<PAGE>
As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LIBERTY MEDIA CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 4841 84-1288730
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer
(State or Other Identification Number)
Jurisdictionof
Incorporation or
Organization)
9197 South Peoria Street
Englewood, Colorado 80112
(720) 875-5400
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------
Charles Y. Tanabe, Esq.
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
(720) 875-5400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------
Copy to:
Robert W. Murray Jr., Esq.
Lee D. Charles, Esq.
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
(212) 705-5000
---------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after this Registration Statement is declared effective.
If the securities 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. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Title of Each Class of Amount Maximum Proposed Maximum Amount of
Securities to be to be Offering Price Aggregate Offering Registration
Registered Registered Per Unit(1) Price(1) Fee(2)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7 7/8% Senior Notes due 2009.... $ 750,000,000 100% $ 750,000,000 $208,500
8 1/2% Senior Debentures due
2029........................... $ 500,000,000 100% $ 500,000,000 $139,000
-------------- ---------------- ----------
Total..................... $1,250,000,000 $1,250,000,000 $347,500
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act.
(2) Calculated pursuant to Rule 457(f)(2) under the Securities Act.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated September 3, 1999
PROSPECTUS [LOGO OF LIBERTY MEDIA CORPORATION]
Liberty Media Corporation
Offer to Exchange
$750,000,000 $500,000,000
7 7/8% Senior Notes due 8 1/2% Senior Debentures due
2009 2029
which have been which have been
registered under the registered under the
Securities Act of 1933 Securities Act of 1933
for any and all for any and all
outstanding unregistered outstanding unregistered
7 7/8% Senior Notes due 8 1/2% Senior Debentures due
2009 2029
We are offering to exchange our 7 7/8% senior notes due 2009 and 8 1/2%
senior debentures due 2029, which we refer to collectively in this prospectus
as the "exchange securities," for our outstanding 7 7/8% senior notes due 2009
and 8 1/2% senior debentures due 2029, which we refer to collectively in this
prospectus as the "outstanding securities." The terms of the exchange
securities are substantially identical to the terms of the outstanding
securities, except that the exchange securities will be freely transferable and
will not have covenants regarding registration rights or additional interest.
Material Terms of the Exchange Offer
. We will exchange all outstanding securities that are validly tendered and
not withdrawn for an equal principal amount of exchange securities.
. You may withdraw tenders of outstanding securities at any time before the
expiration of the exchange offer.
. The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless it is extended. We do not currently intend
to extend the exchange offer.
. The exchange offer is subject to customary conditions, including the
condition that the exchange offer not violate applicable law or any
applicable interpretation of the SEC staff.
. We believe that the exchange of outstanding securities for exchange
securities should not be a taxable transaction for U.S. federal income
tax purposes, but you should see the discussion under "Certain United
States Federal Income Tax Considerations" beginning on page 125 for more
information.
. We will not receive any proceeds from the exchange offer.
. All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act.
. We do not intend to apply for listing of the exchange securities on any
securities exchange or to arrange for them to be quoted on any quotation
system.
-----------
Investing in the exchange securities involves risks. See "Risk Factors"
beginning on page 10.
-----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange securities or determined
if this prospectus is truthful or complete. Any representation to the contrary
is a criminal offense.
-----------
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Cautionary Statement Concerning Forward Looking Statements............... ii
Information Provided in this Prospectus.................................. iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 19
Capitalization........................................................... 19
Selected Historical Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Corporate History........................................................ 40
Business................................................................. 42
Management............................................................... 71
Relationship with AT&T and Certain Related Transactions.................. 85
Description of Certain Indebtedness...................................... 92
The Exchange Offer....................................................... 97
Description of the Securities............................................ 106
Certain United States Federal Income Tax Considerations.................. 125
Plan of Distribution..................................................... 126
Legal Matters............................................................ 127
Experts.................................................................. 127
Where to Find More Information........................................... 127
Index to Financial Statements............................................ F-1
</TABLE>
----------------
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange securities offered by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all the information included in the registration statement.
You may read and copy the registration statement, including all of its
exhibits, as set forth under "Where to Find More Information." Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and, where any contract or other
document is an exhibit to the registration statement, each statement is
qualified by the relevant provisions in the applicable exhibit to which we make
reference and we refer you to that exhibit for a more complete description of
the matter involved.
----------------
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
Certain statements made in this prospectus under the captions entitled
"Prospectus Summary," "Risk Factors," "Business" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus are forward-looking statements. These forward-looking
statements are based on our current expectations and projections about future
events. When used in this prospectus, the words "believe," "anticipate,"
"intend," "estimate," "expect" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such words. These forward-looking statements are subject to risks,
uncertainties and assumptions about us and our subsidiaries and business
affiliates, including, among other things, the following:
. general economic and business conditions and industry trends;
. the continued strength of the industries in which we are involved;
. uncertainties inherent in our proposed business strategies;
. our future financial performance, including availability, terms and
deployment of capital;
ii
<PAGE>
. availability of qualified personnel;
. changes in, or our failure or inability to comply with, government
regulations and adverse outcomes from regulatory proceedings;
. changes in the nature of key strategic relationships with partners and
business affiliates;
. uncertainties inherent in the change over to the year 2000;
. rapid technological changes;
. our inability to obtain regulatory or other necessary approvals of any
strategic transactions; and
. social, political and economic situations in foreign countries where we
do business.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. Furthermore, we
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and other assumptions, the forward-
looking events discussed in this prospectus might not occur.
INFORMATION PROVIDED IN THIS PROSPECTUS
This prospectus is based on information provided by us and other sources that
we believe to be reliable. We cannot assure you that this information is
accurate or complete. This prospectus summarizes certain documents and other
information and we refer you to them for a more complete understanding of what
we discuss in this prospectus.
This prospectus includes information concerning The News Corporation Limited,
Time Warner Inc., TV Guide, Inc., USA Networks, Inc., Sprint Corporation,
Telewest Communications plc, and General Instrument Corporation, all of which
are public companies that file reports and other information with the SEC in
accordance with the requirements of the Securities Act and the Securities
Exchange Act. Information contained in this prospectus concerning those
companies has been derived from the reports and other information filed by them
with the SEC and is qualified in its entirety by reference to those reports and
other information. Liberty had no part in the preparation of those reports and
other information, nor are they incorporated by reference in this prospectus,
and Liberty takes no responsibility for their accuracy. You may read and copy
any reports and other information filed by those companies as set forth under
"Where to Find More Information."
----------------
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized any person to provide you
with different information. We are offering to exchange the outstanding
securities for exchange securities only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only as
of the date on the front cover of this prospectus, regardless of when this
prospectus is delivered or any outstanding securities are exchanged.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus.
For a more complete understanding of Liberty and this exchange offer, we
encourage you to read this entire document, including the "Risk Factors"
section. All references to "Liberty," "we," "us" and words to similar effect
refer to Liberty Media Corporation and, unless the context indicates otherwise,
its consolidated subsidiaries. The term "notes" refers to the outstanding notes
and the exchange notes, collectively, and the term "debentures" refers to the
outstanding debentures and the exchange debentures, collectively. The notes and
the debentures are collectively referred to as the "securities."
Liberty Media Corporation
We are a leading media, entertainment and communications company with
interests in a diverse group of public and private companies that are market
leaders in their respective industries. Our subsidiaries and business
affiliates are engaged in a broad range of programming, communications,
technology and Internet businesses and have some of the most recognized and
respected brands. These brands include Encore, STARZ!, Discovery, TV Guide,
Fox, USA, QVC, CNN, TBS and Sprint PCS.
Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert
R. Bennett, our President and Chief Executive Officer, has extensive expertise
in creating and developing new businesses and opportunities for our
subsidiaries and business affiliates and in building scale, brand power and
market leadership. This expertise dates back to the late 1970's when members of
our management were instrumental in identifying and executing strategic
transactions to provide TCI, Liberty's former parent, with quality programming
for its cable television systems. Today, our management team continues to
leverage its expertise and industry relationships on behalf of our subsidiaries
and business affiliates to identify and execute strategic transactions that
improve the value of their businesses and that allow us to take full advantage
of new developments in consumer and technological trends.
The media, entertainment and communications industries are currently
undergoing tremendous changes due in part to the growth of new distribution
technologies, led by the Internet and the implementation of digital
compression. The growth in distribution technologies has, in turn, created
strong demand for an ever increasing array of multimedia products and services.
Liberty is working with its subsidiaries and business affiliates to extend
their established brands, quality content and networks across multiple
distribution platforms to keep them at the forefront of these ongoing changes.
The following table lists our principal subsidiaries and business affiliates
and our direct equity interests or indirect attributed equity interests based
on ownership of capital stock. Our direct or attributed equity interest in a
particular company does not necessarily represent our voting interest in that
company. Our indirect attributed interest is determined by multiplying our
ownership interest in the holder of an equity interest by that equity holder's
ownership interest in the listed subsidiary or business affiliate. The
ownership percentages are approximate, calculated as of August 15, 1999 and, in
the case of convertible securities we hold, assume conversion to common stock
by us and, to the extent known by us, other holders. In some cases our interest
is subject to buy/sell procedures, rights of first refusal or other
obligations. The table assumes that we have consummated a transaction involving
TCI Music, Inc. (to be renamed Liberty Digital, Inc.) that is expected to be
completed on or about September 9, 1999. See "Business."
1
<PAGE>
<TABLE>
<CAPTION>
Subsidiary/Business Affiliate Attributed Ownership %
----------------------------- ----------------------
<S> <C>
Encore Media Group LLC ............................ 100%
Liberty Digital, Inc. ............................. 87%
Discovery Communications, Inc. .................... 49%
TV Guide, Inc. .................................... 44%
QVC Inc. .......................................... 43%
Flextech, plc...................................... 37%
Sprint PCS Group................................... 23%
Telewest Communications plc........................ 22%
USA Networks, Inc. ................................ 21%
General Instrument Corporation..................... 21%
Time Warner Inc. .................................. 9%
The News Corporation Limited....................... 8.5%
</TABLE>
Business Strategy
Our business strategy is to maximize the value of Liberty by (1) working with
the management teams of our existing subsidiaries and business affiliates to
grow their established businesses and create new businesses and (2) identifying
and executing strategic transactions that improve the value or optimize the
efficiency of Liberty's assets. Key elements of our business strategy include
the following:
Promote the internal growth of our subsidiaries and business
affiliates. We actively seek to foster the internal growth of our
subsidiaries and business affiliates by working with their management teams
to expand their established businesses and create new businesses, often by
extending their existing brands across multiple distribution platforms or
effecting transactions that enhance the scale of their operations. Our
emphasis is on the creation and development of multiple sources of revenue
that enhance cash flow. We also seek to use our extensive industry
experience and relationships to provide our subsidiaries and business
affiliates with strategic alliances, greater visibility and improved
positioning in their respective markets. While the form of our
participation in our subsidiaries and business affiliates may change over
time as a result of acquisitions, mergers and other strategic transactions,
we generally seek to retain a significant long-term interest in their
successors.
Maintain significant involvement in governance. We seek to add
considerable value to our subsidiaries and business affiliates through our
strategic, operational and financial advice. To ensure Liberty can exert
significant influence over management where we own less than a majority
voting interest in a business affiliate, we often seek representation at
the board of directors level and contractual rights that assure our
participation in material decision making. These contractual rights will
typically include participation in budget decisions, veto rights over
significant corporate actions and rights of first refusal with respect to
significant dispositions of stock by management or strategic partners.
Participate with experienced management and strategic partners. We seek
to participate in companies with experienced management teams that are led
by strong entrepreneurs, and partner with strategic investors that are
engaged in complementary businesses with a demand for the products and
services of our subsidiaries and business affiliates. Our existing business
affiliates are led by such entrepreneurs as Barry Diller of USA Networks,
Inc., Rupert Murdoch of News Corp. and John Hendricks of Discovery
Communications, Inc., while our existing strategic partners include Comcast
Corporation, News Corp. and Time Warner.
Execute strategic transactions that optimize the efficiency of our
assets. We seek to identify and execute acquisitions, consolidations and
other strategic transactions that rationalize our participation in the
businesses of our subsidiaries and business affiliates. We often undertake
transactions of this nature to obtain the benefits of scale and liquidity
as well as to further diversify Liberty's businesses. In pursuing
2
<PAGE>
new acquisition opportunities, we focus on businesses that have attractive
growth characteristics and offer strategic benefits to our existing
subsidiaries and business affiliates. We employ a conservative capital
structure in managing our assets and rationalizing our businesses. We also
seek to enhance our financial flexibility by utilizing multiple sources of
capital and preserving liquidity through our ownership of a mix of public
and private assets.
Relationship with AT&T Corp.
We have been a wholly owned subsidiary of AT&T Corp. since March 9, 1999. On
that date, AT&T acquired by merger our former parent Tele-Communications, Inc.
("TCI"). As part of that merger, AT&T issued AT&T common stock (NYSE: T) and
Class A and Class B Liberty Media Group common stock (NYSE: LMG.A and LMG.B).
AT&T's Liberty Media Group common stock is a tracking stock designed to reflect
the economic performance of the businesses and assets of AT&T attributed to the
"Liberty Media Group." We are included in the Liberty Media Group, and the
businesses and assets of Liberty and its subsidiaries constitute substantially
all of the businesses and assets of the Liberty Media Group. The AT&T common
stock is intended to reflect all other assets and businesses of AT&T, which we
refer to as the AT&T Common Stock Group. For a more detailed description of the
relationship between AT&T and Liberty, see "Relationship with AT&T and Certain
Related Transactions" on page 85.
We enjoy a substantial degree of managerial autonomy from AT&T as a result of
our corporate governance arrangement with AT&T. Our board of directors is
controlled by persons designated by TCI prior to its acquisition by AT&T, and
our board will continue to be controlled by those persons, or others chosen by
them, until at least 2006. Our management consists of individuals who managed
the businesses of Liberty while it was a subsidiary of TCI. We have entered
into agreements with AT&T which provide us with a level of financial and
operational separation from AT&T, define our rights and obligations as a member
of AT&T's consolidated tax group, enable us to finance our operations
separately from those of AT&T and provide us with certain programming rights
with respect to AT&T's cable systems. See "Relationship with AT&T and Certain
Related Transactions" starting on page 85.
Our principal executive offices are located at 9197 South Peoria Street,
Englewood, Colorado 80112. Our main telephone number is (720) 875-5400.
3
<PAGE>
Relationship of Liberty Media Corporation to the Liberty Media Group
Liberty Media Corporation and its consolidated subsidiaries are attributed to
the Liberty Media Group. The businesses and assets of Liberty and its
subsidiaries currently constitute substantially all of the businesses and
assets of the Liberty Media Group. The following diagram illustrates the assets
of AT&T that are attributed to the Liberty Media Group and to the AT&T Common
Stock Group. The following diagram also illustrates the assets of Liberty,
which is a holding company. The composition of the assets of the Liberty Media
Group and Liberty Media Corporation in the following diagram gives pro forma
effect to a transaction involving TCI Music, Inc. that is expected to be
completed on or about September 9, 1999. Upon the closing of that transaction,
TCI Music will change its name to Liberty Digital, Inc. For a more complete
description of the relationship of Liberty Media Corporation to AT&T and the
Liberty Media Group, see "Relationship with AT&T and Certain Related
Transactions" starting on page 85. For a discussion of Liberty's consolidated
subsidiaries (including TCI Music, Inc.) and principal business affiliates, see
"Business" starting on page 42.
[CHART]
4
<PAGE>
The Exchange Offer
On July 7, 1999, we completed the private offering of $750,000,000 aggregate
principal amount of our 7 7/8% senior notes due 2009 and $500,000,000 aggregate
principal amount of our 8 1/2% senior debentures due 2029. These outstanding
securities were not registered under the Securities Act and, therefore, they
are subject to significant restrictions on resale. Accordingly, when we sold
these outstanding securities, we entered into a registration rights agreement
with the initial purchasers that provides for the exchange offer. In the
registration rights agreement, we agreed to deliver to you this prospectus and
to permit you to exchange your outstanding securities for exchange securities
that have substantially identical terms to the outstanding securities except
that the exchange securities will be freely transferable and will not have
covenants regarding registration rights or additional interest. In order to
exchange your outstanding securities, you must properly tender them and we must
accept your tender. We will exchange all outstanding securities that are
validly tendered and not validly withdrawn. The exchange securities will be
issued under the same indenture under which the outstanding securities were
issued and, as a holder of exchange securities, you will be entitled to the
same rights under the indenture that you had as a holder of outstanding
securities. The outstanding notes and the exchange notes, on the one hand, and
the outstanding debentures and the exchange debentures, on the other hand, will
each be treated as a single series of debt securities under the indenture.
Set forth below is a summary description of the terms of the exchange offer.
We refer you to "The Exchange Offer," beginning on page 97, for a more complete
description of the terms of the exchange offer.
Exchange Offer............. We are offering to exchange up to $750,000,000
aggregate principal amount of exchange notes for a
like aggregate principal amount of outstanding
notes and up to $500,000,000 aggregate principal
amount of exchange debentures for a like aggregate
principal amount of outstanding debentures.
Outstanding notes and outstanding debentures may
be tendered only in integral multiples of $1,000.
Resale of Exchange We believe that the exchange securities issued in
Securities................. the exchange offer may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that:
. you are acquiring the exchange securities in the
ordinary course of your business;
. you have no arrangements or understandings with
any person to participate in the exchange offer
for the purpose of distributing the exchange
securities; and
. you are not our "affiliate," within the meaning
of Rule 405 under the Securities Act.
If any of the statements above are not true and
you transfer any exchange securities without
delivering a prospectus that meets the
requirements of the Securities Act or without an
exemption from registration of your exchange
securities from those requirements, you may incur
liability under the Securities Act. We will not
assume or indemnify you against that liability.
Each broker-dealer that receives exchange
securities for its own account in exchange for
outstanding securities that were acquired by such
broker-dealer as a result of market-making or
other trading activities may be a statutory
underwriter and must acknowledge that it will
comply with the prospectus delivery requirements
of the
5
<PAGE>
Securities Act in connection with any resale of
the exchange securities. A broker-dealer may use
this prospectus for an offer to resell, resale or
other transfer of the exchange securities. See
"Plan of Distribution."
Consequences of Failure to
Exchange..................
If you do not exchange your outstanding securities
for exchange securities, you will not be able to
offer, sell or otherwise transfer the outstanding
securities except:
. in compliance with the registration requirements
of the Securities Act and any other applicable
securities laws;
. pursuant to an exemption from the securities
laws; or
. in a transaction not subject to the securities
laws.
Outstanding securities that remain outstanding
after completion of the exchange offer will
continue to bear a legend reflecting these
restrictions on transfer. In addition, upon
completion of the exchange offer, you will not be
entitled to any rights to have the resale of
outstanding securities registered under the
Securities Act, and we currently do not intend to
register under the Securities Act the resale of
any outstanding securities that remain outstanding
after completion of the exchange offer.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we extend
it. We do not currently intend to extend the
exchange offer.
Interest on the Exchange Interest on the exchange securities will accrue at
Securities................ the rate of 7 7/8% in the case of the exchange
notes and at the rate of 8 1/2% in the case of the
exchange debentures, from the date of the last
periodic payment of interest on the outstanding
securities or, if no interest has been paid, from
the original issue date of the outstanding
securities. No additional interest will be paid on
outstanding securities tendered and accepted for
exchange.
Conditions to the Exchange The exchange offer is subject to customary
Offer..................... conditions, including that:
. the exchange offer does not violate applicable
law or any applicable interpretation of the SEC
staff;
. the outstanding securities are validly tendered
in accordance with the exchange offer; and
. no action or proceeding would impair our ability
to proceed with the exchange offer.
Procedures for Tendering
Outstanding Securities....
If you wish to accept the exchange offer, you must
complete, sign and date the letter of transmittal
and mail or otherwise deliver it, together with
your outstanding securities to be exchanged and
any other required documentation, to The Bank of
New York, as exchange agent, at the address
specified on the cover page of the
6
<PAGE>
letter of transmittal. Alternatively, you can
tender your outstanding securities by following
the procedures for book-entry transfer, as
described under "The Exchange Offer--Book-Entry
Transfer." Questions regarding the tender of
outstanding securities or the exchange offer
generally should be directed to the exchange agent
at one of its addresses specified in "The Exchange
Offer--Exchange Agent."
Guaranteed Delivery If you wish to tender your outstanding securities
Procedures................ and you cannot get the required documents to the
exchange agent by the expiration date, you may
tender your outstanding securities according to
the guaranteed delivery procedures described under
the heading "The Exchange Offer--Guaranteed
Delivery Procedures."
Withdrawal Rights.......... You may withdraw the tender of your outstanding
securities at any time before 5:00 p.m., New York
City time, on the expiration date of the exchange
offer. To withdraw, you must send a written notice
of withdrawal to the exchange agent at one of its
addresses specified in "The Exchange Offer--
Exchange Agent" before 5:00 p.m., New York City
time, on the expiration date of the exchange
offer.
Acceptance of Outstanding
Securities and Delivery
of Exchange Securities....
We will accept for exchange any and all
outstanding securities that are properly tendered
in the exchange offer before 5:00 p.m., New York
City time, on the expiration date, as long as all
of the terms and conditions of the exchange offer
are met. We will deliver the exchange securities
promptly following the expiration date.
Certain Tax We believe that the exchange of outstanding
Considerations............ securities for exchange securities should not be a
taxable transaction for U.S. federal income tax
purposes, but you should see the discussion under
"Certain United States Federal Income Tax
Considerations" beginning on page 125 for more
information.
Exchange Agent............. The Bank of New York is serving as exchange agent
for the exchange offer.
Use of Proceeds............ We will not receive any proceeds from the issuance
of the exchange securities. We are making the
exchange offer solely to satisfy our obligations
under the registration rights agreement.
7
<PAGE>
Terms of the Exchange Securities
Set forth below is a summary description of the terms of the exchange
securities. We refer you to "Description of the Securities," beginning on page
106, for a more complete description of the terms of the exchange securities.
Issuer..................... Liberty Media Corporation
Securities Offered......... $750,000,000 aggregate principal amount of 7 7/8%
Senior Notes due 2009 and $500,000,000 aggregate
principal amount of 8 1/2% Senior Debentures due
2029
Maturity Dates............. July 15, 2009 as to the exchange notes and July
15, 2029 as to the exchange debentures
Interest Payment Dates..... January 15 and July 15, commencing January 15,
2000
Form and Denominations of
Securities................
The exchange securities will be issued in
denominations of $1,000 and integral multiples
thereof. The exchange securities will be in book-
entry form and will be represented by one or more
global securities, deposited with, or on behalf
of, The Depository Trust Company. Interests in the
global securities will be shown on, and transfers
will be effected only through, records maintained
by DTC and its participants. See "Description of
the Securities--General" and "--Form, Denomination
and Registration."
Ranking.................... The exchange securities will be unsecured general
obligations and will rank equally with all of our
existing and future unsecured and unsubordinated
indebtedness. The exchange securities will
effectively rank junior to all of our secured
indebtedness with respect to the value of our
assets securing that indebtedness and to all of
the liabilities, including trade payables, of our
subsidiaries.
Optional Redemption........ We may redeem the exchange notes and the exchange
debentures at any time before maturity in whole or
in part at the make-whole redemption prices
described in this prospectus. See "Description of
the Securities--Optional Redemption."
Certain Covenants.......... The indenture governing the securities contains
certain covenants, including covenants with
respect to:
.limitations on liens;
.limitations on sale and leasebacks; and
. limitations on certain merger, consolidation
and similar transactions.
These covenants are subject to a number of
important qualifications and exceptions. See
"Description of the Securities--Certain
Covenants."
Risk Factors
An investment in the exchange securities involves risk. See "Risk Factors"
beginning on page 10 for a discussion of factors you should carefully consider
before deciding to accept the exchange offer.
8
<PAGE>
Summary Historical Financial Data
In the table below we provide you with selected historical consolidated
financial data of Liberty. We derived the historical consolidated financial
data from our consolidated financial statements included elsewhere in this
prospectus. The unaudited financial data at June 30, 1999, February 28, 1999,
June 30, 1998 and for the four months ended June 30, 1999, the two months ended
February 28, 1999 and the six months ended June 30, 1998 contain all
adjustments, consisting only of normal recurring accruals, that, in the opinion
of our management, are necessary for a fair presentation of our results for
these periods. The interim results of operations are not necessarily indicative
of results that may be expected for the full year.
Liberty has been a wholly owned subsidiary of TCI since August 1994. On March
9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting
purposes, the merger of AT&T and TCI is deemed to have occurred on March 1,
1999. In connection with the merger, the assets and liabilities of Liberty were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities of
Liberty and the related consolidated results of operations are referred to
below as "Old Liberty," and for periods subsequent to February 28, 1999, the
assets and liabilities of Liberty and the related consolidated results of
operations are referred to as "New Liberty." In connection with the merger, TCI
effected an internal restructuring as a result of which certain assets and
approximately $5.5 billion in cash were contributed to Liberty.
The financial data presented below are not necessarily comparable from period
to period as a result of several transactions, including acquisitions and
dispositions of consolidated subsidiaries. For this and other reasons, you
should read the selected historical financial data provided below in
conjunction with our consolidated financial statements and accompanying notes
beginning on page F-1 and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 21.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ----------------------------------------------------
Four months Two months Six months
ended ended ended Year ended December 31,
June 30, February 28, June 30, ---------------------------
1999 1999 1998 1998 1997 1996
----------- ------------ ----------- -------- ------- --------
(unaudited) (unaudited) (unaudited)
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue................. $ 292 235 647 1,359 1,225 2,208
Operating loss.......... (633) (158) (227) (431) (260) (66)
Interest expense........ (46) (26) (33) (104) (40) (53)
Share of losses of
affiliates, net........ (359) (66) (523) (1,002) (785) (332)
Gains (losses) on
dispositions, net...... (2) 14 553 2,449 406 1,558
Net income (loss)....... (601) (70) (125) 622 (470) 741
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 1,504 31 158 228 100 434
Marketable securities... 3,393 125 85 159 248 59
Investments in
affiliates............. 16,775 3,971 1,931 3,079 2,359 1,519
Investment in Time
Warner, Inc............ 8,212 7,361 4,875 7,083 3,538 2,017
Investment in Sprint
Corporation............ 5,989 3,381 -- 2,446 -- --
Total assets............ 50,000 16,886 9,975 15,567 7,735 6,722
Debt including current
portion................ 2,176 2,087 1,394 2,096 785 555
Stockholder's equity.... 35,327 9,449 5,961 9,230 4,721 4,519
Other Data:
Ratio of earnings to
fixed charges (a)...... -- 5.12x 4.06x 11.03x 2.06x 21.36x
</TABLE>
- --------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the four-month period ended June 30, 1999. Thus, earnings available for
fixed charges were inadequate to cover fixed charges for such period. The
amount of coverage deficiency for the four-month period ended June 30, 1999
was $886 million. The ratios of earnings to fixed charges for the two-month
period ended February 28, 1999 and the year ended December 31, 1998, as
adjusted to reflect the sale of the outstanding securities and the
application of the net proceeds as described under "Use of Proceeds," are
4.55x and 9.47x, respectively. The deficiency of earnings to fixed charges
for the four months ended June 30, 1999, as adjusted to reflect the sale of
the securities and the application of the estimated net proceeds as
described under "Use of Proceeds," was $897 million. For the ratio
calculations, earnings available for fixed charges consist of earnings
(losses) before income taxes plus fixed charges, distributions from and
losses of less than 50%-owned affiliates with debt not guaranteed by
Liberty (net of earnings not distributed of less than 50%-owned affiliates)
and minority interests in (earnings) losses of consolidated subsidiaries.
Fixed charges consist of (1) interest on debt, including interest related
to debt guaranteed by Liberty of less than 50%-owned affiliates where the
investment in such affiliates results in the recognition of a loss, (2)
Liberty's proportionate share of interest of 50%-owned affiliates, (3) that
portion of rental expense which Liberty believes to be representative of
interest (one-third of rental expense) and (4) amortization of debt
issuance costs.
9
<PAGE>
RISK FACTORS
An investment in the exchange securities involves risk. You should carefully
consider the following factors as well as the other information included in
this prospectus before deciding to accept the exchange offer. Any of the
following risks could have a material adverse effect on our business, financial
condition or results of operations or on the value of the exchange securities.
This prospectus contains forward-looking statements about us and our future
results of operations that are subject to risks, uncertainties and assumptions.
Our actual results, performance or achievements, or industry results, could
differ materially from those expressed in these forward-looking statements as a
result of a variety of factors, including the risks described below, the
factors described under the heading "Cautionary Statement Concerning Forward
Looking Statements" and matters described elsewhere in this prospectus.
We are a holding company with our assets held primarily by our subsidiaries.
Creditors of those companies have a claim on their assets that is senior to
that of holders of the securities. Liberty is a holding company with no
significant assets other than its equity interests in its subsidiaries and
cash, cash equivalents and marketable securities. Liberty is the only company
obligated to make payments under the securities. Our subsidiaries are separate
and distinct legal entities and they have no obligation, contingent or
otherwise, to pay any amounts due under the securities or to make any funds
available for any of those payments. In addition, neither AT&T nor any of its
subsidiaries other than Liberty have any obligation to make payments under the
securities or to make any funds available for those payments.
A substantial portion of the consolidated liabilities of Liberty consists of
liabilities incurred by its subsidiaries. Moreover, the indenture governing the
securities does not limit the amount of indebtedness that may be incurred by
Liberty's subsidiaries in the future. All of the liabilities of our
subsidiaries effectively rank senior to the securities. The rights of Liberty
and of its creditors, including holders of the securities, to participate in
the distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent Liberty may itself be a
creditor with recognized claims against the subsidiary. Where Liberty is itself
a creditor of a subsidiary, its claims will still be subject to the prior
claims of any secured creditor of that subsidiary and to the claims of any
holder of indebtedness that is senior to the claim held by Liberty. As of June
30, 1999, the aggregate amount of the total liabilities of our consolidated
subsidiaries was approximately $13.7 billion, of which approximately $11.1
billion was deferred income taxes.
Liberty must obtain cash from its financing activities, the operations of its
subsidiaries and its investments to service its financial obligations. It is
possible that Liberty could be unable in the future to obtain a sufficient
amount of cash with which to service those obligations. Our ability to meet our
debt service requirements, including those with respect to the securities, is
dependent upon our ability to access cash. Liberty's sources of cash include
its available cash balances, net cash from the operating activities of its
subsidiaries, dividends and interest from its investments, availability under
credit facilities and proceeds from asset sales. Although at June 30, 1999,
Liberty had cash and cash equivalents of approximately $1.5 billion and
marketable securities of approximately $3.4 billion, there is no requirement in
the indenture governing the securities that any of Liberty's cash or cash
equivalents or proceeds from the sale of any of its marketable securities be
reserved for the payment of Liberty's obligations under the securities. We
cannot assure you that Liberty will maintain significant amounts of cash, cash
equivalents or marketable securities in the future.
Liberty obtained from its subsidiary TCI Cablevision of Puerto Rico net cash
of $5 million in 1998 and net cash of $6.5 million in the first six months of
1999. Liberty did not obtain cash, in the form of dividends, loans, advances or
otherwise, from any of its other operating subsidiaries during those periods.
The ability of Liberty's operating subsidiaries to pay dividends or to make
other payments or advances to Liberty depends on their individual operating
results and any statutory, regulatory or contractual restrictions to which they
may be or may become subject. Some of our subsidiaries, including TCI
Cablevision of Puerto Rico, are subject to loan
10
<PAGE>
agreements that restrict sales of assets and prohibit or limit the payment of
dividends or the making of distributions, loans or advances to stockholders and
partners. See "Description of Certain Indebtedness."
Liberty also receives cash from subsidiaries that receive interest and
dividend income from securities they hold. Some of those securities are pledged
to secure financial obligations or are subject to equity derivatives.
Liberty generally does not receive cash, in the form of dividends, loans,
advances or otherwise, from its business affiliates. As in the case of our
subsidiaries, the ability of our business affiliates to make net cash available
to Liberty depends on their individual operating results and is also subject to
various statutory, regulatory and/or contractual restrictions. Moreover, we do
not have voting control over most of our business affiliates and cannot cause
those companies to pay dividends or make other payments or advances to their
partners or shareholders (including us). See "--We do not have the right to
manage our business affiliates" below.
To the extent necessary to obtain additional funds with which to meet its
debt service and other liquidity requirements in the future, Liberty may:
. seek additional bank financing or engage in other capital markets
transactions;
. invest in companies that, in management's opinion, have a significant
prospect of making net cash available to Liberty;
. seek to raise cash by monetizing, through derivatives and other
financial transactions, our equity holdings in certain of our
affiliates; or
. sell some of our more liquid equity securities, such as those we hold in
public companies.
There can be no assurance, however, that we will be able to successfully
obtain a sufficient amount of funds to meet our debt service and other
liquidity requirements in the future through any of the foregoing means. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." AT&T has no obligation to provide
financing for our operations and we do not expect AT&T to provide us with any
financing during the term of the securities. In addition, AT&T does not
guarantee any of our indebtedness, and it will have no obligations to the
holders of the securities in the event of a payment default or other default by
Liberty.
Although we do not currently have substantial leverage, we may in the
future. The following table shows the indebtedness of Liberty and its
consolidated subsidiaries, as of June 30, 1999, on a pro forma basis after
giving effect to the sale of the outstanding securities and our use of the net
proceeds as described under "Use of Proceeds":
<TABLE>
<CAPTION>
Pro Forma as of
June 30, 1999
---------------
(in millions)
<S> <C>
Senior secured indebtedness of Liberty..................... $ --
Senior unsecured indebtedness of Liberty, other than the
securities................................................ 454
Securities to be issued in this offering................... 1,250
Indebtedness of consolidated subsidiaries.................. 487
------
Total.................................................... $2,191
======
</TABLE>
The indenture governing the securities does not restrict Liberty and its
subsidiaries from incurring additional unsecured indebtedness. Also, the
indenture does not restrict the ability of Liberty to pledge shares of capital
stock or other securities that it owns to secure indebtedness. To the extent
Liberty pledges shares of capital stock or other securities to secure
indebtedness, the indebtedness so secured will effectively rank senior to the
securities to the extent of the value of the shares or other securities
pledged. The indenture also does not restrict the ability of Liberty's
subsidiaries to pledge shares of capital stock or other assets that they own to
secure indebtedness. See "Description of the Securities--Certain Covenants--
Limitation on Liens."
11
<PAGE>
Our incurrence of substantial indebtedness could have important consequences
to holders of securities. For example, it could:
. require us to dedicate a substantial portion of our cash and net cash we
receive from our subsidiaries to make debt service payments, thereby
reducing the amount of cash we can use for other purposes;
. require us to dispose of investments at a time and under circumstances
that preclude us from obtaining fair market value or using an
advantageous transaction structure;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate; and
. increase our vulnerability to general adverse economic and industry
conditions.
We have entered into credit agreements and agreements with AT&T that contain
restrictions on how we finance our operations and operate our business. Liberty
and its subsidiaries are subject to significant financial and operating
restrictions contained in outstanding credit facilities. See "Description of
Certain Indebtedness." These restrictions will affect, and in some cases
significantly limit or prohibit, among other things, our ability or the ability
of our subsidiaries to:
. borrow more funds;
. pay dividends or make other distributions;
. make investments;
. engage in transactions with affiliates; or
. create liens.
In addition, Liberty has entered into an Inter-Group Agreement with AT&T that
restricts the amount of indebtedness that Liberty may incur as a member of the
Liberty Media Group and the amount of its stock that Liberty may issue. Under
the Inter-Group Agreement, no subsidiary of AT&T that is attributed to the
Liberty Media Group may incur any debt, other than the refinancing of debt
without any increase in amount, that would cause the total indebtedness of all
the subsidiaries of AT&T that are attributed to the Liberty Media Group at any
time to be in excess of 25% of the total market capitalization of the Class A
and Class B Liberty Media Group common stock, unless the excess would not
adversely affect the credit rating of AT&T. See "Relationship with AT&T and
Certain Related Transactions--Relationship with AT&T--Inter-Group Agreement."
The restrictions contained in these credit agreements and the restriction on
debt incurrence and equity issuances contained in the Inter-Group Agreement
could have the following adverse effects on us, among others:
. we could be unable to obtain additional capital in the future to
. fund capital expenditures or acquisitions that could improve the
value of Liberty;
. permit us to meet our loan and capital commitments to our business
affiliates or allow us to help fund their operating losses or future
development;
. help us to withstand a downturn in our business or in the economy in
general; or
. allow us to conduct necessary corporate activities;
. we could be unable to access the net cash of our subsidiaries to help
meet our own financial obligations;
. we could be unable to invest in companies that we would otherwise invest
in; and
. we could be unable to obtain lower borrowing costs that are available
from secured lenders or engage in advantageous transactions that
monetize our assets.
12
<PAGE>
In addition, some of the credit agreements to which our subsidiaries are a
party require them to maintain financial ratios, including ratios of total debt
to operating cash flow and operating cash flow to interest expense. If Liberty
or its subsidiaries fail to comply with the covenant restrictions contained in
their credit agreements, that could result in a default which accelerates the
maturity of the indebtedness borrowed pursuant to those agreements. Such a
default could also result in indebtedness under other credit agreements and the
securities becoming due and payable due to the existence of cross-default or
cross-acceleration provisions of our credit agreements and in the indenture
governing the securities.
We may make significant capital contributions and loans to our subsidiaries
and business affiliates to cover operating losses and fund development and
growth. To the extent cash is used for this purpose, that cash will not be
available to pay Liberty's own financial obligations. The development of video
programming, communications, technology and Internet businesses involves
substantial costs and capital expenditures. As a result, many of our business
affiliates have incurred operating and net losses to date and are expected to
continue to incur significant losses for the foreseeable future. Liberty's
results of operations include Liberty's and its consolidated subsidiaries'
share of the net losses of their affiliates. The share of net losses amounted
to $785 million for 1997, $1,002 million for 1998, $66 million for the two
months ended February 28, 1999, and $359 million for the four months ended June
30, 1999.
We may make significant capital contributions and loans to our existing and
future subsidiaries and business affiliates to help cover their operating
losses and fund the development and growth of their respective businesses and
assets. We have assisted, and may in the future assist, our subsidiaries and
business affiliates in their financing activities by guaranteeing bank and
other financial obligations. At June 30, 1999, we had guaranteed various loans,
notes payable, letters of credit and other obligations of certain of our
subsidiaries and business affiliates totaling $502 million. Subsequent to June
30, 1999, we entered into an agreement that may require us to make capital
contributions or loans to a business affiliate in the maximum amount of
approximately $100 million. It is expected that these commitments will be
funded over the next two years.
To the extent Liberty makes loans and capital contributions to its
subsidiaries and business affiliates or Liberty is required to expend cash due
to a default by a subsidiary or business affiliate of any obligation guaranteed
by Liberty, there will be that much less cash available to Liberty with which
to pay its own financial obligations, including the securities.
We are parties to shareholder and partnership agreements that provide for
possible capital calls on shareholders and partners. Our failure to meet a
capital call, or other commitment to provide capital or loans to a particular
company, may have adverse consequences to us. These consequences may include,
among others, the dilution of our equity interest in that company, the
forfeiture of our right to vote or exercise other rights, the right of the
other shareholders or partners to force us to sell our interest at less than
fair value, the forced dissolution of the company to which we have made the
commitment or, in some instances, a breach of contract action for damages
against us. Our ability to meet capital calls or other capital or loan
commitments is subject to our ability to access cash. See "--Liberty must
obtain cash from its financing activities, the operations of its subsidiaries
and its investments to service its financial obligations. It is possible that
Liberty could be unable in the future to obtain a sufficient amount of cash
with which to service those obligations" above.
We are a member of the Liberty Media Group of AT&T, and that may have
important consequences to you. We have entered into agreements with AT&T
pursuant to which we have agreed, on a joint and several basis with each other
member of the Liberty Media Group, to indemnify AT&T against any liabilities
arising from the operations and businesses of any of the members of the Liberty
Media Group. Hence, we may be obligated to indemnify AT&T against liabilities
incurred by members of the Liberty Media Group other than Liberty Media
Corporation and its consolidated subsidiaries. Although we anticipate that if
we were required to indemnify AT&T against such a liability we would seek
reimbursement or contribution from the other members of the Liberty Media
Group, we cannot assure you that those members would be financially capable of
making that reimbursement or contribution. Liberty is also jointly and
severally liable with the other
13
<PAGE>
members of the Liberty Media Group for any amounts owed by members of the
Liberty Media Group to AT&T under a tax sharing agreement, and those amounts
could be substantial. See "Relationship with AT&T and Certain Related
Transactions."
Some of the officers of Liberty Media Corporation are also officers of other
members of the Liberty Media Group. Hence, to the extent those officers devote
attention to the operations of the other members of the Liberty Media Group,
that attention will be diverted from the assets and businesses of Liberty Media
Corporation and its consolidated subsidiaries.
In addition, although we anticipate that acquisitions involving companies
that are attributed to the Liberty Media Group will be effected through Liberty
Media Corporation or its consolidated subsidiaries, it is possible that some of
these acquisitions will be effected through other members of the Liberty Media
Group. In addition to the diversion of management's attention from the assets
and business of Liberty Media Corporation, acquisitions outside of Liberty
Media Corporation and its consolidated subsidiaries could have important
consequences to the holders of the securities, including the following:
. Liberty may provide cash or other assets with which to effect these
acquisitions; and
. Liberty may provide cash for the purpose of funding subsequent operating
losses or the development and growth of the businesses of the acquired
companies.
Liberty Media Group recently announced the proposed acquisition of Associated
Group, Inc. with shares of AT&T common stock and Liberty Media Group common
stock. If that transaction closes, a significant portion of the assets of
Associated Group will be contributed to another member of the Liberty Media
Group and only a portion of the assets of Associated Group will be contributed
to Liberty.
The liquidity and value of our interests in our business affiliates may be
adversely affected by shareholder agreements and similar agreements. A
significant portion of the equity securities we own is held pursuant to
stockholder agreements, partnership agreements and other instruments and
agreements that contain provisions that affect the liquidity, and therefore the
realizable value, of those securities. Most of these agreements subject the
transfer of the stock, partnership or other interests constituting the equity
security to consent rights or rights of first refusal of the other stockholders
or partners. In certain cases, a change in control of Liberty or of the
subsidiary holding our equity interest will give rise to rights or remedies
exercisable by other stockholders or partners, such as a right to initiate or
require the initiation of buy/sell procedures. Some of our subsidiaries and
business affiliates are parties to loan agreements that restrict changes in
ownership of the borrower without the consent of the lenders. All of these
provisions will restrict our ability to sell those equity securities and may
adversely affect the price at which those securities may be sold. For example,
in the event buy/sell procedures are initiated at a time when we are not in a
financial position to buy the initiating party's interest, we could be forced
to sell our interest at a price based on the value established by the
initiating party, and that price might be significantly less than what we might
otherwise obtain.
We do not have the right to manage our business affiliates. We do not have
the right to manage the businesses or affairs of any of our business affiliates
in which we have less than a majority voting interest. Rather, our rights, at
most, may take the form of representation on the board of directors or a
partners' or similar committee that supervises management or possession of veto
rights over significant or extraordinary actions. The scope of our veto rights
varies from agreement to agreement. Although our board representation and veto
rights may enable us to prevent the sale by a business affiliate of assets or
prevent it from paying dividends or making distributions to its stockholders or
partners, they do not enable us to cause these actions to be taken.
Our ability to use our stock as acquisition currency is limited. In addition
to participating in the continuing development of the companies in which we
currently have an interest, we presently intend to pursue acquisitions of
equity interests in additional companies. Our ability to successfully complete
acquisitions may be hampered by restrictions imposed by virtue of our being a
wholly owned subsidiary of AT&T and agreements we have entered into with AT&T.
Under the Inter-Group Agreement that governs our relationship with AT&T and the
AT&T Common Stock Group, Liberty may issue shares of its common stock and may
14
<PAGE>
authorize and issue shares of its preferred stock only if, after giving effect
to the issuance, AT&T would still be able to include Liberty on its
consolidated federal income tax return and Liberty would still be a "Qualified
Subsidiary" within the meaning of the Inter-Group Agreement. Under current law,
this generally means that Liberty may not issue an amount of shares if that
amount would result in neither AT&T nor a subsidiary of AT&T owning at least
80% of the total combined voting power of all classes of stock of Liberty
entitled to vote and 80% of the fair market value of all classes of stock of
Liberty and 80% of each class of non-voting stock of Liberty. See "Relationship
with AT&T and Certain Related Transactions--Relationship with AT&T--Inter-Group
Agreement."
Our business is subject to risks of adverse government regulation. In the
United States, the Federal Communications Commission regulates the providers of
satellite communications services and facilities for the transmission of
programming services, the cable television systems that carry such services,
and, to some extent, the availability of the programming services themselves
through its regulation of program licensing. Cable television systems and other
forms of video distribution in the United States are also regulated by
municipalities or other state and local government authorities. Cable
television companies are currently subject to federal rate regulation on the
provision of basic service, and continued rate regulation or other franchise
conditions could place downward pressure on the fees cable television companies
are willing or able to pay for programming services in which we have interests
and regulatory carriage requirements could adversely affect the number of
channels available to carry the programming services in which we have an
interest. In addition, Liberty's programming subsidiaries and business
affiliates may be limited in their ability to sell programming to AT&T's cable
television subsidiaries and affiliates as a result of federal regulations. See
"Business--Regulatory Matters."
The regulation of programming services, cable television systems, satellite
carriers and television stations is subject to the political process and has
been in constant flux over the past decade. Further material changes in the law
and regulatory requirements must be anticipated and there can be no assurance
that our business will not be adversely affected by future legislation, new
regulation or deregulation. See "Business--Regulatory Matters."
In addition, substantially every foreign country in which we have, or may in
the future make, an investment regulates, in varying degrees, the distribution
and content of programming services and foreign investment in programming
companies and wireline and wireless cable communications, satellite, telephony
and Internet services. Regulations or laws that exist at the time we make an
investment in a subsidiary or business affiliate may subsequently change, and
there can be no assurance that material and adverse changes in the regulation
of the services provided by our foreign subsidiaries and business affiliates
will not occur in the future. Regulation can take the form of price controls,
service requirements and programming and other content restrictions, among
others. Moreover, some countries where we have or may in the future acquire
interests in a cable television operator do not issue exclusive licenses or
franchises to provide multi-channel television services within a geographic
area, and in those instances we may be adversely affected by an overbuild by
one or more competing cable operators. In certain countries where multi-channel
television is less developed, there is minimal regulation of cable television
and other forms of video distribution, and, hence, the protections of the
distributor's investment available in the United States and other countries
(such as rights to renewal of licenses, franchises and pole attachment) may not
be available in these countries.
The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. Due to the increasing popularity and use of commercial
online services and the Internet, it is possible that a number of laws and
regulations may be adopted with respect to commercial online services and the
Internet. The adoption of such laws or regulations in the future may decrease
the growth of such services and the Internet, which could in turn decrease the
demand for the services and products of the Internet companies in which we have
interests and increase such companies' costs of doing business or otherwise
have an adverse effect on their businesses, operating results and financial
conditions.
15
<PAGE>
Our operations are subject to constraints imposed by the Investment Company
Act. Our operations are primarily conducted through subsidiaries and business
affiliates, and certain of our investments in those companies have been made
with strategic partners where we have a less than 50% voting interest. Under
the Investment Company Act of 1940, a company that is deemed to be an
"investment company," and which is not exempt from the provisions of the
Investment Company Act, is required to register as an investment company under
that Act. Registered investment companies are subject to extensive, restrictive
and potentially adverse regulation relating to, among other things, operating
methods, management, capital structure, dividends and transactions with
affiliates. Registered investment companies are not permitted to operate their
business in the manner Liberty operates its business, nor are registered
investment companies permitted to have many of the relationships that Liberty
has with its affiliated companies.
Liberty's current holdings in its subsidiaries and business affiliates are
such that Liberty is not an "investment company" required to register under the
Investment Company Act, and Liberty intends to conduct its business in a manner
designed to avoid becoming subject to regulation under that Act. To avoid
regulation under the Investment Company Act, Liberty's operations will to an
extent be limited by concerns that it acquire investments in companies that
assure to it majority ownership or primary control of a magnitude sufficient to
cause Liberty not to fall within the definition of an investment company. These
considerations could require Liberty to dispose of otherwise desirable assets
at disadvantageous prices, structure transactions in a manner that assures
Liberty has a majority interest or primary control, irrespective of whether
such a structure is the one that is most desirable, or avoid otherwise
economically desirable transactions, including the addition of strategic
partners in Liberty's current majority-owned subsidiaries and business
affiliates that it primarily controls. In addition, events beyond our control,
including significant appreciation in the market value of certain of our
publicly traded investments that may be deemed investment securities, could
result in our becoming an inadvertent investment company. If Liberty were to
become an inadvertent investment company, it would have one year to divest of a
sufficient amount of investment securities and/or acquire other assets
sufficient to cause Liberty to no longer be an investment company subject to
registration under the Investment Company Act.
If it were established that Liberty is an unregistered investment company,
there would be a risk, among other material adverse consequences, that we could
become subject to monetary penalties or injunctive relief, or both, in an
action brought by the SEC, that we would be unable to enforce contracts with
third parties or that third parties could seek to obtain rescission of
transactions with us undertaken during the period it was established that we
were an unregistered investment company.
We cannot assure you that our critical computer systems or those of persons
with whom we do business are Year 2000 ready. Many existing computer programs
were designed and developed without considering the upcoming change in the
century, which could lead to the failure of computer applications or create
erroneous results by or at the Year 2000. The Year 2000 issue is a broad
business issue, the impact of which extends beyond traditional computer
hardware and software to possible failure of a wide variety of automated
systems and instrumentation, including equipment that we use and equipment used
by third parties with whom we do business.
We are in the process of assessing and remediating potential risks to our
business related to the Year 2000 issue. Although we believe that, as a result
of these efforts, our critical systems are or will be substantially Year 2000
ready, we cannot assure you that this will be the case. In addition, the
ability of third parties with whom we do business and many of the companies in
which we have interests to address adequately their Year 2000 issues is outside
our control. Our failure or the failure of such third parties to address
adequately their respective Year 2000 issues may have a material adverse effect
on our business, financial condition and results of operations.
For a detailed discussion of our Year 2000 assessment and compliance efforts,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
16
<PAGE>
We are dependent on a limited number of potential customers for carriage of
our programming services. The cable television and direct-to-home satellite
industries are currently undergoing a period of consolidation. As a result, the
number of potential buyers of our programming services and those of our
business affiliates is decreasing. AT&T's cable television subsidiaries and
affiliates, which as a group comprise one of the two largest operators of cable
television systems in the United States, are collectively the largest single
customer of Liberty's programming companies. With respect to some of our
programming services and those of our business affiliates, this is the case by
a significant margin. The existing agreements between AT&T's cable television
subsidiaries and affiliates and the program suppliers owned or affiliated with
Liberty were entered into when Liberty was a wholly owned subsidiary of TCI.
There can be no assurance that our owned and affiliated program suppliers will
be able to negotiate renewal agreements with AT&T's cable television
subsidiaries and affiliates. Although AT&T has agreed to extend any existing
affiliation agreement of Liberty and its affiliates that expires on or before
March 9, 2004 to a date not before March 9, 2009, that agreement is conditioned
on mutual most favored nation terms being offered and the arrangements being
consistent with industry practice. For more information about our relationship
with AT&T, see "Relationship with AT&T and Certain Related Transactions."
There is no public market for the exchange securities. The exchange
securities will constitute new issues of securities with no established trading
market. If a trading market does not develop or is not maintained, holders of
the exchange securities may experience difficulty in reselling the exchange
securities or may be unable to sell them at all. We cannot assure you that an
active public or other market for the exchange securities will develop or be
maintained. If a market for the exchange securities develops, it may be
discontinued at any time. Although the initial purchasers of the outstanding
securities have advised us that they currently intend to make a market in the
exchange securities, they are not obligated to do so and may discontinue
market-making activity at any time without notice. In addition, any market-
making activity by the initial purchasers will be subject to the limits imposed
by the Securities Act and the Securities Exchange Act and may be limited during
the exchange offer. We do not intend to apply for the listing of the exchange
securities on any securities exchange or automated quotation system.
The liquidity of any market for the exchange securities will depend upon the
number of holders of the exchange securities, our operating performance, the
interest of securities dealers in making a market in the exchange securities
and other factors. A liquid trading market may not develop for the exchange
securities. Furthermore, the market price for the exchange securities may be
subject to substantial fluctuations. Factors such as the following may have a
significant effect on the market price of the exchange securities:
. actual or anticipated fluctuations in our operating results;
. our perceived business prospects;
. general economic conditions, including prevailing interest rates; and
. the market for similar securities.
The issuance of the exchange securities may adversely affect the market for
the outstanding securities. If outstanding securities are tendered for exchange
and accepted in the exchange offer, the trading market, if any, for the
untendered and tendered but unaccepted outstanding securities could be
adversely affected.
Your failure to participate in the exchange offer will have material adverse
consequences. We issued the outstanding securities in a private offering exempt
from the registration requirements of the Securities Act. Accordingly, you may
not offer, sell or otherwise transfer your outstanding securities except in
compliance with the registration requirements of the Securities Act and any
other applicable securities laws, or pursuant to an exemption from the
securities laws, or in a transaction not subject to the securities laws. If you
do not exchange your outstanding securities for exchange securities in the
exchange offer, or if you do not properly
17
<PAGE>
tender your outstanding securities in the exchange offer, your outstanding
securities will continue to be subject to these transfer restrictions after the
completion of the exchange offer. In addition, after completion of the exchange
offer, you will no longer be able to obligate us to register the outstanding
securities under the Securities Act.
Some persons who participate in the exchange offer must deliver a prospectus
in connection with resales of the exchange securities. Based on certain no-
action letters issued by the SEC staff, we believe that, in general, you may
offer for resale, resell or otherwise transfer the exchange securities without
compliance with the registration and prospectus delivery requirements of the
Securities Act. However, in some instances described in this prospectus under
"The Exchange Offer," you will remain obligated to comply with the registration
and prospectus delivery requirements of the Securities Act to transfer your
exchange securities. In these instances, if you transfer any exchange security
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from registration of your exchange securities under the
Securities Act, you may incur liability under the Securities Act. We do not and
will not assume, or indemnify you against, this liability.
18
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
securities in exchange for the outstanding securities. We are making this
exchange offer solely to satisfy our obligations under the registration rights
agreement. In consideration for issuing the exchange securities, we will
receive outstanding securities in aggregate value equal to the value of the
exchange securities. The outstanding securities surrendered in exchange for the
exchange securities will be retired and canceled. Accordingly, the issuance of
the exchange securities will not result in any change in our indebtedness.
We received approximately $1,235,000,000 in net proceeds from the sale of the
outstanding securities, after deducting discounts but before deducting other
offering expenses. We used these net proceeds to repay (1) $500 million of
outstanding indebtedness under a $500 million secured revolving credit
facility, entered into by Communication Capital Corp., an indirect wholly owned
subsidiary of Liberty, (2) $580 million of outstanding indebtedness under a
$640 million guaranteed revolving credit facility, entered into by LMC Capital
LLC, an indirect wholly owned subsidiary of Liberty, and (3) $155 million of
outstanding indebtedness under separate unsecured revolving credit facilities,
entered into by Liberty, that provide for borrowings in the aggregate principal
amount of $1.2 billion. Following these repayments, the credit facilities
entered into by Communication Capital Corp. and LMC Capital LLC were
terminated. Amounts repaid under Liberty's unsecured revolving credit
facilities may be reborrowed in the future. See"Description of Certain
Indebtedness."
CAPITALIZATION
The following table sets forth our consolidated capitalization as of June 30,
1999, on an actual basis and as adjusted to reflect the issuance and sale of
the outstanding securities and the application of the net proceeds therefrom.
This table should be read in conjunction with Liberty's consolidated financial
statements and the related notes included elsewhere in this prospectus. See
"Index to Financial Statements."
<TABLE>
<CAPTION>
June 30, 1999
--------------------
Actual As Adjusted
------- -----------
(in millions)
<S> <C> <C>
Cash and cash equivalents.................................. $ 1,504 1,504
======= ======
Marketable securities...................................... 3,393 3,393
======= ======
Long-term debt (including current portion):
Bank credit facilities................................... $ 2,094 859
Other debt............................................... 82 82
7 7/8% Senior Notes due 2009............................. -- 750
8 1/2% Senior Debentures due 2029........................ -- 500
------- ------
Total debt............................................. $ 2,176 2,191
------- ------
Stockholder's equity:
Common stock............................................. -- --
Additional paid-in capital............................... $33,862 33,862
Accumulated other comprehensive earnings, net of taxes... 1,963 1,963
Retained earnings (deficit).............................. (601) (601)
------- ------
35,224 35,224
------- ------
Due to related parties................................... 103 103
------- ------
Total stockholder's equity............................. 35,327 35,327
------- ------
Total capitalization................................... $37,503 37,518
======= ======
</TABLE>
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
In the table below we provide you with selected historical consolidated
financial data of Liberty. We derived the historical consolidated financial
data from our consolidated financial statements included elsewhere in this
prospectus. The unaudited financial data at June 30, 1999, February 28, 1999,
June 30, 1998 and for the four months ended June 30, 1999, the two months ended
February 28, 1999 and the six months ended June 30, 1998 contain all
adjustments, consisting only of normal recurring accruals, that, in the opinion
of our management, are necessary for a fair presentation of our results for
these periods. The interim results of operations are not necessarily indicative
of results that may be expected for the full year.
Liberty has been a wholly owned subsidiary of TCI since August 1994. On March
9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting
purposes, the merger of AT&T and TCI is deemed to have occurred on March 1,
1999. In connection with the merger, the assets and liabilities of Liberty were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities of
Liberty and the related consolidated results of operations are referred to
below as "Old Liberty," and for periods subsequent to February 28, 1999, the
assets and liabilities of Liberty and the related consolidated results of
operations are referred to as "New Liberty." In connection with the merger, TCI
effected an internal restructuring as a result of which certain assets and
approximately $5.5 billion in cash were contributed to Liberty.
The financial data presented below are not necessarily comparable from period
to period as a result of several transactions, including acquisitions and
dispositions of consolidated subsidiaries. For this and other reasons, you
should read the selected historical financial data provided below in
conjunction with our consolidated financial statements and accompanying notes
beginning on page F-1 and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 21.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------------------------------------------------------
Four months Two months Six months
ended ended ended Year ended December 31,
June 30, February 28, June 30, ----------------------------------
1999 1999 1998 1998 1997 1996 1995 1994
----------- ------------ ----------- ------ ----- ----- ----- -----
(unaudited) (unaudited) (unaudited)
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue................. $ 292 235 647 1,359 1,225 2,208 1,821 1,577
Operating loss.......... (633) (158) (227) (431) (260) (66) (214) (5)
Interest expense........ (46) (26) (33) (104) (40) (53) (34) (11)
Share of losses of
affiliates, net........ (359) (66) (523) (1,002) (785) (332) (190) (59)
Gains (losses) on
dispositions, net...... (2) 14 553 2,449 406 1,558 (78) 181
Net income (loss)....... (601) (70) (125) 622 (470) 741 (56) 164
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 1,504 31 158 228 100 434 179 72
Marketable securities... 3,393 125 85 159 248 59 -- --
Investments in
affiliates............. 16,775 3,971 1,931 3,079 2,359 1,519 1,932 835
Investment in Time
Warner, Inc............ 8,212 7,361 4,875 7,083 3,538 2,017 945 654
Investment in Sprint
Corporation............ 5,989 3,381 -- 2,446 -- -- -- --
Total assets............ 50,000 16,886 9,975 15,567 7,735 6,722 5,605 3,482
Debt including current
portion................ 2,176 2,087 1,394 2,096 785 555 516 98
Stockholder's equity.... 35,327 9,449 5,961 9,230 4,721 4,519 3,731 2,386
Other Data:
Ratio of earnings to
fixed charges (a)...... -- 5.12x 4.06x 11.03x 2.06x 21.36x 3.86x 9.20x
</TABLE>
- --------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the four-month period ended June 30, 1999. Thus, earnings available for
fixed charges were inadequate to cover fixed charges for such period. The
amount of coverage deficiency for the four-month period ended June 30, 1999
was $886 million. The ratios of earnings to fixed charges for the two-month
period ended February 28, 1999 and the year ended December 31, 1998, as
adjusted to reflect the sale of the outstanding securities and the
application of the net proceeds as described under "Use of Proceeds," are
4.55x and 9.47x, respectively. The deficiency of earnings to fixed charges
for the four months ended June 30, 1999, as adjusted to reflect the sale of
the securities and the application of the estimated net proceeds as
described under "Use of Proceeds," was $897 million. For the ratio
calculations, earnings available for fixed charges consist of earnings
(losses) before income taxes plus fixed charges, distributions from and
losses of less than 50%-owned affiliates with debt not guaranteed by
Liberty (net of earnings not distributed of less than 50%-owned affiliates)
and minority interests in (earnings) losses of consolidated subsidiaries.
Fixed charges consist of (1) interest on debt, including interest related
to debt guaranteed by Liberty of less than 50%-owned affiliates where the
investment in such affiliates results in the recognition of a loss, (2)
Liberty's proportionate share of interest of 50%-owned affiliates, (3) that
portion of rental expense which Liberty believes to be representative of
interest (one-third of rental expense) and (4) amortization of debt
issuance costs.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read
in conjunction with our consolidated financial statements and accompanying
notes beginning on page F-1.
Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates which operate in cable television, programming and satellite
distribution.
Liberty's consolidated subsidiaries at June 30, 1999 include Encore Media
Group, TCI Music, Pramer S.C.A. and TCI Cablevision of Puerto Rico. These
businesses are majority or wholly owned and accordingly, the results of
operations of these businesses are included in the consolidated results of
Liberty for the periods in which they were majority or wholly owned.
A significant portion of Liberty's operations are conducted through entities
in which Liberty holds a 20%-50% ownership interest. These businesses are
accounted for under the equity method of accounting and accordingly are not
included in the consolidated results of Liberty except as they affect Liberty's
interest in earnings or losses of affiliates for the period in which they were
accounted for under the equity method. Included in Liberty's investments in
affiliates at June 30, 1999 are USA Networks, Inc., Discovery Communications,
Inc., TV Guide, Inc., QVC Inc., Flextech, plc and Telewest Communications plc.
Liberty holds interests in companies that are neither consolidated
subsidiaries nor affiliates accounted for under the equity method. The most
significant of these include Time Warner and Sprint Corporation. The Time
Warner stock and Sprint Corporation tracking stock that Liberty holds are
classified as available-for-sale securities and are carried at fair value.
Unrealized holding gains and losses on these securities are carried net of
taxes as a component of accumulated other comprehensive earnings in
stockholders' equity. Realized gains and losses are determined on a specific-
identification basis.
As a result of AT&T's acquisition of TCI by merger on March 9, 1999, the
shares of each series of TCI common stock were converted into shares of a class
of AT&T common stock subject to applicable exchange ratios. The AT&T merger has
been accounted for using the purchase method. For financial reporting purposes
the AT&T merger is deemed to have occurred on March 1, 1999. Accordingly, for
periods prior to March 1, 1999 the assets and liabilities of Liberty and the
related consolidated financial statements are sometimes referred to herein as
"Old Liberty," and for periods subsequent to February 28, 1999 the assets and
liabilities of Liberty and the related consolidated financial statements are
sometimes referred to herein as "New Liberty." "Liberty" refers to both New
Liberty and Old Liberty.
Summary of Operations
Liberty's programming businesses include Encore Media Group which provides
premium programming distributed by cable, direct-to-home satellite and other
distribution media throughout the United States. Additionally, TCI Music is
included in Liberty's financial results. TCI Music, through its subsidiaries
and affiliates, is principally engaged in programming, distributing and
marketing digital and analog music services to homes, businesses and over the
Internet. Also included in Liberty's financial results through March 1, 1999
are those of TV Guide (formerly named United Video Satellite Group, Inc. which,
during the period it was consolidated, was engaged in the business of providing
satellite-delivered video, audio, data, and program promotion services to cable
television systems, direct-to-home satellite dish users, radio stations and
private network users throughout the United States. Effective March 1, 1999,
Liberty began accounting for its investment in TV Guide under the equity method
of accounting. To enhance the reader's understanding, separate financial data
has been provided below for Encore Media Group, TCI Music and TV Guide due to
the significance of those operations. The table sets forth, for the periods
indicated, certain financial information and the percentage relationship that
certain items bear to revenue. Liberty holds significant equity investments,
the
21
<PAGE>
results of which are not a component of operating income, but are discussed
below under "--Investments in Affiliates Accounted for Under the Equity
Method." Other items of significance are discussed separately below.
