<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1997
REGISTRATION NO. 333-38689
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
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 23, 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 JANUARY 21, 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 DECEMBER , 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 January 21, 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 on December 18, 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
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(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 24, 1997. As of December
23, 1997, 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.
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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
On December 18, 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 23, 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 January 21, 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."
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<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.
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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."
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[ORGANIZATIONAL CHART]
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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
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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
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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
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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
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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
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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.
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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
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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."
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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
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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
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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 23, 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, 1997. 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 January
21, 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
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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.
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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
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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
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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
Attn: Kwei Aryeetey
Facsimile Transmission:
(Eligible Institutions Only)
(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.
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<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
On December 18, 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.
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<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.
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<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 Network (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.
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<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
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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.
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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.
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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
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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
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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
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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.
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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
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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,
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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
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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
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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
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<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
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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.
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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.
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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."
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(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.
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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.
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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 on December 18, 1997, 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
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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.
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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.
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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.
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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
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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,
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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.
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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.
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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 on December 18, 1997, 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.
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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."
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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-
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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.
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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
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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
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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.
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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
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(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.
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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
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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.
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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
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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).
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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
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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
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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
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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
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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
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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.
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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
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(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
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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
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(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
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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
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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.
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"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
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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
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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
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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
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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;
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(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
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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
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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
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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.
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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
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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.
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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 March 23, 1998 (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.
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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.
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INDEX TO FINANCIAL STATEMENTS
FOX/LIBERTY NETWORKS, LLC
<TABLE>
<CAPTION>
PAGE
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<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>
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- -------------------------------------------------------------------------------
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>
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- -------------------------------------------------------------------------------
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[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
DECEMBER , 1997
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<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 Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
**99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees and Form of Letter to Clients.
- --------
* Previously filed.
** Filed herewith.
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. 3 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 22nd 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. 3 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 22,
ANTHONY F.E. BALL (Principal Executive 1997
Officer)
/s/ Jeff Shell Senior Vice President,
- ------------------------------------- Finance and Development December 22,
JEFF SHELL (Principal Financial 1997
Officer and Principal
Accounting Officer)
LMC Newco U.S., Inc., Member of Fox/Liberty
Networks, LLC December 22,
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 22,
By: _______________________________ 1997
JAY ITZKOWITZ,
SENIOR VICE PRESIDENT
Liberty/Fox Sports Financing, LLC Member of Fox/Liberty
Networks, LLC December 22,
1997
By: LMC Newco U.S., Inc. Member of Liberty/Fox
Sports Financing, LLC December 22,
1997
*
By: _______________________________
DAVID J.A. FLOWERS,
VICE PRESIDENT
By: News America Holdings Incorporated
Member of Liberty/Fox
* Sports Financing, LLC December 22,
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. 3 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 22nd 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. 3 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 22,
ANTHONY F. E. BALL Officer) 1997
/s/ Jeff Shell Senior Vice President, Finance
- --------------------------- and Development (Principal December 22,
JEFF SHELL Financial Officer and 1997
Principal Accounting Officer)
* Director
- --------------------------- December 22,
JAY ITZKOWITZ 1997
* Director
- --------------------------- December 22,
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 Notice of Guaranteed Delivery.
*99.3 Form of Exchange Agent Agreement.
**99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees and Form of Letter to Clients.
- --------
* Previously filed.
** Filed herewith.
<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 22, 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 22, 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 22, 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 22, 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 22, 1997
<PAGE>
EXHIBIT 99.1
FOX/LIBERTY NETWORKS, LLC AND
FLN FINANCE, INC.
