. and The Bank of New York, as trustee (the
"Trustee"). The Old Senior Discount Notes were issued, and the Senior Discount
Notes will be issued, under an Indenture dated as of August 25, 1997 (the
"Senior Discount Notes Indenture" and, together with the Senior Notes
Indenture, the "Indentures"), among the Company, FLN Finance, Inc. and The
Bank of New York, as Trustee. The Indentures are not and will not be qualified
under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
except upon effectiveness of a registration statement for the Exchange Offer.
By their terms, however, the Indentures will incorporate certain provisions of
the Trust Indenture Act and, upon consummation of the Exchange Offer, the
Indentures will be subject to and governed by the Trust Indenture Act. The
following summary of the material provisions of the Indentures and the Notes
does not purport to be complete and is subject to, and qualified in its
entirety by, reference to the provisions of the Indentures and the Notes,
including the definitions of certain terms contained therein and those terms
made part of the Indentures by reference to the Trust Indenture Act. A copy of
each of the Indentures is attached as an exhibit to the Registration
Statement. The definition of certain capitalized terms used in the following
summary are set forth below under "--Certain Definitions." References in this
section to the Company refer to Fox/Liberty Networks, LLC, without its
Subsidiaries.
GENERAL
The Notes will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples thereof. The Company will
appoint The Bank of New York to serve as registrar and paying agent under the
Indentures at its offices at 101 Barclay Street, New York, New York. No
service charge will be made for any transfer, exchange or redemption of Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.
RANKING
The Notes will be senior unsecured obligations of the Company and FLN
Finance, Inc. and will rank senior in right of payment to all future
subordinated indebtedness of the Company. The Notes will effectively be
subordinated to the claims of creditors of the Company's Subsidiaries,
including the banks under the Bank Facility.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR NOTES
The Senior Notes will be limited to $500,000,000 aggregate principal amount
and will mature on August 15, 2007. Cash interest on the Senior Notes will
accrue at the rate of 8 7/8% per annum and will be payable semi-
85
<PAGE>
annually on each February 15 and August 15, commencing February 15, 1998, to
the holders of record of the Senior Notes at the close of business on the
February 1 and August 1 immediately preceding such interest payment date.
Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the original
date of issuance (the "Issue Date"). Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes will be limited to $405,000,000 aggregate
principal amount at maturity and will mature on August 15, 2007. The Senior
Discount Notes will be issued at a discount to their aggregate principal
amount at maturity and will generate gross proceeds of approximately
$252,279,000. Based on the issue price thereof, the yield to maturity of the
Senior Discount Notes is 9 3/4% (computed on a semi-annual bond equivalent
basis), calculated from August 25, 1997. See "Certain United States Federal
Income Tax Considerations."
Cash interest will not accrue or be payable on the Senior Discount Notes
prior to August 15, 2002. Thereafter, cash interest on the Senior Discount
Notes will accrue at a rate of 9 3/4% per annum and will be payable semi-
annually in arrears on each February 15 and August 15, commencing on February
15, 2003, to the holders of record of the Senior Discount Notes at the close
of business on the February 1 and August 1, respectively, immediately
preceding such interest payment date; provided, however, that at any time
prior to August 15, 2002, the Company may elect (the "Cash Interest Election")
on any interest payment date (the date of such Cash Interest Election, the
"Cash Interest Election Date") to commence the accrual of cash interest from
and after the Cash Interest Election Date, in which case the principal amount
at maturity of each Senior Discount Note will on such interest payment date be
reduced to the Accreted Value of such Senior Discount Note as of such interest
payment date, and cash interest (accruing at a rate of 9 3/4% per annum from
the Cash Interest Election Date) shall be payable with respect to such Senior
Discount Note on each interest payment date thereafter. Cash interest will
accrue from the most recent interest payment date to which interest has been
paid or, if no interest has been paid, from the earlier of August 15, 2002 or
the Cash Interest Election Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Optional Redemption of Senior Notes. The Senior Notes will be redeemable at
the option of the Company, in whole or in part, at any time on or after August
15, 2002, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the 12-month period beginning on August 15
of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002................................... 104.438%
2003................................... 102.958%
2004................................... 101.479%
2005 and thereafter.................... 100.000%
</TABLE>
In addition, at any time, or from time to time, on or prior to August 15,
2000, the Company may, at its option, use the net cash proceeds of (a) one or
more Public Equity Offerings (as defined below) or (b) sales of Qualified
Equity Interests to Strategic Equity Investors resulting in gross cash
proceeds to the Company of at least $100,000,000 to redeem up to an aggregate
of 35% of the principal amount of the Senior Notes originally issued, at a
redemption price equal to 108 7/8% of the principal amount thereof plus
accrued and unpaid interest, if any, to the redemption date; provided that at
least 65% of the originally issued principal amount of Senior Notes remains
outstanding immediately after the occurrence of such redemption. In order to
effect the foregoing redemption with the proceeds of any Public Equity
Offering or sales of Qualified Equity Interests to Strategic Equity Investors,
the Company shall send a redemption notice to the Trustee not later than 60
days after the consummation of any such Public Equity Offering or sale of
Qualified Equity Interests to Strategic Equity Investors, as the case may be.
86
<PAGE>
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act, which public equity offering results in net cash
proceeds to the Company of not less than $100,000,000.
Optional Redemption of Senior Discount Notes. The Senior Discount Notes will
be redeemable at the option of the Company, in whole or in part, at any time
on or after August 15, 2002, at the redemption prices (expressed as a
percentage of principal amount at maturity) set forth below, plus accrued and
unpaid interest thereon, if any, to the redemption date, if redeemed during
the 12-month period beginning on August 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002................................... 104.875%
2003................................... 103.250%
2004................................... 101.625%
2005 and thereafter.................... 100.000%
</TABLE>
In addition, prior to August 15, 2000, the Company may redeem up to 35% of
the originally issued principal amount at maturity of the Senior Discount
Notes at a redemption price equal to 109 3/4% of the Accreted Value of the
Senior Discount Notes so redeemed at the redemption date or, if a Cash
Interest Election has been made, 109 3/4% of the principal amount at maturity
of the Senior Discount Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date, with the net cash proceeds of (a) one
or more Public Equity Offerings or (b) sales of Qualified Equity Interests of
the Company to Strategic Equity Investors resulting in gross cash proceeds to
the Company of at least $100,000,000 in the aggregate; provided, however, that
at least 65% of the originally issued principal amount at maturity of the
Senior Discount Notes would remain outstanding immediately after giving effect
to any such redemption.
Selection and Notice. In the event that less than all of the Notes are to be
redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes
are not then listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that Notes shall only be redeemable in principal amounts of
$1,000 or an integral multiple of $1,000. Notice of redemption shall be mailed
by or on behalf of the Company by first-class mail at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon surrender for cancellation of the original Note. On and
after the redemption date, interest will cease to accrue on Notes or portions
thereof called for redemption, unless the Company defaults in the payment of
the redemption price.
SINKING FUND
The Notes will not be entitled to the benefit of any mandatory sinking fund.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a "Change of Control Offer"), on a business day
(the "Change of Control Purchase Date") not more than 60 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes tendered at a purchase price in cash (the "Change of Control Purchase
Price") equal to (x) with respect to the Senior Notes, 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Purchase Date and (y) with respect to the Senior Discount Notes, 101%
of the Accreted Value on the Change of Control Purchase Date, unless the
Change of Control Purchase Date is on or after the earlier to occur
87
<PAGE>
of August 15, 2002 and the Cash Interest Election Date, in which case such
Change of Control Purchase Price shall be equal to 101% of the aggregate
principal amount at maturity thereof, plus accrued and unpaid interest
thereon, if any, to the Change of Control Purchase Date. The Company shall be
required to purchase all Notes tendered into the Change of Control Offer and
not withdrawn. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of
Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each holder of
Notes notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that holders of Notes must follow to accept the Change of Control
Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of
Notes seeking to accept the Change of Control Offer. The Company shall not be
required to make a Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at the times and
otherwise in compliance with the requirements applicable to a Change of
Control Offer made by the Company and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
The definition of "Change of Control" excludes certain transactions by
Permitted Holders, including a direct or indirect sale, lease, exchange or
other transfer of all or substantially all of the assets of the Company to
Permitted Holders. The provisions of the Indentures may not afford Noteholders
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company if such
transaction is not a transaction defined as a "Change of Control."
The use of the term "all or substantially all" in provisions of the
Indentures such as clause (b) of the definition of "Change of Control" and
under "--Consolidation, Mergers, Sale of Assets, Etc." has no clearly
established meaning under New York law (which governs the Indentures) and has
been the subject of limited judicial interpretation in only a few
jurisdictions. Accordingly, there may be a degree of uncertainty in
ascertaining whether any particular transaction would involve a disposition of
"all or substantially all" of the assets of a person, which uncertainty should
be considered by prospective purchasers of Notes.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws or
regulations are applicable, in the event that a Change of Control occurs and
the Company is required to purchase Notes as described above.
DEPOSIT PROCEEDS; OFFER TO PURCHASE UPON A FAILURE TO CONSUMMATE THE RAINBOW
TRANSACTION
Pursuant to the Indentures, on the date of the issuance of the Old Notes (i)
the Company deposited with the Senior Notes Deposit Agent the net proceeds
from the Offering of the Old Senior Notes after deducting discounts,
commissions and estimated offering expenses attributable to the Old Senior
Notes pursuant to the Senior Notes Deposit Agreement, and (ii) the Company
deposited with the Senior Discount Notes Deposit Agent the net proceeds from
the Offering of the Old Senior Discount Notes after deducting discounts,
commissions and estimated offering expenses attributable to the Old Senior
Discount Notes pursuant to the Senior Discount Notes Deposit Agreement. All
amounts so deposited with each Deposit Agent (collectively, the "Deposit
Funds") were credited by the respective Deposit Agent pursuant to the relevant
Deposit Agreement to an account (each, an "Account") and pledged by the
Company to the Trustee for the sole and exclusive benefit of the holders of
the Notes as security for the Old Senior Notes and Old Senior Discount Notes,
as the case may be. The Company covenants that such security interest is a
first priority security interest and that the Deposit Funds are not subject to
any other Lien and that the Company will not seek to remove any funds held in
the Accounts prior to the later of (i) the occurrence of the Rainbow
Consummation (as defined herein) or (ii) so long as the Company shall have
purchased at the Purchase Price all Notes tendered pursuant to the Offer to
Purchase described in the immediately succeeding paragraph, the day after the
Purchase Date related to such Offer to Purchase (or the day
88
<PAGE>
after acceptance and set-aside as described in the sixth succeeding
paragraph), other than to fund any Offer to Purchase required to be made upon
failure to consummate the Rainbow Transaction.
The Indentures define "Rainbow Consummation" as the consummation of the
Rainbow Transaction by December 30, 1997. The Indentures provide that, in the
event that the Rainbow Consummation does not occur, the Company shall notify
the holders of the Notes, in the manner prescribed by the Indentures, of such
non-occurrence and shall make an Offer to Purchase all outstanding Notes at a
purchase price in cash equal to (x) with respect to the Senior Notes, 100% of
the aggregate principle amount thereof, plus accrued and unpaid interest
thereon, if any, to the Purchase Date and (y) with respect to the Senior
Discount Notes, 100% of the Accreted Value on the Purchase Date. The Company
covenants that to the extent that it is required to make, or as permitted by
this covenant makes, an Offer to Purchase described herein, it shall fund any
shortfall (the "Shortfall Amount") of the Deposit Funds in each Account to
purchase all Notes tendered pursuant to such Offer to Purchase.
The Indentures provide that in the event the Rainbow Consummation does not
occur, the Deposit Agents will release on the Purchase Date the Deposit Funds
to the Trustees (acting as paying agents for the Company) to fund the
repurchase of Notes pursuant to an Offer to Purchase described above. If on or
before December 30, 1997, the Company delivers to the Trustees an Officers'
Certificate certifying that the Rainbow Consummation has occurred, the Trustee
will release any security interest and the Deposit Agents will release all the
Deposit Funds in the Accounts to the Company. Following release of the Deposit
Funds, the Notes will be unsecured obligations of the Company.
If, at any time prior to December 30, 1997, the Company determines that
there is no reasonable likelihood that the Rainbow Consummation will occur,
the Company shall have the right, but not the obligation, to make an Offer to
Purchase prior to December 30, 1997 all outstanding Notes, at the same price,
and on the same terms, as the Offer to Purchase required to be made in the
event the Rainbow Consummation did not occur by December 30, 1997 (and such
Offer shall be made of both the Senior Notes and the Senior Discount Notes),
and the Indentures will provide that, in such event, on the Purchase Date for
such Offer to Purchase, the Deposit Agent will release the Deposit Funds to
the Trustees (acting as paying agents for the Company) to fund the purchase of
Notes pursuant thereto. If the Company makes such an Offer to Purchase, then,
notwithstanding anything to the contrary contained herein, the Company shall
not be obligated to make an Offer to Purchase in the event the Rainbow
Consummation does not occur, provided that the Company purchases all Notes
tendered pursuant to such earlier Offer to Purchase on or before March 31,
1998.
The Company shall direct the Trustee to, within five Business Days of
receipt of any Deposit Funds or other collateral from the Deposit Agent,
transfer all Deposit Funds in each Account, and the Company shall within such
five Business Days transfer the Shortfall Amount, into an irrevocable trust
for the sole and exclusive benefit of the Holders of Notes with the Company
only entitled to any residual after all Notes that are tendered are purchased
at the Purchase Price.
Pending release of the Deposit Funds as provided in the Deposit Agreements,
the Deposit Funds are being invested in Marketable Securities as directed by
the Company. Any interest or other profit resulting from such investment are
being deposited in the applicable Accounts.
Upon the purchase by the Company of all Notes tendered pursuant to an Offer
to Purchase made under the circumstances described herein, or the setting
aside after acceptance by the Company of all Notes tendered pursuant to such
Offer to Purchase by the Trustees, as applicable, of all funds in the Accounts
necessary to purchase such Notes and pay any related expenses pursuant to an
irrevocable trust for the sole and exclusive benefit of the holders of Notes
with the Company, any amounts remaining in the Accounts and not so set aside
shall promptly be released to the Company, whereupon any Notes not theretofore
tendered for purchase shall be unsecured obligations of the Company.
89
<PAGE>
If an Offer to Purchase is made pursuant to the preceding paragraphs, the
amount of Deposit Funds in each Account may be insufficient to pay for all of
the Notes tendered by the holders of the Notes. There can be no assurance that
the Company will have available funds sufficient to pay the difference between
the amount of Deposit Funds in each Account and the amount required to
purchase all Notes tendered by Holders. If the Company fails to repurchase all
of the Notes tendered for purchase pursuant to an Offer to Purchase required
by the immediately preceding paragraphs, such failure will constitute an Event
of Default under each Indenture. See "--Events of Default" below.
CERTAIN COVENANTS
The Indentures contain the following covenants, among others; provided
however, that if no Default shall have occurred and be continuing, after the
Notes are rated by both Moody's Investor Services, Inc. (or its successors)
and Standard & Poor's Rating Group (or its successors) in one of its generic
rating categories which signifies investment grade (which at the date hereof
are the four highest rating categories (within which there are sub-categories
indicating relative standing)) the limitations set forth below under the
captions "Limitation on Indebtedness," "Limitation on Restricted Payments,"
"Disposition of Proceeds of Asset Sales," "Limitation on Preferred Stock of
Subsidiaries," "Limitation on Transactions with Affiliates," "Limitation on
Dividends and other Payment Restrictions Affecting Restricted Subsidiaries,"
"Limitation on Guarantees by Subsidiaries," "Limitation on Sale-Leaseback
Transactions" and "Limitation on Designation of Unrestricted Subsidiaries" and
in clause (c) under "Consolidation, Merger, Sale of Assets, etc." shall no
longer be applicable.
Limitation on Indebtedness. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or in any manner become directly or indirectly
liable, contingently or otherwise (in each case, to "incur"), for the payment
of any Indebtedness (including any Acquired Indebtedness) other than Permitted
Indebtedness, unless the ratio of (i) the aggregate consolidated principal
amount of Indebtedness of the Company and its Restricted Subsidiaries
outstanding as of the most recent available quarterly or annual balance sheet,
after giving pro forma effect to the incurrence of such Indebtedness and any
other Indebtedness incurred since such balance sheet date and the receipt and
application of the proceeds thereof, to (ii) Consolidated Cash Flow of the
Company and its Restricted Subsidiaries for the four full fiscal quarters next
preceding the incurrence of such Indebtedness for which consolidated financial
statements are available, determined on a pro forma basis as if any such
Indebtedness had been incurred and the proceeds thereof had been applied at
the beginning of such four fiscal quarters, would be less than 6.0 to 1.
Limitation on Restricted Payments. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or payment
on or in respect of Capital Stock of the Company or any of its Restricted
Subsidiaries or make any payment to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Restricted Subsidiaries (other than dividends or distributions payable
solely in Capital Stock of the Company (other than Redeemable Capital
Stock) or in options, warrants or other rights to purchase Capital Stock of
the Company (other than Redeemable Capital Stock)) (other than the
declaration or payment of dividends or other distributions to the extent
declared or paid to the Company or any Restricted Subsidiary),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock (other than Redeemable Capital Stock) of the Company (or
of any Restricted Subsidiary of the Company if such Capital Stock is owned
by an Affiliate of the Company) or any options, warrants, or other rights
to purchase any such Capital Stock (other than any such securities owned by
a Restricted Subsidiary),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Redeemable Capital Stock or Subordinated Indebtedness
of the Company (other than any such Redeemable Capital Stock or
Subordinated Indebtedness owned by the Company or a Restricted Subsidiary),
or
(d) make any Investment (other than any Permitted Investment) in any
person
90
<PAGE>
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted
Payment), (A) no Default or Event of Default shall have occurred and be
continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) (assuming a market rate of
interest with respect to such additional Indebtedness) and (C) the aggregate
amount of all Restricted Payments declared or made from and after the Issue
Date would not exceed the sum of:
(1) the excess of the aggregate Consolidated Cash Flow of the Company
minus the product of (x) 1.75 times the Consolidated Interest Expense of
the Company from the Issue Date to August 31, 1999 and (y) 1.5 times the
Consolidated Interest Expense of the Company from September 1, 1999 to
Stated Maturity, in each case accrued on a cumulative basis during the
period beginning on the Issue Date (or, in the case of clause (y), on
September 1, 1999) and ending on the last day of the fiscal quarter of the
Company immediately preceding the date of such proposed Restricted Payment;
(2) the aggregate net cash proceeds received by the Company as capital
contributions to the Company after the Issue Date and which constitute
shareholders' equity of the Company in accordance with GAAP;
(3) the aggregate net cash proceeds received by the Company from the
issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of
the Company to any person (other than to a Subsidiary of the Company) after
the Issue Date;
(4) the aggregate net cash proceeds received by the Company from any
person (other than a Subsidiary of the Company) upon the exercise of any
options, warrants or rights to purchase shares of Capital Stock (other than
Redeemable Capital Stock) of the Company after the Issue Date;
(5) the aggregate net cash proceeds received after the Issue Date by the
Company from any person (other than a Subsidiary of the Company) for debt
securities that have been converted or exchanged into or for Capital Stock
of the Company (other than Redeemable Capital Stock) (to the extent such
debt securities were originally sold for cash) plus the aggregate amount of
cash received by the Company (other than from a Subsidiary of the Company)
in connection with such conversion or exchange;
(6) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment after the Issue Date, an amount equal to
the lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment; and
(7) so long as the Designation thereof was treated as a Restricted
Payment made after the Issue Date, with respect to any Unrestricted
Subsidiary that has been redesignated as a Restricted Subsidiary after the
Issue Date in accordance with "--Limitation on Designations of Unrestricted
Subsidiaries" below, the Fair Market Value of the Company's interest in
such Subsidiary calculated in accordance with GAAP, provided that such
amount shall not in any case exceed the Designation Amount with respect to
such Restricted Subsidiary upon its Designation,
minus:
the Designation Amount (measured as of the date of Designation) with
respect to any Subsidiary of the Company which has been designated as an
Unrestricted Subsidiary after the Issue Date in accordance with "--
Limitations on Designations of Unrestricted Subsidiaries" below.
For purposes of the preceding clause (C)(4), the value of the aggregate net
proceeds received by the Company upon the issuance of Capital Stock upon the
exercise of options, warrants or rights will be the net cash proceeds received
upon the issuance of such options, warrants or rights plus the incremental
amount received by the Company upon the exercise thereof.
91
<PAGE>
None of the foregoing provisions will prohibit, so long, in the case of
clauses (ii) - (vi) below, as there is no Default or Event of Default
continuing, (i) the payment of any dividend or distribution within 60 days
after the date of its declaration, if at the date of declaration such payment
would be permitted by the foregoing paragraph; (ii) the redemption, repurchase
or other acquisition or retirement of any shares of any class of Capital Stock
of the Company in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale of other shares of Capital Stock of
the Company (other than Redeemable Capital Stock) to any person (other than to
a Subsidiary of the Company); provided, however, that such net cash proceeds
are excluded from clause (C) of the preceding paragraph; (iii) any redemption,
repurchase or other acquisition or retirement of Subordinated Indebtedness by
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of
the Company to any person (other than to a Subsidiary of the Company);
provided, however, that any such net cash proceeds are excluded from clause
(C) of the preceding paragraph; or (2) Indebtedness of the Company so long as
such Indebtedness is Subordinated Indebtedness which (w) has no Stated
Maturity earlier than the 91st day after the Maturity Date, (x) has an Average
Life to Stated Maturity greater than the remaining Average Life to Stated
Maturity of the Notes and (y) is subordinated to the Notes in the same manner
and to the same extent as the Subordinated Indebtedness so purchased,
exchanged, redeemed, acquired or retired; (iv) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the Indentures;
(v) payments to purchase Capital Stock of the Company from management or
employees of the Company or any of its Subsidiaries, or their authorized
representatives, upon the happening of an event which provides for payment
under any applicable plan, or upon the death, disability or termination of
employment of such employees, in aggregate amounts under this clause (v) not
to exceed $5,000,000 in any fiscal year of the Company; (vi) the payment of
pro rata dividends to holders of Capital Stock of Restricted Subsidiaries; and
(vii) distributions by the Company to the holders of its equity interests to
the extent necessary to enable such holders to pay federal and state income
tax liabilities arising from income of the Company (other than income arising
from the conversion of the Company into a corporation) and attributable to
them solely by virtue of the fact that the Company is an entity taxed as a
partnership (the amount of any such distribution to be calculated at the
highest applicable marginal income tax rate for a corporation without giving
effect to the tax attributes of any holder of equity interests). Any payments
made pursuant to clauses (i), (iv) and (v) of this paragraph shall, without
duplication, be taken into account in calculating the amount of Restricted
Payments made from and after the Issue Date.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any
kind against or upon any of its property or assets, or any proceeds therefrom,
unless the Notes are equally and ratably secured (except that Liens securing
Subordinated Indebtedness shall not be permitted in any circumstances), except
for (a) Liens securing the Notes; (b) Liens securing Indebtedness which is
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (c) Permitted
Liens.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a)
the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets sold or otherwise disposed of and (b) at least
75% of such consideration consists of cash or Cash Equivalents or properties
or assets that will be used in the business of the Company and its Restricted
Subsidiaries. To the extent that the Net Cash Proceeds of any Asset Sale are
not required to be applied to repay, and permanently reduce the commitments
under, the Bank Facility, or are not so applied, the Company or such
Restricted Subsidiary, as the case may be, may apply the Net Cash Proceeds
from such Asset Sale, (i) to repay Indebtedness incurred not more than 90 days
before such Asset Sale to purchase, or (ii) to the purchase price for an
acquisition consummated not more than 90 days before such Asset Sale of, or
(iii) within 365 days after such Asset Sale to an investment in, properties
and assets that replace the properties and assets that were the subject of
such Asset Sale or in properties and assets that will be used in the business
of the Company and its Restricted
92
<PAGE>
Subsidiaries existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets"). Any Net Cash Proceeds from any Asset Sale that
are neither used to repay, and permanently reduce the commitments under, the
Bank Credit Agreement nor invested in Replacement Assets within such periods
constitute "Excess Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $15,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, an aggregate principal amount of Notes equal to such
Excess Proceeds, at a price (the "Asset Sale Purchase Price") in cash equal to
(x) with respect to the Senior Notes, 100% of the outstanding principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date and (y)
with respect to the Senior Discount Notes, 100% of the Accreted Value on the
purchase date, unless the purchase date is on or after the earlier to occur of
August 15, 2002 and the Cash Interest Election Date, in which case such
purchase price shall be equal to 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to the purchase date. To
the extent that the aggregate principal amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use such
deficiency for general corporate purposes. The Notes shall be purchased by the
Company, at the option of the holder thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 30 days and not later
than 60 days from the date the notice is given to holders, or such later date
as may be necessary for the Company to comply with the requirements under the
Exchange Act. If the aggregate purchase price of Notes validly tendered and
not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be
purchased will be selected on a pro rata basis, based on the Asset Sale
Purchase Price thereof. Upon completion of such Asset Sale Offer, the amount
of Excess Proceeds shall be reset to zero.
Whenever the aggregate amount of Excess Proceeds received by the Company and
its Restricted Subsidiaries exceeds $15,000,000, such Excess Proceeds will,
prior to the purchase of Notes, be set aside by the Company or such Restricted
Subsidiary, as the case may be, in a separate account pending (i) deposit with
the Trustee of the amount required to purchase the Notes tendered in an Asset
Sale Offer or (ii) delivery by the Company of the Asset Sale Offer Price to
the holders of the Notes validly tendered and not withdrawn pursuant to an
Asset Sale Offer. Such Excess Proceeds may be invested in Cash Equivalents, as
directed by the Company, having a maturity date which is not later than the
earliest possible date for purchase of Notes pursuant to the Asset Sale Offer.
The Company will be entitled to any interest or dividends accrued, earned or
paid on such Cash Equivalents.
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, create or permit to exist or become effective any restriction
(other than restrictions existing under Indebtedness outstanding on the Issue
Date and restrictions in the Bank Credit Agreement as originally executed by
the parties thereto) that would materially impair the ability of the Company
to make an Asset Sale Offer or, if such an offer is made, to pay for the Notes
tendered for purchase.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder, to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any Restricted Subsidiary to issue any Preferred Stock other than
Preferred Stock issued to the Company or a Restricted Subsidiary. The Company
will not sell, transfer or otherwise dispose of Preferred Stock issued by a
Restricted Subsidiary of the Company or permit a Restricted Subsidiary to
sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted
Subsidiary, other than to the Company or a Restricted Subsidiary.
Notwithstanding the foregoing, nothing in such covenant will prohibit the
ownership of Preferred Stock issued by a person prior to the time (A) such
person becomes a Restricted Subsidiary of the Company, (B) such person merges
with or into a Restricted Subsidiary of the Company or (C) a Restricted
Subsidiary of the Company merges with or into such person; provided, further,
that such Preferred Stock was not issued or incurred by such person in
anticipation of a transaction contemplated by subclause (A), (B), or (C)
above.
93
<PAGE>
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into any transaction or series of related transactions (including,
without limitation, the sale, transfer, disposition, purchase, exchange or
lease of assets, property or services) with, or for the benefit of, any of its
Affiliates (other than Restricted Subsidiaries), except (a) on terms that are
no less favorable to the Company or such Restricted Subsidiary, as the case
may be, than those which could have been obtained in a comparable transaction
at such time from persons who are not Affiliates of the Company, (b) with
respect to a transaction or series of related transactions involving aggregate
payments or value equal to or greater than $25,000,000, the Company shall have
delivered an officer's certificate to the Trustee certifying that such
transaction or transactions comply with the preceding clause (a) and that such
transaction or transactions have been approved by a majority of the
Disinterested Members of the Board of Directors of the Company, and (c) with
respect to a transaction or series of related transactions involving aggregate
payments or value equal to or greater than $50,000,000 (other than agreements
whereby the Company or a Restricted Subsidiary of the Company obtains or
grants a license or other rights to broadcast sporting events or syndicated
entertainment programs in the ordinary course of business), the Company shall
have obtained a written opinion from an Independent Financial Advisor stating
that the terms of such transaction or series of transactions are fair, from a
financial point of view, to the Company or the Restricted Subsidiary involved,
as the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and the
Restricted Subsidiaries, (ii) customary directors' fees, indemnification and
similar arrangements, consulting fees, employee salaries, bonuses or
employment agreements, compensation or employee benefit arrangements and
incentive arrangements with any officer, director or employee of the Company
or any Restricted Subsidiary entered into in the ordinary course of business,
(iii) any dividends made in compliance with "--Limitation on Restricted
Payments" above, (iv) Permitted Investments, (v) loans and advances to
officers, directors and employees of the Company or any Restricted Subsidiary
for travel, entertainment, moving and other relocation expenses, in each case
made in the ordinary course of business, (vi) transactions pursuant to
agreements existing on the date of the Indentures, or (vii) the incurrence of
intercompany Indebtedness which constitutes Permitted Indebtedness.
Limitation on Dividends and other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary of the Company, (c) make loans or advances to the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company or
(e) guarantee any Indebtedness of the Company or any other Restricted
Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of (i) applicable law, (ii) customary non-
assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Restricted Subsidiary of the Company, (iii)
customary restrictions on transfers of property subject to a Lien permitted
under the Indenture, (iv) the Bank Facility, but only if the Bank Facility
permits payments to the Company by its Restricted Subsidiaries in amounts
sufficient to make interest payments on the Notes unless there is a continuing
default under the Bank Facility or the making of any such interest payment
would (with or without the giving of notice or passage of time or both) result
in a default under the Bank Facility, (v) any agreement or other instrument of
a person acquired by the Company or any Restricted Subsidiary of the Company
in existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any person, or
the properties or assets of any person, other than the person, or the property
or assets of the person, so acquired, (vi) an agreement entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of a Restricted Subsidiary or an agreement entered into for the sale of
specified assets (in either case, so long as such encumbrance or restriction,
by its terms, terminates on the earlier of the termination of such agreement
or the consummation of such agreement and so long as such restriction applies
only to the Capital Stock or assets to be sold), and (vii) any agreement that
amends, extends, refinances, renews or replaces any agreement described in
94
<PAGE>
the foregoing clauses, provided that the terms and conditions of any such
agreement are not materially less favorable to the holders of the Notes than
those under or pursuant to the agreement amended, extended, refinanced,
renewed or replaced.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate after the Issue Date any Restricted Subsidiary as an "Unrestricted
Subsidiary" under the Indentures (a "Designation") only if:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the "--Limitation on
Restricted Payments" above in an amount (the "Designation Amount") equal to
the Fair Market Value of the Company's interest in such Subsidiary on such
date calculated in accordance with GAAP; and
(iii) the Company would be permitted under the Indenture to incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "--Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
"--Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Company shall not, and shall not cause or permit any Restricted
Subsidiary to, at any time (x) provide credit support for or subject any of
its property or assets (other than the Capital Stock of any Unrestricted
Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted
Subsidiary (including any undertaking, agreement or instrument evidencing such
Indebtedness), (y) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary or (z) be directly or indirectly liable for any
Indebtedness which provides that the holder thereof may (upon notice, lapse of
time or both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity upon the
occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except any non-recourse guarantee given solely to
support the pledge by the Company or any Restricted Subsidiary of the Capital
Stock of an Unrestricted Subsidiary. No Unrestricted Subsidiary shall at any
time guarantee or otherwise provide credit support for any obligation of the
Company or any Restricted Subsidiary, except as provided in the Bank Facility.
All Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to
be Unrestricted Subsidiaries.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(iii) any transaction (or series of related transactions) between such
Subsidiary and any of its Affiliates that occurred on or after the Issue
Date while such Subsidiary was an Unrestricted Subsidiary would be
permitted by "--Limitation on Transactions with Affiliates" above as if
such transaction (or series of related transactions) had occurred at the
time of such Revocation.
In the event the Company or a Restricted Subsidiary makes any Investment in
any person which was not previously a Subsidiary and such person thereby
becomes a Subsidiary, such person shall automatically be an Unrestricted
Subsidiary and the Company may designate such Subsidiary as a Restricted
Subsidiary only if it meets the foregoing requirements of clauses (i) and
(ii).
95
<PAGE>
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Limitation on Guarantees by Subsidiaries. The Company will not permit any of
its Restricted Subsidiaries, directly or indirectly, to assume, guarantee or
in any other manner become liable with respect to any Indebtedness of the
Company (other than Indebtedness under the Bank Facility) unless (A) such
Restricted Subsidiary is permitted to incur such Indebtedness under the
covenant described under "Limitation on Indebtedness" above, or (B) (i) such
Indebtedness does not constitute Subordinated Indebtedness, (ii) such
Restricted Subsidiary simultaneously executes and delivers a guarantee and
becomes a guarantor of the Notes and (iii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the benefit or advantage
of, any rights of reimbursement, indemnity or subrogation or any other rights
against the Company, or any Subsidiary of the Company as a result of any
payment by such Restricted Subsidiary under its Guarantee.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any of its Restricted Subsidiaries to, enter into any Sale-
Leaseback Transaction with respect to any property of the Company or any of
its Restricted Subsidiaries. Notwithstanding the foregoing, the Company and
its Restricted Subsidiaries may enter into Sale-Leaseback Transactions,
provided, that (a) the Attributable Value of such Sale-Leaseback Transaction
shall be deemed to be Indebtedness of the Company or a Restricted Subsidiary
and (b) after giving pro forma effect to any such Sale-Leaseback Transaction
and the foregoing clause (a), the Company or a Restricted Subsidiary would be
able to incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the covenant described under "Limitation on
Indebtedness" above.
Reporting Requirements. For so long as the Notes are outstanding, whether or
not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or
any successor provision thereto, the Company shall file with the Commission
(if permitted by Commission practice and applicable law and regulations) the
annual reports, quarterly reports and other documents which the Company would
have been required to file with the Commission (if permitted by Commission
practice and applicable law and regulations) pursuant to such Section 13(a) or
15(d) or any successor provision thereto if the Company were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Company would have been required so
to file such documents if the Company were so subject. The Company shall also
in any event (a) within 15 days after each Required Filing Date (whether or
not permitted or required to be filed with the Commission) (i) transmit (or
cause to be transmitted) by mail to all holders of Notes, as their names and
addresses appear in the Note register, without cost to such Holders, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and
other documents which the Company is required to file with the Commission
pursuant to the preceding sentence, or, if such filing is not so permitted,
information and data of a similar nature, and (b) if, notwithstanding the
preceding sentence, filing such documents by the Company with the Commission
is not permitted by Commission practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any holder of
Notes. In addition, for so long as any Notes remain outstanding, the Company
will furnish to the holders of Notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any
beneficial holder of Notes, if not obtainable from the Commission, information
of the type that would be filed with the Commission pursuant to the foregoing
provisions upon the request of any such holder.
CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge or
consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as
an entirety to, any person or persons, and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in a sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the Company and its Restricted Subsidiaries, taken as a whole, to
any other person or persons, unless at the time and after giving effect
thereto (a) either (i) if the transaction or transactions is a merger or
consolidation, the Company or such Restricted Subsidiary, as the case may be,
shall
96
<PAGE>
be the surviving person of such merger or consolidation, or (ii) the person
formed by such consolidation or into which the Company, or such Restricted
Subsidiary, as the case may be, is merged or to which the properties and
assets of the Company or such Restricted Subsidiary, as the case may be,
substantially as an entirety, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any
state thereof or the District of Columbia and shall expressly assume by
supplemental indentures executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indentures and the Registration Rights Agreement, and in each
case, the Indentures shall remain in full force and effect; (b) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing; and (c) the Company or the
Surviving Entity, as the case may be, after giving effect to such transaction
or series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions), could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
covenant described under "--Certain Covenants--Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness).
In connection with any consolidation, merger, transfer, lease, assignment or
other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture.
Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and asset of the Company in accordance with the immediately preceding
paragraphs, the successor person formed by such consolidation or into which
the Company or a Restricted Subsidiary, as the case may be, is merged or the
successor person to which such sale, assignment, conveyance, transfer, lease
or disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of the Company under the Notes, Indentures
and/or the Registration Rights Agreement, as the case may be, with the same
effect as if such successor had been named as the Company in the Notes, the
Indentures and/or in the Registration Rights Agreement, as the case may be.
EVENTS OF DEFAULT
The following will be "Events of Default" under each Indenture with respect
to the Notes issued under such Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (at Stated Maturity, upon optional
redemption, required purchase or otherwise); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days; or
(iii) failure to perform or comply with any provisions of the Indentures
or the Deposit Agreements described under "--Deposit Proceeds; Offer to
Purchase upon a Failure to Consummate the Rainbow Transaction;" or
(iv) (a) default in the performance, or breach, of any covenant or
agreement of the Company under the Indenture (other than a default in the
performance or breach of a covenant or agreement which is specifically
dealt with in clauses (i) or (ii) or subclauses (b), (c) or (d) of this
clause (iv)) and such default or breach shall continue for a period of 30
days after written notice has been given, by certified mail, (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding Senior
Notes or at least 25% in aggregate principal amount
97
<PAGE>
at maturity of the Senior Discount Notes, as the case may be; (b) there
shall be a default in the performance or breach of the provisions of
"Consolidation, Merger and Sale of Assets, etc."; (c) the Company shall
have failed to make or consummate an Offer in accordance with the
provisions of the Indenture described under "--Certain Covenants--
Dispositions of Proceeds of Asset Sales"; or (d) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with
the provisions of the Indenture described under "Change of Control"; or
(v) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness in excess of $15,000,000, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $15,000,000 either individually or in the aggregate, shall be
entered against the Company or any Restricted Subsidiary of the Company or
any of their respective properties and shall not be discharged and there
shall have been a period of 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of such judgment,
order or decree, shall not be in effect; or
(vii) either (i) the agent or lenders under the Bank Facility or (ii) any
holder of at least $15,000,000 in aggregate principal amount of
Indebtedness of the Company or any of its Restricted Subsidiaries shall
commence judicial proceedings, or take any action, to foreclose upon assets
of the Company or any of its Restricted Subsidiaries having an aggregate
Fair Market Value, individually or in the aggregate, in excess of
$15,000,000 or shall have exercised any right under applicable law or
applicable security documents to take ownership of any such assets in lieu
of foreclosure; or
(viii) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under the Federal
Bankruptcy Code or any other federal, state or foreign bankruptcy,
insolvency, reorganization or similar law or (B) adjudging the Company or
any Significant Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other similar federal, state or foreign law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or any Significant Subsidiary or of any
substantial part of any of their properties, or ordering the winding up or
liquidation of any of their affairs, and the continuance of any such decree
or order unstayed and in effect for a period of 60 consecutive days; or
(ix) the institution by the Company or any Significant Subsidiary of a
voluntary case or proceeding under the Federal Bankruptcy Code or any other
similar federal, state or foreign law or any other case or proceedings to
be adjudicated a bankrupt or insolvent, or the consent by the Company or
any Significant Subsidiary to the entry of a decree or order for relief in
respect of the Company or any Significant Subsidiary in any involuntary
case or proceeding under the Federal Bankruptcy Code or any other similar
federal, state or foreign law or to the institution of bankruptcy or
insolvency proceedings against the Company or any Significant Subsidiary,
or the filing by the Company or any Significant Subsidiary of a petition or
answer or consent seeking reorganization or relief under the Federal
Bankruptcy Code or any other similar federal, state or foreign law, or the
consent by it to the filing of any such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee or sequestrator (or other similar official) of any of the Company
or any Significant Subsidiary or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as
they become due or the taking of corporate action by the Company or any
Significant Subsidiary in furtherance of any such action.
If an Event of Default with respect to the Senior Notes or the Senior
Discount Notes (other than those covered by clause (viii) or (ix) above with
respect to the Company) shall occur and be continuing, the Trustee
98
<PAGE>
under the appropriate Indenture, by notice to the Company, or the holders of
at least 25% in aggregate principal amount of the Senior Notes then
outstanding, or the holders of at least 25% in aggregate principal amount at
maturity of the Senior Discount Notes then outstanding, as the case may be, by
notice to the Trustee and the Company, may declare the Default Amount on all
of the outstanding Senior Notes or Senior Discount Notes, as the case may be,
due and payable immediately, upon which declaration, the Default Amount shall
be immediately due and payable. If an Event of Default specified in clause
(viii) or (ix) above with respect to the Company occurs and is continuing,
then the Default Amount on all the outstanding Notes shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of Notes.
"Default Amount" means, with respect to (i) the Senior Discount Notes prior
to the earlier to occur of the Cash Interest Election Date and August 15,
2002, the Accreted Value thereof as of the payment date, (ii) the Senior
Notes, the principal amount thereof, and (iii) the Senior Discount Notes after
the earlier to occur of the Cash Interest Election Date and August 15, 2002,
the principal amount at maturity thereof, plus, in the case of clause (ii) and
clause (iii), accrued and unpaid interest thereon, if any, to the payment
date.
After a declaration of acceleration under the applicable Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Senior Notes, or the holders of a majority in aggregate principal
amount at maturity of the outstanding Senior Discount Notes, as the case may
be, by written notice to the Company and the Trustee, may rescind such
declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
applicable Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, (ii) all overdue interest
on all Senior Notes or Senior Discount Notes, as the case may be, (iii) the
principal of and premium, if any, on any Senior Notes or Senior Discount Notes
which have become due otherwise than by such declaration of acceleration and
interest thereon at the rate borne by such Notes, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue interest and overdue
principal at the rate borne by such Notes which has become due otherwise than
by such declaration of acceleration; (b) the rescission would not conflict
with any judgment or decree of a court of competent jurisdiction; and (c) all
Events of Default, other than the non-payment of principal of, premium, if
any, and interest on the Senior Notes or Senior Discount Notes, as the case
may be, that has become due solely by such declaration of acceleration, have
been cured or waived.
The holders of not less than a majority in aggregate principal amount of the
outstanding Senior Notes or the Senior Discount Notes, as the case may be, may
on behalf of the holders of all Senior Notes or Senior Discount Notes, as the
case may be, waive any past defaults under the applicable Indenture, except a
default in the payment of the principal of, premium, if any, or interest on
any Note, or in respect of a covenant or provision which under such Indenture
cannot be modified or amended without the consent of the holder of each Senior
Note or Senior Discount Note outstanding.
No holder of any of the Notes has any right to institute any proceeding with
respect to an Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Senior Notes, or
the holders of at least 25% in aggregate principal amount at maturity of the
outstanding Senior Discount Notes, as the case may be, have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as Trustee under such Notes and the applicable Indenture, the
Trustee has failed to institute such proceeding within 15 days after receipt
of such notice and the Trustee, within such 15-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding Senior Notes or, in the case of
the Senior Discount Notes, the holders of a majority in aggregate principal
amount at maturity. Such limitations do not apply, however, to a suit
instituted by a holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent
99
<PAGE>
person would exercise under the circumstances in the conduct of such person's
own affairs. Subject to the provisions of the Indentures relating to the
duties of the Trustee, whether or not an Event of Default shall occur and be
continuing, the Trustee under the Indentures is not under any obligation to
exercise any of its rights or powers under the Indentures at the request or
direction of any of the holders unless such holders shall have offered to the
Trustee reasonable security or indemnity. Subject to certain provisions
concerning the rights of the Trustee, the holders of a majority in aggregate
principal amount of the outstanding Senior Notes or, with respect to the
Senior Discount Notes, the holders of a majority in aggregate principal amount
at maturity, have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known to
the Trustee, the Trustee shall mail to each holder of the Notes affected
notice of the Default or Event of Default within 30 days after obtaining
knowledge thereof. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on any Notes, the
Trustee may withhold the notice to the holders of such Notes if a committee of
its trust officers in good faith determines that withholding the notice is in
the interest of the Noteholders.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indentures and as to any default in such performance. The Company is also
required to notify the Trustee within five days of any event which is, or
after notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate its obligations
with respect to the outstanding Notes issued under the Indentures
("defeasance") to the extent the conditions set forth below are satisfied.
Such defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes issued
under such Indentures, except for (i) the rights of holders of outstanding
Notes to receive payment in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an
office or agency for payments in respect of the Notes, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance
provisions of such Indentures. In addition, in connection with defeasance the
Company may, at its option and at any time, elect to terminate the obligations
of the Company with respect to certain covenants ("covenant defeasance") that
are set forth in the Indentures and described under "--Certain Covenants"
above. Upon the exercise of covenant defeasance, the Company shall be released
from all obligations with respect to such covenants, and any subsequent
failure to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes issued under the Indentures.
In order to exercise either defeasance or covenant defeasance with respect
to an Indenture, (i) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of the Notes issued thereunder, cash in
United States dollars, U.S. Government Obligations (as defined in the
Indenture), or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity (except lost, stolen or destroyed
Notes which have been replaced or paid); (ii) the Company shall have delivered
to the Trustee an opinion of counsel to the effect that the holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance or covenant
defeasance had not occurred (in the case of defeasance, such opinion must
refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit;
(iv) such defeasance or covenant defeasance shall not cause the Trustee to
have a conflicting interest with respect to any securities of the Company; (v)
such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, any agreement or instrument to
which the Company is a party or by which it is bound; (vi) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that after
the 121st day following the deposit, the trust funds will not be subject to
the
100
<PAGE>
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company shall have
delivered to the Trustee an officers' certificate stating that the deposit was
not made by the Company with the intent of preferring the holders of the Notes
over the other creditors of the Company with the intent of hindering, delaying
or defrauding creditors of the Company or others; (viii) no event or condition
shall exist that would prevent the Company from making payments of the
principal of, premium, if any, and interest on the Notes on the date of such
deposit or at any time ending on the 121st day after the date of such deposit;
and (ix) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent under the Indenture to either defeasance or covenant defeasance, as
the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Each Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
issued under such Indenture when (i) either (a) all the Notes theretofore
authenticated and delivered thereunder (except lost, stolen or destroyed Notes
which have been replaced or repaid and Notes for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation or (b) all Notes issued
thereunder not theretofore delivered to the Trustee for cancellation (except
lost, stolen or destroyed Notes which have been replaced or paid) have become
due and payable and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire Indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest on the Notes
to the date of deposit together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under such Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its Board
of Directors, and the Trustee may, without the consent of the holders of any
outstanding Notes, amend, waive or supplement an Indenture or the Notes issued
thereunder for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act of 1939, or
making any change that does not adversely affect the rights of any holder of
Notes issued thereunder. Other amendments and modifications of each Indenture
or the Notes issued thereunder may be made by the Company and the Trustee with
the consent of the holders of not less than a majority of the aggregate
principal amount of the outstanding Senior Notes or, in the case of the Senior
Discount Notes, the holders of a majority of the aggregate principal amount at
maturity; provided, however, that no such modification or amendment may,
without the consent of the holder of each outstanding Note issued under such
Indenture affected thereby, (i) reduce the principal amount of, extend the
fixed maturity of or alter the redemption provisions of, such Notes, (ii)
change the currency in which such Notes or any premium or the interest thereon
is payable, (iii) reduce the percentage in principal amount of outstanding
Notes issued thereunder that must consent to an amendment, supplement or
waiver or consent to take any action under such Indenture or Notes, (iv)
impair the right to institute suit for the enforcement of any payment on or
with respect to such Notes, (v) waive a default in payment with respect to
such Notes, (vi) amend, change or modify the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control
or make and consummate the offer with respect to any Asset Sale or modify any
of the provisions or definitions with respect thereto, (vii) reduce or change
the rate or time for payment of interest on such Notes or (viii) modify or
change any provision of the Indenture affecting the ranking of such Notes in a
manner adverse to the holders of such Notes.
101
<PAGE>
THE TRUSTEE
Each Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred
and is continuing, the Trustee will exercise such rights and powers vested in
it under the Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indentures and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights
of the Trustee thereunder, should it become a creditor of the Company, to
obtain payment of claims in certain cases or to realize on certain property
received by it in respect of any such claims, as security or otherwise. The
Trustee is permitted to engage in other transactions; provided, however, that
if it acquires any conflicting interest (as defined in such Act) it must
eliminate such conflict or resign. Such a conflicting interest could occur if
the Company were to default on the Senior Notes and not on the Senior Discount
Notes or on the Senior Discount Notes and not on the Senior Notes.
GOVERNING LAW
The Indentures and the Notes are and will be governed by the laws of the
State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Account" has the meaning set forth in "--Deposit Proceeds; Offer to
Purchase upon Failure to Consummate the Rainbow Transaction" above.
"Accreted Value" means (a) as of any date prior to the Cash Interest
Election Date, if any (the "Specified Date"), with respect to each $1,000
principal face amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a "Semi-
Annual Accrual Date"), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ---------
<S> <C>
Issue Date............................. $ 622.91
February 15, 1998...................... 651.56
August 15, 1998........................ 683.32
February 15, 1999...................... 716.63
August 15, 1999........................ 751.57
February 15, 2000...................... 788.21
August 15, 2000........................ 826.63
February 15, 2001...................... 866.93
August 15, 2001........................ 909.19
February 15, 2002...................... 953.52
August 15, 2002........................ $1,000.00;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the Semi-Annual Accrual Date
immediately following the Specified Date less the Accreted Value for the
Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a
fraction, the numerator of which is the number of days actually elapsed
from the immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the denominator of
which is 180; and
(iii) if the Specified Date is after August 15, 2002, $1,000; and
102
<PAGE>
(b) on and after the Cash Interest Election Date, with respect to each
$1,000 principal face amount of Senior Discount Notes, the Accreted Value
determined in accordance with the foregoing as of such Cash Interest Election
Date (without any further accretion).
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person and not incurred in
connection with, or in contemplation of, such Asset Acquisition or such person
becoming a Subsidiary.
"Affiliate" means, with respect to any specified person, (i) any other
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person, (ii) any other person that
owns, directly or indirectly, 10% or more of such specified person's Capital
Stock, (iii) any officer or director of (A) any such specified person, (B) any
Subsidiary of such specified person or (C) any person described in clauses (i)
or (ii) above or (iv) the spouse of any natural person described in clauses
(i), (ii) or (iii) above or any person directly or indirectly controlling or
controlled by or under direct or indirect common control with such spouse.
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary of the Company in any other person pursuant to which such person
shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any person which
constitute all or substantially all of the assets of such person, any division
or line of business of such person or any other properties or assets of such
person other than in the ordinary course of business.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition by the Company or any Restricted Subsidiary of the Company to any
person other than the Company or a Restricted Subsidiary of the Company, in
one or a series of related transactions for an aggregate consideration of more
than $1,000,000, of (a) any Capital Stock of any Subsidiary of the Company;
(b) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary of the Company;
or (c) any other properties or assets of the Company or any Restricted
Subsidiary of the Company other than in the ordinary course of business. For
the purposes of this definition, the term "Asset Sale" shall not include any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is governed by the provisions described under "--Consolidation,
Merger, Sale of Assets, Etc."
"Attributable Value" means, as to any particular lease under which any
person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such person under such lease during the
remaining term thereof (whether or not such lease is terminable at the option
of the lessee prior to the end of such term), including any period for which
such lease has been, or may, at the option of the lessor, be extended,
discounted from the last date of such term to the date of determination at a
rate per annum equal to the discount rate which would be applicable to a
Capitalized Lease Obligation with like term in accordance with GAAP. The net
amount of rent required to be paid under any lease for any such period shall
be the aggregate amount of rent payable by the lessee with respect to such
period after excluding amounts required to be paid on account of insurance,
taxes, assessments, utility, operating and labor costs and similar charges.
"Attributable Value" means, as to a Capitalized Lease Obligation under which
any person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear
on the face of a balance sheet of such person in accordance with GAAP.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund
103
<PAGE>
requirements) of such Indebtedness and (b) the amount of each such principal
payment by (ii) the sum of all such principal payments.
"Bank Facility" means the Credit Agreement to be entered into among the
Company and certain of its Subsidiaries, the lenders named therein, and the
Chase Manhattan Bank N.A., as Agent, including any deferrals, renewals,
waivers, extensions, replacements, refinancings or refundings thereof, or any
amendments, modifications or supplements, thereto and including any related
notes, guarantees, security agreements, pledge agreements, mortgages and other
collateral documents executed in connection therewith.
"Board of Directors" means the board of directors of a company or its
equivalent, including managers of a limited liability company (or members of a
member managed limited liability company), general partners of a partnership
or trustees of a business trust, or any duly authorized committee thereof.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock or equity participations, and any rights (other
than debt securities convertible into capital stock), warrants or options
exchangeable for or convertible into such capital stock and, including,
without limitation, with respect to partnerships, limited liability companies
or business trusts, ownership interests (whether general or limited) and any
other interest or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, such
partnerships, limited liability companies or business trusts.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real,
personal or mixed) that is required to be classified and accounted for as a
capital lease obligation under GAAP, and, for the purpose of the Indentures,
the amount of such obligation at any date shall be the capitalized amount
thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500,000,000, whose debt is
rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent
rating category of another nationally recognized rating agency; (iii)
commercial paper with a maturity of 90 days or less issued by a corporation
that is not an Affiliate of the Company organized under the laws of any state
of the United States or the District of Columbia and rated at least A-1 by S&P
or at least P-1 by Moody's or at least an equivalent rating category of
another nationally recognized securities rating agency; and (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the
full faith and credit of the United States of America, in each case maturing
within 180 days from the date of acquisition; provided that the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the following events:
(a)(i) the Permitted Holders cease to own at least 50% of the total Voting
Stock of the Company or (ii) The News Corporation Limited or its Affiliates
cease to own at least 30% of the total Voting Stock of the Company; (b) the
Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation and immediately after such transaction
(i) the Permitted Holders own at least 50% of the total Voting Stock of the
surviving or transferee corporation and
104
<PAGE>
(ii) The News Corporation Limited or its Affiliates own at least 30% of the
total Voting Stock of the surviving or transferee corporation; (c) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of 66 2/3%
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute at least 50% of the
Board of Directors of the Company then in office; or (d) the Company is
liquidated or dissolved or adopts a plan of liquidation or any order, judgment
or decree shall be entered against the Company decreeing the dissolution or
splitup of the Company and such order shall remain undischarged or unstayed
for a period in excess of 60 days.
"Consolidated Cash Flow" means, with respect to any person for any period,
(i) the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (a) Consolidated Net Income, (b) Consolidated
Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income
Tax Expense (other than income tax expense (either positive or negative)
attributable to extraordinary and nonrecurring gains or losses), (e) an amount
equal to any extraordinary and nonrecurring losses (to the extent such losses
were deducted in computing Consolidated Net Income), (f) the amount of the
one-time write down incurred by the Company in 1996 related to additional
amortization recorded with respect to long term sports programming rights
contracts with MLB and certain collegiate conferences, less (ii) non-cash
items increasing Consolidated Net Income; provided, however, that if, during
such period, such person or any of its Restricted Subsidiaries shall have made
any Asset Sales or Asset Acquisitions, Consolidated Cash Flow for such person
and its Restricted Subsidiaries for such period shall be adjusted to give pro
forma effect to the Consolidated Cash Flow directly attributable to the assets
which are the subject of such Asset Sales or Asset Acquisitions during such
period.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of
such person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts), (c) the
interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers' acceptance financing or similar facilities and (e) all capitalized
and accrued interest and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such
person and its Restricted Subsidiaries during such period and (iii) the
aggregate amount of dividends and other distributions paid or accrued during
such period in respect of Redeemable Capital Stock (other than payments made
in respect of the redemption of such Redeemable Capital Stock (other than
accrued and unpaid dividends thereon)) of such person and its Restricted
Subsidiaries on a consolidated basis, as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted,
to the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses (net of fees and expenses
relating to the transaction giving rise thereto), (ii) the portion of net
income of such person and its Restricted Subsidiaries derived from or in
respect of Investments in persons other than Restricted Subsidiaries except to
the extent that cash dividends or distributions have not actually been
received by such person or one of its Restricted Subsidiaries, (iii) net
income (or loss) of any person combined with such person or one of its
Restricted Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) gains or losses in respect of
any Asset Sales by such person or one of its Restricted Subsidiaries (net of
fees and expenses relating to the transaction giving rise thereto), on an
after-tax basis, (v) the net income of any Restricted Subsidiary of such
person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is not at the
105
<PAGE>
time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulations applicable to that Restricted Subsidiary or its
stockholders and (vi) any gain or loss realized as a result of the cumulative
effect of a change in accounting principles.
"Consolidated Net Tangible Assets" of any person means, as of any date, (a)
all amounts that would be shown as assets on a consolidated balance sheet of
such person and its Restricted Subsidiaries prepared in accordance with GAAP,
less (b) the amount thereof constituting goodwill and other intangible assets
as calculated in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such person and its Restricted Subsidiaries reducing Consolidated Net
Income of such person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss or any such charge which
requires an accrual of or a reserve for cash charges for any future period).
"control" when used with respect to any specified person means the power to
direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Deposit Agreements" means the Senior Notes Deposit Agreement and the Senior
Discount Notes Deposit Agreement, as amended and in effect from time to time.
"Deposit Funds" has the meaning set forth in "--Deposit Proceeds; Offer to
Purchase upon Failure to Consummate the Rainbow Transaction" above.
"Disinterested Member of the Board of Directors of the Company" means, with
respect to any transaction or series of transactions, a member of the Board of
Directors of the Company other than a member who has any material direct or
indirect financial interest in or with respect to such transaction or series
of transactions or who is an officer, director or an employee of any person
who has any direct or indirect financial interest in or with respect to such
transaction or series of transactions (other than the Company or a Restricted
Subsidiary of the Company).
"Entertainment/Programming Business" means a domestic business engaged
primarily in the ownership, operation, acquisition, development, production or
syndication of sports or general entertainment programming or any other
domestic business engaged in by the Company on the Issue Date.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's- length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided, however, that, except with
respect to any Asset Sale which involves an asset or assets constituting less
than $25,000,000, the determination of the Fair Market Value of any asset or
assets shall be approved by the Board of Directors of the Company, acting in
good faith and shall be evidenced by resolutions of the Board of Directors of
the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as
106
<PAGE>
may be approved by a significant segment of the accounting profession of the
United States of America, which are applicable at the date of the Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts available to be drawn down under letters of credit of
another person.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities and liabilities for sports or entertainment programming
incurred in the ordinary course of business, but including, without
limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, banker's acceptance or other similar
credit transaction, (b) all obligations of such person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies
of the seller or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding trade
accounts payable arising in the ordinary course of business, (d) all
Capitalized Lease Obligations of such person, (e) all Indebtedness referred to
in the preceding clauses of other persons and all dividends of other persons,
the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon property (including, without limitation, accounts and contract
rights) owned by such person, even though such person has not assumed or
become liable for the payment of such Indebtedness, (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Interest Rate Protection Obligations of
such person, and (i) any amendment, supplement, modification, deferral,
renewal, extension, refinancing or refunding of any liability of the types
referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture, and if such price is based upon, or
measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be approved in good faith by the board of directors of the
issuer of such Redeemable Capital Stock. In the case of Indebtedness of other
persons, the payment of which is secured by a Lien on property owned by a
person as referred to in clause (e) above, the amount of the Indebtedness of
such person attributable to such Lien at any date shall be the lesser of the
Fair Market Value at such date of any asset subject to such Lien and the
amount of the Indebtedness secured.
"Independent Financial Advisor" means a nationally recognized accounting,
appraisal or investment banking firm (i) which does not, and whose directors,
officers and employees or Affiliates do not have, a direct or indirect
financial interest in the Company and (ii) which, in the judgment of the Board
of Directors of the Company, is otherwise independent and qualified to perform
the task for which it is to be engaged.
"Interest Rate Protection Agreement" means, with respect to any person, any
arrangement with any other person whereby, directly or indirectly, such person
is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any Interest Rate Protection Agreements.
107
<PAGE>
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any other person.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any
property of any kind. A person shall be deemed to own subject to a Lien any
property which such person has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement.
"Marketable Securities" means Government Securities maturing not later than
30 days after the date of acquisition.
"Maturity Date" means August 15, 2007.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company) net
of (i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Company or any Restricted Subsidiary of the Company) owning a beneficial
interest in the assets subject to the Asset Sale, (iv) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, and (v) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company, as the
case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary of the Company, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on behalf
of the Company by first-class mail, postage prepaid, to each holder at his
address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such
Offer at the purchase price specified in such Offer (as determined pursuant to
the applicable Indenture). Unless otherwise provided for in the Indentures or
otherwise required by applicable law, the Offer shall specify an expiration
date (the "Expiration Date") of the Offer to Purchase, which shall be not less
than 20 Business Days nor more than 60 days after the date of such Offer, and
a settlement date (the "Purchase Date") for purchase of Notes to occur no
later than five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such
shorter period as is acceptable to the Trustee) prior to the mailing of the
Offer of the Company's obligation to make an Offer to Purchase, and the Offer
shall be mailed by the Company or, at the Company's request, by the Trustee in
the name and at the expense of the Company; provided, however, that the
Company may notify the Trustee on the same Business Day as the mailing of the
Offer of the Company's obligation to make an Offer to Purchase pursuant to "--
Deposit Proceeds; Offer to Purchase upon Failure to Consummate the Rainbow
Transaction" above. The Offer shall contain all the information required by
applicable law to be included therein. The Offer shall also contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such Holders to make an
informed decision with respect to the Offer to Purchase (which
108
<PAGE>
at a minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the document required to be filed with
the Trustee pursuant to the Indenture (which requirements may be satisfied by
delivery of such documents together with the Offer), (ii) a description of
material developments in the Company's business subsequent to the date of the
latest of such financial statements referred to in clause (i) (including a
description of the events requiring the Company to make the Offer to
Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable
law to be included therein). The Offer shall contain all instructions and
materials necessary to enable such Holders to tender Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1)the Section of the Indenture pursuant to which the Offer to Purchase is
being made;
(2)the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount");
(4) (a) in the case of the Senior Notes, the purchase price to be paid by
the Company for each $1,000 aggregate principal amount of Notes
accepted for payment (as specified pursuant to the Senior Notes
Indenture) (the "Purchase Price" with respect to the Senior Notes) and
(b) in the case of the Senior Discount Notes, the purchase price to be
paid by the Company for each $1,000 of Accreted Value (if the Purchase
Date is prior to the earlier of August 15, 2002 or the Cash Interest
Election Date) or $1,000 aggregate principal amount at maturity (if the
Purchase Date is on or after such earlier date) of Notes accepted for
payment (as specified pursuant to the Senior Discount Notes Indenture)
(the "Purchase Price" with respect to the Senior Discount Notes);
(5) that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered must
be tendered in an integral multiple of $1,000 principal face amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased by
the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer
to Purchase and that interest thereon shall cease to accrue on and
after the Purchase Date;
(9) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such
Note at the place or places specified in the Offer prior to the close
of business on the Expiration Date (such Note being, if the Company or
the Trustee so requires, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the holder thereof or his attorney duly
authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its paying agent) receives, not later than
the close of business on the fifth Business Day next preceding the
Expiration Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Note
the holder tendered, the certificate number of the Note the holder
tendered and a statement that such holder is withdrawing all or a
portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase Notes having an aggregate
principal amount equal to the Purchase Amount on a pro rata basis (with
such adjustments
109
<PAGE>
as may be deemed appropriate so that only Notes in denominations of
$1,000 principal amount at maturity or integral multiples thereof shall
be purchased); and
(12) that in the case of any holder whose Note is purchased only in part, the
Company shall execute and the Trustee shall authenticate and deliver to
the holder of such Note without service charge, a new Note or Notes, of
any authorized denomination as requested by such holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of
the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with the
provisions pertaining to the type of Offer to which it relates. References
above to principal amount shall mean and refer to principal amount at maturity
with respect to the Senior Discount Notes, unless the context otherwise
requires.
"Permitted Holder" means The News Corporation Limited, Liberty Media
Corporation and their respective Affiliates.
"Permitted Indebtedness" means, without duplication:
(a) Indebtedness of the Company evidenced by the Notes;
(b) Indebtedness of the Company and Restricted Subsidiaries under the
Bank Facility in an aggregate principal amount at any one time outstanding
not to exceed $900 million, less any amounts permanently repaid in
accordance with the covenant described under "Disposition of Proceeds of
Asset Sales;"
(c) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the date of the Indenture and listed on a schedule thereto;
(d) Indebtedness to third parties for the production of television
programming by one or more special-purpose partnerships, corporations,
joint ventures or similar structures (in which any interest of the Company
is held through a Special Purpose Vehicle), the production decisions in
respect of which are controlled by the Company to the same extent as would
be customary in the case of the production of such programming by the
Company;
(e) Indebtedness consisting of the liabilities and obligations,
contingent or otherwise, incurred by the Company or its Restricted
Subsidiaries in the ordinary course of business (other than for borrowed
money) to acquire, produce, license or distribute television programming;
(f) Indebtedness of the Company or any Restricted Subsidiary of the
Company incurred in respect of performance bonds, bankers' acceptances and
letters of credit in the ordinary course of business, including
Indebtedness evidenced by letters of credit issued in the ordinary course
of business to support the insurance or self-insurance obligations of the
Company or any of its Restricted Subsidiaries (including to secure workers'
compensation and other similar insurance coverages), in the aggregate
amount not to exceed $15 million at any time; but excluding letters of
credit issued in respect of or to secure money borrowed;
(g) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company and (ii) Interest Rate Protection Obligations
of any Restricted Subsidiary covering Indebtedness of such Restricted
Subsidiary provided that, in the case of either clause (i) or (ii), (x) any
Indebtedness to which any such Interest Rate Protection Obligations
correspond bears interest at fluctuating interest rates and is otherwise
permitted to be incurred under the "Limitation on Indebtedness" covenant
and (y) the notional principal amount of any such Interest Rate Protection
Obligations that exceeds the principal amount of the Indebtedness to which
such Interest Rate Protection Obligations relate does not constitute
Permitted Indebtedness and may not be incurred;
(h) Indebtedness of a Restricted Subsidiary owed to and held by the
Company or another Restricted Subsidiary, except that (i) any transfer of
such Indebtedness by the Company or a Restricted Subsidiary (other than to
the Company or another Restricted Subsidiary) and (ii) the sale, transfer
or other disposition by the Company or any Restricted Subsidiary of the
Company of Capital Stock of a Restricted Subsidiary (other than to the
Company or a Restricted Subsidiary) which is owed Indebtedness of another
Restricted
110
<PAGE>
Subsidiary shall, in each case, be an incurrence of Indebtedness by such
Restricted Subsidiary subject to the other provisions of the Indentures;
(i) Indebtedness of the Company owed to and held by a Restricted
Subsidiary which is unsecured and subordinated in right of payment to the
payment and performance of the obligations of the Company under the
Indentures and the Notes, except that (i) any transfer of such Indebtedness
by the Company or a Restricted Subsidiary (other than to another Restricted
Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Restricted Subsidiary of the Company of Capital Stock of a
Restricted Subsidiary (other than to the Company or a Restricted
Subsidiary) which is owed Indebtedness of the Company shall, in each case,
be an incurrence of Indebtedness by the Company, subject to the other
provisions of the Indentures;
(j) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within three business days of incurrence;
(k) Indebtedness of the Company, in addition to that described in clauses
(a) through (j) of this definition, in an aggregate principal amount
outstanding at any time not to exceed $150,000,000; and
(l) (i) Indebtedness of the Company the proceeds of which are used solely
to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
Indebtedness of any Restricted Subsidiary of the Company the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of any Restricted Subsidiary (in each
case other than the Indebtedness to be refinanced, redeemed or retired as
described under "Use of Proceeds" herein); provided, however, that (x) the
principal amount of Indebtedness incurred pursuant to this clause (l) (or,
if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness) shall not
exceed the sum of the principal amount of Indebtedness so refinanced, plus
the amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined by the Company as necessary to accomplish
such refinancing by means of a tender offer or privately negotiated
purchase, plus the amount of expenses in connection therewith, and (y) in
the case of Indebtedness incurred by the Company pursuant to this clause
(l) to refinance Subordinated Indebtedness, such Indebtedness (A) has no
scheduled principal payment prior to the 121st day after the Maturity Date,
(B) has an Average Life to Stated Maturity greater than the remaining
Average Life to Stated Maturity of the Notes and (C) is subordinated to the
Notes in the same manner and to the same extent that the Subordinated
Indebtedness being refinanced is subordinated to the Notes.
"Permitted Investments" means any of the following: (i) Investments in the
Company or in a Restricted Subsidiary; (ii) Investments in another person, if
as a result of such Investment (A) such other person becomes a Restricted
Subsidiary or (B) such other person is merged or consolidated with or into, or
transfers or conveys all or substantially all of its assets to the Company or
a Restricted Subsidiary; (iii) Investments representing Capital Stock or
obligations issued to the Company or any of its Restricted Subsidiaries in
settlement of claims against any other person by reason of a composition or
readjustment of debt or a reorganization of any debtor of the Company or such
Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements
on commercially reasonable terms entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business in connection with
the operations of the business of the Company or its Restricted Subsidiaries
to hedge against fluctuations in interest rates on its outstanding
Indebtedness; (v) Investments in the Notes; (vi) Investments in Cash
Equivalents; (vii) Investments made in connection with the consummation of the
Rainbow Transaction; (viii) Investments acquired by the Company or any
Restricted Subsidiary in connection with an Asset Sale permitted under "--
Certain Covenants--Disposition of Proceeds of Asset Sales" to the extent such
Investments are non-cash proceeds as permitted under such covenant; (ix)
advances to employees or officers of the Company in the ordinary course of
business; (x) any Investment to the extent that the consideration therefor
111
<PAGE>
is Capital Stock (other than Redeemable Capital Stock) of the Company; and
(xi) Investments in any person engaged in the Entertainment/Programming
Business.
"Permitted Liens" means the following types of Liens:
(a) any Lien existing as of the date of the Indenture;
(b) Capital Stock of any person, and the proceeds thereof, securing
Indebtedness and other amounts owing under the Bank Facility;
(c) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with, or in contemplation of) the incurrence of such
Indebtedness by the Company or any Restricted Subsidiary, if such Lien does
not attach to any property or assets of the Company or any Restricted
Subsidiary other than the property or assets subject to the Lien prior to
such incurrence;
(d) Liens in favor of the Company or a Restricted Subsidiary;
(e) Liens on and pledges of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary;
(f) Liens for taxes, assessments or governmental charges or claims either
(i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(g) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(h) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(i) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(j) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(k) any interest or title of a lessor under any Capitalized Lease
Obligation;
(l) purchase money Liens to finance property or assets of the Company or
any Restricted Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (i) the related purchase money
Indebtedness shall not be secured by any property or assets of the Company
or any Restricted Subsidiary of the Company other than the property and
assets so acquired and (ii) the Lien securing such Indebtedness shall be
created within 90 days of such acquisition;
(m) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and set-
off;
112
<PAGE>
(o) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under this Indenture;
(p) Liens on assets of Unrestricted Subsidiaries;
(q) Liens created in the ordinary course of business in favor of a sports
team over rights payments which are allocable to such team under related
rights agreements, or a producer or supplier of television programming over
distribution revenues and/or distribution rights which are allocable to
such producer or supplier under related distribution agreements; and
(r) Liens securing other Indebtedness in an aggregate amount not to
exceed 10% of the Company's Consolidated Net Tangible Assets as of the last
day of the Company's most recently completed fiscal period for which
financial information is available.
"person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock," as applied to any person, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
"principal amount at maturity" means, with respect to the Senior Discount
Notes, $1,000 per $1,000 face amount of Senior Discount Notes; provided,
however, that if the Company shall have made a Cash Interest Election, the
principal amount at maturity with respect to each Senior Discount Note shall
be the Accreted Value of such Senior Discount Note as of the Cash Interest
Election Date.
"Qualified Equity Interest" in a person means any interest in Capital Stock
of such person, other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed prior to the
Maturity Date or is redeemable at the option of the holder thereof at any time
prior to the Maturity Date, or is convertible into or exchangeable for debt
securities at any time prior to the Maturity Date.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale-Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing
for the leasing by such person of any property or asset of such person which
has been or is being sold or transferred by such Person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any person to whom funds have been or are to
be advanced by such lender or investor on the security of such property or
asset. The stated maturity of such arrangement shall be the date of the last
payment of rent or any other amount due under such arrangement prior to the
first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Significant Subsidiary" of any person means a Restricted Subsidiary of such
person which would be a significant subsidiary of such person as determined in
accordance with the definition in Section 210.1-02(w) of Regulation S-X
promulgated by the Commission and as in effect on the date of the Indenture.
"Special Purpose Vehicle" means a person which is, or was, established: (i)
with separate legal identity and limited liability; (ii) as an Affiliate of
the Company; and (iii) for the sole purpose of a single transaction, or
113
<PAGE>
series of related transactions, and which has no assets and liabilities other
than those directly acquired or incurred in connection with such
transaction(s).
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is
due and payable, and when used with respect to any other Indebtedness, means
the date specified in the instrument governing such Indebtedness as the fixed
date on which the principal of such Indebtedness, or any installment of
interest thereon, is due and payable.
"Strategic Equity Investor" means a corporation or entity with an equity
market capitalization, a net asset value or annual revenues of at least $1.0
billion that primarily owns and operates businesses in the sports or
entertainment, cable television, programming or similar or related industries.
"Subordinated Indebtedness" means, with respect to the Company, Indebtedness
of the Company which is expressly subordinated in right of payment to the
Notes.
"Subsidiary" means, with respect to any person, (i) a corporation at least
50% of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a partnership, limited liability
company, business trust or joint venture, in which such person, one or more
Subsidiaries thereof or such person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, has at least a
50% ownership interest entitled to vote in the election of directors, managers
or trustees thereof (or other person performing similar functions). For
purposes of this definition, any directors' qualifying shares or investments
by foreign nationals mandated by applicable law shall be disregarded in
determining the ownership of a Subsidiary and LMC Southeast Sports, Inc. and
LMC Sunshine, Inc. shall be deemed to be Subsidiaries of Liberty/Fox Southeast
LLC and Liberty/Fox Sunshine LLC, respectively.
"Unrestricted Subsidiary" means Liberty/Fox Arizona LLC, Prime Ticket
Networks, L.P., Liberty/Fox Distribution L.P., Liberty/Fox Network
Programming, LLC, Rocky Mountain Prime Sports Network, Sports- Channel Chicago
Associates, SportsChannel Pacific Associates, Sunshine Network and Fox Sports
Detroit, LLC and each Subsidiary of the Company designated as such pursuant to
and in compliance with the covenant described under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least 50% of the board of directors, managers or trustees of any
person (irrespective of whether or not, at the time, stock of any other class
or classes shall have, or might have, voting power by reason of the happening
of any contingency).
BOOK-ENTRY; DELIVERY AND FORM
The Notes will be represented by a single, permanent global note in
definitive, fully registered book-entry form for each of the Senior Notes and
Senior Discount Notes (a "Global Security") which will be registered in the
name of a nominee of The Depository Trust Company ("DTC") and deposited on
behalf of purchasers of the Notes represented thereby with a custodian for DTC
for credit to the respective accounts of the purchasers (or to such other
accounts as they may direct) at DTC.
The Global Securities. The Company expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Securities, DTC or its
custodian will credit on its internal system portions of the Global Securities
which shall be comprised of the corresponding respective amounts of the Global
Securities to the respective accounts of persons who have accounts with such
depositary and (b) ownership of the Notes will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by DTC
or its
114
<PAGE>
nominee (with respect to interests of Participants (as defined below)) and the
records of Participants (with respect to interests of persons other than
Participants). Ownership of beneficial interests in the Global Securities will
be limited to persons who have accounts with DTC ("Participants") or persons
who hold interests through Participants. Investors may hold their interests in
the Global Security directly through DTC if they are Participants in such
system, or indirectly through organizations which are Participants in such
system.
So long as DTC or its nominee is the registered owner or holder of any of
the Notes, DTC or such nominee will be considered the sole owner or holder of
such Notes represented by the Global Securities for all purposes under the
Indentures and under the Notes represented thereby. No beneficial owner of an
interest in the Global Securities will be able to transfer such interest
except in accordance with the applicable procedures of DTC in addition to
those provided for under the Indentures.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on the Notes represented by the Global Securities will be
made to DTC or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of, premium, if any, and interest (including Additional
Interest) on the Notes represented by the Global Securities, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Global Securities as shown in the
records of DTC or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in the Global Securities held
through such Participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payment
will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Security for any reason,
including to sell Notes to persons in states which require physical delivery
of such securities or to pledge such securities, such holder must transfer its
interest in the Global Securities in accordance with the normal procedures of
DTC and in accordance with the procedures set forth in the Indenture.
Any beneficial interest in one of the Global Securities that is transferred
to a person who takes delivery in the form of an interest in the other Global
Security will, upon transfer, cease to be an interest in such Global Security
and, accordingly, will thereafter be subject to all transfer restrictions, if
any, and other procedures applicable to beneficial interests in such other
Global Security with respect to the applicable notes for as long as it remains
such an interest.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Securities are credited and only in
respect of the aggregate principal amount as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Securities for
Certificated Securities, which it will distribute to its Participants and
which will be legended as set forth under the heading "Notice to Investors."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in
115
<PAGE>
accounts of its Participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Securities among Participants
of DTC, it is under no obligation to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC, or its
respective direct or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Certificated Securities. Interests in the Global Securities will be
exchanged for Certificated Securities if (i) DTC notifies the Company that it
is unwilling or unable to continue as depositary for the Global Securities, or
DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a
successor depositary is not appointed by the Company within 40 days, or (ii)
an Event of Default has occurred and is continuing with respect to the Notes.
Upon the occurrence of any of the events described in the preceding sentence,
the Company will cause the appropriate Certificated Securities to be
delivered.
116
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING SUMMARY OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IS APPLICABLE IN ALL
MATERIAL RESPECTS TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE OLD NOTES.
UNLESS THE CONTEXT OTHERWISE REQUIRES, FOR PURPOSES OF THIS SUMMARY REFERENCES
TO THE "NOTES" ARE TO THE NOTES AND THE OLD NOTES, COLLECTIVELY, REFERENCES TO
THE "SENIOR NOTES" ARE TO THE SENIOR NOTES AND THE OLD SENIOR NOTES,
COLLECTIVELY, AND REFERENCES TO THE "SENIOR DISCOUNT NOTES" ARE TO THE SENIOR
DISCOUNT NOTES AND THE OLD SENIOR DISCOUNT NOTES, COLLECTIVELY.
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of the
Notes. It is intended only as a descriptive summary and does not purport to be
a complete technical analysis or listing of all potential tax effects to
Holders. Unless otherwise stated, this summary only deals with Notes held as
capital assets by U.S. Holders (as hereinafter defined) who purchased such
Notes upon original issuance at the issue price therefor. As used herein,
"U.S. Holder" means a beneficial owner of the Notes that is (a) an individual
citizen or resident of the United States or any political subdivision thereof,
(b) a corporation or partnership organized in or under the laws of the United
States or a state, (c) an estate the income of which is subject to United
States federal income taxation regardless of its source, or (d) a trust if (i)
a court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more United States persons
have the authority to control all substantial decisions of the trust. This
discussion does not deal with all classes of holders, such as banks, thrifts,
real estate investment trusts, regulated investment companies, dealers in
securities or currencies, tax-exempt investors, persons that have a functional
currency other than the U.S. dollar or persons that will hold the Notes as
part of a "synthetic security," "hedge," "straddle," "conversion transaction,"
or other than as a capital asset. This summary is based upon the Internal
Revenue Code of 1986, as amended, Treasury Regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
Prospective purchasers of the Notes should consult with their tax advisors
concerning issues including (i) the application of United States federal
income tax laws to them stemming from an investment in the Notes, (ii) any
consequences to them arising under the laws of any other taxing jurisdiction,
including, without limitation, the laws of any state, local or foreign taxing
jurisdiction, and (iii) the consequences of purchasing the Notes at a price
other than the issue price.
INTEREST
It is not expected that the Senior Notes will be issued with original issue
discount ("OID") in excess of a de minimis amount. Accordingly, interest on
the Senior Notes will be taxable to a U.S. Holder as ordinary interest income
in accordance with the U.S. Holder's method of tax accounting at the time that
such interest is accrued or (actually or constructively) received.
ORIGINAL ISSUE DISCOUNT
For United States federal income tax purposes, the Senior Discount Notes
will be considered to be issued with OID. The amount of OID will be the excess
of a Senior Discount Note's stated redemption price at maturity over its issue
price. The issue price of a Senior Discount Note will equal the first price at
which a substantial amount of the Senior Discount Notes are sold. The stated
redemption price at maturity of a Senior Discount Note will equal the amount
payable at maturity (i.e., 100% of the initial principal amount of the Senior
Discount Note) plus all stated interest thereon.
A U.S. Holder of a Senior Discount Note will be required to include OID in
its gross taxable income (as ordinary income) periodically over the term of
the Senior Discount Note before receipt of the cash attributable to such
income, using a constant yield method that takes into account the compounding
of interest. Such
117
<PAGE>
treatment will continue to apply whether or not the Company makes the Cash
Interest Election. The Company's exercise of the Cash Interest Election and
reduction of the principal amount at maturity of the Senior Discount Notes
will not represent a taxable event to a U.S. Holder of a Senior Discount Note.
The receipt of cash interest payments under a Senior Discount Note will not be
taxable to a holder; rather such payments will be treated as payments of OID
which will reduce the holder's adjusted tax basis in the Senior Discount Note.
The Company will furnish annually to the Internal Revenue Service and to
U.S. Holders (other than with respect to certain exempt holders, including, in
particular, corporations) information with respect to the OID accruing while
the Senior Discount Notes were held by the U.S. Holders. Such information will
be based on the accruals of OID as if the holder were the original holder of
the Senior Discount Note.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A U.S. Holder will recognize gain or loss equal to the difference between
the amount realized upon the sale, exchange or retirement of the Notes and the
U.S. Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax
basis in a Senior Discount Note will generally equal the issue price of such
Senior Discount Note, increased by the amount of any OID previously included
in income by such U.S. Holder with respect to such Senior Discount Note and
reduced by any principal and interest payments received by the U.S. Holder
with respect to such Senior Discount Note. Except with respect to accrued but
unpaid interest, such gain or loss will be capital gain or loss. Under the
recently enacted Taxpayer Relief Act of 1997, net capital gain (i.e.,
generally, capital gain in excess of capital loss) recognized by an individual
upon the sale or exchange of a capital asset that has been held for more than
18 months will generally be subject to tax at a rate not to exceed 20%. Net
capital gain recognized by an individual from the sale or exchange of a
capital asset that has been held for more than 12 months but not for more than
18 months will continue to be subject to tax at a rate not to exceed 28%, and
net capital gain recognized from the sale or exchange of a capital asset that
has been held for 12 months or less will continue to be subject to tax at
ordinary income tax rates. In addition, net capital gain recognized by a
corporate taxpayer will continue to be subject to tax at the ordinary income
tax rates applicable to corporations.
EXCHANGE OFFER
The exchange of Old Notes for Notes pursuant to the Exchange Offer will not
be taxable to the U.S. Holders of the Notes.
NON-UNITED STATES HOLDERS
Payments of interest and OID on the Notes to a Holder who is not a U.S.
Holder (a "Non-U.S. Holder") may, if certain conditions are met, be exempt
from United States federal income tax, including withholding tax, unless the
interest and OID is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder in the Untied States or, if a treaty applies,
the interest and OID is generally attributable to the United States permanent
establishment maintained by the Non-U.S. Holder.
A Non-U.S. Holder of the Notes will not be subject to United States federal
income tax, including withholding tax, on gain realized on the sale or other
disposition of the Notes unless (i) such gain is effectively connected with
the conduct by the Non-U.S. Holder of a trade or business within the United
States or, if a treaty applies, the gain is generally attributable to the
United States permanent establishment maintained by the Non-U.S. Holder, or
(ii) in the case of gain realized by an individual holder, the Holder is
present in the United States for at least 183 days in the taxable year of the
disposition and certain other conditions are met.
118
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Notes for its own account pursuant to the
Exchange Offer (a "Participating Broker") must acknowledge that it will
deliver a prospectus in connection with any resale of such Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker in connection with resales of Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on
the first anniversary of the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any Participating Broker for use in
connection with any such resale. In addition, until , 1997 (90 days after
the date of this Prospectus), all dealers effecting transactions in the Notes
may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Notes by broker-
dealers. Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such Notes. Any broker-dealer that resells
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Notes and any commissions
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any Participating Broker that requests such documents in
the Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer (including the expenses of one counsel for the holders
of the Old Notes) other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Old Notes (including any
Participating Broker) against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Squadron,
Ellenoff, Plesent & Sheinfeld, LLP, New York, New York.
EXPERTS
The audited financial statements of the Company included in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The combined financial statements of Liberty Sports, Inc. and subsidiaries--
Domestic Operations as of December 31, 1995 and for each of the years in the
two-year period ended December 31, 1995 and for the period from January 1,
1996 to April 29, 1996 have been included herein and in the prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
119
<PAGE>
The audited financial statements of FX Networks, LLC included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The audited financial statements of Madison Square Garden, L.P. included in
this Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
The financial statements of Regional SportsChannel Companies as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, have been included in this Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
120
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FOX/LIBERTY NETWORKS, LLC
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................ F-4
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996...................................................... F-5
Consolidated Statements of Operations for the nine months ended
September 30, 1997 (unaudited), the eight months ended December 31,
1996, and the five months ended September 30, 1996 (unaudited)......... F-6
Consolidated Statements of Stockholder's Equity for the nine months
ended September 30, 1997 (unaudited) and the eight months ended
December 31, 1996...................................................... F-7
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1997 (unaudited), the eight months ended December 31,
1996, and the five months ended September 30, 1996 (unaudited)......... F-8
Notes to Consolidated Financial Statements.............................. F-9
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
Independent Auditors' Report............................................ F-24
Combined Balance Sheet as of December 31, 1995.......................... F-25
Combined Statements of Operations and Equity for the period January 1,
1996 to April 29, 1996 and the years ended December 31, 1994 and 1995.. F-26
Combined Statements of Cash Flows for the period January 1, 1996 to
April 29, 1996 and the years ended December 31, 1994 and 1995.......... F-27
Notes to Combined Financial Statements.................................. F-28
FX NETWORKS, LLC
Report of Independent Public Accountants................................ F-38
Balance Sheet as of June 30, 1995....................................... F-39
Statements of Operations for the ten months ended April 29, 1996, the
four months ended April 29, 1996 (unaudited), the year ended June 30,
1995 and the period from inception (July 1, 1993) to June 30, 1994..... F-40
Statements of Accumulated Deficit for the period from inception (July 1,
1993) to June 30, 1994, and the year ended June 30, 1995............... F-41
Statements of Cash Flows for the ten months ended April 29, 1996, the
four months ended April 29, 1996 (unaudited), the year ended June 30,
1995 and the period from inception (July 1, 1993) to June 30, 1994..... F-42
Notes to Financial Statements........................................... F-43
MADISON SQUARE GARDEN, L.P.
Report of Independent Public Accountants................................ F-47
Statements of Financial Position as of December 31, 1996 and 1995....... F-48
Statements of Operations for the period from April 3, 1994 to March 9,
1995 (Predecessor Basis of Accounting), for the period March 10, 1995
to December 31, 1995, and for the year ended December 31, 1996......... F-49
Statements of Changes in Members' Equity from Initial Contribution
(March 10, 1995) to December 31, 1995, and for the year ended December
31, 1996............................................................... F-50
Statements of Cash Flows for the period from April 3, 1994 to March 9,
1995 (Predecessor Basis of Accounting), for the period March 10, 1995
to December 31, 1995, and for the year ended December 31, 1996......... F-51
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notes to Financial Statements........................................... F-52
Statements of Financial Position as of September 30, 1997 (unaudited)
and December 31, 1996.................................................. F-60
Statements of Operations (unaudited) for the nine months ended September
30, 1997 and 1996...................................................... F-61
Statements of Changes in Members' Equity (unaudited) for the nine months
ended September 30, 1997............................................... F-62
Statements of Cash Flows (unaudited) for the nine months ended September
30, 1997 and 1996...................................................... F-63
Notes to Unaudited Interim Financial Statements......................... F-64
</TABLE>
REGIONAL SPORTSCHANNEL COMPANIES
<TABLE>
<S> <C>
Independent Auditors' Report ........................................... F-67
Combined Balance Sheets as of December 31, 1996 and 1995................ F-68
Combined Statements of Income for the years ended December 31, 1996,
1995 and 1994.......................................................... F-69
Combined Statements of Partners' Capital for the years ended December
31, 1996, 1995 and 1994................................................ F-70
Combined Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994.......................................................... F-71
Notes to Combined Financial Statements.................................. F-72
Combined Balance Sheet as of September 30, 1997 (unaudited)............. F-78
Combined Statements of Income for the nine months ended September 30,
1997 and 1996 (unaudited).............................................. F-79
Combined Statements of Partners' Capital for the nine months ended
September 30, 1997 and 1996 (unaudited)................................ F-80
Combined Statements of Cash Flows for the nine months ended September
30, 1997 and 1996 (unaudited).......................................... F-81
Notes to Combined Financial Statements.................................. F-82
LIBERTY/FOX ARC, L.P.
Consolidated Balance Sheet as of December 31, 1996 (unaudited).......... F-84
Consolidated Statement of Operations for the period from Inception
(April 30, 1996)
to December 31, 1996 (unaudited)....................................... F-85
Statement of Shareholders' Equity for the period from Inception (April
30, 1996)
to December 31, 1996 (unaudited)....................................... F-86
Consolidated Statement of Cash Flows for the period from Inception
(April 30, 1996)
to December 31, 1996 (unaudited)....................................... F-87
Notes to Consolidated Financial Statements.............................. F-88
</TABLE>
F-2
<PAGE>
FOX/LIBERTY NETWORKS, LLC
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors
Fox/Liberty Networks, LLC:
We have audited the accompanying consolidated balance sheet of FOX/LIBERTY
NETWORKS, LLC and Subsidiaries, a Delaware limited liability company (the
"Company") as of December 31, 1996, and the related consolidated statements of
operations, equity, and cash flows for the period from inception (April 30,
1996) to December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Fox/Liberty Networks, LLC and Subsidiaries as of December 31, 1996, and the
results of its operations and its cash flows for the period from inception
(April 30, 1996) to December 31, 1996 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Los Angeles, California
February 7, 1997
(except with respect to the matter
discussed in Note 10, as to which
the date is December 5, 1997)
F-4
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 92,813 $ 7,964
Trade and other receivables, net of allowance
for doubtful accounts of $754 (unaudited)
and $957 at September 30, 1997 and December
31, 1996, respectively...................... 163,813 65,313
Receivables from equity affiliates, net...... 8,941 33,800
Prepaid program rights....................... 75,700 28,942
Notes receivable, current.................... 1,990 2,829
Prepaid expenses and other current assets.... 15,465 1,292
---------- --------
Total current assets....................... 358,722 140,140
Restricted cash................................ 738,039 --
Property and equipment, net.................... 53,064 23,333
Investments in affiliates...................... (1,104) 77,699
Note receivable, long-term..................... 11,790 3,800
Program rights................................. 107,746 17,511
Excess cost, net of accumulative amortization
of $13,666 (unaudited) and $5,340 at September
30, 1997 and December 31, 1996, respectively.. 513,578 347,239
Other assets................................... 27,570 1,260
---------- --------
Total Assets............................... $1,809,405 $610,982
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses........ $ 235,949 $100,217
Program rights payable....................... 12,794 25,519
Current portion of long-term debt............ 373,667 26,410
Accrued interest............................. 937 2,208
Other current liabilities.................... 9,042 3,459
---------- --------
Total current liabilities.................. 632,389 157,813
Non-current program rights payable............. 124,422 78,135
Long-term debt, net of current portion......... 846,573 145,304
Minority interest.............................. 952 (998)
Commitments and contingencies
Shareholders' equity........................... 205,069 230,728
---------- --------
Total Liabilities and Shareholders' Equity. $1,809,405 $610,982
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-5
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 (UNAUDITED), DECEMBER 31, 1996
AND SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED APRIL 30 TO ENDED
SEPTEMBER 30, 1997 DECEMBER 31, SEPTEMBER 30, 1996
(UNAUDITED) 1996 (UNAUDITED)
------------------ ------------ ------------------
<S> <C> <C> <C>
Revenues:
Programming............... $164,272 $ 85,288 $ 53,074
Advertising............... 73,949 37,685 17,598
Direct broadcast.......... 70,162 5,711 2,044
Infomercial............... 11,273 4,261 2,570
Merchandising............. -- 3,226 3,226
Other..................... 7,602 8,621 7,401
-------- --------- --------
327,258 144,792 85,913
-------- --------- --------
Expenses:
Operating................. 281,192 117,445 57,254
Additional amortization of
program rights........... -- 80,000 --
General and
administrative........... 44,823 31,609 14,413
Depreciation and
amortization............. 13,387 8,507 5,158
-------- --------- --------
339,402 237,561 76,825
-------- --------- --------
Operating (Loss) Income..... (12,144) (92,769) 9,088
-------- --------- --------
Other (income) expenses:
Interest, net............. 16,666 3,819 1,572
Subsidiaries' income tax
expense.................. 3,422 3,437 35
Loss on sale of assets.... -- 4,913 4,951
Equity income of
affiliates, net.......... (6,722) (16,976) (11,221)
Equity in loss of
affiliates related to
additional amortization
of program rights........ -- 29,000 --
Other..................... (2,462) -- --
Minority interest......... 2,611 187 (132)
-------- --------- --------
13,515 24,380 (4,795)
-------- --------- --------
Net (Loss) Income........... $(25,659) $(117,149) $ 13,883
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOX/LIBERTY FOX REGIONAL TOTAL
LMC NEWCO FINANCING, SPORTS SHAREHOLDERS'
US, INC. LLC HOLDINGS, INC. EQUITY
--------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1996..... $ 8,000 $243,577 $ 96,300 $ 347,877
(representing the initial
contributions of the
shareholders)
Net loss.................. (36,132) (44,885) (36,132) (117,149)
-------- -------- -------- ---------
BALANCE, DECEMBER 31, 1996.. (28,132) 198,692 60,168 230,728
Net loss (unaudited)...... (7,914) (9,831) (7,914) (25,659)
-------- -------- -------- ---------
BALANCE, SEPTEMBER 30, 1997
(unaudited)................ $(36,046) $188,861 $ 52,254 $ 205,069
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 1997 (UNAUDITED), DECEMBER 31, 1996
AND SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED APRIL 30 TO ENDED
SEPTEMBER 30, 1997 DECEMBER 31, SEPTEMBER 30, 1996
(UNAUDITED) 1996 (UNAUDITED)
------------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net (loss) income......... $ (25,659) $(117,149) $ 13,883
Adjustments to reconcile
net (loss) income to net
cash provided by
operating activities:
Additional amortization
of program rights...... -- 80,000 --
Depreciation and
amortization........... 13,387 8,507 5,158
Loss on sale of assets.. - 4,913 4,951
Equity income of
affiliates............. (6,722) (16,976) (11,221)
Equity in loss of
affiliates related to
additional
amortization........... - 29,000 -
Minority interests...... 2,611 187 (132)
Changes in operating
assets and liabilities:
Trade and other
receivables............ (71,707) (8,029) (36,791)
Prepaid program rights.. (132,229) (3,205) (9,840)
Prepaid expenses and
other current assets... 5,076 297 191
Inventory............... - (493) (493)
Other assets............ (8,208) (43) (173)
Accounts payable and
accrued expenses....... 44,410 33,939 43,320
Program rights payable.. 30,040 (1,149) 245
Accrued interest........ (1,271) 2,151 704
Other current
liabilities............ 839 2,361 2,548
--------- --------- --------
Net cash (used in)
provided by operating
activities........... (149,433) 14,311 12,350
--------- --------- --------
Cash flows from investing
activities:
Advances from equity
affiliates............... 62,655 56,666 30,693
Advances to equity
affiliates............... (37,796) (78,651) (41,930)
Notes receivables issued
to third parties......... (282) (1,700) (400)
Purchases of property and
equipment................ (23,051) (11,202) (880)
Capital contributions to
equity affiliates........ (7,170) - -
Distributions from equity
affiliates............... 1,762 563 455
Distributions to equity
affiliates............... (660) - -
Purchase of additional
partnership interests,
net of cash acquired..... - (4,046) (7,672)
Purchase of programming
rights and related
assets................... (45,000) - -
Cash sold upon sale of
merchandising assets..... - (429) (429)
--------- --------- --------
Net cash used in
investing activities. (49,542) (38,799) (20,163)
--------- --------- --------
Cash flows from financing
activities:
Cash overdraft, included
in accounts payable...... 65,802 2,133 (458)
Increase in restricted
cash..................... (738,039) -- --
Borrowings of long-term
debt..................... 1,242,428 48,448 23,150
Repayment of long-term
debt..................... (268,460) (24,800) (17,505)
Deferred debt issuance
costs.................... (17,907) -- --
Distribution to minority
shareholder of
subsidiary............... - (600) -
--------- --------- --------
Net cash provided by
financing activities. 283,824 25,181 5,187
--------- --------- --------
Net increase (decrease) in
cash and cash equivalents.. 84,849 693 (2,626)
Cash and cash equivalents,
from beginning of period... 7,964 7,271 7,271
--------- --------- --------
Cash and cash equivalents,
end of period.............. $ 92,813 $ 7,964 $ 4,645
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION
Fox/Liberty Networks, LLC (the "Company"), a Delaware limited liability
company, was formed in April 1996, to own and operate programming services
featuring predominantly sports and sports related programming, as well as a
national general entertainment programming service.
The Company's shareholders as of September 30, 1997 (unaudited) and December
31, 1996, were:
<TABLE>
<CAPTION>
INTEREST
--------
<S> <C>
LMC Newco U.S., Inc. ("LMCI").................................. 30.843%
(a wholly-owned subsidiary of Liberty Sports, Inc. ("LSI"), a
wholly-owned subsidiary of Liberty Media Corporation ("LMC"))
Fox Regional Sports Holdings, Inc. ("FRSH").................... 30.843%
(a wholly-owned subsidiary of Fox, Inc. ("Fox"), a wholly-owned
subsidiary of News America Holdings Incorporated ("NAHI"))
Fox/Liberty Sports Financing LLC............................... 38.314%
(50% owned by each of LMCI and NAHI)
--------
100.000%
========
</TABLE>
Liberty Sports, Inc. (a predecessor operation) contributed its interest in
regional sports programming businesses (which then operated under the name
"Prime Sports"), interests in non-managed sports businesses, satellite
distribution services and technical facilities. Fox and its subsidiaries
contributed cash, all of its assets and liabilities in the FX cable network (a
predecessor operation), and certain assets related to regional sports
programming.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the operations of
the Company and those majority-owned subsidiaries and entities for which there
is a controlling voting interest. All significant intercompany accounts and
transactions have been eliminated in consolidation. The subsidiaries
consolidated include the following intermediary holding companies (and their
subsidiaries):
Fox Sports Net, LLC, which is comprised of the following:
<TABLE>
<S> <C>
--Liberty/Fox West LLC --Liberty/Fox ARC LP
--Liberty/Fox Central Services LLC --Liberty/Fox Southeast LLC
--Liberty/Fox Northwest LP --Liberty/Fox Utah LLC
--Liberty/Fox Sunshine LLC --Liberty/Fox Arizona LLC
--Fox Sports Detroit, LLC
</TABLE>
FX Networks, LLC
Fox/Liberty Network Programming LLC
On March 13, 1997, upon the acquisition of the remaining interests in
Affiliated Regional Communications, Ltd. and affiliates ("ARC") by Liberty/Fox
ARC LP, the Company assumed management control of the consolidated
subsidiaries of Liberty/Fox ARC LP, and from that date the consolidated
subsidiaries of ARC and their operations were consolidated.
In September 1997, Fox Sports Detroit, LLC a majority-owned subsidiary of
the Company, was formed for the purpose of providing sports and sports related
programming in the Detroit, Michigan area (See Note 3).
F-9
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(b) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity
of less than 90 days. The carrying amounts of cash and cash equivalents
approximate their fair values due to their short maturities. The Company had
cash equivalents of $69,373 and $6,989 at September 30, 1997 (unaudited) and
December 31, 1996, respectively.
(c) Restricted Cash
As of September 30, 1997, the Company had deposited $738,039 in an interest
bearing account as security for the Senior Notes and the Senior Discount Notes
(See Note 7(d)). In the event that the consummation of the Rainbow Transaction
(See Note 10) does not occur by December 30, 1997, the funds will be held on
deposit to fund an offer by the Company to purchase all outstanding Notes. If
the Rainbow Transaction occurs by December 30, 1997, the amounts held on
deposit will be released to the Company.
(d) Program Rights
The Company has multi-year contracts for broadcast rights of syndicated
entertainment programs and sporting events. Pursuant to these contracts, an
asset is recorded for the rights acquired and a liability is recorded for the
obligation incurred, at the gross amount of the liability when the programs or
sporting events are available for telecast. Program rights for entertainment
programs are amortized over the term of the contract using the straight-line
method. Program rights for sporting events which are for a specified number of
games are amortized on an event-by-event basis, and those which are for a
specified season are amortized over the term of the season on a straight-line
basis.
At the inception of these contracts and periodically thereafter, the Company
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss.
In 1994 and the period ended December 31, 1996, the Company and its
predecessor, Liberty Sports, Inc., entered into or committed to contracts for
program rights to broadcast college football and Major League Baseball games,
respectively. In 1996, the Company performed an in-depth evaluation and
determined that these contracts would produce losses over the term of the
respective contracts. Accordingly, the Company and its affiliates recorded
$109,000 in additional amortization related to these contracts during the
period from inception (April 30, 1996) to December 31, 1996.
(e) Property and Equipment
Property and equipment are stated at cost, which includes acquisition costs
allocated to tangible assets acquired. Depreciation and amortization for
financial statement purposes are provided using the straight-line method over
an estimated useful life of five to ten years.
(f) Other Assets
At September 30, 1997 other assets included $19,507 of debt issuance costs
related to the issuance of Senior Notes and Senior Discount Notes (the
"Notes"--See Note 7(d)). These costs are amortized using the effective
interest method over the term of the Notes.
F-10
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(g) Income taxes
No provision has been made for federal, state or foreign income taxes, as
the liability for such income taxes is the responsibility of the shareholders.
(h) Investments in Affiliates
The consolidated financial statements include the operations of subsidiary
companies more than 50% owned. Investments in and advances to affiliates in
which the Company has a substantial ownership interest of approximately 20 to
50 percent, or for which the Company owns more than 50% but does not control
policy decisions, are accounted for by the equity method. Under this method of
accounting, the original investment is increased or decreased by the Company's
share of income or losses and dividends.
Partnerships in which the Company acts as a limited partner, but in which
the third party general partner exercises management control, are not
consolidated regardless of the ownership interest. If these investments meet
the conditions outlined in the paragraph above then the partnerships are
accounted for under the equity method.
(i) Excess Cost
Excess cost represents the difference between the cost of acquiring
programming entities and amounts assigned to their tangible and intangible
assets. Such amounts are amortized on a straight-line basis over 40 years.
Amortization expense was $8,026, $5,241, and $2,936 for the nine month period
ended September 30, 1997 (unaudited), for the period from inception (April 30,
1996) to December 31, 1996 and for the five month period ended September 30,
1996 (unaudited), respectively.
The Company periodically reviews the propriety of the carrying amount of its
excess cost as well as the related amortization period to determine whether
current events or circumstances warrant adjustments to the carrying value
and/or the estimates of useful lives. This evaluation consists of the
Company's projection of undiscounted operating cash flows over the remaining
lives of the excess cost. Based on its review, the Company believes that no
significant impairment of its excess cost has occurred.
(j) Revenue
Revenue from programming represents monthly subscriber fees received from
cable system operators and is recognized as earned. Advertising revenue is
recognized as earned. The Company has sold advance subscriptions to its direct
broadcast satellite customers. Such amounts are amortized to revenue monthly
as revenue is earned. Infomercial revenue is recognized when the program is
aired.
(k) Non-Monetary Transactions
The Company trades commercial advertising spots in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $2,512 in both advertising revenue and programming expenses
during the eight month period ended December 31, 1996.
F-11
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(l) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
(m) Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 (the "Statement") on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used. The Statement also establishes accounting standards for long-lived
assets and certain identifiable intangibles to be disposed of. The Company
adopted the Statement from inception (April 30, 1996). See Note 2i for the
policy on excess cost.
(n) Interim Financial Data (unaudited)
The interim financial data for the periods ended September 30, 1997 and 1996
has been prepared by the Company and is unaudited; however, in the opinion of
the Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results of
operations and cash flows for the interim periods. Results for interim periods
are not necessarily indicative of the results to be achieved for the full
year.
F-12
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(3) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing and
financing activities for the period from inception (April 30, 1996) to
December 31, 1996 are as follows:
DECEMBER 31, 1996
<TABLE>
<CAPTION>
ACQUISITION DISPOSAL
----------------------- -------------
PRIME SPORTS
NORTHWEST SPORTSOUTH MERCHANDISING
(A) (B) (C) TOTAL
------------ ---------- ------------- --------
<S> <C> <C> <C> <C>
Fair value of net assets
acquired/(disposed):
Cash........................ $ 1,328 $ 3,626 $ (429) $ 4,525
Accounts receivable......... 4,663 10,691 (600) 14,754
Prepaid program rights...... 425 -- -- 425
Prepaid expenses and other
current assets............. 304 84 (10) 378
Inventory................... -- -- (3,064) (3,064)
Investment.................. -- (2,135) -- (2,135)
Excess cost................. -- -- (5,771) (5,771)
Other assets................ 46 102 (105) 43
Property, plant and
equipment, net............. 2,832 259 (1,064) 2,027
Notes receivable............ 40 -- -- 40
Accounts payable and accrued
expenses................... (809) (1,640) 2,330 (119)
Program rights payable...... (91) -- -- (91)
Notes payable............... -- (18,002) -- (18,002)
------- -------- ------- --------
8,738 (7,015) (8,713) (6,990)
Less: Existing investment in
affiliates................... (6,427) 471 -- (5,956)
------- -------- ------- --------
2,311 (6,544) (8,713) (12,946)
Satisfied by:
Cash........................ (9,000) -- -- (9,000)
Note payable................ -- (65,334) -- (65,334)
Note receivable............. -- -- 3,800 3,800
------- -------- ------- --------
Subtotal...................... -- -- -- (83,480)
Excess cost................... $(6,689) $(71,878) $(78,567)
======= ======== ========
Loss on sale.................. $(4,913) $ (4,913)
======= ========
</TABLE>
- --------
(a) In July 1996, the Company paid $9,000 to Viacom, Inc. to purchase an
additional 40% interest in its affiliate, Prime Sports Northwest Network.
Subsequent to the purchase, Prime Sports Northwest Network was
consolidated with the Company. Had the additional 40% interest been
acquired at inception (April 30, 1996), the consolidated pro forma revenue
and income would have increased by $5,886 and $648, respectively. These
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of the results of operations which actually
would have resulted had the acquisitions occurred on the date indicated,
or which may result in the future.
(b) In October 1996, the Company purchased an additional 44% interest in its
affiliate, SportSouth Network, Ltd. ("SportSouth"), through the issuance
of a note in the amount of $65,334. SportSouth was then
F-13
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
consolidated with the Company. Had the additional 44% interest been acquired
at inception (April 30, 1996), the consolidated pro forma revenue and income
would have increased by $19,490 and $5,072, respectively. These pro forma
results have been prepared for comparative purposes only and do not purport
to be indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated, or which may
result in the future.
(c) In September 1996, the Company received a note receivable for
approximately $3,800 in connection with the sale of its merchandising
assets.
Supplemental disclosure of cash flow information and non-cash investing and
financing activities for the nine month period ended September 30, 1997
(unaudited) is as follows:
SEPTEMBER 30, 1997 (E)
<TABLE>
<CAPTION>
ARC LTD
--------
(D)
<S> <C>
Fair value of net assets acquired:
Cash......................................................... $ --
Accounts receivable.......................................... 26,793
Prepaid program rights....................................... 4,764
Prepaid expenses and other current assets.................... 19,249
Investment................................................... 6,739
Excess cost.................................................. 103,806
Other assets................................................. 305
Property, plant and equipment, net........................... 11,818
Notes receivable............................................. 6,869
Accounts payable and accrued expenses........................ (25,520)
Program rights payable....................................... (3,522)
Unearned revenue............................................. (4,744)
Notes payable................................................ (49,000)
--------
97,557
Satisfied by:
Original investment.......................................... (97,557)
--------
Excess cost.................................................... $ ( -- )
========
</TABLE>
(d) In March 1997, Liberty/Fox ARC LP, an affiliate of the Company, paid
$40,000 to Group W to purchase the remaining 12.78% interest in Affiliated
Regional Communications, LTD and Affiliates (ARC). This transaction
resulted in Liberty/Fox ARC LP recording $25,785 in excess costs. In
conjunction with this transaction, the Company assumed management control
of the consolidated subsidiaries of Liberty/Fox ARC LP. Subsequent to the
purchase, the consolidated subsidiaries of ARC were consolidated with the
Company (see Note 2a). Had the additional 12.78% interest been acquired at
the beginning of the period (January 1, 1997), the pro forma consolidated
revenue would have increased by $29,913 and pro forma consolidated income
would have decreased by $817. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisitions occurred on the date indicated, or which may result in the
future.
F-14
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(e) In September 1997, the Company formed Fox Sports Detroit, LLC for the
purpose of providing sports and sports related programming to the Detroit,
Michigan area. Fox Sports Detroit, LLC entered into agreements to pay cash
of $45,000 and issue notes payable totaling $25,558 to secure certain
sports programming rights and other assets. Purchase accounting will be
completed within the timeframe allowed by Accounting Principle Board No.
16 "Business Combinations." Amounts remaining as excess cost will be
amortized over 40 years.
Had the acquisition occurred at the beginning of the period (January 1,
1997), and assuming that the full $70,558 is recorded as excess cost and
amortized over 40 years, the pro-forma consolidated revenue and loss would
have increased by $17,940 and $2,140, respectively. These pro-forma results
have been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have resulted
had the acquisitions occurred on the date indicated, or which may result in
the future.
Cash paid for interest was $16,436, $5,330, and $1,616 for the nine month
period ended September 30, 1997 (unaudited), the eight month period ended
December 31, 1996, and the five month period ended September 30, 1996
(unaudited), respectively.
At September 30, 1997 and December 31, 1996, the Company had capital leases
of approximately $480 (unaudited) and $388, respectively for office equipment.
(4) RELATED PARTY TRANSACTIONS
For the nine month period ended September 30, 1997, the eight month period
from inception (April 30, 1996) to December 31, 1996, and the five month
period ended September 30, 1996 the Company recognized the following revenue
and expenses as a result of arms-length transactions with affiliates of LMCI
and NAHI (amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS FIVE MONTHS
ENDED ENDED
SEPTEMBER APRIL 30, TO SEPTEMBER
30, 1997 DECEMBER 31, 30, 1996
(UNAUDITED) 1996 (UNAUDITED)
----------- ------------ -----------
<S> <C> <C> <C>
Revenue:
Programming........................ $65,432 $23,229 $27,995
Advertising........................ 1,291 326 221
Direct broadcast................... 19,329 3,836 2,246
Interest income.................... 1,767 108 522
Other.............................. -- 3,358 --
Expenses:
Operating.......................... 35,434 12,631 9,895
General and administrative......... 2,296 2,340 1,012
Interest expense................... 1,081 293 335
</TABLE>
At September 30, 1997 and December 31, 1996, a majority of the trade
receivables from related parties of $73,885 (unaudited) and $19,578,
respectively, was related to programming revenue.
F-15
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(5) PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 and December 31, 1996 consisted
of the following:
<TABLE>
<CAPTION>
SEPTEMBER
30, 1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
<S> <C> <C>
Studio and production equipment.................. $27,990 $13,042
Office equipment................................. 22,365 13,956
Construction in progress......................... 19,114 1,786
Other............................................ 6,370 1,919
------- -------
75,839 30,703
Accumulated depreciation......................... (22,775) (7,370)
------- -------
$53,064 $23,333
======= =======
</TABLE>
(6) INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD
(a) Majority Owned Affiliates
Prior to the contribution of these entities to the Company (see note 1)
there were certain regional networks that were fully owned and consolidated by
Liberty Sports, Inc. (a predecessor company and a Company shareholder). Upon
contribution of these entities to the Company, Liberty Sports, Inc. retained
management control through a general partnership interest. Hence, these
operations are not consolidated by the Company, although it owns the majority
of the limited partnership interests.
The following tables reflect the ownership percentage in these limited
partnerships, the investment accounted for under the equity method, including
related receivables, and the Company's revenues and equity in earnings
(losses) of each of these affiliates:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
--------------------- ------------------
(UNAUDITED) (UNAUDITED)
EQUITY IN
OWNERSHIP EARNINGS
ENTITY PERCENTAGE INVESTMENT REVENUES (LOSSES)
------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Liberty/Fox Chicago LP................. 98.0% $ 43,046 $ -- $ 6,176
Liberty/Fox KBL LP..................... 60.0% 15,915 21,430 2,569
Liberty/Fox Bay Area LP................ 98.0% 26 -- 142
Liberty/Fox Upper Midwest LP........... 98.0% 105 -- --
Liberty/Fox ARC LP..................... 98.0% -- 29,913 365
Liberty/Fox Distribution LP............ 98.0% (77,605) 4,847 (6,846)
-------- ------- -------
$(18,513) $56,190 $ 2,406
======== ======= =======
</TABLE>
F-16
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 30, 1996)
TO
DECEMBER 31, 1996 DECEMBER 31, 1996
--------------------- ------------------
EQUITY IN
OWNERSHIP EARNINGS
ENTITY PERCENTAGE INVESTMENT REVENUES (LOSSES)
------ ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Liberty/Fox Chicago LP................ 98% $ 36,870 $ -- $ 5,404
Liberty/Fox KBL LP.................... 60% 13,346 18,900 3,812
Liberty/Fox Bay Area LP............... 98% (116) -- --
Liberty/Fox Upper Midwest LP.......... 98% 105 -- (9)
Liberty/Fox ARC LP.................... 98% 97,192 104,364 23,565
Liberty/Fox Distribution LP........... 98% (70,761) 17,842 (21,908)
Liberty/Fox Northwest LP.............. 98% -- 5,886 973
-------- -------- --------
$ 76,636 $146,992 $ 11,837
======== ======== ========
</TABLE>
Summarized unaudited financial information for significant subsidiaries, as
defined in Rule 1-02(w) of Regulation S-X, accounted for under the equity
method is as follows:
COMBINED FINANCIAL POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Current Assets................................. $ 40,843 $744,781
Non-current Assets............................. 784 95,171
--------- --------
Total Assets................................. $ 41,627 $839,952
========= ========
Current Liabilities............................ $ 146,059 $155,028
Non-Current Liabilities........................ -- 10,229
Minority Interest.............................. -- 2,740
Partners' Equity............................... (104,432) 671,955
--------- --------
Total Liabilities and Partners' Equity....... $ 41,627 $839,952
========= ========
</TABLE>
COMBINED OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS APRIL 30 TO FIVE MONTHS
ENDED DECEMBER 31, ENDED
SEPTEMBER 30, 1997 1996 SEPTEMBER 30, 1996
------------------ ------------ ------------------
<S> <C> <C> <C>
Gross Revenue............ $ 4,847 $125,373 $67,746
Gross Margin............. (6,758) 14,270 12,814
Loss from Continuing
Operations Before
Extraordinary Items..... (6,985) 1,691 2,690
Net (Loss) Income........ (6,985) 1,691 2,690
</TABLE>
Liberty/Fox ARC LP was formed on April 30, 1996 and was equity accounted for
the period of March 1997. In March 1997, the Company assumed management
control of the consolidated subsidiaries of Liberty/Fox ARC LP (see Note 9)
and, subsequent to this event, the consolidated subsidiaries of ARC were
consolidated with the Company.
F-17
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(b) Other affiliates
The following table summarizes financial information for the Company's other
investments, where the ownership interest is less than 50%, and they are
accounted for under the equity or cost method. They reflect the investment,
including related receivables and the Company's revenues and equity in
earnings (losses) of each of these affiliates.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
SEPTEMBER 30, 1997 1997
--------------------- -----------------
(UNAUDITED) (UNAUDITED)
EQUITY
IN
OWNERSHIP EARNINGS
ENTITY PERCENTAGE INVESTMENT REVENUES (LOSSES)
- ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Liberty/Fox Sunshine LLC............... 4.7% $ 912 $ -- $ 241
Cable Ad Partners-cost method.......... 8.0% 357 -- --
Sunshine Network Joint Venture......... 49.0% 6,319 -- 2,941
Prime Sports Network--Upper Midwest
Joint Venture......................... 33.0% (11) -- --
Home Team Sports Limited Partnership... 34.3% 4,066 -- (161)
Prime Sports Channel Prism Associates.. 33.3% 1,793 -- 1,254
Prime Sports Channel Network Associ-
ates.................................. 50.0% 3,064 -- (145)
Mountain Mobile TV..................... 33.3% 914 -- 186
------- ------ ------
$17,414 $ -- $4,316
======= ====== ======
<CAPTION>
EIGHT MONTHS
ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996
--------------------- -----------------
EQUITY
IN
OWNERSHIP EARNINGS
ENTITY PERCENTAGE INVESTMENT REVENUES (LOSSES)
- ------ ---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Global Music Channel................... -- $ -- $ -- $ (59)
Liberty/Fox Sunshine LLC............... 4.7% 706 -- 125
Liberty/Fox Southeast LLC.............. -- -- 8,183 5,073
Cable Ad Partners--cost method......... 8% 357 -- --
------- ------ ------
$ 1,063 $8,183 $5,139
======= ====== ======
</TABLE>
The Company's investment in two of its affiliates (Liberty/Fox Sunshine LLC
and Liberty/Fox Chicago LP) exceeded its equity in the underlying net assets
by a total of $19,654 (unaudited) and $20,232 at September 30, 1997 and
December 31, 1996, respectively. These excess amounts are being amortized on a
straight-line basis over 40 years. The amortization aggregated $489
(unaudited), $574 and $239 (unaudited) during the nine month period ended
September 30, 1997, the eight month period ended December 31, 1996 and the
five month period ended September 30, 1996, respectively, and is included in
the Company's share of equity income of affiliates.
F-18
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(7) DEBT
Debt at September 30, 1997 and December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER
30, 1997 DECEMBER
(UNAUDITED) 31, 1996
----------- --------
<S> <C> <C>
Prime Sports West--Revolving
Credit Facility (a)........ $ -- $ 86,800
Turner Note Payable (b)..... 65,334 65,334
Chase Manhattan Bank (c).... 360,000 --
Senior Notes (d)............ 500,000
Senior Discount Notes (d)... 254,628
Other....................... 40,278 19,580
---------- --------
1,220,240 171,714
Less current portion........ (373,667) (26,410)
---------- --------
$ 846,573 $145,304
========== ========
Annual future minimum ma-
turities of debt are as
follows:
1997.................... $ 373,667
1998.................... 80,495
1999.................... 3,920
2000.................... 2,510
2001.................... 2,674
Thereafter.............. 756,974
----------
$1,220,240
==========
</TABLE>
- --------
(a) Prime Sports West, LP ("PSW"), was a party to a credit agreement, as
amended, that provided for $130,000 of borrowings at December 31, 1996.
Borrowings bore interest at the agent bank's prime rate, the London
Interbank Offered Rate (LIBOR), a CD rate or a combination thereof as
selected by PSW plus a margin depending on PSW's ratio of total debt to
cash flow (as defined). The weighted-average effective rate at December 31,
1996 was 6.65%. Beginning September 30, 1996, the commitment amount was
reduced in equal quarterly amounts to achieve annual reductions in the
credit agreement ranging from 8% in 1996 to the final 15% at maturity on
June 30, 2002. PSW must pay an annual commitment fee of 0.375% of the
unfunded portion of the commitment. The loans were secured by a pledge of
PSW's ownership interest. On September 12, 1997, the Company repaid the
outstanding principal balance.
The credit agreement contains, among other things, requirements as to
indebtedness obligations and restrictions on distributions and capital
expenditures, as well as maintenance of certain specified financial ratios.
PSW was in compliance with the debt covenants as of December 31, 1996.
(b) On October 10, 1996, LMC Southeast Sports, Inc. purchased Turner Sports
Programming, Inc.'s 44% partnership interest in SportSouth. LMC Southeast
Sports, Inc. signed a promissory note to Turner Broadcasting Company for
$65,334, plus interest at a rate of 7.5% per annum. The Note is payable in
full on October 10, 1998. The Company has pledged the interest purchased as
collateral for the note. As amounts due under this agreement bear interest
at current market rates, the carrying amounts of borrowings outstanding at
September 30, 1997 (unaudited) and December 31, 1996 approximates estimated
fair value.
F-19
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(c) On September 12, 1997, Fox Sports Net, LLC and FX Networks, LLC (together,
the "Co-Borrowers"), entered into a credit agreement (the "Credit
Agreement") with a group of banks. The banks agreed to make one or more
loans to the Co-Borrowers in the aggregate principal amount of $450,000.
Borrowing under the agreement become due and payable upon the earlier on
December 12, 1997 or certain other events as defined in the agreement. The
loans bear interest, at the election of the Co-Borrowers, at a rate based
upon the prime rate of interest or a one-month eurodollar rate plus 1.25%.
The loans under the Credit Agreement are secured by substantially all of the
equity interests of any subsidiary directly owned by the Co-Borrowers as
well as other assets (except to the extent such pledge is not permitted by
any such subsidiary's organizational documents or otherwise).
On September 19, 1997, the Co-Borrowers entered into a commitment with a
group of banks pursuant to which these banks will provide the Co-Borrowers
with up to $800,000 of term loans and revolving credit facilities (including
the $450,000 originally provided under the Credit Agreement).
(d) In August 1997, the Company issued $500,000 of 8 7/8% Senior Notes due
2007, and $405,000 principal amount at maturity of 9 3/4% Senior Discount
Notes due 2007, with exchange and registration rights with the Securities
and Exchange Commission for conversion into senior debt securities with
terms substantially identical to the notes. The net proceeds of these notes
are expected to be used to repay certain outstanding debt of approximately
$320,000 with the balance of the proceeds used to fund the Rainbow
Transaction (see Note 10). The proceeds of the notes are being held in
escrow and will be released to the Company if the Rainbow Transaction has
occurred by December 30, 1997. If the Rainbow Transaction has not occurred
by December 30, 1997, an offer to repurchase the notes will be made.
(8) ADDITIONAL INTERESTS EARNED BY COMPANY'S SHAREHOLDERS
The Company consists of numerous limited liability companies, general and
limited partnerships and corporations. The equity ownership of individual
entities in the chain of entities holding interests in regional sports
networks and FX Networks, LLC include interests held directly by affiliates of
LMC and Fox. Generally, each regional sports network is owned by the Company
through a chain of entities in which the Company has a direct or indirect
interest of approximately 98%, with the remaining fractional interests being
held equally by the affiliates of Fox and LMC.
The following tables reflects the ownership interests of LMC and Fox in
addition to the ownership interests of the Company in the earnings of
subsidiaries for the nine months period ended September 30, 1997 (unaudited)
and for the period from inception (April 30, 1996) to December 31, 1996 that,
although not consolidated in the Company, are ultimately earned by the
Company's shareholders.
F-20
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
The Fox column reflects earnings of Fox Regional Sports Members ("FRSM"), a
wholly-owned subsidiary of Fox. The LMC column reflects earnings of Liberty
Media Corp. ("LMC"), through its wholly-owned subsidiary of LSI.
<TABLE>
<CAPTION>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997
------------------------------------------------
ENTITY % FOX % LMC
- ------ --------- ------------ --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Liberty/Fox Chicago LP.......... 1% $ 63 1% $ 63
Liberty/Fox KBL LP.............. 20% 856 20% 856
Liberty/Fox Bay Area LP......... 1% 1 1% 1
Liberty/Fox Upper Midwest LP.... 1% -- 1% --
Liberty/Fox ARC LP.............. 1% 4 1% 4
Liberty/Fox Distribution LP..... 1% (70) 1% (70)
------------ ------------
$ 854 $ 854
============ ============
<CAPTION>
EIGHT MONTH PERIOD ENDED DECEMBER 31, 1996
------------------------------------------------
ENTITY % FOX % LMC
- ------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Liberty/Fox Chicago LP.......... 1% $ 55 1% $ 55
Liberty/Fox KBL LP.............. 20% 1,271 20% 1,271
Liberty/Fox Bay Area LP......... 1% -- 1% --
Liberty/Fox Upper Midwest LP.... 1% -- 1% --
Liberty/Fox ARC LP.............. 1% 240 1% 240
Liberty/Fox Distribution LP..... 1% (775) 1% (775)
------------ ------------
$ 791 $ 791
============ ============
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
The Company leases transponders, office facilities, and equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2010.
Future minimum payments, by year under noncancelable operating leases with a
term of one year or more consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1997................................. $12,208
1998................................. 12,643
1999................................. 11,938
2000................................. 10,707
2001................................. 7,879
Thereafter........................... 29,655
-------
Total minimum lease payments......... $85,030
=======
</TABLE>
Total lease expense was approximately $11,908 (unaudited), $7,881 and $1,273
(unaudited) for the nine month period ended September 30, 1997, for the period
from inception (April 30, 1996) to December 31, 1996 and the five month period
ended September 30, 1996.
F-21
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS
UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(b) Long-term Sports Program Rights Contracts
The Company has long-term sports program rights contracts which require
payments through 2005. Future minimum payments, including unrecorded amounts,
by year are as follows at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
1997........................... $ 48,143
1998........................... 40,828
1999........................... 29,090
2000........................... 26,714
2001........................... 25,874
Thereafter..................... 83,771
--------
Total minimum program rights
payments...................... $254,420
========
</TABLE>
(c) Capital Expenditures
The Company has made commitments for substantial capital expenditures over
the next several years in connection with a planned transition from analog
transponder equipment to digitally compressed transponder equipment.
(d) Litigation
In the ordinary course of business, the Company has become involved in
disputes or litigation. While the result of such disputes cannot be predicted
with certainty, in management's opinion, based in part on the advice of
counsel, the ultimate resolution of these disputes will not have a material
effect on the Company's financial position or results of operations.
(10) SUBSEQUENT EVENT
(a) The Rainbow Transaction
In June 1997, the Company entered into an agreement with Rainbow Media
Sports Holdings, Inc. ("Rainbow"), a subsidiary of Cablevision, Inc.
("Cablevision"), pursuant to which (i) Regional Programming Partners ("RPP")
will be formed to hold interests in Rainbow's existing regional sports
networks ("RSNs") and certain other businesses, (ii) National Sports Partners
("NSP") will be formed to operate Fox Sports Net ("FSN") a national
programming service, and (iii) National Advertising Partners ("NAP") will be
formed to act as the national advertising sales representative for the RSNs
which are affiliated with FSN. The Company will contribute $850,000 to RPP in
exchange for a 40% partnership interest and Rainbow will contribute its
interests in certain regional sports networks and certain other businesses to
RPP in exchange for a 60% partnership interest. The parties will each
contribute certain assets and business interests to National Sports Partners
in exchange for 50% partnership interests and will contribute certain assets
to NAP in exchange for a 50% partnership interests. The transaction is
subjected to certain conditions, including the approval of the National
Basketball Association and the National Hockey League.
F-22
<PAGE>
LIBERTY SPORTS, INC.
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Fox/Liberty Networks, LLC:
We have audited the accompanying combined balance sheet of Liberty Sports,
Inc. and subsidiaries--Domestic Operations as of December 31, 1995, and the
related combined statements of operations and equity, and cash flows for each
of the years in the two-year period ended December 31, 1995 and for the period
from January 1, 1996 to April 29, 1996. These combined financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Liberty Sports,
Inc. and subsidiaries--Domestic Operations as of December 31, 1995, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1995 and for the period from January 1,
1996 to April 29, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Dallas, Texas
June 28, 1996
F-24
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
COMBINED BALANCE SHEET
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 10,453
Trade accounts receivable, net of allowance of $517:
Related party (note 4)............................................ 7,496
Other............................................................. 46,049
Inventories......................................................... 2,404
Prepaid program rights.............................................. 4,084
Prepaid expenses.................................................... 4,237
--------
Total current assets............................................ 74,723
Property and equipment, net (note 5).................................. 49,148
Investments in affiliates and related receivables (note 6)............ 47,741
Excess cost over acquired net assets, net (note 7).................... 82,648
Other intangible assets, net (note 8)................................. 186,883
Other assets (note 9)................................................. 3,043
--------
$444,186
========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.................................................... $ 28,460
Accrued expenses (note 11).......................................... 14,621
Program rights payable.............................................. 10,853
Current portion of long-term debt (note 12)......................... 1,761
Unearned revenue.................................................... 5,130
--------
Total current liabilities....................................... 60,825
Deferred income taxes (note 10)....................................... 55,320
Long-term debt, excluding current portion (note 12)................... 75,806
Minority interest in subsidiaries..................................... 15,447
Equity................................................................ 236,788
Commitments and contingencies (note 13)...............................
--------
$444,186
========
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
COMBINED STATEMENTS OF OPERATIONS AND EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31 1996 TO
----------------- APRIL 29,
1994 1995 1996
-------- ------- ----------
<S> <C> <C> <C>
Revenues (note 4):
Programming..................................... $ 53,155 84,512 37,484
Advertising..................................... 30,675 67,066 27,696
Direct broadcast................................ 33,326 51,889 23,709
Network support................................. 5,744 7,594 2,471
Other........................................... 11,795 13,312 8,393
-------- ------- -------
134,695 224,373 99,753
-------- ------- -------
Operating costs and expenses (notes 4 and 13):
Operating....................................... 84,710 133,804 60,664
General and administrative...................... 43,709 73,389 27,993
Depreciation and amortization................... 22,412 39,006 10,788
-------- ------- -------
150,831 246,199 99,445
-------- ------- -------
Operating income (loss) (16,136) (21,826) 308
-------- ------- -------
Other income (expense):
Interest expense................................ (5,090) (4,921) (1,963)
Interest income (note 9)........................ 629 1,343 91
Equity in earnings of affiliates (note 6)....... 7,430 7,852 219
Minority interest in earnings of subsidiaries... (464) (705) (1,076)
Other, net...................................... 21 (204) 1,467
-------- ------- -------
2,526 3,365 (1,262)
-------- ------- -------
Loss before income taxes...................... (13,610) (18,461) (954)
Income tax benefit (note 10)...................... 5,220 6,086 217
-------- ------- -------
Net loss...................................... (8,390) (12,375) (737)
Equity, beginning of period....................... 76,171 289,046 236,788
Net change in Parent's investment................. 221,265 (39,883) (11,570)
-------- ------- -------
Equity, end of period............................. $289,046 236,788 224,481
======== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1,
DECEMBER 31 1996 TO
---------------- APRIL 29,
1994 1995 1996
------- ------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(8,390) (12,375) (737)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................. 22,412 39,006 10,788
Equity in earnings of affiliates.............. (7,430) (7,852) (219)
Minority interest............................. 464 705 1,076
Deferred income taxes......................... (7,304) (9,977) (1,176)
Changes in operating assets and liabilities,
net of acquisitions:
Receivables................................. (5,017) (23,316) (9,198)
Inventories................................. (1,013) (1,391) (167)
Prepaid program rights...................... (3) (2,052) 1,197
Other assets................................ (4,208) 366 (1,906)
Payables, accruals and unearned revenue..... 13,523 24,656 (2,881)
Non-cash interest expense................... 1,010 74 --
------- ------- -------
Net cash provided by (used in) operating
activities............................... 4,044 7,844 (3,223)
------- ------- -------
Cash flows from investing activities:
Capital expended for property and equipment..... (6,970) (31,720) (4,544)
Additional investments in and loans to
affiliates..................................... (835) (8,294) (2,500)
Return of capital from affiliates............... 9,880 20,009 1,000
Proceeds from (loan to) third party............. (3,000) 3,000 --
Other investing activities, net................. (1,291) (13) --
------- ------- -------
Net cash used in investing activities..... (2,216) (17,018) (6,044)
------- ------- -------
Cash flows from financing activities:
Borrowings of long-term debt.................... 24,588 62,114 28,600
Repayments of long-term debt.................... (21,783) (26,537) (8,956)
Distribution to minority shareholder of
subsidiary..................................... (400) (810) --
Change in Parent's investment................... 13,660 (39,883) (11,570)
------- ------- -------
Net cash provided by (used in) financing
activities............................... 16,065 (5,116) 8,074
Increase (decrease) in cash and cash equivalents.. 17,893 (14,290) (1,193)
Cash and cash equivalents at beginning of period.. 6,850 24,743 10,453
------- ------- -------
Cash and cash equivalents at end of period........ $24,743 10,453 9,260
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
(1) ORGANIZATION
Liberty Sports, Inc. was incorporated on November 13, 1989 as TCI Sports,
Inc., a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"). On March
29, 1991, the name was changed to Liberty Sports, Inc. and the ownership was
transferred to Liberty Media Corporation ("LMC"), an affiliate of TCI. On
August 4, 1994, LMC became a wholly-owned subsidiary of TCI.
Liberty Sports, Inc. and subsidiaries--Domestic Operations primarily provide
television sports programming services to customers throughout the United
States, sell advertising time in such programming and provide management and
technical services to other sports networks.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying combined financial statements include the accounts of
Liberty Sports, Inc. and its domestic majority-owned subsidiaries and other
entities in which it has a controlling voting interest (collectively, "LSI--
Domestic" or the "Company"). All significant intercompany accounts and
transactions have been eliminated in combination.
(b) Cash Equivalents
Cash equivalents consist of investments which are readily convertible into
cash and have original maturities of three months or less. At December 31,
1995, cash equivalents were comprised of overnight repurchase agreements that
totaled $8,380,000.
(c) Inventories
Merchandise inventories are valued at the lower of cost (first-in, first-
out) or market.
(d) Prepaid Program Rights
The Company enters into sports rights contracts with various professional
and college athletic teams to televise certain games. These agreements require
the Company to make payments before and during each season. Prepaid program
rights for a specified number of games are amortized on an event-by-event
basis, and prepaid program rights for a specified season are amortized over
the term of the contract using the straight-line method.
(e) Property and Equipment
Property and equipment are stated at cost which includes acquisition costs
allocated to tangible assets acquired. Depreciation is computed on a straight-
line basis using estimated useful lives of 3 to 10 years.