Six months ended June 30, 1999 compared to six months ended June 30, 1998
General Information
Due to the consummation of the AT&T merger, Liberty's 1999 statements of
operations include information reflecting the four-month period ended June 30,
1999 and the two-month period ended February 28, 1999. Also, prior to March 1,
1999, Liberty consolidated the operations of TV Guide, and subsequent to
February 28, 1999, Liberty accounted for its ownership interests in TV Guide
under the equity method. (See note 6 to the accompanying June 30, 1999
consolidated financial statements.) The following discussion of Liberty's
results of operations includes a section that addresses the combined operating
results of "Old Liberty" and "New Liberty," collectively "Combined Liberty."
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------------- -------------------------------------
Six
Four months Two months months
ended % of ended % of ended % of
June 30, total February 28, total June 30, total
1999 revenue 1999 revenue 1998 revenue
----------- ------- ------------ ------- -------- -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Encore Media Group
Revenue........................................................ $ 211 100% $ 101 100% $ 249 100%
Operating, selling, general and administrative................. 158 75 60 59 209 84
Stock compensation............................................. -- -- 3 3 14 6
Depreciation and amortization.................................. 60 28 1 1 3 1
----- ----- ----- --- ----- ----
Operating income (loss)...................................... $ (7) (3)% $ 37 37% $ 23 9%
===== ===== ===== === ===== ====
TCI Music
Revenue........................................................ $ 33 100% $ 15 100% $ 40 100%
Operating, selling, general and administrative................. 33 100 14 93 37 93
Stock compensation............................................. 257 778 -- -- -- --
Depreciation and amortization.................................. 15 45 4 27 11 27
----- ----- ----- --- ----- ----
Operating loss............................................... $(272) (823)% $ (3) (20)% $ (8) (20)%
===== ===== ===== === ===== ====
TV Guide
Revenue........................................................ $ -- -- $ 97 100% $ 290 100%
Operating, selling, general and administrative................. -- -- 76 79 234 81
Stock compensation............................................. -- -- -- -- -- --
Depreciation and amortization.................................. -- -- 10 10 13 4
----- ----- ----- --- ----- ----
Operating income............................................. $ -- -- $ 11 11% $ 43 15%
===== ===== ===== === ===== ====
Other
Revenue........................................................ $ 48 (a) $ 22 (a) $ 68 (a)
Operating, selling, general and administrative................. 49 38 73
Stock compensation............................................. 198 180 251
Depreciation and amortization.................................. 155 7 29
----- ----- -----
Operating loss............................................... $(354) $(203) $(285)
- --------------------------------------------------
===== ===== =====
</TABLE>
- --------
(a) Not meaningful.
In order to provide a meaningful basis for comparing the six months ended
June 30, 1999 and 1998 for purposes of the following table and discussion, the
operating results of Combined Liberty for the four months ended June 30, 1999
have been combined with the operating results of Combined Liberty for the two
months ended February 28, 1999, and the resulting six-month operating results
are compared to the operating results for the six months ended June 30, 1998.
Depreciation, amortization and certain other line items included in
22
<PAGE>
the operating results of Combined Liberty are not comparable between periods as
the four-month successor period ended June 30, 1999 includes the effects of
purchase accounting adjustments related to the AT&T merger, and prior periods
do not. The combining of predecessor and successor accounting periods is not
acceptable under generally accepted accounting principles.
<TABLE>
<CAPTION>
Combined Liberty
--------------------------------------
Six months Six months
ended % of ended % of
June 30, total June 30, total
1999 revenue 1998 revenue
---------- ------- ---------- -------
(dollar amounts in millions)
<S> <C> <C> <C> <C>
Encore Media Group
Revenue................................ $ 312 100 % $ 249 100 %
Operating, selling, general and
administrative........................ 218 70 209 84
Stock compensation..................... 3 1 14 6
Depreciation and amortization.......... 61 19 3 1
----- ---- ----- ---
Operating income..................... $ 30 10 % $ 23 9 %
===== ==== ===== ===
TCI Music
Revenue................................ $ 48 100 % $ 40 100 %
Operating, selling, general and
administrative........................ 47 98 37 93
Stock compensation..................... 257 535 -- --
Depreciation and amortization.......... 19 40 11 27
----- ---- ----- ---
Operating loss....................... $(275) (573)% $ (8) (20)%
===== ==== ===== ===
TV Guide
Revenue................................ $ 97 100 % $ 290 100 %
Operating, selling, general and
administrative........................ 76 78 234 81
Stock compensation..................... -- -- -- --
Depreciation and amortization.......... 10 10 13 4
----- ---- ----- ---
Operating income..................... $ 11 11 % $ 43 15 %
===== ==== ===== ===
Other
Revenue................................ $ 70 (a) $ 68 (a)
Operating, selling, general and
administrative........................ 87 73
Stock compensation..................... 378 251
Depreciation and amortization.......... 162 29
----- -----
Operating loss....................... $(557) $(285)
===== =====
</TABLE>
- --------
(a) Not meaningful.
Consolidated Subsidiaries
Encore Media Group. The majority of Encore Media Group's revenue is derived
from the delivery of movies to subscribers under affiliation agreements between
Encore Media Group and cable operators and satellite direct-to-home
distributors. Encore Media Group entered into a 25 year affiliation agreement
in 1997 with TCI. TCI cable systems subsequently acquired by AT&T in the AT&T
merger operate under the name AT&T Broadband & Internet Services. Revenue from
AT&T Broadband accounted for approximately 61% of total revenue during 1998.
Under this affiliation agreement with AT&T Broadband, Encore Media Group
receives fixed monthly payments in exchange for unlimited access to all of the
existing Encore and STARZ! services. The payment from AT&T Broadband is
adjusted, in certain instances, if AT&T acquires or disposes of cable systems.
Encore Media Group's other affiliation agreements generally provide for
payments based on the number of subscribers that receive Encore Media Group's
services.
Revenue from AT&T Broadband increased 11% to $119 million during the first
six months of 1999 compared to the same period of 1998 pursuant to the terms of
the AT&T/Encore Media Group affiliation agreement. Under this agreement, the
amount paid by AT&T Broadband does not vary with the number of subscription
units from AT&T Broadband. This category also includes revenue from cable
systems that have been contributed by AT&T to joint ventures and are subject to
the AT&T/Encore Media Group affiliation agreement. Revenue from cable
affiliates other than AT&T Broadband increased 38% to $69 million during the
first six months of 1999 compared to the same period of 1998 mainly due to 18%
and 47% increases in
23
<PAGE>
subscription units for Encore and STARZ! services, respectively, combined with
increases in rates charged. MOVIEplex and Thematic Multiplex subscribers from
cable affiliates other than AT&T Broadband increased by 2.0 million or 75% and
1.3 million or 439%, respectively, during the first six months of 1999 compared
to the same period in 1998, contributing to the increase in revenue. Revenue
from satellite providers and other distribution technologies increased 35% to
$124 million during the first six months of 1999 from $92 million during the
first six months of 1998 due to 19%, 19% and 36% increases in STARZ!, Encore
and Thematic Multiplex subscription units, respectively.
Programming and operating expenses increased by 8% during the first six
months in 1999 compared to the same period in 1998 primarily due to increased
first run exhibitions on Encore and the Thematic Multiplex channels. Sales and
marketing expenses decreased by 4% during the first six months of 1999 because
of decreases in spending on affiliate and consumer marketing efforts caused
primarily by an aggressive STARZ! branding campaign during the same period in
1998. The majority of Encore Media Group's national consumer awareness campaign
will continue into the third quarter of 1999; therefore, operating expenses are
expected to be higher during the third quarter in 1999. The "New Encore"
campaign is branding Encore as a first-run premium pay service.
The fluctuations in depreciation, amortization and stock compensation are a
direct result of the effects of purchase accounting adjustments related to the
AT&T merger.
TCI Music. TCI Music's revenue is derived from its audio business which is
engaged in programming, distributing and marketing a digital music service
delivered to homes and business; its video business which is engaged in
programming, distributing and marketing a television programming service; and
its Internet business which is engaged in creating, distributing and marketing
interactive music programming, products and services through the Internet.
Revenue increased 20% to $48 million for the six months ended June 30, 1999
from $40 million for the corresponding period in 1998. The increase in revenue
is primarily due to increased residential and commercial subscribers in its
audio business. Additionally, revenue for the six months ended June 30, 1999
included a $2.8 million settlement from PRIMESTAR, Inc., a provider of digital
satellite television programming services, for the loss of future revenue after
the DMX service was terminated from distribution to PRIMESTAR customers on
April 28, 1999 as a result of the acquisition of PRIMESTAR by Hughes Electronic
Corp.
Operating, selling, general and administrative expenses increased 27% to $47
million for the six months ended June 30, 1999 from $37 million for the
corresponding period in 1998. The increase in expenses is primarily due to
increased affiliation fees in TCI Music's audio business as well as increases
in selling, general and administrative expenses due to increased personnel,
occupancy and promotional expenses associated with the audio business's
expansion.
Depreciation and amortization increased 73% to $19 million for the six months
ended June 30, 1999 from $11 million for the corresponding period in 1998. The
increase is a result of the effects of purchase accounting adjustments related
to the AT&T merger.
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying stock as of June 30, 1999
and is subject to future adjustment based on market price fluctuations and,
ultimately, on the final determination of market value when the rights are
exercised.
TV Guide. On March 1, 1999, United Video Satellite Group and News Corp.
completed a transaction whereby United Video Satellite Group acquired News
Corp.'s TV Guide properties in exchange for stock of United Video Satellite
Group and cash, creating a broader platform for offering television guide
services to consumers and advertisers. United Video Satellite Group was renamed
TV Guide. Upon consummation, Liberty began accounting for its interest in TV
Guide using the equity method of accounting and accordingly the results of
operations of TV Guide were no longer included in the consolidated financial
results of Liberty as of that date.
Other. Included in this information are the results of Liberty Media
International, Inc.'s consolidated subsidiaries, TCI Cablevision of Puerto Rico
and Pramer, and corporate expenses of Liberty. Revenue
24
<PAGE>
increased 3% from $68 million for the six months ended June 30, 1998 to $70
million for the six months ended June 30, 1999. The acquisition of Pramer in
August of 1998 accounted for a $33 million increase in the first six months of
1999. This increase was offset by a decrease in revenue from the sale in
February 1999 of CareerTrack, Inc., a subsidiary that was a provider of
business and educational seminars and related publications.
Operating, selling, general and administrative expenses increased 19% to $87
million for the six months ended June 30, 1999 from $73 million for the
corresponding period in 1998. The increase in expenses due to the acquisition
of Pramer was more than offset by the decrease in expenses as a result of the
sale of CareerTrack. Corporate expenses for the six months ended June 30, 1999
included $12 million in costs associated with the AT&T merger.
Depreciation and amortization increased 459% to $162 million for the six
months ended June 30, 1999 from $29 million during the same period in 1998. The
increase is a result of the effects of purchase accounting adjustments related
to the AT&T merger.
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying common stock as of June
30, 1999 and is subject to future adjustment based on market price fluctuations
and, ultimately, on the final determination of market value when the rights are
exercised.
Other Income and Expense. Interest expense was $46 million, $26 million and
$33 million for the four months ending June 30, 1999, the two month period
ending February 28, 1999 and the six months ended June 30, 1998, respectively.
The increase in interest expense during the 1999 periods is a result of
additional borrowings on Liberty's bank credit facilities during the last part
of 1998 and the first half of 1999.
Dividend and interest income was $106 million, $10 million and $33 million
for the four months ending June 30, 1999, the two month period ending February
28, 1999 and the six months ending June 30, 1998, respectively. The increase in
dividend and interest income during 1999 primarily represents dividends and
interest income from the investment of the $5.5 billion received in connection
with the AT&T merger.
There were no gains included in operations during the four month period ended
June 30, 1999. Aggregate gains from dispositions and issuance of equity by
subsidiaries during the two month period ended February 28, 1999 and the six
months ended June 30, 1998 were $386 million and $591 million, respectively.
Liberty recognized a gain of $372 million (before deducting deferred income
taxes of $147 million) during the two months ended February 28, 1999 in
connection with the acquisition by United Video Satellite Group of the TV Guide
properties. In September 1997, Time Warner exercised an option to acquire the
business of Southern Satellite Systems, Inc. from Liberty. Pursuant to the
option, Time Warner acquired the business of Southern Satellite, effective
January 1, 1998, for $213 million in cash. Time Warner had paid Liberty shares
of Time Warner Series LMCN-V Common Stock, which are convertible into 12.8
million shares of Time Warner common stock, valued at $306 million for the
option. Liberty recognized a $515 million pre-tax gain in connection with these
transactions in the first quarter of 1998.
Investments in Affiliates Accounted for Under the Equity Method
Liberty's share of losses of affiliates was $359 million, $66 million and
$523 million during the four month period ending June 30, 1999, the two month
period ending February 28, 1999 and the six months ending June 30, 1998,
respectively.
Discovery. Discovery's revenue increased $161 million or 33% from $487
million for the six months ended June 30, 1998 to $648 million for the same
period in 1999. The increase in revenue resulted from increases in rates
charged to affiliates and increases in advertising rates due to higher ratings
and a generally
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<PAGE>
strong advertising sales market. Subscriber growth at Discovery's international
and developing networks also contributed to the increase in revenue. Earnings
before interest, taxes, depreciation and amortization ("Operating Cash Flow")
increased by $32 million or 87% from $37 million for the six months ended June
30, 1998 to $69 million for the six months ended June 30, 1999. The increase in
Operating Cash Flow was due to the increase in revenue offset by increases in
programming and marketing expenses. Marketing expenses have increased as
Discovery continued the rollout of Animal Planet and launched other developing
networks. Discovery's net loss increased $13 million or 41% from $32 million
for the six months ended June 30, 1998 to $45 million for the six months ended
June 30, 1999. The increase in net loss is due to increased interest expense
and launch amortization due to the company's efforts to increase launch support
related to developing networks. Liberty's share of Discovery's net loss was
approximately $76 million, $8 million and $18 million for the four months ended
June 30, 1999, the two months ended February 28, 1999 and the six months ended
June 30, 1998, respectively. Liberty's share of losses for the four months
ended June 30, 1999 included $62 million in amortization related to purchase
accounting adjustments associated with Liberty's investment in Discovery in
connection with the AT&T merger.
USA Networks, Inc. Revenue increased $274 million or 22% for the six months
ended June 30, 1999 from $1,227 million for the six months ended June 30, 1998
to $1,501 million for the same period in 1999. The increase was due to
increased advertising revenue from the Networks and Television Production
businesses of USA Networks and higher continuity (off-air) sales, as well as
the launch of Home Shopping en Espanol in the electronic retailing sector.
Operating Cash Flow increased $57 million or 26% from $215 million for the six
months ended June 30, 1998 to $272 million for the six months ended June 30,
1999. The increase in Operating Cash Flow was largely due to the increase in
revenue offset by increased cost of goods sold at the electronic retailing unit
due to the increased sales and increased Internet services expenses as the
company continued to rollout new web sites. Net income decreased from $31
million for the six months ended June 30, 1998 to a net loss of $5 million for
the six months ended June 30, 1999, representing a decrease of $36 million or
117%. The decrease in net income is primarily due to an increase in minority
interests in earnings of subsidiaries due to ownership changes at USA Networks,
Inc. Liberty's share of USA Networks, Inc.'s net earnings (loss) was
approximately $(9) million, $10 million and $9 million for the four months
ended June 30, 1999, the two months ended February 28, 1999 and the six months
ended June 30, 1998, respectively. Liberty's share of losses for the four
months ended June 30, 1999 included $21 million in amortization related to
purchase accounting adjustments associated with Liberty's investment in USA
Networks in connection with the AT&T merger.
QVC. Revenue increased by $207 million or 19% for the six months ended June
30, 1999 from $1,075 million for the six months ended June 30, 1998 to $1,282
million for the same period of 1999. The increase in revenue is due to
increased subscribers as well as increases in the average sales per home for
each of QVC's domestic, UK and German operations. Operating Cash Flow increased
by 34% or $64 million from $188 million for the six months ended June 30, 1998
to $252 million for the same period in 1999 due to the revenue increase and the
corresponding increase in cost of goods sold, offset further by higher variable
costs and additional costs associated with QVC's expansion in the UK and
Germany. Net income increased by $46 million or 94% to $95 million for the six
months ended June 30, 1999 as compared to $49 million for the same period in
1998. The increase in net income was due to the increase in Operating Cash Flow
offset by increased income tax expense. Liberty's share of QVC's net earnings
(loss) was approximately $(9) million, $13 million and $21 million for the four
months ended June 30, 1999, the two months ended February 28, 1999 and the six
months ended June 30, 1998, respectively. Liberty's share of losses for the
four months ended June 30, 1999 included $37 million in amortization related to
purchase accounting adjustments associated with Liberty's investment in QVC in
connection with the AT&T merger.
Fox/Liberty Networks. Revenue increased $59 million or 18% from $326 million
for the six months ended June 30, 1998 to $385 million for the same period in
1999 due to increased programming and advertising revenue. These increases were
due to subscriber growth and increased advertising rates due to improved
ratings. Operating Cash Flow decreased $5 million or 15% from $34 million for
the six months ended June 30, 1998 to $29 million for the same period in 1999.
The decrease in Operating Cash Flow was due
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to the revenue increase offset by increased operating expenses. Operating
expenses increased from 77% of total revenue for the six months ended June 30,
1998 to 82% for the same period in 1999. This increase is largely due to
increased programming rights fees resulting from the resumption of the National
Basketball Association's season in late February. Fox/Liberty Networks' net
loss increased $27 million or 100% from $27 million for the six months ended
June 30, 1998 to $54 million for the same period in 1999. The increased net
loss is due to reduced Operating Cash Flow, a $16 million decrease in equity in
earnings from affiliates and a $5 million loss on sale of investments. The
decrease in equity in earnings from affiliates was mainly due to the NBA
lockout and the bankruptcy of the Pittsburgh Penguins, a professional hockey
team. Liberty's share of Fox/Liberty Networks' net loss was approximately $48
million, $1 million and $77 million for the four months ended June 30, 1999,
the two months ended February 28, 1999 and the six months ended June 30, 1998,
respectively. Liberty's share of losses for the four months ended June 30, 1999
included $23 million in amortization related to purchase accounting adjustments
associated with Liberty's investment in Fox/Liberty Networks in connection with
the AT&T merger. Liberty's share of losses for the six months ended June 30,
1998 includes previously unrecognized losses of Fox/Liberty Networks of
approximately $64 million. Losses for Fox/Liberty Networks were not recognized
in prior periods due to the fact that Liberty's investment in Fox/Liberty
Networks was less than zero. (See note 3 to the accompanying June 30, 1999
consolidated financial statements).
Telewest. Revenue increased $242 million or 65% from $374 million for the six
months ended June 30, 1998 to $616 million for the same period in 1999. The
increase was primarily due to the acquisition of General Cable plc and
Birmingham Cable Corporation Limited in September of 1998 and increased cable
penetration due to the success of Telewest's low-cost bundled television and
telephony services introduced during 1998. Operating Cash Flow increased $83
million or 92% from $90 million for the six months ended June 30, 1998 to $173
million for the six months ended June 30, 1999. The increase in Operating Cash
Flow was largely due to the increase in revenue and economies of scale
resulting from the enlarged operations. Telewest's net loss increased $240
million or 100% from $240 million for the six months ended June 30, 1999 to
$480 million for the six months ended June 30, 1999. The increase in net loss
was due to increased interest expense of $129 million and increased foreign
currency transaction losses of $76 million. Telewest experiences unrealized
foreign currency transaction losses on its U.S. dollar denominated debentures
resulting from the translation of the debentures into UK pounds sterling and
the adjustment of a related foreign currency option contract to market value.
Liberty's share of Telewest's net losses was approximately $97 million, $38
million and $64 million for the four months ended June 30, 1999, the two months
ended February 28, 1999 and the six months ended June 30, 1998, respectively.
Liberty's share of losses for the four months ended June 30, 1999 included $29
million in amortization related to purchase accounting adjustments associated
with Liberty's investment in Telewest in connection with the AT&T merger.
PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $324 million during the six months ended June 30, 1998. At that
time, the PCS Ventures included Sprint Spectrum Holding Company, L.P. and
MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P.
The partners of each of the Sprint PCS partnerships were subsidiaries of
Sprint, Comcast Corporation, Cox Communications, Inc. and Liberty. The partners
of PhillieCo were subsidiaries of Sprint, Cox and Liberty. Liberty had a 30%
partnership interest in each of the Sprint PCS partnerships and a 35%
partnership interest in PhillieCo.
On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo for shares of Sprint PCS Group stock
which tracks the performance of Sprint's newly created PCS Group (consisting
initially of the PCS Ventures and certain PCS licenses which were separately
owned by Sprint). Through November 23, 1998, Liberty accounted for its interest
in the PCS Ventures using the equity method of accounting; however, as a result
of the foregoing exchange and Liberty's less than 1% voting interest in Sprint,
Liberty no longer exercises significant influence with respect to its
investment in the PCS Ventures. Accordingly, Liberty accounts for its
investment in the Sprint PCS Group stock as an available-for-sale security.
(See note 5 to the accompanying June 30, 1999 consolidated financial
statements).
27
<PAGE>
Year Ended December 31, 1998 compared to December 31, 1997 and December 31,
1996
General Information
Due to a number of transactions that were completed during the three year
period ended December 31, 1998, the results of operations during this period
are not comparable from year to year. These transactions resulted in the
consolidation or deconsolidation of several entities:
. Effective February 1, 1998, Turner-Vision, Inc. contributed the assets,
obligations and operations of its retail C-band satellite business to
Superstar/Netlink Group LLC, a consolidated subsidiary of TV Guide, in
exchange for an approximate 20% ownership interest in Superstar/Netlink.
As a result of this transaction, Turner-Vision's results of operations
have been included in the consolidated financial results of TV Guide,
and therefore the consolidated results of Liberty, as of February 1,
1998.
. Effective January 1, 1998, Time Warner exercised an option to acquire
the business of Southern Satellite and accordingly the results of
operations of that business were no longer included in the consolidated
financial results of Liberty as of that date.
. During October 1997, Liberty Media International sold a portion of its
interest in Cablevision. As a result, effective October 1, 1997, Liberty
ceased to consolidate Cablevision and began to account for its
investment in Cablevision using the equity method of accounting.
. Effective July 1, 1997, as a result of the merger of TCI Music and DMX,
LLC, TCI Music's results of operations have been included in the
consolidated financial results of Liberty (see note 11 to the
accompanying December 31, 1998 consolidated financial statements).
. In January 1997, Liberty Media International's voting interest in
Flextech was reduced to 50% and Liberty ceased to consolidate Flextech
and began to account for its investment in Flextech using the equity
method of accounting.
. Effective December 1996, Home Shopping Network, Inc. merged with Silver
King Communications, Inc. As a result of this merger, Liberty no longer
had voting control of Home Shopping Network and accordingly, Liberty
ceased to consolidate Home Shopping Network and began to account for its
investment in Home Shopping Network using the equity method of
accounting.
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The table below sets forth, for the periods indicated, certain financial
information and percentage relationship that certain items bear to revenue.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
% of % of % of
total total total
Amount revenue Amount revenue Amount revenue
------ ------- ------ ------- ------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Encore Media Group
Revenue........................ $ 541 100% $ 350 100% $ 195 100%
Operating, selling, general and
administrative................ 445 82 382 109 290 149
Stock compensation............. 58 11 60 17 17 9
Depreciation and amortization.. 8 1 4 1 3 2
----- --- ----- --- ------ ---
Operating income (loss)....... $ 30 6% $ (96) (27)% $ (115) (59)%
===== === ===== === ====== ===
TV Guide
Revenue........................ $ 598 100% $ 508 100% $ 410 100%
Operating, selling, general and
administrative................ 475 79 404 80 343 84
Depreciation and amortization.. 28 5 19 4 16 4
----- --- ----- --- ------ ---
Operating income.............. $ 95 16% $ 85 17% $ 51 12%
===== === ===== === ====== ===
Other
Revenue........................ $ 220 (a) $ 367 (a) $1,603 (a)
Operating, selling, general and
administrative................ 223 280 1,475
Stock compensation............. 460 236 (23)
Depreciation and amortization.. 94 100 154
----- ----- ------
Operating loss................ $(557) $(249) $ (3)
===== ===== ======
</TABLE>
- --------
(a) Not meaningful.
Consolidated Subsidiaries
Encore Media Group. Revenue generated from Encore Media Group increased to
$541 million in 1998 from $350 million in 1997. This increase of $191 million,
or 55%, was primarily attributable to higher revenue from AT&T Broadband,
consistent with the terms of the affiliation agreement with AT&T Broadband, and
the increases in the distribution of Encore and STARZ! services to cable
operators other than AT&T Broadband and direct-to-home satellite providers
combined with increases in rates charged. Revenue generated from Encore Media
Group increased to $350 million in 1997 from $195 million in 1996. This
increase of $155 million, or 79%, can be attributed to higher revenue from AT&T
Broadband during the year as a result of an increase in units and the AT&T
Broadband/Encore Media Group affiliation agreement, and an increase in the
number of Encore and Multiplex units distributed to other cable operators and
direct broadcast satellite operators, when compared to 1996.
Operating, selling, general and administrative expenses increased to $445
million in 1998 from $382 million in 1997. The increase of $63 million, or 16%,
is the result of an increase in the first run program license fees during 1998
compared to 1997. Operating, selling, general and administrative expenses
increased to $382 million in 1997 from $290 million in 1996. This increase of
$92 million, or 32%, was caused by an increase in programming costs due to
Encore and Multiplex purchasing more recent programming, the transition to
digital technology, and an increase in national marketing and advertising
expenses.
TV Guide. Revenue increased 18% to $598 million in 1998 from $508 million in
1997, which in turn represented an increase of 24% from $410 million in 1996.
The increase in revenue in 1998 over 1997 was primarily due to the acquisition
of Turner-Vision's retail C-band operations which were consolidated with those
of Superstar/Netlink effective February 1, 1998 and increased advertising and
service fee revenue. These
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<PAGE>
increases were partially offset by a decrease in commission revenue from
Superstar/Netlink acting as a service agent in the direct broadcast satellite
market. The increase in revenue in 1997 over 1996 was attributable to the
acquisitions of the retail C-band operations of Liberty's Netlink USA division
which were consolidated with those of Superstar/Netlink's retail operations
effective April 1, 1996. The remainder of the increase in 1997 was due to
increased advertising and fee service revenue.
Operating, selling and general and administrative expenses consist primarily
of costs for programming content for the C-band operations and personnel costs.
Operating, selling, general and administrative expenses increased 18% to $475
million in 1998 from $404 million in 1997. Operating, selling, general and
administrative expenses increased 18% to $404 million in 1997 from $343 million
in 1996. The increase in 1998 over 1997 was primarily attributable to
additional expenses due to the inclusion of Turner-Vision, increased personnel
costs due to internal growth and increased legal fees related to litigation and
periodic filings with the SEC, and increased costs associated with Prevue
Channel's new format under the TV Guide Brand. The increase in operating,
selling, general and administrative expenses in 1997 over 1996 was largely
attributable to additional expenses due to the C-band retail operations of
Netlink USA and increased personnel costs resulting from internal growth.
Depreciation and amortization consists primarily of depreciation of leased
transponders, electronic and other equipment and amortization of intangible
assets resulting from acquisitions and patents. Depreciation and amortization
increased $9 million to $28 million in 1998 from $19 million in 1997 which in
turn represented an increase of 19% from $16 million in 1996. The increase in
1998 over 1997 was attributable to the amortization of intangibles resulting
from the acquisition of Turner-Vision and increased depreciation resulting from
the acquisition of certain equipment to support the various Prevue products.
The increase in depreciation and amortization in 1997 over 1996 was largely due
to increased depreciation resulting from the acquisition of equipment to
support the various Prevue products.
Other. Included in this information are the results of Liberty Media
International, TCI Music and Home Shopping Network. Revenue decreased to $220
million in 1998 from $367 million in 1997. Liberty Media International's
revenue decreased from $220 million in 1997 to $65 million in 1998. This $154
million decrease was attributable to the deconsolidation of Cablevision.
Cablevision represented $173 million in revenue during 1997. Additionally,
revenue decreased as a result of the sale of the business of Southern
Satellite. The business of Southern Satellite contributed $31 million to
revenue during 1997. In August 1998, Liberty Media International purchased
Pramer, which contributed an additional $17 million in revenue from the date of
acquisition to December 31, 1998. Revenue decreased to $367 million in 1997
from $1,603 million in 1996. This $1,236 million decrease is primarily
attributable to the deconsolidation of Home Shopping Network into an equity
method investment in December 1996. Revenue generated in 1996 by Home Shopping
Network through the date of deconsolidation amounted to $984 million. Effective
January 1, 1997, Liberty Media International ceased to consolidate the
operations of Flextech. Flextech represented $94 million in revenue during
1996.
Operating, selling, general and administrative expenses decreased to $223
million in 1998 from $280 million in 1997. The primary reason for this decrease
is the deconsolidation of Cablevision in October, 1997. Cablevision accounted
for approximately $105 million of operating expenses in 1997. Operating,
selling, general and administrative expenses decreased to $280 million in 1997
from $1,475 million in 1996. The decrease of $1,195 million was primarily
attributable to the deconsolidation of Home Shopping Network which accounted
for about $911 million in operating, selling and general and administrative
expense in 1996. An additional decrease was caused in operating, selling,
general and administrative expenses in 1997 because of the deconsolidation of
Flextech. Flextech represented $126 million in operating, selling, general and
administrative expenses during 1996.
The decrease of $54 million in depreciation and amortization expense in 1997
was attributable to the deconsolidation of Home Shopping Network in December
1996 and Flextech effective January 1, 1997.
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<PAGE>
The $224 million and $259 million increase in stock compensation in 1998 and
1997, respectively, is primarily attributable to Liberty corporate expenses.
The amount of expense associated with stock compensation is based on the
vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.
Other Income and Expense. Interest expense was $104 million, $40 million and
$53 million for 1998, 1997 and 1996, respectively. The increase in interest
expense of $64 million from 1997 to 1998 was a result of additional borrowing
on Liberty's credit facilities during 1998. There was a $13 million decrease in
interest expense from 1996 to 1997. Because the operations of Home Shopping
Network have not been included in Liberty's consolidated financial results
since December 20, 1996 interest expense related to Home Shopping Network
accounted for a majority of this decrease.
Dividend and interest income was $65 million, $59 million and $35 million for
1998, 1997 and 1996, respectively. Dividend and interest income for 1998
primarily represents dividends received of approximately $21 million on a
series of Time Warner common stock designated as Series LMCN-V Common Stock and
$31 million in dividends received on a new series of 30 year non-convertible 9%
preferred stock of Fox Kids Worldwide, Inc. During 1997 dividends received from
the Time Warner Series LMCN-V Common Stock and the Fox Kids Worldwide preferred
stock amounted to $19 million and $14 million, respectively. During 1997,
Liberty also recognized an additional $14 million in interest income relating
to short-term investments. The increase in dividend and interest income from
1996 to 1997 is due to the increase in both the Fox Kids Worldwide preferred
stock and Time Warner Series LMCN-V Common Stock dividends.
Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during 1998, 1997 and 1996 were $2,554 million, $406 million and
$1,558 million, respectively. As a result of the exchange by Liberty, Comcast
and Cox of their respective interests in Sprint PCS and PhillieCo Partnership
I, L.P. for shares of Sprint PCS Group stock, Liberty recorded a non-cash gain
of $1.9 billion (before deducting deferred income tax expense of $647 million)
during 1998 based on the difference between the carrying amount of Liberty's
interest in the PCS Ventures and the fair value of the Sprint securities
received. Pursuant to an option from Liberty, Time Warner acquired the business
of Southern Satellite, effective January 1, 1998 for $213 million in cash. Time
Warner had paid Liberty shares of Time Warner Series LMCN-V Common Stock, which
are convertible into 12.8 million shares of Time Warner common stock, valued at
$306 million for the option. Liberty recognized a $515 million pre-tax gain in
connection with these transactions in 1998. Effective September 1, 1998,
Telewest and General Cable PLC consummated a merger in which holders of General
Cable received Telewest shares and cash for each share of General Cable held.
As a result of the merger, Liberty recognized a non-cash gain of $60 million
(excluding related tax expense of $21 million) during 1998. Liberty recognized
a gain of $38 million in 1998 from the increase in Superstar/Netlink's equity,
net of the dilution of its interest in Superstar/Netlink, that resulted from
the above described transaction with Turner-Vision.
On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. and $23 million of International Family Entertainment 6%
convertible secured notes due 2004, convertible into International Family
Entertainment Class C common stock, contributed its International Family
Entertainment Class C common stock and International Family Entertainment 6%
convertible secured notes to Fox Kids Worldwide in exchange for the Fox Kids
Worldwide preferred stock. As a result of the exchange, Liberty recognized a
pre-tax gain of approximately $304 million during 1997.
On October 10, 1996, Time Warner and Turner Broadcasting System, Inc.
consummated a merger in which Liberty received shares of Time Warner Series
LMCN-V Common Stock, which are convertible into approximately 101.2 million
shares of Time Warner common stock, in exchange for its Turner Broadcasting
System holdings. As a result of the merger, Liberty recognized a pre-tax gain
of approximately $1.5 billion in 1996.
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<PAGE>
Investments in Affiliates Accounted for Under the Equity Method
Liberty's share of losses of affiliates was $1,002 million, $785 million and
$332 million during 1998, 1997 and 1996, respectively.
Discovery. Revenue increased $234 million or 27% to $1,094 million in 1998
from $860 million in 1997, which in turn represented a $192 million or 29%
increase over revenue of $668 million in 1996. The increase in revenue for each
of the respective periods was due to increases in the number of subscribers at
Discovery's various networks along with an increase in the average per
subscriber affiliate fee. Advertising revenue also contributed to the increases
due to the increase in subscribers combined with an increase in ratings.
Operating Cash Flow increased $80 million or 267% to $110 million in 1998
from $30 million in 1997, which in turn represented a decrease of $41 million
or 58% from Operating Cash Flow of $71 million in 1996. The increase in
Operating Cash Flow from 1998 to 1997 was due to the revenue growth at the
developed domestic and international networks offset by a smaller corresponding
increase in operating expenses at those networks. The decrease from 1996 to
1997 was due to continued growth in the developed domestic and international
networks offset by the launch of an array of new networks and services. Late in
1996 and during 1997, Discovery launched Animal Planet, the Travel Channel,
BBC/Discovery joint venture networks, Your Choice TV, the digital networks and
retail operations. The launch of these networks and services caused Operating
Cash Flow to decrease due to large marketing support payments and significant
start-up costs.
Discovery's net loss increased by $19 million or 36% to $72 million in 1998
from $53 million in 1997, which in turn represented a decrease of $56 million
from net income of $3 million in 1996. The increase in the net loss from 1997
to 1998 was due to the improvement in Operating Cash Flow offset by an increase
in interest expense, launch amortization and stock compensation as well as the
write off of Your Choice TV. The increase in the net loss from 1996 to 1997 was
due to the decrease in Operating Cash Flow as well as increases in launch
amortization, interest expense and stock compensation. Liberty's share of
losses was $39 million and $29 million, for each of 1998 and 1997, respectively
and Liberty's share of earnings for 1996 was less than $1 million.
USA Networks, Inc. Revenue increased $1,372 million or 109% to $2,634 million
in 1998 from $1,262 million in 1997, which in turn represented a $1,187 million
increase over revenue of $75 million in 1996. The increase in revenue from 1997
to 1998 was due to the Universal and Ticketmaster transactions being completed
by USA Networks during 1998 (see note 5 to the accompanying December 31, 1998
consolidated financial statements). The increase from 1996 to 1997 was
primarily due to a $1 billion increase in electronic retailing revenue and a
$156 million increase in ticketing revenue.
Operating Cash Flow increased $272 million to $464 million in 1998 from $192
million in 1997, which in turn represented an increase of $173 million over
Operating Cash Flow of $19 million in 1996. The increase in Operating Cash Flow
from 1997 to 1998 was due to the Universal and Ticketmaster transactions. The
increase from 1996 to 1997 was due to the revenue increase offset by an
increase in operating costs of $898 million and $144 million related to
electronic retailing and ticketing operations, respectively.
Net income increased by $64 million to $77 million in 1998 from $13 million
in 1997, which in turn represented an increase of $20 million from a net loss
of $7 million in 1996. The increase in net income from 1997 to 1998 was due to
the increase in Operating Cash Flow along with one-time transactional gains
offset by significant increases in depreciation, amortization, interest and
income tax expenses. The increase from 1996 to 1997 was also due to the
increase in Operating Cash Flow offset by increases in depreciation,
amortization, interest and income tax expenses. Liberty's share of earnings
(loss) of USA Networks and related investments was $30 million, $6 million and
($1) million for 1998, 1997, and 1996, respectively.
QVC Inc. Revenue increased $321 million or 15% to $2,403 million in 1998 from
$2,082 million in 1997, which in turn represented a $246 million increase or
13% over revenue of $1,836 in 1996. The respective
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<PAGE>
increase in revenue for the years ended December 31, 1998 and 1997 were
primarily attributable to the effects of 5.6% and 7.4% increases, respectively,
in the average number of homes receiving QVC services in the U.S. and 11.8% and
13.7% increases, respectively, in the average number of homes receiving QVC
services in the United Kingdom.
Operating Cash Flow increased $96 million or 28% to $434 million in 1998 from
$338 million in 1997, which in turn represented a $38 million or 13% increase
over Operating Cash Flow of $300 million in 1996. The increase in Operating
Cash Flow was caused by the increase in revenue offset by increases in cost of
goods sold and variable costs associated with the increased sales. Start-up
costs of QVC Germany also contributed $3 million and $26 million to the
respective increases in offsetting costs for the years ended December 31, 1998
and 1997.
Net income increased 110% or $78 million to $149 million in 1998 from $71
million in 1997, which in turn represented an increase of $18 million or 34%
over net income of $53 million in 1996. The increases in net income were due to
the increases in Operating Cash Flow offset by increases in depreciation,
amortization and income tax expenses in each of the respective periods
presented. Liberty's share of earnings was $64 million, $30 million and $23
million for 1998, 1997 and 1996, respectively.
Fox/Liberty Networks. Revenue increased 39% or $183 million to $655 million
in 1998 from $472 million in 1997, which in turn represented an increase of
226% or $327 million from $145 million in 1996. A large portion of the increase
in revenue is due to the acquisition of Affiliated Regional Communications by
Fox/Liberty Networks on March 13, 1997 which increased the number of
consolidated subsidiaries and their respective operations. Had the acquisition
of Affiliated Regional Communications been completed for all periods presented,
revenue would have increased $128 million and $30 million for 1998 and 1997,
respectively. The increases in revenue were attributable to continued
subscriber growth at the regional sports networks and the FX network along with
increased advertising revenue due to increased subscribers and ratings.
Operating Cash Flow increased $94 million to $79 million in 1998 from a
deficit of $15 million in 1997, which in turn represented an increase of $69
million from a deficit of $84 million in 1996. The increases in Operating Cash
Flow were caused by the revenue growth coupled with an increase in operating
expenses. The increases in operating expenses for all periods presented were
due to an increase in the number of professional events, primarily Major League
Baseball games, as well as increased programming rights fees of regional sports
networks due to renegotiated and newly entered into sports rights agreements.
Fox/Liberty Networks net loss decreased by $16 million or 21% to $62 million
in 1998 from $78 million in 1997, which in turn represented a decrease of $39
million or 33% from a net loss of $117 million in 1996. The decrease in the net
loss was due to the improvement in Operating Cash Flow offset primarily by
interest expense. In 1998, interest expense increased to $113 million from $49
million due to additional indebtedness that was entered into in the latter half
of 1997. Liberty's share of losses was $83 million for 1998 and zero for both
1997 and 1996, as Liberty's basis in the investment was less than zero (see
note 5 to the accompanying December 31, 1998 consolidated financial
statements).
PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million, $493 million and $133 million in 1998, 1997 and
1996, respectively. The increase in the share of losses in each year was
attributed primarily to increases in (1) selling, general and administrative
costs associated with Sprint PCS's efforts to increase its customer base, (2)
depreciation expense resulting from capital expenditures made to expand its PCS
network and (3) interest expense associated with higher amounts of outstanding
debt.
Telewest. Telewest accounted for $134 million, $145 million and $109 million
of Liberty's share of its affiliates' losses during 1998, 1997 and 1996,
respectively. The increase in the share of losses in each year was primarily
attributable to the net effects of (1) changes in foreign currency transaction
losses, (2) an increase in Operating Cash Flow resulting from revenue growth
and (3) an increase in interest expense. Telewest issued debentures in
connection with a previous merger transaction. Changes in the exchange rate
used to translate the
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Telewest debentures into U.K. pounds sterling and the adjustment of a foreign
currency option contract to market value caused Telewest to experience foreign
currency transaction gains/losses that affected Liberty's share of Telewest's
losses.
Liquidity and Capital Resources
Liberty's sources of funds include its available cash balances, net cash from
operating activities, dividend and interest receipts, proceeds from asset sales
and availability under certain credit facilities. Liberty is a holding company
and as such is generally not entitled to the cash resources or cash generated
by operations of its subsidiaries and business affiliates. Liberty is primarily
dependent upon its financing activities to generate sufficient cash resources
to meet its cash requirements. See "Risk Factors--We are a holding company with
our assets held primarily by our subsidiaries. Creditors of those companies
have a claim on their assets that is senior to that of holders of the
securities."
In connection with the AT&T merger and other related transactions, Liberty
received approximately $5.5 billion in cash. Also, upon consummation of the
AT&T merger, through a new tax sharing agreement between Liberty and AT&T,
Liberty became entitled to the benefit of all of the net operating loss
carryforwards available to the entities included in TCI's consolidated income
tax return as of the date of the AT&T merger. In addition, under the tax
sharing agreement, Liberty will receive a cash payment from AT&T in periods
when it generates taxable losses and those taxable losses are utilized by AT&T
to reduce the consolidated income tax liability. Additionally, certain warrants
held by TCI were transferred to Liberty in exchange for $176 million in cash.
At June 30, 1999, Liberty had bank credit facilities which provided for
borrowings of up to $3.0 billion. Borrowings under these facilities of $2.1
billion were outstanding at June 30, 1999. Certain assets of Liberty serve as
collateral for borrowings under these bank credit facilities. Also, these bank
credit facilities contain provisions which limit additional indebtedness, sale
of assets, liens, guarantees, and distributions by the borrowers. On July 7,
1999, Liberty received net cash proceeds of approximately $741 million and $494
million from the issuance of the outstanding notes and the outstanding
debentures, respectively. The proceeds were used to repay outstanding
borrowings under certain of Liberty's credit facilities, two of which were
subsequently terminated. See "Description of Certain Indebtedness" and note 7
to the accompanying June 30, 1999 consolidated financial statements of Liberty.
Additionally, there are restrictions on incurrence of debt of Liberty Media
Group and therefore on Liberty, through an Inter-Group Agreement with AT&T.
Liberty Media Group may not incur any debt that would cause the total
indebtedness of Liberty Media Group at any time to be in excess of 25% of the
total market capitalization of the Liberty Media Group tracking stock, if the
excess would adversely affect the credit rating of AT&T. See "Relationship with
AT&T and Certain Related Transactions--Relationship with AT&T--Inter-Group
Agreement--There are Restrictions on the Incurrence of Debt and Other Financial
Obligations."
Various partnerships and other affiliates of Liberty accounted for under the
equity method finance a substantial portion of their acquisitions and capital
expenditures through borrowings under their own credit facilities and net cash
provided by their operating activities.
On April 8, 1999, substantially all of Liberty Media International's 4 1/2%
convertible subordinated debentures were converted into shares of Liberty Media
Group tracking stock. Since substantially all of the debenture holders elected
to convert, no payment of interest and no adjustment in respect of interest was
made.
On July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty
Networks in exchange for 51.8 million News Corp. American Depository Receipts
("ADRs") representing preferred limited voting ordinary shares of News Corp.
Liberty also acquired from News Corp. 28.1 million additional ADRs representing
preferred limited voting ordinary shares of News Corp. for approximately $695
million. As a result of these transactions and subsequent open market
purchases, Liberty owns approximately 82.7 million ADRs representing preferred
limited voting ordinary shares of News Corp., or approximately 8.5% of News
Corp.'s diluted outstanding shares. News Corp. has historically paid cash
dividends on its common stock and it is anticipated that they will continue to
do so. Holders of the ADRs are entitled to receive dividends ratably
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with News Corp. common stock, and consequently, Liberty would receive cash
dividends on the ADRs received in the above described transactions. However,
there can be no assurance that such dividends will continue to be paid.
As of June 30, 1999, Liberty holds shares of Time Warner Series LMCN-V Common
Stock which are convertible into 114 million shares of Time Warner common
stock. Holders of Time Warner Series LMCN-V Common Stock are entitled to
receive dividends ratably with Time Warner common stock. Liberty has received
approximately $5 million in cash dividends quarterly from Time Warner. It is
anticipated that Time Warner will continue to pay dividends on its common stock
and consequently that Liberty will receive dividends on the Time Warner Series
LMCN-V Common Stock it holds. However, there can be no assurance that such
dividends will continue to be paid.
Liberty receives approximately $8 million in cash dividends quarterly on the
Fox Kids Worldwide preferred stock. This preferred stock pays quarterly
dividends at the annual rate of 9% of the liquidation value of $1,000 per
share. If Fox Kids Worldwide does not declare or pay a quarterly dividend, that
dividend will be added to the liquidation value and the dividend rate will
increase to 11.5% per annum until all accrued and unpaid dividends are paid.
News Corp. has undertaken to fund all amounts needed by Fox Kids Worldwide to
pay any amounts it is required to pay under the certificate of designations for
the Fox Kids Worldwide preferred stock, including payment of the liquidation
value of that stock upon any optional or mandatory redemption of that stock.
Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United
States Department of Justice on December 30, 1998, Liberty transferred all of
its beneficially owned securities of Sprint to a trust prior to the AT&T
merger. The proposed final judgment, if entered by the United States District
Court for the District of Columbia, would require the trustee, on or before May
23, 2002, to dispose of a portion of the Sprint securities held by the trust
sufficient to cause Liberty to own beneficially no more than 10% of the
outstanding Sprint PCS Group Stock that would be outstanding on a fully diluted
basis on such date. On or before May 23, 2004, the trustee must divest the
remainder of the Sprint securities held by the trust. The proposed final
judgment would provide that the trustee vote the Sprint securities beneficially
owned by Liberty in the same proportion as other holders of Sprint PCS Group
stock so long as such securities are held by the trust. The proposed final
judgment would also prohibit the acquisition by Liberty of additional Sprint
securities, with certain exceptions, without the prior written consent of the
Department of Justice.
During the four month period ended June 30, 1999, the unrealized
appreciation, net of taxes, of the fair value of Liberty's shares of Time
Warner Series LMCN-V Common Stock was $230 million based upon the market value
of the Time Warner common stock into which the Time Warner Series LMCN-V Common
Stock is convertible. During the four month period ended June 30, 1999, the
unrealized appreciation, net of taxes, of the fair value of the Sprint PCS
Group stock held by Liberty was $1,396 million based upon the market value of
such shares.
Liberty has guaranteed notes payable and other obligations of certain
affiliates. At June 30, 1999, the U.S. dollar equivalent of the amounts
borrowed pursuant to these guaranteed obligations aggregated approximately $377
million.
Flextech has undertaken to finance the working capital requirements of a
joint venture that it has formed with BBC Worldwide Limited and is obligated to
provide this joint venture with a primary credit facility of (Pounds)88 million
($139 million) and, subject to certain restrictions, a standby credit facility
of (Pounds)30 million ($49 million). As of June 30, 1999, this joint venture
had borrowed (Pounds)40 million ($63 million) under the primary credit
facility. If Flextech defaults in its funding obligation to the joint venture
and fails to cure the default within 42 days after receipt of notice from BBC
Worldwide, BBC Worldwide is entitled, within the following 90 days, to require
that Liberty assume all of Flextech's funding obligations to the joint venture.
Liberty intends to continue to develop its entertainment and information
programming services and has made certain financial commitments related to the
acquisition of programming. As of June 30, 1999, Encore
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Media Group's future minimum obligation related to certain film licensing
agreements was $775 million. The amount of the total obligation is not
currently estimable because such amount is dependent upon the number of
qualifying films released theatrically by certain motion picture studios as
well as the domestic theatrical exhibition receipts upon the release of such
qualifying films. Continued development may require additional financing and it
cannot be predicted whether Encore Media Group will obtain such financing. If
additional financing cannot be obtained by Encore Media Group, Encore Media
Group or Liberty could attempt to sell assets but there can be no assurance
that asset sales, if any, can be consummated at a price and on terms acceptable
to Liberty.
Market Risk
Liberty is exposed to market risk in the normal course of its business
operations due to its investments in different foreign countries and ongoing
investing and financial activities. Market risk refers to the risk of loss
arising from adverse changes in foreign currency exchange rates, interest rates
and stock prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings. Liberty has
established policies, procedures and internal processes governing its
management of market risks and the use of financial instruments to manage its
exposure to such risks.
Contributions to Liberty's foreign affiliates are denominated in foreign
currency. Liberty therefore is exposed to changes in foreign currency exchange
rates. Currently, Liberty does not hedge any foreign currency exchange risk
because of the long-term nature of its interests in foreign affiliates. Liberty
attempts to limit its exposure to changing foreign currency exchange rates
through operations and financial market actions, but Liberty continually
evaluates its foreign currency exposure (primarily the Argentine Peso, British
Pound Sterling, Japanese Yen and French Franc) based on current market
conditions and the business environment.
Liberty is exposed to changes in interest rates primarily as a result of its
borrowing and investment activities, which include short-term fixed and
floating rate investments and borrowings used to maintain liquidity and fund
its business operations. The nature and amount of Liberty's long-term and
short-term debt are expected to vary as a result of future requirements, market
conditions, and other factors. Interest rate swaps are used to manage interest
rate risk.
Liberty is exposed to changes in stock prices primarily as a result of its
significant holdings in publicly traded securities. Liberty continually
monitors changes in stock markets, in general, and a change in the stock prices
of its significant holdings, specifically. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors. Equity collars and equity
swaps are used to hedge investment positions subject to fluctuations in stock
prices.
Liberty measures the market risk of its derivative financial instruments
through comparison of the blended rates achieved by those derivative financial
instruments to the historical trends in the underlying market risk hedged. With
regard to interest rate swaps, Liberty monitors the fair value of interest rate
swaps as well as the effective interest rate the interest rate swap yields, in
comparison to historical interest rate trends. Liberty believes that any losses
incurred with regard to interest rate swaps would be offset by the effects of
interest rate movements on the underlying hedged facilities. With regard to
equity collars and hedges, Liberty monitors historical market trends relative
to values currently present in the market. Liberty believes that any unrealized
losses incurred with regard to equity collars and swaps would be offset by the
effects of fair value changes on the underlying hedged assets. These measures
allow Liberty's management to measure the success of its use of derivative
instruments and to determine when to enter into or exit from derivative
instruments.
Accounting Standards
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
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reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the (1) fair values of existing assets,
liabilities, or firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposures of net investments in foreign
operations. Although our management has not completed its assessment of the
impact of Statement 133 on its consolidated results of operations and
financial position, management estimates that the impact of Statement 133 will
not be significant.
Year 2000
Liberty, in conjunction with TCI, and following the AT&T merger, AT&T, has
implemented enterprise-wide, comprehensive efforts to assess and remediate its
computer systems and related software and equipment to ensure such systems,
software and equipment recognize, process and store information in the year
2000 and thereafter.
Liberty's year 2000 remediation efforts include an assessment of its most
critical systems. The majority of these efforts have been focused on our
operating subsidiaries, primarily TCI Music, Encore Media Group and TCI
Cablevision of Puerto Rico. The most critical systems for these operating
subsidiaries include their customer service systems, product delivery systems
and billing systems.
We continue our efforts to verify the year 2000 readiness of our significant
suppliers and vendors and continue to communicate with significant business
partners and affiliates to assess such partners and affiliates' year 2000
status.
AT&T has a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting Liberty's year 2000 remediation
efforts. At June 30, 1999, it was comprised of a 340-member, full-time staff,
accountable to executive management of AT&T.
The PMO has defined a four-phase approach to determining the year 2000
readiness of our systems, software and equipment. This approach is intended to
provide a detailed method for tracking the evaluation, repair and testing of
our critical systems, software and equipment. Phase 1, Assessment, involves
the inventory of all critical systems, software and equipment and the
identification of any year 2000 issues. Phase 1 also includes the preparation
of the workplans needed for remediation. Phase 2, Remediation, involves
repairing, upgrading and/or replacing any non-compliant critical equipment and
systems. Phase 3, Testing, involves testing our critical systems, software,
and equipment for year 2000 readiness, or in certain cases, relying on test
results provided to us. Phase 4, Implementation, involves placing compliant
systems, software and equipment into production or service.
At June 30, 1999, Liberty's overall progress by phase was as follows:
<TABLE>
<CAPTION>
Percentage of Expected Completion
year 2000 Projects Date --
Phase Completed by Phase* All year 2000 Projects
-------------------------------- ------------------- -----------------------
<S> <C> <C>
Phase 1-Assessment.............. 100% Complete
Phase 2-Remediation............. 85% July 1999
Phase 3-Testing................. 69% September 1999
Phase 4-Implementation.......... 59% October 1999
</TABLE>
--------
* The percentages set forth above were calculated by dividing the number of
year 2000 projects that have completed a given phase by the total number
of year 2000 projects.
The completion dates set forth above are based on our current expectations.
However, due to the uncertainties inherent in year 2000 remediation, no
assurances can be given as to whether such projects will be completed on such
dates.
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We have completed the inventory and assessment of critical systems with
embedded technologies that impact our operations.
During 1999, we are continuing our survey of significant third-party vendors
and suppliers whose systems, services or products are important to our
operations, including billing systems for TCI Cablevision of Puerto Rico. We
have received information that critical systems, services or products supplied
to us by third parties are either year 2000 ready or are expected to be year
2000 ready by the third quarter of 1999.
In addition to the survey process described above, our management has
identified our most critical supplier/vendor relationships and has instituted a
verification process to determine the vendors' year 2000 readiness. Such
verification includes, as deemed necessary, reviewing vendors' test and other
data and engaging in regular conferences with vendors' year 2000 teams. For
those vendors and suppliers who do not expect to be year 2000 ready by December
31, 1999, or are deemed to be critical to our operations, contingency planning
efforts are underway to make such changes as are required to continue critical
operations.
Significant market value is associated with our investments in certain public
and private corporations, partnerships and other businesses. Accordingly, we
are monitoring the public disclosure of such publicly-held business entities to
determine their year 2000 readiness, including Time Warner and Sprint. In
addition, we have surveyed and monitored the year 2000 status of certain
privately held business entities in which we have significant investments. For
updated information related to such companies' year 2000 programs, please refer
to the most recent periodic filings with the SEC of Time Warner and Sprint. See
"Where to Find More Information."
Year 2000 expenses and capital expenditures incurred during the six months
ended June 30, 1999 were each less than $1 million. Our management currently
estimates the remaining costs to be not less than $4 million, bringing the
total estimated cost associated with our year 2000 remediation efforts to be
not less than $6 million (including $1 million for replacement of noncompliant
information technology ("IT") systems). Although no assurances can be given,
management currently expects that (1) cash flow from operations will fund the
costs associated with year 2000 compliance and (2) the total projected cost
associated with our year 2000 program will not be material to our financial
position, results of operations or cash flows.
AT&T is a widely distributed enterprise in which allocation of certain
resources, including IT support is decentralized. Accordingly, AT&T does not
consolidate an IT budget. Therefore, total estimated year 2000 costs as a
percentage of an IT budget are not available. There are currently no planned IT
projects being deferred due to year 2000 costs.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that our year 2000 program will significantly reduce our risks
associated with the changeover to the year 2000 and has implemented certain
contingency plans to minimize the effect of any potential year 2000 related
disruptions. The risks and the uncertainties discussed below and the associated
contingency plans relate to systems, software, equipment, and services that we
have deemed critical in regard to customer service, product delivery, revenue
stream or public safety.
Product delivery could be adversely impacted by the failure of certain
equipment and software to deliver the audio signals and the related commercials
at TCI Music and load and play movie tapes at Encore Media Group. If this were
to happen, we anticipate TCI Music would be able to use alternative equipment
to manually deliver the audio signals and the related commercials and Encore
Media Group would be able to manually load and play the movie tapes to avoid
disruption of delivery.
Customer service networks and/or automated voice response systems failure
could prevent access to customer account information and disable or slow the
processing of music-on-demand requests. If this were to happen, we anticipate
TCI Music and TCI Cablevision of Puerto Rico would have its customer service
representatives answer telephone calls from customers in the event of outages
and could retrieve needed customer information manually from the billing
service provider.
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Billing systems services failure could result in a loss of customer records
which could disrupt the ability to bill customers for a protracted period. We
anticipate TCI Music will prepare electronic backup records of its customer
billing information prior to the year 2000 to allow for any necessary data
recovery.
We own investments in numerous cable programming operators and other
businesses. The market value of our investment in these entities could be
adversely impacted by material failures of such entities to address year 2000
remediation issues (including supplier and vendor issues) related to their
programming services and businesses. Further, due to tax and strategic
considerations, we have a limited ability to dispose of these investments if
year 2000 issues develop. Therefore, as a contingency plan, we have undertaken
an extensive effort to verify and in certain cases assist in the year 2000
remediation efforts of companies in which we have significant investments.
Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. In the event of such a failure we would
expect to return such systems to normal functioning by turning the power off
and then on again ("power off/on"). We also plan to have additional security
staff on site and if necessary, will implement a backup plan for communicating
with local fire and police departments. Also, certain personal computers
interface with and control elevators, escalators, wireless systems, public
access systems and certain telephony systems. In the event such computers cease
operating, conducting a power off/on is expected to result in the computers
resuming normal functioning. If a power off/on does not result in normal
functioning, management expects to resolve any problem by resetting the
computer to a pre-designated date which precedes the year 2000.
We have not and cannot estimate the financial impact of any or all of the
above worst-case scenarios due to the numerous uncertainties and variables
associated with such scenarios.
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CORPORATE HISTORY
Liberty's former parent, TCI, began acquiring interests in programming
businesses in the late 1970's in an effort to ensure quality content for
distribution on its cable television systems. TCI's early programming interests
included those in Black Entertainment Television (since renamed BET Network),
Turner Broadcasting System (since acquired by Time Warner), Cable Educational
Network (since renamed Discovery Communications, Inc.), QVC Network, Inc.,
International Family Entertainment, Inc. and several regional sports networks.
TCI formed Liberty's predecessor (which we refer to as "LMC") for the purpose
of spinning off to TCI's shareholders, by means of an exchange offer, TCI's
interests in most of its cable television programming businesses and certain of
its affiliated cable television systems. TCI retained a significant interest in
LMC through its ownership of preferred stock, and effected the spinoff due to
concerns over proposals that were then pending before Congress that, if
enacted, would impose horizontal limits on the number of subscribers that could
be served by a single cable operator and vertical limits on the ownership by
cable operators of interests in cable programming services.
LMC began trading on March 28, 1991 with a fully diluted equity market
capitalization of approximately $190 million. At that time, its assets included
interests in cable television systems serving approximately 1.6 million
subscribers, regional sports networks and eight national programming services,
including QVC, Black Entertainment Television and The Family Channel. Over the
next three years LMC increased its programming assets by acquiring interests in
and developing companies that produced branded programming content, including
Encore Media Corporation, the Home Shopping Network and two national and
several regional sports networks.
On August 4, 1994, TCI reacquired the public's interest in LMC by means of a
merger, and LMC again became a wholly owned subsidiary of TCI. TCI determined
to reacquire LMC largely because the FCC adopted in 1994 vertical and
horizontal cable and programming regulations that a combined TCI and LMC could
fit within. At the time LMC was reacquired by TCI, LMC's fully diluted equity
market capitalization had grown to approximately $3.2 billion. At that time,
Liberty had interests in cable television systems serving approximately 3.2
million subscribers, 11 national programming services, including Encore, STARZ!
and QVC and two national and 13 regional sports networks.
In the fourth quarter of 1994, TCI reorganized its businesses into four
divisions: (1) Domestic Cable and Communications, (2) Programming, (3)
International Cable and Programming and (4) Technology/Venture Capital. This
business-line reorganization was effected in an effort to better focus
management expertise in the various areas into which TCI had evolved, and to
gain greater market recognition of the value of TCI's four lines of businesses.
In an effort to further gain market recognition of what TCI believed to be
hidden values in its asset base, in August 1995, TCI divided its common stock
into two tracking stocks, with one series of tracking stock intended to reflect
the separate performance of a newly created "Liberty Media Group." The assets
attributed to the Liberty Media Group were comprised primarily of the assets of
TCI's Programing division. The other series of tracking stock was intended to
reflect the separate performance of the "TCI Group," which was comprised of the
three other divisions of TCI.
The Liberty Media Group tracking stock began trading on August 10, 1995 with
a fully diluted equity market capitalization of approximately $4.5 billion. At
that time, Liberty's assets included interests in more than 30 national cable
programming services, three national and 15 regional sports networks and
various other businesses involved in television programming production and
distribution. Over the course of the next three years, Liberty continued to
expand its interests in programming services and leveraged several of its
interests to obtain the benefits of scale and liquidity. This included
Liberty's acquisition of an approximately 9% interest in Time Warner in
exchange for its interest in Turner Broadcasting System and the exchange of its
shares in International Family Entertainment for a preferred stock interest in
Fox Kids Worldwide.
In August 1997, TCI created a third class of tracking stock intended to track
the separate performance of the "TCI Ventures Group," which was comprised of
the International Cable and Programming division and the Technology/Venture
Capital division of TCI.
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On March 9, 1999, TCI was acquired by AT&T in a merger transaction in which
the holders of TCI Group tracking stock received AT&T common stock and holders
of Liberty Media Group tracking stock and TCI Ventures Group tracking stock
received shares of AT&T's Liberty Media Group tracking stock. In the merger
with AT&T, the holders of TCI's Liberty Media Group and TCI Ventures Group
tracking stocks received shares of AT&T's Liberty Media Group tracking stock
with a value of approximately $24 billion and $13 billion, respectively, based
on the closing price of AT&T's Liberty Media Group tracking stock on the New
York Stock Exchange on March 10, 1999 (which was the first day of trading). At
the time of the merger, Liberty's assets included interests in more than 50
national cable programming services, six national, 25 regional and six
international sports networks, 23 digital networks, ten Internet businesses,
over 65 international programming services, and cable and cable telephony
systems in Europe, Latin America and Japan.
As a result of the merger with AT&T, TCI and Liberty became wholly owned
subsidiaries of AT&T. In connection with the merger, most of the assets
formerly attributed to the TCI Ventures Group were transferred to Liberty.
Other assets that had been attributed to the TCI Ventures Group were
transferred to TCI in exchange for a cash contribution of approximately $5.5
billion to Liberty. As a result of these asset transfers, Liberty obtained
interests in foreign distribution companies, interests in certain foreign
programming businesses and interests in Internet and technology companies as
well as approximately $5.5 billion cash and the right to the U.S. federal
income tax benefits of a net operating tax loss carryforward possessed by TCI
at the time of its merger with AT&T. In addition, certain transaction
agreements were entered into in connection with the merger which provide
Liberty with a level of financial and operational separation from AT&T and
certain programming rights with respect to AT&T's cable systems. See
"Relationship with AT&T and Certain Related Transactions."
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BUSINESS
Overview
We are a leading media, entertainment and communications company with
interests in a diverse group of public and private companies that are market
leaders in their respective industries. Our subsidiaries and business
affiliates are engaged in a broad range of programming, communications,
technology and Internet businesses and have some of the most recognized and
respected brands. These brands include Encore, STARZ!, Discovery, TV Guide,
Fox, USA, QVC, CNN, TBS and Sprint PCS.
Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert
R. Bennett, our President and Chief Executive Officer, has extensive expertise
in creating and developing new businesses and opportunities for our
subsidiaries and business affiliates and in building scale, brand power and
market leadership. This expertise dates back to the late 1970's when members of
our management were instrumental in identifying and executing strategic
transactions to provide TCI, Liberty's former parent, with quality programming
for its cable television systems. Today, our management team continues to
leverage its expertise and industry relationships on behalf of our subsidiaries
and business affiliates to identify and execute strategic transactions that
improve the value of their businesses and that allow us to take full advantage
of new developments in consumer and technological trends.
The media, entertainment and communications industries are currently
undergoing tremendous changes due in part to the growth of new distribution
technologies, led by the Internet and the implementation of digital
compression. The growth in distribution technologies has, in turn, created
strong demand for an ever increasing array of multimedia products and services.
Liberty is working with its subsidiaries and business affiliates to extend
their established brands, quality content and networks across multiple
distribution platforms to keep them at the forefront of these ongoing changes.