LETTER OF TRANSMITTAL
FOR
TENDER OF ANY AND ALL OUTSTANDING
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED DECEMBER 24, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON JANUARY 21, 1998, UNLESS THE OFFER IS EXTENDED BY THE
COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: Facsimile Transmissions: By Hand or Overnight Delivery:
(Eligible Institutions Only)
(212) 815-6339
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Reorganization Section/7E To Confirm by Telephone Reorganization Section/7E
New York, New York 10286 or for Information Call: New York, New York 10286
Attention: Kwei Aryeetey (212) 815-3738 Attention: Kwei Aryeetey
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
1
<PAGE>
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
The Letter of Transmittal is to be completed by holders (which term,
for purposes of this document, shall include any participant in The Depository
Trust Company ("DTC")) either if (a) certificates are to be forwarded herewith
or (b) tenders are to be made pursuant to the procedures for tender by book-
entry transfer set forth under "The Exchange Offer--Procedures for Tendering" in
the Prospectus and an Agent's Message (as defined below) is not delivered.
Certificates, or book-entry confirmation of a book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC, as well as this Letter of
Transmittal (or facsimile thereof or delivery of an Agent's Message in lieu
thereof), properly completed and duly executed, with any required signature
guarantees, and any other documents required by this Letter of Transmittal must
be received by the Exchange Agent at its address set forth herein on or prior to
the Expiration Date. Tenders by book-entry transfer may also be made by
delivering an Agent's Message in lieu of this Letter of Transmittal. The term
"book-entry confirmation" means a timely confirmation of a book-entry transfer
of Old Notes into the Exchange Agent's account at DTC. The term "Agent's
Message" means a message, transmitted by DTC to and received by the Exchange
Agent and forming part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be bound
by this Letter of Transmittal and that the Company may enforce this Letter of
Transmittal against such participant.
Holders of Old Notes whose certificates (the "Certificates") for such
Old Notes are not immediately available or who cannot deliver their Certificates
and all other required documents to the Exchange Agent on or prior to the
Expiration Date or who cannot complete the procedures for book-entry transfer on
a timely basis, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ---------------------------------------------------------------------------------------------------------------------------------
If blank, please fill in name(s) and Old Notes tendered
address(es) of registered holders (Attach additional list if necessary)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate Principal Aggregate Principal
Principal Amount Principal Amount at
Amount of of Old Senior Amount at Maturity of Old
Certificate Old Senior Notes Tendered Maturity of Old Senior Discount
Number(s)* Notes (if less than Senior Discount Notes Tendered
all)** Notes (if less than all)**
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL
AMOUNT
TENDERED
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in integral multiples of
$1,000 principal amount at maturity, provided that if any Old Notes are
tendered for exchange in part, the untendered amount thereof must be in
integral multiple of $1,000 principal amount at maturity. All Old Notes
held shall be deemed tendered unless a lesser number is specified in this
column. See Instruction 4.
3
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------
DTC Account Number
--------------------------------------------------------
Transaction Code Number
---------------------------------------------------
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
-----------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution which Guaranteed Delivery
------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
----------------------------------------------
DTC Account Number
---------------------------------------------------------
Transaction Code Number
----------------------------------------------------
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
4
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Fox/Liberty Networks, LLC (the "Company")
and FLN Finance, Inc. ("FLN"), the above described principal amount of Old Notes
in exchange for like principal amount of the above described which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms and subject to the conditions set forth in the Prospectus dated
December 24, 1997 (as the same may be amended or supplemented from time to time,
the "Prospectus"), receipt of which is hereby acknowledged, and in this Letter
of Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company and FLN in connection
with the Exchange Offer) with respect to the tendered Old Notes, with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Notes to be issued in exchange for such Old Notes,
(ii) present Certificates for such Old Notes for transfer, and to transfer the
Old Notes on the books of the Company, and (iii) receive for the account of the
Company all benefits and otherwise exercise all rights of beneficial ownership
of such Old Notes, all in accordance with the terms and conditions of the
Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED 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, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENTS. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF
THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) (which term, for
purposes of this document, shall include any participant in DTC) of the Old
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange Offer
for any reason, or if Certificates are submitted for more Old Notes than are
tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
5
<PAGE>
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering Old
Notes" in the Prospectus and in the instructions attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned, the Company and FLN upon the terms
and subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Notes be issued in
the name(s) of the undersigned or, in the case of a book-entry transfer of Old
Notes, that such Notes be credited to the account indicated above maintained at
DTC. If applicable, substitute Certificates representing Old Notes not exchanged
or not accepted for exchange will be issued to the undersigned or, in the case
of a book-entry transfer of Old Notes, will be credited to the account indicated
above maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver the Notes to the undersigned at the
address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, OR EXPECTING
DELIVERY OF AN AGENT'S MESSAGE IN LIEU THEREOF, THE UNDERSIGNED HEREBY
REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN "AFFILIATE" OF THE
COMPANY OR FLN, (II) ANY NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING
ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED HAS NO
ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF NOTES TO BE RECEIVED IN THE
EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE
UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION
(WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NOTES. BY TENDERING OLD NOTES
PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, OR
EFFECTING DELIVERY OF AN AGENT'S MESSAGE IN LIEU THEREOF, A HOLDER OF OLD NOTES
WHICH IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN
INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE
OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTES, THAT (A) SUCH OLD
NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD
NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NOTES
(PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-
DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT).