(f) Investments in Affiliates
Investments in affiliates are accounted for under the equity method. Under
this method, the investment, originally recorded at cost, is adjusted to
recognize LSI-Domestic's share of net earnings or losses of the affiliate as
they occur rather than as dividends or other distributions are received,
limited to the extent of LSI-Domestic's investment in, advances to and
guarantees on behalf of, the investee. LSI's share of net earnings or losses
of affiliates includes the amortization of purchase adjustments.
F-28
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(g) Excess Cost Over Acquired Net Assets
Excess cost over acquired net assets consists of the difference between the
cost of acquiring programming entities and amounts assigned to their tangible
and identifiable intangible assets. Such amounts are amortized on a straight-
line basis over 30 years. Accumulated amortization was $4,940,000 as of
December 31, 1995.
The Company assesses the recoverability of excess cost over acquired assets
by determining whether the amortization of the balance over its remaining life
can be recovered through undiscounted future operating cash flows of the
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
(h) Other Intangible Assets
Other intangible assets include amounts assigned to covenants not to compete
and amounts assigned to sports program rights agreements, affiliate agreements
and distribution agreements. The amounts assigned to these agreements are
amortized over the respective lives of the agreements ranging from 1 to 11
years.
(i) Long-Lived Assets
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell. The adoption of this Statement did not have a
material impact on the Company's financial position, results of operations, or
liquidity.
The Company's estimates of future gross revenues and operating cash flows,
the remaining estimated lives of long-lived assets, or both could be reduced
in the future due to changes in, among other things, technology, government
regulation, available financing or competition. As a result, the carrying
amounts of long-lived assets, including excess cost over acquired assets,
could be reduced by amounts which would be material to the financial
statements.
(j) Revenues
Revenue from programming represents affiliate fees received from cable
system operators and is recognized monthly as earned. Advertising revenue is
recognized upon airing of commercials.
Network support revenue is received from related parties for network,
traffic and master control operation services provided by the Company. Such
revenue is recognized as earned.
The Company has sold advance subscriptions to its direct broadcast satellite
customers. Such amounts are amortized to revenue monthly as revenue is earned.
(k) Nonmonetary Transactions
The Company trades commercial advertising spots in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $4,842,000 and
F-29
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
$6,006,000 in both advertising revenue and expenses during the years ended
December 31, 1994 and 1995, respectively, and approximately $2,050,000 for the
period January 1, 1996 to April 29, 1996.
(l) Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
(m) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value because of the short maturities of
these instruments. The carrying amount of LSI-Domestic's indebtedness
approximates fair value as it bears interest at current market rates.
(3) SUPPLEMENTAL DISCLOSURES TO COMBINED STATEMENTS OF CASH FLOWS
Cash paid for interest was $4,260,000 and $3,644,000 for the years ended
December 31, 1995 and 1994, respectively, and $1,805,000 for the period
January 1, 1996 to April 29, 1996. Cash paid for income taxes during the years
ended December 31, 1994 and 1995 and the period January 1, 1996 to April 29,
1996 was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<S> <C>
Cash paid for acquisition during 1994 (see note 7) (amounts
in thousands):
Fair value of assets acquired.............................. $302,043
Net liabilities assumed.................................... (21,350)
Deferred tax liability recorded upon acquisition........... (69,897)
Contributions from Parent.................................. (210,796)
--------
$ --
========
</TABLE>
During 1995, the Company entered into capital leases of
approximately $1,004,000 for office equipment.
(4) RELATED PARTY TRANSACTIONS
For the years ended December 31, 1994 and 1995, and the period January 1,
1996 to April 29, 1996, the Company recognized the following revenue and
expenses as a result of transactions with related parties, primarily TCI and
its affiliates (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues and other:
Programming..................................... $18,863 $18,472 $12,213
Direct broadcast................................ 864 7,631 5,908
Network support................................. 5,744 6,204 2,375
Other........................................... -- 425 824
Interest income................................. 84 -- -
Expenses:
Programming fees................................ 7,230 9,372 2,865
Advertising commissions......................... 5,465 169 -
Direct broadcast programming fees............... 6,019 10,250 3,094
</TABLE>
F-30
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, accounts receivable-trade included approximately
$7,496,000 for subscriber revenue from related parties.
(5) PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1995 is summarized as follows
(amounts in thousands):
<TABLE>
<S> <C>
Building, land and improvements................................. $33,087
Studio, production and support equipment........................ 20,565
Furniture and fixtures.......................................... 6,953
-------
60,605
Less accumulated depreciation................................... 11,457
-------
$49,148
=======
</TABLE>
(6) INVESTMENTS IN AFFILIATES
The following table reflects the carrying value of LSI Domestic's
investments in affiliates (principally accounted for under the equity method)
including related receivables and LSI Domestic's share of earnings (losses) of
each of these affiliates (amounts in thousands):
<TABLE>
<CAPTION>
SHARE OF EARNINGS (LOSS)
--------------------------
CARRYING YEAR ENDED JANUARY 1,
VALUE AT DECEMBER 31 1996 TO
DECEMBER 31, -------------- APRIL 29,
ENTITY 1995 1994 1995 1996
------ ------------ ---- ------ ----------
<S> <C> <C> <C> <C>
SportsChannel Chicago Associates ("SC--
CHI")................................. $ 29,722 $5,800 $6,559 $2,877
Prime SportsChannel Network Associates. 1,207 (3,435) (5,513) (2,169)
Sunshine Network Joint Venture ("Sun-
shine")............................... 8,223 1,376 2,572 669
SportsSouth Network Ltd................ 1,605 3,569 5,358 2,026
Prime Sports Network--Upper Midwest
Joint Venture......................... 517 (182) 148 --
SportsChannel Prism Associates......... 683 (277) 393 139
Rocky Mountain Mobile TV............... 527 48 119 93
Home Team Sports Limited Partnership
("HTS")............................... 3,511 531 741 397
SportsChannel Pacific.................. (117) -- -- --
Global Music Channel................... 1,506 -- (2,525) (3,813)
-------- ------ ------ ------
47,384 7,430 7,852 219
Cable Ad Partners (at cost)............ 357 -- -- --
-------- ------ ------ ------
$ 47,741 $7,430 $7,852 $ 219
======== ====== ====== ======
</TABLE>
The Company's investment in three of these affiliates (Sunshine, HTS, and
SC-CHI) exceeded its equity in the underlying net assets by a total of
$21,003,000 at December 31, 1995. These excess amounts are being amortized
over the estimated useful lives of the investment affiliate agreements and
sports contracts. This amortization aggregated $2,635,000 and $1,414,000
during 1994 and 1995, respectively, and $222,000 for the period January 1,
1996 to April 29, 1996 and is included in LSI Domestic's share of earnings
(losses).
F-31
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information for affiliates accounted for under the
equity method is as follows:
COMBINED FINANCIAL POSITION
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Cash and other assets....................................... $17,304
Trade and other receivables, net............................ 54,729
Property and equipment, net................................. 14,234
Prepaid expenses............................................ 9,067
Other assets................................................ 1,529
-------
Total assets.............................................. $96,863
=======
Current liabilities......................................... $49,693
Debt........................................................ 20,586
Owners' equity.............................................. 26,584
-------
Total liabilities and equity.............................. $96,863
=======
</TABLE>
COMBINED OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1,
DECEMBER 31, 1996 TO
-------------------- APRIL 29,
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Revenues................................. $ 190,705 $ 229,833 $ 90,170
Operating, general and administrative
expenses................................ (171,316) (202,753) (80,772)
Depreciation and amortization............ (2,775) (3,481) (1,290)
--------- --------- --------
Operating income....................... 16,614 23,599 8,108
Interest income.......................... 590 1,868 (144)
Other, net............................... (777) (1,736) (30)
--------- --------- --------
Net income............................. $ 16,427 $ 23,731 $ 7,934
========= ========= ========
</TABLE>
(7) ACQUISITION
On August 8, 1994, a wholly-owned subsidiary of TCI purchased 100% of the
stock of CVN, Inc., which held an 83.333% general partnership interest in
Prime Sports-West (formerly Prime Ticket Networks, L.P.) ("PSW"), for shares
of TCI Series C preferred stock and paid cash for the remaining 16.667%
interest in PSW. Concurrently, the CVN, Inc. ownership interest was
contributed to LSI-Domestic. In 1995, the remaining 16.67% interest was
contributed to Liberty Sports, Inc.--Domestic Operations. As this transaction
was a transfer between entities under common control, the Company has
presented the transfer of 100% of PSW as if it occurred on August 8, 1994.
The acquisition by TCI was accounted for as a purchase and the results of
operations have been consolidated with those of the Company since the date of
acquisition.
F-32
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(8) OTHER INTANGIBLE ASSETS
Other intangible assets, net of accumulated amortization of $85,309,000 as
of December 31, 1995 follow (amounts in thousands):
<TABLE>
<S> <C>
Sports program rights agreements............................... $ 99,495
Affiliate agreements........................................... 85,098
Distribution agreements........................................ 1,270
Other.......................................................... 1,020
--------
$186,883
========
</TABLE>
The Company continually reevaluates the propriety of the carrying amount of
its intangibles as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
values and/or revised estimates of useful lives. This evaluation is based on
the Company's projection of the undiscounted operating income before
depreciation, amortization and interest over the remaining lives of the
related intangible assets. At this time, the Company believes that no
significant impairment of the intangible assets has occurred and that no
reduction of the estimated useful lives is warranted.
(9) OTHER ASSETS
On December 1, 1994, in connection with a new program rights agreement, the
Company made a $6 million term loan to a third party. The note bore interest
at prime plus 1/2%. The amount outstanding under this credit agreement at
December 31, 1994 was $3,000,000. The credit agreement was amended in 1995 and
an additional $4,000,000 was lent by the Company to the third party. In
October 1995, the $7,000,000 outstanding balance was paid in full and the loan
agreement was terminated.
(10) INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company is included in the consolidated federal income tax returns filed
by TCI. Federal income taxes are calculated on a separate return basis in the
accompanying consolidated financial statements.
Income tax benefit (expense) attributable to loss before income taxes for
the years ended December 31, 1994 and 1995 and for the period January 1, 1996
to April 29, 1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Current:
Federal.................................... $(1,764) $(3,133) $ (921)
State...................................... (320) (758) (38)
Deferred..................................... 7,304 9,977 1,176
------- ------- ------
Total........................................ $ 5,220 $ 6,086 $ 217
======= ======= ======
</TABLE>
F-33
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Actual income tax benefit differs from the "expected" income tax benefit for
the years ended December 31, 1994 and 1995 and for the period January 1, 1996
to April 29, 1996 (computed by applying the U.S. federal corporate tax rate of
35% to loss before income taxes) as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ----- ----
<S> <C> <C> <C>
Computed "expected" tax benefit..................... $4,764 6,461 334
Minority interest in earnings of consolidated
subsidiary......................................... (118) (495) (640)
Other, net.......................................... 574 120 523
------ ----- ----
$5,220 6,086 217
====== ===== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1995 are as follows (amounts in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Intangible assets, property and equipment, principally due to
differences in depreciation and amortization.................. $ 2,047
Investment in affiliates, principally due to undistributed
earnings
and differences in depreciation and amortization.............. 14,924
Other.......................................................... 415
-------
Total gross deferred tax assets.............................. 17,386
Deferred tax liability--investments in affiliates, principally
due to undistributed earnings and differences in depreciation
and amortization................................................ 72,706
-------
Net deferred tax liability................................... $55,320
=======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. The Company
has not established a valuation allowance for deferred tax assets because
management believes that they will more likely than not be realized in the
future based on the Company's operating history and the reversal of deferred
tax liabilities during the carryforward period.
(11) ACCRUED EXPENSES
Accrued expenses as of December 31, 1995 is summarized as follows:
<TABLE>
<S> <C>
Accrued payroll................................................. $ 2,307
Accrued interest................................................ 981
Accrued production costs........................................ 6,700
Other........................................................... 3,622
-------
$13,610
=======
</TABLE>
(12) LONG-TERM DEBT
Long-term debt at December 31, 1995 is summarized as follows (amounts in
thousands):
<TABLE>
<S> <C>
Bank credit facility (a)....................................... $20,000
Bank credit facility (b)....................................... 51,600
Group W (c).................................................... 5,118
Other.......................................................... 849
-------
77,567
Less current portion........................................... (1,761)
-------
$75,806
=======
</TABLE>
F-34
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(a) ARC Holding, Ltd. ("Holding"), a wholly-owned subsidiary of Affiliated
Regional Communications, Ltd., a majority-owned consolidated subsidiary,
is a party to a credit agreement, as amended, that provides for
$40,500,000 of borrowings at December 31, 1995. Borrowings bear interest
at the agent bank's base rate, LIBOR, a CD rate or a combination thereof
as selected by Holding plus a margin depending on Holding's ratio of total
debt to cash flow (as defined). The effective interest rate at December
31, 1995 was 8.5%. Beginning June 30, 1995, and quarterly thereafter
through December 31, 2000, the commitment amount will be reduced in equal
quarterly amounts to achieve annual reductions in the credit facility
ranging from 11% in 1996 to the final 17% in 2000. LSI Domestic must pay
an annual commitment fee of .375% of the unfunded portion of the
commitment. Borrowings under the credit agreement are secured by the
assets of Holding, including joint venture interests, and the stock and
assets of its existing and future subsidiaries. The proceeds from the
initial borrowings under this credit agreement were used to make the final
payment on a note payable by ARC.
The credit agreement contains certain provisions which limit Holding as to
additional indebtedness, sale of assets, liens, guarantees and
distributions. Additionally, Holding must maintain certain specified
financial ratios.
(b) PSW is a party to a credit agreement, as amended, that provides for
$65,000,000 of borrowings at December 31, 1995. Borrowings bear interest
at the agent bank's prime rate, LIBOR, a CD rate or a combination thereof
as selected by PSW plus a margin depending on PSW's ratio of total debt to
cash flow (as defined). The weighted average effective interest rate at
December 31, 1995 was 7.1%. Beginning September 30, 1996 and quarterly
thereafter through June 30, 2002, the commitment amount is reduced in
equal quarterly amounts to achieve annual reductions in the credit
agreement ranging from 8% in 1996 to the final 15% in 2002. PSW must pay
an annual commitment fee of .0375% of the unfunded portion of the
commitment. The loans are secured by a pledge of the partnership
interests.
The credit agreement contains, among other things, requirements as to
indebtedness, obligations and restrictions on distributions and capital
expenditures, as well as maintenance of certain specified financial ratios.
PSW was in compliance with the debt covenants or obtained waivers from the
bank as of December 31, 1995.
(c) In 1994, ARC and PSW each terminated their advertising agreements with
Group W Services, Inc., a limited partner in ARC. At December 31, 1994, it
was determined that a termination penalty was owed to Group W, as well as
commissions for past services rendered by Group W, although the terms of
repayment were uncertain. At December 31, 1994, ARC and PSW had $3,200,000
and $4,086,000, respectively, accrued based on their best estimate of
amounts owed to Group W.
During 1995, a termination agreement was finalized and it was determined
that ARC would pay Group W $3,200,000, plus interest at a specified bank's
prime rate, over a three year period, with the final payment due on March
31, 1998. Under the same agreement, it was determined that PSW would pay
Group W $4,300,000 plus interest at a specified bank's prime rate, over a
four year period, with the final payment due on March 31, 1999.
Accordingly, PSW recorded an additional $214,000 charge to advertising
expense during 1995.
Annual maturities of total debt for each of the next five years are
$1,761,000 in 1996, $3,390,000 in 1997, $14,788,520 in 1998, $19,973,000 in
1999 and $17,654,500 in 2000.
F-35
<PAGE>
LIBERTY SPORTS, INC. AND SUBSIDIARIES--DOMESTIC OPERATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES
The Company leases transponders, office facilities, and equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2000.
Future minimum lease payments under noncancellable operating leases for each
of the next five years are summarized as follows (amounts in thousands):
<TABLE>
<S> <C>
1996...................................... $15,791
1997...................................... 15,196
1998...................................... 15,073
1999...................................... 13,561
2000...................................... 10,177
Thereafter................................ 5,500
</TABLE>
Total lease expense was approximately $8,040,000, $12,337,000 and $4,049,000
for the years ended December 31, 1994 and 1995, and the period January 1, 1996
to April 29, 1996, respectively.
The Company has long-term sports program rights contracts which require
payments through 2005. Future minimum payments by calendar year are as follows
(amounts in thousands):
<TABLE>
<S> <C>
1996..................................... $ 58,051
1997..................................... 59,854
1998..................................... 56,999
1999..................................... 53,166
2000..................................... 45,736
Thereafter............................... 128,187
</TABLE>
The Company has guaranteed obligations of certain equity affiliates under
program rights agreements aggregating $3,331,000 in 1996; $3,598,000 in 1997;
and $2,857,000 in 1998.
Liberty Sports, Inc. and its domestic affiliates are parties to various
lawsuits and claims arising in the ordinary course of business. While the
outcome of such claims, lawsuits or other proceedings against the Company
cannot be predicted with certainty, management expects that such liability, to
the extent not provided through insurance or otherwise, will not have a
material adverse effect on the operating results or financial condition of the
Company.
(14) SUBSEQUENT EVENT
Effective April 29, 1996, Liberty Sports, Inc. contributed substantially all
of its domestic assets and liabilities to certain limited liability companies
and limited partnerships (collectively, the "Domestic Venture"). The members
of the Domestic Venture are certain affiliates of Liberty Sports, Inc. and
certain affiliates of The News Corporation Limited, each of which owns,
through its affiliates, 50% of the Domestic Venture. The Domestic Venture was
formed to provide sports programming services in the United States and Canada.
F-36
<PAGE>
FX NETWORKS, LLC
(A LIMITED LIABILITY COMPANY)
FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Fox/Liberty Networks, LLC:
We have audited the accompanying balance sheet of FX NETWORKS, LLC (the
Company, a Delaware limited liability company) as of June 30, 1995 and the
related statements of operations, accumulated deficit, and cash flows for the
ten months ended April 29, 1996, the year ended June 30, 1995, and the year
from inception (July 1, 1993) through June 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of FX Networks, LLC for the four months
ended April 29, 1996 were not audited by us and, accordingly, we do not
express an opinion on them.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FX Networks, LLC as of
June 30, 1995 and the results of its operations and its cash flows for the ten
months ended April 29, 1996, the year ended June 30, 1995, and the year from
inception (July 1, 1993) through June 30, 1994 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
August 4, 1997
F-38
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Current assets:
Cash................................................................ $ --
Accounts receivable ................................................ 14,434
Program rights...................................................... 14,621
Other current assets................................................ 147
--------
Total current assets.............................................. 29,202
Property and equipment, net........................................... 1,894
Program rights, long-term............................................. 21,194
Other assets.......................................................... 472
--------
Total Assets...................................................... $ 52,762
========
LIABILITIES AND ACCUMULATED DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................... $ 19,267
Program rights payable, short-term.................................. 14,715
Other current liabilities........................................... 1,435
--------
Total current liabilities......................................... 35,417
Program rights payable, long-term..................................... 21,194
Due to related parties................................................ 74,949
Commitments and contingencies.........................................
Accumulated deficit................................................... (78,798)
--------
Total Liabilities and Accumulated Deficit......................... $ 52,762
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-39
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED APRIL 29, 1996,
JUNE 30, 1995 AND JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
INCEPTION
(JULY 1,
FOUR MONTHS 1993)
ENDED APRIL 29, TEN MONTHS YEAR ENDED TO JUNE
1996 ENDED APRIL 29, JUNE 30, 30,
(UNAUDITED) 1996 1995 1994
--------------- --------------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Programming............. $ 24,291 $ 55,934 $ 52,238 $ 3,659
Advertising............. 8,287 17,358 13,454 309
Infomercial............. 947 2,109 2,579 142
-------- -------- -------- --------
33,525 75,401 68,271 4,110
-------- -------- -------- --------
Expenses:
Operating............... 26,220 63,369 83,579 29,194
General and
administrative......... 7,941 19,936 23,677 10,331
Depreciation and
amortization........... 201 480 436 58
-------- -------- -------- --------
34,362 83,785 107,692 39,583
-------- -------- -------- --------
Interest expense.......... 3,354 7,898 3,497 407
-------- -------- -------- --------
Net Loss.............. $ (4,191) $(16,282) $(42,918) $(35,880)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF ACCUMULATED DEFICIT
FOR THE PERIODS ENDED JUNE 30, 1995 AND JUNE 30, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at Inception (July 1, 1993).................................. $ --
Net loss........................................................... (35,880)
--------
Balance at June 30, 1994............................................. (35,880)
Net loss........................................................... (42,918)
--------
Balance at June 30, 1995............................................. $(78,798)
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED APRIL 29, 1996, JUNE 30, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS INCEPTION
ENDED APRIL 29, TEN MONTHS YEAR ENDED (JULY 1, 1993)
1996 ENDED APRIL 29, JUNE 30, TO JUNE 30,
(UNAUDITED) 1996 1995 1994
--------------- --------------- ---------- --------------
<S> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net income........... $(4,191) $(16,282) $(42,918) $(35,880)
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation........ 201 480 436 58
Changes in operating
assets and
liabilities:
Accounts
receivables....... (3,998) (9,110) (10,622) (3,812)
Program rights..... (6,785) (7,194) 11,799 (47,614)
Other assets....... 359 (167) 34 (653)
Accounts payable
and accrued
expenses.......... (1,136) (927) (3,547) 24,249
Program rights
payable........... 6,263 6,254 (11,522) 47,431
------- -------- -------- --------
Net cash used in
operating
activities...... (9,287) (26,946) (56,340) (16,221)
------- -------- -------- --------
Cash Flows from
Investing Activities:
Purchases of property
and equipment....... (191) (521) (1,185) (1,203)
------- -------- -------- --------
Net cash used in
investing
activities...... (191) (521) (1,185) (1,203)
------- -------- -------- --------
Cash Flows from
Financing Activities:
Related Party
Payable............. 9,478 27,467 57,525 17,424
------- -------- -------- --------
Net cash provided
by financing
activities...... 9,478 27,467 57,525 17,424
------- -------- -------- --------
Net Increase (Decrease)
in Cash and Cash
Equivalents........... 0 0 0 0
Cash and Cash
Equivalents, beginning
of year............... 0 0 0 0
------- -------- -------- --------
Cash and Cash
Equivalents, end of
year.................. $ 0 $ 0 $ 0 $ 0
======= ======== ======== ========
Supplemental Cash Flow
Information
Cash paid for
interest............ $ 3,354 $ 7,898 $ 3,497 $ 407
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIOD ENDED APRIL 29, 1996 IS UNAUDITED)
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION
FX Networks, LLC was formed on July 1, 1993 as a division of Fox, Inc.
("Fox"), a subsidiary of The News Corporation Limited, as a basic cable
exclusive service distributed on a per subscriber basis, to provide general
entertainment and sports programming services and sell commercial advertising
time during its programming.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying financial statements of the Company present the operations
and cash flows for the interim four month period ended April 29, 1996
(unaudited) for the purpose of comparison to the six months ended June 30,
1997 for its successor company, Fox/Liberty Networks.
(b) Program Rights
The Company has multi-year contracts for broadcast rights of syndicated
entertainment programs. Program rights are amortized over the term of the
contract using the straight-line method.
At the inception of these contracts and periodically thereafter, the Company
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to recognize that
loss currently.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
statement purposes is provided using the straight-line method over estimated
useful lives of 3 to 5 years.
(d) Income Taxes
No provision has been made for income tax expense or benefit in the
accompanying consolidated financial statements as the income or losses of the
Company are reported in the respective income tax returns of the partners.
(e) Revenue
Programming revenue represents monthly subscriber fees received from cable
system operations and is recognized as earned. Advertising revenue is
recognized as earned.
(f) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Because of the use of estimates inherent in the financial
reporting process, actual results could differ from those estimates.
F-43
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED APRIL 29, 1996 IS UNAUDITED)
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(g) Allocation of expenses
Fox allocates costs, such as rent and payroll, incurred on behalf of the
Company based on the percentage of services rendered to the Company. These
allocated expenses are included in general and administrative expenses in the
Statements of Operations. Management believes the allocation method used is
reasonable.
(h) Interim Financial Data (unaudited)
The interim financial data for the period ended April 29, 1996 has been
prepared by the Company and is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results of
operations and cash flows for the interim period. Results for the interim
period are not necessarily indicative of the results to be achieved for the
full year.
(3) RELATED PARTY TRANSACTIONS
The Company recognized the following revenue and expenses as a result of
arms-length transactions with related parties (amounts in thousands):
<TABLE>
<CAPTION>
YEAR
FOUR MONTHS ENDED
ENDED APRIL 29, TEN MONTHS JUNE JULY 1, 1993
1996 ENDED APRIL 29, 30, TO JUNE 30,
(UNAUDITED) 1996 1995 1994
--------------- --------------- ------- ------------
<S> <C> <C> <C> <C>
Revenue:
Advertising.............. $ 159 $ 248 $ 244 $ 56
Expenses:
Interest expense......... 3,354 7,898 3,497 407
Production............... 7,932 23,068 43,215 4,677
Programming fees......... 3,604 7,695 5,967 528
</TABLE>
At June 30, 1995, trade and other receivables include approximately $4,008
for programming revenue from related parties of the partners. TCI, which
became a related party as a result of the Joint Venture (see Note 7), had
transactions with the Company resulting in revenues of $25,310 for the ten
month period ended April 29, 1996 and receivables of $4,008 as of June 30,
1995.
(4) PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1995 consisted of the following:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Office equipment.................................................. $2,206
Other............................................................. 182
Accumulated depreciation.......................................... (494)
------
$1,894
======
</TABLE>
(5) RELATED PARTY LOAN
At June 30, 1995, the Company borrowed $74,949 from Twentieth Century Fox
and Fox, Inc. under a revolving loan facility. Borrowings bear interest at the
prime rate (9% and 7.25% at June 30, 1995, and 1994) and have an unspecified
maturity. For the years ended June 30, 1995 and 1994, the Company incurred
interest expense related to this borrowing totaling $3,497 and $407. This
borrowing was not contributed to Fox/Liberty Networks, LLC (see note 7).
F-44
<PAGE>
FX NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED APRIL 29, 1996 UNAUDITED)
JUNE 30, 1995
(DOLLARS IN THOUSANDS)
(6) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company leases transponders and equipment used to carry its broadcast
signals. These leases, which are classified as operating leases, expire at
various dates through 2006. Future minimum payments, by year under cancelable
and non-cancelable operating leases with a term of one year or more consist of
the following at June 30, 1995:
<TABLE>
<S> <C>
1995................................. 2,342
1996................................. 4,694
1997................................. 4,749
1998................................. 4,793
1999................................. 4,684
Thereafter........................... 20,790
-------
$42,052
=======
</TABLE>
Total lease expenses were approximately $3,912, $1,564, $4,662, and $694,
respectively, for the ten months and four months ended April 29, 1996, the
years ended June 30, 1995 and 1994.
(b) Long-term Program Rights Contracts
The Company has long-term program rights contracts which require payments
through 1999. Future minimum payments including unrecorded amounts by year are
as follows at June 30, 1995:
<TABLE>
<S> <C>
1995................................. $ 8,767
1996................................. 20,014
1997................................. 15,885
1998................................. 9,315
1999................................. 4,095
-------
$58,076
=======
</TABLE>
(c) Litigation
The Company is a party to various lawsuits and claims arising in the
ordinary course of business. While the outcome of such claims, lawsuits or
other proceedings against the Company cannot be predicted with certainty,
management expects that such liability will not have a material adverse effect
on the operating results or financial position of the Company.
(7) SUBSEQUENT EVENT
On May 1, 1996, The News Corporation Limited contributed a majority of the
assets and liabilities of the Company to Fox/Liberty Networks, LLC as part of
a joint venture formed by The News Corporation Limited and Tele-
Communications, Inc.
F-45
<PAGE>
MADISON SQUARE GARDEN, L.P.
FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
AS OF DECEMBER 31, 1996 AND 1995
AND FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE PERIODS FROM MARCH 10, 1995
THROUGH DECEMBER 31, 1995 AND
FROM APRIL 3, 1994 THROUGH MARCH 9, 1995
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Partners of
Madison Square Garden, L.P.:
We have audited the accompanying Statements of Financial Position of Madison
Square Garden, L.P. as of December 31, 1996 and 1995, and the related
Statements of Operations, Changes in Members' Equity and Cash Flows for the
year ended December 31, 1996 and the period from March 10, 1995 through
December 31, 1995. We have also audited the accompanying Statements of
Operations and Cash Flows of Madison Square Garden Corporation for the period
from April 3, 1994 through March 9, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Madison Square Garden,
L.P. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the year ended December 31, 1996 and the period from March
10, 1995 through December 31, 1995, and the results of operations and cash
flows of Madison Square Garden Corporation for the period from April 3, 1994
through March 9, 1995, all in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
January 21, 1997 (except with respect to the
matter discussed in Note I, as to which the
date is June 17, 1997)
F-47
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF FINANCIAL POSITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash.................................................... $ 708 $ 11,799
Trade receivables, net of allowance for doubtful ac-
counts of $3,337 and $4,914............................ 53,039 38,019
Prepaid expenses........................................ 8,405 8,168
Other current assets.................................... 7,047 4,504
---------- ----------
Total current assets.................................. 69,199 62,490
Property and equipment, net............................. 177,305 199,638
Intangible assets, net.................................. 978,241 1,011,599
Other assets............................................ 21,414 9,351
---------- ----------
Total assets.......................................... $1,246,159 $1,283,078
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Trade accounts payable.................................. $ 9,398 $ 22,798
Accrued expenses........................................ 78,866 73,021
Deferred revenue........................................ 61,749 59,449
---------- ----------
Total current liabilities............................. 150,013 155,268
Long term debt.......................................... 228,000 263,000
Deferred compensation................................... 6,987 9,463
Accrued sports rights................................... 88,223 112,923
Other liabilities....................................... 45,351 28,202
---------- ----------
Total liabilities..................................... 518,574 568,856
MEMBERS' EQUITY
Members' contribution................................... 720,000 720,000
Accumulated earnings (losses)........................... 7,585 (5,778)
---------- ----------
Total members' equity................................... 727,585 714,222
---------- ----------
Total liabilities and members' equity................... $1,246,159 $1,283,078
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-48
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(PREDECESSOR BASIS OF
PERIOD FROM ACCOUNTING) NOTE A
MARCH 10, 1995 ---------------------
YEAR ENDED TO PERIOD FROM
DECEMBER 31, DECEMBER 31, APRIL 3, 1994
1996 1995 TO MARCH 9, 1995
------------ -------------- ---------------------
<S> <C> <C> <C>
Revenues:
Broadcast................................................................. $147,627 $105,503 $ 103,874
Ticket sales.............................................................. 149,933 99,114 129,476
Arena..................................................................... 77,723 54,424 59,504
Other..................................................................... 48,448 36,643 32,979
-------- -------- ---------
423,731 295,684 325,833
Expenses
Operating expenses........................................................ 317,178 221,539 302,881
General and administrative expenses....................................... 16,246 12,005 13,907
-------- -------- ---------
Operating income before depreciation and amortization....................... 90,307 62,140 9,045
Depreciation and amortization............................................... 60,860 51,131 15,347
-------- -------- ---------
Operating income............................................................ 29,447 11,009 (6,302)
Interest expense, net....................................................... 17,850 16,787 15
Intercompany interest expense............................................... -- -- 30,124
Intercompany administration fee............................................. -- -- 3,430
Gain on sales of businesses................................................. 1,766 -- --
-------- -------- ---------
Net income (loss)........................................................... $ 13,363 $ (5,778) (39,871)
======== ======== =========
Accumulated Deficit, Beginning of Period.................................... (332,508)
---------
Accumulated Deficit, End of Period.......................................... $(372,379)
- --------------------------------------------------
=========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-49
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CABLEVISION
ITT SYSTEMS
CORPORATION CORPORATION TOTAL
----------- ----------- --------
<S> <C> <C> <C>
Members' Initial Contribution, March 10,
1995........................................ $610,000 $110,000 $720,000
Net Loss..................................... (2,889) (2,889) (5,778)
-------- -------- --------
Members' Equity as of December 31, 1995...... $607,111 $107,111 $714,222
Change in Partnership Interests.............. (81,250) 81,250 --
Net Income................................... 6,682 6,681 13,363
-------- -------- --------
Members' Equity as of December 31, 1996...... $532,543 $195,042 $727,585
======== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-50
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(PREDECESSOR BASIS OF
ACCOUNTING) NOTE A
PERIOD FROM ---------------------
MARCH 10, 1995 PERIOD FROM
YEAR ENDED TO APRIL 3, 1994
DECEMBER 31, DECEMBER 31, TO
1996 1995 MARCH 9, 1995
------------ -------------- ---------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss).......... $ 13,363 $ (5,778) $ (39,871)
Adjustments to reconcile
net income (loss) to net
cash provided from
operations:
Depreciation and
amortization............ 60,860 51,131 15,347
Gain on sales of
businesses.............. (1,766) -- --
(Increase)/decrease in
trade receivables....... (16,127) 14,847 146
(Increase)/decrease in
other assets............ (13,368) 147 722
Increase in trade
accounts payable and
accrued expenses and
other liabilities....... 1,855 15,992 15,803
Increase/(decrease) in
deferred revenue........ 4,417 15,261 (2,123)
Decrease in deferred
compensation............ (2,476) (5,884) (2,870)
(Decrease)/increase in
accrued sports rights... (24,700) (23,112) 43,699
Decrease in other assets
and other liabilities,
net..................... -- -- (3,250)
-------- ----------- ---------
Net cash provided from
operations............ 22,058 62,604 27,603
-------- ----------- ---------
Investing Activities
Capital expenditures....... (5,747) (11,899) (7,795)
Proceeds from sales of
businesses................ 21,168 -- --
Acquisition costs, net of
cash acquired............. (9,801) (1,021,906) --
Other...................... (3,769) -- --
-------- ----------- ---------
Net cash provided from
(used for) investing
activities............ 1,851 (1,033,805) (7,795)
-------- ----------- ---------
Financing Activities
Borrowing from banks....... -- 318,000 --
Principal repayments, net.. (35,000) (55,000) --
Members' contribution...... -- 720,000 --
Forgiveness of payable to
affiliate................. -- -- (468,045)
Contributed capital from
affiliate................. -- -- 468,045
Intercompany transfers to
affiliate................. -- -- (367,674)
Intercompany transfers from
affiliate................. -- -- 347,943
Net cash (used for)
provided from
financing activities.. (35,000) 983,000 (19,731)
-------- ----------- ---------
(Decrease)/increase in cash.. (11,091) 11,799 77
Cash at beginning of period.. 11,799 -- 3,308
-------- ----------- ---------
Cash at end of period........ $ 708 $ 11,799 $ 3,385
======== =========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-51
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
NOTE A--THE PARTNERSHIP
Formation and Ownership Structure
On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P. ("Holdings"),
a partnership among subsidiaries of Cablevision Systems Corporation
("Cablevision"), and ITT Corporation ("ITT") acquired the business and assets
of Madison Square Garden Corporation from Viacom, Inc. in a transaction in
which that corporation merged with and into Holdings. The name of Holdings was
subsequently changed to Madison Square Garden, L.P. ("MSG" or the
"Partnership").
The Partnership funded the purchase price of the acquisition of
approximately $1 billion through borrowings of approximately $290 million
under a credit agreement with various lending institutions (see Note C) and
equity contributions from the partners. As agreed by the partners, each has
equal management control over MSG. The Partnership has allocated its net
income/loss between the partners in the accompanying Statements of Changes in
Members' Equity in accordance with the partnership agreement.
In connection with the formation of MSG, a 1% general partner was created,
which was owned 50% by each of Cablevision and ITT ("Limited Partners").
General partner's equity is not reflected in the accompanying financial
statements because all income or loss is ultimately allocated on a 50%/50%
basis between the Limited Partners. The general partner received no other
income or distributions from the Partnership. On June 17, 1997, Cablevision
acquired ITT's general partner's equity interest.
The acquisition of Madison Square Garden Corporation by the Partnership was
accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the assets acquired, including goodwill and
certain player contracts, and the liabilities assumed based upon their
estimated fair values. In February 1997, Cablevision made a cash payment to
ITT of $168,750, which equalized their respective partnership interests.
The following unaudited pro forma 1995 information for MSG has been prepared
assuming the acquisition had taken place on January 1, 1995:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Operating revenues, net......................................... $387,154
Operating income................................................ 21,179
Net income (loss)............................................... $ 989
</TABLE>
The pro forma information does not purport to be indicative of the results
that would actually have been obtained if the acquisition had occurred at the
beginning of the period nor is it indicative of future results.
The effects of the acquisition and related financings resulted in a new
basis of accounting reflecting estimated fair values of assets and liabilities
at the Acquisition Date. The financial statements for the period from April 3,
1994 to March 9, 1995 represent those of Madison Square Garden Corporation, as
a wholly-owned subsidiary of Viacom, Inc.
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
MSG operates in one business segment, namely sports entertainment. MSG
encompasses the operations of the Madison Square Garden entertainment complex
which includes the main arena, a theater and various events within the
complex. The New York Knickerbockers ("Knicks") Basketball Club, a member of
the National Basketball Association ("NBA"), The New York Rangers ("Rangers")
Hockey Club, a member of the National Hockey League ("NHL") and Madison Square
Garden Network ("MSGN"), a regional sports network. SRO Motorsports ("SRO")
and Miss Universe ("MU") were sold in March 1996 and November 1996,
respectively.
F-52
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
Revenue Recognition
MSG derives its revenues primarily from the sale of advertising and event
sponsorships, fees from cable system operators for carriage of MSGN, ticket
sales, fees for licensing of the luxury suites, sale of food and merchandise,
distributions of revenues from NBA and NHL contracts and rental of the complex
for entertainment events.
The Knicks and Rangers derive revenues principally from ticket sales and
distributions of league wide revenue and are recognized as the games are
played.
MSGN charges a fee to cable system operators based on a contractual rate per
subscriber and recognizes this revenue in the period that the service is
provided. MSGN sells commercial spots to advertisers at various rates
depending on time period, programs and commercial length and recognizes this
revenue in the period the spots are aired.
Event related revenues from the sale of tickets, sponsorships, food and
merchandise and rental income are recognized as the underlying event occurs.
Revenues from the sale of advertising in the form of signage and license
fees from the rental of the arena's luxury suites are recognized ratably over
the term of the respective agreements.
Intangible Assets
Intangible assets include goodwill and other intangibles arising from the
acquisition of Madison Square Garden Corporation by the Partnership of
approximately $912,300 and $897,500 as of December 31, 1996 and 1995,
respectively. Goodwill is amortized, on a straight-line basis, over forty
years. Intangible assets related to the value of certain player contracts
existing on the Acquisition Date of $153,000 are amortized, on a straight-line
basis, over an estimated useful life of six years. Accumulated amortization
related to goodwill and certain player contracts totaled $87,064 and $38,830
as of December 31, 1996 and 1995, respectively. Amortization expense of
intangibles totaled $48,234, $38,830 and $457 for the year ended December 31,
1996, for the period from the Acquisition Date to December 31, 1995 and for
the period April 3, 1994 to March 9, 1995, respectively.
Recoverability of goodwill and intangible assets is assessed regularly and
impairments, if any, are recognized in operating results if a permanent
dimunition in value were to occur based on an undiscounted cash flow analysis.
Property and Equipment
Property and equipment owned as of March 9, 1995 are stated at their fair
market value on the Acquisition Date and assets acquired subsequent to March
9, 1995 are stated at cost. Provision for depreciation on all assets is
computed using the straight-line method over the estimated useful lives of the
assets ranging from three years for certain equipment to fifty years for the
arena. Leasehold improvements are amortized using the straight-line method
over the term of the lease or the life of the improvement, whichever is
shorter.
Broadcast Rights
MSG acquires the rights to various sporting events and programming for
exhibition on MSGN. The costs incurred in acquiring the programs, to the
extent they are estimated to be recovered from future revenues, are
capitalized and amortized as the programs are available for broadcast.
F-53
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Player Contracts
Costs incurred to acquire player contracts, including signing bonuses, are
amortized over the contract period of the respective player.
NOTE C--LONG TERM DEBT
Long term debt consists of borrowings made pursuant to a credit agreement
(the "Credit Agreement") between the Partnership and various lending
institutions.
Borrowings under the Credit Agreement as of December 31, consisted of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Eurodollar loan due January 17, 1996 @ 6.5625% interest rate. $ -- $150,000
Eurodollar loan due March 15, 1996 @ 6.4375% interest rate... -- 113,000
Eurodollar loan due January 02, 1997 @ 6.2500% interest rate. 37,000 --
Eurodollar loan due January 23, 1997 @ 6.3125% interest rate. 5,000 --
Eurodollar loan due February 20, 1997 @ 6.1250% interest rate 5,000 --
Eurodollar loan due March 17, 1997 @ 6.1875% interest rate... 88,000 --
Eurodollar loan due April 15, 1997 @ 6.2500% interest rate... 93,000 --
-------- --------
Total...................................................... $228,000 $263,000
======== ========
</TABLE>
The Credit Agreement allows the Partnership to borrow an amount not to
exceed the unutilized commitment at either the base rate (the higher of one
half percent above the federal funds rate or the prime rate) or LIBOR plus
.625%. The Partnership may elect the term of the loan, from one to six months.
Borrowings under the Credit Agreement are classified as long term debt in the
accompanying Statements of Financial Position since the Partnership has the
intent and ability to refinance the Eurodollar loans for periods exceeding one
year pursuant to the Credit Agreement, which is noncancelable. The Partnership
may prepay outstanding loans or reduce the unutilized commitment at any time.
The Partnership is required to pay a fee based on the unutilized commitment.
The unutilized commitment as of December 31, 1996 was $101,575. Maturity of
any borrowings under the Credit Agreement may not exceed three years after the
initial borrowing, or March 9, 1998. The carrying amount of the debt
approximates its fair value. Interest expense for the Credit Agreement
approximated $17,200 and $16,300 for the year ended December 31, 1996 and for
the period from the Acquisition Date to December 31, 1995, respectively and
interest paid during these periods approximated $17,500 and $13,900,
respectively.
The Credit Agreement contains certain covenants and restrictions including
that the Partnership maintain certain financial ratios with which the
Partnership has complied.
NOTE D--COMMITMENTS
The Partnership has various agreements and commitments under a variety of
contracts. Certain of these contracts provide for payments which are
guaranteed. In addition, the Partnership has various long term noncancellable
operating lease commitments for office space and practice facilities for its
professional sports
F-54
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
teams. Future cash payments required under these contracts and noncancellable
operating lease commitments for office space and practice facilities as of
December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................ $ 68,000
1998................................ 51,395
1999................................ 47,545
2000................................ 32,872
2001................................ 30,994
Thereafter.......................... 67,387
--------
Total............................... $298,193
========
</TABLE>
Rent expense, including rentals of certain equipment, totaled $4,505, $3,700
and $4,000 for the year ended December 31, 1996, for the period from the
Acquisition Date to December 31, 1995 and for the period April 3, 1994 to
March 9, 1995, respectively.
As of December 31, 1996 the Partnership has obligations to make future
payments for the rights to broadcast certain sporting events and other
programming through the year 2000 of approximately $198,000. In a prior
period, the Partnership recognized a loss and recorded a reserve on a
contract, representing the difference between estimated aggregate revenues and
expenses related to the contract. The remaining liability associated with this
contract is recorded in accrued sports rights in the accompanying Statements
of Financial Position.
The Partnership is a defendant in various lawsuits. In the opinion of
counsel these suits should not have a material adverse effect on the financial
position and results of operations of the Partnership.
NOTE E--PENSION AND OTHER POSTRETIREMENT BENEFITS PLANS
The Partnership sponsors several non-contributory pension plans covering the
Partnership's non-union employees and certain union employees. Benefits
payable to retirees under these plans are based upon years of service and
participant's compensation and are funded through trusts established under the
plans. The Partnership's funding policy is to meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. Plan
assets consist primarily of shares in a balanced fund that invests primarily
in common stocks, bonds, United States government securities and cash.
Components of the Partnership's net periodic pension cost for defined
benefit plans are as follows:
(PREDECESSOR
BASIS OF
ACCOUNTING)
NOTE A
----------------
PERIOD FROM
YEAR ENDED MARCH 10, 1995 PERIOD FROM
DECEMBER 31, TO DECEMBER 31, APRIL 3, 1994
1996 1995 TO MARCH 9, 1995
------------ --------------- ----------------
Service cost............ $ 1,296 $ 1,010 $ 148
Interest cost........... 1,485 1,111 161
Actual return on plan
assets................. (1,461) (1,117) (107)
Net amortization and de-
ferral................. 244 -- 102
------- ------- -----
Net periodic pension
cost................... $ 1,564 $ 1,004 $ 304
======= ======= =====
F-55
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The funded status and the amounts recorded on the Partnership's balance
sheet for its defined pension plans were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Plan assets at fair value............................ $ 15,153 $ 13,740
Projected benefit obligation......................... (22,309) (20,225)
-------- --------
Plan assets (less than) projected benefit obligation. (7,156) (6,485)
Unrecognized net loss................................ 241 524
Unrecognized prior service cost...................... 113 --
-------- --------
(Accrued) pension liability.......................... $ (6,802) $ (5,961)
======== ========
Accumulated benefit obligation....................... $ 16,246 $ 14,559
======== ========
Vested benefit obligation............................ $ 14,466 $ 12,948
======== ========
</TABLE>
Assumptions used to determine pension costs and projected benefit obligation
for all periods are as follows:
<TABLE>
<S> <C>
Discount rate.......................... 7.5%
Rate of return on plan assets.......... 10.0%
Rate of increase in future compensation
levels................................ 5.0%
</TABLE>
In addition, the Partnership contributes to various multiemployer defined
benefit pension plans. Pension expense recognized for these multiemployer
plans for the year ended December 31, 1996, for the period from the
Acquisition Date to December 31, 1995 and the period from April 3, 1994 to
March 9, 1995 approximated $1,324, $967 and $1,879, respectively.
The Partnership also sponsors a welfare plan which provides certain
postretirement health care and life insurance benefits to certain non-union
employees and their dependents who are eligible for early or normal retirement
under the Partnership's retirement plan. The welfare plan is contributory and
contains cost-sharing features such as deductibles and co-insurance payments.
The Partnership funds these benefits as claims are paid.
Components of the Partnership's costs for postretirement benefits are as
follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Service cost............................................... $ 213 $ 257
Interest cost.............................................. 283 289
Amortization of unrecognized prior
service benefit........................................... (81) --
------ ------
Periodic postretirement benefit cost....................... $ 415 $ 546
====== ======
Components of the liability recognized in the Partnership's balance sheet
with respect to the Partnership sponsored welfare plans are as follows:
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current retirees........................................... $ 788 $2,134
Eligible active participants............................... 270 801
Other active participants.................................. 1,053 2,329
------ ------
Accumulated postretirement benefit obligation.............. 2,111 5,264
Unrecognized prior service benefit......................... 3,411 --
Unrecognized net gain...................................... 137 199
------ ------
Accrued postretirement benefit obligation.................. $5,659 $5,463
====== ======
</TABLE>
F-56
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% for 1996 and 1995. The assumed health care cost trend
rates used in measuring the accumulated postretirement benefit obligation was
7% for 1996, decreasing to an ultimate rate of 5% by the year 2004. If the
health care cost trend assumptions were increased by 1% the accumulated
postretirement benefit obligation as of December 31, 1996 would be increased
by approximately 17%. The effect of this change on the estimated aggregate of
service and interest cost for 1996 would be an increase of 19%.
In 1996, the Partnership amended its postretirement health care programs,
principally to reflect a change from a traditional reimbursement program to a
managed care program. These amendments resulted in a reduction of the
Partnership's accumulated postretirement benefit obligation, which created an
unrecognized prior service benefit. The unrecognized prior service benefit is
being amortized over approximately 17 years.
In addition, the Partnership contributes to multiemployer plans which
provide health and welfare benefits to active as well as retired employees.
The Partnership incurred costs of $2,452 and $1,800 related to those plans for
the year ended December 31, 1996 and for the period from the Acquisition Date
to December 31, 1995, respectively.
NOTE F--TRANSACTIONS WITH RELATED PARTIES
The Partnership charges Cablevision Systems Inc. ("CSI") a fee for carriage
of the MSGN signal pursuant to a letter agreement dated June 20, 1995. The fee
charged is similar to those charged other cable operators. Revenues from CSI
totaled $24,517 and $18,330 for the year ended December 31, 1996 and for the
period from the Acquisition Date to December 31, 1995, respectively.
The Partnership has an agreement with Rainbow Advertising Sales Corporation
("RASCO"), a subsidiary of Cablevision, appointing RASCO as its exclusive
representative for advertising by national advertisers on MSGN. The agreement
extends through September 30, 1998. RASCO generated advertising revenues, net
of commissions, of $9,417 and $1,844 for the year ended December 31, 1996 and
for the period from the Acquisition Date to December 31, 1995, respectively.
NOTE G--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land................................................... $ 20,000 $ 20,000
Building............................................... 104,815 103,883
Equipment.............................................. 63,365 76,090
Furniture and fixtures................................. 7,518 7,014
Leasehold improvements................................. 5,934 4,952
-------- --------
Total................................................ 201,632 211,939
Less accumulated depreciation.......................... 24,327 12,301
-------- --------
Property and equipment, net............................ $177,305 $199,638
======== ========
</TABLE>
NOTE H--INCOME TAXES
The predecessor company has filed federal, state and local income tax
returns on a consolidated basis with Viacom. The predecessor company does not
have a formal tax sharing agreement with Viacom, nor has the
F-57
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
predecessor company received any benefits attributable to losses from the
predecessor company's operations from Viacom. As a result, the predecessor
company has not recorded an income tax benefit in the accompanying statements
of operations.
The Partnership is not subject to income taxes, therefore no tax provision
has been made in the accompanying financial statements.
NOTE I--SUBSEQUENT EVENTS
On June 17, 1997, MSG redeemed a portion of ITT's stake in the Partnership
for $500 million. Simultaneously, with the redemption, Cablevision contributed
SportsChannel Associates ("SCNY") to the Partnership, with SCNY becoming a
wholly-owned subsidiary of MSG. As a result of the aforementioned
transactions, Cablevision's partnership interest increased to 89.8%, while
ITT's partnership interest decreased to 10.2%. ITT has an option to require
Cablevision to purchase its continuing 10.2 percent interest in the two years
from June 17, 1997. Similarly, in three years, Cablevision has an option to
purchase ITT's 10.2 percent interest should ITT choose not to exercise its
option within that time frame.
In conjunction with the June 17, 1997 transactions, MSG entered into a $850
million credit facility with various lending institutions. In addition to the
financing of the $500 million redemption, proceeds from the credit facility
were used to refinance debt outstanding under MSG's existing Credit Agreement.
The credit facility contains certain covenants and restrictions including that
the Partnership maintain certain financial ratios. Such covenants and
restrictions do not take effect until September 30, 1997.
F-58
<PAGE>
MADISON SQUARE GARDEN L.P.
INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996, AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
F-59
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Cash............................................... $ 10,127 $ 708
Trade receivables, net............................. 61,341 53,039
Prepaid expenses................................... 13,314 8,405
Other current assets............................... 11,968 7,047
---------- ----------
Total current assets............................. 96,750 69,199
Property and equipment, net.......................... 179,414 177,305
Intangible assets, net............................... 1,284,238 978,241
Other assets......................................... 92,513 21,414
---------- ----------
Total assets..................................... $1,652,915 $1,246,159
========== ==========
LIABILITIES AND MEMBERS' EQUITY
Trade accounts payable............................. $ 7,525 $ 9,398
Accrued expenses................................... 69,218 78,866
Deferred revenues.................................. 114,116 61,749
---------- ----------
Total current liabilities........................ 190,859 150,013
Long term debt....................................... 781,000 228,000
Deferred compensation................................ 11,173 6,987
Accrued sports rights................................ 156,540 88,223
Other liabilities.................................... 40,475 45,351
---------- ----------
Total liabilities................................ 1,180,047 518,574
MEMBERS' EQUITY
Members' contribution.............................. 476,319 720,000
Accumulated earnings (losses)...................... (3,451) 7,585
---------- ----------
Total members' equity............................ 472,868 727,585
---------- ----------
Total liabilities and Members' equity.......... $1,652,915 $1,246,159
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Broadcast........................................ $ 135,545 $ 101,857
Ticket sales..................................... 78,646 93,949
Arena............................................ 55,733 53,640
Other............................................ 31,889 32,569
--------- ---------
301,813 282,015
Operating expenses................................. (219,852) (215,848)
General and administrative expenses................ (15,619) (11,888)
--------- ---------
Operating income before depreciation and
amortization...................................... 66,342 54,279
Depreciation and amortization...................... (51,339) (45,907)
--------- ---------
Operating income................................... 15,003 8,372
Interest expense, net.............................. (26,039) (13,749)
--------- ---------
Net income......................................... $ (11,036) $ (5,377)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CABLEVISION
ITT SYSTEMS
CORPORATION CORPORATION TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Members' Equity as of December 31, 1996..... $ 532,543 $195,042 $ 727,585
Change in Partnership Interests............. (168,750) 168,750 --
Redemption of Partnership Interests......... (500,000) -- (500,000)
Goodwill Resulting from Redemption of
Partnership Interests...................... 172,488 -- 172,488
Contribution of SportsChannel New York...... 8,551 75,280 83,831
Net Income (Loss)........................... 3,401 (14,437) (11,036)
--------- -------- ---------
Members' Equity as of September 30, 1997.... $ 48,233 $424,635 $ 472,868
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................. $ (11,036) $ (5,377)
Adjustments to reconcile net income to
net cash used for
operating activities:
Depreciation.......................... 10,689 9,882
Amortization.......................... 40,650 36,025
Changes in assets and liabilities:
Trade receivables................... 5,508 (2,489)
Other current assets................ (3,120) (6,986)
Trade accounts payable.............. (10,898) (11,867)
Accrued expenses.................... (29,708) (15,721)
Deferred revenue.................... 52,367 44,416
Deferred compensation............... 4,186 108
Accrued sports rights............... (23,166) (27,733)
Other, net.......................... (9,241) (3,814)
--------- --------
Net change in cash due to
operating activities............. 26,231 16,444
--------- --------
Cash flows from investing activities:
Capital expenditures.................... (11,126) (3,092)
Acquisition costs....................... (4,528) (8,196)
New Business Development................ -- (3,547)
Increase in Notes Receivable............ (40,000) --
Proceeds from sale of business.......... -- 13,074
--------- --------
Net change in cash due to
investing activities............. (55,654) (1,761)
--------- --------
Cash flows from financing activities:
Initial borrowing under new credit
facility............................... 799,000 --
Repayment of former credit facility..... (278,000) --
Principal (repayments)/borrowings, net
under credit facilities................ 32,000 (20,000)
Debt issuance costs..................... (17,658) --
Redemption of partners' capital......... (500,000) --
Partner's Capital Contribution.......... 3,332 --
Other................................... 168 --
--------- --------
Net change in cash due to
financing activities............. 38,842 (20,000)
--------- --------
Increase (Decrease) in cash....... 9,419 (5,317)
Cash at beginning of period....... 708 11,799
--------- --------
Cash at end of period............. $ 10,127 $ 6,482
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-63
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
NOTE 1: ORGANIZATION
On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P. ("Holdings"),
a partnership among subsidiaries of Cablevision Systems Corporation
("Cablevision"), and ITT Corporation ("ITT") acquired the business and assets
of Madison Square Garden Corporation from Viacom, Inc. in a transaction in
which that corporation merged with and into Holdings. The name of Holdings was
subsequently changed to Madison Square Garden, L.P. ("MSG" or the
"Partnership").
In February 1997, Cablevision made a cash payment to ITT of $168,750, which
equalized their respective partnership interests.
On June 17, 1997, MSG redeemed a portion of ITT's stake in the Partnership
for $500 million ("ITT Redemption"). Simultaneously, with the ITT redemption,
Cablevision contributed SportsChannel Associates ("SCNY") to the Partnership,
with SCNY becoming a wholly-owned subsidiary of MSG. As a result of the
aforementioned transactions, Cablevision's partnership interest increased to
89.8%, while ITT's partnership interest decreased to 10.2%. ITT has an option
to require Cablevision to purchase its continuing 10.2 percent interest in the
two years from June 17, 1997. Similarly, in three years, Cablevision has an
option to purchase ITT's 10.2 percent interest should ITT choose not to
exercise its option within that time frame.
The ITT Redemption price was for an amount in excess of ITT's recorded
partnership interest and accordingly the Partnership recorded Goodwill of
approximately $172 million. In addition, the Partnership recorded adjustments
to certain assets and liabilities, including certain broadcasting rights
agreements, which were originally recorded by a subsidiary of Cablevision. The
effect of these adjustments was an increase to Goodwill of approximately $108
million. The underlying analysis which forms the basis for these adjustments
is preliminary and may change as evaluations are completed.
In conjunction with the June 17, 1997, transaction MSG entered into a $850
million Term Loan and Revolving Credit Facility (the "Credit Facility'; see
Note 3).
NOTE 2: BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Basis of Presentation
MSG operates in one business segment, namely sports entertainment. MSG
encompasses the operations of the Madison Square Garden entertainment complex
which includes the main arena, a theater and various events within the
complex. The New York Knickerbockers Basketball Club, a member of the National
Basketball Association, The New York Rangers Hockey Club, a member of the
National Hockey League and Madison Square Garden Network, a regional sports
network. SRO Motorsports and Miss Universe were sold in March 1996 and
November 1996, respectively.
The financial information presented herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. All
significant intercompany balances and transactions have been eliminated in the
accompanying consolidated financial statements. The interim financial
statements and notes thereto should be read in conjunction with the December
31, 1996, audited financial statements of MSG included elsewhere herein.
Certain prior period amounts have been reclassified to conform with the
current presentation. The results for interim periods are not necessarily
indicative of the results to be expected for the full year.
F-64
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS IN THOUSANDS)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
INTANGIBLE ASSETS
Recoverability of goodwill and intangible assets is assessed regularly and
impairments, if any, are recognized in operating results if a permanent
dimunition in value were to occur based on an undiscounted cash flow analysis.
NOTE 3: LONG-TERM DEBT AND FINANCING ARRANGEMENTS
On June 6, 1997, the Partnership entered into the Credit Facility with
various lending institutions. The Credit Facility consists of a $650 million
Term Loan and a $200 million Revolving Credit Facility. The Term Loan is
payable in 26 quarterly installments commencing on September 30, 1998. The
Revolving Credit Facility expires December 31, 2004; amounts outstanding are
payable at that time. Loans under the Credit Facility bear interest at current
market rates plus a margin based on the Partnership's consolidated leverage
ratio. The margins range from 0% to 2%.
On June 17, 1997, the Partnership borrowed $799 million (the "initial
borrowing") under the Credit Facility with $650 million borrowed under the
Term Loan and $149 million under the Revolving Credit Facility. The proceeds
of the initial borrowing were used to fund the ITT Redemption, repay the
Partnership's existing long term debt and pay transaction costs. Deferred
financing costs associated with the Credit Facility of approximately $17.7
million are being amortized over the term of the Credit Facility.
As of September 30, 1997, outstanding debt under the Credit Facility
consists of Term Loans of $650 million and Revolving Credit loans of $111
million. The loans bear interest at rates of 7.72% to 9.5%.
On July 11, 1997, MSG entered into an agreement whereby a wholly owned
subsidiary of MSG agreed to loan a broadcast content provider ("Borrower") $40
million (the "Loan'). The Partnership has drawn on its existing Credit
Facility and has entered into promissory notes for $20 million in order to
finance the Loan. The Loan matures on November 1, 2011 and bears interest at a
rate which approximates MSG's borrowing rate. The Loan is secured by certain
assets of the Borrower and a guarantee by an affiliate of the Borrower.
NOTE 4: SUBSEQUENT EVENT
Effective December 5, 1997, the Partnership purchased Radio City Productions
LLC from the Rockefeller Group Inc. for approximately $70 million.
Simultaneously with that transaction, Radio City Procuctions LLC entered into
a 25-year agreement with a 10-year option to lease Radio City Music Hall.
Radio City Productions LLC is a producer of live entertainment both within the
Radio City Music Hall and through outside venues.
F-65
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-66
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Rainbow Media Holdings, Inc.:
We have audited the accompanying combined balance sheets of Regional
SportsChannel Companies as of December 31, 1996 and 1995, and the related
combined statements of income, partners' capital and cash flows for each of
the years in the three-year period ended December 31, 1996. These combined
financial statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Regional
SportsChannel Companies at December 31, 1996 and 1995, and the combined
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
April 1, 1997
F-67
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 14,494 $ 9,136
Trade accounts receivable (less allowance for doubtful
accounts of $6,506
and $4,931) .............................................. 21,286 25,110
Trade accounts receivable--affiliates...................... 25,506 19,745
Other receivables.......................................... 5,984 2,700
Note receivable, current portion........................... 1,042 1,126
Prepaid expenses and other current assets.................. 14,648 6,592
Feature film inventory..................................... 2,200 3,831
-------- --------
Total current assets..................................... 85,160 68,240
Property and equipment, net.................................. 8,214 8,051
Deferred contractual rights, net............................. 2,279 1,880
Note receivable.............................................. -- 882
Contractual rights, net of accumulated amortization of
$2,157...................................................... 13,040 --
Affiliation agreements, net of accumulated amortization of
$8,379...................................................... 50,933 --
Excess costs over fair value of net assets acquired, net of
accumulated
amortization of $915 and $3,381............................. 5,539 77,984
-------- --------
$165,165 $157,037
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable........................................... $ 15,403 $ 15,540
Accrued contractual expense................................ 5,070 7,951
Accrued payroll and related benefits....................... 5,168 4,173
Other accrued expenses..................................... 2,992 1,573
Accounts payable--affiliates............................... 3,880 3,261
Accrued feature film rights payable........................ 2,238 3,691
Obligations under capital leases........................... 119 105
Notes payable--affiliates.................................. 714 714
Notes payable--partners.................................... 17,912 10,490
-------- --------
Total current liabilities................................ 53,496 47,498
Long-term feature film rights payable........................ 108 380
Obligations under capital leases............................. 237 380
Notes payable--affiliates.................................... -- 714
Commitments and contingencies
Partners' capital............................................ 111,324 108,065
-------- --------
$165,165 $157,037
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-68
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Programming (including affiliate amounts of
$68,607, $52,275 and $47,043)................. $193,525 $173,250 $148,973
Advertising.................................... 53,769 40,179 33,386
Other.......................................... 3,877 4,218 4,144
-------- -------- --------
251,171 217,647 186,503
-------- -------- --------
Operating expenses:
Technical (including amounts to affiliates of
$13,958, $12,774 and $11,006)................. 187,045 163,726 138,972
Selling, general and administrative (including
amounts to affiliates of $22,779, $16,251 and
$14,582)...................................... 40,149 39,400 32,343
Depreciation and amortization.................. 10,662 5,638 2,140
-------- -------- --------
237,856 208,764 173,455
-------- -------- --------
Operating income............................. 13,315 8,883 13,048
-------- -------- --------
Other income (expense):
Interest income................................ 913 1,189 843
Interest expense............................... (609) (424) (358)
Miscellaneous.................................. 607 (1,761) (149)
-------- -------- --------
911 (996) 336
-------- -------- --------
Net income................................... $ 14,226 $ 7,887 $ 13,384
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-69
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
Balance, January 1, 1994.............................................. $ 47,955
Contributions....................................................... 3,788
Distributions....................................................... (27,032)
Net income.......................................................... 13,384
--------
Balance, December 31, 1994............................................ 38,095
Contributions....................................................... 86,383
Distributions....................................................... (24,300)
Net income.......................................................... 7,887
--------
Balance, December 31, 1995............................................ 108,065
Contributions....................................................... 16,054
Distributions....................................................... (27,021)
Net income.......................................................... 14,226
--------
Balance, December 31, 1996............................................ $111,324
========
</TABLE>
See accompanying notes to combined financial statements.
F-70
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $ 14,226 $ 7,887 $ 13,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 10,662 5,638 2,140
Amortization of deferred contract rights..... 851 691 769
Imputed interest on note receivable.......... (160) (232) (256)
Changes in assets and liabilities:
Trade accounts receivable.................. 3,824 (7,911) (463)
Trade accounts receivable--affiliates...... (5,761) (194) 557
Other receivables.......................... (3,284) 549 (1,376)
Prepaid expenses and other current assets.. (8,056) (142) (1,532)
Reduction of notes receivable.............. 1,126 1,314 362
Deferred contract rights................... (1,250) (1,325) (400)
Feature film inventory..................... 1,631 896 (795)
Accounts payable and accrued liabilities... (604) 2,880 8,646
Accounts payable--affiliates............... 619 (563) 1,909
Feature film rights payable................ (1,725) (866) 938
-------- -------- --------
Net cash provided by operating
activities.............................. 12,099 8,622 23,883
-------- -------- --------
Cash flows used in investing activities:
Capital expenditures........................... (2,353) (2,417) (1,346)
-------- -------- --------
Cash flows used in financing activities:
Partners' capital contributions................ 16,054 5,018 3,788
Partners' capital distributions................ (27,021) (24,300) (27,032)
Proceeds from notes payable--partner........... 7,422 2,282 660
Payment on capital lease obligation............ (129) -- --
Payments on notes payable...................... (714) (715) (714)
-------- -------- --------
Net cash used in financing activities.... (4,388) (17,715) (23,298)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 5,358 (11,510) (761)
Cash and cash equivalents at beginning of year... 9,136 20,646 21,407
-------- -------- --------
Cash and cash equivalents at end of year......... $ 14,494 $ 9,136 $ 20,646
======== ======== ========
Cash interest paid during the year............... $ 161 $ 214 $ 300
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-71
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1. THE COMPANIES AND NATURE OF OPERATIONS
The Regional SportsChannel Companies are comprised of SportsChannel
Associates, SportsChannel Prism Associates, SportsChannel Pacific Associates,
SportsChannel Chicago Associates, SportsChannel New England Limited
Partnership, SportsChannel Cincinnati Associates, SportsChannel Florida
Associates and SportsChannel Ohio Associates. Each of these companies is a
partnership formed to produce and distribute certain programming to the pay
television industry located in various regions throughout the United States.
Affiliates of Rainbow Media Holdings, Inc. ("RMHI") and National Broadcasting
Company, Inc. ("NBC") have varying ownership interests in each of the
partnerships, except for SportsChannel Associates which is wholly-owned by
affiliates of RMHI. Affiliates of Liberty Media, Inc. ("Liberty") have
partnership interests in SportsChannel Pacific Associates, SportsChannel Prism
Associates and SportsChannel Chicago Associates; and Front Row Communications
("Front Row") has a partnership interest in SportsChannel Florida Associates.
All of the above mentioned partnerships, except SportsChannel Florida
Associates, are managed by affiliates of RMHI. On April 1, 1997, NBC exchanged
its interests in the above partnerships for a 25% interest in RMHI (the
"Exchange Transaction"). As a result of the Exchange Transaction, RMHI is 75%
owned by Cablevision Systems Corporation ("CSC").
In July 1995, RMHI completed the purchase of NBC's interests in
SportsChannel Associates ("SCA") for approximately $81,600, giving RMHI a 100%
interest in SportsChannel Associates. The acquisition was accounted for as a
purchase whereby the acquisition costs were allocated to the various assets
acquired and liabilities assumed when independent appraisals were completed in
1996. Of the approximately $81,400 excess of the purchase price over the
estimated fair value of net tangible assets acquired, $59,400, $15,500 and
$6,500 has been allocated to affiliation agreements, contractual rights and
excess costs over fair value of net assets acquired, respectively. These costs
have been pushed down to the accounts of SportsChannel Associates as a non-
cash capital contribution. For the purposes of the 1995 combined financial
statements, the excess purchase price was recorded as excess costs over fair
value of net assets acquired, and amortization was calculated based upon an
average period of approximately ten years. Had the acquisition taken place on
January 1, 1995, net income would have been reduced by $4,700 on a pro-forma
basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include the accounts of each of the above
mentioned SportsChannel partnerships (collectively, the "Related
Partnerships"). All significant intercompany transactions and balances have
been eliminated in combination.
Revenue Recognition
The Related Partnerships recognize subscriber revenue as programming
services are provided to cable television companies. Advertising revenue is
recognized when commercials are telecast.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along
with the related obligations are recorded at contract value. Costs are
amortized on the straight-line basis over the contract period (generally less
than two years) or the intended number of days to be aired. Film telecast
rights expected to be amortized within one year are classified as current
assets while contract amounts payable within one year are classified as
current liabilities.
F-72
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
Long-Lived Assets
Property and equipment are carried at cost and depreciated on the straight-
line basis over the estimated useful lives of the assets or, with respect to
leasehold improvements, amortized over the shorter of the lease term or the
assets' useful lives.
Affiliation agreements, which represent agreements with cable systems to
provide carriage of the service, are amortized on the straight-line basis over
ten years. Contractual rights are amortized on the straight-line basis over
ten years. Excess costs over fair value of net assets acquired and other
intangible assets are amortized on the straight-line basis over periods
ranging from three and one-half to ten years.
The Related Partnerships implemented the provisions of Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed of", effective January 1,
1996. The Related Partnerships review their long-lived assets (property and
equipment, and intangible assets that arose from business combinations
accounted for under the purchase method) for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows, undiscounted and
without interest, is less than the carrying amount of the asset, an impairment
loss is recognized as the amount by which the carrying amount of the asset
exceeds its fair value. The adoption of Statement No. 121 had no impact on the
Related Partnerships' financial position or results of operations.
Income Taxes
The Related Partnerships operate as partnerships; accordingly, their taxable
income or loss is included in the tax returns of the individual partners and
no provision for income taxes is made by any of the Related Partnerships.
Cash Equivalents
Temporary cash investments with original maturities of three months or less
at the time of purchase are considered cash equivalents.
Prepaid Expenses and Deferred Contract Rights
Prepaid expenses primarily represent advances to professional sports teams
for telecast rights to be used within the coming year. Deferred contract
rights represent initial payments to professional sports teams for entering
into telecast rights agreements. Deferred contract rights are being amortized
to technical expenses over the respective contract periods (ranging from three
to twelve years) on a straight-line basis.
Fair Value of Financial Instruments
The fair value of all of the Related Partnerships' financial instruments
approximates their carrying value due to their short maturity.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-73
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- ESTIMATED
1996 1995 USEFUL LIVES
------- ------- -------------
<S> <C> <C> <C>
Program, service and test equipment........... $16,383 $13,992 5 to 7 years
Microwave equipment........................... 3,266 3,167 7 years
Furniture and fixtures........................ 1,434 1,330 8 years
Leased assets and leasehold improvements...... 1,312 1,146 Life of lease
Vehicles...................................... 59 58 5 years
------- -------
22,454 19,693
Less accumulated depreciation and
amortization................................. 14,240 11,642
------- -------
$ 8,214 $ 8,051
======= =======
</TABLE>
4. NOTE RECEIVABLE
During 1986, $5,000 was advanced to a professional sports team to be repaid
in monthly installments beginning January 1, 1991 through December 1, 1997.
This advance was recorded as a long-term note receivable at a discounted
amount using an imputed interest rate. The difference between the face amount
of the note receivable and its present value at inception was included in the
accompanying balance sheet as deferred contract rights and is being amortized
using the effective interest method to technical expense over the life of the
rights contract with this sports team. In 1996 and 1995, monthly installment
payments were offset against the corresponding professional sports team
contractual payments.
5. LEASES
The Related Partnerships lease certain space under long-term operating lease
agreements with nonaffiliates which expire at various dates through 2007. The
leases generally provide for fixed annual rentals plus certain other costs.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $3,965, $3,181 and $2,716, respectively. The following is a
schedule of future minimum payments for operating leases (with initial or
remaining terms in excess of one year) as of December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997............................................................. $2,043
1998............................................................. 1,443
1999............................................................. 1,351
2000............................................................. 1,069
2001............................................................. 855
Thereafter....................................................... 3,070
------
Total minimum lease payments..................................... $9,831
======
</TABLE>
F-74
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
6. AFFILIATE TRANSACTIONS
The Related Partnerships distribute certain programming to the cable
television industry under contracts called affiliation agreements. For the
years ended December 31, 1996, 1995 and 1994, approximately $68,607, $52,275,
and $47,043, respectively, of the revenues of the Related Partnerships were
earned under affiliation agreements with the various partners of the Related
Partnerships.
Prime SportsChannel Networks, an affiliate of the Related Partnerships,
provides certain programming to the Related Partnerships. The Related
Partnerships were charged approximately $3,860, $3,527 and $2,983 during the
years ended December 31, 1996, 1995 and 1994, respectively, for this
programming.
Rainbow Network Communications, an affiliate of the Related Partnerships,
provides certain transmission and production services to the Related
Partnerships. The Related Partnerships were charged approximately $10,098,
$9,247 and $8,023 for the years ended December 31, 1996, 1995 and 1994,
respectively, for these services.
RMHI provides the Related Partnerships with certain administrative,
computer, and creative services. The Related Partnerships were charged
approximately $11,420, $9,071 and $8,543 for the years ended December 31,
1996, 1995 and 1994, respectively, for such services.
Sports Ventures, an affiliate of the Related Partnerships, provided
additional administrative services to the Related Partnerships in 1996. The
Related Partnerships were charged approximately $2,329 during the year ended
December 31, 1996 for these services.
The Related Partnerships have an arrangement with an affiliated company to
provide advertising services to the Related Partnerships in exchange for a fee
of 18% of the gross revenue, net of agency commissions, from advertising sold
by this affiliate. Fees charged by this affiliate on advertising revenues
amounted to approximately $9,030, $7,180 and $6,039 for the years ended
December 31, 1996, 1995 and 1994, respectively.
An affiliate of RMHI and a former partner in SportsChannel Associates
advanced an aggregate of $5,000 to SportsChannel Associates in accordance with
the terms of SportsChannel Associates' 12% promissory notes dated November 6,
1986. RMHI subsequently acquired the interest of the former partner in these
notes. Principal payments on the notes are due in monthly installments of $59
beginning January 1, 1991 through December 1, 1997.
The partners in SportsChannel Florida have made certain unsecured loans,
which are due on demand, to SportsChannel Florida. At December 31, 1996 and
1995, the aggregate amount payable was $8,626 and $1,890, respectively, and
bears interest at the prime rate.
A partner in SportsChannel Cincinnati Associates made certain unsecured
loans, also due on demand, to SportsChannel Cincinnati. At December 31, 1996
and 1995, the aggregate amount payable was $9,286 and $8,600, respectively. In
connection with the Exchange Transaction described in Note 1, these loans were
converted to equity.
7. BENEFIT PLAN
CSC maintains a pension plan and a 401(k) savings plan (collectively, the
"Plan") pursuant to which the Related Partnerships contribute 1 1/2% of
eligible employees' annual compensation, as defined, to the defined
contribution portion of the Plan and an equivalent amount to the Section
401(k) portion of the Plan. The Related Partnerships also make matching
contributions for employee voluntary contributions to the 401(k) portion of
the Plan. The cost associated with the Plan was approximately $319, $317 and
$259 for the years ended December 31, 1996, 1995 and 1994, respectively.
F-75
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
8. COMMITMENTS
The Related Partnerships have entered into long-term agreements with several
professional sports teams and others which provide them with, among other
things, exclusive pay telecast rights to certain live sporting events and
obligate them to make minimum contractual payments only when the events are
provided to the Related Partnerships for telecast. The remaining term of the
agreements currently range from 2 to 35 years. The approximate aggregate
minimum contractual payments under these agreements as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 111,127
1998........................................................ 96,208
1999........................................................ 83,504
2000........................................................ 73,910
2001........................................................ 68,025
Thereafter (through 2031)................................... $1,063,289
==========
</TABLE>
One of the Related Partnerships has posted a letter of credit with a
financial institution as a guarantee of a $4,350 commitment, included above,
due March 2, 1998. It may, at its option satisfy a $2,000 per year, fifteen
year commitment, included above (which may increase to $3,000 under certain
circumstances), by arranging for a $40,000 secured loan to a certain sport
franchise.
9. CONTINGENCIES
The Related Partnerships are a party to various lawsuits and claims arising
out of the ordinary conduct of their business. While the outcome of such
lawsuits, claims and other proceedings against the Related Partnerships cannot
be predicted with certainty, management expects that such liability will not
have a material adverse effect on the operating results or financial position
of the Related Partnerships.
F-76
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
F-77
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $17,786
Trade accounts receivable............................................ 15,500
Trade accounts receivable--affiliates................................ 20,204
Other receivables.................................................... 2,300
Other receivables--affiliates........................................ 1,110
Advances to professional sports teams................................ 8,444
Prepaid expenses and other current assets............................ 3,592
Feature film inventory............................................... 1,166
-------
Total current assets............................................... 70,102
Property and equipment, net............................................ 8,557
Deferred contractual rights, net....................................... 1,103
-------
$79,762
=======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable..................................................... $ 3,496
Accrued contractual expense.......................................... 6,819
Accrued payroll and related benefits................................. 2,884
Other accrued expenses............................................... 8,112
Obligations under capital leases..................................... 119
Notes payable--partners.............................................. 12,651
-------
Total current liabilities.......................................... 34,081
Obligations under capital leases....................................... 153
Commitments and contingencies..........................................
Partners' capital...................................................... 45,528
-------
$79,762
=======
</TABLE>
See accompanying notes to combined financial statements.
F-78
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues:
Programming (including affiliate amounts of $29,554 and
$21,071)................................................ $149,397 $144,512
Advertising.............................................. 37,900 38,904
Other.................................................... 5,628 4,204
-------- --------
192,925 187,620
-------- --------
Operating expenses:
Technical................................................ 139,195 140,570
Selling, general and administrative...................... 28,684 29,095
Depreciation and amortization............................ 5,573 7,939
-------- --------
173,452 177,604
-------- --------
Operating income....................................... 19,473 10,016
Other income (expense):
Interest income.......................................... 577 585
Interest expense......................................... (907) (344)
Miscellaneous............................................ (28) (62)
-------- --------
Net income............................................. $ 19,115 $ 10,195
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-79
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENTS OF PARTNERS' CAPITAL
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance, January 1.......................................... $111,322 $108,065
Contributions............................................. 28,391 8,370
Distributions............................................. (38,755) (16,156)
Net income................................................ 19,115 10,195
Contribution of SCA to MSG................................ (83,831) --
Conversion of note payable to equity...................... 9,286 --
-------- --------
Balance, September 30....................................... $ 45,528 $110,474
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-80
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 19,115 $ 10,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................... 5,573 7,939
Amortization of deferred contract rights................ 1,051 639
Imputed interest on note receivable..................... (42) (121)
Changes in assets and liabilities:
Trade accounts receivable............................. (3,205) 5,896
Trade accounts receivable--affiliates................. (1,216) (6,221)
Other receivables..................................... 2,785 735
Prepaid expenses and other current assets............. (1,537) (4,154)
Reduction of notes receivable......................... 563 845
Deferred contract rights.............................. (8,836) (564)
Feature film inventory................................ 1,034 1,137
Accounts payable and accrued liabilities.............. 6,028 (3,910)
Accounts payable--affiliates.......................... (1,935) 1,489
Feature film rights payable........................... (2,346) (402)
-------- --------
Net cash provided by operating activities........... 17,032 13,503
-------- --------
Cash flows used in investing activities:
Capital expenditures...................................... (3,624) (1,778)
Cash portion of SCA net assets contributed to MSG......... (3,336) --
-------- --------
Net cash used in investing activities............... (6,960) (1,778)
-------- --------
Cash flows used in financing activities:
Partners' capital contributions........................... 28,391 8,370
Partners' capital distributions........................... (38,755) (16,156)
Proceeds from notes payable--partner...................... 4,382 5,428
Payment on capital lease obligation....................... (84) (68)
Payments on notes payable................................. (714) (535)
-------- --------
Net cash used in financing activities............... (6,780) (2,961)
-------- --------
Net increase in cash and cash equivalents................... 3,292 8,764
Cash and cash equivalents at beginning of year.............. 14,494 9,136
-------- --------
Cash and cash equivalents at end of period.................. $ 17,786 $ 17,900
======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-81
<PAGE>
REGIONAL SPORTSCHANNEL COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying combined financial statements of Regional SportsChannel
Companies are unaudited; however, in the opinion of management, such
statements include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of financial position and
results of operations for the periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Therefore, the interim combined
financial statements should be read in conjunction with the audited combined
financial statements and notes thereto for the years ended December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for future interim periods or
for the full year ending December 31, 1997.
2. SPORTSCHANNEL ASSOCIATES
On April 16, 1997, Cablevision Systems Corporation ("CSC") and certain of
its affiliates and ITT Corporation ("ITT") and certain of its affiliates,
entered into definitive agreements ("MSG Agreement") relating to the
acquisition by subsidiaries of Cablevision of ITT's 50 percent interest in
Madison Square Garden, L.P. ("MSG"). The transaction closed on June 17, 1997.
As a condition of the transaction and its definitive loan agreements, CSC's
subsidiary (Rainbow Media Holdings, Inc.) contributed its SportsChannel
Associates programming company to MSG, which increased CSC's interest in MSG
to 89.8% and reduced ITT's interest to 10.2%. This remaining 10.2% interest is
subject to certain puts and calls as specified in the MSG agreement. The
combined Regional SportsChannel Companies' financial statements at September
30, 1997 exclude net assets of SportsChannel Associates (amounting to $83,831)
contributed to MSG.
F-82
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996
(UNAUDITED)
F-83
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996
(UNAUDITED)
-----------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................ $ 11,275
Trade and other receivables, net of allowance for doubtful
accounts of $527 (unaudited) at December 31, 1996............... 39,379
Prepaid expenses and other current assets........................ 1,172
Current portion of long-term note receivable..................... 800
--------
Total current assets........................................... 52,626
Property and equipment, net........................................ 11,779
Investments in affiliates.......................................... 8,223
Notes receivable................................................... 5,200
Excess cost, net................................................... 67,016
Other assets....................................................... 1,810
--------
Total Assets................................................... $146,654
========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................ $ 23,434
Program rights payable........................................... 6,487
Unearned revenue................................................. 4,697
Current portion of lease payable................................. 104
--------
Total current liabilities...................................... 34,722
Long-term debt..................................................... 10,000
Long-term lease payable, excluding current portion................. 229
Minority interest.................................................. 2,740
Commitments and contingencies......................................
Partners' equity................................................... 98,963
--------
Total Liabilities and Partners' Equity......................... $146,654
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-84
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 30, 1996) TO DECEMBER 31, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30 TO
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
Revenue:
Programming...................................................... $27,895
Advertising...................................................... 9,598
Infomercial...................................................... 1,763
Direct broadcast................................................. 57,319
Other............................................................ 10,956
-------
107,531
-------
Expenses:
Operating........................................................ 73,074
General and administrative....................................... 7,171
Depreciation and amortization.................................... 2,407
-------
82,652
-------
Operating Income................................................... 24,879
-------
Other (income) expense:
Interest, net.................................................... 267
Loss on sale of assets........................................... 34
Equity income of affiliates, net................................. (1,148)
Other............................................................ 211
Minority interest................................................ 1,468
-------
832
-------
Net Income......................................................... $24,047
=======
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-85
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (APRIL 30, 1996) TO DECEMBER 31, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOX REGIONAL
NEW LMC FOX SPORTS SPORTS
ARC, INC. NET, LLC MEMBER, INC.
(UNAUDITED) (UNAUDITED) (UNAUDITED) TOTAL
----------- ----------- ------------ -------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1996............ $1,289 $73,626 $ 1 $74,916
Net income....................... 241 23,565 241 24,047
------ ------- ---- -------
BALANCE, DECEMBER 31, 1996......... $1,530 $97,191 $242 $98,963
====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-86
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 30, 1996) TO DECEMBER 31, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30 TO
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
Cash flows from operating activities:
Net income...................................................... $ 24,047
Adjustments to reconcile net income to net cash provided by
operating activities:
Bad debt expense ............................................. 240
Depreciation and amortization................................. 2,407
Loss on sale of assets........................................ 34
Equity income of affiliates................................... (1,148)
Minority interest............................................. 1,468
Changes in operating assets and liabilities:
Trade and other receivables................................... (7,983)
Prepaid program rights........................................ 278
Prepaid expenses and other current assets..................... 889
Other assets.................................................. 49
Accounts payable and accrued expenses......................... (14,290)
Program rights payable........................................ 4,422
Unearned revenue.............................................. (733)
--------
Net cash provided by operating activities................... 9,680
--------
Cash flows from investing activities:
Purchases of property and equipment............................. (1,886)
Note receivable issued to third parties......................... (4,381)
Distribution from affiliates.................................... 4,759
Additional investment in affiliates............................. (1,160)
Advances to related parties..................................... (18,608)
Advances from related parties................................... 35,569
--------
Net cash provided by operating activities................... 14,293
--------
Cash flows from financing activities:
Repayment of long-term debt..................................... (22,275)
Principal payments on capital lease obligations................. (71)
Cash overdraft, included in accounts payable.................... 3,529
--------
Net cash used in financing activities....................... (18,817)
--------
Net increase in cash and cash equivalents......................... 5,156
Cash and cash equivalents, at inception........................... 6,119
--------
Cash and cash equivalents, end of year............................ $ 11,275
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-87
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
On April 30, 1996, Liberty/Fox ARC L.P. (the "Partnership"), a Delaware
limited partnership, was formed to own and operate programming services
featuring predominantly sports and sports related programming.
The partnership interests for the Partnership as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
PARTNERSHIP INTEREST
--------------------
<S> <C>
Fox Sports Net, LLC.................................. 98%(l.p.)
Fox Regional Sports Member, Inc. .................... 1%(1.p.)
New LMC ARC, Inc. ................................... 1%(g.p.)
</TABLE>
Fox/Liberty Networks, LLC, a Delaware limited liability company, through its
subsidiary Fox Sports Net, LLC, and New LMC ARC, Inc., a Delaware corporation,
each contributed interests in Affiliated Regional Communications, Ltd., a
Colorado limited partnership, and Rocky Mountain Prime Sports Network, a
Colorado general partnership. Fox Regional Sports Member, Inc. contributed
cash.
The Partnership provides television sports programming services, sells
advertising time in its programming, provides management services to other
sports networks, and provides technical services to other networks.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the operations of
the Partnership and its domestic majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) Cash Equivalents
Cash equivalents consist of short-term investments with an original maturity
of less than 90 days.
(c) Program Rights
The Partnership has multi-year contracts for broadcast rights of sporting
events. Pursuant to these contracts, an asset is recorded for the rights
acquired and a liability is recorded for the obligation incurred, at the gross
amount of the liability when the programs of sporting events are available for
broadcast. Program rights which are for a specified number of games are
amortized on an event-by-event basis, and those which are for a specified
season are amortized over the term of the season on a straight-line basis. At
the inception of these contracts and periodically thereafter, the Partnership
evaluates the recoverability of the costs associated therewith against the
advertising revenues directly associated with the program material and related
expenses. Where an evaluation indicates that a multi-year contract will result
in an ultimate loss, additional amortization is provided to currently
recognize that loss.
(d) Property and Equipment
Property and equipment are stated at cost, which include acquisition costs
allocated to tangible assets acquired. Depreciation and amortization for
financial statement purposes are provided using the straight-line method over
an estimated useful life of five to ten years.
F-88
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(e) Excess Cost
Excess cost represents the difference between the costs of acquiring
programming entities and amounts assigned to their tangible assets. Such
amounts are amortized on a straight-line basis over 40 years. Amortization
expense for the period from inception (April 30, 1996) to December 31, 1996
was $1,468 (Unaudited).
The Partnership continually reevalutes the propriety of the carrying amount
of its intangible assets as well as the related amortization period to
determine whether current events or circumstances warrant adjustments to the
carrying value and/or the estimates of useful lives. This evaluation consists
of the Partnership's projection of undiscounted operating income before
interest over the remaining lives of the related intangible assets. Based on
its review, the Partnership believes that no significant impairment of the
intangible assets has occurred and that no reduction of the estimated useful
lives is warranted.
(f) Income Taxes
No provision has been made for income tax expense or benefit in the
accompanying consolidated financial statements as the income or losses of the
Partnership are reported in the respective income tax returns of the partners.
(g) Allocation of Partnership of Net Income or Net Losses
Income or losses from the Partnership are allocated to the partners in
accordance with their respective profit interests.
(h) Investments in Affiliates
Investments in affiliates are accounted for under the equity method. Under
this method, the investment originally recorded at cost is adjusted to
recognize the Partnership's share of net income or losses of the affiliate as
they occur, rather than as dividends or other distributions are received,
limited to the extent of the Partnership's investment, advances to and
guarantees on behalf of the investee. The Partnership's share of net income or
losses of affiliates includes the amortization of excess cost.
(i) Revenue
Revenue from programming represents monthly subscriber fees received from
cable system operations and is recognized as earned. Advertising revenue is
recognized as earned. The Partnership has sold advance subscriptions to its
direct broadcast satellite customers. Such amounts are amortized to revenue in
the month such revenue is earned.
Network support revenue is received from related parties for network,
traffic, and master control operation services provided by the Partnership.
Such revenue is recognized as earned.
(j) Nonmonetary Transactions
The Partnership trades commercial advertising sports in return for other
services, primarily programming. These trades are recorded at the fair value
of the asset surrendered or the fair value of the asset obtained, whichever is
more clearly evident. These transactions resulted in the recording of
approximately $2,322 (Unaudited) in both advertising revenue and programming
expenses during the period from inception (April 30, 1996) to December 31,
1996.
F-89
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(k) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.
(l) Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement No.
121 (the "Statement") on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used. The Statement also establishes accounting standards for long-lived
assets and certain identifiable intangibles to be disposed of. The Partnership
adopted the Statement from inception (April 30, 1996). The adoption of the
statement did not have any material impact on the Partnership's financial
statements.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest for the period from inception (April 30, 1996) to
December 31, 1996 was $983 (Unaudited).
4. RELATED PARTY TRANSACTIONS
For the period from inception (April 30, 1996) to December 31, 1996 the
Partnership recognized the following revenue and expenses as a result of arms-
length transactions with related parties:
<TABLE>
<CAPTION>
APRIL 30 TO
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
Revenue:
Programming............................................... $13,117
Network support, which is included in other revenue on the
statement of operations.................................. 2,456
Expenses:
Interest expense.......................................... 32
DBS....................................................... 546
Production................................................ 24
Advertising commissions................................... 974
Programming fees.......................................... 1,735
</TABLE>
At December 31, 1996, trade and other receivables include approximately
$4,072 (Unaudited) for programming revenue from related parties of the
partners and $10,994 (Unaudited) for amounts due from affiliates for payroll
and other general and administrative costs incurred on behalf of the
affiliates.
In addition, trade and other receivables also include a $750 (Unaudited)
note receivable and approximately $150 (Unaudited) in related interest from a
general partner at December 31, 1996. This note receivable bears interest at
8.5 percent (Unaudited) and is due on demand.
F-90
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
Leasehold improvements....................................... $ 2,823
Studio and production equipment.............................. 11,704
Earth station and gathering equipment........................ 1,099
Vehicles..................................................... 829
Office equipment............................................. 5,285
-------
21,740
Accumulated depreciation..................................... (9,961)
-------
$11,779
=======
</TABLE>
6. INVESTMENTS IN AFFILIATES
The following table reflects the carrying value of the Partnership's
investments, accounted for under the equity method, including related
receivables and the Partnership's equity in income (losses) of each of these
affiliates as of, and for the period from inception (April 30, 1996) to
December 31, 1996 (Unaudited):
<TABLE>
<CAPTION>
OWNERSHIP CARRYING EQUITY IN
ENTITY PERCENTAGE VALUE INCOME (LOSSES)
------ ---------- -------- ---------------
<S> <C> <C> <C>
Sunshine Network Joint Venture.......... 49.0% $ 3,877 $ 1,306
Prime Sports Network--Upper Midwest
Joint Venture.......................... 33.0% 268 5
Home Team Sports Limited Partnership.... 34.3% 3,327 699
Prime Sports Channel Prism Associates... 33.3% 1,691 869
Prime Sports Channel Network Associates. 50.0% (1,782) (1,953)
Rocky Mountain Mobile TV................ 33.3% 842 222
------- -------
$ 8,223 $ 1,148
======= =======
</TABLE>
The Partnership's investment in Sunshine Network Joint Venture exceeded its
equity in the underlying net assets by a total of $6,691 (Unaudited) at
December 31, 1996. These excess amounts are being amortized on a straight-line
basis over 40 years. The amortization aggregated $67 (Unaudited) for the
period from inception (April 30, 1996) to December 31, 1996 and is included in
the Partnership's share of equity in income of affiliates.
F-91
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
7. NOTE RECEIVABLE
At June 10, 1996, the Partnership had a note receivable of $6,000
(Unaudited) from Lighting Partners, Ltd. due in 2002. The interest rate on the
note is the 90-day London Interbank Offered Rate plus 1.5 percent (Unaudited).
Annual maturities of the note for each of the next five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $ 800
1998......................................................... 800
1999......................................................... 800
2000......................................................... 800
2001......................................................... 1,800
Thereafter................................................... 1,000
------
Total...................................................... $6,000
======
</TABLE>
8. EXCESS COSTS
Excess costs at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
Excess cost........................................................ $121,468
Accumulated amortization........................................... (54,452)
--------
$ 67,016
========
</TABLE>
9. DEBT
ARC Holding, Ltd., a wholly-owned subsidiary of the Partnership ("Holding"),
is a party to a credit agreement, as amended, that provides for $35,555
(Unaudited) of borrowings at December 31, 1996. Borrowings bear interest at
the agent bank's base rate, the London Interbank Offered Rate, a CD rate or a
combination thereof as selected by Holding plus a margin depending on
Holding's ratio of total debt to cash flow (as defined). The effective
interest rate at December 31, 1996 was 6.45 percent (Unaudited). Beginning
June 30, 1995, and quarterly thereafter through December 31, 2000, the
commitment amount is reduced in equal quarterly amounts. Holding must pay an
annual commitment fee of .375 percent of the unfunded portion of the
commitment. Borrowings under the credit agreement are secured by the assets of
Holding, including affiliate interests, and the stock and assets of its
existing and future subsidiaries.
The credit agreement contains certain provisions which limit Holding as to
additional indebtedness, sale of assets, liens, guarantees and distributions.
Additionally, Holding must attain certain specified financial ratios. Holding
was in compliance with the debt covenants as of December 31, 1996 (Unaudited).
F-92
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
Annual maturities of debt for each of the next five years are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $ --
1998......................................................... --
1999......................................................... 2,345
2000......................................................... 7,655
2001......................................................... --
-------
Total...................................................... $10,000
=======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
(a) Leases
The Partnership leases transponders, office facilities, equipment and
microwave channels used to carry its broadcast signals. These leases, which
are classified as operating leases, expire at various dates through 2001.
Future minimum payments by year under noncancelable operating leases with a
term of one year or more consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $ 7,095
1998......................................................... 7,733
1999......................................................... 7,273
2000......................................................... 5,114
2001......................................................... 690
-------
Total minimum lease payments............................... $27,905
=======
</TABLE>
The Partnership has a capital lease related to equipment, which expires in
1999.
Future minimum payments by year under the capital lease consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $104
1998......................................................... 114
1999......................................................... 115
----
Total minimum lease payments............................... $333
====
</TABLE>
Total lease expense was approximately $2,012 (Unaudited) for the period from
inception (April 30, 1996) to December 31, 1996.
F-93
<PAGE>
LIBERTY/FOX ARC L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 1996 IS UNAUDITED)
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(b) Long-term Sports Program Rights Contracts
The Partnership has long-term sports program rights contracts which require
payments through 2001. Future minimum payments by year are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $25,780
1998......................................................... 24,559
1999......................................................... 21,658
2000......................................................... 13,365
2001......................................................... 4,566
-------
Total minimum program rights payments...................... $89,928
=======
</TABLE>
The Partnership has guaranteed obligations of certain equity affiliates
under program rights agreements of:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
(UNAUDITED)
------------
<S> <C>
1997......................................................... $3,598
1998......................................................... 2,857
------
Total guaranteed obligations............................... $6,455
======
</TABLE>
(c) Litigation
The Partnership and its affiliates are parties to various lawsuits and
claims arising in the ordinary course of business. While the outcome of such
claims, lawsuits or other proceedings against the Partnership cannot be
predicted with certainty, management expects that such liability will not have
a material adverse effect on the operating results or financial position of
the Partnership.
11. SUBSEQUENT EVENT
In March 1997, the partnership paid $40,000 (Unaudited) to Group W to
purchase the 12.78% partnership interest in ARC.
The Partnership amended the credit agreement in March 1997, and June 1997,
which increased the borrowings ceiling to $75,000 (Unaudited). The Company
repaid the outstanding principal balance on September 12, 1997.
F-94
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE
HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING LETTER OF TRANSMITTAL,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
ACCOMPANYING LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................. iv
Available Information...................................................... iv
Summary.................................................................... 1
The Company................................................................ 13
Risk Factors............................................................... 15
The Exchange Offer......................................................... 23
Use of Proceeds............................................................ 31
Capitalization............................................................. 32
Unaudited Pro Forma Consolidated Financial Information..................... 33
Selected Historical and Pro Forma
Consolidated Financial Data............................................... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 41
Business................................................................... 51
Management................................................................. 71
Certain Transactions....................................................... 75
Certain Arrangements Regarding Ownership Interests......................... 79
Description of Bank Facility............................................... 83
Description of the Notes................................................... 85
Book-Entry; Delivery and Form.............................................. 114
Certain United States Federal Income Tax Considerations.................... 117
Plan of Distribution....................................................... 119
Legal Matters.............................................................. 119
Experts.................................................................... 119
Index to Financial Statements.............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF FOX SPORTS NET]
FOX/LIBERTY NETWORKS, LLC
FLN FINANCE, INC.
$500,000,000 8 7/8% SENIOR NOTES DUE 2007
$405,000,000 9 3/4% SENIOR DISCOUNT NOTES
DUE 2007
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
With respect to the Company, Section 18-108 of the Delaware Limited
Liability Company Act provides that, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, a limited liability company may and has the power to indemnify and
hold harmless any member or manager or other person from and against any and
all claims and demands whatsoever.
With respect to FLN, Section 145 of the General Corporation Law of the State
of Delaware empowers a Delaware corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of such corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. The indemnity may
include expenses (including attorney's fees), judgments, fines and amounts
paid in settlement actually any reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. A Delaware corporation may indemnify directors,
officers, employees and other agents of such corporation in an action by or in
the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the person to be
indemnified has been adjudged to be liable to the corporation. Where a
director, officer, employee or agent of the corporation is successful on the
merits or otherwise in the defense of any action, suit or proceeding referred
to above or in defense of any claim, issue or matter therein, the corporation
must indemnify such person against the expenses (including attorney's fees)
which he or she actually and reasonably incurred in connection therewith.
FLN's Bylaws contain provisions that provide for indemnification of officers
and directors and their heirs and distributees to the fullest extent permitted
by, and in the manner permissible under, the General Corporation Law of the
State of Delaware.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware, FLN's Certificate of Incorporation contains a provision
eliminating the personal liability of a director to FLN's or its stockholders
for monetary damages for breach of fiduciary duty as a director, subject to
certain exceptions. Article 9 of the Company's Operating Agreement provides,
among other things, for indemnification for each member from and against any
and all loss, damage, expense (including reasonable fees and expenses of
attorneys and other advisors and any court costs incurred by such member) or
liability incurred in any proceeding to which such member is made a party
because such person was a member or acted or failed to act with respect to the
business or affairs of the Company, if such person acted in good faith,
reasonably believed that its conduct in an official capacity was in the
Company's best interests, or if not in an official capacity, at least not
opposed to the Company's best interests and, in the case of any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful.
Article 9 also states that to the same extent that the Company indemnifies and
advances expenses to a member, the Company may indemnify and advance expenses
to any officer, employee, or agent of the Company. In addition, the Company
may indemnify and advance expenses to any Company officer, employee or agent
to a greater extent than a member.
The Company and FLN maintain policies insuring their respective officers,
directors or members and managers, as the case may be, against certain civil
liabilities, including liabilities under the Securities Act.
Pursuant to the Registration Rights Agreement, the Company and FLN have
agreed to indemnify holders of registrable Notes against certain liabilities.
Also pursuant to the Registration Rights Agreement, the Company, FLN and
certain broker-dealers, including certain persons associated with such broker-
dealers, have agreed to indemnify each other against certain liabilities.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES
(a) Exhibits
*1.1 Purchase Agreement, dated August 14, 1997 among Fox/Liberty Networks,
LLC and FLN Finance, Inc., as Issuers and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bear, Stearns
& Co. Inc., as Initial Purchasers.
*3.1 Certificate of Formation of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC).
*3.2 Certificate of Amendment to Certificate of Formation of Fox/Liberty
Networks, LLC (f/k/a Liberty/Fox U.S. Sports LLC).
*3.3 Certificate of Incorporation of FLN Finance, Inc.
*3.4 By-Laws of FLN Finance, Inc.
*4.1 Form of Notes (included in Exhibit 4.2 and 4.3).
*4.2 Senior Notes Indenture, dated as of August 25, 1997 (the "Senior
Notes Indenture"), among Fox/Liberty Networks, LLC and FLN Finance,
Inc. as co-obligors, and The Bank of New York, as Trustee.
*4.3 Senior Discount Notes Indenture, dated as of August 25, 1997 (the
"Senior Discount Notes Indenture"), among Fox/Liberty Networks, LLC
and FLN Finance, Inc., as co-obligors and The Bank of New York, as
Trustee.
*4.4 Senior Notes Registration Rights Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Bear, Stearns & Co. Inc., as Initial Purchasers.
*4.5 Senior Discount Notes Registration Rights Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Bear, Stearns & Co. Inc., as Initial Purchasers.
*4.6 Senior Notes Liquidated Damages Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Bear, Stearns & Co. Inc., as Initial
Purchasers.
*4.7 Senior Discount Notes Liquidated Damages Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Bear, Stearns & Co. Inc., as Initial
Purchasers.
*4.8 Senior Notes Deposit Agreement, dated as of August 25, 1997, among
Fox/Liberty Networks, LLC and FLN Finance, Inc., and The Bank of New
York, as Securities Intermediary and as Trustee.
*4.9 Senior Discount Notes Deposit Agreement, dated as of August 25, 1997,
among Fox/Liberty Networks, LLC and FLN Finance, Inc., and The Bank
of New York, as Securities Intermediary and as Trustee.
**5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding the
validity of the Notes.
*10.1(a) Agreement Regarding Ownership Interests, dated April 29, 1996, by
and among Liberty Media Corporation, News America Holdings
Incorporated, Fox Regional Sports Holdings, Inc., LMC Newco U.S.,
Inc., and Liberty/Fox Sports Financing LLC.
**(b) First Amended and Restated Agreement Regarding Ownership
Interests, dated as of December 15, 1997, by and among Liberty
Media Corporation, News America Holdings Incorporated, Fox
Regional Sports Holdings, Inc., LMC Newco U.S., Inc., and
Liberty/Fox Sports Financing LLC.
**10.2 Operating Agreement of Fox Sports RPP Holdings, LLC, dated June 20,
1997, by and among Fox/Liberty Networks LLC, Liberty Sports Member,
Inc. and Fox Regional Sports Member, Inc.
*10.3 Operating Agreement of FX Networks, LLC (f/k/a Liberty/Fox FX
Operations LLC), dated April 29, 1996, by and among Liberty/Fox U.S.
Sports LLC, Liberty FX, Inc. and FX Holdings, Inc.
*10.4(a) Operating Agreement of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC), dated April 29, 1996, by and among
LMC Newco U.S., Inc., Fox Regional Sports Holdings, Inc. and
Liberty/Fox Sports Financing LLC.
**(b) First Amended and Restated Operating Agreement of Fox/Liberty
Networks, LLC, dated December 15, 1997 by and among LMC Newco
U.S., Inc., Fox Regional Sports Holdings, Inc. and Liberty/Fox
Sports Financing LLC.
II-2
<PAGE>
*10.5 Operating Agreement of Fox Sports Net, LLC (f/k/a Liberty/Fox
Regional Sports LLC), dated April 29, 1996, by and among Liberty/Fox
U.S. Sports LLC, Liberty Sports Member, Inc. and Fox Regional Sports
Member, Inc.
*10.6 Formation Agreement, dated June 22, 1997, among Rainbow Media Sports
Holdings, Inc. and Fox Sports Net, LLC.
**10.7 Form of General Partnership Agreement of Regional Programming
Partners between Rainbow Regional Holdings, Inc. and Fox Sports RPP
Holdings, LLC.
**10.8 Form of General Partnership Agreement of National Sports Partners
between Rainbow National Sports Holdings, Inc. and Fox Sports
National Holdings, LLC.
**10.9 Form of General Partnership Agreement of National Advertising
Partners between Rainbow Advertising Holdings, Inc. and Fox Sports Ad
Sales Holdings, LLC.
*10.10(a) Credit Agreement, dated as of September 12, 1997, among Fox
Sports Net, LLC and FX Networks, LLC, as Borrowers, and
Fox/Liberty Networks, LLC and Subsidiary Guarantors, as
Guarantors, and The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities Inc., as Syndication Agent, and TD
Securities (USA) Inc., as Documentation Agent.
**(b) Form of Amended and Restated Credit Agreement, among Fox Sports Net,
LLC, FX Networks, LLC and Fox Sports RPP Holdings, LLC, as
Borrowers, and Fox Liberty Networks, LLC and The Chase Manhattan
Bank, as Administrative Agent and Chase Securities Inc., as
Syndication Agent, and TD Securities (USA) Inc., as Documentation
Agent.
*10.11 Employment Agreement among Fox/Liberty Networks, LLC, Anthony F.E.
Ball and T and T Entertainment Limited, dated April, 1997.
*10.12 Employment Agreement and Side Letter between Fox/Liberty Networks,
LLC (f/k/a Liberty/Fox U.S. Sports LLC) and Jeff Shell, dated
October 15, 1996.
*10.13 Employment Agreement between Fox/Liberty Networks, LLC and Louis
LaTorre, dated January 27, 1997.
*10.14 Employment Agreement between Fox/Liberty Networks, LLC and Robert L.
Thompson, dated July 25, 1996 as amended on September 26, 1997.
*10.15 Employment Agreement between Fox Sports Net, LLC and Tracy Dolgin,
dated as of July 1, 1997.
*21.1 List of Subsidiaries of Fox/Liberty Networks, LLC.
**23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in
Exhibit 5.1).
**23.2 Consent of Arthur Andersen LLP regarding Fox/Liberty Networks, LLC.
**23.3 Consent of KPMG Peat Marwick LLP regarding Liberty Sports, Inc.
**23.4 Consent of Arthur Andersen LLP regarding FX Networks, LLC.
**23.5 Consent of Arthur Andersen LLP regarding Madison Square Garden, L.P.
**23.6 Consent of KPMG Peat Marwick LLP regarding Regional SportsChannel
Companies.
*24.1 Power of Attorney (included on signature pages).
*25.1 Statement of Eligibility of The Bank of New York, as Trustee.
*27.1 Financial Data Schedule.
***99.1 Form of Letter of Transmittal.
***99.2 Form of Note of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
- --------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
II-3
<PAGE>
ITEM 22 UNDERTAKINGS
1. The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(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.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, 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 the time shall be deemed to
be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, members, officers and controlling
persons, as the case may be of the registrants pursuant to the foregoing
provisions or otherwise, the registrants have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrants of expenses incurred or paid by a director,
member, officer or controlling person, as the case may be of the registrants
in the successful defense of any action, suite or proceeding) is asserted by
such director, member, officer or controlling person, as the case may be, in
connection with the securities being offered, the registrants will, unless in
the opinion of their 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 Act
and will be governed by the final adjustment of such issue.
3. The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
4. The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
5. The undersigned registrants hereby undertake to file an application for
the purposes of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under section 305(b)(2)
of the Trust Indenture Act.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and authorized this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 18th day of December, 1997.
Fox/Liberty Networks, LLC
/s/ Jeff Shell
By:
-----------------------------------
JEFF SHELL
SENIOR VICE PRESIDENT, FINANCE AND
DEVELOPMENT
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated:
SIGNATURE TITLE DATE
* President and Chief
- ------------------------------------- Executive Officer December 18,
ANTHONY F.E. BALL (Principal Executive 1997
Officer)
/s/ Jeff Shell Senior Vice President,
- ------------------------------------- Finance and Development December 18,
JEFF SHELL (Principal Financial 1997
Officer and Principal
Accounting Officer)
LMC Newco U.S., Inc., Member of Fox/Liberty
Networks, LLC December 18,
1997
*
By: _______________________________
DAVID J.A. FLOWERS,
VICE PRESIDENT
/s/ Jeff Shell
*By: ________________________________
JEFF SHELL
AS ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURE TITLE DATE
Fox Regional Sports Holdings, Inc.
Member of Fox/Liberty
* Networks, LLC December 18,
By: _______________________________ 1997
JAY ITZKOWITZ,
SENIOR VICE PRESIDENT
Liberty/Fox Sports Financing, LLC Member of Fox/Liberty
Networks, LLC December 18,
1997
By: LMC Newco U.S., Inc. Member of Liberty/Fox
Sports Financing, LLC December 18,
1997
*
By: _______________________________
DAVID J.A. FLOWERS,
VICE PRESIDENT
By: News America Holdings Incorporated
Member of Liberty/Fox
* Sports Financing, LLC December 18,
By: _______________________________ 1997
JAY ITZKOWITZ,
SENIOR VICE PRESIDENT
/s/ Jeff Shell
*By: ______________________________
JEFF SHELL
AS ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and authorized this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on the 18th day of December, 1997.
FLN Finance, Inc.
By: /s/ Jeff Shell
----------------------------------
JEFF SHELL
SENIOR VICE PRESIDENT, FINANCE
AND DEVELOPMENT
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates stated:
SIGNATURE TITLE DATE
* President and Chief Executive
- --------------------------- Officer(Principal Executive December 18,
ANTHONY F. E. BALL Officer) 1997
/s/ Jeff Shell Senior Vice President, Finance
- --------------------------- and Development (Principal December 18,
JEFF SHELL Financial Officer and 1997
Principal Accounting Officer)
* Director
- --------------------------- December 18,
JAY ITZKOWITZ 1997
* Director
- --------------------------- December 18,
DAVID J.A. FLOWERS 1997
/s/ Jeff Shell
*By: ______________________
JEFF SHELL
AS ATTORNEY-IN-FACT
II-7
<PAGE>
FOX/LIBERTY NETWORKS, LLC
CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To The Board of Directors Fox/Liberty Networks, LLC:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of FOX/LIBERTY NETWORKS, LLC (the
"Company") included elsewhere in this registration statement and have issued
our report thereon dated February 7, 1997. Our audit was made for the purpose
of forming an opinion on the basic financial statements taken as a whole.
Schedule I is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Los Angeles, California
December 3, 1997
S-2
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED FINANCIAL INFORMATION OF COMPANY
BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
ASSETS
Investments in subsidiaries........................................ $230,728
--------
Total Assets..................................................... $230,728
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' Equity............................................... $230,728
--------
Total Liabilities and Shareholders' Equity....................... $230,728
========
</TABLE>
S-3
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED FINANCIAL INFORMATION OF COMPANY
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (APRIL 30, 1996) TO DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30 TO
DECEMBER 31,
1996
------------
<S> <C>
Equity in loss of subsidiaries..................................... $(117,149)
---------
Net loss........................................................... $(117,149)
=========
</TABLE>
S-4
<PAGE>
FOX/LIBERTY NETWORKS, LLC
(A DELAWARE LIMITED LIABILITY COMPANY)
CONDENSED FINANCIAL INFORMATION OF COMPANY
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (APRIL 30, 1996) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
APRIL 30 TO
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities:
Net loss......................................................... $(117,149)
Equity in loss of subsidiaries................................. 117,149
---------
Net cash provided by operating activities.................... --
---------
Cash and cash equivalents, from inception.......................... --
---------
Cash and cash equivalents, end of year............................. $ --
=========
Cash dividends paid to the Company by subsidiaries................. $ --
=========
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-----------------------------
*1.1 Purchase Agreement, dated August 14, 1997 among Fox/Liberty Networks,
LLC and FLN Finance, Inc., as Issuers and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bear, Stearns
& Co. Inc., as Initial Purchasers.
*3.1 Certificate of Formation of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC).
*3.2 Certificate of Amendment to Certificate of Formation of Fox/Liberty
Networks, LLC (f/k/a Liberty/Fox U.S. Sports LLC).
*3.3 Certificate of Incorporation of FLN Finance, Inc.
*3.4 By-Laws of FLN Finance, Inc.
*4.1 Form of Notes (included in Exhibit 4.2 and 4.3).
*4.2 Senior Notes Indenture, dated as of August 25, 1997 (the "Senior
Notes Indenture"), among Fox/Liberty Networks, LLC and FLN Finance,
Inc. as co-obligors, and The Bank of New York, as Trustee.
*4.3 Senior Discount Notes Indenture, dated as of August 25, 1997 (the
"Senior Discount Notes Indenture"), among Fox/Liberty Networks, LLC
and FLN Finance, Inc., as co-obligors and The Bank of New York, as
Trustee.
*4.4 Senior Notes Registration Rights Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Bear, Stearns & Co. Inc., as Initial Purchasers.
*4.5 Senior Discount Notes Registration Rights Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Bear, Stearns & Co. Inc., as Initial Purchasers.
*4.6 Senior Notes Liquidated Damages Agreement, dated as of August 25,
1997, among Fox/Liberty Networks, LLC and FLN Finance, Inc., as
Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Bear, Stearns & Co. Inc., as Initial
Purchasers.
*4.7 Senior Discount Notes Liquidated Damages Agreement, dated as of
August 25, 1997, among Fox/Liberty Networks, LLC and FLN Finance,
Inc., as Issuers and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Bear, Stearns & Co. Inc., as Initial
Purchasers.
*4.8 Senior Notes Deposit Agreement, dated as of August 25, 1997, among
Fox/Liberty Networks, LLC and FLN Finance, Inc., and The Bank of New
York, as Securities Intermediary and as Trustee.
*4.9 Senior Discount Notes Deposit Agreement, dated as of August 25, 1997,
among Fox/Liberty Networks, LLC and FLN Finance, Inc., and The Bank
of New York, as Securities Intermediary and as Trustee.
**5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding the
validity of the Notes.
*10.1(a) Agreement Regarding Ownership Interests, dated April 29, 1996, by
and among Liberty Media Corporation, News America Holdings
Incorporated, Fox Regional Sports Holdings, Inc., LMC Newco U.S.,
Inc., and Liberty/Fox Sports Financing LLC.
**(b) First Amended and Restated Agreement Regarding Ownership
Interests, dated as of December 15, 1997, by and among Liberty
Media Corporation, News America Holdings Incorporated, Fox
Regional Sports Holdings, Inc., LMC Newco U.S., Inc., and
Liberty/Fox Sports Financing LLC.
**10.2 Operating Agreement of Fox Sports RPP Holdings, LLC, dated June 20,
1997, by and among Fox/Liberty Networks LLC, Liberty Sports Member,
Inc. and Fox Regional Sports Member, Inc.
*10.3 Operating Agreement of FX Networks, LLC (f/k/a Liberty/Fox FX
Operations LLC), dated April 29, 1996, by and among Liberty/Fox U.S.
Sports LLC, Liberty FX, Inc. and FX Holdings, Inc.
*10.4(a) Operating Agreement of Fox/Liberty Networks, LLC (f/k/a
Liberty/Fox U.S. Sports LLC), dated April 29, 1996, by and among
LMC Newco U.S., Inc., Fox Regional Sports Holdings, Inc. and
Liberty/Fox Sports Financing LLC.
**(b) First Amended and Restated Operating Agreement of Fox/Liberty
Networks, LLC, dated December 15, 1997 by and among LMC Newco
U.S., Inc., Fox Regional Sports Holdings, Inc. and Liberty/Fox
Sports Financing LLC.
<PAGE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
*10.5 Operating Agreement of Fox Sports Net, LLC (f/k/a Liberty/Fox
Regional Sports LLC), dated April 29, 1996, by and among Liberty/Fox
U.S. Sports LLC, Liberty Sports Member, Inc. and Fox Regional Sports
Member, Inc.
*10.6 Formation Agreement, dated June 22, 1997, among Rainbow Media Sports
Holdings, Inc. and Fox Sports Net, LLC.
**10.7 Form of General Partnership Agreement of Regional Programming
Partners between Rainbow Regional Holdings, Inc. and Fox Sports RPP
Holdings, LLC.
**10.8 Form of General Partnership Agreement of National Sports Partners
between Rainbow National Sports Holdings, Inc. and Fox Sports
National Holdings, LLC.
**10.9 Form of General Partnership Agreement of National Advertising
Partners between Rainbow Advertising Holdings, Inc. and Fox Sports Ad
Sales Holdings, LLC.
*10.10(a) Credit Agreement, dated as of September 12, 1997, among Fox
Sports Net, LLC and FX Networks, LLC, as Borrowers, and
Fox/Liberty Networks, LLC and Subsidiary Guarantors, as
Guarantors, and The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities Inc., as Syndication Agent, and TD
Securities (USA) Inc., as Documentation Agent.
**(b) Form of Amended and Restated Credit Agreement, among Fox Sports Net,
LLC, FX Networks, LLC and Fox Sports RPP Holdings, LLC, as
Borrowers, and Fox Liberty Networks, LLC and The Chase Manhattan
Bank, as Administrative Agent and Chase Securities Inc., as
Syndication Agent, and TD Securities (USA) Inc., as Documentation
Agent.
*10.11 Employment Agreement among Fox/Liberty Networks, LLC, Anthony F.E.
Ball and T and T Entertainment Limited, dated April, 1997.
*10.12 Employment Agreement and Side Letter between Fox/Liberty Networks,
LLC (f/k/a Liberty/Fox U.S. Sports LLC) and Jeff Shell, dated
October 15, 1996.
*10.13 Employment Agreement between Fox/Liberty Networks, LLC and Louis
LaTorre, dated January 27, 1997.
*10.14 Employment Agreement between Fox/Liberty Networks, LLC and Robert L.
Thompson, dated July 25, 1996 as amended on September 26, 1997.
*10.15 Employment Agreement between Fox Sports Net, LLC and Tracy Dolgin,
dated as of July 1, 1997.
*21.1 List of Subsidiaries of Fox/Liberty Networks, LLC.
**23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in
Exhibit 5.1).
**23.2 Consent of Arthur Andersen LLP regarding Fox/Liberty Networks, LLC.
**23.3 Consent of KPMG Peat Marwick LLP regarding Liberty Sports, Inc.
**23.4 Consent of Arthur Andersen LLP regarding FX Networks, LLC.
**23.5 Consent of Arthur Andersen LLP regarding Madison Square Garden, L.P.
**23.6 Consent of KPMG Peat Marwick LLP regarding Regional SportsChannel
Companies.
*24.1 Power of Attorney (included on signature pages).
*25.1 Statement of Eligibility of The Bank of New York, as Trustee.
*27.1 Financial Data Schedule.
***99.1 Form of Letter of Transmittal.
***99.2 Form of Note of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
- --------
* Previously filed.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
Exhibit 5.1
-----------
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176-0001
(212) 661-6500
December 18, 1997
Fox/Liberty Networks, LLC
1440 South Sepulveda Boulevard
Los Angeles, California 90025
Re: Registration Statement on Form S-4
File No. 333-38684
----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Fox/Liberty Networks, LLC, a Delaware limited
liability company (the "Company"), and its subsidiary, FLN Finance, Inc., a
Delaware corporation ("FLN" and, together with the Company, the "Registrants"),
in connection with the preparation and filing with the Securities and Exchange
Commission (the "Commission") of the Registrants' Registration Statement on Form
S-4, as amended (Registration Number 333-38689 the "Registration Statement"),
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the proposed issuance of (i) up to $500,000,000 aggregate principal amount of
the Registrants' 8 7/8% Senior Notes due 2007 (the "Exchange Senior Notes") in
exchange for a like amount of the Registrants' privately placed 8 7/8% Senior
Notes due 2007 (the "Original Senior Notes") and (ii) up to $405,000,000
aggregate principal amount at maturity of the Registrants' 9 3/4 Senior Discount
Notes due 2007 (the "Exchange Senior Discount Notes" and together with the
Exchange Senior Notes, the "Exchange Notes") in exchange for a like amount of
the Registrants' privately placed 9 3/4% Senior Discount Notes (the "Original
Senior Discount Notes" and together with the Original Senior Notes, the
"Original Notes"). The Original Notes were issued, and the Exchange Notes are to
be issued, pursuant to two separate Indentures, each dated as of August 24, 1997
(the "Indentures"), each by and among the Company, FLN and The Bank of New York,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Indentures.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the Registration Statement, the Indentures, and such
corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of the Registrants, and have made such inquiries of such
officers and representatives as we have deemed relevant and necessary as a basis
for the opinion hereinafter set forth.
<PAGE>
Fox/Liberty Networks, LLC
December 18, 1997
Page 2
In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. As to all
questions of fact material to this opinion that have not been independently
established, we have relied upon certificates or comparable documents of
officers and representatives of the Registrants. The opinion set forth below is
also based on the assumption that the Registration Statement, as amended
(including any necessary post-effective amendments), has become effective under
the Securities Act and that the Indentures have been qualified under the Trust
Indenture Act of 1939, as amended, and have been duly executed and delivered by
the Trustee.
Based on the foregoing, and subject to the qualifications stated herein,
we are of the opinion that the Exchange Notes, when duly issued and
authenticated by the Trustee in accordance with the provisions of the Indentures
and delivered in exchange for the Original Notes pursuant to the Registration
Rights Agreement, will be validly issued and will constitute legal and binding
obligations of the Company and the FLN in accordance with their terms (subject
in each case to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing, regardless of whether considered in a proceeding in equity or at law).
The opinion herein is limited to the laws of the State of New York, the
corporate laws of the State of Delaware and the federal laws of the United
States, and we express no opinion as to the effect on the matters covered by
this opinion of the laws of any other jurisdiction.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission promulgated
thereunder.
Sincerely,
/s/ Squadron, Ellenoff, Plesent & Sheinfeld, LLP
<PAGE>
EXHIBIT 10.1(b)
EXECUTION VERSION
FIRST AMENDED AND RESTATED AGREEMENT
REGARDING OWNERSHIP INTERESTS
This First Amended and Restated Agreement Regarding Ownership Interests
(the "Agreement") is made as of the 15th day of December, 1997, by and among
LIBERTY MEDIA CORPORATION, a Delaware corporation ("Liberty"), NEWS AMERICA
HOLDINGS INCORPORATED, a Delaware corporation ("News America"), FOX REGIONAL
SPORTS HOLDINGS, INC., a Delaware corporation ("Fox"), LMC NEWCO U.S., INC., a
Delaware corporation ("LMC Newco"), and LIBERTY/FOX SPORTS FINANCING LLC, a
Delaware limited liability company ("Financing LLC").
The parties to this Agreement entered into an Agreement Regarding Ownership
Interests dated as of April 29, 1996 (the "Original Agreement"). The parties
desire to amend and restate the Original Agreement in its entirety as set forth
herein.
In consideration of their mutual promises and obligations, and with the
intent of being legally bound, the parties agree as follows:
ARTICLE I: DEFINITIONS
1.1. DEFINITIONS. The following terms, when used in this Agreement, have the
------------
meanings set forth below. Capitalized terms that are used but not defined in
this Agreement will have the meanings given to them in the Company Operating
Agreement (as defined below).
Change of Control: (a) with respect to the LMC Member, the
acquisition by any Person listed on Schedule
1 (a "Restricted Person") of Control of the
LMC Member; and (b) with respect to the Fox
Member and the News America Member, the
acquisition by any Restricted Person of
Control of the Fox Member or the News
America Member. Notwithstanding the
foregoing, a Change of Control will not be
deemed to have occurred: (i) in the case of
the LMC Member, if Control of the LMC Member
is acquired by a Restricted Person through
the acquisition of Control of TCI; and (ii)
in the case of the Fox Member and the News
America Member, if Control of the Fox Member
and the News America Member is acquired by a
Restricted Person through the acquisition of
Control of News.
<PAGE>
Company: Fox/Liberty Networks, LLC, a Delaware
limited liability company.
Company Operating Agreement: the First Amended and Restated Operating
Agreement dated of even date herewith, among
LMC Newco U.S., Inc., Fox Regional Sports
Holdings, Inc., and Liberty/Fox Sports
Financing LLC, as further amended from time
to time .
Controlled Affiliate: with respect to any Person, an Affiliate of
such Person which such Person Controls. For
purposes of this Agreement, neither the
Company nor any Business Company will be
considered an Affiliate of any of News
America, Fox, Liberty, LMC Newco, the Fox
Member, or the Liberty Member.
Credit Agreement: the $800,000,000 Credit Agreement, dated as
of the date hereof (as amended, supplemented
or otherwise modified from time to time)
among the Sports LLC, the fX LLC, the RPP
LCC (together, the Borrower), the Company,
the several lenders from time to time party
thereto, The Chase Manhattan Bank, as
Administrative Agent, Chase Securities,
Inc., as Syndication Agent, and TD
Securities (USA) Inc., as Documentation
Agent.
Current Market Price: per share of capital stock on any date
specified will be the average of the daily
market prices of such stock for 30
consecutive Business Days commencing 45
Business Days before such date if there is
then a public market for such stock, and if
there is no public market for such stock,
the Appraised Value (as defined below). The
daily market price of capital stock on any
Business Day will be (a) the last sale price
on such day on the principal stock exchange
on which such capital stock is then listed
or admitted to trading (including the NASDAQ
National Market System if such capital stock
is admitted to trading thereon), (b) if no
sale takes place on such date on any
exchange on which such stock is listed or
admitted to trading, the average of the
reported closing bid and asked prices on
such day as officially noted on any
exchange, or (c) if such capital stock is
not then listed
2
<PAGE>
or admitted to trading on any exchange, the
average of the reported closing bid and
asked prices on such day in the over-the-
counter market, as furnished by National
Quotation Bureau, Inc. (or if such
corporation is not then engaged in the
business of reporting such prices, as
furnished by any similar firm then engaged
in such business and selected by the
Initiating Member). "Appraised Value" per
share of capital stock on any date specified
will be the Fair Market Value of such
capital stock, computed as the total Fair
Market Value of all shares of such capital
stock divided by the number of shares of
such capital stock outstanding as of the
last day of the calendar month ending
immediately prior to such date, as
determined by an appraisal conducted
pursuant to Article 15 of the Company
Operating Agreement.
Deadlock: a Deadlock will be deemed to occur on the
first day of the second Fiscal Year in any
period of two consecutive Fiscal Years in
which the Member Groups have failed to
approve, in accordance with the terms of the
Company Operating Agreement, an annual
budget for the Company, the Sports Business
or the fX Business or have failed to appoint
a chief executive officer of the Company for
such period.
Divisional Assets: as to any Divisional Company, (i) the assets
held by the Company, another Business
Company, or the selling Member Group
(including any Interest in any Business
Company owned directly by any member of the
selling Member Group), and (ii) the
liabilities of any Business Company other
than a Divisional Company, which are
exclusively for the benefit of, or for use
exclusively in connection with the business
of, such Divisional Company or any Business
Company in which such Divisional Company
owns an Interest.
Financing Operating Agreement: the Operating Agreement dated as of April
29, 1996 between LMC Newco U.S., Inc. and
News America Holdings Incorporated.
Fox Group: Fox, News America, and any of their
respective Affiliates that holds an Interest
from time to time.
3
<PAGE>
Fox Member: Fox or any successor to or Transferee of an
Interest in the Company held by Fox pursuant
to Section 2.1(a).
Interest: an ownership interest or partnership
interest, as the case may be, in any of the
Company, the Financing LLC, or any
Divisional Company, and those ownership
interests and partnership interests that (i)
are specified on Schedule 2 or (ii)
otherwise are ownership interests or
partnership interests in Business Companies
or Divisional Companies held by the Company,
a Divisional Company, or Affiliates of Fox
or Liberty.
Liberty Debt: indebtedness of the Financing LLC to Liberty
Sports, Inc. in the principal amount of
$243.6 million pursuant to an Assumption
Agreement dated as of April 29, 1996.
Liberty Group: LMC Newco and any Affiliate of LMC Newco
that holds an Interest from time to time.
Liberty Member: LMC Newco or any successor to or Transferee
of an Upper Tier Interest held by LMC Newco
pursuant to Section 2.1(a).
Liberty Note: a promissory note in the principal amount of
$243.6 million dated April 29, 1996 made by
LMC Finco, Inc. to the Financing LLC.
LMC Group: Liberty and its Controlled Affiliates.
Marketable Securities: securities of a corporation which are listed
on a national securities exchange in the
United States of America or are authorized
for inclusion in the National Association of
Securities Dealers Automated Quotation
System, or National Market System, or are
listed on the principal national securities
exchange of a country other than the United
States, and which, for the six calendar
months preceding any date of determination,
had an average daily trading volume of
$200,000. Securities will not be deemed to
be Marketable Securities if the number of
shares or other units described in an Offer
Notice exceeds 5% of the
4
<PAGE>
average number of shares or other units of
the same class outstanding during the
previous six calendar months.
Member Group: either of the Fox Group or the Liberty
Group, as the context requires.
Net Equity Investment: with respect to a Divisional Company, the
aggregate Additional Contributions made
directly to the Divisional Company by a
Member Group net of any distributions made
by such Divisional Company to such Member
Group in respect of the Interests issued to
that Member Group on account of such
Additional Contributions.
News: The News Corporation Limited, a South
Australia corporation.
News America Member: News America or any successor to or
Transferee of an Interest in Financing LLC
held by News America pursuant to Section
2.1(a).
News Group: News and its Affiliates.
Residual Value: with respect to a Divisional Company, the
Stated Value of such Divisional Company less
the aggregate Net Equity Investments of all
Member Groups in such Divisional Company.
TCI: Tele-Communications, Inc., a Delaware
corporation.
Third Party Offer: a bona fide written offer from a prospective
purchaser that is not an Affiliate of the
Offeror to purchase all or part of an Upper
Tier Interest for consideration consisting
of cash or Marketable Securities or a
combination of cash and Marketable
Securities.
Transfer: with respect to any property, a sale,
exchange, transfer, assignment, grant of a
security interest in or other disposition of
all or any part of such property (whether
voluntary, involuntary or by operation of
law).
5
<PAGE>
Transferee: a Person to whom a Transfer is made in
compliance with this Agreement.
Transferor: a Person who makes a Transfer in compliance
with this Agreement.
Trigger Date: the later of (a) any date on which any of
the following occurs: (i) any Transfer or
attempted Transfer of any material asset of
the Financing LLC, including the Liberty
Note or the Interest in the Company held by
the Financing LLC, (ii) any consensual
incurrence of any material liability or
obligation by the Financing LLC (other than
indebtedness constituting the Liberty Debt
and liabilities, if any, arising in respect
of the ownership by the Financing LLC of its
Interest in the Company), (iii) any action
taken by the Financing LLC in violation of
the permitted scope of business of the
Financing LLC set forth in the Financing
Operating Agreement, or (iv) the Liberty
Member causes the Financing LLC to take any
action pursuant to Section 6.2 of the
Financing Operating Agreement, and (b) the
date which is 30 days following the date
described in (a) above if the action
described is curable or reversible within 30
days following its occurrence but has not
been cured or reversed within such 30-day
period.
Upper Tier Interest: an Interest in the Company or the Financing
LLC.
ARTICLE II: TRANSFERS RESTRICTED
2.1. TRANSFERS. None of News America, Fox, LMC Newco, or Financing LLC will
----------
Transfer any Interest held by it, and each of News America, Fox and Liberty will
cause each of its Controlled Affiliates that owns any Interest in a Sports
Company or fX Company to exercise its voting rights and Control (if any) to
cause such Sports Company or fX Company not to Transfer any Interest or permit a
Transfer of any Interest, provided that a party and its Controlled Affiliates
may:
(a) Transfer all (but not less than all) of an Upper Tier Interest to an
Affiliate of the Transferor at any time, provided that the Transferee remains an
Affiliate of the Transferor immediately after the Transfer;
6
<PAGE>
(b) Transfer all (but not less than all) of an Interest in a Sports Company
or fX Company to the extent provided in the operating agreement or partnership
agreement governing such Sports Company or fX Company;
(c) pledge or grant a security interest in all or part of an Upper Tier
Interest (including the right to receive Distributions) to secure loans to the
assignor or its Affiliates;
(d) pledge or grant, or cause the Company, a Sports Company or an fX
Company to pledge or grant, a security interest in all or part of an Interest
(including the right to receive Distributions) to secure loans owed by the
Company or a Business Company;
(e) after October 30, 2000, Transfer all (but not less than all) of an
Upper Tier Interest after complying with the right of first refusal provisions
set forth in Section 2.2; or
(f) Transfer its Interests pursuant to Section 2.3, Section 2.4, or
Section 2.5, if such Section is then applicable.
Nothing in this Section 2.1 will be deemed (i) to permit any Transfer of
all or any portion of an Interest in foreclosure or in lieu of foreclosure of
any pledge or security interest, or the admission of a secured party or pledgee
as a member of the Company, the Financing LLC, any Sports Company, or any fX
Company or (ii) to prohibit any Transfer of stock or of partnership or ownership
interests other than the Interests. Notwithstanding the foregoing, upon an
Event of Default (as defined in the Credit Agreement), the Administrative Agent
(as defined in the Credit Agreement) will be entitled to seek any remedy
available to it under the Pledge Agreement (as defined in the Credit Agreement),
including, without limitation, foreclosure of its security interest in one or
more Interests, and, upon such foreclosure, the Administrative Agent (as defined
in the Credit Agreement) will be admitted as a member or partner of the limited
liability company or partnership, as the case may be, in which it holds the
Interest foreclosed upon.
Any Transfer of an Interest other than as specifically permitted by this
Section 2.1 will be void and of no effect. The restrictions on, and obligations
with respect to, Transfers of Interests set forth in this Agreement will be
deemed to be in addition to, and not in lieu of, any other restrictions or
obligations set forth in the Company Operating Agreement and any other agreement
by which the parties and their Affiliates are bound.