Business Strategy
Our business strategy is to maximize the value of Liberty by (1) working with
the management teams of our existing subsidiaries and business affiliates to
grow their established businesses and create new businesses and (2) identifying
and executing strategic transactions that improve the value or optimize the
efficiency of Liberty's assets. Key elements of our business strategy include
the following:
Promote the internal growth of our subsidiaries and business affiliates. We
actively seek to foster the internal growth of our subsidiaries and business
affiliates by working with their management teams to expand their established
businesses and create new businesses, often by extending their existing brands
across multiple distribution platforms or effecting transactions that enhance
the scale of their operations. Our emphasis is on the creation and development
of multiple sources of revenue that enhance cash flow. We also seek to use our
extensive industry experience and relationships to provide our subsidiaries and
business affiliates with strategic alliances, greater visibility and improved
positioning in their respective markets. While the form of our participation in
our subsidiaries and business affiliates may change over time as a result of
acquisitions, mergers and other strategic transactions, we generally seek to
retain a significant long-term interest in their successors.
Maintain significant involvement in governance. We seek to add considerable
value to our subsidiaries and business affiliates through our strategic,
operational and financial advice. To ensure Liberty can exert significant
influence over management where we own less than a majority voting interest in
a business affiliate, we often seek representation at the board of directors
level and contractual rights that assure our participation in material decision
making. These contractual rights will typically include participation in budget
decisions, veto rights over significant corporate actions and rights of first
refusal with respect to significant dispositions of stock by management or
strategic partners.
Participate with experienced management and strategic partners. We seek to
participate in companies with experienced management teams that are led by
strong entrepreneurs, and partner with strategic investors
42
<PAGE>
that are engaged in complementary businesses with a demand for the products
and services of our subsidiaries and business affiliates. Our existing
business affiliates are led by such entrepreneurs as Barry Diller of USA
Networks, Inc., Rupert Murdoch of News Corp. and John Hendricks of Discovery
Communications, Inc., while our existing strategic partners include Comcast
Corporation, News Corp. and Time Warner.
Execute strategic transactions that optimize the efficiency of our
assets. We seek to identify and execute acquisitions, consolidations and other
strategic transactions that rationalize our participation in the businesses of
our subsidiaries and business affiliates. We often undertake transactions of
this nature to obtain the benefits of scale and liquidity as well as to
further diversify Liberty's businesses. In pursuing new acquisition
opportunities, we focus on businesses that have attractive growth
characteristics and offer strategic benefits to our existing subsidiaries and
business affiliates. We employ a conservative capital structure in managing
our assets and rationalizing our businesses. We also seek to enhance our
financial flexibility by utilizing multiple sources of capital and preserving
liquidity through our ownership of a mix of public and private assets.
Business Operations
Liberty is engaged principally in three fundamental areas of business:
. Programming, consisting principally of interests in video programming
services;
. Communications, consisting principally of interests in cable television
systems and other communications systems; and
. Internet services and technology.
Programming
Programming networks distribute their services through a number of
distribution technologies, including cable television, direct-to-home
satellite, broadcast television and the Internet. Programming services may be
delivered to subscribers as part of a video distributor's basic package of
programming services for a fixed monthly fee, or may be delivered as a
"premium" programming service for an additional monthly charge. Whether a
programming service is on a basic or premium tier, the programmer generally
enters into separate multi-year agreements, known as "affiliation agreements,"
with those distributors that agree to carry the service. Basic programming
services derive their revenues principally from the sale of advertising time
on their networks and from per subscriber license fees received from
distributors. Premium services do not sell advertising and primarily generate
their revenues from subscriber fees.
Basic programming services have benefited from strong industry dynamics and
fundamentals in recent years and, according to Paul Kagan Associates, Inc.,
have experienced a 20% compounded annual growth rate in their revenues over
the past 10 years. Revenues of premium programming services have also grown
significantly. Subscriptions to pay television services increased
significantly during this period, as more programming choices and distribution
formats became available. With the growth in subscriptions and demand for
programming options, many programming networks have been able to impose
significant rate increases when entering into or renegotiating their
affiliation agreements. The global proliferation of multi-channel distribution
technologies and new distribution technologies, such as the Internet, are
expected to continue to expand the demand for quality, branded programming
services. In addition, existing distributors are upgrading their networks to
provide digital and multimedia services, which will increase channel capacity
as well as demand for programming services. According to Paul Kagan
Associates, Inc., digital subscribers in the United States should increase to
43.4 million by 2006 accounting for 60.4% of total cable subscribers, up from
5.9 million subscribers in 1998. In response to the expected increase in
demand for programming services, programming service providers are expanding
their service offerings, including through additional channel launches and the
development of new multimedia and interactive services. The programming
companies in which Liberty has interests are actively involved in this
expansion and development.
43
<PAGE>
Consolidated Subsidiaries
Encore Media Group LLC
Encore Media Group LLC is a leading provider of cable and satellite-delivered
premium movie networks in the United States. It currently owns and operates 13
full-time domestic movie channels with 29 different feeds, including Encore,
which airs first-run movies and classic contemporary movies, STARZ!, a first-
run premium movie service, ten digital movie services programmed by theme, and
MOVIEplex, a "theme by day" channel featuring a different Encore or Encore
Thematic Multiplex channel each day, on a weekly rotation. Through the use of
thematic multiplexing--that is, the creation of multiple channels of
programming by reorganizing the movies by theme--Encore Media Group is well
positioned to take advantage of the increasing channel capacities created by
compressed digital distribution systems. In addition, Encore Media Group
currently has agreements in place with most of the major program distributors
and many smaller distributors to carry its thematic multiplex services in
digital packages. As digital service becomes more widely available, these
services will be available to most cable homes.
Encore Media Group currently has access to approximately 5,000 movies through
long-term licensing agreements and owns exclusive rights to the studio first-
run output from Disney's Hollywood Pictures, Touchstone and Miramax, as well as
Universal, New Line and Fine Line. Unlike vertically integrated programmers,
Encore Media Group is not committed to or dependent on any one source of film
productions. As a result, it has affiliations with every major Hollywood
studio, either through long-term output agreements or library access
arrangements. Encore Media Group's most significant long-term output agreements
are with Universal Pay Television, Inc., New Line Television, Inc. and Walt
Disney Pictures, and these output agreements expire between 2003 and 2007.
Encore Media Group also engages in original programming production.
The table below sets forth certain information about each of Encore Media
Group's domestic programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers/Units/1/ Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ------------------------------------- -------------------- -------- -----------
<S> <C> <C> <C>
Encore Media Group LLC............... 100%
Encore............................. 13,366 1991 100%
MOVIEplex.......................... 7,620 1995 100%
Thematic Multiplex (aggregate
units)............................ 22,137/2/ 1994 100%
Love Stories
Westerns
Mystery
Action
True Stories
WAM! America's Kidz Network
STARZ!............................. 9,543 1994 100%
STARZ! Multiplex (aggregate
units)............................ 5,557/2/
STARZ! Theater................... 1996 100%
STARZ! Family.................... 1999 100%
STARZ! Cinema.................... 1999 100%
BET Movies/STARZ!................ 1997 88%
</TABLE>
- --------
(1) Each premium service to which a household subscribes is counted as one
"unit." For example, one household subscribing to four services would be
counted as four "units."
(2) Digital services.
44
<PAGE>
Encore Media Group's business objective is to be the premier provider of
movie services. Its strategies for achieving its objective include: (1)
continuing to strengthen its core business assets in an effort to promote the
premium television category and increase cash flow from operations, (2) driving
demand for digital services to enable cable operators and direct broadcast
satellite providers to position themselves as a viable alternative to video
stores through a combination of pay-per-view channels, thematic multiplexing
and multiple time scheduled feeds, and (3) leveraging the strength of its brand
by extending its franchises into other forms of media, including online
applications, such as e-commerce.
Ownership Interest. Liberty's ownership in Encore Media Group began with an
investment in its predecessor in 1991 when Encore was launched as a low-priced
movie channel that cable operators could offer individually or packaged with
higher-priced services such as HBO and Showtime. Since December 31, 1992,
Encore's subscribers have grown from approximately 3.5 million to more than 13
million at June 30, 1999, and Encore Media Group's program offerings have grown
from one movie channel in 1991 to its current slate of 13 full-time movie
channels, with 29 different feeds.
Pramer S.C.A.
Pramer S.C.A. is the largest owner and distributor of cable television
programming services in Argentina. Pramer currently owns eight programming
services and distributes them throughout Argentina. Pramer also distributes
eight additional programming services, including two of Argentina's four
terrestrial broadcast stations, throughout Argentina. Of the 16 programming
services owned and/or distributed by Pramer, nine of them are distributed
throughout Latin America. Pramer intends to continue to develop and acquire
branded programming services and to further expand the carriage of its
programming to distribution networks outside Argentina. The table below sets
forth certain information about each of Pramer's owned programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ----------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Pramer S.C.A. (Argentina)...................... 100%
Plus Satelital............................... 3,930 1988 100%
Magic Kids................................... 3,863 1995 100%
Big Channel.................................. 2,359 1992 100%
America Sports............................... 2,367 1990 100%
Cineplaneta.................................. 2,044 1997 100%
Canal a...................................... 1,573 1996 100%
P&E.......................................... 788 1996 100%
Ideas........................................ 788 1991 100%
</TABLE>
Ownership Interest. Liberty's ownership in Pramer evolved out of a 1995
transaction in which Liberty Media International, Inc., a wholly owned
subsidiary of Liberty, acquired an equity interest in Cablevision S.A. from its
founding stockholders. As part of the transaction, Liberty Media International
was granted a right of first refusal to purchase the programming assets of
Pramer, which at that time were owned by the former Cablevision stockholders.
In August 1998, Liberty Media International exercised this right and purchased
100% of Pramer's issued and outstanding common stock for $32 million in cash
and $65 million in notes payable. Liberty made an $11 million payment on the
notes on October 1, 1998 and the remainder is due in 20 equal monthly
installments beginning October 15, 1998.
Business Affiliates
Discovery Communications, Inc.
Discovery Communications, Inc. is the largest originator of documentary,
nonfiction programming in the world. Since the 1985 launch of its flagship
domestic cable service and brand, Discovery Channel, Discovery has grown into a
global media enterprise with 1998 revenues exceeding $1 billion. It currently
operates programming services reaching more than 150 million people across six
continents.
45
<PAGE>
Discovery's programming, products and services derive from the following four
business units: (1) Discovery Networks, U.S., which is comprised of Discovery
Channel, The Learning Channel, Animal Planet, The Travel Channel and a package
of seven digital services; (2) Discovery Networks, International, which extends
Discovery's programming globally and currently reaches more than 73 million
subscribers in 155 foreign countries through 32 different network feeds in 24
languages; (3) Discovery Enterprises Worldwide, which includes Discovery's
brand extension business in retail, online, video, multimedia, publishing,
licensing and education; and (4) Discovery Themed Entertainment, which seeks to
extend Discovery's documentary platform into destination experiences, including
touring exhibits, live shows and attractions, events and site-based media.
Discovery's business objective is to be the premier global creator and
distributor of nonfiction entertainment content, including products, programs
and destination experiences, across all significant media platforms. Its
strategies for achieving its objective include: (1) leveraging the strength of
its brand by exploiting it over several platforms, including television, retail
and the Internet, (2) capitalizing on the global reach of its programming
business through the introduction of additional branded products and services
in foreign markets, (3) developing universally distributed networks that appeal
strongly to significant advertising categories (such as travel, health and
youth), and (4) continuing to preserve and strengthen its core business assets.
The table below sets forth certain information about Discovery's programming
services.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ----------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Discovery Communications, Inc.................. 49%
Discovery Channel............................ 76,303 1985 49%
The Learning Channel......................... 69,494 1980 49%
Animal Planet................................ 50,054 1996 49%
Discovery People............................. 10,000 1997 49%
Travel Channel............................... 30,911 1987 49%
Discovery Digital Services................... 5,222/1/ 49%
Discovery Civilization..................... 1996 49%
Discovery Health........................... 1998 49%
Discovery Home & Leisure................... 1996 49%
Discovery Kids............................. 1996 49%
Discovery Science.......................... 1996 49%
Discovery Wings............................ 1998 49%
Discovery en Espanol....................... 1998 49%
Animal Planet Asia........................... 476 1998 25%
Animal Planet Europe......................... 5,166 1998 49%
Animal Planet Latin America.................. 5,862 1998 25%
Discovery Asia............................... 33,520 1994 49%
Discovery India.............................. 9,500 1996 49%
Discovery Japan.............................. 1,153 1996 49%
Discovery Europe............................. 18,088 1989 49%
Discovery Turkey............................. 600 1997 49%
Discovery Germany............................ 386 1996 25%
Discovery Italy/Africa....................... 985 1996 49%
Discovery Latin America...................... 11,209 1996 49%
Discovery Latin America Kids Network......... 7,723 1996 49%
People & Arts (Latin America)................ 8,648 1995 25%
Discovery Channel Online..................... Online 1995 49%
</TABLE>
- --------
(1) Digital services.
46
<PAGE>
Ownership Interest. Liberty holds a 49.3% interest in Discovery with Cox
Communications, Inc., Advance/Newhouse Communications and Discovery's founder
and Chairman, John S. Hendricks, holding interests of 24.65%, 24.65% and 1.4%,
respectively. Liberty's involvement in Discovery dates back to 1986, when TCI
provided Discovery with $25 million of capital in furtherance of TCI's strategy
of supporting quality, cable-exclusive programming companies.
Terms of Ownership. Discovery is organized as a close corporation managed by
its stockholders rather than a board of directors. Generally, all actions to be
taken by Discovery require the approval of the holders of a majority of
Discovery's shares, subject to certain exceptions, including certain
fundamental actions, which require the approval of the holders of at least 80%
of Discovery's shares. The stockholders of Discovery have agreed that they will
not be required to make additional capital contributions to Discovery unless
they all consent. They have also agreed not to own another basic programming
service carried by domestic cable systems that consists primarily of
documentary, science and nature programming, subject to certain exceptions.
Each stockholder has been granted preemptive rights on share issuances by
Discovery. Any proposed transfer of Discovery shares by a stockholder will be
subject to rights of first refusal in favor of the other stockholders, subject
to certain exceptions, with Liberty's right of first refusal being secondary
under certain circumstances. In addition, Liberty is not permitted to hold in
excess of 50% of Discovery's stock unless its increased ownership results from
exercises of its preemptive rights or rights of first refusal.
Flextech, plc
Flextech, through its subsidiaries and affiliates, creates, packages and
markets entertainment and information programming for distribution on cable
television, direct-to-home satellite and digital terrestrial television
providers throughout the United Kingdom and parts of continental Europe. By
acquiring interests in and establishing alliances among providers of a variety
of entertainment programming, Flextech has been able to achieve significant
economies of scale and establish itself as a major low-cost provider of
European television programming. Flextech has interests in 14 cable and
satellite channels, 13 of which are distributed in the United Kingdom market.
In addition to managing its five wholly owned programming services, Flextech
currently provides management services to two joint ventures that it has formed
with BBC Worldwide Limited, which operate several subscription television
channels, and to Discovery Europe, Animal Planet Europe, Discovery Home and
Leisure (formerly The Learning Channel) and HSN Direct International Limited.
For its management and consultancy services, Flextech receives a management fee
and, in some cases, a percentage of the programming company's gross revenues.
Flextech also holds interests in programming production and distribution
companies and a terrestrial broadcast network. Flextech's ordinary shares trade
on the London Stock Exchange under the symbol "FLXT."
47
<PAGE>
The table below sets forth certain information about each of Flextech's
programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ----------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Flextech plc................................... 37%
Bravo........................................ 4,787 1985 37%
Challenge TV................................. 5,048 1993 37%
HSN Direct................................... N/A 1994 42%
KinderNet.................................... 5,751 1988 12%
Living....................................... 5,722 1993 37%
SMG.......................................... N/A 1957 7%
Trouble...................................... 4,768 1984 37%
TV Travel Shop............................... 4,755 1998 37%
UK Arena (UKTV).............................. 1,983 1997 18%
UK Gold (UKTV)............................... 5,953 1992 18%
UK Gold Classics (UKTV)...................... 736 1999 18%
UK Horizons (UKTV)........................... 4,268 1997 18%
UK Style (UKTV).............................. 2,038 1997 18%
UK Play (UKTV)............................... 1,256 1998 18%
</TABLE>
Flextech's business objective is to develop, package and market regionally
appealing television programming at the lowest practicable cost. To achieve its
objective, Flextech's strategy has been to spread production costs over
multiple revenue sources. Through co-management of several thematic programming
services, Flextech's programming channels have been able to share operating
costs, including those associated with marketing, administration, affiliate
relations, financial services and technical operations. In addition, by
acquiring interests in and creating alliances with established content
producers, Flextech has been able to secure a steady supply of programming
capable of being distributed over various distribution platforms.
Ownership Interest. Liberty holds a 37% equity interest in Flextech,
representing a 50% voting interest. Liberty's involvement with Flextech
developed out of programming investments made by TCI in the United Kingdom and
continental Europe beginning in 1988. TCI found that the United Kingdom, like
other parts of Europe, lacked the size necessary to sustain a large number of
niche-oriented programming services. Attracted by Flextech's business model of
co-managing several programming services to achieve economies of scale, TCI
chose Flextech as the vehicle to pursue its European programming strategy in
1994 by consolidating its U.K. and European programming investments and merging
those investments into Flextech.
Terms of Ownership. Liberty has the right to cast 50% of the votes on most
matters that are presented to Flextech's shareholders due to its ownership of a
special voting share. This special voting right will expire on the earlier of
April 14, 2000 and the occurrence of certain events that involve a decline in
Liberty's ownership of ordinary shares of Flextech. Liberty has the right to
appoint three of the 15 members of Flextech's board of directors for so long as
it has the special voting right, and will thereafter have the right to appoint
two members for so long as it owns at least 25% of Flextech's ordinary shares.
In addition, the appointment of some of Flextech's senior executive officers,
including its managing director and its chief executive, requires Liberty's
approval.
Liberty has granted a tag-along sale right to a shareholder of Flextech that,
at August 15, 1999, owned 6.7% of Flextech's ordinary shares. The tag-along
right will apply if Liberty sells more than 10% of its Flextech stock. In
addition, Liberty has agreed to purchase that shareholder's initial equity
stake in Flextech for not less than current market value if Flextech's ordinary
shares cease to be traded on the London Stock Exchange due to actions taken by
Liberty.
48
<PAGE>
Liberty has undertaken to Flextech and BBC Worldwide Limited that it will
not, subject to certain exceptions, acquire an interest in excess of 20% in any
entity that competes with certain of the channels of two joint ventures that
Liberty has formed with BBC Worldwide Limited. The non-compete will terminate
on March 31, 2007 or, if earlier, at such time as Liberty's contingent funding
obligation to the joint ventures terminates or Liberty owns not more than 10%
of the ordinary shares of Flextech. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
The News Corporation Limited
News Corp. is a diversified international communications company principally
engaged in the production and distribution of motion pictures and television
programming; television, satellite and cable broadcasting; publication of
newspapers, magazines and books; production and distribution of promotional and
advertising products and services; development of digital broadcasting;
development of conditional access and subscriber management systems; and the
provision of computer information services. News Corp.'s operations, are
located in the United States, Canada, the United Kingdom, Australia, Latin
America and the Pacific Basin. News Corp.'s preferred limited voting ordinary
shares trade on the Australian Stock Exchange under the symbol "NCPDP," and are
represented on the New York Stock Exchange by ADRs under the symbol "NWS.A."
Ownership Interest. In July 1999, Liberty sold to News Corp. its 50% interest
in their jointly owned Fox/Liberty Networks programming venture, in exchange
for 51.8 million News Corp. ADRs representing preferred limited voting ordinary
shares of News Corp., valued at approximately $1.425 billion (or approximately
$27.52 per ADR). In a related transaction, Liberty acquired from News Corp.
28.1 million additional ADRs representing preferred limited voting ordinary
shares of News Corp. for approximately $695 million (or approximately $24.74
per ADR). As a result of these transactions and subsequent open market
purchases, Liberty owns approximately 82.7 million ADRs representing preferred
limited voting ordinary shares of News Corp. or approximately 8.5% of News
Corp.'s diluted outstanding shares.
Liberty's involvement in sports programming originated in 1988 when TCI began
to pursue a strategy of creating regional sports networks. In April 1996,
Liberty and News Corp. formed Fox/Liberty Networks, a joint venture to hold
Liberty's national and regional sports networks and News Corp.'s FX, a general
entertainment network which also carries various sporting events. Also in 1996,
Liberty and News Corp. formed an alliance to hold their respective
international sports interests (the "International Interests"). These include
Fox Sports World Espanol, a Spanish language sports network, distributed in the
United States and in Latin America, as well as Fox Sports Americas (Latin
America) and Fox Sports Middle East. As part of their agreement relating to the
acquisition by News Corp. of Liberty's interest in Fox/Liberty Networks,
Liberty and News Corp. agreed that, during a specified period following the
second anniversary of the closing date of this transaction, each will have the
right to cause News Corp. to acquire and Liberty to sell to News Corp. the
International Interests in exchange for News Corp. ADRs with an aggregate value
at April 1, 1999 of approximately $100 million plus an additional number of
ADRs representing the aggregate number of News Corp. shares which could have
been purchased by reinvesting in ADRs each cash dividend declared on such
number of shares between the closing of the sale of Liberty's interest in
Fox/Liberty Networks and the sale of the International Interests. Between the
closing of the sale of Liberty's interest in Fox/Liberty Networks and the sale
of the International Interests, Liberty has further agreed to make capital
contributions in respect of the International Interests in the amount of $100
million, as and when requested by News Corp.
Terms of Ownership. In connection with the acquisition by News Corp. of
Liberty's interest in Fox/Liberty Networks, certain agreements were entered
into regarding Liberty's ability to transfer News Corp. shares and other
matters. Under these agreements, the ADRs and the underlying News Corp. shares
issued to Liberty are subject to a lock-up of either two years (as to 51.8
million ADRs) or nine months (as to 28.1 million ADRs), subject to certain
exceptions. Liberty is entitled to certain registration rights with respect to
its News Corp. shares. In addition, Liberty has agreed that it will not engage,
directly or indirectly, in any sports programming service in the United States
and its territories (excluding Puerto Rico) and Canada, subject to certain
exceptions, until July 2004.
49
<PAGE>
QVC Inc.
QVC Inc. is one of the two largest home shopping companies in the United
States. QVC markets and sells a wide variety of consumer products and
accessories primarily by means of televised shopping programs on the QVC
network and via the Internet through iQVC. QVC also operates shopping networks
in Germany, the United Kingdom and Ireland. QVC purchases, or obtains on
consignment, products from domestic and foreign manufacturers and wholesalers,
often on favorable terms based on the volume of the transactions. QVC does not
depend upon any one particular supplier for any significant portion of its
inventory.
QVC distributes its television programs, via satellite, to affiliated video
program distributors for retransmission to subscribers. Generally, there are no
additional charges to U.S. subscribers for the distribution of QVC. In return
for carrying QVC, each domestic programming distributor receives an allocated
portion, based upon market share, of up to 5% of the net sales of merchandise
sold to customers located in the programming distributor's service area.
QVC has stated that it intends to continue introducing new products and
product lines and to recruit additional programming distributors in an effort
to enlarge both its audience and its sales.
The table below sets forth certain information about QVC's programming
interests.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ------------------------- ----------- -------- -----------
<S> <C> <C> <C>
QVC Inc.................. 43%
QVC Network............. 66,065 1986 43%
QVC-The Shopping Channel
(U.K. and Ireland)..... 7,817 1993 34%
QVC-Germany............. 14,994 1996 43%
iQVC.................... Online 1995 43%
</TABLE>
Ownership Interest. Liberty owns approximately 43% of QVC, and Comcast owns
the remaining 57%. Liberty's involvement in the televised home shopping
business originated in 1986 when TCI began acquiring ownership interests in QVC
Networks, Inc. in exchange for agreeing to carry QVC's programming to a
specified number of subscribers. During the same period, TCI also invested in
another home shopping channel, CVN Companies, Inc. In October 1989, CVN and QVC
merged which resulted in TCI owning approximately 34% of the combined company.
In August 1994, Liberty and Comcast purchased all of the remaining equity
interests in QVC not owned by them, resulting in their current ownership
interests.
Terms of Ownership. QVC is managed on a day-to-day basis by Comcast and
Comcast has the right to appoint all of the members of the QVC board of
directors. Liberty's interests are represented by two members on QVC's five-
member management committee. Generally, QVC's management committee votes on
every matter submitted, or required to be submitted, to a vote of the QVC
board, and Liberty and Comcast are required to use their best efforts to cause
QVC to follow the direction of any resolution of the management committee.
Liberty also has veto rights with respect to certain fundamental actions
proposed to be taken by QVC.
Liberty has been granted a tag-along right that will apply if Comcast
proposes to transfer control of QVC and Comcast may require Liberty to sell its
QVC stock as part of the transaction, under certain circumstances and subject
to certain conditions. In addition, under certain circumstances, Liberty will
have the right, exercisable after February 9, 2000, to initiate a put/call
procedure with Comcast in respect of Liberty's interest in QVC. Prior to
February 9, 2000, however, neither Liberty nor Comcast may directly or
indirectly transfer their interests in QVC, except under certain conditions.
50
<PAGE>
Liberty and Comcast have certain mutual rights of first refusal and mutual
rights to purchase the other party's QVC stock following certain events,
including change of control events affecting them. Both also have registration
rights.
Time Warner Inc.
Time Warner is one of the largest media and entertainment companies in the
world. Time Warner classifies its business interests into four fundamental
areas: (1) Cable Networks, consisting principally of interests in cable
television programming, including the following networks: CNN, Cartoon Network,
Headline News, TNT, Turner Classic Movies, TBS Superstation, CNNfn, HBO,
Cinemax, Comedy Central and TVKO; (2) Publishing, consisting principally of
interests in magazine publishing, book publishing and direct marketing; (3)
Entertainment, consisting principally of interests in filmed entertainment,
television production, television broadcasting, recorded music and music
publishing; and (4) Cable, consisting principally of interests in cable
television systems which, as of December 31, 1998, reached over 12 million
subscribers. Time Warner's common stock trades on the New York Stock Exchange
under the symbol "TWX."
Ownership Interest. Liberty currently owns an approximate 9% interest in Time
Warner. Liberty's interest in Time Warner evolved from a 1987 transaction in
which TCI led a consortium of cable operators in providing Turner Broadcasting
System with an aggregate cash infusion of approximately $560 million. Motivated
by its belief that the continued development of quality cable programming was a
critical element in driving its cable distribution business, TCI invested
approximately $250 million in Turner Broadcasting System in exchange for two
series of preferred stock. The terms of the preferred stock and agreements
entered into in connection with the investment provided the holders with
significant control rights, including representation on the Turner Broadcasting
System board and veto rights over extraordinary transactions, and with rights
of first refusal on certain dispositions of Turner Broadcasting System stock
held by Ted Turner. In 1996, Time Warner acquired Turner Broadcasting System in
a merger transaction.
In connection with the Turner Broadcasting System/Time Warner merger, Time
Warner, Turner Broadcasting System, TCI and Liberty entered into an Agreement
Containing Consent Order (the "FTC Consent Decree") with the Federal Trade
Commission ("FTC"). The FTC Consent Decree effectively prohibits Liberty and
its affiliates from owning voting securities of Time Warner other than
securities that have limited voting rights. Pursuant to the FTC Consent Decree,
among other things, Liberty agreed to exchange the shares of Time Warner common
stock it was to receive in the Turner Broadcasting System/Time Warner
combination for shares of a separate series of Time Warner common stock with
limited voting rights designated as Series LMCN-V Common Stock. The Series
LMCN-V Common Stock entitles the holder to one one-hundredth (1/100th) of a
vote for each share with respect to the election of directors. Liberty holds
approximately 114 million shares of such stock, which represent less than 1% of
the voting power of Time Warner's outstanding common stock. The Series LMCN-V
Common Stock is not transferable, except in limited circumstances, and is not
listed on any securities exchange. Each share of the Series LMCN-V Common Stock
is convertible at Liberty's option into one share of ordinary Time Warner
common stock, at any time when such conversion would not violate the federal
communications laws, subject to the FTC Consent Decree, and is mandatorily
convertible into ordinary Time Warner common stock upon transfer to a non-
affiliate of Liberty. Further, while shares of ordinary Time Warner common
stock are redeemable by action of the Time Warner board of directors under
certain circumstances, to the extent necessary to prevent the loss of certain
types of governmental licenses or franchises, shares of Series LMCN-V Common
Stock are not redeemable under these circumstances.
In March 1999, Liberty entered into a seven-year "cashless collar" with a
financial institution with respect to 15 million shares of Time Warner common
stock, secured by 15 million shares of its approximately 114 million shares of
Time Warner Series LMCN-V Common Stock. In effect, Liberty purchased a put
option that gives it the right to require its counterparty to buy 15 million
Time Warner shares from Liberty in approximately seven years for $67.45 per
share. Liberty simultaneously sold a call option giving the counterparty the
right to buy the same shares from Liberty in approximately seven years for
$158.33 per share.
51
<PAGE>
Since the purchase price of the put option was equal to the proceeds from the
sale of the call option, the collar transaction had no cash cost to Liberty. As
a result of this transaction, Liberty has effectively locked in the value of
these 15 million Time Warner shares at between $1 billion and $2.4 billion in
the future, regardless of potential fluctuations in the stock price.
TV Guide, Inc.
TV Guide, Inc., formerly known as United Video Satellite Group, Inc., is a
media and communications company and the market leader in the program listings
guide business. TV Guide is engaged predominantly in providing print, passive
and interactive program listings guides to households, distributing programming
to cable television systems and direct-to-home satellite providers, and
marketing satellite-delivered programming to C-band satellite dish owners. TV
Guide markets and distributes its products in the United States to over 100
million cable and satellite homes each week, and also markets its products
internationally in over 30 countries. TV Guide Magazine, TV Guide Channel, TV
Guide Interactive and TV Guide Online are the largest print, electronic,
interactive and Internet guidance products in the world. TV Guide's Class A
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "TVGIA."
TV Guide is organized into three primary business units: (1) TV Guide
Magazine Group; (2) TV Guide Entertainment Group; and (3) United Video Group.
The TV Guide Magazine Group publishes and distributes TV Guide magazine, the
most widely circulated paid weekly magazine in the United States, to households
and newsstands. In addition, the TV Guide Magazine Group provides customized
monthly television programming guides for cable and satellite operators in the
United States and internationally. The TV Guide Entertainment Group supplies
satellite-delivered on-screen program promotion and guide services, including
TV Guide Channel and Sneak Prevue, to cable television systems and other multi-
channel video programming distributors, both nationally and internationally.
The TV Guide Entertainment Group also offers interactive television technology
that allows television viewers to retrieve on demand continuously updated
program guide information through their cable television systems and provides
TV Guide Online, an Internet-based program listings guide. The United Video
Group provides direct-to-home satellite services, satellite distribution of
video entertainment services, software development and systems integration
services and satellite transmission services for private networks. This group
owns TV Guide's 80% interest in Superstar/Netlink Group LLC, which markets
satellite entertainment programming packages to C-band satellite dish owners in
North America. Its retail subscriber base was approximately 1.1 million at June
30, 1999. The United Video Group also markets and distributes three independent
superstations--WGN (Chicago), KTLA (Los Angeles) and WPIX (New York)--to cable
television systems and other multi-channel video programming distributors, and
offers six Denver-based broadcast television stations and programming packages
to satellite master antenna television systems.
TV Guide's business objective is, among other things, to be the dominant
provider of program listings guides for traditional and emerging distribution
platforms. Its strategies for achieving its objective include (1) extending its
brand by exploiting it over several platforms, including home shopping, e-
commerce and database marketing, (2) capitalizing on the success of TV Guide
Channel, TV Guide Interactive and TV Guide Sneak Prevue through the
introduction of customized programming and service promotion on a localized
platform, (3) capitalizing on cross platform advertising and promotion
opportunities by taking advantage of audience exposure across multiple
platforms (print, cable, satellite and Internet), and (4) continuing to develop
product and brand extensions that will leverage its distribution footprint,
including interactive services, home shopping, e-commerce and data base
marketing.
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<PAGE>
The table below sets forth certain information about TV Guides's programming
services and other assets.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- --------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
TV Guide, Inc................................ 44%
TV Guide Channel........................... 49,418 1988 44%
TV Guide Interactive....................... 2,300/1/ /2/ 44%
TV Guide Sneak Prevue...................... 33,298 1991 32%
UVTV....................................... 59,587/3/ N/A 44%
Superstar/Netlink.......................... 1,053 N/A 35%
TV Guide Magazine.......................... 11,706/4/ N/A 44%
TV Guide Online............................ Online 44%
The Television Games Network............... N/A 1999 43%
Infomedia S.A.............................. N/A 1991 33%/5/
</TABLE>
- --------
(1)Digital services.
(2) TV Guide's original interactive service was launched in the early 1990s,
followed by the current digital version.
(3) Aggregate number of units. UVTV uplinks three superstations (WGN, KTLA, and
WPIX) and six Denver broadcast stations. One household subscribing to six
services would be counted as six "units."
(4) Magazine circulation--includes subscription and newsstand distribution.
(5) In May 1999, TV Guide acquired a 75% stake in Infomedia S.A., Luxembourg,
and has an option to buy the remaining 25%. Infomedia S.A. is a leading
provider of television program listings in Europe, offering program
schedules and related information for more than 300 channels in 13
languages to clients in 29 countries throughout Europe and North Africa.
Ownership Interest. TV Guide is jointly controlled by Liberty and News Corp.,
with each owning approximately 44% of its equity and 49% of its voting power.
Liberty's interest in TV Guide began in January 1996 when TCI acquired a
controlling interest in United Video Satellite Group, Inc. ("UVSG"), a provider
of satellite-delivered video, audio, data and program promotion services to
cable television systems, satellite dish owners, radio stations and private
network users primarily throughout North America. TCI believed that the
availability of electronic program guide services was becoming an increasingly
important element of video programming delivery due to developments in digital
and other technologies that were increasing the volume and variety of video
programming. As a result of the transaction, UVSG became a majority-controlled
subsidiary of TCI. In January 1998, TCI increased its equity interest in UVSG
to approximately 73% and its voting interest to approximately 93%. On March 1,
1999, UVSG acquired Liberty's 40% interest in Superstar/Netlink Group and its
100% interest in Netlink USA, which uplinks the signals of six Denver-based
broadcast television stations, in exchange for shares of UVSG common stock. On
the same date, UVSG acquired News Corp.'s TV Guide properties in exchange for
cash and shares of UVSG common stock. By combining UVSG's passive and
interactive electronic program listing guides with TV Guide's well-recognized
magazine and brand name, UVSG became a leading provider of program listing
guides. Following this transaction, UVSG changed its name to TV Guide, Inc.
Terms of Ownership. Pursuant to a stockholders agreement between Liberty and
News Corp., each of them is entitled to designate one director to the ten-
member TV Guide board for each 12.5% of the outstanding shares of TV Guide
Class B common stock owned by such party, with the remaining directors being
designated by the TV Guide board. So long as Liberty or News Corp., as the case
may be, is entitled to designate at least one director to TV Guide's board of
directors, the other party is subject to certain restrictions on its ability to
sell any of its shares of TV Guide common stock or to convert any of its shares
of TV Guide Class B common stock (10 votes per share) into shares of TV Guide
Class A common stock (one vote per share) unless it first offers to sell the
stock to the other party.
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<PAGE>
For so long as there continues to be at least two stockholders that each own
in the aggregate at least 30% of the outstanding TV Guide Class B common stock,
such stockholders are required to vote their shares on all matters submitted to
a vote of TV Guide's stockholders only as shall be mutually agreed upon by such
stockholders and, if they are unable to agree on how to vote with respect to a
proposal, they will each be obligated to vote against that proposal. In
addition, Liberty and News Corp. have mutual rights of first refusal, tag-along
rights on transfers of significant interests and registration rights. Liberty
and News Corp. have further agreed that, for so long as they both are entitled
to appoint at least one of TV Guide's directors, TV Guide will be the exclusive
vehicle through which they will each conduct program guide businesses
worldwide, subject to certain limited exceptions.
USA Networks, Inc.
USA Networks is a diversified media and electronic commerce company that is
engaged in five principal areas of business: (1) Networks and Television
Production, which operates the USA Network, a general entertainment basic cable
television network, The Sci-Fi Channel, which features science fiction, horror,
fantasy and science-fact oriented programming, and Studios USA, which produces
and distributes television programming; (2) Electronic Retailing, which
primarily consists of Home Shopping Network and America's Store, which are
engaged in the electronic retailing business; (3) Television Broadcasting,
which owns and operates a group of UHF and low power television stations; (4)
Ticketing Operations, which includes Ticketmaster, the leading provider of
automated ticketing services in the United States, and Ticketmaster Online,
Ticketmaster's exclusive agent for online ticket sales; and (5) Internet
Services, which includes USA Networks' interest in Ticketmaster Online-
CitySearch, Inc., an online retail and local city guide business. USA Networks'
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "USAI."
The table below sets forth certain information about USA Networks' assets.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership %
Entity (000's) Launched at 8/15/99
- ---------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
USA Networks, Inc. ........................... 21%/1/
HSN......................................... 72,700/2/ 1985 21%
America's Store............................. 9,300/2/ 1986 21%
ISN......................................... Online 1995 21%
HSN en Espanol.............................. 2,600 1998 11%
HOT (Germany)............................... 20,600 1996 9%
Shop Channel (Japan)........................ 2,900 1996 41%
SciFi Channel............................... 55,900 1992 21%
USA Network................................. 75,700 1980 21%
USA Broadcasting............................ 37,409/3/ 1986 21%
Ticketmaster................................ N/A 21%
Studios USA................................. N/A 21%
USA Films................................... N/A 21%
Hotel Reservations Network.................. Online 1991 21%
Ticketmaster Online-CitySearch.............. Online 1998 11%/4/
</TABLE>
- --------
(1) Assumes the conversion or exchange by Liberty of direct and indirect
interests in various USA Networks and HSN securities for USA Networks
common stock, and the conversion or exchange of certain securities owned by
Universal Studios, Inc. and certain of its affiliates for USA Networks
common stock.
(2) Includes broadcast households and cable subscribers.
(3) A group of UHF and low power television stations which operate in 12 of the
top 22 broadcast markets in the United States, including 7 of the top 10
markets which reach approximately 31% of television households in the
United States.
(4) Assumes consummation of pending transactions.
54
<PAGE>
Ownership Interest. Liberty's interest in USA Networks consists of shares of
USA Networks common stock held by Liberty and its subsidiaries, shares of USA
Networks common stock held by certain entities in which Liberty has an equity
interest but only limited voting rights, and securities of certain subsidiaries
of USA Networks which are exchangeable for shares of USA Networks common stock.
Assuming the exchange of these securities and the conversion or exchange of
certain securities owned by Universal Studios, Inc. ("Universal") and certain
of its affiliates for USA Networks common stock, Liberty and Universal would
own approximately 21% and 45%, respectively, of USA Networks. In general, until
the occurrence of certain events and with the exception of certain negative
controls, Mr. Barry Diller has voting power over Liberty's interest in USA
Networks, as more fully described below under "--Terms of Ownership."
Liberty's ownership in USA Networks began in 1993 when it purchased a
controlling stake in Home Shopping Network, Inc., which at the time was
principally engaged in the sale of merchandise to viewers of its home shopping
programming. In connection with that acquisition, Liberty also obtained an
option to acquire a controlling interest in Silver King Communications, Inc.,
an owner and operator of broadcast television stations. In August 1995, Liberty
formed an alliance with Mr. Barry Diller that resulted in a significant shift
in Liberty's strategy for Home Shopping Network and Silver King. As part of
this alliance, Liberty contributed its control option relating to Silver King
to a new corporation in which it retained substantially all of the equity
interests and ceded control over the voting securities of Silver King held by
the corporation to Mr. Diller, except with respect to certain fundamental
matters. At the same time, Mr. Diller agreed to join Home Shopping Networks'
board of directors. In December 1996, Silver King and Home Shopping Network
were combined to form HSN, Inc., which also acquired Savoy Pictures
Entertainment, Inc., a television broadcasting and filmed entertainment
company, and Ticketmaster Group, Inc., a leading provider of automated
ticketing services. In February 1998, HSN, Inc. acquired from Universal USA
Networks, consisting of USA Network and Sci-Fi Channel, and the domestic
television production and distribution business of Universal. Following this
transaction, HSN, Inc. changed its name to USA Networks, Inc. In connection
with this transaction, Liberty contributed $300 million in cash to a subsidiary
of USA Networks (the "LLC") in exchange for equity shares of that subsidiary
("LLC Shares") (which are generally exchangeable for USA Networks common stock
on a one-for-one basis). The LLC holds all of the assets acquired from
Universal and all of the businesses of HSN, Inc. and its subsidiaries, other
than the broadcasting business.
Terms of Ownership. In connection with the Universal transaction, USA
Networks, Universal, Liberty and Mr. Diller entered into several agreements
involving governance matters relating to USA Networks and stockholder
arrangements. With respect to governance matters, Mr. Diller generally has full
authority to operate the day-to-day business affairs of USA Networks and has an
irrevocable proxy over all USA Networks securities owned by Universal, Liberty
and certain of their affiliates for all matters except for certain fundamental
changes. However, each of Liberty, Universal and Mr. Diller has veto rights
with respect to certain fundamental changes relating to USA Networks and its
subsidiaries (including the LLC). If Mr. Diller and Universal agree to certain
fundamental changes that Liberty does not agree to, Universal will be entitled
to purchase Liberty's entire equity interest in USA Networks, subject to
certain conditions, at a price determined by an independent appraiser taking
into account a number of agreed upon factors.
Pursuant to FCC law and regulations, Liberty is not currently permitted to
have a designee on the board of directors of USA Networks. However, at such
time as Liberty is no longer subject to such prohibition, Liberty will have the
right to designate up to two directors if its stock ownership in USA Networks
remains at certain levels. Liberty currently has the right to designate up to
two directors to the LLC board and will continue to have that right for so long
as it is not permitted to designate directors of USA Networks and continues to
maintain certain ownership levels.
Each of Universal and Liberty has a preemptive right with respect to future
issuances of USA Networks's capital stock, subject to certain limitations.
Liberty has agreed with Universal that Liberty will not beneficially own more
than approximately 21% of the equity of USA Networks until the earlier of such
time as Liberty beneficially owns less than 5% of the shares of USA Networks
securities or the date that Universal beneficially
55
<PAGE>
owns fewer shares than Liberty beneficially owns. Also, Liberty has agreed not
to propose to the board of directors of USA Networks the acquisition by Liberty
of the outstanding USA Networks securities or to otherwise influence the
management of USA Networks, including by proposing or supporting certain
transactions relating to USA Networks that are not supported by USA Networks'
board of directors.
Liberty is subject to a number of agreements that limit or control its
ability to transfer its USA Network securities. As long as Mr. Diller is Chief
Executive Officer of USA Networks, Liberty generally cannot transfer shares of
USA Networks stock prior to August 24, 2000, subject to certain exceptions.
Each of Universal and Mr. Diller has a right of first refusal with respect to
certain sales of USA Networks securities by the other party. Liberty's rights
in this regard are secondary to any Universal right of refusal on transfers by
Mr. Diller. Each of Liberty and Mr. Diller also generally has a right of first
refusal with respect to certain transfers by the other party and tag-along sale
rights on certain sales of USA Networks stock by the transferring stockholder
and in the event Universal transfers a substantial amount of its USA Networks
stock. Liberty, Universal and Mr. Diller are each entitled to registration
rights relating to their USA Networks securities and have agreed to certain put
and call arrangements, pursuant to which one party has the right to sell (or
the other party has the right to acquire) shares of USA Networks stock held by
another party, at a price determined by an independent appraiser taking into
account a number of agreed upon factors.
Other Programming Assets
The table below sets forth certain information about some of Liberty's other
programming interests.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership
Entity (000's) Launched % at 8/15/99 Partner(s)
--------------------------------------- ----------- -------- ------------ ------------------------
<C> <C> <C> <C> <S>
BET Holdings II, Inc................... 35% Robert Johnson
BET Cable Network.................... 55,792 1980 35%
BET Action Pay-Per-View.............. 10,793/1/ 1990 35%
BET on Jazz.......................... 1,797 1996 35%
Canales n.............................. 9/2/ 1998 100% --
Court TV............................... 33,697 1991 50% Time Warner Inc.
E! Entertainment Television............ 55,797 1990 10% Comcast Corporation, The
Style................................ 3,135 1998 10% Walt Disney Company, MediaOne
Group, Inc.
Fox Kids Worldwide, Inc................ N/A N/A /3/ The News Corporation
Limited, former
stockholders of Saban
Entertainment, Inc.
International Channel/4/............... 8,090 1990 90% JJS II Communications, LLC
Jupiter Programming Co., Ltd. (Japan).. 50% Sumitomo Corporation
Cable Soft Network................... 2,208 1989 50%
CNBC Asia Business News Japan........ N/A 1997 10%
Golf Network......................... 1,660 1996 44%
Discovery Japan...................... 1,153 1996 49%
J-Sports............................. 563 1998 67%
Shop Channel......................... 2,900 1996 41%
MultiThematiques, S.A. ................ 30% Canal + S.A., Havas
Canal Jimmy (France)................. 2,095 1991 30% Images, Part'Com
Canal Jimmy (Italy).................. 451 1997 30%
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 6/30/99 Year Ownership
Entity (000's) Launched % at 8/15/99 Partner(s)
- ------------------------ ----------- -------- ------------ ---------------------------
<S> <C> <C> <C> <C>
Cine Cinemas (France).. 676 1991 30%
Cine Cinemas (Italy)... 164 1997 30%
Cine Classics
(France).............. 603 1991 30%
Cine Classics (Spain).. 165 1995 15%
Cine Classics (Italy).. 164 1997 30%
Forum Planete
(France).............. 1,171 1997 30%
Planete (France)....... 2,774 1988 30%
Planete (Poland)....... 1,683 1996 30%
Planete (Germany)...... 369 1997 30%
Planete (Italy)........ 451 1997 30%
Seasons (France)....... 99 1996 30%
Seasons (Spain)........ 27 1997 30%
Seasons (Germany)...... 11 1997 30%
Seasons (Italy)........ 33 1997 30%
Odyssey................. 27,178 1998 33% Hallmark Entertainment, The
Jim Henson Company,
National Interfaith Cable
Coalition, Inc.
Premium Movie 787 1995 20% Twentieth Century Fox
Partnership Films, Universal Studios,
(Australia)............ Paramount Pictures,
Columbia TriStar
Telemundo Network/5/.... N/A N/A 50% Sony Pictures Entertainment
Inc.
Telemundo Station
Group/6/............... N/A N/A 25% Sony Pictures Entertainment
Inc., Station Partners, LLC
Torneos y Competencias,
S.A. (Argentina)/7/.... N/A N/A 40% CEI CitiCorp Holdings S.A.
</TABLE>
- --------
(1) Number of subscribers to whom service is available.
(2) Digital services.
(3) Liberty's interest consists of shares of 30-year 9% preferred stock which
have a stated aggregate value of $345 million and are not convertible into
common stock.
(4) International Channel provides news, sports, music, movies and general
entertainment programming from around the world in more than 20 different
languages.
(5) Telemundo Network is a 24-hour broadcast network serving 61 markets in the
United States, including the 37 largest Hispanic markets.
(6) Telemundo Station Group, Inc. owns and operates eight full power UHF
broadcast stations and 15 low power television stations serving some of the
largest Hispanic markets in the United States and Puerto Rico. Although
Liberty has an approximately 25% equity interest in Telemundo Station
Group, Inc., its voting power is less than 5% to meet certain regulatory
requirements.
(7) Torneos y Competencias, S.A. is Argentina's dominant sports programming
service. It also owns an indirect interest in Canal 9, a general
entertainment broadcast channel in Buenos Aires, Argentina, which has
become an international superchannel, providing programming to the United
States and, via cable, to outlying areas of Argentina.
Communications
Cable television systems deliver multiple channels of television programming
to subscribers who pay a monthly fee for the service. Video, audio and data
signals are received over-the-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber optic cable to
the subscribers' television sets. Cable television providers in most markets
are currently upgrading their cable systems to deliver new technologies,
products and services to their customers. These upgraded systems allow cable
operators to expand channel offerings, add new digital video
57
<PAGE>
services, offer high-speed data services and, where permitted, provide
telephony services. The implementation of digital technology significantly
enhances the quantity and quality of channel offerings, allows the cable
operator to offer video-on-demand, additional pay-per-view offerings, premium
services and incremental niche programming. Upgraded systems also enable cable
networks to transmit data and gain access to the Internet at significantly
faster speeds, up to 100 times faster, than data can be transmitted over
conventional dial-up connections. Lastly, cable providers have been developing
the capability to provide telephony services to residential and commercial
users at rates well below those offered by incumbent telephone providers. Each
of these businesses represents a significant opportunity for cable providers to
increase their revenue and operating cash flow from the traditional pay
television services currently offered today.
Telephony providers offer local, long distance, switched services, private
line and advanced networking features to customers who pay a monthly fee for
the service, generally based on usage. Wireless telecommunications networks use
a variety of radio frequencies to transmit voice and data in place of, or in
addition to, standard landline telephone networks. Wireless telecommunications
technologies include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency block. As a result
of advances in digital technology, digital-based wireless system operators are
able to offer enhanced services, such as integrated voicemail, enhanced custom-
calling and short-messaging, high-speed data transmissions to and from
computers, advanced paging services, facsimile services and Internet access
service. The wireless industry has benefited in recent years from increasing
demand for its services and industry experts expect this demand to continue to
increase. According to International Data Corporation, subscribers to wireless
communications services in the United States are expected to increase to over
118 million by 2003, up from approximately 64.4 million subscribers at the end
of 1998. Wireless subscribers generally are charged for service activation,
monthly access, air time, long distance calls and custom-calling features.
Wireless system operators pay fees to local exchange companies for access to
their networks and toll charges based on standard or negotiated rates. When
wireless operators provide service to roamers from other systems, they
generally charge roamer air time usage rates, which usually are higher than
standard air time usage rates for their own subscribers, and additionally may
charge daily access fees.
Consolidated Subsidiaries
TCI Cablevision of Puerto Rico, Inc.
TCI Cablevision of Puerto Rico, Inc. is one of the largest providers of cable
television services in Puerto Rico. It owns and operates cable television
franchises, serving the communities of Luquillo, Arecibo, Florida, Caguas,
Humacao, Cayey and Barranquitas.
On September 21, 1998, hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including TCI Cablevision
of Puerto Rico's cable television systems. However, all of TCI Cablevision of
Puerto Rico's systems have been rebuilt, and as of June 30, 1999, approximately
93% of its pre-hurricane basic customers were receiving cable television
services. TCI Cablevision of Puerto Rico estimates that it will regain 100% of
its pre-hurricane customer base during the fourth quarter of 1999.
At June 30, 1999, the Puerto Rico cable systems passed an aggregate of
approximately 264,000 homes and served approximately 103,000 basic subscribers,
resulting in a penetration rate of approximately 40%. As of that date,
approximately 30% of TCI Cablevision of Puerto Rico's network had been rebuilt
utilizing 550 MHz bandwidth capacity, with the remainder consisting of 450 MHz.
By the end of 1999, 100% of the network is expected to be upgraded to 550 MHz.
At June 30, 1999, TCI Cablevision of Puerto Rico operated from five headends,
and provided subscribers with 63 channels.
A significant portion of TCI Cablevision of Puerto Rico's cable network
consists of fiber-optic and coaxial cable. This infrastructure allows TCI
Cablevision of Puerto Rico to offer enhanced entertainment information and
telecommunications services and, when and to the extent permitted by law, cable
telephony services. TCI
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<PAGE>
Cablevision of Puerto Rico currently offers its subscribers pay-per-view events
and premium movies and as it introduces new revenue generating products and
services, such as interactive services, TCI Cablevision of Puerto Rico expects
to aggressively market those products and services to its subscribers in areas
with sufficient bandwidth capacity. TCI Cablevision of Puerto Rico expects to
begin offering high speed data transmission services and Internet access using
high speed cable modems to its subscribers in November 1999.
Business Affiliates
Sprint PCS Group
Sprint Corporation operates the only 100% digital PCS wireless network in the
United States with licenses to provide service nationwide utilizing a single
frequency band and a single technology. Sprint owns licenses to provide service
to the entire United States population, including Puerto Rico and the U.S.
Virgin Islands. At December 31, 1998, Sprint, together with certain affiliates,
operated PCS systems in 45 of the 50 largest U.S. metropolitan areas. Since the
end of 1997, the number of metropolitan markets served by Sprint has doubled to
280 and the number of its customers has more than tripled to 3.35 million.
Sprint attributes this business and its assets to Sprint's "Sprint PCS Group."
The Series 1 Sprint PCS Group stock and the Series 2 Sprint PCS Group stock are
intended to reflect the performance of the Sprint PCS Group. The Series 1
Sprint PCS Group stock trades on the New York Stock Exchange under the symbol
"PCS."
The business objective of the Sprint PCS Group is to expand network coverage
and increase market penetration by aggressively marketing competitively priced
PCS products and services under the "Sprint" and "Sprint PCS" brand names.
Ownership Interest. Liberty owns approximately 23% (on a fully diluted basis)
of the Sprint PCS Group stock through its ownership of shares of Series 2
Sprint PCS Group stock (which have limited voting rights) and certain warrants
and shares of convertible preferred stock exercisable for or convertible into
these shares.
Liberty's interest in the business that makes up the Sprint PCS Group began
in 1994 when TCI, Comcast Corporation, Cox Communications, Inc. and Sprint
Corporation determined to engage in the wireless communications business
through a series of limited partnerships known collectively as "Sprint PCS." In
November 1998, Sprint Corporation assumed ownership and management control of
Sprint PCS and issued a new class of Sprint stock, the "Sprint PCS Group
stock," to track the performance of Sprint's combined wireless operations. In
exchange for its approximate 30% limited partnership interest in Sprint PCS,
TCI received shares of Series 2 Sprint PCS Group stock, shares of Sprint PCS
preferred stock and warrants to purchase shares of Series 2 Sprint PCS Group
stock.
Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United
States Department of Justice on December 30, 1998 in connection with the AT&T
merger, all of the Sprint securities were deposited in a trust with an
independent trustee, pursuant to a trust agreement approved by the Department
of Justice and the FCC. Liberty holds trust certificates evidencing its
beneficial interest in the assets of the trust. The proposed final judgment, if
entered by the United States District Court for the District of Columbia, would
require the trustee, on or before May 23, 2002, to dispose of a portion of the
Sprint securities held by the trust sufficient to cause Liberty to own
beneficially no more than 10% of the outstanding Sprint PCS Group stock that
would be outstanding on a fully diluted basis on such date. On or before May
23, 2004, the trustee must divest the remainder of the Sprint securities held
by the trust.
The trust agreement grants the trustee the sole right to sell the Sprint
securities beneficially owned by Liberty and provides that all decisions
regarding such divestiture will be made by the trustee without discussion or
consultation with AT&T or Liberty; however, the trustee is required to consult
with the board of directors of Liberty (other than AT&T representatives and
John C. Malone) regarding such divestiture. The trustee has the power and
authority to accomplish such divestiture only in a manner reasonably calculated
to maximize the value of the Sprint securities beneficially owned by Liberty.
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<PAGE>
The trust agreement provides for the trustee to vote the Sprint securities
beneficially owned by Liberty in the same proportion as other holders of Sprint
PCS Group stock so long as such securities are held by the trust. The proposed
final judgment also prohibits the acquisition by Liberty of additional Sprint
securities without the prior written consent of the Department of Justice,
subject to limited exceptions.
Terms of Ownership. Liberty was granted registration rights with respect to
its Sprint PCS holdings. These registration rights are currently exercisable by
the trustee. If Liberty's shares of Series 2 Sprint PCS Group stock are
transferred, the transferred shares become shares of full vote Series 1 Sprint
PCS Group stock.
Telewest Communications plc
Telewest is a leading provider of cable television and residential and
business cable telephony services in the United Kingdom. Telewest provides
cable television services over a broadband network and uses its network,
together with twisted-pair copper wire connections for final delivery to the
customer premises, to provide telephony services to its customers. The
broadband network enables Telewest to deliver a wide variety of both television
and telephony services to its customers and to provide customers with a wide
range of interactive and integrated entertainment, telecommunications and
information services as they become more widely available in the future. By
offering both television and telephony service, Telewest is able to spread the
costs of its network over two revenue sources as well as take advantage of
various efficiencies such as cross marketing. Telewest has installed its own
telephone switches, which permits it to minimize fees otherwise charged by
public telephone companies and to offer a variety of value-added services
without relying on public telephone operators for implementation. Telewest also
offers home access to the Internet in all of its franchises. Telewest's
ordinary shares trade on the London Stock Exchange under the symbol "TWT.L,"
and are represented by ADRs in the United States, where they trade on the
National Market tier of The Nasdaq Stock Market under the symbol "TWSTY."
Telewest owns and operates 37 cable franchises and has a minority equity
interest in an affiliated company which owns and operates four affiliated
franchises. As of June 30, 1999, these owned and operated and affiliated
franchises covered approximately 34% of the homes in the United Kingdom in
areas for which cable franchises have been awarded. At that date, these
franchises together included approximately 6.1 million homes and over 400,000
businesses, of which approximately 5.9 million and approximately 383,000 were
Telewest's equity homes and equity businesses, respectively. As of June 30,
1999, the network in these franchises had passed approximately 4.4 million of
Telewest's equity homes (approximately 4.2 million of which had been passed and
marketed) and Telewest had approximately 1.1 million equity cable television
customers, 1.4 million equity residential telephone lines and 256,000 equity
business telephone lines. As of June 30, 1999, Telewest's owned and operated
franchises served more than 1.0 million cable subscribers and 1.3 million
telephone customers, and its affiliated franchise provided Telewest with an
additional 98,000 subscribers and 100,000 telephone customers. According to
Telewest, approximately 61% of its customers subscribe for both cable
television and cable telephony services.
Telewest believes that it is well positioned in key growth markets and will
benefit from the growing demand for voice, video, data and Internet services.
Telewest plans to introduce digital services in 1999, offering greater
opportunity for the development of differentiated products and exploitation of
the full potential of interactive, broadband cable. Telewest's business
objective is to be the premier provider of telephony, television, multimedia,
data, Internet and e-commerce services in the United Kingdom. Its strategies
for achieving its objective include: (1) leveraging the scale and scope of its
business to provide new content and services, (2) increasing market share and
generating additional revenue from existing customers through the development
of innovative and targeted products and the launch of digital services and
high-speed Internet service delivered via cable modem technology, and (3)
capitalizing on the growing demand for advanced business voice and data
services, digital television and high-speed Internet access through its high
capacity local networks and its national backbone network.
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Ownership Interest. Liberty owns approximately a 22% interest in Telewest
through a limited liability company, which is 50% owned by Liberty and 50%
owned by MediaOne Group, Inc. MediaOne also owns an approximately 22% interest
in Telewest through the limited liability company. In addition, MediaOne owns
an approximately 8% interest outside the limited liability company.
Liberty's involvement with Telewest developed out of investments in the cable
business made by TCI in the United Kingdom beginning in 1986. In April 1992, U
S WEST, Inc. and TCI contributed substantially all of their respective U.K.
cable interests to a joint venture in which each held a 50% interest. TCI and U
S WEST combined substantially all of their respective U.K. cable interests in
an effort to obtain cost and other efficiencies inherent in a larger network,
as well as to gain greater access to the capital markets. The combination also
permitted TCI to gain the benefits of U S WEST's telephony experience, and U S
WEST to gain the benefits of TCI's cable television experience. Telewest was
formed in anticipation of its initial public offering (which was effected in
November 1994) to acquire the assets of the TCI/U S WEST joint venture. TCI
contributed its interests in the joint venture and Telewest to Liberty Media
International. Subsequent to Telewest's initial public offering, Liberty Media
International and U S WEST contributed all of their respective equity ownership
interests in Telewest to the limited liability company referred to above. In
June 1998, MediaOne separated from U S WEST and, in connection with that
transaction, succeeded to all of U S WEST's rights and obligations relating to
its Telewest investment.
Terms of Ownership. Liberty and MediaOne have been granted preemptive rights
on share issuances by Telewest which enable them to collectively maintain a
majority of the voting rights in Telewest. Liberty and MediaOne have agreements
with respect to the voting of shares of Telewest beneficially owned by them and
the manner in which they will cause their designees to the Telewest board of
directors to vote. In general, Liberty and MediaOne have agreed that, on any
matter requiring shareholder approval, they will vote their Telewest shares
together in such manner as may be agreed by them. As a result, Liberty and
MediaOne together generally will be able to influence materially the outcome of
any matter requiring shareholder approval. In addition, each of Liberty and
MediaOne has veto rights with respect to certain fundamental matters affecting
Telewest. Further, for so long as each of them beneficially owns at least 15%
of the outstanding Telewest ordinary shares, each is entitled to appoint two
members to the 10-member Telewest board of directors, and they have agreed that
on any matter requiring board approval, they will cause the directors
designated by them to vote together as agreed by them.
Each of Liberty and MediaOne has agreed not to transfer its Telewest shares
prior to December 31, 1999, and thereafter, any proposed transfer will be
subject to rights of first refusal in favor of the other party, in each case
subject to certain exceptions. In addition, each of Liberty and MediaOne has
the right to trigger a put/call procedure in the event the other is deemed to
undergo a change of control.
Each of Liberty and MediaOne has agreed, subject to certain exceptions, not
to acquire interests in other cable television or cable telephony companies in
the United Kingdom, and Telewest has agreed to certain restrictions on its
ability to engage in businesses in the United Kingdom outside of cable
television, cable telephony and wireless telephony.
In May 1999, as part of a series of agreements entered into with AT&T in
connection with AT&T's proposed acquisition of MediaOne, Microsoft Corporation
agreed to purchase MediaOne's interest in Telewest through a tax-free exchange
of Microsoft shares, subject to certain conditions, including receipt of the
consent of Liberty and the closing of the proposed business combination between
AT&T and MediaOne. It is expected that if this purchase is completed, Microsoft
will succeed to all of MediaOne's rights and obligations set forth above.
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Other Communications Assets
The table below sets forth certain information about Liberty's other
communications assets.
<TABLE>
<CAPTION>
Homes in Liberty's
Service Homes Basic Attributed
Area/1/ at Passed/2/ at Subscribers/3 Ownership
6/30/99 6/30/99 / at 6/30/99 % at
Entity (000's) (000's) (000's) 8/15/99 Partner(s)
- ----------------------------------- ---------- ------------ ------------- ---------- --------------------------------
<S> <C> <C> <C> <C> <C>
Metropolis-Intercom, S.A. (Chile).. 1,600 1,068 273 30% Cordillera Communicaciones,
Ltda, Compania de
Telecomunicaciones de Chile S.A.
Cablevision S.A. (Argentina)....... 4,000 3,374 1,451 28% CEI CitiCorp Holdings S.A.,
Telefonica Internacional S.A.
Jupiter Telecommunications
Co., Ltd. (Japan)................. 2,697 1,743 253 40% Sumitomo Corporation
Princes Holdings Limited
(Ireland)......................... 490 380 155 50% Independent Newspapers plc
Sky Latin America LLC/4........./.. N/A N/A 761 10% Organizacoes Globo, Grupo
Televisa, S.A., News Corp.
</TABLE>
- --------
(1) Homes in Service Area: The number of homes to which the relevant operating
company is permitted by law to offer its services. Not all service areas
are granted exclusively to the respective operating company.
(2) Homes Passed: The homes that can be connected to a cable distribution
system without further extension of the distribution network.
(3) Basic Subscribers: Subscribers to a cable or other television distribution
system who receive the basic television service and who are usually
charged a flat monthly rate for a specific number of channels.
(4) Satellite-delivered television platform currently serving Mexico, Brazil,
Chile and Columbia.
Internet Services and Technology
The Internet has emerged as a significant global communications and commerce
medium, enabling millions of people worldwide to share information, create
community among individuals with similar interests and conduct business
electronically. International Data Corporation projects that the number of
Internet users will increase from approximately 100 million at the end of 1998
to approximately 320 million by the end of 2002. In addition to its emergence
as a significant global communications medium, the Internet has features and
functions that are unavailable in traditional media, which enable online
merchants to communicate effectively with customers and advertisers to target
users with specific needs and interests. As a result, the Internet has emerged
as an attractive medium for advertising and electronic commerce. According to
International Data Corporation, worldwide commerce revenue on the Internet is
expected to increase from approximately $32 billion at the end of 1998 to more
than $425 billion in 2002. Jupiter Communications, a new media research firm
that specializes in online research and analysis, estimates that the amount of
advertising dollars spent on the Internet is expected to increase from
approximately $1.9 billion in 1998 to $7.7 billion by 2002, a compound annual
growth rate of 42%.
Consolidated Subsidiaries
Liberty Digital, Inc.