THE COMPANY AND FLN HAVE AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENTS, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS
DEFINED BELOW) IN CONNECTION WITH RESALES OF NOTES RECEIVED IN EXCHANGE
6
<PAGE>
FOR OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKER-
DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE
(SUBJECT TO EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE
PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH NOTES HAVE BEEN DISPOSED OF BY SUCH
PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED
OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, OR EFFECTING DELIVERY OF AN AGENT'S
MESSAGE IN LIEU THEREOF, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF
THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY
STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY
MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE
REGISTRATION RIGHTS AGREEMENTS, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND
THE SALE OF NOTES PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY AND FLN HAVE
AMENDED OR SUPPLEMENTED THE PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION
AND HAVE FURNISHED COPIES OF THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE
PARTICIPATING BROKER-DEALER OR THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE
NOTES MAY BE RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO
SUSPEND THE SALE OF THE NOTES, THEY SHALL EXTEND THE 90-DAY PERIOD REFERRED TO
ABOVE DURING WHICH PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE
PROSPECTUS IN CONNECTION WITH THE RESALE OF NOTES BY THE NUMBER OF DAYS DURING
THE PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND
INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES
OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE
NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT
THE SALE OF NOTES MAY BE RESUMED, AS THE CASE MAY BE.
AS A RESULT, A PARTICIPATING BROKER-DEALER WHO INTENDS TO USE THE
PROSPECTUS IN CONNECTION WITH RESALES OF NOTES RECEIVED IN EXCHANGE FOR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST NOTIFY THE COMPANY, OR CAUSE THE
COMPANY TO BE NOTIFIED, ON OR PRIOR TO THE EXPIRATION DATE, THAT IT IS A
PARTICIPATING BROKER-DEALER. SUCH NOTICE MAY BE GIVEN IN THE SPACE PROVIDED
ABOVE OR MAY BE DELIVERED TO THE EXCHANGE AGENT AT THE ADDRESS SET FORTH IN THE
PROSPECTUS UNDER "THE EXCHANGE OFFER--EXCHANGE AGENT."
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and the undersigned waives the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after August
25, 1997.
7
<PAGE>
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company or FLN to be necessary or desirable to complete
the sale, assignment and transfer of the Old Notes tendered hereby. All
authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX.
8
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 17)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) (which term, for purposes of this
document, shall include any participant in DTC) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on the register of holders
maintained by the Company, or by any person(s) authorized to become the
registered holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as may
be required by the Company for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary capacity or representative capacity, please set forth the
signer's full title. See Instruction 5.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date: ________________________, 199__
Name(s)
_________________________________________________________________________
_________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)
___________________________________________________________
Address
_________________________________________________________________________
_________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number
__________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number(s))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
________________________________________________________________________________
(Authorized Signature)
Date: ________________________, 199__
Name of Firm
____________________________________________________________________
Capacity (full title)
___________________________________________________________
(Please Print)
Address
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number
__________________________________________________
9
<PAGE>
<TABLE>
<S> <C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Notes or Old To be completed ONLY if Notes or Old
Notes not tendered are to be issued in the name Notes not tendered are to be sent to someone
of someone other than the registered holder of other than the registered holder of the Old Notes
the Old Notes whose name(s) appear(s) above. whose name(s) appear(s) above, or such
registered holder(s) at an address other than that
shown above.