2.2. RIGHT OF FIRST REFUSAL.
----------------------
(a) At any time after October 30, 2000, any member of either Member Group
may Transfer all (but not less than all) of any Upper Tier Interest (an "Offered
Interest") if (and only if) such Transfer is pursuant to a Third Party Offer,
subject to the provisions of this Section. If any member of either Member Group
receives and wishes to accept a Third Party Offer for the Offered Interest, such
Person (the "Offeror") must first offer the other Member Group (an "Offeree")
the opportunity to purchase the Offered Interest for the same consideration and
on the other terms and
7
<PAGE>
conditions as those contained in the Third Party Offer. The offer will be made
by a written notice (an "Offer Notice") to the Offeree stating (i) the Offeror's
bona fide intention to Transfer the Offered Interest pursuant to the Third Party
Offer and (ii) the Offeror's agreement to provide such information as may
reasonably be requested by the Offeree to evaluate the terms of the prospective
Transfer. The Offer Notice will be accompanied by a copy of the Third Party
Offer which specifically identifies the Person making the Third Party Offer and
each Person that, to the knowledge of the Offeror, directly or indirectly
Controls such Person. If the Offeree wishes to purchase the Offered Interest,
it will respond to the Offer Notice in writing (the "Exercise Notice") within 30
days after its receipt of the Offer Notice (the "Election Period"). To the
extent the consideration proposed to be paid in the Third Party Offer consists
of Marketable Securities, the Offeree may elect, by so stating in its Exercise
Notice, to pay cash equal to the Current Market Price of such securities in lieu
of such securities. If the Offeree does not specify an election to pay cash in
its Exercise Notice, then the Offeree will be required to deliver Marketable
Securities at the closing to the extent the Offer Notice specified Marketable
Securities as consideration to be paid pursuant to the Third Party Offer. If no
Exercise Notice is given within the Election Period, the Offeree will be deemed
to have elected not to purchase the Offered Interest.
(b) If the Offeree does not elect to purchase all of the Offered Interest,
the Offeror will be free for a period of 90 days after the end of the Election
Period to sell all (but not less than all) of the Offered Interest to the Person
that made the Third Party Offer for the consideration and upon the terms and
conditions set forth in the Third Party Offer. If the Offered Interest is not
so sold during such 90-day period, the Offeror's right to Transfer such Offered
Interest will again be subject to the provisions of this Section 2.2.
(c) Unless the Offeree and Offeror otherwise agree, the closing of any
purchase by the Offeree pursuant to this Section 2.2 will be held at the
principal office of the Company at 11:00 a.m. (local time) on the date that is
20 days after the end of the Election Period, or if later, five Business Days
after the parties have obtained all required consents from governmental
authorities and other third parties (each a "material consent"), the failure of
which to obtain reasonably could be expected to result in (i) material liability
to either Member Group if the purchase were to take place or (ii) either Member
Group being deprived of all or a material part of the benefits incident to the
Interests to be purchased. If a purchase pursuant to this Section 2.2 requires
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, the requirement for obtaining a consent for purposes of this Section
will be deemed satisfied if the applicable waiting period under that Act has
expired or has been terminated without the receipt of a notice of objection or
the commencement or threat of litigation by a government entity to restrain the
consummation of the purchase of the Interests to be purchased. If any material
consent cannot be obtained within six months after the date of the Exercise
Notice, the parties will use their reasonable best efforts to agree on a method
by which the Offeror and the Offeree each can be afforded the economic
equivalent of the desired transfer. If within 12 months after the Exercise
Notice, all material consents have not been obtained and the Offeror and the
Offeree have been unable to agree on such a method, the Offer Notice and the
Exercise Notice will be deemed rescinded and the rights and obligations of the
Offeror and the Offeree under this Section 2.2 will be as they were immediately
before the Offer Notice. In the event
8
<PAGE>
the required consents are obtained, at the closing the Offeror will Transfer the
Offered Interest, free and clear of all liens, claims and encumbrances, to the
Offeree and will deliver such bills of sale, assignments and other agreements
and instruments to the Offeree and will take all such other reasonable actions
as the Offeree may request to vest the Offered Interest in the Offeree.
(d) The provisions of this Section 2.2 will not apply to any Transfer of
an Interest permitted by Section 2.1(a), 2.1(b), or 2.1(c).
(e) The procedures set forth in this Section 2.2 may not be initiated with
respect to any Upper Tier Interest as to which a Call Exercise Notice pursuant
to Section 2.3, a Buy-Sell Notice pursuant to Section 2.4, or a Change of
Control Notice pursuant to Section 2.5 has been given.
2.3. CALL OPTION.
-----------
(a) The Liberty Member will provide the Fox Member prompt notice of the
occurrence of any Trigger Date. Any time after the occurrence of a Trigger
Date, the Fox Member will have the right, exercisable by written notice to such
effect (the "Call Exercise Notice"), to require the Liberty Group to sell all of
its Interests (the "Optioned Assets") to the Fox Group for a cash purchase price
equal to 50 percent of the Liberty Group's aggregate net equity investment in
the Company, the Business Companies, and the Financing LLC. For these purposes,
the Liberty Group's aggregate net equity investment in the Company, the Business
Companies, and the Financing LLC will equal the aggregate capital contributions
made by the Liberty Group to the Company, the Business Companies, and the
Financing LLC less aggregate distributions therefrom received by the Liberty
Group as of the Trigger Date. The Liberty Debt will be cancelled at or prior to
any closing contemplated pursuant to this Section 2.3, and the principal amount
of the Liberty Debt and any accrued interest thereon which is canceled pursuant
to this sentence will be treated as an additional capital contribution for
purposes of calculating the Liberty Group's aggregate net equity investment in
the Company, the Business Companies, and the Financing LLC.
(b) The closing of any purchase pursuant to this Section will be held at
the principal office of the Company at 11:00 a.m. (local time) on the date that
is 10 Business Days after the date of the Call Exercise Notice, or if later,
five Business Days after the parties obtain all required consents from
governmental authorities or other third parties (each a "material consent"), the
failure of which to obtain reasonably could be expected to result in (i)
material liability to either Member Group if the purchase were to take place or
(ii) the Fox Member being deprived of all or a material part of the benefits
incident to the Optioned Assets. If a purchase pursuant to this Section 2.3
requires filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, the requirement for obtaining a consent for purposes of this Section
will be deemed satisfied if the applicable waiting period under that Act has
expired or has been terminated without the receipt of a notice of objection or
the commencement or threat of litigation by a government entity to restrain the
consummation of the purchase of the Optioned Assets. If any material consent
cannot be obtained within six months after the date of the Call Exercise Notice,
the parties will use their reasonable best efforts to agree on a method by which
the Fox Member can be afforded the economic
9
<PAGE>
equivalent of the desired transfer. If within 12 months after the Call Exercise
Notice all material consents have not been obtained and the parties have not
agreed on such a method, at the election of the Fox Member, the Liberty Member
will be liable to the Fox Member for an amount equal to the excess of the Fair
Market Value of the Optioned Assets over the purchase price that would have been
paid for the Optioned Assets pursuant to this Section 2.3 if such purchase had
been completed. In the event the required consents are obtained, at the closing,
the Fox Member will cause the purchase price to be wire transferred to the
account designated by the Liberty Member, and the Liberty Group will transfer
the Optioned Assets to the Fox Member, free and clear of all liens, claims and
encumbrances (other than any securing financing obtained by the purchaser or the
Company) and will deliver such bills of sale, assignments and other agreements
and instruments to the Fox Member and will take all such other reasonable
actions as the Fox Member may request.
2.4. SHOTGUN BUY-SELL.
----------------
(a) At any time after October 30, 2000, either Member Group (the
"Initiating Group") will have the right to initiate the buy-sell procedure set
forth in this Section 2.4 as to each of the Divisional Companies if a Deadlock
has occurred and is continuing, by giving written notice to the other Member
Group (a "Buy-Sell Notice") that it has elected to initiate the buy-sell
procedure described in this Section. A Buy-Sell Notice as to each of the
Divisional Companies may be given by either Member Group at any time after April
29, 2002, whether or not a Deadlock has occurred. The Buy-Sell Notice will
include a statement by the Initiating Member of the amount that the Initiating
Member believes to be the value of each Divisional Company (the "Stated
Values").
(b) Within 60 days after receipt by the Fox Group or the Liberty Group, as
the case may be (a "Responding Group"), of a Buy-Sell Notice the Responding
Group will give the Initiating Group written notice (an "Election Notice") of
its election, as to each Divisional Company either (i) to purchase all of the
outstanding Interests in the Divisional Company and the associated Divisional
Assets in which event the Responding Group will be entitled to purchase the same
in accordance with this Section 2.4, (ii) to sell to the Initiating Group all of
the Interests of the Responding Member and its Affiliates in the Divisional
Company and the associated Divisional Assets in which event the Initiating Group
will be obligated to purchase the same in accordance with this Section 2.4 or
(iii) if the Total Divisional Interests of the Fox Group and the Liberty Group
as to each Divisional Company are at least 49.9%, to split up the business of
the Company pursuant to 2.4(c) (a "Split Up Election"). For purposes of clauses
(i) and (ii) of the preceding sentence, the election of the Responding Member to
purchase or sell must be uniform as to all Divisional Companies that are Sports
Companies and, likewise, as to all Divisional Companies that are fX Companies.
If the Responding Group fails to timely give notice to the Initiating Group of
its election pursuant to this paragraph (b), the Responding Group will be deemed
to have elected to sell all of its Interests in each of the Divisional Companies
and the Divisional Assets to the Initiating Group.
(c) If the Responding Group makes the Split-Up Election, the Initiating
Group will within 30 days of its receipt of the Election Notice provide to the
Responding Group a notice (the "Partition Notice") which in reasonable detail
divides the Business Companies and their associated Divisional
10
<PAGE>
Assets into two groups, one of which will include all the assets and liabilities
comprising or relating to the fX Business. For purposes of the preceding
sentence, the Initiating Member will be required to assign to the same group of
assets and liabilities all of the Interests in a particular Business Company and
the associated Divisional Assets of such Business Company. Any indebtedness of
the Company and any indebtedness of any Divisional Company will be allocated
equally between the two groups of assets and liabilities. The Initiating Group
may add to either group of assets and liabilities additional assets consisting
of cash or Marketable Securities to equalize the value of the two groups of
assets and liabilities. Within 20 days after its receipt of the Partition
Notice, the Responding Group will provide the Initiating Group notice, which
will be irrevocable, of which of the two groups of assets and liabilities will
be assigned to and assumed by the Responding Group at the closing as set forth
in Section 2.4(e). If the Responding Group fails timely to provide such notice,
the Initiating Group will choose which group of assets and liabilities will be
assigned to and assumed by each Member Group.
(d) If the Split-Up Election is not made, the purchase price payable at the
closing of the transactions contemplated by this Section as to each Divisional
Company will be determined and payable as follows:
(i) If the Total Divisional Interest of both Member Groups is (A)
greater than 25%, or (B) equal to 25% without taking into account the provisions
of 3.11[f] of the operating agreement governing such Divisional Company that
limit dilution of such Total Divisional Interest to 25%, the purchasing Member
Group will pay to the selling Member Group the product of the selling Member
Group's Total Divisional Interest in the Divisional Company and the Stated Value
of the Divisional Company.
(ii) If the Total Divisional Interest of either Member Group is 25%
and would be less than 25% but for the provisions of 3.11[f] of the operating
agreement governing such Divisional Company, the purchasing Member Group will
pay to the selling Member Group the sum of (A) the selling Member Group's Net
Equity Investment in the Divisional Company, and (B) the product of the selling
Member Group's Total Divisional Interest in the Divisional Company and the
Residual Value of the Divisional Company.
(iii) The purchase price will be payable at closing by wire transfer
of funds to an account of the selling Member Group designated by the selling
Member Group. The purchasing Member Group will pay all stamp or transfer taxes
incurred in connection with the sale of Interests pursuant to this Section.
(e) Unless the purchasing Member Group has elected to purchase all of the
Interests in both Divisional Companies (in which event such Member Group will
acquire all the Interests of the selling Member Group in the Company, the
Financing LLC, and each of the Business Companies), transfers of the Divisional
Company Interests of the selling Member Group to the purchasing Member Group
will take place on the closing date as follows:
11
<PAGE>
(i) The Company will distribute to the Members in accordance with
Article 5 of the Company Operating Agreement all of the Interests in the
applicable Divisional Company held by the Company and all of the Divisional
Assets held by the Company which are used exclusively in connection with the
operations of, or are held exclusively for the benefit of, the applicable
Divisional Company; and
(ii) The Financing LLC will distribute to its members in accordance
with Article 5 of the Financing Operating Agreement all of the Interests in the
applicable Divisional Company held by the Financing LLC and all of the
Divisional Assets held by the Financing LLC which are used exclusively in
connection with the operations of, or are held exclusively for the benefit of,
the applicable Divisional Company; and
(iii) The selling Member Group will Transfer to the purchasing Member
Group all of such Interests and Divisional Assets held by the selling Member
Group, and the purchasing Member Group will assume the liabilities related
thereto.
(f) The closing of the transactions contemplated by this Section 2.4 will
be held on a date specified by the purchasing Member Group (or, if applicable,
the Person making the Split-Up Election), provided that such date will not be
later than the latest of (i) 30 days after the date of an Election Notice if
Interests are to be purchased for cash, (ii) 5 days after the first date
following the date of an Election Notice that the Current Market Price of any
securities to be issued pursuant to Section 2.4(h) can be determined, (iii) 30
days after a Partition Notice is given if a Split-Up Election is made, or (iv)
the date that is five Business Days after the parties obtain all required
consents from governmental authorities and other third parties (each a "material
consent"), the failure of which to obtain reasonably could be expected to result
in (A) material liability to either Member Group if the purchase were to take
place or (B) either Member Group being deprived of all or a material part of the
benefits incident to the Interests to be purchased. If a purchase pursuant to
this Section 2.4 requires filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, the requirement for obtaining a consent
for purposes of this Section will be deemed satisfied if the applicable waiting
period under that Act has expired or has been terminated without the receipt of
a notice of objection or the commencement or threat of litigation by a
government entity to restrain the consummation of the purchase of the Interests
to be purchased. If any material consent cannot be obtained within six months
after the date of the Election Notice, the parties will use their reasonable
best efforts to agree on a method by which the Members can be afforded the
economic equivalent of the desired transfer. If within 12 months after the
Election Notice all material consents have not been obtained and the Members
have not been able to agree on such a method, the Buy-Sell Notice and the
Election Notice will be deemed rescinded and the rights and obligations of the
Member Groups under this Section 2.4 will be as they were immediately before the
Buy-Sell Notice. In the event the required consents are obtained, at the closing
(if no Split-Up Election has been made) the selling Member Group will deliver
and assign to the purchasing Member Group the Interests and the Divisional
Assets, if any, to be transferred free and clear of all liens, claims or
encumbrances (other than any encumbrances securing financing obtained by the
purchasing Member Group, by the Divisional Company being Transferred, or in the
case of a Transfer of the Company
12
<PAGE>
and the Business Companies as a whole, by the Company), and the selling Member
Group will take any other actions in connection with the closing reasonably
requested by the purchasing Member Group to give effect to the transactions
contemplated by this Section. If a Split-Up Election has been made, at the
closing the parties will assume the liabilities to be assumed by each of them
and will cooperate to cause the Company and the Financing LLC to distribute in
kind the assets to be distributed to each party and to cause the Company and the
Financing LLC to be liquidated and dissolved in accordance with their respective
constituent documents and applicable law. At such closing the parties will
deliver instruments of assignment and assumption and take such other acts and
deliver such other instruments as either party may reasonably request to
effectively vest each Interest to be Transferred in the purchasing Member Group.
(g) If the Company and the Financing LLC are to be liquidated and dissolved
pursuant to a Split-Up Election, it will be a condition to the parties'
obligations to effect such transaction that the liquidation and dissolution be
effected as a tax-free asset distribution under applicable provisions of the
Code. If a purchase of Interests is to be effected pursuant to this Section
2.4, at the selling Member Group's request, the parties will negotiate in good
faith to structure the transaction as a tax-free reorganization under Section
368 of the Code, provided that the selling Member Group will not be required to
accept, in exchange for its Interests, securities which are not Marketable
Securities. Securities issued in such transaction may be voting, nonvoting or
convertible into voting securities at the election of the issuer. The aggregate
Fair Market Value of securities issued in any such transaction will be equal to
the cash purchase price which would have been paid in such transaction had the
selling Member Group not elected to effect a reorganization pursuant to Section
368 of the Code. The Fair Market Value of securities issued in such a
transaction will be deemed to be their Current Market Price as of a date that is
five days prior to the closing of such transaction (or the next following
Business Day if such date is not a Business Day). Unless otherwise stipulated
by the selling Member Group at least three Business Days prior to closing, the
purchasing Member Group will pay any required transfer tax or fee or stamp duty
payable upon the issuance or transfer of such securities.
(h) Prior to the closing of any transaction contemplated by this Section
2.4 whereby (i) there is a Split-Up Election or (ii) the Fox Member is the
purchaser, the Liberty Member will cause the obligor of the Liberty Note to pay
all outstanding principal and interest to the Financing LLC pursuant to the
Liberty Note. Immediately thereafter, the Liberty Member and the Fox Member
will cause the Financing LLC to apply the proceeds it receives from the obligor
of the Liberty Note to the payment of principal and interest to the holder of
the Liberty Debt. At the election of the Liberty Member, the Liberty Member
instead may cause the outstanding principal of the Liberty Note and any accrued
interest thereon to be offset against the outstanding principal and interest of
the Liberty Debt in full satisfaction of both the Liberty Debt and the Liberty
Note.
2.5. CHANGE OF CONTROL.
-----------------
(a) The Liberty Member will give the Fox Member prompt written notice if a
Change of Control occurs or is proposed to occur pursuant to one or more binding
agreements with respect to
13
<PAGE>
the Liberty Member and the Fox Member or the News America Member, as the case
may be, will give the Liberty Member prompt written notice if a Change of
Control occurs or is proposed to occur pursuant to one or more binding
agreements with respect to the Fox Member or the News America Member (a "Change
of Control Notice"). A party entitled to receive a Change of Control Notice (a
"CC Rights Holder") will have the right but not the obligation, exercisable by
written notice (an "Acceptance Notice") given within 90 days after the receipt
of a Change of Control Notice, to require the Member experiencing the Change of
Control to sell all Interests held by its Member Group to the CC Rights Holder
or its designee for a cash purchase price equal to the Fair Market Value thereof
(determined as provided in subsection (b) of this Section 2.5), subject, in the
case of a Change of Control Notice given before a Change of Control has
occurred, to occurrence of the Change of Control.
(b) The Fair Market Value of each Interest required to be determined
pursuant to the preceding paragraph will be equal to the Fair Market Value of
the Person in which such Interest is owned as of the last day of the fiscal
quarter immediately preceding the fiscal quarter in which the Change of Control
occurs, multiplied by the percentage (expressed as a decimal) that such Interest
represents of all outstanding Interests in such Person. If the parties cannot
agree on a Fair Market Value of any Interest subject to sale within 15 days
after the giving of an Acceptance Notice, the Fair Market Value of such Interest
will be determined by appraisal pursuant to Article 15 of the Company Operating
Agreement.
(c) The closing of any purchase pursuant to this Section 2.5 will be held
at the principal office of the Company at 11:00 a.m. (local time) on the date
that is 10 Business Days after final determination of the purchase price or, if
later, five Business Days after the parties obtain all consents and waivers from
governmental authorities and other third parties (each a "material consent")
the failure to obtain which would be likely to result in (A) material liability
to either Member Group if the purchase were to take place or (B) the purchasing
Member Group being deprived of all or a material part of the benefits incident
to the Interests to be purchased. If a purchase pursuant to this Section 2.5
requires filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, the requirement for obtaining a consent for purposes of this Section
will be deemed satisfied if the applicable waiting period under that Act has
expired or has been terminated without the receipt of a notice of objection or
the commencement or threat of litigation by a government entity to restrain the
consummation of the purchase. If any material consent cannot be obtained within
six months after the final determination of the purchase price, the parties will
use their reasonable best efforts to agree on a method by which each party can
be afforded the economic equivalent of the desired transfer. The parties will
use their reasonable best efforts to cause the conditions set forth above to any
purchase pursuant to this Section 2.5 to be satisfied as promptly as practicable
after an Acceptance Notice is given. At the closing, the purchasing Member
Group will cause the purchase price to be wire transferred to the account
designated by the selling Member Group, and the selling Member Group will
transfer the Interests, free and clear of all liens, claims and encumbrances
(other than any encumbrances securing financing obtained by the purchasing
Member Group or the Company) and will deliver such bills of sale,
14
<PAGE>
assignments and other agreements and instruments and will take all such other
reasonable actions as the purchasing Member Group may request.
2.6. SATISFACTION OF CONDITIONS TO SALE AND PURCHASE. The parties will use
-----------------------------------------------
their reasonable best efforts to cause to be satisfied, as promptly as possible,
any conditions to a sale and purchase contemplated by Section 2.2, Section 2.3,
Section 2.4, or Section 2.5, including any requirement for obtaining consents of
governmental entities or other Persons.
2.7. STATUS OF PERMITTED TRANSFEREE. Any Permitted Transferee will be admitted
------------------------------
as a member of the Company or the Financing LLC, as the case may be, as of the
date of the Transfer of an Upper Tier Interest to the Permitted Transferee or
such later date on which the Permitted Transferee agrees in writing to be bound
by the terms of this Agreement and the Company Operating Agreement or the
Financing Operating Agreement, as the case may be, and assumes all obligations
of the Transferor and its Affiliates with respect to the Company or the
Financing LLC from and after the date of the Transfer.
ARTICLE III: MISCELLANEOUS
3.1. SECTION 708 TERMINATION. If any transaction contemplated by Article II of
------------------------
this Agreement (other than a Transfer pursuant to Section 2.3, 2.4, or 2.5)
would violate or conflict with any provision of the Company Operating Agreement,
the Financing Operating Agreement or an operating agreement or partnership
agreement governing a Sports Company or fX Company that prohibits or restricts
Transfers that would cause a deemed dissolution of the Company, the Financing
LLC, a Sports Company or fX Company pursuant to Section 708 of the Code, such
transaction will be permitted to occur immediately only to the extent it will
not cause such a deemed dissolution, and the remainder of the Interest that
otherwise would be Transferred will be Transferred as soon as practicable after
such prohibition or restriction is no longer applicable.
3.2. CONTINUING RIGHTS. The purchaser of all Interests held by a Member Group
------------------
in the Company or any Business Company as applicable, in a transaction pursuant
to Section 2.2, 2.3, 2.4, or 2.5 and either party in a transaction effected
pursuant to a Split-Up Election may elect to extend for a period not more than
two years after the closing of such transaction any agreements between the
Company or any such Business Company and any member of the News Group (if the
purchase or election is made by a member of the Liberty Group) or between the
Company or any such Business Company and any member of the LMC Group (if the
purchase or election is made by a member of the News Group) if such agreement
otherwise would terminate within two years after the closing of such
transaction. Notwithstanding the foregoing, (i) any right to use the name "Fox"
will terminate not later than the first anniversary of such closing and (ii) the
exclusivity agreement set forth in Section 2.1(a) of the Parents Agreement that
is binding upon the seller will terminate (A) immediately upon the closing of a
sale by such party pursuant to Section 2.4 or (B) on the second anniversary of
the closing in any such transaction effected pursuant to Section 2.2. Except as
otherwise agreed by the parties, any extension of any such agreement will be on
terms in effect prior to such extension.
15
<PAGE>
3.3. APPRAISALS. Whenever an appraisal is required to be made hereunder, such
-----------
appraisal will be conducted in accordance with the procedures set forth in
Article 15 of the Company Operating Agreement.
3.4. SPECIAL ALLOCATIONS OF PROFITS AND LOSSES. Profits and Losses attributable
-----------------------------------------
to an Interest will be allocated to each Person in accordance with the
respective operating agreements or partnership agreements of the Company, the
Business Companies and the Financing LLC unless such allocations would result in
any Member Group having a disproportionate percentage of total Profits or
Losses, as determined by aggregating the Member Group's shares of Profits and
Losses from the Company, the Business Companies and the Financing LLC and
comparing that amount to the Member Group's shares of Profits and Losses
determined as if the Company, the Business Companies and the Financing LLC were
each a division of a single entity of which each of the Member Groups owned the
aggregate of its Total Divisional Interests for all Divisional Companies. The
aggregate allocations of Profits and Losses to the Member Groups from the
Company, the Business Companies and the Financing LLC is hereinafter referred to
as the "Aggregate Allocation," and the allocation of Profits and Losses to the
Member Groups determined as if the Company, the Business Companies and the
Financing LLC were each a division of a single entity is hereinafter referred to
as the "Required Allocation." If the Aggregate Allocation for any Fiscal Year
differs from the Required Allocation for such Fiscal Year, notwithstanding the
allocation provisions of the operating agreements and partnership agreements,
the Profits and/or Losses of each of the Company, the Business Companies and the
Financing LLC for the Fiscal Year will be allocated in a fair and equitable
manner so that the Aggregate Allocation for the Fiscal Year, equals the Required
Allocation for such Fiscal Year. Notwithstanding the foregoing, this Section
3.4 will apply only for so long as the Total Divisional Interest of each the Fox
Member and the Liberty Member in each Divisional Company is at least 49.9%.
3.5. CONVERSION TO NON-VOTING INTEREST. If a Member's Interest in a Divisional
---------------------------------
Company converts to a non-voting Interest pursuant to 3.11[f] of the Divisional
Company's operating agreement, [a] all other Interests of that Member and of its
Affiliates in Business Companies in which that Divisional Company owns an
Interest also will convert to non-voting Interests, subject only to the right to
vote with respect to any amendment of any constituent or governing documents of
each entity in which such Interest is held, a dissolution or liquidation of an
entity in which such Interest is held, or as may be required by law; and [b] the
Company's interest in such Divisional Company also will convert to a non-voting
Interest, subject only to the right to vote with respect to any amendment of any
constituent or governing documents of such Divisional Company, a dissolution or
liquidation of such Divisional Company, or as may be required by law. If a
Member's voting rights with respect to a Divisional Company are restricted
pursuant to 3.11[e] of the Divisional Company's operating agreement, [a] the
voting rights of such Member and its Affiliates with respect to all Interests
owned by them in Business Companies in which that Divisional Company owns
Interests will be restricted to the same extent; and [b] the voting rights of
the Company in such Divisional Company will be restricted to the same extent.
Notwithstanding the foregoing, if [a] an Interest in Sports LLC held by either
Member or an Affiliate of either Member is converted pursuant to 3.11[f] of the
Divisional Company's operating agreement and [b] such
16
<PAGE>
Member or an Affiliate of such Member is a general partner in a Business Company
formed as a limited partnership, then the general partner Interest held by such
Member or Affiliate of such Member in such limited partnership will be so
converted only at the election of, and upon Notice to such Member or Affiliate
from, any limited partner.
3.6. TERMINATION OF SECURITY AGREEMENTS; RIGHTS UPON DEFAULT ON THE LIBERTY
----------------------------------------------------------------------
NOTE.
- ----
(a) The parties shall cause the security agreements dated as of the date
of the Original Agreement between the Financing LLC, as secured party, and any
of the Liberty Member, Liberty Sports Member, Inc. and Liberty fX, Inc., as
grantors of the security interests granted therein, to be terminated effective
as of the date hereof, and shall execute and deliver such further documentation
as may be necessary or desirable to evidence the termination of such security
agreements and the release of the Collateral (as defined therein), including
UCC-3 Termination Statements.
(b) In the event of any breach by LMC Finco, Inc. of any of its
obligations under the Liberty Note and continuation of such breach beyond any
applicable grace or cure period (an "Event of Default"), the members of the Fox
Group shall have the right (in addition to any other remedies that may be
available to them) to exercise or to cause to be exercised any and all voting
and other rights incident to the ownership of the Collateral released in
accordance with Section 3.6(a) hereof. The members of the Fox Group will not be
obligated to do any of the acts authorized above, but in the event that they
elect to do any such act, they will not be responsible to the members of the
Liberty Group except for gross negligence or willful misconduct.
(c) LMC Newco shall execute and deliver to the Financing LLC a guaranty
for the benefit of Financing LLC of all of the obligations of LMC Finco under
the Liberty Note. Such guaranty shall be in the form of the Guaranty Agreement
dated as of the date of the Original Agreement executed by Liberty QVC, Inc. for
the benefit of Financing LLC.
(d) Liberty and LMC Newco hereby represent and warrant that the assets of
LMC Newco consist solely of its Upper Tier Interests, the stock of Liberty
Sports Member, Inc., and the ownership interest in Liberty Denver Arena LLC, a
Delaware limited liability company (collectively, "Newco Interests"), LMC Newco
is not engaged in any business activities other than owning such Newco
Interests, and LMC Newco has not engaged in any other business activities since
the date of its formation, except that in connection with the formation of the
Company, LMC Newco issued a $243,600,000 Promissory Note dated April 29, 1996 to
Liberty Sports, Inc., which Promissory Note was assumed by the Financing LLC and
constitutes the Liberty Debt. LMC Newco hereby covenants and agrees that, so
long as the Liberty Note shall remain outstanding, LMC Newco shall not (i)
Transfer or create (or suffer to exist) any Lien on any of its assets, (ii)
engage in any material business activities other than owning the Newco Interests
or (iii) incur any indebtedness, other than the Liberty Debt (for which it is
contingently liable).
(e) Each of Liberty and LMC Newco shall do or cause to be done all acts
and things (including, without limitation, exercising voting or other rights as
directed by any member of the Fox
17
<PAGE>
Group or executing and delivering proxies with respect thereto) necessary in
order to carry out the intent and effectuate the provisions of this Section 3.6.
3.7. NOTICES. All notices, requests, demands and other communications called
-------
for or contemplated hereunder will be in writing and will be deemed to have been
duly given if delivered in person or by United States certified or registered
mail, prepaid, addressed to the parties, their permitted successors in interest
or assignees, or sent by courier or telecopier:
To Liberty or any member of the Liberty Group at:
Liberty Media Corporation
8101 E. Prentice Avenue, Suite 500
Englewood, CO 80111
Attention: President
Telecopy: (303) 721-5415
with copies to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telecopy: (303) 488-3245
and
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
To Fox or any member of the Fox Group at:
Fox Regional Sports Holdings, Inc.
1300 North Market Street
Suite 404
Wilmington, Delaware 19801
Telecopy: (302) 888-0336
18
<PAGE>
With copies to:
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Senior Executive Vice President
and Group General Counsel
Telecopy: (212) 768-2029
Fox Television
10201 West Pico Boulevard
Los Angeles, California 90035
Attention: Jay Itzkowitz, Esq.
Senior Vice President
Legal Affairs
Telecopy: (310) 369-2572
and
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Joel I. Papernik, Esq.
Telecopy: (212) 697-6686
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this Section. All
notices will be deemed to have been received on the date of delivery if
personally delivered or sent by courier or telecopy, or on the third business
day after the mailing thereof if sent by mail.
3.8. MODIFICATION; WAIVER. This Agreement may be modified or terminated by
--------------------
mutual agreement only by a writing signed by all the parties, and no provision
or condition herein may be waived other than by a writing signed by the party
waiving such provision or condition.
3.9. HEADINGS. Article and Section headings in this Agreement are for the
--------
sole purpose of convenient reference and in no way define, limit or prescribe
the scope or intent of this Agreement or any part hereof, and such headings will
not be considered in interpreting or construing this Agreement.
3.10. ASSIGNMENT. No party will assign any of its rights under this Agreement
----------
or delegate its duties hereunder except to a Permitted Transferee unless it
obtains the prior written consent of the other party, which consent may be
withheld at such party's absolute discretion. Notwithstanding the
19
<PAGE>
preceding sentence, any party may assign its rights under this Agreement to any
Affiliate of such party without the consent of any other party.
3.11. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which may be deemed to be an original, and all of which
taken together will constitute one instrument.
3.12. CONFLICTS WITH OTHER AGREEMENTS. To the extent that any provision of
-------------------------------
this Agreement is inconsistent with any provision of the Formation Agreement,
the Company Operating Agreement, the Financing Operating Agreement or any
operating or partnership agreement of a Business Company, this Agreement will
prevail to the extent of any such inconsistencies.
3.13. OTHER. This Agreement constitutes the entire agreement of the parties
-----
regarding the subject matter hereof, and all prior or contemporaneous
agreements, understandings, representations and statements, oral or written, are
hereby merged into this Agreement. This Agreement will be binding upon and
inure to the benefit of the parties and, subject to the limitations set forth in
Section 3.9, their respective successors and assigns. The provisions of this
Agreement are for the exclusive benefit of the parties and their permitted
successors and assigns, and no other Person is intended to be a third party
beneficiary or to have any rights by virtue of this Agreement.
3.14. GOVERNING LAW. This Agreement will be governed by the laws of the State
-------------
of New York, without regard to any conflicts of laws rules. Any action to
enforce any provision of this Agreement may be brought only in a court in the
state of New York or in the United States District Court for the Southern
District of New York. Each party [i] agrees to submit to the general
jurisdiction of such courts and to accept service of process at its address for
notices pursuant to this Agreement in any such action or proceeding and [ii]
irrevocably waives any objection it may have to the laying of venue of such
action or proceeding brought in any such court and any claim that such action or
proceeding brought in any such court has been brought in an inconvenient forum.
3.15. ELECTION OF PARTNERSHIP STATUS UNDER PROPOSED REGULATIONS. The parties
---------------------------------------------------------
to this Agreement intend that the Company, Financing LLC and each Business
Company be treated as a partnership for U.S. federal, state and local income tax
purposes, and each such party will, and will cause its Affiliates to, act, file
tax returns and otherwise take positions consistent with such intention. After
the effective date, if ever, of final treasury regulations under Section 7701 of
the Code permitting an entity to elect to be treated as a partnership for
federal income tax purposes (61 F.R. 21989 (May 13, 1996)), the Tax Matters
Partner of each of the Company, Financing LLC and each Business Company will,
and, if necessary, the parties to this Agreement and their respective Affiliates
will take such action as is necessary to, elect in compliance with such
regulations that such entity be treated for federal income tax purposes as a
partnership, and execute and deliver such documents and take such other actions
as may be reasonably necessary or desirable in connection with such election.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amended and
Restated Agreement Regarding Ownership Interests as of the date first written
above.
LIBERTY MEDIA CORPORATION NEWS AMERICA HOLDINGS
INCORPORATED
By: By:
--------------- --------------------------
Its: Its:
-------------- -------------------------
FOX REGIONAL SPORTS HOLDINGS, LMC NEWCO U.S., INC.
INC.
By: By:
-------------------------- --------------------------
Its: Its:
------------------------- -------------------------
LIBERTY/FOX SPORTS FINANCING
LLC
By: LMC NEWCO U.S., INC., a member
By:
--------------------------
Its:
-------------------------
By: NEWS AMERICA HOLDINGS
INCORPORATED, a member
By:
--------------------------
Its:
-------------------------
21
<PAGE>
EXHIBIT 10.2
EXECUTION VERSION
OPERATING AGREEMENT
OF
FOX SPORTS RPP HOLDINGS, LLC
JUNE 20, 1997
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF THE
OWNERSHIP INTERESTS IS ALSO RESTRICTED BY PROVISIONS OF THIS AGREEMENT AND
RELATED AGREEMENTS.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1: FORMATION AND DEFINITIONS......................... 1
1.1 Formation.................................... 1
---------
1.2 Name......................................... 1
----
1.3 Initial Members and Ownership Interests...... 1
---------------------------------------
1.4 Office and Agent............................. 1
----------------
1.5 Foreign Qualification........................ 1
---------------------
1.6 Term......................................... 2
----
1.7 Definitions.................................. 2
-----------
ARTICLE 2: PURPOSES AND POWERS............................... 9
2.1 Principal Purpose............................ 9
-----------------
2.2 Other Purposes............................... 9
--------------
2.3 Powers....................................... 9
------
ARTICLE 3: CAPITAL OF THE COMPANY............................ 9
3.1 Initial Contributions........................ 9
---------------------
3.2 Additional Contributions..................... 9
------------------------
3.3 Capital Accounts............................. 9
----------------
3.4 Transfer..................................... 10
--------
3.5 Adjustments.................................. 10
-----------
3.6 Market Value Adjustments..................... 10
------------------------
3.7 No Withdrawal of Capital..................... 11
------------------------
3.8 No Interest on Capital....................... 11
----------------------
3.9 No Drawing Accounts.......................... 11
-------------------
3.10 No Salary................................... 11
---------
ARTICLE 4: PROFITS AND LOSSES................................. 14
4.1 Determination................................ 14
------------
4.2 Allocation of Profits and Losses Generally... 14
-----------------------------------------
4.3 Nonrecourse Deductions....................... 15
----------------------
4.4 Minimum Gain Chargeback...................... 15
----------------------
4.5 Gain Chargeback.............................. 16
--------------
4.6 Tax Allocations.............................. 16
--------------
4.7 Qualified Income Offset...................... 16
----------------------
4.8 Limit on Loss Allocations.................... 16
------------------------
4.9 (S) 754 Adjustments.......................... 16
------------------
4.10 Contributed Property........................ 16
--------------------
4.11 Tax Credits................................. 17
-----------
4.12 Allocation on Transfer...................... 17
---------------------
4.13 Tier Partnerships........................... 18
-----------------
i
<PAGE>
ARTICLE 5: DISTRIBUTIONS.................................... 18
5.1 Distributions Generally..................... 18
-----------------------
5.2 Payment..................................... 18
-------
5.3 Withholding................................. 18
-----------
5.4 Distribution Limitation..................... 18
-----------------------
ARTICLE 6: MANAGEMENT....................................... 19
6.1 Management.................................. 19
----------
6.2 Actions Requiring a Unanimous Vote.......... 19
----------------------------------
6.3 Other Matters............................... 21
-------------
6.4 Member Representatives...................... 21
----------------------
6.5 No Dissolution, Resignation or Retirement... 21
-----------------------------------------
6.6 Officers.................................... 22
--------
6.7 Budgets..................................... 22
-------
6.8 Management Conduct.......................... 22
-----------------
6.9 Unauthorized Actions........................ 23
--------------------
ARTICLE 7: MEETINGS OF MEMBERS............................ 23
7.1 Meetings.................................... 23
--------
7.2 Place....................................... 23
-----
7.3 Notice...................................... 23
------
7.4 Waiver of Notice............................ 23
----------------
7.5 Record Date................................. 24
-----------
7.6 Quorum...................................... 24
------
7.7 Manner of Acting............................ 24
----------------
7.8 Proxies..................................... 24
-------
7.9 Meetings by Telephone....................... 24
---------------------
7.10 Action Without a Meeting................... 24
------------------------
ARTICLE 8: LIABILITY OF A MEMBER............................ 25
8.1 Limited Liability........................... 25
-----------------
8.2 Capital Contribution........................ 25
--------------------
8.3 Capital Return.............................. 25
--------------
8.4 Reliance.................................... 25
--------
ARTICLE 9: INDEMNIFICATION.................................. 25
9.1 General..................................... 25
-------
9.2 Exception................................... 26
---------
9.3 Expense Advancement......................... 26
-------------------
9.4 Insurance................................... 26
---------
9.5 Indemnification of Others................... 26
-------------------------
ii
<PAGE>
ARTICLE 10: ACCOUNTING AND REPORTING........................ 26
10.1 Fiscal Year............................... 26
-----------
10.2 Accounting Method......................... 26
-----------------
10.3 Tax Elections............................. 27
-------------
10.4 Returns................................... 27
-------
10.5 Financial Reports......................... 27
-----------------
10.6 Annual Audit.............................. 27
-------------
10.7 Books and Records......................... 28
-----------------
10.8 Information............................... 28
-----------
10.9 Banking................................... 29
-------
10.10 Tax Matters Partner....................... 29
-------------------
10.11 No Partnership............................ 30
--------------
ARTICLE 11: DISSOLUTION.................................... 30
11.1 Dissolution............................... 30
-----------
11.2 Exclusive Means of Dissolution............ 30
------------------------------
ARTICLE 12: LIQUIDATION..................................... 30
12.1 Liquidation............................... 30
-----------
12.2 Tax Termination........................... 31
---------------
12.3 Priority of Payment....................... 31
-------------------
12.4 Liquidating Distributions................. 32
-------------------------
12.5 No Restoration Obligation................. 32
-------------------------
12.6 Timing.................................... 32
------
12.7 Liquidating Reports....................... 32
-------------------
12.8 Certificate of Cancellation............... 33
---------------------------
ARTICLE 13: TRANSFER RESTRICTIONS........................... 33
13.1 General Restriction....................... 33
-------------------
13.2 No Member Rights.......................... 33
----------------
13.3 Permitted Transfers....................... 33
-------------------
13.4 General Conditions on Transfers........... 33
-------------------------------
13.5 Rights of Transferees..................... 35
---------------------
13.6 Admission................................. 35
---------
13.7 Security Interest......................... 35
-----------------
ARTICLE 14: GENERAL PROVISIONS............................... 36
14.1 Amendment................................. 36
----------
14.2 Representations........................... 36
---------------
14.3 Unregistered Interests.................... 37
----------------------
14.4 Waiver of Dissolution Rights.............. 37
----------------------------
14.5 Waiver of Partition Right................. 37
-------------------------
14.6 Waivers Generally......................... 37
-----------------
iii
<PAGE>
14.7 Equitable Relief.......................... 38
----------------
14.8 Remedies for Breach....................... 38
-------------------
14.9 Costs..................................... 38
-----
14.10 Indemnification........................... 38
---------------
14.11 Counterparts.............................. 38
------------
14.12 Notice.................................... 38
------
14.13 Deemed Notice............................. 38
-------------
14.14 Partial Invalidity........................ 39
------------------
14.15 Entire Agreement.......................... 39
----------------
14.16 Benefit................................... 39
-------
14.17 Binding Effect............................ 39
--------------
14.18 Further Assurances........................ 39
------------------
14.19 Headings.................................. 39
--------
14.20 Terms..................................... 39
-----
14.21 Governing Law; Forum...................... 39
--------------------
iv
<PAGE>
OPERATING AGREEMENT
OF
FOX SPORTS RPP HOLDINGS, LLC
This OPERATING AGREEMENT is made as of the 20th day of June, 1997 by and among
FOX/LIBERTY NETWORKS, LLC, a Delaware limited liability company, LIBERTY SPORTS
MEMBER, INC., a Delaware corporation, and FOX REGIONAL SPORTS MEMBER, INC., a
Delaware corporation, such parties being all the Members of FOX SPORTS RPP
HOLDINGS, LLC, a Delaware limited liability company.
In consideration of the mutual promises and covenants contained in this
Agreement and intending to be legally bound, the parties agree as follows:
ARTICLE 1: FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on June 20, 1997 by filing a
---------
Certificate of Formation with the Delaware Secretary of State pursuant to the
Act and on behalf of the initial Members of the Company.
1.2 NAME. The name of the Company is FOX SPORTS RPP HOLDINGS, LLC. The
----
business of the Company will be conducted under such name, as well as any other
name or names as the Company may from time to time determine.
1.3 INITIAL MEMBERS AND OWNERSHIP INTERESTS. The name and address of each
---------------------------------------
initial Member and its initial Ownership Interest are set forth in Schedule 1.3.
1.4 OFFICE AND AGENT.
----------------
[a] The initial registered office of the Company in Delaware will be at 1013
Centre Road, Wilmington, Delaware 19805-1297, and its initial registered
agent will be Corporation Service Company. The Company may change its
registered office or registered agent in Delaware in accordance with the
Act.
[b] The initial principal office of the Company will be at 1300 North Market
Street, Suite 404, Wilmington, DE 19801. The Company may change its
principal office upon the unanimous Vote of the Members.
1.5 FOREIGN QUALIFICATION. Promptly after the execution of this Agreement,
---------------------
the Company will apply for any required certificate of authority to do business
in any other
<PAGE>
state or jurisdiction, as required or appropriate. The Company will file such
other certificates and instruments as may be necessary or desirable in
connection with its formation, existence and operation.
1.6 TERM. The Company will be effective from the date of filing of its
----
Certificate of Formation with the Delaware Secretary of State and will continue
until its termination pursuant to 12.9.
1.7 DEFINITIONS. The following terms, when used in this Agreement, have the
-----------
meanings set forth below:
Act: the Delaware Limited Liability Company Act, as amended
from time to time.
Additional Contribution: a capital contribution (other than the Initial
Contribution) that a Member makes to the Company, as
described in 3.2.
Adjusted Capital Account
Deficit: as to any Member, the deficit balance (if any) in such
Member's Capital Account as of the end of the Fiscal
Year, after [a] crediting to such Capital Account any
amount that such Member is obligated to restore
pursuant to this Agreement or is deemed obligated to
restore pursuant to the minimum gain chargeback
provisions of the (S) 704(b) Regulations and [b]
charging to such Capital Account any adjustments,
allocations or distributions described in the
qualified income offset provisions of the (S) 704(b)
Regulations that are required to be charged to such
Capital Account pursuant to this Agreement.
Affiliate: with respect to any Person, any Person that directly
or indirectly Controls, is Controlled by, or is under
common Control with such Person. For purposes of this
definition, Twentieth Holdings Corporation and its
subsidiaries will be deemed to be Affiliates of Fox,
Inc., a Colorado corporation, and of The News
Corporation Limited, a South Australia corporation.
2
<PAGE>
Agreement: this Operating Agreement, also known as a limited
liability company agreement under the Act, as amended
from time to time.
Agreement Regarding
Ownership Interests: the Agreement Regarding Ownership Interests dated as
of April 29, 1996 among Liberty Media Corporation,
News America Holdings Incorporated, LMC Newco U.S.,
Inc., Fox Regional Sports Holdings, Inc., and
Liberty/Fox Sports Financing LLC, as amended from time
to time.
Available Cash: for any Fiscal Year or other period, net income (or
loss) of the Company determined in accordance with
GAAP, adjusted, without duplication, by adding [a]
depreciation, amortization and other non-cash charges
to the extent deducted in determining net income and
deducting [b] [i] the current portion of indebtedness
of the Company, [ii] payments required to be paid by
the Company within one year after the date of
calculation, [iii] prepaid expenses and other cash
expenditures to the extent not deducted in determining
net income or loss and [iv] reasonable reserves for
working capital and contingent liabilities as
determined by the unanimous Vote of the Members .
Bankruptcy: of a Member will be deemed to have occurred upon the
happening of any of the following:
[a] the making by such Member of a general assignment
for the benefit of creditors;
[b] the filing by such Member of a voluntary petition
in bankruptcy;
[c] the adjudication of such Member as bankrupt or
insolvent, or the entry of an order, judgment or
decree by any court of competent jurisdiction,
granting relief against such Member in any bankruptcy
or insolvency proceeding;
3
<PAGE>
[d] the filing by such Member of a petition or answer
seeking for such Member any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law
or regulation;
[e] the filing by such Member of an answer or other
pleading admitting or failing to contest the material
allegations of a petition filed against such Member in
any proceeding for reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar proceeding under any statute, law or
regulation;
[f] the valid appointment, with the consent of such
Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest; or
[g] the valid appointment, without the consent of such
Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest, if such
appointment is not vacated or stayed within 90 days
after such appointment or, if stayed, such appointment
is not vacated within 90 days after such stay.
Business Day: any day other than Saturday, Sunday or a day on which
banking institutions in Denver, Colorado, New York,
New York or Los Angeles, California are required or
authorized to be closed.
Capital Account: the capital account of a Member established and
maintained in accordance with 3.3.
Capital Contribution: any contribution of money or property by a Member to
the Company which is either an Initial Contribution or
an Additional Contribution.
4
<PAGE>
Certificate: the Certificate of Formation of the Company, as
amended from time to time.
Code: the Internal Revenue Code of 1986, as amended from
time to time (including corresponding provisions of
subsequent revenue laws).
Company: the limited liability company formed under the
Certificate and governed by this Agreement.
Company Business: the business of the Company as described in 2.1 and
any other business approved by the Members from time
to time for inclusion in the definition of Company
Business.
Control: the possession, direct or indirect, of the power to
direct or cause the direction of the management and
policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
Dissolution: the happening of any of the events described in 11.1.
Distribution: the amount of any money or the Fair Market Value of
any property distributed by the Company to a Member as
an operating or liquidating distribution in accordance
with this Agreement, reduced by the amount of any
Company liabilities assumed by the distributee or to
which the distributed property is subject.
Fair Market Value: the cash price at which a willing seller would sell
and a willing buyer would buy, both having full
knowledge of the relevant facts and being under no
compulsion to buy or sell, in an arm's-length
transaction without time constraints.
Fiscal Year: the fiscal and taxable year of the Company, including
both 12-month and short fiscal or taxable years; until
changed as provided in this Agreement, each Fiscal
Year will begin on January 1 of each year and end on
December 31
5
<PAGE>
of such year provided that the first Fiscal Year will
begin on June 20, 1997 and the last Fiscal Year will
end on the date on which Liquidation of the Company
occurs.
Fox Member: Fox Regional Sports Member, Inc. and any successor to
or Transferee of Fox Regional Sports Member, Inc. or
another Fox Member which is admitted as a Member
pursuant to Article 13.
Funding Cure Period: as defined in 3.11[c].
Funding Members: as defined in 3.11[a].
GAAP: generally accepted accounting principles as in effect
from time to time in the United States of America.
Initial Contribution: the initial capital contribution made by a Member to
the Company, as described in Schedule 3.1.
Lien: a mortgage, lien, pledge, security interest or other
encumbrance.
Liquidation: the process of winding up and terminating the Company
after its Dissolution.
LMC Member: Liberty Sports Member, Inc. and any successor to or
Transferee of Liberty Sports Member, Inc. or another
LMC Member which is admitted as a Member pursuant to
Article 13.
Losses: as defined in 4.1.
Member: an initial member of the Company as listed in Schedule
1.3 and any other Person subsequently admitted to the
Company as an additional or substitute member in
accordance with this Agreement.
New Members: as defined in 11.4.
6
<PAGE>
Notice: written notice actually delivered or deemed delivered
under 14.13.
Ownership Interest: with respect to each Person owning an interest in the
Company, all the interests of such Person in the
Company (including an interest in the Profits and
Losses of the Company, a Capital Account interest and
all other rights and obligations of such Person under
this Agreement) expressed as a percentage, as
initially set forth in Schedule 1.3 and as
subsequently adjusted from time to time in accordance
with this Agreement.
Parent LLC: Fox/Liberty Networks, LLC, a Delaware limited
liability company.
Parent Member: Parent LLC and any successor to or Transferee of
Parent LLC or another Parent Member which is admitted
as a Member pursuant to Article 13.
Parent Operating
Agreement: the operating agreement dated as of April 29, 1996, as
amended from time to time, governing the Parent LLC.
Permitted Transfer: a Transfer described in 13.3.
Person: a human being or a corporation, partnership, limited
liability company, trust, unincorporated organization,
association or other entity.
Pre-Dilution Fair Market
Value: as defined in 3.11[a].
Prime Rate: the annual rate from time to time publicly announced
by The Bank of New York in New York, New York, as its
prime rate, adjusted as of the day of any change (or
if lower, the maximum rate permitted by law).
Proceeding: any threatened, pending, ongoing, or completed action,
suit or proceeding, whether formal or informal, and
whether civil, administrative, investigative or
criminal.
7
<PAGE>
Profits: as defined in 4.1.
Regulations: the Treasury Regulations (including temporary or
proposed regulations) promulgated under the Code, as
amended from time to time (including corresponding
provisions of succeeding regulations).
Representative: as defined in 6.4.
Service: a programming service offered by the Company.
Tax Matters Partner: as defined in 10.10.
Total Divisional
Interest: the percentage interest determined by [i]
multiplying the aggregate ownership interest
(expressed as a decimal) of a Member and its
Affiliates in Financing LLC by Financing LLC's
ownership interest in Parent LLC, [ii] adding that
product to the aggregate ownership interest of such
Member and its Affiliates in Parent LLC, [iii]
multiplying that sum by Parent LLC's Ownership
Interest (expressed as a decimal) in the Company, and
[iv] adding that product to any Ownership Interests in
the Company held directly by such Member and its
Affiliates.
Transfer: a sale, exchange, assignment, transfer or other
disposition of all or any part of an Ownership
Interest (whether voluntary, involuntary or by
operation of law).
Transferee: a Person to whom an Ownership Interest is Transferred
in compliance with this Agreement, who will have the
rights specified in 13.5 of this Agreement.
Transferor: a Person who Transfers all or any part of an Ownership
Interest in compliance with this Agreement.
Vote: the action of the Company by the Members in accordance
with the voting requirements set
8
<PAGE>
forth in Article 6, either in meeting assembled or by
written consent without a meeting.
ARTICLE 2: PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSE. Subject to the provisions of this Agreement, the
-----------------
business and principal purpose of the Company is [a] to acquire and own an
interest in Regional Programming Partners, a New York general partnership, and
to act as a general partner in such partnership, and [b] to do any and all other
acts or things which may be incidental or necessary to carry on the Company
Business as contemplated by this Agreement.
2.2 OTHER PURPOSES. The Company may engage in activities related or
--------------
incidental to its principal purpose, as well as any other business or investment
activity as may be approved by the affirmative Vote of all Members. However, as
provided in the Act, the Company may not engage in the business of granting
policies of insurance, assuming insurance risks, issuing debt instruments for
circulation as money or receiving deposits of money.
2.3 POWERS. The Company has all the powers granted to a limited liability
------
company under the Act, as well as all powers necessary or convenient to achieve
its purposes and to further its business.
ARTICLE 3: CAPITAL OF THE COMPANY
3.1 INITIAL CONTRIBUTIONS. Contemporaneously with the execution of this
---------------------
Agreement, each Member will contribute or cause to be contributed to the Company
the assets set forth opposite its name in Schedule 3.1. The Fair Market Value
of such contribution as specified in Schedule 3.1 will be credited to the
applicable Member's Capital Account and such Fair Market Value will be deemed to
be the amount of such Member's Initial Capital Contribution.
3.2 ADDITIONAL CONTRIBUTIONS. Except as required by law, no Additional
------------------------
Contributions will be required or permitted to be made by any Member except upon
the affirmative Vote of all Members.
3.3 CAPITAL ACCOUNTS. A Capital Account will be maintained for each Member
----------------
and credited, charged and otherwise adjusted as required by (S) 704(b) of the
Code and the (S) 704(b) Regulations. Each Member's Capital Account will be:
9
<PAGE>
[a] Credited with [i] the amount of money contributed by the Member as an
Initial Contribution or an Additional Contribution, [ii] the Fair Market
Value of assets contributed by the Member as an Initial Contribution or
Additional Contribution (net of liabilities that the Company assumes or
takes subject to), [iii] the Member's allocable share of Profits and [iv]
all other items properly credited to such Capital Account as required by
the (S) 704(b) Regulations;
[b] Charged with [i] the amount of money distributed to the Member by the
Company, [ii] the Fair Market Value of assets distributed to the Member by
the Company (net of liabilities that the Member assumes or takes subject
to), [iii] the Member's allocable share of Losses and [iv] all other items
properly charged to such Capital Account as required by the (S) 704(b)
Regulations; and
[c] Otherwise adjusted as required by the (S) 704(b) Regulations.
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with the
provisions of Article 4 as though such asset had been sold for its Fair Market
Value on the date of Distribution and the Members' Capital Accounts will be
adjusted to reflect both the deemed realization of such appreciation or
depreciation and the Distribution of such property.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with the
(S) 704(b) Regulations and will be interpreted and applied in a manner
consistent with such Regulations and any amendment or successor provision
thereto. The Members will cause appropriate modifications to be made if
unanticipated events might otherwise cause this Agreement not to comply with the
(S) 704(b) Regulations, so long as such modifications do not cause a material
change in the relative economic benefits of the Members under this Agreement.
3.4 TRANSFER. If all or any part of an Ownership Interest is Transferred in
--------
accordance with this Agreement, the Capital Account of the Transferor that is
attributable to the Transferred Ownership Interest will carry over to the
Transferee.
3.5 ADJUSTMENTS. The Members intend to comply with the (S) 704(b)
-----------
Regulations in all respects, and the Capital Accounts of the Members will be
adjusted to the full extent that the (S) 704(b) Regulations may apply (including
applying the concepts of qualified income offsets and minimum gain chargebacks).
3.6 MARKET VALUE ADJUSTMENTS. Appropriate Capital Account adjustments will
------------------------
be made upon any Transfer of an Ownership Interest, including those that apply
upon the constructive Liquidation of the Company under (S) 708(b) of the Code,
all in accordance with the (S) 704(b) Regulations. Similarly, if optional basis
adjustments are made under
10
<PAGE>
(S) 734 or (S) 743 of the Code, appropriate Capital Account adjustments will be
made as required by the (S) 704(b) Regulations.
3.7 NO WITHDRAWAL OF CAPITAL. Except as specifically provided in this
------------------------
Agreement, no Member will be entitled to withdraw all or any part of its Capital
Contribution from the Company prior to the Company's Dissolution and Liquidation
or, when such withdrawal of capital is permitted, to demand a Distribution of
property other than money or as otherwise provided in this Agreement.
3.8 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest
----------------------
on such Person's Capital Account or Capital Contribution.
3.9 NO DRAWING ACCOUNTS. The Company will not maintain a drawing account
-------------------
for any Member. All Distributions to Members will be governed by Article 5
(relating to Distributions not in Liquidation of the Company) and by Article 12
(relating to Distributions in Liquidation of the Company).
3.10 NO SALARY. Except upon the affirmative Vote of all Members, no Member
---------
or Affiliate will be entitled to any salary or other form of compensation paid
by the Company for services rendered to the Company. The foregoing prohibition
will not apply to a Member's allocation of any Profits pursuant to Article 4 or
receipt of any Distribution contemplated by this Agreement pursuant to Article 5
or Article 12.
3.11 FUNDING OF ADDITIONAL CONTRIBUTIONS.
------------------------------------
[a] Unless otherwise agreed by the Members, all Additional Contributions
approved by the Members will be made by the Fox Member and the LMC
Member (the "Funding Members") in proportion to their relative Ownership
Interests. In the event that the Funding Members make Additional
Contributions in proportion to their Ownership Interests, then a
determination of the Fair Market Value of the Company (taking into
account all indebtedness of the Company but excluding the Additional
Contributions made by the Funding Members) ("Pre-Dilution Fair Market
Value") will be made. Each Funding Member's Ownership Interest in the
Company will be increased to the percentage obtained by dividing [i] the
sum of [A] the Additional Contribution made by such Funding Member, plus
[B] the product of the Pre-Dilution Fair Market Value of the Company and
the Ownership Interest in the Company of such Funding Member (prior to
adjustment under this sentence), by [ii] the sum of [A] the Additional
Contributions made by all Funding Members, plus [B] the Pre-Dilution
Fair Market Value of the Company. The Ownership Interest of each Member
that is not a Funding Member will be reduced by an amount equal to the
total increase in the Ownership Interests of the Funding Members
multiplied by the ratio of
11
<PAGE>
such non-Funding Member's Ownership Interest to the aggregate Ownership
Interests of all non-Funding Members (prior to adjustment under this
sentence).
[b] If the Members unanimously approve Additional Contributions (including
Additional Contributions approved as part of the approved budget under
which the Company is then operating), but a Funding Member does not
contribute its share of such Additional Contributions, the other Funding
Member, at its option, may make a loan in the amount of the deficiency to
Parent LLC to enable Parent LLC to make a loan in the amount of the
deficiency to the Company. Such loan to Parent LLC will bear simple
interest at the Prime Rate, will be payable only from available cash of
Parent LLC, and will be prepayable in whole or in part without penalty.
Such loan to the Company will be on the same terms as such loan to Parent
LLC. Such loan to the Company will be repaid in full from Available Cash
of the Company before any Distribution is made by the Company to its
Members, and such loan to the Parent LLC will be repaid from available cash
of the Parent LLC before any distribution is made by the Parent LLC to its
members. All such loans to the Company will be due and payable at the
closing of a transaction pursuant to Section 2.2, 2.3, 2.4, or 2.5 of the
Agreement Regarding Ownership Interests whereby the lender and its
Affiliates sell all their interests in the Company.
[c] If a loan is made to the Parent LLC as described in [b] above, the
defaulting Funding Member will have six months (the "Funding Cure Period")
after the date such Additional Contributions were due within which to pay
to the nondefaulting Funding Member the amount equal to all unpaid
principal of and interest on such loan, in exchange for all the
nondefaulting Funding Member's rights to repayment of such loan, which the
nondefaulting Funding Member immediately will forgive and, upon such
repayment, the loan from the Parent LLC to the Company will also be
forgiven and the defaulting Funding Member will be deemed to have made an
Additional Contribution to the Company equal to the principal amount of the
loan.
[d] If no such loan was made by the nondefaulting Funding Member, the
defaulting Funding Member must within the Funding Cure Period fulfill its
obligation to make its share of the Additional Contributions. If either a
Funding Member defaults in its obligation to make Additional Contributions
and such default continues uncured after expiration of the Funding Cure
Period, or a loan made by the nondefaulting Funding Member remains
outstanding after the Funding Cure Period, the Total Divisional Interest of
the nondefaulting Funding Member and its Affiliates in the Company will be
increased such that the Total Divisional Interest of the nondefaulting
Member and its Affiliates equals the percentage obtained by dividing [i]
the sum of [A] the Additional Contribution made by the nondefaulting
Funding Member, plus [B] the product of the Pre-Dilution Fair
12
<PAGE>
Market Value of the Company and the Total Divisional Interest of the
Funding Member (prior to adjustment under this sentence), by [ii] the sum
of [A] the Additional Contribution made by the nondefaulting Funding
Member, plus [B] the Pre-Dilution Fair Market Value of the Company. The
Total Divisional Interest of the defaulting Funding Member and its
Affiliates will be reduced by the amount of the increase in the Total
Divisional Interest of the nondefaulting Funding Member and its Affiliates.
The adjustment described in this 3.11[d] will be made by increasing the
Funding Member's Ownership Interest and decreasing the Ownership Interests
of the other Members in proportion to their relative Ownership Interests.
For example, if [i] the Total Divisional Interest of each Funding Member
and its Affiliates in the Company is 50%, [ii] the Pre-Dilution Fair Market
Value of the Company is $400,000,000, and [iii] a nondefaulting Funding
Member makes an Additional Contribution of $20,000,000, the Total
Divisional Interest of the nondefaulting Funding Member and its Affiliates
in the Company will be increased to 52.38%, calculated as follows:
$20,000,000 + ($400,000,000 x 50%) = 52.38%
----------------------------------
$20,000,000 + $400,000,000
and the Total Divisional Interest of the defaulting Funding Member and its
Affiliates in the Company will be decreased to 47.62%.
[e] If, and for so long as, the Total Divisional Interest of a Funding Member
and its Affiliates is less than 40% but more than 25% as a result of one or
more defaults in meeting its obligation to make Additional Contributions,
that Funding Member and its Affiliates will cease to have the right to Vote
on the actions described in subsections [b], [c] and [d] of 6.2 with
respect to the Company and any Business Company in which the Company owns
an interest.
[f] The Total Divisional Interest of a Funding Member and its Affiliates in the
Company will not be reduced to less than 25% as a result of the application
of the foregoing provisions of this 3.11. If, but for the provisions of
the foregoing sentence, the Total Divisional Interest of a Funding Member
and its Affiliates in the Company would be reduced to 25% or less, the
ownership interest of such Funding Member and its Affiliates in the Company
will be adjusted such that the Total Divisional Interest of such Funding
Member and its Affiliates will be 25% and will be converted into a non-
voting interest, subject only to the right to Vote with respect to an
amendment of this Agreement, Dissolution and Liquidation of the Company,
and as otherwise may be required by law.
[g] No Member will be subject to any claim by the Company or any other Member
for failure to make any Additional Contributions, it being agreed that
reduction
13
<PAGE>
of the Total Divisional Interest of a Funding Member and its Affiliates in
the Company as provided in this 3.11 will be the exclusive remedy for such
failure.
[h] Notwithstanding the foregoing provisions of this 3.11, the Members may
agree that, in lieu of the Members making Additional Contributions, one or
more Members will lend money to the Company (other than a loan pursuant to
3.11[b]), on terms agreed by the Members, to fund the operations of the
Company. Any such loan will not be treated as an Additional Contribution
to the Company, and the provisions of 3.11[a] through [f] will not apply to
the making or repayment of such loan.
ARTICLE 4: PROFITS AND LOSSES
4.1 DETERMINATION. The terms "Profits" and "Losses" mean, respectively,
-------------
the net profits and losses of the Company determined for each Fiscal Year in
accordance with the method of accounting adopted by the Company for federal
income tax purposes, except that such net profit or loss will be determined [a]
by including as an item of income any income that is exempt from taxation, [b]
by deducting as an expense any expenditure of the Company not deductible in
computing its taxable income and not properly chargeable to any Capital Account,
or deemed not deductible in computing its taxable income and not properly
chargeable to any Capital Account in accordance with the (S) 704(b) Regulations
and [c] by calculating the gain, loss, depreciation and amortization on property
which is reflected in the Capital Accounts at a book basis different from the
basis of such property for federal income tax purposes based on the book basis
of such property in accordance with the (S) 704(b) Regulations. Any allocation
of Profits or Losses will be considered a pro rata allocation of each item
entering into the computation of Profits and Losses.
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY. Except as provided in 4.3
------------------------------------------
through 4.12, Profits or Losses, as the case may be, for each Fiscal Year will
be allocated to the Members as follows:
[a] Profits will be allocated:
[i] first, as to Profits allocated subsequent to the Preferred
Allocation Date (as defined in the Parent Operating Agreement), 99%
to the Parent Member, 0.5% to the LMC Member, and 0.5% to the Fox
Member until the allocation required under 4.2[a][i] of the Parent
Operating Agreement has been completed;
[ii] second, as to Profits allocated in any Fiscal Year, to the Members
to the extent of, and in proportion to, Losses previously allocated
to such
14
<PAGE>
Members pursuant to 4.2[b][iii]. To the extent that a prior allocation of
Losses has been offset by a prior allocation of Profits pursuant to this
4.2[a][ii], Profits will not be further allocated under this 4.2[a][ii] to
offset such Losses; and
[iii] thereafter, as to Profits allocated in any Fiscal Year, to
the Members in proportion to their Ownership Interests.
[b] Losses will be allocated:
[i] first, as to Losses allocated subsequent to the Preferred
Allocation Date (as defined in the Parent Operating Agreement),
99% to the Parent Member, 0.5% to the LMC Member), and 0.5% to the
Fox Member until the cumulative amount so allocated for all Fiscal
Years equals the cumulative amount of Profits previously allocated
under 4.2[a][i] above;
[ii] second, as to Losses allocated in any Fiscal Year, to the Members
to the extent of, and in proportion to, Profits previously
allocated to such Members pursuant to 4.2[a][iii]. To the extent
that a prior allocation of Profits has been offset by a prior
allocation of Losses pursuant to this 4.2[b][ii], Losses will not
be further allocated under this 4.2[b][ii] to offset such Profits;
and
[iii] thereafter, as to Losses allocated in any Fiscal Year, to
the Members in proportion to their Ownership Interests.
4.3 NONRECOURSE DEDUCTIONS. Losses attributable to any Company nonrecourse
----------------------
liability (for which no Member or related Person (within the meaning of the (S)
752 Regulations) bears the economic risk of loss) will be allocated in the same
manner as Losses are allocated pursuant to 4.2, and Losses of the Company
attributable to any Member nonrecourse liability (which is nonrecourse to the
Company, but for which one or more Members or related Persons bear the economic
risk of loss) will be allocated in accordance with the (S) 704(b) Regulations to
those Members bearing (or who, because of their relationship to Persons who bear
such economic risk of loss, are deemed to bear) the economic risk of loss for
the liability. The allocation of liabilities to a property, the determination
of nonrecourse deductions, the effect of property revaluations and all other
issues affecting the allocation of nonrecourse deductions will be determined in
accordance with the (S) 704(b) Regulations.
4.4 MINIMUM GAIN CHARGEBACK. Notwithstanding the general rule on allocation
-----------------------
of Profits stated in 4.2, if there is a net decrease in Company minimum gain for
any Fiscal Year, each Member will be allocated items of Profits for such year
equal to such Member's share of the net decrease in Company minimum gain. If
there is a net decrease
15
<PAGE>
in Member nonrecourse debt minimum gain for any Fiscal Year, each Member having
a share of such minimum gain will be allocated items of Profits equal to such
Member's share of such net decrease in Company nonrecourse minimum gain. The
determination of net decreases in Company minimum gain and Member nonrecourse
debt minimum gain, allocations of such net decreases, exceptions to minimum gain
chargebacks and all other issues affecting the minimum gain chargeback
requirements will be determined in accordance with the (S) 704(b) Regulations.
4.5 GAIN CHARGEBACK. Notwithstanding the general rule stated in 4.2 but
---------------
subject to the prior application of the minimum gain chargeback rule stated in
4.4, Profits of the Company incident to Dissolution and Liquidation will be
allocated among the Members in the following order and priority: [a] if any
Members have negative Capital Account balances, to such Members in proportion to
and to the extent of such negative balances until all such negative balances are
eliminated; and [b] the balance to the Members in proportion to their Ownership
Interests.
4.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and
---------------
deduction of the Company for federal income tax purposes for a Fiscal Year will
be allocated, as nearly as is practicable, in accordance with the manner in
which such items are reflected in the allocations of Profits and Losses among
the Members for such Fiscal Year. To the extent possible, principles identical
to those that apply to allocations for federal income tax purposes will apply
for state and local income tax purposes.
4.7 QUALIFIED INCOME OFFSET. Notwithstanding any other provision of this
-----------------------
Agreement to the contrary (except 4.4, which will be applied first), if in any
Fiscal Year or other period a Member unexpectedly receives an adjustment,
allocation or distribution described in the qualified income offset provisions
of the (S) 704(b) Regulations, such Member will be specially allocated items of
income in an amount and manner sufficient to eliminate, to the extent required
by the (S) 704(b) Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible.
4.8 LIMIT ON LOSS ALLOCATIONS. Notwithstanding the provisions of 4.2 or
-------------------------
any other provision of this Agreement to the contrary, Losses (or items thereof)
will not be allocated to a Member if such allocation would cause or increase a
Member's Adjusted Capital Account Deficit and will be reallocated to the other
Members in proportion to their Ownership Interests, subject to the limitations
of this 4.8.
4.9 (S) 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax
-------------------
basis of any Company asset under (S) 734(b) or (S) 743(b) of the Code is
required to be taken into account in determining Capital Accounts under the (S)
704(b) Regulations, the amount of the adjustment to the Capital Accounts will be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis), and the gain or loss will be
specially allocated to the Members in a manner consistent
16
<PAGE>
with the manner in which their Capital Accounts are required to be adjusted
under the (S) 704(b) Regulations.
4.10 CONTRIBUTED PROPERTY. All items of gain, loss and deduction with
--------------------
respect to property that is reflected in the Capital Accounts of the Members at
a basis different from such property's adjusted tax basis will be allocated,
solely for tax purposes, among the Members to take into account the variation
between the adjusted tax basis of the property and the basis reflected in the
Member's Capital Account according to the principles of the (S) 704(c)
Regulations. For example, if there is built-in gain with respect to certain
property at the time of such property's contribution to the Company, upon the
Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the (S) 704(c) Regulations during the period such
property was held by the Company) would be allocated to the contributing Member
(and such pre-contribution gain would not again create a Capital Account
adjustment because the property was credited to Capital Account upon
contribution at its Fair Market Value). Except as limited by the following
sentence, the allocation of tax items with respect to (S) 704(c) property to
Members that do not reflect a basis difference with respect to such property in
their Capital Accounts will, to the extent possible, be equal to the allocation
of the corresponding book items made to such Members with respect to such
property. All tax allocations made under this 4.10 will be made in accordance
with (S) 704(c) of the Code and (S) 1.704-3(b) of the Regulations.
4.11 TAX CREDITS. To the extent that the federal income tax basis of an
-----------
asset is allocated to the Members in accordance with the Regulations promulgated
under (S) 46 of the Code, any tax credit attributable to such tax basis will be
allocated to the Members in the same ratio as such tax basis. With respect to
any other tax credit, to the extent that a Company expenditure gives rise to an
allocation of loss or deduction, any tax credit attributable to such expenditure
will be allocated to the Members in the same ratio as such loss or deduction.
Consistent principles will apply in determining the Members' interests in tax
credits that arise from taxable or non-taxable receipts of the Company. All
allocations of tax credits will be made as of the time such credit arises. Any
recapture of a tax credit will be allocated, to the extent possible, to the
Members in the same manner as the tax credit was allocated to them. Except as
otherwise specifically provided in the (S) 704(b) Regulations (such as the
adjustments required when there is an upward or downward adjustment in the tax
basis of investment credit property), allocations of tax credits and their
recapture will not be reflected by any adjustment to Capital Accounts.
4.12 ALLOCATION ON TRANSFER. If any Ownership Interest is transferred during
----------------------
any Fiscal Year of the Company (whether by liquidation of an Ownership Interest,
Transfer of all or part of an Ownership Interest or otherwise), the books of the
Company will be closed as of the effective date of Transfer. The Profits or
Losses attributed to the period from the first day of such Fiscal Year through
the effective date of Transfer will be
17
<PAGE>
allocated to the Transferor and the Profits or Losses attributed to the period
commencing on the day after the effective date of Transfer will be allocated to
the Transferee. In lieu of an interim closing of the books of the Company and
with the agreement of the Transferor and the Transferee, the Company may
allocate Profits and Losses for such Fiscal Year between the Transferor and the
Transferee based on a daily proration of items for such Fiscal Year or any other
reasonable method of allocation (including an allocation of extraordinary
Company items, as determined by the Company, based on when such items are
recognized for federal income tax purposes).
4.13 TIER PARTNERSHIPS. Rules similar to those stated in this Article will
-----------------
apply to the extent the Company is an owner of an interest in another Person
which is classified as a partnership for federal income tax purposes, all in
accordance with the (S) 704(b) Regulations.
ARTICLE 5: DISTRIBUTIONS
5.1 DISTRIBUTIONS GENERALLY. Except for Distributions incident to the
-----------------------
Company's Dissolution and Liquidation (which will be governed by 12.4), and
except as provided in Section 3.11, Available Cash will be distributed quarterly
to the Members in the following order and priority:
[a] First, 100% to the Parent Member until the distribution required under
5.1[a] of the Parent Operating Agreement has been completed; and
[b] Thereafter, to the Members in accordance with their Ownership Interests.
5.2 PAYMENT. All Distributions will be made to Members owning Ownership
-------
Interests on the date of record, such date being the last day of the calendar
month preceding the date of Distribution, as reflected on the books of the
Company.
5.3 WITHHOLDING. If required by the Code or by state or local law, the
-----------
Company will withhold any required amount from Distributions to a Member for
payment to the appropriate taxing authority. Any amount so withheld from a
Member will be treated as a Distribution by the Company to such Member. Each
Member will timely file any agreement that is required by any taxing authority
in order to avoid any withholding obligation that would otherwise be imposed on
the Company.
5.4 DISTRIBUTION LIMITATION. Notwithstanding any other provision of this
-----------------------
Agreement, the Company will not make any Distribution to the Members if, after
the Distribution, the liabilities of the Company (other than liabilities to
Members on account of their Ownership Interests) would exceed the Fair Market
Value of the Company's assets. With respect to any property subject to a
liability for which the recourse of
18
<PAGE>
creditors is limited to the specific property, such property will be included in
assets only to the extent the property's Fair Market Value exceeds its
associated liability, and such liability will be excluded from the Company's
liabilities.
ARTICLE 6: MANAGEMENT
6.1 MANAGEMENT. Management of the business and affairs of the Company is
----------
reserved to, and vested in, the Members and no manager (as defined in the Act)
will be elected by the Members unless this Agreement is appropriately amended.
Each Member will cause the Company to be managed and operated with the intent to
maximize the cash flow and long-term asset value of the Company. The Members
will exercise their management control by Vote; provided that any Member whose
Ownership Interest has been converted to a limited voting interest pursuant to
3.11[e] will not be entitled to Vote with respect to the actions described in
6.2[b], [c], and [d], and any Member whose Ownership Interest has been converted
to a non-voting interest pursuant to 3.11[f] will be entitled to Vote only with
respect to an amendment of this Agreement, Dissolution and Liquidation of the
Company, and as otherwise required by law. No Member has the authority to act
on behalf of the Company unless authorized by a Vote. Notwithstanding the
foregoing, Persons dealing with the Company are entitled to rely conclusively on
the power and authority of any Member. From time to time, on the request of a
Member authorized to act in accordance with this Agreement, the Company will
confirm to Third Parties that Persons dealing with the Company may rely on
powers and authorities of such Member as set forth in this Agreement.
6.2 ACTIONS REQUIRING A UNANIMOUS VOTE. Subject to any restriction on a
----------------------------------
Member's right to Vote pursuant to 3.11[e] and [f], in addition to those actions
described elsewhere in this Agreement as requiring the Vote of, or approval by,
all the Members, the following actions or decisions by the Company will be made
only by the affirmative unanimous Vote of the Members:
[a] entry into areas of business other than the Company Business;
[b] the approval of each (or any amendment to any previously approved)
three-year business plan or annual operating and capital budget for the
Company; if the Members are unable unanimously to approve an annual
budget for the Company, then, until a new budget is approved, the annual
budget for the Company for the immediately preceding Fiscal Year will
remain in effect, adjusted (without duplication) to reflect the
following increases or decreases: [i] the operation of escalation or de-
escalation provisions in contracts in effect at the time of approval of
the budget solely as a result of the passage of time or due to
operations or undertakings approved in the budget or the occurrence of
events beyond the control of the Company, to the extent such contracts
are still in effect;
19
<PAGE>
[ii] elections made in any prior year under contracts contemplated by the
budget for the prior year regardless of which party to such contracts makes
such election; [iii] the effect of the existence of any multi-year contract
entered into in accordance with a previous budget to the extent not fully
reflected in the prior year's budget; [iv] increases or decreases in
expenses attributable to the annualized effect of employee additions or
reductions during the prior year contemplated by the budget for the prior
year; [v] interest expense attributable to any loans; [vi] increases or
decreases in overhead expenses in an amount equal to the total of overhead
expenses reflected in the budget for the prior year (excluding non-
recurring items) multiplied by the percentage increase or decrease in the
U.S. Department of Labor Bureau of Labor Statistics Consumer Price Index
for all Urban Consumers ("CPI-U") or a successor index for the prior Fiscal
Year (but in no event will such change be more than 10% of the
corresponding items in the prior budget); and [vii] decreases in expenses
attributable to non-recurring items reflected in the prior year's budget;
[c] engaging in any non-budgeted transaction which, when added to all other
non-budgeted transactions during the same Fiscal Year, would cause the
aggregate amount of non-budgeted transactions for such Fiscal Year to
exceed US $50,000;
[d] approval of any programming rights acquisition agreement involving more
than US $25,000 per year or US $75,000 in the aggregate (unless provided
for in the approved budget under which the Company is then operating);
[e] acquiring an interest in or the assets of any business for an
acquisition price of more than US $50,000;
[f] amendment of this Agreement or any other organizational document of the
Company or any Person directly or indirectly controlled by the Company or
in which the Company has an interest directly or indirectly entitling it to
vote on such amendment;
[g] any action relating to the merger, sale, consolidation, reorganization,
dissolution, winding up, liquidation or similar transaction involving all
or any portion of the Company or the Company Business;
[h] incurrence of any debt exceeding US $50,000 (excluding normal trade
debt), or the issuance of any guarantee, or the creation of any Lien,
unless provided for in the approved budget under which the Company is then
operating;
[i] appointment or removal of auditors of the Company, approval or adoption
of accounting principles applicable to the Company, and any change in the
Fiscal Year of the Company;
20
<PAGE>
[j] any decision to require Additional Contributions to the Company (except
pursuant to funding requirements set forth in the approved budget under
which the Company is then operating);
[k] any decision to distribute cash or other assets of the Company, except
any Distribution pursuant to Article 5 or pursuant to Section 2.4 of the
Agreement Regarding Ownership Interests;
[l] the admission of additional Members (except as provided in 13.3) or the
grant by the Company of any right to acquire any interest in the Company or
any stock or equity appreciation or similar right;
[m] any transaction involving the Company, on the one hand, and a Member or
an Affiliate of a Member, on the other (including the provision of
management or other services and charges therefor or allocations of general
and administrative costs by a Member or an Affiliate of a Member to the
Company);
[n] any change in programming direction or philosophy or operating
principles (including budget compliance) of the Company or of any Service
offered by the Company;
[o] appointment or removal of the Tax Matters Partner; or
[p] the decision to advance expenses to a Member pursuant to 9.3 or to
indemnify an officer, employee or agent of the Company pursuant to 9.5;
[q] any employment agreement providing for compensation on termination of
employment other than in accordance with severance policies generally
applicable to employees of the Company.
[r] any agreement by the Company to take any of the foregoing actions.
6.3 OTHER MATTERS. Unless otherwise restricted by a unanimous Vote of the
-------------
Members, any action not requiring a unanimous Vote will be deemed approved by
the Company if such action is taken by an officer of the Company in the ordinary
course of business in a manner consistent with a business plan or budget
approved by the Members.
6.4 MEMBER REPRESENTATIVES. The Fox Member and the LMC Member each will be
----------------------
entitled to designate one individual, and the Parent Member will be entitled to
designate two individuals, to act as such Member's duly authorized
representatives and agents (each a "Representative") for purposes of exercising
such Member's Vote on any matter involving the Company. A Member will designate
its Representatives by Notice
21
<PAGE>
to each other Member and may change any such designation at any time upon
similar Notice.
6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT. No Member will voluntarily
-----------------------------------------
dissolve, resign from or retire from the Company, except by a Permitted Transfer
or following Dissolution and Liquidation of the Company. If any such voluntary
dissolution, resignation or retirement occurs in contravention of this
Agreement, the withdrawing Member will, without further act, become a Transferee
of such Member's Ownership Interest (with the limited rights of a Transferee as
set forth in 13.5). Any Member who dissolves, resigns or retires from the
Company in contravention of this Agreement will be liable to the Company and the
other Members for monetary damages.
6.6 OFFICERS.
--------
[a] The Parent Member will nominate a chief executive officer ("CEO"), chief
financial officer ("CFO") and a chief operating officer ("COO") for the
Company, provided that, at any time when the Ownership Interest of the
Parent Member does not exceed 20%, the Fox Member will have the right to
nominate a CEO, a CFO, and a COO for the Company, subject, in each case, to
the LMC Member's approval, which approval will not unreasonably be
withheld. The CEO will have the authority to select such other officers
(other than a CFO or a COO) as may be necessary or desirable to carry out
the day-to-day management and policies of the Company Business, subject to
the provisions of this Agreement.
[b] The Parent Member will have the right, in its sole discretion, to
terminate the CEO, the CFO, or the COO, provided that, at any time when the
Ownership Interest of the Parent Member does not exceed 20%, each of the
LMC Member and the Fox Member will have the right, in its sole discretion,
to terminate the CEO, the CFO, or the COO. In case of any such
termination, the terminated officer will be required to leave his or her
position within 24 hours after receiving a notice of termination.
[c] Appointment of a Person as an officer or agent of the Company will not,
in itself, create any contract rights. The officers of the Company, acting
in their capacities as such, will be agents acting on behalf of the Company
as principal.
6.7 BUDGETS. The Members will require the appropriate officers and
-------
employees of the Company to prepare and present to the Members annual operating
and capital budgets for the Company at least 90 days in advance of the
beginning of the applicable Fiscal Year. Such budgets will be based upon and
conform to the then-applicable budgets approved by the members of Parent LLC for
the same period.
22
<PAGE>
6.8 MANAGEMENT CONDUCT. The Members each will cause the officers and
------------------
employees of the Company promptly and diligently to perform the duties
contemplated by this Agreement. If a Member willfully fails to perform its
obligation under the foregoing sentence to the material detriment of the other
Members and fails to cure such failure within 30 days after Notice by another
Member, such Member will cease to have voting rights as to the actions described
in 6.2[b] through 6.2[d] and as to any agreement by the Company to take any of
such actions.
6.9 UNAUTHORIZED ACTIONS. If a Member takes any action that is not
--------------------
authorized under this Agreement and, as a consequence of such action, the
Company incurs any liability or obligation to any Person, at the election of any
other Member, the Member taking such unauthorized action will be solely
responsible for the full amount of such liability or obligation and will
indemnify the Company against any claim for satisfaction thereof. Subject to
receipt of an assumption agreement, duly executed by such Member, to the effect
set forth in the foregoing sentence, which assumption agreement is in form and
substance reasonably satisfactory to the other Members, the Company will assign
to such Member all the Company's rights in and to any asset, income or benefit
arising from the incurrence of such liability or obligation (such assignment to
be effected by an assignment duly executed by the Company, which assignment is
in form and substance reasonably satisfactory to such Member). After such
assignment, the Member to which such rights have been assigned may use or
transfer such rights, subject, in any event, to any restriction on the use or
transfer thereof imposed by this Agreement, the Parent Operating Agreement, or
the Parents Agreement.
ARTICLE 7: MEETINGS OF MEMBERS
7.1 MEETINGS.
--------
[a] Regular meetings of the Members will be held quarterly upon at least 10
days' prior Notice by the Member entitled to select the place of the
meeting pursuant to 7.2.
[b] Special meetings of the Members may be called by any Member upon the
giving of at least 10 days' prior Notice by such Member.
7.2 PLACE. The LMC Member and the Fox Member will alternate in selecting
-----
the place for each quarterly meeting of the Members. If no place for a meeting
is designated, or if a special meeting is called, the place of the meeting will
be the Company's principal business office or such other place as the Members
may approve.
7.3 NOTICE. Notice of any meeting will be given to at least one
------
Representative of each Member not less than 10 days or more than 30 days before
the date of the meeting.
23
<PAGE>
Such Notice will state the place, day and hour of the meeting and, in the case
of a special meeting, the purpose for which the meeting is called.
7.4 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice required
----------------
to be given to such Member, whether before or after the time for the meeting
stated in such Notice. Any Member who signs minutes of action (or a written
consent) will be deemed to have waived any required Notice with respect to such
action.
7.5 RECORD DATE. For the purpose of determining Members entitled to Notice
-----------
of or to Vote at any meeting of Members, the date on which Notice of the meeting
is first given will be the record date for the determination of Members. Any
such determination of Members entitled to Vote at any meeting of Members will
apply to any adjournment of a meeting.
7.6 QUORUM. A quorum at any meeting of Members will be deemed to exist if
------
at least one Representative of each Member entitled to Vote is present in person
or by proxy. Any meeting at which a quorum is not present may be adjourned to
another place, day and hour without further Notice.
7.7 MANNER OF ACTING. If a quorum is present at any meeting of the Members,
----------------
the affirmative Vote of Members as set forth in Article 6 will be the act of the
Company. Prompt Notice describing all actions taken at a meeting will be
provided to all Representatives who were at such meeting.
7.8 PROXIES. At any meeting of Members, a Member may Vote in person or by
-------
written proxy given to another Member. A proxy will be valid if signed by any
Representative of the Member or by a duly authorized attorney-in-fact and filed
with the Company before or at the time of the meeting. No proxy will be valid
after three months from the date of its signing unless otherwise provided in the
proxy. Attendance at the meeting by any Representative of the Member giving the
proxy will be deemed to revoke the proxy during the period of attendance.
7.9 MEETINGS BY TELEPHONE. The Members may participate in a meeting by
---------------------
means of conference telephone or similar communications equipment by which all
Representatives participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required Notice.
7.10 ACTION WITHOUT A MEETING. Any action required or permitted to be
------------------------
taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more minutes of action or written consents describing the
action taken, signed by all Representatives of those Members entitled to Vote.
Action so taken will be effective when all Representatives of those Members
entitled to Vote have signed the consent,
24
<PAGE>
unless the consent specifies a later effective date. Prompt Notice describing
all actions taken without a meeting of the Members will be provided to all
Representatives who have not signed the written consent authorizing such
actions.
ARTICLE 8: LIABILITY OF A MEMBER
8.1 LIMITED LIABILITY. Except as otherwise provided in the Act and in 6.9,
-----------------
the debts, obligations and liabilities of the Company (whether arising in
contract, tort or otherwise) will be solely the debts, obligations and
liabilities of the Company, and no Member of the Company (including any Person
who formerly held such status) is liable or will be obligated personally for any
such debt, obligation or liability of the Company solely by reason of such
status. No Representative, individual trustee, officer, director, employee or
agent of any Member will have any personal liability for the performance of any
obligation of such Member under this Agreement.
8.2 CAPITAL CONTRIBUTION. Each Member is liable to the Company for [a] the
--------------------
Initial Contribution agreed to be made under 3.1 and [b] any Capital
Contribution or Distribution that has been wrongfully or erroneously returned or
made to such Person in violation of the Act, the Certificate or this Agreement.
8.3 CAPITAL RETURN. Any Member who has received the return of all or any
--------------
part of such Person's Capital Contribution will have no liability to return such
Distribution to the Company after the expiration of three years from the date of
such Distribution unless Notice of an obligation to return is given to such
Person within such three-year period; provided that if such return of capital
has occurred without violation of the Act, the Certificate or this Agreement,
the three-year obligation to return capital will apply only to the extent
necessary to discharge the Company's liability to its creditors who reasonably
relied on such obligation in extending credit prior to such return of capital.
8.4 RELIANCE. Any Member will be fully protected in relying in good faith
--------
upon the records of the Company and upon such information, opinions, reports or
statements by [a] any of the Company's other Members, employees or committees or
[b] any other Person who has been selected with reasonable care as to matters
such Member reasonably believes are within such other Person's professional or
expert competence. Matters as to which such reliance may be made include the
value and amount of assets, liabilities, Profits and Losses of the Company, as
well as other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be made.
25
<PAGE>
ARTICLE 9: INDEMNIFICATION
9.1 GENERAL. The Company will indemnify each Member from and against any
-------
and all loss, damage, expense (including reasonable fees and expenses of
attorneys and other advisors and any court costs incurred by such Member) or
liability incurred in any Proceeding to which such Member is made a party
because such Person was a Member or acted or failed to act with respect to the
business or affairs of the Company if [a] such Person acted in good faith, [b]
such Person reasonably believed that its conduct in an official capacity was in
the Company's best interests or, if the conduct was not in an official capacity,
that its conduct was at least not opposed to the Company's best interests and
[c] such Person, in the case of any criminal Proceeding, had no reasonable cause
to believe its conduct was unlawful.
9.2 EXCEPTION. Notwithstanding the general rule stated in 9.1, the Company
---------
will not indemnify any Person in connection with [a] any Proceeding by or in
right of the Company in which such Member was adjudged liable to the Company,
[b] in connection with any Proceeding charging improper personal benefit to the
Member (whether or not involving action in an official capacity) in which such
Person was adjudged liable on the basis that personal benefit was improperly
received, or [c] any liability or obligation for which such Person is liable
under 6.9.
9.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses incurred
-------------------
by a Member who is a party to a Proceeding, the Company may provide funds to
such Person in advance of the final disposition of the Proceeding if [a] the
Member furnishes the Company with such Person's written affirmation of a good-
faith belief that it has met the standard of conduct described in 9.1, [b] the
Member agrees in writing to repay the advance (with simple interest at the Prime
Rate) if it is determined that it has not met such standard of conduct and [c]
the Company determines that, based on then known facts, indemnification is
permissible under this Article.
9.4 INSURANCE. The indemnification provisions of this Article do not limit
---------
a Member's right to recover under any insurance policy maintained by the
Company. If, with respect to any loss, damage, expense or liability described
in 9.1, any Member receives an insurance policy indemnification payment which,
together with any indemnification payment made by the Company, exceeds the
amount of such loss, damage, expense or liability, then such Person will
immediately repay such excess to the Company.
9.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company will
-------------------------
indemnify and advance expenses to a Member, the Company may indemnify and
advance expenses to any officer, employee or agent of the Company. In addition,
the Company, in its discretion, may indemnify and advance expenses to any
Company officer, employee or agent to a greater extent than a Member.
26
<PAGE>
ARTICLE 10: ACCOUNTING AND REPORTING
10.1 FISCAL YEAR. For income tax and accounting purposes, the fiscal year
-----------
of the Company will be the Fiscal Year.
10.2 ACCOUNTING METHOD. For income tax and accounting purposes, the
-----------------
Company will use the accrual method of accounting (unless otherwise required by
the Code). The Tax Matters Partner will have the authority to adopt all other
accounting methods for tax purposes.
10.3 TAX ELECTIONS. The Tax Matters Partner will have the authority to
-------------
make such tax elections, and to revoke any such election, as the Tax Matters
Partner may from time to time determine. Notwithstanding the preceding
sentence, following any Transfer (within the meaning of (S) 754 of the Code) of
an Ownership Interest, the Tax Matters Partner will make the election under (S)
754 of the Code upon the timely written request of either the Transferor Member
or the Transferee. In addition, the Tax Matters Partner may make the (S) 754
election if the Tax Matters Partner determines that such election is in the best
interests of the Company or any Member.
10.4 RETURNS. At the expense of the Company, the Tax Matters Partner will
-------
cause the preparation and timely filing of all tax returns required to be filed
by the Company pursuant to the Code, as well as all other tax returns required
in each jurisdiction in which the Company does business.
10.5 FINANCIAL REPORTS. The Members will cause the appropriate officers or
-----------------
employees of the Company, at the expense of the Company, to cause to be prepared
and distributed to the Members such financial statements, budgets, plans and
schedules as are required for the reporting purposes of and/or are from time to
time reasonably requested by the Members.
10.6 ANNUAL AUDIT.
------------
[a] At the request of any Member, for each Fiscal Year in which the
financial statements of the Company are not consolidated with the audited
financial statements of Parent LLC, or if required to satisfy Third Party
reporting requirements, any Member may require that an audit be made by
the Company's accountants at the expense of the Company. The audit will be
conducted in accordance with generally accepted auditing standards, and
will cover all of the assets, properties, liabilities and net worth of the
Company as well as its dealings, transactions and operations during such
Fiscal Year, together with all other matters customarily included in such
accountings and audits or as may be reasonably required by the Members As
to any Member whose fiscal year does
27
<PAGE>
not coincide with the Fiscal Year of the Company, the Company will bear the
cost of [i] any review that is required to be conducted by such Member's
independent auditor for the purpose of permitting such independent auditor
to rely on any audit opinion issued by the Company's independent auditor
for the Fiscal Year ended within the fiscal year of the Member and [ii] if
applicable, any review that is required to permit such Member to comply
with Regulation S-X of the Securities Act of 1934, as amended, such cost
not to exceed a reasonable amount.
[b] At the expense of the Company, within 60 days after the end of each
Fiscal Year for which an audit is done pursuant to 10.6[a], the Company
will furnish the Members with audited financial statements prepared by the
Company's accountants on an accrual basis in accordance with GAAP
consistently applied which will contain a balance sheet as of the end of
the Fiscal Year, statements of income, changes in the Capital Accounts and
cash flow for the Fiscal Year then ended. The timing of the annual audit
of each Fiscal Year will be such that the Company's accountants are in a
position to render a conclusion as to the probable fairness of presentation
of the financial statements of the Company for such Fiscal Year (which will
have been furnished pursuant to the foregoing provisions of this 10.6) by
the 60th day following the close of the Fiscal Year.
10.7 BOOKS AND RECORDS.
-----------------
[a] The following books and records of the Company will be kept at its
principal office: [i] a current list of the full name and last known
business, residence or mailing address of each Member; [ii] originals of
the Certificate and of this Agreement, as amended (as well as any signed
powers of attorney pursuant to which any such document was executed); [iii]
a copy of the Company's federal, state and local income tax returns and
reports and annual financial statements of the Company, for the six most
recent years; and [iv] minutes, or minutes of action or written consent, of
every meeting of Members of the Company.
[b] At the Company's expense, there will be kept at the Company's principal
office separate books of account for the Company Business which will be a
true and accurate record of all costs and expenses incurred, all credits
made and received and all income derived in connection with the operation
of the Company Business in accordance with GAAP consistently applied.
[c] Each Member, at its sole expense, will have the right, at any time
without notice to the other, to examine, copy and audit the Company's books
and records during normal business hours.
28
<PAGE>
10.8 INFORMATION.
-----------
[a] Each Member has the right, from time to time and upon reasonable demand
for any purpose reasonably related to such Person's interest as a Member of
the Company, to obtain from the Company: [i] a current list of the full
name and last known business, residence or mailing address of each Member;
[ii] a copy of the Certificate and of this Agreement, as amended (as well
as any signed powers of attorney pursuant to which any such document was
executed); [iii] a copy of the Company's federal, state and local income
tax returns and reports and annual financial statements of the Company, for
the six most recent years; [iv] minutes, or minutes of action or written
consent, of every meeting of the Members of the Company; [v] true and full
information regarding the amount of money and a description and statement
of the agreed value of any other property or services contributed or to be
contributed by each Member, and the date on which each became a Member;
[vi] true and full information regarding the status of the business and
financial condition of the Company; and [vii] other information regarding
the affairs of the Company as reasonably may be requested by such Member.
[b] The Members will cause the Company [i] to deliver to each Member, for
its review and approval, a copy of each tax return or report required to be
filed by the Company at least 30 days before the required filing date and
[ii] to provide to each Member, not more than 135 days after each Fiscal
Year end, such information for such Fiscal Year as the Member reasonably
requires to prepare tax returns or reports required to be filed by it or
one or more of its Affiliates, including federal and state tax information
and projections and estimates.
10.9 BANKING. The Company may establish and maintain one or more accounts
-------
or safe deposit boxes at banks or other financial institutions. The Company may
authorize one or more individuals to sign checks on and withdraw funds from such
bank or financial accounts and to have access to such safe deposit boxes, and
may place such limitations and restrictions on such authority as the Company
deems advisable. No funds of the Company will be commingled with funds of any
Member or any other Person.
10.10 TAX MATTERS PARTNER. Until further action by the Company, the Fox
-------------------
Member is designated as the Tax Matters Partner under (S) 6231(a)(7) of the
Code. The Tax Matters Partner will take no action which is reasonably expected
to have a material adverse effect on one or more of the Members unless such
action is approved by the unanimous Vote of the Members. The Tax Matters
Partner will be responsible for notifying all Members of ongoing proceedings,
both administrative and judicial, and will represent the Company throughout any
such proceeding. The Members will furnish the Tax Matters Partner with such
information as it may reasonably request to provide the Internal
29
<PAGE>
Revenue Service with sufficient information to allow proper notice to the
Members. If an administrative proceeding with respect to a partnership item
under the Code has begun, and the Tax Matters Partner so requests, each Member
will notify the Tax Matters Partner of its treatment of any partnership item on
its federal income tax return, if any, which is inconsistent with the treatment
of that item on the partnership return for the Company. Any settlement
agreement with the Internal Revenue Service will be binding upon the Members
only as provided in the Code. The Tax Matters Partner will not bind any other
Member to any extension of the statute of limitations or to a settlement
agreement without such Member's written consent. Any Member who enters into a
settlement agreement with respect to any partnership item will notify the other
Members of such settlement agreement and its terms within 30 days after the date
of settlement. If the Tax Matters Partner does not file a petition for
readjustment of the partnership items in the Tax Court, federal District Court
or Claims Court within the 90-day period following a notice of a final
partnership administrative adjustment, any notice partner or 5-percent group (as
such terms are defined in the Code) may institute such action within the
following 60 days. The Tax Matters Partner will timely notify the other Members
in writing of its decision. Any notice partner or 5-percent group will notify
the other Members of its filing of any petition for readjustment.
10.11 NO PARTNERSHIP. The classification of the Company as a partnership
--------------
will apply only for federal (and, as appropriate, state and local) income tax
purposes. This characterization, solely for tax purposes, does not create or
imply a general partnership between the Members for state law or any other
purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the Act.
ARTICLE 11: DISSOLUTION
11.1 DISSOLUTION. Dissolution of the Company will occur upon the happening
-----------
of any of the following events:
[a] The sale or other disposition of all or substantially all of the
Company's assets;
[b] The affirmative Vote of all Members; or
[c] The last day of the Fiscal Year ending in 2095, unless prior to such
date the Company is continued under the Act and this Agreement by the
unanimous Vote of all Members.
11.2 EXCLUSIVE MEANS OF DISSOLUTION. The exclusive means by which the
------------------------------
Company may be dissolved are set forth in 11.1. The Company will not be
dissolved upon the death, retirement, resignation, expulsion, Bankruptcy, or
dissolution of any Member or
30
<PAGE>
upon the occurrence of any other event which terminates the continued membership
of any Member in the Company.
ARTICLE 12: LIQUIDATION
12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will
-----------
immediately proceed to wind up its affairs and liquidate pursuant to this 12.1.
If there is only one remaining Member, that Member will act as the liquidating
trustee. Otherwise, any Person appointed by Members owning more than 50% of the
Ownership Interests held by all Members will act as the liquidating trustee.
The Liquidation of the Company will be accomplished in a businesslike manner as
determined by the liquidating trustee. A reasonable time will be allowed for
the orderly Liquidation of the Company and the discharge of liabilities to
creditors so as to enable the Company to minimize any losses attendant upon
Liquidation. Any gain or loss on disposition of any Company assets in
Liquidation will be allocated to Members in accordance with the provisions of
Article 4. Any liquidating trustee is entitled to reasonable compensation for
services actually performed, and may contract for such assistance in the
liquidating process as such Person deems necessary or desirable. Until the
filing of a certificate of cancellation under 12.8, and without affecting the
liability of the Members and without imposing liability on the liquidating
trustee, the liquidating trustee may settle and close the Company's business,
prosecute and defend suits, dispose of its property, discharge or make provision
for its liabilities, and make Distributions in accordance with the priorities
set forth in this Article.
12.2 TAX TERMINATION. In addition to termination of the Company following
---------------
its Dissolution, a termination of the Company will occur, for federal income tax
purposes only, on the date the Company is terminated under (S) 708(b)(1) of the
Code. Under current law, events causing such a termination include the sale or
exchange of 50% or more of the total interest in the capital and profits of the
Company within a 12-month period. Upon the occurrence of a termination under
(S) 708(b)(1) of the Code, the Company will be deemed to contribute its assets
and liabilities to a new partnership for tax purposes and will be deemed to
distribute interests in such new partnership to the purchaser and the remaining
Members in proportion to their respective interests in the Company. All
adjustments and computations will be made under this Agreement as if the
constructive transactions had actually occurred, and the Capital Accounts of the
Members in such new tax partnership will be determined and maintained in
accordance with the (S) 704(b) Regulations.
12.3 PRIORITY OF PAYMENT. The assets of the Company will be distributed in
-------------------
Liquidation in the following order:
31
<PAGE>
[a] First, to creditors by the payment or provision for payment of the debts
and liabilities of the Company (other than any loans or advances that may
have been made by any Member or Affiliate) and the expenses of Liquidation;
[b] Second, to the setting up of any reserves that are reasonably necessary
for any contingent, conditional or unmatured liabilities or obligations of
the Company;
[c] Third, to the repayment of any loans to the Company that may have been
made by any Member or any Affiliate of a Member (according to the relative
priority of repayment of such loans and proportionally among loans of equal
priority if the amount available for repayment is insufficient for payment
in full); and
[d] Fourth, to the Members in proportion to the positive balances in their
respective Capital Accounts after such Capital Accounts have been adjusted
for all allocations of Profits and Losses and items thereof for the Fiscal
Year during which such Liquidation occurs.
12.4 LIQUIDATING DISTRIBUTIONS. The liquidating Distributions due to the
-------------------------
Members will be made by selling the assets of the Company and distributing the
net proceeds. Notwithstanding the preceding sentence, but only upon the
affirmative Vote of all Members, the liquidating Distributions may be made by
distributing the assets of the Company in kind to the Members in proportion to
the amounts distributable to them pursuant to 12.3, valuing such assets at their
Fair Market Value (net of liabilities secured by such property that the Member
takes subject to or assumes) on the date of Distribution. Each Member agrees to
save and hold harmless the other Members from such Member's proportionate share
of any and all such liabilities which are taken subject to or assumed.
Appropriate and customary prorations and adjustments will be made incident to
any Distribution in kind. The Members will look solely to the assets of the
Company for the return of their Capital Contributions, and if the assets of the
Company remaining after the payment or discharge of the debts and liabilities of
the Company are insufficient to return such contributions, they will have no
recourse against any other Member. The Members acknowledge that 12.3 may
establish Distribution priorities different from those set forth in the
provisions of the Act applicable to Distributions upon Liquidation, and the
Members agree that they intend, to that extent, to vary those provisions by this
Agreement.
12.5 NO RESTORATION OBLIGATION. Except as otherwise specifically provided
-------------------------
in 8.2 and 8.3, nothing contained in this Agreement imposes on any Member an
obligation to make an Additional Contribution in order to restore a deficit
Capital Account upon Liquidation of the Company.
12.6 TIMING. Final Distributions in Liquidation will be made by the end of
------
the Company's Fiscal Year in which such actual Liquidation occurs (or, if later,
within 90
32
<PAGE>
days after such event) in the manner required to comply with the (S) 704(b)
Regulations. Payments or Distributions in Liquidation may be made to a
liquidating trust established by the Company for the benefit of those entitled
to payments under 12.3, in any manner consistent with this Agreement and the (S)
704(b) Regulations.
12.7 LIQUIDATING REPORTS. A report will be submitted with each liquidating
-------------------
Distribution to Members made pursuant to 12.4, showing the collections,
disbursements and Distributions during the period which is subsequent to any
previous report. A final report, showing cumulative collections, disbursements
and Distributions, will be submitted upon completion of the Liquidation.
12.8 CERTIFICATE OF CANCELLATION. Upon Dissolution of the Company and the
---------------------------
completion of the winding up of its business, the Company will file a
certificate of cancellation (to cancel the Certificate of Formation) with the
Delaware Secretary of State pursuant to the Act. At such time, the Company will
also file an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business. A certificate of
cancellation will also be filed at any time there is only one Member.
ARTICLE 13: TRANSFER RESTRICTIONS
13.1 GENERAL RESTRICTION. No Person may Transfer all or any part of such
-------------------
Person's Ownership Interest in any manner whatsoever except as set forth in 13.3
or with the unanimous consent of the remaining Members, and only if the
requirements of 13.4 have also been satisfied. Any other Transfer of all or any
part of an Ownership Interest is null and void, and of no effect. Any Member
who makes a Transfer of all of such Person's Ownership Interest will be treated
as resigning from the Company on the effective date of such Transfer. The
rights and obligations of any resigning Member or of any Transferee of an
Ownership Interest will be governed by the other provisions of this Agreement.
13.2 NO MEMBER RIGHTS. Except as otherwise provided in this Agreement, no
----------------
Member has the right or power to confer upon any Transferee the attributes of a
Member in the Company. The Transferee of all or any part of an Ownership
Interest by operation of law does not, by virtue of such Transfer, succeed to
any rights as a Member in the Company.
13.3 PERMITTED TRANSFERS. Subject to the requirements set forth in 13.4,
-------------------
each of the LMC Member and the Fox Member may Transfer all (but not less than
all) of any Ownership Interest held directly by such Member to any Affiliate of
such Member at any time when the aggregate Ownership Interests held directly by
the LMC Member and the Fox Member are less than 80% of the Ownership Interests
in the Company. In case of
33
<PAGE>
any such Permitted Transfer, the Transferee will be admitted as a Member as of
the effective date thereof.
13.4 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership Interest
-------------------------------
will be effective unless all the conditions set forth below are satisfied:
[a] Unless waived by each nontransferring Member, the Transferor signs and
delivers to the Company an undertaking in form and substance satisfactory
to the Company to pay all reasonable expenses incurred by the Company in
connection with the Transfer (including reasonable fees of counsel and
accountants and the costs to be incurred with any additional accounting
required in connection with the Transfer, and the cost and fees
attributable to preparing, filing and recording such amendments to the
Certificate or other organizational documents or filings as may be required
by law);
[b] Unless waived by each nontransferring Member, the Transferor delivers to
the Company [i] an opinion of counsel for the Transferor reasonably
satisfactory in form and substance to the Company to the effect that,
assuming the accuracy of the statement of the Transferee described in [ii]
below, the Transfer of the Ownership Interest as proposed does not violate
requirements for registration under applicable federal and state securities
laws and [ii] a statement of the Transferee in form and substance
reasonably satisfactory to the Company making appropriate representations
and warranties with respect to compliance with the applicable federal and
state securities laws and as to any other matter reasonably required by the
Company;
[c] Unless waived by each nontransferring Member, the Transferor provides an
opinion of counsel for the Transferor reasonably satisfactory in form and
substance to the nontransferring Members or other evidence reasonably
satisfactory to the nontransferring Members that the Transfer of the
Ownership Interest will not result in the termination of the Company within
the meaning of (S) 708(b)(1)(B) of the Code. If the immediate Transfer of
such Ownership Interest would cause such a termination, but the following
action would not cause such a termination, the Transferor will be entitled
[i] immediately to Transfer only that portion of the Ownership Interest as
may be Transferred without causing such a termination and [ii] to enter
into an agreement to Transfer the remainder of its Ownership Interest, in
one or more Transfers, at the earliest date or dates on which such Transfer
or Transfers may be effected without causing such a termination. In
determining whether a particular proposed Transfer will result in a
termination of the Company, the Members will take into account the
existence of prior written commitments to Transfer of which Notice has been
given pursuant to this Agreement and those proposed Transfers will be given
precedence over subsequent proposed Transfers. Each nontransferring
34
<PAGE>
Member will waive the foregoing provisions of this 13.4[c] unless such
Member reasonably determines that the termination of the Company within the
meaning of (S) 708(b)(1)(B) of the Code is reasonably likely to have a
material adverse effect on such Member;
[d] The Transferor signs and delivers to the Company a copy of the
assignment of the Ownership Interest to the Transferee substantially in the
form of the attached EXHIBIT A, which assignment will provide that the
Transferor is released from any and all liabilities with respect to the
transferred Ownership Interest (unless the Transferee is an Affiliate of
the Transferor, in which case the assignment will provide that the
Transferor will continue to be liable for the performance of such
liabilities);
[e] The Transferee signs and delivers to the Company an agreement
(substantially in the form of the attached EXHIBIT B) to be bound by this
Agreement; and
[f] The Transfer is in compliance with the other provisions of this Article.
The Transfer of an Ownership Interest will be effective as of 12:01 a.m.
(Pacific Time) on the first day of the month following the month in which all of
the above conditions have been satisfied. The Company will amend Schedule 1.3
as of the effective time to reflect the new Ownership Interests.
13.5 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will,
---------------------
on the effective date of the Transfer, have only those rights of an assignee as
specified in the Act unless and until such Transferee is admitted as a
substitute Member. This provision limiting the rights of a Transferee will not
apply if such Transferee is already a Member; provided that any Member who
resigns or retires from the Company in contravention of 6.5 will have only the
rights of an assignee as specified in the Act. Any Transferee of an Ownership
Interest who is not admitted as a substitute Member in accordance with this
Agreement has no right [a] to participate or interfere in the management or
administration of the Company's business or affairs, [b] to Vote or agree on any
matter affecting the Company or any Member, [c] to require any information on
account of Company transactions or [d] to inspect the Company's books and
records. The only right of a Transferee of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement is to receive
the allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest Transferred) and to receive all necessary tax
reporting information. In any event, each Transferee of an Ownership Interest
(including both immediate and remote Transferees) will be subject to all of the
obligations, restrictions and other terms contained in this Agreement as if such
Transferee were a Member. To the extent of any Ownership Interest Transferred,
the Transferor Member will not possess any right or power as a Member and may
not exercise any such right or power directly or indirectly on behalf of the
Transferee.
35
<PAGE>
13.6 ADMISSION. Except as set forth in 11.3 or 13.3, a Transferee of an
---------
Ownership Interest will not become a substitute Member of the Company unless
such substitution is consented to by all Members, which consent may be granted
or withheld in the sole discretion of the Members and which consent may be
arbitrarily withheld, effective upon a date specified (which must be on or after
the effective date of the Transfer, as determined under 13.4).
13.7 SECURITY INTEREST. The pledge or granting of a Lien affecting all or
-----------------
any part of a Member's Ownership Interest will not cause the Member to cease to
be a Member. Except as otherwise provided in the Agreement Regarding Ownership
Interests, in no event will any secured party be entitled to foreclose upon (or
receive a Transfer in lieu of foreclosure of) any such secured interest or to
exercise any rights of a Member under this Agreement (unless and until such
Person is admitted as a substitute Member), and such secured party may look only
to such Member for the enforcement of any of its rights as a creditor. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the Member
to whom such Distributions would be payable. Except as otherwise provided in
the Agreement Regarding Ownership Interests, any secured party will be entitled,
with respect to the security interest granted, only to the allocations and
Distributions to which the assigning Member would be entitled under this
Agreement, and only if, as and when such allocations and Distributions are made
by the Company, and to receive any necessary tax reporting information. Neither
the Company nor any Member will owe any fiduciary duty of any nature to a
secured party.
ARTICLE 14: GENERAL PROVISIONS
14.1 AMENDMENT. This Agreement may be amended only by the affirmative Vote
---------
of all Members. Any amendment will become effective upon such approval, unless
otherwise provided. Notice of any proposed amendment must be given at least
five days in advance of the meeting at which the amendment will be considered
(unless the approval is evidenced by duly signed minutes of action or written
consent). Any duly adopted amendment to this Agreement is binding on, and
inures to the benefit of, each Person who holds an Ownership Interest at the
time of such amendment, without the requirement that such Person sign the
amendment or any republication or restatement of this Agreement.
14.2 REPRESENTATIONS. Each Member represents and warrants to each other
---------------
Member that, as of the signing of this Agreement:
36
<PAGE>
[a] Such Member is duly organized, validly existing and in good standing
under the laws of the jurisdiction where it purports to be organized, and
is a United States Person;
[b] Such Member has full power and authority as a corporation or limited
liability company to enter into and perform its obligations under this
Agreement;
[c] All actions necessary to authorize the signing and delivery of this
Agreement, and the performance of obligations under it, have been duly
taken;
[d] This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member and constitutes the legal,
valid and binding obligation of such Member enforceable in accordance with
its terms, except as such enforceability may be affected by applicable
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies is
subject to judicial discretion;
[e] No consent or approval of any other Person is required in connection
with the signing, delivery and performance of this Agreement by such
Member; and
[f] The signing, delivery and performance of this Agreement do not violate
the organizational documents of such Member or any material agreement to
which such Member is a party or by which such Member is bound.
14.3 UNREGISTERED INTERESTS. Each Member [a] acknowledges that the
----------------------
Ownership Interests are being offered and sold without registration under the
Securities Act of 1933, as amended, or under similar provisions of state law,
[b] acknowledges that such Member is fully aware of the economic risks of an
investment in the Company, and that such risks must be borne for an indefinite
period of time, [c] represents and warrants that such Member is acquiring an
Ownership Interest for such Member's own account, for investment, and with no
view to the distribution of the Ownership Interest, and [d] agrees not to
Transfer, or to attempt to Transfer, all or any part of its Ownership Interest
without registration under the Securities Act of 1933, as amended, and any
applicable state securities laws, unless the Transfer is exempt from such
registration requirements.
14.4 WAIVER OF DISSOLUTION RIGHTS. The Members agree that irreparable
----------------------------
damage would occur if any Member should bring an action for judicial dissolution
of the Company. Accordingly, each Member accepts the provisions under this
Agreement as such Person's sole entitlement on Dissolution of the Company and
waives and renounces such Person's right to seek a court decree of dissolution
or to seek the appointment by a court of a liquidator for the Company. Each
Member further waives and renounces any alternative rights which might otherwise
be provided by law upon the withdrawal of such
37
<PAGE>
Person and accepts the provisions under this Agreement as such Person's sole
entitlement upon the happening of such event.
14.5 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any right
-------------------------
that it may have prior to Dissolution and Liquidation to institute or maintain
any action for partition with respect to any property held by the Company.
14.6 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
-----------------
discharge any provision of this Agreement. No delay in the exercise of any
right will operate as a waiver of such right. No single or partial exercise of
any right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
14.7 EQUITABLE RELIEF. If any Member proposes to Transfer all or any part
----------------
of its Ownership Interest in violation of the terms of this Agreement, the
Company or any Member may apply to any court of competent jurisdiction for an
injunctive order prohibiting such proposed Transfer except in compliance with
the terms of this Agreement, and the Company or any Member may institute and
maintain any action or proceeding against the Person proposing to make such
Transfer to compel the specific performance of this Agreement. Any attempted
Transfer in violation of this Agreement is null and void, and of no force and
effect. The Person against whom such action or proceeding is brought waives the
claim or defense that an adequate remedy at law exists, and such Person will not
urge in any such action or proceeding the claim or defense that such remedy at
law exists.
14.8 REMEDIES FOR BREACH. The rights and remedies of the Members set forth
-------------------
in this Agreement are neither mutually exclusive nor exclusive of any right or
remedy provided by law, in equity or otherwise. All legal remedies (such as
monetary damages) as well as all equitable remedies (such as specific
performance) will be available for any breach or threatened breach of any
provision of this Agreement.
14.9 COSTS. If the Company or any Member retains counsel for the purpose
-----
of enforcing or preventing the breach or any threatened breach of any provision
of this Agreement or for any other remedy relating to it, then the prevailing
party will be entitled to be reimbursed by the nonprevailing party for all costs
and expenses so incurred (including reasonable attorney's fees, costs of bonds
and fees and expenses for expert witnesses).
14.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
---------------
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member which is in
violation of this Agreement.
38
<PAGE>
14.11 COUNTERPARTS. This Agreement may be signed in multiple counterparts
------------
(or with detachable signature pages). Each counterpart will be considered an
original instrument, but all of them in the aggregate will constitute one
agreement.
14.12 NOTICE. All Notices under this Agreement will be in writing and will
------
be either delivered or sent addressed as follows: [a] if to the Company, at the
Company's principal office in Los Angeles, California, and [b] if to any Member,
at such Person's address as then appearing in the records of the Company. In
computing time periods, the day of Notice will be included.
14.13 DEEMED NOTICE. Any Notices given to any Member in accordance with
-------------
this Agreement will be deemed to have been duly given: [a] on the date of
receipt if personally delivered, [b] five days after being sent by U.S. mail,
postage prepaid, [c] the date of receipt, if sent by registered or certified
U.S. mail, postage prepaid, [d] one Business Day after receipt, if sent by
confirmed facsimile or telecopier transmission or [e] one Business Day after
having been sent by a nationally recognized overnight courier service.
14.14 PARTIAL INVALIDITY. Wherever possible, each provision of this
------------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law. However, if for any reason any one or more of the provisions of
this Agreement are held to be invalid, illegal or unenforceable in any respect,
such action will not affect any other provision of this Agreement. In such
event, this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained in it.
14.15 ENTIRE AGREEMENT. This Agreement (including its Schedules and
----------------
Exhibits) contains the entire agreement and understanding of the Members
concerning its subject matter.
14.16 BENEFIT. The contribution obligations of each Member will inure solely
-------
to the benefit of the other Members and the Company, without conferring on any
other Person any rights of enforcement or other rights.
14.17 BINDING EFFECT. This Agreement is binding upon, and inures to the
--------------
benefit of, the Members and their permitted Transferees, provided that any
Transferee will have only the rights specified in 13.5 unless admitted as a
substitute Member in accordance with this Agreement.
14.18 FURTHER ASSURANCES. Each Member will sign and deliver, without
------------------
additional consideration, such other documents of further assurance as may
reasonably be necessary to give effect to the provisions of this Agreement.
39
<PAGE>
14.19 HEADINGS. Article and section titles have been inserted for
--------
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
14.20 TERMS. Terms used with initial capital letters will have the meanings
-----
specified, applicable to both singular and plural forms, for all purposes of
this Agreement. All pronouns (and any variation) will be deemed to refer to the
masculine, feminine or neuter, as the identity of the Person may require. The
singular or plural includes the other, as the context requires or permits. The
word include (and any variation) is used in an illustrative sense rather than a
limiting sense. The word day means a calendar day.
14.21 GOVERNING LAW; FORUM. This Agreement will be governed by, and
--------------------
construed in accordance with, [a] the laws of the State of Delaware, insofar as
any matter at issue is governed by, or is addressed in, the Act, and [b] the
laws of the State of New York, as to any other matter. Any conflict or apparent
conflict between this Agreement and the Act will be resolved in favor of this
Agreement, except as otherwise required by the Act. Any action to enforce any
provision of this Agreement may be brought only in a court in the state of New
York or in the United States District Court for the Southern District of New
York. Each party [i] agrees to submit to the general jurisdiction of such
courts and to accept service of process at its address for notices pursuant to
this Agreement in any such action or proceeding and [ii] irrevocably waives any
objection it may have to the laying of venue of such action or proceeding
brought in any such court and any claim that such action or proceeding brought
in any such court has been brought in an inconvenient forum.
[Signature Page Follows]
40
<PAGE>
IN WITNESS WHEREOF, all of the MEMBERS have signed this OPERATING AGREEMENT of
FOX SPORTS RPP HOLDINGS, LLC, to be effective from the date first above
mentioned, notwithstanding the actual date of signing.
LIBERTY SPORTS MEMBER, INC.
___________________ ____, 1997
By:
----------------------------------
Its:
----------------------------------
FOX REGIONAL SPORTS MEMBER, INC.
____________________ ____, 1997
By:
----------------------------------
Its:
----------------------------------
FOX/LIBERTY NETWORKS, LLC
___________________ ____, 1997
By: LMC Newco U.S., Inc., a member
By:
----------------------------------
Its:
----------------------------------
By: Fox Regional Sports Holdings, Inc.,
a member
By:
----------------------------------
Its:
----------------------------------
By: Liberty/Fox Sports Financing LLC,
a member
By: LMC Newco U.S., Inc., a member
By:
----------------------------------
Its:
----------------------------------
<PAGE>
By: News America Holdings Incorporated,
a member
By:
----------------------------------
Its:
----------------------------------
<PAGE>
EXHIBIT 10.4(b)
EXECUTION VERSION
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
FOX/LIBERTY NETWORKS, LLC
DECEMBER 15, 1997
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF THE
OWNERSHIP INTERESTS IS ALSO RESTRICTED BY PROVISIONS OF THIS AGREEMENT AND
RELATED AGREEMENTS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1: FORMATION AND DEFINITIONS...................................................... 1
1.1 Formation................................................................. 1
---------
1.2 Name...................................................................... 1
----
1.3 Initial Members and Ownership Interests.................................. 1
---------------------------------------
1.4 Office and Agent......................................................... 1
----------------
1.5 Foreign Qualification.................................................... 2
---------------------
1.6 Term..................................................................... 2
----
1.7 Definitions.............................................................. 2
-----------
ARTICLE 2: PURPOSES AND POWERS........................................................... 13
2.1 Principal Purpose........................................................ 13
-----------------
2.2 Other Purposes........................................................... 13
--------------
2.3 Powers................................................................... 13
------
ARTICLE 3: CAPITAL OF THE COMPANY........................................................ 13
3.1 Initial Contributions.................................................... 14
---------------------
3.2 Additional Contributions................................................. 14
------------------------
3.3 Capital Accounts......................................................... 14
----------------
3.4 Transfer................................................................. 15
--------
3.5 Adjustments.............................................................. 15
-----------
3.6 Market Value Adjustments................................................. 15
------------------------
3.7 No Withdrawal of Capital................................................. 15
------------------------
3.8 No Interest on Capital................................................... 15
----------------------
3.9 No Drawing Accounts...................................................... 15
-------------------
3.10 No Salary................................................................ 15
---------
3.11 Loans to Divisional Companies............................................ 15
-----------------------------
ARTICLE 4: PROFITS AND LOSSES............................................................ 16
4.1 Determination........................................................... 16
-------------
4.2 Allocation of Profits and Losses Generally.............................. 17
------------------------------------------
4.3 Nonrecourse Deductions.................................................. 18
----------------------
4.4 Minimum Gain Chargeback................................................. 18
-----------------------
4.5 Gain Chargeback......................................................... 18
---------------
4.6 Tax Allocations......................................................... 18
---------------
4.7 Qualified Income Offset................................................. 19
-----------------------
4.8 Limit on Loss Allocations............................................... 19
-------------------------
4.9 (S) 754 Adjustments..................................................... 19
-------------------
4.10 Contributed Property.................................................... 19
--------------------
4.11 Tax Credits............................................................. 20
-----------
4.12 Allocation on Transfer.................................................. 20
----------------------
4.13 Tier Partnerships....................................................... 20
-----------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5: DISTRIBUTIONS................................................................. 20
5.1 Distributions Generally.................................................. 20
-----------------------
5.2 Payment.................................................................. 21
-------
5.3 Withholding.............................................................. 21
-----------
5.4 Distribution Limitation.................................................. 21
-----------------------
ARTICLE 6: MANAGEMENT.................................................................... 21
6.1 Management............................................................... 21
----------
6.2 Actions Requiring a Unanimous Vote....................................... 22
----------------------------------
6.3 Other Matters............................................................ 24
-------------
6.4 Member Representatives................................................... 24
----------------------
6.5 No Dissolution, Resignation or Retirement................................ 24
-----------------------------------------
6.6 Officers................................................................. 24
--------
6.7 Budgets and Business Plans; Financial Information........................ 25
-------------------------------------------------
6.8 Management Conduct....................................................... 26
------------------
6.9 Unauthorized Actions..................................................... 26
---------------------
ARTICLE 7: MEETINGS OF MEMBERS........................................................ 26
7.1 Meetings................................................................ 26
--------
7.2 Place................................................................... 27
-----
7.3 Notice.................................................................. 27
------
7.4 Waiver of Notice........................................................ 27
----------------
7.5 Record Date............................................................. 27
-----------
7.6 Quorum.................................................................. 27
------
7.7 Manner of Acting........................................................ 27
----------------
7.8 Proxies................................................................. 27
-------
7.9 Meetings by Telephone................................................... 27
---------------------
7.10 Action Without a Meeting............................................... 28
-------------------------
ARTICLE 8: LIABILITY OF A MEMBER........................................................ 28
8.1 Limited Liability....................................................... 28
-----------------
8.2 Capital Contribution.................................................... 28
--------------------
8.3 Capital Return.......................................................... 28
--------------
8.4 Reliance................................................................ 28
--------
ARTICLE 9: INDEMNIFICATION.............................................................. 29
9.1 General................................................................. 29
-------
9.2 Exception............................................................... 29
---------
9.3 Expense Advancement..................................................... 29
-------------------
9.4 Insurance............................................................... 29
---------
9.5 Indemnification of Others............................................... 30
-------------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 10: ACCOUNTING AND REPORTING.................................................. 30
10.1 Fiscal Year........................................................... 30
-----------
10.2 Accounting Method..................................................... 30
-----------------
10.3 Tax Elections......................................................... 30
-------------
10.4 Returns............................................................... 30
-------
10.5 Financial Reports..................................................... 30
-----------------
10.6 Annual Audit.......................................................... 30
------------
10.7 Books and Records..................................................... 31
-----------------
10.8 Information........................................................... 32
-----------
10.9 Banking............................................................... 32
-------
10.10 Tax Matters Partner................................................... 32
-------------------
10.11 No Partnership....................................................... 33
---------------
ARTICLE 11: DISSOLUTION................................................................. 33
11.1 Dissolution........................................................... 33
-----------
11.2 Exclusive Means of Dissolution........................................ 34
------------------------------
ARTICLE 12: LIQUIDATION................................................................. 34
12.1 Liquidation........................................................... 34
-----------
12.2 Tax Termination....................................................... 34
---------------
12.3 Priority of Payment................................................... 34
-------------------
12.4 Liquidating Distributions............................................. 35
-------------------------
12.5 No Restoration Obligation............................................. 35
-------------------------
12.6 Timing................................................................ 35
------
12.7 Liquidating Reports................................................... 36
-------------------
12.8 Certificate of Cancellation........................................... 36
---------------------------
ARTICLE 13: TRANSFER RESTRICTIONS....................................................... 36
13.1 General Restriction................................................... 36
-------------------
13.2 No Member Rights...................................................... 36
----------------
13.3 Permitted Transferees................................................. 36
---------------------
13.4 General Conditions on Transfers....................................... 37
-------------------------------
13.5 Rights of Transferees................................................. 38
---------------------
13.6 Admission............................................................. 39
---------
13.7 Security Interest..................................................... 39
-----------------
ARTICLE 14: CERTAIN BUSINESS MATTERS.................................................... 39
14.1 Restricted Activities................................................. 39
---------------------
14.2 Rights Purchases/Resale Rights........................................ 40
------------------------------
14.3 fX Programming........................................................ 42
--------------
14.4 New Ventures.......................................................... 43
------------
14.5 Uplink Services and Production Facilities............................. 44
-----------------------------------------
14.6 Cooperation........................................................... 44
-----------
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
14.7 Continuing Rights..................................................... 45
-----------------
14.8 Consent to Opportunities.............................................. 45
------------------------
14.9 No Adverse Actions.................................................... 45
------------------
ARTICLE 15: DISPUTE RESOLUTION.......................................................... 45
15.1 Disputes.............................................................. 45
--------
15.2 Negotiation........................................................... 45
-----------
15.3 Arbitration........................................................... 45
-----------
15.4 Determination of Fair Market Value.................................... 46
----------------------------------
ARTICLE 16: GENERAL PROVISIONS.......................................................... 47
16.1 Amendment............................................................ 47
---------
16.2 Representations...................................................... 48
---------------
16.3 Unregistered Interests............................................... 48
----------------------
16.4 Waiver of Dissolution Rights......................................... 48
----------------------------
16.5 Waiver of Partition Right............................................ 49
-------------------------
16.6 Waivers Generally.................................................... 49
-----------------
16.7 Equitable Relief..................................................... 49
----------------
16.8 Remedies for Breach.................................................. 49
-------------------
16.9 Costs................................................................ 49
-----
16.10 Indemnification...................................................... 50
---------------
16.11 Counterparts......................................................... 50
------------
16.12 Notice............................................................... 50
------
16.13 Deemed Notice........................................................ 50
-------------
16.14 Partial Invalidity................................................... 50
------------------
16.15 Entire Agreement..................................................... 50
----------------
16.16 Benefit.............................................................. 50
-------
16.17 Binding Effect....................................................... 50
--------------
16.18 Further Assurances................................................... 51
------------------
16.19 Headings............................................................. 51
--------
16.20 Terms................................................................ 51
-----
16.21 Governing Law; Forum................................................. 51
--------------------
</TABLE>
iv
<PAGE>
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
OF
FOX/LIBERTY NETWORKS, LLC
This FIRST AMENDED AND RESTATED OPERATING AGREEMENT is made as of the 15th day
of December, 1997, by and among LMC NEWCO U.S., INC., FOX REGIONAL SPORTS
HOLDINGS, INC. and LIBERTY/FOX SPORTS FINANCING LLC, such parties being all the
Members of FOX/LIBERTY NETWORKS, LLC, a Delaware limited liability company.
The parties to this Agreement entered into an Operating Agreement dated as of
April 29, 1996 (the "Original Agreement"). The parties desire to amend and
restate the Original Agreement in its entirety as set forth herein.
In consideration of the mutual promises and covenants contained in this
Agreement and intending to be legally bound, the parties agree as follows:
ARTICLE 1: FORMATION AND DEFINITIONS
1.1 FORMATION. The Company was formed on April 11, 1996, by filing a
---------
Certificate of Formation with the Delaware Secretary of State pursuant to the
Act and on behalf of the initial Members of the Company.
1.2 NAME. The name of the Company is FOX/LIBERTY NETWORKS LLC. The
----
business of the Company will be conducted under such name, as well as any other
name or names as the Company may from time to time determine.
1.3 INITIAL MEMBERS AND OWNERSHIP INTERESTS. The name and address of each
---------------------------------------
initial Member and its initial Ownership Interest are set forth in Schedule 1.3.
1.4 OFFICE AND AGENT.
----------------
[a] The registered office of the Company in Delaware is at 1013 Centre Road,
Wilmington, DE 19805-1297, and its registered agent is Corporation Service
Company. The Company may change its registered office or registered agent
in Delaware in accordance with the Act.
[b] The principal office of the Company will be at 1440 South Sepulveda
Boulevard, Los Angeles, California 90025. The Company may change its
principal office upon the unanimous Vote of the Members.
<PAGE>
1.5 FOREIGN QUALIFICATION. From time to time, the Company will apply for
---------------------
any required certificate of authority to do business in any other state or
jurisdiction, as required or appropriate. The Company will file such other
certificates and instruments as may be necessary or desirable in connection with
its formation, existence and operation.
1.6 TERM. The Company has been effective from the date of filing of its
----
Certificate of Formation with the Delaware Secretary of State and will continue
until its termination pursuant to 12.8.
1.7 DEFINITIONS. The following terms, when used in this Agreement, have the
-----------
meanings set forth below:
Act: the Delaware Limited Liability Company Act, as amended
from time to time.
Additional Contribution: a capital contribution (other than the Initial
Contribution) that a Member makes to the Company, as
described in 3.2.
Adjusted Capital Account as to any Member, the deficit balance (if any)
Deficit: in such Member's Capital Account as of the end of the
Fiscal Year, after [a] crediting to such Capital
Account any amount which such Member is obligated to
restore pursuant to this Agreement or is deemed
obligated to restore pursuant to the minimum gain
chargeback provisions of the (S) 704(b) Regulations
and [b] charging to such Capital Account any
adjustments, allocations or distributions described in
the qualified income offset provisions of the (S)
704(b) Regulations which are required to be charged to
such Capital Account pursuant to this Agreement.
Affiliate: with respect to any Person, any Person that directly
or indirectly Controls, is Controlled by, or is under
common Control with such Person. For purposes of this
definition, Twentieth Holdings Corporation and its
subsidiaries will be deemed to be Affiliates of Fox
and News.
2
<PAGE>
Agreement: this Operating Agreement, also known as a limited
liability company agreement under the Act, as amended
from time to time.
Agreement Regarding
Ownership Interests: the First Amended and Restated Agreement Regarding
Ownership Interests dated as of the date hereof among
Liberty Media Corporation, News America Holdings
Incorporated, LMC Newco U.S., Inc., Fox Regional
Sports Holdings, Inc., and Liberty/Fox Sports
Financing LLC, as amended from time to time.
Arbitrable Dispute: a dispute described in 14.4 or 14.5 that is required
to be submitted to arbitration.