Liberty Digital, Inc. (currently known as TCI Music, Inc.) is expected to
become Liberty's primary vehicle for investing in and/or developing interactive
programming and content. In April 1999, Liberty determined to contribute
various Internet and interactive television assets to TCI Music in an effort to
consolidate those assets under one platform. To that end, Liberty and certain
of its affiliates have agreed to contribute to TCI Music substantially all of
their respective Internet and interactive television assets and a combination
of cash and debt payable to Liberty equal to $150 million, in exchange for
preferred and common stock of TCI Music. As part of the transaction, Liberty
will also assign to TCI Music certain of its rights under an agreement with
AT&T, which provides for certain programming rights with respect to AT&T's
cable systems. See "Relationship with AT&T and Certain Related Transactions--
Relationship with AT&T--Intercompany Agreement--Interactive Video Services."
The proposed transaction is expected to be completed in September 1999, subject
to the
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satisfaction of certain closing conditions. TCI Music's Series A common stock
trades on the Small Cap Market Tier of The Nasdaq Stock Market under the symbol
"TUNE." Upon consummation of the transaction, TCI Music is expected to change
its name to Liberty Digital, Inc.
In furtherance of this strategy, in July 1999, TCI Music entered into an
Internet music alliance with MTV Networks, a division of Viacom, Inc., whereby
TCI Music and MTV Networks formed and operate an online music venture, MTVN
Online L.P. In exchange for their respective contributions to MTVN Online of
certain music-related assets and businesses, TCI Music received a 10% interest,
and MTV Networks received a 90% interest, in MTVN Online. Liberty's management
believes that the combination of the assets and businesses contributed to MTVN
Online by TCI Music and MTV Networks will build scale and creates a stronger
platform from which to pursue an on-line music business. In connection with
this transaction, TCI Music and Liberty have each agreed not to compete with
MTVN Online in its online music video business or in the music video business
generally, subject to certain exceptions.
Following Liberty's contribution to TCI Music of various Internet and
interactive television assets and TCI Music's name change to Liberty Digital,
Inc., the assets of Liberty Digital are expected to consist primarily of the
following:
<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
- --------------------------------- ---------- -------------------------------------------------
<S> <C> <C>
AT&T Access Agreement............ N/A Certain programming rights with respect to AT&T's
cable systems
Academic Systems Corporation..... 5% Provider of higher education multimedia
instruction manuals
ACTV, Inc.
(Nasdaq: IATV)................... 12%/1/ Producer of tools for interactive programming for
television and Internet platforms
DMX, LLC......................... 100% Programs, markets and distributes the premium
digital audio service, Digital Music Express
Drugstore.com, Inc.
(Nasdaq: DSCM)................... 1% Online pharmacy and sundries
HomeGrocer.com, Inc.............. 2% Online grocery store
iBeam Broadcasting Corporation... 7% Satellite delivery of streaming media from
programmers to Internet service providers
Interactive Pictures Corporation
(Nasdaq: IPIX)................... 4% Interactive photographic technology for the
Internet
iVillage, Inc.
(Nasdaq: IVIL)................... 3% Internet and on-line provider of branded
communications and information services for adult
women
Kaleidoscope Interactive, LLC.... 50% Online provider of information and services
related to health concerns and disabilities
Kaleidoscope Network, Inc........ 12% 24-hour cable network that provides video
programming related to health concerns and
disabilities
KPCB Java Fund, L.P. ............ 5% Investor in Java application development
Lifescape, LLC................... 50% Online provider of information concerning
substance abuse, addictions and health problems
MedScholar Digital Network, LLC.. 100% Provider of continuous medical education services
to healthcare professionals
</TABLE>
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<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
- ------------------------ ---------- -------------------------------------------------
<S> <C> <C>
MTVN Online L.P. ....... 10% Online music venture with MTV Networks
priceline.com Incorporated
(Nasdaq: PCLN).......... 2% E-commerce service allowing consumers to make
offers on products and services
Quokka Sports, Inc...... 3% Internet provider of live digital sports
entertainment
Replay Networks, Inc. .. 1% Producer of technology that allows customers to
customize television viewing
Sportsline USA, Inc.
(Nasdaq: SPLN).......... 3% Internet provider of branded interactive sports
information, programming and merchandise
The Lightspan
Partnership, Inc. ..... 8% Developer of educational programming
TE Network, Inc......... 19% Online game service targeting family Internet
game players
TiVo Inc. .............. 1% Producer of technology that allows customers to
customize television viewing
</TABLE>
- --------
(1) Liberty Digital will also hold warrants to purchase additional shares of
ACTV, Inc. common stock, which it may exercise over a period of one to five
years. Exercise of these warrants would increase Liberty Digital's
ownership to approximately 25%.
Ownership Interest. Liberty currently owns approximately 86% of the
outstanding common equity of TCI Music and approximately 98% of its total
voting power. Assuming Liberty's contribution to TCI Music is consummated as
described above, members of the Liberty Media Group will own approximately 95%
of the outstanding common equity of Liberty Digital, with Liberty owning
approximately 87% of Liberty Digital and a member of the Liberty Media Group
that is not part of Liberty Media Corporation or its consolidated subsidiaries
owning the remaining approximately 8% interest.
Liberty's interest in TCI Music began in 1997 when TCI Music was formed as a
wholly owned subsidiary of TCI for the purpose of entering into a business
combination with DMX, LLC. DMX currently programs, markets and distributes the
premium digital audio music service known as Digital Music Express, to more
than 29 million subscribers in the United States. In December of 1997, TCI
Music acquired The Box Worldwide, Inc., which programs and distributes an
interactive music video television programming service to cable and broadcast
television systems via satellite delivery, and SonicNet, Inc., a leading
Internet music network consisting of a group of music web sites. TCI Music
acquired The Box to serve as the platform for music video and acquired SonicNet
to provide music-related content to DMX and The Box and to position itself to
take advantage of developments in music distribution through the Internet. In
connection with the MTVN Online transaction, TCI Music transferred
substantially all of the assets and businesses of The Box and SonicNet to MTVN
Online, subject to certain exceptions. Liberty believes that MTVN Online
provides a stronger platform through which TCI Music can participate in future
online music opportunities.
Business Affiliates
General Instrument Corporation
General Instrument Corporation is a leading worldwide provider of integrated
and interactive broadband access solutions and, with its strategic partners and
customers, GI seeks to advance the convergence of the Internet,
telecommunications and video entertainment industries. To that end, GI makes
products that allow video, voice and data to be delivered over cable, digital
satellite and telephony networks. GI is a leading supplier of digital and
analog set-top terminals and systems for wired and wireless cable television
networks, as well as hybrid fiber/coaxial network transmission systems used by
cable television operators. GI also provides digital satellite television
systems for programmers, direct-to-home satellite networks and private networks
for business communications. Through its limited partnership interest in Next
Level Communications L.P., GI provides next-generation broadband access
solutions for local telephone companies. GI also has audio and Internet/data-
delivery systems among its product lines. GI has facilities in Asia, Europe,
Latin America, and the United States. GI's common stock trades on the New York
Stock Exchange under the symbol "GIC."
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Ownership Interest. Liberty currently holds an 18% interest in GI, and is the
largest stockholder of GI. Liberty also holds warrants to purchase
approximately 21.4 million additional shares of GI common stock at $14.25 per
share. The warrants vest at specified dates, with the number of warrants
vesting on each such date relating to the number of advanced digital set-top
terminals purchased by AT&T and certain of its affiliates. If the warrants do
not vest on the specified date, the warrants will terminate. If any warrants
terminate solely because AT&T fails to purchase the required number of advanced
digital set-top terminals, AT&T will pay to Liberty an amount equal to $8.25
for each warrant terminated, adjusted as appropriate for any changes in the
capitalization of GI. Warrants to purchase 4.9 million shares are currently
vested, and assuming Liberty's exercise of such vested warrants, its ownership
interest in GI would increase to 21%.
Liberty's relationship with GI began in December 1997 when National Digital
Television Center, Inc., a wholly owned subsidiary of TCI ("NDTC"), entered
into an agreement with GI to purchase advanced digital set-top terminals. In
connection with NDTC's purchase commitment, GI granted the warrants specified
above. In July 1998, TCI acquired 21.4 million restricted shares of GI common
stock in exchange for (1) certain of the assets of NDTC's set-top authorization
business, (2) the license of certain related software to GI, (3) a $50 million
promissory note from TCI to GI and (4) a nine year revenue guarantee from TCI
in favor of GI. In connection with the AT&T merger, the shares of GI common
stock and the note payable were contributed to Liberty. In April 1999, Liberty
acquired an additional 10 million shares of GI from Forstmann Little & Co. for
$280 million. This purchase by Liberty increased Liberty's ownership in GI to
approximately 18% and made Liberty the largest stockholder of GI.
Terms of Ownership. In general, Liberty has certain registration rights with
respect to the GI shares it currently holds and those that it has a right to
acquire upon exercise of the GI warrants. In addition, a portion of Liberty's
GI shares are non-transferable until July 2001 and Liberty is further
restricted in its ability to knowingly transfer a portion of its GI shares to a
competitor of GI until December 2002 or, in some cases, prior to that date if a
change of control occurs with respect to GI.
Other Assets
Liberty also holds an approximately 19% interest in Antec Corporation, an
international communications technology company specializing in the design and
engineering of hybrid fiber/coaxial broadband networks and the development and
distribution of products for these broadband networks. Antec provides its
customers, primarily cable system operators, with products and services that
enable reliable, high-speed, two-way broadband transmission of video,
telephony, and data. In addition, Antec has developed a full line of
technologically advanced fiber optic products to capitalize on current and
future upgrades of cable systems employing hybrid fiber/coaxial technology
capable of providing state-of-the-art video, voice and data services. Antec's
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "ANTC."
Regulatory Matters
Domestic Programming
In the United States, the FCC regulates the providers of satellite
communications services and facilities for the transmission of programming
services, the cable television systems that carry such services, and, to some
extent, the availability of the programming services themselves through its
regulation of program licensing. Cable television systems in the United States
are also regulated by municipalities or other state and local government
authorities. Cable television companies are currently subject to federal rate
regulation on the provision of basic service, and continued rate regulation or
other franchise conditions could place downward pressure on the fees cable
television companies are willing or able to pay for programming services in
which Liberty has interests and regulatory carriage requirements could
adversely affect the number of channels available to carry the programming
services in which we have an interest.
Regulation of Program Licensing. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") directed the FCC to promulgate
regulations regarding the sale and acquisition of
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cable programming between multi-channel video programming distributors
(including cable operators) and satellite-delivered programming services in
which a cable operator has an attributable interest. The legislation and the
implementing regulations adopted by the FCC preclude virtually all exclusive
programming contracts between cable operators and satellite programmers
affiliated with any cable operator (unless the FCC first determines the
contract serves the public interest) and generally prohibit a cable operator
that has an attributable interest in a satellite programmer from improperly
influencing the terms and conditions of sale to unaffiliated multi-channel
video programming distributors. Further, the 1992 Cable Act requires that such
affiliated programmers make their programming services available to cable
operators and competing multi-channel video programming distributors such as
multi-channel multi-point distribution systems and direct broadcast satellite
distributors on terms and conditions that do not unfairly discriminate among
distributors. The Telecommunications Act of 1996 has extended these rules to
programming services in which telephone companies and other common carriers
have attributable ownership interests. The FCC recently revised its program
licensing rules, by implementing a damages remedy in situations where the
defendant knowingly violates the regulations and by establishing a timeline for
the resolution of such complaints, among other things.
Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC has
adopted regulations prohibiting cable operators from requiring a financial
interest in a programming service as a condition to carriage of such service,
coercing exclusive rights in a programming service or favoring affiliated
programmers so as to restrain unreasonably the ability of unaffiliated
programmers to compete.
Regulation of Ownership. The 1992 Cable Act required the FCC, among other
things, (a) to prescribe rules and regulations establishing reasonable limits
on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable
interest and (b) to consider the necessity and appropriateness of imposing
limitations on the degree to which multi-channel video programming distributors
(including cable operators) may engage in the creation or production of video
programming. In 1993, the FCC adopted regulations limiting carriage by a cable
operator of national programming services in which that operator holds an
attributable interest to 40% of the first 75 activated channels on each of the
cable operator's systems. The rules provide for the use of two additional
channels or a 45% limit, whichever is greater, provided that the additional
channels carry minority-controlled programming services. The regulations also
grandfather existing carriage arrangements that exceed the channel limits, but
require new channel capacity to be devoted to unaffiliated programming services
until the system achieves compliance with the regulations. These channel
occupancy limits apply only up to 75 activated channels on the cable system,
and the rules do not apply to local or regional programming services. These
rules may limit carriage of the programming companies in which Liberty has
interests on certain systems of affiliated cable operators. In the same
rulemaking, the FCC concluded that additional restrictions on the ability of
multi-channel distributors to engage in the creation or production of video
programming were then unwarranted.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted
broadcasters a choice of must carry rights or retransmission consent rights.
The rules adopted by the FCC generally provided for mandatory carriage by cable
systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel
capacity, non-commercial television broadcast signals. Such statutorily
mandated carriage of broadcast stations coupled with the provisions of the
Cable Communications Policy Act of 1984, which require cable television systems
with 36 or more "activated" channels to reserve a percentage of such channels
for commercial use by unaffiliated third parties and permit franchise
authorities to require the cable operator to provide channel capacity,
equipment and facilities for public, educational and government access
channels, could adversely affect some or substantially all of the programming
companies in which Liberty has interests by limiting the carriage of such
services in cable systems with limited channel capacity. The FCC recently
initiated a proceeding asking to what extent cable operators must carry all
digital signals transmitted by broadcasters. The imposition of such additional
must carry regulation, in conjunction with the current limited cable system
channel capacity, would make it likely that cable operators will be forced to
drop cable programming services, which may have an adverse impact on the
programming companies in which Liberty has interests.
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Closed Captioning Regulation. The Telecommunications Act of 1996 also
required the FCC to establish rules and an implementation schedule to ensure
that video programming is fully accessible to the hearing impaired through
closed captioning. The rules adopted by the FCC will require substantial closed
captioning over an eight to ten year phase-in period with only limited
exemptions. As a result, the programming companies in which Liberty has
interests are expected to incur significant additional costs for closed
captioning.
Copyright Regulation. Satellite carriers, such as TV Guide's UVTV division,
retransmit the broadcast signals of "superstations," such as KWGN and WGN, and
of network stations to home satellite dish owners for private home viewing
under statutory license pursuant to the Satellite Home Viewer Act of 1994 (the
"SHV Act"), which license is scheduled to expire on December 31, 1999. Although
bills, which, among other things, would extend the license granted under the
SHV Act and change the eligibility criteria for receipt of network station
signals, have been introduced in Congress, if the license granted under the SHV
Act is not further extended, satellite carriers will be required to negotiate
private licenses for the retransmission of copyright material to home satellite
dish owners after 1999. Under the House of Representatives bill, the license
granted under the SHV Act would be extended by five years, and under the Senate
bill, such license would be extended by six years. Satellite carriers may only
distribute the signals of network broadcast stations, as distinguished from
superstations, to "unserved households" that are outside the Grade B contours
of a primary station affiliated with such network. The FCC released new rules
on February 2, 1999 for determining whether households are unserved. TV Guide
entered into an agreement with the National Association of Broadcasters, the
ABC, CBS, FOX and NBC networks, their affiliate associations, and several
hundred broadcast stations, effective May 1, 1998, to identify by zip code
those geographic areas which are "unserved" by network affiliated stations.
Depending upon the implementation of the agreement and such identification, TV
Guide may be required, after expiration of a transition period to occur no
earlier than September 10, 1999, to disconnect a substantial number of existing
subscribers. Under the SHV Act, satellite carriers must pay a monthly fee of
27c per subscriber for the secondary transmission of distant superstations and
distant network stations. However, both the House of Representatives and the
Senate have recently passed bills which, among other things, include a
provision that would decrease the royalty fee for distant superstations by 30%
and distant network stations by 45%. To the extent that satellite carriers
transmit superstation or network station signals to cable operators, such cable
operators pay the copyright fee under the separate compulsory license.
Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry.
Proposed Changes in Regulation. The regulation of programming services, cable
television systems, satellite carriers and television stations is subject to
the political process and has been in constant flux over the past decade.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that Liberty's business will not be
adversely affected by future legislation, new regulation or deregulation.
Domestic Telephony
The FCC regulates the licensing, construction, operation, acquisition, resale
and interconnection arrangements of domestic wireless telecommunications
systems. The activities of wireless service providers, such as the Sprint PCS
Group, are subject to regulation in varying degrees, depending on the
jurisdiction, by state and local regulatory agencies as well. The FCC, in
conjunction with the U.S. Federal Aviation Administration, also regulates tower
marking and lighting, and FCC environmental rules may cause certain PCS network
facilities to become subject to regulation under the National Environmental
Policy Act.
International Cable, Telephony and Programming
Some of the foreign countries in which Liberty has, or proposes to make, an
investment regulate, in varying degrees, (a) the granting of cable and
telephony franchises, the construction of cable and telephony
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systems and the operations of cable, other multi-channel television operators
and telephony operators and service providers, as well as the acquisition of,
and foreign investments in, such operators and service providers, and (b) the
distribution and content of programming and Internet services and foreign
investment in programming companies. Regulations or laws may cover wireline and
wireless telephony, satellite and cable communications and Internet services,
among others. Regulations or laws that exist at the time Liberty makes an
investment in a foreign subsidiary or business affiliate may thereafter change,
and there can be no assurance that material and adverse changes in the
regulation of the services provided by Liberty's subsidiaries and business
affiliates will not occur in the future. Regulation can take the form of price
controls, service requirements and programming and other content restrictions,
among others. Moreover, some countries do not issue exclusive licenses to
provide multi-channel television services within a geographic area, and in
those instances Liberty may be adversely affected by an overbuild by one or
more competing cable operators. In certain countries where multi-channel
television is less developed, there is minimal regulation of cable television,
and, hence, the protections of the cable operator's investment available in the
United States and other countries (such as rights to renewal of franchises and
utility pole attachment) may not be available in these countries.
Internet Services
The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. There are currently few laws or regulations directly
applicable to access to or commerce on commercial online services or the
Internet. For example, the Digital Millennium Copyright Act, enacted into law
in 1998, protects certain qualifying online service providers from copyright
infringement liability, the Internet Tax Freedom Act, also enacted in 1998,
placed a three year moratorium on new state and local taxes on Internet access
and commerce, and under the Communications Decency Act, an Internet service
provider will not be treated as the publisher or speaker of any information
provided by another information content provider. However, due to the
increasing popularity and use of commercial online services and the Internet,
it is possible that a number of laws and regulations may be adopted with
respect to commercial online services and the Internet. Such laws and
regulations may cover issues such as user privacy, defamatory speech, copyright
infringement, pricing and characteristics and quality of products and services.
The adoption of such laws or regulations in the future may slow the growth of
commercial online services and the Internet, which could in turn cause a
decline in the demand for the services and products of the Internet companies
in which we have interests and increase such companies' costs of doing business
or otherwise have an adverse effect on their businesses, operating results and
financial conditions. Moreover, the applicability to commercial online services
and the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is uncertain and could expose these companies to
substantial liability.
Competition
Programming. The business of distributing programming for cable and satellite
television is highly competitive, both in the United States and in foreign
countries. The programming companies in which we have interests directly
compete with other programmers for distribution on a limited number of
channels. Once distribution is obtained, our programming services and our
business affiliates' programming services compete, in varying degrees, for
viewers and advertisers with other cable and off-air broadcast television
programming services as well as with other entertainment media, including home
video (generally video rentals), pay-per-view services, online activities,
movies and other forms of news, information and entertainment. The programming
companies in which we have interests also compete, to varying degrees, for
creative talent and programming content. Our 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, HSN and QVC operate in direct competition with
businesses that are engaged in retail merchandising.
Communications. The cable television systems and other forms of media
distribution in which we have interests directly compete for viewer attention
and subscriptions in local markets with other providers of
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entertainment, news and information, including other cable television systems
in those countries that do not grant exclusive franchises, broadcast television
stations, direct-to-home satellite companies, satellite master antenna
television systems, multi-channel multi-point distribution systems and
telephone companies, other sources of video programs (such as videocassettes)
and additional sources for entertainment news and information, including the
Internet. Cable television systems also face strong competition from all media
for advertising dollars. Our management believes that important competitive
factors include fees charged for basic and premium services, the quantity,
quality and variety of the programming offered, the quality of signal
reception, customer service and the effectiveness of marketing efforts.
In addition, there is substantial competition in the domestic wireless
telecommunications industry, and it is expected that such competition will
intensify as a result of the entrance of new competitors and the increasing
pace of development of new technologies, products and services. Each of the
markets in which the Sprint PCS Group competes is served by other two-way
wireless service providers, including cellular and PCS operators and resellers.
A majority of the markets will have five or more commercial mobile radio
service providers and each of the top 50 metropolitan markets have at least one
other PCS competitor in addition to two cellular incumbents. Many of these
competitors have been operating for a number of years and currently service a
significant subscriber base.
Internet Services and Technology. The markets for Internet services, online
content and products are relatively new, intensely competitive and rapidly
changing. Since the Internet's commercialization in the early 1990's, the
number of Internet companies and web sites competing for consumers' attention
and spending has proliferated with no substantial barriers to entry, and we
expect that competition will continue to intensify in the future. The Internet
companies and web sites in which we have interests compete, directly and
indirectly, for members, visitors, advertisers, content providers and
merchandise sales with many categories of companies, including: (1) other
Internet companies and web sites targeted to the respective audiences of the
Internet companies and web sites in which we have interests; (2) publishers and
distributors of traditional off-line media (such as television, radio and
print), including those targeted to the respective audiences of the Internet
companies and web sites in which we have interests, many of which have made, or
may in the future make, significant acquisitions of or investments in Internet
companies and/or have established, or may in the future establish, web sites;
(3) general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to content and services
targeted to the respective audiences of the Internet companies and web sites in
which we have interests; (4) vendors of information, merchandise, products and
services distributed through other means, including retail stores, mail,
facsimile and private bulletin board services; and (5) web search and retrieval
services and other high-traffic web sites. Liberty anticipates that the number
of such competitors will increase in the future.
The technology companies in which we have interests compete with a
substantial number of foreign and domestic companies, and the rapid
technological changes occurring in such companies' markets are expected to lead
to the entry of new competitors. The ability of the technology companies in
which we have interests to anticipate technological changes and introduce
enhanced products on a timely basis will be a significant factor in their
ability to expand and remain competitive. Existing competitors' actions and new
entrants may have an adverse impact on these companies' sales and
profitability.
Employees
As of June 30, 1999, Liberty had approximately 40 employees and Liberty's
consolidated subsidiaries had an aggregate of approximately 1,580 employees.
None of our employees are represented by a labor union or covered by a
collective bargaining agreement. We believe that our employee relations are
good.
Properties
With the exception of its corporate offices in Englewood, Colorado (which
Liberty leases), Liberty does not own or lease any real or personal property
other than through its interests in its subsidiaries and business
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affiliates. Liberty's subsidiaries and business affiliates own or lease the
fixed assets necessary for the operation of their respective businesses,
including office space, transponder space, headends, cable television and
telecommunications distribution equipment, telecommunications switches and
customer equipment (including converter boxes). Liberty's management believes
that its current facilities are suitable and adequate for its business
operations for the foreseeable future.
Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to Liberty's business, to which Liberty or any of its
subsidiaries is a party or of which any of their property is subject.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our directors
and executive officers.
<TABLE>
<CAPTION>
Date of
Name Birth Position
---- -------- --------
<S> <C> <C>
John C. Malone.......... 3/7/41 Chairman of the Board and Director
Robert R. Bennett....... 4/19/58 President, Chief Executive Officer and Director
Gary S. Howard.......... 2/22/51 Executive Vice President, Chief Operating Officer and Director
David B. Koff........... 12/26/58 Senior Vice President
Charles Y. Tanabe....... 11/27/51 Senior Vice President and General Counsel
Peter N. Zolintakis..... 7/10/57 Senior Vice President
Vivian J. Carr.......... 12/13/47 Vice President and Secretary
Kathryn S. Douglass..... 3/5/65 Vice President and Controller
David J.A. Flowers...... 5/17/54 Vice President and Treasurer
Paul A. Gould........... 9/27/45 Director
Leo J. Hindery, Jr...... 10/31/47 Director
Jerome H. Kern.......... 6/1/37 Director
John C. Petrillo........ 4/30/49 Director
Larry E. Romrell........ 12/30/39 Director
Daniel E. Somers........ 12/9/47 Director
</TABLE>
The following is a five-year employment history for our directors and
executive officers, including any directorships held in public companies.
John C. Malone has served as Chairman of the Board and one of our directors
since 1990. Dr. Malone has also served, since December 1996, as Chairman of the
Board and a director of TCI Satellite Entertainment, Inc. Dr. Malone served as
Chairman of the Board of TCI from November 1996 to March 1999, as Chief
Executive Officer of TCI from January 1994 to March 1999, and as President of
TCI from January 1994 to March 1997. Dr. Malone served as Chief Executive
Officer of TCI Communications, Inc., the domestic cable subsidiary of TCI prior
to the AT&T merger ("TCIC"), from March 1992 to October 1994, and as President
of TCIC from 1973 to October 1994. Dr. Malone is also a director of AT&T, The
Bank of New York and Excite@Home Corporation.
Robert R. Bennett has served as our President and Chief Executive Officer and
one of our directors since April 1997. Mr. Bennett served as Executive Vice
President of TCI from April 1997 to March 1999. Mr. Bennett served as our
Executive Vice President and Chief Financial Officer, Secretary and Treasurer
from June 1995 through March 1997, and as our Senior Vice President from
September 1991 to June 1995. Mr. Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett is a
director of TV Guide, Inc. and Chairman of the Board of Liberty Digital, Inc.
Gary S. Howard has served as our Executive Vice President, Chief Operating
Officer and one of our directors since July 1998. Mr. Howard has also served as
Chief Executive Officer of TCI Satellite Entertainment, Inc. since December
1996. Mr. Howard served as Executive Vice President of TCI from December 1997
to March 1999; as Chief Executive Officer, Chairman of the Board and a director
of TV Guide,
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Inc. from June 1997 to March 1999; and as President and Chief Executive Officer
of TCI Ventures Group, LLC from December 1997 to March 1999. Mr. Howard served
as President of TV Guide, Inc. from June 1997 to September 1997; as President
of TCI Satellite Entertainment, Inc. from February 1995 through August 1997; as
Senior Vice President of TCIC from October 1994 to December 1996; and as Vice
President of TCIC from December 1991 through October 1994. Mr. Howard is a
director of TV Guide, Inc. and TCI Satellite Entertainment, Inc.
David B. Koff has served as a Senior Vice President of Liberty since February
1998. Mr. Koff has also served as Vice President and Assistant Secretary of TCI
Music, Inc. since January 1998. Mr. Koff served as Vice President--Corporate
Development of Liberty from August 1994 to February 1998, and as special
counsel to Liberty from March 1993 to August 1994. Mr. Koff also served as
interim President and Chief Executive Officer of TCI Music, Inc. from May 1997
to January 1998. Mr. Koff is a director of TCI Music, Inc.
Charles Y. Tanabe has served as a Senior Vice President and General Counsel
of Liberty since January 1999. Prior to joining Liberty, Mr. Tanabe was a
member of Sherman & Howard L.L.C., a law firm based in Denver, Colorado.
Peter N. Zolintakis has served as Senior Vice President of Tax Strategy of
Liberty since November 1998. Prior to joining Liberty, Mr. Zolintakis was a
partner of PricewaterhouseCoopers, where he specialized in the tax issues
relating to corporate mergers, acquisitions, divestitures and restructurings
for clients primarily in the cable television and high technology industries.
Vivian J. Carr has served as a Vice President of Liberty since June 1993 and
was appointed Secretary of Liberty in August 1994. Ms. Carr served as Director
of Investor Relations of Liberty from March 1991 to June 1993.
Kathryn S. Douglass has served as a Vice President of Liberty since September
1997 and as Controller of Liberty since September 1993. Ms. Douglass served as
Accounting Manager of Liberty from October 1991 to September 1993.
David J.A. Flowers has served as a Vice President and Treasurer of Liberty
since April 1997. Mr. Flowers served as Vice President--Portfolio Manager of
Liberty from June 1995 to April 1997. Prior to joining Liberty, Mr. Flowers
held several positions at Toronto Dominion Bank from August 1989 to June 1995,
including Managing Director in its Media Finance Group.
Paul A. Gould has served as one of our directors since March 1999. Mr. Gould
has also served as a Managing Director and Executive Vice President of Allen &
Company Incorporated, an investment banking services company, for more than the
last five years. Mr. Gould served as a director of TCI from December 1996 to
March 1999 and of Liberty from November 1992 to August 1994. Mr. Gould is a
director of Ascent Entertainment Group, Inc. and Sunburst Hospitality
Corporation.
Leo J. Hindery, Jr. has served as one of our directors since March 1999. Mr.
Hindery has also served as President and Chief Executive Officer of AT&T
Broadband & Internet Services since March 1999, and as Chairman of the Board
and a director of TCI Music since January 1997. Mr. Hindery has also served as
the President and Chief Operating Officer of TCI since March 1997, and as a
director of TCI since May 1997. Mr. Hindery served as President and Chief
Executive Officer of TCIC from March 1997 to June 1998 and from November 1998
to March 1999, and served as a director of TCIC from March 1997 to March 1999.
Mr. Hindery, the founder of InterMedia Partners, an operator of cable
television systems, served as the Managing General Partner and Chief Executive
Officer of InterMedia Partners and its affiliated entities from 1988 to March
1997. Mr. Hindery is also a director of Excite@Home Corporation, Cablevision
Systems Corporation and TCI Music, Inc.
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Jerome H. Kern has served as one of our directors since March 1999. Mr. Kern
served as Vice Chairman and as a consultant of TCI from June 1998 to March
1999. Prior to joining TCI, Mr. Kern was Special Counsel with the law firm of
Baker & Botts, L.L.P. from July 1996 to June 1998, and a senior partner of
Baker & Botts, L.L.P. from September 1992 to July 1996. Mr. Kern served as a
director of TCI from June 1994 to March 1999, and as a director of TCIC from
December 1993 to August 1994.
John C. Petrillo has served as one of our directors since March 1999. Mr.
Petrillo has also served as Executive Vice President--Strategy and Business
Development of AT&T since July 1995. Mr. Petrillo is a director of Excite@Home
Corporation.
Larry E. Romrell has served as one of our directors since March 1999. Mr.
Romrell has also served as a consultant to Liberty since March 1999. Mr.
Romrell served as Executive Vice President of TCI from January 1994 to March
1999. Mr. Romrell also served, from December 1997 to March 1999, as Executive
Vice President and Chief Executive Officer of TCI Business Alliance and
Technology Co., a subsidiary of TCI prior to the AT&T merger that oversaw and
developed TCI's technology activities; from December 1997 to March 1999, as
Senior Vice President of TCI Ventures Group, LLC; and, from September 1994 to
October 1997, as President of TCI Technology Ventures, Inc., a subsidiary of
TCI prior to the AT&T merger that invested in and developed companies engaged
in advancing telecommunications technology. Mr. Romrell served as Senior Vice
President of TCIC from 1991 to October 1994. Mr. Romrell is a director of TV
Guide, Inc. and General Communication, Inc.
Daniel E. Somers has served as one of our directors since March 1999. Mr.
Somers has also served as Senior Executive Vice President and Chief Financial
Officer of AT&T since May 1997. Prior to joining AT&T, Mr. Somers served as
Chairman and Chief Executive Officer of Bell Cablemedia, plc from 1995 to 1997,
and as Executive Vice President and Chief Financial Officer of Bell Canada
International, Inc. from 1992 to 1995. Mr. Somers is a member of AT&T's
Executive Council and Operations Group. He is also a director of Lubrizol
Corporation.
The executive officers named above will serve in such capacities until the
next annual meeting of our board of directors, or until their respective
successors have been duly elected and have been qualified, or until their
earlier death, resignation, disqualification or removal from office. There is
no family relationship between any of the directors.
Board Composition
Our certificate of incorporation (the "Liberty Charter") provides for a
classified board of directors of not less than three members, with the exact
number of directors to be fixed by resolution of our board. The Liberty Charter
further provides for the number of directors to always be a multiple of three,
divided evenly among three classes. The number of directors on our board is
currently nine. Of the nine members of our board, three are elected by the
holders of our Class A common stock, voting as a separate class (the "Class A
Directors"), three are elected by the holders of our Class B common stock,
voting as a separate class (the "Class B Directors"), and three are elected by
the holders of our Class C common stock, voting as a separate class (the "Class
C Directors"). Currently, all of our common stock is owned by AT&T; however,
the Class B Directors and the Class C Directors were designated by TCI prior to
the AT&T merger.
The Class A Directors, whose terms expire at the annual meeting of
stockholders in 2000, are Leo J. Hindery, Jr., Daniel E. Somers and John C.
Petrillo. The Class B Directors, whose terms expire at the annual meeting of
stockholders in 2006, are Larry E. Romrell, Jerome H. Kern and Gary S. Howard.
The Class C Directors, whose terms expire at the annual meeting of stockholders
in 2009, are John C. Malone, Paul A. Gould and Robert R. Bennett. At each
annual meeting of our stockholders, the successors of that class or
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classes of directors whose term(s) expire at that meeting shall be elected to
hold office for a term expiring at the annual meeting of stockholders held, in
the case of the Class A Directors, in the following year, in the case of the
Class B Directors, in the seventh year following the year of such election and,
in the case of the Class C Directors, in the tenth year following the year of
such election. The directors of each class will hold office until their
respective death, resignation or removal and until their respective successors
are elected and qualified.
Committees of the Board
Our board of directors has established an Executive Committee, whose members
are the Class C Directors. The Executive Committee has been granted and may
exercise all the powers and authority of the board in the management of our
business and affairs, except as specifically prohibited by the General
Corporation Law of the State of Delaware (the "DGCL"), the Liberty Charter or
Liberty's bylaws. The Executive Committee does not have power or authority to:
(1) approve or adopt, or recommend to the stockholders, any action or matter
expressly required by the DGCL to be submitted to stockholders for approval, or
(2) adopt, amend or repeal any of Liberty's bylaws.
The board, by resolution passed by a majority of the whole board present at
any meeting at which a quorum is present (provided that any such majority must
include a majority of the Class B Directors and Class C Directors) may from
time to time establish certain other committees of the board, consisting of one
or more directors of Liberty. Any committee so established will have the powers
delegated to it by resolution of the board, subject to applicable law and the
Liberty Charter.
Compensation of Directors
No member of our board of directors receives any compensation for serving on
our board. However, all members of our board are reimbursed for travel expenses
incurred to attend any meetings of our board or any committee thereof.
Compensation of Executive Officers
The following tables set forth information relating to compensation (which
compensation includes grants of stock options and stock appreciation rights
("SARs") in respect of securities of TCI and certain of its affiliates) for (1)
our Chief Executive Officer, (2) our four other most highly compensated
executive officers, whose salary and bonus from Liberty exceeded $100,000 for
the fiscal year ended December 31, 1998, and (3) two additional executive
officers who would have been included in (2) above but for the fact that they
were not serving as executive officers of Liberty at the end of or for the full
fiscal year ended December 31, 1998 (collectively, our "named executive
officers").
Prior to the AT&T merger, each of our named executive officers held options
(and SARs granted in tandem with those options) to purchase shares of one or
more series of TCI tracking stock, including TCI Group tracking stock, Liberty
Media Group tracking stock and TCI Ventures Group tracking stock. In the AT&T
merger, each option to purchase shares of TCI Group tracking stock was
converted into an option to purchase a number of shares of AT&T common stock
determined by multiplying the number of shares of TCI Group tracking stock
subject to such option by 1.16355 (as adjusted for a subsequent 3-for-2 stock
split), in the case of options to purchase shares of Series A TCI Group
tracking stock, and by 1.27995 (as adjusted for a subsequent 3-for-2 stock
split), in the case of options to purchase shares of Series B TCI Group
tracking stock. The per share exercise price of each AT&T common stock option
is equal to the exercise price per share of the corresponding TCI Group
tracking stock option on March 9, 1999, divided by the applicable split-
adjusted exchange ratio (1.16355 or 1.27995). Each option to purchase shares of
TCI's Liberty Media Group tracking stock was converted into an option to
purchase a number of shares of AT&T's Liberty Media Group tracking stock equal
to the number of shares of TCI's Liberty Media Group tracking stock subject to
such option, at the same per share exercise price in effect for each such
option on March 9, 1999. At the time of the AT&T merger, each option to
purchase shares of TCI Ventures Group tracking stock was converted into an
option to
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purchase a number of shares of AT&T's Liberty Media Group tracking stock
determined by multiplying the number of shares of TCI Ventures Group tracking
stock subject to such option by 1.04 (as adjusted for a subsequent 2-for-1
stock split). The per share exercise price of each AT&T Liberty Media Group
tracking stock option is equal to the exercise price per share of the
corresponding TCI Ventures Group tracking stock option on March 9, 1999,
divided by the split-adjusted exchange ratio of 1.04.
Summary Compensation Table. The following table sets forth information
concerning the compensation paid to the named executive officers by Liberty for
the fiscal year ended December 31, 1998. Compensation for Messrs. Tanabe and
Zolintakis reflects the annual compensation that would have been paid to them
had they been serving as executive officers of Liberty since the beginning of
1998 based on 1999 annual compensation levels.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
------------- ---------------------------------------------------
Securities
Restricted Underlying
Other Annual Stock Award Options/ SARs All Other
Name and Principal Salary Compensation ($ in (# in Compensation
Position with Liberty Year ($) ($) thousands) thousands) ($)
- ------------------------ ---- -------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Bennett....... 1998 $559,354 $10,473(1) $7,738(2) 6,000(4) $36,540(5)(6)
President and Chief
Executive Officer
John C. Malone.......... 1998 $950,000 $ -- $ -- -- $15,000(6)
Chairman of the Board
Gary S. Howard.......... 1998 $533,769 $ -- $ -- 5,000(4) $15,000(6)
Executive Vice President
and
Chief Operating Officer
Charles Y. Tanabe....... 1998 $500,000 $ -- $ -- 1,200(4) $15,000(6)
Senior Vice President
and General Counsel
Peter N. Zolintakis..... 1998 $500,000 $ -- $1,978(3) 1,200(4) $15,000(6)
Senior Vice President
David B. Koff........... 1998 $275,000 $ -- $ -- 1,200(4) $14,985(6)
Senior Vice President
David J.A. Flowers...... 1998 $250,000 $ -- $ -- 250(4) $10,000(6)
Vice President and
Treasurer
</TABLE>
- --------
(1) Consists of additional compensation paid by Liberty in an amount equal to
premium payments made in 1998 by Mr. Bennett on split dollar, whole life
insurance policies. The additional compensation may be paid in the sole
discretion of the Compensation Committee exercised annually.
(2) On June 23, 1998, pursuant to the Tele-Communications, Inc. 1998 Incentive
Plan (the "1998 Incentive Plan"), Mr. Bennett was granted 200,000
restricted shares of Series A TCI Group tracking stock. These restricted
shares, as adjusted for the AT&T merger and subsequent AT&T stock split,
became 232,710 restricted shares of AT&T common stock. The restricted
shares vest as to 50% of the shares in June 2002 and as to the remaining
50% in June 2003. At the end of 1998, the restricted shares had an
aggregate value of $11,062,500, based upon the closing sales price per
share of the Series A TCI Group tracking stock on the National Market tier
of The Nasdaq Stock Market ("Nasdaq") on December 31, 1998. Cash dividends
on the restricted shares of AT&T common stock are paid to Mr. Bennett.
(3) On November 15, 1998, pursuant to the 1998 Incentive Plan, Mr. Zolintakis
was granted 50,000 restricted shares of Series A TCI Group tracking stock.
These restricted shares, as adjusted for the AT&T merger and subsequent
AT&T stock split, became 58,177 restricted shares of AT&T common stock. All
of the restricted shares vest in November 2000. At the end of 1998, the
restricted shares had an aggregate value of $2,765,625, based upon the
closing sales price per share of the Series A TCI Group tracking stock on
Nasdaq on December 31, 1998. Cash dividends on the restricted shares of
AT&T common stock are paid to Mr. Zolintakis.
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(4) On December 29, 1998, pursuant to the 1998 Incentive Plan, these executive
officers were granted options in tandem with SARs to acquire shares of
TCI's Series A Liberty Media Group tracking stock. In the AT&T merger,
those options and tandem SARs were converted into options and rights with
respect to AT&T Class A Liberty Media Group tracking stock at an exercise
price of $21.62, as adjusted for a subsequent two-for-one stock split. The
options and tandem SARs vest evenly over five years on each anniversary of
the date of grant. The options and tandem SARs expire on December 29, 2008,
subject to earlier termination in certain events. Notwithstanding the
vesting schedule as set forth in the option agreements, the options and
SARs will immediately vest and become exercisable if the grantee's
employment with Liberty terminates by reason of disability or the grantee
dies while employed by Liberty.
(5) Includes $21,540 which consists of the amount of premiums paid by Liberty
in fiscal 1998 pursuant to split dollar, whole life insurance policies for
the insured executive officer. Liberty will pay a portion of the premiums
annually until the first to occur of (a) 10 years from the date of the
policy; (b) the insured executive's death; (c) the premiums are waived
under a waiver of premium provision; (d) the policy is terminated as set
forth below; and (e) premiums are prepaid in full for the 10-year period as
set forth below. The insured executive has granted an assignment of policy
benefits in favor of Liberty in the amounts of the premiums paid by
Liberty. At the end of such 10-year period or upon acceleration of premiums
as described below, the entire policy vests to the sole benefit of the
insured executive and Liberty will remove or cancel the assignment in its
favor against the policy. In the event of a change of control of Liberty,
liquidation of Liberty or sale of substantially all of the assets of
Liberty, the policy will immediately be prepaid in full through the tenth
year, prior to such event. Similarly, if the insured executive is dismissed
for any reason (except for conviction of a felony class miscarriage of
responsibilities as a Liberty officer), Liberty will immediately prepay and
fully fund the policy through the tenth year. Upon any of the foregoing
events, the policy will vest to the sole benefit of the insured executive.
If, however, the insured executive voluntarily chooses to terminate
employment (and that decision is not a result of pressure from Liberty to
resign or a resignation related to an adverse change in Liberty or its
affiliates) without cause, Liberty will have no further obligation to fund
premiums, but the policy will vest to the sole benefit of the insured
executive.
(6) Amounts represent contributions to the TCI 401(k) Stock Plan (the "TCI
Stock Plan"). The TCI Stock Plan provides benefits upon an employee's
retirement which generally is when the employee reaches 65 years of age.
TCI Stock Plan participants may contribute up to 10% of their compensation
and Liberty (by annual resolution of the TCI Board of Directors) may
contribute up to a matching 100% of the participants' contributions.
Participant contributions to the TCI Stock Plan are fully vested upon
contribution.
Generally, participants acquire a vested right in Liberty contributions as
follows:
<TABLE>
<CAPTION>
Years of service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 1................... 0%
1-2........................... 33%
2-3........................... 66%
3 or more..................... 100%
</TABLE>
With respect to Liberty contributions made to the TCI Stock Plan in 1998,
Messrs. Bennett, Malone, Howard, Koff and Flowers are fully vested.
Directors who are not employees of Liberty are ineligible to participate in
the TCI Stock Plan. Under the terms of the TCI Stock Plan, employees are
eligible to participate after three months of service.
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Option and SAR Grants in Last Fiscal Year. The following table sets forth
information regarding stock options granted in tandem with SARs to each of the
named executive officers during the year ended December 31, 1998 (numbers of
securities and dollar amounts present value in thousands).
Option and SAR Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant
Options Employees in Price Expiration Date Present
Name Granted (1) 1998 ($/Sh) Date Value (2)
- ---- ----------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Robert R. Bennett.... 6,000 35% $21.62 12/29/08 $170,520
Gary S. Howard....... 5,000 30% $21.62 12/29/08 $142,100
David B. Koff........ 1,200 7% $21.62 12/29/08 $ 34,104
Charles Y Tanabe..... 1,200 7% $21.62 12/29/08 $ 34,104
Peter N. Zolintakis.. 1,200 7% $21.62 12/29/08 $ 34,104
David J.A. Flowers... 250 1% $21.62 12/29/08 $ 7,105
</TABLE>
- --------
(1) On December 29, 1998, pursuant to the 1998 Incentive Plan, officers and
other employees of Liberty were granted options in tandem with SARs to
acquire TCI's Series A Liberty Media Group tracking stock. In the AT&T
merger, those options and tandem SARs were converted into options and
rights with respect to a total of 16,927,000 shares of AT&T Class A
Liberty Media Group tracking stock at an exercise price of $21.62, as
adjusted for a subsequent two-for-one stock split. The options and tandem
SARs vest evenly over five years on each anniversary of the date of grant.
The options and tandem SARs expire on December 29, 2008, subject to
earlier termination in certain events. Notwithstanding the vesting
schedule as set forth in the option agreements, the options and SARs will
immediately vest and become exercisable if the grantee's employment with
Liberty terminates by reason of disability or the grantee dies while
employed by Liberty.
(2) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 6.15% discount rate; (b) a volatility factor based upon the
historical trading pattern of AT&T Class A Liberty Media Group tracking
stock; (c) the 10-year option term; and (d) the closing price of AT&T
Class A Liberty Media Group tracking stock on June 30, 1999. The actual
value an executive may realize will depend upon the extent to which the
stock price exceeds the exercise price on the date the option is
exercised. Accordingly, the value, if any, realized by an executive would
not necessarily be the value determined by the model.
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values. The
following table sets forth information concerning exercises of stock options
and SARs by the named executive officers during the year ended December 31,
1998 (numbers of securities and dollar amounts in thousands).
Aggregated Option/SAR Exercises in the Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1998 (#) December 31, 1998
on Exercise Realized Exercisable/ ($) Exercisable/
Name (#)(1)(2) ($) Unexercisable (2) Unexercisable
- ---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert R. Bennett
Exercisable
TCI Group Series A..... -- -- 41 $ 1,679
TCI Liberty Media Group
Series A.............. -- -- 818 $28,224
TCI Ventures Group
Series A.............. -- -- 35 $ 574
Unexercisable
TCI Group Series A..... -- -- 60 $ 2,396
TCI Liberty Media Group
Series A.............. -- -- 3,936 $38,638
TCI Ventures Group
Series A.............. -- -- 52 $ 816
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1998 (#) December 31, 1998
on Exercise Realized Exercisable/ ($) Exercisable/
Name (#)(1)(2) ($) Unexercisable (2) Unexercisable
- ---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
John C. Malone
Exercisable
TCI Group Series A..... 50 $1,575 1,070 $46,056
TCI Liberty Media Group
Series A.............. -- -- 912 $33,885
TCI Ventures Group
Series A.............. -- -- 960 $16,760
TCI Ventures Group
Series B.............. -- -- 560 $ 7,213
Unexercisable
TCI Group Series A..... -- -- 280 $11,394
TCI Liberty Media Group
Series A.............. -- -- 242 $ 8,285
TCI Ventures Group
Series A.............. -- -- 240 $ 3,901
TCI Ventures Group
Series B.............. -- -- 2,240 $28,851
Gary S. Howard
Exercisable
TCI Group Series A..... -- -- 161 $ 6,834
TCI Liberty Media Group
Series A.............. -- -- 79 $ 2,989
TCI Ventures Group
Series A.............. -- -- 138 $ 2,364
Unexercisable
TCI Group Series A..... -- -- 49 $ 1,977
TCI Liberty Media Group
Series A.............. -- -- 2,506 $ 7,235
TCI Ventures Group
Series A.............. -- -- 42 $ 684
Charles Y. Tanabe
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 600 $ 1,688
Peter N. Zolintakis
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 600 $ 1,688
David B. Koff
Exercisable
TCI Group Series A..... -- -- 4 $ 164
TCI Liberty Media Group
Series A.............. 10 $ 223 116 $ 4,033
TCI Ventures Group
Series A.............. -- -- 12 $ 198
Unexercisable
TCI Group Series A..... -- -- 4 $ 143
TCI Liberty Media Group
Series A.............. -- -- 753 $ 6,734
TCI Ventures Group
Series A.............. -- -- 3 $ 49
David J.A. Flowers
Exercisable
TCI Liberty Media Group
Series A.............. -- -- 150 $ 5,218
Unexercisable
TCI Liberty Media Group
Series A.............. -- -- 275 $ 5,296
</TABLE>
- --------
(1) Represents the number of shares underlying the SARs which were exercised in
1998.
(2) Amounts have not been adjusted for the AT&T merger or any stock splits
subsequent to December 31, 1998.
78
<PAGE>
Employment Contracts
In connection with the AT&T merger, an employment agreement between Dr.
Malone and TCI was assigned to Liberty. The term of Dr. Malone's employment
agreement is extended daily so that the remainder of the employment term is
five years. The employment agreement was amended in June 1999 to provide for,
among other things, an annual salary of $2,600, subject to increase upon
approval of Liberty's board. Additionally, the employment agreement provides
for personal use of Liberty's aircraft and flight crew, limited to an aggregate
value of $200,000 per year, and payment or reimbursement of professional fees
and expenses incurred by Dr. Malone for estate and tax planning services.
Dr. Malone's employment agreement provides, among other things, for deferral
of a portion (not in excess of 40%) of the monthly compensation payable to him.
The deferred amounts will be payable in monthly installments over a 20-year
period commencing on the termination of Dr. Malone's employment, together with
interest thereon at the rate of 8% per annum compounded annually from the date
of deferral to the date of payment.
Dr. Malone's employment agreement also provides that, upon termination of his
employment by Liberty (other than for cause, as defined in the agreement) or if
Dr. Malone elects to terminate the agreement because of a change in control of
Liberty, all remaining compensation due under the agreement for the balance of
the employment term shall be immediately due and payable.
Dr. Malone's agreement provides that, during his employment with Liberty and
for a period of two years following the effective date of his termination of
employment with Liberty, unless termination results from a change in control of
Liberty, he will not be connected with any entity in any manner specified in
the agreement, which competes in a material respect with the business of
Liberty. The agreement provides, however, that Dr. Malone may own securities of
any corporation listed on a national securities exchange or quoted in The
Nasdaq Stock Market to the extent of an aggregate of 5% of the amount of such
securities outstanding.
For a period of 12 months following a change in control, as defined in Dr.
Malone's employment agreement, Liberty's ability to terminate Dr. Malone's
employment for cause will be limited to situations in which Dr. Malone has
entered a plea of guilty to, or has been convicted of, the commission of a
felony offense.
Dr. Malone's agreement also provides that in the event of termination of his
employment with Liberty, he will be entitled to receive 240 consecutive monthly
payments of $15,000 (increased at the rate of 12% per annum compounded annually
from January 1, 1988 to the date payment commences), the first of which will be
payable on the first day of the month succeeding the termination of Dr.
Malone's employment. In the event of Dr. Malone's death, his beneficiaries will
be entitled to receive the foregoing monthly payments.
Liberty pays a portion of the annual premiums (equal to the "PS-58" costs) on
three whole-life insurance policies of which Dr. Malone is the insured and
trusts for the benefit of members of his family are the owners. Liberty is the
designated beneficiary of the proceeds of such policies less an amount equal to
the greater of the cash surrender value thereof at the time of Dr. Malone's
death and the amounts of the premiums paid by the policy owners.
Dr. Malone deferred a portion of his monthly compensation under his previous
employment agreement. The obligation to pay that deferred compensation was
assumed by Liberty in connection with the AT&T merger. The compensation that he
deferred (together with interest on that compensation at the rate of 13% per
annum compounded annually from the date of deferral to the date of payment)
will continue to be payable under the terms of the previous agreement. The rate
at which interest accrues on the previously deferred compensation was
established in 1983 pursuant to the previous agreement.
Liberty Media 401(k) Savings Plan
Liberty maintains an employee benefit plan known as the Liberty Media 401(k)
Savings Plan. This plan is intended to be a qualified employee plan under
Sections 401(a) and 401(k) of the Internal Revenue Code of
79
<PAGE>
1986. An employee must be an employee of Liberty or of an employer owned 80% or
more by Liberty (a "Participating Employer") and must complete three months of
continuous employment and be at least 18 years of age to participate in the
plan. Credit will be given for service with TCI, Liberty and their affiliates
for eligibility and vesting service under the plan. The employee will commence
participation as of the first payroll period following the employee's
completion of the eligibility requirements and his or her enrollment in the
plan.
Upon commencing participation, the participant may elect to make pre-tax
contributions, after-tax contributions, or both to the plan. All participant
contributions are made by payroll deduction and all participant contributions
may not exceed 10% of the participant's wages from the Participating Employer.
Pre-tax participant contributions are not subject to income tax when
contributed to the plan, but will be subject to FICA taxes when contributed to
the plan. Those pre-tax participant contributions (and earnings) will be taxed
to the participant when the participant receives a distribution from the plan.
Pre-tax participant contributions are limited to $10,000 for each year (as
adjusted for cost of living increases). After-tax participant contributions are
subject to income taxes and FICA taxes when contributed to the plan, but
earnings on those contributions will not be taxed to the participant until the
participant receives a distribution from the plan.
A participant may change the amount of his or her participant contributions
as of any prospective payroll period. Participant contributions always are 100%
vested. The participant may direct the investment of his or her participant
contributions, and earnings on those amounts, into a variety of investment
options, including the AT&T Class A Liberty Media Group Common Stock Fund and
the AT&T Common Stock Fund (the "Employer Stock Funds").
Only the first $160,000 (as adjusted in 2000 and thereafter for cost of
living increases) of any participant's wages is taken into account for all
purposes under the plan, as required by law.
Generally, Liberty will make a matching contribution to the plan for each
plan year equal to 100% of each participant's participant contributions to the
plan, unless Liberty, in its discretion, decides upon a different percentage
for the matching contribution. All Liberty contributions to the plan are
invested solely in the AT&T Class A Liberty Media Group Common Stock Fund.
Liberty contributions to the plan become 33% vested after one year of
service, 66% vested after two years of service, and 100% vested after three
years of service. Generally, a year of service will be credited for each
twelve-month period of employment completed by the participant. In addition, a
participant will be 100% vested in his or her Liberty contributions upon
attaining normal retirement age (age 65), upon becoming totally disabled, or
upon the participant's death while employed with a Participating Employer.
Liberty contributions to the plan (and earnings on those contributions) on
behalf of a participant are not taxable to the participant until those amounts
are distributed from the plan. Liberty receives a deduction for the amounts it
contributes to the plan.
A participant can withdraw his or her participant contributions and Liberty
contributions while he or she remains employed only in the following limited
circumstances: upon attaining age 59 1/2, the participant may request a
withdrawal of all or any portion of his or her Liberty contributions account
(including earnings on such contributions) and his or her pre-tax participant
contributions account (including earnings on such contributions). A participant
may withdraw any portion of his or her after-tax participant contributions at
any time. Upon experiencing a financial hardship, a participant may request a
withdrawal of his or her pre-tax participant contributions (but not the
earnings on such contributions) in an amount necessary to meet the financial
need. A participant who takes a hardship withdrawal may not contribute to the
plan for 12 months after the withdrawal, and there are limitations on the
maximum salary reduction amounts that may be made in the year following the
year of the hardship withdrawal.
80
<PAGE>
Upon terminating employment with Liberty, the participant may receive a
distribution of his or her entire vested account in the plan. If the vested
account equals $5,000 or less, the distribution will be made as soon as
administratively reasonable after the participant's termination of employment
occurs. If the participant's vested account exceeds $5,000, the participant
must consent to the distribution and such distribution will be made as soon as
administratively reasonable after the participant's consent to the distribution
is received. The participant must commence distributions from the plan by April
1 of the year following the year in which occurs the later of the participant's
attainment of age 70 1/2 or the participant's retirement.
Distributions will be made in cash, however, the participant may elect to
receive that portion of his or her vested account which is invested in the
Employer Stock Funds in whole shares of those Employer Stocks. Any qualified
distribution from the plan may be rolled over to an IRA or other qualified plan
upon the election of the participant.
A 10% federal penalty tax may be imposed on the taxable amount of certain
early distributions from the plan. The early distribution penalty tax does not
apply to distributions made on account of: the death or disability of the
participant, the participant's attainment of age 55 and separation from
service, the participant's payment of certain medical expenses, payment to an
alternate payee under a qualified domestic relations order, or the
participant's attainment of age 59 1/2.
Security Ownership of Management
The following table sets forth information with respect to the ownership by
each director and each of the named executive officers of Liberty and by all
directors and executive officers of Liberty as a group of shares of AT&T common
stock and Class A and Class B Liberty Media Group tracking stock, all of which
are equity securities of AT&T Corp., which beneficially owns 100% of the
outstanding common stock of Liberty Media Corporation. The table also sets
forth information with respect to the ownership by each director and each of
the named executive officers of Liberty and by all directors and executive
officers of Liberty as a group of shares of Series A common stock of TCI Music,
Inc., a subsidiary of Liberty. This information is given as of June 30, 1999
and, in the case of percentage ownership information, is based on 3,196,236,144
shares of AT&T common stock, 1,156,716,104 shares of Class A Liberty Media
Group tracking stock, 108,430,704 shares of Class B Liberty Media Group
tracking stock, and 23,755,997 shares of TCI Music Series A common stock
outstanding on that date. Shares of AT&T common stock, Class A and Class B
Liberty Media Group tracking stock and TCI Music, Inc. Series A common stock
issuable upon exercise or conversion of convertible securities are deemed to be
outstanding for the purpose of computing the percentage ownership of persons
beneficially owning such convertible securities, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership of any other
person. So far as is known to Liberty, the persons indicated below have sole
voting power with respect to the shares indicated as owned by them except as
otherwise stated in the notes to the table.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Ownership of
Name of Beneficial Owner Title of Class (in thousands) Class
- ------------------------ -------------- -------------- -------
<S> <C> <C> <C>
John C. Malone.......... AT&T common stock 34,956(/1/)(/2/) 1.09%
Class A Liberty Media Group 3,498(/1/)(/2/) *
Class B Liberty Media Group 73,068(/1/)(/2/)(/3/) 67.03%
TCI Music Series A common stock 0
Robert R. Bennett....... AT&T common stock 267(/4/)(/5/) *
Class A Liberty Media Group 2,857(/4/) *
Class B Liberty Media Group 0 *
TCI Music Series A common stock 40(/6/) *
Gary S. Howard.......... AT&T common stock 48(/7/)(/8/) *
Class A Liberty Media Group 232(/7/)(/8/) *
Class B Liberty Media Group 0
TCI Music Series A common stock 0
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Beneficial of
Name of Beneficial Owner Title of Class Ownership Class
- ------------------------ -------------- ---------- -------
<S> <C> <C> <C>
Paul A. Gould........... AT&T common stock 0 *
Class A Liberty Media Group 753(/9/) *
Class B Liberty Media Group 214 *
TCI Music Series A common stock 0
Leo J. Hindery, Jr...... AT&T common stock 1,389(/10/) *
Class A Liberty Media Group 53(/10/) *
Class B Liberty Media Group 0 *
TCI Music Series A common stock 333(/11/) 1.38%
Jerome H. Kern.......... AT&T common stock 936(/12/)(/13/) *
Class A Liberty Media Group 1,007(/12/)(/13/) *
Class B Liberty Media Group 0
TCI Music Series A common stock 0
John C. Petrillo........ AT&T common stock 405(/14/) *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
TCI Music Series A common stock 0
Larry E. Romrell........ AT&T common stock 314(/15/)(/16/) *
Class A Liberty Media Group 1,152(/15/) *
Class B Liberty Media Group 2 *
TCI Music Series A common stock 0
Daniel E. Somers........ AT&T common stock 935(/17/) *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
TCI Music Series A common stock 0
David B. Koff........... AT&T common stock 1 *
Class A Liberty Media Group 372(/18/) *
Class B Liberty Media Group 0
TCI Music Series A common stock 40(/19/) *
Charles Y. Tanabe....... AT&T common stock 0
Class A Liberty Media Group 1 *
Class B Liberty Media Group 0 *
TCI Music Series A common stock 0
Peter N. Zolintakis..... AT&T common stock 58(/20/) *
Class A Liberty Media Group 88 *
Class B Liberty Media Group 0
TCI Music Series A common stock 0
David J. A. Flowers..... AT&T common stock 2 *
Class A Liberty Media Group 375(/21/) *
Class B Liberty Media Group 0
TCI Music Series A common stock 0
All directors and
executive officers as a
group (15 persons)..... AT&T common stock 39,318(/22/)(/23/) 1.23%
Class A Liberty Media Group 10,709(/3/)(/22/)(/23/) *
Class B Liberty Media Group 73,284(/22/)(/23/) 67.22%
TCI Music Series A common stock 413(/24/) 1.71%
</TABLE>
82
<PAGE>
- --------
*Less than one percent
(1) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 162,897 shares of AT&T common stock; (b)
3,194,600 shares of Class A Liberty Media Group tracking stock; and (c)
582,400 shares of Class B Liberty Media Group tracking stock.
(2) Includes 1,004,620 shares of AT&T common stock, 25,452 shares of Class A
Liberty Media Group tracking stock and 1,704,718 shares of Class B Liberty
Media Group tracking stock held by Dr. Malone's wife, Mrs. Leslie Malone,
as to which Dr. Malone has disclaimed beneficial ownership.
(3) On February 9, 1998, in connection with the settlement of certain legal
proceedings relative to the Estate of Bob Magness (the "Magness Estate"),
TCI entered into a call agreement with Dr. Malone and Dr. Malone's wife
(the "Malones"), and a call agreement with the Magness Estate, the Estate
of Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). Under these call
agreements, each of the Magness Group and the Malones granted to TCI the
right under certain circumstances to acquire all of the shares of TCI's
common stock that entitled the holder to cast more than one vote per share
(the "High Voting Stock"). Also, in February 1998, TCI, the Magness Group
and the Malones entered into a shareholders' agreement, pursuant to which,
among other things, the Magness Group and the Malones agreed to consult
with each other in connection with matters to be brought to the vote of
TCI's shareholders, subject to the proviso that if they could not agree on
how to vote, Dr. Malone would have an irrevocable proxy to vote the High-
Voting shares held by the Magness Group. In March 1999, in connection with
the AT&T merger, the call agreements and the shareholders' agreement were
amended so that Liberty became entitled to exercise TCI's rights and
became subject to its obligations under those agreements. In addition, the
shareholders' agreement was amended so that Dr. Malone's irrevocable proxy
to vote shares held by the Magness Group now relates to the Class B
Liberty Media Group tracking stock or any super voting class of equity
securities issued by Liberty held by the Magness Group. See "Relationship
with AT&T and Certain Related Transactions--Other Related Party
Transactions--Certain Rights to Purchase Liberty Media Group Tracking
Stock," below for additional information related to the call agreements
and the shareholders' agreement.
As a result of certain provisions of the shareholders' agreement described
above, Dr. Malone's beneficial ownership of Class B Liberty Media Group
tracking stock includes 23,895,583 shares held by the Magness Group.
(4) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 15,475 shares of AT&T common stock; and (b)
2,808,872 shares of Class A Liberty Media Group tracking stock.
(5) Includes 232,710 restricted shares of AT&T common stock, none of which are
currently vested.
(6) Assumes the exercise in full of stock options to acquire 40,000 shares of
TCI Music, Inc. Series A common stock, all of which are currently
exercisable.
(7) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 28,842 shares of AT&T common stock; and (b)
178,183 shares of Class A Liberty Media Group tracking stock.
(8) Includes 11,103 restricted shares of AT&T common stock and 5,674
restricted shares of Class A Liberty Media Group tracking stock, none of
which are currently vested.
(9) Includes beneficial ownership of 57,300 shares of Class A Liberty Media
Group tracking stock which may be acquired within 60 days pursuant to
stock options granted in tandem with stock appreciation rights.
(10) Includes 1,366,629 restricted shares of AT&T common stock and 52,968
restricted shares of Class A Liberty Media Group tracking stock, none of
which are currently vested.
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<PAGE>
(11) Assumes the exercise in full of stock options to acquire 333,334 shares
of TCI Music, Inc. Series A common stock, all of which are currently
exercisable.
(12) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 296,705 shares of AT&T common stock; and
(b) 629,551 shares of Class A Liberty Media Group tracking stock.
(13) Includes 481,267 restricted shares of AT&T common stock and 72,760
restricted shares of Class A Liberty Media Group tracking stock, none of
which are currently vested.
(14) Includes beneficial ownership of 195,945 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.
(15) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 136,833 shares of AT&T common stock; and
(b) 1,004,292 shares of Class A Liberty Media Group tracking stock.
(16) Includes 149,456 restricted shares of AT&T common stock, none of which
are currently vested.
(17) Includes beneficial ownership of 103,998 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.
(18) Includes beneficial ownership of 364,979 shares of Class A Liberty Media
Group tracking stock which may be acquired within 60 days pursuant to
stock options granted in tandem with stock appreciation rights.
(19) Assumes the exercise in full of stock options to acquire 40,000 shares of
TCI Music, Inc. Series A common stock, all of which are currently
exercisable.