Issue Mail
/ / Old Notes not tendered to: / / Old Notes not tendered to:
/ / Notes to: / / Notes to:
Name(s) Name(s)
-------------------------------------- ------------------------------------------
Address Address
------------------------------------- ------------------------------------------
- -------------------------------------------- --------------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
Area Code and Area Code and
Telephone Number Telephone Number
----------------------------- ---------------------------------
- ------------------------------------------------- ---------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S)) (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
- ----------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES.
This Letter of Transmittal is to be completed either if (a) Certificates
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange Offer--
Procedures for Tendering" in the Prospectus. Certificates, or timely
confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message in lieu thereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date. Old Notes
may be tendered in whole or in part in integral multiples of $1,000 principal
amount at maturity, provided that, if any Old Notes are tendered for exchange in
part, the untendered amount thereof must be in integral multiple of $1,000
principal amount at maturity.
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, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures for
Tendering" in the Prospectus. Pursuant to such procedures: (i) such tender must
be made by or through an Eligible Institution (as defined below); (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form made available by the Company, must be received by the
Exchange Agent on or prior to the Expiration Date; and (iii) the Certificates
(or a book-entry confirmation (as defined in this Prospectus)) representing all
tendered Old Notes, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or an Agent's Message in lieu thereof, and
any other documents required by this Letter of Transmittal, must be received by
the Exchange Agent within three New York Stock Exchange, Inc. trading days after
the date of execution of such Notice of Guaranteed Delivery, all as provided in
"The Exchange Offer--Procedures for Tendering" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association, with membership in an approved signature medallion
guarantee program, that is a participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
11
<PAGE>
BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Neither the Company or FLN will accept any alternative, conditional or
contingent tenders. Each tendering holder, by execution of a Letter of
Transmittal (or facsimile thereof), or delivery of an Agent's Message in lieu
thereof, waives any right to receive any notice of the acceptance of such
tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) This Letter of Transmittal is signed by the registered holder (which
term, for purposes of this document, shall include any participant in
DTC whose name appears on a security position listing as the owner of
the Old Notes) of Old Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Issuance Instructions"
or the box entitled "Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in the integral multiples of $1,000 principal amount at maturity,
provided that if any Old Notes are tendered for exchange in part, the untendered
amount thereof must be in integral multiple of $1,000 principal amount at
maturity. If less than all the Old Notes evidenced by any Certificate submitted
are to be tendered, fill in the principal amount of Old Notes which are to be
tendered in the box entitled "Principal Amount of Old Notes Tendered." In such
case, new Certificate(s) for the remainder of the Old Notes that were evidenced
by your old Certificate(s) will only be sent to the holder of the Original
Capital Security, promptly after the Expiration Date. All Old Notes represented
by Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date. In order for a withdrawal to be
effective on or prior to that time, a written, telegraphic, telex or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if Certificates for Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Certificate for the Old Notes, if different from that of the
person who tendered such Old Notes. If Certificates for the Old Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Old Notes, the tendering holder
must submit the serial numbers shown on the particular Certificates for the Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
12
<PAGE>
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in the Prospectus
under "The Exchange Offer--Procedures for Tendering," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Old Notes, in which case a notice of withdrawal will be effective
if delivered to the Exchange Agent by written, telegraphic, telex or facsimile
transmission. Withdrawals of tenders of Old Notes may not be rescinded. Old
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, on its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, FLN, any affiliates or assigns of the Company or FLN, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) without alteration, enlargement or
any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates 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 must submit proper evidence