Available Cash: for any Fiscal Year or other period, net income (or
loss) of the Company determined in accordance with
GAAP, adjusted, without duplication, by adding [a]
depreciation, amortization and other non-cash charges
to the extent deducted in determining net income and
deducting [b] [i] the current portion of indebtedness
of the Company, [ii] payments required to be paid by
the Company within one year after the date of
calculation, [iii] prepaid expenses and other cash
expenditures to the extent not deducted in determining
net income or loss and [iv] reasonable reserves for
working capital and contingent liabilities of the
Company and all Business Companies as determined by
the unanimous Vote of the Members.
Bankruptcy: of a Member will be deemed to have occurred upon the
happening of any of the following:
[a] the making by such Member of a general assignment
for the benefit of creditors;
[b] the filing by such Member of a voluntary
petition in bankruptcy;
3
<PAGE>
[c] the adjudication of such Member as bankrupt or
insolvent, or the entry of an order, judg ment or
decree by any court of competent juris diction,
granting relief against such Member in any bankruptcy
or insolvency proceeding;
[d] the filing by such Member of a petition or
answer seeking for such Member any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law
or regulation;
[e] the filing by such Member of an answer or other
pleading admitting or failing to contest the material
allegations of a petition filed against such Member in
any proceeding for reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar proceeding under any statute, law or
regulation;
[f] the valid appointment, with the consent of such
Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest; or
[g] the valid appointment, without the consent of
such Member, of a receiver, trustee or liquidator to
administer all or a substantial portion of such
Member's assets or its Ownership Interest, if such
appointment is not vacated or stayed within 90 days
after such appointment or, if stayed, such appointment
is not vacated within 90 days after such stay.
Broadcast TV: free over-the-air broadcast television.
Business Company: the fX LLC, the Sports LLC, the RPP LLC, a Sports
Company, an fX Company, or any other Person in which
all the equity or ownership interests are owned,
directly or indirectly, by the Company and the LMC
Member, the Fox Member or one or more Affiliates of
the LMC Member or the Fox Member.
4
<PAGE>
Business Day: any day other than Saturday, Sunday or a day on which
banking institutions in Denver, Colorado, New York,
New York or Los Angeles, California are required or
authorized to be closed.
Capital Account: the capital account of a Member established and
maintained in accordance with 3.3.
Capital Contribution: any contribution of money or property by a Member to
the Company which is either an Initial Contribution or
an Additional Contribution.
Certificate: the Certificate of Formation of the Company, as
amended from time to time.
Code: the Internal Revenue Code of 1986, as amended from
time to time (including corresponding provisions of
subsequent revenue laws).
Company: the limited liability company formed under the
Certificate and governed by this Agreement.
Company Business: the Sports Business, the fX Business and any other
business approved by the Members from time to time for
inclusion in the definition of Company Business.
Control: the possession, direct or indirect, of the power to
direct or cause the direction of the management and
policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
Controlled Affiliate: with respect to any Person, an Affiliate of such
Person that such Person Controls.
Dissolution: the happening of any of the events described in 11.1.
Distribution: the amount of any money or the Fair Market Value of
any property distributed by the
5
<PAGE>
Company to a Member as an operating or liquidating
distribution in accordance with this Agreement,
reduced by the amount of any Company liabilities
assumed by the distributee or to which the distributed
property is subject.
Divisional Company: each of the Sports LLC, the fX LLC and the RPP LLC.
Fair Market Value: the cash price at which a willing seller would sell
and a willing buyer would buy, both having full
knowledge of the relevant facts and being under no
compulsion to buy or sell, in an arm's-length
transaction without time constraints. Except as
otherwise expressly provided in this Agreement, the
Fair Market Value of any item will be determined in
accordance with 15.4.
FBC: Fox Broadcasting Company, a Delaware corporation.
Financing LLC: Liberty/Fox Sports Financing LLC, a Delaware limited
liability company.
Fiscal Year: the fiscal and taxable year of the Company, including
both 12-month and short fiscal or taxable years; until
changed as provided in this Agreement, each Fiscal
Year will begin on January 1 of each year and end on
December 31 of such year, provided that the first
Fiscal Year began on April 11, 1996 and the last
Fiscal Year will end on the date on which Liquidation
of the Company occurs.
Formation Agreement: The Formation and Contribution Agreement dated as of
April 29, 1996 among News America Holdings
Incorporated, a Delaware corporation, Fox and LMC.
Fox: Fox, Inc., a Colorado corporation.
Fox Member: Fox Regional Sports Holdings, Inc. and any successor
to or Transferee of Fox Regional
6
<PAGE>
Sports Holdings, Inc. or another Fox Member who is
admitted as a Member pursuant to Article 13.
Fox O and O Stations: as defined in 14.7.
Fox Preferred Amount: as of any date of determination, an amount equal to
the sum of the products of $5.00 times the fX
Subscriber Increment, if any, as of each Fiscal Year
end beginning with the first Fiscal Year end after the
date of this Agreement and ending with the fifth
Fiscal Year end after the date of this Agreement, and
including the Fiscal Year end occurring immediately
before or on the date of determination; provided that
in no event will the Fox Preferred Amount exceed
$100,000,000.
fX Business: the ownership and operation of the fX Service and, if
contributed pursuant to Section 2.11 of the Formation
Agreement, the fXM Service.
fX Company: each Person engaged in the fX Business in which all
the equity or ownership interests are owned, directly
or indirectly, by the Company and the LMC Member, the
Fox Member or one or more Affiliates of the LMC Member
or the Fox Member.
fX LLC: FX Networks, LLC, a Delaware limited liability
company.
fX Service: the Service currently operated under the name "fX" or
any successor Service.
fXM Service: the Service currently operated under the name "fXM:
Movies From Fox" or any successor Service.
fX Subscriber: a 24-hour subscriber to the fX Service within the
meaning of each affiliation agreement (or similar
agreement) pursuant to which the fX Service is
distributed, whether by cable
7
<PAGE>
television or any other means of distribution, as to
which subscriber an fX Company is entitled to receive
payment of a monthly fee in accordance with such
agreement.
fX Subscriber Increment: [a] as of the first Fiscal Year end after the total
number of fX Subscribers exceeds 30,000,000, the
excess of such total number over 30,000,000 and [b] as
of each subsequent Fiscal Year end, the excess, if
any, of the total number of fX Subscribers as of such
Fiscal Year end over the total number of fX
Subscribers as of the prior Fiscal Year end; provided,
however, that if, as of the end of any Fiscal Year,
there is no Subscriber Increment, the calculation of
the Subscriber Increment for succeeding Fiscal Years
shall be the excess, if any, of the total number of fX
Subscribers as of the date of determination over the
total number of fX Subscribers as of the end of the
most recent prior Fiscal Year in which there was a
Subscriber Increment. The determination of the number
of fX Subscribers will be based on the Company's
records and such other information as may reasonably
be required to make such determination.
GAAP: generally accepted accounting principles as in effect
from time to time in the United States of America.
Initial Contribution: the initial capital contribution made by a Member to
the Company, as described in Schedule 3.1.
Lien: a mortgage, lien, pledge, security interest or other
encumbrance.
Liquidation: the process of winding up and terminating the Company
after its Dissolution.
LMC: Liberty Media Corporation, a Delaware corporation.
8
<PAGE>
LMC Member: LMC Newco U.S., Inc. and any successor to or
Transferee of LMC Newco U.S., Inc. or any LMC Member
who is admitted as a Member pursuant to Article 13.
Losses: as defined in 4.1.
Member: an initial member of the Company as listed in Schedule
1.3 and any other Person subsequently admitted to the
Company as an additional or substitute member in
accordance with this Agreement.
New Company: as defined in 11.4.
New Members: as defined in 11.4.
News: The News Corporation Limited, a South Australia
corporation.
Notice: written notice actually delivered or deemed delivered
under 16.13.
Ownership Interest: with respect to each Person owning an interest in the
Company, all the interests of such Person in the
Company (including an interest in the Profits and
Losses of the Company, a Capital Account interest and
all other rights and obligations of such Person under
this Agreement) expressed as a percentage, as
initially set forth in Schedule 1.3 and as
subsequently adjusted in accordance with this
Agreement.
Parents Agreement: the Parents Agreement dated as of April 29, 1996
between News America Holdings Incorporated and LMC.
Permitted Transferee: a Person described in 13.3 to whom an Ownership
Interest may be Transferred.
9
<PAGE>
Person: a human being or a corporation, partnership, limited
liability company, trust, unincorporated organization,
association or other entity.
Preferred Allocation
Date: the earlier of [i] the last day of the fifth full
Fiscal Year following the date of this Agreement or
[ii] the date on which the final Fox Preferred Amount
has been established and Fox has received
Distributions pursuant to 5.1[a] which equal, in the
aggregate, the Fox Preferred Amount.
Prime Rate: the annual rate from time to time publicly announced
by The Bank of New York in New York, New York, as its
prime rate, adjusted as of the day of any change (or
if lower, the maximum rate permitted by law).
Proceeding: any threatened, pending, on-going, or completed
action, suit or proceeding, whether formal or
informal, and whether civil, administrative,
investigative or criminal.
Profits: as defined in 4.1.
Regulations: the Treasury Regulations (including temporary or
proposed regulations) promulgated under the Code, as
amended from time to time (including corresponding
provisions of succeeding regulations).
Representative: as defined in 6.4.
Restricted Business: as defined in 14.1[a].
RPP LLC: Fox Sports RPP Holdings, LLC, a Delaware limited
liability company.
Service: a programming service offered by the Company, a Sports
Company or an fX Company.
Sports Business: the ownership and operation of one or more services
featuring programming, data or content
10
<PAGE>
that, as to an individual service, is, or, as to a
group of related services, is coordinated in such a
manner as to be, predominantly sports and sports-
related for distribution by any means and in any form
in the United States of America and its territories
(excluding Puerto Rico) and Canada; provided that the
Sports Business will not include [i] any programming
service delivered by Broadcast TV, even if transmitted
via cable or any other mode of distribution, which
programming service offers programming that is not
predominantly sports and sports-related, [ii] any on-
line sports information business conducted in
connection with sports programming on FBC, [iii] the
on-line sports information business conducted through
SportsLine USA, Inc., and [iv] ownership and operation
of sports bars and similar establishments and the
sports merchandising businesses currently conducted by
one or more Affiliates of the Fox Member under the
name "Fox," or any similar name. For purposes of this
definition, the RPP LLC will be deemed to be engaged
in the Sports Business.
Sports Company: each Person engaged in the Sports Business in which
all the equity or ownership interests are owned,
directly or indirectly, by the Company and the LMC
Member, the Fox Member or one or more Affiliates of
the LMC Member or the Fox Member.
Sports LLC: Fox Sports Net, LLC, a Delaware limited liability
company.
Tax Matters Partner: as defined in 10.10.
TCI: Tele-Communications, Inc., a Delaware corporation.
Third Party: with respect to any Member or the Company, a Person
other than an Affiliate of such Member or the Company.
11
<PAGE>
Total Divisional
Interest: [a] with respect to the Sports LLC, the percentage
interest determined by [i] multiplying the aggregate
ownership interest (expressed as a decimal) of a
Member and its Affiliates in Financing LLC by
Financing LLC's Ownership Interest in the Company,
[ii] adding that product to the aggregate Ownership
Interest of such Member and its Affiliates in the
Company, [iii] multiplying that sum by the Company's
ownership interest (expressed as a decimal) in Sports
LLC, and [iv] adding that product to any ownership
interests in Sports LLC held directly by such Member
and its Affiliates, [b] with respect to the fX LLC,
the percentage interest determined by [i] multiplying
the aggregate ownership interest (expressed as a
decimal) of a Member and its Affiliates in Financing
LLC by Financing LLC's Ownership Interest in the
Company, [ii] adding that product to the aggregate
Ownership Interest of such Member and its Affiliates
in the Company, [iii] multiplying that sum by the
Company's ownership interest (expressed as a decimal)
in fX LLC, and [iv] adding that product to any
ownership interests in fX LLC held directly by such
Member and its Affiliates, and [c] with respect to the
RPP LLC, the percentage interest determined by [i]
multiplying the aggregate ownership interest
(expressed as a decimal) of a Member and its
Affiliates in Financing LLC by Financing LLC's
Ownership Interest in the Company, [ii] adding that
product to the aggregate Ownership Interest of such
Member and its Affiliates in the Company, [iii]
multiplying that sum by the Company's ownership
interest (expressed as a decimal) in RPP LLC, and [iv]
adding that product to any ownership interests in RPP
LLC held directly by such Member and its Affiliates
Transfer: a sale, exchange, assignment, transfer or other
disposition of all or any part of an Ownership
12
<PAGE>
Interest (whether voluntary, involuntary or by
operation of law).
Transferee: a Person to whom an Ownership Interest is Transferred
in compliance with this Agreement, who will have the
rights specified in 13.5 of this Agreement.
Transferor: a Person who Transfers all or any part of an Ownership
Interest in compliance with this Agreement.
Vote: the action of the Company by the Members in accordance
with the voting requirements set forth in Article 6,
either in meeting assembled or by written consent
without a meeting.
ARTICLE 2: PURPOSES AND POWERS
2.1 PRINCIPAL PURPOSE. Subject to the provisions of this Agreement, the
-----------------
business and principal purpose of the Company is [a] to engage in any Company
Business, either directly or indirectly through the ownership of interests in
Sports LLC, the Sports Companies, RPP LLC, fX LLC, or any other Person through
which a Company Business is conducted, [b] to acquire, own, hold, sell or
otherwise dispose of interests in the assets used to conduct any Company
Business or interests in Sports LLC, the Sports Companies, RPP LLC, fX LLC, or
any other Person through which a Company Business is conducted and [c] to do any
and all other acts or things which may be incidental or necessary to carry on
the business of the Company as contemplated by this Agreement.
2.2 OTHER PURPOSES. The Company may engage in activities related or
--------------
incidental to its principal purpose, as well as any other business or investment
activity as may be approved by the affirmative Vote of all Members. However, as
provided in the Act, the Company may not engage in the business of granting
policies of insurance, assuming insurance risks, issuing debt instruments for
circulation as money or receiving deposits of money.
2.3 POWERS. The Company has all the powers granted to a limited liability
------
company under the Act, as well as all powers necessary or convenient to achieve
its purposes and to further its business.
ARTICLE 3: CAPITAL OF THE COMPANY
13
<PAGE>
3.1 INITIAL CONTRIBUTIONS. Contemporaneously with the execution of the
---------------------
Original Agreement, each Member contributed or caused to be contributed to the
Company the assets set forth opposite its name in Schedule 3.1, as contemplated
by the Formation Agreement. The Fair Market Value of such contribution as
specified in Schedule 3.1 was credited to the applicable Member's Capital
Account and such Fair Market Value was deemed to be the amount of such Member's
Initial Capital Contribution.
3.2 ADDITIONAL CONTRIBUTIONS. Except as required by law, no Additional
------------------------
Contributions will be required or permitted to be made by any Member. If
additional contributions are needed to fund the operation of any Company
Business, such contributions will be made to the Sports LLC, the RPP LLC or the
fX LLC, as the case may be, in accordance with the operating agreement governing
such Business Company.
3.3 CAPITAL ACCOUNTS. A Capital Account has been and will continue to be
----------------
maintained for each Member and credited, charged and otherwise adjusted as
required by (S) 704(b) of the Code and the (S) 704(b) Regulations. Each
Member's Capital Account has been or will be:
[a] Credited with [i] the amount of money contributed by the Member as an
Initial Contribution or an Additional Contribution, [ii] the Fair Market
Value of assets contributed by the Member as an Initial Contribution or
Additional Contribution (net of liabilities that the Company assumes or
takes subject to), [iii] the Member's allocable share of Profits and [iv]
all other items properly credited to such Capital Account as required by
the (S) 704(b) Regulations;
[b] Charged with [i] the amount of money distributed to the Member by the
Company, [ii] the Fair Market Value of assets distributed to the Member by
the Company (net of liabilities that the Member assumes or takes subject
to), [iii] the Member's allocable share of Losses and [iv] all other items
properly charged to such Capital Account as required by the (S) 704(b)
Regulations; and
[c] Otherwise adjusted as required by the (S) 704(b) Regulations.
Any unrealized appreciation or depreciation with respect to any asset
distributed in kind will be allocated among the Members in accordance with the
provisions of Article 4 as though such asset had been sold for its Fair Market
Value on the date of Distribution and the Members' Capital Accounts will be
adjusted to reflect both the deemed realization of such appreciation or
depreciation and the Distribution of such property.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with the
(S) 704(b) Regulations and will be interpreted and applied in a manner
consistent with such Regulations and any amendment or successor provision
thereto. The Members will
14
<PAGE>
cause appropriate modifications to be made if unanticipated events might
otherwise cause this Agreement not to comply with the (S) 704(b) Regulations, so
long as such modifications do not cause a material change in the relative
economic benefits of the Members under this Agreement.
3.4 TRANSFER. If all or any part of an Ownership Interest is Transferred in
--------
accor dance with this Agreement, the Capital Account of the Transferor that is
attributable to the Transferred Ownership Interest will carry over to the
Transferee.
3.5 ADJUSTMENTS. The Members intend to comply with the (S) 704(b) Regulations
-----------
respects, and the Capital Accounts of the Members in all will be adjusted to the
full extent that the (S) 704(b) Regulations may apply (including applying the
concepts of qualified income offsets and minimum gain chargebacks).
3.6 MARKET VALUE ADJUSTMENTS. Appropriate Capital Account adjustments will be
------------------------
made upon any Transfer of an Ownership Interest, including those that apply upon
the constructive Liquidation of the Company under (S) 708(b) of the Code, all in
accordance with the (S) 704(b) Regulations. Similarly, if optional basis
adjustments are made under (S) 734 or (S) 743 of the Code, appropriate Capital
Account adjustments will be made as required by the (S) 704(b) Regulations.
3.7 NO WITHDRAWAL OF CAPITAL. Except as specifically provided in this
------------------------
Agreement, no Member will be entitled to withdraw all or any part of its Capital
Contribution from the Company prior to the Company's Dissolution and Liquidation
or, when such withdrawal of capital is permitted, to demand a distribution of
property other than money or as otherwise provided in this Agreement.
3.8 NO INTEREST ON CAPITAL. No Member will be entitled to receive interest
----------------------
on such Person's Capital Account or Capital Contribution.
3.9 NO DRAWING ACCOUNTS. The Company will not maintain a drawing account
-------------------
for any Member. All Distributions to Members will be governed by Article 5
(relating to Distributions not in Liquidation of the Company) and by Article 12
(relating to Distributions in Liquidation of the Company).
3.10 NO SALARY. Except upon the affirmative Vote of all Members, no Member
---------
or Affiliate will be entitled to any salary or other form of compensation paid
by the Company for services rendered to the Company. The foregoing prohibition
will not apply to a Member's allocation of any Profits pursuant to Article 4 or
receipt of any Distribution contemplated by this Agreement pursuant to Article 5
or Article 12.
3.11 LOANS TO DIVISIONAL COMPANIES. In the event that the members of
-----------------------------
a Divisional Company approve the making of an additional contribution to such
Divisional Company
15
<PAGE>
and a Funding Member (as defined in the operating agreement of the Divisional
Company) fails to make all or any portion of its share of such approved
additional contribution by the required date, the other Funding Member may, at
such Funding Member's option, elect to make a loan to the Company in the amount
of the deficiency in additional contributions. Such loan will bear simple
interest at the Prime Rate and will be payable only from Available Cash of the
Company. Payments in respect of any such loans will be applied in the order
that such loans were made, and all payments will be applied first to accrued but
unpaid interest and then to reduce the outstanding principal amount of the loan.
In the event that any Funding Member of a Divisional Company makes a loan to the
Company in accordance with this 3.11, the Company concurrently will make a loan
in the same amount and upon the same terms to the Divisional Company in which
the deficiency in additional contributions occurred. Any such loan from a
Funding Member to the Company will be repaid from Available Cash before any
Distributions are made by the Company to its Members, and any such loan from the
Company to a Divisional Company will be repaid in full from available cash of
the Divisional Company (determined pursuant to the operating agreement of the
Divisional Company) before any distributions are made by the Divisional Company
to its members. All such loans from the Company to a Divisional Company will be
due and payable at the closing of a transaction pursuant to Section 2.2, 2.3,
2.4 or 2.5 of the Agreement Regarding Ownership Interests in which either Member
Group sells all of its Interests in the Divisional Company. If during a Funding
Cure Period (as defined in the operating agreement of a Divisional Company), the
defaulting Funding Member pays to the nondefaulting Funding Member an amount
equal to all unpaid principal of and interest on the Funding Member's loan to
the Company to which such Funding Cure Period relates, the loans from the
Funding Member to the Company and from the Company to the Divisional Company
will immediately be forgiven, and the Interests of the Funding Members and the
Company in the Divisional Company will be adjusted in accordance with the
operating agreement of the Divisional Company.
ARTICLE 4: PROFITS AND LOSSES
4.1 DETERMINATION. The terms "Profits" and "Losses" mean, respectively, the
-------------
net profits and losses of the Company determined for each Fiscal Year in
accordance with the method of accounting adopted by the Company for federal
income tax purposes, except that such net profit or loss will be determined [a]
by including as an item of income any income that is exempt from taxation, [b]
by deducting as an expense any expenditure of the Company not deductible in
computing its taxable income and not properly chargeable to any Capital Account,
or deemed not deductible in computing its taxable income and not properly
chargeable to any Capital Account in accordance with the (S) 704(b) Regulations
and [c] by calculating the gain, loss, depreciation and amortization on property
which is reflected in the Capital Accounts at a book basis different from the
basis of such property for federal income tax purposes based on the
16
<PAGE>
book basis of such property in accordance with the (S) 704(b) Regulations. Any
allocation of Profits or Losses will be considered a pro rata allocation of each
item entering into the computation of Profits and Losses.
4.2 ALLOCATION OF PROFITS AND LOSSES GENERALLY. Except as provided in 4.3
------------------------------------------
through 4.13, Profits or Losses, as the case may be, for each Fiscal Year will
be allocated as follows:
[a] Profits will be allocated:
[i] first, as to Profits allocated subsequent to the Preferred
Allocation Date, 100% to the Fox Member until the cumulative amount
so allocated for all Fiscal Years (net of cumulative Losses
allocated to the Fox Member under 4.2[b][i]) is equal to the Fox
Preferred Amount;
[ii] second, as to Profits allocated in any Fiscal Year, to the Members
to the extent of, and in proportion to, Losses previously allocated
to such Members pursuant to 4.2[b][iii]. To the extent that a prior
allocation of Losses has been offset by a prior allocation of
Profits pursuant to this 4.2[a][ii], Profits will not be further
allocated under this 4.2[a][ii] to offset such Losses; and
[iii] thereafter, as to Profits allocated in any Fiscal Year, to the
Members in proportion to their Ownership Interests.
[b] Losses will be allocated:
[i] first, as to Losses allocated subsequent to the Preferred Allocation
Date, 100% to the Fox Member until the cumulative amount so
allocated for all Fiscal Years is equal to the cumulative amount of
Profits allocated pursuant to 4.2[a][i];
[ii] second, as to Losses allocated in any Fiscal Year, to the Members to
the extent of, and in proportion to, Profits previously allocated to
such Members pursuant to 4.2[a][iii]. To the extent that a prior
allocation of Profits has been offset by a prior allocation of
Losses pursuant to this 4.2[b][ii], Losses will not be further
allocated under this 4.2[b][ii] to offset such Profits; and
[iii] thereafter, as to Losses allocated in any Fiscal Year, to the
Members in proportion to their Ownership Interests.
17
<PAGE>
4.3 NONRECOURSE DEDUCTIONS. Losses attributable to any Company nonrecourse
----------------------
liability (for which no Member or related Person (within the meaning of the (S)
752 Regulations) bears the economic risk of loss) will be allocated in the same
manner as Losses are allocated pursuant to 4.2[b], and Losses of the Company
attributable to any Member nonrecourse liability (which is nonrecourse to the
Company, but for which one or more Members or related Persons bear the economic
risk of loss) will be allocated in accordance with the (S) 704(b) Regulations to
those Members bearing (or who, because of their relationship to Persons who bear
such economic risk of loss, are deemed to bear) the economic risk of loss for
the liability. The allocation of liabilities to a property, the determination
of nonrecourse deductions, the effect of property revaluations and all other
issues affecting the allocation of nonrecourse deductions will be determined in
accordance with the (S) 704(b) Regulations.
4.4 MINIMUM GAIN CHARGEBACK. Notwithstanding the general rule on allocation
-----------------------
of Profits stated in 4.2[a], if there is a net decrease in Company minimum gain
for any Fiscal Year, each Member will be allocated items of Profits for such
year equal to such Member's share of the net decrease in Company minimum gain.
If there is a net decrease in Member nonrecourse debt minimum gain for any
Fiscal Year, each Member having a share of such minimum gain will be allocated
items of Profits equal to such Member's share of such net decrease in Company
nonrecourse debt minimum gain. The determination of net decreases in Company
minimum gain and Member nonrecourse debt minimum gain, allocations of such net
decreases, exceptions to minimum gain chargebacks and all other issues affecting
the minimum gain chargeback requirements will be determined in accordance with
the (S) 704(b) Regulations.
4.5 GAIN CHARGEBACK. Notwithstanding the general rule stated in 4.2[a] but
---------------
subject to the prior application of the minimum gain chargeback rule stated in
4.4, Profits of the Company incident to Dissolution and Liquidation will be
allocated among the Members in the following order and priority: [a] if any
Members have negative Capital Account balances, to such Members in proportion to
and to the extent of such negative balances until all such negative balances are
eliminated; [b] if the allocations to the Company described in 4.2[a][i] have
not been completed, to the Fox Member until completion of such allocations; and
[c] the balance to the Members in proportion to their Ownership Interests.
4.6 TAX ALLOCATIONS. Allocation of items of income, gain, loss and
---------------
deduction of the Company for federal income tax purposes for a Fiscal Year will
be allocated, as nearly as is practicable, in accordance with the manner in
which such items are reflected in the allocations of Profits and Losses among
the Members for such Fiscal Year. To the extent possible, principles identical
to those that apply to allocations for federal income tax purposes will apply
for state and local income tax purposes.
18
<PAGE>
4.7 QUALIFIED INCOME OFFSET. Notwithstanding any other provision of this
-----------------------
Agreement to the contrary (except 4.4, which will be applied first), if in any
Fiscal Year or other period a Member unexpectedly receives an adjustment,
allocation or distribution described in the qualified income offset provisions
of the (S) 704(b) Regulations, such Member will be specially allocated items of
income in an amount and manner sufficient to eliminate, to the extent required
by the (S) 704(b) Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible.
4.8 Limit on Loss Allocations. Notwithstanding the provisions of 4.2[b] or
-------------------------
any other provision of this Agreement to the contrary, Losses (or items thereof)
will not be allocated to a Member if such allocation would cause or increase a
Member's Adjusted Capital Account Deficit and will be reallocated to the other
Members in proportion to their Ownership Interests, subject to the limitations
of this 4.8.
4.9 (S) 754 ADJUSTMENTS. To the extent an adjustment to the adjusted tax
-------------------
basis of any Company asset under (S) 734(b) or (S) 743(b) of the Code is
required to be taken into account in determining Capital Accounts under the (S)
704(b) Regulations, the amount of the adjustment to the Capital Accounts will be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis), and the gain or loss will be
specially allocated to the Members in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted under the (S) 704(b)
Regulations.
4.10 CONTRIBUTED PROPERTY. All items of gain, loss and deduction with
--------------------
respect to property that is reflected in the Capital Accounts of the Members at
a basis different from such property's adjusted tax basis will be allocated,
solely for tax purposes, among the Members to take into account the variation
between the adjusted tax basis of the property and the basis reflected in the
Member's Capital Account according to the principles of the (S) 704(c)
Regulations. For example, if there is built-in gain with respect to certain
property at the time of such property's contribution to the Company, upon the
Company's sale of that property the pre-contribution taxable gain (as
subsequently adjusted under the (S) 704(c) Regulations during the period such
property was held by the Company) would be allocated to the contributing Member
(and such pre-contribution gain would not again create a Capital Account
adjustment because the property was credited to Capital Account upon
contribution at its Fair Market Value). Except as limited by the following
sentence, the allocation of tax items with respect to (S) 704(c) property to
Members that do not reflect a basis difference with respect to such property in
their Capital Accounts will, to the extent possible, be equal to the allocation
of the corresponding book items made to such Members with respect to such
property. All tax allocations made under this 4.11 will be made in accordance
with (S) 704(c) of the Code and (S) 1.704-3(b) of the Regulations.
19
<PAGE>
4.11 TAX CREDITS. To the extent that the federal income tax basis of an
-----------
asset is allocated to the Members in accordance with the Regulations promulgated
under (S) 46 of the Code, any tax credit attributable to such tax basis will be
allocated to the Members in the same ratio as such tax basis. With respect to
any other tax credit, to the extent that a Company expenditure gives rise to an
allocation of loss or deduction, any tax credit attributable to such expenditure
will be allocated to the Members in the same ratio as such loss or deduction.
Consistent principles will apply in determining the Members' interests in tax
credits that arise from taxable or non-taxable receipts of the Company. All
allocations of tax credits will be made as of the time such credit arises. Any
recapture of a tax credit will be allocated, to the extent possible, to the
Members in the same manner as the tax credit was allocated to them. Except as
otherwise specifically provided in the (S) 704(b) Regulations (such as the
adjustments required when there is an upward or downward adjustment in the tax
basis of investment credit property), allocations of tax credits and their
recapture will not be reflected by any adjustment to Capital Accounts.
4.12 ALLOCATION ON TRANSFER. If any Ownership Interest is transferred during
----------------------
any Fiscal Year of the Company (whether by liquidation of an Ownership Interest,
Transfer of all or part of an Ownership Interest or otherwise), the books of the
Company will be closed as of the effective date of Transfer. The Profits or
Losses attributed to the period from the first day of such Fiscal Year through
the effective date of Transfer will be allocated to the Transferor and the
Profits or Losses attributed to the period commencing on the day after the
effective date of Transfer will be allocated to the Transferee. In lieu of an
interim closing of the books of the Company and with the agreement of the
Transferor and the Transferee, the Company may allocate Profits and Losses for
such Fiscal Year between the Transferor and the Transferee based on a daily
proration of items for such Fiscal Year or any other reasonable method of
allocation (including an allocation of extraordinary Company items, as
determined by the Company, based on when such items are recognized for federal
income tax purposes).
4.13 TIER PARTNERSHIPS. Rules similar to those stated in this Article will
-----------------
apply to the extent the Company is an owner of an interest in another Person
which is classified as a partnership for federal income tax purposes, all in
accordance with the (S) 704(b) Regulations.
ARTICLE 5: DISTRIBUTIONS
5.1 DISTRIBUTIONS GENERALLY. Except for Distributions incident to the
-----------------------
Company's Dissolution and Liquidation (which will be governed by 12.4), and
except as provided in 3.11, Available Cash will be distributed quarterly to the
Members in the following order and priority:
20
<PAGE>
[a] First, 100% to the Fox Member until the cumulative amount so distributed
for all Fiscal Years is equal to the Fox Preferred Amount; and
[b] Thereafter, to the Members in accordance with their Ownership Interests.
5.2 PAYMENT. All Distributions will be made to Members owning Ownership
-------
Interests on the date of record, such date being the last day of the calendar
month preceding the date of Distribution, as reflected on the books of the
Company.
5.3 WITHHOLDING. If required by the Code or by state or local law, the
-----------
Company will withhold any required amount from Distributions to a Member for
payment to the appropriate taxing authority. Any amount so withheld from a
Member will be treated as a Distribution by the Company to such Member. Each
Member will timely file any agreement that is required by any taxing authority
in order to avoid any withholding obligation that would otherwise be imposed on
the Company.
5.4 DISTRIBUTION LIMITATION. Notwithstanding any other provision of this
-----------------------
Agreement, the Company will not make any Distribution to the Members if, after
the Distribution, the liabilities of the Company (other than liabilities to
Members on account of their Ownership Interests) would exceed the Fair Market
Value of the Company's assets. With respect to any property subject to a
liability for which the recourse of creditors is limited to the specific
property, such property will be included in assets only to the extent the
property's Fair Market Value exceeds its associated liability, and such
liability will be excluded from the Company's liabilities.
ARTICLE 6: MANAGEMENT
6.1 MANAGEMENT. Management of the business and affairs of the Company is
----------
reserved to, and vested in, the Members and no manager (as defined in the Act)
will be elected by the Members unless this Agreement is appropriately amended.
Each Member will cause the Company to be managed and operated with the intent to
maximize the cash flow and long-term asset value of the Company. The Members
will exercise their management control by Vote, subject to any restrictions on a
Member's right to Vote as provided in Section 3.5 of the Agreement Regarding
Ownership Interests. No Member has the authority to act on behalf of the Company
unless authorized by a Vote. Notwithstanding the foregoing, Persons dealing with
the Company are entitled to rely conclusively on the power and authority of any
Member. From time to time, on the request of a Member authorized to act in
accordance with this Agreement, the Company will confirm to Third Parties that
Persons dealing with the Company may rely on powers and authorities of such
Member as set forth in this Agreement.
21
<PAGE>
6.2 ACTIONS REQUIRING A UNANIMOUS VOTE. Subject to any restriction on a
----------------------------------
Member's right to Vote pursuant to Section 3.5 of the Agreement Regarding
Ownership Interests, in addition to those actions described elsewhere in this
Agreement as requiring the Vote of, or approval by, all the Members, the
following actions or decisions by the Company will be made only by the
affirmative unanimous Vote of the Members:
[a] entry into areas of business other than the Sports Business or the fX
Business;
[b] the approval of each (or any amendment to any previously approved) three-
year business plan and annual operating and capital budget for the Company
and each Company Business and Service; if the Members are unable
unanimously to approve an annual budget for the Company or a particular
Company Business or Service, then, until a new budget is approved, the
annual budget for the Company or that Company Business or Service for the
immediately preceding Fiscal Year will remain in effect, adjusted (without
duplication) to reflect the following increases or decreases: [i] the
operation of escalation or de-escalation provisions in contracts in effect
at the time of approval of the budget solely as a result of the passage of
time or due to operations or undertakings approved in the budget or the
occurrence of events beyond the control of the Company, to the extent such
contracts are still in effect; [ii] elections made in any prior year under
contracts contemplated by the budget for the prior year regardless of
which party to such contracts makes such election; [iii] the effect of the
existence of any multi-year contract entered into in accordance with a
previous budget to the extent not fully reflected in the prior year's
budget; [iv] increases or decreases in expenses attributable to the
annualized effect of employee additions or reductions during the prior
year contemplated by the budget for the prior year; [v] interest expense
attributable to any loans; [vi] increases or decreases in overhead
expenses in an amount equal to the total of overhead expenses reflected in
the budget for the prior year (excluding non-recurring items) multiplied
by the percentage increase or decrease in the U.S. Department of Labor
Bureau of Labor Statistics Consumer Price Index for all Urban Consumers
("CPI-U") or a successor index for the prior Fiscal Year (but in no event
will such change be more than 10% of the corresponding items in the prior
budget); and [vii] decreases in expenses attributable to non-recurring
items reflected in the prior year's budget.
[c] engaging in any non-budgeted transaction which, when added to all other
non-budgeted transactions during the same Fiscal Year, would cause the
aggregate amount of non-budgeted transactions for such Fiscal Year to
exceed $5,000,000;
22
<PAGE>
[d] approval of any programming rights acquisition agreement involving more
than US $5,000,000 per year or US $15,000,000 in the aggregate (unless
provided for in the approved budget under which the Company is then
operating);
[e] acquiring an interest in or the assets of any business for an acquisition
price of more than US $5,000,000;
[f] amendment of this Agreement or any other organizational document of the
Company, any Business Company or any Person directly or indirectly
Controlled by the Company or in which the Company has an interest directly
or indirectly entitling it to vote on such amendment;
[g] any action relating to the merger, sale, consolidation, reorganization,
dissolution, winding up, liquidation or similar transaction involving all
or any portion of the Company, a Sports Company, an fX Company or any
Company Business;
[h] incurrence of any debt exceeding US $5,000,000 (excluding normal trade
debt), or the issuance of any guarantee, or the creation of any Lien,
unless provided for in the approved budget under which the Company is then
operating;
[i] appointment or removal of auditors of the Company, approval or adoption of
accounting principles applicable to the Company, and any change in the
Fiscal Year of the Company;
[j] any decision to require Additional Contributions to the Company;
[k] any decision to distribute cash or other assets of the Company, except any
Distribution pursuant to Article 5 or pursuant to Section 2.4 of the
Agreement Regarding Ownership Interests;
[l] the admission of additional Members (except as provided in 13.3) or the
grant by the Company of any right to acquire any interest in the Company
or any stock or equity appreciation or similar right;
[m] any transaction involving the Company, on the one hand, and a Member or an
Affiliate of a Member, on the other (including the provision of management
or other services and charges therefor or allocations of general and
administrative costs by a Member or an Affiliate of a Member to the
Company), except as otherwise provided in 14.4;
23
<PAGE>
[n] any change in programming direction or philosophy or operating principles
(including budget compliance) of the Company or of any Service offered by
the Company;
[o] appointment or removal of the Tax Matters Partner; or
[p] any employment agreement providing for compensation on termination of
employment other than in accordance with severance policies generally
applicable to employees of the Company.
[q] any agreement by the Company to take any of the foregoing actions.
6.3 OTHER MATTERS. Unless otherwise restricted by a unanimous Vote of
-------------
the Members, any action not requiring a unanimous Vote will be deemed approved
by the Company if such action is taken by an officer of the Company in the
ordinary course of business in a manner consistent with a business plan or
budget approved by the Members.
6.4 MEMBER REPRESENTATIVES. The Fox Member and the LMC Member each will
----------------------
be entitled to designate two individuals, and Financing LLC will be entitled to
designate four individuals, to act as such Member's duly authorized
representatives and agents (each a "Representative") for purposes of exercising
such Member's Vote on any matter involving the Company. A Member will designate
its Representatives by Notice to each other Member and may change any such
designation at any time upon similar Notice.
6.5 NO DISSOLUTION, RESIGNATION OR RETIREMENT. No Member will
-----------------------------------------
voluntarily dissolve, resign from or retire from the Company, except by a
Transfer to a Permitted Transferee or following Dissolution and Liquidation of
the Company. If any such voluntary dissolution, resignation or retirement
occurs in contravention of this Agreement, the withdrawing Member will, without
further act, become a Transferee of such Member's Ownership Interest (with the
limited rights of a Transferee as set forth in 13.5). Any Member who dissolves,
resigns or retires from the Company in contravention of this Agreement will be
liable to the Company and the other Members for monetary damages.
6.6 OFFICERS.
--------
[a] The Fox Member will have the exclusive right to cause the Company to
nominate a chief executive officer ("CEO"), chief financial officer
("CFO"), and chief operating officer ("COO") for each of the Sports
Business and the fX Business, subject, in each case, to the LMC Member's
approval, which approval will not unreasonably be withheld. Each CEO will
have the authority to select such other officers (other than a CFO and
COO) as may be necessary or
24
<PAGE>
desirable to carry out the day-to-day management of that CEO's Company
Business, such day-to-day management to be subject to the approval of the
Members.
[b] At the request of the LMC Member made at any time after the date that is
18 months after the date of this Agreement, the Fox Member will give due
consideration, in good faith, to the appointment of a single CEO, CFO and
COO for all the Company Businesses. Such appointment will be subject to
the approval of the LMC Member, which approval will not be unreasonably
withheld.
[c] Each of the Fox Member and the LMC Member will have the right, in its sole
discretion, to cause the Company to terminate a CEO, a CFO or a COO. In
case of any such termination, the terminated officer will be required to
leave his or her position within 24 hours after receiving a notice of
termination.
[d] Appointment of a Person as an officer or agent of the Company will not, in
itself, create any contract rights. The officers of the Company, acting in
their capacities as such, will be agents acting on behalf of the Company
as principal.
6.7 BUDGETS AND BUSINESS PLANS; FINANCIAL INFORMATION.
-------------------------------------------------
[a] The Members will require the appropriate officers and employees of the
Company to prepare and present to the Members an annual operating and
capital budget and a three-year business plan for each of the Sports
Business and the fX Business at least 90 days in advance of the beginning
of the applicable Fiscal Year. Each annual operating and capital budget
will be at least as detailed as the 12-month budgets attached as
Appendices A and B to the Original Agreement.
[b] The Members will require the appropriate officers and employees of the
Company to prepare and deliver to the Members [i] reasonably detailed
quarterly and annual financial statements, including balance sheets and
statements of income and cash flows for the Company, each of the Sports
Companies and the fX LLC, in each case prepared in accordance with GAAP
(subject, in the case of interim financial statements, to the omission of
footnotes and normal year-end adjustments), [ii] monthly statements of
income and cash flows for the Company, each of the Sports Companies and
the fX LLC, including, in the case of such statements of income,
identification of all transactions between the Company, a Sports Company
or the fX LLC, on the one hand, and a Member or any of its Affiliates, on
the other, including footnote disclosure thereof, [iii] quarterly reports
setting forth in reasonable detail information concerning investments made
by the Company, each of the Sports Companies and the fX LLC, [iv] monthly
comparisons of the applicable budget
25
<PAGE>
to actual performance and [v] at least quarterly, 12-month forward rolling
operating and capital forecasts. The financial information to be provided
pursuant to this 6.7[b] will be distributed to the Members within the
following time periods: information required to be furnished monthly will
be provided within 15 days following the end of the applicable month,
information required to be furnished quarterly will be provided within 30
days following the end of the applicable quarter, and information required
to be furnished annually will be provided within 60 days following the end
of the applicable Fiscal Year.
6.8 MANAGEMENT CONDUCT. The Members each will cause the officers and
------------------
employees of the Company promptly and diligently to perform the duties
contemplated by this Agreement. If a Member willfully fails to perform its
obligations under the foregoing sentence to the material detriment of the other
Members and fails to cure such failure within 30 days after Notice by another
Member, such Member will immediately lose its right to take part in the
selection or termination of any CEO, CFO and COO and will cease to have voting
rights as to the actions described in 6.2[b] through 6.2[d] and as to any
agreement by the Company to take any of such actions.
6.9 UNAUTHORIZED ACTIONS. If a Member takes any action which is not
--------------------
authorized under this Agreement and, as a consequence of such action, the
Company incurs any liability or obligation to any Person, at the election of any
other Member, the Member taking such unauthorized action will be solely
responsible for the full amount of such liability or obligation and will
indemnify the Company against any claim for satisfaction thereof. Subject to
receipt of an assumption agreement, duly executed by such Member, to the effect
set forth in the foregoing sentence, which assumption agreement is in form and
substance reasonably satisfactory to the other Members, the Company will assign
to such Member all the Company's rights in and to any asset, income or benefit
arising from the incurrence of such liability or obligation (such assignment to
be effected by an assignment duly executed by the Company, which assignment is
in form and substance reasonably satisfactory to such Member). After such
assignment, the Member to which such rights have been assigned may use or
transfer such rights, subject, in any event, to any restriction on the use or
transfer thereof imposed by this Agreement or the Parents Agreement.
ARTICLE 7: MEETINGS OF MEMBERS
7.1 MEETINGS.
--------
[a] Regular meetings of the Members will be held quarterly upon at least 10
days' prior Notice by the Member entitled to select the place of the
meeting pursuant to 7.2.
26
<PAGE>
[b] Special meetings of the Members may be called by any Member owning at
least 10% of the Ownership Interests held by all Members upon the giving
of at least 10 days' prior Notice by such Member.
7.2 PLACE. The LMC Member and the Fox Member will alternate in selecting
-----
the place for each quarterly meeting of the Members. If no place for a meeting
is designated, or if a special meeting is called, the place of the meeting will
be the Company's principal business office or such other place as the Members
may approve.
7.3 NOTICE. Notice of any meeting will be given to at least one
------
Representative of each Member not less than 10 days or more than 30 days before
the date of the meeting. Such Notice will state the place, day and hour of the
meeting and, in the case of a special meeting, the purpose for which the meeting
is called.
7.4 WAIVER OF NOTICE. Any Member may waive, in writing, any Notice
----------------
required to be given to such Member, whether before or after the time for the
meeting stated in such Notice. Any Member who signs minutes of action (or a
written consent) will be deemed to have waived any required Notice with respect
to such action.
7.5 RECORD DATE. For the purpose of determining Members entitled to
-----------
Notice of or to Vote at any meeting of Members, the date on which Notice of the
meeting is first given will be the record date for the determination of Members.
Any such determination of Members entitled to Vote at any meeting of Members
will apply to any adjournment of a meeting.
7.6 QUORUM. A quorum at any meeting of Members will be deemed to exist
------
if at least one Representative of each Member entitled to Vote is present in
person or by proxy. Any meeting at which a quorum is not present may be
adjourned to another place, day and hour without further Notice.
7.7 MANNER OF ACTING. If a quorum is present at any meeting of the
----------------
Members, the affirmative Vote of Members as set forth in Article 6 will be the
act of the Company. Prompt Notice describing all actions taken at a meeting will
be provided to all Representatives who were not in attendance at such meeting.
7.8 PROXIES. At any meeting of Members, a Member may Vote in person or
-------
by written proxy given to another Member. A proxy will be valid if signed by
any Representative of the Member or by a duly authorized attorney-in-fact and
filed with the Company before or at the time of the meeting. No proxy will be
valid after three months from the date of its signing unless otherwise provided
in the proxy. Attendance at the meeting by any Representative of the Member
giving the proxy will be deemed to revoke the proxy during the period of
attendance.
27
<PAGE>
7.9 MEETINGS BY TELEPHONE. The Members may participate in a meeting by
---------------------
means of conference telephone or similar communications equipment by which all
Representatives participating in the meeting can hear each other at the same
time. Such participation will constitute presence in person at the meeting and
waiver of any required Notice.
7.10 ACTION WITHOUT A MEETING. Any action required or permitted to be
------------------------
taken at a meeting of Members may be taken without a meeting if the action is
evidenced by one or more minutes of action or written consents describing the
action taken, signed by all Representatives of those Members entitled to Vote.
Action so taken will be effective when all Representatives of those Members
entitled to Vote have signed the consent, unless the consent specifies a later
effective date. Prompt Notice describing all actions taken without a meeting of
Members will be provided to all Representatives who have not signed the written
consent authorizing such actions.
ARTICLE 8: LIABILITY OF A MEMBER
8.1 LIMITED LIABILITY. Except as otherwise provided in the Act and in
-----------------
6.9, the debts, obligations and liabilities of the Company (whether arising in
contract, tort or otherwise) will be solely the debts, obligations and
liabilities of the Company, and no Member of the Company (including any Person
who formerly held such status) is liable or will be obligated personally for any
such debt, obligation or liability of the Company solely by reason of such
status. No Representative, individual trustee, officer, director, employee or
agent of any Member will have any personal liability for the performance of any
obligation of such Member under this Agreement.
8.2 CAPITAL CONTRIBUTION. Each Member is liable to the Company for [a]
--------------------
the Initial Contribution agreed to be made under 3.1 and [b] any Capital
Contribution or Distribution that has been wrongfully or erroneously returned or
made to such Person in violation of the Act, the Certificate or this Agreement.
8.3 CAPITAL RETURN. Any Member who has received the return of all or any
--------------
part of such Person's Capital Contribution will have no liability to return such
Distribution to the Company after the expiration of three years from the date of
such Distribution unless Notice of an obligation to return is given to such
Person within such three-year period; provided that if such return of capital
has occurred without violation of the Act, the Certificate or this Agreement,
the three-year obligation to return capital will apply only to the extent
necessary to discharge the Company's liability to its creditors who reasonably
relied on such obligation in extending credit prior to such return of capital.
8.4 RELIANCE. Any Member will be fully protected in relying in good
--------
faith upon the records of the Company and upon such information, opinions,
reports or statements by
28
<PAGE>
[a] any of the Company's other Members, employees or committees or [b] any other
Person who has been selected with reasonable care as to matters such Member
reasonably believes are within such other Person's professional or expert
competence. Matters as to which such reliance may be made include the value and
amount of assets, liabilities, Profits and Losses of the Company, as well as
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be made.
ARTICLE 9: INDEMNIFICATION
9.1 GENERAL. The Company will indemnify each Member from and against any
-------
and all loss, damage, expense (including reasonable fees and expenses of
attorneys and other advisors and any court costs incurred by such Member) or
liability incurred in any Proceeding to which such Member is made a party
because such Person was a Member or acted or failed to act with respect to the
business or affairs of the Company if [a] such Person acted in good faith, [b]
such Person reasonably believed that its conduct in an official capacity was in
the Company's best interests or, if the conduct was not in an official capacity,
that its conduct was at least not opposed to the Company's best interests and
[c] such Person, in the case of any criminal Proceeding, had no reasonable cause
to believe its conduct was unlawful.
9.2 EXCEPTION. Notwithstanding the general rule stated in 9.1, the
---------
Company will not indemnify any Person in connection with [a] any Proceeding by
or in right of the Company in which such Member was adjudged liable to the
Company, [b] in connection with any Proceeding charging improper personal
benefit to the Member (whether or not involving action in an official capacity)
in which such Person was adjudged liable on the basis that personal benefit was
improperly received or [c] any liability or obligation for which such Person is
liable under 6.9.
9.3 EXPENSE ADVANCEMENT. With respect to the reasonable expenses
-------------------
incurred by a Member who is a party to a Proceeding, the Company may provide
funds to such Person in advance of the final disposition of the Proceeding if
[a] the Member furnishes the Company with such Person's written affirmation of a
good-faith belief that it has met the standard of conduct described in 9.1, [b]
the Member agrees in writing to repay the advance (with simple interest at the
Prime Rate) if it is determined that it has not met such standard of conduct and
[c] the Company determines that, based on then known facts, indemnification is
permissible under this Article.
9.4 INSURANCE. The indemnification provisions of this Article do not
---------
limit a Member's right to recover under any insurance policy maintained by the
Company. If, with respect to any loss, damage, expense or liability described
in 9.1, any Member receives an insurance policy indemnification payment which,
together with any
29
<PAGE>
indemnification payment made by the Company, exceeds the amount of such loss,
damage, expense or liability, then such Person will immediately repay such
excess to the Company.
9.5 INDEMNIFICATION OF OTHERS. To the same extent that the Company will
-------------------------
indemnify and advance expenses to a Member, the Company may indemnify and
advance expenses to any officer, employee or agent of the Company. In addition,
the Company, in its discretion, may indemnify and advance expenses to any
Company officer, employee or agent to a greater extent than a Member.
ARTICLE 10: ACCOUNTING AND REPORTING
10.1 FISCAL YEAR. For income tax and accounting purposes, the fiscal year
-----------
of the Company will be the Fiscal Year.
10.2 ACCOUNTING METHOD. For income tax and accounting purposes, the
-----------------
Company will use the accrual method of accounting (unless otherwise required by
the Code). The Tax Matters Partner will have the authority to adopt all other
accounting methods for tax purposes.
10.3 TAX ELECTIONS. The Tax Matters Partner will have the authority to
-------------
make such tax elections, and to revoke any such election, as the Tax Matters
Partner may from time to time determine. Notwithstanding the preceding
sentence, following any Transfer (within the meaning of (S) 754 of the Code) of
an Ownership Interest, the Tax Matters Partner will make the election under (S)
754 of the Code upon the timely written request of either the Transferor Member
or the Transferee. In addition, the Tax Matters Partner may make the (S) 754
election if the Tax Matters Partner determines that such election is in the best
interests of the Company or any Member.
10.4 RETURNS. At the expense of the Company, the Tax Matters Partner will
-------
cause the preparation and timely filing of all tax returns required to be filed
by the Company pursuant to the Code, as well as all other tax returns required
in each jurisdiction in which the Company does business.
10.5 FINANCIAL REPORTS. The Members will cause the appropriate officers
-----------------
or employees of the Company, at the expense of the Company, to cause to be
prepared and distributed to the Members the financial statements, reports and
other information prescribed by 6.7 and such other financial statements,
budgets, plans and schedules as required for the reporting purposes of and/or
are from time to time reasonably requested by the Members.
10.6 ANNUAL AUDIT.
------------
30
<PAGE>
[a] Each Fiscal Year, an audit will be made by the Company's accountants at
the expense of the Company. The audit will be conducted in accordance with
generally accepted auditing standards, and will cover all of the assets,
properties, liabilities and net worth of the Company as well as its
dealings, transactions and operations during such Fiscal Year, together
with all other matters customarily included in such accountings and audits
or as may be reasonably required by the Members. As to any Member whose
fiscal year does not coincide with the Fiscal Year of the Company, the
Company will bear the cost of [i] any review that is required to be
conducted by such Member's independent auditor for the purpose of
permitting such independent auditor to rely on any audit opinion issued by
the Company's independent auditor for the Fiscal Year ended within the
fiscal year of the Member and [ii] if applicable, any review that is
required to permit such Member to comply with Regulation S-X of the
Securities Act of 1934, as amended, such cost not to exceed a reasonable
amount.
[b] At the expense of the Company, within 60 days after the end of each Fiscal
Year, the Company will furnish the Members with audited financial
statements prepared by the Company's accountants on an accrual basis in
accordance with GAAP consistently applied which will contain a balance
sheet as of the end of the Fiscal Year, statements of income, changes in
the Capital Accounts and cash flow for the Fiscal Year then ended. The
timing of the annual audit of each Fiscal Year will be such that the
Company's accountants are in a position to render a conclusion as to the
probable fairness of presentation of the financial statements of the
Company for such Fiscal Year (which will have been furnished pursuant to
the foregoing provisions of this 10.6) by the 60th day following the close
of the Fiscal Year.
10.7 BOOKS AND RECORDS.
-----------------
[a] The following books and records of the Company will be kept at its
principal office: [i] a current list of the full name and last known
business, residence or mailing address of each Member; [ii] originals of
the Certificate and of this Agreement, as amended (as well as any signed
powers of attorney pursuant to which any such document was executed);
[iii] a copy of the Company's federal, state and local income tax returns
and reports and annual financial statements of the Company, for the six
most recent years; and [iv] minutes, or minutes of action or written
consent, of every meeting of Members of the Company.
[b] At the Company's expense, there will be kept at the Company's principal
office separate books of account for each Company Business which will be a
true and accurate record of all costs and expenses incurred, all credits
made and received
31
<PAGE>
and all income derived in connection with the operation of the Company
Business in accordance with GAAP consistently applied.
[c] Each Member, at its sole expense, will have the right, at any time without
notice to the other, to examine, copy and audit the Company's books and
records during normal business hours.
10.8 INFORMATION.
-----------
[a] Each Member has the right, from time to time and upon reasonable demand
for any purpose reasonably related to such Person's interest as a Member
of the Company, to obtain from the Company: [i] a current list of the full
name and last known business, residence or mailing address of each Member;
[ii] a copy of the Certificate and of this Agreement, as amended (as well
as any signed powers of attorney pursuant to which any such document was
executed); [iii] a copy of the Company's federal, state and local income
tax returns and reports and annual financial statements of the Company,
for the six most recent years; [iv] minutes, or minutes of action or
written consent, of every meeting of the Members of the Company; [v] true
and full information regarding the amount of money and a description and
statement of the agreed value of any other property or services
contributed or to be contributed by each Member, and the date on which
each became a Member; [vi] true and full information regarding the status
of the business and financial condition of the Company; and [vii] other
information regarding the affairs of the Company as reasonably may be
requested by such Member.
[b] The Members will cause the Company [i] to deliver to each Member, for its
review and approval, a copy of each tax return or report required to be
filed by the Company at least 30 days before the required filing date and
[ii] to provide to each Member, not more than 135 days after each Fiscal
Year end, such information for such Fiscal Year as the Member reasonably
requires to prepare tax returns or reports required to be filed by it or
one or more of its Affiliates, including federal and state tax information
and projections and estimates.
10.9 BANKING. The Company may establish and maintain one or more accounts
-------
or safe deposit boxes at banks or other financial institutions. The Company may
authorize one or more individuals to sign checks on and withdraw funds from such
bank or financial accounts and to have access to such safe deposit boxes, and
may place such limitations and restrictions on such authority as the Company
deems advisable. No funds of the Company will be commingled with funds of any
Member or any other Person.
32
<PAGE>
10.10 TAX MATTERS PARTNER. Until further action by the Company, the Fox
-------------------
Member is designated as the Tax Matters Partner under (S) 6231(a)(7) of the
Code. The Tax Matters Partner will take no action which is reasonably expected
to have a material adverse effect on one or more of the Members unless such
action is approved by the unanimous Vote of the Members. The Tax Matters
Partner will be responsible for notifying all Members of ongoing proceedings,
both administrative and judicial, and will represent the Company throughout any
such proceeding. The Members will furnish the Tax Matters Partner with such
information as it may reasonably request to provide the Internal Revenue Service
with sufficient information to allow proper notice to the Members. If an
administrative proceeding with respect to a partnership item under the Code has
begun, and the Tax Matters Partner so requests, each Member will notify the Tax
Matters Partner of its treatment of any partnership item on its federal income
tax return, if any, which is inconsistent with the treatment of that item on the
partnership return for the Company. Any settlement agreement with the Internal
Revenue Service will be binding upon the Members only as provided in the Code.
The Tax Matters Partner will not bind any other Member to any extension of the
statute of limitations or to a settlement agreement without such Member's
written consent. Any Member who enters into a settlement agreement with respect
to any partnership item will notify the other Members of such settlement
agreement and its terms within 30 days after the date of settlement. If the Tax
Matters Partner does not file a petition for readjustment of the partnership
items in the Tax Court, federal District Court or Claims Court within the 90-day
period following a notice of a final partnership administrative adjustment, any
notice partner or 5-percent group (as such terms are defined in the Code) may
institute such action within the following 60 days. The Tax Matters Partner
will timely notify the other Members in writing of its decision. Any notice
partner or 5-percent group will notify the other Members of its filing of any
petition for readjustment.
10.11 NO PARTNERSHIP. The classification of the Company as a partnership
---------------
will apply only for federal (and, as appropriate, state and local) income tax
purposes. This characterization, solely for tax purposes, does not create or
imply a general partnership between the Members for state law or any other
purpose. Instead, the Members acknowledge the status of the Company as a
limited liability company formed under the Act.
ARTICLE 11: DISSOLUTION
11.1 DISSOLUTION. Dissolution of the Company will occur upon the
-----------
happening of any of the following events:
[a] The sale or other disposition of all or substantially all of the Company's
assets;
[b] The affirmative Vote of all Members; or
33
<PAGE>
[c] The last day of the Fiscal Year ending in 2095, unless prior to such date
the Company is continued under the Act and this Agreement by the unanimous
Vote of all Members.
11.2 EXCLUSIVE MEANS OF DISSOLUTION. The exclusive means by which the
------------------------------
Company may be dissolved are set forth in 11.1. The Company will not be
dissolved upon the death, retirement, resignation, expulsion, Bankruptcy, or
dissolution of any Member or upon the occurrence of any other event which
terminates the continued membership of any Member in the Company.
ARTICLE 12: LIQUIDATION
12.1 LIQUIDATION. Upon Dissolution of the Company, the Company will
-----------
immediately proceed to wind up its affairs and liquidate pursuant to this 12.1.
If there is only one remaining Member, that Member will act as the liquidating
trustee. Otherwise, any Person appointed by Members owning more than 50% of the
Ownership Interests held by all Members will act as the liquidating trustee.
The Liquidation of the Company will be accomplished in a businesslike manner as
determined by the liquidating trustee. A reasonable time will be allowed for
the orderly Liquidation of the Company and the discharge of liabilities to
creditors so as to enable the Company to minimize any losses attendant upon
Liquidation. Any gain or loss on disposition of any Company assets in
Liquidation will be allocated to Members in accordance with the provisions of
Article 4. Any liquidating trustee is entitled to reasonable compensation for
services actually performed, and may contract for such assistance in the
liquidating process as such Person deems necessary or desirable. Until the
filing of a certificate of cancellation under 12.8, and without affecting the
liability of the Members and without imposing liability on the liquidating
trustee, the liquidating trustee may settle and close the Company's business,
prosecute and defend suits, dispose of its property, discharge or make provision
for its liabilities, and make Distributions in accordance with the priorities
set forth in this Article.
12.2 TAX TERMINATION. In addition to termination of the Company following
---------------
its Dissolution, a termination of the Company will occur, for federal income tax
purposes only, on the date the Company is terminated under (S) 708(b)(1) of the
Code. Under current law, events causing such a termination include the sale or
exchange of 50% or more of the total interest in the capital and profits of the
Company within a 12-month period. Upon the occurrence of a termination under
(S) 708(b)(1) of the Code, the Company will be deemed to contribute its assets
and liabilities to a new partnership for tax purposes and will be deemed to
distribute interests in such new partnership to the purchaser and the remaining
Members in proportion to their respective interests in the Company. All
adjustments and computations will be made under this Agreement as if the
constructive transactions had actually occurred, and the Capital Accounts of the
34
<PAGE>
Members in such new tax partnership will be determined and maintained in
accordance with the (S) 704(b) Regulations.
12.3 PRIORITY OF PAYMENT. The assets of the Company will be distributed
-------------------
in Liquidation in the following order:
[a] First, to creditors by the payment or provision for payment of the debts
and liabilities of the Company (other than any loans or advances that may
have been made by any Member or Affiliate) and the expenses of
Liquidation;
[b] Second, to the setting up of any reserves that are reasonably necessary
for any contingent, conditional or unmatured liabilities or obligations of
the Company;
[c] Third, to the repayment of any loans to the Company that may have been
made by any Member or any Affiliate of a Member (according to the relative
priority of repayment of such loans and proportionally among loans of
equal priority if the amount available for repayment is insufficient for
payment in full); and
[d] Fourth, to the Members in proportion to the positive balances in their
respective Capital Accounts after such Capital Accounts have been adjusted
for all allocations of Profits and Losses and items thereof for the Fiscal
Year during which such Liquidation occurs.
12.4 LIQUIDATING DISTRIBUTIONS. The liquidating Distributions due to the
-------------------------
Members will be made by selling the assets of the Company and distributing the
net proceeds. Notwithstanding the preceding sentence, but only upon the
affirmative Vote of all Members, the liquidating Distributions may be made by
distributing the assets of the Company in kind to the Members in proportion to
the amounts distributable to them pursuant to 12.3, valuing such assets at their
Fair Market Value (net of liabilities secured by such property that the Member
takes subject to or assumes) on the date of Distribution. Each Member agrees to
save and hold harmless the other Members from such Member's proportionate share
of any and all such liabilities which are taken subject to or assumed.
Appropriate and customary prorations and adjustments will be made incident to
any Distribution in kind. The Members will look solely to the assets of the
Company for the return of their Capital Contributions, and if the assets of the
Company remaining after the payment or discharge of the debts and liabilities of
the Company are insufficient to return such contributions, they will have no
recourse against any other Member. The Members acknowledge that 12.3 may
establish Distribution priorities different from those set forth in the
provisions of the Act applicable to Distributions upon Liquidation, and the
Members agree that they intend, to that extent, to vary those provisions by this
Agreement.
35
<PAGE>
12.5 NO RESTORATION OBLIGATION. Except as otherwise specifically provided
-------------------------
in 8.2 and 8.3, nothing contained in this Agreement imposes on any Member an
obligation to make an Additional Contribution in order to restore a deficit
Capital Account upon Liquidation of the Company.
12.6 TIMING. Final Distributions in Liquidation will be made by the end
------
of the Company's Fiscal Year in which such actual Liquidation occurs (or, if
later, within 90 days after such event) in the manner required to comply with
the (S) 704(b) Regulations. Payments or Distributions in Liquidation may be made
to a liquidating trust established by the Company for the benefit of those
entitled to payments under 12.3, in any manner consistent with this Agreement
and the (S) 704(b) Regulations.
12.7 LIQUIDATING REPORTS. A report will be submitted with each
-------------------
liquidating Distribution to Members made pursuant to 12.4, showing the
collections, disbursements and Distributions during the period which is
subsequent to any previous report. A final report, showing cumulative
collections, disbursements and Distributions, will be submitted upon completion
of the Liquidation.
12.8 CERTIFICATE OF CANCELLATION. Upon Dissolution of the Company and the
---------------------------
completion of the winding up of its business, the Company will file a
certificate of cancellation (to cancel the Certificate of Formation) with the
Delaware Secretary of State pursuant to the Act. At such time, the Company will
also file an application for withdrawal of its certificate of authority in any
jurisdiction where it is then qualified to do business. A certificate of
cancellation will also be filed at any time there is only one Member.
ARTICLE 13: TRANSFER RESTRICTIONS
13.1 GENERAL RESTRICTION. No Person may Transfer all or any part of such
-------------------
Person's Ownership Interest in any manner whatsoever except to a Permitted
Transferee as set forth in 13.3 and only if the requirements of 13.4 have also
been satisfied. Any other Transfer of all or any part of an Ownership Interest
is null and void, and of no effect. Any Member who makes a Transfer of all of
such Person's Ownership Interest will be treated as resigning from the Company
on the effective date of such Transfer. The rights and obligations of any
resigning Member or of any Transferee of an Ownership Interest will be governed
by the other provisions of this Agreement.
13.2 NO MEMBER RIGHTS. Except as otherwise provided in this Agreement, no
----------------
Member has the right or power to confer upon any Transferee the attributes of a
Member in the Company. The Transferee of all or any part of an Ownership
Interest by operation of law does not, by virtue of such Transfer, succeed to
any rights as a Member in the Company.
36
<PAGE>
13.3 PERMITTED TRANSFEREES. Subject to the requirements set forth in
---------------------
13.4, a Person may Transfer all (but not less than all) of such Person's
Ownership Interest to any Person to whom such Ownership Interest is permitted to
be transferred pursuant to the Agreement Regarding Ownership Interests and, in
case of any such Transfer, except as otherwise provided in the Agreement
Regarding Ownership Interests, the Transferee will be admitted as a Member as of
the effective date thereof.
13.4 GENERAL CONDITIONS ON TRANSFERS. No Transfer of an Ownership
-------------------------------
Interest will be effective unless all the conditions set forth below are
satisfied:
[a] Unless waived by each nontransferring Member, the Transferor signs and
delivers to the Company an undertaking in form and substance satisfactory
to the Company to pay all reasonable expenses incurred by the Company in
connection with the Transfer (including reasonable fees of counsel and
account ants and the costs to be incurred with any additional accounting
required in connection with the Transfer, and the cost and fees
attributable to preparing, filing and recording such amendments to the
Certificate or other organizational documents or filings as may be
required by law);
[b] Unless waived by each nontransferring Member, the Transferor delivers to
the Company [i] an opinion of counsel for the Transferor reasonably
satisfactory in form and substance to the Company to the effect that,
assuming the accuracy of the statement of the Transferee described in [ii]
below, the Transfer of the Ownership Interest as proposed does not violate
requirements for registration under applicable federal and state
securities laws and [ii] a statement of the Transferee in form and
substance reasonably satisfactory to the Company making appropriate
representations and warranties with respect to compliance with the
applicable federal and state securities laws and as to any other matter
reasonably required by the Company;
[c] Unless waived by each nontransferring Member, the Transferor provides an
opinion of counsel for the Transferor reasonably satisfactory in form and
substance to the nontransferring Members or other evidence reasonably
satisfactory to the nontransferring Members that the Transfer of the
Ownership Interest will not result in the termination of the Company
within the meaning of (S) 708(b)(1)(B) of the Code. If the immediate
Transfer of such Ownership Interest would cause such a termination, but
the following action would not cause such a termination, the Transferor
will be entitled [i] immediately to Transfer only that portion of the
Ownership Interest as may be Transferred without causing such a
termination and [ii] to enter into an agreement to Transfer the remainder
of its Ownership Interest, in one or more Transfers, at the earliest date
or dates on which such Transfer or Transfers may be effected without
causing such a termination. In determining whether a particular
37
<PAGE>
proposed Transfer will result in a termination of the Company, the Members
will take into account the existence of prior written commitments to
Transfer of which Notice has been given pursuant to this Agreement and
those proposed Transfers will be given precedence over subsequent proposed
Transfers. Each nontransferring Member will waive the foregoing provisions
of this 13.4[c] unless such Member reasonably determines that the
termination of the Company within the meaning of (S) 708(b)(1)(B) of the
Code is reasonably likely to have a material adverse effect on such
Member.
[d] The Transferor signs and delivers to the Company a copy of the assignment
of the Ownership Interest to the Transferee (substantially in the form of
the attached EXHIBIT A), which assignment will provide that the Transferor
is released from any and all liabilities with respect to the transferred
Ownership Interest unless the Transferee is an Affiliate of the
Transferor, in which case the assignment will provide that the Transferor
will continue to be liable for the performance of such liabilities;
[e] The Transferee signs and delivers to the Company an agreement
(substantially in the form of the attached EXHIBIT B) to be bound by this
Agreement; and
[f] The Transfer is in compliance with the other provisions of this Article
and the Agreement Regarding Ownership Interests, including any
requirements relating to Third Party consents.
The Transfer of an Ownership Interest will be effective as of 12:01 a.m.
(Pacific Time) on the first day of the month following the month in which all of
the above conditions have been satisfied. The Company will amend Schedule 1.3
as of the effective time to reflect the new Ownership Interests.
13.5 RIGHTS OF TRANSFEREES. Any Transferee of an Ownership Interest will,
---------------------
on the effective date of the Transfer, have only those rights of an assignee as
specified in the Act unless and until such Transferee is admitted as a
substitute Member. This provision limiting the rights of a Transferee will not
apply if such Transferee is already a Member; provided that any Member who
resigns or retires from the Company in contravention of 6.5 will have only the
rights of an assignee as specified in the Act. Any Transferee of an Ownership
Interest who is not admitted as a substitute Member in accordance with this
Agreement has no right [a] to participate or interfere in the management or
administration of the Company's business or affairs, [b] to Vote or agree on any
matter affecting the Company or any Member, [c] to require any information on
account of Company transactions or [d] to inspect the Company's books and
records. The only right of a Transferee of an Ownership Interest who is not
admitted as a substitute Member in accordance with this Agreement is to receive
the allocations and Distributions to which the Transferor was entitled (to the
extent of the Ownership Interest Transferred) and to
38
<PAGE>
receive all necessary tax reporting information. In any event, each Transferee
of an Ownership Interest (including both immediate and remote Transferees) will
be subject to all of the obligations, restrictions and other terms contained in
this Agreement as if such Transferee were a Member. To the extent of any
Ownership Interest Transferred, the Transferor Member will not possess any right
or power as a Member and may not exercise any such right or power directly or
indirectly on behalf of the Transferee.
13.6 ADMISSION. Except as set forth in 13.3 or as to any Transferee that
---------
is an Affiliate of the Transferor, a Transferee of an Ownership Interest will
not become a substitute Member of the Company unless such substitution is
consented to by all Members, which consent may be granted or withheld in the
sole discretion of the Members and which consent may be arbitrarily withheld,
effective upon a date specified (which must be on or after the effective date of
the Transfer, as determined under 13.4).
13.7 SECURITY INTEREST. The pledge or granting of a Lien affecting all or
-----------------
any part of a Member's Ownership Interest will not cause the Member to cease to
be a Member. Except as otherwise provided in the Agreement Regarding Ownership
Interests, in no event will any secured party be entitled to foreclose upon (or
receive a Transfer in lieu of foreclosure of) any such secured interest or to
exercise any rights of a Member under this Agreement (unless and until such
Person is admitted as a substitute Member), and such secured party may look only
to such Member for the enforcement of any of its rights as a creditor. In no
event will the Company have any liability or obligation to any Person by reason
of the Company's payment of a Distribution to any secured party as long as the
Company makes such payment in reliance upon written instructions from the Member
to whom such Distributions would be payable. Except as otherwise provided in
the Agreement Regarding Ownership Interests, any secured party will be entitled,
with respect to the security interest granted, only to the allocations and
Distributions to which the assigning Member would be entitled under this
Agreement, and only if, as and when such allocations and Distributions are made
by the Company, and to receive any necessary tax reporting information. Neither
the Company nor any Member will owe any fiduciary duty of any nature to a
secured party.
ARTICLE 14: CERTAIN BUSINESS MATTERS
14.1 RESTRICTED ACTIVITIES.
---------------------
[a] The Company and the Sports Companies will be the exclusive vehicles
through which the Members and their Controlled Affiliates will engage in
the Sports Business, and no Member will engage, and each Member will cause
each Person Controlled by it not to engage, directly or indirectly
(including as a shareholder, partner or other equity owner or as a lender
or provider of financial or management assistance), in any non-Broadcast
TV programming service that
39
<PAGE>
is, or any group of related non-Broadcast TV programming services which
are coordinated in such a manner as to be, predominantly sports or sports-
related (a "Restricted Business") that competes with or is similar in all
material respects to the Sports Business. Notwithstanding the foregoing,
[i] the ownership of a Retained Interest (as defined in the Formation
Agreement) will not violate this 14.1[a], and [ii] no Member or any
Controlled Affiliate of a Member will be deemed to violate this 14.1[a]
because such Member or Controlled Affiliate is acting solely as a
distributor of any [A] non-Broadcast TV programming service that is a
Restricted Business, or [B] pay-per-view programming, as that term
generally is understood in the telecommunications industry on the date of
this Agreement.
[b] The provisions of 14.1[a] will not prohibit a Member or its Controlled
Affiliates from [i] acquiring or holding for investment purposes 5% or
less of any class or series of equity securities of any Person, which
class or series is registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), even if that Person is
principally engaged in a Restricted Business or [ii] acquiring or holding
any interest (including a controlling interest) in any Person which is not
principally engaged in a Restricted Business. A Person will be deemed to
be principally engaged in a Restricted Business if more than 50% of the
operating revenues of such Person and its consolidated subsidiaries for
the most recent twelve-month period ended before the date of determination
were revenues derived from the Restricted Business. Notwithstanding the
foregoing, if any Member (or a Controlled Affiliate of a Member) acquires
a controlling interest in any Person engaged in a Restricted Business,
such Member will use its reasonable best efforts, consistent with its
fiduciary duties and the contractual obligations of the Person engaged in
a Restricted Business, to cause the interest in the Restricted Business to
be offered to the Company at a price reasonably determined by such Member
(or its Controlled Affiliate) to be equal to the Fair Market Value of such
interest and on such other terms and conditions as are, in the reasonable
judgment of such Member (or its Controlled Affiliate), commercially
reasonable.
[c] Except as otherwise expressly provided in this Agreement and the Parents
Agreement, each Member and its Controlled Affiliates may engage in or
possess interests in other businesses or ventures of any nature or
description, without regard to whether such businesses or ventures are or
may be deemed to be competitive in any way with any Company Business and
none of the Members or their Controlled Affiliates or any director,
officer or employees of the Members or their Controlled Affiliates will be
obligated to present to the Company any particular investment or business
opportunity, but instead, the Members and their Controlled Affiliates will
have the right to take such
40
<PAGE>
opportunity for their own account or for the account of any other Person
without any obligation whatsoever to the Company or any other Member.
14.2 Rights Purchases/Resale Rights.
------------------------------
[a] The Members will work together to maximize their strength in purchasing
domestic sports programming rights. Each Member will [i] use its
reasonable best efforts, in the ordinary course of its business, to
solicit opportunities to acquire non-Broadcast TV rights to sports
programming for the benefit of the Company, whether separately or as part
of a package including Broadcast TV rights, [ii] give reasonable prior
notice to the Company of any opportunity to purchase any material non-
Broadcast TV rights to sports programming comprising or contained within
the rights to be purchased by such Member and [iii] use its reasonable
best efforts to obtain the approval or agreement of the Company to
purchase material non-Broadcast TV rights to sports programming and, if
such non-Broadcast TV rights are part of a package including Broadcast TV
rights, the allocation of the price between Broadcast TV rights and non-
Broadcast TV rights. The provisions of this Section 14.2 will not prohibit
any Member from soliciting opportunities to acquire, or from acquiring,
non-Broadcast TV rights that are not within the scope of the Sports
Business and will not apply to the solicitation or acquisition of any non-
Broadcast TV sports programming rights by a Member on an occasional basis
for exhibition on a programming service that is not predominantly sports
or sports-related. Nothing in this Agreement will be construed as
prohibiting a Member from purchasing Broadcast TV or pay-per-view rights
or as requiring a Member to offer Broadcast TV or pay-per-view rights to
the Company.
[b] If a Member acquires or is offered non-Broadcast TV rights that are within
the scope of the Sports Business, such non-Broadcast TV rights immediately
will be offered to the Company for a price equal to the price paid or
proposed to be paid therefor by such Member. Except as otherwise expressly
provided in paragraph [c], if such rights are rejected by the Company,
that Member will be free to purchase, resell, or use such non-Broadcast TV
sports programming rights, subject to [i] the obligation to offer such
rights to the Company before purchasing them on terms less favorable to
the Person offering the rights than those rejected by the Company, [ii]
the obligation to offer such rights to the Company before selling them on
terms less favorable to the offering Member than the offer rejected by the
Company, [iii] the obligation to reoffer such rights to the Company before
selling them if they remain unsold more than 180 days after the Company
rejected the opportunity to buy such rights and [iv] the Members'
obligations under 14.1[a].
41
<PAGE>
[c] If a Third Party presents a Member with any opportunity to acquire non-
Broadcast TV rights for all or a substantial portion of a season (or
similar time period) of sports games or events, or all or a substantial
portion of a sports league (or similar association) for use on a
programming service for all or any portion of the United States and its
territories (excluding Puerto Rico) and Canada that is predominantly
sports or sports-related, such rights immediately will be offered to the
Company on the terms proposed by the Third Party. If the opportunity to
acquire such rights is rejected by the Company, no Member may pursue the
opportunity for its own account or offer or direct it to any other Person.
[d] The Fox Member (or any Affiliate of the Fox Member designated by the Fox
Member) will have a right of first refusal to acquire United States or
Canadian Broadcast TV sports programming rights offered by the Company.
[e] For as long as Fox or one or more Affiliates of Fox and Liberty or one or
more Affiliates of Liberty are members in the International Venture, and
for two years following the date on which Fox and all Affiliates of Fox or
Liberty and all Affiliates of Liberty cease to be members in the
International Venture, any non-Broadcast TV rights to United States or
Canadian sports programming for distribution outside the United States of
America or Canada, whether held by the Company or any Member, will be
subject to a right of first refusal in favor of the International Venture
prior to a sale thereof to a Third Party, to the extent such rights are
within the scope of the International Venture's business.
[f] If the Company or any Member intends to sell or otherwise dispose of any
Broadcast TV rights to United States or Canadian sports programming for
distribution outside the United States or Canada in any territory in which
Fox (or one or more of its Affiliates) or Liberty (or one or more of its
Affiliates) owns, directly or indirectly, a 10% or greater ownership
interest in a Broadcast TV network, the owner of such network will have a
right of first refusal with respect to such rights. With respect to any
territory in which both the Fox Member or an Affiliate thereof, on the one
hand, and the LMC Member or an Affiliate thereof, on the other, own 10% or
greater interests in Broadcast TV networks, the owners of the networks in
which such Members or their Affiliates have interests each will have a
right of first refusal with respect to the acquisition of such Broadcast
TV Rights and, in that event, the right of first refusal will be
exercisable by the Person offering the higher price, so long as that price
is not less than the price offered by a Third Party.
[g] Any Member that has a right of first refusal pursuant to this 14.2 will
have 15 Business Days after receipt of written notice of the occurrence of
an event giving rise to its right of first refusal within which to
exercise such right. Any
42
<PAGE>
right of first refusal or other right to acquire arising under this 14.2
will be exercisable in accordance with the procedures set forth in
Schedule 14.2.
14.3 fX Programming. The Members acknowledge that the fX Service was
--------------
initially created primarily to distribute entertainment programming produced by
Fox. Accordingly, Fox will have the right to require the fX Service to carry Fox
or Fox Affiliate-produced entertainment programming, consistent with the
operating principles of the Company and the programming philosophy of the fX
Service, in each case from time to time in effect. Rates for such programming
will be fair market rates, determined by reference to rates offered by
comparable Third Parties for such programming or, if no such offers are made,
rates offered for comparable programming in arms-length transactions with
comparable buyers or, if there is no reasonably comparable programming or
comparable buyer, by "baseball" arbitration conducted in accordance with the
procedures set forth in Article 15. No commitment for the fX Service to carry
such programming will be made without the giving of at least 30 days' prior
notice to the LMC Member, which notice will include reasonably detailed
information supporting the terms of such commitment. The fX LLC will consider
carrying entertainment programming offered by the LMC Member or its Affiliates
on terms comparable to that applicable to Fox or Fox Affiliate-produced
programming, subject, in any event, to the goal of promoting consistency in
programming philosophy and direction.
14.4 New Ventures.
------------
[a] Each Member will in good faith solicit and offer opportunities in the
Sports Business (other than the non-Broadcast TV rights addressed by 14.2)
to the Company (or the appropriate Sports Company), to the extent that it
is within such Member's control to admit such Person into the opportunity
and is consistent with the fiduciary duties, if any, owed by such Member
to others. If the Company or a Sports Company rejects the opportunity, the
Member proposing the opportunity to the Company or the Sports Company may
not pursue such opportunity. No Member will have any obligation to offer
an opportunity outside the Sports Business to the Company.
[b] Each opportunity of a Member to acquire any interest in a domestic sports
team, league, event or participant will be offered to the Company. If the
Company rejects such an opportunity and the Member acquires such an
interest, the Company will have the right to acquire when first available
any non-Broadcast TV rights available therefrom on such terms as the
parties may agree or, if they cannot agree, by matching the best offer by
a Third Party. If the Members cannot agree on terms and there is no offer
by a Third Party, the terms (including rights fees) payable for such non-
Broadcast TV rights will be fixed on a Fair Market Value basis, determined
by reference to terms of agreements for comparable rights in arms-length
transactions between similarly situated
43
<PAGE>
Persons or, if there are no such agreements, by binding arbitration
conducted in accordance with the provisions of 15.3. For purposes of this
Agreement, (i) a sports league shall be deemed to be a domestic sports
league if a majority of the teams participating therein play a majority of
their events in the United States or Canada; (ii) a sports team will be
deemed to be a domestic sports team if the league in which it plays the
majority of its events is a domestic sports league; (iii) a sports
participant will be deemed to be a domestic sports participant if such
sports participant is domiciled in the United States or Canada; and (iv) a
sports event shall be deemed to be a domestic sports event if either the
event takes place within the United States or Canada or a majority of the
participants therein are domestic sports teams or domestic sports
participants.
14.5 UPLINK SERVICES AND PRODUCTION FACILITIES. The Company will utilize
-----------------------------------------
facilities in Denver, Colorado operated by an Affiliate of TCI ("WTCI") as the
Company's uplink and transmission center, provided that (i) the signal quality
is of the same quality as the fX Service signal currently transmitted via fiber
lines from New York, New York to Los Angeles, California, (ii) the annual cost
of signal transmission from the Company's production facilities in Los Angeles,
California to WTCI's uplink and transmission center in Denver, Colorado is not
materially greater than the market rate generally charged for such transmission,
as quoted by one or more Third Parties, and (iii) the costs of uplinking and
transmission charged to the Company by WTCI are not materially greater than the
costs that would be incurred for comparable services provided by one or more
Third Parties, except (in each case) as otherwise approved by the unanimous Vote
of the Members. The Company will utilize production and post-production
facilities located at Fox's premises in Los Angeles, California, provided that
(i) the costs to the Company of such facilities and of the services provided at
such facilities are not materially greater than the costs of comparable
facilities and services if they were to be provided by one or more Third
Parties, except as otherwise approved by a unanimous Vote of the Members.
14.6 Cooperation. The Members and the Company will cross-promote the
-----------
Services as well as Fox's Broadcast TV sports programming and services in a
commercially reasonable manner. Fox will promote the Company's Services on FBC
and on Broadcast Television stations owned and operated by Fox ("Fox O and O
Stations"). LMC will promote the Company's Services on programming services
Controlled by LMC. The Company's Services will promote Fox's Broadcast TV
sports programming and services. LMC and Fox will run promotions that are
substantially equivalent in value. The mutual promotions will involve, subject
to each Member's commercial discretion, a variety of promotions, including, for
example, program reminders by on-air personalities. The parties will coordinate
program scheduling and cross-sponsorship activities between the Company's
Services, on the one hand, and any programming services owned and Controlled by
LMC and the FBC network and Fox O and O Stations, on the other hand. In
addition, the Members will encourage their Affiliates and, in the case of Fox,
FBC
44
<PAGE>
station affiliates, to engage, where possible, in similar activities. The
nature and volume of the Members' cross-promotional activities will be included
in the Company's reports to the Members on a quarterly basis. Anything in this
Agreement to the contrary notwithstanding, the fXM Service and any other Service
Controlled by any Member or any Affiliate of a Member which is not advertiser
supported will not be afforded any of the rights or be subject to any of the
obligations created by this 14.6; however, nothing in this Agreement will
prevent cross-promotional activity between the fX Service and the fXM Service.
14.7 Continuing Rights. At LMC's option, Fox will take such actions as
-----------------
may be necessary to cause its obligations under 14.6 and under operating,
service or similar agreements with respect to the Company Businesses, to the
extent applicable to its Broadcast TV business, to be binding on any
unaffiliated transferee of any Broadcast TV network of Fox for a term not to
exceed two years after the date of transfer. In addition, the Company will have
the right to use the name "Fox" for at least one year after the date of
transfer.
14.8 CONSENT TO OPPORTUNITIES. If pursuant to this Agreement or the
------------------------
Parents Agreement a Member or an Affiliate of a Member is required to offer to
the Company a right to purchase or any other right or opportunity, such Member
will not unreasonably withhold its consent to the acceptance or pursuit of such
right or opportunity by the Company.
14.9 NO ADVERSE ACTIONS. Each Member will not take or omit to take any
------------------
action which action or omission reasonably could be expected to adversely affect
in any material respect the operations, financial condition or prospects of the
Company, the Financing LLC, and the Business Companies taken as a whole.
Notwithstanding the foregoing, neither the LMC Member nor any Affiliate of the
LMC Member will have any obligation to take any affirmative action in its
separate business dealings to increase the number of fX Subscribers.
ARTICLE 15: DISPUTE RESOLUTION
15.1 DISPUTES. If an Arbitrable Dispute arises, the parties to the
--------
Arbitrable Dispute (who may be any combination of the Company and any one or
more of the Members) will attempt to resolve the Arbitrable Dispute as set forth
in 15.2 before proceeding to arbitration as provided in 15.3. With respect to
each Arbitrable Dispute, the Company and each Member waives all rights to seek
remedies in any court and the right to jury trial. All documents, discovery and
other information related to any such Arbitrable Dispute, and any attempts to
resolve or arbitrate such Arbitrable Dispute, will be kept confidential, except
to the extent that disclosure thereof is required in connection with such
arbitration or is required by law.
45
<PAGE>
15.2 NEGOTIATION. If an Arbitrable Dispute arises, any party to the
-----------
Arbitrable Dispute will give Notice to each other party to the Arbitrable
Dispute. If the Company is not a party to the Arbitrable Dispute, Notice also
will be given to the Company. After such Notice has been given, the parties in
good faith will attempt to negotiate a resolution of the Arbitrable Dispute.
15.3 ARBITRATION. If, within 30 days after the Notice provided in 15.2,
-----------
an Arbitrable Dispute is not resolved through negotiation or mediation, the
dispute will be arbitrated (subject to any subsequent resolution of the matter
by agreement of the parties to the dispute). The parties to the Arbitrable
Dispute agree to be bound by the selection of an arbitrator and to settle the
dispute exclusively by binding arbitration, all in accordance with the following
provisions:
[a] The parties to the Arbitrable Dispute will request that an arbitrator be
selected by the American Arbitration Association. That arbitrator will
then arbitrate the Arbitrable Dispute in Chicago, Illinois, and issue an
award.
[b] With respect to a dispute described in 14.3 regarding a rate for
programming provided to the fX Service, the Fox Member (or an Affiliate
thereof) and the LMC Member each will submit to the arbitrator and each
other in advance of the arbitration hearing such party's last best offer
as to such rate. As to any such dispute, the arbitrator will be limited to
awarding only one or the other of the two proposed rates submitted.
[c] To the extent consistent with the provisions of this Article, the
arbitration will be conducted under the Commercial Arbitration Rules of
the American Arbitration Association and in accordance with the Illinois
Arbitration Act. The arbitrator's decision will be made pursuant to the
relevant substantive law of the State of New York. The award of the
arbitrator will be final, binding and non-appealable. Judgment on the
award may be entered in any court in the United States, state or federal,
having jurisdiction.
[d] The fees and expenses of the arbitrator and the other direct costs of the
arbitration will be shared by the parties to the dispute in equal
proportions (which may not be proportionate to the Ownership Interests of
such parties). Each party to the Arbitrable Dispute will bear all other
costs and expenses as provided in 16.9.
15.4 DETERMINATION OF FAIR MARKET VALUE. Wherever this Agreement refers
----------------------------------
to, or calls for a determination of, Fair Market Value, the Fair Market Value of
the item in question will be determined in accordance with the following
provisions:
46
<PAGE>
[a] The Members may, by unanimous Vote, determine the Fair Market Value of
such item.
[b] If the Members are unable to agree on a Fair Market Value within 15 days
after the date Notice of the dispute is given by a Member to the others,
or if they determine that an appraisal should be used to determine Fair
Market Value, then the Members will cause the Fair Market Value as of the
most recent month end to be determined by a qualified appraiser acceptable
to the Members. If the Members are unable to agree on a single appraiser
within 30 days after the date of Notice of the dispute, each of the Fox
Member and the LMC Member will have an additional 10 days to select one
appraiser nationally recognized in valuing items of the kind required to
be valued. If either fails to appoint an appraiser, then the determination
of Fair Market Value by the one appraiser will be binding.
[c] Each appraiser will determine the Fair Market Value. The Company and the
Members will use their reasonable best efforts to cause such appraiser to
submit to them a written report indicating its determination of such Fair
Market Value within 30 days after the date such appraiser is selected.
[d] If the higher of the two appraisals is 110% or less of the lower
appraisal, the average of the two will be the Fair Market Value.
[e] If the higher of the two appraisals is more than 110% of the lower
appraisal, the Company will immediately notify the two appraisers and
cause them to appoint a third similarly qualified appraiser within 10 days
after such notice. The Company and the Members will use their reasonable
best efforts to cause such third appraiser (who will not be apprised of
the determination of the other appraisers) to submit a written report to
each of them indicating such appraiser's determination of Fair Market
Value within 30 days after the date such third appraiser is selected. If
three appraisals are necessary, then the average of the two appraisals in
which the determinations of Fair Market Value are closest together will be
the Fair Market Value or, if the highest and lowest are equidistant from
the middle determination, then the middle determination will be the Fair
Market Value.
[f] A determination of Fair Market Value made pursuant to this 15.4 will be
final, binding and nonappealable.
[g] The Company will pay the fees and costs of any appraiser involved in a
determination of Fair Market Value pursuant to this 15.4.
47
<PAGE>
ARTICLE 16: GENERAL PROVISIONS
16.1 AMENDMENT. This Agreement may be amended only by the affirmative
---------
Vote of all Members. Any amendment will become effective upon such approval,
unless otherwise provided. Notice of any proposed amendment must be given at
least five days in advance of the meeting at which the amendment will be
considered (unless the approval is evidenced by duly signed minutes of action or
written consent). Any duly adopted amendment to this Agreement is binding on,
and inures to the benefit of, each Person who holds an Ownership Interest at the
time of such amendment, without the requirement that such Person sign the
amendment or any republication or restatement of this Agreement.
16.2 REPRESENTATIONS. Each Member represents and warrants to each other
---------------
Member that, as of the signing of this Agreement:
[a] Such Member is duly organized, validly existing and in good standing under
the laws of the jurisdiction where it purports to be organized, and is a
United States Person;
[b] Such Member has full power and authority as a corporation or limited
liability company to enter into and perform its obligations under this
Agreement;
[c] All actions necessary to authorize the signing and delivery of this
Agreement, and the performance of obligations under it, have been duly
taken;
[d] This Agreement has been duly signed and delivered by a duly authorized
officer or other representative of such Member and constitutes the legal,
valid and binding obligation of such Member enforceable in accordance with
its terms, except as such enforceability may be affected by applicable
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally, and except that the availability of equitable remedies is
subject to judicial discretion;
[e] No consent or approval of any other Person is required in connection with
the signing, delivery and performance of this Agreement by such Member;
and
[f] The signing, delivery and performance of this Agreement do not violate the
organizational documents of such Member or any material agreement to which
such Member is a party or by which such Member is bound.
16.3 UNREGISTERED INTERESTS. Each Member [a] acknowledges that the
----------------------
Ownership Interests are being offered and sold without registration under the
Securities Act of 1933, as amended, or under similar provisions of state law,
[b] acknowledges that such Member is fully aware of the economic risks of an
investment in the Company, and that
48
<PAGE>
such risks must be borne for an indefinite period of time, [c] represents and
warrants that such Member is acquiring an Ownership Interest for such Member's
own account, for investment, and with no view to the distribution of the
Ownership Interest, and [d] agrees not to Transfer, or to attempt to Transfer,
all or any part of its Ownership Interest without registration under the
Securities Act of 1933, as amended, and any applicable state securities laws,
unless the Transfer is exempt from such registration requirements.
16.4 WAIVER OF DISSOLUTION RIGHTS. The Members agree that irreparable
----------------------------
damage would occur if any Member should bring an action for judicial dissolution
of the Company. Accordingly, each Member accepts the provisions under this
Agreement as such Person's sole entitlement on Dissolution of the Company and
waives and renounces such Person's right to seek a court decree of dissolution
or to seek the appointment by a court of a liquidator for the Company. Each
Member further waives and renounces any alternative rights which might otherwise
be provided by law upon the Withdrawal of such Person and accepts the provisions
under this Agreement as such Person's sole entitlement upon the happening of
such event.
16.5 WAIVER OF PARTITION RIGHT. Each Member waives and renounces any
-------------------------
right that it may have prior to Dissolution and Liquidation to institute or
maintain any action for partition with respect to any property held by the
Company.
16.6 WAIVERS GENERALLY. No course of dealing will be deemed to amend or
-----------------
discharge any provision of this Agreement. No delay in the exercise of any
right will operate as a waiver of such right. No single or partial exercise of
any right will preclude its further exercise. A waiver of any right on any one
occasion will not be construed as a bar to, or waiver of, any such right on any
other occasion.
16.7 EQUITABLE RELIEF. If any Member proposes to Transfer all or any part
----------------
of its Ownership Interest in violation of the terms of this Agreement, the
Company or any Member may apply to any court of competent jurisdiction for an
injunctive order prohibiting such proposed Transfer except in compliance with
the terms of this Agreement, and the Company or any Member may institute and
maintain any action or proceeding against the Person proposing to make such
Transfer to compel the specific performance of this Agreement. Any attempted
Transfer in violation of this Agreement is null and void, and of no force and
effect. The Person against whom such action or proceeding is brought waives the
claim or defense that an adequate remedy at law exists, and such Person will not
urge in any such action or proceeding the claim or defense that such remedy at
law exists.
16.8 REMEDIES FOR BREACH. Except as otherwise expressly provided in this
-------------------
Agreement [a] the rights and remedies of the Members set forth in this Agreement
are neither mutually exclusive nor exclusive of any right or remedy provided by
law, in equity or otherwise, and [b] all legal remedies (such as monetary
damages) as well as all
49
<PAGE>
equitable remedies (such as specific performance) will be available for any
breach or threatened breach of any provision of this Agreement.
16.9 COSTS. If the Company or any Member retains counsel for the purpose
-----
of enforcing or preventing the breach or any threatened breach of any provision
of this Agreement or for any other remedy relating to it, then the prevailing
party will be entitled to be reimbursed by the nonprevailing party for all costs
and expenses so incurred (including reasonable attorney's fees, costs of bonds
and fees and expenses for expert witnesses).
16.10 INDEMNIFICATION. Each Member hereby indemnifies and agrees to hold
---------------
harmless the Company and each other Member from any liability, cost or expense
arising from or related to any act or failure to act of such Member which is in
violation of this Agreement.
16.11 COUNTERPARTS. This Agreement may be signed in multiple counterparts
------------
(or with detachable signature pages). Each counterpart will be considered an
original instrument, but all of them in the aggregate will constitute one
agreement.
16.12 NOTICE. All Notices under this Agreement will be in writing and will
------
be either delivered or sent addressed as follows: [a] if to the Company, at the
Company's principal office in Los Angeles, California, and [b] if to any Member,
at such Person's address as then appearing in the records of the Company. In
computing time periods, the day of Notice will be included.
16.13 DEEMED NOTICE. Any Notices given to any Member in accordance with
-------------
this Agreement will be deemed to have been duly given: [a] on the date of
receipt if personally delivered, [b] five days after being sent by U.S. mail,
postage prepaid, [c] the date of receipt, if sent by registered or certified
U.S. mail, postage prepaid, [d] one Business Day after receipt, if sent by
confirmed facsimile or telecopier transmission or [e] one Business Day after
having been sent by a nationally recognized overnight courier service.
16.14 PARTIAL INVALIDITY. Wherever possible, each provision of this
------------------
Agreement will be interpreted in such manner as to be effective and valid under
applicable law. However, if for any reason any one or more of the provisions of
this Agreement are held to be invalid, illegal or unenforceable in any respect,
such action will not affect any other provision of this Agreement. In such
event, this Agreement will be construed as if such invalid, illegal or
unenforceable provision had never been contained in it.
16.15 ENTIRE AGREEMENT. This Agreement (including its Schedules and
----------------
Exhibits) contains the entire agreement and understanding of the Members
concerning its subject matter.
50
<PAGE>
16.16 BENEFIT. The contribution obligations of each Member will inure
-------
solely to the benefit of the other Members and the Company, without conferring
on any other Person any rights of enforcement or other rights.
16.17 BINDING EFFECT. This Agreement is binding upon, and inures to the
--------------
benefit of, the Members and their Permitted Transferees, provided that any
Transferee will have only the rights specified in 13.5 unless admitted as a
substitute Member in accordance with this Agreement.
16.18 FURTHER ASSURANCES. Each Member will sign and deliver, without
------------------
additional consideration, such other documents of further assurance as may
reasonably be necessary to give effect to the provisions of this Agreement.
16.19 HEADINGS. Article and section titles have been inserted for
--------
convenience of reference only. They are not intended to affect the meaning or
interpretation of this Agreement.
16.20 TERMS. Terms used with initial capital letters will have the
-----
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variation) will be deemed to
refer to the masculine, feminine or neuter, as the identity of the Person may
require. The singular or plural includes the other, as the context requires or
permits. The word include (and any variation) is used in an illustrative sense
rather than a limiting sense. The word day means a calendar day.
16.21 GOVERNING LAW; FORUM. This Agreement will be governed by, and
--------------------
construed in accordance with, [a] the laws of the State of Delaware, insofar as
any matter at issue is governed by, or is addressed in, the Act, and [b] the
laws of the State of New York, as to any other matter. Any conflict or apparent
conflict between this Agreement and the Act will be resolved in favor of this
Agreement, except as otherwise required by the Act. Except as provided in
Article 15, any action to enforce any provision of this Agreement may be brought
only in a court in the state of New York or in the United States District Court
for the Southern District of New York. Each party [i] agrees to submit to the
general jurisdiction of such courts and to accept service of process at its
address for notices pursuant to this Agreement in any such action or proceeding
and [ii] irrevocably waives any objection it may have to the laying of venue of
such action or proceeding brought in any such court and any claim that such
action or proceeding brought in any such court has been brought in an
inconvenient forum.
51
<PAGE>
IN WITNESS WHEREOF, all of the MEMBERS have signed this FIRST AMENDED AND
RESTATED OPERATING AGREEMENT of FOX/LIBERTY NETWORKS, LLC, to be effective from
the date first above mentioned, notwithstanding the actual date of signing.
LMC NEWCO U.S., INC.
___________________ ____, 1997
By:_____________________________
Its:____________________________
FOX REGIONAL SPORTS HOLDINGS, INC.
____________________ ____, 1997
By:_____________________________
Its:____________________________
LIBERTY/FOX SPORTS FINANCING LLC
____________________ ____, 1997
By: News America Holdings
Incorporated, a Member
By:_____________________________
Its:____________________________
By: LMC Newco U.S., Inc., a Member
By:_____________________________
Its:____________________________
52
<PAGE>
EXHIBIT 10.7
================================================================================
FORM OF
GENERAL PARTNERSHIP AGREEMENT
OF REGIONAL PROGRAMMING PARTNERS
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
ARTICLE II FORMATION OF GENERAL PARTNERSHIP
2.1 Formation..................................................... 14
2.2 Name.......................................................... 15
2.3 Compliance with Partnership and Other Laws.................... 15
2.4 Principal Place of Business................................... 15
2.5 Purpose....................................................... 15
2.6 Term of Partnership........................................... 16
2.7 Qualification in other Jurisdictions.......................... 16
2.8 Ownership of Property......................................... 16
ARTICLE III PARTNERSHIP CAPITAL
3.1 Capital Contributions......................................... 17
3.2 Failure to Make Capital Contributions......................... 18
3.3 Capital Accounts.............................................. 24
3.4 Allocation of Items of Partnership Income,
Gain, Loss, Deduction and Credit............................ 26
3.5 Distributions................................................. 30
3.6 Partnership Funds............................................. 32
3.7 Borrowings.................................................... 33
ARTICLE IV MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business...................... 33
4.2 Partners' Committee........................................... 36
4.3 Budget and Business Plan...................................... 38
4.4 Limitation on Agency.......................................... 39
4.5 Managing Partner's Services and Expenses...................... 40
4.6 Liability of Partners' Committee and Managing Partner......... 41
4.7 Indemnification............................................... 42
4.8 Approved Agreements........................................... 43
4.9 Unanimous Actions by Partners................................. 44
4.10 Removal of Managing Partner................................... 48
ARTICLE V BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records............................................. 49
5.2 Financial Reports............................................. 50
5.3 Tax Returns and Information................................... 53
<PAGE>
Page
----
ARTICLE VI PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.......................................... 56
6.2 Buy-Out Procedure............................................. 61
6.3 Additional Provisions Relating to Transfer.................... 64
6.4 Effect of Attempted Transfer; Withdrawals and Admissions
Generally................................................... 67
6.5 Tax Allocation Adjustments; Distributions After Transfer...... 67
6.6 Certain Affiliate Transferee Transactions Not Deemed
Transfers................................................... 68
6.7 IPO-Call Procedure............................................ 69
ARTICLE VII EVENTS OF DEFAULT
7.1 Events of Default............................................. 72
7.2 Remedies of Non-Defaulting Partners........................... 73
ARTICLE VIII DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination......................................... 75
8.2 Winding-Up.................................................... 76
8.3 Purchase Option Upon Bankruptcy of a Partner.................. 78
ARTICLE IX COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law................................ 80
9.2 No Restrictive Covenants...................................... 81
9.3 Indemnification of Partners;Contribution...................... 81
9.4 Notice of Change in Control and Indirect Transfer............. 82
ARTICLE X MISCELLANEOUS
10.1 Waiver of Partition........................................... 83
10.2 Modification; Waivers......................................... 83
10.3 Entire Agreement.............................................. 84
10.4 Severability.................................................. 84
10.5 Notices....................................................... 84
10.6 Successors and Assigns........................................ 86
10.7 Counterparts.................................................. 86
10.8 Headings; Cross-references.................................... 86
10.9 Construction.................................................. 87
10.10 Property Rights; Confidentiality.............................. 87
10.11 Non-Recourse.................................................. 89
10.12 Further Actions............................................... 89
10.13 Survival...................................................... 89
-ii-
<PAGE>
Page
----
10.14 Governing Law................................................. 90
10.15 No Right of Set-Off........................................... 90
10.16 Expenses of the Parties....................................... 90
10.17 Unregistered Interests........................................ 90
ANNEXES
A Approved Agreements of the Partnership
B Budget and Business Plan
C Form of Subordinated Note
D Allocation Policy for Indirect Expenses
-iii-
<PAGE>
THIS GENERAL PARTNERSHIP AGREEMENT (the "Agreement") of Regional
Programming Partners, a general partnership organized under the laws of the
State of New York (the "Partnership"), made as of [INSERT EFFECTIVE DATE], is
entered into by and between Rainbow Regional Holdings, L.L.C., a Delaware
limited liability company ("Rainbow Partner"), and Fox Sports RPP Holdings LLC,
a Delaware limited liability company ("Fox/Liberty Partner").
W I T N E S S E T H:
-------------------
WHEREAS, Rainbow Partner and Fox/Liberty Partner desire to form the
Partnership to, among other things, own interests in regional sports programming
networks, programming networks of local interest and Madison Square Garden and
pursue other interests described herein.
WHEREAS, pursuant to the Formation Agreement, dated as of June 22,
1997, between Rainbow Media Sports Holdings, Inc. and Fox/Liberty Networks, LLC
(the "Formation Agreement"), Rainbow Partner is contributing its interests in
certain regional sports programming networks, programming networks of local
interest and Madison Square Garden and Fox/Liberty Partner is contributing cash,
in each case, to the Partnership in exchange for an Interest in the Partnership.
WHEREAS, Rainbow Partner and Fox/Liberty Partner wish to set forth
their respective rights and obligations
<PAGE>
with respect to the formation of the Partnership under the Partnership Law of
the State of New York.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto intending to be legally bound hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
As used herein, the following terms have the meanings assigned to them
in this Article (except as otherwise expressly provided) and include the plural
as well as the singular, and all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP, as in effect from
time to time and any capitalized term used herein and not defined in this
Article is defined in the provision of this Agreement where such term is first
used:
Adjusted Capital Account Deficit: With respect to any Partner, the
--------------------------------
deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant taxable period, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts that such
Partner is obligated to restore or is deemed to be obligated to restore
pursuant to the next-to-last sentences of Treasury Regulations Section
1.704-2(g)(1) and Treasury Regulations Section 1.704-2(i)(5), and (ii)
debit to such Capital Account the
-2-
<PAGE>
items described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
Affiliate: As to any Person, any other Person that directly or
---------
indirectly through one or more intermediaries is Controlled by, Controls or
is under common Control with, such Person. For purposes of this
definition, (x) so long as Liberty owns, directly or indirectly, an
interest in Fox/Liberty Partner, any Affiliate of Fox/Liberty Partner shall
be deemed an Affiliate of Liberty, and Liberty shall be deemed an Affiliate
of Fox/Liberty Partner and any Affiliate of Liberty shall be deemed an
Affiliate of Fox/Liberty Partner, (y) so long as Fox owns, directly or
indirectly, an interest in Fox/Liberty Partner, any Affiliate of
Fox/Liberty Partner shall be deemed an Affiliate of Fox, and Fox shall be
deemed an Affiliate of Fox/Liberty Partner and any Affiliate of Fox shall
be deemed an Affiliate of Fox/Liberty Partner, and (z) Twentieth Holdings
Corporation and its Subsidiaries shall be deemed to be Affiliates of Fox.
Notwithstanding the foregoing, (i) neither the Partnership nor any Person
Controlled by the Partnership shall be deemed to be an "Affiliate" of any
Partner or of any Affiliate of any Partner, (ii) no Partner or any
Affiliate thereof shall be deemed to be an "Affiliate" of any other Partner
or any Affiliate thereof solely by virtue of its Interest in the
Partnership, and (iii) neither Liberty or its Affiliates (other than
Fox/Liberty Partner) on the one hand nor Fox or its Affiliates (other than
Fox/Liberty Partner) on the other hand shall be deemed to be an "Affiliate"
of the other solely by virtue of the ownership of Fox/Liberty Partner by
Fox and Liberty and their respective Affiliates.
Affiliate Transferee: As defined in Section 6.6(a).
--------------------
Agreement: This General Partnership Agreement, as the same may be
---------
amended from time to time in accordance with the provisions hereof.
Allocated Interest Offer Price: In the case of any proposed sale of
------------------------------
an Offered Interest (as defined in Section 6.1(b)) in conjunction with
other property owned by a Partner or an Affiliate of a Partner, an amount
equal to the product of the aggregate consideration, including, without
limitation, the assumption of debt and any contractual payments to be
received for all such property and a fraction, the
-3-
<PAGE>
numerator of which is equal to the Fair Market Value of the Offered
Interest and the denominator of which is equal to the Fair Market Value of
all such property to be sold.
Appraiser: An independent investment banking firm appointed in
---------
accordance with the terms of this Agreement that (a) is not (i) an
Affiliate, or an officer, director, employee or holder of any voting
securities of the Partnership or any Partner or (ii) an officer, director,
employee or holder of more than 5% of the voting securities of any
Affiliate of any Partner, and (b) is engaged as a regular part of its
business in the valuation of business entities.
Approved Agreements: The agreements listed in Annex A to this
-------------------
Agreement as the same may be amended from time to time in accordance with
the provisions hereof and thereof.
Arm's-length basis: As to any transaction, agreement or other
------------------
arrangement, being on terms that would be reached by unrelated parties not
under any compulsion to contract.
Bankruptcy: The "Bankruptcy" of a Partner shall be deemed to have
----------
occurred and a Partner shall be "Bankrupt" for purposes of this Agreement
upon the happening of any of the following:
(a) The valid appointment of a receiver or trustee to administer
all or a substantial portion of a Partner's assets or a Partner's
Interest in the Partnership;
(b) The filing by a Partner of a voluntary petition for relief
under the Bankruptcy Code or of a pleading in any court of record
admitting in writing its inability to pay its debts generally as they
become due;
(c) The making by a Partner of a general assignment for the
benefit of creditors;
(d) The filing by a Partner of an answer admitting the material
allegations of, or its consenting to or defaulting in answering, a
petition for relief filed against it in any proceeding under the
Bankruptcy Code; or
-4-
<PAGE>
(e) The entry of an order, judgment or decree by any court of
competent jurisdiction, granting relief against a Partner in a
proceeding under the Bankruptcy Code, and such order, judgment or
decree continuing unstayed and in effect for a period of thirty (30)
days after such entry.
Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended from
---------------
time to time, any successor federal statute or any state law for the relief
of debtors.
Bona Fide Offer: As defined in Section 6.1(b).
---------------
Budget: At any time, the then-effective annual operating and capital
------
budget for the Partnership. The 1997 Budget is annexed hereto as Annex B.
Business Day: Each Monday, Tuesday, Wednesday, Thursday or Friday
------------
which is not a day on which banking institutions in New York City are
authorized or obligated by law to close.
Business Plan: The business plan for the Partnership for the period
-------------
from January 1, 1997 through December 31, 2001, a copy of which is annexed
hereto as Annex B, or the then-effective five-year business plan for the
Partnership.
Buy-Out Closing Date: As defined in Section 6.2(d).
--------------------
Buy-Out Commencement Date: (i) The later of (a) the third anniversary
-------------------------
of the Effective Date or (b) the date on which a Buy-Out Trigger occurs and
(ii) the date on which Fox/Liberty Partner gives a notice to remove the
Managing Partner pursuant to Section 4.10.
Buy-Out Price: As defined in Section 6.2(b).
-------------
Buy-Out Procedure: As defined in Section 6.2.
-----------------
Buy-Out Trigger: The date on which Fox/Liberty Partner shall have
---------------
voted against a second separate matter submitted by Rainbow Partner to
either the Partners' Committee pursuant to Section 4.2 or to all Partners
for unanimous consent pursuant to Section 4.9. Rainbow Partner agrees that
it shall not submit any matter to the Partners' Committee pursuant to
Section 4.2 or all Partners for unanimous consent
-5-
<PAGE>
pursuant to Section 4.9 with knowledge that no reasonable Partner would
approve such matter.
Call Price: As defined in Section 6.7(b).
----------
Capital Account: As defined in Section 3.3(a).
---------------
Cash Flow Businesses: (i)Each business (other than those referred to
--------------------
in clause (ii))of the Partnership, or in which the Partnership has a direct
or indirect investment, that produces positive Free Cash Flow for the
relevant period and (ii) Madison Square Garden LP and each regional sports
programming business in which the Partnership has a direct or indirect
interest.
Change in Control: As to any Partner, a change, shift or transfer of
-----------------
Control with respect to such Partner (including any change in the Control
of any entity Controlling such Partner). Notwithstanding the foregoing, no
Change in Control shall be deemed to have occurred with respect to (i)
Rainbow Partner as a result of a change, shift or transfer of Control with
respect to RMH or any Person Controlling RMH; (ii) Fox/Liberty Partner as a
result of a change, shift or transfer of Control with respect to Liberty or
any Person Controlling Liberty; or (iii) Fox/Liberty Partner as a result
of a change, shift or transfer of Control with respect to Fox or any Person
Controlling Fox.
Code: The United States Internal Revenue Code of 1986, as amended
----
from time to time, or any successor statute or statutes to the Internal
Revenue Code of 1986.
Complying Partner: As defined in Section 3.2(a).
-----------------
Contributing Partner: As defined in Section 3.2(a).
--------------------
Contribution Date: As defined in Section 3.1(a).
-----------------
Control: As to any Person, the possession, directly or indirectly, of
-------
the power to direct or cause the direction of the management and policies
of such Person, whether through ownership of voting securities or
partnership interests, by contract or otherwise.
Corporation: a Person succeeding to the business of the Partnership
-----------
by merger or otherwise for the purpose of facilitating an Initial Public
Offering, the
-6-
<PAGE>
ownership of which immediately following such reorganization or
restructuring is in the same relative proportion to the Sharing Percentages
of the Partners immediately prior thereto; provided, that the securities
--------
issued to each Partner are of the same class of securities to be issued in
the Initial Public Offering.
CSC: Cablevision Systems Corporation, a Delaware corporation.
---
Current Market Price: Shall mean, per share or unit of Marketable
--------------------
Securities on any date specified, the average of the daily market prices of
such Marketable Securities for the 20 consecutive Business Days ending on
the second Business Day prior to such date. The daily market price of
Marketable Securities on any Business Day will be (a) the last sale price
on such day on the principal stock exchange on which such share or unit of
Marketable Securities is then listed or admitted to trading (including the
Nasdaq National Market System if such Marketable Securities are admitted to
trading thereon), or (b) if no sale takes place on such date on any
exchange on which such share or unit of Marketable Securities is listed or
admitted to trading, the average of the reported closing bid and asked
prices on such day as officially noted on any exchange.
Damages: As defined in Section 7.2.
-------
Defaulting Partner: As defined in Section 7.1(a).
------------------
Delinquent Partner: As defined in Section 3.2(c).
------------------
Designee: An Affiliate of an Offeree designated by the Offeree to
--------
purchase an Interest.
Effective Date: [INSERT THE CLOSING DATE OF THE TRANSACTIONS
--------------
CONTEMPLATED BY THE FORMATION AGREEMENT].
Event of Default: As defined in Section 7.1.
----------------
Event of Termination: As defined in Section 8.1.
--------------------
Excess Contribution: As defined in Sec tion 3.2(a).
-------------------
Fair Market Value: As to any property, the price at which a willing
-----------------
seller would sell and a willing buyer would buy such property having full
knowledge of
-7-
<PAGE>
the facts, and assuming each party acts on an Arm's-length basis with the
expectation of concluding the purchase or sale within a reasonable time.
Except as provided herein, in any case where there is a dispute as to the
Fair Market Value of any property, such dispute shall be determined by an
Appraiser selected jointly by the applicable Partners or, if the applicable
Partners are not able to agree on an Appraiser, each applicable Partner
shall select an Appraiser and the Appraisers so selected shall select
another Appraiser, which shall determine the Fair Market Value of the
property in question. For purposes of valuing Partnership Interests under
Sections 6.2 and 6.7, an Appraiser shall assume that there shall remain in
place long term affiliation agreements between Cablevision Systems
Corporation and SportsChannel Chicago Associates, SportsChannel Ohio
Associates, SportsChannel New York Associates and Madison Square Garden
L.P.
Fiscal Year: As defined in Section 5.1(c).
-----------
Forfeited Partner: As defined in Section 3.2(c).
-----------------
Fox: Fox Inc., a Colorado corporation, and any entity succeeding to
---
all or substantially all of the assets of Fox Inc.
Fox/Liberty Partner: Fox Sports RPP Holdings LLC, a Delaware limited
-------------------
liability company.
Free Cash Flow: Earnings before interest expense, taxes, depreciation
--------------
and amortization (adjusted to reflect cash payments in excess of book
expenses) plus capital expenditures for the relevant Person for such period
on an unconsolidated basis.
GAAP: Generally accepted accounting principles as in effect in the
----
United States from time to time and consistently applied.
Indirect Transfer: With respect to an Interest, a transfer of Control
-----------------
of the Partner directly owning such Interest or of any Affiliate of a
Partner more than 50% of the Fair Market Value of which is attributable,
directly or indirectly, to such Interest; provided, that, any transaction
-------- ----
which is not a Change in Control by virtue of the second sentence of the
definition of "Change in Control" shall similarly not be an Indirect
Transfer.
-8-
<PAGE>
Initial Capital Account Balance: The Initial Capital Account Balance
-------------------------------
of each Partner shall be as follows:
Rainbow Partner: $1,275,000,000
Fox/Liberty Partner: $ 850,000,000
Initial Public Offering: As to the Partnership or the Corporation, an
-----------------------
initial public offering of the securities of the Partnership or the
Corporation pursuant to a registration statement filed pursuant to the
Securities Act of 1933 that results in a class of securities of the
Partnership or the Corporation being required to be registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
Interest: As to each Partner, such Partner's rights to participate in
--------
the income, gains, losses, deductions and credits of the Partnership,
together with all other rights and obligations of such Partner under this
Agreement.
IPO-Call Closing Date: As defined in Section 6.7(d).
---------------------
IPO-Call Notice: As defined in Section 6.7(a).
---------------
IPO-Call Notice Window: (i) the 30 days following the fifth
----------------------
anniversary of the Effective Date, (ii) the 30 days following each third
anniversary of the fifth anniversary of the Effective Date, (iii) the 30
days following receipt of notice of the initiation of any Buy-Out
Procedure; provided that in every case there shall not be an IPO-Call
--------
Notice Window if an Initial Public Offering of the Partnership or the
Corporation has occurred prior to such date.
IPO-Call Procedure: As defined in Section 6.7(a).
------------------
Liberty: Liberty Media Corporation, a Delaware corporation, and any
-------
entity succeeding to all or substantially all of its assets.
Losses: As defined in Section 3.4(a).
------
MSG: Madison Square Garden, L.P., a Delaware limited partnership.
---
Make-up Amount: As defined in Section 3.2(c).
--------------
-9-
<PAGE>
Make-up Contribution: As defined in Section 3.2(c).
--------------------
Management Overhead: Expenses of Related Persons with respect to the
-------------------
Managing Partner, a portion of which are allocated to the Partnership and
any Related Persons with respect to the Managing Partner pursuant to
Section 4.5.
Managing Partner: The Managing Partner of the Partnership shall be
----------------
Rainbow Partner, unless and until changed in accordance with the provisions
of this Agreement.
Marketable Securities: Shall mean securities of a Person that are
---------------------
freely tradeable without federal securities laws restrictions and that are
listed on a national securities exchange in the United States of America or
are authorized for inclusion in the Nasdaq National Market System, and
which represent less than 50% of the total securities of such class and
securities convertible or exchangeable into such class.
Material Asset: (i) any interest in a Regional (as defined in the
--------------
Formation Agreement), (ii) any asset of the Partnership designated as a
"Material Asset" by the Partners' Committee, or (iii) any asset with a Fair
Market Value in excess of $25 million.
Minimum Gain Attributable to Partner Nonrecourse Debt: That amount
-----------------------------------------------------
determined in accordance with the principles of Treasury Regulations
Section 1.704-2(i)(3).
Minimum Interest: As to any Person, (i) 50% of the voting
----------------
securities or (ii) 50% of each of (a) all of the general partnership or
membership interests in such Person and (b) all of the partnership or
membership interests in such Person.
Nonbankrupt Partner: As defined in Section 8.3.
-------------------
Non-Cash Flow Business: Each business of the Partnership or in which
----------------------
the Partnership has a direct or indirect investment that is (i) not
included in the definition of Cash Flow Business, and (ii) the acquisition
or formation of which was not in the initial Budget or approved by all the
Partners.
Non-Defaulting Partner: As defined in Section 7.2.
----------------------
-10-
<PAGE>
Nonrecourse Deductions: Any and all items of loss or deduction or
----------------------
expenditure, including those described in Section 705(a)(2)(B) of the Code
that in accordance with the principles of Treasury Regulations Section
1.704-2(b)(1) are attributable to a Nonrecourse Liability.
Nonrecourse Liability: Has the meaning set forth in Treasury
---------------------
Regulations Section 1.704-2(b)(3).
Offered Interest: As defined in Section 6.1(b).
----------------
Offeree: As defined in Section 6.1(b).
-------
Offer Notice: As defined in Section 6.1(b).
------------
Partner: Rainbow Partner, Fox/Liberty Partner or any other Person
-------
hereafter admitted to the Partnership in accordance with the terms hereof,
but excluding any Person that ceases to be a Partner in accordance with the
terms hereof.
Partner Nonrecourse Debt: Has the meaning set forth in Treasury
------------------------
Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions: Any and all items of loss or
------------------------------
deduction or expenditure, including those described in Section 705(a)(2)(B)
of the Code that in accordance with the principles of Treasury Regulations
Section 1.704-2(i)(2), are attributable to Partner Nonrecourse Debt.
Partners' Committee: As defined in Section 4.2.
-------------------
Partner's Loan: A loan by a Partner or a Related Person of a Partner
--------------
to the Partnership in respect of which repayment of principal and interest
shall be subordinated to the repayment of the principal of, and interest
on, the indebtedness of the Partnership to third party lenders. All
Partner's Loans shall bear interest, payable quarterly, at the Prime Rate
and shall be unsecured and recourse thereunder shall be limited to the
assets of the Partnership, and, except as otherwise provided in Section
6.3(b), the note evidencing the same shall be non-negotiable and non-
transferable (except to a Permitted Transferee of an Interest) and shall be
in substantially the form annexed hereto as Annex C.
Partnership: As defined in the Recitals.
-----------
-11-
<PAGE>
Partnership Minimum Gain: That amount determined in accordance with
------------------------
the principles of Treasury Regulations Section 1.704-2(d).
Partnership Property: As defined in Section 2.8.
--------------------
Permitted Investment: An investment of any of the following types:
--------------------
(a) United States Treasury bills and notes; (b) securities guaranteed by
the United States or an agency of the United States and backed by the full
faith and credit of the United States; (c) certificates of deposit,
banker's acceptances or time deposits issued by any commercial bank or
branch thereof chartered by the United States or any State thereof or by
the District of Columbia and having its long-term debt obligations rated A-
or better by Standard & Poor's Ratings Group ("Standard & Poor's"); (d)
commercial paper rated A-3 or better by Standard & Poor's; (e) repurchase
agreements with financial institutions the long-term debt obligations of
which are rated A- or better by Standard & Poor's; (f) Eurodollar deposits
with direct subsidiaries of any commercial bank chartered by the United
States or any State thereof or by the District of Columbia and having its
long-term debt obligations rated A- or better by Standard & Poor's; or (g)
other instruments and investments approved by the Partners' Committee.
Person: An individual or a corporation, partnership, limited
------
liability company, trust, unincorporated association or other entity.
Prime Rate: A rate of interest equal to the rate per annum announced
----------
from time to time by The Chase Manhattan Bank, at its principal office as
its prime rate (which rate shall change when and as such announced prime
rate changes) but in no event more than the maximum rate of interest
permitted to be collected from time to time under applicable usury laws.
Profits: As defined in Section 3.4(a).
-------
Rainbow Partner: Rainbow Regional Holdings, L.L.C., a Delaware limited
---------------
liability company.
Refusing Partner: As defined in Section 3.2(a).
----------------
Related Party Transaction: As defined in Section 4.9(a).
-------------------------
-12-
<PAGE>
Related Person: As to each Partner, (i) such Partner, (ii) each
--------------
Affiliate of such Partner, (iii) each director, officer or general partner
of, or any stockholder or limited partner known to the Partner to own an
equity interest greater than 10% in, such Partner or any Affiliate of such
Partner, or (iv) each Person other than the Partnership in which such
Partner or, to the knowledge of such Partner, any Affiliate of such Partner
has an equity interest greater than 10%, excluding any business in which
the Partnership has an interest, directly or indirectly.
Restricted Person: Each Person listed on a writing executed by the
-----------------
parties hereto on the date of the Formation Agreement.
Restrictive Covenants: As defined in Section 9.2.
---------------------
RMH: Rainbow Media Holdings, Inc., a Delaware corporation, and any
---
entity succeeding to all or substantially all of its assets.
Selling Partner: As defined in Section 6.1(b).
---------------
Senior Credit Agreement: Any instrument creating or otherwise
-----------------------
evidencing indebtedness of the Partnership to a third party lender that is
(x) approved by the Partners' Committee or (y) incurred for one or more of
the purposes described in Section 4.9(ix).
Sharing Percentage: Subject to adjustment pursuant to Section 3.2
------------------
hereof the Sharing Percentage of each Partner in the Partnership shall be
as follows:
Rainbow Partner: 60%
Fox/Liberty Partner: 40%
Tax Matters Partner: As defined in Section 5.3(a).
-------------------
TCI: Tele-Communications, Inc., a Delaware corporation.
---
Term: As defined in Section 2.6.
----
Timely Partner: As defined in Section 3.2(c).
--------------
Transfer: To sell, assign, transfer, pledge or otherwise dispose of,
--------
or encumber (voluntarily, involuntarily or by operation of law); provided,
--------
that a "Transfer" shall not include any bona fide assignment,
-13-
<PAGE>
hypothecation, pledge or encumbrance to any unaffiliated third party
lender in a financing transaction.
Transfer Agreement: The Partnership Interest Transfer Agreement,
------------------
dated as of April 15, 1997, by and among ITT Corporation, ITT Eden
Corporation, ITT MSG Inc., CSC, RMH, Rainbow Garden Corp., Garden L.P.
Holding Corp., MSG Eden Corporation and MSG.
Undistributed Cash: For any period, 25% of the excess of
------------------
"attributable" positive Free Cash Flow of each Cash Flow Business, over the
"attributable" negative Free Cash Flow of each of the Non-Cash Flow
Businesses. "Attributable" for purposes of this definition means the
Partnership's percentage interest in the profits and income of the relevant
business.
ARTICLE II
----------
FORMATION OF GENERAL PARTNERSHIP
2.1 Formation.
---------
(a) Pursuant to the terms and conditions contained in this Agreement,
Rainbow Partner is hereby admitted to the Partnership as a Partner owning a
60% Sharing Percentage and Fox/Liberty Partner is hereby admitted to the
Partnership as a Partner owning a 40% Sharing Percentage.
(b) The name and mailing address of each Partner and the amount
credited to each Partner's Capital Account shall be listed on Schedule A
attached hereto. The Managing Partner shall update and distribute to the
other Partners Schedule A from time to time as necessary to accurately
reflect the information therein. Any amendment or revision to Schedule A
made in accordance with this Agreement shall not be deemed an
-14-
<PAGE>
amendment to this Agreement that requires the consent of the Partners. Any
reference in this Agreement to Schedule A shall be deemed to be a reference
to Schedule A as amended and in effect from time to time.
2.2 Name. The name of the Partnership shall be Regional Programming
----
Partners or any other name designated by the Partners' Committee upon compliance
with all applicable laws.
2.3 Compliance with Partnership and Other Laws. The Partners will use
------------------------------------------
their reasonable best efforts to take the actions required to cause the
Partnership to comply with all applicable partnership laws, assumed name acts,
fictitious name acts, and similar statutes in effect in each jurisdiction or
political subdivision in which the Partnership does business from time to
time, and the Partners agree to execute appropriate documents requested by the
Managing Partner with the advice of counsel to comply with such laws. All
actions to be taken pursuant to this Section 2.3 by the Partnership and by the
Partners shall be at Partnership expense.
2.4 Principal Place of Business. The principal place of business of
---------------------------
the Partnership shall be a place in the United States designated by the Managing
Partner from time to time.
2.5 Purpose. The Partnership is formed for the object and purpose
-------
of, and the nature of the business to be
-15-
<PAGE>
conducted and promoted by the Partnership is, engaging in any lawful act or
activity for which partnerships may be formed under the laws of the State of New
York and engaging in any and all activities necessary, convenient, desirable or
incidental to the foregoing, including, without limitation, acquiring, holding,
managing, operating and disposing of real and personal property.
2.6 Term of Partnership. The term of the Partnership (the "Term")
-------------------
shall continue for ninety-nine (99) years from the Effective Date, unless the
Partnership is sooner dissolved and terminated as provided in Article VIII.
2.7 Qualification in other Jurisdictions. The Partners shall cause
------------------------------------
the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The Managing Partner shall execute, deliver and
file any certificates (and any amendments and/or restatements thereof) necessary
for the Partnership to qualify to do business in a jurisdiction in which the
Partnership wishes to conduct business.
2.8 Ownership of Property. Except to the extent the Managing Partner
---------------------
deems it to be in the best interests of the Partnership to use nominees from
time to time, legal title to all assets, rights and property, whether real,
personal or mixed, owned by the Partnership (collectively,
-16-
<PAGE>
the "Partnership Property") shall be acquired, held and conveyed only in the
name of the Partnership.
ARTICLE III
-----------
PARTNERSHIP CAPITAL
3.1 Capital Contributions.
---------------------
(a) Unless otherwise agreed by all Partners, all capital
contributions (other than any initial capital contribution) shall be in cash.
Except as provided in Sections 4.9 and 6.2(c), the Managing Partner shall from
time to time during the Term give notice to each Partner of any capital
contribution due in accordance with the Budget not less than 30 nor more than 90
days prior to the date on which such capital contribution is due. Such notice
shall set forth the amount to be contributed by each Partner, the date (the
"Contribution Date") on which the contribution is to be made, and the account of
the Partnership to which such funds are to be transmitted. There shall be no
more than one capital call in any calendar month.
(b) All capital contributions to be made by the Partners shall be in
proportion to their respective Sharing Percentages (determined, in each case, at
the time the notice contemplated by Section 3.1(a) is given).
-17-
<PAGE>
3.2 Failure to Make Capital Contributions.
-------------------------------------
(a) Upon the failure of any Partner (the "Refusing Partner") to make
all or a portion of a capital contribution required of it pursuant to this
Agreement on or before any Contribution Date, any other Partner (each a
"Complying Partner") may, at its option exercised by giving notice to the other
Partners, make up the defaulted capital contribution or any portion thereof by
making a capital contribution to the Partnership in an amount not exceeding the
amount of the required capital contribution which the Refusing Partner failed to
make. If more than one Complying Partner wishes to contribute all or any
portion of the unpaid amount of the Refusing Partner's required capital
contribution, and the aggregate amount which such Complying Partners wish to
contribute exceeds the unpaid amount of the Refusing Partner's required capital
contribution, then the Complying Partners shall determine among themselves the
amount that each such Complying Partner shall contribute to the Partnership, or,
in the event the Complying Partners cannot agree, each Complying Partner shall
contribute to the Partnership an amount equal to its pro rata share (based on
the proportion that each Complying Partner's Sharing Percentage bears to the
aggregate Sharing Percentages on the relevant Contribution Date of all the
Complying Partners that wish to contribute) of the Refusing Partner's required
additional capital contribution. Each Complying Partner
-18-
<PAGE>
that makes a capital contribution pursuant to this Section 3.2 shall be referred
to herein as a "Contributing Partner." Any contribution by a Contributing
Partner of such additional amount as a capital contribution pursuant to this
Section 3.2(a) shall be deemed an additional capital contribution of such
Contributing Partner (an "Excess Contribution").
(b) Whenever pursuant to this Section 3.2 with respect to any capital
call, a Refusing Partner has not, within 15 days after the related Contribution
Date, made capital contributions in an amount equal to the product of such
Refusing Partner's Sharing Percentage and the total amount of such capital call,
then the Sharing Percentage of such Refusing Partner in the Partnership shall be
reduced, with effect from the related Contribution Date, so that such Sharing
Percentage equals the quotient (expressed as a percentage) of (x) the sum of (i)
the Initial Capital Account Balance of such Refusing Partner and (ii) all
capital contributions made by such Refusing Partner less all distributions of
capital to the Refusing Partner following the Effective Date and prior to the
related Contribution Date divided by (y) the sum of (a) the Initial Capital
Account Balances of all Partners and (b) all the capital contributions of all
Partners less all distributions of capital to all Partners following the
Effective Date and prior to the related Contribution Date (including any
-19-
<PAGE>
capital contributions made in respect of such capital call pursuant to Section
3.2(a), regardless of when made); and the Sharing Percentage of each Complying
Partner shall be increased, with effect from the related Contribution Date, by
an amount equal to the product of (I) the amount by which the Sharing Percentage
of such Refusing Partner has been reduced pursuant to this sentence and (II) the
quotient of (A) the sum of (X) the Initial Capital Account Balance of such
Complying Partner and (Y) all capital contributions made by such Complying
Partner less all distributions of capital to such Complying Partner following
the Effective Date and prior to the related Contribution Date (including any
additional capital contribution made by such Complying Partner pursuant to
Section 3.2(a), regardless of when made) divided by (B) the sum of (aa) the
Initial Capital Account Balances of all of the Complying Partners and (bb) all
the capital contributions of all Complying Partners less all distributions of
capital to all Complying Partners following the Effective Date and prior to the
related Contribution Date (including any additional capital contributions made
in respect of such capital call pursuant to Section 3.2(a), regardless of when
made).
(c) If at any time any Partner's Sharing Percentage is less than two-
fifths of such Partner's Sharing Percentage as of the Effective Date
(appropriately adjusted to reflect any admissions of additional Partners) such
-20-
<PAGE>
Partner shall forfeit (i) all voting rights (including the voting rights, if
any, of its representatives on the Partners' Committee), except as otherwise
required by law and except as provided in Section 4.9(b) and (ii) such Partner's
right to consent (or withhold consent) to Transfers under (and as defined in)
Section 6.1(a) and such Partner's right of first refusal pursuant to Section
6.1(b) hereof. A Partner that has forfeited its voting and other rights under
this paragraph is referred to as a "Forfeited Partner" for and during the period
such rights are so forfeited. Except as otherwise specifically provided in this
Section 3.2(c), a Forfeited Partner shall continue to be a Partner in all other
respects and shall not, by virtue of becoming a Forfeited Partner, be released
from any of its obligations as a general partner in the Partnership or under
this Agreement (including its obligations with respect to required additional
capital contributions). The forfeiture by any Partner of certain of its rights
pursuant to this Section 3.2(c) shall not prejudice the right of such Partner to
any claim that such Partner may have at law against the Managing Partner in the
case of a breach by the Managing Partner of any provision of this Agreement or
of the duties of care and of loyalty owed by the Managing Partner to the
Partnership.