(20) Includes 58,177 restricted shares of AT&T common stock, none of which are
currently vested.
(21) Includes beneficial ownership of 370,000 shares of Class A Liberty Media
Group tracking stock which may be acquired within 60 days pursuant to
stock options granted in tandem with stock appreciation rights.
(22) Includes beneficial ownership of the following shares which may be
acquired within 60 days pursuant to stock options granted in tandem with
stock appreciation rights: (a) 940,695 shares of AT&T common stock; (b)
8,897,777 shares of Class A Liberty Media Group tracking stock; and (c)
582,400 shares of Class B Liberty Media Group tracking stock.
(23) Includes 2,299,342 restricted shares of AT&T common stock and 131,402
restricted shares of Class A Liberty Media Group tracking stock, none of
which are currently vested.
(24) Assumes the exercise in full of stock options to acquire 413,334 shares
of TCI Music, Inc. Series A common stock, all of which are currently
exercisable.
84
<PAGE>
RELATIONSHIP WITH AT&T AND CERTAIN RELATED TRANSACTIONS
Relationship with AT&T
Liberty is a wholly owned subsidiary of AT&T. The businesses and assets of
Liberty and its subsidiaries constitute substantially all of the businesses and
assets of AT&T's Liberty Media Group, which was created in connection with the
AT&T merger. The assets attributed to the Liberty Media Group that are not also
currently assets of Liberty consist of 90,000 shares of common stock of the
Associated Group, Inc., and interests in each of the "Covered Entities" and
their respective properties and assets. The Covered Entities are the following
subsidiaries of AT&T: Silver Spur Land and Cattle Co., TCIP, Inc. and TCI
Interactive, Inc. At such time as all of the equity in, or all of the assets
of, a company identified as a Covered Entity are held by Liberty, that company
will cease to be a Covered Entity. Two companies that were identified in AT&T's
certificate of incorporation as Covered Entities have since been transferred to
Liberty.
Neither TCIP, Inc. nor Silver Spur Land and Cattle Co. currently has any
significant assets. TCI Interactive, Inc.'s assets include 533,334 shares of
common stock of Sportsline USA Inc. and 753,864 shares of common stock of
iVillage, Inc. The equity interests in Sportsline and iVillage will be
transferred to a subsidiary of Liberty in connection with Liberty's
contribution of certain Internet and interactive television assets to TCI
Music, Inc. See "Business--Internet Services and Technology--Consolidated
Subsidiaries--Liberty Digital, Inc." In exchange for these equity interests TCI
Interactive will receive approximately an 8% interest in the company that holds
Liberty's interest in TCI Music.
The Liberty Media Group also includes any proceeds of issuances or sales of
AT&T's Liberty Media Group tracking stock and any dividends or distributions
from Liberty or a Covered Entity.
AT&T's Liberty Media Group tracking stock, which is intended to reflect the
separate performance of the Liberty Media Group, is capital stock of AT&T. It
is not stock of Liberty.
In connection with the AT&T merger, a number of agreements were entered into
and governance arrangements put in place that address the relationship between
AT&T and Liberty.
Liberty Organizational Documents. The Liberty Charter provides that Liberty
will have three classes of directors, each of which is to have the same number
of directors, as follows:
. the Class A Directors, who are elected for a term of one year;
. the Class B Directors, who are elected for a term of seven years; and
. the Class C Directors, who are elected for a term of ten years.
The current Class B Directors and Class C Directors were designated by TCI
prior to the AT&T merger and, unless they resign, die or are otherwise removed,
will comprise two-thirds of the Liberty board until at least 2006. The members
of the Liberty board are only removable for cause (as defined in the Liberty
Charter) and, in the event of the death or resignation of a director in any
class, the remaining directors of that class are to choose a successor.
Under Delaware law, the Liberty board manages the business and affairs of
Liberty. In accordance with the Liberty Charter and bylaws, action by the
Liberty board generally requires the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present, which majority
must include a majority of the Class B Directors and Class C Directors.
The officers of Liberty include the executive officers who were formerly in
charge of overseeing the businesses of TCI's former Liberty Media Group and TCI
Ventures Group. See "Management." The Liberty Charter provides that officers of
Liberty may only be removed by the Liberty board by the affirmative vote
described above. Similar governance arrangements were instituted with respect
to each of the Covered Entities.
85
<PAGE>
Contribution Agreement. Liberty is a party to a Contribution Agreement
entered into immediately prior to the AT&T merger. The Contribution Agreement
provides that, in the event of a Triggering Event, Liberty will be obligated to
transfer all of its assets and liabilities to Liberty Media Group LLC, an
entity controlled by Liberty's current management through Liberty Management
LLC, the managing member, unless the Triggering Event is waived by Liberty
Management LLC. The subsidiary of AT&T that holds the stock of the Covered
Entities and Liberty is also a party to the Contribution Agreement and is
obligated under the same circumstances to contribute the Contributed Entities
or their assets to Liberty Media Group LLC. A Triggering Event will occur if
the incumbent Class B and Class C directors, and their successors, cease to
constitute a majority of the Liberty board, or Liberty Management LLC
reasonably determines that such event is reasonably likely to occur.
AT&T Tracking Stock Amendment. AT&T's certificate of incorporation was
amended in connection with the AT&T merger in order to authorize the AT&T
Liberty Media Group tracking stock. Of particular relevance to Liberty is a
provision that requires a separate class vote of the holders of Liberty Media
Group tracking stock to authorize a Covered Disposition, which generally
includes a sale or transfer by AT&T of its equity interest in Liberty or
Liberty Media Group LLC or a grant of a pledge or other security interest in
the equity interest of AT&T in Liberty or Liberty Media Group LLC. Such
separate approval would not be required in connection with a redemption
permitted by AT&T's amended certificate of incorporation of all of the
outstanding Liberty Media Group tracking stock in exchange for all of the
shares of common stock of a subsidiary of AT&T that holds all of the assets and
liabilities of the Liberty Media Group and satisfies certain other
requirements.
AT&T's amended certificate of incorporation also provides that neither the
Liberty Media Group nor the AT&T Common Stock Group will have any duty,
responsibility or obligation to refrain from any of the following:
. engaging in the same or similar activities or lines of business as any
member of the other group;
. doing business with any potential or actual supplier or customer of any
member of the other group; or
. engaging in, or refraining from, any other activities whatsoever
relating to any of the potential or actual suppliers or customers of any
member of the other group.
Further, neither the Liberty Media Group nor the AT&T Common Stock Group will
have any duty, responsibility or obligation:
. to communicate or offer any business or other corporate opportunity to
any other person (including any business or other corporate opportunity
that may arise that either group may be financially able to undertake,
and that are, from their nature, in the line of more than one group's
business and are of practical advantage to more than one group);
. to provide financial support to the other group (or any member thereof);
or
. otherwise to assist the other group.
The foregoing provisions of the AT&T certificate of incorporation do not
prevent any member of the Liberty Media Group (including Liberty) from entering
into written agreements with AT&T or any other member of the AT&T Common Stock
Group to define or restrict any aspect of the relationship between the groups.
Inter-Group Agreement. AT&T, for itself and on behalf of the members of the
Common Stock Group, on the one hand, and Liberty, Liberty Media Group LLC and
each Covered Entity, for themselves and on behalf of the members of the Liberty
Media Group, on the other hand, entered into the Inter-Group Agreement, in
connection with the AT&T merger. A summary of the material provisions of the
Inter-Group Agreement is set forth below.
Neither the AT&T Common Stock Group Nor the Liberty Media Group Is Required
to Offer Financial Support or Corporate Opportunities to the Other. In general,
neither the AT&T Common Stock Group nor the Liberty Media Group will have any
obligation or responsibility to provide financial support or offer
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corporate opportunities to the other group or to otherwise assist the other
group. Generally, neither group will have any rights to the tradenames,
trademarks or other intellectual property rights of the other group.
There are Restrictions on the Incurrence of Debt and Other Financial
Obligations. Neither the Liberty Media Group nor the AT&T Common Stock Group
may incur any debt or other obligation, including any preferred equity
obligation, that has or purports to have recourse to any member, or to the
assets of any member, of the other group. In addition, unless otherwise
expressly agreed between the two groups, no member of the Liberty Media Group
or the AT&T Common Stock Group may enter into any agreement, or incur any other
liability or obligation, that binds or purports to bind or impose any
liabilities or obligation on any member of the other group. AT&T may not
attribute any debt or other obligation to, or create, authorize or issue any
AT&T preferred stock that is attributed to, the Liberty Media Group without the
consent of the Liberty board.
The Liberty Media Group may not incur any debt, other than the refinancing of
debt without any increase in amount, that would cause the total indebtedness of
the Liberty Media Group at any time to be in excess of 25% of the total market
capitalization of the Liberty Media Group tracking stock, if the excess debt
would adversely affect the credit rating of AT&T. Prior to incurring any debt
that would exceed the 25% threshold, the Liberty Media Group is required to
consult with AT&T and, if requested by AT&T, with two nationally recognized
credit rating agencies to be selected by each of Liberty and AT&T to determine
if the incurrence of the excess debt would adversely affect the credit rating
of AT&T.
Each Group is Solely Responsible for its Costs and Liabilities;
Indemnification. Each of the Liberty Media Group and the AT&T Common Stock
Group will be solely responsible for all claims, obligations, liabilities and
costs arising from that group's operations and businesses, whether arising
before or after the AT&T merger.
Each of the Liberty Media Group and the AT&T Common Stock Group is required
to indemnify the other group and to hold the other group harmless against all
claims, liabilities, losses and expenses, including attorneys' fees, allocated
to the indemnifying group in accordance with the previous paragraph.
AT&T May Generally Not Allocate Corporate Overhead Expenses to the Liberty
Media Group. The AT&T Common Stock Group may not allocate general overhead
expenses to the Liberty Media Group, except (1) to the extent that the Liberty
Media Group receives specific services pursuant to services agreements or
similar arrangements between the AT&T Common Stock Group and the Liberty Media
Group and (2) if the Liberty Media Group uses the same independent accounting
firm as AT&T, an allocable share of the fees and expenses of such firm for
AT&T's annual audits.
Liberty Has a Limited Ability to Issue its own Stock. Liberty may issue
shares of its common stock and may authorize and issue shares of its preferred
stock only if, after giving effect to the issuance, AT&T would still be able to
include Liberty on its consolidated federal income tax return and Liberty would
remain a "Qualified Subsidiary" for purposes of the tax-free distribution rules
of Section 355 of the Code. Currently, Liberty would deconsolidate from AT&T if
Liberty issued an amount of shares that would result in neither AT&T nor a
subsidiary of AT&T owning at least 80% of the total combined voting power of
all classes of stock of Liberty entitled to vote and 80% of the fair market
value of all classes of stock of Liberty. For purposes of the preceding
sentence, "stock" does not include stock which is not entitled to vote, which
is limited and preferred as to dividends and does not participate in corporate
growth to any significant extent, which has redemption and liquidation rights
which do not exceed the issue price of such stock (except for a reasonable
redemption or liquidation premium), and which is not convertible into another
class of stock.
Any Proceeds from the Issuance of Liberty Media Group Tracking Stock will be
Contributed to Liberty. The net proceeds of any issuance or sale of Liberty
Media Group tracking stock are generally required to be contributed by AT&T to
Liberty. The parties have entered into a supplement to the Inter-Group
Agreement to provide an exception to this requirement and to make alternative
arrangements for the proposed acquisition of Associated Group, Inc.
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AT&T will Include in its SEC Reports Combined Financial Statements of the
Liberty Media Group. For so long as Liberty Media Group tracking stock is
outstanding, AT&T will include in its filings with the SEC combined financial
statements of the Liberty Media Group.
AT&T Will Not Take Any Actions Involving the Equity of Liberty. AT&T has
also agreed that it will not, and will not permit any member of the AT&T
Common Stock Group to, directly or indirectly:
. sell, transfer, dispose of or otherwise convey, whether by merger,
consolidation, sale or contribution of assets or stock, or otherwise,
any direct or indirect equity interest of AT&T in Liberty;
. incur any indebtedness secured by, or pledge or grant a lien, security
interest or other encumbrance on, any direct or indirect equity interest
of AT&T in Liberty; or
. create any derivative instrument whose value is based on any direct or
indirect equity interest of AT&T in Liberty;
except that the foregoing will not apply to:
. any of the foregoing approved by the Liberty board by the affirmative
vote described under "--Liberty Organizational Documents" above;
. AT&T's issuance or sale of its own securities, other than indebtedness
secured by any direct or indirect equity interest of AT&T in Liberty and
other than any security convertible into or exercisable or exchangeable
for, or any derivative instrument whose value is based on, any direct or
indirect equity interest of AT&T in Liberty; or
. AT&T's participation in any merger, consolidation, exchange of shares or
other business combination transaction in which AT&T, or its successors,
continues immediately following the transaction to hold the same
interest in the business, assets and liabilities comprising the Liberty
Media Group that it held immediately prior to the transaction, other
than as a result of any action by Liberty or any other person included
in the Liberty Media Group.
AT&T has also agreed that for so long as any AT&T Liberty Media Group
tracking stock is outstanding, AT&T will not, and will not permit any member
of the AT&T Common Stock Group to, intentionally take any action that AT&T
knows would have the effect of deconsolidating Liberty from the AT&T
consolidated group for federal income tax purposes. This restriction will not
apply to certain dispositions or redemptions expressly contemplated by AT&T's
amended certificate of incorporation or to a Covered Disposition approved by
the separate class vote of the holders of Liberty Media Group tracking stock.
Intercompany Agreement. In connection with the AT&T merger, AT&T, on behalf
of itself and the members of the Common Stock Group, and Liberty, on behalf of
itself and the members of the Liberty Media Group, entered into an
Intercompany Agreement, the material provisions of which are described below.
Preferred Vendor Status. Liberty will be granted preferred vendor status
with respect to access, timing and placement of new programming services. This
means that AT&T will use its reasonable efforts to provide digital basic
distribution of new services created by Liberty and its affiliates, on mutual
"most favored nation" terms and conditions and otherwise consistent with
industry practices, subject to the programming meeting standards that are
consistent with the type, quality and character of AT&T's cable services as
they may evolve over time.
Extension of Term of Affiliation Agreements. AT&T will agree to extend any
existing affiliation agreement of Liberty and its affiliates that expires on
or before March 9, 2004 to a date not before March 9, 2009, if most favored
nation terms are offered and the arrangements are consistent with industry
practice.
Interactive Video Services. AT&T will enter into arrangements with Liberty
for interactive video services under one of the following two arrangements,
which will be at the election of AT&T:
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. Pursuant to a five-year arrangement, renewable for an additional four-
year period on then-current most favored nation terms, AT&T will make
available to Liberty capacity equal to one 6 megahertz channel (in
digital form and including interactive enablement, first screen access
and hot links to relevant web sites--all to the extent implemented by
AT&T cable systems) to be used for interactive, category-specific video
channels that will provide entertainment, information and merchandising
programming. The foregoing, however, will not compel AT&T to disrupt
other programming or other channel arrangements. The suite of services
are to be accessible through advanced set-top devices or boxes deployed
by AT&T, except that, unless specifically addressed in a mutually
acceptable manner, AT&T will have no obligation to deploy set-top
devices or boxes of a type, design or cost materially different from
that it would otherwise have deployed. The content categories may
include, among others, music, travel, health, sports, books, personal
finance, automotive, home video sales and games; or
. AT&T may enter into one or more mutually agreeable ventures with Liberty
for interactive, category-specific video channels that will provide
entertainment, information and merchandising programming. Each venture
will be structured as a 50/50 venture for a reasonable commercial term
and provide that AT&T and Liberty will not provide interactive services
in the category(s) of interactive video services provided through the
venture for the duration of such term other than the joint venture
services in the applicable categories. When the distribution of
interactive video services occurs through a venture arrangement, AT&T
will share in the revenue and expense of the provision of the
interactive services pro rata to its ownership interest in lieu of the
commercial arrangements described in the preceding paragraph. At the
third anniversary of the formation of any such venture, AT&T may elect
to purchase the ownership interest of Liberty in the venture at fair
market value. The parties will endeavor to make any such transaction tax
efficient to Liberty.
Tax Sharing Agreement. Liberty, for itself and each member of the Liberty
Media Group, is a party to a tax sharing agreement that provides, among other
things, that:
. to the extent that the inclusion of the Liberty Media Group within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group increases tax liability for any period, the Liberty Media
Group will be responsible for paying the AT&T Common Stock Group an
amount equal to the increased tax liability; and
. to the extent that the Liberty Media Group's inclusion within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group reduces tax liability for any period, the AT&T Common Stock
Group will be responsible for paying the Liberty Media Group an amount
equal to the reduced tax liability.
The net operating loss for U.S. federal income tax purposes of the affiliated
group of which TCI was the common parent at the time of the AT&T merger (the
"TCI Affiliated Group") will be allocated to the Liberty Media Group (the
"Allocated NOL") to offset any obligations it would otherwise incur under the
tax sharing agreement for periods subsequent to March 9, 1999 (the date of the
AT&T merger). If the Liberty Media Group is deconsolidated for U.S. federal
income tax purposes from the affiliated group of which AT&T is the parent
corporation, the AT&T Common Stock Group will be required to pay the Liberty
Media Group an amount equal to the product of (a) the amount of the Allocated
NOL that has not been used as an offset to the Liberty Media Group's
obligations under the tax sharing agreement, and that has been, or is
reasonably expected to be, utilized by the AT&T Common Stock Group and (b) 35%.
Certain other tax carryovers of the TCI Affiliated Group will be allocated to
the AT&T Common Stock Group to offset any obligations it would otherwise incur
under the tax sharing agreement for periods subsequent to the AT&T merger on
March 9, 1999. In general, with respect to the TCI Affiliated Group, for
periods ending on or prior to March 9, 1999:
. the Liberty Media Group will pay the TCI Group any portion of regular
tax liability attributable to TCI's former Liberty Media Group or TCI
Ventures Group;
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. any regular tax losses or other tax attributes may be used by the
Liberty Media Group or the TCI Group without compensation to any other
group; and
. if the TCI Affiliated Group has an alternative minimum tax liability,
the group, if any, generating alternative minimum tax losses will be
paid for such losses to the extent that such losses reduce alternative
minimum tax liability of the TCI Affiliated Group but the Liberty Media
Group will not otherwise be required to pay its share of such
alternative minimum tax liability.
Facilities and Services Agreement. TCI and Liberty entered into a facilities
and services agreement effective upon the consummation of the AT&T merger.
Pursuant to the agreement, TCI provides Liberty with administrative and
operational services necessary for the conduct of its business, including, but
not limited to, such services as are generally performed by TCI's accounting,
finance, corporate, legal and tax departments. In addition, the agreement
provides Liberty with office space at TCI's facilities, permits Liberty to
obtain certain liability, property and casualty insurance under TCI's policies
and allows for the reciprocal use by TCI and Liberty of each other's aircraft.
Pursuant to the agreement, Liberty reimburses TCI for all direct expenses
incurred by TCI in providing services thereunder and a pro rata share of all
indirect expenses incurred by TCI in connection with the rendering of such
services, including a pro rata share of the salary and other compensation of
TCI employees performing services for Liberty and rental expenses for the
office space of TCI used by Liberty. The obligations of TCI to provide services
under the Agreement will continue in effect (A) until terminated by Liberty at
any time on not less than 180 days' notice to TCI, or by TCI at any time after
December 31, 2001, on not less than six months' notice to Liberty; or (B) until
March 31, 2000 with respect to the services of personnel and December 31, 2001
with respect to all other services.
Other Related Party Transactions
Affiliation Agreements. AT&T Broadband is party to affiliation agreements
pursuant to which it purchases programming from subsidiaries and affiliates of
Liberty. Certain of these agreements provide for penalties and charges in the
event the supplier's programming is not carried on AT&T Broadband's cable
systems or not delivered to a contractually specified number of customers.
Charges to AT&T Broadband for such programming is generally based on customary
rates and often provide for payments to AT&T Broadband by Liberty's
subsidiaries and business affiliates for marketing support. In July 1997, TCI
entered into a 25 year affiliation agreement with Encore Media Group pursuant
to which TCI (now AT&T Broadband) is obligated to pay monthly fixed amounts in
exchange for unlimited access to Encore and STARZ! programming. Also in 1997,
in connection with the merger of TCI Music and DMX, TCI transferred to TCI
Music the right to receive all revenue from sales of DMX Music services to
their residential and commercial subscribers, net of an amount equal to 10% of
revenue from such sales to residential subscribers and net of the revenue
otherwise payable to DMX as license fees under their existing affiliation
agreements.
Indemnification of Certain of Our Employees. In connection with the AT&T
merger, certain employees (including directors and executive officers) of
Liberty who were officers or directors of TCI prior to the AT&T merger received
undertakings of indemnification from TCI with respect to the effects of U.S.
federal excise taxes that may become payable by them as a result of the AT&T
merger and the resulting change in control of TCI. Pursuant to the Inter-Group
Agreement, each of the Liberty Media Group and the AT&T Common Stock Group are
responsible for all obligations to their respective officers and employees.
Accordingly, following the AT&T merger, these tax protection undertakings to
Liberty Media Group officers and employees became Liberty's obligations.
Certain Rights to Purchase Liberty Media Group Tracking Stock. On February 9,
1998, in connection with the settlement of certain legal proceedings relative
to the Estate of Bob Magness (the "Magness Estate"), the late founder and
former Chairman of the Board of TCI, TCI entered into a call agreement with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), and a
call agreement with the Estate of Bob Magness, the Estate of Betsy Magness,
Gary Magness (individually and in certain representative capacities) and Kim
Magness (individually and in certain representative capacities) (collectively,
the "Magness
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Group"). Under these call agreements, each of the Magness Group and the Malones
granted to TCI the right to acquire all of the shares of TCI's common stock
owned by them ("High Voting Shares") that entitle the holder to cast more than
one vote per share (the "High-Voting Stock") upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third parties. In either such event, TCI had the right to acquire such shares
at a price equal to the then market price of shares of TCI's common stock of
the corresponding series that entitled the holder to cast no more than one vote
per share (the "Low-Voting Stock"), plus a 10% premium, or in the case of a
sale, the lesser of such price and the price offered by the third party. In
addition, each call agreement provides that if TCI were ever to be sold to a
third party, then the maximum premium that the Magness Group or the Malones
would receive for their High-Voting Shares would be the price paid for shares
of the relevant series of Low-Voting Stock by the third party, plus a 10%
premium. Each call agreement also prohibits any member of the Magness Group or
the Malones from disposing of their High-Voting Shares, except for certain
exempt transfers (such as transfers to related parties or to the other group or
public sales of up to an aggregate of 5% of their High-Voting Shares after
conversion to the respective series of Low-Voting Stock) and except for a
transfer made in compliance with TCI's purchase right described above. TCI paid
$150 million to the Malones and $124 million to the Magness Group in
consideration of their entering into the call agreements, of which an aggregate
of $140 million was allocated to and paid by Liberty.
Also in February 1998, TCI, the Magness Group and the Malones entered into a
shareholders' agreement which provides for, among other things, certain
participation rights by the Magness Group with respect to transactions by Dr.
Malone, and certain "tag-along" rights in favor of the Magness Group and
certain "drag-along" rights in favor of the Malones, with respect to
transactions in the High-Voting Stock. Such agreement also provides that a
representative of Dr. Malone and a representative of the Magness Group will
consult with each other on all matters to be brought to a vote of TCI's
shareholders, but if a mutual agreement on how to vote cannot be reached, Dr.
Malone will vote the High-Voting Stock owned by the Magness Group pursuant to
an irrevocable proxy granted by the Magness Group.
In connection with the AT&T merger, Liberty became entitled to exercise TCI's
rights and became subject to its obligations under the call agreement and the
shareholders' agreement with respect to the Liberty Media Group Class B
tracking stock acquired by the Malones and the Magness Group as a result of the
AT&T merger. If Liberty were to exercise its call right under the call
agreement with the Malones or the Magness Group, it may also be required to
purchase High-Voting Shares of the other group if such group exercises its
"tag-along" rights under the shareholders' agreement.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Liberty and its consolidated subsidiaries identified below entered into
credit facilities pursuant to which indebtedness was outstanding at June 30,
1999. Set forth below is a summary of the material terms of each of these
credit facilities. The outstanding borrowings under certain of these credit
facilities were repaid from the net proceeds of the sale of the outstanding
securities. See "Use of Proceeds."
To the extent indebtedness is incurred or guaranteed by a subsidiary of
Liberty, that indebtedness will be effectively senior to the indebtedness
represented by the securities. See "Risk Factors--We are a holding company with
our assets held primarily by our subsidiaries. Creditors of those companies
have a claim on their assets that is senior to that of holders of the
securities."
Credit Facilities Entered Into By Liberty
$1,200,000,000 in Revolving Credit Facilities
Liberty has entered into four separate unsecured revolving credit agreements
with substantially identical terms. The aggregate principal amount that Liberty
may borrow under these facilities is $1,200,000,000. Amounts borrowed and
prepaid may be reborrowed prior to the final stated maturity date under the
facilities of September 29, 1999.
Liberty is required to make mandatory prepayments under these credit
facilities with net proceeds received by Liberty or any of its restricted
subsidiaries from sales of assets in any calendar year in excess of $2 billion.
Restricted subsidiaries under these credit agreements include all subsidiaries
of Liberty other than (1) TCI Music, Inc., Encore Media Group LLC, Liberty
Media International, Inc. and their respective majority owned subsidiaries; and
(2) any other subsidiary of Liberty that the lenders permit Liberty to
designate as an unrestricted subsidiary.
At June 30, 1999, borrowings in the aggregate principal amount of $609
million were outstanding under these credit facilities, of which $155 million
were repaid by Liberty from the net proceeds it received from the sale of the
outstanding securities. Amounts repaid under these credit facilities may be
reborrowed in the future.
Interest. Each borrowing by Liberty bears interest, at the election of
Liberty, at a variable rate per annum equal to a base rate or LIBOR plus a
margin.
Covenants. These credit facilities provide for customary affirmative and
negative covenants. The negative covenants include restrictions on incurrence
of indebtedness, restriction on liens and restrictions on merger and sales of
assets.
Events of Default. The credit facilities contain customary events of default,
including an event of default if AT&T, TCI, John C. Malone or the estate or
legal heirs of John C. Malone cease to control Liberty.
Revolving Credit Facilities Entered Into By Subsidiaries of Liberty
$500,000,000 Secured Revolving Credit Facility
Liberty's indirect wholly owned subsidiary, Communication Capital Corp., has
entered into a secured revolving credit agreement under which it may borrow up
to $500,000,000. Amounts borrowed and prepaid may be reborrowed prior to the
final stated maturity date of August 15, 2000.
Borrowings under the credit facility are secured by shares of Time Warner
LMCN-V common stock. It is a condition to each borrowing that the aggregate
amount of all outstanding borrowings plus the amount of the
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requested borrowings not exceed a "Loan/Value Percentage" of 50%. The term
"Loan/Value Percentage" is defined as the aggregate amount of all outstanding
borrowings under the credit facility, plus all borrowings requested by
Communication Capital Corp. of the lenders, as a percentage of the current
market value of the pledged securities on the date of determination. If the
Loan/Value Percentage exceeds 55% during any 10 consecutive days or 57% on any
day, Communication Capital Corp. is required to prepay outstanding borrowings,
or pledge additional shares of Time Warner LMCN-V common stock, so that the
Loan/Value Percentage is no greater than 50%.
At June 30, 1999, borrowings in the principal amount of $500 million were
outstanding under this credit facility. These borrowings were repaid by Liberty
from the net proceeds it received from the sale of the outstanding securities.
Following that repayment, this facility was terminated.
Interest. Each borrowing by Communication Capital Corp. bears interest, at
the election of Communication Capital Corp., at a variable rate per annum equal
to a base rate or LIBOR plus a margin, with the margin based on the Loan/Value
Percentage at dates specified in the credit facility.
Covenants. The credit facility provides for customary affirmative and
negative covenants. The negative covenants include restrictions on encumbering
pledged securities, restrictions on incurrence of indebtedness and guarantees
and restrictions on making loans and dividends.
Events of Default. The credit facility provides for customary events of
default.
$640,000,000 Guaranteed Revolving Credit Facility
Liberty's indirect wholly owned subsidiary, LMC Capital LLC, has entered into
a guaranteed revolving credit agreement under which it may borrow up to
$640,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final
stated maturity date of June 4, 2003.
LMC Capital is a holding company that owns, through wholly owned
subsidiaries, shares of capital stock, limited partnership interests and
limited liability company interests in the following companies, which we refer
to later in this discussion as the "LMC Capital group of companies":
. BET Holdings II, Inc.
. Discovery Communications, Inc.
. USA Networks, Inc.
. QVC, Inc.
. Fox/Liberty Networks, LLC
. Fox Kids Worldwide, Inc.
. Encore Media Group LLC
. Time Warner Inc.
. TV Guide, Inc.
. TCI Music, Inc.
. Telemundo Group, Inc.
Borrowings under the credit facility are to be secured by the shares of
capital stock, limited partnership interests and limited liability company
interests indirectly owned by LMC Capital in the LMC Capital group of companies
and which are designated as "Designated Assets" under the credit agreement, if
any of the following events occur:
. LMC Capital fails to maintain on deposit with the administrative agent
an amount equal to the interest payable during the succeeding three-
month period on loans outstanding under the credit facility; or
. a non-payment or bankruptcy-related event of default occurs; or
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. LMC Capital fails to meet the "Loan/Value Requirement," which is met
only if:
. the aggregate value of the shares of capital stock, limited
partnership interests and limited liability company interests that
are Designated Assets exceeds 300% (or 400%, if less than 37.5% of
the aggregate value of the Designated Assets consists of publicly
traded securities) of the aggregate principal amount of all
outstanding borrowings under the credit facility; and
. the aggregate value of the shares of capital stock of TCI Music,
Inc. and Telemundo Group, Inc. constitute 20% or less of the
aggregate value of the Designated Assets.
If, at any time, the Loan/Value Requirement is not satisfied, LMC Capital
must make mandatory prepayments of outstanding loans such that the Loan/Value
Requirement is met on the day of repayment. Alternatively, LMC Capital can
cause the Designated Assets to be pledged to secure all outstanding loans.
At June 30, 1999, borrowings in the principal amount of $580 million were
outstanding under this credit facility. These borrowings were repaid by
Liberty from the net proceeds it received from the sale of the outstanding
securities. Following that repayment, this facility was terminated.
Guarantee. The payment of LMC Capital's obligations under the credit
facility is unconditionally and irrevocably guaranteed by its wholly owned
subsidiaries.
Interest. Each borrowing by LMC Capital bears interest, at the election of
LMC Capital, at a variable rate per annum equal to a base rate or LIBOR plus a
margin, with the margin based on the ratio of the value of the Designated
Assets at dates specified in the credit facility to the aggregate outstanding
principal amount of borrowings under the credit facility.
Covenants. The credit facility provides for customary affirmative and
negative covenants. The negative covenants include restrictions on encumbering
pledged securities and restrictions on incurrence of indebtedness and
guarantees.
Events of Default. The credit facility provides for customary events of
default.
$100,000,000 Guaranteed Revolving Credit Facility
Liberty's indirect wholly owned subsidiary, TCI Music, Inc., has entered
into a guaranteed revolving credit agreement under which it may borrow up to
$100,000,000. Amounts borrowed and prepaid may be reborrowed prior to the
final stated maturity date of June 30, 2005, subject to semi-annual amortizing
mandatory repayments commencing June 30, 2000.
At June 30, 1999, borrowings in the principal amount of $100 million were
outstanding under this credit facility.
Guarantee. The payment of TCI Music's obligations under this credit facility
is unconditionally and irrevocably guaranteed by TCI Music's subsidiaries that
it designates as "restricted subsidiaries" under the credit facility.
Interest. Each borrowing by TCI Music bears interest, at the election of TCI
Music, at a variable rate per annum equal to a base rate or LIBOR plus a
margin, with the margin based on a leverage ratio.
Covenants. The credit facility provides for customary affirmative and
negative covenants. The negative covenants include maintenance ratios,
(including debt to cash flow, cash flow to interest expense and cash flow to
pro forma debt service), restrictions on incurrence of indebtedness and
guarantees and restrictions on liens.
Events of Default. The credit facility is subject to customary events of
default, including any change in ownership of TCI Music, not consented to by
the banks, that results in less than 50.1% of all voting rights of TCI Music
being owned, directly or indirectly, by one or more of TCI, Liberty, AT&T,
John Malone or his estate or legal heirs or the estate or legal heirs of Bob
Magness.
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$485,000,000 Revolving Credit Facility and Term Facility
Liberty's indirect wholly owned subsidiary, Encore Investments LLC, has
entered into a revolving credit agreement under which it may borrow up to
$225,000,000. Amounts borrowed and prepaid under this facility may be
reborrowed prior to the final stated maturity date of June 30, 2004, subject to
quarterly amortizing mandatory repayments commencing March 31, 2000. Encore
Investments may also obtain letters of credit under this facility in the
aggregate amount of up to $25,000,000.
Encore Investments has also entered into a term loan agreement under which it
has borrowed $260,000,000. This facility has a stated maturity of June 30,
2004.
Encore Investments is a holding company for subsidiaries of Encore Media
Group LLC that own limited liability company interests in the following
companies:
. Encore Media Group LLC
. STARZ! LLC
. Dry Creek Productions LLC
. BET Movies/STARZ! LLC
At June 30, 1999, borrowings in the principal amount of $260 million were
outstanding under the term credit facility and no borrowings were outstanding
under the revolving credit facility.
Security; Guarantee. Encore Investments will be required to secure its
obligations under both credit facilities with a pledge of the shares it owns in
its direct subsidiaries if a specified leverage ratio is exceeded, for so long
as that ratio is exceeded. For so long as Encore Investments is required to
pledge these shares, its direct subsidiaries will also be required to guarantee
Encore Investment's obligations under both credit facilities.
Interest. Each borrowing by Encore Investments bears interest, at the
election of Encore Investments, at a variable rate per annum equal to a base
rate or LIBOR plus a margin, with the margin based on a leverage ratio.
Covenants. The credit facility provides for customary affirmative and
negative covenants. The negative covenants include maintenance ratios
(including debt to cash flow, cash flow to interest expense and cash flow to
pro forma debt service), restrictions on incurrence of indebtedness and
guarantees, restrictions on liens and limitations on restricted payments.
Events of Default. The credit facility provides for customary events of
default, including an event of default if there is a change in the ownership of
Encore Investments that results in less than 90% of all voting rights of the
limited liability company interests of Encore Investments being owned by a
person 80% or more of which is owned directly or indirectly by TCI or Liberty.
$45,000,000 Secured Guaranteed Revolving Credit Facility
Liberty's indirect wholly owned subsidiary, TCI Cablevision of Puerto Rico,
Inc., has entered into a secured guaranteed revolving credit agreement under
which it may borrow up to $45,000,000. Amounts borrowed and prepaid may be
reborrowed prior to the final stated maturity date of March 31, 2006, subject
to quarterly amortizing mandatory repayments commencing March 31, 2000.
At June 30, 1999, borrowings in the principal amount of $45 million were
outstanding under this credit facility.
Security; Guaranty. The payment of TCI Cablevision of Puerto Rico's
obligations under the credit facility is secured by the pledge to the banks of
the limited liability company interests it owns in its direct subsidiaries, and
is guaranteed by those subsidiaries of TCI Cablevision of Puerto Rico that it
has designated as "restricted subsidiaries" under the credit facility.
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Interest. Each borrowing by TCI Cablevision of Puerto Rico bears interest, at
the election of TCI Cablevision of Puerto Rico, at a variable rate per annum
equal to a base rate or LIBOR plus a margin, with the margin based on a
leverage ratio.
Covenants. The credit facility provides for customary affirmative and
negative covenants. The negative covenants include maintenance ratios
(including debt to cash flow, cash flow to interest expense and cash flow to
pro forma debt service), restrictions on incurrence of indebtedness and
guarantees, restrictions on liens and limitations on restricted payments.
Events of Default. The credit facility provides for customary events of
default.
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THE EXCHANGE OFFER
The following summary of certain provisions of the registration rights
agreement does not purport to be complete. The following discussion is
qualified in its entirety by reference to the registration rights agreement,
which has been filed as an exhibit to the registration statement of which this
prospectus is a part.
Purpose of the Exchange Offer
We issued and sold the outstanding securities on July 7, 1999 in a private
placement. In connection with that issuance and sale, we entered into a
registration rights agreement with the initial purchasers of the outstanding
securities. In the registration rights agreement we agreed to:
. file with the SEC a registration statement within 90 days of the
original issue date of the outstanding securities relating to an offer
to exchange the outstanding securities for the exchange securities;
. use our reasonable best efforts to cause the registration statement to
be declared effective under the Securities Act within 180 days of the
original issue date of the outstanding securities,
. use our best efforts to keep the registration statement effective until
the closing of the exchange offer, and
. use our best efforts to cause the exchange offer to be completed not
later than 210 days following the original issue date of the outstanding
securities.
The exchange offer being made by this prospectus is intended to satisfy our
obligations under the registration rights agreement. If we fail to timely
comply with these obligations, we will be required to pay additional interest
to holders of outstanding securities until we have complied with these
obligations. See "Description of the Securities--Registration Rights;
Additional Interest."
Once the exchange offer is complete, we will have no further obligation to
register any of the outstanding securities not tendered by the holders thereof
for exchange. See "Risk Factors--Your failure to participate in the exchange
offer will have material adverse consequences."
Effect of the Exchange Offer
Based on interpretations by the SEC staff set forth in Exxon Capital
Holdings Corporation (available April 13, 1989), Morgan Stanley & Co.
Incorporated (available June 5, 1991), Shearman & Sterling (available July 7,
1993) and other no-action letters issued to third parties, we believe that you
may offer for resale, resell and otherwise transfer the exchange securities
issued to you under the exchange offer without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that you can represent that:
. you are acquiring the exchange securities in the ordinary course of your
business;
. you have no arrangements or understandings with any person to
participate in the exchange offer for the purpose of distributing the
exchange securities; and
. you are not our "affiliate," within the meaning of Rule 405 under the
Securities Act.
If you are not able to make these representations, you are a "restricted
holder." As a restricted holder, you will not be able to participate in the
exchange offer, you may not rely on the interpretations of the SEC staff set
forth in the above referenced no-action letters and you may only sell your
outstanding securities in compliance with the registration and prospectus
delivery requirements of the Securities Act or under an exemption from the
registration requirements of the Securities Act or in a transaction not
subject to the Securities Act.
In addition, each broker-dealer (other than a restricted holder) that
receives exchange securities for its own account in exchange for outstanding
securities that were acquired by such broker-dealer as a result of market-
making activities or other trading activities (a "participating broker-
dealer") may be a statutory underwriter
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and must acknowledge in the letter of transmittal that it will deliver a
prospectus meeting the requirements of the Securities Act upon any resale of
such exchange securities. 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. Based on interpretations by the SEC staff, we believe that a
participating broker-dealer may offer for resale, resell and otherwise
transfer exchange securities issued under the exchange offer upon compliance
with the prospectus delivery requirements, but without compliance with the
registration requirements, of the Securities Act. This prospectus, as it may
be amended or supplemented from time to time, may be used by a participating
broker-dealer as part of their resales. We have agreed that, for a period of
90 days after the completion of the exchange offer, we will make this
prospectus available to any broker-dealer for use by the broker-dealer in any
resale. By acceptance of this exchange offer, each broker-dealer that receives
exchange securities under the exchange offer agrees to notify us prior to
using this prospectus in a sale or transfer of exchange securities. See "Plan
of Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, resale or other transfer of exchange securities.
To the extent outstanding securities are tendered and accepted in the
exchange offer, the principal amount of outstanding securities that will be
outstanding will decrease with a resulting decrease in the liquidity in the
market for the outstanding securities. Outstanding securities that are still
outstanding following the completion of the exchange offer will continue to be
subject to transfer restrictions.
Terms of the Exchange Offer
Upon the terms and subject to the conditions of the exchange offer described
in this prospectus and in the letter of transmittal, we will accept for
exchange any and all outstanding securities validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding notes accepted in the exchange offer and
$1,000 principal amount of exchange debentures in exchange for each $1,000
principal amount of outstanding debentures accepted in the exchange offer. You
may tender some or all of your outstanding securities pursuant to the exchange
offer. However, outstanding securities may be tendered only in integral
multiples of $1,000 principal amount.
The form and terms of the exchange securities will be substantially
identical to the form and terms of the outstanding securities, except that:
. the offering of the exchange securities has been registered under the
Act;
. the exchange securities will not be subject to transfer restrictions;
and
. the exchange securities will be issued free of any covenants regarding
registration rights and free of any provision for additional interest.
The exchange securities will evidence the same debt as the outstanding
securities and will be issued under and be entitled to the benefits of the
same indenture under which the outstanding securities were issued. The
outstanding notes and the exchange notes, on the one hand, and the outstanding
debentures and the exchange debentures, on the other hand, will each be
treated as a single series of debt securities under the indenture. For a
description of the terms of the indenture and the exchange securities, see
"Description of the Securities."
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding securities being tendered for exchange. As of the date
of this prospectus, an aggregate of $750 million principal amount of
outstanding notes is outstanding and an aggregate of $500 million principal
amount of outstanding debentures is outstanding. This prospectus is being sent
to all registered holders of outstanding securities. There will be no fixed
record date for determining registered holders of outstanding securities
entitled to participate in the exchange offer.
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We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act and the Securities Exchange Act and the
rules and regulations of the SEC. Holders of outstanding securities do not
have any appraisal or dissenters rights under law or under the indenture in
connection with the exchange offer. Outstanding securities that are not
tendered for exchange in the exchange offer will remain outstanding and
continue to accrue interest and will be entitled to the rights and benefits
their holders have under the indenture relating to the outstanding securities.
We will be deemed to have accepted for exchange validly tendered outstanding
securities when we have given oral or written notice of the acceptance to the
exchange agent. The exchange agent will act as agent for the tendering holders
of outstanding securities for the purposes of receiving the exchange
securities from us and delivering the exchange securities to the tendering
holders. Subject to the terms of the registration rights agreement, we
expressly reserve the right to amend or terminate the exchange offer, and not
to accept for exchange any outstanding securities not previously accepted for
exchange, upon the occurrence of any of the conditions specified below under
"--Conditions."
If we do not accept for exchange any tendered outstanding securities because
of an invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, such unaccepted outstanding securities will be
returned, without expense, to the holder tendering them or the appropriate
book-entry will be made, in each case, as promptly as practicable after the
expiration date.
We are not making, nor is our board of directors making, any recommendation
to you as to whether to tender or refrain from tendering all or any portion of
your outstanding securities in the exchange offer. No one has been authorized
to make any such recommendation. You must make your own decision whether to
tender in the exchange offer and, if you decide to do so, you must also make
your own decision as to the aggregate amount of outstanding securities to
tender after reading this prospectus and the letter of transmittal and
consulting with your advisers, if any, based on your own financial position
and requirements.
Expiration Date; Extensions; Amendments
The term "expiration date" means 5:00 p.m., New York City time, on ,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which
the exchange offer is extended.
If we determine to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice. We will notify the
registered holders of outstanding securities of the extension no later than
9:00 a.m., New York City time, on the business day immediately following the
previously scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting for exchange any outstanding securities,
. to extend the exchange offer or to terminate the exchange offer and to
refuse to accept outstanding securities not previously accepted if any
of the conditions set forth below under "--Conditions" have not been
satisfied, or
. subject to the terms of the registration rights agreement, to amend the
terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the
registered holders of outstanding securities. If we amend the exchange offer
in a manner that we determine to constitute a material change, we will
promptly disclose the amendment in a manner reasonably calculated to inform
the holders of the outstanding securities of the amendment.
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Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, we will have no obligation to publish, advertise or
otherwise communicate any public announcement, other than by making a timely
release to a financial news service.
During any extension of the exchange offer, all outstanding securities
previously tendered will remain subject to the exchange offer, and we may
accept them for exchange. We will return any outstanding securities that we do
not accept for exchange for any reason without expense to the tendering holder
as promptly as practicable after the expiration or earlier termination of the
exchange offer.
Interest on the Exchange Securities and the Outstanding Securities
The outstanding notes will continue to accrue interest at the rate of 7 7/8%
per annum through (but not including) the date of issuance of the exchange
notes, and the outstanding debentures will continue to accrue interest at the
rate of 8 1/2% per annum through (but not including) the date of issuance of
the exchange debentures. Any outstanding notes not tendered or accepted for
exchange will continue to accrue interest at the rate of 7 7/8% per annum, and
any outstanding debentures not tendered or accepted for exchange will continue
to accrue interest at the rate of 8 1/2% per annum, in each case in accordance
with their terms. From and after the date of issuance of the exchange notes,
the exchange notes will accrue interest at the rate of 7 7/8% per annum, and
from and after the date of issuance of the exchange debentures, the exchange
debentures will accrue interest at the rate of 8 1/2% per annum. Interest on
the exchange notes and the exchange debentures and any outstanding notes and
outstanding debentures not tendered or accepted for exchange will be payable
semi-annually in arrears on January 15 and July 15 of each year, commencing on
January 15, 2000.
Procedures for Tendering
Only a holder of outstanding securities may tender the outstanding securities
in the exchange offer. To tender in the exchange offer, a holder must complete,
sign and date the letter of transmittal, have the signatures thereon guaranteed
if required by the letter of transmittal, and mail or otherwise deliver such
letter of transmittal, together with all other documents required by the letter
of transmittal, to the exchange agent at one of the addresses set forth below
under "--Exchange Agent," before 5:00 p.m., New York City time, on the
expiration date. In addition, either:
. the exchange agent must receive, before the expiration date, a timely
confirmation of a book-entry transfer of the tendered outstanding
securities into the exchange agent's account at The Depository Trust
Company ("DTC" or the "depositary") according to the procedure for book-
entry transfer described below; or
. the holder must comply with the guaranteed delivery procedures described
below.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between that holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of outstanding securities, letters of transmittal and
all other required documents to the exchange agent, including delivery through
DTC, is at the holder's election and risk. Instead of delivery by mail, we
recommend that holders use an overnight or hand delivery service. If delivery
is by mail, we recommend that holders use certified or registered mail,
properly insured, with return receipt requested. In all cases, holders should
allow sufficient time to assure delivery to the exchange agent before the
expiration date. Holders should not send letters of transmittal or other
required documents to us. Holders may request their respective brokers,
dealers, commercial banks, trust companies or other nominees to effect the
above transactions for them.
Any beneficial owner whose outstanding securities are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender outstanding securities should contact the registered holder
promptly and instruct it to tender on the beneficial owner's behalf.
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We will determine, in our sole discretion, all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered
outstanding securities and withdrawal of tendered outstanding securities, and
our determination will be final and binding. We reserve the absolute right to
reject any and all outstanding securities not properly tendered or any
outstanding securities the acceptance of which would, in the opinion of us or
our counsel, be unlawful. We also reserve the absolute right to waive any
defects or irregularities or conditions of the exchange offer as to any
particular outstanding securities either before or after the expiration date.
Our interpretation of the terms and conditions of the exchange offer as to any
particular outstanding securities either before or after the expiration date
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of outstanding securities for exchange must be cured
within such time as we shall determine. Although we intend to notify holders
of any defects or irregularities with respect to tenders of outstanding
securities for exchange, neither we nor the exchange agent nor any other
person shall be under any duty to give such notification, nor shall any of
them incur any liability for failure to give such notification. Tenders of
outstanding securities will not be deemed to have been made until all defects
or irregularities have been cured or waived. Any outstanding securities
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the exchange agent to the tendering holders (or, in the case of outstanding
securities delivered by book-entry transfer within DTC, will be credited to
the account maintained within DTC by the participant in DTC which delivered
such outstanding securities), unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion (a) to purchase or
make offers for any outstanding securities that remain outstanding after the
expiration date, (b) as set forth below under "--Conditions," to terminate the
exchange offer and (c) to the extent permitted by applicable law, purchase
outstanding securities in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the exchange offer.
By signing, or otherwise becoming bound by, the letter of transmittal, each
tendering holder of outstanding securities (other than certain specified
holders) will represent to us that:
. it is acquiring the exchange securities in the ordinary course of its
business;
. it has no arrangements or understandings with any person to participate
in the exchange offer for the purpose of distributing the exchange
securities; and
. it is not our "affiliate," within the meaning of Rule 405 under the
Securities Act, or, if it is our affiliate, it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the tendering holder is a broker-dealer that will receive exchange
securities for its own account in exchange for outstanding securities that
were acquired as a result of market-making activities or other trading
activities, it may be deemed to be an "underwriter" within the meaning of the
Securities Act. Any such holder will be required to acknowledge in the letter
of transmittal that it will deliver a prospectus in connection with any resale
of these exchange securities. However, by so acknowledging and by delivering a
prospectus, the holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
Book-Entry Transfer
The exchange agent will establish a new account or utilize an existing
account with respect to the outstanding securities at DTC promptly after the
date of this prospectus, and any financial institution that is a participant
in DTC's systems may make book-entry delivery of outstanding securities by
causing DTC to transfer these outstanding securities into the exchange agent's
account in accordance with DTC's procedures for transfer. However, the
exchange for the outstanding securities so tendered will only be made after
timely confirmation of this book-entry transfer of outstanding securities into
the exchange agent's account, and timely receipt by the exchange agent of an
agent's message and any other documents required by the letter of transmittal.
The term "agent's message" means a message transmitted by DTC to, and received
by, the
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exchange agent and forming a part of a book-entry confirmation, that states
that DTC has received an express acknowledgment from a participant in DTC
tendering outstanding securities that are the subject of the book-entry
confirmation stating (1) the aggregate principal amount of outstanding
securities that have been tendered by such participant, (2) that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and (3) that we may enforce such agreement against the participant.
Although delivery of outstanding securities must be effected through book-
entry transfer into the exchange agent's account at DTC, the letter of
transmittal, properly completely and validly executed, with any required
signature guarantees, or an agent's message in lieu of the letter of
transmittal, and any other required documents, must be delivered to and
received by the exchange agent at one of its addresses listed below under "--
Exchange Agent," before 5:00 p.m., New York City time, on the expiration date,
or the guaranteed delivery procedure described below must be complied with.
Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.
All references in this prospectus to deposit or delivery of outstanding
securities shall be deemed to refer to DTC's book-entry delivery method.
Guaranteed Delivery Procedures
Holders who wish to tender their outstanding securities and (1) whose
outstanding securities are not immediately available or (2) who cannot deliver
a confirmation of book-entry transfer of outstanding securities into the
exchange agent's account at DTC, the letter of transmittal or any other
required documents to the exchange agent prior to the expiration date or (3)
who cannot complete the procedure for book-entry transfer on a timely basis,
may effect a tender if:
. the tender is made through an eligible institution;
. before the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmission, mail or hand delivery)
listing the principal amount of outstanding securities tendered, stating
that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange, Inc. trading days after the expiration
date, a duly executed letter of transmittal together with a confirmation
of book-entry transfer of such outstanding securities into the exchange
agent's account at DTC, and any other documents required by the letter
of transmittal and the instructions thereto, will be deposited by such
eligible institution with the exchange agent; and
. the properly completed and executed letter of transmittal and a
confirmation of book-entry transfer of all tendered outstanding
securities into the exchange agent's account at DTC and all other
documents required by the letter of transmittal are received by the
exchange agent within three New York Stock Exchange, Inc. trading days
after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their outstanding securities according to
the guaranteed delivery procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, tenders of outstanding
securities may be withdrawn at any time prior to 5:00 p.m., New York City time,
on the expiration date.
For a withdrawal to be effective, the exchange agent must receive a written
or facsimile transmission notice of withdrawal at one of its addresses set
forth below under "--Exchange Agent." Any notice of withdrawal must:
. specify the name of the person who tendered the outstanding securities
to be withdrawn;
. identify the outstanding securities to be withdrawn, including the
principal amount of such outstanding securities;
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. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding securities were
tendered (including any required signature guarantees); and
. specify the name and number of the account at DTC to be credited with
the withdrawn outstanding securities and otherwise comply with the
procedures of this facility.
We will determine, in our sole discretion, all questions as to the validity,
form and eligibility (including time of receipt) of any notice of withdrawal,
and our determination shall be final and binding on all parties. Any
outstanding securities so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the exchange offer and no exchange
securities will be issued with respect thereto unless the outstanding
securities so withdrawn are validly retendered. Properly withdrawn outstanding
securities may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the expiration
date.
Any outstanding securities that are tendered for exchange but that are not
exchanged for any reason will be credited to an account maintained with DTC
for the outstanding securities as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer.
Conditions
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or to issue exchange securities in exchange for, any
outstanding securities, and we may terminate the exchange offer as provided in
this prospectus before the acceptance of any outstanding securities, if:
. the exchange offer, or the making of any exchange by a holder of
outstanding securities, would violate applicable law or any applicable
interpretation of the SEC Staff; or
. the outstanding securities are not tendered in accordance with the
exchange offer; or
. you do not represent that you are acquiring the exchange securities in
the ordinary course of your business and that you have no arrangement or
understanding with any person to participate in a distribution of the
exchange securities and you do not make any other representations as may
be
reasonably necessary under applicable SEC rules, regulations or
interpretations to render available the use of an appropriate form for
registration of the exchange securities under the Securities Act; or
. any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions or may
be waived by us, in whole or in part, at any time and from time to time in our
reasonable discretion. Our failure at any time to exercise any of the
foregoing rights shall not be deemed a waiver of the right and each right
shall be deemed an ongoing right which may be asserted at any time and from
time to time.
If we determine in our reasonable judgment that any of the conditions are
not satisfied, we may:
. refuse to accept any outstanding securities and credit any tendered
outstanding securities to the account maintained within DTC by the
participant in DTC which delivered the outstanding securities, or
. extend the exchange offer and retain all outstanding securities tendered
before the expiration date, subject to the rights of holders to withdraw
the tenders of outstanding securities (see "--Withdrawal of Tenders"
above), or
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. waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered outstanding securities that have not been
withdrawn or otherwise amend the terms of the exchange offer in any
respect as provided under "--Expiration Date; Extensions; Amendments."
If a waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that
will be distributed to the registered holders, and we will extend the
exchange offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to the
registered holders, if the exchange offer would otherwise expire during
such five to ten business day period.
In addition, we will not accept for exchange any outstanding securities
tendered, and we will not issue exchange securities in exchange for any of the
outstanding securities, if at that time any stop order is threatened or in
effect with respect to the registration statement of which this prospectus
constitutes a part or the qualification of the indenture under the Trust
Indenture Act of 1939.
Exchange Agent
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All signed letters of transmittal and other documents required
for a valid tender of your outstanding securities should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E
New York, New York 10286 Corporate Trust Services Window
Attention: Gertrude Jeanpierre New York, New York 10286
Reorganization Section Attention: Gertrude Jeanpierre
BY FACSIMILE (for Eligible Institutions only):
(212) 815-6339 The Bank of New York Attention:
Gertrude Jeanpierre Confirm by Telephone: (212)
815-5920 For Information Call: (212) 815-5920
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptance of the exchange
offer. The principal solicitation is being made by mail; however, additional
solicitation may be made by facsimile, telephone or in person by our officers
and employees.
We will pay the expenses to be incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and the
trustee, accounting and legal fees, printing costs, and related fees and
expenses.
Transfer Taxes
Holders who tender their outstanding securities for exchange will not be
obligated to pay any transfer taxes in connection with the exchange offer.
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Accounting Treatment
We will record the exchange securities in our accounting records at the same
carrying values as the outstanding securities on the date of the exchange.
Accordingly, we will recognize no gain or loss, for accounting purposes, as a
result of the exchange offer. The expenses of the exchange offer and the
unamortized expenses relating to the issuance of the outstanding securities
will be amortized over the term of the exchange securities.
Consequences of Failure to Exchange
Holders of outstanding securities who do not exchange their outstanding
securities for exchange securities pursuant to the exchange offer will continue
to be subject to the restrictions on transfer of the outstanding securities as
set forth in the legend printed thereon as a consequence of the issuance of the
outstanding securities pursuant to an exemption from the Securities Act and
applicable state securities laws. Outstanding notes not exchanged pursuant to
the exchange offer will continue to accrue interest at 7 7/8% per annum,
outstanding debentures not exchanged pursuant to the exchange offer will
continue to accrue interest at 8 1/2% per annum, and the outstanding notes and
outstanding debentures will otherwise remain outstanding in accordance with
their respective terms. Holders of outstanding securities do not have any
appraisal or dissenters' rights under the Delaware General Corporation Law in
connection with the exchange offer.
In general, the outstanding securities may not be offered or sold unless
registered under the Securities Act, except pursuant to an exemption from, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. Upon completion of the exchange offer, holders of outstanding
securities will not be entitled to any rights to have the resale of outstanding
securities registered under the Securities Act, and we currently do not intend
to register under the Securities Act the resale of any outstanding securities
that remain outstanding after completion of the exchange offer.
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DESCRIPTION OF THE SECURITIES
We issued the outstanding securities and will issue the exchange securities
under an indenture dated as of July 7, 1999, between Liberty, as issuer, and
The Bank of New York, as trustee, as supplemented by a first supplemental
indenture dated July 7, 1999 between Liberty and the trustee. The indenture and
first supplemental indenture are collectively referred to in this prospectus as
the "indenture." The outstanding notes and the exchange notes have
substantially identical terms and will constitute a single series of securities
under the indenture. The outstanding debentures and the exchange debentures
also have substantially identical terms and will constitute another series of
securities under the indenture. The difference between the outstanding
securities and the exchange securities is that the offer and sale of the
exchange securities have been registered under the Securities Act and,
therefore, the exchange securities will not bear legends restricting their
transfer and will not be entitled to registration under the Securities Act or
other rights relating to such registration. If the exchange offer is completed,
holders of any remaining outstanding securities will vote together with holders
of the applicable exchange securities for all relevant purposes under the
indenture.
Upon the issuance of the exchange securities, the indenture will be subject
to and governed by the Trust Indenture Act of 1939. The terms of the exchange
securities include those stated in the indenture and those made part of the
indenture by reference to the Trust Indenture Act. The following summary of
certain provisions of the indenture and the exchange securities does not
purport to be complete and is subject to, and qualified in its entirety by,
reference to the provisions of the indenture, including the definitions of
certain terms contained in the indenture and those terms made a part of it by
the Trust Indenture Act. A copy of the indenture has been filed as an exhibit
to the registration statement of which this prospectus is a part. Capitalized
terms used and not otherwise defined in this section have the meanings ascribed
to them in the indenture.
General
The indenture does not limit the aggregate principal amount of senior debt
securities that may be issued under the indenture and provides that Liberty may
issue senior debt securities from time to time in one or more series. The
senior debt securities that Liberty may issue under the indenture, including
the outstanding securities and the exchange securities, are collectively
referred to in this section as the "senior debt securities."
The 7 7/8% senior notes due 2009 and the 8 1/2% senior debentures due 2029
constitute separate series of senior debt securities under the indenture. The
outstanding notes and the exchange notes are collectively referred to in this
prospectus as the "notes," and the outstanding debentures and the exchange
debentures are collectively referred to in this prospectus as the "debentures,"
and together with the notes, as the "securities." If the exchange offer is
consummated, holders of outstanding notes and outstanding debentures who do not
exchange their outstanding notes and outstanding debentures for exchange notes
and exchange debentures will vote together as separate series of senior debt
securities with holders of the exchange notes and exchange debentures,
respectively, for all relevant purposes under the indenture. In that regard,
the indenture requires that certain actions by the holders under the notes and
debentures, respectively (including acceleration following an event of
default), must be taken, and certain rights must be exercised, by specified
minimum percentages of the aggregate principal amount of the notes and
debentures, respectively, outstanding. In determining whether holders of the
requisite percentage in principal amount have given any notice, consent or
waiver or taken any other action permitted under the indenture, any outstanding
notes and outstanding debentures which remain outstanding after the exchange
offer will be aggregated with the exchange notes and exchange debentures,
respectively, and the holders of the outstanding notes and exchange notes and
the holders of the outstanding debentures and exchange debentures will each
vote together as a single series for all purposes. Accordingly, all references
in this section to specified percentages in aggregate principal amount of the
outstanding senior debt securities of a series will be deemed to mean, at any
time after the exchange offer is consummated, the percentages in aggregate
principal amount of the outstanding notes and exchange notes, on the one hand,
and the outstanding debentures and exchange debentures, on the other hand, then
outstanding.
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The securities are unsecured senior obligations of Liberty and are initially
limited to an aggregate principal amount of $750,000,000 of notes and
$500,000,000 of debentures. Liberty may "reopen" any security series and issue
additional securities of that series. The notes and the debentures bear
interest at the rate per annum shown above from the date of original issuance
or from the most recent date to which interest has been paid or duly provided
for, payable semiannually on January 15 and July 15 of each year, each of which
is referred to in this prospectus as an "interest payment date," commencing
January 15, 2000 to the persons in whose names the securities are registered at
the close of business on the January 1 or July 1 next preceding the interest
payment date. Interest payable on January 15, 2000 with respect to each $1,000
principal amount of notes and debentures will be $41.125 and $44.389,
respectively. Interest payable at maturity, or upon any earlier date of
redemption, will be payable to the person to whom principal shall be payable on
that date. Interest on the securities will be calculated on the basis of a 360-
day year of twelve 30-day months. The maturity dates for the notes and the
debentures are July 15, 2009 and July 15, 2029, respectively. If any interest
payment date, redemption date or maturity date would otherwise be a day that is
not a business day, the related payment of principal and interest will be made
on the next succeeding business day as if it were made on the date the payment
was due, and no interest will accrue on the amounts so payable for the period
from and after the interest payment date, the redemption date or the maturity
date, as the case may be, to the next succeeding business day. A business day
means a day other than a Saturday, Sunday or other day on which banking
institutions in New York, New York are authorized or obligated by law,
regulation or executive order to close. The securities are not subject to any
sinking fund. For a discussion of the circumstances in which the interest rate
on the securities may be adjusted, see "--Registration Rights; Additional
Interest."
The indenture does not contain any provision that would limit the ability of
Liberty to incur indebtedness or to substantially reduce or eliminate Liberty's
assets or that would afford the holders of the securities protection in the
event of a decline in Liberty's credit quality or a takeover, recapitalization
or highly leveraged or similar transaction involving Liberty. In addition,
subject to the limitations set forth under "--Successor Corporation," Liberty
may, in the future, enter into certain transactions, including the sale of
substantially all of its assets or the merger or consolidation of Liberty, that
would increase the amount of Liberty's indebtedness or substantially reduce or
eliminate Liberty's assets, which may have an adverse effect on Liberty's
ability to service its indebtedness, including the securities.
Each security will be issued in book-entry form (a "book-entry security") in
minimum denominations of $1,000 and integral multiples thereof. Each book-entry
security will be represented by one or more global securities in fully
registered form, registered in the name of The Depository Trust Company, which
is referred to in this prospectus as "DTC" or the "depositary," or its nominee.
Beneficial interest in the global securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. See "--Form, Denomination and Registration." Except in the
limited circumstances described in this prospectus, book-entry securities will
not be exchangeable for securities issued in fully registered form
("certificated securities").
Book-entry securities may be transferred or exchanged only through the
depositary. See "--Form, Denomination and Registration." Registration of
transfer or exchange of certificated securities will be made at the office or
agency, maintained by Liberty for this purpose in the Borough of Manhattan, The
City of New York, currently the office of the trustee at 101 Barclay Street,
New York, N.Y. 10286. Neither Liberty nor the trustee will charge a service
charge for any registration of transfer or exchange of securities, but Liberty
may require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with the transfer or exchange (other
than exchanges pursuant to the indenture not involving any transfer).
Liberty will make payments of principal, and premium, if any, and interest on
book-entry securities through the trustee to the depositary. See "--Form,
Denomination and Registration." In the case of certificated securities, Liberty
will pay the principal and premium, if any, due on the maturity date in
immediately available
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funds upon presentation and surrender by the holder of the securities at the
office or agency maintained by Liberty for this purpose at the Borough of
Manhattan, The City of New York, currently the office of the trustee at 101
Barclay Street, New York, N.Y. 10286. Liberty will pay interest due on the
maturity date of a certificated security to the person to whom payment of the
principal and premium, if any, will be made. Liberty will pay interest due on a
certificated security on any interest payment date other than the maturity date
by check mailed to the address of the holder entitled to the payment as the
address shall appear in the security register of Liberty. Notwithstanding the
foregoing, a holder of $10 million or more in aggregate principal amount of
certificated securities (whether having identical or different terms and
provisions) will be entitled to receive interest payments, if any, on any
interest payment date other than the maturity date by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the trustee not less than 15 calendar days prior to the
interest payment date. Any wire transfer instructions received by the trustee
will remain in effect until revoked by the holder. Any interest not punctually
paid or duly provided for on a certificated security on any interest payment
date other than the maturity date will cease to be payable to the holder of the
security as of the close of business on the related record date and may either
be paid (1) to the person in whose name the certificated security is registered
at the close of business on a special record date for the payment of the
defaulted interest that is fixed by Liberty, written notice of which will be
given to the holders of the securities not less than 30 calendar days prior to
the special record date, or (2) at any time in any other lawful manner.