satisfactory to the Company, in its sole discretion, of each such person's
authority so to act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless Notes are to be issued in the name of
a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
13
<PAGE>
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Notes are to be issued
in the name of a person other than the signer of this Letter of Transmittal, or
if Notes are to be sent to someone other than the signer of this Letter of
Transmittal or to an address other than that shown above, the appropriate boxes
on this Letter of Transmittal should be completed. Certificates for Old Notes
not exchanged will be returned by mail or, if tendered by book-entry transfer,
by crediting the account indicated above maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for which, may, in the view
of counsel to the Company be unlawful. The Company also reserve the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer--Conditions to the
Exchange Offer" or any conditions or irregularity in any tender of Old Notes of
any particular holder whether or not similar conditions or irregularities are
waived in the case of other holders. The Company's interpretation of the terms
and conditions of the Exchange Offer (including this Letter of Transmittal and
the instructions hereto) will be final and binding. No tender of Old Notes will
be deemed to have been validly made until all irregularities with respect to
such tender have been cured or waived. The Company, FLN, any affiliates or
assigns of the Company, FLN, the Exchange Agent, or any other person shall not
be under any duty to give notification of any irregularities in tenders or incur
any liability for failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and this
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal income
tax law, a holder whose tendered Old Notes are accepted for exchange is required
to provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Substitute Form W-9 below. If the Exchange Agent is not
provided with the correct TIN, the Internal Revenue Service (the "IRS") may
subject the holder or other payee to a $50 penalty. In addition, payments to
such holders or other payees with respect to Old Notes exchanged pursuant to the
Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60-day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld
14
<PAGE>
will be remitted to the IRS as backup withholding. In addition, 31% of all
payments made thereafter will be withheld and remitted to the IRS until a
correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional or contingent
tenders will be accepted. All tendering holders of Old Notes, by execution of
this Letter of Transmittal, shall waive any right to receive notice of the
acceptance of Old Notes for exchange.
Neither the Company, FLN, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Notes are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of the Old Notes tendered,
or if a transfer tax is imposed for any reason other than the exchange of Old
Notes in connection with the Exchange Offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
15
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF)
AND ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
16
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 9)
PAYOR'S NAME: THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
PART 1--PLEASE PROVIDE YOUR TIN TIN:_________________________________
IN THE BOX AT RIGHT AND CERTIFY Social Security Number of
BY SIGNING AND DATING BELOW: Employer Identification Number
------------------------------------------------------------------------------
PART 2--TIN Applied For [ ]
------------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
FORM W-9 CERTIFY
DEPARTMENT OF THE TREASURY THAT:
INTERNAL REVENUE SERVICE (1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me).
PAYER'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding either because (i) I am exempt
IDENTIFICATION NUMBER from backup withholding, (ii) I have not been notified by the Internal
("TIN") Revenue Service ("IRS") that I am subject to backup withholding as a
AND CERTIFICATION result of a failure to report all interest or dividends, or (iii) the IRS has
notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
Signature____________________________________ Date____________________________
</TABLE>
You must cross out all of Part (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that you
are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT
TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OR TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF THE SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Notes shall be retained until I provide a
taxpayer identification number to the Exchange Agent and that, if I do not
provide my taxpayer identification number within 60 days, such retained amounts
shall be remitted to the Internal Revenue Service as backup withholding and 31%
of all reportable payments made to me thereafter will be withheld and remitted
to the Internal Revenue Service until I provide a taxpayer identification
number.
- --------------------------------------------- -------------------------------
Signature(s) Date
17
<PAGE>
EXHIBIT 99.2
FOX/LIBERTY NETWORKS, LLC
FLN FINANCE, INC.