In the event that any Partner (the "Delinquent Partner") fails to make
a capital contribution on or before
-21-
<PAGE>
the Contribution Date specified in the notice of the Managing Partner, but does
make its contribution within 15 days after such Contribution Date, each Partner
(each, a "Timely Partner") that made its capital contribution on or before the
Contribution Date shall be entitled to receive interest at a rate per annum
equal to the Prime Rate (calculated on the basis of a year of 360 days) from the
Delinquent Partner (and not from the Partnership) from the date of payment of
its capital contribution to the date the Delinquent Partner made its capital
contribution.
Notwithstanding the foregoing provisions of this Section 3.2, if the
Sharing Percentage of any Partner other than the Managing Partner has been
reduced pursuant to Section 3.2(b) for failure to make a capital contribution
such Partner may, at any time prior to the date that is 270 days after such
capital contribution was due, make a capital contribution to the Partnership or
a payment to each Contributing Partner, as provided below (each, a "Make-up
Contribution"), in an amount equal to the Make-up Amount (as hereinafter
defined). Upon the making of a Make-up Contribution by such Partner in the
full amount of the Make-up Amount, the Sharing Percentages of the Partners shall
be adjusted to give effect to such Make-up Contribution so as to restore to such
Refusing Partner and the Complying Partners the respective Sharing Percentages
they would have
-22-
<PAGE>
had but for and solely based on the default of the Refusing Partner.
The "Make-up Amount" shall be the amount of the defaulted capital
contribution of the Refusing Partner, plus interest thereon at a rate per annum
equal to the Prime Rate plus 1% calculated on the basis of a year of 360 days
from the Contribution Date until the date of payment of the Make-up
Contribution. In the event that no Complying Partner has made up any portion of
the defaulted capital contribution of such Refusing Partner pursuant to Sec-
tion 3.2(a), and the Refusing Partner elects to make a Make-up Contribution, the
full Make-up Amount shall be paid by the Refusing Partner to the Partnership.
In the event that a Contributing Partner has, pursuant to Section 3.2(a), made
up all or a portion of the defaulted capital contribution of such Refusing
Partner through additional capital contributions, and the Refusing Partner
elects to make a Make-up Contribution, such Refusing Partner shall pay directly
to each Contributing Partner an amount equal to the Make-up Amount multiplied by
the quotient of (x) the portion of all Excess Contributions paid by such
Contributing Partner, divided by (y) the total amount of the relevant defaulted
capital contribution, and after such payment the Refusing Partner shall
contribute the remainder (if any) of the Make-up Amount to the Partnership.
-23-
<PAGE>
3.3 Capital Accounts.
----------------
(a) A separate capital account (each a "Capital Account") shall be
maintained for each Partner. The Initial Capital Account Balance of each
Partner shall be as specified in Article I. Subject to the provisions of
paragraphs (b), (c) and (d) of this Section 3.3, the Capital Account of each
Partner shall be (i) increased by (A) the amount of cash and the Fair Market
Value of other property contributed to the Partnership by such Partner as a
capital contribution (net of liabilities of such Partner assumed by the Partner-
ship and liabilities to which such contributed property is subject) (including
any Excess Contributions made by such Partner whether or not the Partner was
reimbursed by a Refusing Partner) and (B) Profits and any other items of income
allocated to such Partner pursuant to Section 3.4 and (ii) decreased by (A) the
amount of cash and the Fair Market Value of any property distributed to such
Partner (net of liabilities of the Partnership assumed by such Partner and
liabilities to which such distributed property is subject), (B) any Excess
Contributions for which such Partner has been reimbursed by a Refusing Partner,
and (C) items of Loss and any other deductions allocated to such Partner
pursuant to Section 3.4. Capital Accounts otherwise shall be maintained in
accordance with Treasury Regulations in order for the allocation of Profits and
Losses pursuant to Section 3.4
-24-
<PAGE>
hereof to have substantial economic effect within the meaning of Section 704(b)
of the Code.
(b) Immediately prior to the distribution of any property (other than
cash) to a Partner, the Capital Account of each Partner shall be increased or
decreased, as the case may be, in accordance with Treasury Regulations Sec tion
1.704-1(b)(2)(iv)(e), to reflect the manner in which the unrealized income,
gain, loss and deduction inherent in such property that has not previously been
reflected in the Capital Accounts would be allocated among the Partners if there
were a taxable disposition of such property for its Fair Market Value on the
date of the distribution.
(c) Immediately prior to:
(i) a contribution of money or other property to the Partnership by a
new or existing Partner as consideration for an Interest, or
(ii) a distribution of money or other property by the Partnership to a
retiring or continuing Partner as consideration for an Interest,
the Capital Account of each Partner shall be increased or decreased, as the case
may be, to reflect the Fair Market Value of all the Partnership Property. Such
adjustment shall reflect the manner in which the unrealized income, gain, loss
or deduction inherent in such property that has not previously been reflected in
the Capital Accounts would be allocated among the Partners if there were a
taxable disposition of such property for its Fair Market Value on the
-25-
<PAGE>
date of the contribution or distribution and shall otherwise be made in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(d) Except as set forth in Section 3.2, no Partner shall be entitled
to interest on its capital contributions or on the positive balance in its
Capital Account and no such interest shall accrue.
3.4 Allocation of Items of Partnership Income, Gain, Loss, Deduction
----------------------------------------------------------------
and Credit.
- ----------
(a) For purposes of this Agreement, the terms "Profits" and "Losses"
shall mean, respectively, the net profits and net losses of the Partnership
determined on an annual basis in accordance with the method of accounting used
by the Partnership for Federal income tax purposes, except that (i) the items
included in the calculation of Profits and Losses shall not include any items
specially allocated under Section 3.4(c), (ii) where property is reflected in
the Capital Accounts at a book basis different from the basis of such property
for Federal income tax purposes, all gain, loss, depreciation and amortization
on such property shall be determined for purposes of adjusting Capital Accounts
based on the book basis of such property in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), (iii) income received by the Partnership which is
exempt for Federal income tax purposes shall be included, and (iv) expenses of
the Partnership which are not
-26-
<PAGE>
capitalizable and not deductible or deemed not capitalizable and not deductible
for Federal income tax purposes (i.e., Section 705(a)(2)(B) expenditures) shall
- -
be taken into account.
(b) (i) Except as provided in paragraph (a) of this Section 3.4,
clause (ii) of this paragraph (b), and Section 5.3(d), and after giving effect
to the special allocations required by paragraph (c) of this Section 3.4, all
Partnership Profits and Losses and other items of income, gain, loss, deduction
and credit shall be allocated to the Partners in accordance with their Sharing
Percentages, taking into account both the amount or amounts of such Sharing
Percentages and the portions of the year during which such Sharing Percentages
were held.
(ii) If, at the end of any taxable period, any Partner's Capital
Account would have an Adjusted Capital Account Deficit (determined after taking
into account all other allocations and distributions with respect to such
period), then there shall be allocated to such Partner for such taxable period
items of gross income in an amount sufficient to eliminate such Adjusted Capital
Account Deficit.
(c) Notwithstanding any other provision of this Section 3.4, the
following special allocations shall be made for each taxable period in
descending order of priority:
-27-
<PAGE>
(i) If there is a net decrease in Partnership Minimum Gain during any
Partnership taxable period, each Partner shall be specially allocated items
of income and gain of the Partnership for such period (and, if necessary,
subsequent periods) in an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain, determined in accordance with
Treasury Regulations Sections 1.704-2(f) and 1.704-2(g)(2). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). The
Partnership may, however, (i) waive the chargeback of items of income and
gain required by this Section 3.4(c)(i) and (ii) apply to the Commissioner
of the Internal Revenue Service for approval of such waiver in the event
that (x) the Partners have made Capital Contributions or received income
allocations that have restored any previous Nonrecourse Deductions claimed
or any distributions attributable to the proceeds of a Nonrecourse
Liability, and (y) the Minimum Gain chargeback requirement would distort
the Partners' economic arrangement as reflected in this Agreement and as
evidenced over the term of the Partnership by the Partnership's allocations
and distributions and the Partners' Capital Contributions and it is not
expected that the Partnership will have sufficient other income to
correct that distortion. This Section 3.4(c)(i) is intended to comply with
the chargeback of items of income and gain requirement in Treasury
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith;
(ii) If there is a net decrease in Minimum Gain Attributable to
Partner Nonrecourse Debt during any Partnership taxable period, any Partner
with a share of Minimum Gain Attributable to Partner Nonrecourse Debt at
the beginning of such taxable period (determined in accordance with
Treasury Regulations Section 1.704-2(i)(5)) shall be allocated items of the
Partnership income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
the Minimum Gain Attributable to Partner Nonrecourse Debt, determined in
accordance with Treasury Regulations Sections 1.704-2(g)(2) and 1.704-
2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Treasury
-28-
<PAGE>
Regulations Sections 1.704-2(f)(5), 1.704-2(i)(4) and 1.704-2(j)(2)(ii) and
(iii). This Section 3.4(c)(ii) is intended to comply with the chargeback
of items of income and gain requirement in Treasury Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith. In
addition, rules consistent with the provisions of Treasury Regulations
Sections 1.704-2(f)(2), (3), (4) and (5) will apply to the special
allocation required by this Section 3.4(c)(ii);
(iii) In the event that any Partner unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain shall be specially allocated to such Partner
(in respect of its Capital Account) in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the Adjusted
Capital Account Deficit of such Partner as quickly as possible, provided
that an allocation pursuant to this Section 3.4(c)(iii) shall be made only
if and to the extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in this Article
III have been tentatively made as if this Section 3.4(c)(iii) were not in
the Agreement;
(iv) Nonrecourse Deductions for any taxable period shall be specially
allocated among the Partners in accordance with their Sharing Percentages;
(v) Partner Nonrecourse Deductions for any taxable period shall be
specially allocated to the Partner that bears the economic risk of loss
with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i). If more than one Partner bears the
economic risk of loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such economic risk of loss; and
(vi) To the extent that any allocation is made in any taxable period
to any Partner pursuant to the provisions of clauses (i) through (v) of
this Section 3.4(c), such Partner shall thereafter be specially allocated
items of Partnership gross income or deduction in order to negate the
above-described allocations in the same taxable period if sufficient items
of gross
-29-
<PAGE>
income or deduction are available and, if not available, in each succeeding
taxable period until the aggregate amount of the above-described
allocations are fully negated.
(d) All items of income, gain, loss or deduction attributable to
property contributed to the Partnership shall be allocated for Federal income
tax purposes among the Partners in a manner that takes into account any
difference between the Fair Market Value of such property at the time of its
contribution (calculated for this purpose without regard to any outstanding
indebtedness secured by or relating to such property) and its adjusted basis for
Federal income tax purposes at that time, in accordance with Section 704(c) of
the Code and the Treasury Regulations thereunder. Each Partner that contributes
property to the Partnership shall at the time of such contribution notify the
Partnership of its adjusted basis in the contributed property at such time. For
purposes of allocations hereunder, the Partnership shall elect to use the
traditional method with curative allocations as set forth in Treasury
Regulations Section 1.704-3(c).
3.5 Distributions.
-------------
(a) Except as provided in Sections 6.2 or 6.7, no Partner shall have
the right to withdraw any amount from its Capital Account. No Partner shall
have the right, except as otherwise provided in Section 3.5(b), to demand or
receive any distribution, without the approval of the Managing
-30-
<PAGE>
Partner. Except as otherwise provided in Article VIII, no Partner shall have
the right to receive a distribution of property other than cash from the
Partnership, unless otherwise agreed by all the Partners.
(b) The Partnership shall, subject to any restrictions contained in
Senior Credit Agreements, distribute cash to the Partners in amounts that the
Managing Partner determines are in excess of the amounts reasonably necessary
for the continued efficient operation of the business of the Partnership,
including reasonable reserves; provided, that (i) subject to the Managing
--------
Partner's discretion to retain amounts necessary for the continued efficient
operation of the business of the Partnership in accordance with this Section
3.5(b), such distributions shall be made not less often than quarterly and (ii)
the Managing Partner shall be permitted in its sole discretion to retain
Undistributed Cash and the Managing Partner shall be permitted to use in any
fiscal year all Undistributed Cash for such fiscal year that the Managing
Partner reasonably believes will be available for such fiscal year, for purposes
that are unrelated to the Partnership's business (as it shall determine, such
determination to be made in accordance with Section 4.1 hereof), so long as such
use is generally related to the media or entertainment business, subject only to
Section 2.5. To the extent that Undistributed Cash is not used in any fiscal
year, such
-31-
<PAGE>
unused amount shall not be carried forward for use in any subsequent year. To
the extent that the Managing Partner expends Undistributed Cash in excess of
that available for a fiscal year, such amount will be deducted from
Undistributed Cash for the next fiscal year. Any such distributions shall be
made in accordance with the Partners' Sharing Percentages. The Partnership
shall repay principal and accrued interest on Partner's Loans (in the order of
payment contemplated by subparagraph (c)(iii) of Section 8.2 hereof) prior to
making any cash distributions to the Partners. The Managing Partner shall also
act to cause distributions of cash from the businesses in which the Partnership
has a Controlling interest, on a basis similar to the foregoing policy, subject
to applicable legal, contractual and fiduciary constraints.
(c) For purposes of Sections 3.2(b) and 6.2(b), distributions shall be
deemed made first from profits and then from capital.
3.6 Partnership Funds. The funds of the Partnership shall be
-----------------
deposited in such bank accounts or invested in such Permitted Investments as
shall be determined by the Managing Partner, or if there is no Managing Partner
the Partners' Committee. The Partnership's funds shall not be commingled with
funds not belonging to the Partnership, except to the extent the Partnership's
cash management plan permits such commingling, and shall be used only for the
-32-
<PAGE>
affairs or business of the Partnership. The Managing Partner shall establish a
cash management plan pursuant to which the funds of the Partnership will be
managed.
3.7 Borrowings. Subject to any applicable approval required by
----------
Section 4.9 hereof, if the Partnership uses reasonable efforts to obtain third-
party financing but is unable to do so, (i) the Partnership may borrow funds
from any Person that is not a Related Person with respect to any Partner and may
pledge on a non-recourse basis only the Partnership properties or the income
therefrom to secure the repayment of such loans and (ii) the Partnership may
borrow funds in the form of Partner's Loans from any Partner or any Related
Person with respect to a Partner.
ARTICLE IV
----------
MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business. Except for actions and
----------------------------------------
determinations which pursuant to this Agreement or applicable law can be taken
or made only with the consent of all of the Partners or the Partners' Committee,
the business and affairs of the Partnership shall be directed and controlled by
the Managing Partner. The Managing Partner shall manage the business of the
Partnership so as to maximize the Partnership's profitability or asset value
in a manner consistent with the development plans and policy decisions reflected
in the then-applicable
-33-
<PAGE>
Business Plan and the then-applicable Budget. Without limiting the generality
of the foregoing, the Managing Partner at the Partnership's expense, consistent
with the Budget shall cause the Partnership to obtain and maintain in effect
during the Term comprehensive insurance insuring the Partnership against all
risks and perils customarily insured against in the businesses conducted by the
Partnership. Nothing contained in this Article IV shall impose any obligation on
any Person doing business or dealing with the Partnership to inquire as to
whether the Managing Partner has exceeded its authority in executing any
contract or other instrument on behalf of the Partnership, and any such Person
shall be fully protected in relying upon the authority of the Managing Partner.
The Managing Partner shall keep the Partners' Committee informed with respect to
all matters of material interest to the Partners and shall in any event report
to the Partners' Committee not less frequently than once each quarter with
respect to the business and affairs of the Partnership. Except as otherwise
provided in Section 4.5, the Managing Partner shall serve without compensation
for its services. The Managing Partner may delegate such of its powers and
authority to managers, employees and agents of the Partnership as the Managing
Partner shall deem necessary or appropriate for the conduct of the Partnership's
business. Except insofar as such arrangements are embodied in Approved
Agreements or are
-34-
<PAGE>
otherwise approved pursuant to the provisions of Section 4.9, all arrangements
for the employment of managers, employees or agents on behalf of the Partnership
that are Related Persons with respect to any Partner shall be on an Arm's-length
basis.
Nothing in this Agreement shall (i) limit any action or require any
action which is inconsistent with the terms of any partnership agreement,
limited liability company agreement (or similar document) relating to a
Contributed Business (as defined in the Formation Agreement) that includes one
or more outside partners or investors (other than Affiliates of Rainbow Partner
and Fox/Liberty Partner) or is inconsistent with the fiduciary or other
obligations of any partner therein and a Partner shall not be in breach of this
Agreement if acting or failing to act in reliance on this sentence, (ii) prevent
the Managing Partner from determining the manner in which the programming
services held directly or indirectly by the Partnership shall be offered,
including, without limitation, whether they are offered on basic, premium, tier,
pay-per-view, exclusive or other licensing terms; provided, that the Partnership
--------
receives reasonable value in connection with any service that exhibits solely
sports programming offered on an exclusive basis, or (iii) permit any Partner
other than the Managing Partner to exercise any management or voting rights
(including any veto rights) with respect to
-35-
<PAGE>
SportsChannel Florida Associates, MSG, the New York Rangers professional hockey
team and the New York Knickerbockers professional basketball team.
4.2 Partners' Committee. Each of Fox/Liberty Partner and Rainbow
-------------------
Partner shall designate two individuals to serve on a committee (the "Partners'
Committee") which shall be responsible for taking all action required under this
Agreement to be taken by the Partners' Committee. Irrespective of the number of
representatives attending any meeting of the Partners' Committee, each of
Fox/Liberty Partner and Rainbow Partner shall have the right to one vote at such
meetings (except as otherwise provided below and in Section 3.2 hereof with
respect to a Forfeited Partner), such vote to be exercised in such manner as
such Partner shall direct. The Partners' Committee shall meet by telephone or,
at the request of any Partner, in person, not less frequently than (i) quarterly
to receive the report of the Managing Partner contemplated by Section 4.1 and to
review development plans, the financial position of the Partnership, the status
of negotiations for the purchase and sale of programming rights, financial
projections, and any other material matters relating to the business of the
Partnership, (ii) annually to review the annual Budget and the Business Plan,
and (iii) as often as shall be necessary to take any other action required to be
taken or approved by the Partners' Committee. Any action that may be taken at a
-36-
<PAGE>
meeting of the Partners' Committee may be taken without a meeting by written
consent of the number of Partners needed to authorize the action; provided, that
--------
all Partners, regardless of whether all Partners are entitled to vote, are given
notice of such written consent at least 15 Business Days prior to its effective
date.
Except as otherwise provided herein, any action required or permitted
to be taken by the Partners' Committee must be by the approving vote of Partners
entitled to vote and having Sharing Percentages aggregating at least 66 2/3% of
the Sharing Percentages of all Partners entitled to vote; provided, that, if the
--------
Managing Partner has been removed pursuant to Section 4.10, until a new Managing
Partner shall have been appointed in accordance with Section 4.10, any action
required or permitted to be taken by the Partners' Committee must be by the
approving vote of each Partner entitled to vote.
Any member of the Partners' Committee may be removed without cause
and replaced at any time by the Partner who designated such member. If at any
time a Partner removes one or both of its representatives on the Partners'
Committee or any representative of such Partner resigns from the Partners'
Committee or dies, such Partner shall give notice to the other Partners of such
removal, resignation or death and of a successor representative. In the absence
of notice to the contrary, either representative of any Partner
-37-
<PAGE>
shall be conclusively presumed to have the authority to take action by written
consent or vote in the name and on behalf of such Partner. Members of the
Partners' Committee shall serve as such without compensation.
4.3 Budget and Business Plan. The Managing Partner shall submit
------------------------
annually to the Partners' Committee at least 30 days prior to the start of each
Fiscal Year, beginning with the Fiscal Year commencing January 1, 1998, (i) a
budget (a "Budget") for the forthcoming Fiscal Year including an income
statement prepared on an accrual basis which shall show in reasonable detail the
projected revenues and expenses and a cash flow statement and detailed schedule
of proposed capital expenditures which shall show in reasonable detail the
projected receipts and disbursements and the amount of any expected cash
deficiency or surplus, any required capital contributions, a summary of the
services included in Management Overhead allocated to the Partnership in the
Budget and any contemplated borrowings of the Partnership, and (ii) a revised
five-year business plan (a "Business Plan") for the Fiscal Year covered by the
Budget and the succeeding four Fiscal Years containing substantially the same
categories of information in substantially the same detail as the Business Plan
attached hereto as Annex B. Such Budget and Business Plan shall be prepared on
a basis consistent with the Partnership's audited financial statements and GAAP
and may be amended
-38-
<PAGE>
during a Fiscal Year by submitting to the Partners' Committee a revised Budget
and Business Plan in accordance with this Section 4.3. Prior to or
simultaneously with the submission of such Budget and Business Plan, the
Managing Partner shall disclose to the Partners' Committee any additional
information (including financial projections for years after the next Fiscal
Year) in its possession or reasonably available to it (with or without cost to
the Partnership) which could assist the Partners' Committee in evaluating such
Budget and Business Plan, subject to any confidentiality and fiduciary
restrictions to which such additional information may be subject, including,
without limitation, confidentiality and fiduciary restrictions with respect to
SportsChannel Florida Associates, MSG, the New York Rangers professional hockey
team and the New York Knickerbockers professional basketball team. In addition,
the Managing Partner shall meet with the Partners' Committee to discuss such
Budget and Business Plan. Budgets and Business Plans submitted to the Partners'
Committee shall supersede any previous Budget or Business Plan, as the case may
be.
4.4 Limitation on Agency. Except as expressly provided herein, the
--------------------
Managing Partner shall have exclusive authority to act for the Partnership. No
other Partner shall have any authority to act for, or to assume any obligation
or responsibility on behalf of, another Partner or
-39-
<PAGE>
the Partnership (or to authorize any other Person to do so) except (i) as
otherwise expressly provided herein or as expressly approved by written consent
of all Partners, (ii) if the Managing Partner is a Defaulting Partner, to the
extent necessary to permit the Non-Defaulting Partners to exercise on behalf of
the Partnership any remedies available to the Partnership against the Managing
Partner, or (iii) if the Managing Partner fails to perform its management duties
hereunder (including its duty to give the notices contem plated by Section
3.1(a) hereof), to the extent necessary to permit the Non-Defaulting Partners to
continue the business of the Partnership. In addition to the other remedies
specified in this Agreement, each Partner agrees to indemnify and hold each
other Partner harmless from and against any claim, demand, loss, damage,
liability or expense (including, without limitation, amounts paid in settlement,
reasonable costs of investigation and reasonable legal expenses) incurred by or
made against such other Partner and arising out of or resulting from any action
taken by the indemnifying Partner in violation of this Section 4.5.
4.5 Managing Partner's Services and Expenses. The Managing Partner
----------------------------------------
shall provide or cause to be provided to the Partnership such management and
other services as may be necessary or appropriate to the conduct of the business
of the Partnership from time to time as contemplated by the Business Plan and
the Budget. All reasonable and necessary
-40-
<PAGE>
direct and indirect expenses (including, but not limited to, human resource
expenses, out-of-pocket expenses, overhead, salary, rent, utility costs and
similar expenses) incurred by the Managing Partner and by and from its Related
Persons in furtherance of the businesses of the Partnership shall be paid or
reimbursed (but not in amounts exceeding the amounts provided in the Business
Plan and Budget) by the Partnership; provided, that all indirect expenses
--------
incurred by the Managing Partner and by and from its Related Persons in the
management of the Partnership shall be allocated pursuant to the Allocation
Policy for Management Overhead set forth in Annex D hereto.
4.6 Liability of Partners' Committee and Managing Partner. Neither
-----------------------------------------------------
the individuals constituting the Partners' Committee nor the Managing Partner
shall be liable, in damages or otherwise, to the Partnership or any Partner for
any act or failure to act on behalf of the Partnership by such individuals or
Managing Partner, which act was within the scope of the authority conferred on
the Managing Partner or the individuals constituting the Partners' Committee, as
the case may be, by this Agreement, unless such act or omission constituted
fraudulent or willful misconduct, was performed or omitted in bad faith or
constituted gross negligence or a violation of law. The individuals compris-
ing the Partners' Committee and the Managing Partner shall be indemnified by the
Partnership against liability for any
-41-
<PAGE>
claim, demand, loss, damage, liability or expense (including, without
limitation, amounts paid in settlement, reasonable costs of investigation and
reasonable legal expenses) resulting from any threatened, pending or completed
action, suit or proceeding naming any of them as a defendant by reason of acts
or omissions by them within the scope of their authority as set forth in this
Agreement, provided their actions were in good faith and did not constitute
gross negligence, fraud or willful misconduct or a violation of law.
4.7 Indemnification. Any Person asserting a right to indemnification
---------------
under Section 4.4, Section 4.6 or Section 9.3 shall give notice to the
Partnership or the indemnifying Partner(s). If the facts giving rise to such
indemnification involve any actual or threatened claim or demand by or against a
third party, the indemnifying Person shall be entitled to control the defense or
prosecution of such claim or demand in the name of the indemnified Person, with
counsel reasonably satisfactory to the indemnified Person, if the indemnifying
Person notifies the indemnified Person in writing of its intention to do so
within twenty (20) days after the receipt of such notice by the indemnifying
Person, without prejudice, however, to the right of the indemnified Person to
participate therein through counsel of the indemnified Person's own choosing,
which participation shall be at the indemnified Person's
-42-
<PAGE>
sole expense unless (i) the indemnified Person shall have been advised by its
counsel that use of the same counsel to represent both the indemnifying Person
and the indemnified Person would present a conflict of interest (which shall be
deemed to include any case where there may be a legal defense or claim available
to the indemnified Person which is different from or additional to those
available to the indemnifying Person), in which case the indemnifying Person
shall not have the right to direct the defense of such action on behalf of the
indemnified Person, or (ii) the indemnifying Person shall fail diligently to
defend or prosecute such claim or demand within a reasonable time. Whether or
not the indemnifying Person chooses to defend or prosecute such claim, the
parties hereto shall cooperate in the prosecution or defense of such claim and
shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith. The indemnifying Person shall
not settle or permit the settlement of any such third party claim or action
without the prior written consent of the indemnified Person, which consent shall
not be unreasonably withheld.
4.8 Approved Agreements. Notwithstanding any provision of this
-------------------
Agreement to the contrary, no action by the Partners' Committee or any Partner
shall be required in order to authorize the Partnership to enter into and
perform
-43-
<PAGE>
any of the Approved Agreements or to renew any Approved Agreement pursuant to an
automatic renewal provision of such Approved Agreement or on terms no less
favorable to the Partnership than those prevailing prior to such renewal. Each
Approved Agreement shall, for purposes of this Agreement, be deemed to be on
an Arm's-length basis.
4.9 Unanimous Actions by Partners. (a) The Partners' Committee or
-----------------------------
the Managing Partner may make a recommendation, but shall have no power, without
the prior written consent of all Partners (other than a Forfeited Partner):
(i) to amend this Agreement;
(ii) to admit any Person as a Partner in the Partnership except
as a result of a Transfer permitted by this Agreement;
(iii) to merge or consolidate the Partnership with any other
Person, other than in connection with an Initial Public Offering;
(iv) to dissolve and wind up the Partnership other than in
connection with an Initial Public Offering, except as otherwise provided in
Sections 8.1 and 8.2;
(v) to Transfer all or substantially all of the assets of the
Partnership other than in connection with an Initial Public Offering; or
(vi) to make any capital calls other than the capital calls
relating to (a) the exercise of the rights or satisfaction of obligations
to purchase, or cause MSG to redeem, limited partnership interests in MSG
pursuant to the Transfer Agreement, (b) the exercise of the rights or
satisfaction of obligations to purchase interests in SportsChannel Chicago
Associates or SportsChannel Pacific Associates from the other partners in
such partnerships or (c) any other investments or disbursements
referenced in a writing between
-44-
<PAGE>
the parties hereto dated the date of the Formation Agreement referring to
this Section;
(vii) to purchase or sell any Material Asset of the
Partnership other than (a) transactions related to the sale of a direct or
indirect interest in a Region in connection with the acquisition of major
professional sports programming rights or (b) any other purchase or sale of
a Material Asset referenced in a writing between the parties dated the date
of the Formation Agreement referring to this Section; provided, that
--------
nothing in this clause (vii) shall limit the Managing Partner's ability to
purchase any Material Asset with the Partnership's Undistributed Cash;
(viii) to directly acquire any substantial interest or
participation in any other Person other than (a) a reorganization or
restructuring transaction relating to one or more of the Contributed
Businesses or (b) any acquisition of an interest referenced in a writing
between the parties hereto dated the date of the Formation Agreement
referring to this Section; provided, that nothing in this clause (viii)
--------
shall limit the Managing Partner's ability to acquire any substantial
interest or participation in any other Person with the Partnership's
Undistributed Cash; or
(ix) to incur indebtedness other than indebtedness for borrowed
money of the Partnership relating to (a) the exercise of the rights or
satisfaction of obligations to purchase, or cause MSG to redeem, limited
partnership interests in MSG pursuant to the Transfer Agreement, (b) the
exercise of rights or satisfaction of obligations to purchase interests in
SportsChannel Chicago Associates or SportsChannel Pacific Associates from
the other partners in such partnerships, (c) the direct or indirect
acquisition of programming rights relating to professional sports, (d) any
other investments or disbursements referenced in writing between the
parties hereto dated the date of the Formation Agreement referring to this
Section, or (e) a Partner's Loan.
Except as otherwise provided in this Agreement and except for Approved
Agreements and any renewals or extensions thereof, the Partnership shall not
be permitted to enter into a material transaction with a Related Person of
-45-
<PAGE>
any Partner (a "Related Party Transaction") unless such Related Party
Transaction is approved by each Partner or is on an Arm's-length basis when
compared to similar types of transactions. The Managing Partner shall notify
each other Partner at least 10 Business Days prior to the Partnership entering
into a Related Party Transaction and shall provide therewith a reasonable
summary of such Related Party Transaction. If any Partner notifies the Managing
Partner within 5 Business Days of receiving such notice that such Partner
reasonably determines that a Related Party Transaction is not on an Arm's-
length basis when compared to similar types of transactions (furnishing the
Managing Partner with the reasons for making its determination that such
transaction is not an Arm's-length basis when compared to similar types of
transactions) and such Partner does not approve such Related Party Transaction,
the Managing Partner shall be permitted to restructure such Related Party
Transaction on an Arm's-length basis.
If the Partnership is presented with an Option with respect to a New
Development Interest under Section 8.3 of the Formation Agreement or the
opportunity to acquire Regional Nonsports Programming or a Regional Nonsports
Interest under Section 8.4 of the Formation Agreement, and if the Managing
Partner recommends that the Partnership exercise such Option or pursue such
opportunity, no other Partner that is the party making such Offer or an
Affiliate
-46-
<PAGE>
thereof may exercise its rights under this Section 4.9 to block such
transaction.
(b) In addition to the approvals required under Section 4.9(a), the
prior written approval of any Forfeited Partner shall be required before any of
the actions referred to in Section 4.9(a)(v) or 4.9(a)(vi), and before this
Agreement may be amended in any respect that could reasonably be expected to
materially adversely affect such Forfeited Partner.
(c) The Managing Partner shall not take any actions, or permit the
taking of any actions at SportsChannel Chicago, SportsChannel Pacific and
SportsChannel Prism Associates (so long as the Partnership does not own all of
the partnership interests therein) which would have required a unanimous
decision under this Section 4.9 if taken by the Partnership, except that the
Partnership shall not be deemed to be a Related Person of such other partnership
for purposes of the penultimate paragraph of Section 4.9(a). Subject to
fiduciary and contractual obligations to third party partners, stockholders and
investors in partnerships and other businesses in which the Partnership has an
interest, the Managing Partner, to the extent it Controls such partnerships and
other businesses, shall not permit such partnerships or other businesses to
enter into instruments creating or evidencing indebtedness of such partnership
or other business which restrict or
-47-
<PAGE>
eliminate the right of such partnerships or other businesses to make
distributions to the Partnership; provided that this sentence shall not apply to
such instruments or agreements which evidence indebtedness incurred by such
partnership or other business solely for one or more of the purposes described
in Section 4.9(ix).
4.10 Removal of Managing Partner. If any Restricted Person shall
---------------------------
Control RMH, Rainbow Partner may be removed as Managing Partner at the request
of any other Partner (other than a Defaulting Partner) by written notice by the
requesting Partner to the Managing Partner within 60 days of such Change in
Control; provided, that there shall be no such right of removal of Rainbow
--------
Partner as the Managing Partner if Rainbow Partner is the Managing Partner and
Rainbow Partner has initiated the Buy-Out Procedure within 30 days of the
receipt of the request referred to in this Section 4.10, unless the Buy-Out
Procedure is abandoned by mutual agreement of the parties.
Upon the removal of the Managing Partner, a new Managing Partner shall
be appointed from among the Partners by the unanimous vote of the Partners
excluding any Partner that is a Forfeited Partner at the time of such decision.
Until a successor Managing Partner has been appointed, the Partnership shall be
managed by the Partners' Committee in accordance with Section 4.2.
-48-
<PAGE>
The removal of the Managing Partner shall not, of itself, affect the
Managing Partner's Interest or Sharing Percentage in the Partnership or the
right of its representatives to vote (except as provided in the preceding
paragraph) on the Partners' Committee or its rights under Section 4.9.
ARTICLE V
---------
BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records.
-----------------
(a) At all times during the Term, the Managing Partner, or in the
event there is no Managing Partner the Partners' Committee, shall keep or cause
to be kept full and complete books of account and business records in which
shall be entered fully and accurately each transaction of the Partnership.
(b) All such books of account and business records shall at all times
be maintained at the principal office of the Partnership or such other place the
Partners' Committee may determine. Each Partner or its duly authorized
representatives shall have the right, upon reasonable notice, at its own
expense, to examine, inspect and copy, during normal business hours and for any
lawful purpose related to the affairs of the Partnership or the investment in
the Partnership by such Partner, any of the books of account, business records,
properties and opera-
-49-
<PAGE>
tions of the Partnership; provided, that Fox/Liberty Partner shall not have the
--------
right to examine, inspect or copy any records relating to SportsChannel Florida
Associates, the New York Rangers professional hockey team or the New York
Knickerbockers professional basketball team or which is subject to a
confidentiality or fiduciary obligation. Such examination, inspection and
copying may be conducted by the Partner's employees, its independent certified
public accountants, or its other agents. Any information obtained by any Partner
during such an inspection shall be treated as confidential to the extent
required by Section 10.11 hereof. The Partnership's books of account and
business records shall be preserved for a period of at least five years or such
longer period as is required by law.
(c) The Partnership's books of account shall be kept on an accrual
basis in accordance with GAAP. The fiscal year (the "Fiscal Year") of the
Partnership shall end on December 31, or on such other date as shall be
determined by the Partners' Committee.
5.2 Financial Reports. The Managing Partner, or in the event there
-----------------
is no Managing Partner the Partners' Committee, shall deliver to each Partner,
no later than 30 days after the end of each calendar month, a statement of
income (loss), balance sheet, statement of capital expenditures and subscriber
data for the Partnership for such month prepared, in the case of financial
information, in accor-
-50-
<PAGE>
dance with GAAP. The Managing Partner, or in the event there is no Managing
Partner the Partners' Committee, shall deliver to each Partner, no later than 45
days after the close of each of the first three quarters of the Partnership's
Fiscal Year, and 75 days after the end of each such Fiscal Year, a financial
report of the business and operations of the Partnership prepared in accordance
with GAAP (and, if required by any Partner for purposes of reporting under the
Securities Exchange Act of 1934, in accordance with Regulation S-X or any
successor regulation), relating to such period, which report shall include a
balance sheet as of the end of such period, a statement of income (loss) and
partners' capital (deficiency) and cash flows (including sources and uses of
funds) for the period then ended, and in each case a comparison of the period
then ended with the corresponding period in the Fiscal Year immediately preced-
ing such period, which, in the case of the report furnished after the close of
the Fiscal Year, shall be audited by the Partnership's independent certified
public accountants. The monthly and quarterly financial statements shall be
accompanied by an analysis, in reasonable detail, of the variance between the
Partnership's operating results and the corresponding amounts in the then-
current Budget. The monthly and quarterly financial reports may in each case be
subject to normal year-end adjustments. In addition to the foregoing financial
statements, the financial report
-51-
<PAGE>
furnished after the close of each Fiscal Year shall also include a statement of
cash flows, and allocations to the Partners of the Partnership's taxable income,
gains, losses, deductions and credits. The financial report required to be
furnished after the close of the Fiscal Year may be delivered in preliminary
form, without footnotes; provided, that the final form of the required financial
--------
statements, audited by the Partnership's independent certified public accoun-
tants, must be delivered within 90 days after such year-end. Additionally, the
Partnership shall provide an estimate of annual net income (loss) to each
Partner no later than 21 days after the close of each Fiscal Year and shall
provide any other available financial information which any Partner reasonably
requests; provided, that no Partner other than the Managing Partner shall have
--------
any right to receive any financial information (i) that is subject to a
confidentiality or fiduciary obligation or (ii) with respect to SportsChannel
Florida Associates, the New York Rangers professional hockey team or the New
York Knickerbockers professional basketball team other than a statement of the
aggregate net income (loss) of the New York Knickerbockers or the New York
Rangers. The Partnership will initially engage KPMG Peat Marwick LLP as its
independent certified public accountants. The Partnership shall bear the cost
of each annual audit and, except as otherwise provided in Section 4.6, the cost
of any other services furnished to the
-52-
<PAGE>
Partnership by its independent certified public accountants as provided herein.
5.3 Tax Returns and Information.
---------------------------
(a) Until further action by the Partners' Committee, the Managing
Partner is designated as Tax Matters Partner under (S)6231(a)(7) of the Code.
The Tax Matters Partner will take no action which is reasonably expected to have
a material adverse effect on one or more of the Partners unless such action is
approved by each such Partner. The Tax Matters Partner shall have the rights and
obligations set forth under the Code and regulations thereunder; provided, that
--------
in no event shall the Tax Matters Partner extend the statute of limitations with
respect to any Partner pursuant to Section 6229(b) of the Code without the prior
written consent of such Partner or litigate any adjustment to any Partnership
tax item in any forum other than the United States Tax Court without the prior
written approval of all Partners. The Tax Matters Partner will be responsible
for notifying all Partners of ongoing proceedings, both administrative and
judicial, and will represent the Partnership throughout any such proceeding. The
Partners will furnish the Tax Matters Partner with such information as it may
reasonably request to provide the Internal Revenue Service with sufficient
information to allow proper notice to the Partners. If an administrative
proceeding with respect to a partnership item under the Code
-53-
<PAGE>
has begun, and the Tax Matters Partner so requests, each Partner will give
notice to the Tax Matters Partner of its treatment of any partnership item on
its federal income tax return, if any, which is inconsistent with the treatment
of that item on the partnership return for the Partnership. Any settlement
agreement with the Internal Revenue Service will be binding upon the Partners
only as provided in the Code. The Tax Matters Partner will not bind any other
Partner to any extension of the statute of limitations or to a settlement
agreement without such Partner's written consent. Any Partner who enters into a
settlement agreement with respect to any partnership item will give notice to
the other Partners of such settlement agreement and its terms within 30 days
after the date of settlement. If the Tax Matters Partner does not file a
petition for readjustment of the partnership items in the Tax Court, federal
District Court or Claims Court within the 90-day period following a notice of a
final partnership administrative adjustment, any notice partner or 5-percent
group (as such terms are defined in the Code) may institute such action within
the following 60 days. The Tax Matters Partner will timely give notice to the
other Partners in writing of its decision. Any notice partner or 5-percent
group will give notice to the other Partners of its filing of any petition for
readjustment.
(b) The Tax Matters Partner shall cause income and other required
Federal, state and local tax returns for
-54-
<PAGE>
the Partnership to be prepared and sent (together with related work papers) to
each Partner for review at least 15 business days prior to filing, and will
cause such returns to be timely filed with the appropriate authorities. The Tax
Matters Partner shall make or maintain in effect an election under Section 754
of the Code to adjust the basis of the Partnership Property under Sections 734
and 743 of the Code for taxable years after the Effective Date if it deems such
election to be in the best interests of the Partnership or of any Partner.
Subject to Section 4.3, the Tax Matters Partner shall make such other elections
as it shall deem to be in the best interests of the Partnership and the
Partners. The cost of preparation of such returns by outside preparers, if any,
shall be borne by the Partnership.
(c) The Tax Matters Partner shall cause to be provided to each
Partner no later than July 1 of each year information concerning the
Partnership's projected taxable income or loss and each class of income, gain,
loss, deduction or credit which is relevant to reporting a Partner's share of
the Partnership income, gain, loss, deduction or credit for purposes of Federal
or state income tax. Information required for the preparation of a Partner's
income tax returns shall be furnished to the Partners as soon as possible after
the close of the Partnership's Fiscal Year.
-55-
<PAGE>
(d) For Federal income tax purposes, all gain, loss, depreciation or
amortization with respect to property which is reflected in the Capital Accounts
of the Partners at a basis different from the tax basis of such property shall
be allocated pursuant to the principles of Section 704(c) of the Code and the
Treasury Regulations promulgated thereunder. All other items of income or
deduction shall be allocated for Federal income tax purposes in the same way
such items are allocated to the Capital Accounts of the Partners. All tax
credits shall be allocated to the Partners based upon the Sharing Percentage of
the Partners as of the time the expenditure giving rise to the credit was
incurred.
(e) The Tax Matters Partner shall from time to time upon request of
any other Partner cause the Partnership's attorneys and accountants to confer
with attorneys and accountants for such other Partner on any matters relating to
any Partnership tax return or tax election.
ARTICLE VI
----------
PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.
--------------------
(a) Except for Transfers made pursuant to Section 6.1(b), 6.2, 6.6,
6.7 or 8.3, without the prior written consent of all of the Partners (other than
a Forfeited Partner), no Partner shall have the right to
-56-
<PAGE>
Transfer all or any part of its Interest, or to suffer to occur a Change in
Control of such Partner or an Indirect Transfer as to such Partner, and any such
Transfer shall be void and of no force or effect.
(b) Other than in connection with Transfers pursuant to Section 6.2,
6.6, 6.7 and 8.3, no Partner (a "Selling Partner") shall have the right to
Transfer all or any part of its Interest or to suffer to occur a Change in
Control of such Partner or an Indirect Transfer as to such Partner, without
first offering to the remaining Partners (other than a Forfeited Partner) (each
an "Offeree" and collectively the "Offerees") a right of first refusal to
purchase the portion of such Selling Partner's Interest that is proposed to be
so Transferred or, in the case of a Change in Control or an Indirect Transfer,
all of such Partner's Interest (the "Offered Interest"), all on the terms
hereinafter set forth. The Offered Interest must be offered by means of a
notice (an "Offer Notice") given by the Selling Partner to each Offeree at a
price and upon terms no less favorable to the Offerees than those which the
Selling Partner is willing to accept from a bona fide third party purchaser
---- ----
pursuant to an offer from such third party purchaser (or, in the case of a
Change in Control or an Indirect Transfer, the value of the Offered Interest, as
determined by multiplying the Fair Market Value of the Partnership by the
Sharing Percentage represented by the
-57-
<PAGE>
Offered Interest) (a "Bona Fide Offer"); provided, that regardless of the terms
--------
of the Bona Fide Offer, the Offered Interest shall be offered to the Offerees on
terms that permit the Offerees 90 days within which to complete the purchase.
The Offer Notice shall state the identity of, and the price and other terms
offered by, such third party for the purchase of the Offered Interest (or, in
the case of a Change in Control or an Indirect Transfer, the identity of the
Person that will acquire Control of the Partner or the Interest as a result of
the proposed transaction). In any case where a Bona Fide Offer has been made in
respect of an Offered Interest in conjunction with other property, the price in
respect of the Offered Interest shall be the Allocated Interest Offer Price.
Within 15 days after receipt of such Offer Notice, each Offeree shall accept, in
whole or in part, or reject such offer for the Offered Interest by delivering a
notice to each of the other Partners and, if any Partner rejects such offer, it
shall state in writing whether it consents to the proposed Transfer under
Section 6.1(a). If pursuant to this Section 6.1(b) the Partners have agreed to
purchase, in the aggregate, the entire Offered Interest, then the entire Offered
Interest shall be purchased by the Partners that accepted all or a portion of
the Offered Interest in accordance with the terms offered by the Selling Partner
and no consent to such Transfer shall be required under Sec-
-58-
<PAGE>
tion 6.1(a). If Rainbow Partner is the Offeree purchasing an Offered Interest
pursuant to this Section 6.1(b), the purchase price shall be payable at the
option of Rainbow Partner either (i) by wire transfer of funds or by certified
or cashier's check drawn to the order of Fox/Liberty Partner or (ii) in the form
of a promissory note of Rainbow Partner secured, pursuant to a pledge or
collateral assignment agreement in form reasonably acceptable to Fox/Liberty
Partner, by the Interest purchased, maturing on the third anniversary of the
date of the closing of the purchase of the Offered Interest and bearing
interest, payable semi-annually, at a rate per annum equal to the Prime Rate
plus one-half of one percent (1/2%). If all of the Offered Interest has not
been accepted and no Partner has delivered a writing in which it refused to
consent to the proposed Transfer, then the Selling Partner may, within 90 days
after the Offer Notice is given, Transfer the entire Offered Interest but not a
portion thereof to such third party at a price not less than the price at which,
and on other terms no more favorable to the third party than those contained in
the Bona Fide Offer (or, in the case of a Change in Control or an Indirect
Transfer, suffer the completion of such Change in Control or Indirect Transfer).
If the Offered Interest is not so disposed of within such 90-day period, then
the Selling Partner shall, before Transferring all or any portion of its
Interest (or suffering the completion of
-59-
<PAGE>
a subsequent Change in Control or Indirect Transfer), again be obligated to
offer the right of first refusal contained in this Section 6.1(b) to the other
Partners. The sale of an Interest pursuant to a Bona Fide Offer in accordance
with this Section 6.1(b) shall not be effective without the prior written
consent (which shall not be unreasonably withheld) of the Partners (other than a
Forfeited Partner) and any such purported sale shall be void and of no force or
effect.
(c) After any Transfer of an Interest permitted hereby, the
Transferee shall be admitted as a Partner, with appropriate amendments being
made to this Agreement, the Transferred Interest shall continue to be subject to
all the provisions of this Agreement including, without limitation, the
provisions of this Article VI.
(d) Except as otherwise provided in Section 6.6, a Transfer will be
deemed to occur for the purpose of this Article VI in respect of the Interest of
a Partner in the event of a Change in Control of such Partner or an Indirect
Transfer with respect to such Partner. In the event of any such deemed Transfer
of an Interest, (i) if such Transfer is made in compliance with the first
sentence of Section 6.1(a), the Interest deemed Transferred shall continue to
be subject to all the provisions of this Agreement and, upon request by any
other Partner, the deemed Transferring Partner shall cause each deemed
Transferee to assume and agree to perform in writing all of such deemed
Transferring
-60-
<PAGE>
Partner's duties and obligations as a Partner under this Agreement, including,
without limitation, the obligations imposed by this Article VI; and (ii) if such
deemed Transfer is not made in compliance with Section 6.1(a), then the other
Partners shall be entitled to make the elections and exercise the remedies
available to Non-Defaulting Partners under Section 7.2 of this Agreement against
the deemed Transferring Partner and its deemed Transferee.
6.2 Buy-Out Procedure.
-----------------
(a) The procedure set forth in this Section 6.2 (the "Buy-Out
Procedure") may be initiated by Rainbow Partner from and after the Buy-Out
Commencement Date at the Buy-Out Price. The Buy-Out Procedure shall be
initiated by notice from Rainbow Partner to each other Partner.
(b) For 45 days after receipt of the notice of Rainbow Partner given
pursuant to Section 6.2(a), Rainbow Partner, on the one hand, and Fox/Liberty
Partner, on the other hand, shall negotiate in good faith to determine the Fair
Market Value of all of the Interests. If such Partners are not able to agree on
the Fair Market Value prior to such 45th day, each shall select an Appraiser.
Within 15 days after the selection of the Appraisers, the Appraisers so selected
shall jointly select a third Appraiser. Within 30 days after its selection, the
third Appraiser shall determine the value of the Interests held by Fox/Liberty
Partner by determining the Fair Market Value of all of the
-61-
<PAGE>
Interests and multiplying such Fair Market Value by the Sharing Percentage of
Fox/Liberty Partner. Within 60 days of the determination of the Fair Market
Value of all of the Interests, Rainbow Partner shall be obligated to purchase,
and Fox/Liberty Partner shall be obligated to sell, all of the Interests in the
Partnership owned by Fox/Liberty Partner for a purchase price (the "Buy-Out
Price") equal to the greater of (i)(A) $2,125,000,000 (increased by all capital
contributions and reduced by all distributions of capital) times the Sharing
Percentage of Fox/Liberty Partner as in effect at the commencement of the Buy-
Out Procedure plus (B) a rate of return on the amount in clause (A) at a per
annum rate equal to 8% calculated on the basis of a year of 360 days; or (ii)
the Fair Market Value of such Interests (as calculated in accordance with the
preceding sentence).
(c) Rainbow Partner may elect to have its purchase effected by a
Designee and, if Fox/Liberty Partner so elects, Rainbow Partner shall guarantee
the performance of its Designee. The business affairs of the Partnership shall
continue to be conducted in the ordinary course as provided in this Agreement
during the pendency of and unaffected by the Buy-Out Procedure; provided, that
--------
no calls for capital contributions shall be made after the receipt by
Fox/Liberty Partner of a notice from Rainbow Partner pursuant to Section 6.2(a)
and prior to the Buy-Out Closing Date whether or not such capital contribution
would otherwise be
-62-
<PAGE>
required pursuant to any provision hereof, including Section 3.1. If, at any
time following the receipt of Rainbow Partner's notice pursuant to Section
6.2(a), the Managing Partner or the Partners' Committee determines in its
reasonable discretion that, but for the provisions of the immediately preceding
sentence, a capital contribution would be required to be made pursuant to any
provision hereof including Section 3.1, the Managing Partner may require Rainbow
Partner to grant to the Partnership a Partner's Loan having a principal amount
equal to the amount of Rainbow Partner's pro rata share of the capital
contribution that would otherwise be required and bearing interest at the Prime
Rate plus 1%. The purchase price to be paid by Rainbow Partner shall not be
reduced by the amount of such Partner's Loan.
(d) The closing of any purchase and sale of an Interest under this
Section 6.2 shall be held at a mutually acceptable place on a mutually
acceptable date (the "Buy-Out Closing Date") not more than 60 days after the
date of determination of the Fair Market Value of Fox/Liberty Partner's
Interest; provided, that if any governmental approvals are required to
--------
consummate such purchase and sale, the Buy-Out Closing Date shall be the date on
which the last such approval is obtained but in any event not more than 180 days
after the election or deemed election pursuant to Section 6.2(a). At such
closing, Fox/Liberty Partner shall
-63-
<PAGE>
assign to Rainbow Partner the Interests to be sold, free and clear of all liens,
claims and encumbrances, and shall execute such documents as may be necessary to
effectuate the sale. Unless otherwise agreed by Rainbow Partner and Fox/Liberty
Partner, the purchase price shall be payable at the option of Rainbow Partner
either (i) by wire transfer of funds or by certified or cashier's check drawn to
the order of Fox/Liberty Partner or (ii) in the form of a promissory note of
Rainbow Partner secured, pursuant to a pledge or collateral assignment agreement
in form reasonably acceptable to Fox/Liberty Partner, by the Interest purchased,
maturing on the third anniversary of the Buy-Out Closing Date and bearing
interest, payable semi-annually, at a rate per annum equal to the Prime Rate
plus one-half of one percent (1/2%).
6.3 Additional Provisions Relating to Transfer.
------------------------------------------
(a) In the case of any Transfer under Sec tion 6.1, 6.2, 6.6, 6.7 or
8.3:
(i) Except as provided therein, the Transfer of an Interest shall not
affect the Approved Agreements; provided, however, that if the Transferring
-------- -------
Partner is the Managing Partner, then, with respect to any agreements
between the Partnership and the Transferring Managing Partner or any
Related Person with respect to the Transferring Managing Partner for the
provision of management and other services of the type described in Annex D
to this Agreement (whether or not such agreements are Approved Agreements),
the other Partners (acting by a majority of such Partners' Sharing
Percentages) shall have the option, by giving 30 days' notice to the
Transferring Managing Partner or such Related Person, as the case may be,
to (A) elect to terminate any or all of such agreements or (B) elect to
-64-
<PAGE>
cause any or all of such agreements to be assigned to the Transferee or its
Designee or, if there is more than one Transferee, to any Person jointly
designated by such Transferees. Upon the written request of the non-
Transferring Partners, the Managing Partner and its Affiliates shall
continue to provide to the Partnership for a period of 90 days following
the date of Transfer any management and other services of the type
described in Annex D that were being provided by them immediately prior to
the Transfer, and the Managing Partner and its Affiliates shall continue to
be compensated for such services and reimbursed for their costs in
accordance with the provisions of Sections 4.1 and 4.5 hereof, or in
accordance with the provisions of any applicable agreement, as the case may
be. Upon any such termina tion, the Transferring Managing Partner shall
cooperate and shall cause its Affiliates to cooperate with the Transferee
or Transferees, as the case may be, in order to effect an orderly
transition of management services; and
(ii) The Transferee or Transferees of an Interest, as the case may be,
shall be required to pay any and all filing and recording fees, fees of
counsel and accountants and other costs and expenses reasonably incurred by
the Partnership as a result of such Transfer.
(b) In connection with the Transfer of any Interest pursuant to
Section 6.1, 6.2, 6.7 or 8.3, the Transferor and its Affiliates will be
obligated to sell to the Transferee, and the Transferee will be obligated to buy
from the Transferor and its Affiliates, all (or in the case of a partial
Transfer, an appropriate portion of) evidences of indebtedness (including
Partner's Loans) of the Partnership held directly or indirectly by the
Transferor and its Affiliates for an amount, payable in cash, equal to the
outstanding principal amount thereof at the time of Transfer plus interest
thereon then accrued and unpaid; provided, that in connection with a Transfer
--------
pursuant to a Bona Fide
-65-
<PAGE>
Offer the terms of the Bona Fide Offer will govern the disposition of such
evidences of indebtedness.
(c) The Transferee of an Interest hereunder shall assume in writing
in form and substance reasonably satisfactory to the non-Transferring Partners
the obligations of the Transferring Partner under this Agreement arising from
and after the effective date of the Transfer in respect of the Transferred
Interest and the Transferring Partner shall be released therefrom except for
those obligations or liabilities of the Transferring Partner based on events
occurring, arising or maturing prior to the date of Transfer and except those
obligations arising out of a breach of this Agreement by the Transferring
Partner or pursuant to Section 4.4, 4.6 or 9.3.
(d) If required by any non-Transferring Partner, the Transferee shall
deliver to the Partnership an opinion, satisfactory in form and substance to the
non-Transferring Partners, of counsel reasonably satisfactory to such non-
Transferring Partners to the effect that the Transfer of the Interest in
question is in compliance with applicable state and federal securities laws.
(e) No Transfer shall be recognized for any purpose as between a
Transferring Partner and the Partnership or as between a Transferring Partner
and the other Partners until the Transferee shall have executed written
instruments satisfactory to the Partners' Committee
-66-
<PAGE>
to become a party to this Agreement and assume the rights and obligations of the
Transferring Partner hereunder.
(f) Upon completion of any Transfer pursuant to Section 6.1, 6.2, 6.7
or 8.3 or a change of ownership in compliance with Section 6.6(a), the
Transferee of an Interest (if not already a Partner) shall be admitted as a
Partner without any further action upon compliance with the provisions of this
Section 6.3.
6.4 Effect of Attempted Transfer; Withdrawals and Admissions
--------------------------------------------------------
Generally. An attempted Transfer of any Interest or any portion thereof in
- ---------
violation of any provision of this Agreement shall be void. No Partner shall
withdraw from the Partnership, except by a Transfer of an Interest permitted by
this Agreement or with the written consent of the other Partners.
6.5 Tax Allocation Adjustments; Distributions After Transfer. In the
----------------------------------------- --------------
event of a Transfer of any Interest, regardless of whether the Transferee
becomes a substitute Partner, all items of income, gain, loss, deduction and
credit for the fiscal period in which the Transfer occurs shall be allocated for
Federal income tax purposes between the Transferor and the Transferee on the
basis of the ownership of the Interest at the time the particular item is
taken into account by the Partnership for Federal income tax purposes, except to
the extent otherwise required by Section 706(d) of the Code. Distributions
made on or after the
-67-
<PAGE>
effective date of Transfer shall be made to the Transferee, regardless of when
such distributions accrued on the books of the Partnership.
6.6 Certain Affiliate Transferee Transactions Not Deemed Transfers.
--------------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, a transaction
shall not be deemed to constitute a direct or indirect Transfer of an Interest,
a Change in Control or an Indirect Transfer, if the transferee and the
transferor are Affiliate Transferees. A transferor and a transferee shall be
deemed to be "Affiliate Transferees" if (i) the same Person directly or
indirectly owns more than a Minimum Interest in both the transferor and the
transferee immediately prior to the transaction in question or (ii) Fox,
Twentieth Holdings Corporation or Liberty collectively own all of the direct or
indirect interests in both the transferor and the transferee immediately prior
to the transaction in question. Fox/ Liberty Partner hereby agrees to consult
in good faith with Rainbow Partner prior to engaging in any transaction which
has the effect of reallocating between Fox and Liberty their direct or indirect
ownership interests in the Partnership.
(b) Notwithstanding anything in this Agreement to the contrary, none
of the following transactions shall be deemed to constitute a direct or indirect
Transfer of an Interest, a Change in Control or an Indirect Transfer: (i) a
change, shift or Transfer of Control that shall be deemed
-68-
<PAGE>
not to be a Change in Control pursuant to the second sentence of the definition
thereof; or (ii) the Transfer directly or indirectly of all or any portion of
the equity interests in, or assets of, Rainbow Partner to the stockholders of
RMH as a class (it being understood that such transfer may include the transfer
to different classes of stockholders of RMH of different classes of equity
interests reflecting the same relative rights and privileges as the different
classes of stock of RMH) or to any group of public equity holders (including,
without limitation, a transfer by means of a registered public offering).
6.7 IPO-Call Procedure. (a) The procedure set forth in this Section
------------------
6.7 (the "IPO-Call Procedure") may be initiated by Fox/Liberty Partner during
any IPO-Call Notice Window. Such IPO-Call Procedure shall be initiated by
written notice (the "IPO-Call Notice") from Fox/Liberty Partner to Rainbow
Partner in accordance herewith. Except as provided below, upon the giving of
the IPO-Call Notice, Rainbow Partner shall be obligated to purchase, and Fox/
Liberty Partner shall be obligated to sell, all (but not less than all) of the
Interests of Fox/Liberty Partner at the Call Price (as defined below) in
accordance with the terms hereof.
(b) For 45 days after receipt of an IPO-Call Notice, Rainbow Partner,
on the one hand, and Fox/Liberty Partner, on the other hand, shall negotiate in
good faith to
-69-
<PAGE>
determine the Fair Market Value of all of the Interests. If such Partners are
not able to agree on such Fair Market Value, prior to such 45th day, each shall
select an Appraiser. Within 15 days after the selection of the Appraisers, the
Appraisers so selected shall jointly select a third Appraiser. Within 30 days
after its selection, the third Appraiser shall determine the value of the
Interests held by Fox/Liberty Partner by determining the Fair Market Value of
all of the Interests and multiplying such Fair Market Value by the Sharing
Percentage of Fox/Liberty Partner (the "Call Price"). Within 30 days after
determination of the Call Price, Rainbow Partner shall give written notice to
Fox/Liberty Partner of its election either (i) to purchase the Interests of
Fox/Liberty Partner for, at the election of Rainbow Partner, either (A) a number
of Marketable Securities of CSC or RMH (or any combination thereof) calculated
by dividing the Call Price by the Current Market Price of such Marketable
Securities, or (B) a promissory note of Rainbow Partner secured, pursuant to a
pledge or collateral assignment agreement in form reasonably acceptable to
Fox/Liberty Partner, by the Interest purchased, maturing on the third
anniversary of the IPO-Call Closing Date and bearing interest, payable semi-
annually, at a rate per annum equal to the Prime Rate plus one-half of one
percent (1/2%) in aggregate principal amount equal to the Call Price or (ii) to
consummate an Initial Public
-70-
<PAGE>
Offering of the Partnership or the Corporation within 180 days of the IPO Call
Notice. If a purchase of Interests is to be effected pursuant to this Section,
at Fox/Liberty Partner's request, the parties shall negotiate in good faith to
structure the transaction as a tax-free transaction, provided, that (i)
--------
Fox/Liberty Partner will not be required to accept, in exchange for its
Interests, securities which are not Marketable Securities, (ii) structuring the
transaction in such a manner as shall not cause any adverse consequences to
Rainbow Partner or the issuer of such Marketable Securities, and (iii) Rainbow
Partner shall not be required to change its election with respect to the
Marketable Securities being issued. Securities issued in such transaction may
be voting, nonvoting or convertible into voting securities at the election of
the issuer.
(c) Rainbow Partner may elect to have its purchase effected by a
Designee and, if Fox/Liberty Partner so elects, Rainbow Partner shall guarantee
the performance of its Designee. The business affairs of the Partnership shall
continue to be conducted in the ordinary course as provided in this Agreement
during the pendency of and unaffected by the IPO-Call Procedure.
(d) In the event that an Initial Public Offering of the Partnership
or the Corporation is not consummated within 180 days after the date of the IPO-
Call Notice, the closing of any purchase and sale of an Interest under this
-71-
<PAGE>
Section 6.7 shall be held at a mutually acceptable place on a mutually
acceptable date (the "IPO-Call Closing Date") not more than 180 days after the
date of determination of the Call Price; provided, that if any governmental
--------
approvals are required to consummate such purchase and sale, the IPO-Call
Closing Date shall be the date on which the last such approval is obtained but
in any event not more than 240 days after the determination of the Call Price.
At such closing, Fox/Liberty Partner shall assign to Rainbow Partner the
Interests to be sold, free and clear of all liens, claims and encumbrances, and
shall execute such documents as may be necessary to effectuate the sale.
(e) In order to effectuate an Initial Public Offering,
notwithstanding Section 4.9, Rainbow Partner shall be permitted to effect a
reorganization or restructuring of the Partnership into the Corporation, without
any consent of any other Partner.
ARTICLE VII
------------
EVENTS OF DEFAULT
7.1 Events of Default.
-----------------
(a) An "Event of Default" shall be considered to have occurred with
respect to a Partner (the "Defaulting Partner") if:
(i) Such Partner Transfers all or any part of its Interest, or suffers
to occur a Change in Control of such Partner or an Indirect Transfer as to
such
-72-
<PAGE>
Partner, except as permitted in this Agreement; provided, that no Event of
--------
Default shall be considered to have occurred for 30 days following the
involuntary encumbrance of all or any part of such Interest if during such
30-day period such Partner acts diligently to, and does, remove any such
encumbrance, including, but not limited to posting a bond to prevent
foreclosure; or
(ii) Such Partner or any Affiliate of such Partner fails to perform or
violates any other material term or condition of this Agreement (including,
without limitation, a failure to pay any amounts due under Sections 6.1,
6.2 or 6.3 but excluding any failure to meet any capital call) or a
material term or condition of any Approved Agreement (or Section 8.2, 8.3,
8.4 or 8.5 of the Formation Agreement) and such failure or violation
continues for 45 days after such Partner has been given notice thereof by
any other Partner; provided, however, that (other than in the case of a
-------- -------
breach of Section 8.2, 8.3, 8.4 or 8.5 of the Formation Agreement) if the
failure or violation is not a failure to pay money and is of such a nature
that it cannot reasonably be cured within such 45-day period, but if it is
curable and such Partner in good faith begins efforts to cure it within
such 45-day period and continues diligently to do so, it shall have a
reasonable additional period thereafter to effect the cure.
7.2 Remedies of Non-Defaulting Partners.
-----------------------------------
Upon the occurrence and during the continuance of an Event of Default,
the remedies that may be elected by the Non-Defaulting Partners are:
(i) to seek to enjoin such default or to obtain specific performance
of a Defaulting Partner's obligations or sue for Damages (as hereinafter
defined) in respect of such Event of Default; or
(ii) to dissolve the Partnership as provided in Section 8.1(e), in
which event the affairs of the Partnership shall be wound up as provided in
Section 8.2.
The election of a remedy specified in clause (i) above may be made by
any Partner that is not a Defaulting
-73-
<PAGE>
Partner (a "Non-Defaulting Partner") or a Forfeited Partner and the remedy
specified in clause (ii) above may be made by unanimous vote of the Non-
Defaulting Partners that are not Forfeited Partners, by giving notice to the
Defaulting Partner within 60 days (one year in the case of an action to recover
Damages) after obtaining actual knowledge of the occurrence of such Event of
Default; provided, that if an election pursuant to clause (i) above is made to
--------
seek an injunction, specific performance or other equitable relief and a final
judgment in such action is rendered denying such equitable remedy, then, by
notice given within ten days thereafter the Non-Defaulting Partners may elect to
pursue any or all of the remedies specified in clause (i) or (ii) of this
Section 7.2 unless, prior to the giving of such notice, the Defaulting Partner
has cured the Event of Default in question in full and no other Event of Default
with respect to such Partner has occurred and is continuing or the final
judgment denying equitable relief specifically held that there was no Event of
Default.
The foregoing remedies shall not be deemed mutually exclusive, and
selection or resort to any thereof shall not preclude selection or resort to the
others.
The resort to any remedy pursuant to clauses (i) or (ii) of this
Section 7.2 shall not for any purpose be deemed to be a waiver of any other
remedy available hereunder or under applicable law; provided, that the failure
--------
to
-74-
<PAGE>
elect a remedy within the time period provided shall be conclusively presumed to
be a waiver of such Event of Default.
Unless any Event of Default has been waived as set forth in the
immediately preceding paragraph, the Defaulting Partner shall be liable to the
Partnership and to the Non-Defaulting Partners for any and all damages, losses
and expenses (including attorneys' fees and disbursements) (collectively,
"Damages") suffered or incurred by the Partnership or the Non-Defaulting
Partners as a result of such Event of Default; provided, that neither the
--------
Partner ship nor the Non-Defaulting Partners shall have or assert any claim
against the Defaulting Partner for lost profits, exemplary, punitive, indirect,
special or consequential Damages suffered or incurred by the Partnership or the
Non-Defaulting Partners as a result of an Event of Default.
ARTICLE VIII
-------------
DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination. The Partnership shall be dissolved and
---------------------
its affairs wound up pursuant to Section 8.2 upon the first to occur of any of
the following events (each an "Event of Termination"):
(a) the expiration of the Term (provided, that the Partners may
--------
at any time prior to such expiration amend this Agreement to extend the
Term);
-75-
<PAGE>
(b) the execution by all of the Partners of a unanimous written
consent to dissolution;
(c) the sale or other disposition of substantially all of the
assets of the Partnership;
(d) the Bankruptcy of a Partner, unless such Partner's Interest
is purchased pursuant to Section 8.3 or the other Partners consent to a
continuation of the Partnership with the successor of such Bankrupt Partner
admitted as a new Partner; or
(e) the election of the Non-Defaulting Partners pursuant to
Section 7.2(ii) to terminate the Partnership upon the occurrence and during
the continuance of an Event of Default.
8.2 Winding-Up. Upon the occurrence of an Event of Termination, if
----------
the Partnership is not continued as provided herein, the Partnership's affairs
shall be wound up as follows:
(a) The Managing Partner, or in the event there is no Managing
Partner the Partners' Committee, shall cause to be prepared a statement of
the assets and liabilities of the Partnership as of the date of
dissolution.
(b) The assets and properties of the Partnership shall be
liquidated as promptly as possible, and receivables collected, all in an
orderly and business like manner so as not to involve undue sacrifice.
Notwithstanding the foregoing, the Partners' Committee may determine not to
sell, or authorize the sale of, all or any portion of the assets and
properties of the Partnership, in which event such assets and properties
shall be distributed in kind pursuant to Section 8.2(c).
(c) The proceeds of liquidation under Section 8.2(b) and all
other assets and properties of the Partnership shall be applied and
distributed as follows in the following order of priority:
-76-
<PAGE>
(i) to the payment of the debts and liabilities of the Partnership
(excluding any amounts which may be owed to any Partner or any
Affiliate of a Partner in respect of Partner's Loans, but including
all other amounts owed to any Partner or any Affiliate of a Partner)
and the expenses of liquidation;
(ii) to establish any reserves that the Managing Partner, or in the
event there is no Managing Partner the Partners' Committee, in
accordance with sound business judgment, deems reasonably necessary
for any contingent or unforeseen liabilities or obligations of the
Partnership, which reserves may be paid over by the Managing Partner
or the Partners' Committee, as applicable, to an escrow agent selected
by it to be held by such agent for the purpose of (x) distributing
such reserves in payment of the aforementioned contingencies and (y)
upon the expiration of such period as the Managing Partner or the
Partners' Committee, as applicable, may deem advisable, distributing
the balance thereof in the manner provided in this Section 8.2(c);
(iii) to pay the accrued and unpaid interest and unpaid principal
amount of Partner's Loans in the proportion that the aggregate
outstanding amount of such Partner's Loans of each Partner and its
Affiliates, including accrued and unpaid interest, bears to the total
of all such outstanding Partner's Loans, including accrued and unpaid
interest, of all the Partners and their Affiliates;
(iv) to the Partners in proportion to the positive balance of each
Partner's Capital Account; provided, that if any assets are to be
--------
distributed in kind, they will be valued at their Fair Market Value
before the distribution. This adjustment to Fair Market Value will be
reflected in an adjustment to the Partners' Capital Accounts in
accordance with the principles of Section 3.4 immediately prior to any
liquidating distribution. No Partner shall have any obligation to make
any contribution or payment in respect of a negative balance in its
Capital Account. Distributions pursuant to this paragraph may be
distributed to a trust established for the benefit of the Partners for
the purposes of liquidating the Partnership
-77-
<PAGE>
assets, collecting amounts owed to the Partnership and paying any
contingent or unforeseen liabilities or obligations of the Partnership
or of any Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the
Partners from time to time, in the reasonable discretion of the
Partners' Committee, in the same proportions as the amount distributed
to such trust by the Partnership would otherwise have been distributed
to the Partners pursuant to this Agreement.
(d) The Partners and former Partners shall look solely to the
Partnership's assets for the return of their Capital Contributions, and if
the assets of the Partnership remaining after payment of or due provision
for all debts, liabilities and obligations of the Partnership are
insufficient to return such Capital Contributions, the Partners and former
Partners shall have no recourse against the Partnership or any other
Partner.
(e) If the value of the Partnership assets, including profits
from any sale thereof, is insufficient to pay the liabilities of the
Partnership (other than any Partner's Loans and Capital Contributions),
then such additional liabilities and reserve needs shall be funded by the
Partners in accordance with their respective Sharing Percentages without
giving effect to any reduction or increase in the Sharing Percentage of any
Partner pursuant to Section 3.2(b) resulting from one or more defaults
under Section 3.1.
(f) The Partners shall comply with all requirements of
applicable law pertaining to the winding-up of the Partnership.
(g) The Partners acknowledge that this Section 8.2 may establish
distribution priorities different from those set forth under applicable law
and agree that they intend, to the extent legally permissible, to vary
those provisions by this Agreement.
8.3 Purchase Option Upon Bankruptcy of a Partner. Upon the Bankruptcy
--------------------------------------------
of a Partner, any other Partner that is not a Defaulting Partner or Bankrupt (a
"Nonbankrupt
-78-
<PAGE>
Partner") shall have the right, but not the obligation, by notice given to all
the Partners within 45 days after such Nonbankrupt Partner obtains actual
knowledge of the occurrence of such Bankruptcy, to elect to purchase or cause
its Designee to purchase all or a portion of its pro rata share (based on the
relative Sharing Percentages of the Nonbankrupt Partners) of the Bankrupt
Partner's Interest. If any Nonbankrupt Partner elects not to purchase its pro
rata portion, the remaining Nonbankrupt Partners, if any, will have the right to
elect to purchase the portion declined. Unless the entire Interest of the
Bankrupt Partner is purchased pursuant to this Section 8.3, no portion of its
Interest shall be purchased. If the Nonbankrupt Partners purchase the entire
Interest of the Bankrupt Partner, the business of the Partnership shall be
continued as a successor business entity without liquidation of the
Partnership's affairs. The purchase price payable for the Bankrupt Partner's
Interest pursuant to this Section 8.3 shall be 100% of the product of the Fair
Market Value of the Partnership times such Bankrupt Partner's Sharing
Percentage. To the extent there is any disagreement among the Partners as to
the value of the Bankrupt Partner's Interest, such dispute shall be determined
by an Appraiser selected jointly by the Nonbankrupt Partners, on the one hand,
and the Bankrupt Partner, on the other hand. If the Partners are not able to
agree on an Appraiser, the Nonbankrupt Partners
-79-
<PAGE>
shall jointly select an Appraiser and the Bankrupt Partner shall select an
Appraiser and the Appraisers so selected shall jointly select a third Appraiser,
and the Appraiser so selected shall be the Appraiser for purposes of determining
the value of such Interest; provided, that if the Bankrupt Partner shall fail to
--------
select an Appraiser, the Appraiser selected by the Nonbankrupt Partners shall be
the Appraiser for purposes of determining the value of such Interest. If more
than one eligible Partner elects to purchase a Bankrupt Partner's Interest
pursuant to this Section but any Partner fails to tender its share of the
purchase price therefor at the closing, then the tendering Partner(s) may elect
to purchase the Interest that was to be purchased by such nontendering Partner
and shall have an additional 15 days in which to tender payment for the share of
the Bankrupt Partner's Interest that was to be purchased by the nontendering
Partner(s). Any such election by the tendering Partner(s) shall not excuse the
default by the nontendering party.
ARTICLE IX
-----------
COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law. Each Partner shall comply with
------------------------------
all applicable laws, regulations, rules and orders of governmental authorities
the non-compliance with which would have a material adverse effect on the
business affairs or financial condition of the Partnership.
-80-
<PAGE>
9.2 No Restrictive Covenants. No Partner shall enter into or become
------------------------
subject to any contract, agreement, restriction or covenant (other than an
Approved Agreement) which would impair or inhibit the Partnership's ability to
obtain financing without recourse to the Partners (collectively, "Restrictive
Covenants"), and each Partner represents and warrants to the other Partners
that, on the Effective Date, it is not subject to any Restrictive Covenants.
9.3 Indemnification of Partners; Contribution. The Partnership shall
-----------------------------------------
indemnify and hold each Partner harmless from and against any claim, demand,
loss, damage, liability or expense (including, without limitation, amounts paid
in settlement, reasonable costs of investigation and reasonable legal expenses)
incurred by or against such Partner and arising out of or resulting from any
act or omission of the Partnership. As among the Partners, no Partner shall be
liable or bear responsibility for more than its proportionate share (based on
its Sharing Percentage) of the liabilities and obligations of the Partnership.
For the purposes of the preceding sentence, a Partner's Sharing Percentage shall
be determined on the date the relevant liability or obligation is incurred,
without giving effect to any reduction or increase in such Partner's Sharing
Percentage pursuant to Section 3.2(b) resulting from one or more defaults under
Section 3.1. In the event that (whether
-81-
<PAGE>
before or following any dissolution of the Partnership) any Partner shall be
required to pay, discharge or otherwise bear responsibility for any liability or
obligation of the Partnership in excess of such Partner's proportionate share
thereof, each other Partner hereby agrees to indemnify, hold harmless and
reimburse (directly or through the Partnership) such Partner against and for
such other Partner's respective proportionate share of such excess. It is the
intention of the Partners that, following the operation of this clause, each
Partner will have borne exactly its proportionate share of the liability or
obligation of the Partnership at issue determined with reference to such
Partner's Sharing Percentage, determined in accordance with the third sentence
of this Section 9.3.
9.4 Notice of Change in Control and Indirect Transfer. In addition
-------------------------------------------------
to any other notification requirements under this Agreement, each Partner
agrees that promptly following the occurrence of an event which constitutes a
Change in Control or an Indirect Transfer it will give notice to the other
Partners of the Change in Control or Indirect Transfer.
-82-
<PAGE>
ARTICLE X
---------
MISCELLANEOUS
10.1 Waiver of Partition. Except as may be otherwise provided by law
-------------------
in connection with the winding-up, liquidation and dissolution of the
Partnership, each Partner hereby irrevocably waives any and all rights that it
may have to maintain an action for partition of any of the Partnership Property.
10.2 Modification; Waivers. This Agreement may be modified or
---------------------
amended only with the written consent of each Partner. Except as otherwise
specifically provided herein, no Partner shall be released from its obligations
hereunder without the written consent of the other Partners. The observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) by the party or parties
entitled to enforce such term, but any such waiver shall be effective only if in
a writing signed by the party or parties against which such waiver is to be
asserted. Except as otherwise specifically provided herein, no delay on the
part of any party hereto in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any right, power or privilege hereunder operate as a waiver of any
other right, power or privilege hereunder nor shall any single or partial
exercise of any right, power or privilege
-83-
<PAGE>
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder.
10.3 Entire Agreement. This Agreement and the documents expressly
----------------
referred to herein constitute the entire agreement among the Partners with
respect to the subject matter hereof and supersede any prior agreement or under-
standing between or among the Partners with respect to such subject matter.
10.4 Severability. If any provision of this Agreement, or the
------------
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement or the application of such provision to
other Persons or circumstances shall not be affected thereby; provided, that the
--------
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof held to be invalid.
10.5 Notices. All notices, requests, demands, consents and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given on the date delivered by hand, on
the date transmission by telecopy is confirmed by machine answer-back or on the
third business day after such notice is mailed by registered or certified mail,
postage prepaid, and, pending the designation by notice of another address,
addressed as follows:
-84-
<PAGE>
If to Fox/Liberty Partner:
Fox Sports Net, LLC
1440 South Sepulveda Blvd.
Suite 218
Los Angeles, CA 90025
Attention: Tony Ball
Telecopy: (310) 445-4335
With copies to:
Liberty Media Corporation
8101 E. Prentice Avenue
Suite 500
Englewood, CO 80111
Attention: President
Telecopy: (303) 721-5415
and:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telecopy: (303) 488-3245
and:
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
and:
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Senior Executive Vice President
and Group General Counsel
Telecopy: (212) 768-2029
and:
-85-
<PAGE>
Fox Television
10201 West Pico Boulevard
Los Angeles, California 90035
Attention: Jay Itzkowitz, Esq.
Senior Vice President
Legal Affairs
Telecopy: (310) 369-2572
and:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Joel Papernik, Esq.
Telecopy: (212) 697-6686
If to Rainbow Partner:
c/o Rainbow Media Holdings, Inc.
150 Crossways Park West
Woodbury, N.Y. 11797
Attention: President
With a copy to Attention: Executive Vice President
Legal and Business Affairs
cc: Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Attention: Executive Vice President and
General Counsel
10.6 Successors and Assigns. Except as otherwise specifically
----------------------
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Partners and their legal representatives, successors and permitted
assigns.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which together shall constitute one and the same
instrument.
10.8 Headings; Cross-references. The Article and Section headings in
--------------------------
this Agreement are for convenience of
-86-
<PAGE>
reference only, and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
10.9 Construction. None of the provisions of this Agreement shall be
------------
for the benefit of or enforceable by any creditors of the Partnership. No one,
including but not limited to the Partners or any creditor of the Partnership or
any of its Partners, shall have any rights under this Agreement against any
Affiliate of any Partners.
10.10 Property Rights; Confidentiality. All books, records and
--------------------------------
accounts maintained exclusively for the Partnership (including, without
limitation, marketing reports and all other data whether stored on paper or in
electronic or other form), and any contracts or agreements (including, without
limitation, agreements for the purchase, lease or license of programming)
entered into by or exclusively on behalf of the Partnership, shall at all
times be the exclusive property of the Partnership. All property (real,
personal or mixed) purchased with Partnership funds, and all moneys held or
collected for or on behalf of the Partnership shall at all times be the
exclusive property of the Partnership. No Partner shall, during the period such
Partner is a Partner and for a period ending on the later of two (2) years after
such Partner has ceased to be a Partner, disclose any confidential or
proprietary information with respect to the Partnership or any Partner, except
(i) with the prior written consent of the other Partners; (ii) to the
-87-
<PAGE>
extent necessary to comply with law or the valid order of a court of competent
jurisdiction, in which event the party making such disclosure shall so give
notice to the other Partners as promptly as practicable (and, if possible, prior
to making such disclosure) and shall seek confidential treatment of such
information; (iii) as part of its normal reporting or review procedure to its
parent companies, its auditors and its attorneys and the securities exchange on
which any such parent's securities are traded from time to time; provided, that
--------
such Partner shall be liable for any breach by such parent companies, auditors
or attorneys of any provision of this Section; (iv) in connection with the
enforcement of such Partner's rights hereunder; (v) disclosures to an
Affiliate of, or professional advisor to, such Partner in connection with the
performance by such Partner of its obligations hereunder; provided, that such
--------
Partner shall be liable for any breach by such Affiliate or professional
advisor of any provision of this Section; and (vi) to a prospective purchaser of
all or a portion of such Partner's Interest in connection with a sale in
accordance with the terms of this Agreement; provided, that such Partner shall
--------
be liable for any breach by such prospective purchaser of any provision of this
Section. Except as provided in the preceding sentence, no Partner, nor any of
its Affiliates, shall, during the periods referred to in such sentence, use any
confidential or proprietary informa-
-88-
<PAGE>
tion with respect to the Partnership other than for the benefit of the
Partnership.
10.11 Non-Recourse. The obligations of the Partners under this
------------
Agreement are solely corporate obligations of such entities and no
representation, undertaking or agreement made in this Agreement on the part of
any Partner was made or intended to be made as a personal or individual
representation, undertaking or agreement on the part of any partner, member,
incorporator, stockholder, director, officer or agent (past, present or future)
of any Partner, and no personal or individual liability or responsibility is
assumed by, nor shall any recourse at any time be asserted or enforced against,
any such partner, member, incorporator, stockholder, director, officer or agent,
all of which recourse (whether in common law, in equity, by statute or
otherwise) is hereby forever irrevocably waived and released.
10.12 Further Actions. Each Partner shall execute and deliver such
---------------
other certificates, agreements and documents, and take such other actions, as
may reasonably be required in connection with the formation and continuation of
the Partnership and the achievement of its purposes.
10.13 Survival. Section 10.10 shall survive the termination of this
--------
Agreement, the dissolution of the Partnership, the withdrawal of any Partner and
the Transfer of the Interest of any Partner. Sections 4.4, 4.6 and 9.3
-89-
<PAGE>
shall survive the termination of this Agreement and the dissolution of the
Partnership.
10.14 Governing Law. The Partnership has been formed and is
-------------
continued under the laws of the State of New York. This Agreement shall be
governed, construed and enforced in accordance with the laws of the State of New
York without regard to principles of conflict of laws.
10.15 No Right of Set-Off. No Partner shall be entitled to offset
-------------------
against any of its financial obligations to the Partnership under this Agreement
any obligation owed to it or any of its Affiliates by any other Partner or any
of such other Partner's Affiliates.
10.16 Expenses of the Parties. All expenses incurred by or on behalf
-----------------------
of the parties hereto in connection with the authorization, preparation and
consummation of this Agreement, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants employed by the
parties hereto in connection with the authorization, preparation, execution and
consummation of this Agreement, shall be borne solely by the party who shall
have incurred the same.
10.17 Unregistered Interests. Each Partner (i) acknowledges that the
----------------------
Interests are being acquired without registration under the Securities Act of
1933, as amended, or under similar provisions of state law, (ii) represents and
warrants to the Partnership and the
-90-
<PAGE>
other Partners that it is acquiring the Interest for its own account, for
investment and with no view to the distribution of the Interest, and (iii)
agrees not to Transfer or attempt to Transfer such Interest in the absence of
registration under that Act and any applicable state securities laws or an
available exemption from such registration.
-91-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers or partners thereunto duly authorized as of the
date first written above.
FOX SPORTS RPP HOLDINGS LLC
By
---------------------------------
Name: Dan Fawcett
Title: Senior Vice President
RAINBOW REGIONAL HOLDINGS LLC
By: RAINBOW MEDIA SPORTS
HOLDINGS, INC.,
a member
By
_________________________________
Name: Hank Ratner
Title: Executive Vice President
-92-
<PAGE>
EXHIBIT 10.8
================================================================================
FORM OF
GENERAL PARTNERSHIP AGREEMENT
OF NATIONAL SPORTS PARTNERS
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I DEFINITIONS
ARTICLE II FORMATION OF GENERAL PARTNERSHIP
<S> <C> <C>
2.1 Formation............................................................. 14
2.2 Name.................................................................. 14
2.3 Compliance with Partnership and Other Laws............................ 14
2.4 Term.................................................................. 15
2.5 Principal Place of Business........................................... 15
2.6 Purpose............................................................... 15
2.7 Qualification in other Jurisdictions.................................. 16
2.8 Ownership of Property................................................. 16
ARTICLE III PARTNERSHIP CAPITAL
3.1 Capital Contributions................................................. 16
3.2 Failure to Make Capital Contributions................................. 17
3.3 Capital Accounts...................................................... 23
3.4 Allocation of Items of Partnership Income,
Gain, Loss, Deduction and Credit.................................... 26
3.5 Distributions......................................................... 30
3.6 Partnership Funds..................................................... 31
3.7 Borrowings.............................................................32
ARTICLE IV MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business.............................. 32
4.2 Partners' Committee................................................... 34
4.3 Extraordinary Decisions............................................... 37
4.4 Budget and Business Plan Approval..................................... 38
4.5 Limitation on Agency.................................................. 43
4.6 Managing Partner's Services and Expenses.............................. 44
4.7 Liability of Partners' Committee and Managing Partner................. 44
4.8 Indemnification....................................................... 45
4.9 Contracts with Related Persons and Partner Associates................. 47
4.10 Approved Agreements................................................... 51
4.11 Unanimous Actions by Partners......................................... 51
4.12 Removal of Managing Partner........................................... 53
</TABLE>
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
ARTICLE V BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records..................................................... 54
5.2 Financial Reports..................................................... 55
5.3 Tax Returns and Information........................................... 57
ARTICLE VI PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.................................................. 61
6.2 Additional Provisions Relating to Transfer............................ 66
6.3 Effect of Attempted Transfer; Withdrawals and Admissions Generally.... 68
6.4 Tax Allocation Adjustments; Distributions After Transfer.............. 69
6.5 Certain Affiliate Transferee Transactions Not Deemed Transfers........ 69
6.6 IPO-Call Procedure.................................................... 70
ARTICLE VII EVENTS OF DEFAULT
7.1 Events of Default..................................................... 74
7.2 Remedies of Non-Defaulting Partners................................... 75
ARTICLE VIII DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination................................................. 77
8.2 Winding-Up............................................................ 78
8.3 Purchase Option Upon Bankruptcy of a Partner.......................... 80
ARTICLE IX COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law........................................ 82
9.2 No Restrictive Covenants.............................................. 82
9.3 Indemnification of Partners; Contribution............................. 83
9.4 Notice of Change in Control and Indirect
Transfer.............................................................. 84
ARTICLE X MISCELLANEOUS
10.1 Waiver of Partition................................................... 84
10.2 Modification; Waivers................................................. 84
10.3 Entire Agreement...................................................... 85
10.4 Severability.......................................................... 86
10.5 Notices............................................................... 86
10.6 Successors and Assigns................................................ 88
10.7 Counterparts.......................................................... 88
10.8 Headings; Cross-references............................................ 88
</TABLE>
-ii-
<PAGE>
<TABLE>
Page
----
<S> <C>
10.9 Construction.......................................................... 89
10.10 Property Rights; Confidentiality...................................... 89
10.11 Non-Recourse.......................................................... 91
10.12 Further Actions....................................................... 92
10.13 Survival.............................................................. 92
10.14 Governing Law......................................................... 92
10.15 No Right of Set-Off................................................... 92
10.16 Expenses of the Parties............................................... 92
10.17 Unregistered Interests................................................ 93
</TABLE>
ANNEXES
A Approved Agreements of the Partnership
B Budget and Business Plan
C Form of Subordinated Note
D Allocation Policy for Indirect Expenses
-iii-
<PAGE>
THIS GENERAL PARTNERSHIP AGREEMENT (the "Agreement") of National
Sports Partners, a general partnership organized under the laws of the State of
New York (the "Partnership"), made as of [INSERT EFFECTIVE DATE], is entered
into by and between Rainbow National Sports Holdings, L.L.C., a Delaware limited
liability company ("Rainbow Partner"), and Fox Sports National Holdings LLC, a
Delaware limited liability company ("Fox/Liberty Partner").
W I T N E S S E T H:
-------------------
WHEREAS, Rainbow Partner and Fox/Liberty Partner desire to form the
Partnership, to, among other things, own and operate a national sports network
under the name "Fox Sports Net" ("Fox Sports").
WHEREAS, pursuant to the Formation Agreement, dated as of June 22,
1997, between Rainbow Media Sports Holdings, Inc. and Fox/Liberty Networks, LLC
(the "Formation Agreement"), Rainbow Partner and Fox/Liberty Partner are
contributing certain programming interests to the Partnership and to pursue the
other purposes described herein.
WHEREAS, Rainbow Partner and Fox/Liberty Partner wish to set forth
their respective rights and obligations with respect to the formation of the
Partnership under the Partnership Law of the State of New York.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto intending to be legally bound hereby agree as follows:
ARTICLE I
----------
DEFINITIONS
As used herein, the following terms have the meanings assigned to them
in this Article (except as other wise expressly provided) and include the
plural as well as the singular, and all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP, as in effect
from time to time and any capitalized term used herein and not defined in this
Article is defined in the provision of this Agreement where such term is first
used:
Adjusted Capital Account Deficit: With respect to any Partner, the
--------------------------------
deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant taxable period, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts that such
Partner is obligated to restore or is deemed to be obligated to restore
pursuant to the next-to-last sentences of Treasury Regulations Section
1.704-2(g)(1) and Treasury Regulations Section 1.704-2(i)(5), and (ii)
debit to such Capital Account the items described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Affiliate: As to any Person, any other Person that directly or
---------
indirectly through one or more intermedi aries is Controlled by, Controls
or is under common Control with, such Person.
-2-
<PAGE>
For purposes of this definition, (x) so long as Liberty owns, directly or
indirectly, an interest in Fox/Liberty Partner, any Affiliate of
Fox/Liberty Partner shall be deemed an Affiliate of Liberty, and Liberty
shall be deemed an Affiliate of Fox/Liberty Partner and any Affiliate of
Liberty shall be deemed an Affiliate of Fox/Liberty Partner, (y) so long as
Fox owns, directly or indirectly, an interest in Fox/Liberty Partner, any
Affiliate of Fox/Liberty Partner shall be deemed an Affiliate of Fox, and
Fox shall be deemed an Affiliate of Fox/Liberty Partner and any Affiliate
of Fox shall be deemed an Affiliate of Fox/Liberty Partner and (z)
Twentieth Holdings Corporation and its Subsidiaries shall be deemed to be
Affiliates of Fox. Notwithstand ing the foregoing, (i) neither the
Partnership nor any Person Controlled by the Partnership shall be deemed to
be an "Affiliate" of any Partner or of any Affiliate of any Partner, (ii)
no Partner or any Affiliate thereof shall be deemed to be an "Affiliate" of
any other Partner or any Affiliate thereof solely by virtue of its Interest
in the Partnership, and (iii) neither Liberty or its Affiliates (other than
Fox/Liberty Partner) on the one hand nor Fox or its Affiliates (other than
Fox/Liberty Partner) on the other hand shall be deemed to be an "Affiliate"
of the other solely by virtue of the ownership of Fox/Liberty Partner by
Fox and Liberty and their respective Affiliates.
Affiliate Transferee: As defined in Section 6.5(a).
Agreement: This General Partnership Agreement, as the same may be
---------
amended from time to time in accordance with the provisions hereof.
Allocated Interest Offer Price: In the case of any proposed sale of
------------------------------
an Offered Interest (as defined in Section 6.1(b)) in conjunction with
other property owned by a Partner or an Affiliate of a Partner, an amount
equal to the product of the aggregate considera tion, including, without
limitation, the assumption of debt and any contractual payments to be
received for all such property and a fraction, the numerator of which is
equal to the Fair Market Value of the Offered Interest and the denominator
of which is equal to the Fair Market Value of all such property to be sold.
Annual Maximum Amount: $250,000 (increased or decreased annually by a
---------------------
percentage equal to the
-3-
<PAGE>
percentage increase or decrease for the immediately preceding year in the
Consumer Price Index).
Appraiser: An independent investment banking firm appointed in
---------
accordance with the terms of this Agreement that (a) is not (i) an
Affiliate, or an officer, director, employee or holder of any voting
securities of the Partnership or any Partner or (ii) an officer, director,
employee or holder of more than 5% of the voting securities of any
Affiliate of any Partner, and (b) is engaged as a regular part of its
business in the valuation of business entities.
Approved Agreements: The agreements listed in Annex A to this
-------------------
Agreement as the same may be amended from time to time in accordance with
the provisions hereof and thereof.
Arm's-length basis: As to any transaction, agreement or other
------------------
arrangement, being on terms that would be reached by unrelated parties not
under any compulsion to contract.
Bankruptcy: The "Bankruptcy" of a Partner shall be deemed to have
----------
occurred and a Partner shall be "Bankrupt" for purposes of this Agreement
upon the happening of any of the following:
(a) The valid appointment of a receiver or trustee to administer
all or a substantial portion of a Partner's assets or a Partner's
Interest in the Partnership;
(b) The filing by a Partner of a voluntary petition for relief
under the Bankruptcy Code or of a pleading in any court of record
admitting in writing its inability to pay its debts generally as they
become due;
(c) The making by a Partner of a general assignment for the
benefit of creditors;
(d) The filing by a Partner of an answer admitting the material
allegations of, or its consenting to or defaulting in answering, a
petition for relief filed against it in any proceeding under the
Bankruptcy Code; or
(e) The entry of an order, judgment or decree by any court of
competent jurisdiction, granting relief against a Partner in a
proceeding under the
-4-
<PAGE>
Bankruptcy Code, and such order, judgment or decree continuing
unstayed and in effect for a period of thirty (30) days after such
entry.
Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended from
---------------
time to time, any successor federal statute or any state law for the relief
of debtors.
Bona Fide Offer: As defined in Section 6.1(b).
---------------
Budget: At any time, the then-effective annual operating and capital
------
budget for the Partnership, approved in the manner contemplated by Section
4.4.
Business Day: Each Monday, Tuesday, Wednesday, Thursday or Friday
------------
which is not a day on which banking institutions in New York City are
authorized or obli gated by law to close.
Business Plan: The business plan for the Partnership for the period
-------------
from January 1, 1997 through December 31, 2001, a copy of which is annexed
hereto as Annex B, or the five-year business plan for the Partnership most
recently approved by the Partners' Committee pursuant to Section 4.4, as
the case may be.
Call Price: As defined in Section 6.6(b).
----------
Capital Account: As defined in Section 3.3(a).
---------------
Change in Control: As to any Partner, a change, shift or transfer of
-----------------
Control with respect to such Partner (including any change in the Control
of any entity Controlling such Partner). Notwithstanding the foregoing, no
Change in Control shall be deemed to have occurred with respect to (i)
Rainbow Partner as a result of a change, shift or transfer of Control with
respect to RMH or any Person Controlling RMH; (ii) Fox/Liberty Partner as a
result of a change, shift or transfer of Control with respect to Liberty or
any Person Controlling Liberty; or (iii) Fox/Liberty Partner as a result of
a change, shift or transfer of Control with respect to Fox or any Person
Controlling Fox.
Code: The United States Internal Revenue Code of 1986, as amended
----
from time to time, or any successor statute or statutes to the Internal
Revenue Code of 1986.
-5-
<PAGE>
Complying Partner: As defined in Section 3.2(a).
-----------------
Consolidated Entity: Any entity in which the Partnership has an
-------------------
equity interest and the accounts of which are, in accordance with GAAP,
consolidated with those of the Partnership for financial reporting
purposes.
Consumer Price Index: The Consumer Price Index -All Urban Consumers
--------------------
(All Items) published by the U.S. Bureau of Labor Statistics or, if such
index shall no longer be published, any comparable measure of changes in
consumer prices on a national basis that is prepared and published
periodically by an agency of the United States Government.
Contributing Partner: As defined in Section 3.2(a).
--------------------
Contribution Date: As defined in Section 3.1(a).
-----------------
Control: As to any Person, the possession, directly or indirectly, of
-------
the power to direct or cause the direction of the management and policies
of such Person, whether through ownership of voting securities or
partnership interests, by contract or otherwise.
Corporation: a Person succeeding to the business of the Partnership
-----------
by merger or otherwise for the purpose of facilitating an Initial Public
Offering, the ownership of which immediately following such reorganization
or restructuring is in the same relative proportion to the Sharing
Percentages of the Partners immediately prior thereto; provided, that the
--------
securities issued to each Partner are of the same class of securities to
be issued in the Initial Public Offering.
CSC: Cablevision Systems Corporation, a Delaware corporation.
---
Current Market Price: Shall mean, per share or unit of Marketable
--------------------
Securities on any date specified, the average of the daily market prices of
such Marketable Securities for the 20 consecutive Business Days ending on
the second Business Day prior to such date. The daily market price of
Marketable Securities on any Business Day will be (a) the last sale price
on such day on the principal stock exchange on which such share or unit of
Marketable Securities is then listed or admitted to trading (including the
Nasdaq National Market System if such Marketable Securities are
-6-
<PAGE>
admitted to trading thereon), or (b) if no sale takes place on such date on
any exchange on which such share or unit of Marketable Securities is listed
or admitted to trading, the average of the reported closing bid and asked
prices on such day as officially noted on any exchange.
Damages: As defined in Section 7.2.
-------
Defaulting Partner: As defined in Section 7.1(a).
------------------
Deferred Budget Decision: A circumstance in which Management Overhead
------------------------
allocated to the Partnership pursuant to Section 4.6 is being disputed or
has otherwise not been definitively established and is the only remaining
disputed or unestablished item with respect to a Proposed Budget.
Delinquent Partner: As defined in Section 3.2(c).
------------------
Designee: An Affiliate of an Offeree designated by the Offeree to
--------
purchase an Interest.
Disinterested Partner: A Partner or Partners who are not benefitted
---------------------
by, and none of whose Partner Associates is benefitted by, the terms of the
Related Affiliation Agreement in question or the actions in question which
may affect a Related Affiliation Agreement or a Partner or Partner
Associate.
Effective Date: [INSERT THE CLOSING DATE OF THE TRANSACTIONS
--------------
CONTEMPLATED BY THE FORMATION AGREEMENT].
Event of Default: As defined in Section 7.1.
----------------
Event of Termination: As defined in Section 8.1.
--------------------
Excess Contribution: As defined in Section 3.2(a).
-------------------
Extraordinary Decision: As defined in Section 4.3.
----------------------
Fair Market Value: As to any property, the price at which a willing
-----------------
seller would sell and a willing buyer would buy such property having full
knowledge of the facts, and assuming each party acts on an Arm's-length
basis with the expectation of concluding the purchase or sale within a
reasonable time. Except as provided herein, in any case where there is a
-7-
<PAGE>
dispute as to the Fair Market Value of any property, such dispute shall
bedetermined by an Appraiser selected jointly by the applicable Partners
or, if the applicable Partners are not able to agree on an Appraiser, each
applicable Partner shall select an Appraiser and the Appraisers so selected
shall select another Appraiser, which shall determine the Fair Market Value
of the property in question.
Fiscal Year: As defined in Section 5.1(c).
-----------
Forfeited Partner: As defined in Section 3.2(c).
-----------------
Fox: Fox Inc., a Colorado corporation, and any entity succeeding to
---
all or substantially all of the assets of Fox Inc.
Fox/Liberty Partner: Fox Sports National Holdings LLC, a Delaware
-------------------
limited liability company.
GAAP: Generally accepted accounting principles as in effect in the
----
United States from time to time and consistently applied.
Indirect Transfer: With respect to an Interest, a transfer of Control
-----------------
of the Partner directly owning such Interest or of any Affiliate of a
Partner more than 50% of the Fair Market Value of which is attributable,
directly or indirectly, to such Interest; provided, that, any transaction
-------- ----
which is not a Change in Control by virtue of the second sentence of the
definition of "Change in Control" shall similarly not be an Indirect
Transfer.
Initial Capital Account Balance: The Initial Capital Account Balance
-------------------------------
of each Partner shall be as follows:
Rainbow Partner: $50,000,000
Fox/Liberty Partner: $50,000,000
Initial Public Offering: As to the Partnership or the Corporation, an
-----------------------
initial public offering of the securities of the Partnership or the
Corporation pursuant to a registration statement filed pursuant to the
Securities Act of 1933 that results in a class of securities of the
Partnership or the Corporation being required to be registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
-8-
<PAGE>
Interest: As to each Partner, such Partner's rights to participate in
--------
the income, gains, losses, deductions and credits of the Partnership,
together with all other rights and obligations of such Partner under this
Agreement.
IPO-Call Closing Date: As defined in Sec tion 6.6(d).
---------------------
IPO-Call Notice: As defined in Section 6.6(a).
---------------
IPO-Call Notice Window: (i) the 30 days following the fifth
----------------------
anniversary of the Effective Date and (ii) the 30 days following each third
anniversary of the fifth anniversary of the Effective Date; provided that
--------
in every case there shall not be an IPO-Call Notice Window if an Initial
Public Offering of the Partnership or the Corporation has occurred prior to
such date.
IPO-Call Procedure: As defined in Section 6.6(a).
------------------
Liberty: Liberty Media Corporation, a Delaware corporation, and any
-------
entity succeeding to all or substantially all of its assets.
Losses: As defined in Section 3.4(a).
------
Make-up Amount: As defined in Section 3.2(c).
--------------
Make-up Contribution: As defined in Sec tion 3.2(c).
--------------------
Management Overhead: Expenses of Related Persons with respect to the
-------------------
Managing Partner, a portion of which are allocated to the Partnership and
any Related Persons with respect to the Managing Partner pursuant to
Section 4.6.
Managing Partner: The Managing Partner of the Partnership shall be
----------------
Fox/Liberty Partner, unless and until changed in accordance with the
provisions of this Agreement.
Marketable Securities: Shall mean securities of a Person that are
---------------------
freely tradeable without federal securities laws restrictions and that are
listed on a national securities exchange in the United States of America or
are authorized for inclusion in the Nasdaq National Market System, and
which represent less than
-9-
<PAGE>
50% of the total securities of such class and securities convertible or
exchangeable into such class.
Maximum Amount: $1,000,000 (increased or decreased annually by a
--------------
percentage equal to the percentage increase or decrease for the immediately
preceding year in the Consumer Price Index).
Minimum Gain Attributable to Partner Nonrecourse Debt: That amount
-----------------------------------------------------
determined in accordance with the principles of Treasury Regulations Sec-
tion 1.704-2(i)(3).
Minimum Interest: As to any Person, (i) 50% of the voting securities
----------------
or (ii) 50% of each of (a) all of the general partnership or membership
interests in such Person and (b) all of the partnership or membership
interests in such Person.
Nonbankrupt Partner: As defined in Section 8.3.
-------------------
Non-Defaulting Partner: As defined in Section 7.2.
----------------------
Nonrecourse Deductions: Any and all items of loss or deduction or
----------------------
expenditure, including those described in Section 705(a)(2)(B) of the Code
that in accordance with the principles of Treasury Regulations Section
1.704-2(b)(1) are attributable to a Nonrecourse Liability.
Nonrecourse Liability: Has the meaning set forth in Treasury
---------------------
Regulations Section 1.704-2(b)(3).
Offered Interest: As defined in Section 6.1(b).
----------------
Offeree: As defined in Section 6.1(b).
-------
Offer Notice: As defined in Section 6.1(b).
------------
Operating Income (Loss): For any period, the consolidated net income
-----------------------
(loss) of the Partnership and the Consolidated Entities for such period
attributable to continuing operations before income taxes, depreciation
of plant, property and equipment, interest expense, interest income,
amortization of goodwill and amortization of organization cost,
amortization of step-ups, extraordinary items, any prior year adjust
ments, losses or gains from the sale of plants, divisions or other major
items of property, adjustments arising from major changes in accounting
methods,
-10-
<PAGE>
losses or gains on foreign exchange, bonuses and other periodic incentive
compensation payments to officers and employees and other material and
nonrecurring expenses as determined in accordance with GAAP.
Partner: Rainbow Partner, Fox/Liberty Partner or any other Person
-------
hereafter admitted to the Partnership in accordance with the terms hereof,
but excluding any Person that ceases to be a Partner in accordance with the
terms hereof.
Partner Associate: As defined in Section 4.9(a).
-----------------
Partner Nonrecourse Debt: Has the meaning set forth in Treasury
------------------------
Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions: Any and all items of loss or
------------------------------
deduction or expenditure, including those described in Section 705(a)(2)(B)
of the Code that in accordance with the principles of Treasury Regulations
Section 1.704-2(i)(2), are attributable to Partner Nonrecourse Debt.
Partners' Committee: As defined in Section 4.2.
-------------------
Partner's Loan: A loan by a Partner or a Related Person of a Partner
--------------
to the Partnership in respect of which repayment of principal and interest
shall be sub ordinated to the repayment of the principal of, and interest
on, the indebtedness of the Partnership to third party lenders. All
Partner's Loans shall bear interest, payable quarterly, at the Prime Rate
and shall be unsecured and recourse thereunder shall be limited to the
assets of the Partnership, and, except as otherwise provided in Section
6.3(b), the note evidencing the same shall be non-negotiable and non-
transferable (except to a Permitted Transferee of an Interest) and shall be
in substantially the form annexed hereto as Annex C.
Partnership: As defined in the Recitals.
-----------
Partnership Minimum Gain: That amount determined in accordance with
------------------------
the principles of Treasury Regulations Section 1.704-2(d).
Partnership Property: As defined in Section 2.8.
--------------------
Permitted Investment: An investment of any of the following types:
--------------------
(a) United States Treasury bills and notes; (b) securities guaranteed by
the United States
-11-
<PAGE>
or an agency of the United States and backed by the full faith and credit
of the United States; (c) certi ficates of deposit, banker's acceptances or
time deposits issued by any commercial bank or branch thereof chartered by
the United States or any State thereof or by the District of Columbia and
having its long-term debt obligations rated A-or better by Standard &
Poor's Ratings Group ("Standard & Poor's"); (d) commercial paper rated A-3
or better by Standard & Poor's; (e) repurchase agreements with financial
insti tutions the long-term debt obligations of which are rated A- or
better by Standard & Poor's; (f) Eurodollar deposits with direct
subsidiaries of any commercial bank chartered by the United States or any
State thereof or by the District of Columbia and having its long-term debt
obligations rated A- or better by Standard & Poor's; or (g) other
instruments and invest ments approved by the Partners' Committee.
Person: An individual or a corporation, partner ship, limited
------
liability company, trust, unincorporated association or other entity.
Prime Rate: A rate of interest equal to the rate per annum announced
----------
from time to time by The Chase Manhattan Bank, at its principal office as
its prime rate (which rate shall change when and as such announced prime
rate changes) but in no event more than the maximum rate of interest
permitted to be collected from time to time under applicable usury laws.
Profits: As defined in Section 3.4(a).
-------
Proposed Budget: As defined in Section 4.4(a).
---------------
Proposed Business Plan: As defined in Section 4.4(a).
----------------------
Rainbow Partner: Rainbow National Sports Holdings, L.L.C., a Delaware
---------------
limited liability company.
Refusing Partner: As defined in Section 3.2(a).
----------------
Related Affiliation Agreement: As defined in Section 4.9(a).
-----------------------------
Related Person: As to each Partner, (i) such Partner, (ii) each
--------------
Affiliate of such Partner, (iii) each director, officer or general partner
of, or any stockholder or limited partner known to the Partner to own an
equity interest greater than 10% in, such
-12-
<PAGE>
Partner or any Affiliate of such Partner, or (iv) each Person other than
the Partnership in which such Partner or, to the knowledge of such Partner,
any Affiliate of such Partner has an equity interest greater than 10%,
excluding any business in which the Partnership has an interest, directly
or indirectly.
Restricted Person: Each Person listed on a writing executed by the
-----------------
parties hereto on the date of the Formation Agreement.
Restrictive Covenants: As defined in Section 9.2.
---------------------
RMH: Rainbow Media Holdings, Inc., a Delaware corporation, and any
---
entity succeeding to all or substantially all of its assets.
Selling Partner: As defined in Section 6.1(b).
---------------
Senior Credit Agreement: Any instrument creating or otherwise
-----------------------
evidencing indebtedness of the Partnership to a third party lender approved
by the Partners' Committee.
Sharing Percentage: Subject to adjustment pursuant to Section 3.2
------------------
hereof the Sharing Percentage of each Partner in the Partnership shall be
as follows:
Rainbow Partner: 50%
Fox/Liberty Partner: 50%
Tax Matters Partner: As defined in Section 5.3(a).
-------------------
TCI: Tele-Communications, Inc., a Delaware corporation.
---
Term: As defined in Section 2.4.
----
Timely Partner: As defined in Section 3.2(c).
--------------
Transfer: To sell, assign, transfer, pledge or otherwise dispose of,
--------
or encumber (voluntarily, involuntarily or by operation of law); provided,
--------
that a "Transfer" shall not include any bona fide assignment,
hypothecation, pledge or encumbrance to any unaffili ated third party
lender in a financing transaction.
-13-
<PAGE>
ARTICLE II
----------
FORMATION OF GENERAL PARTNERSHIP
2.1 Formation.
---------
(a) Pursuant to the terms and conditions contained in this Agreement,
Rainbow Partner is hereby admitted to the Partnership as a Partner owning a
50% Sharing Percentage and Fox/Liberty Partner is hereby admitted as a
Partner owning a 50% Sharing Percentage.
(b) The name and mailing address of each Partner and the amount
credited to each Partner's Capital Account shall be listed on Schedule A
attached hereto. The Managing Partner shall update and distribute to the
other Partners Schedule A from time to time as neces sary to accurately
reflect the information therein. Any amendment or revision to Schedule A
made in accordance with this Agreement shall not be deemed an amendment to
this Agreement that requires the consent of the Partners. Any reference in
this Agreement to Schedule A shall be deemed to be a reference to Schedule
A as amended and in effect from time to time.
2.2 Name. The name of the Partnership shall be National Sports
----
Partners or any other name designated by the Partners' Committee upon compliance
with all applicable laws.
2.3 Compliance with Partnership and Other Laws. The Partners will use
------------------------------------------
their reasonable best efforts to take
-14-
<PAGE>
the actions required to cause the Partnership to comply with all applicable
partnership laws, assumed name acts, ficti tious name acts, and similar
statutes in effect in each jurisdiction or political subdivision in which the
Partner ship does business from time to time, and the Partners agree to execute
appropriate documents requested by the Managing Partner with the advice of
counsel to comply with such laws. All actions to be taken pursuant to this
Section 2.3 by the Partnership and by the Partners shall be at Partnership
expense.
2.4 Term. The term of the Partnership (the "Term") shall continue for
----
ninety-nine (99) years from the Effective Date, unless the Partnership is sooner
dissolved and terminated as provided in Article VIII.
2.5 Principal Place of Business. The principal place of business of
---------------------------
the Partnership shall be a place in the United States designated by the Managing
Partner from time to time.
2.6 Purpose. The Partnership is formed for the object and purpose
-------
of, and the nature of the business to be conducted and promoted by the
Partnership is, engaging in any lawful act or activity for which partnerships
may be formed under the laws of the State of New York and engaging in any and
all activities necessary, convenient, desirable or incidental to the foregoing,
including, without limita-
-15-
<PAGE>
tion, acquiring, holding, managing, operating and disposing of real and personal
property.
2.7 Qualification in other Jurisdictions. The Partners shall cause
------------------------------------
the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The Managing Partner shall execute, deliver and
file any certificates (and any amendments and/or restatements thereof) necessary
for the Partnership to qualify to do business in a jurisdiction in which the
Partnership wishes to conduct business.
2.8 Ownership of Property. Except to the extent the Managing Partner
---------------------
deems it to be in the best interests of the Partnership to use nominees from
time to time, legal title to all assets, rights and property, whether real,
personal or mixed, owned by the Partnership (collectively, the "Partnership
Property") shall be acquired, held and conveyed only in the name of the
Partnership.
ARTICLE III
-----------
PARTNERSHIP CAPITAL
3.1 Capital Contributions.
---------------------
(a) Unless otherwise agreed by all Partners, all capital
contributions (other than any initial capital contribution) shall be in cash
and, other than capital contributions due in accordance with the then-applicable
-16-
<PAGE>
Budget, shall be approved by each Partner. Except as provided in Sections 4.3
and 4.11, the Managing Partner shall from time to time during the Term give
notice to each Partner of any capital contribution due in accordance with the
then-applicable Budget not less than 30 nor more than 90 days prior to the date
on which such capital contribution is due. Such notice shall set forth the
amount to be contributed by each Partner, the date (the "Contribution Date") on
which the contribution is to be made, and the account of the Partnership to
which such funds are to be transmitted. There shall be no more than one capital
call in any calendar month.
(b) All capital contributions to be made by the Partners shall be in
proportion to their respective Sharing Percentages (determined, in each case, at
the time the notice contemplated by Section 3.1(a) is given).
3.2 Failure to Make Capital Contributions.
-------------------------------------
(a) Upon the failure of any Partner (the "Refusing Partner") to make
all or a portion of a capital contribution required of it pursuant to this
Agreement on or before the 15th day after the Contribution Date therefor, any
other Partner (each a "Complying Partner") that is not a Refusing Partner or a
Forfeited Partner may, at its option exercised by giving notice to the other
Partners, make up the defaulted capital contribution or any portion thereof by
making a capital contribution to the Partnership in an
-17-
<PAGE>
amount not exceeding the amount of the required capital contribution which the
Refusing Partner failed to make. If more than one Complying Partner wishes to
contribute all or any portion of the unpaid amount of the Refusing Partner's
required capital contribution, and the aggregate amount which such Complying
Partners wish to contribute exceeds the unpaid amount of the Refusing Partner's
required capital contribution, then the Complying Partners shall determine among
themselves the amount that each such Complying Partner shall contribute to the
Partnership, or, in the event the Complying Partners cannot agree, each
Complying Partner shall contribute to the Partnership an amount equal to its pro
rata share (based on the proportion that each Complying Partner's Sharing
Percentage bears to the aggregate Sharing Percentages on the relevant
Contribution Date of all the Complying Partners that wish to contribute) of the
Refusing Partner's required additional capital contribution. Each Complying
Partner that makes a capital contribution pursuant to this Section 3.2 shall be
referred to herein as a "Contributing Partner." Any contribution by a
Contributing Partner of such additional amount as a capital contribution
pursuant to this Section 3.2(a) shall be deemed an addi tional capital
contribution of such Contributing Partner (an "Excess Contribution").
(b) Whenever pursuant to this Section 3.2 with respect to any capital
call, a Refusing Partner has not,
-18-
<PAGE>
within 15 days after the related Contribution Date, made capital contributions
in an amount equal to the product of such Refusing Partner's Sharing Percentage
and the total amount of such capital call, then the Sharing Percentage of such
Refusing Partner in the Partnership shall be reduced, with effect from the
related Contribution Date, so that such Sharing Percentage equals the quotient
(expressed as a percentage) of (x) the sum of (i) the Initial Capital Account
Balance of such Refusing Partner and (ii) all capital contributions made by such
Refusing Partner less all distributions of capital to the Refusing Partner
following the Effective Date and prior to the related Contribution Date divided
by (y) the sum of (a) the Initial Capital Account Balances of all Partners and
(b) all the capital contributions of all Partners less all distributions of
capital to all Partners following the Effective Date and prior to the related
Contribution Date (including any capital contributions made in respect of such
capital call pursuant to Section 3.2(a), regardless of when made); and the
Sharing Percentage of each Complying Partner shall be increased, with effect
from the related Contribution Date, by an amount equal to the product of (I) the
amount by which the Sharing Percentage of such Refusing Partner has been reduced
pursuant to this sentence and (II) the quotient of (A) the sum of (X) the
Initial Capital Account Balance of such Complying Partner and (Y) all capital
contributions
-19-
<PAGE>
made by such Complying Partner less all distributions of capital to such
Complying Partner following the Effective Date and prior to the related
Contribution Date (including any additional capital contribution made by such
Complying Partner pursuant to Section 3.2(a), regardless of when made) divided
by (B) the sum of (aa) the Initial Capital Account Balances of all of the
Complying Partners and (bb) all the capital contributions of all Complying
Partners less all distributions of capital to all Complying Partners following
the Effective Date and prior to the related Contribution Date (including any
additional capital contributions made in respect of such capital call pursuant
to Section 3.2(a), regardless of when made).
(c) If at any time any Partner's Sharing Percentage is less than two-
fifths of such Partner's Sharing Percentage as of the Effective Date
(appropriately adjusted to reflect any admissions of additional Partners) such
Partner shall forfeit (i) all voting rights (including the voting rights, if
any, of its representatives on the Partners' Committee), except as otherwise
required by law and except as provided in Section 4.11(b), and (ii) such
Partner's right to consent (or withhold consent) to Transfers under (and as
defined in) Section 6.1(a) and such Partner's right of first refusal pursuant to
Section 6.1(b) hereof. A Partner that has forfeited its voting and other rights
under this paragraph is referred to as a "Forfeited
-20-
<PAGE>
Partner" for and during the period such rights are so forfeited. Except as
otherwise specifically provided in this Section 3.2(c), a Forfeited Partner
shall continue to be a Partner in all other respects and shall not, by virtue of
becoming a Forfeited Partner, be released from any of its obligations as a
general partner in the Partnership or under this Agreement (including its
obligations with respect to required additional capital contributions). The
forfeiture by any Partner of certain of its rights pursuant to this Section
3.2(c) shall not prejudice the right of such Partner to any claim that such
Partner may have at law against the Managing Partner in the case of a breach by
the Managing Partner of any provision of this Agreement or of the duties of care
and of loyalty owed by the Managing Partner to the Partnership.
In the event that any Partner (the "Delinquent Partner") fails to make
a capital contribution on or before the Contribution Date specified in the
notice of the Manag ing Partner, but does make its contribution within 15 days
after such Contribution Date, each Partner (each, a "Timely Partner") that made
its capital contribution on or before the Contribution Date shall be entitled to
receive interest at a rate per annum equal to the Prime Rate (calculated on the
basis of a year of 360 days) from the Delinquent Partner (and not from the
Partnership) from the date of payment of
-21-
<PAGE>
its capital contribution to the date the Delinquent Partner made its capital
contribution.
Notwithstanding the foregoing provisions of this Section 3.2, if the
Sharing Percentage of any Partner other than the Managing Partner has been
reduced pursuant to Section 3.2(b) for failure to make a capital contribution,
such Partner may, at any time prior to the date that is 270 days after such
capital contribution was due, make a capital contribution to the Partnership or
a payment to each Contributing Partner, as provided below (each, a "Make-up
Contribution"), in an amount equal to the Make-up Amount (as hereinafter
defined). Upon the making of a Make-up Contrib ution by such Partner in the
full amount of the Make-up Amount, the Sharing Percentages of the Partners shall
be adjusted to give effect to such Make-up Contribution so as to restore to such
Refusing Partner and the Complying Partners the respective Sharing Percentages
they would have had but for and solely based on the default of the Refusing
Partner.
The "Make-up Amount" shall be the amount of the defaulted capital
contribution of the Refusing Partner, plus interest thereon at a rate per annum
equal to the Prime Rate plus 1% calculated on the basis of a year of 360 days
from the Contribution Date until the date of payment of the Make-up
Contribution. In the event that no Complying Partner has made up any portion of
the defaulted capital
-22-
<PAGE>
contribution of the Refusing Partner pursuant to Section 3.2(a) and the Refusing
Partner elects to make a Make-Up Contribution, the full Make-up Amount shall be
paid by the Refusing Partner to the Partnership. In the event that a
Contributing Partner has, pursuant to Section 3.2(a), made up all or a portion
of the defaulted capital contribution of the Refusing Partner through additional
capital contribu tions and the Refusing Partner elects to make a Make-Up
Contribution, the Refusing Partner shall pay directly to each Contributing
Partner an amount equal to the Make-up Amount multiplied by the quotient of (x)
the portion of all Excess Contributions paid by such Contributing Partner,
divided by (y) the total amount of the relevant defaulted capital contribution,
and after such payment the Refusing Partner shall contribute the remainder (if
any) of the Make-up Amount to the Partnership.
3.3 Capital Accounts.
----------------
(a) A separate capital account (each a "Capital Account") shall be
maintained for each Partner. The Initial Capital Account Balance of each
Partner shall be as speci fied in Article I. Subject to the provisions of
paragraphs (b), (c) and (d) of this Section 3.3, the Capital Account of each
Partner shall be (i) increased by (A) the amount of cash and the Fair Market
Value of other property contributed to the Partnership by such Partner as a
capital contribution (net of liabilities of such Partner assumed by the Partner-
-23-
<PAGE>
ship and liabilities to which such contributed property is subject) (including
any Excess Contributions made by such Partner whether or not the Partner was
reimbursed by a Refusing Partner) and (B) Profits and any other items of income
allocated to such Partner pursuant to Section 3.4 and (ii) decreased by (A) the
amount of cash and the Fair Market Value of any property distributed to such
Partner (net of liabilities of the Partnership assumed by such Partner and
liabilities to which such distributed property is subject), (B) any Excess
Contributions for which such Partner has been reimbursed by a Refusing Partner,
and (C) items of Loss and any other deductions allocated to such Partner
pursuant to Section 3.4. Capital Accounts otherwise shall be maintained in
accordance with Treasury Regulations in order for the allocation of Profits and
Losses pursuant to Section 3.4 hereof to have substantial economic effect within
the meaning of Section 704(b) of the Code.
(b) Immediately prior to the distribution of any property (other than
cash) to a Partner, the Capital Account of each Partner shall be increased or
decreased, as the case may be, in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(e), to reflect the manner in which the unrealized income,
gain, loss and deduction inherent in such property that has not previously been
reflected in the Capital Accounts would be allocated among the Partners if
-24-
<PAGE>
there were a taxable disposition of such property for its Fair Market Value on
the date of the distribution.
(c) Immediately prior to:
(i) a contribution of money or other property to the Partnership by a
new or existing Partner as consideration for an Interest, or
(ii) a distribution of money or other property by the Partnership to a
retiring or continuing Partner as consideration for an Interest,
the Capital Account of each Partner shall be increased or decreased, as the case
may be, to reflect the Fair Market Value of all the Partnership Property. Such
adjustment shall reflect the manner in which the unrealized income, gain, loss
or deduction inherent in such property that has not previously been reflected in
the Capital Accounts would be allocated among the Partners if there were a
taxable dis position of such property for its Fair Market Value on the date of
the contribution or distribution and shall otherwise be made in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(d) Except as set forth in Section 3.2, no Partner shall be entitled
to interest on its capital contributions or on the positive balance in its
Capital Account and no such interest shall accrue.
-25-
<PAGE>
3.4 Allocation of Items of Partnership Income, Gain, Loss, Deduction
----------------------------------------------------------------
and Credit.
- ----------
(a) For purposes of this Agreement, the terms "Profits" and "Losses"
shall mean, respectively, the net profits and net losses of the Partnership
determined on an annual basis in accordance with the method of accounting used
by the Partnership for Federal income tax purposes, except that (i) the items
included in the calculation of Profits and Losses shall not include any items
specially allocated under Section 3.4(c), (ii) where property is reflected in
the Capital Accounts at a book basis different from the basis of such property
for Federal income tax purposes, all gain, loss, depreciation and amortization
on such property shall be determined for purposes of adjusting Capital Accounts
based on the book basis of such property in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), (iii) income received by the Partnership which is
exempt for Federal income tax purposes shall be included, and (iv) expenses of
the Partnership which are not capitalizable and not deductible or deemed not
capitalizable and not deductible for Federal income tax purposes (i.e., Section
705(a)(2)(B) expenditures) shall be taken into account.
(b) (i) Except as provided in paragraph (a) of this Section 3.4,
clause (ii) of this paragraph (b), and Section 5.3(d), and after giving effect
to the special
-26-
<PAGE>
allocations required by paragraph (c) of this Section 3.4, all Partnership
Profits and Losses and other items of income, gain, loss, deduction and credit
shall be allocated to the Partners in accordance with their Sharing Percentages,
taking into account both the amount or amounts of such Sharing Percentages and
the portions of the year during which such Sharing Percentages were held.
(ii) If, at the end of any taxable period, any Partner's Capital
Account would have an Adjusted Capital Account Deficit (determined after taking
into account all other allocations and distributions with respect to such
period), then there shall be allocated to such Partner for such taxable period
items of gross income in an amount sufficient to eliminate such Adjusted Capital
Account Deficit.
(c) Notwithstanding any other provision of this Section 3.4, the
following special allocations shall be made for each taxable period in
descending order of priority:
(i) If there is a net decrease in Partnership Minimum Gain during any
Partnership taxable period, each Partner shall be specially allocated items
of income and gain of the Partnership for such period (and, if necessary,
subsequent periods) in an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain, determined in accordance with
Treasury Regulations Sections 1.704-2(f) and 1.704-2(g)(2). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be deter mined in accordance
with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). The
Partnership may, however, (i) waive the chargeback of items of income
-27-
<PAGE>
and gain required by this Section 3.4(c)(i) and (ii) apply to the
Commissioner of the Internal Revenue Service for approval of such waiver in
the event that (x) the Partners have made Capital Contributions or received
income allocations that have restored any previous Nonrecourse Deductions
claimed or any distrib utions attributable to the proceeds of a
Nonrecourse Liability, and (y) the Minimum Gain chargeback require ment
would distort the Partners' economic arrangement as reflected in this
Agreement and as evidenced over the term of the Partnership by the
Partnership's allocations and distributions and the Partners' Capital
Contributions and it is not expected that the Partnership will have
sufficient other income to correct that distortion. This Section 3.4(c)(i)
is intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith;
(ii) If there is a net decrease in Minimum Gain Attributable to
Partner Nonrecourse Debt during any Partnership taxable period, any Partner
with a share of Minimum Gain Attributable to Partner Nonrecourse Debt at
the beginning of such taxable period (determined in accordance with
Treasury Regulations Section 1.704-2(i)(5)) shall be allocated items of the
Partnership income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
the Minimum Gain Attributable to Partner Nonrecourse Debt, determined in
accordance with Treasury Regulations Sections 1.704-2(g)(2) and 1.704-
2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Treasury Regulations Sections 1.704-2(f)(5), 1.704-
2(i)(4) and 1.704-2(j)(2)(ii) and (iii). This Section 3.4(c)(ii) is
intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith. In addition, rules consistent with the
provisions of Treasury Regulations Sections 1.704-2(f)(2), (3), (4) and (5)
will apply to the special allocation required by this Section 3.4(c)(ii);
(iii) In the event that any Partner unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain shall be specially allocated to such
-28-
<PAGE>
Partner (in respect of its Capital Account) in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Partner as
quickly as possible, provided that an allocation pursuant to this Section
3.4(c)(iii) shall be made only if and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article III have been tentatively made as if this
Section 3.4(c)(iii) were not in the Agreement;
(iv) Nonrecourse Deductions for any taxable period shall be specially
allocated among the Partners in accordance with their Sharing Percentages;
(v) Partner Nonrecourse Deductions for any taxable period shall be
specially allocated to the Partner that bears the economic risk of loss
with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i). If more than one Partner bears the
economic risk of loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such economic risk of loss; and
(vi) To the extent that any allocation is made in any taxable period
to any Partner pursuant to the provisions of clauses (i) through (v) of
this Section 3.4(c), such Partner shall thereafter be specially allocated
items of Partnership gross income or deduction in order to negate the
above-described allocations in the same taxable period if sufficient items
of gross income or deduction are available and, if not available, in each
succeeding taxable period until the aggregate amount of the above-described
allocations are fully negated.
(d) All items of income, gain, loss or deduction attributable to
property contributed to the Partnership shall be allocated for Federal income
tax purposes among the Partners in a manner that takes into account any
difference between the Fair Market Value of such property at the time
-29-
<PAGE>
of its contribution (calculated for this purpose without regard to any
outstanding indebtedness secured by or relating to such property) and its
adjusted basis for Federal income tax purposes at that time, in accordance with
Section 704(c) of the Code and the Treasury Regulations thereunder. Each
Partner that contributes property to the Partnership shall at the time of such
contribution notify the Partnership of its adjusted basis in the contributed
property at such time. For purposes of allocations hereunder, the Partnership
shall elect to use the traditional method with curative allocations as set forth
in Treasury Regulations Section 1.704-3(c).
3.5 Distributions.
-------------
(a) Except as provided in Section 6.6, no Partner shall have the right
to withdraw any amount from its Capital Account. No Partner shall have the
right, except as otherwise provided in Section 3.5(b), to demand or receive any
distribution, without the approval of the Managing Partner. Except as otherwise
provided in Article VIII, no Partner shall have the right to receive a
distribution of property other than cash from the Partnership, unless otherwise
agreed by all the Partners.
(b) The Partnership shall, subject to any restrictions contained in
Senior Credit Agreements, distribute cash to the Partners in amounts that the
Managing Partner determines are in excess of the amounts reasonably
-30-
<PAGE>
necessary for the continued efficient operation of the business of the
Partnership, including reasonable reserves; provided, that subject to the
--------
Managing Partner's discretion to retain amounts necessary for the continued
efficient operation of the business of the Partnership in accordance with this
Section 3.5(b), such distributions shall be made not less often than quarterly.
Any such distributions shall be made in accordance with the Partners' Sharing
Percentages subject to the priorities set forth in Section 4.1. The Partnership
shall repay principal and accrued interest on Partner's Loans (in the order of
payment contemplated by subparagraph (c)(iii) of Section 8.2 hereof) prior to
making any cash distributions to the Partners.
(c) For purposes of Section 3.2(b), distributions shall be deemed made
first from profits and then from capital.
3.6 Partnership Funds. The funds of the Partner ship shall be
-----------------
deposited in such bank accounts or invested in such Permitted Investments as
shall be determined by the Managing Partner, or if there is no Managing Partner
the Partners' Committee. The Partnership's funds shall not be commingled with
funds not belonging to the Partnership, except to the extent the Partnership's
cash management plan permits such commingling, and shall be used only for the
affairs or business of the Partnership. The Partners'
-31-
<PAGE>
Committee shall establish a cash management plan pursuant to which the funds of
the Partnership will be managed.
3.7 Borrowings. Subject to any applicable approval required by
----------
Section 4.3 or 4.11 hereof, if the Partnership uses reasonable efforts to obtain
third-party financing but is unable to do so, (i) the Partnership may borrow
funds from any Person that is not a Related Person with respect to any Partner
and may pledge on a non-recourse basis only the Partnership properties or the
income therefrom to secure the repayment of such loans and (ii) the Partnership
may borrow funds in the form of Partner's Loans from any Partner or any Related
Person with respect to a Partner.
ARTICLE IV
----------
MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business. Except for actions and
----------------------------------------
determinations which pursuant to this Agreement or applicable law can be taken
or made only with the consent of all of the Partners or the Partners' Committee,
the business and affairs of the Partnership shall be directed and controlled by
the Managing Partner. The Managing Partner shall manage the business of the
Partner ship with the objective of achieving the following actions in the
following order of priority: (i) the return to the Partners of their Capital
Contributions, (ii) the return to
-32-
<PAGE>
the Partners of a 25% annual profit margin in respect of the Partnership's
national sports service carried by the Regionals (as defined in the Formation
Agreement), (iii) the distribution to the Regionals of all profits in excess
thereof in respect of the Partnership's national sports service carried by the
Regionals, in accordance with terms of the affiliation agreements with such
Regionals, and (iv) the distribution of all funds available for distribu tion
to the Partners in accordance with their Sharing Percentages, and in all cases
in a manner consistent with the development plans and policy decisions reflected
in the Business Plan and the Budget. Without limiting the generality of the
foregoing, the Managing Partner at the Partnership's expense, consistent with
the Budget, shall cause the Partnership to obtain and maintain in effect during
the Term comprehensive insurance insuring the Partnership against all risks and
perils customarily insured against in the businesses conducted by the
Partnership. Nothing contained in this Article IV shall impose any obligation on
any Person doing business or dealing with the Partnership to inquire as to
whether the Managing Partner has exceeded its authority in executing any
contract or other instrument on behalf of the Partnership, and any such Person
shall be fully protected in relying upon the authority of the Managing Partner.
The Managing Partner shall keep the Partners' Committee informed with respect to
-33-
<PAGE>
all matters of material interest to the Partners and shall in any event report
to the Partners' Committee not less frequently than once each quarter with
respect to the busi ness and affairs of the Partnership. Except as otherwise
provided in Section 4.6, the Managing Partner shall serve without compensation
for its services. Subject to any applicable provisions of Section 4.3 hereof,
the Managing Partner may delegate such of its powers and authority to managers,
employees and agents of the Partnership as the Managing Partner shall deem
necessary or appropriate for the conduct of the Partnership's business. Except
insofar as such arrangements are embodied in Approved Agreements or are
otherwise approved pursuant to the provisions of Sections 4.3, 4.9 or 4.11, all
arrangements for the employment of managers, employees or agents on behalf of
the Partnership that are Related Persons with respect to any Partner shall be on
an Arm's-length basis.
4.2 Partners' Committee. Each of Fox/Liberty Partner and Rainbow
-------------------
Partner shall designate two individuals to serve on a committee (the "Partners'
Committee") which shall be responsible for taking all action required under this
Agreement to be taken by the Partners' Committee. Irrespective of the number of
representatives attending any meeting of the Partners' Committee, each of
Fox/Liberty Partner and Rainbow Partner shall have the right to one vote at such
meetings (except as otherwise provided below or in
-34-
<PAGE>
Section 3.2 hereof with respect to a Forfeited Partner), such vote to be
exercised in such manner as such Partner shall direct. The Partners' Committee
shall formulate fundamental policy with respect to the Partnership's business.