All moneys paid by Liberty to the trustee or any paying agent for the payment
of principal of, and premium and interest on, any security which remain
unclaimed for two years after the principal, premium or interest is due and
payable may be repaid to Liberty and, after that payment, the holder of the
security will look only to Liberty for payment.
Ranking and Holding Company Structure
The securities are unsecured senior indebtedness of Liberty and rank equally
with Liberty's existing and future unsubordinated unsecured indebtedness and
senior in right of payment to all subordinated indebtedness of Liberty. The
securities are effectively subordinated to all secured indebtedness of Liberty
with respect to the assets securing the indebtedness and are effectively
subordinated to all liabilities of Liberty's subsidiaries. As of June 30, 1999,
after giving effect to the issuance and sale of the outstanding securities and
our use of the net proceeds therefrom as described under "Use of Proceeds," our
consolidated subsidiaries would have had outstanding $12.6 billion of
liabilities, all of which would have effectively ranked senior to the
securities. At the same date and using the same assumption, we would also have
had outstanding $2.2 billion of unsecured and unsubordinated indebtedness, all
of which would have ranked equally with the securities.
Liberty is a holding company and is largely dependent on dividends,
distributions and other payments from its subsidiaries and business affiliates
and other investments to meet its financial obligations, and is dependent on
those payments to meet its obligations under the securities. Liberty's
subsidiaries and business affiliates, as well as AT&T and its subsidiaries
other than Liberty, have no obligation, contingent or otherwise, to pay any
amounts due under the securities or to make any funds available for any of
those payments. In addition, neither AT&T nor any of its subsidiaries other
than Liberty has any obligation to make payments under the securities or to
make any funds available for those payments. See "Risk Factors--We are a
holding company with our assets held primarily by our subsidiaries. Creditors
of those companies have a claim on their assets that is senior to that of
holders of the securities." and "Relationship with AT&T and Certain Related
Transactions."
Optional Redemption
The securities are redeemable, as a whole or in part, at our option, at any
time or from time to time, on at least 30 days, but not more than 60 days,
prior notice mailed to the registered address of each holder of the securities.
The redemption prices will be equal to the greater of (1) 100% of the principal
amount of the securities to be redeemed or (2) the sum of the present values of
the Remaining Scheduled Payments (as
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defined below) discounted, on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months), at a rate equal to the sum of the Treasury
Rate (as defined below) and:
. 30 basis points for the notes
. 35 basis points for the debentures.
In the case of each of clause (1) and (2), accrued interest will be payable
to the redemption date.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes or the debentures, as the case may be, to be
redeemed that would be utilized, at the time of selection and in accordance
with customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of such securities.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by us.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the Reference Treasury Dealer Quotations for such redemption
date after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (2) if the trustee obtains fewer than five such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the trustee
by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the
third business day preceding such redemption date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. and their respective successors. If any of the foregoing shall
cease to be a primary U.S. Government securities dealer (a "Primary Treasury
Dealer"), we shall substitute another nationally recognized investment banking
firm that is a Primary Treasury Dealer.
"Remaining Scheduled Payments" means, with respect to each security to be
redeemed, the remaining scheduled payments of principal of and interest on such
security that would be due after the related redemption date but for such
redemption. If such redemption date is not an interest payment date with
respect to such security, the amount of the next succeeding scheduled interest
payment on such security will be reduced by the amount of interest accrued on
such security to such redemption date.
On and after the redemption date, interest will cease to accrue on the
securities or any portion of the securities called for redemption (unless we
default in the payment of the redemption price and accrued interest). On or
before the redemption date, we will deposit with a paying agent (or the
trustee) money sufficient to pay the redemption price of and accrued interest
on the securities to be redeemed on such date. If less than all of the
securities of any series are to be redeemed, the securities to be redeemed
shall be selected by the trustee by such method as the trustee shall deem fair
and appropriate.
Form, Denomination and Registration
The securities will initially be represented by one or more global securities
in definitive, fully registered book-entry form, without interest coupons that
will be deposited with, or on behalf of, the depositary or its nominee.
So long as the depositary, which initially will be DTC, or its nominee is the
registered owner of a global security, the depositary or its nominee, as the
case may be, will be the sole holder of the securities represented by the
global security for all purposes under the indenture. Except as otherwise
provided in this section, the
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beneficial owners of the global securities representing the securities will
not be entitled to receive physical delivery of certificated securities and
will not be considered the holders of the securities for any purpose under the
indenture, and no global security representing the book-entry securities will
be exchangeable or transferable. Accordingly, each beneficial owner must rely
on the procedures of the depositary and, if the beneficial owner is not a
participant of the depositary, then the beneficial owner must rely on the
procedures of the participant through which the beneficial owner owns its
interest in order to exercise any rights of a holder under the global
securities or the indenture. The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of the securities in
certificated form. Such limits and laws may impair the ability to transfer
beneficial interests in a global security representing the securities.
The global securities representing the securities will be exchangeable for
certificated securities of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if
(1) the depositary notifies Liberty that it is unwilling or unable to
continue as depositary for the global securities,
(2) the depositary ceases to be a clearing agency registered under the
Securities Exchange Act,
(3) Liberty in its sole discretion determines that the global securities
shall be exchangeable for certificated securities, or
(4) there shall have occurred and be continuing an event of default under
the indenture with respect to the securities.
Upon any exchange, the certificated securities shall be registered in the
names of the beneficial owners of the global securities representing the
securities, which names shall be provided by the depositary's relevant
participants (as identified by the depositary) to the trustee.
Cross-Market Transfers. Subject to compliance with the transfer restrictions
applicable to any exchange securities and the certification and other
requirements set forth in the indenture, any cross-market transfer between
participants in the depositary, on the one hand, and participants in the
Euroclear System or Cedelbank, on the other hand, will be effected in the
depositary's book-entry system on behalf of Euroclear or Cedelbank, as the
case may be, in accordance with the rules of the depositary. However, these
cross-market transfers will require delivery of instructions to Euroclear or
Cedelbank, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines.
Euroclear or Cedelbank, as the case may be, will, if the transfer meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or
receiving the beneficial interests in the applicable global security in the
depositary, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to the depositary.
Participants in Euroclear or Cedelbank may not deliver instructions directly
to the depositaries for Euroclear or Cedelbank, as the case may be.
Because of time zone differences, the securities account of a Euroclear or
Cedelbank participant purchasing a beneficial interest in a global security
from a depositary participant will be credited during the securities
settlement processing day, which must be a business day for Euroclear or
Cedelbank, as applicable, immediately following the depositary's settlement
date. Credit of a transfer of a beneficial interest in a global security
settled during that processing day will be reported to the applicable
Euroclear or Cedelbank participant on that day. Cash received in Euroclear or
Cedelbank as a result of a transfer of a beneficial interest in a global
security by or through a Euroclear or Cedelbank participant to a depositary
participant will be received with value on the depositary's settlement date
but will be available in the applicable Euroclear or Cedelbank cash account
only as of the business day following settlement in the depositary.
In order to insure the availability of Rule 144(k) under the Securities Act,
the indenture provides that all securities, other than exchange securities,
which are redeemed, purchased or otherwise acquired by Liberty or any of its
subsidiaries or "affiliates," as defined in Rule 144 under the Securities Act,
may not be resold or otherwise transferred and will be delivered to the
trustee for cancellation.
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Information Relating to the Depositary. The following is based on information
furnished by the depositary:
The depositary will act as the depositary for the securities. The securities
will be issued as fully registered senior debt securities registered in the
name of Cede & Co., which is the depositary's partnership nominee. Fully
registered global securities will be issued for the securities, in the
aggregate principal amount of the issue, and will be deposited with the
depositary.
The depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The depositary holds securities that its participants deposit with the
depositary. The depositary also facilitates the settlement among participants
of securities transactions, including transfers and pledges, in deposited
securities through electronic computerized book-entry changes to participants'
accounts, thereby eliminating the need for physical movement of senior debt
securities certificates. Direct participants of the depositary include
securities brokers and dealers, including the initial purchasers of the
outstanding securities, banks, trust companies, clearing corporations and
certain other organizations. The depositary is owned by a number of its direct
participants, including the initial purchasers of the outstanding securities
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc.,
and the National Association of Securities Dealers, Inc. Access to the
depositary's system is also available to indirect participants, which includes
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. The rules applicable to the depositary and its participants are on
file with the SEC.
Purchases of securities under the depositary's system must be made by or
through direct participants, which will receive a credit for the securities on
the depositary's record. The ownership interest of each beneficial owner, which
is the actual purchaser of each security, represented by global securities, is
in turn to be recorded on the direct and indirect participants' records.
Beneficial owners will not receive written confirmation from the depositary of
their purchase, but beneficial owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect participants through
which the beneficial owner entered into the transaction. Transfers of ownership
interests in the global securities representing the securities are to be
accomplished by entries made on the books of participants acting on behalf of
beneficial owners. Beneficial owners of the global securities representing the
securities will not receive certificated securities representing their
ownership interests therein, except in the event that use of the book-entry
system for the securities is discontinued.
To facilitate subsequent transfers, all global securities representing the
securities which are deposited with, or on behalf of, the depositary are
registered in the name of the depositary's nominee, Cede & Co. The deposit of
global securities with, or on behalf of, the depositary and their registration
in the name of Cede & Co. effect no change in beneficial ownership. The
depositary has no knowledge of the actual beneficial owners of the global
securities representing the securities; the depositary's records reflect only
the identity of the direct participants to whose accounts the securities are
credited, which may or may not be the beneficial owners. The participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the depositary to direct
participants, by direct participants to indirect participants, and by direct
and indirect participants to beneficial owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither the depositary nor Cede & Co. will consent or vote with respect to
the global securities representing the securities. Under its usual procedure,
the depositary mails an omnibus proxy to Liberty as soon as possible after the
applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the securities are
credited on the applicable record date (identified in a listing attached to the
omnibus proxy).
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Principal, premium, if any, and/or interest payments on the global securities
representing the securities will be made to the depositary. The depositary's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on the depositary's
records unless the depositary has reason to believe that it will not receive
payment on the date. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of the participant and not of the
depositary, the trustee or Liberty, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest to the depositary is the responsibility of
Liberty or the trustee, disbursement of the payments to direct participants
will be the responsibility of the depositary, and disbursement of the payments
to the beneficial owners will be the responsibility of direct and indirect
participants.
The depositary may discontinue providing its services as securities
depositary with respect to the securities at any time by giving reasonable
notice to Liberty or the trustee. Under such circumstances, in the event that a
successor securities depositary is not obtained, certificated securities are
required to be printed and delivered.
Liberty may decide to discontinue use of the system of book-entry transfers
through the depositary or a successor securities depositary. In that event,
certificated securities will be printed and delivered.
The depositary has further advised Liberty that management of the depositary
is aware that some computer applications, systems, and the like for processing
data ("Systems") that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter "Year 2000 problems." The
depositary has informed its participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as they relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within the depositary, continue to
function appropriately. This program includes a technical assessment and a
remediation plan, each of which is complete. Additionally, the depositary's
plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, the depositary's ability to perform properly its service is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as the depositary's direct participants and indirect
participants and third party vendors from whom the depositary licenses software
and hardware, and third party vendors on whom the depositary relies for
information or the provision of services, including telecommunication and
electrical utility service providers, among others. The depositary has informed
the Industry that it is contacting, and will continue to contact, third party
vendors from whom the depositary acquires services to: (1) impress upon them
the importance of the services being Year 2000 compliant, and (2) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, the depositary is in the process of
developing such contingency plans as it deems appropriate.
According to the depositary, the information in the preceding two paragraphs
with respect to the depositary has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
Although the depositary, Euroclear and Cedelbank have agreed to the
procedures described above in order to facilitate transfers of interests in the
global securities among participants of the depositary, Euroclear and
Cedelbank, they are under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
trustee nor Liberty will have any responsibility for the performance by the
depositary, Euroclear or Cedelbank or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Trading. Except for trades involving Euroclear and Cedelbank participants,
beneficial interests in the global securities will trade in the depositary's
same-day funds settlement System until maturity or earlier redemption, and
secondary market trading activity in the global securities will therefore
settle in immediately
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available funds, subject in all cases to the rules and operating procedures of
the depositary. Transfers between participants in the depositary will be
effected in the ordinary way in accordance with the depositary's rules and
operating procedures and will be settled in same-day funds, while transfers
between participants in Euroclear and Cedelbank will be effected in the
ordinary way in accordance with their respective rules and operating
procedures.
The information in this subsection "--Form, Denomination and Registration"
concerning the depositary, Euroclear and Cedelbank and their respective book-
entry systems has been obtained from sources that Liberty believes to be
reliable, but Liberty takes no responsibility for its accuracy.
Certain Covenants
The indenture provides that the covenants set forth below will be applicable
to Liberty and its Subsidiaries.
Limitation on Liens. Liberty will not, and will not permit any Restricted
Subsidiary to, create, incur or assume any Lien, except for Permitted Liens, on
any Principal Property to secure the payment of Funded Indebtedness of Liberty
or any Restricted Subsidiary if, immediately after the creation, incurrence or
assumption of such Lien, the sum of (A) the aggregate outstanding principal
amount of all Funded Indebtedness of Liberty and the Restricted Subsidiaries
that is secured by Liens (other than Permitted Liens) on any Principal Property
and (B) the Attributable Debt relating to any Sale and Leaseback Transaction
which would otherwise be subject to the provisions of clause 2(A)(i) of the
"Limitation on Sale and Leaseback" covenant would exceed 15% of the
Consolidated Asset Value, unless effective provision is made whereby the
securities (together with, if Liberty shall so determine, any other Funded
Indebtedness ranking equally with the securities, whether then existing or
thereafter created) are secured equally and ratably with (or prior to) such
Funded Indebtedness (but only for so long as such Funded Indebtedness is so
secured).
The foregoing limitation on Liens shall not apply to the creation, incurrence
or assumption of the following Liens ("Permitted Liens"):
(1) Any Lien which arises out of a judgment or award against Liberty or
any Restricted Subsidiary with respect to which Liberty or such Restricted
Subsidiary at the time shall be prosecuting an appeal or proceeding for
review (or with respect to which the period within which such appeal or
proceeding for review may be initiated shall not have expired) and with
respect to which it shall have secured a stay of execution pending such
appeal or proceedings for review or with respect to which Liberty or such
Restricted Subsidiary shall have posted a bond and established adequate
reserves (in accordance with generally accepted accounting principles) for
the payment of such judgment or award;
(2) Liens on assets or property of a person existing at the time such
person is merged into or consolidated with Liberty or any Restricted
Subsidiary or becomes a Restricted Subsidiary; provided, that such Liens
were in existence prior to the contemplation of such merger, consolidation
or acquisition and do not secure any property of Liberty or any Restricted
Subsidiary other than the property and assets subject to the Liens prior to
such merger, consolidation or acquisition;
(3) Liens existing on the date of original issuance of the securities;
(4) Liens securing Funded Indebtedness (including in the form of
Capitalized Lease Obligations and purchase money indebtedness) incurred for
the purpose of financing the cost (including without limitation the cost of
design, development, site acquisition, construction, integration,
manufacture or acquisition) of real or personal property (tangible or
intangible) which is incurred contemporaneously therewith or within 60 days
thereafter; provided (i) such Liens secure Funded Indebtedness in an amount
not in excess of the cost of such property (plus an amount equal to the
reasonable fees and expenses incurred in connection with the incurrence of
such Funded Indebtedness) and (ii) such Liens do not extend to any property
of Liberty or any Restricted Subsidiary other than the property for which
such Funded Indebtedness was incurred;
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(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure the securities;
(7) Liens granted in favor of Liberty; and
(8) Any Lien in respect of Funded Indebtedness representing the
extension, refinancing, renewal or replacement (or successive extensions,
refinancings, renewals or replacements) of Funded Indebtedness secured by
Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above,
provided that the principal of the Funded Indebtedness secured thereby does
not exceed the principal of the Funded Indebtedness secured thereby
immediately prior to such extension, renewal or replacement, plus any
accrued and unpaid interest or capitalized interest payable thereon,
reasonable fees and expenses incurred in connection therewith, and the
amount of any prepayment premium necessary to accomplish any refinancing;
provided, that such extension, renewal or replacement shall be limited to
all or a part of the property (or interest therein) subject to the Lien so
extended, renewed or replaced (plus improvements and construction on such
property).
Limitation on Sale and Leaseback. Liberty will not, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback Transaction;
provided, that Liberty or any Restricted Subsidiary may enter into a Sale and
Leaseback Transaction if:
(1) the gross cash proceeds of the Sale and Leaseback Transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in a board resolution delivered to the
trustee, of the Principal Property that is the subject of the Sale and
Leaseback Transaction, and
(2) either
(A) Liberty or the Restricted Subsidiary, as applicable, either (i)
could have incurred a Lien to secure Funded Indebtedness in an amount
equal to the Attributable Debt relating to such Sale and Leaseback
Transaction pursuant to the "Limitation on Liens" covenant, or (ii)
makes effective provision whereby the securities (together with, if
Liberty shall so determine, any other Funded Indebtedness ranking
equally with the securities, whether then existing or thereafter
created) are secured equally and ratably with (or prior to) the
obligations of Liberty or the Restricted Subsidiary under the lease of
the Principal Property that is the subject of the Sale and Leaseback
Transaction, or
(B) within 180 days, Liberty or the Restricted Subsidiary either (i)
applies an amount equal to the fair market value of the Principal
Property that is the subject of the Sale and Leaseback Transaction to
purchase the securities or to retire other Funded Indebtedness, or (ii)
enters into a bona fide commitment to expend for the acquisition or
improvement of a Principal Property an amount at least equal to the
fair market value of such Principal Property.
Designation of Restricted Subsidiaries. Liberty may designate an Unrestricted
Subsidiary as a Restricted Subsidiary or designate a Restricted Subsidiary as
an Unrestricted Subsidiary at any time, provided that (1) immediately after
giving effect to such designation, Liberty and its Restricted Subsidiaries
would have been permitted to incur at least $1.00 of additional Funded
Indebtedness secured by a Lien pursuant to the "Limitation on Liens" covenant,
(2) no default or event of default shall have occurred and be continuing, and
(3) an Officers' Certificate with respect to such designation is delivered to
the trustee within 75 days after the end of the fiscal quarter of Liberty in
which such designation is made (or, in the case of a designation made during
the last fiscal quarter of Liberty's fiscal year, within 120 days after the end
of such fiscal year), which Officers' Certificate shall state the effective
date of such designation; Liberty has made the initial designation of all of
its Subsidiaries as Restricted Subsidiaries and will deliver the required
Officers' Certificate with respect thereto to the trustee, on or prior to the
date of initial issuance of the securities.
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Successor Corporation
Liberty may not consolidate with or merge into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
and the properties and assets of its Subsidiaries (taken as a whole) to, any
entity or entities (including limited liability companies) unless (1) the
successor entity or entities, each of which shall be organized under the laws
of the United States or a State thereof, shall assume by supplemental indenture
all the obligations of Liberty under the securities and the indenture and (2)
immediately after giving effect to the transaction or series of transactions,
no default or event of default shall have occurred and be continuing.
Thereafter, all such obligations of Liberty shall terminate.
Events of Default
The term "event of default" means any one of the following events with
respect to any series of senior debt securities, including the notes and the
debentures:
(1) default in the payment of any interest on any senior debt security
of the series, or any additional amounts payable with respect thereto, when
the interest becomes or the additional amounts become due and payable, and
continuance of the default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any
senior debt security of the series, or any additional amounts payable with
respect thereto, when the principal or premium becomes or the additional
amounts become due and payable at their maturity;
(3) failure of Liberty to comply with any of its obligations described
above under "--Successor Corporation";
(4) default in the deposit of any sinking fund payment when and as due
by the terms of a senior debt security of the series;
(5) default in the performance, or breach, of any covenant or warranty
of Liberty in the indenture or the senior debt securities (other than a
covenant or warranty a default in the performance or the breach of which is
elsewhere in the indenture specifically dealt with or which has been
expressly included in the indenture solely for the benefit of a series of
senior debt securities other than the relevant series), and continuance of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to Liberty by the trustee or to Liberty
and the trustee by the holders of at least 25% in principal amount of the
outstanding senior debt securities of the series, a written notice
specifying the default or breach and requiring it to be remedied and
stating that the notice is a "Notice of Default" under the indenture;
(6) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of Liberty, whether the Indebtedness
now exists or shall hereafter be created, shall happen and shall result in
Indebtedness in aggregate principal amount (or, if applicable, with an
issue price and accreted original issue discount) in excess of $100 million
becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable, and (i) the acceleration shall not
be rescinded or annulled, (ii) such Indebtedness shall not have been paid
or (iii) Liberty shall not have contested such acceleration in good faith
by appropriate proceedings and have obtained and thereafter maintained a
stay of all consequences that would have a material adverse effect on
Liberty, in each case within a period of 30 days after there shall have
been given, by registered or certified mail, to Liberty by the trustee or
to Liberty and the trustee by the holders of at least 25% in principal
amount of the outstanding senior debt securities of the series then
outstanding, a written notice specifying the default or breaches and
requiring it to be remedied and stating that the notice is a "Notice of
Default" or other notice as prescribed in the indenture; provided, however,
that if after the expiration of such period, such event of default shall be
remedied or cured by Liberty or be waived by the holders of such
Indebtedness in any manner authorized by such mortgage, indenture or
instrument, then the event of default with respect to such series of senior
debt securities or by reason thereof shall, without further action by
Liberty, the trustee or any holder of senior debt securities of such
series, be deemed cured and not continuing;
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(7) the entry by a court having competent jurisdiction of:
(a) a decree or order for relief in respect of Liberty or any
Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and the
decree or order shall remain unstayed and in effect for a period of 60
consecutive days;
(b) a decree or order adjudging Liberty or any Material Subsidiary
to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of Liberty or any Material
Subsidiary and the decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(c) a final and non-appealable order appointing a custodian,
receiver, liquidator, assignee, trustee or other similar official of
Liberty or any Material Subsidiary or of any substantial part of the
property of Liberty or any Material Subsidiary or ordering the winding
up or liquidation of the affairs of Liberty;
(8) the commencement by Liberty or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding seeking to
be adjudicated insolvent or the consent by Liberty or any Material
Subsidiary to the entry of a decree or order for relief in an involuntary
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any insolvency proceedings
against it, or the filing by Liberty or any Material Subsidiary of a
petition or answer or consent seeking reorganization or relief under any
applicable law, or the consent by Liberty or any Material Subsidiary to the
filing of the petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or similar official of
Liberty or any Material Subsidiary or any substantial part of the property
of Liberty or any Material Subsidiary or the making by Liberty or any
Material Subsidiary of an assignment for the benefit of creditors, or the
taking of corporate action by Liberty or any Material Subsidiary in
furtherance of any such action; or
(9) any other event of default provided in or pursuant to the indenture
with respect to senior debt securities of the series.
If an event of default with respect to senior debt securities of any series
at the time outstanding (other than an event of default specified in clause (7)
or (8) above) occurs and is continuing, then the trustee or the holders of not
less than 25% in principal amount of the outstanding senior debt securities of
the series may declare the principal of all the senior debt securities of the
series, or such lesser amount as may be provided for in the senior debt
securities of the series, to be due and payable immediately, by a notice in
writing to Liberty (and to the trustee if given by the holders), and upon any
declaration the principal or such lesser amount shall become immediately due
and payable. If an event of default specified in clause (7) or (8) above
occurs, all unpaid principal of and accrued interest on the outstanding senior
debt securities of that series (or such lesser amount as may be provided for in
the senior debt securities of the series) shall become and be immediately due
and payable without any declaration or other act on the part of the trustee or
any holder of any senior debt security of that series.
At any time after a declaration of acceleration or automatic acceleration
with respect to the senior debt securities of any series has been made and
before a judgment or decree for payment of the money due has been obtained by
the trustee, the holders of not less than a majority in principal amount of the
outstanding senior debt securities of the series, by written notice to Liberty
and the trustee, may rescind and annul the declaration and its consequences if:
(1) Liberty has paid or deposited with the trustee a sum of money
sufficient to pay all overdue installments of any interest on all
senior debt securities of the series and additional amounts payable
with respect thereto and the principal of and any premium on any senior
debt securities of the series which have become due otherwise than by
the declaration of acceleration and interest on the senior debt
securities; and
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(2) all events of default with respect to senior debt securities of the
series, other than the non-payment of the principal of, any premium and
interest on, and any additional amounts with respect to senior debt
securities of the series which shall have become due solely by the
acceleration, shall have been cured or waived.
No rescission shall affect any subsequent default or impair any right
consequent thereon.
Certain Definitions
The following are certain of the terms defined in the indenture:
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in
such Sale and Leaseback Transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with generally
accepted accounting principles.
"Capitalized Lease Obligation" of any person means any obligation of such
person to pay rent or other amounts under a lease with respect to any property
(whether real, personal or mixed) acquired or leased by such person and used
in its business that is required to be accounted for as a liability on the
balance sheet of such person in accordance with generally accepted accounting
principles and the amount of such Capitalized Lease Obligation shall be the
amount so required to be accounted for as a liability.
"Closing Price" means, with respect to any security on any date of
determination, the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of such security on the NYSE on such
date or, if such security is not listed for trading on the NYSE on such date,
as reported in the composite transactions (or comparable system) for the
principal United States national or regional securities exchange on which such
security is so listed or a recognized international securities exchange, or,
if such security is not listed on a U.S. national or regional securities
exchange or on a recognized international securities exchange, as reported by
the Nasdaq Stock Market, or, if such security is not so reported, the last
quoted bid price for such security in the over-the-counter market as reported
by the National Quotation Bureau or similar organization, or, if such bid
price is not available, the market value of such security on such date as
determined by a nationally recognized independent investment banking firm
retained for this purpose by Liberty; provided that, (1) with respect to
options, warrants and other rights to purchase Marketable Securities, the
Closing Price shall be the value based on the Closing Price of the underlying
Marketable Security minus the exercise price and (2) with respect to
securities exchangeable for or convertible into Marketable Securities, the
Closing Price shall be the Closing Price of the exchangeable or convertible
security or, if it has no Closing Price, the fully converted value based upon
the Closing Price of the underlying Marketable Security.
"Consolidated Asset Value" shall mean, with respect to any date of
determination, the sum of
(A) the amount of cash of Liberty and its Restricted Subsidiaries on the
last day of the preceding month, plus the following assets owned by Liberty
and its Restricted Subsidiaries on the last day of the preceding month that
have the indicated ratings and maturities no greater than 270 days:
. the aggregate principal amount of certificates of deposit and
bankers' acceptances rated A/2 or P/2 or higher by the Rating
Agencies,
. the aggregate principal amount of participations in loans with
obligors with short-term ratings of A/2 or P/2 or higher by the
Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the
Rating Agencies, and
. the aggregate principal amount of repurchase agreements of
securities issued by the U.S. government or any agency thereof with
counterparties with short-term ratings of A/2 or P/2 or higher by
the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by
the Rating Agencies, and
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. the aggregate principal amount at maturity of commercial paper rated
A/2 or P/2 or higher by the Rating Agencies,
(B) the aggregate value of all Marketable Securities owned by Liberty
and its Restricted Subsidiaries based upon the Closing Price of each
Marketable Security on the last day of the preceding month, or if such day
is not a Trading Day, on the immediately preceding Trading Day, and
(C) the arithmetic mean of the aggregate market values (or the midpoint
of a range of values) of the assets of Liberty and its Restricted
Subsidiaries having a value in excess of $200 million, other than the
assets referred to in clauses (A) and (B) above, as of a date within 90
days of the date of determination (or to the extent the research reports
referred to below have not been issued within such 90-day period, as of a
date within 180 days of the date of determination) as evidenced either
. by research reports issued by three nationally recognized
independent investment banking firms selected by Liberty or
. if three such research reports have not been issued within 180 days
prior to the date of determination, by an appraisal by two
nationally recognized independent investment banking or appraisal
firms retained by Liberty for this purpose.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair market value shall be determined
by the Board of Directors of Liberty acting in good faith evidenced by a board
resolution thereof delivered to the trustee.
"Funded Indebtedness" of any person means, as of the date as of which the
amount thereof is to be determined, without duplication, all Indebtedness of
such person and all Capitalized Lease Obligations of such person, which by the
terms thereof have a final maturity, duration or payment date more than one
year from the date of determination thereof (including, without limitation, any
balance of such Indebtedness or obligation which was Funded Indebtedness at the
time of its creation maturing within one year from such date of determination)
or which has a final maturity, duration or payment date within one year from
such date of determination but which by its terms may be renewed or extended at
the option of such person for more than one year from such date of
determination, whether or not theretofore renewed or extended; provided,
however, "Funded Indebtedness" shall not include (1) any Indebtedness of
Liberty or any Subsidiary to Liberty or another Subsidiary, (2) any guarantee
by Liberty or any Subsidiary of Indebtedness of Liberty or another Subsidiary,
provided that such guarantee is not secured by a Lien on any Principal
Property, (3) any guarantee by Liberty or any Subsidiary of the Indebtedness of
any person (including, without limitation, a business trust), if the obligation
of Liberty or such Subsidiary under such guaranty is limited in amount to the
amount of funds held by or on behalf of such person that are available for the
payment of such Indebtedness, (4) liabilities under interest rate swap,
exchange, collar or cap agreements and all other agreements or arrangements
designed to protect against fluctuations in interest rates or currency exchange
rates, and (5) liabilities under commodity hedge, commodity swap, exchange,
collar or cap agreements, fixed price agreements and all other agreements or
arrangements designed to protect against fluctuations in prices. For purposes
of determining the outstanding principal amount of Funded Indebtedness at any
date, the amount of Indebtedness issued at a price less than the principal
amount at maturity thereof shall be equal to the amount of the liability in
respect thereof at such date determined in accordance with generally accepted
accounting principles.
"Indebtedness" of any person means:
(1) any indebtedness of such person (i) for borrowed money or (ii)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any property
or assets, including securities;
(2) any guarantee by such person of any indebtedness of others described
in the preceding clause (1); and
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(3) any amendment, renewal, extension or refunding of any such
indebtedness or guarantee.
"Liberty" means Liberty Media Corporation, a Delaware corporation, until a
successor replaces it pursuant to the applicable provisions of the indenture
and thereafter means the successor.
"Lien" means any mortgage, pledge, lien, security interest, or other similar
encumbrance.
"Marketable Securities" means any securities listed on a U.S. national
securities exchange or reported by the Nasdaq Stock Market or listed on a
recognized international securities exchange or traded in the over-the-counter
market and quoted by at least two broker-dealers as reported by the National
Quotation Bureau or similar organization, including as Marketable Securities
options, warrants and other rights to purchase, and securities exchangeable for
or convertible into, Marketable Securities.
"Material Subsidiary" means, at any relevant time, any Subsidiary that meets
any of the following conditions:
(1) Liberty's and its other Subsidiaries' investments in and advances to
the Subsidiary exceed 10% of the total consolidated assets of Liberty and
its Subsidiaries; or
(2) Liberty's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated assets of Liberty and its Subsidiaries; or
(3) Liberty's and its other Subsidiaries' proportionate share of the
total revenues (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated revenue of Liberty and its Subsidiaries; or
(4) Liberty's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the Subsidiary
exceeds 10% of such income of Liberty and its Subsidiaries;
all as calculated by reference to the then latest fiscal year-end accounts (or
consolidated fiscal year-end accounts, as the case may be) of such Subsidiary
and the then latest audited consolidated fiscal year-end accounts of Liberty
and its Subsidiaries. Based on the 1998 fiscal year-end accounts, as of the
date of this prospectus, the only Material Subsidiary of Liberty is Encore
Media Group LLC.
"Nasdaq Stock Market" means The Nasdaq Stock Market, a subsidiary of the
National Association of Securities Dealers, Inc.
"Principal Property" means, as of any date of determination, (a) any cable
system or manufacturing or production facility, including land and buildings
and other improvements thereon and equipment located therein, owned by Liberty
or a Restricted Subsidiary and used in the ordinary course of its business and
(b) any executive offices, administrative buildings, and research and
development facilities, including land and buildings and other improvements
thereon and equipment located therein, of Liberty or a Restricted Subsidiary,
other than any such property which, in the good faith opinion of the Board of
Directors, is not of material importance to the business conducted by Liberty
and its Restricted Subsidiaries taken as a whole.
"Rating Agencies" means (i) Standard & Poors, a division of The McGraw-Hill
Companies, Inc. and (ii) Moody's Investors Service, Inc. and (iii) if S&P or
Moody's or both shall not make a rating publicly available, a nationally
recognized United States securities rating agency or agencies, as the case may
be, selected by Liberty, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Restricted Subsidiary" means, as of any date of determination, a corporation
a majority of whose voting stock is owned by Liberty and/or one or more
Restricted Subsidiaries, which corporation has been, or is then being,
designated a Restricted Subsidiary in accordance with the "Designation of
Restricted Subsidiaries" covenant, unless and until designated an Unrestricted
Subsidiary in accordance with such covenant.
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"Sale and Leaseback Transaction" means any arrangement providing for the
leasing to Liberty or a Restricted Subsidiary of any Principal Property (except
for temporary leases for a term, including renewals, of not more than three
years) which has been or is to be sold by Liberty or such Restricted Subsidiary
to the lessor.
"Subsidiary" means any corporation, association, limited liability company,
partnership or other business entity of which a majority of the total voting
power of the capital stock or other interests (including partnership interests)
entitled (without regard to the incurrence of a contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned,
directly or indirectly, by (i) Liberty, (ii) Liberty and one or more of its
Subsidiaries or (iii) one or more Subsidiaries of Liberty.
"Trading Day" means, with respect to any security the Closing Price of which
is being determined, a day on which there is trading on the principal United
States national or regional securities exchange or recognized international
securities exchange, in the Nasdaq Stock Market or in the over-the-counter
market used to determine such Closing Price.
"Unrestricted Subsidiary" means, as of any date of determination, any
Subsidiary of Liberty that is not a Restricted Subsidiary.
Modification and Waiver
Modification and amendments of the indenture may be made by Liberty and the
trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding senior debt securities of each
series affected thereby; provided, however, that no modification or amendment
may, without the consent of the holder of each outstanding senior debt security
affected thereby,
(1) change the stated maturity of the principal of, or any premium or
installment of interest on, or any additional amounts with respect to,
any senior debt security,
(2) reduce the principal amount of, or the rate (or modify the calculation
of the rate) of interest on, or any additional amounts with respect to,
or any premium payable upon the redemption of, any senior debt
security,
(3) change the redemption provisions of any senior debt security or
adversely affect the right of repayment at the option of any holder of
any senior debt security,
(4) change the place of payment or the coin or currency in which the
principal of, any premium or interest on or any additional amounts with
respect to any senior debt security is payable,
(5) impair the right to institute suit for the enforcement of any payment
on or after the stated maturity of any senior debt security (or, in the
case of redemption, on or after the redemption date or, in the case of
repayment at the option of any holder, on or after the date for
repayment),
(6) reduce the percentage in principal amount of the outstanding senior
debt securities, the consent of whose holders is required in order to
take certain actions,
(7) reduce the requirements for quorum or voting by holders of senior debt
securities as provided in the indenture,
(8) modify any of the provisions in the indenture regarding the waiver of
past defaults and the waiver of certain covenants by the holders of
senior debt securities except to increase any percentage vote required
or to provide that certain other provisions of the indenture cannot be
modified or waived without the consent of the holder of each senior
debt security affected thereby, or
(9) modify any of the above provisions.
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The holders of at least a majority in aggregate principal amount of the
senior debt securities of any series may, on behalf of the holders of all
senior debt securities of the series, waive compliance by Liberty with certain
restrictive provisions of the indenture. The holders of not less than a
majority in aggregate principal amount of the outstanding senior debt
securities of any series may, on behalf of the holders of all senior debt
securities of the series, waive any past default and its consequences under the
indenture with respect to the senior debt securities of the series, except a
default
. in the payment of principal (or premium, if any), or any interest on or
any additional amounts with respect to senior debt securities of the
series, or
. in respect of a covenant or provision of the indenture that cannot be
modified or amended without the consent of the holder of each senior
debt security of any series.
Under the indenture, Liberty is required to furnish the trustee annually a
statement as to performance by Liberty of certain of its obligations under the
indenture and as to any default in the performance. Liberty is also required to
deliver to the trustee, within five days after becoming aware thereof, written
notice of any event of default or any event which after notice or lapse of time
or both would constitute an event of default.
Discharge, Defeasance and Covenant Defeasance
Liberty may discharge certain obligations to holders of any series of senior
debt securities that have not already been delivered to the trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
depositing with the trustee, in trust, funds in U.S. dollars in an amount
sufficient to pay the entire indebtedness on the senior debt securities with
respect to principal (and premium, if any) and interest to the date of the
deposit (if the senior debt securities have become due and payable) or to the
maturity thereof, as the case may be.
The indenture provides that, unless the provisions of Section 402 thereof are
made inapplicable to the senior debt securities of or within any series
pursuant to Section 301 thereof, Liberty may elect either
. to defease and be discharged from any and all obligations with respect
to the senior debt securities (except for, among other things, the
obligation to pay additional amounts, if any, upon the occurrence of
certain events of taxation, assessment or governmental charge with
respect to payments on the senior debt securities and other obligations
to register the transfer or exchange of the senior debt securities, to
replace temporary or mutilated, destroyed, lost or stolen senior debt
securities, to maintain an office or agency with respect to the senior
debt securities and to hold moneys for payment in trust) ("defeasance")
or
. to be released from its obligations with respect to the senior debt
securities under the covenants described under "--Certain Covenants"
above or, if provided pursuant to Section 301 of the indenture, its
obligations with respect to any other covenant, and any omission to
comply with the obligations shall not constitute a default or an event
of default with respect to the senior debt securities ("covenant
defeasance").
Defeasance or covenant defeasance, as the case may be, shall be conditioned
upon the irrevocable deposit by Liberty with the trustee, in trust, of an
amount in U.S. dollars at stated maturity, or Government Obligations, which is
defined below, or both, applicable to the senior debt securities which through
the scheduled payment of principal and interest in accordance with their terms
will provide money in an amount sufficient to pay the principal of (and
premium, if any) and interest on the senior debt securities on the scheduled
due dates therefor.
Such a trust may only be established if, among other things,
. the applicable defeasance or covenant defeasance does not result in a
breach or violation of, or constitute a default under, the indenture or
any other material agreement or instrument to which Liberty is a party
or by which it is bound, and
121
<PAGE>
. Liberty has delivered to the trustee an Opinion of Counsel (as specified
in the indenture) to the effect that the holders of the senior debt
securities will not recognize income, gain or loss for U.S. federal
income tax purposes as a result of the defeasance or covenant defeasance
and will be subject to U.S. federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
defeasance or covenant defeasance had not occurred, and the Opinion of
Counsel, in the case of defeasance, must refer to and be based upon a
letter ruling of the Internal Revenue Service received by Liberty, a
Revenue Ruling published by the Internal Revenue Service or a change in
applicable U.S. federal income tax law occurring after the date of the
indenture.
"Government Obligations" means senior debt securities which are
(1) direct obligations of the United States of America or the government or
the governments in the confederation which issued the Currency in which
the senior debt securities of a particular series are payable, for the
payment of which its full faith and credit is pledged or
(2) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or such other
government or governments, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government or governments,
which, in the case of clauses (1) and (2), are not callable or redeemable at
the option of the issuer or issuers thereof, and shall also include a
depositary receipt issued by a bank or trust company as custodian with respect
to the Government Obligation or a specific payment of interest on or principal
of or any other amount with respect to the Government Obligation held by the
custodian for the account of the holder of the depositary receipt, provided
that (except as required by law) the custodian is not authorized to make any
deduction from the amount payable to the holder of the depositary receipt from
any amount received by the custodian with respect to the Government Obligation
or the specific payment of interest on or principal of or any other amount with
respect to the Government Obligation evidenced by the depositary receipt.
In the event Liberty effects covenant defeasance with respect to any senior
debt securities and the senior debt securities are declared due and payable
because of the occurrence of any event of default other than an event of
default with respect to sections 1005 and 1006 of the indenture (which sections
would no longer be applicable to the senior debt securities after the covenant
defeasance) or with respect to any other covenant as to which there has been
covenant defeasance, the amount in the Currency in which the senior debt
securities are payable, and Government Obligations on deposit with the trustee,
will be sufficient to pay amounts due on the senior debt securities at the time
of the stated maturity but may not be sufficient to pay amounts due on the
senior debt securities at the time of the acceleration resulting from the event
of default. However, Liberty would remain liable to make payment of the amounts
due at the time of acceleration.
Governing Law
The indenture and the exchange securities will be governed by, and construed
in accordance with, the laws of the State of New York.
Regarding the Trustee
The trustee is permitted to engage in other transactions with Liberty and its
subsidiaries from time to time, provided that if the trustee acquires any
conflicting interest it must eliminate the conflict upon the occurrence of an
event of default, or else resign.
Registration Rights; Additional Interest
Holders of exchange securities are not entitled to any registration rights
with respect to the exchange securities. Holders of outstanding securities are
entitled to certain registration rights pursuant to the registration rights
agreement.
122
<PAGE>
In the registration rights agreement, we agreed to keep this exchange offer
open for not less than 20 business days (or longer if required by applicable
law) after the date notice of this exchange offer is mailed to the holders of
the outstanding securities. See "The Exchange Offer." We further agreed that:
. if we determine, after consultation with counsel, that any changes in
law, SEC rules or regulations or applicable interpretations thereof by
the SEC staff do not permit us to consummate the exchange offer,
. if for any other reason, the exchange offer is not consummated by
January 26, 2000, which is 210 days after the original issue date of the
outstanding securities,
. if any initial purchaser requests with respect to securities
representing an unsold allotment from the original sale of the
outstanding securities, or
. if any holder of outstanding securities notifies us within 30 days after
the commencement of the exchange offer that (1) due to a change in law
or policy it is not entitled to participate in the exchange offer, (2)
due to a change in law or policy it is not permitted to resell the
exchange securities to the public without delivering a prospectus and
this prospectus is not appropriate or available, or (3) it is a broker-
dealer and owns outstanding securities acquired directly from us or our
affiliate;
we will, in lieu of effecting the registration of the exchange securities
pursuant to the registration statement of which this prospectus is a part:
. as promptly as practicable, file with the SEC a shelf registration
statement covering resales of the outstanding securities,
. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act not later
than January 26, 2000, which is 210 days after the original issue date
of the outstanding securities,
. use our reasonable best efforts to keep effective the shelf registration
statement until July 7, 2001, which is two years after the original
issue date of the outstanding securities, or until all of the
outstanding securities covered by the shelf registration statement have
been sold or otherwise cease to be "Registrable Securities" within the
meaning of the registration rights agreement, and
. use our reasonable best efforts to ensure that
. the shelf registration statement and any amendment thereto and any
prospectus included therein complies in all material respects with
the Securities Act, and
. the shelf registration statement and any amendment thereto and any
prospectus included therein does not, when it becomes effective,
contain an untrue statement of a material fact.
We will, in the event of the filing of a shelf registration statement,
provide to each holder of outstanding securities that are covered by the shelf
registration statement copies of the prospectus which is a part of the shelf
registration statement and notify each such holder when the shelf registration
statement has become effective. A holder of outstanding securities that sells
the outstanding securities pursuant to the shelf registration statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with the sales and will be bound by the provisions of the
registration rights agreement which are applicable to the holder (including
certain indemnification obligations).
Each outstanding security contains a legend to the effect that the holder of
that security, by its acceptance thereof, has agreed to be bound by the
provisions of the registration rights agreement. In that regard, if a holder
receives notice from Liberty that any event which
. makes any statement in the prospectus which is part of the shelf
registration statement (or, in the case of participating broker-dealers,
this prospectus) untrue in any material respect, or
123
<PAGE>
. requires the making of any changes in the prospectus to make the
statements therein not misleading, or
. is specified in the registration rights agreement
occurs, the holder (or participating broker-dealer, as the case may be) will
suspend the sale of securities pursuant to that prospectus until Liberty has
. either
. amended or supplemented the prospectus to correct the misstatement
or omission and
. furnished copies of the amended or supplemented prospectus to the
holder (or participating broker-dealer, as the case may be) or,
. given notice that the sale of the securities may be resumed, as the case
may be.
If a registration default occurs, which means that the exchange offer is not
consummated or a shelf registration statement with respect to the securities is
not declared effective on or prior to January 26, 2000, which is 210 days after
the original issue date of the outstanding securities, then the interest rate
borne by the securities that are affected by the registration default with
respect to the first 90-day period, or portion thereof, will be increased by an
additional interest of 0.25% per annum upon the occurrence of each registration
default. The amount of additional interest will increase by an additional 0.25%
each 90-day period, or portion thereof, while a registration default is
continuing until all registration defaults have been cured, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Upon
. the consummation of the exchange offer;
. the effectiveness of the shelf registration statement after January 26,
2000; or
. the date on which all exchange securities are saleable pursuant to Rule
144(k) under the Securities Act or any successor provision,
the interest rate on the securities will be reduced, in the case of the notes
to 7 7/8%, and in the case of the debentures to 8 1/2%, if Liberty is otherwise
in compliance with this paragraph. If after any such reduction in interest
rate, a different event specified above occurs, the interest rate will again be
increased pursuant to the foregoing provisions.
If the shelf registration statement is unusable by the holders for any reason
for more than 30 days, then the interest rate borne by the securities will be
increased by 0.25% per annum of the principal amount of the securities for the
first 90-day period (or portion thereof) beginning on the 31st day that the
shelf registration statement ceased to be usable. This interest rate will be
increased by an additional 0.25% per annum of the principal amount of the
securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Any amounts payable under this paragraph shall also be
deemed "additional interest" for purposes of the registration rights agreement.
Upon the shelf registration statement once again becoming usable, the interest
rate borne by the securities will be reduced to the original interest rate if
Liberty is otherwise in compliance with the registration rights agreement at
such time. Additional interest shall be computed based on the actual number of
days elapsed in each 90-day period in which the shelf registration statement is
unusable.
Liberty shall notify the trustee within three business days of an event date,
which is each and every date on which an event occurs in respect of which
additional interest is required to be paid. Additional interest shall be paid
by depositing with the trustee, in trust, for the benefit of the holders of
Registrable Securities, on or before the applicable semiannual interest payment
date, immediately available funds in sums sufficient to pay the additional
interest then due. The additional interest due shall be payable on each
interest payment date to the record holder of securities entitled to receive
the interest payment to be paid on such date as set forth in the indenture.
Each obligation to pay additional interest shall be deemed to accrue from and
including the day following the applicable event date.
124
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material United States federal
income tax consequences to holders of outstanding securities who exchange their
outstanding securities for exchange securities in the exchange offer. This
discussion is based on currently existing provisions of the Internal Revenue
Code, the applicable Treasury Regulations promulgated and proposed thereunder,
judicial authority and current administrative rulings and practice, all of
which are subject to change, possibly with retroactive effect, or different
interpretation. There can be no assurance that the Internal Revenue Service
will not challenge one or more of the conclusions described herein, and Liberty
has not obtained, nor does it intend to obtain, a ruling from the Internal
Revenue Service or an opinion of counsel with respect to the United States
federal income tax consequences of the exchange of outstanding securities for
exchange securities. This discussion is limited to holders of outstanding
securities who hold the outstanding securities as capital assets, within the
meaning of section 1221 of the Internal Revenue Code. Moreover, this discussion
is for general information only and does not address all of the tax
consequences that may be relevant to holders of outstanding securities and
exchange securities in light of their personal circumstances or to some types
of holders of outstanding securities and exchange securities including
financial institutions, insurance companies, tax exempt entities, dealers in
securities or persons who have hedged the risk of owning a security. In
addition, this discussion does not address any tax consequences arising under
the laws of any state, locality or foreign jurisdiction, or any estate or gift
tax considerations.
The exchange of outstanding securities for exchange securities pursuant to
the exchange offer should not be treated as a taxable exchange for United
States federal income tax purposes. Accordingly, a holder should have the same
adjusted tax basis and holding period in the exchange securities as it had in
the outstanding securities immediately before the exchange.
125
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange securities for its own account
under the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange securities. 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 exchange securities received in exchange
for outstanding securities where the outstanding securities were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 90 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
We will not receive any proceeds from any sale of exchange securities by
broker-dealers or any other holder of exchange securities. Exchange securities
received by broker-dealers for their own account under the exchange offer may
be sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the
exchange securities or a combination of these methods of resale, at market
prices prevailing at the time of resale, at prices related to the prevailing
market prices or at negotiated prices. The 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 of these broker-dealers and/or
the purchasers of any such exchange securities. Any broker-dealer that resells
exchange securities that were received by it for its own account in the
exchange offer or participates in a distribution of the exchange securities may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on their resale of exchange securities and any commissions or
concessions received by them may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver a prospectus 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, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the reasonable expenses of one counsel for the holders of the
outstanding securities, other than commissions or concessions of any brokers or
dealers. In addition, we will indemnify the holders of the outstanding
securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
126
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the exchange securities
offered hereby will be passed upon for us by Baker & Botts, L.L.P., New York,
New York.
EXPERTS
The consolidated financial statements of Liberty Media Corporation and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Sprint Spectrum Holding Company,
L.P. and subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, included in this prospectus
and the related financial statement schedule included elsewhere in this
registration statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
----------------
WHERE TO FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to the exchange securities offered by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all the information included in the registration statement.
You should refer to the registration statement, including its exhibits and
schedules, for further information about us or the exchange securities offered
by this prospectus. Statements contained in this prospectus as to the contents
of any contract or other document are not necessarily complete, and, where any
contract or other document is an exhibit to the registration statement, each
statement is qualified by the relevant provisions in the applicable exhibit to
which we make reference and we refer you to that exhibit for a more complete
description of the matter involved.
We are not currently subject to the informational requirements of the
Securities Exchange Act of 1934. However, as a result of this offering of
exchange securities, we will become subject to the informational requirements
of the Securities Exchange Act. Accordingly, following this offering, we will
file reports and other information with the SEC. In addition, AT&T files
annual, quarterly and special reports, proxy statements and other information
with the SEC, and such reports, proxy statements and other information may
contain important information about us. AT&T has agreed, pursuant to the Inter-
Group Agreement, that for so long as Liberty Media Group tracking stock is
outstanding, AT&T will prepare and include in its SEC filings consolidated
financial statements of AT&T and combined financial statements of the Liberty
Media Group (of which we are the primary operating unit).
You may read and copy the registration statement and the reports and other
information we file and any reports and other information AT&T files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings and AT&T's SEC
filings are also available to the public from commercial document retrieval
services and at the Internet world wide web site maintained by the SEC at
www.sec.gov.
Additionally, we have agreed that, even if we are not required to file
periodic reports and information with the SEC, for so long as any exchange
securities remain outstanding we will furnish to you the information that would
be required to be furnished by us under Section 13 of the Securities Exchange
Act.
----------------
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Liberty Media Corporation
Audited Consolidated Financial Statements
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-3
Consolidated Statements of Operations and Comprehensive Earnings for
the years ended December 31, 1998, 1997 and 1996..................... F-5
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1998, 1997 and 1996..................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................. F-7
Notes to Consolidated Financial Statements............................ F-8
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31,
1998................................................................. F-37
Consolidated Statements of Operations and Comprehensive Earnings for
the four months ended June 30, 1999, the two months ended February
28, 1999 and the six months ended June 30, 1998...................... F-39
Consolidated Statements of Stockholder's Equity for the four months
ended June 30, 1999 and the two months ended February 28, 1999....... F-40
Consolidated Statements of Cash Flows for the four months ended June
30, 1999, the two months ended February 28, 1999 and the six months
ended June 30, 1998.................................................. F-41
Notes to Consolidated Financial Statements............................ F-42
Sprint Spectrum Holding Company, L.P.
Audited Consolidated Financial Statements
Report of Independent Auditors........................................ F-55
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.................................................. F-56
Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-57
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.................................................. F-58
Notes to Consolidated Financial Statements............................ F-59
Schedule II--Consolidated Valuation and Qualifying Accounts........... F-70
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Liberty Media Corporation:
We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive earnings, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Denver, Colorado
March 9, 1999
F-2
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- -----
amounts in
millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ 228 100
Marketable securities......................................... 159 248
Trade and other receivables, net.............................. 142 109
Prepaid expenses and committed program rights................. 263 221
Other current assets.......................................... 21 6
------- -----
Total current assets........................................ 813 684
------- -----
Investments in affiliates, accounted for under the equity
method, and related receivables (note 5)....................... 3,079 2,359
Investment in Time Warner, Inc. ("Time Warner") (note 6)........ 7,083 3,538
Investment in Sprint Corporation ("Sprint") (notes 2 and 5)..... 2,446 --
Other investments and related receivables (note 7).............. 1,010 433
Property and equipment, at cost................................. 279 269
Less accumulated depreciation................................. 124 93
------- -----
155 176
------- -----
Intangible assets:
Excess cost over acquired net assets.......................... 940 429
Franchise costs............................................... 99 78
------- -----
1,039 507
Less accumulated amortization............................... 140 61
------- -----
899 446
------- -----
Other assets, at cost, net of accumulated amortization.......... 82 99
------- -----
Total assets................................................ $15,567 7,735
======= =====
</TABLE>
F-3
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- -----
amounts in
millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable............................................... $ 49 28
Accrued liabilities............................................ 199 157
Accrued stock compensation..................................... 126 70
Program rights payable......................................... 156 156
Customer prepayments........................................... 124 103
Deferred option premium (note 6)............................... -- 306
Current portion of debt........................................ 184 31
------- -----
Total current liabilities.................................... 838 851
------- -----
Long-term debt (note 9).......................................... 1,912 754
Deferred income taxes (note 10).................................. 3,366 1,015
Other liabilities................................................ 89 20
------- -----
Total liabilities............................................ 6,205 2,640
------- -----
Minority interests in equity of subsidiaries (notes 5, 8 and
11)............................................................. 132 374
Stockholder's equity (note 11):
Preferred stock, $.0001 par value. Authorized 100,000 shares;
no shares issued and outstanding.............................. -- --
Class A common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Class B common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Class C common stock, $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares .................. -- --
Additional paid-in capital..................................... 4,682 3,610
Accumulated other comprehensive earnings, net of taxes (note
13)........................................................... 3,186 767
Retained earnings.............................................. 952 330
------- -----
8,820 4,707
Due to related parties......................................... 410 14
------- -----
Total stockholder's equity................................... 9,230 4,721
------- -----
Commitments and contingencies (note 14)
Total liabilities and stockholder's equity................... $15,567 7,735
======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------- ----- ------
amounts in millions
<S> <C> <C> <C>
Revenue:
Unaffiliated parties................................. $ 1,197 1,070 998
Related parties (note 11)............................ 162 155 30
Net sales from electronic retailing services......... -- -- 1,180
------- ----- ------
1,359 1,225 2,208
------- ----- ------
Cost of sales, operating costs and expenses:
Cost of sales........................................ -- -- 816
Operating............................................ 729 627 698
Selling, general and administrative.................. 387 342 455
Charges from related parties (note 11)............... 27 97 139
Stock compensation (note 11)......................... 518 296 (6)
Depreciation and amortization........................ 129 123 172
------- ----- ------
1,790 1,485 2,274
------- ----- ------
Operating loss..................................... (431) (260) (66)
Other income (expense):
Interest expense..................................... (104) (40) (53)
Interest expense (income) to related parties, net
(note 11)........................................... (9) (15) 11
Dividend and interest income......................... 65 59 35
Share of losses of affiliates, net (note 5).......... (1,002) (785) (332)
Minority interests in losses (earnings) of
subsidiaries........................................ 13 (10) 18
Gains on dispositions, net (notes 5, 6 and 7)........ 2,449 406 1,558
Gains on issuance of equity by affiliates and
subsidiaries (notes 5
and 8).............................................. 105 -- --
Other, net........................................... (3) -- 3
------- ----- ------
1,514 (385) 1,240
------- ----- ------
Earnings (loss) before income taxes................ 1,083 (645) 1,174
Income tax (expense) benefit (note 10)................. (461) 175 (433)
------- ----- ------
Net earnings (loss)................................ $ 622 (470) 741
------- ----- ------
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments............. 2 (23) 35
Unrealized holding gains arising during the period,
net of reclassification adjustments................. 2,417 747 (319)
------- ----- ------
Other comprehensive earnings (loss).................. 2,419 724 (284)
------- ----- ------
Comprehensive earnings (note 13)....................... $ 3,041 254 457
======= ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
other
Common stock Additional comprehensive Due to Total
Preferred ----------------------- paid-in earnings, Retained related stockholder's
stock Class A Class B Class C captial net of taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- -------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $-- -- -- -- 3,030 327 59 314 3,730
Net earnings........... -- -- -- -- -- -- 741 -- 741
Foreign currency
translation
adjustments........... -- -- -- -- -- 35 -- -- 35
Recognition of
previously unrealized
gains on available-
for-sale securities... -- -- -- -- -- (356) -- -- (356)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 37 -- -- 37
Other transfers from
(to) related
parties, net.......... -- -- -- -- 465 -- -- (137) 328
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1996................... -- -- -- -- 3,495 43 800 177 4,515
Net loss............... -- -- -- -- -- -- (470) -- (470)
Foreign currency
translation
adjustments........... -- -- -- -- -- (23) -- -- (23)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 747 -- -- 747
Excess of consideration
paid over carryover
basis of net assets
acquired from related
party................. -- -- -- -- (86) -- -- -- (86)
Gain in connection with
issuance of stock of
affiliate (note 5).... -- -- -- -- 66 -- -- -- 66
Issuance of stock by
subsidiary............ -- -- -- -- 19 -- -- -- 19
Excess of cash received
over carryover basis
of SUMMITrak Assets... -- -- -- -- 30 -- -- -- 30
Contribution to equity
from
Tele-Communications,
Inc. ("TCI") for
acquisitions.......... -- -- -- -- 30 -- -- -- 30
Other transfers from
(to) related
parties, net.......... -- -- -- -- 56 -- -- (163) (107)
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1997................... -- -- -- -- 3,610 767 330 14 4,721
Net earnings........... -- -- -- -- -- -- 622 -- 622
Foreign currency
translation
adjustments........... -- -- -- -- -- 2 -- -- 2
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 2,417 -- -- 2,417
Payments for call
agreements............ -- -- -- -- (140) -- -- -- (140)
Gains in connection
with issuances of
stock of affiliates
(note 5).............. -- -- -- -- 68 -- -- -- 68
Gain in connection with
the issuance of stock
by subsidiary (note
8).................... -- -- -- -- 2 -- -- -- 2
Transfers from related
party due to
acquisitions of
minority interests
(note 8).............. -- -- -- -- 772 -- -- -- 772
Assignment of option
from related party.... -- -- -- -- 16 -- -- (16) --
Transfer from related
party for acquisition
of cost investment
(note 14)............. -- -- -- -- 354 -- -- -- 354
Other transfers from
related parties, net.. -- -- -- -- -- -- -- 412 412
---- --- --- --- ----- ----- ----- ----- -----
Balance at December 31,
1998................... $-- -- -- -- 4,682 3,186 952 410 9,230
==== === === === ===== ===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------- ---- -------
amounts in millions
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................................... $ 622 (470) 741
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization.......................... 129 123 172
Stock compensation..................................... 518 296 (6)
Payments of stock compensation......................... (58) (75) (1)
Share of losses of affiliates, net..................... 1,002 785 332
Deferred income tax expense............................ 546 11 484
Intercompany tax allocation............................ (89) (189) (54)
Minority interests in (losses) earnings of
subsidiaries.......................................... (13) 10 (18)
Gains on issuance of equity by affiliates and
subsidiaries.......................................... (105) -- --
Gains on disposition of assets, net.................... (2,449) (406) (1,558)
Other noncash charges.................................. -- 32 18
Changes in operating assets and liabilities, net of
the effect of acquisitions and dispositions:
Change in receivables................................. (56) 6 (41)
Change in prepaid expenses and committed program
rights............................................... (65) (1) (11)
Change in payables, accruals and customer
prepayments.......................................... 44 27 27
------- ---- -------
Net cash provided by operating activities............ 26 149 85
------- ---- -------
Cash flows from investing activities:
Cash paid for acquisitions............................. (92) (41) (168)
Capital expended for property and equipment............ (60) (110) (149)
Cash balances of deconsolidated subsidiaries........... -- (39) --
Investments in and loans to affiliates and others...... (1,404) (580) (536)
Return of capital from affiliates...................... 12 5 6
Collections on loans to affiliates and others.......... -- 133 24
Cash proceeds from dispositions........................ 423 268 170
Other, net............................................. -- (6) (45)
------- ---- -------
Net cash used by investing activities................ (1,121) (370) (698)
------- ---- -------
Cash flows from financing activities:
Borrowings of debt..................................... 2,199 661 465
Repayments of debt..................................... (609) (341) (628)
Issuance of debentures................................. -- -- 345
Payments for call agreements........................... (140) -- --
Cash transfers (to) from related parties............... (215) (428) 372
Contributions by minority shareholders of
subsidiaries.......................................... -- 4 319
Other, net............................................. (12) (9) (9)
------- ---- -------
Net cash provided (used) by financing activities..... 1,223 (113) 864
------- ---- -------
Effect of exchange rate changes on cash.............. -- -- 4
------- ---- -------
Net increase (decrease) in cash and cash
equivalents........................................ 128 (334) 255
Cash and cash equivalents at beginning of year...... 100 434 179
------- ---- -------
Cash and cash equivalents at end of year............ $ 228 100 434
======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation ("Liberty" or the "Company") and those of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The Company is a wholly
owned subsidiary of TCI. Effective March 9, 1999, AT&T Corp. ("AT&T")
indirectly owns 100% of the outstanding common stock of the Company.
Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates which operate in cable television, programming and satellite
distribution.
(2) Merger with AT&T
On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T
Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI,
and TCI thereby became a wholly owned subsidiary of AT&T. As a result of the
AT&T Merger, each series of TCI common stock was converted into a class of AT&T
common stock subject to applicable exchange ratios.
Pursuant to a proposed final judgment (the "Final Judgment") agreed to by
Liberty, AT&T and the United States Department of Justice (the "DOJ") on
December 31, 1998, Liberty transferred all of its beneficially owned securities
(the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the
AT&T Merger. The Final Judgment, if entered by the United States District Court
for the District of Columbia, would require the Trustee, on or before May 23,
2002, to dispose of a portion of the Sprint Securities sufficient to cause
Liberty to beneficially own no more than 10% of the outstanding Series 1 PCS
Stock of Sprint on a fully diluted basis on such date. On or before May 23,
2004, the Trustee must divest the remainder of the Sprint Securities
beneficially owned by Liberty.
The Final Judgment would provide that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The Final
Judgment would also prohibit the acquisition of Liberty of additional Sprint
Securities, with certain exceptions, without the prior written consent of the
DOJ.
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1998 and 1997 was not material.
Program Rights
Prepaid program rights are amortized on a film-by-film basis over the
anticipated number of exhibitions. Committed program rights and program rights
payable are recorded at the estimated cost of the programs when
F-8
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the film is available for airing less prepayments. These amounts are amortized
on a film-by-film basis over the anticipated number of exhibitions.
Investments
All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried net of taxes
as a component of accumulated other comprehensive earnings in stockholder's
equity. Realized gains and losses are determined on a specific-identification
basis.
Other investments in which the ownership interest is less than 20% and are
not considered marketable securities are carried at the lower of cost or net
realizable value. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is generally
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of net earnings or losses of the
affiliates as they occur rather then as dividends or other distributions are
received, limited to the extent of the Company's investment in, advances to and
commitments for the investee. The Company's share of net earnings or losses of
affiliates includes the amortization of the difference between the Company's
investment and its share of the net assets of the investee. However,
recognition of gains on sales of properties to affiliates accounted for under
the equity method is deferred in proportion to the Company's ownership interest
in such affiliates.
Changes in the Company's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional equity securities by such subsidiary or equity investee, generally
are recognized as gains or losses in the Company's consolidated statements of
operations and comprehensive earnings.
Property and Equipment
Property and equipment, including significant improvements, is stated at cost
which includes acquisition costs allocated to tangible assets acquired.
Equipment acquired under capital leases are stated at the present value of
minimum lease payments, not to exceed the fair value of the leased asset.
Construction and initial customer installation costs, including interest during
construction, material, labor and applicable overhead, are capitalized.
Interest capitalized during 1998, 1997 and 1996 was not material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 20 years for distribution systems (3 to 5 years for converters
and in-home wiring and 10 to 20 years for the remaining components of the
distribution system) and 3 to 40 years for support equipment and buildings (3
to 5 years for support equipment and 10 to 40 years for buildings and
improvements). Equipment held under capital leases are depreciated on a
straight-line basis over the shorter of the lease term or estimated useful life
of the asset.