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ANY AND ALL OUTSTANDING
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's and FLN's (as such terms are defined below) 8
7/8% Senior Notes Due 2007 (the "Old Senior Notes") and 9 3/4% Senior Discount
Notes Due 2007 (the "Old Senior Discount Notes" and, together with the Old
Senior Notes, the "Old Notes") are not immediately available, (ii) Old Notes,
the Letter of Transmittal and all other required documents cannot be delivered
to The Bank of New York (the "Exchange Agent") on or prior to 5:00 P.M. on the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer--Procedures for Tendering" in the Prospectus. In
addition, in order to utilize the guaranteed delivery procedure to tender Old
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal relating to the Old Notes (or facsimile thereof) must also be
received by the Exchange Agent on or prior to the Expiration Date. Capitalized
terms not defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Registered or Certified Facsimile Transmission: By Hand or Overnight Delivery:
Mail: (Eligible Institutions Only)
(212) 815-6339
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street
Reorganization Section/7E To Confirm by Telephone or Reorganization Section/7E
New York, New York 10286 for Information Call: New York, New York 10286
Attention: Kwei Aryeetey (212) 815-3738 Attention: Kwei Aryeetey
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Fox/Liberty Networks, LLC (the
"Company") and FLN Finance, Inc. ("FLN"), upon the terms and subject to the
conditions set forth in the Prospectus dated December 24, 1997 (as the same may
be amended or supplemented from time to time, the "Prospectus"), and the related
Letter of Transmittal (which together constitute the "Exchange Offer"), receipt
of which is hereby acknowledged, the aggregate principal amount of Old Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering Old
Notes."
The undesigned understands that tenders of Old Notes will be accepted
only in integral multiples of $1,000 in principal amount at maturity. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 P.M., New York City time on the Expiration Date.
Tenders of Old Notes may also be withdrawn if the Exchange Offer is terminated
without any such Old Notes being purchased thereunder or as otherwise provided
in the Prospectus.
All authority herein conferred or agreed to be conferred by this
Notice of guaranteed Delivery shall survive the death or incapacity of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
<TABLE>
<CAPTION>
PLEASE SIGN AND COMPLETE
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Signature(s) of Registered Owner(s) or Name(s) of Registered Holder(s):
Authorized Signatory
-------------------------------- -------------------------------------------------
- -----------------------------------------------------
-------------------------------------------------
Principal Amount of Old Senior Notes
Tendered: Address:
-------------------------------------------- ----------------------------------------
Principal Amount at Maturity of Old Senior Discount --------------------------------------------------
Notes Tendered:
-------------------------------------
Area Code and Telephone No.:
Certificate No(s). of Old Notes ---------------------
(if available): Date:
------------------------------------- -------------------------------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the holder(s) of Old Notes
as their name(s) appear on certificates for Old Notes, or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If a signature is by a trustee, executor, administrator, guardian, attorney-in-
fact, officer or other person acting in a fiduciary or such representative
capacity, such person must provide his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(es):
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker or government securities dealer, (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof) and
any other required documents within three business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
(PLEASE TYPE OR PRINT)
Name of Firm:
-------------------------- -------------------------------------
Authorized Signature
Address: Title:
------------------------------- -------------------------------
- ---------------------------------------
Zip Code Dated:
------------------------
- ---------------------------------------
Area Code and Telephone No.
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT 99.4
FOX/LIBERTY NETWORKS, LLC
FLN FINANCE, INC.
TENDER OF ALL AND ANY OUTSTANDING
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Fox/Liberty Networks, LLC (the "Company") and FLN Finance, Inc. (the "FLN")
are offering, upon and subject to the terms and conditions set forth in a
prospectus dated December 24, 1997 (the "Prospectus"), and the enclosed letter
of transmittal (the "Letter of Transmittal"), to exchange (the "Exchange Offer")
their 8 7/8% Senior Notes Due 2007 (the "Senior Notes") and their 9 3/4% Senior
Discount Notes Due 2007 (the "Senior Discount Notes" and, together with the
Senior Notes, the "Notes") which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for a like principal amount of the
Company's and FLN's issued and outstanding 8 7/8% Senior Notes Due 2007 (the
"Old Senior Notes") and 9 3/4% Senior Discount Notes Due 2007 (the "Old Senior
Discount Notes" and, together with the Old Senior Notes, the "Old Notes"). The
Exchange Offer is being made in order to satisfy certain obligations of the
Company and FLN contained in two separate and substantially identical
Registration Rights Agreements, each dated August 25, 1997, and each among the
Company, FLN and the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated December 24, 1997;
2. The Letter of Transmittal for your use and for the information (or the
use, where relevant) of your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent prior to the
Expiration Date (as defined below) or if the procedure for book-entry transfer
cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose account
you hold Old Notes registered in your name or the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Exchange Offer; and
1
<PAGE>
5. Return envelopes addressed to The Bank of New York, the Exchange
Agent, for Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON JANUARY 21, 1998, UNLESS EXTENDED BY THE COMPANY IN
ITS SOLE DISCRETION (THE "EXPIRATION DATE"). THE OLD NOTES TENDERED PURSUANT TO
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof or an Agent's Message (as
defined in the Prospectus) in lieu thereof), with any required signature
guarantees and any other required documents, should be sent to the Exchange
Agent and certificates representing the Old Notes should be delivered to the
Exchange Agent, all in accordance with the instructions set forth in the Letter
of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Old Notes, at its address and telephone
number set forth on the front of the Letter of Transmittal.