The Partners' Committee shall meet by telephone or, at the request of any
Partner, in person, not less frequently than (i) quarterly to receive the report
of the Managing Partner contemplated by Section 4.1 and to review development
plans, the financial position of the Partnership, the status of negotiations
for the purchase and sale of programming rights, financial projections, and any
other material matters relating to the business of the Partnership, (ii)
annually to review the annual Budget and the Business Plan, and (iii) as often
as shall be necessary to make any Extraordinary Decision or take any other
action required to be taken or approved by the Partners' Committee. Any action
that may be taken at a meeting of the Partners' Committee may be taken without a
meeting by written consent of the number of Partners needed to authorize the
action; provided, that all Partners, regardless of whether all Partners are
--------
entitled to vote, are given notice of such written consent at least 15 Business
Days prior to its effective date.
Any Partner entitled to vote at a meeting of the Partners' Committee
shall have the right to call a meeting of the Partners' Committee by giving 10
Business Days' prior
-35-
<PAGE>
notice of the time, date and location or means of conducting such meeting to
each other Partner. The presence or participation of one representative
designated hereunder by the number of Partners required to authorize the action
taken at such meeting shall constitute a quorum for the tak ing of any action;
provided, that all Partners, regardless of whether all Partners are entitled to
- --------
vote, have received at least 10 Business Days' prior notice of such meeting or
have waived such notice. Except as otherwise provided herein, any action
required or permitted to be taken by the Partners' Committee must be by the
approving vote of Partners entitled to vote and having Sharing Percentages
aggregating at least 66 2/3% of the Sharing Percentages of all Partners entitled
to vote; provided, that, if the Managing Partner has been removed pursuant to
--------
Section 4.12, until a new Managing Partner shall have been appointed in
accordance with Section 4.12, any action required or permitted to be taken by
the Partners' Committee must be by the approving vote of each Partner entitled
to vote.
Any member of the Partners' Committee may be removed without cause
and replaced at any time by the Partner who designated such member. If at any
time a Partner removes one or both of its representatives on the Partners'
Committee or any representative of such Partner resigns from the Partners'
Committee or dies, such Partner shall give notice to the other Partners of such
removal, resignation or
-36-
<PAGE>
death and of a successor representative. In the absence of notice to the
contrary, either representative of any Partner shall be conclusively presumed to
have the authority to take action by written consent or vote in the name and on
behalf of such Partner. Members of the Partners' Committee shall serve as such
without compensation.
4.3 Extraordinary Decisions. Subject to Section 4.11, except to the
-----------------------
extent any of the matters set forth below are specifically identified in the
then-applicable Budget or Business Plan, the Partnership and the Managing
Partner may take the following actions only with the prior approval of the
Partners' Committee:
(i) Make any loan or other advance of money to, or guarantee any
obligation of, any Person that is not a Partner or a Related Person with
respect to a Partner, other than employee loans and advances and other than
in the ordinary course of business.
(ii) Incur capital expenditures in any Fiscal Year (a) in connection
with any single transaction or series of related transactions exceeding by
more than $50,000 the amount authorized in the annual Budget approved by
the Partners' Committee or (b) in an aggregate amount that exceeds by more
than $250,000 the aggregate amount of capital expenditures authorized in
the Budget.
(iii) Commence, abandon or settle any litigation, arbitration or
other legal proceeding in the name of the Partnership or otherwise
involving the Partnership which is not in the ordinary course of business
or is likely to have a material impact on the Partnership or its business
or involves claims by or against any governmental entity.
(iv) Adopt or change any accounting principle which will have a
material effect on the Partnership's Operating Income or make any tax
election (except an election under Section 754 of the Code made by the Tax
Matters Partner) or adopt any position for purposes of
-37-
<PAGE>
any tax return that will have a material adverse effect on any Partner.
(v) Enter into any contract or other transaction (or series of related
contracts or transactions) providing for payments by the Partnership (a)
that in any Fiscal Year exceed the Annual Maximum Amount or (b) with a
discounted present value (computed at an annual discount rate of 15%) equal
to or greater than the Maximum Amount.
(vi) Enter into any agreement that may be terminated or otherwise
avoided by the other party thereto if the Managing Partner ceases to act as
Managing Partner or ceases to be a Partner in, or to act as Managing
Partner of the Partnership.
Each of the actions set forth above is referred to as an "Extraordinary
Decision".
4.4 Budget and Business Plan Approval.
---------------------------------
(a) The Managing Partner shall submit annually to the Partners'
Committee at least 90 days prior to the start of each Fiscal Year, beginning
with the Fiscal Year commenc ing January 1, 1998, (i) a proposed budget (the
"Proposed Budget") for the forthcoming Fiscal Year including an income statement
prepared on an accrual basis which shall show in reasonable detail the projected
revenues and expenses and a cash flow statement and detailed schedule of
proposed capital expenditures which shall show in reasonable detail the
projected receipts and disbursements for the Partnership and the amount of any
expected cash deficiency or surplus, any required capital contributions, a
summary of the services included in Management Overhead allocated to the
Partnership in the Proposed Budget and any contemplated
-38-
<PAGE>
borrowings of the Partnership, (ii) a proposed revised five-year business plan
(the "Proposed Business Plan") for the Fiscal Year covered by the Proposed
Budget and the succeeding four Fiscal Years containing substantially the same
categories of information in substantially the same detail as the Business Plan
attached hereto as Annex B. Such Proposed Budget and Proposed Business Plan
shall be prepared on a basis consistent with the Partnership's audited financial
statements and GAAP. Prior to or simultaneously with the submission of such
Proposed Budget and Proposed Business Plan, the Managing Partner shall disclose
to the Partners' Committee any additional informa tion (including financial
projections for years after the next Fiscal Year) in its possession or
reasonably available to it (with or without cost to the Partnership) which could
assist the Partners' Committee in evaluating such Proposed Budget and Proposed
Business Plan. In addition, the Managing Partner shall meet with the Partners'
Committee to discuss such Proposed Budget and Proposed Business Plan.
Within 30 days after the submission of such Proposed Budget and
Proposed Business Plan, the Partners' Committee shall advise the Managing
Partner in writing whether it approves or disapproves of such Proposed Budget
and Proposed Business Plan. Proposed Budgets and Proposed Business Plans that
are approved by the Partners' Committee shall supersede any previously approved
Budget or Business
-39-
<PAGE>
Plan, as the case may be. The Partners hereby approve the Business Plan and
Budget for the 1997 Fiscal Year attached hereto as Annex B. Except in the case
of a Deferred Budget Decision, if a Proposed Budget or Proposed Business Plan,
as the case may be, is not approved by the Partners' Committee, then the
Managing Partner and the Partners' Committee shall attempt to agree on a
Proposed Budget or Proposed Business Plan, as the case may be. If any item in a
Proposed Budget or Proposed Business Plan requires expenditure of funds in
furtherance of any transaction or purpose referred to in Section 4.11, such
Proposed Budget or Proposed Business Plan shall not be approved as to such item
unless such item is approved by each Partner that would have been required to
approve such item under Section 4.11.
(b) Except in the case of a Deferred Budget Decision, if a Proposed
Budget has not been approved by the Partners' Committee by January 1 of any
Fiscal Year, then until the Partners' Committee approves a Budget, the Budget
for such Fiscal Year shall be derived from the applicable year of the Business
Plan; provided that if such Fiscal Year is not included in an approved Business
--------
Plan, then the Budget for such Fiscal Year shall be identical to the Budget for
the prior Fiscal Year, adjusted to reflect increases or decreases resulting
from:
(i) the operation of escalation or de-escalation provisions in
contracts in effect at the time of approval of the prior Fiscal Year's
Budget solely as a
-40-
<PAGE>
result of the passage of time or the occurrence of events beyond the
control of the Partnership to the extent such contracts are still in
effect;
(ii) elections made in any prior Fiscal Year under contracts
contemplated by the Budget for the prior Fiscal Year regardless of which
party to such contracts makes such election;
(iii) increases or decreases in expenses attribut able to the
annualized effect of employee additions or reductions during the prior
Fiscal Year contemplated by the Budget for the prior Fiscal Year;
(iv) interest expense attributable to any loans made to the
Partnership (including Partner's Loans);
(v) increased overhead expense in an amount equal to the percentage
increase for the prior Fiscal Year in the Consumer Price Index multiplied
by the total of overhead expenses reflected in the Budget for the prior
Fiscal Year;
(vi) the effect of a decision made by the Partners' Committee in a
prior Fiscal Year and not reflected in the Budget for such prior Fiscal
Year;
(vii) reductions in affiliation revenues attribu table to changes in
ownership of networks, channels or systems subject to affiliation
agreements;
(viii) the anticipated costs during such Fiscal Year for any legal,
accounting and other professional fees or disbursements in connection with
events or changes not contemplated at the time of preparation of the Budget
for the prior Fiscal Year;
(ix) increases in expenses attributable to the effects of
Extraordinary Decisions made in the prior Fiscal Year and not otherwise
provided for above;
(x) decreases in expenses attributable to non recurring items
reflected in the prior Fiscal Year's Budget; and
(xi) decreases in revenues due, in whole or in part, to reductions in
affiliation fees and advertising income resulting from the failure to enter
into or renew any affiliation agreement because the Partners other than the
Managing Partner objected to the rates proposed by the Managing Partner and
the Managing
-41-
<PAGE>
Partner was unable thereafter to enter into or renew an affiliation
agreement with the relevant affiliate at rates acceptable to such other
Partners.
Notwithstanding the foregoing, the aggregate amount of capital
expenditure items in any Budget estab lished pursuant to this Section 4.4(b)
for any Fiscal Year shall be the amount projected for such Fiscal Year in the
Business Plan.
(c) In the case of a Deferred Budget Decision, until the Partners'
Committee agrees on the allocation of Management Overhead, the Budget for the
Fiscal Year shall be determined by reference to the Proposed Budget as agreed to
by the Partners (other than with respect to the Management Overhead allocation)
and the Management Overhead allocation shall be as proposed by the Managing
Partner, subject to adjustments pursuant to Section 4.6 hereof.
(d) If a Proposed Business Plan is submitted for approval pursuant to
this Section 4.4 and is not approved by the Partners' Committee, the Business
Plan most recently approved by the Partners' Committee pursuant to this Section
shall remain in effect as the Business Plan. If a Proposed Budget is approved
pursuant to Section 4.4(a) but a corre sponding Proposed Business Plan is not
approved pursuant to Section 4.4(a), the Business Plan then in effect shall be
deemed to be amended so that the Fiscal Year corresponding to the Fiscal Year
for which such Budget has been approved shall be consistent with such Budget.
-42-
<PAGE>
4.5 Limitation on Agency. Except as expressly provided herein, the
--------------------
Managing Partner shall have exclusive authority to act for the Partnership. No
other Partner shall have any authority to act for, or to assume any obli gation
or responsibility on behalf of, another Partner or the Partnership (or to
authorize any other Person to do so) except (i) as otherwise expressly provided
herein or as expressly approved by written consent of all Partners, (ii) if the
Managing Partner is a Defaulting Partner, to the extent necessary to permit the
Non-Defaulting Partners to exercise on behalf of the Partnership any remedies
available to the Partnership against the Managing Partner, or (iii) if the
Managing Partner fails to perform its management duties hereunder (including its
duty to give the notices contem plated by Section 3.1(a) hereof), to the extent
necessary to permit the Non-Defaulting Partners to continue the business of the
Partnership. In addition to the other remedies specified in this Agreement,
each Partner agrees to indem nify and hold each other Partner harmless from and
against any claim, demand, loss, damage, liability or expense (including,
without limitation, amounts paid in settlement, reasonable costs of
investigation and reasonable legal expenses) incurred by or made against such
other Partner and arising out of or resulting from any action taken by the
indemnifying Partner in violation of this Section 4.5.
-43-
<PAGE>
4.6 Managing Partner's Services and Expenses. (a) The Managing
----------------------------------------
Partner shall provide or cause to be provided to the Partnership such management
and other services as may be necessary or appropriate to the conduct of the
business of the Partnership from time to time as contemplated by the Business
Plan and the Budget. All reasonable and necessary direct and indirect expenses
(including, but not limited to, human resource expenses, out-of-pocket expenses,
overhead, salary, rent, utility costs and similar expenses) incurred by the
Managing Partner and by and from its Related Persons in furtherance of the
businesses of the Partnership shall be paid or reimbursed (but not in amounts
exceeding the amounts provided in the Business Plan and Budget) by the
Partnership; provided, that all indirect expenses incurred by the Managing
--------
Partner and by and from its Related Persons in the management of the Partnership
shall be allocated pursuant to the Allocation Policy for Management Overhead set
forth in Annex D hereto.
4.7 Liability of Partners' Committee and Managing Partner. Neither
-----------------------------------------------------
the individuals constituting the Partners' Committee nor the Managing Partner
shall be liable, in damages or otherwise, to the Partnership or any Partner for
any act or failure to act on behalf of the Partnership by such individuals or
Managing Partner, which act was within the scope of the authority conferred on
the Managing Partner or the individuals constituting the Partners' Committee, as
-44-
<PAGE>
the case may be, by this Agreement, unless such act or omission constituted
fraudulent or willful misconduct, was performed or omitted in bad faith or
constituted gross negligence or a violation of law. The individuals compris
ing the Partners' Committee and the Managing Partner shall be indemnified by the
Partnership against liability for any claim, demand, loss, damage, liability or
expense (including, without limitation, amounts paid in settlement, reasonable
costs of investigation and reasonable legal ex penses) resulting from any
threatened, pending or completed action, suit or proceeding naming any of them
as a defendant by reason of acts or omissions by them within the scope of their
authority as set forth in this Agreement, provided their actions were in good
faith and did not constitute gross negligence, fraud or willful misconduct or a
violation of law.
4.8 Indemnification. Any Person asserting a right to indemnification
---------------
under Section 4.5, Section 4.7 or Section 9.3 shall give notice to the
Partnership or the indemnifying Partner(s). If the facts giving rise to such
indemnification involve any actual or threatened claim or demand by or against a
third party, the indemnifying Person shall be entitled to control the defense or
prosecution of such claim or demand in the name of the indemnified Person, with
counsel reasonably satisfactory to the indemnified Person, if the indemnifying
Person notifies the indemnified
-45-
<PAGE>
Person in writing of its intention to do so within twenty (20) days after the
receipt of such notice by the indemnify ing Person, without prejudice, however,
to the right of the indemnified Person to participate therein through counsel of
the indemnified Person's own choosing, which participation shall be at the
indemnified Person's sole expense unless (i) the indemnified Person shall have
been advised by its counsel that use of the same counsel to represent both the
indemnifying Person and the indemnified Person would present a conflict of
interest (which shall be deemed to include any case where there may be a legal
defense or claim available to the indemnified Person which is different from or
addi tional to those available to the indemnifying Person), in which case the
indemnifying Person shall not have the right to direct the defense of such
action on behalf of the indemnified Person, or (ii) the indemnifying Person
shall fail diligently to defend or prosecute such claim or demand within a
reasonable time. Whether or not the indemnifying Person chooses to defend or
prosecute such claim, the parties hereto shall cooperate in the prosecution or
defense of such claim and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and appeals
as may reasonably be requested in connection therewith. The indemnifying Person
shall not settle or permit the settlement of any such third party claim or
action without the prior written
-46-
<PAGE>
consent of the indemnified Person, which consent shall not be unreasonably
withheld.
4.9 Contracts with Related Persons and Partner Associates. (a) The
-----------------------------------------------------
Managing Partner shall in all cases seek to enforce the rights of the
Partnership under any existing or future contract with a Related Person with
respect to a Partner or a Partner Associate (as defined below), including
without limitation any affiliation agreement (each a "Related Affiliation
Agreement") between the Partnership, on the one hand, and any Partner or an
Affiliate of any Partner or any Person managed by any of them or any Person in
which any of them, directly or indirectly, has an equity interest greater than
10% on a fully-diluted basis (each a "Partner Associate"), on the other hand,
with the same level of diligence and perseverance as a prudent manager would
apply to the enforcement of similar contracts in similar circumstances with
unrelated parties and shall not, without consent of all of the other Partners
(which consent shall not be unreasonably withheld), grant any material waiver of
performance under any such contract to or in favor of such Related Person or
Partner Associate, unless such waiver is in the best interests of the
Partnership. Without limiting any other right of such other Partners set forth
herein, upon any failure by the Managing Partner to comply with the provisions
of the foregoing sentence, any of the other
-47-
<PAGE>
Partners, other than the Partner as to which the Related Person is a Related
Person or such Partner Associate is a Partner Associate, may, upon notice to the
Managing Partner, pursue in the name of the Partnership such remedies as may be
available against any such Related Person or Partner Associate with respect to
any such contract; provided, that such other Partners (jointly and severally, if
--------
there is more than one), indemnify the Managing Partner and the Partner ship
for any losses or damages (including attorneys' fees and disbursements) accruing
to the Partnership as a result of any judgment, decision, award or settlement
adverse to the Partnership or such other Partner in any action or proceeding
commenced in connection with the pursuit of such remedies.
(b) The Partnership shall not take any action, including entering into
or amending any affiliation agree ment, which would trigger a "most favored
nations" provision in any Related Affiliation Agreement unless either (i) such
Partner Associate has effectively waived in writing the benefit of such "most
favored nations" provision in connection with the action proposed to be taken by
the Partnership or (ii) each Disinterested Partner shall have approved such
agreement.
(c) From and after the time that under any Related Affiliation
Agreement a renewal rate is set pursuant to a formula based upon market rates
charged to other pro-
-48-
<PAGE>
gramming networks or cable operators, the Managing Partner will consult with
each Disinterested Partner, or if there are none, each Partner that is not a
party to, and none of whose Partner Associates is a party to, such Related
Affiliation Agreement prior to agreeing to or amending the rates charged by or
other amounts payable to the Partnership under any affiliation agreement, other
than any affiliation agreement with any Partner Associate, that is or then would
affect the renewal of such affiliation agreement, and such Disinterested
Partner(s) or, if none, such other Partner(s) (which may, in each case, include
the Managing Partner), acting by majority of the Sharing Percentages owned by
all such Disinterested Partners or other Partners, shall have the right to
approve (which approval must be in a writing delivered prior to the entering
into or amendment of such agreement) the rates to be charged to, or other
amounts to be paid by, such affiliate to the Partnership, which approval shall
not be unreasonably withheld.
(d) Notwithstanding any contrary provision in Section 4.3, no
provision in any affiliation agreement between the Partnership and any Partner
Associate may be amended or waived without the prior written consent of the
Disinterested Partner(s) (which may include the Managing Partner), acting by
majority in the Sharing Percentages owned by all Disinterested Partners, which
consent shall not be unreasonably withheld.
-49-
<PAGE>
(e) Without the prior written consent of each Partner, which shall not
unreasonably be withheld, the Partnership shall not file any notice, exercise
any election or take any other action which would directly (i) affect the per-
subscriber rate or any advertising make-up or similar compensation or
reimbursement amount to be paid to the Partnership by the applicable Partner
Associate under any Related Affiliation Agreement; (ii) entitle any Partner
Associate to exercise any right of termination as to any network subject to such
Related Affiliation Agreement or (iii) entitle any Partner Associate to more
than two minutes per hour of local advertising insertions in connection with any
major event, or any local advertising at any other time; or (iv) in the Managing
Partner's reasonable judgment, be reasonably likely, within a reasonable period
of time, to entitle any such Partner Associate to a payment from the Partnership
as a result of the distribution of the Partner ship's programming in the same
market area in which such Partner Associate operates, directly or indirectly,
through parties other than such Partner Associate; provided, that no such
--------
consent shall be required (a) from a Forfeited Partner in respect of any of the
matters described in clauses (i) through (iv) above or (b) from the Partner or
Partners whose Partner Associate is the other party to the Related Affiliation
Agreement in question in respect of the matters described in clause (iv) above
and provided, further, that
-------- -------
-50-
<PAGE>
in the event any Partner fails to give its consent to any matter contemplated in
clause (iv) above, the Partnership may nevertheless give the notice, exercise
the election or take the action proposed to be given, exercised or taken by the
Partnership hereunder if the Partnership shall have received a written opinion
of nationally recognized outside counsel that the failure to give such notice or
exercise such election or take such action could result in a significant risk of
liability or adverse governmental action.
4.10 Approved Agreements. Notwithstanding any provision of this
-------------------
Agreement to the contrary, no action by the Partners' Committee or any Partner
shall be required in order to authorize the Partnership to enter into and
perform any of the Approved Agreements or to renew any Approved Agreement
pursuant to an automatic renewal provision of such Approved Agreement or on
terms no less favorable to the Partnership than those prevailing prior to such
renewal. Each Approved Agreement shall, for purposes of this Agree ment, be
deemed to be on an Arm's-length basis.
4.11 Unanimous Actions by Partners. (a) The Partners' Committee
-----------------------------
or the Managing Partner may make a recommendation, but shall have no power,
without the prior written consent of all Partners (other than a Forfeited
Partner):
-51-
<PAGE>
(i) to amend this Agreement;
(ii) to admit any Person as a Partner in the Partnership except
as a result of a Transfer permitted by this Agreement;
(iii) to merge or consolidate the Partnership with any other
Person, other than in connection with an Initial Public Offering;
(iv) to lend or advance funds to any Partner or any Related
Person of a Partner other than pursuant to the Approved Agreements;
(v) to borrow funds except to the extent specifically
identified in the then-applicable Budget or Business Plan other than in the
form of a Partner's Loan;
(vi) except for the entering into of Approved Agreements, to
enter into or amend any agreement or arrangement or consummate any
transaction with a Partner or any Related Person of a Partner or any
agreement or arrangement with a third party that is related to an agreement
or arrangement between such third party and a Partner or any Related Person
of a Partner;
(vii) to dissolve and wind up the Partnership, other than in
connection with an Initial Public Offering except as otherwise provided in
Sections 8.1 and 8.2;
(viii) to Transfer all or substantially all of the assets of
the Partnership, other than in connection with an Initial Public Offering;
(ix) to acquire, directly or indirectly, any sub stantial
interest or participation in any other Person;
(x) to make any capital call other than in accordance with an
approved Budget;
(xi) to enter into, develop or acquire any new programming
service except to the extent specifically identified in the then-applicable
Budget or Business Plan; or
(xii) to effect a substantial change in the general theme of
the programming of the Partnership so that it
-52-
<PAGE>
does not consist predominantly of national sports programming.
If the Partnership is presented with the opportunity to acquire an
interest in a National Sports Service under Section 8.5 of the Formation
Agreement, no Partner that is the party making such Offer or an Affiliate
thereof may exercise its rights under this Section 4.11 or 4.3 to block such
transaction.
(b) In addition to the approvals required under Section 4.11(a), the
prior written approval of any Forfeited Partner shall be required before any of
the actions referred to in Section 4.11(a)(iv), (v) or (vi) (unless in any such
case the actions in question are on an Arm's-length basis), Section 4.11(a)(vii)
or (viii), and before this Agreement may be amended in any respect that could
reasonably be expected to adversely affect such Forfeited Partner.
4.12 Removal of Managing Partner. If (a) any Restricted Person
---------------------------
shall Control Fox or (b) Fox and Twentieth Holdings Corporation shall directly
or indirectly hold less than a Minimum Interest in Fox/Liberty Partner, the
Managing Partner may be removed as Managing Partner at the request of any other
Partner (other than a Defaulting Partner) by written notice by the requesting
Partner to the Managing Partner within 60 days of such event.
Upon the removal of the Managing Partner, a new Managing Partner shall
be appointed from among the Partners
-53-
<PAGE>
by the unanimous vote of the Partners excluding any Partner that is a Forfeited
Partner at the time of such decision. Until a successor Managing Partner has
been appointed, the Partnership shall be managed by the Partners' Committee in
accordance with Section 4.2.
The removal of the Managing Partner shall not, of itself, affect the
Managing Partner's Interest or Sharing Percentage in the Partnership or the
right of its representatives to vote (except as provided in the preceding
paragraph) on the Partners' Committee or its rights under Section 4.11.
ARTICLE V
---------
BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records.
-----------------
(a) At all times during the Term, the Managing Partner, or in the
event there is no Managing Partner the Partners' Committee, shall keep or cause
to be kept full and complete books of account and business records in which
shall be entered fully and accurately each transaction of the Partnership.
(b) All such books of account and business records shall at all times
be maintained at the principal office of the Partnership or such other place the
Partners' Committee may determine. Each Partner or its duly authorized
representatives shall have the right, upon
-54-
<PAGE>
reasonable notice, at its own expense, to examine, inspect and copy, during
normal business hours and for any lawful purpose related to the affairs of the
Partnership or the investment in the Partnership by such Partner, any of the
books of account, business records, properties and opera tions of the
Partnership. Such examination, inspection and copying may be conducted by the
Partner's employees, its independent certified public accountants, or its other
agents. Any information obtained by any Partner during such an inspection shall
be treated as confidential to the extent required by Section 10.10 hereof. The
Partnership's books of account and business records shall be preserved for a
period of at least five years or such longer period as is required by law.
(c) The Partnership's books of account shall be kept on an accrual
basis in accordance with GAAP. The fiscal year (the "Fiscal Year") of the
Partnership shall end on December 31, or on such other date as shall be
determined by the Partners' Committee.
5.2 Financial Reports. The Managing Partner, or in the event there
-----------------
is no Managing Partner the Partners' Committee, shall deliver to each Partner,
no later than 30 days after the end of each calendar month, a statement of
income (loss), balance sheet, statement of capital expendi tures and subscriber
data for the Partnership for such month prepared, in the case of financial
information, in accor-
-55-
<PAGE>
dance with GAAP. The Managing Partner, or in the event
there is no Managing Partner the Partners' Committee, shall deliver to each
Partner, no later than 45 days after the close of each of the first three
quarters of the Partner ship's Fiscal Year, and 60 days after the end of each
such Fiscal Year, a financial report of the business and opera tions of the
Partnership prepared in accordance with GAAP (and, if required by any Partner
for purposes of reporting under the Securities Exchange Act of 1934, in
accordance with Regulation S-X or any successor regulation), relating to such
period, which report shall include a balance sheet as of the end of such period,
a statement of income (loss) and partners' capital (deficiency) and cash flows
(including sources and uses of funds) for the period then ended, and in each
case a comparison of the period then ended with the corresponding period in the
Fiscal Year immediately preced ing such period, which, in the case of the
report furnished after the close of the Fiscal Year, shall be audited by the
Partnership's independent certified public accountants. The monthly and
quarterly financial statements shall be accompanied by an analysis, in
reasonable detail, of the variance between the Partnership's operating results
and the corresponding amounts in the then-current Budget. The monthly and
quarterly financial reports may in each case be subject to normal year-end
adjustments. In addition to the foregoing financial statements, the financial
report
-56-
<PAGE>
furnished after the close of each Fiscal Year shall also include a statement of
cash flows, and allocations to the Partners of the Partnership's taxable income,
gains, losses, deductions and credits. The financial report required to be
furnished after the close of the Fiscal Year may be deliv ered in preliminary
form, without footnotes; provided, that the final form of the required financial
--------
statements, audited by the Partnership's independent certified public accoun
tants, must be delivered within 75 days after such year-end. Additionally, the
Partnership shall provide an estimate of annual net income (loss) to each
Partner no later than 21 days after the close of each Fiscal Year and shall,
within 10 days after the end of each month provide any other available financial
information which any Partner reasonably requests. The Partnership will
initially engage Arthur Andersen LLP as its independent certified public accoun
tants. The Partnership shall bear the cost of each annual audit and, except as
otherwise provided in Section 4.6, the cost of any other services furnished to
the Partnership by its independent certified public accountants as provided
herein.
5.3 Tax Returns and Information.
---------------------------
(a) Until further action by the Partners' Committee, the Managing
Partner is designated as Tax Matters Partner under (S)6231(a)(7) of the Code.
The Tax Matters Partner will take no action which is reasonably expected to
-57-
<PAGE>
have a material adverse effect on one or more of the Part ners unless such
action is approved by each such Partner. The Tax Matters Partner shall have the
rights and obligations set forth under the Code and regulations thereunder;
provided, that in no event shall the Tax Matters Partner extend the statute of
- --------
limitations with respect to any Partner pursuant to Section 6229(b) of the Code
without the prior written consent of such Partner or litigate any adjustment to
any Partnership tax item in any forum other than the United States Tax Court
without the prior written approval of all Partners. The Tax Matters Partner
will be responsible for notifying all Partners of ongoing proceedings, both
administrative and judicial, and will represent the Partnership throughout any
such proceeding. The Partners will furnish the Tax Matters Partner with such
information as it may reasonably request to provide the Internal Revenue Service
with sufficient information to allow proper notice to the Partners. If an
administrative proceeding with respect to a partnership item under the Code has
begun, and the Tax Matters Partner so requests, each Partner will give notice to
the Tax Matters Partner of its treatment of any partnership item on its federal
income tax return, if any, which is inconsistent with the treatment of that item
on the partnership return for the Partnership. Any settlement agreement with the
Internal Revenue Service will be binding upon the Partners only as provided in
the
-58-
<PAGE>
Code. The Tax Matters Partner will not bind any other Partner to any extension
of the statute of limitations or to a settlement agreement without such
Partner's written consent. Any Partner who enters into a settlement agreement
with respect to any partnership item will give notice to the other Partners of
such settlement agreement and its terms within 30 days after the date of
settlement. If the Tax Matters Partner does not file a petition for
readjustment of the partnership items in the Tax Court, federal District Court
or Claims Court within the 90-day period following a notice of a final
partnership administrative adjustment, any notice partner or 5-percent group (as
such terms are defined in the Code) may institute such action within the
following 60 days. The Tax Matters Partner will timely give notice to the other
Partners in writing of its decision. Any notice partner or 5-percent group will
give notice to the other Partners of its filing of any petition for
readjustment.
(b) The Tax Matters Partner shall cause income and other required
Federal, state and local tax returns for the Partnership to be prepared and sent
(together with related work papers) to each Partner for review at least 15
business days prior to filing, and will cause such returns to be timely filed
with the appropriate authorities. The Tax Matters Partner shall make or maintain
in effect an election under Section 754 of the Code to adjust the basis of the
Partnership Property under Sections 734 and 743 of
-59-
<PAGE>
the Code for taxable years after the Effective Date if it deems such election to
be in the best interests of the Partnership or of any Partner. Subject to
Section 4.3, the Tax Matters Partner shall make such other elections as it shall
deem to be in the best interests of the Partnership and the Partners. The cost
of preparation of such returns by outside preparers, if any, shall be borne by
the Partnership.
(c) The Tax Matters Partner shall cause to be provided to each
Partner no later than July 1 of each year information concerning the
Partnership's projected taxable income or loss and each class of income, gain,
loss, deduc tion or credit which is relevant to reporting a Partner's share of
the Partnership income, gain, loss, deduction or credit for purposes of Federal
or state income tax. Infor mation required for the preparation of a Partner's
income tax returns shall be furnished to the Partners as soon as possible after
the close of the Partnership's Fiscal Year.
(d) For Federal income tax purposes, all gain, loss, depreciation or
amortization with respect to property which is reflected in the Capital Accounts
of the Partners at a basis different from the tax basis of such property shall
be allocated pursuant to the principles of Section 704(c) of the Code and the
Treasury Regulations promulgated thereunder. All other items of income or
deduction shall be allocated for Federal income tax purposes in the same way
-60-
<PAGE>
such items are allocated to the Capital Accounts of the Partners. All tax
credits shall be allocated to the Part ners based upon the Sharing Percentage
of the Partners as of the time the expenditure giving rise to the credit was
incurred.
(e) The Tax Matters Partner shall from time to time upon request of
any other Partner cause the Partner ship's attorneys and accountants to confer
with attorneys and accountants for such other Partner on any matters relating to
any Partnership tax return or tax election.
ARTICLE VI
----------
PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.
--------------------
(a) Except for Transfers made pursuant to Section 6.1(b), 6.5, 6.6 or
8.3, without the prior written consent of all of the Partners (other than a
Forfeited Partner), no Partner shall have the right to Transfer all or any part
of its Interest, or to suffer to occur a Change in Control of such Partner or an
Indirect Transfer as to such Partner, and any such Transfer shall be void and of
no force or effect.
(b) Other than in connection with Transfers pursuant to Section 6.5,
6.6 and 8.3, no Partner (a "Selling Partner") shall have the right to Transfer
all or any part of its Interest or to suffer to occur a Change in Control of
-61-
<PAGE>
such Partner or an Indirect Transfer as to such Partner, without first offering
to the remaining Partners (other than a Forfeited Partner) (each an "Offeree"
and collectively the "Offerees") a right of first refusal to purchase the
portion of such Selling Partner's Interest that is proposed to be so Transferred
or, in the case of a Change in Control or an Indirect Transfer, all of such
Partner's Interest (the "Offered Interest"), all on the terms hereinafter set
forth. The Offered Interest must be offered by means of a notice (an "Offer
Notice") given by the Selling Partner to each Offeree at a price and upon terms
no less favorable to the Offerees than those which the Selling Partner is
willing to accept from a bona fide third party purchaser pursuant to an offer
---- ----
from such third party purchaser (or, in the case of a Change in Control or an
Indirect Transfer, the value of the Offered Interest, as determined by
multiplying the Fair Market Value of the Partnership by the Sharing Percentage
represented by the Offered Interest) (a "Bona Fide Offer"); provided, that
--------
regardless of the terms of the Bona Fide Offer, the Offered Interest shall be
offered to the Offerees on terms that permit the Offerees 90 days within which
to complete the purchase. The Offer Notice shall state the identity of, and the
price and other terms offered by, such third party for the purchase of the
Offered Interest (or, in the case of a Change in Control or an Indirect
Transfer, the identity of the Person that will acquire Control of the
-62-
<PAGE>
Partner or the Interest as a result of the proposed trans action). In any case
where a Bona Fide Offer has been made in respect of an Offered Interest in
conjunction with other property, the price in respect of the Offered Interest
shall be the Allocated Interest Offer Price. Within 15 days after receipt of
such Offer Notice, each Offeree shall accept, in whole or in part, or reject
such offer for the Offered Interest by delivering a notice to each of the other
Partners and, if any Partner rejects such offer, it shall state in writing
whether it consents to the proposed Transfer under Section 6.1(a). If pursuant
to this Section 6.1(b) the Partners have agreed to purchase, in the aggregate,
the entire Offered Interest, then the entire Offered Interest shall be purchased
by the Partners that accepted all or a portion of the Offered Interest in
accordance with the terms offered by the Selling Partner and no consent to such
Transfer shall be required under Section 6.1(a); provided that if Rainbow
--------
Partner is purchasing any or all of the Offered Interest, the purchase price
shall be payable at the option of Rainbow Partner either (i) by wire transfer of
funds or by certified or cashier's check drawn to the order of the Selling
Partner or (ii) in the form of a promissory note of Rainbow Partner secured,
pursuant to a pledge or collateral assignment agreement in form reasonably
acceptable to the Selling Partner, by the Interest purchased, maturing on the
third anniversary of the
-63-
<PAGE>
date of such Transfer and bearing interest, payable semi-annually, at a rate per
annum equal to the Prime Rate plus one-half of one percent (1/2%). If all of
the Offered Interest has not been accepted and no Partner has delivered a
writing in which it refused to consent to the proposed Transfer, then the
Selling Partner may, within 90 days after the Offer Notice is given, Transfer
the entire Offered Interest but not a portion thereof to such third party at a
price not less than the price at which, and on other terms no more favorable to
the third party than those contained in the Bona Fide Offer (or, in the case of
a Change in Control or an Indirect Transfer, suffer the completion of such
Change in Control or Indirect Transfer). If the Offered Interest is not so
disposed of within such 90-day period, then the Selling Partner shall, before
Transferring all or any portion of its Interest (or suffering the completion of
a subsequent Change in Control or Indirect Transfer), again be obligated to
offer the right of first refusal contained in this Section 6.1(b) to the other
Partners. The sale of an Interest pursuant to a Bona Fide Offer in accordance
with this Section 6.1(b) shall not be effective without the prior written
consent (which shall not be unreasonably withheld) of the Partners (other than a
Forfeited Partner) and any such purported sale shall be void and of no force or
effect.
(c) After any Transfer of an Interest permitted hereby, the
Transferee shall be admitted as a Partner, with
-64-
<PAGE>
appropriate amendments being made to this Agreement, the Transferred Interest
shall continue to be subject to all the provisions of this Agreement including,
without limitation, the provisions of this Article VI.
(d) Except as otherwise provided in Section 6.5, a Transfer will be
deemed to occur for the purpose of this Article VI in respect of the Interest of
a Partner in the event of a Change in Control of such Partner or an Indirect
Transfer with respect to such Partner. In the event of any such deemed Transfer
of an Interest, (i) if such Transfer is made in compliance with the first
sentence of Sec tion 6.1(a), the Interest deemed Transferred shall continue to
be subject to all the provisions of this Agreement and, upon request by any
other Partner, the deemed Transferring Partner shall cause each deemed
Transferee to assume and agree to perform in writing all of such deemed
Transferring Partner's duties and obligations as a Partner under this Agreement,
including, without limitation, the obligations imposed by this Article VI; and
(ii) if such deemed Transfer is not made in compliance with Section 6.1(a), then
the other Partners shall be entitled to make the elections and exercise the
remedies available to Non-Defaulting Partners under Section 7.2 of this
Agreement against the deemed Transferring Partner and its deemed Transferee.
-65-
<PAGE>
6.2 Additional Provisions Relating to Transfer.
------------------------------------------
(a) In the case of any Transfer under Sec tion 6.1, 6.5, 6.6 or 8.3:
(i) Except as provided therein, the Transfer of an Interest shall not
affect the Approved Agreements; provided, however, that if the Transferring
-------- -------
Partner is the Managing Partner, then, with respect to any agreements
between the Partnership and the Transferring Managing Partner or any
Related Person with respect to the Transferring Managing Partner for the
provision of management and other services of the type described in Annex D
to this Agreement (whether or not such agree ments are Approved
Agreements), the other Partners (acting by a majority of such Partners'
Sharing Percentages) shall have the option, by giving 30 days' notice to
the Transferring Managing Partner or such Related Person, as the case may
be, to (A) elect to terminate any or all of such agreements or (B) elect to
cause any or all of such agreements to be assigned to the Transferee or its
Designee or, if there is more than one Transferee, to any Person jointly
designated by such Transferees. Upon the written request of the non-
Transferring Partners, the Managing Partner and its Affiliates shall
continue to provide to the Partnership for a period of 90 days following
the date of Transfer any management and other services of the type
described in Annex D that were being provided by them immediately prior to
the Transfer, and the Managing Partner and its Affiliates shall continue to
be compensated for such services and reimbursed for their costs in
accordance with the provisions of Sections 4.1 and 4.6 hereof, or in
accordance with the provisions of any applicable agreement, as the case may
be. Upon any such termina tion, the Transferring Managing Partner shall
cooperate and shall cause its Affiliates to cooperate with the Transferee
or Transferees, as the case may be, in order to effect an orderly
transition of management services; and
(ii) The Transferee or Transferees of an Interest, as the case may be,
shall be required to pay any and all filing and recording fees, fees of
counsel and accountants and other costs and expenses reasonably incurred by
the Partnership as a result of such Transfer.
-66-
<PAGE>
(b) In connection with the Transfer of any Interest pursuant to Section
6.1, 6.6 or 8.3, the Transferor and its Affiliates will be obligated to sell to
the Transferee, and the Transferee will be obligated to buy from the Transferor
and its Affiliates, all (or in the case of a partial Transfer, an appropriate
portion of) evidences of indebtedness (including Partner's Loans) of the
Partnership held directly or indirectly by the Transferor and its Affiliates for
an amount, payable in cash, equal to the outstanding principal amount thereof at
the time of Transfer plus interest thereon then accrued and unpaid; provided,
--------
that in connection with a Transfer pursuant to a Bona Fide Offer the terms of
the Bona Fide Offer will govern the disposition of such evidences of
indebtedness.
(c) The Transferee of an Interest hereunder shall assume in writing in
form and substance reasonably satis factory to the non-Transferring Partners
the obligations of the Transferring Partner under this Agreement arising from
and after the effective date of the Transfer in respect of the Transferred
Interest and the Transferring Partner shall be released therefrom except for
those obligations or liabilities of the Transferring Partner based on events
occurring, arising or maturing prior to the date of Transfer and except those
obligations arising out of a breach of this Agreement by the Transferring
Partner or pursuant to Section 4.5, 4.7 or 9.3.
-67-
<PAGE>
(d) If required by any non-Transferring Partner, the Transferee shall
deliver to the Partnership an opinion, satisfactory in form and substance to the
non-Transferring Partners, of counsel reasonably satisfactory to such non-
Transferring Partners to the effect that the Transfer of the Interest in
question is in compliance with applicable state and federal securities laws.
(e) No Transfer shall be recognized for any pur pose as between a
Transferring Partner and the Partnership or as between a Transferring Partner
and the other Partners until the Transferee shall have executed written
instruments satisfactory to the Partners' Committee to become a party to this
Agreement and assume the rights and obligations of the Transferring Partner
hereunder.
(f) Upon completion of any Transfer pursuant to Section 6.1, 6.6 or 8.3 or
a change of ownership in compliance with Section 6.5(a), the Transferee of an
Interest (if not already a Partner) shall be admitted as a Partner without any
further action upon compliance with the provisions of this Section 6.2.
6.3 Effect of Attempted Transfer; Withdrawals and Admissions
--------------------------------------------- ----------
Generally. An attempted Transfer of any Interest or any portion thereof in
- ---------
violation of any provision of this Agreement shall be void. No Partner shall
withdraw from the Partnership, except by a Transfer of an Interest permitted
-68-
<PAGE>
by this Agreement or with the written consent of the other Partners.
6.4 Tax Allocation Adjustments; Distributions After Transfer. In
----------------------------------------- --------------
the event of a Transfer of any Interest, regardless of whether the Transferee
becomes a substitute Partner, all items of income, gain, loss, deduction and
credit for the fiscal period in which the Transfer occurs shall be allocated for
Federal income tax purposes between the Transferor and the Transferee on the
basis of the owner ship of the Interest at the time the particular item is
taken into account by the Partnership for Federal income tax purposes, except to
the extent otherwise required by Sec tion 706(d) of the Code. Distributions
made on or after the effective date of Transfer shall be made to the Transferee,
regardless of when such distributions accrued on the books of the Partnership.
6.5 Certain Affiliate Transferee Transactions Not Deemed Transfers.
--------------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, a transaction
shall not be deemed to constitute a direct or indirect Transfer of an Interest,
a Change in Control or an Indirect Transfer, if the transferee and the
transferor are Affiliate Transferees. A transferor and a transferee shall be
deemed to be "Affiliate Transferees" if (i) the same Person directly or
indirectly owns more than a Minimum Interest in both the transferor and the
transferee immediately prior to the transaction in
-69-
<PAGE>
question or (ii) Fox, Twentieth Holdings Corporation or Liberty collectively own
all of the direct and indirect interests in the transferor and the transferee
immediately prior to the transaction in question. Fox/Liberty Partner hereby
agrees to consult in good faith with Rainbow Partner prior to engaging in any
transaction which has the effect of reallocating between Fox and Liberty their
direct or indirect ownership interests in the Partnership.
(b) Notwithstanding anything in this Agreement to the contrary, none of the
following transactions shall be deemed to constitute a direct or indirect
Transfer of an Interest, a Change in Control or an Indirect Transfer: (i) a
change, shift or transfer of Control that shall be deemed not to be a Change in
Control pursuant to the second sentence of the definition thereof; or (ii) the
Transfer directly or indirectly of all or any portion of the equity interests
in, or assets of, Rainbow Partner to the stockholders of RMH as a class (it
being understood that such transfer may include the transfer to different
classes of stockholders of RMH of different classes of equity interests
reflecting the same relative rights and privileges as the different classes of
stock of RMH) or to any group of public equity holders (including, without
limitation, a transfer by means of a registered public offering).
6.6 IPO-Call Procedure. (a) The procedure set forth in this Section
------------------
6.6 (the "IPO-Call Procedure") may be
-70-
<PAGE>
initiated by Rainbow Partner during any IPO-Call Notice Window. Such IPO-Call
Procedure shall be initiated by written notice (the "IPO-Call Notice") from
Rainbow Partner to Fox/Liberty Partner in accordance herewith. Except as
provided below, upon the giving of the IPO-Call Notice, Fox/Liberty Partner
shall be obligated to purchase, and Rainbow Partner shall be obligated to sell,
all (but not less than all) of the Interests of Rainbow Partner at the Call
Price (as defined below) in accordance with the terms hereof.
(b) For 45 days after receipt of an IPO-Call Notice, Rainbow Partner, on
the one hand, and Fox/Liberty Partner, on the other hand, shall negotiate in
good faith to determine the Fair Market Value of all of the Interests. If such
Partners are not able to agree on such Fair Market Value, prior to such 45th
day, each shall select an Appraiser. Within 15 days after the selection of the
Appraisers, the Appraisers so selected shall jointly select a third Appraiser.
Within 30 days after its selection, the third Appraiser shall determine the
value of the Interests held by Rainbow Partner by determining the Fair Market
Value of all of the Interests and multiplying such Fair Market Value by the
Sharing Percentage of Rainbow Partner (the "Call Price"). Within 30 days after
determination of the Call Price, Fox/Liberty Partner shall give written notice
to Rainbow Partner of its election either (i) to purchase the
-71-
<PAGE>
Interests of Rainbow Partner for, at the election of Fox/Liberty Partner, any of
(A) a number of Marketable Securities of TCI, The News Corporation Limited or a
person that holds all of the Fox and Liberty interests in sports programming (or
a combination thereof) calculated by dividing the Call Price by the Current
Market Price of such Marketable Securities, or (B) a promissory note of
Fox/Liberty Partner secured, pursuant to a pledge or collateral assignment
agreement in form reasonably acceptable to Rainbow Partner, by the Interest
purchased, maturing on the third anniversary of the IPO-Call Closing Date and
bearing interest, payable semi-annually, at a rate per annum equal to the Prime
Rate plus one-half of one percent (1/2%) in aggregate principal amount equal to
the Call Price or (ii) to consummate an Initial Public Offering of the
Partnership or the Corporation within 180 days of the IPO Call Notice. If a
purchase of Interests is to be effected pursuant to this Section, at Fox/Liberty
Partner's request, the parties shall negotiate in good faith to structure the
transaction as a tax-free transaction, provided, that (i) Rainbow Partner will
--------
not be required to accept, in exchange for its Interests, securities which are
not Marketable Securities, (ii) structuring the transaction in such a manner
shall not cause any adverse consequences to Fox/Liberty Partner or the issuer of
such Marketable Securities and (iii) Fox/Liberty Partner shall not be
-72-
<PAGE>
required to change its election with respect to the Marketable Securities being
issued. Securities issued in such transaction may be voting, nonvoting or
convertible into voting securities at the election of the issuer.
(c) Fox/Liberty Partner may elect to have its purchase effected by a
Designee and, if Rainbow Partner so elects, Fox/Liberty Partner shall guarantee
the performance of its Designee. The business affairs of the Partnership shall
continue to be conducted in the ordinary course as provided in this Agreement
during the pendency of and unaffected by the IPO-Call Procedure.
(d) In the event that an Initial Public Offering of the Partnership or the
Corporation is not consummated within 180 days after the date of the IPO-Call
Notice, the closing of any purchase and sale of an Interest under this Section
6.6 shall be held at a mutually acceptable place on a mutually acceptable date
(the "IPO-Call Closing Date") not more than 180 days after the date of
determination of the Call Price; provided, that if any governmental approvals
--------
are required to consummate such purchase and sale, the IPO-Call Closing Date
shall be the date on which the last such approval is obtained but in any event
not more than 240 days after the determination of the Call Price. At such
closing, Rainbow Partner shall assign to Fox/Liberty Partner the Interests to be
sold, free and clear of all liens, claims
-73-
<PAGE>
and encumbrances, and shall execute such documents as may be necessary to
effectuate the sale.
(e) In order to effectuate an Initial Public Offering, notwithstanding
Section 4.9, Fox/Liberty Partner shall be permitted to effect a reorganization
or restructuring of the Partnership into the Corporation, without any consent of
any other Partner.
ARTICLE VII
------------
EVENTS OF DEFAULT
7.1 Events of Default.
-----------------
(a) An "Event of Default" shall be considered to have occurred with
respect to a Partner (the "Defaulting Partner") if:
(i) Such Partner Transfers all or any part of its Interest, or suffers
to occur a Change in Control of such Partner or an Indirect Transfer as to
such Partner, except as permitted in this Agreement; provided, that no
--------
Event of Default shall be considered to have occurred for 30 days following
the involuntary encumbrance of all or any part of such Interest if during
such 30-day period such Partner acts diligently to, and does, remove any
such encumbrance, including, but not limited to posting a bond to prevent
foreclosure; or
(ii) Such Partner or any Affiliate of such Partner fails to perform or
violates any other material term or condition of this Agreement (including,
without limitation, a failure to pay any amounts due under Section 6.1 or
6.2 but excluding any failure to meet any capital call) or a material term
or condition of any Approved Agreement (or Section 8.2, 8.3, 8.4 or 8.5 of
the Formation Agreement) and such failure or violation continues for 45
days after such Partner has been given notice thereof by any other Partner;
provided, however, that (other than in the case of a breach of Section 8.2,
-------- -------
8.3, 8.4 or 8.5 of the Formation
-74-
<PAGE>
Agreement) if the failure or violation is not a failure to pay money and is
of such a nature that it cannot reasonably be cured within such 45-day
period, but if it is curable and such Partner in good faith begins efforts
to cure it within such 45-day period and con tinues diligently to do so,
it shall have a reasonable additional period thereafter to effect the cure.
7.2 Remedies of Non-Defaulting Partners.
-----------------------------------
Upon the occurrence and during the continuance of an Event of
Default, the remedies that may be elected by the Non-Defaulting Partners
are:
(i) to seek to enjoin such default or to obtain specific performance
of a Defaulting Partner's obliga tions or sue for Damages (as hereinafter
defined) in respect of such Event of Default; or
(ii) to dissolve the Partnership as provided in Section 8.1(e), in which
event the affairs of the Partnership shall be wound up as provided in Sec
tion 8.2.
The election of a remedy specified in clause (i) above may be made by any
Partner that is not a Defaulting Partner (a "Non-Defaulting Partner") or a
Forfeited Partner, and the remedy specified in clause (ii) above may be made by
unanimous vote of the Non-Defaulting Partners that are not Forfeited Partners,
by giving notice to the Defaulting Partner within 60 days (one year in the case
of an action to recover Damages) after obtaining actual knowledge of the
occurrence of such Event of Default; provided, that if an election pursuant to
--------
clause (i) above is made to seek an injunction, specific performance or other
equitable relief and a final judgment in such action is rendered denying such
equitable remedy, then, by notice given within ten days
-75-
<PAGE>
thereafter the Non-Defaulting Partners may elect to pursue any or all of the
remedies specified in clause (i) or (ii) of this Section 7.2 unless, prior to
the giving of such notice, the Defaulting Partner has cured the Event of Default
in question in full and no other Event of Default with respect to such Partner
has occurred and is continuing or the final judgment denying equitable relief
specifically held that there was no Event of Default.
The foregoing remedies shall not be deemed mutually exclusive, and
selection or resort to any thereof shall not preclude selection or resort to the
others.
The resort to any remedy pursuant to clauses (i) or (ii) of this Section
7.2 shall not for any purpose be deemed to be a waiver of any other remedy
available here under or under applicable law; provided, that the failure to
--------
elect a remedy within the time period provided shall be conclusively presumed to
be a waiver of such Event of Default.
Unless any Event of Default has been waived as set forth in the immediately
preceding paragraph, the Defaulting Partner shall be liable to the Partnership
and to the Non-Defaulting Partners for any and all damages, losses and expenses
(including attorneys' fees and disbursements) (collectively, "Damages") suffered
or incurred by the Partnership or the Non-Defaulting Partners as a result of
such Event of Default; provided, that neither the
--------
-76-
<PAGE>
Partnership nor the Non-Defaulting Partners shall have or assert any claim
against the Defaulting Partner for lost profits, exemplary, punitive, indirect,
special or conse quential Damages suffered or incurred by the Partnership or
the Non-Defaulting Partners as a result of an Event of Default.
ARTICLE VIII
-------------
DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination. The Partnership shall be dissolved and
---------------------
its affairs wound up pursuant to Section 8.2 upon the first to occur of any of
the following events (each an "Event of Termination"):
(a) the expiration of the Term (provided, that the Partners may
--------
at any time prior to such expiration amend this Agreement to extend
the Term);
(b) the execution by all of the Partners of a unanimous written
consent to dissolution;
(c) the sale or other disposition of substantially all of the
assets of the Partnership;
(d) the Bankruptcy of a Partner, unless such Partner's Interest
is purchased pursuant to Section 8.3 or the other Partners consent to
a continuation of the Partnership with the successor of such Bankrupt
Partner admitted as a new Partner; or
(e) the election of the Non-Defaulting Partners pursuant to
Section 7.2(ii) to terminate the Partnership upon the occurrence and
during the continuance of an Event of Default.
-77-
<PAGE>
8.2 Winding-Up. Upon the occurrence of an Event of Termination, if
----------
the Partnership is not continued as provided herein, the Partnership's affairs
shall be wound up as follows:
(a) The Managing Partner, or in the event there is no Managing
Partner the Partners' Committee, shall cause to be prepared a statement of
the assets and liabilities of the Partnership as of the date of
dissolution.
(b) The assets and properties of the Partnership shall be liquidated
as promptly as possible, and receivables collected, all in an orderly and
business like manner so as not to involve undue sacrifice. Notwithstanding
the foregoing, the Partners' Committee may determine not to sell, or
authorize the sale of, all or any portion of the assets and properties of
the Partnership, in which event such assets and properties shall be
distributed in kind pursuant to Section 8.2(c).
(c) The proceeds of liquidation under Sec tion 8.2(b) and all other
assets and properties of the Partnership shall be applied and distributed
as follows in the following order of priority:
(i) to the payment of the debts and liabilities of the
Partnership (excluding any amounts which may be owed to any Partner or
any Affiliate of a Partner in respect of Partner's Loans, but
including all other amounts owed to any Partner or any Affiliate of a
Partner) and the expenses of liquidation;
(ii) to establish any reserves that the Managing Partner, or in
the event there is no Managing Partner the Partners' Committee, in
accordance with sound business judgment, deems reasonably necessary
for any contingent or unforeseen liabilities or obligations of the
Partnership, which reserves may be paid over by the Managing Partner
or the Partners' Committee, as applicable, to an escrow agent selected
by it to be held by such agent for the purpose of (x) distributing
such reserves in payment of the aforementioned contingencies and (y)
upon the
-78-
<PAGE>
expiration of such period as the Managing Partner or the Partners'
Committee, as applicable, may deem advisable, distributing the balance
thereof in the manner provided in this Section 8.2(c);
(iii) to pay the accrued and unpaid interest and unpaid
principal amount of Partner's Loans in the proportion that the
aggregate outstanding amount of such Partner's Loans of each Partner
and its Affiliates, including accrued and unpaid interest, bears to
the total of all such outstanding Partner's Loans, including accrued
and unpaid interest, of all the Partners and their Affiliates;
(iv) to the Partners in proportion to the positive balance of
each Partner's Capital Account; provided, that if any assets are to be
--------
distributed in kind, they will be valued at their Fair Market Value
before the distribution. This adjustment to Fair Market Value will be
reflected in an adjustment to the Partners' Capital Accounts in
accordance with the principles of Section 3.4 immediately prior to any
liquidating distribution. No Partner shall have any obligation to make
any contribution or payment in respect of a negative balance in its
Capital Account. Distributions pursuant to this paragraph may be
distributed to a trust established for the benefit of the Partners for
the purposes of liquidating the Partnership assets, collecting amounts
owed to the Partnership and paying any contingent or unforeseen
liabilities or obligations of the Partnership or of any Partner
arising out of or in connection with the Partnership. The assets of
any such trust shall be distributed to the Partners from time to time,
in the reasonable discretion of the Partners' Committee, in the same
proportions as the amount distributed to such trust by the Partnership
would otherwise have been distributed to the Partners pursuant to this
Agreement.
(d) The Partners and former Partners shall look solely to the
Partnership's assets for the return of their Capital Contributions, and if
the assets of the Partnership remaining after payment of or due provision
for all debts, lia bilities and obligations of the Partnership are
insufficient to return such Capital Contributions, the Partners and former
Partners shall have no
-79-
<PAGE>
recourse against the Partnership or any other Partner.
(e) If the value of the Partnership assets, including profits
from any sale thereof, is insufficient to pay the liabilities of the
Partnership (other than any Partner's Loans and Capital Contributions),
then such additional liabilities and reserve needs shall be funded by the
Partners in accordance with their respective Sharing Percentages without
giving effect to any reduction or increase in the Sharing Percentage of any
Partner pursuant to Section 3.2(b) resulting from one or more defaults
under Section 3.1.
(f) The Partners shall comply with all requirements of
applicable law pertaining to the winding-up of the Partnership.
(g) The Partners acknowledge that this Section 8.2 may establish
distribution priorities different from those set forth under applicable law
and agree that they intend, to the extent legally permissible, to vary
those provisions by this Agreement.
8.3 Purchase Option Upon Bankruptcy of a Partner. Upon the Bankruptcy
--------------------------------------------
of a Partner, any other Partner that is not a Defaulting Partner or Bankrupt (a
"Nonbankrupt Partner") shall have the right, but not the obligation, by notice
given to all the Partners within 45 days after such Nonbankrupt Partner obtains
actual knowledge of the occur rence of such Bankruptcy, to elect to purchase or
cause its Designee to purchase all or a portion of its pro rata share (based on
the relative Sharing Percentages of the Nonbank rupt Partners) of the Bankrupt
Partner's Interest. If any Nonbankrupt Partner elects not to purchase its pro
rata portion, the remaining Nonbankrupt Partners, if any, will have the right to
elect to purchase the portion declined.
-80-
<PAGE>
Unless the entire Interest of the Bankrupt Partner is purchased pursuant to this
Section 8.3, no portion of its Interest shall be purchased. If the Nonbankrupt
Partners purchase the entire Interest of the Bankrupt Partner, the business of
the Partnership shall be continued as a succes sor business entity without
liquidation of the Partnership's affairs. The purchase price payable for the
Bankrupt Partner's Interest pursuant to this Section 8.3 shall be 100% of the
product of the Fair Market Value of the Partner ship times such Bankrupt
Partner's Sharing Percentage. To the extent there is any disagreement among the
Partners as to the value of the Bankrupt Partner's Interest, such dispute shall
be determined by an Appraiser selected jointly by the Nonbankrupt Partners, on
the one hand, and the Bankrupt Partner, on the other hand. If the Partners are
not able to agree on an Appraiser, the Nonbankrupt Partners shall jointly select
an Appraiser and the Bankrupt Partner shall select an Appraiser and the
Appraisers so selected shall jointly select a third Appraiser, and the Appraiser
so selected shall be the Appraiser for purposes of determining the value of such
Interest; provided, that if the Bankrupt Partner shall fail to select an
--------
Appraiser, the Appraiser selected by the Nonbankrupt Partners shall be the
Appraiser for purposes of determining the value of such Interest. If more than
one eligible Partner elects to purchase a Bankrupt Partner's Interest pursuant
to this Section but any Partner
-81-
<PAGE>
fails to tender its share of the purchase price therefor at the closing, then
the tendering Partner(s) may elect to purchase the Interest that was to be
purchased by such nontendering Partner and shall have an additional 15 days in
which to tender payment for the share of the Bankrupt Part ner's Interest that
was to be purchased by the nontendering Partner(s). Any such election by the
tendering Partner(s) shall not excuse the default by the nontendering party.
ARTICLE IX
-----------
COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law. Each Partner shall comply with
------------------------------
all applicable laws, regulations, rules and orders of governmental authorities
the non-compliance with which would have a material adverse effect on the
business affairs or financial condition of the Partnership.
9.2 No Restrictive Covenants. No Partner shall enter into or become
------------------------
subject to any contract, agreement, restriction or covenant (other than an
Approved Agreement) which would impair or inhibit the Partnership's ability to
obtain financing without recourse to the Partners (collec tively, "Restrictive
Covenants"), and each Partner represents and warrants to the other Partners
that, on the Effective Date, it is not subject to any Restrictive Covenants.
-82-
<PAGE>
9.3 Indemnification of Partners; Contribution. The Partnership shall
-----------------------------------------
indemnify and hold each Partner harmless from and against any claim, demand,
loss, damage, liability or expense (including, without limitation, amounts paid
in settlement, reasonable costs of investigation and reasonable legal expenses)
incurred by or against such Part ner and arising out of or resulting from any
act or omission of the Partnership. As among the Partners, no Partner shall be
liable or bear responsibility for more than its propor tionate share (based on
its Sharing Percentage) of the liabilities and obligations of the Partnership.
For the purposes of the preceding sentence, a Partner's Sharing Percentage shall
be determined on the date the relevant liability or obligation is incurred,
without giving effect to any reduction or increase in such Partner's Sharing
Percentage pursuant to Section 3.2(b) resulting from one or more defaults under
Section 3.1. In the event that (whether before or following any dissolution of
the Partnership) any Partner shall be required to pay, discharge or otherwise
bear responsibility for any liability or obligation of the Partnership in excess
of such Partner's proportionate share thereof, each other Partner hereby agrees
to indemnify, hold harmless and reimburse (directly or through the Partnership)
such Partner against and for such other Partner's respective proportionate share
of such excess. It is the intention of the Partners that, following the
operation of this clause,
-83-
<PAGE>
each Partner will have borne exactly its proportionate share of the liability or
obligation of the Partnership at issue determined with reference to such
Partner's Sharing Percentage, determined in accordance with the third sentence
of this Section 9.3.
9.4 Notice of Change in Control and Indirect Transfer. In addition
-------------------------------------------------
to any other notification require ments under this Agreement, each Partner
agrees that promptly following the occurrence of an event which consti tutes a
Change in Control or an Indirect Transfer it will give notice to the other
Partners of the Change in Control or Indirect Transfer. In addition,
Liberty/Fox Partner agrees that it shall promptly notify each other Partner if
Fox and Twentieth Holdings Corporation no longer directly or indirectly hold a
Minimum Interest in Fox/Liberty Partner.
ARTICLE X
---------
MISCELLANEOUS
10.1 Waiver of Partition. Except as may be otherwise provided by
-------------------
law in connection with the winding-up, liquidation and dissolution of the
Partnership, each Partner hereby irrevocably waives any and all rights that it
may have to maintain an action for partition of any of the Partnership Property.
10.2 Modification; Waivers. This Agreement may be modified or
---------------------
amended only with the written consent of each
-84-
<PAGE>
Partner. Except as otherwise specifically provided herein, no Partner shall be
released from its obligations hereunder without the written consent of the other
Partners. The observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
by the party or parties entitled to enforce such term, but any such waiver shall
be effective only if in a writing signed by the party or parties against which
such waiver is to be asserted. Except as otherwise specifically provided
herein, no delay on the part of any party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver
on the part of any party hereto of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder.
10.3 Entire Agreement. This Agreement and the documents
----------------
expressly referred to herein constitute the entire agreement among the Partners
with respect to the subject matter hereof and supersede any prior agreement or
under standing between or among the Partners with respect to such subject
matter.
-85-
<PAGE>
10.4 Severability. If any provision of this Agreement, or the
------------
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement or the application of such provision to
other Persons or circumstances shall not be affected thereby; provided, that the
--------
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof held to be invalid.
10.5 Notices. All notices, requests, demands, consents and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given on the date delivered by hand, on
the date transmission by telecopy is confirmed by machine answer-back or on the
third business day after such notice is mailed by registered or certified mail,
postage prepaid, and, pending the designation by notice of another address,
addressed as follows:
If to Fox/Liberty Partner:
Fox Sports Net, LLC
1440 South Sepulveda Blvd.
Suite 218
Los Angeles, CA 90025
Attention: Tony Ball
Telecopy: (310) 445-4335
-86-
<PAGE>
With copies to:
Liberty Media Corporation
8101 E. Prentice Avenue
Suite 500
Englewood, CO 80111
Attention: President
Telecopy: (303) 721-5415
and:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telecopy: (303) 488-3245
and:
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
and:
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Senior Executive Vice President
and Group General Counsel
Telecopy: (212) 768-2029
and:
Fox Television
10201 West Pico Boulevard
Los Angeles, California 90035
Attention: Jay Itzkowitz, Esq.
Senior Vice President
Legal Affairs
Telecopy: (310) 369-2572
-87-
<PAGE>
and:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Joel Papernik, Esq.
Telecopy: (212) 697-6686
If to Rainbow Partner:
c/o Rainbow Media Holdings, Inc.
150 Crossways Park West
Woodbury, N.Y. 11797
Attention: President
With a copy to Attention: Executive Vice President
Legal and Business Affairs
cc: Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Attention: Executive Vice President and
General Counsel
10.6 Successors and Assigns. Except as otherwise specifically
----------------------
provided herein, this Agreement shall be bind ing upon and inure to the benefit
of the Partners and their legal representatives, successors and permitted
assigns.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which together shall constitute one and the same
instrument.
10.8 Headings; Cross-references. The Article and Section
--------------------------
headings in this Agreement are for convenience of reference only, and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
-88-
<PAGE>
10.9 Construction. None of the provisions of this Agreement shall be
------------
for the benefit of or enforceable by any creditors of the Partnership. No one,
including but not limited to the Partners or any creditor of the Partnership or
any of its Partners, shall have any rights under this Agreement against any
Affiliate of any Partners.
10.10 Property Rights; Confidentiality. All books, records and
--------------------------------
accounts maintained exclusively for the Partnership (including, without
limitation, marketing reports and all other data whether stored on paper or in
electronic or other form), and any contracts or agreements (including, without
limitation, agreements for the purchase, lease or license of programming)
entered into by or exclu sively on behalf of the Partnership, shall at all
times be the exclusive property of the Partnership. All property (real,
personal or mixed) purchased with Partnership funds, and all moneys held or
collected for or on behalf of the Partnership shall at all times be the
exclusive property of the Partnership. No Partner shall, during the period such
Partner is a Partner and for a period ending on the later of two (2) years after
such Partner has ceased to be a Partner, disclose any confidential or
proprietary information with respect to the Partnership or any Partner, except
(i) with the prior written consent of the other Partners; (ii) to the extent
necessary to comply with law or the valid order of a court of competent
jurisdiction, in which event the party
-89-
<PAGE>
making such disclosure shall so give notice to the other Partners as promptly as
practicable (and, if possible, prior to making such disclosure) and shall seek
confidential treatment of such information; (iii) as part of its normal
reporting or review procedure to its parent companies, its auditors and its
attorneys and the securities exchange on which any such parent's securities are
traded from time to time; provided, that such Partner shall be liable for any
--------
breach by such parent companies, auditors or attorneys of any provision of this
Section; (iv) in connection with the enforcement of such Partner's rights
hereunder; (v) disclo sures to an Affiliate of, or professional advisor to,
such Partner in connection with the performance by such Partner of its
obligations hereunder; provided, that such Partner shall be liable for any
--------
breach by such Affiliate or profes sional advisor of any provision of this
Section; (vi) to a prospective purchaser of all or a portion of such Partner's
Interest in connection with a sale in accordance with the terms of this
Agreement; provided, that such Partner shall be liable for any breach by such
--------
prospective purchaser of any provision of this Section; and (vii) after the
expiration of Section 8.2 of the Formation Agreement as to such Partner, in
connection with decisions to bid, or the formulation of a bid, for television
programming rights, such Partner may disclose confidential or proprietary
information with respect to the Partnership to any co-
-90-
<PAGE>
investors it may have in connection with such bid or, if the bid is to be made
through a corporate entity, to the board of directors or executive officers of
such entity; provided, that such party shall be liable for any breach by such
--------
partner, director or executive officer of any provision of this Section,
it being understood that use of such information in connection with such bid
shall not constitute a breach hereunder. Except as provided in the preceding
sentence, no Partner, nor any of its Affiliates, shall, during the periods
referred to in such sentence, use any confidential or proprietary information
with respect to the Partnership other than for the benefit of the Partnership.
10.11 Non-Recourse. The obligations of the Part ners under this
------------
Agreement are solely corporate obligations of such entities and no
representation, undertaking or agreement made in this Agreement on the part of
any Partner was made or intended to be made as a personal or individual
representation, undertaking or agreement on the part of any partner, member,
incorporator, stockholder, director, officer or agent (past, present or future)
of any Partner, and no personal or individual liability or responsibility is
assumed by, nor shall any recourse at any time be asserted or enforced against,
any such partner, member, incorporator, stockholder, director, officer or agent,
all of which recourse (whether in common law, in equity, by statute or
-91-
<PAGE>
otherwise) is hereby forever irrevocably waived and released.
10.12 Further Actions. Each Partner shall execute and deliver
---------------
such other certificates, agreements and documents, and take such other actions,
as may reasonably be required in connection with the formation and continuation
of the Partnership and the achievement of its purposes.
10.13 Survival. Section 10.10 shall survive the termination of
--------
this Agreement, the dissolution of the Partnership, the withdrawal of any
Partner and the Transfer of the Interest of any Partner. Sections 4.5, 4.7 and
9.3 shall survive the termination of this Agreement and the dissolution of the
Partnership.
10.14 Governing Law. The Partnership has been formed and is
-------------
continued under the laws of the State of New York. This Agreement shall be
governed, construed and enforced in accordance with the laws of the State of New
York without regard to principles of conflict of laws.
10.15 No Right of Set-Off. No Partner shall be entitled to offset
-------------------
against any of its financial obligations to the Partnership under this Agreement
any obligation owed to it or any of its Affiliates by any other Partner or any
of such other Partner's Affiliates.
10.16 Expenses of the Parties. All expenses incurred by or on
-----------------------
behalf of the parties hereto in connection with the authorization, preparation
and consummation of this
-92-
<PAGE>
Agreement, including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants employed by the parties hereto in
connection with the authorization, preparation, execution and consummation of
this Agreement, shall be borne solely by the party who shall have incurred the
same.
10.17 Unregistered Interests. Each Partner (i) acknowledges that
----------------------
the Interests are being acquired without registration under the Securities Act
of 1933, as amended, or under similar provisions of state law, (ii) represents
and warrants to the Partnership and the other Partners that it is acquiring the
Interest for its own account, for investment and with no view to the
distribution of the Interest, and (iii) agrees not to Transfer or attempt to
Transfer such Interest in the absence of registration under that Act and any
applicable state securities laws or an available exemption from such
registration.
-93-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers or partners thereunto duly authorized as of the
date first written above.
FOX SPORTS NATIONAL HOLDINGS, LLC
By
-----------------------------------
Name: Dan Fawcett
Title: Senior Vice President
RAINBOW NATIONAL SPORTS HOLDINGS LLC
By: RAINBOW MEDIA SPORTS
HOLDINGS, INC.,
sole member
By_____________________________________
Name: Hank Ratner
Title: Executive Vice President
-94-
<PAGE>
EXHIBIT 10.9
===============================================================================
FORM OF
GENERAL PARTNERSHIP AGREEMENT
OF NATIONAL ADVERTISING PARTNERS
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
ARTICLE II FORMATION OF GENERAL PARTNERSHIP
2.1 Formation.................................... 14
2.2 Name......................................... 14
2.3 Compliance with Partnership and Other Laws... 14
2.4 Term......................................... 15
2.5 Principal Place of Business.................. 15
2.6 Purpose...................................... 15
2.7 Qualification in other Jurisdictions......... 16
2.8 Ownership of Property........................ 16
ARTICLE III PARTNERSHIP CAPITAL
3.1 Capital Contributions........................ 16
3.2 Failure to Make Capital Contributions........ 17
3.3 Capital Accounts............................. 23
3.4 Allocation of Items of Partnership Income,
Gain, Loss, Deduction and Credit........... 26
3.5 Distributions................................ 30
3.6 Partnership Funds............................ 31
3.7 Borrowings................................... 32
ARTICLE IV MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business..... 32
4.2 Partners' Committee.......................... 34
4.3 Extraordinary Decisions...................... 36
4.4 Budget and Business Plan Approval............ 37
4.5 Limitation on Agency......................... 42
4.6 Managing Partner's Services and Expenses..... 43
4.7 Liability of Partners' Committee and Managing
Partner.................................... 44
4.8 Indemnification.............................. 45
4.9 Contracts with Related Persons and Partner
Associates................................. 46
4.10 Approved Agreements.......................... 50
4.11 Unanimous Actions by Partners................ 50
4.12 Removal of Managing Partner.................. 52
<PAGE>
Page
----
ARTICLE V BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records............................ 53
5.2 Financial Reports............................ 54
5.3 Tax Returns and Information.................. 56
ARTICLE VI PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners......................... 60
6.2 Additional Provisions Relating to Transfer... 64
6.3 Effect of Attempted Transfer; Withdrawals and
Admissions Generally....................... 67
6.4 Tax Allocation Adjustments; Distributions
After Transfer............................. 67
6.5 Certain Affiliate Transferee Transactions Not
Deemed Transfers........................... 68
6.6 IPO-Call Procedure........................... 69
ARTICLE VII EVENTS OF DEFAULT
7.1 Events of Default............................ 73
7.2 Remedies of Non-Defaulting Partners.......... 74
ARTICLE VIII DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination........................ 76
8.2 Winding-Up................................... 77
8.3 Purchase Option Upon Bankruptcy of a Partner. 79
ARTICLE IX COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law............... 81
9.2 No Restrictive Covenants..................... 81
9.3 Indemnification of Partners; Contribution.... 82
9.4 Notice of Change in Control and Indirect
Transfer................................... 83
ARTICLE X MISCELLANEOUS
10.1 Waiver of Partition.......................... 83
10.2 Modification; Waivers........................ 83
10.3 Entire Agreement............................. 84
10.4 Severability................................. 85
10.5 Notices...................................... 85
10.6 Successors and Assigns....................... 87
10.7 Counterparts................................. 87
10.8 Headings; Cross-references................... 87
10.9 Construction................................. 87
10.10 Property Rights; Confidentiality............. 88
-ii-
<PAGE>
Page
----
10.11 Non-Recourse................................. 89
10.12 Further Actions.............................. 90
10.13 Survival..................................... 90
10.14 Governing Law................................ 90
10.15 No Right of Set-Off.......................... 91
10.16 Expenses of the Parties...................... 91
10.17 Unregistered Interests....................... 91
ANNEXES
- -------
A Approved Agreements of the Partnership
B Budget and Business Plan
C Form of Subordinated Note
D Allocation Policy for Indirect Expenses
-iii-
<PAGE>
THIS GENERAL PARTNERSHIP AGREEMENT (the "Agreement") of National
Advertising Partners, a general partnership organized under the laws of the
State of New York (the "Partnership"), made as of [INSERT EFFECTIVE DATE], is
entered into by and between Rainbow Advertising Holdings, L.L.C., a Delaware
limited liability company ("Rainbow Partner"), and Fox Sports Ad Sales Holdings
LLC, a Delaware limited liability company ("Fox/Liberty Partner").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Rainbow Partner and Fox/Liberty Partner desire to form the
Partnership, to, among other things, own and operate a national advertising
business to sell advertising for national and regional sports networks and
pursue other interests described herein.
WHEREAS, pursuant to the Formation Agreement, dated as of June 22,
1997, between Rainbow Media Sports Holdings, Inc. and Fox/Liberty Networks, LLC
(the "Formation Agreement"), Rainbow Partner and Fox/Liberty Partner are
contributing certain assets to the Partnership.
WHEREAS, Rainbow Partner and Fox/Liberty Partner wish to set forth
their respective rights and obligations with respect to the formation of the
Partnership under the Partnership Law of the State of New York.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants contained herein, and for
<PAGE>
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto intending to be legally bound hereby
agree as follows:
ARTICLE I
---------
DEFINITIONS
As used herein, the following terms have the meanings assigned to them
in this Article (except as otherwise expressly provided) and include the
plural as well as the singular, and all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP, as in effect
from time to time and any capitalized term used herein and not defined in this
Article is defined in the provision of this Agreement where such term is first
used:
Adjusted Capital Account Deficit: With respect to any Partner, the
--------------------------------
deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant taxable period, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts that such
Partner is obligated to restore or is deemed to be obligated to restore
pursuant to the next-to-last sentences of Treasury Regulations Section
1.704-2(g)(1) and Treasury Regulations Section 1.704-2(i)(5), and (ii)
debit to such Capital Account the items described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Affiliate: As to any Person, any other Person that directly or
---------
indirectly through one or more intermediaries is Controlled by, Controls or
is under common Control with, such Person. For purposes of this definition,
(x) so long as Liberty owns, directly or indirectly, an interest in
Fox/Liberty Partner, any Affiliate of Fox/Liberty Partner shall be deemed
an Affiliate of Liberty, and Liberty shall be deemed an Affiliate of
Fox/Liberty Partner and any Affiliate of Liberty shall be deemed an
-2-
<PAGE>
Affiliate of Fox/Liberty Partner, (y) so long as Fox owns, directly or
indirectly, an interest in Fox/Liberty Partner, any Affiliate of
Fox/Liberty Partner shall be deemed an Affiliate of Fox, and Fox shall be
deemed an Affiliate of Fox/Liberty Partner and any Affiliate of Fox shall
be deemed an Affiliate of Fox/Liberty Partner and (z) Twentieth Holdings
Corporation and its Subsidiaries shall be deemed to be Affiliates of Fox.
Notwithstanding the foregoing, (i) neither the Partnership nor any Person
Controlled by the Partnership shall be deemed to be an "Affiliate" of any
Partner or of any Affiliate of any Partner, (ii) no Partner or any
Affiliate thereof shall be deemed to be an "Affiliate" of any other Partner
or any Affiliate thereof solely by virtue of its Interest in the
Partnership, and (iii) neither Liberty or its Affiliates (other than
Fox/Liberty Partner) on the one hand nor Fox or its Affiliates (other than
Fox/Liberty Partner) on the other hand shall be deemed to be an "Affiliate"
of the other solely by virtue of the ownership of Fox/Liberty Partner by
Fox and Liberty or their respective Affiliates.
Affiliate Transferee: As defined in Section 6.5(a).
--------------------
Agreement: This General Partnership Agreement, as the same may be
---------
amended from time to time in accordance with the provisions hereof.
Allocated Interest Offer Price: In the case of any proposed sale of
------------------------------
an Offered Interest (as defined in Section 6.1(b)) in conjunction with
other property owned by a Partner or an Affiliate of a Partner, an amount
equal to the product of the aggregate consideration, including, without
limitation, the assumption of debt and any contractual payments to be
received for all such property and a fraction, the numerator of which is
equal to the Fair Market Value of the Offered Interest and the denominator
of which is equal to the Fair Market Value of all such property to be sold.
Annual Maximum Amount: $250,000 (increased or decreased annually by a
---------------------
percentage equal to the percentage increase or decrease for the immediately
preceding year in the Consumer Price Index).
Appraiser: An independent investment banking firm appointed in
---------
accordance with the terms of this Agree-
-3-
<PAGE>
ment that (a) is not (i) an Affiliate, or an officer, director, employee or
holder of any voting securities of the Partnership or any Partner or (ii)
an officer, director, employee or holder of more than 5% of the voting
securities of any Affiliate of any Partner, and (b) is engaged as a regular
part of its business in the valuation of business entities.
Approved Agreements: The agreements listed in Annex A to this
-------------------
Agreement as the same may be amended from time to time in accordance with
the provisions hereof and thereof.
Arm's-length basis: As to any transaction, agreement or other
------------------
arrangement, being on terms that would be reached by unrelated parties not
under any compulsion to contract.
Bankruptcy: The "Bankruptcy" of a Partner shall be deemed to have
----------
occurred and a Partner shall be "Bankrupt" for purposes of this Agreement
upon the happening of any of the following:
(a) The valid appointment of a receiver or trustee to administer
all or a substantial portion of a Partner's assets or a Partner's
Interest in the Partnership;
(b) The filing by a Partner of a voluntary petition for relief
under the Bankruptcy Code or of a pleading in any court of record
admitting in writing its inability to pay its debts generally as they
become due;
(c) The making by a Partner of a general assignment for the
benefit of creditors;
(d) The filing by a Partner of an answer admitting the material
allegations of, or its consenting to or defaulting in answering, a
petition for relief filed against it in any proceeding under the
Bankruptcy Code; or
(e) The entry of an order, judgment or decree by any court of
competent jurisdiction, granting relief against a Partner in a
proceeding under the Bankruptcy Code, and such order, judgment or
decree continuing unstayed and in effect for a period of thirty (30)
days after such entry.
-4-
<PAGE>
Bankruptcy Code: The Bankruptcy Reform Act of 1978, as amended from
---------------
time to time, any successor federal statute or any state law for the relief
of debtors.
Bona Fide Offer: As defined in Section 6.1(b).
---------------
Budget: At any time, the then-effective annual operating and capital
------
budget for the Partnership, approved in the manner contemplated by Section
4.4.
Business Day: Each Monday, Tuesday, Wednesday, Thursday or Friday
------------
which is not a day on which banking institutions in New York City are
authorized or obligated by law to close.
Business Plan: The business plan for the Partnership for the period
-------------
from January 1, 1997 through December 31, 2001, a copy of which is annexed
hereto as Annex B, or the five-year business plan for the Partnership most
recently approved by the Partners' Committee pursuant to Section 4.4, as
the case may be.
Call Price: As defined in Section 6.6(b).
----------
Capital Account: As defined in Section 3.3(a).
---------------
Change in Control: As to any Partner, a change, shift or transfer of
-----------------
Control with respect to such Partner (including any change in the Control
of any entity Controlling such Partner). Notwithstanding the foregoing, no
Change in Control shall be deemed to have occurred with respect to (i)
Rainbow Partner as a result of a change, shift or transfer of Control with
respect to RMH or any Person Controlling RMH; (ii) Fox/Liberty Partner as a
result of a change, shift or transfer of Control with respect to Liberty or
any Person Controlling Liberty; or (iii) Fox/Liberty Partner as a result of
a change, shift or transfer of Control with respect to Fox or any Person
Controlling Fox.
Code: The United States Internal Revenue Code of 1986, as amended
----
from time to time, or any successor statute or statutes to the Internal
Revenue Code of 1986.
Complying Partner: As defined in Section 3.2(a).
-----------------
Consolidated Entity: Any entity in which the Partnership has an
-------------------
equity interest and the accounts of
-5-
<PAGE>
which are, in accordance with GAAP, consolidated with those of the
Partnership for financial reporting purposes.
Consumer Price Index: The Consumer Price Index - All Urban Consumers
--------------------
(All Items) published by the U.S. Bureau of Labor Statistics or, if such
index shall no longer be published, any comparable measure of changes in
consumer prices on a national basis that is prepared and published
periodically by an agency of the United States Government.
Contributing Partner: As defined in Section 3.2(a).
--------------------
Contribution Date: As defined in Section 3.1(a).
-----------------
Control: As to any Person, the possession, directly or indirectly, of
-------
the power to direct or cause the direction of the management and policies
of such Person, whether through ownership of voting securities or
partnership interests, by contract or otherwise.
Corporation: a Person succeeding to the business of the Partnership
-----------
by merger or otherwise for the purpose of facilitating an Initial Public
Offering, the ownership of which immediately following such reorganization
or restructuring is in the same relative proportion to the Sharing
Percentages of the Partners immediately prior thereto; provided, that the
--------
securities issued to each Partner are of the same class of securities to
be issued in the Initial Public Offering.
CSC: Cablevision Systems Corporation, a Delaware corporation.
---
Current Market Price: Shall mean, per share or unit of Marketable
--------------------
Securities on any date specified, the average of the daily market prices of
such Marketable Securities for the 20 consecutive Business Days ending on
the second Business Day prior to such date. The daily market price of
Marketable Securities on any Business Day will be (a) the last sale price
on such day on the principal stock exchange on which such share or unit of
Marketable Securities is then listed or admitted to trading (including the
Nasdaq National Market System if such Marketable Securities are admitted to
trading thereon), or (b) if no sale takes place on such date on any
exchange on which such share or unit of Marketable Securities is listed or
admitted to trading, the average of the reported closing bid and
-6-
<PAGE>
asked prices on such day as officially noted on any exchange.
Damages: As defined in Section 7.2.
-------
Defaulting Partner: As defined in Section 7.1(a).
------------------
Deferred Budget Decision: A circumstance in which Management Overhead
------------------------
allocated to the Partnership pursuant to Section 4.6 is being disputed or
has otherwise not been definitively established and is the only remaining
disputed or unestablished item with respect to a Proposed Budget.
Delinquent Partner: As defined in Section 3.2(c).
------------------
Designee: An Affiliate of an Offeree designated by the Offeree to
--------
purchase an Interest.
Disinterested Partner: is a Partner or Partners who are not benefitted
---------------------
by, and none of whose Partner Associates is benefitted by, the terms of the
Related Advertising Agreement in question or the actions in question which
may affect a Related Advertising Agreement or a Partner or Partner
Associate.
Effective Date: [INSERT THE CLOSING DATE OF THE TRANSACTIONS
--------------
CONTEMPLATED BY THE FORMATION AGREEMENT].
Event of Default: As defined in Section 7.1.
----------------
Event of Termination: As defined in Section 8.1.
--------------------
Excess Contribution: As defined in Section 3.2(a).
-------------------
Extraordinary Decision: As defined in Section 4.3.
----------------------
Fair Market Value: As to any property, the price at which a willing
-----------------
seller would sell and a willing buyer would buy such property having full
knowledge of the facts, and assuming each party acts on an Arm's-length
basis with the expectation of concluding the purchase or sale within a
reasonable time. Except as provided herein, in any case where there is a
dispute as to the Fair Market Value of any property, such dispute shall be
determined by an Appraiser selected jointly by the applicable Partners or,
if the applicable Partners are not able to agree on an
-7-
<PAGE>
Appraiser, each applicable Partner shall select an Appraiser and the
Appraisers so selected shall select another Appraiser, which shall
determine the Fair Market Value of the property in question.
Fiscal Year: As defined in Section 5.1(c).
-----------
Forfeited Partner: As defined in Section 3.2(c).
-----------------
Fox: Fox Inc., a Colorado corporation, and any entity succeeding to
---
all or substantially all of the assets of Fox Inc.
Fox/Liberty Partner: Fox Sports Ad Sales Holdings LLC, a Delaware
-------------------
limited liability company.
GAAP: Generally accepted accounting principles as in effect in the
----
United States from time to time and consistently applied.
Indirect Transfer: With respect to an Interest, a transfer of Control
-----------------
of the Partner directly owning such Interest or of any Affiliate of a
Partner more than 50% of the Fair Market Value of which is attributable,
directly or indirectly, to such Interest; provided, that, any transaction
-------- ----
which is not a Change in Control by virtue of the second sentence of the
definition of "Change in Control" shall similarly not be an Indirect
Transfer.
Initial Capital Account Balance: The Initial Capital Account Balance
-------------------------------
of each Partner shall be as follows:
Rainbow Partner: $10,000,000
Fox/Liberty Partner: $10,000,000
Initial Public Offering: As to the Partnership or the Corporation, an
-----------------------
initial public offering of the securities of the Partnership or the
Corporation pursuant to a registration statement filed pursuant to the
Securities Act of 1933 that results in a class of securities of the
Partnership or the Corporation being required to be registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
Interest: As to each Partner, such Partner's rights to participate in
--------
the income, gains, losses, deductions and credits of the Partnership,
together with all other rights and obligations of such Partner under this
Agreement.
-8-
<PAGE>
IPO-Call Closing Date: As defined in Section 6.6(d).
---------------------
IPO-Call Notice: As defined in Section 6.6(a).
---------------
IPO-Call Notice Window: (i) the 30 days following the fifth
----------------------
anniversary of the Effective Date and (ii) the 30 days following each third
anniversary of the fifth anniversary of the Effective Date; provided that
--------
in every case there shall not be an IPO-Call Notice Window if an Initial
Public Offering of the Partnership or the Corporation has occurred prior to
such date.
IPO-Call Procedure: As defined in Section 6.6(a).
------------------
Liberty: Liberty Media Corporation, a Delaware corporation, and any
-------
entity succeeding to all or substantially all of its assets.
Losses: As defined in Section 3.4(a).
------
Make-up Amount: As defined in Section 3.2(c).
--------------
Make-up Contribution: As defined in Sec tion 3.2(c).
--------------------
Management Overhead: Expenses of Related Persons with respect to the
-------------------
Managing Partner, a portion of which are allocated to the Partnership and
any Related Persons with respect to the Managing Partner pursuant to
Section 4.6.
Managing Partner: The Managing Partner of the Partnership shall be
----------------
Fox/Liberty Partner, unless and until changed in accordance with the
provisions of this Agreement.
Marketable Securities: Shall mean securities of a Person that are
---------------------
freely tradeable without federal securities laws restrictions and that are
listed on a national securities exchange in the United States of America or
are authorized for inclusion in the Nasdaq National Market System, and
which represent less than 50% of the total securities of such class and
securities convertible or exchangeable into such class.
Maximum Amount: $1,000,000 (increased or decreased annually by a
--------------
percentage equal to the percentage increase or decrease for the immediately
preceding year in the Consumer Price Index).
-9-
<PAGE>
Minimum Gain Attributable to Partner Nonrecourse Debt: That amount
-----------------------------------------------------
determined in accordance with the principles of Treasury Regulations
Section 1.704-2(i)(3).
Minimum Interest: As to any Person, (i) 50% of the voting securities
----------------
or (ii) 50% of each of (a) all of the general partnership or membership
interests in such Person and (b) all of the partnership or membership
interests in such Person.
Nonbankrupt Partner: As defined in Section 8.3.
-------------------
Non-Defaulting Partner: As defined in Section 7.2.
----------------------
Nonrecourse Deductions: Any and all items of loss or deduction or
----------------------
expenditure, including those described in Section 705(a)(2)(B) of the Code
that in accordance with the principles of Treasury Regulations Section
1.704-2(b)(1) are attributable to a Nonrecourse Liability.
Nonrecourse Liability: Has the meaning set forth in Treasury
---------------------
Regulations Section 1.704-2(b)(3).
Offered Interest: As defined in Section 6.1(b).
----------------
Offeree: As defined in Section 6.1(b).
-------
Offer Notice: As defined in Section 6.1(b).
------------
Operating Income (Loss): For any period, the consolidated net income
-----------------------
(loss) of the Partnership and the Consolidated Entities for such period
attributable to continuing operations before income taxes, depreciation of
plant, property and equipment, interest expense, interest income,
amortization of goodwill and amortization of organization cost,
amortization of step-ups, extraordinary items, any prior year adjustments,
losses or gains from the sale of plants, divisions or other major items of
property, adjustments arising from major changes in accounting methods,
losses or gains on foreign exchange, bonuses and other periodic incentive
compensation payments to officers and employees and other material and
nonrecurring expenses as determined in accordance with GAAP.
Partner: Rainbow Partner, Fox/Liberty Partner or any other Person
-------
hereafter admitted to the Partnership in accordance with the terms hereof,
but excluding any
-10-
<PAGE>
Person that ceases to be a Partner in accordance with the terms hereof.
Partner Associate: As defined in Section 4.9(a).
-----------------
Partner Nonrecourse Debt: Has the meaning set forth in Treasury
------------------------
Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Deductions: Any and all items of loss or
------------------------------
deduction or expenditure, including those described in Section 705(a)(2)(B)
of the Code that in accordance with the principles of Treasury Regulations
Section 1.704-2(i)(2), are attributable to Partner Nonrecourse Debt.
Partners' Committee: As defined in Section 4.2.
-------------------
Partner's Loan: A loan by a Partner or a Related Person of a Partner
--------------
to the Partnership in respect of which repayment of principal and interest
shall be subordinated to the repayment of the principal of, and interest
on, the indebtedness of the Partnership to third party lenders. All
Partner's Loans shall bear interest, payable quarterly, at the Prime Rate
and shall be unsecured and recourse thereunder shall be limited to the
assets of the Partnership, and, except as otherwise provided in Section
6.3(b), the note evidencing the same shall be non-negotiable and non-
transferable (except to a Permitted Transferee of an Interest) and shall be
in substantially the form annexed hereto as Annex C.
Partnership: As defined in the Recitals.
-----------
Partnership Minimum Gain: That amount determined in accordance with
------------------------
the principles of Treasury Regulations Section 1.704-2(d).
Partnership Property: As defined in Section 2.8.
--------------------
Permitted Investment: An investment of any of the following types:
--------------------
(a) United States Treasury bills and notes; (b) securities guaranteed by
the United States or an agency of the United States and backed by the full
faith and credit of the United States; (c) certificates of deposit,
banker's acceptances or time deposits issued by any commercial bank or
branch thereof chartered by the United States or any State thereof or by
the District of Columbia and having its long-term debt obligations rated A-
or better by Standard & Poor's Ratings Group ("Standard & Poor's");
-11-
<PAGE>
(d) commercial paper rated A-3 or better by Standard & Poor's; (e)
repurchase agreements with financial institutions the long-term debt
obligations of which are rated A- or better by Standard & Poor's; (f)
Eurodollar deposits with direct subsidiaries of any commercial bank
chartered by the United States or any State thereof or by the District of
Columbia and having its long-term debt obligations rated A- or better by
Standard & Poor's; or (g) other instruments and investments approved by
the Partners' Committee.
Person: An individual or a corporation, partnership, limited
------
liability company, trust, unincorporated association or other entity.
Prime Rate: A rate of interest equal to the rate per annum announced
----------
from time to time by The Chase Manhattan Bank, at its principal office as
its prime rate (which rate shall change when and as such announced prime
rate changes) but in no event more than the maximum rate of interest
permitted to be collected from time to time under applicable usury laws.
Profits: As defined in Section 3.4(a).
-------
Proposed Budget: As defined in Section 4.4(a).
---------------
Proposed Business Plan: As defined in Section 4.4(a).
----------------------
Rainbow Partner: Rainbow Advertising Holdings, L.L.C., a Delaware
---------------
limited liability company.
Refusing Partner: As defined in Section 3.2(a).
----------------
Related Advertising Agreement: As defined in Section 4.9(a).
-----------------------------
Related Person: As to each Partner, (i) such Partner, (ii) each
--------------
Affiliate of such Partner, (iii) each director, officer or general partner
of, or any stockholder or limited partner known to the Partner to own an
equity interest greater than 10% in, such Partner or any Affiliate of such
Partner, or (iv) each Person other than the Partnership in which such
Partner or, to the knowledge of such Partner, any Affiliate of such Partner
has an equity interest greater than 10%, excluding any business in which
the Partnership has an interest, directly or indirectly.
-12-
<PAGE>
Restricted Person: Each Person listed on a writing executed by the
-----------------
parties hereto on the date of the Formation Agreement.
Restrictive Covenants: As defined in Section 9.2.
---------------------
RMH: Rainbow Media Holdings, Inc., a Delaware corporation, and any
---
entity succeeding to all or substantially all of its assets.
Selling Partner: As defined in Section 6.1(b).
---------------
Senior Credit Agreement: Any instrument creating or otherwise
-----------------------
evidencing indebtedness of the Partnership to a third party lender approved
by the Partners' Committee.
Sharing Percentage: Subject to adjustment pursuant to Section 3.2
------------------
hereof the Sharing Percentage of each Partner in the Partnership shall be
as follows:
Rainbow Partner: 50%
Fox/Liberty Partner: 50%
Tax Matters Partner: As defined in Section 5.3(a).
-------------------
TCI: Tele-Communications, Inc., a Delaware corporation.
---
Term: As defined in Section 2.4.
----
Timely Partner: As defined in Section 3.2(c).
--------------
Transfer: To sell, assign, transfer, pledge or otherwise dispose of,
--------
or encumber (voluntarily, involuntarily or by operation of law); provided,
--------
that a "Transfer" shall not include any bona fide assignment,
hypothecation, pledge or encumbrance to any unaffiliated third party
lender in a financing transaction.
-13-
<PAGE>
ARTICLE II
----------
FORMATION OF GENERAL PARTNERSHIP
2.1 Formation.
---------
(a) Pursuant to the terms and conditions contained in this Agreement,
Rainbow Partner is hereby admitted to the Partnership as a Partner owning a
50% Sharing Percentage and Fox/Liberty Partner is hereby admitted as a
Partner owning a 50% Sharing Percentage.
(b) The name and mailing address of each Partner and the amount
credited to each Partner's Capital Account shall be listed on Schedule A
attached hereto. The Managing Partner shall update and distribute to the
other Partners Schedule A from time to time as necessary to accurately
reflect the information therein. Any amendment or revision to Schedule A
made in accordance with this Agreement shall not be deemed an amendment to
this Agreement that requires the consent of the Partners. Any reference in
this Agreement to Schedule A shall be deemed to be a reference to Schedule
A as amended and in effect from time to time.
2.2 Name. The name of the Partnership shall be National Advertising
----
Partners or any other name designated by the Partners' Committee upon compliance
with all applicable laws.
2.3 Compliance with Partnership and Other Laws. The Partners will use
------------------------------------------
their reasonable best efforts to take
-14-
<PAGE>
the actions required to cause the Partnership to comply with all applicable
partnership laws, assumed name acts, fictitious name acts, and similar
statutes in effect in each jurisdiction or political subdivision in which the
Partnership does business from time to time, and the Partners agree to execute
appropriate documents requested by the Managing Partner with the advice of
counsel to comply with such laws. All actions to be taken pursuant to this
Section 2.3 by the Partnership and by the Partners shall be at Partnership
expense.
2.4 Term. The term of the Partnership (the "Term") shall continue for
----
ninety-nine (99) years from the Effective Date, unless the Partnership is sooner
dissolved and terminated as provided in Article VIII.
2.5 Principal Place of Business. The principal place of business of
---------------------------
the Partnership shall be a place in the United States designated by the Managing
Partner from time to time.
2.6 Purpose. The Partnership is formed for the object and purpose
-------
of, and the nature of the business to be conducted and promoted by the
Partnership is, engaging in any lawful act or activity for which partnerships
may be formed under the laws of the State of New York and engaging in any and
all activities necessary, convenient, desirable or incidental to the foregoing,
including, without limita-
-15-
<PAGE>
tion, acquiring, holding, managing, operating and disposing of real and personal
property.
2.7 Qualification in other Jurisdictions. The Partners shall cause
------------------------------------
the Partnership to be qualified, formed or registered under assumed or
fictitious name statutes or similar laws in any jurisdiction in which the
Partnership transacts business. The Managing Partner shall execute, deliver and
file any certificates (and any amendments and/or restatements thereof) necessary
for the Partnership to qualify to do business in a jurisdiction in which the
Partnership wishes to conduct business.
2.8 Ownership of Property. Except to the extent the Managing Partner
---------------------
deems it to be in the best interests of the Partnership to use nominees from
time to time, legal title to all assets, rights and property, whether real,
personal or mixed, owned by the Partnership (collectively, the "Partnership
Property") shall be acquired, held and conveyed only in the name of the
Partnership.
ARTICLE III
-----------
PARTNERSHIP CAPITAL
3.1 Capital Contributions.
---------------------
(a) Unless otherwise agreed by all Partners, all capital
contributions (other than any initial capital contribution) shall be in cash
and, other than capital contributions due in accordance with the then-applicable
-16-
<PAGE>
Budget, shall be approved by each Partner. Except as provided in Sections 4.3
and 4.11, the Managing Partner shall from time to time during the Term give
notice to each Partner of any capital contribution due in accordance with the
then-applicable Budget not less than 30 nor more than 90 days prior to the date
on which such capital contribution is due. Such notice shall set forth the
amount to be contributed by each Partner, the date (the "Contribution Date") on
which the contribution is to be made, and the account of the Partnership to
which such funds are to be transmitted. There shall be no more than one capital
call in any calendar month.
(b) All capital contributions to be made by the Partners shall be in
proportion to their respective Sharing Percentages (determined, in each case, at
the time the notice contemplated by Section 3.1(a) is given).
3.2 Failure to Make Capital Contributions.
-------------------------------------
(a) Upon the failure of any Partner (the "Refusing Partner") to make
all or a portion of a capital contribution required of it pursuant to this
Agreement on or before the 15th day after the Contribution Date therefor, any
other Partner (each a "Complying Partner") that is not a Refusing Partner or a
Forfeited Partner may, at its option exercised by giving notice to the other
Partners, make up the defaulted capital contribution or any portion thereof by
making a capital contribution to the Partnership in an
-17-
<PAGE>
amount not exceeding the amount of the required capital contribution which the
Refusing Partner failed to make. If more than one Complying Partner wishes to
contribute all or any portion of the unpaid amount of the Refusing Partner's
required capital contribution, and the aggregate amount which such Complying
Partners wish to contribute exceeds the unpaid amount of the Refusing Partner's
required capital contribution, then the Complying Partners shall determine among
themselves the amount that each such Complying Partner shall contribute to the
Partnership, or, in the event the Complying Partners cannot agree, each
Complying Partner shall contribute to the Partnership an amount equal to its pro
rata share (based on the proportion that each Complying Partner's Sharing
Percentage bears to the aggregate Sharing Percentages on the relevant
Contribution Date of all the Complying Partners that wish to contribute) of the
Refusing Partner's required additional capital contribution. Each Complying
Partner that makes a capital contribution pursuant to this Section 3.2 shall be
referred to herein as a "Contributing Partner." Any contribution by a
Contributing Partner of such additional amount as a capital contribution
pursuant to this Section 3.2(a) shall be deemed an additional capital
contribution of such Contributing Partner (an "Excess Contribution").
(b) Whenever pursuant to this Section 3.2 with respect to any capital
call, a Refusing Partner has not,
-18-
<PAGE>
within 15 days after the related Contribution Date, made capital contributions
in an amount equal to the product of such Refusing Partner's Sharing Percentage
and the total amount of such capital call, then the Sharing Percentage of such
Refusing Partner in the Partnership shall be reduced, with effect from the
related Contribution Date, so that such Sharing Percentage equals the quotient
(expressed as a percentage) of (x) the sum of (i) the Initial Capital Account
Balance of such Refusing Partner and (ii) all capital contributions made by such
Refusing Partner less all distributions of capital to the Refusing Partner
following the Effective Date and prior to the related Contribution Date divided
by (y) the sum of (a) the Initial Capital Account Balances of all Partners and
(b) all the capital contributions of all Partners less all distributions of
capital to all Partners following the Effective Date and prior to the related
Contribution Date (including any capital contributions made in respect of such
capital call pursuant to Section 3.2(a), regardless of when made); and the
Sharing Percentage of each Complying Partner shall be increased, with effect
from the related Contribution Date, by an amount equal to the product of (I) the
amount by which the Sharing Percentage of such Refusing Partner has been reduced
pursuant to this sentence and (II) the quotient of (A) the sum of (X) the
Initial Capital Account Balance of such Complying Partner and (Y) all capital
contributions
-19-
<PAGE>
made by such Complying Partner less all distributions of capital to such
Complying Partner following the Effective Date and prior to the related
Contribution Date (including any additional capital contribution made by such
Complying Partner pursuant to Section 3.2(a), regardless of when made) divided
by (B) the sum of (aa) the Initial Capital Account Balances of all of the
Complying Partners and (bb) all the capital contributions of all Complying
Partners less all distributions of capital to all Complying Partners following
the Effective Date and prior to the related Contribution Date (including any
additional capital contributions made in respect of such capital call pursuant
to Section 3.2(a), regardless of when made).
(c) If at any time any Partner's Sharing Percentage is less than two-
fifths of such Partner's Sharing Percentage as of the Effective Date
(appropriately adjusted to reflect any admissions of additional Partners) such
Partner shall forfeit (i) all voting rights (including the voting rights, if
any, of its representatives on the Partners' Committee), except as otherwise
required by law and except as provided in Section 4.11(b), and (ii) such
Partner's right to consent (or withhold consent) to Transfers under (and as
defined in) Section 6.1(a) and such Partner's right of first refusal pursuant to
Section 6.1(b) hereof. A Partner that has forfeited its voting and other rights
under this paragraph is referred to as a "Forfeited
-20-
<PAGE>
Partner" for and during the period such rights are so forfeited. Except as
otherwise specifically provided in this Section 3.2(c), a Forfeited Partner
shall continue to be a Partner in all other respects and shall not, by virtue of
becoming a Forfeited Partner, be released from any of its obligations as a
general partner in the Partnership or under this Agreement (including its
obligations with respect to required additional capital contributions). The
forfeiture by any Partner of certain of its rights pursuant to this Section
3.2(c) shall not prejudice the right of such Partner to any claim that such
Partner may have at law against the Managing Partner in the case of a breach by
the Managing Partner of any provision of this Agreement or of the duties of care
and of loyalty owed by the Managing Partner to the Partnership.
In the event that any Partner (the "Delinquent Partner") fails to make
a capital contribution on or before the Contribution Date specified in the
notice of the Managing Partner, but does make its contribution within 15 days
after such Contribution Date, each Partner (each, a "Timely Partner") that made
its capital contribution on or before the Contribution Date shall be entitled to
receive interest at a rate per annum equal to the Prime Rate (calculated on the
basis of a year of 360 days) from the Delinquent Partner (and not from the
Partnership) from the date of payment of
-21-
<PAGE>
its capital contribution to the date the Delinquent Partner made its capital
contribution.
Notwithstanding the foregoing provisions of this Section 3.2, if the
Sharing Percentage of any Partner other than the Managing Partner has been
reduced pursuant to Section 3.2(b) for failure to make a capital contribution,
such Partner may, at any time prior to the date that is 270 days after such
capital contribution was due, make a capital contribution to the Partnership or
a payment to each Contributing Partner, as provided below (each, a "Make-up
Contribution"), in an amount equal to the Make-up Amount (as hereinafter
defined). Upon the making of a Make-up Contribution by such Partner in the
full amount of the Make-up Amount, the Sharing Percentages of the Partners shall
be adjusted to give effect to such Make-up Contribution so as to restore to such
Refusing Partner and the Complying Partners the respective Sharing Percentages
they would have had but for and solely based on the default of the Refusing
Partner.
The "Make-up Amount" shall be the amount of the defaulted capital
contribution of the Refusing Partner, plus interest thereon at a rate per annum
equal to the Prime Rate plus 1% calculated on the basis of a year of 360 days
from the Contribution Date until the date of payment of the Make-up
Contribution. In the event that no Complying Partner has made up any portion of
the defaulted capital
-22-
<PAGE>
contribution of such Refusing Partner pursuant to Section 3.2(a), and the
Refusing Partner elects to make a Make-up Contribution, the full Make-up Amount
shall be paid by the Refusing Partner to the Partnership. In the event that a
Contributing Partner has, pursuant to Section 3.2(a), made up all or a portion
of the defaulted capital contribution of the Refusing Partner through additional
capital contributions, and the Refusing Partner elects to make a Make-up
Contribution, such Refusing Partner shall pay directly to each Contributing
Partner an amount equal to the Make-up Amount multiplied by the quotient of (x)
the portion of all Excess Contributions paid by such Contributing Partner,
divided by (y) the total amount of the relevant defaulted capital contribution,
and after such payment the Refusing Partner shall contribute the remainder (if
any) of the Make-up Amount to the Partnership.
3.3 Capital Accounts.
----------------
(a) A separate capital account (each a "Capital Account") shall be
maintained for each Partner. The Initial Capital Account Balance of each
Partner shall be as specified in Article I. Subject to the provisions of
paragraphs (b), (c) and (d) of this Section 3.3, the Capital Account of each
Partner shall be (i) increased by (A) the amount of cash and the Fair Market
Value of other property contributed to the Partnership by such Partner as a
capital contribution (net of liabilities of such Partner assumed by the Partner-
-23-
<PAGE>
ship and liabilities to which such contributed property is subject) (including
any Excess Contributions made by such Partner whether or not the Partner was
reimbursed by a Refusing Partner) and (B) Profits and any other items of income
allocated to such Partner pursuant to Section 3.4 and (ii) decreased by (A) the
amount of cash and the Fair Market Value of any property distributed to such
Partner (net of liabilities of the Partnership assumed by such Partner and
liabilities to which such distributed property is subject), (B) any Excess
Contributions for which such Partner has been reimbursed by a Refusing Partner,
and (C) items of Loss and any other deductions allocated to such Partner
pursuant to Section 3.4. Capital Accounts otherwise shall be maintained in
accordance with Treasury Regulations in order for the allocation of Profits and
Losses pursuant to Section 3.4 hereof to have substantial economic effect within
the meaning of Section 704(b) of the Code.
(b) Immediately prior to the distribution of any property (other than
cash) to a Partner, the Capital Account of each Partner shall be increased or
decreased, as the case may be, in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(e), to reflect the manner in which the unrealized income,
gain, loss and deduction inherent in such property that has not previously been
reflected in the Capital Accounts would be allocated among the Partners if
-24-
<PAGE>
there were a taxable disposition of such property for its Fair Market Value on
the date of the distribution.
(c) Immediately prior to:
(i) a contribution of money or other property to the Partnership by a
new or existing Partner as consideration for an Interest, or
(ii) a distribution of money or other property by the Partnership to a
retiring or continuing Partner as consideration for an Interest,
the Capital Account of each Partner shall be increased or decreased, as the case
may be, to reflect the Fair Market Value of all the Partnership Property. Such
adjustment shall reflect the manner in which the unrealized income, gain, loss
or deduction inherent in such property that has not previously been reflected in
the Capital Accounts would be allocated among the Partners if there were a
taxable disposition of such property for its Fair Market Value on the date of
the contribution or distribution and shall otherwise be made in accordance with
Treasury Regulations Section 1.704-1(b)(2)(iv)(f).
(d) Except as set forth in Section 3.2, no Partner shall be entitled
to interest on its capital contributions or on the positive balance in its
Capital Account and no such interest shall accrue.
-25-
<PAGE>
3.4 Allocation of Items of Partnership Income, Gain, Loss, Deduction
----------------------------------------------------------------
and Credit.
- ----------
(a) For purposes of this Agreement, the terms "Profits" and "Losses"
shall mean, respectively, the net profits and net losses of the Partnership
determined on an annual basis in accordance with the method of accounting used
by the Partnership for Federal income tax purposes, except that (i) the items
included in the calculation of Profits and Losses shall not include any items
specially allocated under Section 3.4(c), (ii) where property is reflected in
the Capital Accounts at a book basis different from the basis of such property
for Federal income tax purposes, all gain, loss, depreciation and amortization
on such property shall be determined for purposes of adjusting Capital Accounts
based on the book basis of such property in accordance with Treasury Regulations
Section 1.704-1(b)(2)(iv)(g), (iii) income received by the Partnership which is
exempt for Federal income tax purposes shall be included, and (iv) expenses of
the Partnership which are not capitalizable and not deductible or deemed not
capitalizable and not deductible for Federal income tax purposes (i.e., Section
- -
705(a)(2)(B) expenditures) shall be taken into account.
(b) (i) Except as provided in paragraph (a) of this Section 3.4,
clause (ii) of this paragraph (b), and Section 5.3(d), and after giving effect
to the special
-26-
<PAGE>
allocations required by paragraph (c) of this Section 3.4, all Partnership
Profits and Losses and other items of income, gain, loss, deduction and credit
shall be allocated to the Partners in accordance with their Sharing Percentages,
taking into account both the amount or amounts of such Sharing Percentages and
the portions of the year during which such Sharing Percentages were held.
(ii) If, at the end of any taxable period, any Partner's Capital
Account would have an Adjusted Capital Account Deficit (determined after taking
into account all other allocations and distributions with respect to such
period), then there shall be allocated to such Partner for such taxable period
items of gross income in an amount sufficient to eliminate such Adjusted Capital
Account Deficit.
(c) Notwithstanding any other provision of this Section 3.4, the
following special allocations shall be made for each taxable period in
descending order of priority:
(i) If there is a net decrease in Partnership Minimum Gain during any
Partnership taxable period, each Partner shall be specially allocated items
of income and gain of the Partnership for such period (and, if necessary,
subsequent periods) in an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain, determined in accordance with
Treasury Regulations Sections 1.704-2(f) and 1.704-2(g)(2). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Treasury Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). The
Partnership may, however, (i) waive the chargeback of items of income
-27-
<PAGE>
and gain required by this Section 3.4(c)(i) and (ii) apply to the
Commissioner of the Internal Revenue Service for approval of such waiver in
the event that (x) the Partners have made Capital Contributions or received
income allocations that have restored any previous Nonrecourse Deductions
claimed or any distributions attributable to the proceeds of a
Nonrecourse Liability, and (y) the Minimum Gain chargeback requirement
would distort the Partners' economic arrangement as reflected in this
Agreement and as evidenced over the term of the Partnership by the
Partnership's allocations and distributions and the Partners' Capital
Contributions and it is not expected that the Partnership will have
sufficient other income to correct that distortion. This Section 3.4(c)(i)
is intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith;
(ii) If there is a net decrease in Minimum Gain Attributable to
Partner Nonrecourse Debt during any Partnership taxable period, any Partner
with a share of Minimum Gain Attributable to Partner Nonrecourse Debt at
the beginning of such taxable period (determined in accordance with
Treasury Regulations Section 1.704-2(i)(5)) shall be allocated items of the
Partnership income and gain for such period (and, if necessary, subsequent
periods) in an amount equal to such Partner's share of the net decrease in
the Minimum Gain Attributable to Partner Nonrecourse Debt, determined in
accordance with Treasury Regulations Sections 1.704-2(g)(2) and 1.704-
2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Treasury Regulations Sections 1.704-2(f)(5), 1.704-
2(i)(4) and 1.704-2(j)(2)(ii) and (iii). This Section 3.4(c)(ii) is
intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith. In addition, rules consistent with the
provisions of Treasury Regulations Sections 1.704-2(f)(2), (3), (4) and (5)
will apply to the special allocation required by this Section 3.4(c)(ii);
(iii) In the event that any Partner unexpectedly receives any
adjustments, allocations, or distributions described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain shall be specially allocated to such
-28-
<PAGE>
Partner (in respect of its Capital Account) in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Partner as
quickly as possible, provided that an allocation pursuant to this Section
3.4(c)(iii) shall be made only if and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article III have been tentatively made as if this
Section 3.4(c)(iii) were not in the Agreement;
(iv) Nonrecourse Deductions for any taxable period shall be specially
allocated among the Partners in accordance with their Sharing Percentages;
(v) Partner Nonrecourse Deductions for any taxable period shall be
specially allocated to the Partner that bears the economic risk of loss
with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Treasury
Regulations Section 1.704-2(i). If more than one Partner bears the
economic risk of loss with respect to a Partner Nonrecourse Debt, such
Partner Nonrecourse Deductions attributable thereto shall be allocated
between or among such Partners in accordance with the ratios in which they
share such economic risk of loss; and
(vi) To the extent that any allocation is made in any taxable period
to any Partner pursuant to the provisions of clauses (i) through (v) of
this Section 3.4(c), such Partner shall thereafter be specially allocated
items of Partnership gross income or deduction in order to negate the
above-described allocations in the same taxable period if sufficient items
of gross income or deduction are available and, if not available, in each
succeeding taxable period until the aggregate amount of the above-described
allocations are fully negated.
(d) All items of income, gain, loss or deduction attributable to
property contributed to the Partnership shall be allocated for Federal income
tax purposes among the Partners in a manner that takes into account any
difference between the Fair Market Value of such property at the time
-29-
<PAGE>
of its contribution (calculated for this purpose without regard to any
outstanding indebtedness secured by or relating to such property) and its
adjusted basis for Federal income tax purposes at that time, in accordance with
Section 704(c) of the Code and the Treasury Regulations thereunder. Each
Partner that contributes property to the Partnership shall at the time of such
contribution notify the Partnership of its adjusted basis in the contributed
property at such time. For purposes of allocations hereunder, the Partnership
shall elect to use the traditional method with curative allocations as set forth
in Treasury Regulations Section 1.704-3(c).
3.5 Distributions.
-------------
(a) Except as provided in Section 6.6, no Partner shall have the right
to withdraw any amount from its Capital Account. No Partner shall have the
right, except as otherwise provided in Section 3.5(b), to demand or receive any
distribution, without the approval of the Managing Partner. Except as otherwise
provided in Article VIII, no Partner shall have the right to receive a
distribution of property other than cash from the Partnership, unless otherwise
agreed by all the Partners.
(b) The Partnership shall, subject to any restrictions contained in
Senior Credit Agreements, distribute cash to the Partners in amounts that the
Managing Partner determines are in excess of the amounts reasonably
-30-
<PAGE>
necessary for the continued efficient operation of the business of the
Partnership, including reasonable reserves; provided, that subject to the
--------
Managing Partner's discretion to retain amounts necessary for the continued
efficient operation of the business of the Partnership in accordance with this
Section 3.5(b), such distributions shall be made not less often than quarterly.
Any such distributions shall be made in accordance with the Partners' Sharing
Percentages. The Partnership shall repay principal and accrued interest on
Partner's Loans (in the order of payment contemplated by subparagraph (c)(iii)
of Section 8.2 hereof) prior to making any cash distributions to the Partners.
(c) For purposes of Section 3.2(b), distributions shall be deemed made
first from profits and then from capital.
3.6 Partnership Funds. The funds of the Partnership shall be
-----------------
deposited in such bank accounts or invested in such Permitted Investments as
shall be determined by the Managing Partner, or if there is no Managing Partner
the Partners' Committee. The Partnership's funds shall not be commingled with
funds not belonging to the Partnership, except to the extent the Partnership's
cash management plan permits such commingling, and shall be used only for the
affairs or business of the Partnership. The Partners' Committee shall establish
a cash management plan pursuant to which the funds of the Partnership will be
managed.
-31-
<PAGE>
3.7 Borrowings. Subject to any applicable approval required by
----------
Section 4.3 or 4.11 hereof, if the Partnership uses reasonable efforts to obtain
third-party financing but is unable to do so, (i) the Partnership may borrow
funds from any Person that is not a Related Person with respect to any Partner
and may pledge on a non-recourse basis only the Partnership properties or the
income therefrom to secure the repayment of such loans and (ii) the Partnership
may borrow funds in the form of Partner's Loans from any Partner or any Related
Person with respect to a Partner.
ARTICLE IV
----------
MANAGEMENT OF THE PARTNERSHIP
4.1 Management of the Partnership's Business. Except for actions and
----------------------------------------
determinations which pursuant to this Agreement or applicable law can be taken
or made only with the consent of all of the Partners or the Partners' Committee,
the business and affairs of the Partnership shall be directed and controlled by
the Managing Partner. The Managing Partner shall manage the business of the
Partnership so as to maximize the profitability of the Partnership in a manner
consistent with the development plans and policy decisions reflected in the
Business Plan and Budget. Without limiting the generality of the foregoing, the
Managing Partner at the Partnership's expense, consistent
-32-
<PAGE>
with the Budget, shall cause the Partnership to obtain and maintain in effect
during the Term comprehensive insurance insuring the Partnership against all
risks and perils customarily insured against in the businesses conducted by the
Partnership. Nothing contained in this Article IV shall impose any obligation
on any Person doing business or dealing with the Partnership to inquire as to
whether the Managing Partner has exceeded its authority in executing any
contract or other instrument on behalf of the Partnership, and any such Person
shall be fully protected in relying upon the authority of the Managing Partner.
The Managing Partner shall keep the Partners' Committee informed with respect to
all matters of material interest to the Partners and shall in any event report
to the Partners' Committee not less frequently than once each quarter with
respect to the business and affairs of the Partnership. Except as otherwise
provided in Section 4.6, the Managing Partner shall serve without compensation
for its services. Subject to any applicable provisions of Section 4.3 hereof,
the Managing Partner may delegate such of its powers and authority to managers,
employees and agents of the Partnership as the Managing Partner shall deem
necessary or appropriate for the conduct of the Partnership's business. Except
insofar as such arrangements are embodied in Approved Agreements or are
otherwise approved pursuant to the provisions of Sections 4.3, 4.9 or 4.11, all
arrangements for the employment of
-33-
<PAGE>
managers, employees or agents on behalf of the Partnership that are Related
Persons with respect to any Partner shall be on an Arm's-length basis.
4.2 Partners' Committee. Each of Fox/Liberty Partner and Rainbow
-------------------
Partner shall designate two individuals to serve on a committee (the "Partners'
Committee") which shall be responsible for taking all action required under this
Agreement to be taken by the Partners' Committee. Irrespective of the number of
representatives attending any meeting of the Partners' Committee, each of
Fox/Liberty Partner and Rainbow Partner shall have the right to one vote at such
meetings (except as otherwise provided below or in Section 3.2 hereof with
respect to a Forfeited Partner), such vote to be exercised in such manner as
such Partner shall direct. The Partners' Committee shall formulate fundamental
policy with respect to the Partnership's business. The Partners' Committee
shall meet by telephone or, at the request of any Partner, in person, not less
frequently than (i) quarterly to receive the report of the Managing Partner
contemplated by Section 4.1 and to review development plans, the financial
position of the Partnership, the status of negotiations for advertising
representation agreements, financial projections, and any other material matters
relating to the business of the Partnership, (ii) annually to review the annual
Budget and the Business Plan, and (iii) as often as shall be necessary
-34-
<PAGE>
to make any Extraordinary Decision or take any other action required to be taken
or approved by the Partners' Committee. Any action that may be taken at a
meeting of the Partners' Committee may be taken without a meeting by written
consent of the number of Partners needed to authorize the action; provided, that
--------
all Partners, regardless of whether all Partners are entitled to vote, are given
notice of such written consent at least 15 Business Days prior to its effective
date.
Any Partner entitled to vote at a meeting of the Partners' Committee
shall have the right to call a meeting of the Partners' Committee by giving 10
Business Days' prior notice of the time, date and location or means of
conducting such meeting to each other Partner. The presence or participation of
one representative designated hereunder by the number of Partners required to
authorize the action taken at such meeting shall constitute a quorum for the
taking of any action; provided, that all Partners, regardless of whether all
--------
Partners are entitled to vote, have received at least 10 Business Days' prior
notice of such meeting or have waived such notice. Except as otherwise provided
herein, any action required or permitted to be taken by the Partners' Committee
must be by the approving vote of Partners entitled to vote and having Sharing
Percentages aggregating at least 66 2/3% of the Sharing Percentages of all
Partners entitled to vote; provided, that, if the
--------
-35-
<PAGE>
Managing Partner has been removed pursuant to Section 4.12, until a new Managing
Partner shall have been appointed in accordance with Section 4.12, any action
required or permitted to be taken by the Partners' Committee must be by the
approving vote of each Partner entitled to vote.
Any member of the Partners' Committee may be removed without cause
and replaced at any time by the Partner who designated such member. If at any
time a Partner removes one or both of its representatives on the Partners'
Committee or any representative of such Partner resigns from the Partners'
Committee or dies, such Partner shall give notice to the other Partners of such
removal, resignation or death and of a successor representative. In the absence
of notice to the contrary, either representative of any Partner shall be
conclusively presumed to have the authority to take action by written consent or
vote in the name and on behalf of such Partner. Members of the Partners'
Committee shall serve as such without compensation.
4.3 Extraordinary Decisions. Subject to Section 4.11, except to the
-----------------------
extent any of the matters set forth below are specifically identified in the
then-applicable Budget or Business Plan, the Partnership and the Managing
Partner may take the following actions only with the prior approval of the
Partners' Committee:
(i) Make any loan or other advance of money to, or guarantee any
obligation of, any Person that is not a Partner or a Related Person with
respect to a
-36-
<PAGE>
Partner, other than employee loans and advances and other than in the
ordinary course of business.
(ii) Incur capital expenditures in any Fiscal Year (a) in connection
with any single transaction or series of related transactions exceeding by
more than $50,000 the amount authorized in the annual Budget approved by
the Partners' Committee or (b) in an aggregate amount that exceeds by more
than $250,000 the aggregate amount of capital expenditures authorized in
the Budget.
(iii) Commence, abandon or settle any litigation, arbitration or
other legal proceeding in the name of the Partnership or otherwise
involving the Partnership which is not in the ordinary course of business
or is likely to have a material impact on the Partnership or its business
or involves claims by or against any governmental entity.
(iv) Adopt or change any accounting principle which will have a
material effect on the Partnership's Operating Income or make any tax
election (except an election under Section 754 of the Code made by the Tax
Matters Partner) or adopt any position for purposes of any tax return that
will have a material adverse effect on any Partner.
(v) Enter into any contract or other transaction (or series of related
contracts or transactions) providing for payments by the Partnership (a)
that in any Fiscal Year exceed the Annual Maximum Amount or (b) with a
discounted present value (computed at an annual discount rate of 15%) equal
to or greater than the Maximum Amount.
(vi) Enter into any agreement that may be terminated or otherwise
avoided by the other party thereto if the Managing Partner ceases to act as
Managing Partner or ceases to be a Partner in, or to act as Managing
Partner of the Partnership.
Each of the actions set forth above is referred to as an "Extraordinary
Decision".
4.4 Budget and Business Plan Approval.
---------------------------------
(a) The Managing Partner shall submit annually to the Partners'
Committee at least 90 days prior to the start
-37-
<PAGE>
of each Fiscal Year, beginning with the Fiscal Year commencing January 1,
1998, (i) a proposed budget (the "Proposed Budget") for the forthcoming Fiscal
Year including an income statement prepared on an accrual basis which shall show
in reasonable detail the projected revenues and expenses and a cash flow
statement and detailed schedule of proposed capital expenditures which shall
show in reasonable detail the projected receipts and disbursements for the
Partnership and the amount of any expected cash deficiency or surplus, any
required capital contributions, a summary of the services included in Management
Overhead allocated to the Partnership in the Proposed Budget and any
contemplated borrowings of the Partnership, (ii) a proposed revised five-year
business plan (the "Proposed Business Plan") for the Fiscal Year covered by the
Proposed Budget and the succeeding four Fiscal Years containing substantially
the same categories of information in substantially the same detail as the
Business Plan attached hereto as Annex B. Such Proposed Budget and Proposed
Business Plan shall be prepared on a basis consistent with the Partnership's
audited financial statements and GAAP. Prior to or simultaneously with the
submission of such Proposed Budget and Proposed Business Plan, the Managing
Partner shall disclose to the Partners' Committee any additional information
(including financial projections for years after the next Fiscal Year) in its
possession or reasonably available
-38-
<PAGE>
to it (with or without cost to the Partnership) which could assist the Partners'
Committee in evaluating such Proposed Budget and Proposed Business Plan. In
addition, the Managing Partner shall meet with the Partners' Committee to
discuss such Proposed Budget and Proposed Business Plan.
Within 30 days after the submission of such Proposed Budget and
Proposed Business Plan, the Partners' Committee shall advise the Managing
Partner in writing whether it approves or disapproves of such Proposed Budget
and Proposed Business Plan. Proposed Budgets and Proposed Business Plans that
are approved by the Partners' Committee shall supersede any previously approved
Budget or Business Plan, as the case may be. The Partners hereby approve the
Business Plan and Budget for the 1998 Fiscal Year attached hereto as Annex B.
Except in the case of a Deferred Budget Decision, if a Proposed Budget or
Proposed Business Plan, as the case may be, is not approved by the Partners'
Committee, then the Managing Partner and the Partners' Committee shall attempt
to agree on a Proposed Budget or Proposed Business Plan, as the case may be. If
any item in a Proposed Budget or Proposed Business Plan requires expenditure of
funds in furtherance of any transaction or purpose referred to in Section 4.11,
such Proposed Budget or Proposed Business Plan shall not be approved as to such
item unless such item is approved by each Partner that would have been required
to approve such item under Section 4.11.
-39-
<PAGE>
(b) Except in the case of a Deferred Budget Decision, if a Proposed
Budget has not been approved by the Partners' Committee by January 1 of any
Fiscal Year, then until the Partners' Committee approves a Budget, the Budget
for such Fiscal Year shall be derived from the applicable year of the Business
Plan; provided that if such Fiscal Year is not included in an approved Business
--------
Plan, then the Budget for such Fiscal Year shall be identical to the Budget for
the prior Fiscal Year, adjusted to reflect increases or decreases resulting
from:
(i) the operation of escalation or de-escalation provisions in
contracts in effect at the time of approval of the prior Fiscal Year's
Budget solely as a result of the passage of time or the occurrence of
events beyond the control of the Partnership to the extent such contracts
are still in effect;
(ii) elections made in any prior Fiscal Year under contracts
contemplated by the Budget for the prior Fiscal Year regardless of which
party to such contracts makes such election;
(iii) increases or decreases in expenses attributable to the
annualized effect of employee additions or reductions during the prior
Fiscal Year contemplated by the Budget for the prior Fiscal Year;
(iv) interest expense attributable to any loans made to the
Partnership (including Partner's Loans);
(v) increased overhead expense in an amount equal to the percentage
increase for the prior Fiscal Year in the Consumer Price Index multiplied
by the total of overhead expenses reflected in the Budget for the prior
Fiscal Year;
(vi) the effect of a decision made by the Partners' Committee in a
prior Fiscal Year and not reflected in the Budget for such prior Fiscal
Year;
-40-
<PAGE>
(vii) reductions in advertising commission revenues attributable to
changes in ownership of counterparties subject to advertising
representation agreements;
(viii) the anticipated costs during such Fiscal Year for any legal,
accounting and other professional fees or disbursements in connection with
events or changes not contemplated at the time of preparation of the Budget
for the prior Fiscal Year;
(ix) increases in expenses attributable to the effects of
Extraordinary Decisions made in the prior Fiscal Year and not otherwise
provided for above;
(x) decreases in expenses attributable to nonrecurring items
reflected in the prior Fiscal Year's Budget; and
(xi) decreases in revenues due, in whole or in part, to reductions in
advertising commission income resulting from the failure to enter into or
renew any advertising representation agreement because the Partners other
than the Managing Partner objected to the terms proposed by the Managing
Partner and the Managing Partner was unable thereafter to enter into or
renew an advertising representation agreement with the relevant network or
team on terms acceptable to such other Partners.
Notwithstanding the foregoing, the aggregate amount of capital
expenditure items in any Budget established pursuant to this Section 4.4(b)
for any Fiscal Year shall be the amount projected for such Fiscal Year in the
Business Plan.
(c) In the case of a Deferred Budget Decision, until the Partners'
Committee agrees on the allocation of Management Overhead, the Budget for the
Fiscal Year shall be determined by reference to the Proposed Budget as agreed to
by the Partners (other than with respect to the Management Overhead allocation)
and the Management Overhead allocation
-41-
<PAGE>
shall be as proposed by the Managing Partner, subject to adjustments pursuant to
Section 4.6 hereof.
(d) If a Proposed Business Plan is submitted for approval pursuant to
this Section 4.4 and is not approved by the Partners' Committee, the Business
Plan most recently approved by the Partners' Committee pursuant to this Section
shall remain in effect as the Business Plan. If a Proposed Budget is approved
pursuant to Section 4.4(a) but a corresponding Proposed Business Plan is not
approved pursuant to Section 4.4(a), the Business Plan then in effect shall be
deemed to be amended so that the Fiscal Year corresponding to the Fiscal Year
for which such Budget has been approved shall be consistent with such Budget.
4.5 Limitation on Agency. Except as expressly provided herein, the
--------------------
Managing Partner shall have exclusive authority to act for the Partnership. No
other Partner shall have any authority to act for, or to assume any obligation
or responsibility on behalf of, another Partner or the Partnership (or to
authorize any other Person to do so) except (i) as otherwise expressly provided
herein or as expressly approved by written consent of all Partners, (ii) if the
Managing Partner is a Defaulting Partner, to the extent necessary to permit the
Non-Defaulting Partners to exercise on behalf of the Partnership any remedies
available to the Partnership against the Managing Partner, or (iii) if the
Managing Partner fails to perform its management duties
-42-
<PAGE>
hereunder (including its duty to give the notices contemplated by Section
3.1(a) hereof), to the extent necessary to permit the Non-Defaulting Partners to
continue the business of the Partnership. In addition to the other remedies
specified in this Agreement, each Partner agrees to indemnify and hold each
other Partner harmless from and against any claim, demand, loss, damage,
liability or expense (including, without limitation, amounts paid in settlement,
reasonable costs of investigation and reasonable legal expenses) incurred by or
made against such other Partner and arising out of or resulting from any action
taken by the indemnifying Partner in violation of this Section 4.5.
4.6 Managing Partner's Services and Expenses. (a) The Managing
----------------------------------------
Partner shall provide or cause to be provided to the Partnership such management
and other services as may be necessary or appropriate to the conduct of the
business of the Partnership from time to time as contemplated by the Business
Plan and the Budget. All reasonable and necessary direct and indirect expenses
(including, but not limited to, human resource expenses, out-of-pocket expenses,
overhead, salary, rent, utility costs and similar expenses) incurred by the
Managing Partner and by and from its Related Persons in furtherance of the
businesses of the Partnership shall be paid or reimbursed (but not in amounts
exceeding the amounts provided in the Business Plan and Budget) by the
Partnership; provided, that
--------
-43-
<PAGE>
all indirect expenses incurred by the Managing Partner and by and from its
Related Persons in the management of the Partnership shall be allocated pursuant
to the Allocation Policy for Management Overhead set forth in Annex D hereto.
4.7 Liability of Partners' Committee and Managing Partner. Neither
-----------------------------------------------------
the individuals constituting the Partners' Committee nor the Managing Partner
shall be liable, in damages or otherwise, to the Partnership or any Partner for
any act or failure to act on behalf of the Partnership by such individuals or
Managing Partner, which act was within the scope of the authority conferred on
the Managing Partner or the individuals constituting the Partners' Committee, as
the case may be, by this Agreement, unless such act or omission constituted
fraudulent or willful misconduct, was performed or omitted in bad faith or
constituted gross negligence or a violation of law. The individuals compris-
ing the Partners' Committee and the Managing Partner shall be indemnified by the
Partnership against liability for any claim, demand, loss, damage, liability or
expense (including, without limitation, amounts paid in settlement, reasonable
costs of investigation and reasonable legal expenses) resulting from any
threatened, pending or completed action, suit or proceeding naming any of them
as a defendant by reason of acts or omissions by them within the scope of their
authority as set forth in this Agreement, provided their actions were in good
faith and did not constitute
-44-
<PAGE>
gross negligence, fraud or willful misconduct or a violation of law.