Repairs and maintenance are charged to operations, and additions are
capitalized. At the time of ordinary retirements, sales or other dispositions
of cable property, the original cost and cost of removal of such property are
charged to accumulated depreciation, and salvage, if any, is credited thereto.
Gains and losses relating to cable property are only recognized in connection
with sales of properties in their entirety. Gains and losses relating to all
other assets are recognized at the time of disposal.
Excess Cost Over Acquired Net Assets
Excess cost over acquired net assets consists of the difference between the
cost of acquiring non-cable entities and amounts assigned to their tangible
assets. Such amounts are amortized on a straight-line basis over 5 to 30 years.
F-9
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Franchise Costs
Franchise costs generally include the difference between the cost of
acquiring cable companies and amounts allocated to their tangible assets. Such
amounts are amortized on a straight-line basis over 40 years.
Impairment of Long-lived Assets
The Company periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Minority Interests
Recognition of minority interests' share of losses of subsidiaries is
generally limited to the amount of such minority interests' allocable portion
of the common equity of those subsidiaries. Further, the minority interests'
share of losses is not recognized if the minority holders of common equity of
subsidiaries have the right to cause the Company to repurchase such holders'
common equity.
Preferred stock (and accumulated dividends thereon) of subsidiaries are
included in minority interests in equity of subsidiaries. Dividend requirements
on such preferred stocks are reflected as minority interests in earnings of
subsidiaries in the accompanying consolidated statements of operations and
comprehensive earnings.
Foreign Currency Translation
The functional currency of the Company is the United States ("U.S.") dollar.
The functional currency of the Company's foreign operations generally is the
applicable local currency for each foreign subsidiary and foreign equity method
investee. In this regard, the functional currency of certain of the Company's
foreign subsidiaries and foreign equity investees is the Argentine peso, the
United Kingdom ("UK") pound sterling ("(Pounds)" or "pounds"), the French franc
("FF") and the Japanese yen ("(Yen)"). All amounts presented herein with
respect to operations in Argentina are stated in U.S. dollars because the
Argentine government has maintained an exchange rate of one U.S. dollar to one
Argentine peso since April of 1991. However, no assurance can be given that the
Argentine government will maintain such an exchange rate in future periods.
Assets and liabilities of foreign subsidiaries and foreign equity investees are
translated at the spot rate in effect at the applicable reporting date, and the
consolidated statements of operations and the Company's share of the results of
operations of its foreign equity affiliates are translated at the average
exchange rates in effect during the applicable period. The resulting unrealized
cumulative translation adjustment, net of applicable income taxes, is recorded
as a component of accumulated other comprehensive earnings in stockholder's
equity.
Transactions denominated in currencies other than the functional currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the accompanying consolidated statements of operations
and comprehensive earnings as unrealized (based on the applicable period end
exchange rate) or realized upon settlement of the transactions.
Cash flows from consolidated foreign subsidiaries are calculated in their
functional currencies. The effect of exchange rate changes on cash balances
held in foreign currencies is reported as a separate line item in the
accompanying consolidated statements of cash flows.
F-10
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unless otherwise indicated, convenience translations of foreign currencies
into U.S. dollars are calculated using the applicable spot rate at December 31,
1998, as published in The Wall Street Journal.
Foreign Currency Derivatives
From time to time, the Company uses certain derivative financial instruments
to manage its foreign currency risks. Amounts receivable or payable pursuant to
derivative financial instruments that qualify as hedges of existing assets,
liabilities and firm commitments are reflected as an adjustment of the hedged
item. Market value changes in all other derivative financial instruments are
recognized currently in the consolidated statements of operations and
comprehensive earnings. At December 31, 1998 and 1997, the Company had no
significant deferred hedging gains or losses.
Derivative Instruments and Hedging Activities
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the (1) fair values of existing assets,
liabilities, or firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposure of net investments in foreign
operations. Although the Company's management has not completed its assessment
of the impact of Statement 133 on its consolidated results of operations and
financial position, management estimates that the impact of Statement 133 will
not be significant.
Revenue Recognition
Programming revenue is recognized in the period during which programming is
provided, pursuant to affiliation agreements. Advertising revenue is
recognized, net of agency commissions, in the period during which underlying
advertisements are broadcast. Cable revenue is recognized in the period that
services are rendered. Cable installation revenue is recognized in the period
the related services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable distribution
system.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("Statement 123"), establishes financial accounting and
reporting standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. As allowed by Statement 123, Liberty continues
to account for stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25 ("APB Opinion No. 25").
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 at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $103 million, $41 million and $46 million for the
years ended December 31, 1998, 1997 and 1996, respectively. Cash paid for
income taxes during the years ended December 31, 1998, 1997 and 1996 was $29
million, $35 million and $14 million, respectively. In addition, the Company
received income tax refunds amounting to $15 million during the year ended
December 31, 1996.
<TABLE>
<CAPTION>
Years ended
December 31,
-------------------
1998 1997 1996
----- ----- -----
amounts in
millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired....................... $ 162 260 688
Net liabilities assumed............................. (107) (72) (115)
Debt issued to related parties and others........... -- (128) (52)
Contribution to equity from TCI for acquisitions.... -- -- (196)
Deferred tax asset (liability) recorded in
acquisition........................................ -- 14 (37)
Increase in minority interests in equity of
subsidiaries due to issuance of shares by
subsidiary......................................... -- -- (43)
Minority interest in equity of acquired
subsidiaries....................................... 39 (119) (77)
Excess consideration paid over carryover basis of
net assets acquired from related party............. -- 86 --
Gain in connection with the issuance of stock by
subsidiary......................................... (2) -- --
----- ----- -----
Cash paid for acquisitions........................ $ 92 41 168
===== ===== =====
Significant noncash investing and financing activities are as follows:
<CAPTION>
Years ended
December 31,
-------------------
1998 1997 1996
----- ----- -----
amounts in
millions
<S> <C> <C> <C>
Noncash acquisitions of minority interests in equity
of subsidiaries (note 8):
Fair value of assets................................ $(741) (29) --
Deferred tax liability recorded..................... 154 -- --
Minority interests in equity of subsidiaries........ (185) (1) --
Contribution to equity from TCI for acquisitions.... 772 30 --
----- ----- -----
$ -- -- --
===== ===== =====
Common stock received in exchange for option (note
6)................................................... $ -- 306 --
===== ===== =====
Preferred stock received in exchange for common stock
and note receivable (note 7)......................... $ -- 371 --
===== ===== =====
Exchange of subsidiaries for note receivable and
equity investments................................... $ -- -- 574
===== ===== =====
Property and equipment purchased under capital
leases............................................... $ -- -- 56
===== ===== =====
</TABLE>
F-12
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liberty ceased to include Flextech p.l.c. ("Flextech") and Cablevision S.A.
("Cablevision") in its consolidated financial results and began to account for
Flextech and Cablevision using the equity method of accounting, effective
January 1, 1997 and October 1, 1997, respectively. The effects of changing the
method of accounting for Liberty's ownership interests in Flextech and
Cablevision as of December 31, 1997 from the consolidation method to the equity
method are summarized below (amounts in millions):
<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to
investments in affiliates....................................... $(596)
Liabilities reclassified to investments in affiliates............ 484
Minority interests in equity of subsidiaries reclassified to
investments in affiliates....................................... 151
-----
Decrease in cash and cash equivalents............................ $ 39
=====
</TABLE>
(5) Investments in Affiliates Accounted for under the Equity Method
Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount and percentage ownership of
the more significant investments at December 31, 1998 and the carrying amount
at December 31, 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -----------------
Percentage Carrying Carrying
Ownership Amount Amount
---------- -------- -----------------
amounts in millions
<S> <C> <C> <C>
USA Networks, Inc. ("USAI") and
related investments.................. 21% $1,042 348
Telewest Communications plc
("Telewest")......................... 22% 515 324
Flextech.............................. 37% 320 261
Cablevision........................... 28% 315 239
QVC Inc. ("QVC")...................... 43% 197 134
Sprint Spectrum Holding Company L.P.,
MinorCo, L.P. and PhillieCo
Partnership I, L.P. (the "PCS
Ventures")........................... -- -- 607
Various foreign equity investments
(other than Telewest, Flextech and
Cablevision)......................... various 346 209
Other................................. various 344 237
------ -----
$3,079 2,359
====== =====
</TABLE>
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
amounts in
millions
<S> <C> <C>
Combined Financial Position
Investments.............................................. $ 2,003 4,085
Property and equipment, net.............................. 8,147 5,757
Franchise costs and other intangibles, net............... 14,395 7,870
Other assets, net........................................ 7,553 9,800
------- ------
Total assets........................................... $32,098 27,512
======= ======
Debt..................................................... $15,264 14,934
Other liabilities........................................ 11,620 7,417
Owners' equity........................................... 5,214 5,161
------- ------
Total liabilities and equity........................... $32,098 27,512
======= ======
</TABLE>
F-13
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Years ended December
31,
------------------------
1998 1997 1996
-------- ------ ------
amounts in millions
<S> <C> <C> <C>
Combined Operations
Revenue......................................... $ 14,062 6,613 4,308
Operating expenses.............................. (13,092) (7,163) (4,484)
Depreciation and amortization................... (2,629) (997) (469)
-------- ------ ------
Operating loss................................ (1,659) (1,547) (645)
Interest expense................................ (1,728) (540) (301)
Other, net...................................... (166) (469) (279)
-------- ------ ------
Net loss...................................... $ (3,553) (2,556) (1,225)
======== ====== ======
</TABLE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At December 31, 1998, Liberty directly and indirectly held
29.6 million shares of USAI's common stock. Liberty also held shares directly
in certain subsidiaries of USAI which are exchangeable into 39.5 million shares
of USAI common stock. Liberty's direct ownership of USAI is currently
restricted by Federal Communications Commission ("FCC") regulations. The
exchange of these shares can be accomplished only if there is a change to
existing regulations or if Liberty obtains permission from the FCC. If the
exchange of subsidiary stock into USAI common stock were completed at December
31, 1998, Liberty would own 69.1 million shares or approximately 21% (on a
fully-diluted basis) of USAI common stock. USAI's common stock had a closing
market value of $33 1/8 per share on December 31, 1998.
Liberty accounts for its investments in USAI and related subsidiaries on a
combined basis under the equity method. During the years ended December 31,
1998, 1997 and 1996, Liberty's share of affiliates' earnings (losses) from its
investments in USAI was $30 million, $5 million and ($1 million), respectively.
In February 1998, USAI paid cash and issued shares and one of its
subsidiaries issued shares in connection with the acquisition of certain assets
from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an
increase to its investment in USAI of $54 million and an increase to additional
paid-in-capital of $33 million (after deducting deferred income taxes of $21
million) as a result of this share issuance.
USAI issued shares in June 1998 to acquire the remaining stock of
Ticketmaster Group, Inc. which it did not previously own (the "Ticketmaster
Transaction"). Liberty recorded an increase to its investment in USAI of $52
million and an increase to additional paid-in-capital of $31 million (after
deducting deferred income taxes of $21 million) as a result of this share
issuance.
No gain was recognized in the consolidated statement of operations and
comprehensive earnings for either the Universal Transaction or the Ticketmaster
Transaction due primarily to Liberty's intention to purchase additional equity
interests in USAI.
In connection with the Universal Transaction, Liberty was granted an
antidilutive right with respect to any future issuance of USAI's common stock,
subject to certain limitations, that enables it to maintain its percentage
ownership interests in USAI. During 1998 Liberty purchased 4.7 million shares
of USAI common stock and 22.9 million exchangeable shares of a USAI subsidiary
for an aggregate cost of $560 million pursuant to this right.
In December 1996, Silver King Communications, Inc. ("Silver King") acquired
Home Shopping Network, Inc. ("HSN"), a subsidiary of Liberty, by merger of HSN
with a subsidiary of Silver King (the "HSN Merger") where HSN was the surviving
corporation and a subsidiary of Silver King following the HSN
F-14
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Merger. As a result of the HSN Merger, HSN was no longer included in the
consolidated financial results of Liberty. Silver King was renamed HSN, Inc.,
which was the predecessor of USAI.
The PCS Ventures included Sprint Spectrum Holding Company, L. P. and MinorCo,
L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P.
("PhillieCo"). The partners of each of the Sprint PCS partnerships were
subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox") and Liberty. The partners of PhillieCo were subsidiaries of
Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the
Sprint PCS partnerships and a 35% partnership interest in PhillieCo. During the
years ended December 31, 1998, 1997 and 1996, the PCS Ventures accounted for
$629 million, $493 million and $133 million, respectively, of Liberty's share
of affiliates' losses.
On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint
PCS Group Stock which tracks the performance of Sprint's newly created PCS
Group (consisting initially of the PCS Ventures and certain PCS licenses which
were separately owned by Sprint). The Sprint PCS Group Stock collectively
represents an approximate 17% voting interest in Sprint. As a result of the PCS
Exchange, Liberty holds the Sprint Securities which consists of shares of
Sprint PCS Group Stock, as well as certain additional securities of Sprint
exercisable for or convertible into such securities, representing approximately
24% of the equity value of Sprint attributable to its PCS Group and less than
1% of the voting interest in Sprint. Through November 23, 1998, Liberty
accounted for its interest in the PCS Ventures using the equity method of
accounting, however, as a result of the PCS Exchange and Liberty's less than 1%
voting interest in Sprint, Liberty no longer exercises significant influence
with respect to its investment in the PCS Ventures. Accordingly, Liberty
accounts for its investment in the Sprint PCS Group Stock as an available-for-
sale security.
As a result of the PCS Exchange, Liberty recorded a non-cash gain of $1.9
billion (before deducting deferred income taxes of $647 million) during the
fourth quarter of 1998 based on the difference between the carrying amount of
Liberty's interest in the PCS Ventures and the fair value of the Sprint
Securities received.
Telewest currently operates and constructs cable television and telephone
systems in the UK. Telewest accounted for $134 million, $145 million and $109
million of Liberty's share of its affiliates' losses during the years ended
December 31, 1998, 1997 and 1996, respectively.
At December 31, 1998 Liberty indirectly owned 463 million of the issued and
outstanding Telewest ordinary shares. The reported closing price on the London
Stock Exchange of Telewest ordinary shares was (Pounds)1.74 ($2.88) per share
at December 31, 1998.
Effective September 1, 1998, Telewest and General Cable PLC ("General Cable")
consummated a merger (the "General Cable Merger") in which holders of General
Cable received 1.243 new Telewest shares and (Pounds)0.65 ($1.11) in cash for
each share of General Cable. In addition, holders of American Depository shares
of General Cable ("General Cable ADS") (each representing five General Cable
shares) received 6.215 new Telewest shares and (Pounds)3.25 ($5.53) in cash for
each share of General Cable ADS. Based upon Telewest's closing share price of
(Pounds)0.89 ($1.51) on April 14, 1998, the General Cable Merger was valued at
approximately (Pounds)649 million ($1.1 billion).
The cash portion of the General Cable Merger was financed through an offer to
qualifying Telewest shareholders for the purchase of approximately 261 million
new Telewest shares at a price of (Pounds)0.925 ($1.57) per share (the
"Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary shares at
an aggregate cost of (Pounds)78 million ($133 million) in connection with the
Telewest Offer.
F-15
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the General Cable Merger, Liberty converted its entire
holdings of Telewest convertible preference shares (133 million shares) into
Telewest ordinary shares. As a result of the General Cable Merger, Liberty's
ownership interest in Telewest decreased to 22%. In connection with the
increase in Telewest's equity, net of the dilution of Liberty's interest in
Telewest, that resulted from the General Cable Merger, Liberty recorded a non-
cash gain of $60 million (before deducting deferred income taxes of $21
million) during 1998.
In April 1997, Flextech and BBC Worldwide Limited ("BBC Worldwide") formed
two separate joint ventures (the "BBC Joint Ventures") and entered into certain
related transactions. The consummation of the BBC Joint Ventures and related
transactions resulted in, among other things, a reduction of Liberty's economic
ownership interest in Flextech from 46.2% to 36.8%. Liberty continues to
maintain a voting interest in Flextech of approximately 50%. As a result of
such dilution, Liberty recorded a $152 million increase to the carrying amount
of Liberty's investment in Flextech, a $53 million increase to deferred income
tax liability, a $66 million increase to additional paid-in-capital and a $33
million increase to minority interests in equity of subsidiaries. No gain was
recognized in the consolidated statement of operations and comprehensive
earnings due primarily to certain contingent obligations of Liberty with
respect to one of the BBC Joint Ventures (see note 14). Flextech accounted for
$21 million and $16 million of Liberty's share of its affiliates' losses during
the years ended December 31, 1998 and 1997, respectively.
Based on the (Pounds)6.07 ($10.07) per share closing price of the Flextech
ordinary shares on the London Stock Exchange, the 58 million Flextech ordinary
shares owned by Liberty had an aggregate market value of (Pounds)352 million
($584 million) at December 31, 1998.
On October 9, 1997, Liberty sold a portion of its 51% interest in Cablevision
to unaffiliated third parties. In connection with such sale and certain related
transactions, Liberty recognized a gain of $49 million. Cablevision accounted
for $23 million and $3 million of Liberty's share of its affiliates' losses
during the years ended December 31, 1998 and 1997, respectively.
On October 13, 1998, one of the Cablevision shareholders exercised a put
right representing a 7.2% interest in Cablevision. Consequently, on December
22, 1998, Liberty purchased its pro-rata portion of such shareholder's
ownership interest for $25 million, $8 million of which was paid at closing and
the remaining amount (including accrued interest thereon) will be paid in four
equal semi-annual installments. As a result of the put, Liberty's equity
interest in Cablevision increased from 26% to 28%.
As of April 29, 1996, Liberty and The News Corporation Limited ("News Corp.")
formed two sports programming ventures. In the U.S., Liberty and News Corp.
formed Fox/Liberty Networks LLC ("Fox Sports") into which Liberty contributed
interests in its national and regional sports networks and into which News
Corp. contributed its fx cable network and certain other assets. Liberty
received a 50% interest in Fox Sports and a distribution of $350 million in
cash. No gain or loss was recognized as the cash distribution approximated the
carrying amount of the assets contributed.
Prior to the first quarter of 1998, Liberty had no obligation, nor intention,
to fund Fox Sports. During 1998, Liberty made the determination to provide
funding to Fox Sports based on specific transactions consummated by Fox Sports.
Consequently, Liberty's share of losses of Fox Sports of $83 million for the
year ended December 31, 1998 includes previously unrecognized losses of Fox
Sports of approximately $64 million. Losses for Fox Sports were not recognized
in prior periods due to the fact that Liberty's investment in Fox Sports was
less than zero.
Internationally, News Corp. and Liberty formed a venture ("Fox Sports
International") to operate sports programming services in Latin American and
Australia and a variety of new sports services throughout the world except in
Asia and in the United Kingdom, Japan and New Zealand where prior arrangements
preclude
F-16
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
an immediate collaboration. Liberty owns 50% of Fox Sports International with
News Corp. owning the other 50%. Fox Sports International accounted for $34
million, $30 million and $21 million of Liberty's share of its affiliates'
losses during the years ended December 31, 1998, 1997 and 1996, respectively.
In addition to Telewest, Flextech, Fox Sports International and Cablevision,
Liberty has other less significant investments in affiliates in video
distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other foreign investments in affiliates accounted for $70
million, $70 million and $54 million of Liberty's share of its affiliates'
losses during the years ended December 31, 1998, 1997 and 1996, respectively.
The $797 million aggregate excess of Liberty's aggregate historical cost
basis in its affiliates over Liberty's proportionate share of its affiliates'
net assets is being amortized over estimated useful lives ranging from 10 to 20
years.
Certain of Liberty's affiliates are general partnerships and, as such, are
liable as a matter of partnership law for all debts (other than non-recourse
debts) of that partnership in the event liabilities of that partnership were to
exceed its assets.
(6) Investment in Time Warner
On October 10, 1996, Time Warner and Turner Broadcasting System, Inc. ("TBS")
consummated a merger (the "TBS/Time Warner Merger") whereby TBS shareholders
received 1.5 Time Warner common shares (as adjusted for a two-for-one stock
split) for each TBS Class A and Class B common share held, and each holder of
TBS Class C preferred stock received 1.6 Time Warner common shares (as adjusted
for a two-for-one stock split) for each of the 6 shares of TBS Class B common
stock into which each share of Class C preferred stock could have been
converted.
Liberty entered into an agreement with the Federal Trade Commission ("FTC")
(the "FTC Consent Decree"), pursuant to which, among other things, Liberty
agreed to exchange the shares of Time Warner common stock to be received in the
TBS/Time Warner Merger for shares of a separate series of Time Warner common
stock with limited voting rights (the "TW Exchange Stock"). Holders of the TW
Exchange Stock are entitled to one one-hundredth (l/100th) of a vote for each
share with respect to the election of directors. Holders of the TW Exchange
Stock will not have any other voting rights, except as required by law or with
respect to limited matters, including amendments of the terms of the TW
Exchange Stock adverse to such holders. Subject to the federal communications
laws, each share of the TW Exchange Stock will be convertible at any time at
the option of the holder on a one-for-one basis for a share of Time Warner
common stock. Holders of TW Exchange Stock are entitled to receive dividends
ratably with the Time Warner common stock and to share ratably with the holders
of Time Warner common stock in assets remaining for common stockholders upon
dissolution, liquidation or winding up of Time Warner.
In connection with the TBS/Time Warner Merger, Liberty received approximately
50.6 million shares of the TW Exchange Stock in exchange for its TBS holdings.
As a result of the TBS/Time Warner Merger, Liberty recognized a pre-tax gain of
$1.5 billion in the fourth quarter of 1996. Liberty accounts for its investment
in Time Warner as an available-for-sale security.
On June 24, 1997 Liberty granted Time Warner an option to acquire the
business of Southern Satellite Systems, Inc. ("Southern") and certain of its
subsidiaries (together with Southern, the "Southern Business") through a
purchase of assets (the "Southern Option"). Liberty received 6.4 million shares
of TW Exchange Stock valued at $306 million in consideration for the grant. In
September 1997, Time Warner exercised the Southern Option. Pursuant to the
Southern Option, Time Warner acquired the Southern Business, effective
F-17
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
January 1, 1998, for $213 million in cash. Liberty recognized a $515 million
pre-tax gain in connection with such transactions in the first quarter of 1998.
Following a two-for-one stock split of Time Warner common stock during 1999,
Liberty's shares of the TW Exchange Stock are convertible into 114 million
shares of Time Warner common stock.
As security for borrowings under one of its credit facilities, Liberty has
pledged a portion of its TW Exchange Stock. At December 31, 1998 such pledged
portion had an aggregate fair value of approximately $2.7 billion.
(7) Other Investments
Other investments and related receivables are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------ ----
amounts in
millions
<S> <C> <C>
Investment in preferred stock, at cost, including premium.... $ 371 371
Investment in General Instrument Corporation ("GI") (note
14)......................................................... 396 --
Other investments, at cost, and related receivables.......... 243 62
------ ---
$1,010 433
====== ===
</TABLE>
On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million of IFE 6%
convertible secured notes due 2004, convertible into Class C Stock,
("Convertible Notes"), contributed its Class C Stock and Convertible Notes to
Fox Kids Worldwide, Inc. ("FKW") in exchange for a new series of 30 year non-
convertible 9% preferred stock of FKW with a stated value of $345 million (the
"FKW Preferred Stock"). As a result of the exchange, Liberty recognized a pre-
tax gain of approximately $304 million during the third quarter of 1997.
Management of Liberty estimates the market value, calculated using a variety
of approaches including multiple of cash flow, per subscriber value, a value of
comparable public or private businesses or publicly quoted market prices, of
all of Liberty's other investments aggregated $1,743 million and $766 million
at December 31, 1998 and December 31, 1997, respectively. No independent
appraisals were conducted for those assets.
(8) Acquisitions and Dispositions
On January 25, 1996, the stockholders of United Video Satellite Group, Inc.
("UVSG") adopted the Agreement and Plan of Merger dated as of July 10, 1995, as
amended, among UVSG, TCI and TCI Merger Sub, Inc. ("UVSG Merger Sub"), pursuant
to which UVSG Merger Sub was merged into UVSG, with UVSG as the surviving
corporation (the "UVSG Merger"). TCI acquired 24.8 million shares of UVSG Class
B common stock and 4.2 million shares of UVSG Class A common stock, together
representing approximately 39% of the issued and outstanding common stock of
UVSG and approximately 85% of the total voting power of UVSG common stock
immediately after the UVSG Merger, resulting in UVSG becoming a majority-
controlled subsidiary of TCI. Simultaneously, TCI contributed such UVSG shares
of common stock to Liberty. The UVSG Merger has been accounted for by the
purchase method. Accordingly, the results of operations of UVSG have been
consolidated with those of Liberty since January 25, 1996 and Liberty recorded
UVSG's assets and liabilities at fair value. UVSG is engaged in satellite
delivered video, audio, data and program promotion services to cable television
systems, direct to home satellite users, radio stations and private network
users throughout North America.
F-18
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During July 1997, the 10% minority interest in Encore Media Corporation
("EMC") was purchased by TCI for approximately 2.4 million shares of Liberty
Media Group Series A Stock. Such 10% interest in EMC was simultaneously
contributed to Liberty and was accounted for as an acquisition of a minority
interest and resulted in an increase of $30 million in additional paid-in-
capital.
On January 12, 1998, TCI acquired from a minority shareholder of UVSG 24.8
million shares of UVSG Class A common stock in exchange for shares of TCI
stock. The aggregate value assigned to the shares issued by TCI was based upon
the market value of such shares at the time the transaction was announced. Such
transaction was accounted for as an acquisition of minority interest.
Simultaneously, TCI contributed such UVSG shares of common stock to Liberty. As
a result of such transaction, Liberty increased its ownership in the equity of
UVSG to approximately 73% and the voting power increased to 93%. The issuance
of $346 million in TCI stock was recorded as an increase in additional paid-in-
capital by Liberty.
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed
the assets, obligations and operations of its retail C-band satellite business
to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20%
interest in SNG. As a result of such transaction, Liberty's ownership interest
in SNG decreased to approximately 80%. In connection with the increase in SNG's
equity, net of the dilution of Liberty's ownership interest in SNG, that
resulted from such transaction, Liberty recognized a gain of $38 million
(before deducting deferred income taxes of $15 million). Turner Vision's
contribution to SNG was accounted for as a purchase and the $61 million excess
of the purchase price over the fair value of the net assets acquired was
recorded as excess cost and is being amortized over five years.
During 1998, TCI Music, Inc. ("TCI Music") issued approximately 382,000
shares of its Series A Common Stock in connection with certain acquisitions.
Such acquisitions were accounted for under the purchase method. Accordingly,
the results of operations of the acquired companies have been consolidated with
those of Liberty since their respective dates of acquisition. In connection
with the issuance of such shares, Liberty's ownership interest was diluted to
80.7% and Liberty recorded a $2 million increase to additional paid-in-capital.
No gain was recognized in the consolidated statements of operations and
comprehensive earnings due primarily to Liberty's contingent obligation to
purchase certain shares from shareholders of TCI Music (see note 11).
On August 24, 1998, Liberty purchased 100% of the issued and outstanding
common stock of Pramer S.A. ("Pramer"), an Argentine programming company, for
$32 million in cash and the issuance of notes payable in the amount of $65
million. Such transaction was accounted for under the purchase method.
Accordingly, the results of operations of Pramer have been consolidated with
those of Liberty since August 24, 1998. The $101 million excess cost over
acquired net assets is being amortized over ten years.
On November 19, 1998, TCI exchanged, in a merger transaction, shares of TCI
common stock for shares of Tele-Communications International, Inc. ("TINTA")
common stock not beneficially owned by TCI. Such transaction was accounted for
by Liberty as an acquisition of minority interest in equity of subsidiaries.
The aggregate value assigned to the shares issued by TCI was based upon the
market value of the common stock at the time the merger was announced. In
connection with the contribution to Liberty of the TINTA shares in such merger
transaction, Liberty recorded a $426 million increase to additional paid-in-
capital.
On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG
acquired News Corp.'s TV Guide properties creating a broader platform for
offering television guide services to consumers and advertisers and UVSG was
renamed TV Guide, Inc. ("TV Guide"). News Corp. received $800 million in cash
and 60 million shares of UVSG's stock, including 22.5 million shares of its
Class A common stock and 37.5 million shares of its Class B common stock. In
addition, News Corp. purchased approximately 6.5 million additional shares of
UVSG Class A common stock for $129 million in order to equalize its ownership
with that of Liberty. As a result of these transactions, and another
transaction completed on the same date, News Corp.,
F-19
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liberty and TV Guide's public stockholders own on an economic basis
approximately 44%, 44% and 12%, respectively, of TV Guide. Following such
transactions, News Corp. and Liberty each have approximately 49% of the voting
power of TV Guide's outstanding stock. Upon consummation, Liberty began
accounting for its interest in TV Guide under the equity method of accounting.
(9) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted December
average 31,
interest -----------
rate 1998 1997
-------- ------ ----
amounts in
millions
<S> <C> <C> <C>
Bank credit facilities.................................. 6.1% $1,629 390
4 1/2% Convertible Subordinated Debentures.............. 4.5% 345 345
Other................................................... 7.4% 122 50
------ ---
2,096 785
Less current maturities................................. 184 31
------ ---
Total................................................. $1,912 754
====== ===
</TABLE>
At December 31, 1998, Liberty had approximately $1 billion in unused lines of
credit under its bank credit facilities. The bank credit facilities of Liberty
generally contain restrictive covenants which require, among other things, the
maintenance of certain financial ratios, and include limitations on
indebtedness, liens and encumbrances, acquisitions, dispositions, guarantees
and dividends. Liberty was in compliance with its debt covenants at December
31, 1998. Additionally, Liberty pays fees ranging from .15% to .375% per annum
on the average unborrowed portions of the total amounts available for
borrowings under bank credit facilities.
As collateral for borrowings under one of Liberty's credit facilities, the
banks lend against certain assets designated by Liberty (the "Designated
Assets"). The components of the Designated Assets may be changed from time to
time. The aggregate market value of the Designated Assets, as determined by
certain criteria in the revolving credit agreement, must at all times exceed an
amount equal to three times the total outstanding borrowings under the
facility. The Designated Assets at December 31, 1998 were Liberty's holdings in
Discovery Communications, Inc., QVC and the FKW Preferred Stock. The carrying
amount of the Designated Assets as of December 31, 1998 was $617 million.
Recourse to the banks for payment of Liberty's obligations under this facility
is limited solely to the Designated Assets. Also, as security for borrowings
under one of its credit facilities, Liberty has pledged a portion of its TW
Exchange Stock. See note 6.
Certain of Liberty's bank credit facilities have credit agreements which
provide for a three month interest reserve to be held by an administrative
agent. Such amounts held in the interest reserve amounted to $17 million and $5
million for the years ended December 31, 1998 and 1997, respectively, and are
included in other current assets in the accompanying consolidated balance
sheets.
Liberty's subsidiary in Puerto Rico (a cable television operator) (the
"Puerto Rico Subsidiary") has a reducing revolving bank facility which is
unsecured and provides for maximum borrowing commitments of $100 million (the
"Puerto Rico Bank Facility"). On September 21, 1998, Hurricane Georges struck
Puerto Rico and caused considerable property damage to the area in general,
including the Puerto Rico Subsidiary's cable television systems. On September
27, 1998, the Puerto Rico Subsidiary submitted a property damage claim to its
insurance carrier for approximately $15 million which represents the estimated
replacement costs of its damaged property. In addition to property damage
caused by Hurricane Georges, the Puerto Rico Subsidiary suffered a loss in
revenue from its pre-hurricane customers. The loss of revenue from September
21, 1998 to
F-20
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998 was $7 million. The estimated loss of revenue exceeded its
business interruption insurance by $4 million. Such uncovered losses could
cause the Puerto Rico Subsidiary to be in violation of certain financial
covenants of the Puerto Rico Bank Facility in the fourth quarter of 1998 and
the first quarter of 1999. Violations of certain financial covenants will
prevent the Puerto Rico Subsidiary from borrowing any unused borrowing
commitments and could result in the acceleration of amounts due under the
Puerto Rico Bank Facility. See note 14.
The U.S. dollar equivalent of the annual maturities of Liberty's debt for
each of the next five years are as follows: 1999: $184 million; 2000: $495
million; 2001: $73 million; 2002: $80 million and 2003: $714 million.
A subsidiary of Liberty entered into an Interest Rate Swap effective March
1998, pursuant to which it receives a variable rate based on LIBOR (5.28% at
December 31, 1998) and pays a fixed rate of 5.98% on a notional amount of $100
million through March 2000. As of December 31, 1998, the subsidiary would be
required to pay an estimated $1.2 million to terminate such Interest Rate Swap.
Amounts resulting from this interest rate swap are recorded in interest expense
in the consolidated statement of operations and comprehensive earnings.
With the exception of the 4 1/2% Convertible Subordinated Debentures, which,
based on quoted market prices, had a fair value of $373 million at December 31,
1998, Liberty believes that the carrying value of Liberty's debt approximated
its fair value at December 31, 1998.
(10) Income Taxes
TCI files a consolidated federal income tax return with all of its 80% or
more owned subsidiaries. Consolidated subsidiaries in which TCI owns less than
80% each file a separate tax return. TCI and such subsidiaries calculate their
respective tax liabilities on a separate return basis. Income tax expense for
Liberty is based upon those items in the consolidated tax calculations of TCI
applicable to Liberty. The current tax allocation represents an apportionment
of tax expense or benefit (other than deferred taxes) and alternative minimum
taxes to Liberty in relation to its amount of taxable earnings or losses. Such
amounts are reflected as borrowings from or loans to related parties.
A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI and
certain subsidiaries of TCI was implemented effective July 1, 1995. The Old Tax
Sharing Agreement formalized certain of the elements of a pre-existing tax
sharing arrangement and contains additional provisions regarding the allocation
of certain consolidated income tax attributes and the settlement procedures
with respect to the intercompany allocation of current tax attributes. Under
the Old Tax Sharing Agreement, Liberty was responsible to TCI for their share
of consolidated income tax liabilities (computed as if TCI were not liable for
the alternative minimum tax) determined in accordance with the Old Tax Sharing
Agreement, and TCI was responsible to Liberty to the extent that the income tax
attributes generated by Liberty and its subsidiaries were utilized by TCI to
reduce its consolidated income tax liabilities (computed as if TCI were not
liable for the alternative minimum tax). In the consolidated financial
statements of Liberty, the tax liabilities and benefits of such entities so
determined have been charged or credited to an intercompany account between TCI
and Liberty. Such intercompany account is required to be settled only upon the
date that an entity ceases to be a member of TCI's consolidated group for
federal income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
the burden of any alternative minimum tax and has the right to receive the tax
benefits from an alternative minimum tax credit attributable to any tax period
beginning on or after July 1, 1995 and ending on or before October 1, 1997.
Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement (the "New Tax Sharing
Agreement"), which governs the allocation and sharing of income taxes.
Effective for periods on and after the Effective Date, through the AT&T Merger,
federal income
F-21
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
taxes were computed based upon the type of tax paid by TCI (on a regular tax or
alternative minimum tax basis) on a separate basis for each entity. Based upon
these separate calculations, an allocation of tax liabilities and benefits was
made such that each entity was required to make cash payments to TCI based on
its allocable share of TCI's consolidated federal income tax liabilities (on a
regular tax or alternative minimum tax basis, as applicable) attributable to
such entity and actually used by TCI in reducing its consolidated federal
income tax liability. Tax attributes and tax basis in assets was inventoried
and tracked for ultimate credit to or charge against each entity. Similarly, in
each taxable period that TCI paid alternative minimum tax, the federal income
tax benefits of each entity, computed as if such entity were subject to regular
tax, was inventoried and tracked for payment to or payment by each entity in
years that TCI utilized the alternative minimum tax credit associated with such
taxable period. The entity generating the utilized tax benefits received a cash
payment only if, and when, the unutilized taxable losses of the other entity
were actually utilized. If the unutilized taxable losses expired without ever
being utilized, the entity generating the unutilized tax benefits never
received payment for such benefits. Pursuant to the New Tax Sharing Agreement,
state and local income taxes were calculated on a separate return basis for
each entity (applying provisions of state and local tax law and related
regulations as if the entity was a separate unitary or combined group for tax
purposes), and TCI's combined or unitary tax liability was allocated among the
entities based upon such separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction or
credit resulting from certain specified transactions that were consummated
after the Effective Date pursuant to a letter of intent or agreement that was
entered into prior to the Effective Date were shared and allocated pursuant to
the terms of the Old Tax Sharing Agreement, as amended.
In connection with the AT&T Merger, Liberty became party to a new tax sharing
agreement.
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1998:
State and local income tax expense, including
intercompany tax allocation...................... $ (4) (109) (113)
Federal income tax benefit (expense), including
intercompany tax allocation...................... 89 (437) (348)
---- ---- ----
$ 85 (546) (461)
==== ==== ====
Year ended December 31, 1997:
State and local income tax expense, including
intercompany tax allocation...................... $ (3) (25) (28)
Federal income tax benefit, including intercompany
tax allocation................................... 189 14 203
---- ---- ----
$186 (11) 175
==== ==== ====
Year ended December 31, 1996:
State and local income tax expense, including
intercompany tax allocation...................... $ (3) (97) (100)
Federal income tax benefit (expense), including
intercompany tax allocation...................... 54 (387) (333)
---- ---- ----
$ 51 (484) (433)
==== ==== ====
</TABLE>
F-22
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax benefit (expense) differs from the amounts computed by applying
the U.S. federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------
1998 1997 1996
----- ---- ----
amounts in
millions
<S> <C> <C> <C>
Computed expected tax benefit (expense)................. $(379) 226 (411)
Dividends excluded for income tax purposes.............. 13 8 2
Minority interest in equity of subsidiaries............. (5) 4 (6)
Amortization not deductible for income tax purposes..... (21) (10) (15)
State and local income taxes, net of federal income
taxes.................................................. (74) (18) (65)
Recognition of difference in income tax basis of
investments in subsidiaries............................ -- (25) 66
Increase in valuation allowance......................... (3) -- (13)
Other, net.............................................. 8 (10) 9
----- --- ----
$(461) 175 (433)
===== === ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
------ -----
amounts in
millions
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards................. $ 99 155
Future deductible amount attributable to accrued stock
compensation and deferred compensation...................... 218 36
Other future deductible amounts due principally to non-
deductible accruals......................................... 33 36
------ -----
Deferred tax assets.......................................... 350 227
------ -----
Less valuation allowance................................... 42 62
------ -----
Net deferred tax assets...................................... 308 165
------ -----
Deferred tax liabilities:
Investments in affiliates, due principally to losses of
affiliates recognized for income tax purposes in excess of
losses recognized for financial statement purposes.......... 3,637 1,166
Other, net................................................... 37 14
------ -----
Deferred tax liabilities..................................... 3,674 1,180
------ -----
Net deferred tax liabilities................................... $3,366 1,015
====== =====
</TABLE>
The valuation allowance relates principally to deferred tax assets arising
from net operating loss carryforwards of TCI Music.
At December 31, 1998, Liberty had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $144 million
which, if not utilized to reduce taxable income in future periods, will begin
to expire at various dates beginning in the year 2003.
F-23
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain subsidiaries of Liberty had additional net operating loss
carryforwards for income tax purposes aggregating $106 million and these net
operating losses are subject to certain rules limiting their usage.
(11) Stockholder's Equity
Preferred Stock
The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board.
Common Stock
The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.
As of December 31, 1998, all of the issued and outstanding common stock of
Liberty was held by Tele-Communications, Inc.
Transactions with Officers and Directors
On January 5, 1998, TCI announced that a settlement (the "Magness
Settlement") had been reached in the litigation brought against it and other
parties in connection with the administration of the Estate of Bob Magness (the
"Magness Estate"), the late founder and former Chairman of the Board of TCI.
On February 9, 1998, in connection with the Magness Settlement, TCI entered
into a call agreement (the "Malone Call Agreement") with Dr. John C. Malone,
and Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which
the Malones granted to TCI the right to acquire any shares of TCI stock which
are entitled to cast more than one vote per share (the "High-Voting Shares")
owned by the Malones, which currently consist of an aggregate of approximately
60 million High-Voting shares upon Dr. Malone's death or upon a contemplated
sale of the High-Voting Shares (other than a minimal amount) to third persons.
In either such event, TCI has the right to acquire the shares at a maximum
price equal to the then relevant market price of shares of TCI's Series A
stocks plus a ten percent premium. The Malones also agreed that if TCI were
ever to be sold to another entity, then the maximum premium that the Malones
would receive on their High-Voting Shares would be no greater than a ten
percent premium over the price paid for the relevant shares of TCI's Series A
stocks. TCI paid $150 million to the Malones in consideration of them entering
into the Malone Call Agreement.
Also on February 9, 1998, in connection with the Magness Settlement, certain
members of the Magness family, individually and in certain cases, on behalf of
the Estate of Betsy Magness (the first wife of Bob Magness) and the Magness
Estate (collectively, the "Magness Family") also entered into a call agreement
with TCI (with substantially the same terms as the one entered into by the
Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's
aggregate of approximately 49 million High-Voting Shares. The Magness Family
was paid $124 million by TCI in consideration of them entering into the Magness
Call Agreement. Additionally, on February 9, 1998, the Magness Family entered
into a stockholders' agreement with the Malones and TCI under which (i) the
Magness Family and the Malones agreed to consult with each other in connection
with matters to be brought to the vote of TCI's stockholders, subject to the
proviso that if they cannot mutually agree on how to vote the shares, Dr.
Malone has an irrevocable proxy to vote the High-Voting Shares owned by the
Magness Family, (ii) the Magness Family may designate a nominee for the Board
of TCI and Dr. Malone has agreed to vote his High Voting Shares for such
nominee and (iii) certain "tag along rights" have been created in favor of the
Magness Family and certain "drag along rights" have been created in favor of
the Malones.
F-24
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Of the aggregate amount paid by TCI pursuant to the Malone Call Agreement and
Magness Call Agreement, $140 million was allocated to Liberty and was paid
during the first quarter of 1998. Such payment is reflected as a reduction of
additional paid-in-capital.
Transactions with TCI and Other Related Parties
Certain TCI corporate general and administrative costs are charged to Liberty
at rates set at the beginning of the year based on projected utilization for
that year. During the years ended December 31, 1998, 1997 and 1996 Liberty was
allocated $11 million, $56 million and $4 million, respectively, in corporate
general and administrative costs by TCI.
Certain Liberty subsidiaries produce and/or distribute sports and other
programming and other services to cable distribution operators (including TCI)
and others. Charges to TCI are based upon customary rates charged to others.
During 1998 and 1997, Liberty made marketing support payments to TCI. Charges
by TCI for such arrangements for the years ended December 31, 1998 and 1997
aggregated $5 million and $19 million, respectively.
The Puerto Rico Subsidiary purchases programming services from TCI. The
charges, which approximate TCI's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $6 million, $6
million and $4 million during the years ended December 31, 1998, 1997 and 1996,
respectively.
In 1996, a Liberty subsidiary (i) issued preferred stock in connection with
an acquisition, which is convertible at the option of the holders into
1,084,056 of TCI Group Series A Common Stock beginning in April 1999 or sooner
in the event of a change in control of TCI and (ii) acquired an option contract
from TCI in exchange for a $14 million increase in the intercompany amount due
to TCI. Such option contract provided Liberty with the right to acquire
1,084,056 shares of TCI Group Series A Stock at a price equivalent to the fair
value at the time of exercise less $14.625 per share. During September 1998,
TCI assigned its obligation under the option contract to Liberty. As a result
of such assignment, Liberty recorded a $16 million reduction to the
intercompany amount due to TCI and a corresponding increase to additional paid-
in-capital. In July 1998, Liberty entered into an equity swap transaction with
a commercial bank, which provides Liberty with the right but not the obligation
to acquire 1,084,056 shares of TCI Group Series A Stock for approximately $45
million on or before April 19, 1999. In the event Liberty does not exercise its
right to acquire such shares, any difference between the counterparty's cost
and the market value of the shares on the settlement date will be settled in
cash or shares of TCI Ventures Group Series A Stock at Liberty's option. Such
shares could be used to satisfy the exchange requirements of the aforementioned
preferred stock.
Cablevision purchases programming services from certain Liberty affiliates.
The related charges generally are based upon the number of Cablevision's
subscribers that receive the respective services. During the year ended
December 31, 1997, such charges aggregated $12 million. Additionally, certain
of Cablevision's general and administrative functions are provided by Liberty.
The related charges, which generally are based upon the respective affiliate's
cost of providing such functions, aggregated $2 million during the year ended
December 31, 1997. The above-described programming and general and
administrative charges are included in operating costs in the accompanying
consolidated statements of operations and comprehensive earnings.
During July 1997, TCI entered into a 25 year affiliation agreement with
Encore Media Group LLC ("Encore Media Group") (the "EMG Affiliation Agreement")
pursuant to which TCI will pay monthly fixed amounts in exchange for unlimited
access to all of the existing Encore and STARZ! services.
F-25
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective July 11, 1997, pursuant to an Agreement and Plan of Merger, dated
as of February 6, 1997, as amended (the "DMX Merger Agreement"), by and among
TCI, TCI Music, a wholly-owned subsidiary of TCI, a wholly-owned subsidiary of
TCI Music ("DMX Merger Sub") and DMX, Inc. ("DMX"), Merger Sub was merged with
and into DMX, with DMX as the surviving corporation (the "DMX Merger"). As a
result of the DMX Merger, stockholders of DMX became stockholders of TCI Music.
TCI Music is engaged in the delivery of music programming and music related
services through audio, video and internet distribution channels, primarily
cable television.
In connection with the DMX Merger, TCI and TCI Music entered into an
agreement pursuant to which, effective as of the closing of the DMX Merger: (i)
TCI Music issued to TCI (as designee of certain of its indirect subsidiaries),
62.5 million shares of Series B Common Stock, $.01 par value per share, of TCI
Music ("TCI Music Series B Common Stock") and a promissory note in the amount
of $40 million, (ii) until December 31, 2006, certain subsidiaries of TCI
transferred to TCI Music the right to receive all revenue from sales of DMX
music services to their residential and commercial subscribers, net of an
amount equal to 10% of revenue from such sales to residential subscribers and
net of the revenue otherwise payable to DMX as license fees for DMX music
services under affiliation agreements currently in effect, (iii) TCI
contributed to TCI Music certain commercial digital DMX tuners that were not in
service as of the effective date of the DMX Merger, and (iv) TCI granted to
each stockholder who became a stockholder of TCI Music pursuant to the DMX
Merger, one right (a "Right") with respect to each whole share of TCI Music
Series A Common Stock acquired by such stockholder in the DMX Merger pursuant
to the terms of a Rights Agreement among TCI, TCI Music and the rights agent
(the "Rights Agreement"). Upon consummation of the DMX Merger, each outstanding
share of DMX Common Stock was converted into the right to receive (i) one-
quarter of a share of TCI Music Series A Common Stock, (ii) one Right with
respect to each whole share of TCI Music Series A Common Stock and (iii) cash
in lieu of the issuance of fractional shares of TCI Music Series A Common Stock
and Rights. Each Right entitled the holder to require TCI to purchase from such
holder one share of TCI Music Series A Common Stock for $8.00 per share,
subject to reduction by the aggregate amount per share of any dividend and
certain other distributions, if any, made by TCI Music to its stockholders,
and, payable at the election of TCI, in cash, a number of shares of TCI Group
Series A Stock, having an equivalent value or a combination thereof, if during
the one-year period beginning on the effective date of the DMX Merger, the
price of TCI Music Series A Common Stock did not equal or exceed $8.00 per
share for a period of at least 20 consecutive trading days.
Subsequently, TCI Music and TCI entered into an Amended and Restated
Contribution Agreement to be effective as of July 11, 1997 which provides,
among other things, for TCI to deliver, or cause certain of its subsidiaries to
deliver to TCI Music fixed monthly payments (subject to inflation and other
adjustments) through 2017.
Effective with the DMX Merger, TCI beneficially owned approximately 45.7% of
the outstanding shares of TCI Music Series A Common Stock and 100% of the
outstanding shares of TCI Music Series B Common Stock, which represented 89.6%
of the equity and 98.7% of the voting power of TCI Music. Simultaneously with
the DMX Merger, Liberty acquired the TCI-owned TCI Music Common Stock by
agreeing to reimburse TCI for any amounts required to be paid by TCI pursuant
to TCI's contingent obligation under the Rights Agreement to purchase up to 15
million shares (7 million of which are owned by Liberty) of TCI Music Series A
Common Stock and issuing an $80 million promissory note (the "Music Note") to
TCI. Liberty recorded its contingent obligation to purchase such shares under
the Rights Agreement as a component of minority interest in equity of
subsidiaries in the accompanying consolidated financial statements. Liberty may
elect to pay $50 million of the Music Note by delivery of a Stock Appreciation
Rights Agreement that will give TCI the right to receive 20% of the
appreciation in value of Liberty's investment in TCI Music, to be determined at
July 11, 2002. TCI Music was included in the consolidated financial results of
Liberty as of the date of the DMX
F-26
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Merger. Due to the related party nature of the transaction, the $86 million
excess of the consideration paid over the carryover basis of the TCI Music
common stock acquired by Liberty from TCI was reflected as a decrease in
additional paid-in-capital. The Music Note is included in amounts due to
related parties.
In December 1997, TCI Music issued convertible preferred stock and common
stock in connection with two acquisitions. After giving effect to such
issuances and assuming the conversion of the TCI Music convertible preferred
stock, Liberty, at December 31, 1997, owned TCI Music securities representing
78% of TCI Music's common stock and 97% of the voting power attributable to
such TCI Music common stock. In connection with the issuance of such common
shares, Liberty recorded a $19 million increase to additional paid-in-capital.
No gain was recognized in the consolidated statements of operations and
comprehensive earnings due primarily to Liberty's contingent obligation under
the Rights Agreement.
Prior to the July 1998 expiration of the Rights, Liberty was notified of the
tender of 4.9 million shares and associated Rights. On August 27, 1998, Liberty
paid $39 million to satisfy TCI's obligation under the Rights Agreement. Such
transaction was recorded as an acquisition of minority interest in equity of
subsidiaries.
During the third quarter of 1997, Liberty sold certain assets (the "SUMMITrak
Assets") to CSG Systems, Inc. ("CSG") for cash consideration of $106 million,
plus five-year warrants to purchase up to 1.5 million shares of CSG common
stock at $24 per share and $12 million in cash, once certain numbers of TCI
affiliated customers are being processed on a CSG billing system. In connection
with the sale of the SUMMITrak Assets, TCI committed to purchase billing
services from CSG through 2012. In light of such commitment, Liberty has
reflected the $30 million excess (after deducting deferred income taxes of $17
million) of the cash received over the book value of the SUMMITrak Assets as an
increase to additional paid-in-capital.
During the fourth quarter of 1997, Liberty's remaining assets in TCI
SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were transferred to TCI in
exchange for a $19 million reduction of the amount owed by Liberty to TCI. Such
transfer was accounted for at historical cost due to the related party nature
of the transaction.
Due to Related Parties
The components of "Due to related parties" are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
amounts
in
millions
<S> <C> <C>
Notes payable to TCI, including accrued interest................ $141 378
Note receivable from TCI........................................ -- (88)
Intercompany account............................................ 269 (276)
---- ----
$410 14
==== ====
</TABLE>
Amounts outstanding at December 31, 1998 under notes payable to TCI bear
interest at varying rates. During the second quarter of 1998, TCI made a
contribution to Liberty of $5 million, which was used to reduce the amount due
under the Music Note.
Amounts outstanding under the note receivable from TCI were repaid in their
entirety during the third quarter of 1998.
F-27
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The non-interest bearing intercompany account includes certain income tax and
stock compensation allocations that are to be settled at some future date. All
other amounts included in the intercompany account are to be settled within
thirty days following notification.
(12) Stock Options and Stock Appreciation Rights
Certain officers and other key employees of Liberty hold options with tandem
stock appreciation rights ("SARs") to acquire TCI Group Series A Stock, Liberty
Media Group Series A Stock and TCI Ventures Group Series A Stock as well as
restricted stock awards of TCI Group Series A Stock, Liberty Media Group Series
A Stock and TCI Ventures Group Series A Stock. Estimates of compensation
relating to SARs granted to such employees of Liberty have been recorded in the
accompanying consolidated financial statements pursuant to APB Opinion No. 25.
Such estimates are subject to future adjustment based upon vesting of the
related stock options and SARs and the market value of TCI Group Series A
Stock, Liberty Media Group Series A Stock and TCI Ventures Group Series A Stock
and, ultimately, on the final determination of market value when the rights are
exercised. In connection with the AT&T Merger, all series of TCI stock were
converted to classes of AT&T stock. Had Liberty accounted for its stock based
compensation pursuant to the fair value based accounting method in Statement
123, the amount of compensation would not have been significantly different
from what has been reflected in the accompanying consolidated financial
statements.
The following table presents the number and weighted average exercise price
("WAEP") of certain options in tandem with SARs to purchase TCI Group Series A
Stock, Liberty Media Group Series A Stock (as adjusted for a stock dividend)
and TCI Ventures Group Series A Stock (as adjusted for a stock dividend)
granted to certain officers and other key employees of the Company.
<TABLE>
<CAPTION>
Liberty Media TCI Ventures
TCI Group Group Group
Series A Stock WAEP Series A Stock WAEP Series A Stock WAEP
-------------- ------ -------------- ------ -------------- -----
amounts in thousands, except for WAEP
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January
1, 1996................ 3,698 $ 8.46 6,698 $ 9.01 -- --
Adjustment for
transfer of
employees............ 3,285 13.19 1,998 12.64 -- --
Exercised............. (79) 10.79 (62) 7.60 -- --
------ ------
Outstanding at December
31, 1996............... 6,904 10.64 8,634 9.93 -- --
Adjustment for TCI
Ventures Exchange.... (2,149) 14.28 -- -- 4,298 $7.14
Adjustment for
transfer of
employees............ 228 12.08 22 8.39 (50) 6.74
Granted............... 595 15.04 591 -- -- --
Exercised............. (2,430) 9.81 (648) 5.62 (166) 6.45
Canceled.............. (30) 10.75 (23) 10.67 -- --
------ ------ ------
Outstanding at December
31, 1997............... 3,118 12.08 8,576 10.30 4,082 6.76
Granted............... 118 25.72 8,314 43.24 51 5.38
Exercised............. (1,331) 10.36 (1,203) 8.39 (1,714) 6.59
Canceled.............. (23) 14.92 (1) 9.78 (20) 7.46
------ ------ ------
Outstanding at December
31, 1998............... 1,882 14.03 15,686 29.08 2,399 6.89
====== ====== ======
Exercisable at December
31, 1998............... 1,117 3,763 1,708
====== ====== ======
Vesting Period........ 5 yrs 5 yrs 5 yrs
</TABLE>
F-28
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tele-Communications International, Inc. Stock Incentive Plan. In 1995, TINTA
adopted the Tele-Communications International, Inc. 1995 Stock Incentive Plan
(the "TINTA 1995 Plan"). The TINTA 1995 Plan provides for Awards to be made in
respect of a maximum of 3,000,000 shares of TINTA Series A common stock ("TINTA
Series A Stock") (subject to certain anti-dilution adjustments). Shares of
TINTA Series A Stock that are subject to Awards that expire, terminate or are
annulled for any reason without having been exercised (or deemed exercised, by
virtue of the exercise of a related stock appreciation right), or are forfeited
prior to becoming vested will return to the pool of such shares available for
grant under the TINTA 1995 Plan.
On December 13, 1995, stock options in tandem with SARs to purchase 1,352,000
shares of TINTA Series A Stock were granted pursuant to the TINTA 1995 Plan.
Such options vest ratably over five years, first became exercisable August 4,
1996 and expire on August 4, 2005. During 1997, TINTA granted stock options in
tandem with SARs to purchase 1,130,000 shares of TINTA Series A Stock. Such
options vest ratably over five years, first become exercisable one year after
date of grant, and expire ten years after date of grant.
As a result of the TINTA Merger on November 19, 1998, each stock option and
SAR to purchase TINTA Series A Stock was converted into a stock option or SAR
to purchase Liberty Media Group Series A Stock determined by multiplying the
number of TINTA stock options or SARs by 0.58 at an exercise price per share of
such stock option or SAR divided by 0.58. The following descriptions of stock
options and/or SARs have been adjusted to reflect such change.
The following table presents the number and WAEP of certain options in tandem
with SARs to purchase TINTA Series A Stock and Liberty Media Group Series A
Stock pursuant to the TINTA 1995 Plan:
<TABLE>
<CAPTION>
Liberty Media
TINTA Group
Series A Series A
Stock WAEP Stock WAEP
-------- ------ ------------- -----
amounts in thousands, except for
WAEP
<S> <C> <C> <C> <C>
Outstanding at January 1, 1996 and
1997................................. 1,352 $16.00 -- $ --
Granted............................. 1,130 14.69 -- --
------ -------
Outstanding at December 31, 1997...... 2,482 15.40 -- --
Adjustment for TINTA Merger......... (1,982) 15.31 1,150 26.40
Exercised........................... (500) 15.75 (1) 25.21
------ -------
Outstanding at December 31, 1998...... -- -- 1,149 26.40
====== =======
Exercisable at December 31, 1998...... -- -- 448 26.97
====== =======
Vesting Period........................ -- 5 years
</TABLE>
On December 13, 1995, pursuant to the TINTA 1995 Plan, 40,000 restricted
shares of TINTA Series A Stock were awarded to certain officers and directors
of TINTA. Such restricted shares vest as to 50% in December 1999 and as to the
remaining 50% in December 2000. Such restricted shares had a fair value of
$25.375 on the date of grant. At December 31, 1998, 23,200 restricted shares of
Liberty Media Group Series A Stock (after adjustment for TINTA Merger) were
unvested.
On July 23, 1997, pursuant to the TINTA 1995 Plan, 150,000 restricted shares
of TINTA Series A Stock were awarded to a director of TINTA. Such restricted
shares vest as to 50% in July 2001 and as to the remaining 50% in July 2002.
Such restricted shares had a fair value of $14.625 on the date of grant. At
December 31, 1998, 87,000 restricted shares of Liberty Media Group Series A
Stock (after adjustment for TINTA Merger) were unvested.
F-29
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tele-Communications International, Inc. Nonemployee Director Stock Option
Plan. On April 11, 1996, TINTA adopted the Tele-Communications International,
Inc. 1996 Nonemployee Director Stock Option Plan (the "TINTA Director Plan").
The TINTA Director Plan provides for grants to be made to nonemployee directors
of TINTA of options to purchase a maximum of 1,000,000 shares of TINTA Series A
Stock (subject to certain anti-dilution adjustments). Shares that are subject
to such options that expire or terminate for any reason without having been
exercised will return to the pool of shares underlying options available to
grant under the TINTA Director Plan. Pursuant to the TINTA Director Plan,
options to purchase 200,000 shares of TINTA Series A Stock were granted in
April 1996 at an exercise price of $16.00 per share. Such options had a
weighted average fair value of $14.01 on the date of grant. Options issued
pursuant to the TINTA Director Plan vest and become exercisable over a five-
year period from the date of grant and expire 10 years from the date of grant.
At December 31, 1998, 116,000 options with respect to Liberty Media Group
Series A Stock (after adjustment for TINTA Merger) granted pursuant to the
TINTA Director Plan were outstanding, 46,400 of which were exercisable. Such
options had an exercise price of $27.58 and a weighted average remaining
contractual life of 8 years.
United Video Satellite Group, Inc. Equity Incentive Plan and United Video
Satellite Group, Inc. Stock Option Plan for Non-Employee Directors. UVSG
sponsors the United Video Satellite Group, Inc. Equity Incentive Plan under
which 8 million shares of UVSG's Class A Common Stock are authorized to be
issued in connection with the exercise of awards of stock options, stock
appreciation rights and restricted stock granted under the plan. UVSG's Equity
Incentive Plan provides that the price at which each share of stock covered by
an option may be acquired shall in no event be less than 100% of the fair
market value of the stock on the date the option is granted, except in certain
limited circumstances. Additionally, UVSG sponsors the United Video Satellite
Group, Inc. Stock Option Plan for Non-Employee Directors under which 500,000
shares of UVSG's Class A Common Stock are authorized to be issued in connection
with the exercise of stock options granted thereunder.
At December 31, 1998, 6.3 million shares of UVSG's Class A Common Stock were
reserved for issuance under the stock option plans. The options granted under
the stock option plans expire ten years from the date of grant. Options
outstanding are as follows:
<TABLE>
<CAPTION>
UVSG
Class A Common
Stock (1) WAEP (1)
-------------- --------
amounts in thousands,
except for WAEP
<S> <C> <C>
At January 1, 1996................................... 4,121 $ 4.25
Granted............................................ 1,276 11.11
Exercised.......................................... (815) 4.04
Canceled........................................... (805) 9.21
------
At December 31, 1996................................. 3,777 5.56
Granted............................................ 916 8.54
Exercised.......................................... (2,089) 4.04
Canceled........................................... (252) 5.88
------
At December 31, 1997................................. 2,352 8.03
Granted............................................ 709 16.61
Exercised.......................................... (254) 6.84
Canceled........................................... (36) 9.41
------
Exercisable at December 31, 1998..................... 2,771 10.32
======
</TABLE>
- --------
(1) Adjusted for two-for-one stock split.
F-30
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exercise prices for options outstanding as of December 31, 1998 ranged from
$4 to $17. The weighted-average remaining contractual life of such options is
7.8 years.
TCI Music, Inc. Stock Incentive Plan. During 1997 and 1998, TCI Music granted
stock options with tandem SARs to employees under the TCI Music, Inc. 1997
Stock Incentive Plan (the "TCI Music Stock Plan") which is authorized to issue
up to 4 million shares. Options granted under the TCI Music Stock Plan expire
ten years from the date of grant. In addition TCI Music granted stock options
with tandem SARs to the board of directors and employees in connection with
certain mergers. Options issued under the TCI Music Stock Plan and in
connection with certain mergers generally vest annually in 20% cumulative
increments.
On December 21, 1998, TCI Music re-priced the stock options with tandem SARs
pursuant to the TCI Music Stock Plan at $4.00 for all grants to executive
officers and employees of TCI Music and its subsidiaries.
The following table presents the number and WAEP of options in tandem with
SARs to purchase TCI Music Series A Common Stock, after giving effect to the
re-pricing at $4.00 for certain options and tandem SARs:
<TABLE>
<CAPTION>
TCI Music
Series A
Common Stock WAEP
------------ -----
amounts in
thousands, except
for WAEP
<S> <C> <C>
At January 1, 1997....................................... -- --
Granted................................................ 3,609 $5.75
-----
At December 31, 1997..................................... 3,609 5.75
Granted................................................ 1,771 4.00
Exercised.............................................. (21) 4.00
Canceled............................................... (311) 4.00
-----
At December 31, 1998..................................... 5,048 5.25
=====
Exercisable at December 31, 1998......................... 1,373 5.84
=====
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$4.00 to $6.25. The weighted average remaining contractual life of such options
is 8.7 years. The weighted average fair value of options granted during 1998,
after giving effect to the re-pricing at $4.00 for certain options and tandem
SARs, and 1997 was $3.51 and $3.31, respectively.
The estimated fair values of the options noted above are based on the Black-
Scholes model and are stated in current annualized dollars on a present value
basis. The key assumptions used in the model for purposes of these calculations
generally include the following: (a) a discount rate equal to the 10-year
Treasury rate on the date of grant; (b) a 35% volatility factor, (c) the 10-
year option term; (d) the closing price of the respective common stock on the
date of grant; and (e) an expected dividend rate of zero.
F-31
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Other Comprehensive Earnings
Accumulated other comprehensive earnings included in Liberty's consolidated
balance sheets and consolidated statements of stockholder's equity reflect the
aggregate of foreign currency translation adjustments and unrealized holding
gains and losses on securities classified as available-for-sale. The change in
the components of accumulated other comprehensive earnings, net of taxes, is
summarized as follows:
<TABLE>
<CAPTION>
Unrealized Accumulated
Foreign gains other
currency (losses) comprehensive
translation on earnings, net
adjustments securities of taxes
----------- ---------- -------------
amounts in millions
<S> <C> <C> <C>
Balance at January 1, 1996................ $ (9) 336 327
Other comprehensive earnings (loss)....... 35 (319) (284)
---- ----- -----
Balance at December 31, 1996.............. 26 17 43
Other comprehensive earnings (loss)....... (23) 747 724
---- ----- -----
Balance at December 31, 1997.............. 3 764 767
Other comprehensive earnings.............. 2 2,417 2,419
---- ----- -----
Balance at December 31, 1998.............. $ 5 3,181 3,186
==== ===== =====
</TABLE>
The components of other comprehensive earnings are reflected in Liberty's
consolidated statements of operations and comprehensive earnings, net of taxes
and reclassification adjustments for gains realized in net earnings (loss). The
following table summarizes the tax effects and reclassification adjustments
related to each component of other comprehensive earnings.