Very truly yours,
FOX/LIBERTY NETWORKS, LLC
FLN FINANCE, INC.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER,
EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF
TRANSMITTAL.
Enclosures
2
<PAGE>
FOX/LIBERTY NETWORKS, LLC
FLN FINANCE, INC.
TENDER OF ANY
AND ALL OUTSTANDING
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
IN EXCHANGE FOR
8 7/8% SENIOR NOTES DUE 2007 AND
9 3/4% SENIOR DISCOUNT NOTES DUE 2007
To Our Clients:
Enclosed for your consideration is a prospectus dated December 24, 1997
(the "Prospectus"), and the related letter of transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of Fox/Liberty
Networks, LLC (the "Company") and FLN Finance, Inc. ("FLN") to exchange their 8
7/8% Senior Notes Due 2007 (the "Senior Notes") and their 9 3/4% Senior Discount
Notes Due 2007 (the "Senior Discount Notes" and, together with the Senior Notes,
the "Notes") which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of the issued and
outstanding 8 7/8% Senior Notes Due 2007 (the "Old Senior Notes") and 9 3/4%
Senior Discount Notes Due 2007 (the "Old Senior Discount Notes" and, together
with the Old Senior Notes, the "Old Notes"), upon the terms and subject to the
conditions described in the Prospectus. The Exchange Offer is being made in
order to satisfy certain obligations of the Company and FLN contained in two
separate and substantially identical Registration Rights Agreements, each dated
August 25,1997 each among the Company, FLN and the initial purchasers referred
to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes carried by us in your account but not registered in your name. A TENDER OF
SUCH OLD NOTES MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO
YOUR INSTRUCTIONS.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on January 21, 1998, unless extended by the Company in its
sole discretion. Any Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in the
Prospectus in the section captioned "The Exchange Offer--Conditions to the
Exchange Offer."
3. Any transfer taxes incident to the transfer of Old Notes from the holder
to the Company will be paid by the Company, except as otherwise provided in the
Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on January
21, 1998, unless extended by the Company in its sole discretion.
<PAGE>
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATION ONLY
AND MAY NOT BE USED DIRECTLY BY YOU TO TENDER OLD NOTES.
WRITE
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<PAGE>
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by Fox/Liberty
Networks, LLC and FLN Finance, Inc. with respect to the Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
Old Senior Notes
---------------------------------------------------------------
AGGREGATE PRINCIPAL AMOUNT OLD SENIOR NOTES TENDERED
Old Senior Discount Notes
-----------------------------------------------------
AGGREGATE PRINCIPAL OF AMOUNT AT MATURITY
OF OLD SENIOR DISCOUNT NOTES TENDERED
/ / Please do not tender any Old Notes held by you for my account.
Dated: 199
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Signature(s)
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Please print name(s) here
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Address(es)
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Area Code and Telephone Number(s)
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Tax Identification or Social Security Number(s)
---------------------------------
None of the Old Notes held by us for your account will be tendered
unless we receive written instructions from you to do so. Unless a specific
contrary instruction is given in the space provided, your signature(s) hereon
shall constitute an instruction to us to tender all the Old Notes held by us for
your account.
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