4.8 Indemnification. Any Person asserting a right to indemnification
---------------
under Section 4.5, Section 4.7 or Section 9.3 shall give notice to the
Partnership or the indemnifying Partner(s). If the facts giving rise to such
indemnification involve any actual or threatened claim or demand by or against a
third party, the indemnifying Person shall be entitled to control the defense or
prosecution of such claim or demand in the name of the indemnified Person, with
counsel reasonably satisfactory to the indemnified Person, if the indemnifying
Person notifies the indemnified Person in writing of its intention to do so
within twenty (20) days after the receipt of such notice by the indemnifying
Person, without prejudice, however, to the right of the indemnified Person to
participate therein through counsel of the indemnified Person's own choosing,
which participation shall be at the indemnified Person's sole expense unless (i)
the indemnified Person shall have been advised by its counsel that use of the
same counsel to represent both the indemnifying Person and the indemnified
Person would present a conflict of interest (which shall be deemed to include
any case where there may be a legal defense or claim available to the
indemnified Person which is different from or additional to those available to
the indemnifying Person), in which case the indemnifying Person shall not have
the right
-45-
<PAGE>
to direct the defense of such action on behalf of the indemnified Person, or
(ii) the indemnifying Person shall fail diligently to defend or prosecute such
claim or demand within a reasonable time. Whether or not the indemnifying
Person chooses to defend or prosecute such claim, the parties hereto shall
cooperate in the prosecution or defense of such claim and shall furnish such
records, information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be requested in
connection therewith. The indemnifying Person shall not settle or permit the
settlement of any such third party claim or action without the prior written
consent of the indemnified Person, which consent shall not be unreasonably
withheld.
4.9 Contracts with Related Persons and Partner Associates. (a) The
-----------------------------------------------------
Managing Partner shall in all cases seek to enforce the rights of the
Partnership under any existing or future contract with a Related Person with
respect to a Partner or a Partner Associate (as defined below), including
without limitation any advertising representation agreement (each a "Related
Advertising Agreement"), between the Partnership, on the one hand, and any
Partner or an Affiliate of any Partner or any Person managed by any of them or
any Person in which any of them, directly or indirectly, has an equity interest
greater than 10% on a fully-diluted basis (each a "Partner Associate"), on the
-46-
<PAGE>
other hand, with the same level of diligence and perseverance as a prudent
manager would apply to the enforcement of similar contracts in similar
circumstances with unrelated parties and shall not, without consent of all of
the other Partners (which consent shall not be unreasonably withheld), grant any
material waiver of performance under any such contract to or in favor of such
Related Person or Partner Associate, unless such waiver is in the best interests
of the Partnership. Without limiting any other right of such other Partners set
forth herein, upon any failure by the Managing Partner to comply with the
provisions of the foregoing sentence, any of the other Partners, other than the
Partner as to which the Related Person is a Related Person or such Partner
Associate is a Partner Associate, may, upon notice to the Managing Partner,
pursue in the name of the Partnership such remedies as may be available against
any such Related Person or Partner Associate with respect to any such contract;
provided, that such other Partners (jointly and severally, if there is more than
- --------
one) indemnify the Managing Partner and the Partnership for any losses or
damages (including attorneys' fees and disbursements) accruing to the
Partnership as a result of any judgment, decision, award or settlement adverse
to the Partnership or such other Partner in any action or proceeding commenced
in connection with the pursuit of such remedies.
-47-
<PAGE>
(b) The Partnership shall not (i) take any action, including entering
into or amending any advertising representation agreement, which would trigger a
"most favored nations" provision in any Related Advertising Agreement or (ii)
enter into a Related Advertising Agreement which includes a guarantee to a
Partner Associate of any obligation, unless either, (A) in the case of clause
(i), such Partner Associate has effectively waived in writing the benefit of
such "most favored nations" provision in connection with the action proposed to
be taken by the Partnership or (B) in the case of clause (i) or clause (ii),
each Disinterested Partner shall have approved such agreement.
(c) From and after the time that under any Related Advertising
Agreement a renewal commission rate or other compensation or reimbursement
amount is set pursuant to a formula based upon market rates charged to other
networks or teams, the Managing Partner will consult with each Disinterested
Partner, or if there are none, each Partner that is not a party to, and none of
whose Partner Associates is a party to, such Related Advertising Agreement,
prior to agreeing to or amending the rates charged by or other amounts payable
to the Partnership under any advertising representation agreement, other than
any Related Advertising Agreement, that would affect the commission rate or
other compensation or reimbursement
-48-
<PAGE>
amount payable upon renewal of such Related Advertising Agreement, and such
Disinterested Partner(s), or, if none, such other Partner(s) (which may, in each
case, include the Managing Partner), acting by majority of the Sharing
Percentages owned by all such Disinterested Partners or other Partners, shall
have the right to approve (which approval must be in a writing delivered prior
to the entering into or amendment of such agreement) the rates to be charged to,
or other amounts to be paid by, such network or team to the Partnership, which
approval shall not be unreasonably withheld.
(d) Notwithstanding any contrary provision in Section 4.3, no
provision in any Related Advertising Agreement may be amended or waived without
the prior written consent of the Disinterested Partner(s) (which may include the
Managing Partner), acting by majority in the Sharing Percentages owned by all
Disinterested Partners, which consent shall not be unreasonably withheld.
(e) Without the prior written consent of each Partner, which shall not
unreasonably be withheld, the Partnership shall not file any notice, exercise
any election or take any other action which would directly (i) affect the
commission rate or other compensation or reimbursement amount to be paid to the
Partnership by the applicable Partner Associate under any Related Advertising
Agreement; (ii) entitle any Partner Associate to exercise any right of
-49-
<PAGE>
termination as to any network or team subject to such Related Advertising
Agreement; or (iii) result in an arrangement with a Partner Associate that
triggers a "most favored nations" or similar provision in any advertising
representation agreement to which the Partnership is a party (other than a
Related Advertising Agreement) for the benefit of the network or team party
thereto that would be adverse to the Partnership other than in an insubstantial
respect; provided, that no such consent shall be required from a Forfeited
--------
Partner in respect of any of the matters described in clauses (i) through (iii).
4.10 Approved Agreements. Notwithstanding any provision of this
-------------------
Agreement to the contrary, no action by the Partners' Committee or any Partner
shall be required in order to authorize the Partnership to enter into and
perform any of the Approved Agreements or to renew any Approved Agreement
pursuant to an automatic renewal provision of such Approved Agreement or on
terms no less favorable to the Partnership than those prevailing prior to such
renewal.
Each Approved Agreement shall, for purposes of this Agreement, be deemed to be
on an Arm's-length basis.
4.11 Unanimous Actions by Partners. (a) The Partners' Committee
-----------------------------
or the Managing Partner may make a recommendation, but shall have no power,
without the prior written consent of all Partners (other than a Forfeited
Partner):
-50-
<PAGE>
(i) to amend this Agreement;
(ii) to admit any Person as a Partner in the Partnership except
as a result of a Transfer permitted by this Agreement;
(iii) to merge or consolidate the Partnership with any other
Person, other than in connection with an Initial Public Offering;
(iv) to lend or advance funds to any Partner or any Related
Person of a Partner other than pursuant to the Approved Agreements;
(v) to borrow funds except to the extent specifically
identified in the then-applicable Budget or Business Plan other than in the
form of a Partner's Loan;
(vi) except for the entering into of Approved Agreements, to
enter into or amend any agreement or arrangement or consummate any
transaction with a Partner or any Related Person of a Partner or any
agreement or arrangement with a third party that is related to an agreement
or arrangement between such third party and a Partner or any Related Person
of a Partner (including, without limitation, any "joint buy" transaction
where the Partnership is representing multiple parties in the sale of
advertising to an advertiser and one of those parties is a Related
Person of the Managing Partner); provided, that the consent of the Partners
--------
shall not be required pursuant to this Section 4.11(a)(vi) in
connection with the Partnership consummating any transaction (x) with a
Partner or any Related Person of a Partner pursuant to the express terms of
an Approved Agreement (but if more than one Partner or Related Party is a
party to such transaction then the requirement that the transaction be
pursuant to the express terms of an Approved Agreement shall apply to all
such Partners and Related Persons) or (y) pursuant to which the Partnership
sells advertising to a Partner or any Related Person of a Partner in the
ordinary course of the Partnership's business on an Arm's-length basis on
terms that are no less favorable to the Partnership than those prevailing
in the market for sales of such advertising; provided, further however,
that, in addition to the foregoing requirements, the Partnership shall not
sell advertising on behalf of the National Sports Partnership to any
Related Person of the Managing Partner other than pursuant to an
arrangement in which
-51-
<PAGE>
the National Sports Partnership receives payments in cash, unless such
other arrangements have been approved by all of the Partners;
(vii) to dissolve and wind up the Partnership, other than in
connection with an Initial Public Offering except as otherwise provided in
Sections 8.1 and 8.2;
(viii) to Transfer all or substantially all of the assets of
the Partnership, other than in connection with an Initial Public Offering;
(ix) to acquire, directly or indirectly, any substantial
interest or participation in any other Person;
(x) to make any capital call other than in accordance with an
approved Budget;
(xi) to enter into, develop or acquire any new business except
to the extent specifically identified in the then-applicable Budget or
Business Plan; or
(xii) to effect a substantial change in the business of the
Partnership so that it does not consist predominantly of national sports
advertising representation.
(b) In addition to the approvals required under Section 4.11(a), the
prior written approval of any Forfeited Partner shall be required before any of
the actions referred to in Section 4.11(a)(iv), (v) or (vi) (unless in any such
case the actions in question are on an Arm's-length basis), Section 4.11(a)(vii)
or (viii), and before this Agreement may be amended in any respect that could
reasonably be expected to adversely affect such Forfeited Partner.
4.12 Removal of Managing Partner. If (a) any Restricted Person shall
---------------------------
Control Fox or (b) Fox and Twentieth Holdings Corporation shall directly or
indirectly hold less than a Minimum Interest in Fox/Liberty Partner, the
Managing
-52-
<PAGE>
Partner may be removed as Managing Partner at the request of any other Partner
(other than a Defaulting Partner) by written notice by the requesting Partner to
the Managing Partner within 60 days of such event.
Upon the removal of the Managing Partner, a new Managing Partner shall
be appointed from among the Partners by the unanimous vote of the Partners
excluding any Partner that is a Forfeited Partner at the time of such decision.
Until a successor Managing Partner has been appointed, the Partnership shall be
managed by the Partners' Committee in accordance with Section 4.2.
The removal of the Managing Partner shall not, of itself, affect the
Managing Partner's Interest or Sharing Percentage in the Partnership or the
right of its representatives to vote (except as provided in the preceding
paragraph) on the Partners' Committee or its rights under Section 4.11.
ARTICLE V
---------
BOOKS AND RECORDS; REPORTS TO PARTNERS
5.1 Books and Records.
-----------------
(a) At all times during the Term, the Managing Partner, or in the
event there is no Managing Partner the Partners' Committee, shall keep or cause
to be kept full and complete books of account and business records in which
-53-
<PAGE>
shall be entered fully and accurately each transaction of the Partnership.
(b) All such books of account and business records shall at all times
be maintained at the principal office of the Partnership or such other place the
Partners' Committee may determine. Each Partner or its duly authorized
representatives shall have the right, upon reasonable notice, at its own
expense, to examine, inspect and copy, during normal business hours and for any
lawful purpose related to the affairs of the Partnership or the investment in
the Partnership by such Partner, any of the books of account, business records,
properties and operations of the Partnership. Such examination, inspection
and copying may be conducted by the Partner's employees, its independent
certified public accountants, or its other agents. Any information obtained by
any Partner during such an inspection shall be treated as confidential to the
extent required by Section 10.10 hereof. The Partnership's books of account and
business records shall be preserved for a period of at least five years or such
longer period as is required by law.
(c) The Partnership's books of account shall be kept on an accrual
basis in accordance with GAAP. The fiscal year (the "Fiscal Year") of the
Partnership shall end on December 31, or on such other date as shall be
determined by the Partners' Committee.
-54-
<PAGE>
5.2 Financial Reports. The Managing Partner, or in the event there
-----------------
is no Managing Partner the Partners' Committee, shall deliver to each Partner,
no later than 30 days after the end of each calendar month, a statement of
income (loss), balance sheet, statement of capital expenditures, a report on
future revenue to be generated by contracted orders, a report showing the
status of sales efforts for new business for the Partnership for such month and
a report showing sales of advertising to Related Persons of the Managing Partner
prepared, in the case of financial information, in accordance with GAAP. The
Managing Partner, or in the event there is no Managing Partner the Partners'
Committee, shall deliver to each Partner, no later than 45 days after the close
of each of the first three quarters of the Partnership's Fiscal Year, and 60
days after the end of each such Fiscal Year, a financial report of the business
and operations of the Partnership prepared in accordance with GAAP (and, if
required by any Partner for purposes of reporting under the Securities Exchange
Act of 1934, in accordance with Regulation S-X or any successor regulation),
relating to such period, which report shall include a balance sheet as of the
end of such period, a statement of income (loss) and partners' capital
(deficiency) and cash flows (including sources and uses of funds) for the period
then ended, and in each case a comparison of the period then ended with the
corresponding period in the Fiscal Year
-55-
<PAGE>
immediately preceding such period, which, in the case of the report furnished
after the close of the Fiscal Year, shall be audited by the Partnership's
independent certified public accountants. The monthly and quarterly financial
statements shall be accompanied by an analysis, in reasonable detail, of the
variance between the Partnership's operating results and the corresponding
amounts in the then-current Budget. The monthly and quarterly financial reports
may in each case be subject to normal year-end adjustments. In addition to the
foregoing financial statements, the financial report furnished after the close
of each Fiscal Year shall also include a statement of cash flows, and
allocations to the Partners of the Partnership's taxable income, gains, losses,
deductions and credits. The financial report required to be furnished after the
close of the Fiscal Year may be delivered in preliminary form, without
footnotes; provided, that the final form of the required financial
--------
statements, audited by the Partnership's independent certified public accoun
tants, must be delivered within 75 days after such year-end. Additionally, the
Partnership shall provide an estimate of annual net income (loss) to each
Partner no later than 21 days after the close of each Fiscal Year and shall,
within 10 days after the end of each month provide any other available financial
information which any Partner reasonably requests. The Partnership will
initially engage Arthur Andersen LLP as its independent certified public
accountants. The Partnership shall bear the cost of each annual
-56-
<PAGE>
audit and, except as otherwise provided in Section 4.6, the cost of any other
services furnished to the Partnership by its independent certified public
accountants as provided herein.
5.3 Tax Returns and Information.
---------------------------
(a) Until further action by the Partners' Committee, the Managing
Partner is designated as Tax Matters Partner under (S)6231(a)(7) of the Code.
The Tax Matters Partner will take no action which is reasonably expected to have
a material adverse effect on one or more of the Partners unless such action is
approved by each such Partner. The Tax Matters Partner shall have the rights and
obligations set forth under the Code and regulations thereunder; provided, that
--------
in no event shall the Tax Matters Partner extend the statute of limitations with
respect to any Partner pursuant to Section 6229(b) of the Code without the prior
written consent of such Partner or litigate any adjustment to any Partnership
tax item in any forum other than the United States Tax Court without the prior
written approval of all Partners. The Tax Matters Partner will be responsible
for notifying all Partners of ongoing proceedings, both administrative and
judicial, and will represent the Partnership throughout any such proceeding. The
Partners will furnish the Tax Matters Partner with such information as it may
reasonably request to provide the
-57-
<PAGE>
Internal Revenue Service with sufficient information to allow proper notice to
the Partners. If an administrative proceeding with respect to a partnership item
under the Code has begun, and the Tax Matters Partner so requests, each Partner
will give notice to the Tax Matters Partner of its treatment of any partnership
item on its federal income tax return, if any, which is inconsistent with the
treatment of that item on the partnership return for the Partnership. Any
settlement agreement with the Internal Revenue Service will be binding upon the
Partners only as provided in the Code. The Tax Matters Partner will not bind any
other Partner to any extension of the statute of limitations or to a settlement
agreement without such Partner's written consent. Any Partner who enters into a
settlement agreement with respect to any partnership item will give notice to
the other Partners of such settlement agreement and its terms within 30 days
after the date of settlement. If the Tax Matters Partner does not file a
petition for readjustment of the partnership items in the Tax Court, federal
District Court or Claims Court within the 90-day period following a notice of a
final partnership administrative adjustment, any notice partner or 5-percent
group (as such terms are defined in the Code) may institute such action within
the following 60 days. The Tax Matters Partner will timely give notice to the
other Partners in writing of its decision. Any notice partner or 5-percent group
will give notice to the other Partners of its filing of any petition for
readjustment.
-58-
<PAGE>
(b) The Tax Matters Partner shall cause income and other required
Federal, state and local tax returns for the Partnership to be prepared and sent
(together with related work papers) to each Partner for review at least 15
business days prior to filing, and will cause such returns to be timely filed
with the appropriate authorities. The Tax Matters Partner shall make or maintain
in effect an election under Section 754 of the Code to adjust the basis of the
Partnership Property under Sections 734 and 743 of the Code for taxable years
after the Effective Date if it deems such election to be in the best interests
of the Partnership or of any Partner. Subject to Section 4.3, the Tax Matters
Partner shall make such other elections as it shall deem to be in the best
interests of the Partnership and the Partners. The cost of preparation of such
returns by outside preparers, if any, shall be borne by the Partnership.
(c) The Tax Matters Partner shall cause to be provided to each
Partner no later than July 1 of each year information concerning the
Partnership's projected taxable income or loss and each class of income, gain,
loss, deduction or credit which is relevant to reporting a Partner's share of
the Partnership income, gain, loss, deduction or credit for purposes of Federal
or state income tax. Infor-
-59-
<PAGE>
mation required for the preparation of a Partner's income tax returns shall be
furnished to the Partners as soon as possible after the close of the
Partnership's Fiscal Year.
(d) For Federal income tax purposes, all gain, loss, depreciation or
amortization with respect to property which is reflected in the Capital Accounts
of the Partners at a basis different from the tax basis of such property shall
be allocated pursuant to the principles of Section 704(c) of the Code and the
Treasury Regulations promulgated thereunder. All other items of income or
deduction shall be allocated for Federal income tax purposes in the same way
such items are allocated to the Capital Accounts of the Partners. All tax
credits shall be allocated to the Partners based upon the Sharing Percentage of
the Partners as of the time the expenditure giving rise to the credit was
incurred.
(e) The Tax Matters Partner shall from time to time upon request of
any other Partner cause the Partnership's attorneys and accountants to confer
with attorneys and accountants for such other Partner on any matters relating to
any Partnership tax return or tax election.
-60-
<PAGE>
ARTICLE VI
----------
PLEDGES, TRANSFERS, ADMISSIONS, WITHDRAWALS
6.1 Transfer by Partners.
--------------------
(a) Except for Transfers made pursuant to Section 6.1(b), 6.5, 6.6 or
8.3, without the prior written consent of all of the Partners (other than a
Forfeited Partner), no Partner shall have the right to Transfer all or any part
of its Interest, or to suffer to occur a Change in Control of such Partner or an
Indirect Transfer as to such Partner, and any such Transfer shall be void and of
no force or effect.
(b) Other than in connection with Transfers pursuant to Section 6.5,
6.6 and 8.3, no Partner (a "Selling Partner") shall have the right to Transfer
all or any part of its Interest or to suffer to occur a Change in Control of
such Partner or an Indirect Transfer as to such Partner, without first offering
to the remaining Partners (other than a Forfeited Partner) (each an "Offeree"
and collectively the "Offerees") a right of first refusal to purchase the
portion of such Selling Partner's Interest that is proposed to be so Transferred
or, in the case of a Change in Control or an Indirect Transfer, all of such
Partner's Interest (the "Offered Interest"), all on the terms hereinafter set
forth. The Offered Interest must be offered by means of a notice (an "Offer
Notice") given by the Selling Partner to each Offeree at a price and upon terms
no less favorable to the
-61-
<PAGE>
Offerees than those which the Selling Partner is
willing to accept from a bona fide third party purchaser pursuant to an offer
---- ----
from such third party purchaser (or, in the case of a Change in Control or an
Indirect Transfer, the value of the Offered Interest, as determined by
multiplying the Fair Market Value of the Partnership by the Sharing Percentage
represented by the Offered Interest) (a "Bona Fide Offer"); provided, that
--------
regardless of the terms of the Bona Fide Offer, the Offered Interest shall be
offered to the Offerees on terms that permit the Offerees 90 days within which
to complete the purchase. The Offer Notice shall state the identity of, and the
price and other terms offered by, such third party for the purchase of the
Offered Interest (or, in the case of a Change in Control or an Indirect
Transfer, the identity of the Person that will acquire Control of the Partner or
the Interest as a result of the proposed transaction). In any case where a Bona
Fide Offer has been made in respect of an Offered Interest in conjunction with
other property, the price in respect of the Offered Interest shall be the
Allocated Interest Offer Price. Within 15 days after receipt of such Offer
Notice, each Offeree shall accept, in whole or in part, or reject such offer for
the Offered Interest by delivering a notice to each of the other Partners and,
if any Partner rejects such offer, it shall state in writing whether it consents
to the proposed Transfer under Section 6.1(a). If pursuant to this
-62-
<PAGE>
Section 6.1(b) the Partners have agreed to purchase, in the aggregate, the
entire Offered Interest, then the entire Offered Interest shall be purchased by
the Partners that accepted all or a portion of the Offered Interest in
accordance with the terms offered by the Selling Partner and no consent to such
Transfer shall be required under Section 6.1(a); provided, that if Rainbow
Partner is purchasing any or all of the Offered Interest, the purchase price
shall be payable at the option of Rainbow Partner either (i) by wire transfer of
funds or by certified or cashier's check drawn to the order of the Selling
Partner or (ii) in the form of a promissory note of Rainbow Partner secured,
pursuant to a pledge or collateral assignment agreement in form reasonably
acceptable to the Selling Partner, by the Interest purchased, maturing on the
third anniversary of the date of such Transfer and bearing interest, payable
semi-annually, at a rate per annum equal to the Prime Rate plus one-half of one
percent (1/2%). If all of the Offered Interest has not been accepted and no
Partner has delivered a writing in which it refused to consent to the proposed
Transfer, then the Selling Partner may, within 90 days after the Offer Notice is
given, Transfer the entire Offered Interest but not a portion thereof to such
third party at a price not less than the price at which, and on other terms no
more favorable to the third party than those contained in the Bona Fide Offer
(or, in the case of a Change in Control
-63-
<PAGE>
or an Indirect Transfer, suffer the completion of such Change in Control or
Indirect Transfer). If the Offered Interest is not so disposed of within such
90-day period, then the Selling Partner shall, before Transferring all or any
portion of its Interest (or suffering the completion of a subsequent Change in
Control or Indirect Transfer), again be obligated to offer the right of first
refusal contained in this Section 6.1(b) to the other Partners. The sale of an
Interest pursuant to a Bona Fide Offer in accordance with this Section 6.1(b)
shall not be effective without the prior written consent (which shall not be
unreasonably withheld) of the Partners (other than a Forfeited Partner) and any
such purported sale shall be void and of no force or effect.
(c) After any Transfer of an Interest permitted hereby, the
Transferee shall be admitted as a Partner, with appropriate amendments being
made to this Agreement, the Transferred Interest shall continue to be subject to
all the provisions of this Agreement including, without limitation, the
provisions of this Article VI.
(d) Except as otherwise provided in Section 6.5, a Transfer will be
deemed to occur for the purpose of this Article VI in respect of the Interest of
a Partner in the event of a Change in Control of such Partner or an Indirect
Transfer with respect to such Partner. In the event of any such deemed Transfer
of an Interest, (i) if such Transfer is made in compliance with the first
sentence of Sec-
-64-
<PAGE>
tion 6.1(a), the Interest deemed Transferred shall continue to be subject to all
the provisions of this Agreement and, upon request by any other Partner, the
deemed Transferring Partner shall cause each deemed Transferee to assume and
agree to perform in writing all of such deemed Transferring Partner's duties and
obligations as a Partner under this Agreement, including, without limitation,
the obligations imposed by this Article VI; and (ii) if such deemed Transfer is
not made in compliance with Section 6.1(a), then the other Partners shall be
entitled to make the elections and exercise the remedies available to Non-
Defaulting Partners under Section 7.2 of this Agreement against the deemed
Transferring Partner and its deemed Transferee.
6.2 Additional Provisions Relating to Transfer.
------------------------------------------
(a) In the case of any Transfer under Section 6.1, 6.5, 6.6 or 8.3:
(i) Except as provided therein, the Transfer of an Interest shall not
affect the Approved Agreements; provided, however, that if the Transferring
-------- -------
Partner is the Managing Partner, then, with respect to any agreements
between the Partnership and the Transferring Managing Partner or any
Related Person with respect to the Transferring Managing Partner for the
provision of management and other services of the type described in Annex D
to this Agreement (whether or not such agreements are Approved
Agreements), the other Partners (acting by a majority of such Partners'
Sharing Percentages) shall have the option, by giving 30 days' notice to
the Transferring Managing Partner or such Related Person, as the case may
be, to (A) elect to terminate any or all of such agreements or (B) elect to
cause any or all of such agreements to be assigned to the Transferee or its
Designee or, if there is more than one Transferee, to any Person jointly
designated by such Transferees. Upon the written request of the
-65-
<PAGE>
non-Transferring Partners, the Managing Partner and its Affiliates shall
continue to provide to the Partnership for a period of 90 days following
the date of Transfer any management and other services of the type
described in Annex D that were being provided by them immediately prior to
the Transfer, and the Managing Partner and its Affiliates shall continue to
be compensated for such services and reimbursed for their costs in
accordance with the provisions of Sections 4.1 and 4.6 hereof, or in
accordance with the provisions of any applicable agreement, as the case may
be. Upon any such termination, the Transferring Managing Partner shall
cooperate and shall cause its Affiliates to cooperate with the Transferee
or Transferees, as the case may be, in order to effect an orderly
transition of management services; and
(ii) The Transferee or Transferees of an Interest, as the case may be,
shall be required to pay any and all filing and recording fees, fees of
counsel and accountants and other costs and expenses reasonably incurred by
the Partnership as a result of such Transfer.
(b) In connection with the Transfer of any Interest pursuant to Section
6.1, 6.6 or 8.3, the Transferor and its Affiliates will be obligated to sell to
the Transferee, and the Transferee will be obligated to buy from the Transferor
and its Affiliates, all (or in the case of a partial Transfer, an appropriate
portion of) evidences of indebtedness (including Partner's Loans) of the
Partnership held directly or indirectly by the Transferor and its Affiliates for
an amount, payable in cash, equal to the outstanding principal amount thereof at
the time of Transfer plus interest thereon then accrued and unpaid; provided,
--------
that in connection with a Transfer pursuant to a Bona Fide Offer the terms of
the Bona Fide Offer will govern the disposition of such evidences of
indebtedness.
-66-
<PAGE>
(c) The Transferee of an Interest hereunder shall assume in writing in
form and substance reasonably satisfactory to the non-Transferring Partners the
obligations of the Transferring Partner under this Agreement arising from and
after the effective date of the Transfer in respect of the Transferred Interest
and the Transferring Partner shall be released therefrom except for those
obligations or liabilities of the Transferring Partner based on events
occurring, arising or maturing prior to the date of Transfer and except those
obligations arising out of a breach of this Agreement by the Transferring
Partner or pursuant to Section 4.5, 4.7 or 9.3.
(d) If required by any non-Transferring Partner, the Transferee shall
deliver to the Partnership an opinion, satisfactory in form and substance to the
non-Transferring Partners, of counsel reasonably satisfactory to such non-
Transferring Partners to the effect that the Transfer of the Interest in
question is in compliance with applicable state and federal securities laws.
(e) No Transfer shall be recognized for any purpose as between a
Transferring Partner and the Partnership or as between a Transferring Partner
and the other Partners until the Transferee shall have executed written
instruments satisfactory to the Partners' Committee to become a party to this
Agreement and assume the rights and obligations of the Transferring Partner
hereunder.
-67-
<PAGE>
(f) Upon completion of any Transfer pursuant to Section 6.1, 6.6 or 8.3 or
a change of ownership in compliance with Section 6.5(a), the Transferee of an
Interest (if not already a Partner) shall be admitted as a Partner without any
further action upon compliance with the provisions of this Section 6.2.
6.3 Effect of Attempted Transfer; Withdrawals and Admissions
--------------------------------------------------------
Generally. An attempted Transfer of any Interest or any portion thereof in
- ---------
violation of any provision of this Agreement shall be void. No Partner shall
withdraw from the Partnership, except by a Transfer of an Interest permitted by
this Agreement or with the written consent of the other Partners.
6.4 Tax Allocation Adjustments; Distributions After Transfer. In
----------------------------------------- --------------
the event of a Transfer of any Interest, regardless of whether the Transferee
becomes a substitute Partner, all items of income, gain, loss, deduction and
credit for the fiscal period in which the Transfer occurs shall be allocated for
Federal income tax purposes between the Transferor and the Transferee on the
basis of the ownership of the Interest at the time the particular item is
taken into account by the Partnership for Federal income tax purposes, except to
the extent otherwise required by Section 706(d) of the Code. Distributions
made on or after the effective date of Transfer shall be made to the Transferee,
-68-
<PAGE>
regardless of when such distributions accrued on the books of the Partnership.
6.5 Certain Affiliate Transferee Transactions Not Deemed Transfers.
--------------------------------------------------------------
(a) Notwithstanding anything in this Agreement to the contrary, a transaction
shall not be deemed to constitute a direct or indirect Transfer of an Interest,
a Change in Control or an Indirect Transfer, if the transferee and the
transferor are Affiliate Transferees. A transferor and a transferee shall be
deemed to be "Affiliate Transferees" if (i) the same Person directly or
indirectly owns more than a Minimum Interest in both the transferor and the
transferee immediately prior to the transaction in question or (ii) Fox,
Twentieth Holdings Corporation or Liberty collectively own all of the direct and
indirect interests in the transferor and the transferee immediately prior to the
transaction in question. Fox/Liberty Partner hereby agrees to consult in good
faith with Rainbow Partner prior to engaging in any transaction which has the
effect of reallocating between Fox and Liberty their direct or indirect
ownership interests in the Partnership.
(b) Notwithstanding anything in this Agreement to the contrary, none of
the following transactions shall be deemed to constitute a direct or indirect
Transfer of an Interest, a Change in Control or an Indirect Transfer: (i) a
change, shift or transfer of Control that shall be deemed not to be a Change in
Control pursuant to the second
-69-
<PAGE>
sentence of the definition thereof; or (ii) the Transfer directly or indirectly
of all or any portion of the equity interests in, or assets of, Rainbow Partner
to the stockholders of RMH as a class (it being understood that such transfer
may include the transfer to different classes of stockholders of RMH of
different classes of equity interests reflecting the same relative rights and
privileges as the different classes of stock of RMH) or to any group of public
equity holders (including, without limitation, a transfer by means of a
registered public offering).
6.6 IPO-Call Procedure. (a) The procedure set forth in this Section
------------------
6.6 (the "IPO-Call Procedure") may be initiated by Rainbow Partner during any
IPO-Call Notice Window. Such IPO-Call Procedure shall be initiated by written
notice (the "IPO-Call Notice") from Rainbow Partner to Fox/Liberty Partner in
accordance herewith. Except as provided below, upon the giving of the IPO-Call
Notice, Fox/Liberty Partner shall be obligated to purchase, and Rainbow Partner
shall be obligated to sell, all (but not less than all) of the Interests of
Rainbow Partner at the Call Price (as defined below) in accordance with the
terms hereof.
(b) For 45 days after receipt of an IPO-Call Notice, Rainbow Partner, on
the one hand, and Fox/Liberty Partner, on the other hand, shall negotiate in
good faith to determine the Fair Market Value of all of the Interests. If
-70-
<PAGE>
such Partners are not able to agree on such Fair Market Value, prior to such
45th day, each shall select an Appraiser. Within 15 days after the selection of
the Appraisers, the Appraisers so selected shall jointly select a third
Appraiser. Within 30 days after its selection, the third Appraiser shall
determine the value of the Interests held by Rainbow Partner by determining the
Fair Market Value of all of the Interests and multiplying such Fair Market Value
by the Sharing Percentage of Rainbow Partner (the "Call Price"). Within 30 days
after determination of the Call Price, Fox/Liberty Partner shall give written
notice to Rainbow Partner of its election either (i) to purchase the Interests
of Rainbow Partner for, at the election of Fox/Liberty Partner, any of (A) a
number of Marketable Securities of TCI, The News Corporation Limited or a person
that holds all of the Fox and Liberty interests in sports programming (or a
combination thereof) calculated by dividing the Call Price by the Current Market
Price of such Marketable Securities, or (B) a promissory note of Fox/Liberty
Partner secured, pursuant to a pledge or collateral assignment agreement in form
reasonably acceptable to Rainbow Partner, by the Interest purchased, maturing on
the third anniversary of the IPO-Call Closing Date and bearing interest, payable
semi-annually, at a rate per annum equal to the Prime Rate plus one-half of one
percent (1/2%) in aggregate principal amount equal to the
-71-
<PAGE>
Call Price or (ii) to consummate an Initial Public Offering of the Partnership
or the Corporation within 180 days of the IPO Call Notice. If a purchase of
Interests is to be effected pursuant to this Section, at Fox/Liberty Partner's
request, the parties shall negotiate in good faith to structure the transaction
as a tax-free transaction, provided, that (i) Rainbow Partner will not be
--------
required to accept, in exchange for its Interests, securities which are not
Marketable Securities, (ii) neither Rainbow Partner nor the issuer of such
Marketable Securities shall be required to structure the transaction in a manner
that would cause to it any adverse consequences and (iii) Fox/Liberty Partner
shall not be required to change its election with respect to the Marketable
Securities being issued. Securities issued in such transaction may be voting,
nonvoting or convertible into voting securities at the election of the issuer.
(c) Fox/Liberty Partner may elect to have its purchase effected by a
Designee and, if Rainbow Partner so elects, Fox/Liberty Partner shall guarantee
the performance of its Designee. The business affairs of the Partnership shall
continue to be conducted in the ordinary course as provided in this Agreement
during the pendency of and unaffected by the IPO-Call Procedure.
(d) In the event that an Initial Public Offering of the Partnership or the
Corporation is not consummated within 180 days after the date of the IPO-Call
Notice, the
-72-
<PAGE>
closing of any purchase and sale of an Interest under this Section 6.6 shall be
held at a mutually acceptable place on a mutually acceptable date (the "IPO-Call
Closing Date") not more than 180 days after the date of determination of the
Call Price; provided, that if any governmental approvals arerequired to
--------
consummate such purchase and sale, the IPO-Call Closing Date shall be the date
on which the last such approval is obtained but in any event not more than 240
days after the determination of the Call Price. At such closing, Rainbow Partner
shall assign to Fox/Liberty Partner the Interests to be sold, free and clear of
all liens, claims and encumbrances, and shall execute such documents as may be
necessary to effectuate the sale.
(e) In order to effectuate an Initial Public Offering, notwithstanding
Section 4.9, Fox/Liberty Partner shall be permitted to effect a reorganization
or restructuring of the Partnership into the Corporation, without any consent of
any other Partner.
ARTICLE VII
------------
EVENTS OF DEFAULT
7.1 Events of Default.
-----------------
(a) An "Event of Default" shall be considered to have occurred with
respect to a Partner (the "Defaulting Partner") if:
(i) Such Partner Transfers all or any part of its Interest, or suffers to
occur a Change in Control of
-73-
<PAGE>
such Partner or an Indirect Transfer as to such Partner, except as
permitted in this Agreement; provided, that no Event of Default shall be
--------
considered to have occurred for 30 days following the involuntary
encumbrance of all or any part of such Interest if during such 30-day
period such Partner acts diligently to, and does, remove any such
encumbrance, including, but not limited to posting a bond to prevent
foreclosure; or (ii) Such Partner or any Affiliate of such Partner fails to
perform or violates any other material term or condition of this Agreement
(including, without limitation, a failure to pay any amounts due under
Section 6.1 or 6.2 but excluding any failure to meet any capital call) or a
material term or condition of any Approved Agreement (or Section 8.2, 8.3,
8.4 or 8.5 of the Formation Agreement) and such failure or violation
continues for 45 days after such Partner has been given notice thereof by
any other Partner; provided, however, that (other than in the case of a
-------- -------
breach of Section 8.2, 8.3, 8.4 or 8.5 of the Formation Agreement) if the
failure or violation is not a failure to pay money and is of such a nature
that it cannot reasonably be cured within such 45-day period, but if it is
curable and such Partner in good faith begins efforts to cure it within
such 45-day period and continues diligently to do so, it shall have a
reasonable additional period thereafter to effect the cure.
7.2 Remedies of Non-Defaulting Partners.
-----------------------------------
Upon the occurrence and during the continuance of an Event of Default,
the remedies that may be elected by the Non-Defaulting Partners are:
(i) to seek to enjoin such default or to obtain specific performance
of a Defaulting Partner's obligations or sue for Damages (as hereinafter
defined) in respect of such Event of Default; or
(ii) to dissolve the Partnership as provided in Section 8.1(e), in
which event the affairs of the Partnership shall be wound up as provided in
Section 8.2.
The election of a remedy specified in clause (i) above may be made by
any Partner that is not a Defaulting
-74-
<PAGE>
Partner (a "Non-Defaulting Partner") or a Forfeited Partner, and the remedy
specified in clause (ii) above may be made by unanimous vote of the Non-
Defaulting Partners that are not Forfeited Partners, by giving notice to the
Defaulting Partner within 60 days (one year in the case of an action to recover
Damages) after obtaining actual knowledge of the occurrence of such Event of
Default; provided, that if an election pursuant to clause (i) above is made to
--------
seek an injunction, specific performance or other equitable relief and a final
judgment in such action is rendered denying such equitable remedy, then, by
notice given within ten days thereafter the Non-Defaulting Partners may elect to
pursue any or all of the remedies specified in clause (i) or (ii) of this
Section 7.2 unless, prior to the giving of such notice, the Defaulting Partner
has cured the Event of Default in question in full and no other Event of Default
with respect to such Partner has occurred and is continuing or the final
judgment denying equitable relief specifically held that there was no Event of
Default.
The foregoing remedies shall not be deemed mutually exclusive, and
selection or resort to any thereof shall not preclude selection or resort to the
others.
The resort to any remedy pursuant to clauses (i) or (ii) of this Section
7.2 shall not for any purpose be deemed to be a waiver of any other remedy
available here under or under applicable law; provided, that the failure to
--------
-75-
<PAGE>
elect a remedy within the time period provided shall be conclusively presumed to
be a waiver of such Event of Default.
Unless any Event of Default has been waived as set forth in the immediately
preceding paragraph, the Defaulting Partner shall be liable to the Partnership
and to the Non-Defaulting Partners for any and all damages, losses and expenses
(including attorneys' fees and disbursements) (collectively, "Damages") suffered
or incurred by the Partnership or the Non-Defaulting Partners as a result of
such Event of Default; provided, that neither the Partnership nor the
--------
Non-Defaulting Partners shall have or assert any claim against the Defaulting
Partner for lost profits, exemplary, punitive, indirect, special or
consequential Damages suffered or incurred by the Partnership or the Non-
Defaulting Partners as a result of an Event of Default.
ARTICLE VIII
-------------
DURATION AND TERMINATION OF THE PARTNERSHIP
8.1 Events of Termination. The Partnership shall be dissolved and
---------------------
its affairs wound up pursuant to Section 8.2 upon the first to occur of any of
the following events (each an "Event of Termination"):
(a) the expiration of the Term (provided, that the Partners may
--------
at any time prior to such expiration amend this Agreement to extend
the Term);
-76-
<PAGE>
(b) the execution by all of the Partners of a unanimous written
consent to dissolution;
(c) the sale or other disposition of substantially all of the
assets of the Partnership;
(d) the Bankruptcy of a Partner, unless such Partner's Interest
is purchased pursuant to Section 8.3 or the other Partners consent to
a continuation of the Partnership with the successor of such Bankrupt
Partner admitted as a new Partner; or
(e) the election of the Non-Defaulting Partners pursuant to
Section 7.2(ii) to terminate the Partnership upon the occurrence and
during the continuance of an Event of Default.
8.2 Winding-Up. Upon the occurrence of an Event of Termination, if
----------
the Partnership is not continued as provided herein, the Partnership's affairs
shall be wound up as follows:
(a) The Managing Partner, or in the event there is no Managing
Partner the Partners' Committee, shall cause to be prepared a statement of
the assets and liabilities of the Partnership as of the date of
dissolution.
(b) The assets and properties of the Partnership shall be liquidated
as promptly as possible, and receivables collected, all in an orderly and
business like manner so as not to involve undue sacrifice. Notwithstanding
the foregoing, the Partners' Committee may determine not to sell, or
authorize the sale of, all or any portion of the assets and properties of
the Partnership, in which event such assets and properties shall be
distributed in kind pursuant to Section 8.2(c).
(c) The proceeds of liquidation under Section 8.2(b) and all other
assets and properties of
-77-
<PAGE>
the Partnership shall be applied and distributed as follows in the
following order of priority:
(i) to the payment of the debts and liabilities of the
Partnership (excluding any amounts which may be owed to any Partner or
any Affiliate of a Partner in respect of Partner's Loans, but
including all other amounts owed to any Partner or any Affiliate of a
Partner) and the expenses of liquidation;
(ii) to establish any reserves that the Managing Partner, or in
the event there is no Managing Partner the Partners' Committee, in
accordance with sound business judgment, deems reasonably necessary
for any contingent or unforeseen liabilities or obligations of the
Partnership, which reserves may be paid over by the Managing Partner
or the Partners' Committee, as applicable, to an escrow agent selected
by it to be held by such agent for the purpose of (x) distributing
such reserves in payment of the aforementioned contingencies and (y)
upon the expiration of such period as the Managing Partner or the
Partners' Committee, as applicable, may deem advisable, distributing
the balance thereof in the manner provided in this Section 8.2(c);
(iii) to pay the accrued and unpaid interest and unpaid
principal amount of Partner's Loans in the proportion that the
aggregate outstanding amount of such Partner's Loans of each Partner
and its Affiliates, including accrued and unpaid interest, bears to
the total of all such outstanding Partner's Loans, including accrued
and unpaid interest, of all the Partners and their Affiliates;
(iv) to the Partners in proportion to the positive balance of
each Partner's Capital Account; provided, that if any assets are to be
--------
distributed in kind, they will be valued at their Fair Market Value
before the distribution. This adjustment to Fair Market Value will be
reflected in an adjustment to the Partners' Capital Accounts in
accordance with the principles of Section 3.4 immediately prior to any
liquidating distribution. No Partner shall have any obligation to make
any contribution or payment in respect of a negative balance in its
Capital Account. Distributions pursuant to this paragraph may be
distributed to a
-78-
<PAGE>
trust established for the benefit of the Partners for the purposes of
liquidating the Partnership assets, collecting amounts owed to the
Partnership and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of any Partner arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable
discretion of the Partners' Committee, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise
have been distributed to the Partners pursuant to this Agreement.
(d) The Partners and former Partners shall look solely to the
Partnership's assets for the return of their Capital Contributions, and if
the assets of the Partnership remaining after payment of or due provision
for all debts, liabilities and obligations of the Partnership are
insufficient to return such Capital Contributions, the Partners and former
Partners shall have no recourse against the Partnership or any other
Partner.
(e) If the value of the Partnership assets, including profits
from any sale thereof, is insufficient to pay the liabilities of the
Partnership (other than any Partner's Loans and Capital Contributions),
then such additional liabilities and reserve needs shall be funded by the
Partners in accordance with their respective Sharing Percentages without
giving effect to any reduction or increase in the Sharing Percentage of any
Partner pursuant to Section 3.2(b) resulting from one or more defaults
under Section 3.1.
(f) The Partners shall comply with all requirements of
applicable law pertaining to the winding-up of the Partnership.
(g) The Partners acknowledge that this Section 8.2 may establish
distribution priorities different from those set forth under applicable law
and agree that they intend, to the extent legally permissible, to vary
those provisions by this Agreement.
-79-
<PAGE>
8.3 Purchase Option Upon Bankruptcy of a Partner. Upon the Bankruptcy
--------------------------------------------
of a Partner, any other Partner that is not a Defaulting Partner or Bankrupt (a
"Nonbankrupt Partner") shall have the right, but not the obligation, by notice
given to all the Partners within 45 days after such Nonbankrupt Partner obtains
actual knowledge of the occurrence of such Bankruptcy, to elect to purchase or
cause its Designee to purchase all or a portion of its pro rata share (based on
the relative Sharing Percentages of the Nonbankrupt Partners) of the Bankrupt
Partner's Interest. If any Nonbankrupt Partner elects not to purchase its pro
rata portion, the remaining Nonbankrupt Partners, if any, will have the right to
elect to purchase the portion declined. Unless the entire Interest of the
Bankrupt Partner is purchased pursuant to this Section 8.3, no portion of its
Interest shall be purchased. If the Nonbankrupt Partners purchase the entire
Interest of the Bankrupt Partner, the business of the Partnership shall be
continued as a successor business entity without liquidation of the
Partnership's affairs. The purchase price payable for the Bankrupt Partner's
Interest pursuant to this Section 8.3 shall be 100% of the product of the Fair
Market Value of the Partner ship times such Bankrupt Partner's Sharing
Percentage. To the extent there is any disagreement among the Partners as to the
value of the Bankrupt Partner's Interest, such dispute shall be determined by an
Appraiser selected jointly
-80-
<PAGE>
by the Nonbankrupt Partners, on the one hand, and the Bankrupt Partner, on the
other hand. If the Partners are not able to agree on an Appraiser, the
Nonbankrupt Partners shall jointly select an Appraiser and the Bankrupt Partner
shall select an Appraiser and the Appraisers so selected shall jointly select a
third Appraiser, and the Appraiser so selected shall be the Appraiser for
purposes of determining the value of such Interest; provided, that if the
--------
Bankrupt Partner shall fail to select an Appraiser, the Appraiser selected by
the Nonbankrupt Partners shall be the Appraiser for purposes of determining the
value of such Interest. If more than one eligible Partner elects to purchase a
Bankrupt Partner's Interest pursuant to this Section but any Partner fails to
tender its share of the purchase price therefor at the closing, then the
tendering Partner(s) may elect to purchase the Interest that was to be purchased
by such nontendering Partner and shall have an additional 15 days in which to
tender payment for the share of the Bankrupt Partner's Interest that was to be
purchased by the nontendering Partner(s). Any such election by the tendering
Partner(s) shall not excuse the default by the nontendering party.
ARTICLE IX
-----------
COVENANTS, REPRESENTATIONS AND WARRANTIES
9.1 Compliance with Applicable Law. Each Partner shall comply with
------------------------------
all applicable laws, regulations, rules
-81-
<PAGE>
and orders of governmental authorities the non-compliance with which would have
a material adverse effect on the business affairs or financial condition of the
Partnership.
9.2 No Restrictive Covenants. No Partner shall enter into or become
------------------------
subject to any contract, agreement, restriction or covenant (other than an
Approved Agreement) which would impair or inhibit the Partnership's ability to
obtain financing without recourse to the Partners (collectively, "Restrictive
Covenants"), and each Partner represents and warrants to the other Partners
that, on the Effective Date, it is not subject to any Restrictive Covenants.
9.3 Indemnification of Partners; Contribution. The Partnership shall
-----------------------------------------
indemnify and hold each Partner harmless from and against any claim, demand,
loss, damage, liability or expense (including, without limitation, amounts paid
in settlement, reasonable costs of investigation and reasonable legal expenses)
incurred by or against such Partner and arising out of or resulting from any
act or omission of the Partnership. As among the Partners, no Partner shall be
liable or bear responsibility for more than its proportionate share (based on
its Sharing Percentage) of the liabilities and obligations of the Partnership.
For the purposes of the preceding sentence, a Partner's Sharing Percentage shall
be determined on the date the relevant liability or obligation is incurred,
without giving effect
-82-
<PAGE>
to any reduction or increase in such Partner's Sharing Percentage pursuant to
Section 3.2(b) resulting from one or more defaults under Section 3.2. In the
event that (whether before or following any dissolution of the Partnership) any
Partner shall be required to pay, discharge or otherwise bear responsibility for
any liability or obligation of the Partnership in excess of such Partner's
proportionate share thereof, each other Partner hereby agrees to indemnify, hold
harmless and reimburse (directly or through the Partnership) such Partner
against and for such other Partner's respective proportionate share of such
excess. It is the intention of the Partners that, following the operation of
this clause, each Partner will have borne exactly its proportionate share of the
liability or obligation of the Partnership at issue determined with reference to
such Partner's Sharing Percentage, determined in accordance with the third
sentence of this Section 9.3.
9.4 Notice of Change in Control and Indirect Transfer. In addition
-------------------------------------------------
to any other notification requirements under this Agreement, each Partner agrees
that promptly following the occurrence of an event which constitutes a Change in
Control or an Indirect Transfer it will give notice to the other Partners of the
Change in Control or Indirect Transfer. In addition, Liberty/Fox Partner agrees
that it shall promptly notify each other Partner if
-83-
<PAGE>
Fox and Twentieth Holdings Corporation no longer directly or indirectly hold a
Minimum Interest in Fox/Liberty Partner.
ARTICLE X
---------
MISCELLANEOUS
10.1 Waiver of Partition. Except as may be otherwise provided by
-------------------
law in connection with the winding-up, liquidation and dissolution of the
Partnership, each Partner hereby irrevocably waives any and all rights that it
may have to maintain an action for partition of any of the Partnership Property.
10.2 Modification; Waivers. This Agreement may be modified or
---------------------
amended only with the written consent of each Partner. Except as otherwise
specifically provided herein, no Partner shall be released from its obligations
hereunder without the written consent of the other Partners. The observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) by the party or parties
entitled to enforce such term, but any such waiver shall be effective only if in
a writing signed by the party or parties against which such waiver is to be
asserted. Except as otherwise specifically provided herein, no delay on the part
of any party hereto in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any party
hereto of any
-84-
<PAGE>
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
10.3 Entire Agreement. This Agreement and the documents
----------------
expressly referred to herein constitute the entire agreement among the Partners
with respect to the subject matter hereof and supersede any prior agreement or
understanding between or among the Partners with respect to such subject
matter.
10.4 Severability. If any provision of this Agreement, or the
------------
application of such provision to any Person or circumstance, shall be held
invalid, the remainder of this Agreement or the application of such provision to
other Persons or circumstances shall not be affected thereby; provided, that the
--------
parties shall negotiate in good faith with respect to an equitable modification
of the provision or application thereof held to be invalid.
10.5 Notices. All notices, requests, demands, consents and other
-------
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given on the date delivered by hand, on
the date transmission by telecopy is confirmed by machine answer-back or on the
third business day after such notice
-85-
<PAGE>
is mailed by registered or certified mail,
postage prepaid, and, pending the designation by notice of another address,
addressed as follows:
If to Fox/Liberty Partner:
Fox Sports Net, LLC
1440 South Sepulveda Blvd.
Suite 218
Los Angeles, CA 90025
Attention: Tony Ball
Telecopy: (310) 445-4335
With copies to:
Liberty Media Corporation
8101 E. Prentice Avenue
Suite 500
Englewood, CO 80111
Attention: President
Telecopy: (303) 721-5415
and:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attention: Legal Department
Telecopy: (303) 488-3245
and:
Sherman & Howard L.L.C.
3000 First Interstate Tower North
633 Seventeenth Street
Denver, Colorado 80202
Attention: Charles Y. Tanabe, Esq.
Telecopy: (303) 298-0940
and:
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Senior Executive Vice President
and Group General Counsel
Telecopy: (212) 768-2029
-86-
<PAGE>
and:
Fox Television
10201 West Pico Boulevard
Los Angeles, California 90035
Attention: Jay Itzkowitz, Esq.
Senior Vice President
Legal Affairs
Telecopy: (310) 369-2572
and:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Joel Papernik, Esq.
Telecopy: (212) 697-6686
If to Rainbow Partner:
c/o Rainbow Media Holdings, Inc.
150 Crossways Park West
Woodbury, N.Y. 11797
Attention: President
With a copy to Attention: Executive Vice President
Legal and Business Affairs
cc: Cablevision Systems Corporation
One Media Crossways
Woodbury, New York 11797
Attention: Executive Vice President and
General Counsel
10.6 Successors and Assigns. Except as otherwise specifically
----------------------
provided herein, this Agreement shall be binding upon and inure to the benefit
of the Partners and their legal representatives, successors and permitted
assigns.
10.7 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which together shall constitute one and the same
instrument.
-87-
<PAGE>
10.8 Headings; Cross-references. The Article and Section
--------------------------
headings in this Agreement are for convenience of reference only, and shall not
be deemed to alter or affect the meaning or interpretation of any provisions
hereof.
10.9 Construction. None of the provisions of this Agreement
------------
shall be for the benefit of or enforceable by any creditors of the Partnership.
No one, including but not limited to the Partners or any creditor of the
Partnership or any of its Partners, shall have any rights under this Agreement
against any Affiliate of any Partners.
10.10 Property Rights; Confidentiality. All books, records and
--------------------------------
accounts maintained exclusively for the Partnership (including, without
limitation, marketing reports and all other data whether stored on paper or in
electronic or other form), and any contracts or agreements (including, without
limitation, agreements for the purchase, lease or license of programming)
entered into by or exclusively on behalf of the Partnership, shall at all times
be the exclusive property of the Partnership. All property (real, personal or
mixed) purchased with Partnership funds, and all moneys held or collected for or
on behalf of the Partnership shall at all times be the exclusive property of the
Partnership. No Partner shall, during the period such Partner is a Partner and
for a period ending on the later of two (2) years after such Partner has ceased
to be a Partner, disclose any confidential or proprietary information with
-88-
<PAGE>
respect to the Partnership or any Partner, except (i) with the prior written
consent of the other Partners; (ii) to the extent necessary to comply with law
or the valid order of a court of competent jurisdiction, in which event the
party making such disclosure shall so give notice to the other Partners as
promptly as practicable (and, if possible, prior to making such disclosure) and
shall seek confidential treatment of such information; (iii) as part of its
normal reporting or review procedure to its parent companies, its auditors and
its attorneys and the securities exchange on which any such parent's securities
are traded from time to time; provided, that such Partner shall be liable for
--------
any breach by such parent companies, auditors or attorneys of any provision of
this Section; (iv) in connection with the enforcement of such Partner's rights
hereunder; (v) disclosures to an Affiliate of, or professional advisor to, such
Partner in connection with the performance by such Partner of its obligations
hereunder; provided, that such Partner shall be liable for any breach by such
--------
Affiliate or professional advisor of any provision of this Section; and (vi) to
a prospective purchaser of all or a portion of such Partner's Interest in
connection with a sale in accordance with the terms of this Agreement; provided,
--------
that such Partner shall be liable for any breach by such prospective purchaser
of any provision of this Section. Except as provided in the preceding sentence,
no Partner, nor any of
-89-
<PAGE>
its Affiliates, shall, during the periods referred to in such sentence, use any
confidential or proprietary information with respect to the Partnership other
than for the benefit of the Partnership.
10.11 Non-Recourse. The obligations of the Partners under this
------------
Agreement are solely corporate obligations of such entities and no
representation, undertaking or agreement made in this Agreement on the part of
any Partner was made or intended to be made as a personal or individual
representation, undertaking or agreement on the part of any partner, member,
incorporator, stockholder, director, officer or agent (past, present or future)
of any Partner, and no personal or individual liability or responsibility is
assumed by, nor shall any recourse at any time be asserted or enforced against,
any such partner, member, incorporator, stockholder, director, officer or agent,
all of which recourse (whether in common law, in equity, by statute or
otherwise) is hereby forever irrevocably waived and released.
10.12 Further Actions. Each Partner shall execute and deliver
---------------
such other certificates, agreements and documents, and take such other actions,
as may reasonably be required in connection with the formation and continuation
of the Partnership and the achievement of its purposes.
10.13 Survival. Section 10.10 shall survive the termination of
--------
this Agreement, the dissolution of the
-90-
<PAGE>
Partnership, the withdrawal of any Partner and the Transfer of the Interest of
any Partner. Sections 4.5, 4.7 and 9.3 shall survive the termination of this
Agreement and the dissolution of the Partnership.
10.14 Governing Law. The Partnership has been formed and is
-------------
continued under the laws of the State of New
York. This Agreement shall be governed, construed and enforced in accordance
with the laws of the State of New York without regard to principles of conflict
of laws.
10.15 No Right of Set-Off. No Partner shall be entitled to offset
-------------------
against any of its financial obligations to the Partnership under this Agreement
any obligation owed to it or any of its Affiliates by any other Partner or any
of such other Partner's Affiliates.
10.16 Expenses of the Parties. All expenses incurred by or on
-----------------------
behalf of the parties hereto in connection with the authorization, preparation
and consummation of this Agreement, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants employed by the
parties hereto in connection with the authorization, preparation, execution and
consummation of this Agreement, shall be borne solely by the party who shall
have incurred the same.
10.17 Unregistered Interests. Each Partner (i) acknowledges that
----------------------
the Interests are being acquired without registration under the Securities Act
of 1933, as
-91-
<PAGE>
amended, or under similar provisions of state law, (ii) represents and warrants
to the Partnership and the other Partners that it is acquiring the Interest for
its own account, for investment and with no view to the distribution of the
Interest, and (iii) agrees not to Transfer or attempt to Transfer such Interest
in the absence of registration under that Act and any applicable state
securities laws or an available exemption from such registration.
-92-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers or partners thereunto duly authorized as of the
date first written above.
FOX SPORTS AD SALES HOLDINGS, LLC
By
----------------------------------
Name: Dan Fawcett
Title: Senior Vice President
RAINBOW ADVERTISING HOLDINGS LLC
By: RAINBOW MEDIA HOLDINGS, INC.
sole member
By
_____________________________________
Name: Hank Ratner
Title: Executive Vice President
-93-
<PAGE>
EXHIBIT 10.10(b)
================================================================================
$800,000,000
CREDIT AGREEMENT
among
FOX SPORTS NET, LLC,
FX NETWORKS, LLC and
FOX SPORTS RPP HOLDINGS, LLC
as Borrower,
FOX/LIBERTY NETWORKS, LLC,
The Several Lenders
from Time to Time Parties Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
CHASE SECURITIES INC.,
as Syndication Agent,
and
TD SECURITIES (USA) INC.,
as Documentation Agent
Dated as of December 15, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
Page
----
SECTION 1. DEFINITIONS.................................................................. 1
1.1 Defined Terms.................................................................. 1
1.2 Other Definitional and Interpretive Provisions................................. 23
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................................. 24
2.1 Term Loan Commitments.......................................................... 24
2.2 Procedure for Term Loan Borrowing.............................................. 24
2.3 Repayment of Term Loans........................................................ 24
2.4 Revolving Credit Commitments................................................... 25
2.5 Procedure for Revolving Credit Borrowing....................................... 25
2.6 Commitment Fees, etc........................................................... 26
2.7 Termination or Reduction of Revolving Credit Commitments....................... 26
2.8 Optional Prepayments........................................................... 26
2.9 Mandatory Commitment Reductions and Prepayments................................ 27
2.10 Conversion and Continuation Options........................................... 27
2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches..................... 28
2.12 Interest Rates and Payment Dates.............................................. 28
2.13 Computation of Interest and Fees.............................................. 28
2.14 Inability to Determine Interest Rate.......................................... 29
2.15 Pro Rata Treatment and Payments............................................... 29
2.16 Requirements of Law........................................................... 30
2.17 Taxes......................................................................... 31
2.18 Indemnity..................................................................... 33
2.19 Change of Lending Office...................................................... 33
2.20 Replacement of Lenders under Certain Circumstances............................ 33
2.21 Defaulting Lenders............................................................ 34
SECTION 3. REPRESENTATIONS AND WARRANTIES............................................... 36
3.1 Financial Condition............................................................ 36
3.2 No Change...................................................................... 36
3.3 Existence; Compliance with Law................................................. 36
3.4 Power; Authorization; Enforceable Obligations.................................. 36
3.5 No Legal Bar................................................................... 37
3.6 No Material Litigation......................................................... 37
3.7 No Default..................................................................... 37
3.8 Ownership of Property; Liens................................................... 37
3.9 Intellectual Property.......................................................... 37
3.10 Taxes......................................................................... 38
3.11 Federal Regulations........................................................... 38
3.12 Labor Matters................................................................. 38
3.13 ERISA......................................................................... 38
3.14 Investment Company Act; Other Regulations..................................... 38
3.15 Subsidiaries; Joint Ventures.................................................. 39
3.16 Use of Proceeds............................................................... 39
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.17 Environmental Matters......................................................... 39
3.18 Accuracy of Information, etc.................................................. 40
3.19 Solvency...................................................................... 40
3.20 Pledge Agreement.............................................................. 40
3.21 Rainbow Documents............................................................. 40
SECTION 4. CONDITIONS PRECEDENT......................................................... 41
4.1 Conditions to Initial Loans.................................................... 41
4.2 Conditions to Each Extension of Credit......................................... 42
SECTION 5. AFFIRMATIVE COVENANTS........................................................ 42
5.1 Financial Statements........................................................... 42
5.2 Certificates; Other Information................................................ 43
5.3 Payment of Obligations......................................................... 44
5.4 Conduct of Business and Maintenance of Existence; Compliance................... 44
5.5 Maintenance of Property; Insurance............................................. 44
5.6 Inspection of Property; Books and Records; Discussions......................... 44
5.7 Notices........................................................................ 45
5.8 Environmental Laws............................................................. 45
5.9 Additional Guarantors and Collateral........................................... 46
SECTION 6. NEGATIVE COVENANTS........................................................... 46
6.1 Financial Condition Covenants.................................................. 46
6.2 Limitation on Indebtedness..................................................... 47
6.3 Limitation on Liens............................................................ 48
6.4 Limitation on Fundamental Changes.............................................. 49
6.5 Limitation on Sale of Assets................................................... 50
6.6 Limitation on Dividends........................................................ 51
6.7 Limitation on Investments, Loans and Advances.................................. 52
6.8 Limitation on Payments and Modifications of Certain Debt Instruments; Certain
Matters Relating to Rainbow Entities...................................... 53
6.9 Limitation on Transactions with Affiliates..................................... 54
6.10 Limitation on Changes in Fiscal Periods....................................... 54
6.11 Limitation on Negative Pledge Clauses......................................... 54
6.12 Limitation on Restrictions on Distributions................................... 54
6.13 Limitation on Lines of Business............................................... 55
6.14 Unrestricted Group Members; Specified Divisions, Specified Non-Wholly Owned
Persons; Fox Sports RPP................................................... 55
6.15 Limitation on Activities of Fox/Liberty, FLN and Shell Companies.............. 56
SECTION 7. EVENTS OF DEFAULT............................................................ 56
SECTION 8. THE AGENTS................................................................... 59
8.1 Appointment.................................................................... 59
8.2 Delegation of Duties........................................................... 59
8.3 Exculpatory Provisions......................................................... 59
8.4 Reliance by Administrative Agent............................................... 60
8.5 Notice of Default.............................................................. 60
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
8.6 Non-Reliance on Agents and Other Lenders....................................... 60
8.7 Indemnification................................................................ 61
8.8 Agent in Its Individual Capacity............................................... 61
8.9 Successor Administrative Agent................................................. 61
8.10 Documentation Agent and Syndication Agent..................................... 62
SECTION 9. MISCELLANEOUS................................................................ 62
9.1 Amendments and Waivers......................................................... 62
9.2 Notices........................................................................ 62
9.3 No Waiver; Cumulative Remedies................................................. 63
9.4 Survival of Representations and Warranties..................................... 63
9.5 Payment of Expenses and Taxes.................................................. 63
9.6 Successors and Assigns; Participations and Assignments......................... 64
9.7 Adjustments; Set-off........................................................... 66
9.8 Counterparts................................................................... 67
9.9 Severability................................................................... 67
9.10 Integration................................................................... 67
9.11 GOVERNING LAW................................................................. 67
9.12 Submission To Jurisdiction; Waivers........................................... 67
9.13 Acknowledgements.............................................................. 68
9.14 WAIVERS OF JURY TRIAL......................................................... 68
9.15 Confidentiality 68
</TABLE>
SCHEDULES:
- ---------
1.1A Commitments
3.1 Financial Disclosure
3.6 Litigation
3.15 Subsidiaries and Joint Ventures
3.18 Additional Disclosure
3.20 Filing Jurisdictions
6.2(d) Existing Indebtedness
6.3(f) Existing Liens
6.7 Existing Investments
6.9 Existing Transactions with Affiliates
6.12 Existing Restrictions
EXHIBITS:
- --------
A-1 Form of Guarantee Agreement
A-2 Form of Pledge Agreement
B Form of Compliance Certificate
C Form of Officers' Certificate
D Form of Addendum
E Form of Assignment and Acceptance
F Form of Legal Opinion of Squadron, Ellenoff, Plesent & Sheinfeld,
LLP
G Form of Note
H-1 Form of Borrowing Notice
H-2 Form of Continuation/Conversion Notice
I Required Terms of Subordinated Indebtedness
-iii-
<PAGE>
CREDIT AGREEMENT, dated as of December 15, 1997, among FOX SPORTS NET,
LLC, a Delaware limited liability company, FX NETWORKS, LLC, a Delaware limited
liability company, FOX SPORTS RPP HOLDINGS, LLC, a Delaware limited liability
company, FOX/LIBERTY NETWORKS, LLC, a Delaware limited liability company, the
several banks and other financial institutions or entities from time to time
parties to this Agreement (the "Lenders"), TD SECURITIES (USA) INC., as
-------
documentation agent (in such capacity, the "Documentation Agent"), CHASE
-------------------
SECURITIES INC., as syndication agent (in such capacity, the "Syndication
-----------
Agent"), and THE CHASE MANHATTAN BANK, as administrative agent for the Lenders
hereunder.
W I T N E S S E T H :
-------------------
WHEREAS, pursuant to the Credit Agreement, dated as of September 12,
1997 (the "Existing Credit Agreement"), among Fox/Liberty, Fox/Liberty Sports,
-------------------------
Fox/Liberty FX, certain Subsidiaries of Fox/Liberty Sports, certain of the
Lenders, TD Securities (USA) Inc., as documentation agent, and The Chase
Manhattan Bank, as administrative agent, such Lenders agreed to extend credit to
Fox/Liberty Sports and Fox/Liberty FX;
WHEREAS, Fox/Liberty, Fox/Liberty Sports and Fox/Liberty FX have
requested that the Existing Credit Agreement be amended and restated as
hereinafter provided;
WHEREAS, the Lenders, the Documentation Agent and the Administrative
Agent are willing to agree to such amendment and restatement; and
WHEREAS, it is the intent of the parties hereto that this Agreement
not constitute a novation of the obligations and liabilities existing under the
Existing Credit Agreement or evidence repayment of all or any of such
obligations and liabilities and that this Agreement amend and restate in its
entirety the Existing Credit Agreement and re-evidence the obligations of
Fox/Liberty Sports and Fox/Liberty FX outstanding thereunder;
NOW, THEREFORE, the parties hereto hereby agree that on the Closing
Date the Existing Credit Agreement will be amended and restated in its entirety
as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "Prime Rate" shall mean the rate of interest per
----------
annum publicly announced from time to time by the Administrative Agent as
its prime rate (or equivalent rate) in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Administrative Agent in connection with extensions
of credit to debtors); "Base CD Rate" shall mean the sum of (a) the product
------------
of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the numerator
of which is one and the denominator of which is one minus the C/D Reserve
Percentage and (b) the C/D Assessment Rate; "Three-Month Secondary CD Rate"
-----------------------------
shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if
<PAGE>
2
such day shall not be a Business Day, the next preceding Business Day) by
the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so
reported on such day or such next preceding Business Day, the average of
the secondary market quotations for three-month certificates of deposit of
major money center banks in New York City received at approximately 10:00
A.M., New York City time, on such day (or, if such day shall not be a
Business Day, on the next preceding Business Day) by the Administrative
Agent from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it; and "Federal Funds Effective Rate"
----------------------------
shall mean, for any day, the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if such rate is
not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Administrative
Agent from three federal funds brokers of recognized standing selected by
it. Any change in the ABR due to a change in the Prime Rate, the Three-
Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective as of the opening of business on the effective day of such change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"Addendum": an instrument, substantially in the form of Exhibit D, by
--------
which a Lender becomes a party to this Agreement.
"Additional Fox/Liberty Debt": any Indebtedness of Fox/Liberty
---------------------------
incurred pursuant to Section 6.2(g).
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": Chase, as the administrative agent for the
--------------------
Lenders under this Agreement and the other Loan Documents, together with
any of its successors.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person
means the power, directly or indirectly, either to (a) vote 10% or more of
the securities having ordinary voting power for the election of directors
of such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
"Agents": the collective reference to the Administrative Agent, the
------
Syndication Agent and the Documentation Agent.
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": for each Eurodollar Loan, the rate per annum set
-----------------
forth under the relevant column in the Pricing Grid.
<PAGE>
3
"Asset Disposition Test Period": as of any date of determination, the
-----------------------------
period of four consecutive fiscal quarters ending with the most recent
fiscal quarter as to which financial statements have been delivered
pursuant to Section 5.1(c).
"Asset EBITDA Amount": with respect to any Disposition of Property
-------------------
pursuant to Section 6.5(f) or 6.5(g), an amount equal to the portion of
Combined EBITDA for the most recent Asset Disposition Test Period ending
prior to the date of such Disposition that was contributed by such
Property.
"Asset Sale": any Disposition of Property by Fox/Liberty or a
----------
Restricted Group Control Member (including, without limitation, any
issuance of Capital Stock of any Restricted Group Subsidiary or any
Disposition of Capital Stock of any Person owned by any Restricted Group
Control Member), and any issuance of Capital Stock of or Disposition of
Property by any Restricted Group Joint Venture to the extent the proceeds
thereof are distributed to any Restricted Group Control Member, other than
(a) any Disposition of Property expressly permitted by clause (a), (b),
(c), (d), (e), (h) or (i) of Section 6.5, (b) any issuance or Disposition
of Capital Stock of the Borrower and (c) any Disposition of Property which,
together with any related Disposition of Property, yields net proceeds to
any Restricted Group Control Member (valued at the initial principal amount
thereof in the case of non-cash proceeds consisting of notes or other debt
securities and valued at fair market value (as determined by the Borrower
in good faith) in the case of other non-cash proceeds) of less than
$1,000,000.
"Asset Swap": (a) in the case of any Asset Sale, the application of
----------
the Net Cash Proceeds thereof, or an equivalent amount, by a Restricted
Group Control Member (directly and not through any Person that is not a
Restricted Group Control Member) within 45 days prior to or after the date
of such Asset Sale to acquire operating assets having cash flows, value and
use substantially equivalent in amount and timing (determined by Borrower
in good faith) to the Property subject to such Asset Sale (including,
without limitation, through the acquisition of an amount or class of
Capital Stock of a Person that will qualify as a Restricted Group Control
Member and which would entitle such Restricted Group Control Member to
distributions which are substantially equivalent in amount and timing
(determined by Borrower in good faith) to the cash flows provided by the
Property subject to such Asset Sale) and (b) in the case of any Recovery
Event, the application of the Net Cash Proceeds thereof, or an equivalent
amount, by a Restricted Group Control Member (directly and not through any
Person that is not a Restricted Group Control Member) within 45 days prior
to or after the date of such Recovery Event to restore or replace
(determined by the Borrower in good faith) the Property subject to such
Recovery Event. All determinations to be made by the Borrower pursuant to
this definition shall be certified in reasonable detail in the relevant
Reinvestment Notice.
"Asset Swap Date": as defined in Section 6.5(g).
---------------
"Assignee": as defined in Section 9.6(c).
--------
"Assignor": as defined in Section 9.6(c).
--------
"Attributable Debt": with respect to any Fox/Liberty Group Member, at
-----------------
any date of determination, with respect to any Sale/Leaseback Transaction
entered into by such Fox/Liberty Group Member, the aggregate amount of
rental payments due from such Fox/Liberty Group Member under the lease
entered into in connection with such
<PAGE>
4
Sale/Leaseback Transaction during the remaining term of such lease,
discounted from the respective due dates thereof to such date of
determination using a discount rate equal to the discount rate that would
then be used to calculate the amount of Capital Lease Obligations with
respect to a comparable capital lease.
"Available Revolving Credit Commitment": as to any Revolving Credit
-------------------------------------
Lender at any time, an amount equal to the excess, if any, of (a) such
Lender's Revolving Credit Commitment over (b) such Lender's Revolving
----
Credit Loans.
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": Fox/Liberty Sports, Fox/Liberty FX and Fox Sports RPP,
--------
collectively and individually. By way of illustration, each reference to
"the Borrower" in Section 7(l) shall be deemed to be a reference to each of
Fox/Liberty Sports, Fox/Liberty FX and Fox Sports RPP. Without limiting
the generality of the foregoing, it is understood that each of Fox/Liberty
Sports, Fox/Liberty FX and Fox Sports RPP shall be jointly and severally
liable to repay all Loans borrowed hereunder and to pay all interest and
other obligations incurred or owing by "the Borrower" pursuant to this
Agreement.
"Borrower Group Members": the collective reference to the Restricted
----------------------
Group Members and the Unrestricted Group Members.
"Borrowing Date": any Business Day specified by the Borrower as a
--------------
date on which the Borrower requests the Lenders to make Loans hereunder.
"Borrowing Notice": a notice delivered by the Borrower, substantially
----------------
in the form of Exhibit H-1.
"Business": as defined in Section 3.17.
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law
to close.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person for the acquisition or
leasing (pursuant to a capital lease) of fixed or capital assets or
additions to equipment (including replacements, capitalized repairs and
improvements during such period) which should be capitalized under GAAP on
a consolidated balance sheet of such Person.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation,
any and all classes of partnership or membership interests in a partnership
or limited liability company, any and all equivalent
<PAGE>
5
ownership interests in a Person (other than a corporation, partnership or
limited liability company) and any and all warrants, rights or options to
purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, or
----------------
unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition;
(b) repurchase agreements with respect to obligations of the type referred
to in clause (a) above with securities dealers that are fully
collateralized by such obligations; (c) certificates of deposit, time
deposits, eurodollar time deposits or overnight bank deposits having
maturities of six months or less from the date of acquisition issued by any
Lender or by any commercial bank organized under the laws of the United
States of America or any state thereof having combined capital and surplus
of not less than $500,000,000; and (d) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services or P-1 by Moody's
Investors Service, Inc., or carrying an equivalent rating by a nationally
recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition.
"Cash Flow Positive": at any date of determination, with respect to
------------------
any Unrestricted Group Member or any newly acquired Subsidiary, the
circumstance that, for the most recent period of four consecutive fiscal
quarters for which financial information has been delivered pursuant to
Section 5.1(a) or (b) (or, in the case of a newly acquired Subsidiary, for
the most recent period of four consecutive fiscal quarters (whether prior
to or after such Person became a Subsidiary) for which the relevant
financial information with respect to such Subsidiary is available), the
Subsidiary EBITDA of such Unrestricted Group Member or Subsidiary was
positive for such period, determined on a pro forma basis after giving
--- -----
effect to executed programming contracts (whether or not then in effect)
and to launch, marketing and other costs associated with the Fox Sports Net
association. In the event that an RSN is owned by a Subsidiary that has
other businesses or operations, such Subsidiary shall be deemed to be "Cash
Flow Positive" in the event that a Subsidiary whose businesses and
operations were limited to such RSN would qualify as Cash Flow Positive in
accordance with this definition, provided that, in any event, Specified
--------
Divisions shall continue to be disregarded for the purposes of any
calculation pursuant to this Agreement relating to financial matters with
respect to the Restricted Group Members.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
-------------------
annual assessment rate in effect on such day which is payable by a member
of the Bank Insurance Fund maintained by the Federal Deposit Insurance
Corporation (the "FDIC") classified as well-capitalized and within
----
supervisory subgroup "B" (or a comparable successor assessment risk
classification) within the meaning of 12 C.F.R. (S) 327.4 (or any successor
provision) to the FDIC (or any successor) for the FDIC's (or such
successor's) insuring time deposits at offices of such institution in the
United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan,
----------------------
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement
for a Depositary Institution (as defined in Regulation D of the Board as in
effect from time to time) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"Chase": The Chase Manhattan Bank.
-----
<PAGE>
6
"Closing Date": December 15, 1997.
------------
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by the
Pledge Agreement.
"Combined EBITDA": for any period, Combined Net Income for such
---------------
period plus, without duplication and to the extent reflected as a charge in
----
the statement of such Combined Net Income for such period, the sum of (a)
total income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other
fees and charges associated with Indebtedness, (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Combined Net Income for such period,
losses on Dispositions of assets outside of the ordinary course of business
but, in any event, excluding write-offs for long-term sports programming
contracts (other than the amount (not to exceed $55,000,000) of the one-
time write-down incurred by the Borrower in 1996 related to additional
amortization recorded with respect to long term sports programming rights
contracts with Major League Baseball)), (f) total Launch Support Payments
and (g) any other non-cash charges, and minus, to the extent included in
-----
the statement of such Combined Net Income for such period, the sum of (a)
interest income, (b) any extraordinary income or gains (including, whether
or not otherwise includable as a separate item in the statement of such
Combined Net Income for such period, gains on the Dispositions of assets
outside of the ordinary course of business) and (c) any other non-cash
income, all as determined on a pro forma basis as if the Restricted Group
--- -----
Control Members were combined.
"Combined Excess Cash Flow": for any fiscal year of the Borrower, the
-------------------------
excess, if any, of (a) Combined Net Income for such fiscal year plus,
----
without duplication and to the extent reflected as a charge in the
statement of such Combined Net Income for such fiscal year, the sum of (i)
depreciation and amortization expense, (ii) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (iii) any
non-cash extraordinary expenses or non-cash losses (including, whether or
not otherwise includable as a separate item in the statement of such
Combined Net Income for such fiscal year, non-cash losses on Dispositions
of assets outside of the ordinary course of business but, in any event,
excluding write-offs for long-term sports programming contracts (other than
the amount (not to exceed $55,000,000) of the one-time write-down incurred
by the Borrower in 1996 related to additional amortization recorded with
respect to long term sports programming rights contracts with Major League
Baseball)) and (iv) any other non-cash charges over (b) the sum, without
----
duplication, of (i) the aggregate amount of all principal payments of
Indebtedness (including, without limitation, the Term Loans and the Turner
Note) of the Restricted Group Members made during such fiscal year (other
than in respect of any revolving credit facility to the extent there is not
an equivalent permanent reduction in commitments thereunder), (ii) the
amount of all Investments made by the Restricted Group Members during such
fiscal year pursuant to Section 6.7, (iii) without duplication of the
amounts described in clauses (i) or (ii) above, Total Fixed Charges for
such fiscal year and (iv) to the extent included in the statement of such
Combined Net Income for such fiscal year, the sum of (x) interest income,
(y) any extraordinary income or gains (including, whether or not otherwise
includable as a separate item in the statement of such Combined Net Income
for such fiscal year, gains on the Dispositions of assets outside of
<PAGE>
7
the ordinary course of business) and (z) any other non-cash income, all as
determined on a pro forma basis as if the Restricted Group Members were
--- -----
combined.
"Combined Net Income": for any period, the net income (or loss) of
-------------------
the Restricted Group Control Members for such period, determined on a pro
---
forma basis as if the Restricted Group Control Members were combined, such
-----
pro forma combined determination to be made, in accordance with GAAP to the
extent applicable, based upon the audited or unaudited consolidated
financial statements of the Borrower and its Subsidiaries, as applicable,
adjusted to give effect to the exclusion of the financial results of the
Unrestricted Group Members; provided that there shall be excluded (a) the
--------
income (or deficit) of any Person accrued prior to the date it becomes a
Restricted Group Control Member or is merged into or consolidated with a
Restricted Group Control Member, (b) the income (or deficit) of any Person
(other than a Restricted Group Control Member that is a Loan Party) in
which any Restricted Group Control Member has an ownership interest, except
to the extent that any such income is actually received by a Restricted
Group Control Member that is a Loan Party in the form of dividends or other
distributions and (c) the undistributed earnings of any Restricted Group
Subsidiary to the extent that the declaration or payment of dividends or
other distributions by such Restricted Group Subsidiary to the Borrower is
not at the time permitted by the terms of any Contractual Obligation or
Requirement of Law (including, without limitation, any organizational
documents) applicable to such Restricted Group Subsidiary.
"Combined Total Debt": at any date, the aggregate principal amount of
-------------------
all Indebtedness of the Restricted Group Members at such date, determined
on a pro forma basis as if the Restricted Group Members were combined, such
--- -----
pro forma combined determination to be made, in accordance with GAAP to the
extent applicable, based upon the audited or unaudited consolidated
financial statements of the Borrower and its Subsidiaries, as applicable,
adjusted to give effect to the exclusion of the financial results of the
Unrestricted Group Members.
"Commitment Fee Rate": the rate per annum set forth under the
-------------------
relevant column in the Pricing Grid.
"Commitments": the collective reference to the Term Loan Commitments
-----------
and the Revolving Credit Commitments.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of
Section 3001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 314 of the Code.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated September 1997 and furnished to the Lenders, together with
all exhibits thereto and documents delivered therewith (including the
Offering Memorandum), as the same may be supplemented from time to time
prior to the Closing Date. As used herein, "Offering Memorandum" means the
Confidential Offering Memorandum, dated August 15, 1997, relating to the
sale of the Fox/Liberty Notes, together with the registration statement on
Form S-4 filed with the Securities and Exchange Commission on October 24,
1997 in connection with the
<PAGE>
8
exchange offer procedure described in the Fox/Liberty Note Indentures (as
the same may be amended or supplemented prior to the Closing Date). In the
event that any information concerning the business and operations of the
Fox/Liberty Group Members or any of them delivered to the Lenders is
inconsistent with corresponding information contained in the Offering
Memorandum, the latter shall control unless the Lenders are expressly
advised otherwise.
"Continuation/Conversion Notice": a notice delivered by the Borrower,
------------------------------
substantially in the form of Exhibit H-2.
"Contractual Obligation": as to any Person, any obligation contained in
----------------------
any security issued by such Person or in any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Current Assets": at a particular date, all amounts (other than cash
--------------
and Cash Equivalents) which would, in conformity with GAAP, be set forth
opposite the caption "total current assets" (or any like caption) on a
combined balance sheet of the Restricted Group Members at such date.
"Current Liabilities": at a particular date, all amounts which would,
-------------------
in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a combined balance sheet of the
Restricted Group Members at such date, but excluding (a) the current
portion of any Funded Indebtedness of the Restricted Group Members and (b)
without duplication of clause (a) above, all Indebtedness consisting of
Revolving Credit Loans to the extent otherwise included therein.
"Default": any of the events specified in Section 7, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Defaulted Amount": with respect to any Lender at any time, any
----------------
amount required to be paid by such Lender to the Administrative Agent or
any other Lender hereunder at or prior to such time that has not been so
paid as of such time, including, without limitation, any amount required to
be paid by such Lender to (a) the Administrative Agent pursuant to Section
2.15(f) to reimburse such Administrative Agent for the amount of any Loan
made by the Administrative Agent for the account of such Lender, (b) any
other Lender pursuant to Section 9.7 to purchase any participation in Loans
owing to such other Lender and (c) the Administrative Agent pursuant to
Section 8.7 to reimburse an Administrative Agent for such Lender's share of
any amount required to be paid by the Lenders to the Administrative Agent
as provided therein. In the event that a portion of a Defaulted Amount
shall be deemed paid pursuant to Section 2.21(b), the remaining portion of
such Defaulted Amount shall be considered a Defaulted Amount originally
required to be made hereunder on the same date as the Defaulted Amount so
deemed paid in part.
"Defaulted Lender": at any time, any Lender that, as such time, (a)
----------------
owes a Defaulted Loan or a Defaulted Amount or (b) shall take or be the
subject of any action or proceeding of the type described in Section 7(f).
"Defaulted Loan": with respect to any Lender at any time, the amount
--------------
of any Loan required to be made by such Lender to the Borrower pursuant to
Section 2.5 at or prior to such time that has not been so made as of such
time. In the event that a portion of a Defaulted Loan
<PAGE>
9
shall be deemed made pursuant to Section 2.21(a) the remaining portion of
such Defaulted Loan shall be considered a Defaulted Loan originally
required to be made pursuant to Section 2.5 on the same date as the
Defaulted Loan so deemed made in part.
"Disposition": with respect to any Property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition
thereof; and the terms "Dispose" and "Disposed of" shall have correlative
------- -----------
meanings.
"Disposition Date": as defined in Section 6.5(f).
----------------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability
or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of the Board) maintained by a
member bank of the Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum equal to the
rate at which Chase is offered Dollar deposits at or about 10:00 A.M., New
York City time, two Business Days prior to the beginning of such Interest
Period in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period
for the number of days comprised therein and in an amount comparable to the
amount of its Eurodollar Loans to be outstanding during such Interest
Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
-----------------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
under a particular Facility the then current Interest Periods with respect
to all of which begin on the same date
<PAGE>
10
and end on the same later date (whether or not such Loans shall originally have
been made on the same day).
"Event of Default": any of the events specified in Section 7,
----------------
provided that any requirement for the giving of notice, the lapse of time,
--------
or both, has been satisfied.
"Excluded Restricted Group Member": the South RSN.
--------------------------------
"Facilities": the collective reference to the Term Loan Facility and
----------
the Revolving Credit Facility.
"Fixed Charge Coverage Ratio": for any period, the ratio of (a)
---------------------------
Combined EBITDA for such period to (b) Total Fixed Charges for such period.
"FLN": FLN Finance, Inc., a Delaware corporation.
---
"Fox/Liberty": Fox/Liberty Networks, LLC, a Delaware limited
-----------
liability company.
"Fox/Liberty FX": fX Networks, LLC, a Delaware limited liability
--------------
company.
"Fox/Liberty Group Members": the collective reference to Fox/Liberty
-------------------------
and the Borrower Group Members.
"Fox/Liberty Note Indentures": the collective reference to the
---------------------------
Indenture entered into by Fox/Liberty and FLN in connection with the
issuance of the Senior Notes and the Indenture entered into by Fox/Liberty
and FLN in connection with the issuance of the Senior Discount Notes,
together with all instruments and other agreements entered into by
Fox/Liberty or FLN in connection therewith, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with
Section 6.8.
"Fox/Liberty Notes": the collective reference to the Senior Notes and
-----------------
the Senior Discount Notes.
"Fox/Liberty Restricted Group Members": the collective reference to
------------------------------------
Fox/Liberty and the Restricted Group Members.
"Fox/Liberty Sports": Fox Sports Net, LLC, a Delaware limited
------------------
liability company.
"Fox Sports Net": the business of providing national programming for
--------------
distribution by RSNs, which business is owned and operated by Liberty/Fox
Network Programming, LLC, a Delaware limited liability company, Liberty/Fox
Distribution L.P., a Delaware limited partnership, and their Subsidiaries.
"Fox Sports RPP": Fox Sports RPP Holdings, LLC, a Delaware limited
--------------
liability company.
"Funded Indebtedness": as to any Person, all Indebtedness of such
-------------------
Person that matures more than one year from the date of its creation or
matures within one year from such date but is renewable or extendible, at
the option of such Person, to a date more than one year from such date or
arises under a revolving credit or similar agreement that obligates the
lender or
<PAGE>
11
lenders to extend credit during a period of more than one year from such
date, including, without limitation, all current maturities and current
sinking fund payments in respect of such Indebtedness whether or not
required to be paid within one year from the date of its creation and, in
the case of the Borrower, Indebtedness in respect of the Loans.
"GAAP": generally accepted accounting principles in the United States
----
of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be in general use by
significant segments of the accounting profession, which are applicable to
the circumstances of the Borrower as of the date of determination, except
that for purposes of Section 6.1, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used
in the preparation of the audited financial statements referred to in
Section 3.1. In the event that any "Accounting Change" (as defined below)
shall occur and such change results in a change in the method of
calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the Administrative Agent agree to enter into
negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the
same after such Accounting Changes as if such Accounting Changes had not
been made. Until such time as such an amendment shall have been executed
and delivered by the Borrower, the Administrative Agent and the Required
Lenders, all financial covenants, standards and terms in this Agreement
shall continue to be calculated or construed as if such Accounting Changes
had not occurred. "Accounting Changes" refers to changes in accounting
principles required by the promulgation of any rule, regulation,
pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or successors thereto
or agencies with similar functions).
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Agreement": the Guarantee Agreement, substantially in the
-------------------
form of Exhibit A-1, as the same may be amended, supplemented or otherwise
modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
-------------------
(the "primary obligor") in any manner, whether directly or indirectly,
---------------
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
<PAGE>
12
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
--------
however, that the term Guarantee Obligation shall not include endorsements
-------
of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Guarantee Obligation is made and (b) the maximum amount for which such
guaranteeing person may be liable pursuant to the terms of the instrument
embodying such Guarantee Obligation, unless such primary obligation and the
maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee
Obligation shall be such guaranteeing person's maximum reasonably
anticipated liability in respect thereof as determined by the Borrower in
good faith.
"Guarantor": each party to the Guarantee Agreement.
---------
"Incur": as defined in Section 6.2; and the term "Incurrence" shall
----- ----------
have a correlative meaning.
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than (i)
trade payables not more than 60 days past due incurred in the ordinary course of
such Person's business and (ii) Programming Liabilities) that would appear as a
liability on a balance sheet of such Person prepared in accordance with GAAP on
a consolidated or combined basis, as applicable, (c) all obligations of such
Person evidenced by notes, bonds (other than performance and similar bonds that
do not support the repayment of obligations otherwise described in this
definition), debentures or other similar instruments, (d) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person, (e) all Capital Lease
Obligations and Attributable Debt of such Person, (f) all obligations of such
Person, contingent or otherwise, as an account party under acceptance, letter of
credit or similar facilities (other than any letter of credit in support of
trade payables or Programming Liabilities incurred in the ordinary course of
business with an expiration date of not more than 180 days from the issuance
thereof), (g) all obligations of such Person, contingent or otherwise, to
purchase, redeem, retire or otherwise acquire for value any Capital Stock of
such Person, (h) all Guarantee Obligations of such Person in respect of
obligations of the kind referred to in clauses (a) through (g) above and (i) all
obligations of the kind referred to in clauses (a) through (h) above secured by
(or for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on Property (including, without
limitation, accounts and contract rights) owned by such Person, whether or not
such Person has assumed or become liable for the payment of such obligation,
valued, in the case of obligations as to which recourse for payment is expressly
limited to such Property, at the lesser of the amount of such Indebtedness and
the fair market value of such Property. It is understood that obligations under
Interest Rate Protection Agreements shall constitute "Indebtedness" hereunder
only for the purposes of Section 7(e).
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 3245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
<PAGE>
13
"Initial Public Offering": means an underwritten public offering of
-----------------------
Capital Stock of the Borrower pursuant to a registration statement filed
with the Securities and Exchange Commission in accordance with the
Securities Act of 1933, as amended.
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property owned or used
by any Fox/Liberty Group Member, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation,
copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to
sue at law or in equity for any infringement or other impairment thereof,
including the right to receive all proceeds and damages therefrom.
"Interest Coverage Ratio": for any period, the ratio of (a) Combined
-----------------------
EBITDA for such period to (b) Total Interest Expense for such period.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period, (c) as to any
Eurodollar Loan having an Interest Period longer than three months, each
day which is three months, or a whole multiple thereof, after the first day
of such Interest Period and the last day of such Interest Period and (d) as
to any Loan (other than any Revolving Credit Loan that is an ABR Loan), the
date of any repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one, two, three, six or (if
available to all Lenders under the relevant Facility) nine months
thereafter, as selected by the Borrower in a Borrowing Notice or
Continuation/Conversion Notice, as the case may be, given with respect
thereto; and (b) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three, six or (if available to all Lenders under the
relevant Facility) nine months thereafter, as selected by the Borrower by
irrevocable notice to the Administrative Agent not less than three Business
Days prior to the last day of the then current Interest Period with respect
thereto; provided that, all of the foregoing provisions relating to
--------
Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(iii) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
<PAGE>
14
"Interest Rate Protection Agreement": any interest rate protection
----------------------------------
agreement, interest rate futures contract, interest rate option, interest
rate cap or other interest rate hedge arrangement.
"Investments": as defined in Section 6.7.
-----------
"Joint Ventures": the collective reference to the Restricted Group
--------------
Joint Ventures and the Unrestricted Group Joint Ventures.
"Launch Support Payments": one-time subscriber payments made to cable
-----------------------
operators to facilitate and assist in the launch of a television
programming service on a cable system or group of cable systems.
"Leverage Ratio": as at the last day of any period, the ratio of (a)
--------------
Combined Total Debt on such day to (b) Combined EBITDA for such period.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement and any capital lease having substantially the same economic
effect as any of the foregoing).
"Limited Group Members": as defined in Section 6.7(g).
---------------------
"LLC Agreement": the Operating Agreement of Fox/Liberty Networks,
-------------
LLC, dated as of April 29, 1996.
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loan Documents": this Agreement, the Guarantee Agreement, the Pledge
--------------
Agreement and any Notes.
"Loan Parties": the collective reference to Fox/Liberty, the Borrower
------------
and each other Subsidiary of Fox/Liberty party to the Guarantee Agreement
or the Pledge Agreement.
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans or Revolving Credit Loans, as the case may be, outstanding under
such Facility (or, in the case of the Revolving Credit Facility, prior to
any termination of the Revolving Credit Commitments, the holders of more
than 50% of the Revolving Credit Commitments).
"Majority Revolving Credit Facility Lenders": the Majority Facility
------------------------------------------
Lenders in respect of the Revolving Credit Facility.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, assets, operations or condition (financial or otherwise) of the
Restricted Group Control Members taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights and remedies of the Administrative Agent and the Lenders hereunder
or thereunder.
<PAGE>
15
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 3001(a)(3) of ERISA.
"Murdoch Group": each and any of (a) K. Rupert Murdoch, his wife,
-------------
parent or more remote forebear, child or more remote issue, or brother or
sister or child or more remote issue of a brother or sister, (b) any Person
directly or indirectly controlled by one or more of the members of the
Murdoch Family described in clause (a) above (a "Controlled Person") and
-----------------
(c) any trust, the majority of the trustees of which such trust are members
of or may be removed or replaced by any one or more of the members of the
Murdoch Family and/or Controlled Persons.
"National Advertising Partners": National Advertising Partners, a New
-----------------------------
York general partnership.
"National Sports Partners: National Sports Partners, a New York
------------------------
general partnership.
"Net Cash Proceeds": (a) in connection with any Asset Sale, any
-----------------
Recovery Event or any Disposal of Capital Stock (other than in a primary
offering, in which case clause (b) below shall apply), the proceeds thereof
in the form of cash and Cash Equivalents (including any such proceeds
received by way of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such transaction, net of
attorneys' fees, accountants' fees, investment banking fees, amounts
required to be applied to the repayment of Indebtedness (other than
Indebtedness under the Loan Documents) secured by a Lien expressly
permitted hereunder on any asset which is the subject of such transaction
and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (b) in connection with any
issuance of Capital Stock or Incurrence of Indebtedness, the cash proceeds
received from such issuance or Incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"News Corp.": The News Corporation Limited, a South Australia
----------
corporation.
"News Corp. Group": the collective reference to News Corp. and its
----------------
Subsidiaries, provided that for purposes of this definition, "Subsidiaries"
--------
shall also include Twentieth Holdings Corporation and its Subsidiaries and
any Person in which any such Person holds an interest that owns television
stations and/or interests in the Borrower or any of its Subsidiaries, the
capital structure of which is substantially similar to that of Twentieth
Holdings Corporation, in each case so long as Twentieth Holdings
Corporation and any other Person referred to in this proviso is controlled
(within the meaning of clause (b) of the definition of "Affiliate") by the
Murdoch Group.
"Non-Excluded Taxes": as defined in Section 2.17(a).
------------------
<PAGE>
16
"Non-U.S. Lender": as defined in Section 2.17(b).
---------------
"Note": any promissory note evidencing a Loan.
----
"Organizational Documents": with respect to any Person, any
------------------------
stockholders' agreement, operating agreement, partnership agreement or
other document governing the organization or operation of, or the terms of
the Capital Stock of, such Person.
"Parents": the collective reference to the News Corp. Group and the
-------
TCI Group.
"Participant": as defined in Section 9.6(b).
-----------
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 3069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement": the Pledge Agreement, substantially in the form
----------------
of Exhibit A-2, as the same may be amended, supplemented or otherwise
modified from time to time.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Combined EBITDA": an amount, determined on any Disposition
-------------------------
Date or Asset Swap Date in connection with any proposed Disposition
pursuant to Section 6.5(f) or 6.5(g), equal to Combined EBITDA for the most
recent Asset Disposition Test Period; provided, that in the event that any
--------
Restricted Group Member shall have acquired or Disposed of any Property on
or after the first day of such Asset Disposition Test Period and on or
prior to such Disposition Date or Asset Swap Date, as the case may be
(except pursuant to such proposed Disposition or Asset Swap, as the case
may be), such Combined EBITDA shall be increased (in the case of
acquisitions) or reduced (in the case of Dispositions), by the Combined
EBITDA that would have been contributed by such Property during such Asset
Disposition Test Period, determined in good faith by the Borrower on a pro
forma basis, as though the relevant Restricted Group Member acquired or
Disposed of such Property on the first day of such Asset Disposition Test
Period.
"Programming Liabilities": all obligations incurred in the ordinary
-----------------------
course of business to acquire, produce, license or distribute films,
television programming or sporting events, other than any such obligations
for Indebtedness described in clause (a) of the definition of
"Indebtedness" and Guarantee Obligations in respect of such Indebtedness.
"Projections": as defined in Section 5.2(c).
-----------
"Properties": as defined in Section 3.17.
----------
<PAGE>
17
"Property": any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.
"Rainbow Documents": the following agreements as in effect on the
-----------------
date hereof, in each case as the same may be amended, supplemented or
otherwise modified from time to time in accordance with the terms of this
Agreement: (a) Formation Agreement dated as of June 22, 1997, between
Rainbow Media Sports Holdings, Inc. and Fox/Liberty Sports; (b) General
Partnership Agreement of Regional Programming Partners dated as of December
15, 1997, between Rainbow Regional Holdings, Inc. and Fox Sports RPP; (c)
General Partnership Agreement of National Sports Partners dated as of
December 15, 1997, between Rainbow National Sports Holdings, Inc. and Fox
Sports NSP Holdings, LLC; (d) General Partnership Agreement of National
Advertising Partners dated as of December 15, 1997, between Rainbow
Advertising Holdings, Inc. and Fox Sports NAP Holdings, LLC; (e)
Reimbursement Agreement dated as of December 15, 1997, among Rainbow Media
Holdings, Inc., Rainbow Program Enterprises and Fox/Liberty Sports; and (f)
Options Reimbursement Agreement dated as of December 15, 1997, between
Cablevision Systems Corporation and Fox/Liberty.
"Rainbow Entities": the collective reference to RPP, National Sports
----------------
Partners and National Advertising Partners.
"Rainbow Transaction": the collective reference to the transactions
-------------------
pursuant to which (a) Fox Sports RPP will acquire a 40% interest in RPP and
(b) Fox/Liberty Sports will acquire, in each case through a Wholly Owned
Subsidiary, a 50% interest in National Sports Partners and a 50% interest
in National Advertising Partners.
"Recovery Event": the receipt of any payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding
relating to any Property of any Restricted Group Member.
"Register": as defined in Section 9.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reinvestment Acquisition": in the case of any Reinvestment Event,
------------------------
the application of the Net Cash Proceeds thereof, or an equivalent amount,
by a Restricted Group Control Member (directly and not through any Person
that is not a Restricted Group Control Member) to acquire operating assets
in lines of business in which the Restricted Group Control Members are
engaged, or that are reasonably related thereto, at the time of such
Reinvestment Event, including, without limitation, pursuant to an Asset
Swap.
"Reinvestment Cash Collateral/Repayment Amount": with respect to any
---------------------------------------------
Reinvestment Event, the aggregate Net Cash Proceeds received by any
Restricted Group Control Member in connection therewith which are not
applied to prepay the Term Loans or to reduce the Revolving Credit
Commitments, as a result of the delivery of a Reinvestment Notice, pending
application as provided in the relevant Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which the Borrower has delivered a Reinvestment Notice.
<PAGE>
18
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and
that a Restricted Group Control Member intends and expects to use all or a
specified portion of the Net Cash Proceeds of an Asset Sale or Recovery
Event to consummate a Reinvestment Acquisition.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Cash Collateral/Repayment Amount relating thereto
less any amount expended by the relevant Restricted Group Control Member
prior to the relevant Reinvestment Prepayment Date to consummate one or
more Reinvestment Acquisitions.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the date occurring 365 days (or, in the case of an Asset Swap, 45
days) after such Reinvestment Event or such earlier date as may be
determined by the Borrower in its sole discretion.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
3241 of ERISA.
"Reportable Event": any of the events set forth in Section 3043(b) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)
2615.
"Required Lenders": (a) the holders of more than 50% of (i) until the
----------------
Closing Date, the Commitments and (ii) thereafter, the sum of (x) the
aggregate unpaid principal amount of the Term Loans and (y) the Revolving
Credit Commitments or, if the Revolving Credit Commitments have been
terminated, the aggregate unpaid principal amount of the Revolving Credit
Loans and (b) in addition, in the case of any action taken pursuant to
Section 9.1 to waive a Default or Event of Default existing at the time of
such action, the Majority Revolving Credit Facility Lenders.
"Required Prepayment Lenders": the Majority Facility Lenders in
---------------------------
respect of each Facility.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, president or
-------------------
chief financial officer of the Borrower, but in any event, with respect to
financial matters, the chief financial officer of the Borrower.
"Restricted Group Affiliated Members": the collective reference to
-----------------------------------
each Restricted Group Member other than the Borrower.
"Restricted Group Control Members": the collective reference to the
--------------------------------
Borrower and the Restricted Group Subsidiaries.
"Restricted Group Joint Ventures": the collective reference to any
-------------------------------
Person (other than the Borrower or a Subsidiary of the Borrower) in which
the Borrower or any of its Subsidiaries
<PAGE>
19
owns a direct or indirect economic interest representing at least 25% of
such Person's Capital Stock, if such Person would constitute a Restricted
Group Subsidiary if it were a Subsidiary of the Borrower. It is understood
that each Restricted Group Joint Venture shall become a Restricted Group
Subsidiary automatically upon becoming a Subsidiary of the Borrower.
"Restricted Group Members": the collective reference to the
------------------------
Restricted Group Control Members and the Restricted Group Joint Ventures.
"Restricted Group Subsidiaries": the collective reference to (a) the
-----------------------------
Subsidiaries of the Borrower listed on Schedule 3.15 as "Restricted Group
Subsidiaries", (b) any other Subsidiary of the Borrower from and after the
first date on which such Subsidiary becomes Cash Flow Positive (whether or
not on any subsequent date such Subsidiary shall cease to be Cash Flow
Positive) and (c) any other Subsidiary of the Borrower that is a direct or
indirect parent of any Subsidiary referred to in clause (a) or (b) of this
definition.
"Restricted Payments": as defined in Section 6.6.
-------------------
"Revolving Credit Commitment": as to any Lender, the obligation of
---------------------------
such Lender, if any, to make Revolving Credit Loans in an aggregate
principal amount not to exceed the amount set forth under the heading
"Revolving Credit Commitment" opposite such Lender's
name on Schedule 1.1A, as the same may be changed from time to time
pursuant to the terms hereof. The original aggregate amount of the
Revolving Credit Commitments is $400,000,000.
"Revolving Credit Commitment Period": the period from the Closing
----------------------------------
Date to the Revolving Credit Termination Date.
"Revolving Credit Facility": the Revolving Credit Commitments and the
-------------------------
Revolving Credit Loans made thereunder.
"Revolving Credit Installment Dates": as defined in Section 2.4(b).
----------------------------------
"Revolving Credit Lender": each Lender which has a Revolving Credit
-----------------------
Commitment or which has made Revolving Credit Loans.
"Revolving Credit Loans": as defined in Section 2.4.
----------------------
"Revolving Credit Percentage": as to any Revolving Credit Lender at
---------------------------
any time, the percentage which such Lender's Revolving Credit Commitment
then constitutes of the aggregate Revolving Credit Commitments (or, at any
time after the Revolving Credit Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Revolving Credit Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Credit Loans then outstanding).
"Revolving Credit Termination Date": September 30, 2004.
---------------------------------
"RPP": Regional Programming Partners, a New York general partnership.
---
"RSN": a regional sports network.
---
<PAGE>
20
"Sale-Leaseback Transaction": any arrangement with any Person
--------------------------
providing for the leasing by a Fox/Liberty Group Member of real or personal
property which has been or is to be sold or transferred by a Fox/Liberty
Group Member to such Person or to any other Person to whom funds have been
or are to be advanced by such Person on the security of such property or
rental obligations of a Fox/Liberty Group Member.
"Senior Discount Notes": as defined in Section 4.1(c). The term
---------------------
"Senior Discount Notes" shall include any notes of Fox/Liberty and FLN
having substantially similar terms and issued in exchange for the Senior
Discount Notes outstanding on the Closing Date pursuant to the exchange
offer procedure described in the relevant Fox/Liberty Note Indenture.
"Senior Notes": as defined in Section 4.1(c). The term "Senior
------------
Notes" shall include any notes of Fox/Liberty and FLN having substantially
similar terms and issued in exchange for the Senior Notes outstanding on
the Closing Date pursuant to the exchange offer procedure described in the
relevant Fox/Liberty Note Indenture.
"Shell Company": any Person in which the Borrower directly or
-------------
indirectly holds Capital Stock that has no operations and holds no assets
other than the Capital Stock of one or more Shell Companies, Specified Non-
Wholly Owned Persons or, except for the purposes of Section 6.14(c), any
other Borrower Group Members.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair
salable value of the assets of such Person is not less than the amount that
will be required to pay the probable liabilities of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Persons' ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute an unreasonably small amount of capital.
"South RSN": SportSouth Network Ltd., a Delaware limited partnership.
---------
"Specified Change of Control": a "Change of Control" as defined in
---------------------------
either Fox/Liberty Note Indenture.
"Specified Division": each of the SportsCom Division and the
------------------
SportsCom West Division, in each case until such division would qualify as
a Restricted Group Subsidiary if such division was operated in a separate
Subsidiary. It is understood that Specified Divisions shall be disregarded
for the purposes of any calculation pursuant to this Agreement relating to
financial matters with respect to the Restricted Group Members.
"Specified Non-Wholly Owned Person": (a) any Joint Venture and (b)
---------------------------------
any Subsidiary (i) that is not a Wholly Owned Subsidiary of the Borrower
and (ii) whose Capital Stock that is owned directly or indirectly by the
Borrower cannot be pledged pursuant to the Pledge
<PAGE>
21
Agreement as a result of restrictions contained in any Organizational
Document relating to such Subsidiary.
"SportsCom Division": the division of ARC Holding, Ltd. relating to
------------------
SportsCom-Houston which provides certain technical facilities and services
to RSNs owned or operated by the Borrower Group Members and Fox Sports
Direct.
"SportsCom West Division": the division of Prime Ticket Networks,
-----------------------
L.P. relating to SportsCom-West which provides certain technical facilities
and services to RSNs owned or operated by the Borrower Group Members and
Fox Sports Direct.
"Subordinated Indebtedness": any Indebtedness of any Loan Party that
-------------------------
is subordinated to the obligations of such Loan Party under this Agreement
or the Guarantee Agreement, as the case may be.
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership, limited liability company or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Subsidiary EBITDA": for any period, for any Subsidiary of the
-----------------
Borrower, Subsidiary Net Income of such Subsidiary for such period plus,
----
without duplication and to the extent reflected as a charge in the
statement of such Subsidiary Net Income for such period, the sum of (a)
total income tax expense, (b) interest expense, amortization or writeoff of
debt discount and debt issuance costs and commissions, discounts and other
fees and charges associated with Indebtedness, (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary
expenses or losses (including, whether or not otherwise includable as a
separate item in the statement of such Subsidiary Net Income for such
period, losses on Dispositions of assets outside of the ordinary course of
business but, in any event, excluding write-offs for long-term sports
programming contracts) and (f) any other non-cash charges, and minus, to
-----
the extent included in the statement of such Subsidiary Net Income for such
period, the sum of (a) interest income, (b) any extraordinary income or
gains (including, whether or not otherwise includable as a separate item in
the statement of such Subsidiary Net Income for such period, gains on the
Dispositions of assets outside of the ordinary course of business) and (c)
any other non-cash income.
"Subsidiary Net Income": with respect to any Subsidiary, for any
---------------------
period, the net income (or loss) of such Subsidiary determined in
accordance with GAAP.
"TCI": Tele-Communications, Inc., a Delaware corporation.
---
"TCI Group": the collective reference to TCI and its Subsidiaries or,
---------
if Liberty Media Corporation ceases to be a Subsidiary of TCI, the
collective reference to Liberty Media Corporation and its Subsidiaries.
<PAGE>
22
"Term Loan Commitment": as to any Lender, the obligation of such
--------------------
Lender, if any, to make a Term Loan to the Borrower hereunder in a
principal amount not to exceed the amount set forth under the heading "Term
Loan Commitment" opposite such Lender's name on Schedule 1.1A. The
original aggregate amount of the Term Loan Commitments is $400,000,000.
"Term Loan Facility": the Term Loan Commitments and the Term Loans
------------------
made thereunder.
"Term Loan Installment Dates": as defined in Section 2.3.
---------------------------
"Term Loan Lender": each Lender which has a Term Loan Commitment or
----------------
which has made a Term Loan.
"Term Loan Percentage": as to any Term Loan Lender at any time, the
--------------------
percentage which such Lender's Term Loan Commitment then constitutes of the
aggregate Term Loan Commitments (or, at any time after the Closing Date,
the percentage which the aggregate principal amount of such Lender's Term
Loans then outstanding constitutes of the aggregate principal amount of the
Term Loans then outstanding).
"Term Loans": as defined in Section 2.1.
----------
"Total Fixed Charges": for any period, the sum (without duplication)
-------------------
of (i) Total Interest Expense for such period, (ii) provision for cash
income taxes made by any Restricted Group Member in respect of such period,
(iii) Capital Expenditures made by any Restricted Group Member during such
period, (iv) Launch Support Payments made by any Restricted Group Member
during such period, (v) Working Capital Increases, (vi) cash payments by
Restricted Group Members for programming in excess of programming expense
(if applicable), (vii) scheduled payments made during such period on
account of principal of Indebtedness of any Restricted Group Member other
than the Turner Note, (viii) management, consulting, advisory or other
similar fees paid by any Restricted Group Member during such period, (ix)
any Restricted Payments made by any Restricted Group Member to any Person
other than another Restricted Group Member and (x) total cash interest
expense on the Fox/Liberty Notes or the Additional Fox/Liberty Debt, in
each case to the extent funded through the making of dividend, distribution
or any other payment made to Fox/Liberty or FLN by any Borrower Group
Member.
"Total Interest Expense": for any period, total cash interest expense
----------------------
(including that attributable to Capital Lease Obligations) of the
Restricted Group Members for such period with respect to all outstanding
Indebtedness of the Restricted Group Members (including, without
limitation, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net
costs under Interest Rate Protection Agreements to the extent such net
costs are allocable to such period in accordance with GAAP).
"Transferee": as defined in Section 9.6(f).
----------
"Turner Note": the promissory note dated October 10, 1996 issued by
-----------
LMC Southeast Sports, Inc. to Turner Broadcasting System, Inc., as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with Section 6.8.
<PAGE>
23
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"Unrestricted Group Joint Ventures": the collective reference to any
---------------------------------
Person (other than the Borrower or a Subsidiary of the Borrower) in which
the Borrower or any of its Subsidiaries owns a direct or indirect economic
interest representing at least 25% of such Person's Capital Stock, if such
Person would constitute an Unrestricted Group Subsidiary if it were a
Subsidiary of the Borrower.
"Unrestricted Group Members": the collective reference to the
--------------------------
Unrestricted Group Subsidiaries and the Unrestricted Group Joint Ventures.
It is understood that Unrestricted Group Members shall be disregarded for
the purposes of any calculation pursuant to this Agreement relating to
financial matters with respect to the Restricted Group Members.
"Unrestricted Group Subsidiaries": the collective reference to (a)
-------------------------------
the Subsidiaries of the Borrower listed on Schedule 3.15 as "Unrestricted
Group Subsidiaries", in each case until such time as any such Person
becomes a Restricted Group Subsidiary in accordance with the definition
thereof and (b) any other Subsidiary of the Borrower that is not a
Restricted Group Member.
"Wholly Owned Restricted Group Subsidiary": any Restricted Group
----------------------------------------
Member that is a Wholly Owned Subsidiary of the Borrower.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than (a) directors' qualifying shares
required by law or (b) Capital Stock held by any member of the News Corp.
Group or the TCI Group not in excess, in the aggregate, of 2% of either the
economic or the voting interests in such Person) is owned by such Person
directly and/or through other Wholly Owned Subsidiaries of such Person.
Notwithstanding the foregoing, each of Liberty/Fox KBL L.P., LMC Sunshine,
Inc., LMC Southeast Sports, Inc., Prime Sports Northwest Network and
Affiliated Regional Communications Ltd. shall be deemed to be a Wholly
Owned Subsidiary of the Borrower so long as (i) all of its Capital Stock is
owned (directly or indirectly) by the Borrower or the Parents, (ii) the
percentage of such Capital Stock owned (directly or indirectly) by the
Borrower on the Closing Date is not subsequently reduced and (iii) the type
and scope of the operations of each such Person does not change materially
after the Closing Date.
"Working Capital": the excess of Current Assets over Current
---------------
Liabilities.
"Working Capital Increases": for any period the difference, if
-------------------------
positive, between (a) the Working Capital as of the last day of such period
and (b) the Working Capital as of such corresponding date in the previous
fiscal year (or as of September 30, 1997 in the case of any period ending
prior to December 31, 1998).
1.2 Other Definitional and Interpretive Provisions. (a) Unless
----------------------------------------------
otherwise specified therein, all terms defined in this Agreement shall have the
defined meanings when used in the other Loan Documents or any certificate or
other document made or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms relating to the Fox/Liberty Group Members not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP.
<PAGE>
24
(c) Any pro forma calculation of the Leverage Ratio, the Fixed Charge
--- -----
Coverage Ratio or the Interest Coverage Ratio shall be made as of the last day
of, or in respect of, as the case may be, the most recent period of four
consecutive fiscal quarters for which the financial information has been
delivered pursuant to Section 5.1(c). For the purposes of making pro forma
--- -----
calculations of the Fixed Charge Coverage Ratio and the Interest Coverage Ratio
in respect of any transaction involving the Incurrence of Indebtedness, such
calculations shall be made under the assumption that such Indebtedness was
Incurred on the first day of the period for which such ratio is being
calculated.
(d) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(e) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(f) For the purposes of Sections 3, 5, 6 and 7, any action or failure
to act on the part of a Joint Venture shall be disregarded to the extent that
the Borrower Control Parties (as defined below) did not have the ability to
prevent, or to cause to be taken, as the case may be, such action or failure to
act, pursuant to veto or approval rights granted to any Borrower Control Party
pursuant to the Organizational Documents relating to such Joint Venture. For
the purposes of Section 3, representations and warranties relating to Joint
Ventures shall in each case be deemed to be given only to the extent of the
actual knowledge of the Borrower. For the purposes of historical financial
calculations made in determining Combined Total Debt, Total Fixed Charges, Total
Interest Expense and the amount described in clause (b) of the definition of
Combined Excess Cash Flow, the amounts referred to in such definitions (to the
extent not disregarded in accordance with the first sentence of this paragraph)
reflecting amounts owing, or expenditures made, solely by a particular Joint
Venture shall be disregarded unless a Restricted Group Control Member is liable
for (either contractually or by operation of law, including, except in the case
of a Shell Company, in a direct or indirect general partner capacity), or
financed the making of, such amounts or expenditures. For the purposes of this
paragraph (f), "Borrower Control Party" refers to the Borrower or any of its
Subsidiaries or Affiliates or any of their respective officers, members or other
representatives.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
---------------------
hereof, each Term Loan Lender severally agrees to make a term loan (a "Term
----
Loan") to the Borrower on the Closing Date in an amount not to exceed the amount
of the Term Loan Commitment of such Lender. The Term Loans may from time to
time be Eurodollar Loans or ABR Loans, as determined by the Borrower and
notified to the Administrative Agent in accordance with Sections 2.2 and 2.10.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
---------------------------------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 2:00 P.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Term Loan Lenders
make the Term Loans on the Closing Date and specifying the amount to be
borrowed. The Term Loans made on the Closing Date shall initially be ABR Loans.
Upon receipt of such notice the Administrative Agent shall promptly notify each
Term Loan Lender thereof. Not later than 12:00 Noon, New York City time, on the
Closing Date each Term Loan Lender shall make available to the Administrative
Agent at its office specified in Section 9.2 an amount in immediately available
funds equal to the Term Loan to be made by such Lender. The Administrative
Agent shall
<PAGE>
25
credit the account of the Borrower on the books of such office of the
Administrative Agent with the aggregate of the amounts made available to the
Administrative Agent by the Term Loan Lenders in immediately available funds.
2.3 Repayment of Term Loans. The Term Loan of each Term Loan Lender
-----------------------
shall mature in 16 consecutive quarterly installments (the respective dates
thereof, "Term Loan Installment Dates"), commencing on December 31, 2000, each
---------------------------
of which shall be in an amount equal to such Lender's Term Loan Percentage
multiplied by the amount set forth below opposite such installment:
Installment Principal Amount
----------- ----------------
December 31, 2000 $20,000,000
March 31, 2001 $20,000,000
June 30, 2001 $20,000,000
September 30, 2001 $20,000,000
December 31, 2001 $22,500,000
March 31, 2002 $22,500,000
June 30, 2002 $22,500,000
September 30, 2002 $22,500,000
December 31, 2002 $27,500,000
March 31, 2003 $27,500,000
June 30, 2003 $27,500,000
September 30, 2003 $27,500,000
December 31, 2003 $30,000,000
March 31, 2004 $30,000,000
June 30, 2004 $30,000,000
September 30, 2004 $30,000,000
2.4 Revolving Credit Commitments. (a) Subject to the terms and
----------------------------
conditions hereof, each Revolving Credit Lender severally agrees to make
revolving credit loans ("Revolving Credit Loans") to the Borrower from time to
----------------------
time during the Revolving Credit Commitment Period in an aggregate principal
amount at any one time outstanding which does not exceed the amount of such
Lender's Revolving Credit Commitment. During the Revolving Credit Commitment
Period the Borrower may use the Revolving Credit Commitments by borrowing,
prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all
in accordance with the terms and conditions hereof. The Revolving Credit Loans
may from time to time be Eurodollar Loans or ABR Loans, as determined by the
Borrower and notified to the Administrative Agent in accordance with Sections
2.5 and 2.10.
(b) The Revolving Credit Commitment of each Revolving Credit Lender
shall be reduced in 16 consecutive quarterly installments (the respective dates
thereof, "Revolving Credit Installment Dates"), commencing on December 31, 2000,
----------------------------------
each of which shall be in an amount equal to such Lender's Revolving Credit
Percentage multiplied by the amount set forth below opposite such installment:
Installment Commitment Reduction
----------- ----------------------
December 31, 2000 $20,000,000
March 31, 2001 $20,000,000
June 30, 2001 $20,000,000
September 30, 2001 $20,000,000
December 31, 2001 $22,500,000
March 31, 2002 $22,500,000
<PAGE>
26
June 30, 2002 $22,500,000
September 30, 2002 $22,500,000
December 31, 2002 $27,500,000
March 31, 2003 $27,500,000
June 30, 2003 $27,500,000
September 30, 2003 $27,500,000
December 31, 2003 $30,000,000
March 31, 2004 $30,000,000
June 30, 2004 $30,000,000
September 30, 2004 $30,000,000
2.5 Procedure for Revolving Credit Borrowing. The Borrower may
----------------------------------------
borrow under the Revolving Credit Commitments during the Revolving Credit
Commitment Period on any Business Day, provided that the Borrower shall give the
--------
Administrative Agent an irrevocable Borrowing Notice (which notice must be
received by the Administrative Agent prior to (a) 1:00 P.M., New York City time,
three Business Days prior to the requested Borrowing Date, in the case of
Eurodollar Loans, or (b) 2:00 P.M., New York City time, one Business Day prior
to the requested Borrowing Date, in the case of ABR Loans), specifying (i) the
amount and Type of Revolving Credit Loans to be borrowed, (ii) the requested
Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts
of each such Type of Revolving Credit Loan and the respective lengths of the
initial Interest Period therefor. Each borrowing under the Revolving Credit
Commitments shall be in an amount equal to (x) in the case of ABR Loans,
$1,000,000 or a whole multiple thereof (or, if the then aggregate Available
Revolving Credit Commitments are less than $1,000,000, such lesser amount) and
(y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the Borrower,
the Administrative Agent shall promptly notify each Revolving Credit Lender
thereof. Each Revolving Credit Lender will make the amount of its pro rata share
--- ----
of each borrowing available to the Administrative Agent for the account
of the Borrower at the office of the Administrative Agent specified in Section
9.2 prior to 12:00 Noon, New York City time, on the Borrowing Date requested by
the Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to the Borrower by the Administrative
Agent crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Revolving Credit Lenders and in like funds as received by the Administrative
Agent.
2.6 Commitment Fees, etc. (a) The Borrower agrees to pay to the
---------------------
Administrative Agent for the account of each Revolving Credit Lender a
commitment fee for the period from and including the Closing Date to the last
day of the Revolving Credit Commitment Period, computed at the Commitment Fee
Rate on the average daily amount of the Available Revolving Credit Commitment of
such Lender during the period for which payment is made, payable quarterly in
arrears on the last day of each March, June, September and December and on the
Revolving Credit Termination Date, commencing on the first of such dates to
occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates previously agreed to in writing by the Borrower
and the Administrative Agent.
2.7 Termination or Reduction of Revolving Credit Commitments. The
--------------------------------------------------------
Borrower shall have the right, upon not less than three Business Days' notice to
the Administrative Agent, to terminate the Revolving Credit Commitments or, from
time to time, to reduce the amount of the Revolving Credit Commitments; provided
--------
that no such termination or reduction of Revolving Credit Commitments shall be
permitted if, after giving effect thereto and to any prepayments of the
Revolving Credit Loans
<PAGE>
27
made on the effective date thereof, the aggregate principal amount of the
Revolving Credit Loans would exceed the Revolving Credit Commitments then in
effect. Any such reduction shall be in an amount equal to $1,000,000, or a whole
multiple thereof. Each commitment reduction pursuant to this Section 2.7 shall
reduce permanently the Revolving Credit Commitments then in effect.
2.8 Optional Prepayments. The Borrower may at any time and from time
--------------------
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of ABR Loans, which notice shall specify (a) the date
and amount of prepayment and (b) whether the prepayment is to be applied to Term
Loans, Revolving Credit Loans or a combination thereof, and, if of a combination
thereof, the amount allocable to each and whether the prepayment is of
Eurodollar Loans, ABR Loans or a combination thereof, and, if of a combination
thereof, the amount allocable to each (which allocations referred to in this
clause (b) shall be made in the Borrower's discretion); provided, that if a
--------
Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto, the Borrower shall also pay any amounts owing
pursuant to Section 2.18. Upon receipt of any such notice the Administrative
Agent shall promptly notify each Lender thereof. If any such notice is given,
the amount specified in such notice shall be due and payable on the date
specified therein, together with (except in the case of Revolving Credit Loans
which are ABR Loans) accrued interest to such date on the amount prepaid.
Partial prepayments of Eurodollar Loans shall be in an aggregate principal
amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
Partial prepayments of ABR Loans shall be in an aggregate principal amount of
$1,000,000 or a whole multiple thereof.
2.9 Mandatory Commitment Reductions and Prepayments. (a) Unless the
-----------------------------------------------
Required Prepayment Lenders shall otherwise agree, (i) if any Capital Stock
shall be issued by Fox/Liberty or any Restricted Group Control Member (or by any
Restricted Group Joint Venture to the extent the proceeds thereof are
distributed to a Restricted Group Control Member) or if Fox/Liberty shall
Dispose of any Capital Stock of the Borrower, then an amount equal to 100% (or,
after the third anniversary of the Closing Date, 50%) of the Net Cash Proceeds
thereof shall be applied on the date of such issuance or Disposal toward the
prepayment of the Term Loans or the reduction of the Revolving Credit
Commitments, as the case may be, as set forth in Section 2.9(c), and (ii) if any
Indebtedness shall be Incurred by Fox/Liberty or any Restricted Group Control
Member (or by any Restricted Group Joint Venture to the extent the proceeds
thereof are distributed to a Restricted Group Control Member), excluding any
Indebtedness Incurred in accordance with Section 6.2, then an amount equal to
100% of the Net Cash Proceeds thereof shall be applied on the date of such
Incurrence toward the prepayment of the Term Loans or the reduction of the
Revolving Credit Commitments, as the case may be, as set forth in Section
2.9(c).
(b) Unless the Required Prepayment Lenders shall otherwise agree, if
on any date any Restricted Group Control Member shall receive Net Cash Proceeds
from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall
be delivered in respect thereof, such Net Cash Proceeds shall be applied on such
date toward the prepayment of the Term Loans or the reduction of the Revolving
Credit Commitments, as the case may be, as set forth in Section 2.9(c);
provided, that, notwithstanding the foregoing, (x) the aggregate Net Cash
- --------
Proceeds of Asset Sales and Recovery Events that may be excluded from the
foregoing requirement pursuant to a Reinvestment Notice (other than Net Cash
Proceeds of Asset Swaps) shall not exceed $75,000,000 during the term of this
Agreement and (y) on each Reinvestment Prepayment Date, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied toward the prepayment of the Term Loans or the reduction of the
Revolving Credit Commitments, as the case may be, as set forth in Section
2.9(c). During the period from the date of any Reinvestment Event to the
<PAGE>
28
date of any application of the Net Cash Proceeds thereof as contemplated by the
relevant Reinvestment Notice, the Borrower shall place an amount equal to the
amount that would otherwise be required to be applied to prepay the Term Loans
or reduce the Revolving Credit Commitments as described in Section 2.9(c) in an
interest-bearing cash collateral account held by the Administrative Agent for
the benefit of the relevant Lenders on terms reasonably satisfactory to the
Administrative Agent (or apply such amount to temporarily prepay the Revolving
Credit Loans); provided that such amounts will be unavailable to be withdrawn
--------
from such cash collateral account (or, if applicable, reborrowed) except at the
time of and for the purpose of making the reinvestment contemplated by the
relevant Reinvestment Notice. Any interest earned on the amount held in such
cash collateral account shall be for the benefit of, and shall be remitted to,
the Borrower.
(c) The amounts referred to in Sections 2.9(a) and (b) shall be
applied, first, to prepay the Term Loans and, second, to permanently reduce the
----- ------
Revolving Credit Commitments. The application of any prepayment pursuant to
Section 2.9 shall be made, first, to ABR Loans and, second, to Eurodollar Loans.
----- ------
2.10 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving an
irrevocable Continuation/Conversion Notice to the Administrative Agent at least
two Business Days' prior to the proposed effective date of such election,
provided that any such conversion of Eurodollar Loans may only be made on the
- --------
last day of an Interest Period with respect thereto. The Borrower may elect
from time to time to convert ABR Loans to Eurodollar Loans by giving the
Administrative Agent at least three Business Days' prior irrevocable notice of
such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan under a particular Facility may be
--------
converted into a Eurodollar Loan (i) when any Event of Default has occurred and
is continuing and the Administrative Agent or the Majority Facility Lenders in
respect of such Facility have determined in its or their sole discretion not to
permit such conversions or (ii) after the date that is one month prior to the
final scheduled maturity date of such Facility. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
an irrevocable Continuation/Conversion Notice to the Administrative Agent, in
accordance with the applicable provisions of the term "Interest Period" set
forth in Section 1.1, of the length of the next Interest Period to be applicable
to such Loans, provided that no Eurodollar Loan under a particular Facility may
--------
be continued as such (i) when any Event of Default has occurred and is
continuing and the Administrative Agent has or the Majority Facility Lenders in
respect of such Facility have determined in its or their sole discretion not to
permit such continuations or (ii) after the date that is one month prior to the
final scheduled maturity date of such Facility, and provided, further, that if
-------- -------
the Borrower shall fail to give any required notice as described above in this
paragraph or if such continuation is not permitted pursuant to the preceding
proviso, such Loans shall be automatically converted to ABR Loans on the last
day of such then expiring Interest Period. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof.
2.11 Minimum Amounts and Maximum Number of Eurodollar Tranches.
---------------------------------------------------------
Notwithstanding anything to the contrary in this Agreement, all borrowings,
conversions, continuations and optional prepayments of Eurodollar Loans
hereunder and all selections of Interest Periods hereunder shall be in such
amounts and be made pursuant to such elections so that, (a) after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans comprising each
Eurodollar
<PAGE>
29
Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess
thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any
one time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR.
(c) (i) If all or a portion of the principal amount of any Loan shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), all outstanding Loans (whether or not overdue) shall bear interest
at a rate per annum which is equal to the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section 2.12
plus 2%, and (ii) if all or a portion of any interest payable on any Loan or any
- ----
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate applicable to
ABR Loans plus 2%, in each case, with respect to clauses (i) and (ii) above,
----
from the date of such non-payment until such amount is paid in full (as well
after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to Section 2.12(c) shall be
--------
payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Interest, fees and
--------------------------------
commissions payable pursuant hereto shall be calculated on the basis of a 360-
day year for the actual days elapsed, except that, with respect to ABR Loans the
rate of interest on which is calculated on the basis of the Prime Rate, the
interest thereon shall be calculated on the basis of a 365- (or 366-, as the
case may be) day year for the actual days elapsed. The Administrative Agent
shall as soon as practicable notify the Borrower and the relevant Lenders of
each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements
shall become effective as of the opening of business on the day on which such
change becomes effective. The Administrative Agent shall as soon as practicable
notify the Borrower and the relevant Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.12(a).
2.14 Inability to Determine Interest Rate. If prior to the first
-----------------------------------
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower absent
manifest error) that, by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such
<PAGE>
30
Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the Lenders as soon as practicable thereafter. If such notice is
given (x) any Eurodollar Loans under the relevant Facility requested to be made
on the first day of such Interest Period shall be made as ABR Loans, (y) any
Loans under the relevant Facility that were to have been converted on the first
day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans
and (z) any outstanding Eurodollar Loans under the relevant Facility shall be
converted, on the last day of the then applicable Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans under the relevant Facility shall be made or continued as such,
nor shall the Borrower have the right to convert Loans under the relevant
Facility to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments shall be made pro rata
--- ----
according to the respective Term Loan Percentages or Revolving Credit
Percentages, as the case may be, of the relevant Lenders. Any reduction of the
Revolving Credit Commitments pursuant to Section 2.4(b) or 2.9 shall be
accompanied by prepayment of the Revolving Credit Loans to the extent, if any,
that the aggregate principal amount of the Revolving Credit Loans exceeds the
aggregate Revolving Credit Commitments as so reduced.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans or the Revolving Credit
Loans shall be made pro rata according to the respective outstanding principal
--- ----
amounts of the Term Loans or Revolving Credit Loans, as the case may be, then
held by the Lenders.
(c) Optional and mandatory prepayments of the Term Loans and
reductions of the Revolving Credit Commitments pursuant to Section 2.7, 2.8 or
2.9 shall be applied, first, to the then remaining amount of the scheduled
-----
installments occurring on the next four Term Loan Installment Dates or Revolving
Credit Installment Dates, as the case may be, on or after the date of such
prepayment or reduction, in forward order of maturity, until the remaining
amount of all such installments has been reduced to zero, and, second, to the
------
other remaining installments, pro rata to the respective outstanding amounts
--- ----
thereof. Amounts prepaid on account of the Term Loans may not be reborrowed.
(d) Each prepayment of the Loans (except in the case of Revolving
Credit Loans that are ABR Loans) shall be accompanied by accrued interest to the
date of such prepayment on the amount prepaid.
(e) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim (except as otherwise provided in Section
2.21) and shall be made prior to 1:00 P.M., New York City time, on the due date
thereof to the Administrative Agent, for the account of the relevant Lenders, at
the Administrative Agent's office specified in Section 9.2, in Dollars and in
immediately available funds. The Administrative Agent shall distribute such
payments to the relevant Lenders promptly upon receipt in like funds as
received. If any payment hereunder (other than payments on the Eurodollar
Loans) becomes due and payable on a day other than a Business Day, such payment
shall be extended to the next succeeding Business Day. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day unless
the result of such extension would be to extend such payment
<PAGE>
31
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day. In the case of any extension of any payment
of principal pursuant to the preceding two sentences, interest thereon shall be
payable at the then applicable rate during such extension.
(f) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 2.15(f) shall
be conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall also be entitled to recover such amount with interest thereon at the rate
per annum applicable to ABR Loans, on demand, from the Borrower. The failure of
any Lender to make its proportionate share of any Loan shall not relieve any
other Lender of its obligation, if any, hereunder to make its share of such
Loan, but no Lender shall be responsible for the failure of any other Lender to
make any Loan to be made by such other Lender on any Borrowing Date.
2.16 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement or any Eurodollar Loan made by it, or change
the basis of taxation of payments to such Lender in respect thereof (except
for Non-Excluded Taxes covered by Section 2.17 and changes in the rate of
tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable. If
any Lender becomes entitled to claim any additional amounts pursuant to this
Section 2.16, it shall promptly notify the Borrower (with a copy to the
Administrative Agent) of the event by reason of which it has become so entitled.
<PAGE>
32
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, after submission by such Lender, as
promptly as practicable, to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that such request shall be delivered by such Lender as promptly as
- --------
practicable but, in any event, within 90 days after such Lender obtains
knowledge of the amounts required to so compensate it.
(c) A certificate as to any additional amounts payable pursuant to
this Section 2.16 submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section 2.16 shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.17 Taxes. (a) All payments made by the Borrower under this
-----
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes, franchise taxes and other similar taxes
(imposed in lieu of net income taxes) imposed on the Administrative Agent or any
Lender as a result of a present or former
connection between the Administrative Agent or such Lender and the jurisdiction
of the Governmental Authority imposing such tax or any political subdivision or
taxing authority thereof or therein (other than any such connection arising
solely from the Administrative Agent or such Lender having executed, delivered
or performed its obligations or received a payment under, or enforced, this
Agreement or any other Loan Document). If any such non-excluded taxes, levies,
imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded
------------
Taxes") are required to be withheld from any amounts payable to the
Administrative Agent or any Lender hereunder, the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all Non-
Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Agreement; provided, however, that the
-------- -------
Borrower shall not be required to increase any such amounts payable to any Non-
U.S. Lender with respect to any Non-Excluded Taxes (i) that are attributable to
such Non-U.S. Lender's failure to comply with the requirements of Section
2.17(b) or (ii) that are United States withholding taxes imposed on amounts
payable to such Lender at the time the Lender becomes a party to this Agreement,
except to the extent that such Lender's assignor (if any) was entitled, at the
time of assignment, to receive additional amounts from the Borrower with respect
to such Non-Excluded Taxes pursuant to this Section 2.17(a). Whenever any Non-
Excluded Taxes are payable by the Borrower, as promptly as possible thereafter
the Borrower shall send to the Administrative Agent for its own account or for
the account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof. If the
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become
<PAGE>
33
payable by the Administrative Agent or any Lender as a result of any such
failure. The agreements in this Section 2.17 shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(b) Each Lender (or Transferee) that is not (i) a citizen or resident
of the United States of America, (ii) a corporation or partnership created or
organized in or under the laws of the United States of America (or any
jurisdiction thereof), (iii) any estate that is subject to federal income
taxation regardless of the source of its income or (iv) a trust whose
administration is subject to primary supervision of a United States court and
which has one or more United States fiduciaries who has the authority to control
all substantial decisions of the trust (a "Non-U.S. Lender") shall deliver to
---------------
the Borrower and the Administrative Agent (or, in the case of a Participant, to
the Lender from which the related participation shall have been purchased) two
copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in
the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding
tax under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest", a Form W-8, or any subsequent versions thereof or
successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an annual
certificate representing that such Non-U.S. Lender is not a "bank" for purposes
of Section 881(c) of the Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, has not been treated as a bank for
purposes of any tax, securities law or other filing or submission made to any
Governmental Authority, any application made to a rating agency or qualification
for any exemption from tax, securities law or other legal requirements, is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Borrower and is not a controlled foreign corporation related to the
Borrower (within the meaning of Section 864(d)(4) of the Code)), properly
completed and duly executed by such Non-U.S. Lender claiming complete exemption
from U.S. federal withholding tax on all payments by the Borrower under this
Agreement and the other Loan Documents. Such forms shall be delivered by each
Non-U.S. Lender on or before the date it becomes a party to this Agreement (or,
in the case of any Participant, on or before the date such Participant purchases
the related participation). In addition, each Non-U.S. Lender shall deliver such
forms promptly upon the obsolescence or invalidity of any form previously
delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify
the Borrower at any time it determines that it is no longer in a position to
provide any previously delivered certificate to the Borrower (or any other form
of certification adopted by the U.S. taxing authorities for such purpose).
Notwithstanding any other provision of this Section 2.17(b), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this Section 2.17(b) that
such Non-U.S. Lender is not legally able to deliver.
2.18 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
- ----
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable
<PAGE>
34
period with leading banks in the interbank eurodollar market. A statement as to
any amounts payable pursuant to this Section 2.18 shall be submitted to the
Borrower by each Lender claiming indemnification hereunder (or by the
Administrative Agent on behalf of the Lenders), and shall be conclusive in the
absence of manifest error. This covenant shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
2.19 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.16 or 2.17(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender
consistent with such Lender's past business practices) to designate another
lending office for any Loans affected by such event with the object of avoiding
the consequences of such event; provided, that such designation is made on terms
--------
that, in the sole judgment of such Lender, cause such Lender and its lending
office(s) to suffer no economic, legal or regulatory disadvantage, and provided,
--------
further, that nothing in this Section 2.19 shall affect or postpone any of the
- -------
obligations of any Borrower or the rights of any Lender pursuant to Section 2.16
or 2.17(a).
2.20 Replacement of Lenders under Certain Circumstances. The
--------------------------------------------------
Borrower shall be permitted to replace any Lender which (a) requests
reimbursement for amounts owing pursuant to Section 2.16 or 2.17 or (b) is a
Defaulting Lender, with a replacement financial institution; provided that (i)
--------
such replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) in the case of clause (a) above, prior to any such replacement, such
Lender shall have taken no action under Section 2.19 so as to eliminate the
continued need for payment of amounts owing pursuant to Section 2.16 or 2.17,
(iv) the replacement financial institution shall purchase, at par, all Loans and
other amounts owing to such replaced Lender on or prior to the date of
replacement, (v) the Borrower shall be liable to such replaced Lender under
Section 2.18 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
(vi) the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender
shall be obligated to make such replacement in accordance with the provisions of
Section 9.6 (provided that the Borrower shall be obligated to pay the
registration and processing fee referred to therein), (viii) until such time as
such replacement shall be consummated, the Borrower shall pay all additional
amounts (if any) required pursuant to Section 2.16 or 2.17, as the case may be,
and (ix) any such replacement shall not be deemed to be a waiver of any rights
which the Borrower, the Administrative Agent or any other Lender shall have
against the replaced Lender.
2.21 Defaulting Lenders. (a) In the event that, at any one time,
------------------
(i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall
owe a Defaulted Loan to the Borrower and (iii) the Borrower shall be required to
make any payment hereunder to or for the account of such Defaulting Lender, then
the Borrower may, so long as no Event of Default shall occur or be continuing at
such time and to the fullest extent permitted by applicable law, set off and
otherwise apply the obligation of the Borrower to make such payment to or for
the account of such Defaulting Lender against the obligation of such Defaulting
Lender to make such Defaulted Loan to the Borrower. In the event that the
Borrower shall so set off and otherwise apply the obligation of the Borrower to
make any such payment against the obligation of such Defaulting Lender to make
any such Defaulted Loan to the Borrower on any date, the amount so set off and
otherwise applied by the Borrower shall constitute for all purposes of this
Agreement a Loan by such Defaulting Lender made on the date such Defaulted Loan
was originally required to have been made
<PAGE>
35
pursuant to Section 2.5 and shall satisfy the Borrower's obligation to such
Defaulting Lender to the extent of the amount so set off or otherwise applied.
Such Loan shall be considered, for all purposes of this Agreement, to comprise
part of the Loan in connection with which such Defaulted Loan was originally
required to have been made pursuant to Section 2.5. The Borrower shall notify
the Administrative Agent at any time the Borrower reduces the amount of the
obligation of the Borrower to make any payment otherwise required to be made by
it hereunder as a result of the exercise by the Borrower of its right set forth
in this subsection (a) and shall set forth in such notice (A) the name of the
Defaulting Lender and the Defaulted Loan required to be made by such Defaulting
Lender and (B) the amount set off and otherwise applied in respect of such
Defaulted Loan pursuant to this subsection (a). Any portion of such payment
otherwise required to be made by the Borrower to or for the account of such
Defaulting Lender which is paid by the Borrower, after giving effect to the
amount set off and otherwise applied by the Borrower pursuant to this subsection
(a), shall be applied by the Administrative Agent as specified in subsection (b)
or (c) of this Section 2.21.
(b) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
the Administrative Agent or any of the other Lenders and (iii) the Borrower
shall make any payment hereunder to the Administrative Agent for the account of
such Defaulting Lender, then the Administrative Agent may, on its behalf or on
behalf of such other Lenders and to the fullest extent permitted by applicable
law, apply at such time the amount so paid by the Borrower to or for the account
of such Defaulting Lender to the payment of each such Defaulted Amount to the
extent required to pay the Defaulted Amount. In the event that the
Administrative Agent shall so apply any such amount to the payment of any such
Defaulted Amount on any date, the amount so applied by the Administrative Agent
shall constitute for all purposes of this Agreement payment by such Lender, to
such extent, of such Defaulted Amount on such date. Any such amount so applied
by the Administrative Agent shall be retained by the Administrative Agent or
distributed by the Administrative Agent to such other Lenders in discharge of
amounts due by the Borrower to such other Lenders, ratably in accordance with
the respective portions of such Defaulted Amounts payable at such time to the
Administrative Agent and such other Lenders and, if the amount of such payment
made by the Borrower shall at such time be insufficient to pay all Defaulted
Amounts owing at such time to the Administrative Agent and the other Lenders, in
the following order of priority:
(A) first, to the Administrative Agent for any Defaulted Amount then
-----
owing to the Administrative Agent, in such capacity; and
(B) second, to any other Lenders for any Defaulted Amounts then owing
------
to such other Lenders, ratably in accordance with such respective Defaulted
Amounts then owing to such other Lenders.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Administrative Agent pursuant to this subsection (b), shall be applied by the
Administrative Agent as specified in subsection (c) of this Section 2.21.
(c) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Loan or
a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any other
Lender shall be required to pay or distribute any amount hereunder to or for the
account of such Defaulting Lender, then the Borrower or such other Lender shall
pay such amount to the Administrative Agent to be held by the Administrative
Agent, to the fullest extent permitted by applicable law, in escrow or the
Administrative Agent shall, to the fullest extent permitted by applicable law,
hold in escrow such amount otherwise held by it. Any funds held by the
Administrative Agent in escrow under this subsection (c) shall be deposited by
the Administrative Agent in an account with the Administrative Agent in the name
and under the control of the
<PAGE>
36
Administrative Agent, but subject to the provisions of this subsection (c). The
terms applicable to such account, including the rate of interest payable with
respect to the credit balance of such account from time to time, shall be the
Administrative Agent's standard terms applicable to escrow accounts maintained
with it. Any interest credited to such account from time to time shall be held
by the Administrative Agent in escrow under, and applied by the Administrative
Agent from time to time in accordance with the provisions of this paragraph (c).
The Administrative Agent shall, to the fullest extent permitted by applicable
law, apply all funds so held in escrow from time to time to the extent necessary
to make any Loans required to be made by such Defaulting Lender and to pay any
amount payable by such Defaulting Lender hereunder to the Administrative Agent
or any other Lender, as and when such Loans or amounts are required to be made
or paid and, if the amount so held in escrow shall at any time be insufficient
to make and pay all such Loans and amounts required to be made or paid at such
time, in the following order of priority:
(A) first, to the Administrative Agent for any amount then due and
-----
payable by such Defaulting Lender to the Administrative Agent hereunder, in
such capacity;
(B) second, to any other Lenders for any amount then due and payable
------
by such Defaulting Lender to such other Lenders hereunder, ratably in
accordance with the respective amounts then due and payable to such other
Lenders; and
(C) third, to the Borrower for any Loan then required to be made by
-----
such Defaulting Lender to the Borrower pursuant to the Commitment of such
Defaulting Lender.
In the event that such Defaulting Lender shall, at any time, cease to be a
Defaulting Lender, any funds held by the Administrative Agent in escrow at such
time with respect to such Defaulting Lender shall be distributed by the
Administrative Agent to such Defaulting Lender and applied by such Defaulting
Lender to the obligations of the Borrower owing to such Lender at such time
under this Agreement ratably in accordance with the respective amounts of such
obligations outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.21 are in addition to any other rights and remedies that the Borrower
may have against such Defaulting Lender with respect to any Defaulted Loan and
that the Administrative Agent or any Lender may have against such Defaulting
Lender with respect to any Defaulted Amount.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make or maintain the Loans, each of the Borrower and
Fox/Liberty hereby represents and warrants to the Administrative Agent and each
Lender that:
3.1 Financial Condition. The audited consolidated balance sheet of
-------------------
Fox/Liberty and its consolidated Subsidiaries as at December 31, 1996, and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by and accompanied by an unqualified (except to
the extent any qualification stated therein relates solely to the effect of any
change in GAAP applicable to Fox/Liberty) report from Arthur Andersen LLP,
present fairly the consolidated financial condition of Fox/Liberty and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended.
The unaudited consolidated balance sheet of Fox/Liberty and its
<PAGE>
37
consolidated Subsidiaries as at June 30, 1997, and the related unaudited
consolidated statements of income and cash flows for the six-month period ended
on such date, present fairly the consolidated financial condition of Fox/Liberty
and its consolidated Subsidiaries as at such date, and the consolidated results
of their operations and their consolidated cash flows for the six-month period
then ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by the relevant firm of accountants and disclosed
therein). Except as set forth in Part A of Schedule 3.1, Fox/Liberty and its
Subsidiaries do not have any material Guarantee Obligations, contingent
liabilities or liabilities for taxes, any long-term leases or any interest rate
or foreign currency swap or exchange transactions or other obligations in
respect of derivatives, in each case except as reflected on the most recent
balance sheet referred to above. Except as set forth in Part B of Schedule 3.1,
during the period from June 30, 1997 to and including the Closing Date there has
been no Disposition by Fox/Liberty or any of its Subsidiaries of any material
part of its business or Property.
3.2 No Change. Since December 31, 1996 there has been no development
---------
or event which has had or could reasonably be expected to have a Material
Adverse Effect.
3.3 Existence; Compliance with Law. Each Fox/Liberty Group Member
------------------------------
(a) is duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization, (b) has the power and authority, and the
legal right, to own and operate its property, to lease the property it operates
as lessee and to conduct the business in which it is currently engaged, (c) is
duly qualified and in good standing under the laws of each jurisdiction where
its ownership, lease or operation of property or the conduct of its business
requires such qualification except, in each case, to the extent the failure to
be so qualified and in good standing could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect.
3.4 Power; Authorization; Enforceable Obligations. Each Loan Party
---------------------------------------------
has the power and authority, and the legal right, to make, deliver and perform
the Loan Documents to which it is a party and, in the case of the Borrower, to
borrow hereunder. Each Loan Party has taken all necessary action to authorize
the execution, delivery and performance of the Loan Documents to which it is a
party and, in the case of the Borrower, to authorize the borrowings on the terms
and conditions of this Agreement. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents other than any consent, authorization, filing,
notice or other act (a) required to be obtained, made or taken by or in respect
of any of the Lenders or (b) referred to in Section 3.20. Each Loan Document has
been duly executed and delivered on behalf of each Loan Party party thereto.
This Agreement constitutes, and each other Loan Document upon execution will
constitute, a legal, valid and binding obligation of each Loan Party party
thereto, enforceable against each such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the borrowings hereunder and the use of
the proceeds thereof will not violate any Requirement of Law applicable to any
Fox/Liberty Group Member or any Contractual Obligation of any Fox/Liberty Group
Member and will not result in, or require, the creation or imposition of any
Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or any such Contractual Obligation.
<PAGE>
38
3.6 No Material Litigation. Except as set forth on Schedule 3.6, no
----------------------
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against any Fox/Liberty Group Member or against any of their
respective properties or revenues (a) with respect to any of the Loan Documents
or any of the transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a Material Adverse Effect.
3.7 No Default. No Fox/Liberty Group Member is in default under or
----------
with respect to any of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each Fox/Liberty Group Member has
----------------------------
title in fee simple to, or a valid leasehold interest in, all its real property,
and good title to, or a valid leasehold interest in, all its other property,
except as, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect; and none of such property is subject to any Lien except as
permitted by Section 6.3.
3.9 Intellectual Property. Except as set forth on Schedule 3.6, or
---------------------
except as, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect:
(a) each Fox/Liberty Group Member owns, or is licensed to use, all
Intellectual Property necessary for the conduct of its business as
currently conducted;
(b) no claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the
validity or effectiveness of any Intellectual Property, nor does the
Borrower know of any valid basis for any such claim; and
(c) to the knowledge of the Borrower, the use of Intellectual
Property by each Fox/Liberty Group Member does not infringe on the rights
of any Person.
3.10 Taxes. Each Fox/Liberty Group Member has filed or caused to be
-----
filed all Federal, state and other material tax returns which are required to be
filed and has paid all taxes shown to be due and payable on said returns or on
any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the relevant
Fox/Liberty Group Member); no tax Lien has been filed, and, to the knowledge of
the Borrower, no claim is being asserted, with respect to any such tax, fee or
other charge.
3.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect or for any purpose which
violates the provisions of the Regulations of the Board. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
3.12 Labor Matters. There are no strikes or other labor disputes
-------------
against any Fox/Liberty Group Member pending or, to the knowledge of the
Borrower, threatened that
<PAGE>
39
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect. Hours worked by and payment made to employees of the
Fox/Liberty Group Members have not been in violation of the Fair Labor Standards
Act or any other applicable Requirement of Law dealing with such matters that
(individually or in the aggregate) could reasonably be expected to have a
Material Adverse Effect. All payments due from the Fox/Liberty Group Members on
account of employee health and welfare insurance that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect if not
paid have been paid or accrued as a liability on the books of the Fox/Liberty
Group Members.
3.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 312 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no
Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan
which has resulted or could reasonably be expected to result in a material
liability under ERISA, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any material liability under ERISA if the
Borrower or any such Commonly Controlled Entity were to withdraw completely from
all Multiemployer Plans as of the valuation date most closely preceding the date
on which this representation is made or deemed made. No such Multiemployer Plan
is in Reorganization or Insolvent.
3.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) which limits its ability to incur Indebtedness.
3.15 Subsidiaries; Joint Ventures. Set forth on Schedule 3.15 is a
----------------------------
complete and correct list of all the Subsidiaries and Joint Ventures of the
Borrower, and the respective ownership interests therein, at the date hereof.
3.16 Use of Proceeds. The proceeds of the Loans shall be used by the
---------------
Borrower (a) to finance the Rainbow Transaction and to pay related fees and
expenses and (b) for general purposes, including, without limitation,
refinancing of Indebtedness, permitted dividends and distributions (including
tax distributions), Investments and acquisitions and working capital needs.
3.17 Environmental Matters. Except as, in the aggregate, could not
---------------------
reasonably be expected to have a Material Adverse Effect:
(a) The facilities and properties owned, leased or operated by the
Fox/Liberty Group Members (the "Properties") do not contain, and have not
----------
previously contained (to the knowledge of the Borrower in the case of
periods prior to the date any such Property was first owned, leased or
operated by the Fox/Liberty Group Members), any Materials of Environmental
Concern in amounts or concentrations or under circumstances which (i)
<PAGE>
40
constitute or constituted a violation of, or (ii) could give rise to
liability under, any Environmental Law.
(b) The Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance (to the
knowledge of the Borrower in the case of periods prior to the date any such
Property was first owned, leased or operated by any Fox/Liberty Group
Member), with all applicable Environmental Laws, and there is no
contamination at, under or about the Properties or violation of any
Environmental Law with respect to the Properties or the business operated
by the Fox/Liberty Group Members (the "Business") which could interfere
--------
with the continued operation of the Properties or impair the fair saleable
value thereof. No Fox/Liberty Group Member has assumed in writing any
known liability of any other Person under Environmental Laws.
(c) No Fox/Liberty Group Member has received or is aware of any
notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Business,
nor does the Borrower have knowledge or reason to believe that any such
notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location which could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law (in each case to the knowledge of the Borrower in the
case of periods prior to the date any such Property was first owned, leased
or operated by any Fox/Liberty Group Member).
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which any Fox/Liberty Group Member is or will be named
as a party with respect to the Properties or the Business, nor are there
any consent decrees or other decrees, consent orders, administrative orders
or other orders, or other administrative or judicial requirements
outstanding under any Environmental Law with respect to the Properties or
the Business.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of any Fox/Liberty Group Member in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could give rise to liability under
Environmental Laws (in each case to the knowledge of the Borrower in the
case of periods prior to the date any such Property was first owned, leased
or operated by any Fox/Liberty Group Member).
3.18 Accuracy of Information, etc. All information contained in the
----------------------------
Loan Documents, including all schedules hereto, and in the Confidential
Information Memorandum (other than any financial projections or forward-looking
pro forma financial information) relating to the Fox/Liberty Group Members, when
taken together (giving effect to information furnished in writing to the Lenders
prior to the Closing Date, including in the Loan Documents and Schedule 3.18 and
the other schedules hereto, that corrects, supplements or supersedes information
previously furnished) was correct in all material respects as of the date
furnished (or in the case of information dated as of an earlier date, as of such
date), did not contain any untrue statement of a material
<PAGE>
41
fact and did not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made, provided, that no representation or warranty is made
--------
hereunder with respect to any information provided to the Administrative
Agent or any Lender which relates to general economic conditions or the cable
television and sports industries generally. The financial projections and
forward-looking pro forma financial information contained in the materials
referenced above were based on good faith estimates and assumptions believed by
management of the Borrower to be reasonable at the time made, it being
recognized by the Administrative Agent and the Lenders that such financial
information as it relates to future events is not to be viewed as fact and that
actual results during the period or periods covered by such financial
information may differ from the projected results set forth therein by a
material amount.
3.19 Solvency. Each Loan Party (other than any Loan Party that is a
--------
Shell Company) is, and after giving effect to the incurrence of all Indebtedness
and obligations being incurred in connection herewith on the date on which this
representation is made or deemed made, will be, Solvent.
3.20 Pledge Agreement. The Pledge Agreement is effective to create
----------------
in favor of the Administrative Agent, for the benefit of the Lenders, a legal,
valid and enforceable security interest in the Collateral described therein and
the proceeds thereof. In the case of the certificated Pledged Stock (as such
term is defined in the Pledge Agreement), when certificates representing such
Pledged Stock are delivered to the Administrative Agent, and in the case of the
other Collateral described in the Pledge Agreement, when financing statements in
appropriate form are filed in the offices specified on Schedule 3.20 and the
registrations contemplated by the Pledge Agreement have been completed, the
Pledge Agreement shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the Pledge Agreement), in each case prior and superior in right to any other
Person, subject to, in the case of each Issuer (as defined in the Pledge
Agreement) that is not a Wholly Owned Subsidiary, (a) restrictions on transfer
contained in any Organizational Document of such Issuer to which the relevant
Pledgor (as defined in the Pledge Agreement) is a party and (b) any purchase
right granted to any party pursuant to any Organizational Document of any Loan
Party or Issuer.
3.21 Rainbow Documents. The documents listed in the definition of
-----------------
"Rainbow Documents" comprise all of the documents governing the respective
rights of the holders of Capital Stock of the Rainbow Entities.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to
---------------------------
make the initial Loan requested to be made by it is subject to the satisfaction
or waiver, prior to or concurrently with the making of such Loan, of the
following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received (i)
--------------
this Agreement, executed and delivered by a duly authorized officer of
Fox/Liberty and the Borrower, (ii) an executed Addendum (or a copy thereof
by facsimile transmission) from each Lender listed on Schedule 1.1A, (iii)
the Guarantee Agreement, executed and delivered by a duly authorized
officer of Fox/Liberty and each Restricted Group Subsidiary (other than the
Excluded Restricted Group Member) and (iv) the Pledge Agreement, executed
and delivered by a duly authorized officer of Fox/Liberty (and each other
immediate parent company of Fox/Liberty Sports or Fox/Liberty FX),
Fox/Liberty Sports, Fox/Liberty FX and each Restricted Group Subsidiary
(other than the Excluded Restricted Group Member).
<PAGE>
42
(b) Rainbow Transaction. The Rainbow Transaction shall have been
-------------------
consummated, and contractual arrangements with the other holders of Capital
Stock of the Rainbow Entities shall have been entered into, in each case on
the terms set forth in the Rainbow Documents.
(c) Fox/Liberty Notes. Fox/Liberty and FLN shall have jointly issued
-----------------
at least $750,000,000 of senior notes (of which no more than $500,000,000
(the "Senior Notes") shall initially be cash-pay and the remainder (the
------------
"Senior Discount Notes") shall be non-cash pay until the fifth anniversary
----------------------
of the Closing Date), in each case on the terms set forth in the
Fox/Liberty Indentures, and all of the net proceeds thereof (in an
aggregate amount not less than $730,000,000) shall have been contributed to
the Borrower in the form of an equity contribution.
(d) Officers' Certificate. The Administrative Agent shall have
---------------------
received a certificate of each Loan Party, dated the Closing Date,
substantially in the form of Exhibit C, with appropriate insertions and
attachments.
(e) Approvals. All material governmental and material third party
---------
approvals necessary in connection with the transactions contemplated hereby
shall have been obtained and be in full force and effect.
(f) Fees. The Lenders and the Agents shall have received all fees
----
required to be paid, and all expenses required to be paid for which
invoices have been presented, on or before the Closing Date.
(g) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent Lien search in each of the jurisdictions where material
assets of the Loan Parties are located (as determined by the Administrative
Agent in consultation with the Borrower), and such search shall reveal no
Liens on any of assets of the Fox/Liberty Group Members except for Liens
permitted by Section 6.3.
(h) Pledged Stock. The Administrative Agent shall have received any
-------------
certificates representing the shares of Capital Stock pledged pursuant to
the Pledge Agreement, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof. Each document (including, without limitation, any Uniform
Commercial Code financing statement) required by the Pledge Agreement or
under law or reasonably requested by the Administrative Agent to be
executed, filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein shall have been executed and, as
applicable, be in proper form for filing, registration or recordation.
(i) Legal Opinions. The Administrative Agent shall have received the
--------------
legal opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel to
the Borrower and its Subsidiaries, substantially in the form of Exhibit F.
(j) Solvency Certificate. The Administrative Agent shall have
--------------------
received a solvency certificate from the Senior Vice President, Finance and
Development, of the Borrower which shall certify that the Loan Parties
(other than any Loan Party that is a Shell Company) are Solvent after
giving effect to the transactions contemplated hereby.
<PAGE>
43
4.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any Loan requested to be made by it on any date (including,
without limitation, its initial Loan) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date.
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the Loan requested
to be made on such date.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such borrowing that the conditions
contained in this Section 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
Each of the Borrower and Fox/Liberty hereby agrees that, so long as
the Commitments remain in effect or any Loan or other amount is owing to any
Lender or the Administrative Agent hereunder, each of the Borrower and
Fox/Liberty shall and (except in the case of Section 5.1, Sections 5.2(a), (b),
(c) and (d) and Section 5.7) shall cause each Borrower Group Member to:
5.1 Financial Statements. Furnish to the Administrative Agent (with
--------------------
sufficient copies for each Lender):
(a) as soon as available, but in any event within 120 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit (except to the extent any qualification stated
therein relates solely to the effect of any change in GAAP applicable to
the Borrower), by independent certified public accountants of nationally
recognized standing;
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and of cash
flows for such quarter and the portion of the fiscal year through the end
of such quarter, setting forth in comparative form, in the case of the
balance sheet, the figures for the preceding fiscal year end from the
balance sheet for such fiscal year and, in the case of the statements of
income and cash flow, the corresponding figures for the corresponding
period of the preceding fiscal year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
audit adjustments); and
<PAGE>
44
(c) as soon as available, but in any event not later than 60 days
(or, in the case of the fourth quarterly period, 120 days) after the end of
each of the quarterly periods of each fiscal year of the Borrower, the pro
---
forma combined balance sheet of the Restricted Group Members as at the end
-----
of such quarter and the related pro forma combined statements of income and
--- -----
of cash flows for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in comparative form, in the case of
the balance sheet, the figures for the preceding fiscal year end from the
balance sheet for such fiscal year and, in the case of the statements of
income and cash flow, the corresponding figures for the corresponding
period of the preceding fiscal year, certified by a Responsible Officer as
being fairly stated in all material respects (subject to normal year-end
audit adjustments).
All such financial statements shall be prepared in reasonable detail and in
accordance with GAAP (to the extent applicable in the case of paragraph (c)
above) applied consistently throughout the periods reflected therein and with
prior periods (except as approved by such accountants or officer, as the case
may be, and disclosed therein and except for the absence of certain footnote
disclosure in the case of financial statements delivered pursuant to Section
5.1(b)). All such financial statements delivered pursuant to Section 5.1(c)
shall be prepared based upon the audited or unaudited consolidated financial
statements of the Borrower and its Subsidiaries, as applicable, adjusted to give
effect to the exclusion of the financial results of the Unrestricted Group
Members.
5.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent (with sufficient copies for each Lender) or, in the case of clause (f), to
the relevant Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 5.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such certificate
and (ii) a reconciliation between such financial statements and the
financial statements delivered pursuant to Section 5.1(c) for the
corresponding period;
(b) concurrently with the delivery of any financial statements
pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating
that such Responsible Officer has obtained no knowledge of any Default or
Event of Default except as specified in such certificate and (ii) in the
case of quarterly or annual financial statements, a Compliance Certificate
containing all information necessary for determining compliance by the
Fox/Liberty Group Members with the provisions of this Agreement referred to
therein as of the last day of the fiscal quarter or fiscal year of the
Borrower, as the case may be, including, without limitation, a
reconciliation in reasonable detail showing the derivation from such
financial statements of the calculations necessary to establish compliance
with Section 6.1;
(c) as soon as available, and in any event no later than 60 days
after the end of each fiscal year of the Borrower, a detailed budget for
the following fiscal year (including projected cash flow and projected
income), prepared on both a combined basis for the Borrower and its
Subsidiaries and a combined basis for the Restricted Group Members
(collectively, the "Projections"), which Projections shall in each case be
-----------
accompanied by a certificate of a Responsible Officer stating that such
Projections are based on reasonable estimates, information and assumptions
and that such Responsible Officer has no reason to believe that such
Projections are incorrect or misleading in any material respect;
<PAGE>
45
(d) within 15 days after the same are sent, copies of all financial
statements and reports which the Borrower sends to the holders of any class
of its debt securities or public equity securities and within 15 days after
the same are filed, copies of all financial statements and reports which
the Borrower may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority;
(e) as soon as available, and in any event no later than five
Business Days prior to the effectiveness thereof (or, in the case of either
Fox/Liberty Note Indenture or the Additional Fox/Liberty Debt, five
Business Days prior to circulation to the holders of the relevant
Indebtedness), a substantially final draft of any proposed amendment,
modification, waiver or other change to the terms of either Fox/Liberty
Note Indenture, the Additional Fox/Liberty Debt, the Turner Note, any
Subordinated Indebtedness or any Rainbow Document; and
(f) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at
----------------------
or before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect (so long as, in the
case of any material obligations, the amount or validity thereof is currently
being contested in good faith by appropriate proceedings and reserves in
conformity with GAAP with respect thereto have been provided on the books of the
relevant Fox/Liberty Group Member).
5.4 Conduct of Business and Maintenance of Existence; Compliance.
------------------------------------------------------------
(a) (i) Continue to engage in business of the same general type as now conducted
by it, (ii) preserve, renew and keep in full force and effect its existence and
(iii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business, except,
in each case, as otherwise permitted by Section 6.4 and except, in the case of
clause (iii) above, to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
5.5 Maintenance of Property; Insurance. (a) Keep all property
----------------------------------
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
5.6 Inspection of Property; Books and Records; Discussions. (a)
------------------------------------------------------
Keep proper books of records and account in which full, true and correct entries
in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of the Administrative Agent or, subject to the proviso
below, any Lender to visit and inspect any of its properties and examine and
make abstracts from any of its books and records upon reasonable notice during
normal business hours and as often as may reasonably be desired and to discuss
the business, operations, properties and financial and other condition of the
Fox/Liberty Group Members with officers and employees of the Fox/Liberty Group
Members and with its independent certified public accountants; provided that, so
--------
long as no Event of Default shall have
<PAGE>
46
occurred and be continuing, each Lender shall be limited to one such inspection
and examination in each calendar year.
5.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender after the Borrower obtains knowledge of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of any Fox/Liberty Group Member or (ii) litigation,
investigation or proceeding which may exist at any time between any
Fox/Liberty Group Member and any Governmental Authority and which has a
reasonable likelihood of being adversely determined, which in either case,
if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting any Fox/Liberty Group
Member (i) in which the amount involved is $10,000,000 or more and not
covered by insurance or (ii) in which injunctive or similar relief is
sought that, if granted, could reasonably be expected to have a Material
Adverse Effect; and
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence of any Reportable Event with respect to any Plan, a failure to
make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
the Borrower or any Commonly Controlled Entity or any Multiemployer Plan
with respect to the withdrawal from, or the terminating, Reorganization or
Insolvency of, any Plan.
Each notice pursuant to this Section 5.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the relevant Fox/Liberty Group Member proposes
to take with respect thereto.
5.8 Environmental Laws. Except as could not reasonably be expected
------------------
to have a Material Adverse Effect:
(a) Comply with, and use commercially reasonable efforts to
ensure compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws, and obtain and comply with and maintain, and
use commercially reasonable efforts to ensure that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws.
5.9 Additional Guarantors and Collateral. (a) With respect to any
------------------------------------
Person that becomes a Restricted Group Subsidiary (or, in the case of the
Excluded Restricted Group Member, in the event that either clause (1) or (2) of
the proviso to this paragraph cease to apply to such Subsidiary)
<PAGE>
47
after the Closing Date, promptly (i) cause such Restricted Group Subsidiary to
become a party to the Guarantee Agreement and the Pledge Agreement and (ii)
deliver to the Administrative Agent (x) one or more legal opinions comparable in
scope to the legal opinion delivered in respect of the original Restricted Group
Subsidiaries, the Guarantee Agreement and the Pledge Agreement pursuant to
Section 4.1(i) and (y) an Officers' Certificate of such Restricted Group
Subsidiary, substantially in the form of Exhibit C, with appropriate insertions
and attachments; provided, that this paragraph shall not apply to any Restricted
--------
Group Subsidiary that (1) is not a Wholly Owned Restricted Group Subsidiary and
(2) is prohibited by its Organizational Documents from complying with the
provisions of this paragraph.
(b) With respect to any direct Subsidiary or Joint Venture created or
acquired after the Closing Date by any Loan Party (and, in the case of any
Person that becomes a Loan Party after the Closing Date, with respect to any
direct Subsidiary or Joint Venture of such Loan Party at the time it becomes a
Loan Party), promptly (i) execute and deliver to the Administrative Agent such
amendments to the Pledge Agreement as the Administrative Agent deems necessary
or advisable in order to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority security interest in the Capital Stock
of such Subsidiary or Joint Venture which is owned by such Loan Party, (ii)
deliver to the Administrative Agent any certificates representing such Capital
Stock, together with undated stock powers, in blank, executed and delivered by a
duly authorized officer of the relevant pledgor, and (iii) take such actions as
the Administrative Agent reasonably deems necessary or advisable to grant to the
Administrative Agent for the benefit of the Lenders a perfected first priority
security interest in the Collateral described in the Pledge Agreement with
respect to the Capital Stock of such Subsidiary or Joint Venture, including,
without limitation, the filing of Uniform Commercial Code financing statements
in such jurisdictions as may be required by the Pledge Agreement or by law or as
may be requested by the Administrative Agent; provided, that in lieu of the
--------
foregoing requirements with respect to any Person that is a Specified Non-Wholly
Owned Person, the relevant Loan Party may (or, in the case of any such Person
that is a Joint Venture, shall) instead interpose, between such Loan Party and
such Specified Non-Wholly Owned Person, a Shell Company that is a Wholly Owned
Subsidiary of such Loan Party, and take the foregoing actions with respect to
such Shell Company.
SECTION 6. NEGATIVE COVENANTS
Each of the Borrower and Fox/Liberty hereby agrees that, so long as
the Commitments remain in effect or any Loan or other amount is owing to any
Lender or the Administrative Agent hereunder, each of the Borrower and
Fox/Liberty shall not, and shall not permit any other Borrower Group Member to,
directly or indirectly (provided that the covenants contained in Sections 6.1,
6.4, 6.5, 6.6, 6.7, 6.8 and 6.10 shall not apply to any Unrestricted Group
Member):
6.1 Financial Condition Covenants.
-----------------------------
(a) Leverage Ratio. Permit the Leverage Ratio as at the last day of
--------------
any period of four consecutive fiscal quarters of the Borrower ending during any
period set forth below to exceed the corresponding ratio set forth below:
Period Leverage Ratio
------ --------------
Closing Date to 12/31/98 5.00 to 1.0
1/1/99 to 12/31/99 4.50 to 1.0
1/1/00 to 12/31/00 4.00 to 1.0
1/1/01 to 12/31/01 3.50 to 1.0
Thereafter 3.00 to 1.0
<PAGE>
48
(b) Interest Coverage Ratio. Permit the Interest Coverage Ratio for
-----------------------
any period of four consecutive fiscal quarters of the Borrower ending during any
period set forth below to be less than the corresponding ratio set forth below:
Interest
Period Coverage Ratio
------ ---------------------
Closing Date to 12/31/99 2.75 to 1.0
Thereafter 3.00 to 1.0
(c) Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage
---------------------------
Ratio for any period of four consecutive fiscal quarters of the Borrower (or, if
less, the number of full fiscal quarters since September 30, 1997) ending during
any period set forth below to be less than the corresponding ratio set forth
below:
Fixed Charge
------------
Period Coverage Ratio
------ --------------
1/1/98 to 12/31/99 1.05 to 1.0
Thereafter 1.10 to 1.0
6.2 Limitation on Indebtedness. Create, incur, assume or suffer to
--------------------------
exist (in each case, to "Incur") any Indebtedness, except:
-----
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of any Borrower Group Member owing to any other
Borrower Group Member resulting from any Investment expressly permitted by
Section 6.7(f), (g), (h) or (i) made in the form of an intercompany loan,
provided, that Investments in any Loan Party by any Borrower Group Member
--------
that is not the Borrower or a Wholly Owned Restricted Group Subsidiary may
not be made or maintained in the form of intercompany loans;
(c) Indebtedness secured by Liens permitted by Section 6.3(g) or
6.3(j), Attributable Debt Incurred in connection with Sale-Leaseback
Transactions and Capital Lease Obligations in an aggregate amount for all
Indebtedness Incurred pursuant to this paragraph (c) not to exceed
$25,000,000 at any one time outstanding;
(d) Indebtedness outstanding on the date hereof and listed on
Schedule 6.2(d) and any refinancings, refundings, renewals or extensions
thereof (without any increase in the principal amount thereof);
(e) Guarantee Obligations incurred in the ordinary course of business
by any Loan Party in respect of obligations permitted by this Agreement to
be incurred by the Borrower or any Wholly Owned Restricted Group
Subsidiary;
(f) Subordinated Indebtedness of any Subsidiary of the Borrower
resulting from capital call obligations contained in the Organizational
Documents of such Subsidiary, provided that (i) after giving effect to the
--------
Incurrence thereof, no Default or Event of Default (including pursuant to
Section 6.1 on a pro forma basis) shall have occurred and be continuing,
--- -----
(ii) the terms of such Indebtedness are limited to those set forth in
Exhibit I and (iii) the aggregate principal amount of Indebtedness incurred
pursuant to this paragraph (f) shall not exceed $25,000,000 at any one time
outstanding;
<PAGE>
49
(g) Indebtedness of Fox/Liberty or FLN (but not any Borrower Group
Member), provided that (i) after giving effect to the Incurrence thereof,
--------
(x) no Default or Event of Default (including pursuant to Section 6.1 on a
pro forma basis) shall have occurred and be continuing, (y) the Leverage
--- -----
Ratio, on a pro forma basis, shall not exceed 3.00 to 1.0 and (z) the Fixed
--- -----
Charge Coverage Ratio, on a pro forma basis, shall not be less than 1.25 to
--- -----
1.0, (ii) no such Indebtedness shall be incurred prior to the second
anniversary of the Closing Date, (iii) such Indebtedness shall have no
scheduled amortization prior to the date that is one year and one day after
the final stated maturity of the Loans (as in effect on the date such
Indebtedness is incurred), (iv) the covenants and events of default
applicable to such Indebtedness shall be no more restrictive than the
covenants and events of default contained in this Agreement (and, in any
event, shall not include any covenant requiring any Fox/Liberty Group
Member to maintain as of specified dates or for specified periods any
specified ratio, amount or measure for the purpose of requiring maintenance
of a specified financial condition or financial performance), (v) the
aggregate principal amount of Indebtedness incurred pursuant to this
paragraph (g) shall not exceed $150,000,000 at any one time outstanding and
(vi) 100% of the Net Cash Proceeds of such Indebtedness shall be
contributed to the Borrower in the form of an equity contribution;
(h) endorsements of negotiable instruments for deposit or collection
in the ordinary course of business; and
(i) additional Indebtedness of the Borrower Group Members in an
aggregate principal amount (for all Borrower Group Members) not to exceed
$30,000,000 at any one time outstanding.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist
-------------------
any Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the relevant Fox/Liberty
Group Member in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 30 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct
of the business of any Borrower Group Member;
(f) Liens in existence on the date hereof listed on Schedule 6.3(f),
securing Indebtedness permitted by Section 6.2(d), provided that no such
--------
Lien is spread to cover any
<PAGE>
50
additional property after the Closing Date and that the amount of
Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness permitted by Section 6.2(c) that
encumber assets of any Subsidiary or Joint Venture acquired after the
Closing Date, provided that (i) such Liens are not created in contemplation
--------
of, or in connection with, such acquisition, (ii) such Liens do not at any
time encumber any Property other than the Property so encumbered at the
time of such acquisition and the proceeds thereof and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) any interest or title of a lessor under any lease entered into by
any Borrower Group Member in the ordinary course of its business and
covering only the assets so leased (or, in the case of real property,
fixtures appurtenant thereto) and additions, improvements or replacements
with respect thereto;
(i) Liens created in the ordinary course of business in favor of a
sports team over rights payments which are allocable to such team under
related rights agreements, or a producer or supplier of television
programming over distribution revenues and/or distribution rights which are
allocable to such producer or supplier under related distribution
agreements;
(j) Liens securing Indebtedness of any Borrower Group Member incurred
to finance the acquisition of fixed or capital assets, provided that (i)
--------
such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (ii) such Liens do not at any
time encumber any Property other than the Property financed by such
Indebtedness and (iii) the amount of Indebtedness secured thereby is not
increased;
(k) any extension, renewal or refunding of any Lien referred to in
paragraphs (a) through (j) above, provided that such extension, renewal or
refunding is limited to all or part of the Property encumbered by the
original Lien; and
(l) Liens created by any Loan Document.
6.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or Dispose of all or substantially all
of its Property or business (other than to the extent necessary to effectuate a
Disposition of any Borrower Group Member (other than the Borrower), or its
Property, expressly permitted by Section 6.5(f) or any Investment expressly
permitted by Section 6.7), except:
(a) any Restricted Group Affiliated Member may be merged or
consolidated with or into the Borrower (provided that the Borrower shall be
--------
the continuing or surviving entity) or with or into any Wholly Owned
Restricted Group Subsidiary (provided that the Wholly Owned Restricted
--------
Group Subsidiary shall be the continuing or surviving entity);
(b) any Restricted Group Affiliated Member may Dispose of any or all
of its assets (upon voluntary liquidation or otherwise) to the Borrower or
any Wholly Owned Restricted Group Subsidiary; and
(c) any Restricted Group Affiliated Member may Dispose of all or any
part of the business or Property of any Specified Division to any Wholly
Owned Subsidiary of the Borrower.
<PAGE>
51
6.5 Limitation on Sale of Assets. Dispose of any of its Property or
----------------------------
business (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired, or, in the case of any Restricted Group
Affiliated Member, issue or sell any shares of such Restricted Group Affiliated
Member's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out Property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by paragraph (a), (b) or (c) of Section
6.4;
(d) the sale or issuance of any Restricted Group Member's Capital
Stock to the Borrower or any Wholly Owned Restricted Group Subsidiary;
(e) any Investment made pursuant to Section 6.7 in the form of a
Disposition of Property;
(f) the Disposition (directly or indirectly through the Disposition
of Capital Stock of a Subsidiary) of operating assets comprising a business
unit (or any other distinct operation that contributes a discrete amount of
Combined EBITDA) by any Restricted Group Member (including any Asset Swap
to the extent not otherwise permitted by Section 6.5(g), it being
understood that if the entire amount of an Asset Swap is not permitted by
Section 6.5(g) any portion not so permitted may be allocated to (and count
as usage of) any unused availability in respect of Dispositions pursuant to
this Section 6.5(f), subject to compliance with the requirements of clauses
(i) through (vi) below), provided that (i) on the date of such Disposition
--------
(the "Disposition Date"), no Default or Event of Default shall have
----------------
occurred and be continuing or would occur after giving pro forma effect
--- -----
thereto; (ii) the Asset EBITDA Amount attributable to the assets being
Disposed of, when added to the Asset EBITDA Amount attributable to all
other assets previously Disposed of pursuant to this Section 6.5(f) during
the one-year period ending on such Disposition Date (or, if shorter, the
period from the Closing Date to such Disposition Date), shall not exceed an
amount equal to 10% of Pro Forma Combined EBITDA determined as of such
Disposition Date; (iii) the Asset EBITDA Amount attributable to the assets
being Disposed of, when added to the Asset EBITDA Amount attributable to
all other assets previously Disposed of pursuant to this Section 6.5(f)
during the term of this Agreement, shall not exceed an amount equal to 20%
of Pro Forma Combined EBITDA determined as of such Disposition Date; (iv)
at least 80% of the proceeds of such Disposition shall be in the form of
cash; (v) the Net Cash Proceeds of such Disposition shall be applied to
prepay the Term Loans or reduce the Revolving Credit Commitments if and to
the extent required by Section 2.9(b); and (vi) on the date of consummation
of any Disposition pursuant to this Section 6.5(f), the Borrower shall
furnish to the Administrative Agent a certificate demonstrating in
reasonable detail that such Disposition complies with the requirements of
this Section 6.5(f);
(g) any Asset Swap by any Restricted Group Member, provided that (i) on
--------
the date of Disposition of assets pursuant to such Asset Swap (the "Asset
-----
Swap Date"), no Default or Event of Default shall have occurred and be
---------
continuing or would occur after giving pro forma effect thereto; (ii) the
--- -----
Asset EBITDA Amount attributable to the assets being Disposed of, when
added to the Asset EBITDA Amount attributable to all other assets
previously Disposed of pursuant to this Section 6.5(g) during the one-year
period ending on such Asset Swap Date (or, if shorter, the period from the
Closing Date to such Asset Swap Date), shall not exceed an
<PAGE>
52
amount equal to 5% of Pro Forma Combined EBITDA determined as of such Asset
Swap Date; (iii) the Asset EBITDA Amount attributable to the assets being
Disposed of, when added to the Asset EBITDA Amount attributable to all
other assets previously Disposed of pursuant to this Section 6.5(g) during
the term of this Agreement, shall not exceed an amount equal to 10% of Pro
Forma Combined EBITDA determined as of such Asset Swap Date; and (iv) on
the date of consummation of any Asset Swap pursuant to this Section 6.5(g),
the Borrower shall furnish to the Administrative Agent a certificate
demonstrating in reasonable detail that such Asset Swap complies with the
requirements of this Section 6.5(g);
(h) any issuance or Disposition of Capital Stock of Fox/Liberty or
the Borrower (so long as no Default or Event of Default (including, without
limitation, pursuant to Section 7(l)) shall result therefrom); and
(i) the Disposition of other Property having a fair market value not
to exceed $20,000,000 in the aggregate during the term of this Agreement.
6.6 Limitation on Dividends. Declare or pay any dividend or
-----------------------
distribution (other than dividends or distributions payable solely in common
stock (or equivalent forms of Capital Stock) of the Person making such dividend)
on, or make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of, any shares of any class of Capital Stock of any Restricted
Group Member or any warrants or options to purchase any such Capital Stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of any Fox/Liberty Group Member (collectively, "Restricted
----------
Payments"), except that:
(a) any Restricted Group Affiliated Member may make Restricted
Payments to the Borrower or any Wholly Owned Restricted Group Subsidiary;
(b) any Restricted Group Subsidiary that is not a Wholly Owned
Restricted Group Subsidiary and any Restricted Group Joint Venture may make
Restricted Payments to the respective holders of its Capital Stock so long
as any such holder that is a Restricted Group Member receives at least a
pro rata share thereof;
--- ----
(c) any Restricted Group Member may make Restricted Payments to its
investors in an amount equal to the anticipated income tax liability of
such investor resulting from the earnings of such Restricted Group Member,
provided, that, in the case of the Borrower, (i) prior to the making of
--------
each such distribution, the Borrower shall have delivered to the
Administrative Agent a letter from a Responsible Officer of the Borrower
setting forth in reasonable detail the highest federal, state and local tax
rates applicable to the members of the Borrower (after giving effect to
deductions for such state and local taxes applicable thereto) and (ii) the
maximum percentage permitted to be so distributed with respect to any
fiscal year of the Borrower shall not exceed the lesser of (A) the
percentage representing the maximum aggregate rate described in clause (i)
above for such fiscal year and (B) 42%;
(d) the Borrower may make Restricted Payments to Fox/Liberty for the
purpose of funding the payment of interest on the Fox/Liberty Notes or the
Additional Fox/Liberty Debt that is required to be paid in cash, provided
--------
that after giving effect to the making thereof, no Default or Event of
Default (including pursuant to Section 6.1 on a pro forma basis) shall have
--- -----
occurred and be continuing; and
<PAGE>
53
(e) the Borrower may make Restricted Payments to Fox/Liberty,
provided that (i) after giving effect to the making thereof, no Default or
--------
Event of Default (including pursuant to Section 6.1 on a pro forma basis)
--- -----
shall have occurred and be continuing, (ii) on the date such Restricted
Payment is made the Senior Notes and the Senior Discount Notes shall in
each case be publicly rated at least BBB- by Standard & Poor's Ratings
Services and at least Baa3 by Moody's Investors Service, Inc. and (iii) the
aggregate amount of Restricted Payments made pursuant to this paragraph (e)
in any fiscal year of the Borrower shall not exceed 25% of Combined Excess
Cash Flow in respect of the immediately preceding fiscal year.
6.7 Limitation on Investments, Loans and Advances. Make any advance,
---------------------------------------------
loan, extension of credit (by way of guaranty or otherwise) or capital
contribution to, or purchase any stock, bonds, notes, debentures or other
securities of or any assets constituting all or a material part of a business
unit of, or make any other investment in, any Person (collectively,
"Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 6.2;
(d) loans and advances made by any Restricted Group Member to such
Restricted Group Member's employees in the ordinary course of business
(including, without limitation, for travel, entertainment and relocation
expenses) in an aggregate amount for all Restricted Group Members not to
exceed $1,000,000 at any one time outstanding;
(e) Investments outstanding on the Closing Date as set forth on
Schedule 6.7;
(f) Investments by any Restricted Group Member in any Restricted
Group Control Member that is a Loan Party or in any Person that,
immediately after such Investment, will constitute a Restricted Group
Control Member that is a Loan Party, so long as (i) after giving effect to
such Investment and the financing thereof, no Event of Default (including
pursuant to Section 6.1 on a pro forma basis) shall have occurred and be
--- -----
continuing and (ii) no such Investment is made in a Specified Division;
(g) Investments by any Restricted Group Member in any Restricted
Group Member (not otherwise permitted by paragraph (f) above or paragraph
(i) below), any Unrestricted Group Member or any Specified Division
(collectively, the "Limited Group Members") that, in each case (except in
---------------------
the case of Fox Sports Net), is (or includes as one of its operations) an
RSN (including, without limitation, Investments used to fund acquisitions,
Capital Expenditures, working capital needs or any other expenditures made
by any Limited Group Member), so long as (i) after giving effect to such
Investment and the financing thereof, no Event of Default (including
pursuant to Section 6.1 on a pro forma basis) shall have occurred and be
--- -----
continuing, (ii) except in the case of Fox Sports Net, such Investments are
applied to the relevant RSN and (iii) the aggregate amount of the
Investments made in any single Limited Group Member (or in any single RSN
owned or operated by one or more Limited Group Member) shall not exceed
$35,000,000 (or, in the case of Fox Sports Net, $100,000,000) during the
term of this Agreement;
(h) Investments in any professional sports team with which any
Restricted Group Control Member has a programming contract with a term of
at least two years from the date
<PAGE>
54
such Investment is first made in an aggregate amount (valued at cost) not
to exceed $35,000,000 during the term of this Agreement at any one time
outstanding, so long as after giving effect to such Investment and the
financing thereof, no Event of Default (including, without limitation,
pursuant to Section 6.1 on a pro forma basis) shall have occurred
--- -----
and be continuing;
(i) Investments in RPP made on or after January 1, 1998 to the extent
necessary to finance the Borrower's share of any payment required to be
made to ITT Corporation to finance the repurchase of ITT Corporation's
remaining interest in Madison Square Garden, L.P., in an aggregate amount
not to exceed $76,000,000 during the term of this Agreement, of which no
more than $38,000,000 may be expended in 1998, so long as after giving
effect to each such Investment and any financing thereof, no Event of
Default (including, without limitation, pursuant to Section 6.1 on a pro
---
forma basis) shall have occurred and be continuing;
-----
(j) Investments acquired for consideration consisting solely of
Capital Stock of Fox/Liberty or the Borrower, so long as, after giving
effect to the issuance of such Capital Stock and the making of such
Investment, no Event of Default (including, without limitation, pursuant to
Section 6.1 on a pro forma basis or Section 7(l)) shall have occurred and
--- -----
be continuing;
(k) the consummation of the Rainbow Transaction; and
(l) Investments in Interest Rate Protection Agreements so long as
such Investments are not entered into for speculative purposes.
6.8 Limitation on Payments and Modifications of Certain Debt
--------------------------------------------------------
Instruments; Certain Matters Relating to Rainbow Entities. (a) (i) Make or
- ---------------------------------------------------------
offer to make any payment, prepayment, repurchase or redemption of or otherwise
defease or segregate funds with respect to the principal of the Fox/Liberty
Notes, the Additional Fox/Liberty Debt or any Subordinated Indebtedness, (ii)
exercise any option to pay interest on the Senior Discount Notes in the form of
cash, (iii) prepay all or a portion of the principal of the Turner Note unless
after giving effect thereto, no Event of Default has occurred and is continuing
or (iv) amend, modify, waive or otherwise change, or consent or agree to any
amendment, modification, waiver or other change to, any of the terms of either
Fox/Liberty Note Indenture, the Additional Fox/Liberty Debt, the Turner Note or
any Subordinated Indebtedness (other than any such amendment, modification,
waiver or other change which (x) would extend the maturity or reduce the amount
of any payment of principal thereof, would reduce the rate or extend the date
for payment of interest thereon or would make any other change that,
individually and in the aggregate, would not be adverse to the interests of the
Lenders, Fox/Liberty or any of its Subsidiaries and (y) does not involve the
payment of a consent fee).
(b) (i) Amend, modify, waive or otherwise change, or consent or
agree to any amendment, modification, waiver or other change to, any of the
terms of the Rainbow Documents in any respect that is materially adverse to the
interests of the Borrower Group Members or the Lenders or (ii) Dispose of, or
create, incur, assume or suffer to exist any Lien upon (other than pursuant to
restrictions on transfer and put/call rights contained in the Rainbow Documents
as in effect on the Closing Date), any Capital Stock of any Rainbow Entity held
by any Fox/Liberty Group Member.
6.9 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, Disposition, lease or
exchange of Property, the rendering of any service or the payment of management,
consulting, advisory or other fees, with any Affiliate unless
<PAGE>
55
such transaction is (a) not prohibited by this Agreement and (b) upon fair and
reasonable terms no less favorable to the relevant Fox/Liberty Group Member than
it would obtain in a comparable arm's length transaction with a Person which is
not an Affiliate. Notwithstanding the foregoing, (a) the restrictions set forth
in this Section shall not apply to (i) transactions or other arrangements
between or among Restricted Group Members that are Loan Parties, (ii)
Investments made in accordance with Section 6.7(d), 6.7(g) or 6.7(i) and (iii)
Restricted Payments made by Restricted Group Members in accordance with Section
6.6, (b) all transactions and arrangements engaged in by the Fox/Liberty Group
Members with Affiliates of the Borrower after the date hereof which are
substantially on the same terms and conditions as transactions engaged in prior
to the date hereof and described on Schedule 6.9 shall be deemed to be on fair
and reasonable terms no less favorable than those which might be obtained from
Persons who are not Affiliates and (c) the Borrower may pay management fees to
the Parents and their respective Affiliates in an aggregate amount not to exceed
$500,000 in any fiscal year of the Borrower.
6.10 Limitation on Changes in Fiscal Periods. Permit the fiscal year
---------------------------------------
of the Borrower to end on a day other than December 31 or change the Borrower's
method of determining fiscal quarters.
6.11 Limitation on Negative Pledge Clauses. Enter into or suffer to
-------------------------------------
exist or become effective any agreement which prohibits or limits the ability of
any Fox/Liberty Group Member to create, incur, assume or suffer to exist any
Lien upon any of its Property or revenues, whether now owned or hereafter
acquired, other than (a) this Agreement, the other Loan Documents, the
Fox/Liberty Note Indentures and the documents governing any Additional
Fox/Liberty Debt (so long as the relevant provisions are no more restrictive
than those contained in the Fox/Liberty Note Indentures), (b) any agreements
governing any purchase money Liens, Capital Lease Obligations or operating
leases otherwise permitted hereby (in which case, any prohibition or limitation
shall only be effective against the assets financed thereby or, in the case of
operating leases, assets affixed to the leased Property in the ordinary course
of business), and (c) the organizational agreements of any Joint Venture.
6.12 Limitation on Restrictions on Distributions. Enter into or
-------------------------------------------
suffer to exist or become effective any consensual encumbrance or restriction
(except pursuant to applicable law) on the ability of any Borrower Group Member
to (a) pay dividends or make any other distributions in respect of any Capital
Stock of such Borrower Group Member held by, or pay any Indebtedness owed to,
any other Borrower Group Member, (b) make loans or advances to any other
Borrower Group Member or (c) transfer any of its assets to any other Borrower
Group Member, except for such encumbrances or restrictions existing under or by
reason of (i) any restrictions existing under the Loan Documents, the
Fox/Liberty Note Indentures or any other agreements in effect on the date hereof
and described on Schedule 6.12, (ii) any restrictions existing under the
documents governing any Additional Fox/Liberty Debt (so long as the relevant
provisions are no more restrictive than those contained in the Fox/Liberty Note
Indentures), (iii) any restrictions with respect to a Borrower Group Member
imposed pursuant to an agreement which has been entered into in connection with
the Disposition of all or substantially all of the Capital Stock or assets of
such Borrower Group Member, (iv) any restrictions existing under any agreement
that amends, refinances or replaces any agreement containing the restrictions
referred to in clause (i), (ii) or (iii) above, provided that the terms and
--------
conditions of any such agreement are no less favorable to the Lenders than those
under the agreement so amended, refinanced or replaced, and (v) restrictions
existing under the organizational agreements of any Joint Venture.
6.13 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any other Fox/Liberty Group Member, except for those
businesses in which the Fox/Liberty Group Members are engaged on the date of
this Agreement or which are reasonably related thereto.
<PAGE>
56
6.14 Unrestricted Group Members; Specified Divisions, Specified Non-
--------------------------------------------------------------
Wholly Owned Persons; Fox Sports RPP. (a) Permit or suffer to occur or exist
- ------------------------------------
any event or circumstance whereby (i) any creditor of any Unrestricted Group
Member shall have any claim (whether pursuant to a Guarantee Obligation or
otherwise) against any Restricted Group Member in respect of any Indebtedness or
other obligation of such Unrestricted Group Member; (ii) any Restricted Group
Member shall become a general partner of any Unrestricted Group Member; (iii)
any Restricted Group Member shall make or agree to make any payment to a
creditor of an Unrestricted Group Member (provided that any Restricted Group
Member may make such payments on behalf of any Unrestricted Group Member so long
as (x) such Restricted Group Member is not contractually obligated to do so and
(y) reimbursement for such payments is sought by such Restricted Group Member
from such Unrestricted Group Member); (iv) any Unrestricted Group Member shall
own any Capital Stock of, or own or hold any Lien on any Property of, any
Restricted Group Member; (v) any money or other Property of any Unrestricted
Group Member shall be commingled with any money or other Property of any
Restricted Group Member, provided that cash generated by Unrestricted Group
--------
Members may be deposited in accounts maintained by Restricted Group Members so
long as the amounts so deposited are recorded on the books and records of the
relevant Borrower Group Members; (vi) any action shall be taken, or the affairs
of the Restricted Group Members and the Unrestricted Group Members shall be
conducted in a manner, which could reasonably be expected to result in the
separate organizational existence of each Restricted Group Member and each
Unrestricted Group Member being ignored; (vii) any action shall be taken, or the
affairs of Fox/Liberty and the Restricted Group Members shall be conducted in a
manner, which could reasonably be expected to result in the separate
organizational existence of Fox/Liberty and each Restricted Group Member being
ignored; or (viii) any action shall be taken, or the affairs of FLN and the
Restricted Group Members shall be conducted in a manner, which could reasonably
be expected to result in the separate organizational existence of FLN and each
Restricted Group Member being ignored.
(b) Permit or suffer to occur or exist any event or circumstance
whereby (i) any money or other Property of any Specified Division shall be
commingled with any money or other Property of the other businesses or
operations of the Restricted Group Member that holds such Specified Division,
provided that cash generated by Specified Divisions may be deposited in accounts
- --------
maintained by Restricted Group Members so long as the amounts so deposited are
recorded on the books and records of the relevant Borrower Group Members or (ii)
the business and operations of any Specified Division cease to be distinct from
the other businesses or operations of the Restricted Group Member that holds
such Specified Division.
(c) Hold the Capital Stock of any Specified Non-Wholly Owned Person
other than exclusively through one or more Shell Companies, it being further
agreed that (i) in the event that any interest in a Specified Non-Wholly Owned
Person is held through one Shell Company, such Shell Company shall be a Wholly
Owned Subsidiary of the Borrower, (ii) in the event that any interest in a
Specified Non-Wholly Owned Person is held through more than one Shell Company,
the ultimate parent Shell Company shall be a Wholly Owned Subsidiary of the
Borrower and (iii) the immediate parent of any Shell Company referred to in
clause (i) above and of any ultimate parent Shell Company referred to in clause
(ii) above shall be either the Borrower or another Loan Party that is not a
Shell Company but is a Wholly Owned Subsidiary of the Borrower.
(d) In the case of Fox Sports RPP, notwithstanding anything to the
contrary in this Agreement or any other Loan Document, Fox Sports RPP shall not,
directly or indirectly, hold or operate any Investments, Property or businesses
other than those relating to RPP.
<PAGE>
57
6.15 Limitation on Activities of Fox/Liberty, FLN and Shell
------------------------------------------------------
Companies. In the case of Fox/Liberty, FLN and each Shell Company,
notwithstanding anything to the contrary in this Agreement or any other Loan
Document, Fox/Liberty shall not, Fox/Liberty shall not permit FLN to and the
Borrower shall not permit any Shell Company to, (a) conduct, transact or
otherwise engage in, or commit to conduct, transact or otherwise engage in, any
business or operations other than (i) in the case of Fox/Liberty, those
incidental to its ownership of the Capital Stock of the Borrower and FLN or
incidental to the servicing of its Indebtedness referred to in clause (b) below
and (ii) in the case of a Shell Company, those incidental to its ownership of
the Capital Stock of the relevant Specified Non-Wholly Owned Person and the
performance of its obligations under any Loan Document to which it is a party,
(b) incur, create, assume or suffer to exist any Indebtedness or other
liabilities or financial obligations, except (i) nonconsensual obligations
imposed by operation of law, (ii) obligations under the Loan Documents to which
it is a party and (iii) in the case of Fox/Liberty and FLN, obligations under
the Fox/Liberty Note Indentures, the Fox/Liberty Notes and the Additional
Fox/Liberty Debt, or (c) own, lease, manage or otherwise operate any properties
or assets (including cash (other than cash received by Fox/Liberty in connection
with dividends made by the Borrower in accordance with Section 6.6 pending
prompt application in the manner contemplated by said Section) and cash
equivalents) other than (i) in the case of Fox/Liberty, the ownership of shares
of Capital Stock of the Borrower and FLN and (ii) in the case of a Shell
Company, the ownership of the Capital Stock of the relevant Specified Non-Wholly
Owned Person.
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) (i) The Borrower shall fail to pay any principal of any Loan when
due in accordance with the terms hereof; or (ii) the Borrower shall fail to
pay any interest on any Loan, or any other amount payable hereunder or
under any other Loan Document, within five days after any such interest or
other amount becomes due in accordance with the terms hereof; or
(b) Any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or which is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) any Loan Party shall default in the observance or performance of
any agreement contained in clause (i) or (ii) of Section 5.4(a) (with
respect to the Borrower only), Section 5.7(a) or Section 6; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days after notice
from the Administrative Agent or the Required Lenders; or
(e) any Fox/Liberty Restricted Group Member shall (i) default in
making any payment of any principal of, premium or interest on or any other
amount payable in respect of any Indebtedness (including, without
limitation, any Guarantee Obligation, but excluding the Loans) and such
failure to make such payment shall continue beyond the applicable period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness was created; or
<PAGE>
58
(ii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided, that a default, event or condition described in clause
(i) or (ii) of this paragraph (e) shall not at any time constitute an Event
of Default under this Agreement unless, at such time, one or more defaults,
events or conditions of the type described in clauses (i) and (ii) of this
paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $10,000,000; or
(f) (i) any Fox/Liberty Group Member shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or any Fox/Liberty Group Member shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against any Fox/Liberty Group Member any case, proceeding or
other action of a nature referred to in clause (i) above which (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) there shall be commenced against any Fox/Liberty Group
Member any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) any
Fox/Liberty Group Member shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts
set forth in clause (i), (ii), or (iii) above; or (v) any Fox/Liberty Group
Member shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) At any time any Fox/Liberty Restricted Group Member shall be
required to take any actions in respect of environmental remediation and/or
environmental compliance, the aggregate expenses, fines, penalties or other
charges with respect to which could reasonably be expected to exceed
$10,000,000; provided, that any such remediation or compliance shall not be
--------
taken into consideration for the purposes of determining whether an Event
of Default has occurred pursuant to this paragraph (g) if (i) such
remediation or compliance is being contested by the applicable Fox/Liberty
Restricted Group Member in good faith by appropriate proceedings or (ii)
such remediation or compliance is satisfactorily completed within 90 days
from the date on which the applicable Fox/Liberty Restricted Group Member
receives notice that such remediation or compliance is required, unless
such remediation or compliance cannot reasonably be completed within such
90 day period in which case such time period shall be extended for a period
of time reasonably necessary to perform such compliance or remediation
using diligent efforts (not to exceed 180 days if the continuance of such
remediation or compliance beyond such 180 day period could reasonably be
expected to have a Material Adverse Effect); or
<PAGE>
59
(h) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 306 of ERISA or Section 3975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(i) Any license, franchise, permit, right or approval held by any
Fox/Liberty Restricted Group Member shall be terminated (other than by
scheduled expiration of the term thereof), suspended or revoked, or shall
not be renewed (prior to, where applicable, the beginning of the next
season to be covered thereby), or the rights of any Fox/Liberty Restricted
Group Member in respect thereof shall be impaired, and such event or
condition, together with all other such events or conditions, if any, could
reasonably be expected to have a Material Adverse Effect; or
(j) One or more judgments or decrees shall be entered against any
Fox/Liberty Restricted Group Member involving in the aggregate a liability
(not paid or fully covered by insurance as to which the relevant insurance
company has acknowledged coverage) of $10,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 30 days from the entry thereof; or
(k) (i) The Guarantee Agreement or the Pledge Agreement shall cease,
for any reason, to be in full force and effect or any Loan Party shall so
assert; (ii) any Lien created by the Pledge Agreement shall cease to be
enforceable and of the same effect and priority purported to be created
thereby; or (iii) any Capital Stock of Fox/Liberty held by any member of
the News Corp. Group or the TCI Group shall become subject to a Lien
securing Indebtedness; or
(l) (i) The News Corp. Group and the TCI Group shall cease to each
maintain a 30% voting interest and a 30% economic interest (in each case
determined on a fully diluted basis) in the Borrower unless the News Corp.
------
Group shall maintain a 40% voting interest and a 40% economic interest (in
each case determined on a fully diluted basis) in the Borrower (provided
that any dilution of the aforementioned percentages, to the extent
resulting solely and directly from the consummation of an Initial Public
Offering, shall be disregarded for the purposes of this clause (i)); (ii)
any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
excluding any member of the News Corp. Group, shall become, or shall obtain
rights (whether by means of warrants, options or otherwise) to become, the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of a voting interest or an economic
interest that, on a percentage basis, is equal to or greater than the
percentage voting interest or
<PAGE>
60
economic interest, respectively, then held by the News Corp. Group
(provided that the TCI Group may hold a voting interest and an economic
interest in the Borrower that is equal to (but not greater than) that held
by the News Corp. Group); (iii) the News Corp. Group shall cease to at
least maintain the management rights it currently possesses (or the
substantial equivalent thereof) pursuant to the terms of the LLC Agreement;
(iv) the Borrower shall cease to own, directly or indirectly, at least that
percentage of each class of outstanding Capital Stock of each Rainbow
Entity that the Borrower holds directly or indirectly on the Closing Date
after giving effect to the Rainbow Transaction, in each case free and clear
of all Liens (except Liens created by the Pledge Agreement and transfer
restrictions and put/call rights created by the Rainbow Documents),
provided, that such percentage may be diluted by any public offering
--------
of such Capital Stock; or (v) a Specified Change of Control shall occur;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Revolving Credit Commitments shall immediately terminate and
the Loans (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) with the consent of the Majority Revolving
Credit Facility Lenders, the Administrative Agent may, or upon the request of
the Majority Revolving Credit Facility Lenders, the Administrative Agent shall,
by notice to the Borrower declare the Revolving Credit Commitments to be
terminated forthwith, whereupon the Revolving Credit Commitments shall
immediately terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans (with
accrued interest thereon) and all other amounts owing under this Agreement and
the other Loan Documents to be due and payable forthwith, whereupon the same
shall immediately become due and payable.
SECTION 8. THE AGENTS
8.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither any Agent nor any of their
----------------------
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and
<PAGE>
61
nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of any Loan Party a party thereto to perform its obligations
hereunder or thereunder. The Agents shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
8.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, telecopy, telex or teletype message, statement, order or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the
Administrative Agent. The Administrative Agent may deem and treat the payee of
any Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Required Lenders (or, if so specified by this Agreement, all
Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Loans.
8.5 Notice of Default. The Administrative Agent shall not be deemed
-----------------
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
----------------------------------------
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its
<PAGE>
62
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
8.7 Indemnification. The Lenders agree to indemnify each Agent in
---------------
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Percentages in effect on the date on which indemnification is sought
under this Section 8.7 (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans shall have been paid
in full, ratably in accordance with such Percentages immediately prior to such
date), from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against such Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by such Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
--------
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which are found by a
final and nonappealable decision of a court of competent jurisdiction to have
resulted from such Agent's gross negligence or willful misconduct. The
agreements in this Section 8.7 shall survive the payment of the Loans and all
other amounts payable hereunder.
8.8 Agent in Its Individual Capacity. Each Agent and its affiliates
--------------------------------
may make loans to, accept deposits from and generally engage in any kind of
business with any Loan Party or any affiliate of any Loan Party as though such
Agent was not an Agent. With respect to its Loans made or maintained by it,
each Agent shall have the same rights and powers under this Agreement and the
other Loan Documents as any Lender and may exercise the same as though it were
not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in
its individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 10 days' notice to the Lenders. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall be
approved by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans.
<PAGE>
63
After any retiring Administrative Agent's resignation as Administrative Agent,
the provisions of this Section 8 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.
8.10 Documentation Agent and Syndication Agent. Neither the
-----------------------------------------
Documentation Agent nor the Syndication Agent shall have any duties or
responsibilities hereunder in its capacity as such.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 9.1. The
Required Lenders and each Loan Party party to the relevant Loan Documents may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, extend the scheduled date of any
installment in respect of the Term Loan Facility or the Revolving Credit
Facility, reduce the stated rate of any interest or fee payable hereunder or
extend the scheduled date of any payment thereof, or increase the amount or
extend the expiration date of any Lender's Commitment, in each case without the
consent of each Lender directly affected thereby; (ii) amend, modify or waive
any provision of this Section 9.1 or reduce any percentage specified in the
definition of Required Lenders, consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents or release all or substantially all of the Collateral or release
all or substantially all of the Restricted Group Subsidiaries from their
obligations under the Guarantee Agreement, in each case without the written
consent of all Lenders; (iii) reduce any percentage specified or referred to in
the definition of Majority Facility Lenders or Required Prepayment Lenders
without the written consent of all Lenders under each affected Facility; or (iv)
amend, modify or waive any provision of Section 8 without the written consent of
the Administrative Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Loan Parties, the Lenders, the Administrative Agent and all future
holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders
and the Administrative Agent shall be restored to their former position and
rights hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
<PAGE>
64
The Borrower: Fox Sports Net, LLC
fX Networks, LLC
Fox Sports RPP Holdings, LLC
1440 S. Sepulveda Blvd.
Los Angeles, California 90025
Attention: Jeff Shell
Facsimile: 310-445-4335
with copies to: Fox Television
10201 West Pico Boulevard
Los Angeles, California 90035
Attention: Jay Itzkowitz
Facsimile: 310-369-2572
The News Corporation Limited
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskind, Esq.
Facsimile: 212-768-2029
The Administrative Agent: The Chase Manhattan Bank Loan
and Agency Services Group
One Chase Manhattan Plaza
New York, New York 10081
Attention:
Facsimile:
with a copy to: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention:
Facsimile:
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
<PAGE>
65
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
-----------------------------
reimburse the Administrative Agent for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the reasonable fees and disbursements
of counsel (which shall include only one counsel together with one additional
intellectual property counsel) for the Administrative Agent and the Lenders,
collectively with respect thereto, and, in the event any Lender elects to pursue
its remedies under this Agreement for nonpayment of any amount due and payable
hereunder in a proceeding separate from that of the other Lenders, shall include
one additional counsel for such Lender if such Lender is advised by its counsel
that its interests are reasonably likely to be contrary to those of the other
Lenders generally), (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay caused by
any Fox/Liberty Group Member in paying, stamp, excise and other similar taxes,
if any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement, the other Loan
Documents and any such other documents, and (d) to pay, indemnify, and hold each
Lender and the Administrative Agent and their respective officers, directors,
employees, affiliates, agents and controlling persons (each, an "indemnitee")
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, reasonable costs, reasonable
expenses or reasonable disbursements of any kind or nature whatsoever with
respect to the execution, delivery, enforcement, performance and administration
of this Agreement, the other Loan Documents and any such other documents or the
arrangement and syndication of the credit facilities created hereby, including,
without limitation, any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of any Fox/Liberty Group Member
or any of the Properties (all the foregoing in this clause (d), collectively,
the "indemnified liabilities"), provided, that the Borrower shall have no
--------
obligation hereunder to any indemnitee with respect to indemnified liabilities
to the extent such indemnified liabilities are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such indemnitee. Upon payment
hereunder to any indemnitee, the Borrower shall be subrogated to all rights of
such indemnitee to seek reimbursement from any other Person. Notwithstanding the
foregoing, in the event of any litigation or proceeding between or among
Lenders, the Borrower shall not be obligated for any indemnified liabilities
except to the extent such indemnified liabilities are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the participation or contribution of the Fox/Liberty Group Members, their
affiliates, officers, directors, employees, agents or advisors, and then only to
the extent of their participation or contribution, provided, that the
---------
limitation set forth in this sentence shall not apply to indemnified liabilities
incurred by the Administrative Agent and its officers, directors, employees,
affiliates, agents and controlling persons. The agreements in this Section 9.5
shall survive repayment of the Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent, all future holders of the Loans and their
respective successors and assigns, except that the Borrower
<PAGE>
66
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
-----------
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents; provided
--------
that no such sale of a participation to a Participant (other than any Lender or
any affiliate thereof) shall be in an aggregate principal amount of less than
$10,000,000 (other than in the case of a transfer of all of a Lender's interests
under this Agreement), unless otherwise agreed by the Borrower and the
Administrative Agent. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Loans or any fees payable hereunder, or postpone the date of
the final maturity of the Loans, in each case to the extent subject to such
participation. The Borrower agrees that if amounts outstanding under this
Agreement and the Loans are due and payable, or shall have been declared or
shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.16, 2.17 and 2.18 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 2.17, such Participant shall have
--------
complied with the requirements of said Section and provided, further, that no
-------- -------
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender or any affiliate
thereof or, with the consent of the Borrower and the Administrative Agent
(which, in each case, shall not be unreasonably withheld or delayed), to an
additional bank, financial institution or other entity (an "Assignee") all or
--------
any part of its rights and obligations under this Agreement pursuant to an
Assignment and Acceptance, substantially in the form of Exhibit E, executed by
such Assignee and such Assignor (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Administrative
Agent) and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that no such assignment to an Assignee
--------
(other than any Lender or any affiliate thereof) shall be in an aggregate
principal amount of less than $10,000,000 (other than in the case of an
assignment of all of a Lender's interests under this Agreement), unless
otherwise agreed by the Borrower and the Administrative Agent. Any such
assignment need not be ratable as between the Facilities. Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such
<PAGE>
67
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment and/or Loans as set
forth therein, and (y) the Assignor thereunder shall, to the extent provided in
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto).
(d) The Administrative Agent shall maintain at its address referred
to in Section 9.2 a copy of each Assignment and Acceptance delivered to it and a
register (the "Register") for the recordation of the names and addresses of the
--------
Lenders and the Commitments of, and the principal amount of the Loans owing to,
each Lender from time to time and the registered owners of the Notes evidencing
the Loans. Notes and the Loans evidenced thereby may be assigned or otherwise
transferred in whole or in part only in accordance with this Agreement and only
by registration of such assignment or transfer on the Register (and each Note
shall expressly so provide). Any assignment or transfer of all or part of such
Loans and the Notes evidencing the same shall be registered on the Register only
upon surrender for registration of assignment or transfer of the Notes
evidencing such Loans, accompanied by a duly executed Assignment and Acceptance,
and thereupon one or more new Notes in the same aggregate principal amount shall
be issued to the designated Assignee and the old Note shall be returned by the
Agent to the Borrower marked "cancelled". The entries in the Register shall be
conclusive, in the absence of manifest error, and the Borrower, each other Loan
Party, the Administrative Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of the Loan recorded therein for
all purposes of this Agreement. Any assignment of any Loan or other obligation
hereunder and any Note evidencing such Loan shall be effective only upon
appropriate entries with respect thereto being made in the Register.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate thereof, by the Borrower and the Administrative Agent)
together with payment to the Administrative Agent of a registration and
processing fee of $4,000 (payable by either the Assignor or the Assignee), the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) record the information contained therein in the Register on the
effective date determined pursuant thereto.
(f) Subject to Section 9.15, the Borrower authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
----------
prospective Transferee any and all financial information concerning the Loan
Parties and their respective affiliates which has been delivered to such Lender
by or on behalf of any Loan Party pursuant to this Agreement or any other Loan
Document or which has been delivered to such Lender by or on behalf any Loan
Party in connection with such Lender's credit evaluation of the Loan Parties and
their respective affiliates.
(g) Notwithstanding anything to the contrary in this Section 9.6, any
Lender may at any time pledge or assign a security interest in its rights under
this Agreement to a Federal Reserve Bank, and this Section 9.6 shall not apply
to any such pledge or assignment of a security interest; provided that no such
--------
pledge (whether or not foreclosed upon) or assignment of a security interest
shall release a Lender from any of its obligations under this Agreement or
substitute any such pledgee or assignee for such Lender as a party thereto. In
order to facilitate any such pledge or assignment, the Borrower agrees, upon
request of any Lender, to execute and deliver a promissory note substantially in
the form of Exhibit G.
9.7 Adjustments; Set-off. (a) Except to the extent that this
--------------------
Agreement provides for payments to be allocated to the Lenders under a
particular Facility, if any Lender (a "Benefitted
----------
<PAGE>
68
Lender") shall at any time receive any payment of all or part of its Loans, or
- ------
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 7(f), or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans, or interest thereon, such Benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loans, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
- -------- -------
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such setoff and application
made by such Lender, provided that the failure to give such notice shall not
--------
affect the validity of such setoff and application.
9.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
9.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of Fox/Liberty, the Borrower, the Administrative Agent
and the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by any Loan Party, the
Administrative Agent or any Lender relative to subject matter hereof not
expressly set forth or referred to herein or in the other Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.
<PAGE>
69
9.12 Submission To Jurisdiction; Waivers. The Borrower hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 9.2 or at such other address
of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section 9.12 any special, exemplary, punitive or consequential
damages.
9.13 Acknowledgements. The Borrower hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
9.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT
---------------------
AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN
ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.15 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to keep confidential all non-public information provided to it by
any Loan Party pursuant to this Agreement that is designated by such Loan Party
as confidential; provided that nothing herein shall
--------
<PAGE>
70
prevent the Administrative Agent or any Lender from disclosing any such
information (a) to the Administrative Agent, any other Lender or any affiliate
of any Lender on a confidential basis, (b) to any Transferee or prospective
Transferee which agrees to comply with the provisions of this Section 9.15, (c)
to the employees, directors, agents, attorneys, accountants and other
professional advisors of such Lender or its affiliates on a confidential basis,
(d) upon the request or demand of any Governmental Authority having jurisdiction
over the Administrative Agent or such Lender, (e) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law (with notice thereof to the Borrower as
promptly as practicable to the extent permissible in accordance therewith), (f)
if required to do so in connection with any litigation or similar proceeding
(with notice thereof to the Borrower as promptly as practicable to the extent
permissible in accordance therewith), (g) which has been publicly disclosed
other than in breach of this Section 9.15, or (h) in connection with the
exercise of any remedy hereunder or under any other Loan Document. Each of the
Administrative Agent and each Lender agrees that all forecasted financial
information provided by any Loan Party in connection with this Agreement shall
be deemed to be confidential information for the purposes of this Section 9.15.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
FOX SPORTS NET, LLC
By:____________________________________
Name:
Title:
FX NETWORKS, LLC
By:____________________________________
Name:
Title:
FOX SPORTS RPP HOLDINGS, LLC
By:____________________________________
Name:
Title:
FOX/LIBERTY NETWORKS, LLC
By:____________________________________
Name:
Title:
<PAGE>
71
THE CHASE MANHATTAN BANK, as
Administrative Agent
By:__________________________________________
Name:
Title:
CHASE SECURITIES INC., as Syndication Agent
By:__________________________________________
Name:
Title:
TD SECURITIES (USA) INC., as Documentation Agent
By:__________________________________________
Name:
Title:
<PAGE>
EXHIBIT A-1
FORM OF GUARANTEE AGREEMENT
GUARANTEE, dated as of December 15, 1997, made by each of the
signatories hereto (together with any other entity that may become a party
hereto as provided herein, the "Guarantors"), in favor of THE CHASE MANHATTAN
----------
BANK, as administrative agent (in such capacity, the "Administrative Agent") for
--------------------
the several banks and other financial institutions or entities (the "Lenders")
-------
from time to time parties to the $800,000,000 Credit Agreement, dated as of
December 15, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among FOX SPORTS NET, LLC ("Fox/Liberty Sports"),
---------------- ------------------
FX NETWORKS, LLC ("Fox/Liberty FX"), FOX SPORTS RPP HOLDINGS, LLC ("Fox Sports
-------------- ----------
RPP"; together with Fox/Liberty Sports and Fox/Liberty FX, the "Borrower"),
- --- --------
FOX/LIBERTY NETWORKS, LLC ("Fox/Liberty"), the Lenders, the Documentation Agent
-----------
and Syndication Agent named therein and the Administrative Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, dated as of September 12,
1997 (the "Existing Credit Agreement"), among Fox/Liberty, Fox/Liberty Sports,
-------------------------
Fox/Liberty FX, certain Subsidiaries of Fox/Liberty Sports, certain of the
Lenders, TD Securities (USA) Inc., as documentation agent, and The Chase
Manhattan Bank, as administrative agent, such Lenders agreed to extend credit to
Fox/Liberty Sports and Fox/Liberty FX;
WHEREAS, Fox/Liberty, Fox/Liberty Sports and Fox/Liberty FX have
requested that the Existing Credit Agreement be amended and restated in the form
of the Credit Agreement;
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, Fox/Liberty is the parent of the Borrower, each other
Guarantor is a Subsidiary of the Borrower, and it is to the advantage of the
Guarantors that the Lenders make the Loans to the Borrower;
WHEREAS, the proceeds of the Loans under the Credit Agreement will be
used in part to enable the Borrower to make valuable transfers to one or more of
the Guarantors in connection with the operation of their respective businesses;
WHEREAS, the Borrower and the Guarantors are engaged in related
businesses, and each Guarantor will derive substantial direct and indirect
benefit from the making of the Loans under the Credit Agreement;
WHEREAS, pursuant to Section 6.1 of the Existing Credit Agreement,
Fox/Liberty and certain Subsidiaries of Fox/Liberty Sports have guaranteed (the
"Existing Guarantee") the obligations of Fox/Liberty Sports and Fox/Liberty FX
------------------
under the Existing Credit Agreement;
WHEREAS, Fox/Liberty and the Borrower have requested that the Existing
Guarantee be amended and restated as hereinafter provided;
<PAGE>
2
WHEREAS, it is the intent of the parties hereto that this Guarantee
not constitute a novation of the obligations and liabilities existing under the
Existing Guarantee or evidence repayment of all or any of such obligations and
liabilities and that this Guarantee amend and restate in its entirety the
Existing Guarantee and re-evidence the existing obligations of the Guarantors
outstanding thereunder;
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrower under the Credit Agreement that
the Guarantors shall have executed and delivered this Guarantee to the
Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Loans to the Borrower thereunder,
each Guarantor hereby agrees with the Administrative Agent, for the ratable
benefit of the Lenders, as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
(b) As used herein, (i) "Obligations" means the collective reference
-----------
to the unpaid principal of and interest on the Loans and all other obligations
and liabilities of the Borrower (including, without limitation, interest
accruing at the then applicable rate provided in the Credit Agreement after the
maturity of the Loans and interest accruing at the then applicable rate provided
in the Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) to the Administrative Agent or any Lender (or, in
the case of any interest rate hedge agreement, any affiliate of any Lender),
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, this Guarantee, any other Loan Document, any
interest rate hedge agreement entered into with any Lender (or any affiliate of
any Lender) with respect to the obligations under the Credit Agreement or any
other document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all reasonable fees and disbursements
of counsel to the Administrative Agent or to the Lenders that are required to be
paid by the Borrower pursuant to the terms of the Credit Agreement or any other
Loan Document); and (ii) "Subsidiary Guarantor" means each Guarantor other than
--------------------
Fox/Liberty.
(c) The words "hereof," "herein," "hereto" and "hereunder" and words
of similar import when used in this Guarantee shall refer to this Guarantee as a
whole and not to any particular provision of this Guarantee, and Section and
Schedule references are to this Guarantee unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) Each of the Guarantors hereby, jointly and
---------
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and permitted assigns, the prompt and complete payment
and performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
<PAGE>
3
(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors (after giving effect to the right of contribution
established in Section 4).
(c) Each Guarantor agrees that the Obligations may at any time and
from time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
(d) This Guarantee shall remain in full force and effect until all
the Obligations and the obligations of each Guarantor under this Guarantee shall
have been satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any other
guarantor or any other Person or received or collected by the Administrative
Agent or any Lender from the Borrower, any of the Guarantors, any other
guarantor or any other Person by virtue of any action or proceeding or any set-
off or appropriation or application at any time or from time to time in
reduction of or in payment of the Obligations shall be deemed to modify, reduce,
release or otherwise affect the liability of any Guarantor hereunder which
shall, notwithstanding any such payment (other than any payment made by such
Guarantor in respect of the Obligations or any payment received or collected
from such Guarantor in respect of the Obligations), remain liable for the
Obligations up to the maximum liability of such Guarantor hereunder until the
Obligations are paid in full and the Commitments are terminated.
(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to the Administrative Agent or any Lender on
account of its liability hereunder, it will notify the Administrative Agent and
such Lender in writing that such payment is made under this Guarantee for such
purpose; provided that failure to make such notification shall in no way limit
--------
the effect of such payment on the liability of such Guarantor hereunder.
3. Right of Set-off. Each Guarantor hereby irrevocably authorizes
----------------
the Administrative Agent and each Lender at any time and from time to time while
an Event of Default shall have occurred and be continuing, without notice to
such Guarantor or any other Guarantor, any such notice being expressly waived by
each Guarantor, to set-off and appropriate and apply any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by the Administrative Agent or such Lender to or for the credit or
the account of such Guarantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Guarantor to the Administrative Agent or
such Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Guarantor, in any currency,
whether arising hereunder, under the Credit Agreement or any other Loan
Document, as the Administrative Agent or such Lender may elect, whether or not
the Administrative Agent or any Lender has made any demand for payment and
although such obligations, liabilities and claims may be contingent or
unmatured. The Administrative Agent and each Lender shall notify such Guarantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, provided that the failure to give
--------
such notice shall not affect the validity of such
<PAGE>
4
set-off and application. The rights of the Administrative Agent and each Lender
under this Section 3 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Administrative Agent or
such Lender may have.
4. Right of Contribution. Each Subsidiary Guarantor hereby agrees
---------------------
that to the extent that a Subsidiary Guarantor shall have paid more than its
proportionate share of any payment made hereunder, such Subsidiary Guarantor
shall be entitled to seek and receive contribution from and against any other
Subsidiary Guarantor hereunder which has not paid its proportionate share of
such payment. Each Subsidiary Guarantor's right of contribution shall be
subject to the terms and conditions of Section 5. The provisions of this
Section 4 shall in no respect limit the obligations and liabilities of any
Subsidiary Guarantor to the Administrative Agent and the Lenders, and each
Subsidiary Guarantor shall remain liable to the Administrative Agent and the
Lenders for the full amount guaranteed by such Subsidiary Guarantor hereunder.
5. No Subrogation. Notwithstanding any payment made by any Guarantor
--------------
hereunder or any set-off or application of funds of any Guarantor by the
Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Obligations, nor shall any Guarantor seek or be entitled to
seek any contribution or reimbursement from the Borrower or any other Guarantor
in respect of payments made by such Guarantor hereunder, until all amounts owing
to the Administrative Agent and the Lenders by the Borrower on account of the
Obligations are paid in full and the Commitments are terminated. If any amount
shall be paid to any Guarantor on account of such subrogation rights at any time
when all of the Obligations shall not have been paid in full, such amount shall
be held by such Guarantor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon receipt
by such Guarantor, be turned over to the Administrative Agent in the exact form
received by such Guarantor (duly indorsed by such Guarantor to the
Administrative Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Administrative Agent may
determine.
6. Amendments, etc. with respect to the Obligations. Each Guarantor
------------------------------------------------
shall remain obligated hereunder notwithstanding that, without any reservation
of rights against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by the
Administrative Agent or any Lender may be rescinded by the Administrative Agent
or such Lender and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and the Credit Agreement and the other Loan Documents and
any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the
Administrative Agent (or the Required Lenders or all Lenders, as the case may
be) may deem advisable from time to time, and any collateral security, guarantee
or right of offset at any time held by the Administrative Agent or any Lender
for the payment of the Obligations may be sold, exchanged, waived, surrendered
or released. Neither the Administrative Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guarantee or any property subject
thereto.
7. Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of
<PAGE>
5
reliance by the Administrative Agent or any Lender upon this Guarantee or
acceptance of this Guarantee; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or renewed,
extended, amended or waived, in reliance upon this Guarantee; and all dealings
between the Borrower and any of the Guarantors, on the one hand, and the
Administrative Agent and the Lenders, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower or any of
the Guarantors with respect to the Obligations. Each Guarantor understands and
agrees that this Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Loan Document, any of the
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by the
Administrative Agent or any Lender, (b) any defense, set-off or counterclaim
(other than a defense of payment or performance) which may at any time be
available to or be asserted by the Borrower or any other Person against the
Administrative Agent or any Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrower or such Guarantor) which
constitutes, or might be construed to constitute, an equitable or legal
discharge of the Borrower for the Obligations, or of such Guarantor under this
Guarantee, in bankruptcy or in any other instance. When making any demand
hereunder or otherwise pursuing its rights and remedies hereunder against any
Guarantor, the Administrative Agent or any Lender may, but shall be under no
obligation to, make a similar demand on or otherwise pursue such rights and
remedies as it may have against the Borrower, any other Guarantor or any other
Person or against any collateral security or guarantee for the Obligations or
any right of offset with respect thereto, and any failure by the Administrative
Agent or any Lender to make any such demand, to pursue such other rights or
remedies or to collect any payments from the Borrower, any other Guarantor or
any other Person or to realize upon any such collateral security or guarantee or
to exercise any such right of offset, or any release of the Borrower, any other
Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Administrative Agent or
any Lender against any Guarantor. For the purposes hereof "demand" shall include
the commencement and continuance of any legal proceedings.
8. Reinstatement. This Guarantee shall continue to be effective, or
-------------
be reinstated, as the case may be, if at any time payment, or any part thereof,
of any of the Obligations is rescinded or must otherwise be restored or returned
by the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
9. Payments. Each Guarantor hereby guarantees that payments
--------
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at 270
Park Avenue, New York, New York 10017.
10. Authority of Administrative Agent. Each Guarantor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Guarantee shall, as between the Administrative
Agent and the Lenders, be governed by the
<PAGE>
6
Credit Agreement and by such other agreements with respect thereto as may exist
from time to time among them, but, as between the Administrative Agent and the
Guarantors, the Administrative Agent shall be conclusively presumed to be acting
as agent for the Lenders with full and valid authority so to act or refrain from
acting, and no Guarantor shall be under any obligation, or entitlement, to make
any inquiry respecting such authority or subject to any liability to any Lender
by virtue of its following any instructions of, or responding to any demand by,
the Administrative Agent.
11. Notices. All notices, requests and demands to or upon the
-------
Administrative Agent or any Guarantor hereunder shall be effected in the manner
provided for in Section 9.2 of the Credit Agreement; provided that any such
--------
notice, request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 1.
----------
12. Enforcement Expenses; Indemnification. (a) Each Guarantor
-------------------------------------
agrees to pay, and to save the Administrative Agent and the Lenders harmless
from, any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Guarantee to the extent the Borrower would be required to
do so pursuant to Section 9.5 of the Credit Agreement.
(b) The agreements in this Section 12 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Loan Documents.
13. Counterparts. This Guarantee may be executed by one or more of
------------
the parties to this Guarantee on any number of separate counterparts (including
by telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
14. Severability. Any provision of this Guarantee which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. Integration. This Guarantee represents the agreement of the
-----------
Guarantors, the Administrative Agent and the Lenders with respect to the subject
matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by any Loan Party, the Administrative Agent or any
Lender relative to subject matter hereof and thereof not expressly set forth or
referred to herein or in the other Loan Documents.
16. Amendments in Writing. None of the terms or provisions of this
---------------------
Guarantee may be waived, amended, supplemented or otherwise modified except in
accordance with Section 9.1 of the Credit Agreement.
17. No Waiver by Course of Conduct; Cumulative Remedies. Neither the
---------------------------------------------------
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 16 hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
<PAGE>
7
right, power or privilege. A waiver by the Administrative Agent or any Lender
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
18. Section Headings. The Section headings used in this Guarantee
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
19. Successors and Assigns. This Guarantee shall be binding upon the
----------------------
successors and assigns of each Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and permitted assigns;
provided that no Guarantor may assign, transfer or delegate any of its rights or
- --------
obligations under this Guarantee without the prior written consent of the
Administrative Agent.
20. GOVERNING LAW. THIS GUARANTEE AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES UNDER THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.
21. Submission To Jurisdiction; Waivers. Each Guarantor hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Guarantee and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such
Guarantor at its address referred to Section 11 or at such other address of
which the Administrative Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
22. Acknowledgements. Each Guarantor hereby acknowledges that:
----------------
<PAGE>
8
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Guarantee and the other Loan Documents to which it is a
party;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to any Guarantor arising out of or in connection
with this Guarantee or any of the other Loan Documents, and the
relationship between the Guarantors, on the one hand, and the
Administrative Agent and Lenders, on the other hand, in connection herewith
or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Guarantors and the Lenders.
23. WAIVERS OF JURY TRIAL. EACH GUARANTOR HEREBY IRREVOCABLY AND
---------------------
UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
24. Additional Guarantors. Each Subsidiary of the Borrower that is
---------------------
required to become a party to this Guarantee pursuant to Section 5.9 of the
Credit Agreement shall become a Guarantor for all purposes of this Guarantee
upon execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.
25. Releases. At the request and sole expense of the Borrower, a
--------
Subsidiary Guarantor shall be released from its obligations hereunder in the
event that all the Capital Stock of such Subsidiary Guarantor shall be sold,
transferred or otherwise disposed of in a transaction permitted by the Credit
Agreement; provided that the Borrower shall have delivered to the Administrative
Agent, at least ten Business Days prior to the date of the proposed release, a
written request for release identifying the relevant Subsidiary Guarantor and
the terms of the sale or other disposition in reasonable detail, including the
price thereof and any expenses in connection therewith, together with a
certification by the Borrower stating that such transaction is in compliance
with the Credit Agreement and the other Loan Documents.
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
to be duly executed and delivered as of the date first above written.
FOX/LIBERTY NETWORKS, LLC
By____________________________________
Title_________________________________
<PAGE>
9
LIBERTY/FOX SOUTHEAST LLC
By____________________________________
Title ________________________________
LIBERTY/FOX SUNSHINE LLC
By____________________________________
Title ________________________________
LIBERTY/FOX UTAH LLC
By____________________________________
Title ________________________________
PROFESSIONAL SPORTS SERVICES, LLC
By ___________________________________
Title ________________________________
PRIME NETWORK LLC
By ____________________________________
Title _________________________________
LIBERTY/FOX WEST, LLC
By ____________________________________
Title _________________________________
<PAGE>
10
PRIME TICKET NETWORKS, L.P.
By ____________________________________
Title _________________________________
PRIME SPORTS NORTHWEST NETWORK
By ____________________________________
Title _________________________________
LIBERTY/FOX ARC L.P.
By ____________________________________
Title _________________________________
FOX/LIBERTY BAY AREA, LLC
By ____________________________________
Title _________________________________
FOX/LIBERTY CHICAGO, LLC
By ____________________________________
Title _________________________________
LIBERTY/FOX KBL L.P.
By ____________________________________
Title _________________________________
LIBERTY/FOX NORTHWEST L.P.
By ____________________________________
Title _________________________________
<PAGE>
11
AFFILIATED REGIONAL COMMUNICATIONS, LTD.
By ____________________________________
Title _________________________________
ARC HOLDING, LTD.
By ____________________________________
Title _________________________________
FOX/LIBERTY NETWORK SALES, INC.
By ____________________________________
Title _________________________________
LIBERTY SPORTSOUTH, INC.
By ____________________________________
Title _________________________________
LMC SOUTHEAST SPORTS, INC.
By ____________________________________
Title _________________________________
LMC SUNSHINE, INC.
By ____________________________________
Title _________________________________
SPORTS HOLDING, INC.
By ____________________________________
Title _________________________________
<PAGE>
EXHIBIT A-2
FORM OF PLEDGE AGREEMENT
PLEDGE AGREEMENT, dated as of December 15, 1997, made by each of the
signatories hereto (together with any other entity that may become a party
hereto as provided herein, the "Pledgors"), in favor of THE CHASE MANHATTAN
--------
BANK, as administrative agent (in such capacity, the "Administrative Agent") for
--------------------
the several banks and other financial institutions or entities (the "Lenders")
-------
from time to time parties to the $800,000,000 Credit Agreement, dated as of
December 15, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among FOX SPORTS NET, LLC ("Fox/Liberty Sports"),
---------------- ------------------
FX NETWORKS, LLC ("Fox/Liberty FX"), FOX SPORTS RPP HOLDINGS, LLC ("Fox Sports
-------------- ----------
RPP"; together with Fox/Liberty Sports and Fox/Liberty FX, the "Borrower"),
- --- --------
FOX/LIBERTY NETWORKS, LLC ("Fox/Liberty"), the Documentation Agent and
-----------
Syndication Agent named therein and the Administrative Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, dated as of September 12,
1997 (the "Existing Credit Agreement"), among Fox/Liberty, Fox/Liberty Sports,
-------------------------
Fox/Liberty FX, certain Subsidiaries of Fox/Liberty Sports, certain of the
Lenders, TD Securities (USA) Inc., as documentation agent, and The Chase
Manhattan Bank, as administrative agent, such Lenders agreed to extend credit to
Fox/Liberty Sports and Fox/Liberty FX;
WHEREAS, Fox/Liberty, Fox/Liberty Sports and Fox/Liberty FX have
requested that the Existing Credit Agreement be amended and restated in the form
of the Credit Agreement;
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to the Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, the Pledgors hold equity interests in the Issuers (as
hereinafter defined);
WHEREAS, Fox/Liberty is the parent of the Borrower and each other
Pledgor is a Subsidiary or Affiliate of the Borrower; and it is to the advantage
of the Pledgors that the Lenders make the Loans to the Borrower;
WHEREAS, the proceeds of the Loans under the Credit Agreement will be
used in part to enable the Borrower to make valuable transfers to one or more of
the Pledgors in connection with the operation of their respective businesses;
WHEREAS, the Borrower and the Pledgors are engaged in related
businesses, and each Pledgor will derive substantial direct and indirect benefit
from the making of the Loans under the Credit Agreement;
<PAGE>
2
WHEREAS, pursuant to Section 6.2 of the Existing Credit Agreement,
Fox/Liberty and certain Subsidiaries of Fox/Liberty Sports have granted a first
priority security interest in all of the Pledged Securities (as defined therein)
(the "Existing Pledge Agreement") in which each has any right, title or
-------------------------
interest, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the obligations under the Existing Credit Agreement;
WHEREAS, Fox/Liberty and the Borrower have requested that the Existing
Pledge Agreement be amended and restated as hereinafter provided;
WHEREAS, it is the intent of the parties hereto that this Agreement
not constitute a novation of the obligations and liabilities existing under the
Existing Pledge Agreement or evidence repayment of all or any of such
obligations and liabilities and that this Agreement amend and restate in its
entirety the Existing Pledge Agreement and re-evidence the existing obligations
of the Pledgors outstanding thereunder; and
WHEREAS, it is a condition precedent to the obligation of the Lenders
to make their respective Loans to the Borrower under the Credit Agreement that
the Pledgors shall have executed and delivered this Agreement to the
Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Loans to the Borrower thereunder,
each Pledgor hereby agrees with the Administrative Agent, for the ratable
benefit of the Lenders, as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
-------------
defined in the Credit Agreement and used herein shall have the meanings given to
them in the Credit Agreement.
(b) As used in this Agreement, the following terms shall have the
following meanings:
"Agreement": this Pledge Agreement, as the same may be amended,
---------
modified or otherwise supplemented from time to time.
"Code": the Uniform Commercial Code from time to time in effect in
----
the State of New York.
"Collateral": the Pledged Securities and all Proceeds thereof.
----------
"Collateral Account": any account established to hold money Proceeds,
------------------
maintained under the sole dominion and control of the Administrative Agent,
subject to withdrawal by the Administrative Agent for the account of the Lenders
only as provided in Section 8(a).
"Issuers": Fox/Liberty Sports, Fox/Liberty FX and the Subsidiaries or
--------
Affiliates of Fox/Liberty Sports or Fox/Liberty FX which have issued Pledged LLC
Interests, Pledged Partnership Interests and/or Pledged Stock. The Issuers
comprise those Persons identified in Schedule III hereto as said Schedule may be
supplemented from time to time.
"Obligations": the collective reference to (a) in the case of each
-----------
Pledgor, the unpaid principal of and interest on the Loans and all other
obligations and liabilities of the Borrower
<PAGE>
3
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
to the Administrative Agent or to any Lender (or, in the case of any interest
rate hedge agreement, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Credit
Agreement, this Agreement, any other Loan Document, any interest rate hedge
agreement entered into with any Lender (or any affiliate of any Lender) with
respect to obligations under the Credit Agreement, or any other document made,
delivered or given in connection herewith or therewith, in each case whether on
account of principal, interest, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable fees, charges and disbursements
of counsel to the Administrative Agent or to any Lender that are required to be
paid by the Borrower pursuant to the terms of the Credit Agreement or any other
Loan Document); and (b) in the case of each Pledgor that is a Guarantor, in
addition to the foregoing, all obligations and liabilities of such Pledgor to
the Administrative Agent or to any Lender, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Guarantee Agreement,
this Agreement, any other Loan Document or any other document made, delivered or
given in connection herewith or therewith, in each case whether on account of
principal, interest, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all reasonable fees, charges and disbursements of counsel to
the Administrative Agent or to any Lender that are required to be paid by such
Pledgor pursuant to the terms of the Guarantee Agreement or any other Loan
Document).
"Pledged LLC Interests": in each case, whether now existing or
---------------------
hereafter acquired, all of each Pledgor's right, title and interest in and to:
(i) any Issuer that is a limited liability company, but not any
of such Pledgor's obligations from time to time as a holder of interests in
such Issuer (unless the Administrative Agent or its designee, on behalf of
the Administrative Agent and the Lenders, shall elect to become a holder of
interests in such Issuer in connection with its exercise of remedies
pursuant to the terms hereof);
(ii) any and all moneys due and to become due to such Pledgor
now or in the future by way of a distribution made to such Pledgor in its
capacity as a holder of interests in any such Issuer or otherwise in
respect of such Pledgor's interest as a holder of interests in any such
Issuer;
(iii) any other property of such Issuer to which such Pledgor now
or in the future may be entitled in respect of its interests in such Issuer
by way of distribution, return of capital or otherwise;
(iv) any other claim or right which such Pledgor now has or may
in the future acquire in respect of its interests in such Issuer;
(v) the organizational documents of such Issuer;
(vi) all certificates, options or rights of any nature
whatsoever that may be issued or granted by any such Issuer to such Pledgor
while this Agreement is in effect; and
<PAGE>
4
(vii) to the extent not otherwise included, all Proceeds of any
or all of the foregoing.
"Pledged Partnership Interests": in each case, whether now existing
-----------------------------
or hereafter acquired, all of each Pledgor's right, title and interest in and
to:
(i) any Issuer that is a partnership, but not any of such
Pledgor's obligations from time to time as a general or limited partner, as
the case may be, in such Issuer (unless the Administrative Agent or its
designee, on behalf of the Administrative Agent and the Lenders, shall
elect to become a general or limited partner, as the case may be, in such
Issuer in connection with its exercise of remedies pursuant to the terms
hereof);
(ii) any and all moneys due and to become due to such Pledgor
now or in the future by way of a distribution made to such Pledgor in its
capacity as a general partner or limited partner, as the case may be, in
such Issuer or otherwise in respect of such Pledgor's interest as a general
partner or limited partner, as the case may be, in such Issuer;
(iii) any other property of such Issuer to which such Pledgor now
or in the future may be entitled in respect of its interests as a general
partner or limited partner, as the case may be, in such Issuer by way of
distribution, return of capital or otherwise;
(iv) any other claim or right which such Pledgor now has or may
in the future acquire in respect of its general or limited partnership
interests in such Issuer;
(v) the partnership agreement or other organizational documents
of such Issuer;
(vi) all certificates, options or rights of any nature
whatsoever that may be issued or granted by such Issuer to such Pledgor
while this Agreement is in effect; and
(vii) to the extent not otherwise included, all Proceeds of any
or all of the foregoing.
"Pledged Securities": the collective reference to the Pledged LLC
------------------
Interests, the Pledged Partnership Interests and the Pledged Stock, together
with any Proceeds thereof.
"Pledged Stock": the shares of Capital Stock listed on Schedule I
------------- ----------
hereto, together with all Capital Stock, stock certificates, options or rights
of any nature whatsoever that may be held by any Pledgor in any Issuer that is a
corporation.
"Proceeds": all "proceeds" as such term is defined in Section 9-
--------
306(1) of the Uniform Commercial Code in effect in the State of New York on the
date hereof and, in any event, shall include, without limitation, all dividends
or other income from the Pledged Securities, collections thereon or
distributions with respect thereto.
"Securities Act": the Securities Act of 1933, as amended.
--------------
<PAGE>
5
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section and Schedule
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Pledge; Grant of Security Interest. Each Pledgor hereby delivers
----------------------------------
to theAdministrative Agent, for the ratable benefit of the Lenders, all the
certificated Pledged Securities and hereby grants to the Administrative Agent,
for the ratable benefit of the Lenders, a first priority security interest in
the Collateral, as collateral security for the prompt and complete payment and
performance when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.
3. Formalities. (a) Stock Powers. Concurrently with the delivery
----------- ------------
to the Administrative Agent of each certificate representing one or more shares
of Pledged Stock to the Administrative Agent, each Pledgor shall deliver an
undated stock power covering such certificate, duly executed in blank by such
Pledgor.
(b) Powers; Register of Partnership Pledge. (i) Concurrently with
--------------------------------------
the delivery to the Administrative Agent of any certificate representing any
Pledged Partnership Interests, each Pledgor shall, if requested by the
Administrative Agent, deliver an undated power covering such certificate, duly
executed in blank by such Pledgor; and
(ii) concurrently with the execution of this Agreement, each Pledgor
will send to each Issuer of Pledged Partnership Interests written instructions
substantially in the form of Exhibit B hereto and shall cause such Issuer to,
and such Issuer shall, deliver to the relevant Pledgor and to the Administrative
Agent the Transaction Statement in the form of Exhibit A hereto confirming that
such Issuer has registered the pledge effected by this Agreement on its books.
(c) Powers; Register of LLC Pledge. (i) Concurrently with the
------------------------------
delivery to the Administrative Agent of any certificate representing any Pledged
LLC Interests, each Pledgor shall, if requested by the Administrative Agent,
deliver an undated power covering such certificate, duly executed in blank by
such Pledgor; and
(ii) concurrently with the execution of this Agreement, each Pledgor
will send to each Issuer of Pledged LLC Interests written instructions
substantially in the form of Exhibit B hereto and shall cause such Issuer to,
and such Issuer shall, deliver to the relevant Pledgor and to the Administrative
Agent the Transaction Statement in the form of Exhibit A hereto confirming that
such Issuer has registered the pledge effected by this Agreement on its books.
4. Representations and Warranties. Each Pledgor represents and
------------------------------
warrants that:
(a) Each Pledgor has the power and authority and the legal right to
execute and deliver, to perform its obligations under, and to grant the security
interest in the Collateral pursuant to, this Agreement and has taken all
necessary action to authorize its execution, delivery and performance of, and
grant of the security interest in the Collateral pursuant to, this Agreement.
<PAGE>
6
(b) This Agreement constitutes a legal, valid and binding obligation
of each Pledgor, enforceable in accordance with its terms, and upon delivery to
the Administrative Agent of the stock certificates, powers, instructions and
statements required by Section 3 hereof, the security interest created pursuant
to this Agreement will constitute a valid, perfected first priority security
interest in the Collateral, enforceable in accordance with its terms against all
creditors of such Pledgor and any Persons purporting to purchase any Collateral
from such Pledgor, except in each case as enforceability may be affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(c) The execution, delivery and performance of this Agreement will
not violate any provision of any law, rule or regulation or contractual
obligation of any Pledgor and will not result in the creation or imposition of
any Lien on any of the properties or revenues of any Pledgor pursuant to any
law, rule or regulation or contractual obligation of such Pledgor, except the
security interest created by this Agreement.
(d) No consent or authorization of, filing with, or other act by or
in respect of, any arbitrator or Governmental Authority (other than filings
under the Uniform Commercial Code) and no consent of any other Person
(including, without limitation, any stockholder or creditor of any Pledgor), is
required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement.
(e) No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of any
Pledgor, threatened by or against such Pledgor or against any of its properties
or revenues with respect to this Agreement or any of the transactions
contemplated hereby.
(f) The shares of Pledged Stock pledged by each Pledgor constitute
all the issued and outstanding shares of all classes of the Capital Stock in
which such Pledgor has any right, title or interest of each Issuer that is a
corporation.
(g) The Pledged Partnership Interests pledged by each Pledgor
constitute all the issued and outstanding partnership interests in which such
Pledgor has any right, title or interest of each Issuer that is a partnership.
(h) The Pledged LLC Interests pledged by each Pledgor constitute all
the issued and outstanding equity interests in which such Pledgor has any right,
title or interest of each Issuer that is a limited liability company.
(i) All of the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(j) Schedule II accurately reflects each Pledgor's partnership
interests in Issuers and interests in Issuers which are limited liability
companies as of the date hereof.
(k) Each Pledgor is the record and beneficial owner of, and has good
title to, the Pledged Securities, free of any and all Liens or options in favor
of, or claims of, any other Person, except (i) restrictions on transfer
contained in any stockholders' agreement, operating agreement,
<PAGE>
7
partnership agreement or other organizational documents of any Issuer to which
such Pledgor is a party, (ii) any purchase right granted to any party pursuant
to any stockholders' agreement, operating agreement, partnership agreement or
other organizational documents of any Loan Party or Issuer and (iii) the
security interest created by this Agreement.
(l) Schedule IV attached hereto sets forth with respect to each
Pledgor each direct Subsidiary thereof that is not an Issuer, together with an
explanation thereof.
5. Covenants. Each Pledgor covenants and agrees with the
---------
Administrative Agent and the Lenders that, from and after the date of this
Agreement so long as any Commitment remains in effect, any Loan shall be
outstanding or any other Obligation is due and payable to any Lender or the
Administrative Agent hereunder or under the Credit Agreement:
(a) If any Pledgor shall, as a result of its ownership of the Pledged
Securities become entitled to receive or shall receive any certificate or
instrument (including, without limitation, any certificate representing a stock
dividend or a distribution in connection with any reclassification, increase or
reduction of capital or any certificate issued in connection with any
reorganization), option or rights, whether in addition to, in substitution of,
as a conversion of, or in exchange for any shares or units of the Pledged Stock,
the Pledged Partnership Interests or the Pledged LLC Interests, or otherwise in
respect thereof, such Pledgor shall accept the same as the agent of the
Administrative Agent and the Lenders, hold the same in trust for the
Administrative Agent and the Lenders and deliver the same forthwith to the
Administrative Agent in the exact form received, duly endorsed by such Pledgor
to the Administrative Agent, if required, together with, if applicable, an
undated stock or other power covering such certificate duly executed in blank by
such Pledgor and with, if the Administrative Agent so requests, signature
guaranteed, to be held by the Administrative Agent, subject to the terms hereof,
as additional collateral security for the Obligations. If a Payment Default (as
defined below) shall have occurred and be continuing, any sums paid upon or in
respect of the Pledged Securities upon the liquidation or dissolution of any
Issuer shall be paid over to the Administrative Agent to be held by it hereunder
as additional collateral security for the Obligations, and in case any
distribution of capital shall be made on or in respect of the Pledged Securities
or any property shall be distributed upon or with respect to the Pledged
Securities pursuant to the recapitalization or reclassification of the capital
of any Issuer or pursuant to the reorganization thereof, the property so
distributed shall be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security for the Obligations. If any sums of
money or property so paid or distributed in respect of the Pledged Securities
shall be received by any Pledgor, such Pledgor shall, until such money or
property is paid or delivered to the Administrative Agent, hold such money or
property in trust for the Lenders, segregated from other funds of such Pledgor,
as additional collateral security for the Obligations. Each Pledgor agrees to
notify the Administrative Agent promptly in writing of the occurrence of any of
the events described in this Section 5(a).
(b) Without the prior written consent of the Administrative Agent, no
Pledgor will (i) vote to enable, or take any other action to permit, any Issuer
to issue any stock or partnership interests or other equity securities of any
nature or to issue any other securities convertible into or granting the right
to purchase or exchange for any stock or partnership interests or other equity
securities of any nature of any Issuer, except, in each case, to such Pledgor or
as otherwise permitted by the Credit Agreement, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to, the
Pledged Securities (except as permitted by the Credit Agreement), (iii) create,
incur or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, any of the Pledged Securities, or any interest therein,
except with respect to (x) restrictions on transfer contained
<PAGE>
8
in any stockholders' agreement, operating agreement, partnership agreement or
other organizational documents of any Issuer to which such Pledgor is a party,
(y) any purchase right granted to any party pursuant to any stockholders'
agreement, operating agreement, partnership agreement or other organizational
documents of any Loan Party or Issuer, and (z) the security interests created by
this Agreement or (iv) enter into any agreement or undertaking restricting the
right or ability of such Pledgor or the Administrative Agent to sell, assign or
transfer any of the Pledged Securities (except any such agreement or undertaking
entered into in connection with dispositions permitted by the Credit Agreement).
(c) Each Pledgor shall maintain the security interest created by this
Agreement as a first, perfected security interest and shall defend such security
interest against claims and demands of all Persons whomsoever, except with
respect to (i) restrictions on transfer contained in any stockholders'
agreement, operating agreement, partnership agreement or other organizational
documents of any Issuer to which such Pledgor is a party and (ii) any purchase
right granted to any party pursuant to any stockholders' agreement, operating
agreement, partnership agreement or other organizational documents of any Loan
Party or Issuer. At any time and from time to time, upon the written request of
the Administrative Agent, and at the sole expense of the Pledgor, such Pledgor
will promptly and duly execute and deliver such further instruments and
documents and take such further actions as the Administrative Agent may
reasonably request for the purposes of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted. If any amount
payable to any Pledgor under or in connection with any of the Collateral shall
be or become evidenced by any promissory note, other instrument or chattel
paper, such note, instrument or chattel paper shall be immediately delivered to
the Administrative Agent, duly endorsed in a manner satisfactory to the
Administrative Agent, to be held as Collateral pursuant to this Agreement.
(d) Each Pledgor shall pay, and save the Administrative Agent and the
Lenders harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes which
may be payable or determined to be payable with respect to any of the Collateral
or in connection with any of the transactions contemplated by this Agreement.
6. Cash Dividends; Voting Rights. Unless a Payment Default shall
-----------------------------
have occurred and be continuing and the Administrative Agent shall have given
notice of its intent to exercise its corresponding rights pursuant to Section 7
below, each Pledgor shall be permitted to receive all dividends or other
distributions in respect of the Pledged Stock and all distributions in respect
of the Pledged Partnership Interests and the Pledged LLC Interests, in each case
paid or distributed in accordance with the Credit Agreement, and to exercise all
voting, corporate, partnership or other rights with respect to the Pledged
Securities subject to Section 5(a) hereof; provided, however, that no vote shall
-------- -------
be cast or corporate, partnership or other right exercised or other action taken
which, in the Administrative Agent's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement or this Agreement.
7. Rights of the Lenders and the Administrative Agent. (a) All
--------------------------------------------------
money Proceeds received by the Administrative Agent hereunder shall be held by
the Administrative Agent for the benefit of the Lenders in a Collateral Account.
All Proceeds while held by the Administrative Agent in a Collateral Account (or
by any Pledgor in trust for the Administrative Agent and the Lenders) shall
continue to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in Section 8(a).
<PAGE>
9
(b) At any time when any of the Obligations then due and owing
(whether at stated maturity, by acceleration or otherwise) shall remain unpaid
(a "Payment Default") and the Administrative Agent shall give notice of its
---------------
intent to exercise such rights to each Pledgor, (i) the Administrative Agent
shall have the right to receive any and all cash dividends, distributions,
principal, interest or other amounts paid in respect of the Pledged Securities
and make application thereof to the Obligations in such order as the
Administrative Agent may determine, and (ii) all Pledged Securities shall be
registered in the name of the Administrative Agent or its nominee, and the
Administrative Agent or its nominee may thereafter exercise (A) all voting,
corporate, partnership and other rights pertaining to the Pledged Securities at
any meeting of shareholders or partners or otherwise and (B) any and all rights
of conversion, exchange, subscription and any other rights, privileges or
options pertaining to the Pledged Securities as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate,
partnership or other organizational structure of any Issuer, or upon the
exercise by any Pledgor or the Administrative Agent of any right, privilege or
option pertaining to such Pledged Securities, and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depositary, transfer agent, registrar or other designated agency upon
such terms and conditions as the Administrative Agent may determine), all
without liability except to account for property actually received by it, but
the Administrative Agent shall have no duty to any Pledgor to exercise any such
right, privilege or option and shall not be responsible for any failure to do so
or delay in so doing.
8. Remedies. (a) If a Payment Default shall have occurred and be
--------
continuing, at any time at the Administrative Agent's election, the
Administrative Agent may apply all or any part of the Proceeds (whether or not
held in a Collateral Account) in payment of the Obligations in such order as the
Administrative Agent may elect.
(b) If a Payment Default shall have occurred and be continuing, the
Administrative Agent, on behalf of the Lenders, may exercise, in addition to all
other rights and remedies granted in this Agreement and in any other instrument
or agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Pledgor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, assign, give option or options to purchase or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, in the
over-the-counter market, at any exchange, broker's board or office of the
Administrative Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. The
Administrative Agent or any Lender shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in any Pledgor, which right or equity is
hereby waived or released. The Administrative Agent shall apply any Proceeds
from time to time held by it and the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in respect thereof or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable
<PAGE>
10
attorneys' fees and disbursements of counsel to the Administrative Agent, to the
payment in whole or in part of the Obligations, in such order as the
Administrative Agent may elect, and only after such application and after the
payment by the Administrative Agent of any other amount required by any
provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Administrative Agent account for the surplus, if any, to any
Pledgor. To the extent permitted by applicable law, each Pledgor waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of the Collateral shall be
required by law, such notice shall be deemed reasonable and proper if given at
least 10 days before such sale or other disposition. Each Pledgor waives and
agrees not to assert any rights or privileges which it may acquire under Section
9-112 of the Code. Each Pledgor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Administrative Agent to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Administrative
----------------------------------
Agent shall determine to exercise its right to sell any or all of the Pledged
Stock pursuant to Section 8(b) hereof, and if in the opinion of the
Administrative Agent it is necessary or advisable to have the Pledged Stock, or
that portion thereof to be sold, registered under the provisions of the
Securities Act, each Pledgor will cause each Issuer thereof (i) to execute and
deliver, and cause the directors and officers of such Issuer to execute and
deliver, all such instruments and documents, and do or cause to be done all such
other acts as may be, in the opinion of the Administrative Agent, necessary or
advisable to register the Pledged Stock, or that portion thereof to be sold,
under the provisions of the Securities Act, (ii) to use its best efforts to
cause the registration statement relating thereto to become effective and to
remain effective for a period of one year from the date of the first public
offering of the Pledged Stock, or that portion thereof to be sold, and (iii) to
make all amendments thereto and/or to the related prospectus which, in the
opinion of the Administrative Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Pledgor agrees to cause the Issuers to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the
Administrative Agent shall designate and to make available to its security
holders, as soon as practicable, an earnings statement (which need not be
audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) Each Pledgor recognizes that the Administrative Agent may be
unable to effect a public sale of any or all the Pledged Securities, by reason
of certain prohibitions contained in the Securities Act and applicable state
securities laws or otherwise, and may be compelled to resort to one or more
private sales thereof to a restricted group of purchasers which will be obliged
to agree, among other things, to acquire such securities for their own account
for investment and not with a view to the distribution or resale thereof. Each
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The
Administrative Agent shall be under no obligation to delay a sale of any of the
Pledged Securities for the period of time necessary to permit the Issuer thereof
to register such securities for public sale under the Securities Act, or under
applicable state securities laws, even if such Issuer would agree to do so.
(c) Each Pledgor further agrees to use its best efforts to do or
cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this Section 9
valid and binding and in compliance with any and all other applicable
Requirements of Law. Each Pledgor further agrees that a breach of any of the
covenants contained in
<PAGE>
11
this Section 9 will cause irreparable injury to the Administrative Agent and the
Lenders, that the Administrative Agent and the Lenders have no adequate remedy
at law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 9 shall be specifically enforceable against
each Pledgor, and each Pledgor hereby waives and agrees not to assert any
defenses against an action for specific performance of such covenants except for
a defense that no Payment Default has occurred.
10. Irrevocable Authorization and Instruction to the Issuers. Each
--------------------------------------------------------
Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Administrative Agent in writing that (a)
states that a Payment Default has occurred and (b) is otherwise in accordance
with the terms of this Agreement, without any other or further instructions from
any Pledgor, and each Pledgor agrees that each Issuer shall be fully protected
in so complying.
11. No Subrogation. Notwithstanding any payment or payments made by
--------------
any Pledgor hereunder, or any setoff or application of funds of any Pledgor by
any Lender, or the receipt of any amounts by the Administrative Agent or any
Lender with respect to any of the Collateral, no Pledgor shall be entitled to be
subrogated to any rights of the Administrative Agent or any Lender against the
Borrower or against any other collateral security held by the Administrative
Agent or any Lender for the payment of the Obligations, nor shall any Pledgor
seek any reimbursement from the Borrower in respect of payments made by such
Pledgor in connection with this Agreement, or amounts realized by the
Administrative Agent or any Lender in connection with the Collateral, until all
amounts owing to the Administrative Agent and the Lenders on account of the
Obligations are paid in full and the Commitments are terminated. If any amount
shall be paid to any Pledgor on account of such subrogation rights at any time
when all of the Obligations shall not have been paid in full, such amount shall
be held by such Pledgor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Pledgor, and shall, forthwith upon receipt
by such Pledgor, be turned over to the Administrative Agent in the exact form
received by such Pledgor (duly endorsed by such Pledgor to the Administrative
Agent, if required) to be applied against the Obligations, whether matured or
unmatured, in such order as the Administrative Agent may determine.
12. Amendments, etc. with respect to the Obligations; Waiver of
----------------------------------------------------------------
Rights. (a) Each Pledgor shall remain obligated hereunder, and the Collateral
- ------
shall remain subject to the security interests granted hereby, notwithstanding
that, without any reservation of rights against any Pledgor, and without notice
to or further assent by any Pledgor, any demand for payment of any of the
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender, and any of the Obligations continued,
and the Obligations, or the liability of the Borrower or any other Person upon
or for any part thereof, or any collateral security or guarantee therefor or
right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered, or released by the Administrative Agent or any Lender, and the
Credit Agreement and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or
part, as the Lenders may deem advisable from time to time, and any guarantee,
right of offset or other collateral security at any time held by the
Administrative Agent or any Lender for the payment of the Obligations may be
sold, exchanged, waived, surrendered or released. Neither the Administrative
Agent nor any Lender shall have any obligation to protect, secure, perfect or
insure any other Lien at any time held by it as security for the Obligations or
any property subject thereto. Each Pledgor waives any and all notice of the
creation, renewal, extension or accrual of any of the Obligations and notice of
or proof of reliance by the Administrative Agent or any Lender upon this
Agreement; the Obligations, and any of them, shall be deemed conclusively to
have been created,
<PAGE>
12
contracted or incurred in reliance upon this Agreement; and all dealings between
the Borrower and the Pledgors, on the one hand, and the Administrative Agent and
the Lenders, on the other, likewise shall be conclusively presumed to have been
had or consummated in reliance upon this Agreement. Each Pledgor waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Borrower or such Pledgor with respect to the
Obligations. When pursuing its rights and remedies hereunder against any
Pledgor, the Administrative Agent and any Lender may, but shall be under no
obligation to, pursue such rights and remedies as it may have against the
Borrower or any other Person or against any collateral security or guarantee for
the Obligations or any right of offset with respect thereto, and any failure by
the Administrative Agent or any Lender to pursue such other rights or remedies
or to collect any payments from the Borrower or any such other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower or any such other Person or of
any such collateral security, guarantee or right of offset, shall not relieve
any Pledgor of any liability hereunder, and shall not impair or affect the
rights and remedies, whether express, implied or available as a matter of law,
of the Administrative Agent or any Lender against any Pledgor or the Collateral.
(b) Anything herein to the contrary notwithstanding, the maximum
amount which the Administrative Agent and the Lenders are permitted to realize
hereunder from any Pledgor shall in no event exceed the amount which can be
guaranteed by such Pledgor under applicable federal and state laws relating to
the insolvency of debtors.
13. Administrative Agent's Appointment as Attorney-in-Fact. (a)
------------------------------------------------------
Each Pledgor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent of the Administrative Agent, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Pledgor and in the name of
such Pledgor or in the Administrative Agent's own name, from time to time in the
Administrative Agent's discretion, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, including, without limitation, any financing
statements, endorsements, assignments or other instruments of transfer.
(b) Each Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted in
Section 13. All powers, authorizations and agencies contained in this Agreement
are coupled with an interest and are irrevocable until this Agreement is
terminated and the security interests created hereby are released. Anything in
Section 13(a) to the contrary notwithstanding, the Administrative Agent agrees
that it will not exercise any rights under the power of attorney provided for in
Section 13(a) unless a Payment Default shall have occurred and be continuing.
14. Duty of Administrative Agent. The Administrative Agent's sole
----------------------------
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar securities and property for its own account, except that the
Administrative Agent shall have no obligation to invest Proceeds held by it and
may hold the same as demand deposits. Neither the Administrative Agent, any
Lender nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of any Pledgor or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof.
<PAGE>
13
15. Execution of Financing Statements. Pursuant to Section 9-402 of
---------------------------------
the Code, each Pledgor authorizes the Administrative Agent to file financing
statements with respect to the Collateral without the signature of any Pledgor
in such form and in such filing offices as the Administrative Agent reasonably
determines appropriate to perfect the security interests of the Administrative
Agent under this Agreement. A carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
16. Authority of Administrative Agent. Each Pledgor acknowledges
---------------------------------
that the rights and responsibilities of the Administrative Agent under this
Agreement with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, voting
right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and each Pledgor, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and neither the Pledgors
nor the Issuers shall be under any obligation, or entitlement, to make any
inquiry respecting such authority or subject to any liability to any Lender by
virtue of its following any instructions of, or responding to any demand by, the
Administrative Agent.
17. Notices. All notices, requests and demands to or upon the
-------
respective parties hereto shall be made in accordance with Section 9.2 of the
Credit Agreement.
18. Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19. Amendments in Writing; No Waiver; Cumulative Remedies. (a) None
-----------------------------------------------------
of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgors and the Administrative Agent in accordance with Section 9.1 of the
Credit Agreement. This Agreement shall be binding upon the successors and
assigns of the Pledgors and shall inure to the benefit of the Administrative
Agent and the Lenders and their respective successors and permitted assigns,
except that no Pledgor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
(b) Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to Section 19 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion.
<PAGE>
14
(c) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
20. Section Headings. The Section headings used in this Agreement
----------------
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
21. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE ADMINISTRATIVE AGENT, THE LENDERS AND THE LOAN PARTIES UNDER THIS AGREEMENT
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS CONFLICT OF LAWS
RULES.
22 Additional Pledgors. Each Subsidiary of the Borrower that is
-------------------
required to become a party to this Agreement pursuant to Section 5.9 of the
Credit Agreement shall become a Pledgor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
23. Release of Pledged Securities. If any of the Pledged Securities
-----------------------------
shall be sold, transferred or otherwise disposed of by any Pledgor in a
transaction permitted by the Credit Agreement, then the Administrative Agent
shall execute and deliver to such Pledgor (at the sole cost and expense of such
Pledgor) all releases or other documents reasonably necessary or desirable for
the release of the Liens created hereby on such Pledged Securities.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
duly executed and delivered as of the date first above written.
FOX/LIBERTY NETWORKS, LLC/1/
By
----------------------------------------------
Name:
Title:
FOX SPORTS NET, LLC
By
----------------------------------------------
Name:
Title:
<PAGE>
15
LIBERTY SPORTS MEMBER, INC./1/
By
----------------------------------------------
Name:
Title:
FOX REGIONAL SPORTS MEMBER, INC./1//
-
By
----------------------------------------------
Name:
Title:
FX NETWORKS, LLC
By
----------------------------------------------
Name:
Title:
LIBERTY FX, INC./1//
-
By
----------------------------------------------
Name:
Title:
FX HOLDINGS, INC./1//
-
By
----------------------------------------------
Name:
Title:
____________________________
1. For the purposes of pledging interests in Fox/Liberty Sports, Fox/Liberty FX
and/or Liberty/Fox KBL L.P. only.
<PAGE>
16
LIBERTY/FOX SOUTHEAST LLC
By
----------------------------------------------
Name:
Title:
LIBERTY/FOX SUNSHINE LLC
By
----------------------------------------------
Name:
Title:
LIBERTY/FOX UTAH LLC
By
----------------------------------------------
Name:
Title:
PROFESSIONAL SPORTS SERVICES, LLC
By
----------------------------------------------
Name:
Title:
PRIME NETWORK LLC
By
----------------------------------------------
Name:
Title:
<PAGE>
17
LIBERTY/FOX WEST, LLC
By
----------------------------------------------
Name:
Title:
PRIME TICKET NETWORKS, L.P.
By
----------------------------------------------
Name:
Title:
PRIME SPORTS NORTHWEST NETWORK
By
----------------------------------------------
Name:
Title:
LIBERTY/FOX ARC L.P.
By
----------------------------------------------
Name:
Title:
FOX/LIBERTY BAY AREA, LLC
By
----------------------------------------------
Name:
Title:
<PAGE>
18
FOX/LIBERTY CHICAGO, LLC
By
----------------------------------------------
Name:
Title:
LIBERTY/FOX KBL L.P.
By
----------------------------------------------
Name:
Title:
LIBERTY/FOX NORTHWEST L.P.
By
----------------------------------------------
Name:
Title:
AFFILIATED REGIONAL COMMUNICATIONS, LTD.
By
----------------------------------------------
Name:
Title:
ARC HOLDING, LTD.
By
----------------------------------------------
Name:
Title:
FOX/LIBERTY NETWORK SALES, INC.
By
----------------------------------------------
Name:
Title:
<PAGE>
19
LIBERTY SPORTSOUTH, INC.
By
----------------------------------------------
Name:
Title:
LMC SOUTHEAST SPORTS, INC.
By
----------------------------------------------
Name:
Title:
LMC SUNSHINE, INC.
By
----------------------------------------------
Name:
Title:
SPORTS HOLDING, INC.
By
----------------------------------------------
Name:
Title:
NEW LMC KBL, INC./1//
-
By
----------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
Los Angeles, California
December 18, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Fox/Liberty Networks, LLC:
We consent to the use of our report included herein and to the reference to our
firm under the headings "Experts" and "Selected Historical and Pro Forma
Consolidated Financial Data" in the prospectus.
/s/ KPMG Peat Marwick LLP
_____________________________________
KPMG Peat Marwick LLP
Dallas, Texas
December 18, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
Los Angeles, California
December 18, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
_____________________________________
Arthur Andersen LLP
New York, New York
December 18, 1997
<PAGE>
EXHIBIT 23.6
The Board of Directors
Rainbow Media Holdings, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus and the Registration
Statement of Fox/Liberty Networks, LLC and FLN Finance Inc. on Form S-4.
/s/ KPMG Peat Marwick LLP
_____________________________________
KPMG Peat Marwick LLP
Jericho, New York
December 18, 1997