<TABLE>
<CAPTION>
Tax
Before-tax (expense) Net-of-tax
amount benefit amount
---------- --------- ----------
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1998:
Foreign currency translation adjustments....... $ 3 (1) 2
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 3,998 (1,581) 2,417
------ ------ -----
Other comprehensive earnings................... $4,001 (1,582) 2,419
====== ====== =====
Year ended December 31, 1997:
Foreign currency translation adjustments....... $ (38) 15 (23)
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 1,236 (489) 747
------ ------ -----
Other comprehensive earnings................... $1,198 (474) 724
====== ====== =====
Year ended December 31, 1996:
Foreign currency translation adjustments....... $ 58 (23) 35
------ ------ -----
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 61 (24) 37
Less: reclassification adjustment for gains
realized in net earnings.................... (589) 233 (356)
------ ------ -----
Net unrealized losses........................ (528) 209 (319)
------ ------ -----
Other comprehensive loss....................... $ (470) 186 (284)
====== ====== =====
</TABLE>
F-32
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) Commitments and Contingencies
Encore Media Group, a wholly owned subsidiary of Liberty, provides premium
programming distributed by cable, direct satellite, TVRO and other distributors
throughout the United States. Encore Media Group is obligated to pay fees for
the rights to exhibit certain films that are released by various producers
through 2017 (the "Film Licensing Obligations"). Based on customer levels at
December 31, 1998, these agreements require minimum payments aggregating
approximately $808 million. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing Obligations
could prove to be significant.
Flextech has undertaken to finance the working capital requirements of a
joint venture, (the "Principal Joint Venture") formed with BBC Worldwide and is
obligated to provide the Principal Joint Venture with a primary credit facility
of (Pounds)88 million ($150 million) and subject to certain restrictions, a
standby credit facility of (Pounds)30 million ($51 million). As of December 31,
1998, the Principal Joint Venture had borrowed (Pounds)16 million ($27 million)
under the primary credit facility. If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42 days
after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within
the following 90 days, to require that Liberty assume all of Flextech's funding
obligations to the Principal Joint Venture.
Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At
December 31, 1998, the Guaranteed Obligations aggregated approximately $243
million. Currently, Liberty is not certain of the likelihood of being required
to perform under such guarantees.
Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements. Rental
expense under such arrangements amounts to $27 million, $20 million and $38
million for the years ended December 31, 1998, 1997 and 1996, respectively.
A summary of future minimum lease payments under noncancellable operating
leases as of December 31, 1998 follows (amounts in millions):
<TABLE>
<S> <C>
Years ending December 31:
1999.............................................................. $40
2000.............................................................. 35
2001.............................................................. 31
2002.............................................................. 29
2003.............................................................. 23
Thereafter........................................................ 47
</TABLE>
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 1999.
On July 17, 1998, TCI acquired 21.4 million shares of restricted stock of GI
in exchange for (i) certain of the assets of NDTC's set-top authorization
business, (ii) the license of certain related software to GI, (iii) a $50
million promissory note from TCI to GI and (iv) a nine year revenue guarantee
from TCI in favor of GI. In connection therewith, NDTC also entered into a
service agreement pursuant to which it will provide certain postcontract
services to GI's set-top authorization business. Such shares of GI stock and
the promissory note
F-33
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
were contributed to Liberty. The 21.4 million shares of GI common stock are, in
addition to other transfer restrictions, restricted as to their sale by Liberty
for a three year period, and represent approximately 13% of the outstanding
common stock of GI at December 31, 1998. Liberty recorded its investment in
such shares at fair value which included a discount attributable to the above-
described liquidity restriction. Liberty carries its investment in such shares
at the lower of cost or net realizable value. The $396 million fair value of GI
common stock received net of the $42 million present value of the promissory
note due from Liberty to GI, has been reflected as an increase in additional
paid-in capital.
On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including the Puerto Rico
Subsidiary's cable television systems. The Puerto Rico Subsidiary's cable
television systems represent $45 million of Liberty's revenue for the year
ended December 31, 1998. The Puerto Rico Subsidiary has property and business
interruption insurance aggregating $15 million that is subject to a deductible
of $1 million. The Puerto Rico Subsidiary has submitted a property damage claim
to its insurance carrier for approximately $15 million which represents the
estimated replacement cost of its damaged property. As a result of the damage
caused by Hurricane Georges, the Puerto Rico Subsidiary, at December 31, 1998,
recorded an impairment to reduce the net book value of the damaged property and
equipment by $8 million and recorded a receivable in the amount of $12 million
as insurance coverage for property damages. The $12 million in insurance
coverage for property damages were fully collected prior to December 31, 1998.
As of December 31, 1998, approximately 82% of the Puerto Rico Subsidiary's
pre-hurricane basic customers were receiving cable television services. The
loss of revenue from September 21, 1998 through December 31, 1998 was $7
million. The Puerto Rico Subsidiary's business interruption insurance will
cover the first $3 million in lost revenue. The $3 million in business
interruption coverage was fully collected prior to December 31, 1998.
The Puerto Rico Subsidiary has also claimed coverage for business
interruption under a secondary insurance carrier. Such policy, which covers the
Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of
$2.5 million. This insurance claim is subject to approval by such insurance
carrier and accordingly, no assurance can be given that amounts claimed will be
paid in their entirety. However, in the event such claims are collected the
overall impact in lost revenues for the Puerto Rico Subsidiary as a result of
Hurricane Georges will not exceed $2.5 million.
Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty may incur losses upon conclusion of such matters, an estimate
of any loss or range of loss cannot be made. In the opinion of management, it
is expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying consolidated
financial statements.
(15) Information about Liberty's Operating Segments
Liberty has three operating segments: Encore Media Group, UVSG and Equity
Investments and Other. Equity Investments and Other include Liberty's
investments accounted for under the equity method, primarily in cable
television programming entities and other businesses not representing
separately reportable segments.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Liberty evaluates performance
based on measures of revenue and operating cash flow (as defined by Liberty),
appreciation in stock price along with other non-financial measures such as
average prime
F-34
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
time rating, prime time audience delivery, subscriber growth and penetration,
as appropriate. Liberty believes operating cash flow is a widely used financial
indicator of companies similar to Liberty and its affiliates, which should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with generally accepted accounting
principles. Liberty generally accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, that is, at current prices.
Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology and marketing strategies.
Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
Equity
Investments
EMG UVSG and Other Total
---- ---- ----------- ------
amounts in millions
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Segment revenue from external customers
including intersegment revenue................ $541 598 220 1,359
Segment operating cash flow (deficit).......... 96 123 (3) 216
Segment equity in losses of affiliates......... -- -- (1,002) (1,002)
Year ended December 31, 1997
Segment revenue from external customers
including intersegment revenue................ 350 508 367 1,225
Segment operating cash flow (deficit).......... (32) 104 87 159
Segment equity in losses of affiliates......... -- -- (785) (785)
Year ended December 31, 1996
Segment revenue from external customers
including intersegment revenue................ 195 410 1,603 2,208
Segment operating cash flow (deficit).......... (95) 67 128 100
Segment equity in losses of affiliates......... -- -- (332) (332)
As of December 31, 1998
Segment assets................................. 355 666 14,546 15,567
Investments in affiliates...................... -- -- 3,079 3,079
As of December 31, 1997
Segment assets................................. 289 428 7,018 7,735
Investments in affiliates...................... -- -- 2,359 2,359
</TABLE>
(16) Year 2000
During 1998, TCI continued its enterprise-wide, comprehensive efforts to
assess and remediate its computer systems and related software and equipment to
ensure such systems, software and equipment recognize, process and store
information in the year 2000 and thereafter. TCI's year 2000 remediation
efforts include an assessment of Liberty's most critical systems, equipment,
and facilities. TCI also continued its efforts to verify the year 2000
readiness of Liberty's significant suppliers and vendors and continued to
communicate with significant business partners and affiliates to assess such
partners and affiliates' year 2000 status.
F-35
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
TCI has a year 2000 Program Management Office (the "PMO") to organize and
manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on Liberty's year 2000 remediation
efforts.
During 1998, TCI continued its survey of significant third-party vendors and
suppliers whose systems, services or products are important to Liberty's
operations. The year 2000 readiness of such providers is critical to continued
provision of Liberty's programming services. Year 2000 expenses and capital
expenditures incurred during the year ended December 31, 1998 were not
material.
In addition to the survey process described above, management of Liberty has
identified its most critical supplier/vendor relationships and has instituted a
verification process to determine the vendor's year 2000 readiness. Such
verification includes, as deemed necessary, reviewing vendors' test and other
data and engaging in regular conferences with vendors' year 2000 teams. Liberty
is also requiring testing to validate the year 2000 compliance of certain
critical products and services.
Significant market value is associated with Liberty's investments in certain
public and private corporations, partnerships and other businesses.
Accordingly, Liberty is monitoring the public disclosure of such publicly-held
business entities to determine their year 2000 readiness. In addition, Liberty
has surveyed and monitored the year 2000 status of certain privately-held
business entities in which Liberty has significant investments.
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There can be
no assurance that Liberty's systems or the systems of other companies on which
Liberty relies will be converted in time or that any such failure to convert by
Liberty or other companies will not have a material adverse effect on its
financial position, results of operations or cash flows.
F-36
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ------------
June 30, December 31,
1999 1998
----------- ------------
(note 1)
amounts in millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................... $ 1,504 228
Marketable securities.............................. 3,393 159
Trade and other receivables, net................... 132 142
Prepaid expenses and committed program rights...... 295 263
Other current assets............................... 22 21
------- ------
Total current assets............................. 5,346 813
------- ------
Investments in affiliates, accounted for under the
equity method, and related receivables (note 3)..... 16,775 3,079
Investment in Time Warner, Inc. ("Time Warner") (note
4).................................................. 8,212 7,083
Investment in Sprint Corporation ("Sprint") (note
5).................................................. 5,989 2,446
Other investments and related receivables............ 2,521 1,010
Property and equipment, at cost...................... 138 279
Less accumulated depreciation...................... 5 124
------- ------
133 155
------- ------
Intangible assets.................................... 10,308 1,039
Less accumulated amortization...................... 178 140
------- ------
10,130 899
------- ------
Other assets, at cost, net of accumulated
amortization........................................ 894 82
------- ------
Total assets..................................... $50,000 15,567
======= ======
</TABLE>
F-37
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED BALANCE SHEETS--(Continued)
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ------------
June 30, December 31,
1999 1998
----------- ------------
(note 1)
amounts in millions
<S> <C> <C>
Liabilities and Combined Equity
Current liabilities:
Accounts payable and accrued liabilities............................................................ $ 239 372
Accrued stock compensation.......................................................................... 1,156 126
Program rights payable.............................................................................. 177 156
Current portion of debt............................................................................. 683 184
------- ------
Total current liabilities......................................................................... 2,255 838
------- ------
Long-term debt (note 7)............................................................................... 1,493 1,912
Deferred income taxes (note 8)........................................................................ 10,899 3,366
Other liabilities..................................................................................... 26 89
------- ------
Total liabilities................................................................................. 14,673 6,205
------- ------
Minority interests in equity of subsidiaries.......................................................... -- 132
Stockholder's equity (note 9):
Preferred stock, $.0001 par value. Authorized 100,000 shares; no shares issued and outstanding...... -- --
Class A common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares............................................................................................. -- --
Class B common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares............................................................................................. -- --
Class C common stock, $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000
shares............................................................................................. -- --
Additional paid-in capital.......................................................................... 33,862 4,682
Accumulated other comprehensive earnings, net of taxes.............................................. 1,963 3,186
Retained earnings (deficit)......................................................................... (601) 952
------- ------
35,224 8,820
Due to related parties.............................................................................. 103 410
------- ------
Total stockholder's equity........................................................................ 35,327 9,230
------- ------
Commitments and contingencies (note 10)
Total liabilities and stockholder's equity........................................................ $50,000 15,567
- --------------------------------------------------
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- -------------------------------
(note 1) (note 1)
Four months Two months Six months
ended ended ended
June 30, 1999 February 28, 1999 June 30, 1998
------------- ----------------- -------------
amounts in millions
<S> <C> <C> <C>
Revenue......................................................................... $ 292 235 647
Operating costs and expenses:
Operating, selling, general and administrative................................ 240 188 553
Stock compensation............................................................ 455 183 265
Depreciation and amortization................................................. 230 22 56
------ ---- ----
925 393 874
------ ---- ----
Operating loss.............................................................. (633) (158) (227)
Other income (expense):
Interest expense.............................................................. (46) (26) (33)
Dividend and interest income.................................................. 106 10 33
Share of losses of affiliates, net (note 3)................................... (359) (66) (523)
Gains (losses) on dispositions, net (note 4).................................. (2) 14 553
Gains on issuance of equity by subsidiaries (note 6).......................... -- 372 38
Other, net.................................................................... 8 (5) (5)
------ ---- ----
(293) 299 63
------ ---- ----
Earnings (loss) before income taxes......................................... (926) 141 (164)
Income tax benefit (expense).................................................... 325 (211) 39
------ ---- ----
Net loss.................................................................... $ (601) (70) (125)
====== ==== ====
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments...................................... (43) (15) (4)
Unrealized holding gains arising during the period, net of reclassification
adjustments.................................................................. 2,006 885 832
------ ---- ----
Other comprehensive earnings.................................................. 1,963 870 828
------ ---- ----
Comprehensive earnings.......................................................... $1,362 800 703
- --------------------------------------------------
====== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
other Due to
Common stock Additional comprehensive Retained (from) Total
Preferred ----------------------- paid-in earnings, earnings, related stockholder's
stock Class A Class B Class C capital net of taxes (deficit) parties equity
--------- ------- ------- ------- ---------- ------------- --------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1999................... $ -- -- -- -- 4,682 3,186 952 410 9,230
Net loss............... -- -- -- -- -- -- (70) -- (70)
Foreign currency
translation
adjustments........... -- -- -- -- -- (15) -- -- (15)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 885 -- -- 885
Other transfers from
(to) related parties,
net................... -- -- -- -- 430 -- -- (1,011) (581)
----- ---- ---- ---- ------ ----- ---- ------ ------
Balance at February 28,
1999................... -- -- -- -- 5,112 4,056 882 (601) 9,449
===== ==== ==== ==== ====== ===== ==== ====== ======
- --------------------------------------------------------------------------------------------------------------------
Balance at March 1,
1999................... -- -- -- -- 33,468 -- -- 213 33,681
Net loss............... -- -- -- -- -- -- (601) -- (601)
Foreign currency
translation
adjustments........... -- -- -- -- -- (43) -- -- (43)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- 2,006 -- -- 2,006
Transfer from related
party for redemption
of debentures......... -- -- -- -- 354 -- -- -- 354
Gain in connection with
the issuance of common
stock of subsidiary... -- -- -- -- 40 -- -- -- 40
Other transfers to
related parties, net.. -- -- -- -- -- -- -- (110) (110)
----- ---- ---- ---- ------ ----- ---- ------ ------
Balance at June 30,
1999................... $ -- -- -- -- 33,862 1,963 (601) 103 35,327
===== ==== ==== ==== ====== ===== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(wholly-owned by AT&T Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------- -------------------------------
(note 1) (note 1)
Four months Six months
ended Two months ended ended
June 30, 1999 February 28, 1999 June 30, 1998
------------- ----------------- -------------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (601) (70) (125)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization.................................................. 230 22 56
Stock compensation............................................................. 455 183 265
Payments of stock compensation................................................. (27) (126) (71)
Share of losses of affiliates, net............................................. 359 66 523
Deferred income tax expense (benefit).......................................... (314) 212 (17)
Intergroup tax allocation...................................................... (14) (1) (22)
Cash payment from AT&T pursuant to tax sharing agreement....................... 45 -- --
Losses (gains) on disposition of assets, net................................... 2 (14) (553)
Gains on issuance of equity by subsidiaries.................................... -- (372) (38)
Other noncash charges.......................................................... (12) 14 6
Changes in current assets and liabilities, net of the effect of acquisitions
and dispositions:
Change in receivables......................................................... (12) 33 (8)
Change in prepaid expenses and committed program rights....................... (7) (23) (31)
Change in payables and accruals............................................... 67 (31) 18
------- ---- ----
Net cash provided (used) by operating activities............................. 171 (107) 3
------- ---- ----
Cash flows from investing activities:
Capital expended for property and equipment.................................... (16) (15) (23)
Investments in and loans to affiliates and others.............................. (434) (51) (659)
Return of capital from affiliates.............................................. 6 -- 13
Purchases of marketable securities............................................. (6,172) (3) (72)
Sales and maturities of marketable securities.................................. 2,759 9 106
Cash paid for acquisitions..................................................... (1) -- (10)
Cash proceeds from dispositions................................................ 2 43 298
Cash balances of deconsolidated subsidiaries................................... -- (53) --
Other, net..................................................................... (18) (9) (3)
------- ---- ----
Net cash used by investing activities........................................ (3,874) (79) (350)
------- ---- ----
Cash flows from financing activities:
Borrowings of debt............................................................. 495 155 879
Repayments of debt............................................................. (463) (145) (260)
Cash transfers (to) from related parties....................................... (160) 31 (73)
Repurchase of stock of subsidiary.............................................. -- (45) --
Payments for call agreements................................................... -- -- (140)
Other, net..................................................................... 16 (7) (5)
------- ---- ----
Net cash (used) provided by financing activities............................. (112) (11) 401
------- ---- ----
Net increase (decrease) in cash and cash equivalents........................ (3,815) (197) 54
Cash and cash equivalents at beginning of period............................ 5,319 228 104
------- ---- ----
Cash and cash equivalents at end of period.................................. $ 1,504 31 158
--------------------------------------------------
======= ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation and those of all majority-owned subsidiaries
("Liberty" or the "Company"). All intercompany accounts and transactions have
been eliminated in consolidation. The Company is a wholly-owned subsidiary of
Tele-Communications, Inc. ("TCI"). On March 9, 1999, AT&T Corp. ("AT&T")
acquired TCI in a merger transaction (the "AT&T Merger") whereby a wholly owned
subsidiary of AT&T merged with and into TCI, and TCI thereby became a wholly
owned subsidiary of AT&T. As a result of the AT&T Merger, each series of TCI
common stock was converted into a class of AT&T common stock subject to
applicable exchange ratios. The AT&T Merger has been accounted for using the
purchase method. For financial reporting purposes the AT&T Merger is deemed to
have occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999
the assets and liabilities of Liberty and the related consolidated financial
statements are sometimes referred to herein as "Old Liberty", and for periods
subsequent to February 28, 1999 the assets and liabilities of Liberty and the
related consolidated financial statements are sometimes referred to herein as
"New Liberty". The "Company" and "Liberty" refers to both New Liberty and Old
Liberty.
The following table represents the summary balance sheet of Old Liberty at
February 28, 1999 prior to the AT&T Merger and the opening summary balance
sheet of New Liberty subsequent to the AT&T Merger. Certain pre-merger
transactions occurring between March 1, 1999 and March 9, 1999 that affected
Old Liberty's equity, gains on issuance of equity by subsidiaries and stock
compensation have been reflected in the two-month period ended February 28,
1999.
<TABLE>
<CAPTION>
Old Liberty New Liberty
----------- -----------
(amounts in millions)
<S> <C> <C>
Assets
Cash and cash equivalents........................................................................... $ 31 5,319
Other current assets................................................................................ 410 423
Investments in affiliates........................................................................... 3,971 17,073
Investment in Time Warner........................................................................... 7,361 7,832
Investment in Sprint................................................................................ 3,381 3,681
Other investments................................................................................... 1,232 1,539
Property and equipment, net......................................................................... 111 125
Intangibles and other assets........................................................................ 389 11,256
------- ------
$16,886 47,248
======= ======
Liabilities and Equity
Current liabilities................................................................................. $ 1,051 1,741
Long-term debt...................................................................................... 2,087 1,845
Deferred income taxes............................................................................... 4,147 9,923
Other liabilities................................................................................... 90 19
------- ------
Total liabilities................................................................................. 7,375 13,528
------- ------
Minority interests in equity of subsidiaries........................................................ 62 39
Stockholder's equity................................................................................ 9,449 33,681
------- ------
$16,886 47,248
======= ======
</TABLE>
F-42
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reflects the recapitalization resulting from the AT&T
Merger (amounts in millions):
<TABLE>
<S> <C>
Stockholder's equity of Old Liberty................................ $ 9,449
Purchase accounting adjustments.................................... 24,232
-------
Initial stockholder's equity of New Liberty subsequent to the AT&T
Merger............................................................ $33,681
=======
</TABLE>
Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services. Liberty also has
significant interests in foreign affiliates which operate in cable television,
programming and satellite video distribution.
The accompanying interim consolidated financial statements are unaudited but,
in the opinion of management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the results for such
periods. The results of operations for any interim period are not necessarily
indicative of results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements for the year ended December 31, 1998 and notes thereto.
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 at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified for comparability with
the 1999 presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $58 million for the four month period ended June
30, 1999, $32 million for the two month period ended February 28, 1999 and $33
million for the six months ended June 30, 1998, respectively. Cash paid for
income taxes for the four month period ended June 30, 1999, the two month
period ended February 28, 1999 and the six months ended June 30, 1998 was not
material.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------------------
Four months Two months Six months
ended ended ended
June 30, February 28, June 30,
1999 1999 1998
----------- ------------ ----------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired........................................................ $ 3 -- 15
Net liabilities assumed.............................................................. (2) -- (2)
Gain in connection with the issuance of stock by subsidiary.......................... -- -- (3)
---- ---- ---
Cash paid for acquisitions........................................................ $ 1 -- 10
==== ==== ===
</TABLE>
F-43
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liberty ceased to include TV Guide, Inc. ("TV Guide") in its consolidated
financial results and began to account for TV Guide using the equity method of
accounting, effective March 1, 1999 (see note 6). The effects of changing the
method of accounting for Liberty's ownership interests in TV Guide as of June
30, 1999 from the consolidation method to the equity method are summarized
below (amounts in millions):
<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to
investments in affiliates......................................... $(572)
Liabilities reclassified to investments in affiliates.............. 190
Minority interests in equity of subsidiaries reclassified to
investments in affiliates......................................... 63
Gain on issuance of equity by subsidiary........................... 372
-----
Decrease in cash and cash equivalents.............................. $ 53
=====
</TABLE>
The following table reflects the change in cash and cash equivalents
resulting from the AT&T Merger and related restructuring transactions (amounts
in millions):
<TABLE>
<S> <C>
Cash and cash equivalents prior to the AT&T Merger................. $ 31
Cash contribution in connection with the AT&T Merger............. 5,464
Cash paid to TCI for certain warrants to purchase shares of
General Instruments Corporation ("GI").......................... (176)
------
Cash and cash equivalents subsequent to the AT&T Merger............ $5,319
======
</TABLE>
(3) Investments in Affiliates Accounted for under the Equity Method
Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount of the more significant
investments at June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ------------
June 30, December 31,
1999 1998
----------- ------------
amounts in millions
<S> <C> <C>
USA Networks, Inc. ("USAI") and related investments................................................ $ 2,594 1,042
Telewest Communications plc ("Telewest")........................................................... 1,933 515
Discovery Communications, Inc. ("Discovery")....................................................... 3,620 49
Fox/Liberty Networks LLC ("Fox Sports")............................................................ 1,393 (1)
TV Guide........................................................................................... 1,769 --
QVC Inc. ("QVC")................................................................................... 2,513 197
Flextech p.l.c. ("Flextech")....................................................................... 736 320
Other foreign investments (other than Telewest and Flextech)....................................... 1,462 346
Other.............................................................................................. 755 611
------- -----
$16,775 3,079
======= =====
</TABLE>
F-44
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reflects Liberty's share of earnings (losses) of
affiliates:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------------------
Four months Two months Six months
ended ended ended
June 30, February 28, June 30,
1999 1999 1998
----------- ------------ ----------
amounts in millions
<S> <C> <C> <C>
USAI and related investments........................................................... $ (9) 10 9
Telewest............................................................................... (97) (38) (64)
Discovery.............................................................................. (76) (8) (18)
Fox Sports............................................................................. (48) (1) (77)
TV Guide............................................................................... (11) -- --
QVC.................................................................................... (9) 13 21
Flextech............................................................................... (13) (5) (9)
Other foreign investments.............................................................. (56) (22) (49)
Sprint Spectrum Holding Company L.P., MinorCo, L.P. and PhillieCo Partnership I, L.P.
(the "PCS Ventures") (note 5)......................................................... -- -- (324)
Other.................................................................................. (40) (15) (12)
----- --- ----
$(359) (66) (523)
===== === ====
</TABLE>
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------------------
Four months Two months Six months
ended ended ended
June 30, February 28, June 30,
1999 1999 1998
----------- ------------ ----------
amounts in millions
<S> <C> <C> <C>
Combined Operations
Revenue.............................................................................. $ 4,060 2,341 6,184
Operating expenses................................................................... (3,451) (1,894) (5,712)
Depreciation and amortization........................................................ (520) (353) (1,058)
------- ------ ------
Operating income (loss)............................................................ 89 94 (586)
Interest expense..................................................................... (323) (281) (757)
Other, net........................................................................... (244) (127) (175)
------- ------ ------
Net loss........................................................................... $ (478) (314) (1,518)
======= ====== ======
</TABLE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At June 30, 1999, Liberty directly and indirectly held 29.6
million shares of USAI's common stock. Liberty also held shares directly in
certain subsidiaries of USAI which are exchangeable into 39.5 million shares of
USAI common stock. Liberty's direct ownership of USAI is currently restricted
by Federal Communications Commission ("FCC") regulations. The exchange of these
shares can be accomplished only if there is a change to existing regulations or
if Liberty obtains permission from the FCC. If the exchange of subsidiary stock
into USAI common stock was completed at June 30, 1999, Liberty would own 69.1
million shares or approximately 21% (on a fully-diluted basis) of USAI common
stock. USAI's common stock had a closing market price of $40 1/8 per share on
June 30, 1999. Liberty accounts for its investments in USAI and related
subsidiaries on a combined basis under the equity method.
F-45
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In February 1998, USAI paid cash and issued shares and one of its
subsidiaries issued shares in connection with the acquisition of certain assets
from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an
increase to its investment in USAI of $54 million and an increase to additional
paid-in capital of $33 million (after deducting a deferred income taxes of $21
million) as a result of this share issuance. No gain was recognized in the
consolidated statement of operations and comprehensive earnings for the
Universal Transaction due primarily to Liberty's intention at such time to
purchase additional equity interests in USAI. In connection with the Universal
Transaction, Liberty was granted an antidilutive right with respect to any
future issuance of USAI common stock, subject to certain limitations, that
enables it to maintain its percentage ownership interests in USAI.
Telewest currently operates and constructs cable television and telephone
systems in the UK. At June 30, 1999 Liberty indirectly owned 463 million of the
issued and outstanding Telewest ordinary shares. The reported closing price on
the London Stock Exchange of Telewest ordinary shares was (Pounds)2.85 ($4.49)
per share at June 30, 1999.
Liberty and The News Corporation Limited ("News Corp.") each held 50% of Fox
Sports which operates national and regional sports networks. Prior to the first
quarter of 1998, Liberty had no obligation, nor intention, to fund Fox Sports.
During 1998, Liberty made the determination to provide funding to Fox Sports
based on specific transactions consummated by Fox Sports. Consequently,
Liberty's share of losses of Fox Sports for the six months ended June 30, 1998
included previously unrecognized losses of Fox Sports of approximately $64
million. Losses for Fox Sports were not recognized in prior periods due to the
fact that Liberty's investment in Fox Sports was less than zero.
On July 15, 1999 News Corp. acquired Liberty's 50% interest in Fox Sports in
exchange for 51.8 million News Corp. American Depository Receipts ("ADRs")
representing preferred limited voting ordinary shares of News Corp. In a
related transaction, Liberty acquired from News Corp. 28.1 million additional
ADRs representing preferred limited voting ordinary shares of News Corp. for
approximately $695 million.
The Class A common stock of TV Guide is publicly traded. At June 30, 1999,
Liberty held 29 million shares of TV Guide Class A common stock and 37 million
shares of TV Guide Class B common stock. See note 6. The TV Guide Class B
common stock is convertible, one-for-one, into TV Guide Class A common stock.
The closing price for TV Guide Class A common stock was $36 5/8 per share on
June 30, 1999.
Flextech develops and sells a variety of television programming in the UK. At
June 30, 1999, Liberty indirectly owned 58 million Flextech ordinary shares.
The reported closing price on the London Stock Exchange of the Flextech
ordinary shares was (Pounds)10.22 ($16.11) per share at June 30, 1999.
The $14 billion aggregate excess of Liberty's aggregate carrying amount in
its affiliates over Liberty's proportionate share of its affiliates' net assets
is being amortized over an estimated useful life of 20 years.
Certain of Liberty's affiliates are general partnerships and subsidiaries of
Liberty that are general partners in such partnerships are liable as a matter
of partnership law for all debts (other than non-recourse debts) of that
partnership in the event liabilities of that partnership were to exceed its
assets.
(4) Investment in Time Warner
Liberty holds shares of a series of Time Warner's series common stock with
limited voting rights (the "TW Exchange Stock") that are convertible into an
aggregate of 114 million shares of Time Warner common stock.
F-46
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As security for borrowings under one of its credit facilities, Liberty has
pledged a portion of its TW Exchange Stock. At June 30, 1999 such pledged
portion had an aggregate fair value of approximately $3.2 billion.
In September 1997, Time Warner exercised an option to acquire the business of
Southern Satellite Systems, Inc. (the "Southern Business") from Liberty.
Pursuant to the option, Time Warner acquired the Southern Business, effective
January 1, 1998, for $213 million in cash. Liberty recognized a $515 million
pre-tax gain in connection with such transactions in the first quarter of 1998.
(5) Investment in Sprint
Pursuant to a proposed final judgment (the "Final Judgment") agreed to by
Liberty, AT&T and the United States Department of Justice (the "DOJ") on
December 31, 1998, Liberty transferred all of its beneficially owned securities
(the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the
AT&T Merger. The Final Judgment, if entered by the United States District Court
for the District of Columbia, would require the Trustee, on or before May 23,
2002, to dispose of a portion of the Sprint Securities sufficient to cause
Liberty to beneficially own no more than 10% of the outstanding Series 1 PCS
Stock of Sprint on a fully diluted basis on such date. On or before May 23,
2004, the Trustee must divest the remainder of the Sprint Securities
beneficially owned by Liberty.
The Final Judgment would provide that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The Final
Judgment would also prohibit the acquisition by Liberty of additional Sprint
Securities, with certain exceptions, without the prior written consent of the
DOJ.
The PCS Ventures included Sprint Spectrum Holding Company, L.P. and MinorCo,
L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P.
("PhillieCo"). The partners of each of the Sprint PCS partnerships were
subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox") and Liberty. The partners of PhillieCo were subsidiaries of
Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the
Sprint PCS partnerships and a 35% partnership interest in PhillieCo.
On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint
PCS Group Stock which tracks the performance of Sprint's newly created PCS
Group (consisting initially of the PCS Ventures and certain PCS licenses which
were separately owned by Sprint). The Sprint PCS Group Stock collectively
represents an approximate 17% voting interest in Sprint. As a result of the PCS
Exchange, Liberty holds the Sprint Securities which consists of shares of
Sprint PCS Group Stock, as well as certain additional securities of Sprint
exercisable for or convertible into such securities, representing approximately
24% of the equity value of Sprint attributable to its PCS Group and less than
1% of the voting interest in Sprint. Through November 23, 1998, Liberty
accounted for its interest in the PCS Ventures using the equity method of
accounting, however, as a result of the PCS Exchange and Liberty's less than 1%
voting interest in Sprint, Liberty no longer exercises significant influence
with respect to its investment in the PCS Ventures. Accordingly, Liberty
accounts for its investment in the Sprint PCS Group Stock as an available-for-
sale security.
(6) Acquisitions and Dispositions
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed
the assets, obligations and operations of its retail C-band satellite business
to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20%
interest in SNG. As a result of such transaction, Liberty's direct and indirect
(through UVSG) ownership interest in SNG, decreased to approximately 80%. In
connection with the increase in SNG's
F-47
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
equity, net of the dilution of Liberty's ownership interest in SNG, that
resulted from such transaction, Liberty recognized a gain of $38 million
(before deducting deferred income taxes of $15 million).
On March 1, 1999, United Video Satellite Group, Inc. ("UVSG") and News Corp.
completed a transaction whereby UVSG acquired News Corp.'s TV Guide properties
creating a broader platform for offering television guide services to consumers
and advertisers and UVSG was renamed TV Guide. News Corp. received $800 million
in cash and 60 million shares of UVSG's stock, including 22.5 million shares of
its Class A common stock and 37.5 million shares of its Class B common stock.
In addition, News Corp. purchased approximately 6.5 million additional shares
of UVSG Class A common stock for $129 million in order to equalize its
ownership with that of Liberty. As a result of these transactions, and another
transaction completed on the same date, News Corp., Liberty and TV Guide's
public stockholders own on an economic basis approximately 44%, 44% and 12%,
respectively, of TV Guide. Following such transactions, News Corp. and Liberty
each have approximately 49% of the voting power of TV Guide's outstanding
stock. In connection with the increase in TV Guide's equity, net of the
dilution of Liberty's ownership interest in TV Guide, Liberty recognized a gain
of $372 million (before deducting deferred income taxes of $147 million). Upon
consummation, Liberty began accounting for its interest in TV Guide under the
equity method of accounting.
(7) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ------------
June 30, December 31,
1999 1998
----------- ------------
amounts in millions
<S> <C> <C>
Bank credit facilities............................................................................. $2,094 1,629
4 1/2% Convertible Subordinated Debentures......................................................... -- 345
Other.............................................................................................. 82 122
------ -----
2,176 2,096
Less current maturities............................................................................ 683 184
------ -----
Total............................................................................................ $1,493 1,912
====== =====
</TABLE>
On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% Convertible
Subordinated Debentures due February 15, 2005. See note 9.
At June 30, 1999, Liberty had approximately $876 million in unused lines of
credit under its bank credit facilities. The bank credit facilities of Liberty
generally contain restrictive covenants which require, among other things, the
maintenance of certain financial ratios, and include limitations on
indebtedness, liens and encumbrances, acquisitions, dispositions, guarantees
and dividends. Additionally, Liberty pays fees ranging from .15% to .375% per
annum on the average unborrowed portions of the total amounts available for
borrowings under its bank credit facilities.
As collateral for borrowings under one of Liberty's credit facilities, the
banks lend against certain assets designated by Liberty (the "Designated
Assets"). The carrying amount of the Designated Assets as of June 30, 1999 was
$6.5 billion. Recourse to the banks for payment of Liberty's obligations under
this facility is limited solely to the Designated Assets. Also, as security for
borrowings under one of its credit facilities, Liberty has pledged a portion of
its TW Exchange Stock. See note 4.
F-48
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Certain of Liberty's bank credit facilities have credit agreements which
provide for a three month interest reserve to be held by an administrative
agent. Such amounts held in the interest reserves amounted to $18 million and
$17 million as of June 30, 1999 and December 31, 1998, respectively, and are
included in other current assets in the accompanying consolidated balance
sheets.
Liberty believes that the carrying value of Liberty's debt approximated its
fair value at June 30, 1999.
On July 7, 1999, Liberty received net cash proceeds of approximately $741
million and $494 million from the issuance of 7 7/8% Senior Notes due 2009 (the
"Senior Notes") and 8 1/2% Senior Debentures due 2029 (the "Senior
Debentures"), respectively. The Senior Notes have an aggregate principal amount
of $750 million and the Senior Debentures have an aggregate principal amount of
$500 million. Interest on the Senior Notes and the Senior Debentures is payable
on January 15 and July 15 of each year. The proceeds were used to repay
outstanding borrowings under certain of Liberty's credit facilities, two of
which were subsequently canceled.
(8) Income Taxes
Subsequent to the AT&T Merger, Liberty is included in the consolidated
federal income tax return of AT&T and party to a tax sharing agreement with
AT&T (the "AT&T Tax Sharing Agreement"). The income tax provision for Liberty
is calculated based on the increase or decrease in the tax liability of the
AT&T consolidated group resulting from the inclusion of those items in the
consolidated tax return of AT&T which are attributable to Liberty.
Under the AT&T Tax Sharing Agreement, Liberty will receive a cash payment
from AT&T in periods when it generates taxable losses and such taxable losses
are utilized by AT&T to reduce the consolidated income tax liability. This
utilization of taxable losses will be accounted for by Liberty as a current
federal intercompany income tax benefit. To the extent such losses are not
utilized by AT&T, such amounts will be available to reduce federal taxable
income generated by Liberty in future periods, similar to a net operating loss
carryforward and will be accounted for as a deferred federal income tax
benefit.
In periods when Liberty generates federal taxable income, AT&T has agreed to
satisfy such tax liability on Liberty's behalf up to a certain amount. The
reduction of such computed tax liabilities will be accounted for by Liberty as
a credit to additional paid-in-capital. The total amount of future federal tax
liabilities of Liberty which AT&T will satisfy under the AT&T Tax Sharing
Agreement is approximately $512 million, which represents the tax effect of the
net operating loss carryforward reflected in TCI's final federal income tax
return, subject to IRS adjustments. Thereafter, Liberty is required to make
cash payments to AT&T for federal tax liabilities of Liberty.
To the extent AT&T utilizes existing net operating losses of Liberty, such
amounts will be accounted for by Liberty as a reduction of additional paid-in-
capital.
Liberty will generally make cash payments to AT&T related to states where it
generates taxable income and receive cash payments from AT&T in states where it
generates taxable losses.
Liberty's obligation under the 1995 TCI Tax Sharing Agreement of
approximately $139 million (subject to adjustment), which is included in "due
to related parties," shall be paid at the time, if ever, that Liberty
deconsolidates from the AT&T income tax return. Liberty's receivable under the
1997 TCI Tax Sharing Agreement of approximately $220 million was forgiven in
the AT&T Tax Sharing Agreement and recorded as an adjustment to additional
paid-in-capital by Liberty in connection with the AT&T Merger.
F-49
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Stockholders' Equity
Preferred Stock
The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board.
Common Stock
The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.
As of June 30, 1999, all of the issued and outstanding common stock of
Liberty was held by AT&T.
Stock Issuances by Subsidiary
During the second quarter of 1999, TCI Music issued approximately 4.8 million
shares of common stock in connection with the conversion of its preferred stock
and approximately 0.4 million shares of common stock in connection with the
exercise of certain employee stock options. As a result, Liberty's interest in
TCI Music was reduced to 86%. In connection with the increase in TCI Music's
equity, net of the dilution of Liberty's interest in TCI Music, that resulted
from such stock issuances, Liberty recorded a $40 million increase to
additional paid-in-capital.
Transactions with AT&T (formerly TCI) and Other Related Parties
Certain AT&T corporate general and administrative costs are charged to
Liberty. Included in operating, selling, general and administrative expenses in
the accompanying consolidated statements of operations and comprehensive
earnings, during the four month period ended June 30, 1999, the two month
period ended February 28, 1999 and the six months ended June 30, 1998, Liberty
was allocated less than $1 million, $2 million and $9 million, respectively, in
corporate general and administrative costs by TCI.
Certain subsidiaries attributed to Liberty produce and/or distribute sports
and other programming and other services to cable distribution operators
(including AT&T) and others. Charges to AT&T are based upon customary rates
charged to others. Amounts included in revenue for services provided to AT&T
were $71 million, $43 million and $146 million for the four month period ending
June 30, 1999, the two month period ending February 28, 1999 and the six months
ended June 30, 1998, respectively.
Entities included in Liberty lease satellite transponder facilities from
NDTC. Charges by NDTC for such arrangements and other related operating
expenses for the four months ended June 30, 1999, two months ended February 28,
1999 and six months ended June 30, 1998 aggregated $10 million, $4 million and
$11 million, respectively, and are included in operating expenses in the
accompanying consolidated statements of operations and comprehensive earnings.
On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% convertible
subordinated debentures due February 15, 2005. The debentures were convertible
into shares of AT&T Liberty Media Group Class A Tracking Stock at a conversion
price of $23.54, or 42.48 shares per $1,000 principal amount. Certain holders
of the debentures had exercised their rights to convert their debentures and
14.6 million shares of AT&T Liberty Media Group Tracking Stock were issued to
such holders. In connection with such issuance of AT&T Liberty Media Group
Tracking Stock, Liberty recorded an increase to additional paid-in-capital of
$354 million.
F-50
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions with Officers and Directors
In connection with the AT&T Merger, Liberty paid two of its directors and one
other individual, all three of whom are directors of TCI, an aggregate of $12
million for services rendered in connection with the AT&T Merger. Such amount
is included in operating, selling, general and administrative expenses for the
two months ended February 28, 1999 in the accompanying consolidated statements
of operations and comprehensive earnings.
On February 9, 1998, in connection with the settlement of certain legal
proceedings relative to the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI, TCI entered into a call
agreement with Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
"Malones"), and a call agreement with the Estate of Bob Magness, the Estate of
Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). Under these call agreements,
each of the Magness Group and the Malones granted to TCI the right to acquire
all of the shares of TCI's common stock owned by them ("High Voting Shares")
that entitle the holder to cast more than one vote per share (the "High-Voting
Stock") upon Dr. Malone's death or upon a contemplated sale of the High-Voting
Shares (other than a minimal amount) to third parties. In either such event,
TCI had the right to acquire such shares at a price equal to the then market
price of shares of TCI's common stock of the corresponding series that entitled
the holder to cast no more than one vote per share (the "Low-Voting Stock"),
plus a 10% premium, or in the case of a sale, the lesser of such price and the
price offered by the third party. In addition, each call agreement provides
that if TCI were ever to be sold to a third party, then the maximum premium
that the Magness Group or the Malones would receive for their High-Voting
Shares would be the price paid for shares of the relevant series of Low-Voting
Stock by the third party, plus a 10% premium. Each call agreement also
prohibits any member of the Magness Group or the Malones from disposing of
their High-Voting Shares, except for certain exempt transfers (such as
transfers to related parties or to the other group or public sales of up to an
aggregate of 5% of their High-Voting Shares after conversion to the respective
series of Low-Voting Stock) and except for a transfer made in compliance with
TCI's purchase right described above. TCI paid $150 million to the Malones and
$124 million to the Magness Group in consideration of their entering into the
call agreements, of which an aggregate of $140 million was allocated to and
paid by Liberty.
Also in February 1998, TCI, the Magness Group and the Malones entered into a
shareholders' agreement which provides for, among other things, certain
participation rights by the Magness Group with respect to transactions by Dr.
Malone, and certain "tag-along" rights in favor of the Magness Group and
certain "drag-along" rights in favor of the Malones, with respect to
transactions in the High-Voting Stock. Such agreement also provides that a
representative of Dr. Malone and a representative of the Magness Group will
consult with each other on all matters to be brought to a vote of TCI's
shareholders, but if a mutual agreement on how to vote cannot be reached, Dr.
Malone will vote the High-Voting Stock owned by the Magness Group pursuant to
an irrevocable proxy granted by the Magness Group.
In connection with the AT&T merger, Liberty became entitled to exercise TCI's
rights and became subject to its obligations under the call agreement and the
shareholders' agreement with respect to the AT&T Liberty Media Group Class B
Tracking Stock acquired by the Malones and the Magness Group as a result of the
AT&T merger. If Liberty were to exercise its call right under the call
agreement with the Malones or the Magness Group, it may also be required to
purchase High-Voting Shares of the other group if such group exercises its
"tag-along" rights under the shareholders' agreement.
F-51
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to Related Parties
The components of "Due to related parties" are as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ------------
June 30, December 31,
1999 1998
----------- ------------
amounts in millions
<S> <C> <C>
Note payable to TCI, including accrued interest.................................................... $ -- 141
Intercompany account............................................................................... 103 269
----- ---
$ 103 410
===== ===
</TABLE>
The non-interest bearing intercompany account includes certain stock
compensation allocations (in Old Liberty) and income tax allocations that are
to be settled at some future date. Stock compensation liabilities of New
Liberty are classified as a separate component of current liabilities. All
other amounts included in the intercompany account are to be settled within
thirty days following notification.
(10) Commitments and Contingencies
Encore Media Group, a wholly owned subsidiary of Liberty, is obligated to pay
fees for the rights to exhibit certain films that are released by various
producers through 2017 (the "Film Licensing Obligations"). Based on customer
levels at June 30, 1999, these agreements require minimum payments aggregating
approximately $775 million. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing Obligations
could prove to be significant.
Flextech has undertaken to finance the working capital requirements of a
joint venture, (the "Principal Joint Venture") formed with BBC Worldwide and is
obligated to provide the Principal Joint Venture with a primary credit facility
of (Pounds)88 million ($139 million) and subject to certain restrictions, a
standby credit facility of (Pounds)30 million ($49 million). As of June 30,
1999, the Principal Joint Venture had borrowed (Pounds)40 million ($63 million)
under the primary credit facility. If Flextech defaults in its funding
obligation to the Principal Joint Venture and fails to cure within 42 days
after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within
the following 90 days, to require that Liberty assume all of Flextech's funding
obligations to the Principal Joint Venture.
Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At June
30, 1999, the Guaranteed Obligations aggregated approximately $377 million.
Currently, Liberty is not certain of the likelihood of being required to
perform under such guarantees.
Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements.
On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including Liberty's cable
television systems owned by its subsidiary (the "Puerto Rico Subsidiary"). The
Puerto Rico Subsidiary's cable television systems represent $19 million of
Liberty's revenue for the six months ended June 30, 1999.
F-52
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of June 30, 1999, approximately 93% of the Puerto Rico Subsidiary's pre-
hurricane basic customers were receiving cable television services. The loss of
revenue from September 21, 1998 through June 30, 1999 was $12 million. The
Puerto Rico Subsidiary's business interruption insurance covered the first $3
million in lost revenue.
The Puerto Rico Subsidiary has also claimed coverage for business
interruption under a secondary insurance carrier. Such policy, which covers the
Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of
$2.5 million. This insurance claim is subject to approval by such insurance
carrier and accordingly, no assurance can be given that amounts claimed will be
paid in their entirety. However, in the event such claims are collected the
overall impact in lost revenues for the Puerto Rico Subsidiary as a result of
Hurricane Georges will not exceed $2.5 million.
Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty may incur losses upon conclusion of such matters, an estimate
of any loss or range of loss cannot be made. In the opinion of management, it
is expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying consolidated
financial statements.
During the six months ended June 30, 1999, Liberty, in conjunction with AT&T,
continued its enterprise-wide, comprehensive efforts to assess and remediate
its computer systems and related software and equipment to ensure such systems,
software and equipment recognize, process and store information in the year
2000 and thereafter. AT&T's year 2000 remediation efforts include an assessment
of Liberty's most critical systems, equipment, and facilities. AT&T also
continued its efforts to verify the year 2000 readiness of Liberty's
significant suppliers and vendors and continued to communicate with significant
business partners and affiliates to assess such partners and affiliates' year
2000 status.
Failure to achieve year 2000 compliance by Liberty, its significant business
partners and affiliates with which it has a relationship could negatively
affect Liberty's ability to conduct business for an extended period. There can
be no assurance that all of Liberty's computer systems and related software
will be fully year 2000 compliant; in addition, other companies on which
Liberty's computer systems and related software and operations rely may or may
not be fully compliant on a timely basis, and any such failure could have a
material adverse effect on Liberty's financial position, results of operation
or liquidity.
(11) Information about Liberty's Operating Segments
For the four months ended June 30, 1999, Liberty has three operating
segments: Encore Media Group, TCI Music and Equity Investments and Other. For
the two months ended February 28, 1999 and the six months ended June 30, 1998,
Liberty has four operating segments: Encore Media Group, TV Guide, TCI Music
and Equity Investments and Other. Equity Investments and Other includes
Liberty's investments accounted for under the equity method, primarily in cable
television programming entities and other businesses not representing
separately reportable segments.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Liberty evaluates performance
based on the measures of revenue and operating cash flow (as defined by
Liberty), appreciation in stock price along with other non-financial measures
such as average prime time rating, prime time audience delivery, subscriber
growth and penetration, as appropriate. Liberty believes operating cash flow is
a widely used financial indicator of companies similar to Liberty and its
affiliates, which should be considered in addition to, but not as a substitute
for, operating income, net income, cash flow provided by operating activities
and other measures of financial performance prepared in accordance
F-53
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with generally accepted accounting principles. Liberty generally accounts for
intersegment sales and transfers as if the sales or transfers were to third
parties, that is, at current prices.
Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology and marketing strategies.
Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
Equity
Investments
EMG TCI Music and Other Total
------ --------- ----------- ------
amounts in millions
<S> <C> <C> <C> <C>
Four months ended June 30, 1999
Segment revenue from external customers
including intersegment revenue......... $ 211 33 48 292
Segment operating cash flow (deficit)... 53 -- (1) 52
Segment equity in losses of affiliates.. -- -- (359) (359)
As of June 30, 1999
Segment assets.......................... 2,615 495 46,890 50,000
Investments in affiliates............... -- (8) 16,783 16,775
</TABLE>
<TABLE>
<CAPTION>
Equity
Investments
EMG TV Guide TCI Music and Other Total
---- -------- --------- ----------- -----
amounts in millions
<S> <C> <C> <C> <C> <C>
Two months ended February 28, 1999
Segment revenue from external
customers including intersegment
revenue........................... $101 97 15 22 235
Segment operating cash flow
(deficit)......................... 41 21 1 (16) 47
Segment equity in losses of
affiliates........................ -- -- -- (66) (66)
Six months ended June 30, 1998
Segment revenue from external
customers including intersegment
revenue........................... $249 290 40 68 647
Segment operating cash flow
(deficit)......................... 40 56 3 (5) 94
Segment equity in losses of
affiliates........................ -- -- -- (523) (523)
</TABLE>
F-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of Sprint Corporation and
Partners of Sprint Spectrum Holding Company, L.P.
We have audited the consolidated balance sheets of Sprint Spectrum Holding
Company, L.P. and subsidiaries (the "Holdings") as of December 31, 1998 and
1997, and the related consolidated statements of operations and cash flows for
the three years in the period ended December 31, 1998. Our audits also included
the financial statement schedule ("Schedule II"). These financial statements
and Schedule II are the responsibility of Partnership management. Our
responsibility is to express an opinion on these consolidated financial
statements and Schedule II based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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, such consolidated financial statements present fairly, in all
material respects, the financial position of Sprint Spectrum Holding Company,
L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
Schedule II, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
February 2, 1999
F-55
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
(in millions)
<S> <C> <C> <C>
Net Operating Revenues.......................... $ 1,175.5 $ 248.6 $ 4.2
--------- --------- -------
Operating Expenses
Costs of services and products................ 1,142.8 555.0 36.1
Selling, general and administrative........... 1,334.9 696.9 312.7
Depreciation.................................. 637.1 258.6 9.6
Amortization.................................. 76.0 48.8 1.7
--------- --------- -------
Total operating expenses.................... 3,190.8 1,559.3 360.1
--------- --------- -------
Operating Loss.................................. (2,015.3) (1,310.7) (355.9)
Interest expense................................ (469.6) (121.9) (0.3)
Minority interest............................... 144.5 6.2 (0.2)
Equity in loss of unconsolidated partnerships... -- (168.9) (96.9)
Other income, net............................... 33.5 31.9 10.2
--------- --------- -------
Loss before Extraordinary Item.................. (2,306.9) (1,563.4) (443.1)
Extraordinary item.............................. (51.1) -- --
--------- --------- -------
Net Loss........................................ $(2,358.0) $(1,563.4) $(443.1)
========= ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(in millions)
<S> <C> <C>
Assets
Current assets
Cash and equivalents................................. $ 123.5 $ 117.2
Accounts receivable, net of allowance for doubtful
accounts of $21.0 and $9.0 in 1998 and 1997,
respectively........................................ 280.5 113.5
Receivable from affiliates........................... 147.6 96.3
Inventories.......................................... 113.2 101.4
Prepaid expenses..................................... 31.2 28.4
--------- ---------
Total current assets............................... 696.0 456.8
Property, plant and equipment
Buildings and leasehold improvements................. 924.2 618.3
Network equipment.................................... 3,371.4 2,265.2
Construction work in progress........................ 864.1 632.9
Other................................................ 338.1 167.4
--------- ---------
Total property, plant and equipment.................. 5,497.8 3,683.8
Accumulated depreciation............................. (861.0) (254.6)
--------- ---------
Net property, plant and equipment.................... 4,636.8 3,429.2
Investment in unconsolidated partnership............... -- 273.5
Minority interest...................................... -- 56.7
Intangibles
PCS licenses......................................... 2,464.3 2,223.0
Goodwill............................................. 381.6 125.6
Microwave relocations................................ 335.7 269.4
--------- ---------
Total intangibles.................................... 3,181.6 2,618.0
Accumulated amortization............................. (124.5) (50.4)
--------- ---------
Net intangibles...................................... 3,057.1 2,567.6
--------- ---------
Other assets........................................... 45.8 113.2
--------- ---------
Total.............................................. $ 8,435.7 $ 6,897.0
========= =========
Liabilities and Partners' Capital
Current liabilities
Current maturities of long-term debt................. $ 119.4 $ 34.6
Accounts payable..................................... 539.2 416.0
Construction obligations............................. 636.0 705.3
Accrued expenses and other current liabilities....... 566.2 300.0
--------- ---------
Total current liabilities............................ 1,860.8 1,455.9
Long-term debt......................................... 6,491.6 3,533.9
Limited partner interest in consolidated subsidiary.... 34.0 13.7
Other.................................................. 79.0 49.0
Partners' capital and accumulated deficit
Partners' capital.................................... 4,448.5 3,964.7
Accumulated deficit.................................. (4,478.2) (2,120.2)
--------- ---------
Partners' capital and accumulated deficit............ (29.7) 1,844.5
--------- ---------
Total.............................................. $ 8,435.7 $ 6,897.0
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-57
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Cash Flow from Operating Activities:
Net loss...................................... $(2,358.0) $(1,563.4) $ (443.1)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in losses of unconsolidated
partnerships............................... -- 168.9 96.9
Minority interest........................... (144.5) (6.2) 0.2
Extraordinary item.......................... 51.1 -- --
Depreciation and amortization............... 712.1 307.9 11.3
Amortization of debt discount and issuance
costs...................................... 58.8 49.1 14.0
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable, net.................. (195.1) (182.9) (15.9)
Inventories............................... (2.2) (24.9) (72.4)
Prepaid expenses and other assets......... 4.7 (12.4) (21.6)
Accounts payable and other current
liabilities.............................. 219.8 361.5 946.7
Other noncurrent liabilities.............. 29.9 37.6 9.5
--------- --------- --------
Net cash provided by (used in) operating
activities............................. (1,623.4) (864.8) 525.6
--------- --------- --------
Cash Flows from Investing Activities:
Capital expenditures.......................... (1,495.0) (2,041.3) (1,386.3)
Microwave relocation costs, net............... (46.8) (116.3) (135.8)
Purchase of APC, net of cash acquired......... (28.9) (6.8) --
Purchase of Cox PCS, net of cash acquired..... (28.3) -- --
Investment in unconsolidated partnerships..... -- (191.2) (190.4)
Loan to unconsolidated partnership............ -- (111.4) (232.0)
Payment received on loan to unconsolidated
partnership.................................. -- 246.7 5.9
--------- --------- --------
Net cash used in investing activities... (1,599.0) (2,220.3) (1,938.6)
--------- --------- --------
Cash Flows from Financing Activities:
Advances from partners........................ -- -- 167.8
Net borrowings under revolving credit
facilities................................... 1,253.6 605.0 --
Proceeds from issuance of long-term debt...... 1,358.6 1,763.0 674.2
Long-term borrowings from parent.............. 3,526.6 -- --
Payments on long-term debt.................... (3,393.9) (170.8) --
Debt issuance costs........................... -- (20.0) (71.8)
Partner capital contributions................. 517.1 966.8 711.7
Return of capital............................. (33.3) (11.7) --
--------- --------- --------
Net cash provided by financing
activities............................. 3,228.7 3,132.3 1,481.9
--------- --------- --------
Increase in Cash and Equivalents.............. 6.3 47.2 68.9
Cash and Equivalents, Beginning of Period..... 117.2 70.0 1.1
--------- --------- --------
Cash and Equivalents, End of Period........... $ 123.5 $ 117.2 $ 70.0
--------- --------- --------
Supplemental Disclosure of Cash Flow
Information:
. Interest paid, net of amount capitalized.... $ 264.8 $ 35.6 $ 0.3
Non-cash Investing and Financing Activities:
. Accrued interest of $154.2 million and $51.7
million related to vendor financing was
converted to long-term debt during the years
ended December 31, 1998 and 1997,
respectively.
. A PCS license covering the Omaha MTA and
valued at $6.2 million was contributed to
Holdings by Cox Communications during the
year ended December 31, 1997.
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Organization
Sprint Spectrum Holding Company, L.P.
Sprint Spectrum Holding Company, L.P. (Holdings) is the 99% general partner
of, and is consolidated with, its subsidiaries, including NewTelco, L.P.
(NewTelco) and Sprint Spectrum L.P., which, in turn, has several subsidiaries.
Sprint Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
(EquipmentCo), Sprint Spectrum Realty Company, L.P. (RealtyCo), Sprint Spectrum
Finance Corporation (FinCo), and WirelessCo, L.P. (WirelessCo).
MinorCo, L.P. (MinorCo) holds the minority limited partnership interests of
1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo, WirelessCo and
0.25% in American PCS, L.P. (APC) at December 31, 1998 and 1997.
The results of APC are consolidated from November 1997, the date the Federal
Communications Commission ("FCC") approved Holdings as the new managing partner
(Note 3). APC, through subsidiaries, owns a PCS license for and operates a
broadband GSM (global system for mobile communications) in the Washington
D.C./Baltimore Major Trading Area ("MTA"), and has launched a code division
multiple access ("CDMA") overlay for its existing GSM PCS system. APC includes
American PCS Communications, LLC, APC PCS, LLC, APC Realty and Equipment
Company, LLC and American Personal Communications Holdings, Inc.
As discussed in Note 3, Holdings also became the managing partner of Cox
Communications PCS, L.P. ("Cox PCS") in June 1998. Cox PCS results have been
included in the consolidated statements of operations from January 1, 1998. Cox
PCS, through subsidiaries, holds a PCS license for and operates a PCS system in
the Los Angeles-San Diego-Las Vegas MTA. Cox PCS includes Cox PCS License,
L.L.C., Cox PCS Assets, L.L.C., and PCS Leasing Co., L.P.
Restructuring and Reorganization
In November 1998, Sprint Corporation (Sprint) acquired the remaining
ownership interests in Holdings. Sprint acquired these ownership interests from
Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc.
(the Cable Partners). The purchase of the Cable Partners' interests is referred
to as the PCS Restructuring, which included the formation of the PCS Group.
Sprint accounted for the transaction as a purchase. Purchase accounting was not
"pushed down" to Holdings. PhillieCo, L.P. (PhillieCo) and SprintCom, Inc.
(SprintCom) are affiliates of Holdings through common ownership, and provide
PCS service in license areas not owned by Holdings.
Sprint Spectrum Holding Company, L.P. Partnership Agreement
Holdings was originally formed as a Delaware limited partnership on March 28,
1995, by Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Cox Telephony
Partnership and Comcast Telephony Services. The Partnership Agreement was
amended concurrent with the PCS Restructuring discussed above. This amendment
provided for the interests of the Cable Partners in Holdings to be acquired by
wholly owned subsidiaries of Sprint.
Emergence from Development Stage Company
Prior to the third quarter of 1997, Holdings reported its operations as a
development stage enterprise. Holdings has commenced service in all of the MTAs
in which it owns a license. As a result, Holdings is no
F-59
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
longer considered a development stage enterprise, and the consolidated balance
sheets and statements of operations and cash flows are no longer presented in
development stage format.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The assets, liabilities, results of operations and cash flows of entities in
which Holdings has a controlling interest have been consolidated. All
significant intercompany accounts and transactions have been eliminated.
Holdings' consolidated financial statements are prepared using generally
accepted accounting principles. These principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the results of
operations or partners' capital as previously reported.
Allocation of Shared Services and Group Financing
Sprint directly assigns, where possible, certain general and administrative
costs to Holdings based on the actual use of those services. Where direct
assignment of costs is not possible or practicable Sprint uses other methods to
estimate the assignment of costs to Holdings.
Financing activities for Holdings are managed by Sprint on a centralized
basis. Debt and the related interest expense incurred by Sprint and its
subsidiaries on behalf of Holdings are specifically allocated to and reflected
in these financial statements. Interest expense is allocated to Holdings based
on an interest rate that is largely equal to the rate Holdings would be able to
obtain from third parties as a direct or indirect wholly owned Sprint
subsidiary, but without the benefit of any guaranty by Sprint.
Minority Interests
In 1998, minority interest consisted primarily of Cox Pioneer Partnership's
(CPP) ownership in Cox PCS. Prior to 1998, minority interest primarily included
losses attributable to American Personal Communications, II, L.P. (APC II).
Trademark Agreement
Sprint owns various trademarks and service marks utilized by Holdings. Sprint
expects to apply for and develop trademarks, service marks and patents for the
benefit of Holdings in the ordinary course of business. Sprint is a registered
trademark of Sprint and Sprint PCSSM is a registered service mark of Sprint,
both of which are utilized by Holdings on a royalty-free basis under trademark
license agreements.
Revenue Recognition
Holdings recognizes operating revenues as services are rendered or as
products are delivered to customers. Holdings records operating revenues net of
an estimate for uncollectible accounts.
Cash and Equivalents
Cash equivalents generally include highly liquid investments with original
maturities of three months or less. They are stated at cost, which approximates
market value.
F-60
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Inventories
Inventories are stated at the lower of cost (principally first-in, first-out
method) or replacement value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Generally, ordinary asset
retirements and disposals are charged against accumulated depreciation with no
gain or loss recognized. Property, plant and equipment is depreciated on a
straight-line basis over estimated economic useful lives. Repair and
maintenance costs are expensed as incurred.
Capitalized Interest
Interest costs associated with the construction of capital assets incurred
during the period of construction are capitalized. Capitalized interest totaled
approximately $63 million in 1998, $99 million in 1997 and $31 million in 1996.
PCS Licenses
Holdings acquired licenses from the Federal Communications Commission (FCC)
to operate as a PCS service provider. These licenses are granted for up to 10-
year terms with renewals for additional 10-year terms if license obligations
are met. These licenses are recorded at cost and are amortized over 40 years
when service begins in a specific geographic area. Accumulated amortization
totaled approximately $104 million at year-end 1998 and $45 million at year-end
1997.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired in business combinations accounted for as purchases.
Goodwill is being amortized over 40 years using the straight-line method for
Holdings. Accumulated amortization totaled $8 million at year-end 1998 and
$0.4 million at year-end 1997.
Microwave Relocations
Holdings has incurred costs related to microwave relocation in constructing
the PCS network. Microwave relocation costs are being amortized over the
remaining lives of the PCS licenses. Accumulated amortization for microwave
relocation costs totaled approximately $13 million at year-end 1998 and $5
million at year-end 1997.
Income Taxes
Holdings has not provided for federal or state income taxes since such taxes
are the responsibility of the Partners.
Derivative Financial Instruments
Prior to the PCS Restructuring, derivative financial instruments (interest
rate contracts) were utilized by APC to reduce interest rate risk. APC
established a control environment which included risk assessment and management
approval, reporting and monitoring of derivative financial instrument
activities. APC did not hold or issue derivative financial instruments for
trading purposes. At year-end 1998, no derivatives were outstanding.
F-61
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
Holdings' total comprehensive loss for all periods presented did not differ
from those amounts reported as net loss in the consolidated statements of
operations.
Major Customer
Holdings markets its products through multiple distribution channels,
including its own retail stores as well as other retail outlets. Holdings'
subscribers are dispersed throughout the United States. Equipment sales to one
retail outlet, and service revenues generated by sales to its customers
represented approximately 25% and 21% of net operating revenues in the
consolidated statements of operations in 1998 and 1997, respectively.
3. Investments in Partnerships
APC--In September 1997, Holdings increased its ownership in APC to 58.3%
through additional capital contributions of $30 million, and became the
managing partner in November 1997. At the beginning of 1998, Holdings increased
its ownership percentage to 99.75% of the partnership interests for
approximately $30 million. APC II has been allocated approximately $7 million
in losses in APC since November 1997. Prior to November 1997, APC II had been
allocated approximately $50 million in losses in excess of its investment. At
year-end 1997, these losses totaled $57 million and were recorded as minority
interest in Holdings' consolidated balance sheet. This treatment reflects APC
II's continued responsibility for funding its share of losses until January 1,
1998 when Holdings and MinorCo acquired the remaining interest in APC.
Cox PCS--At year-end 1996, Holdings acquired a 49% limited partner interest
in Cox PCS. CPP held a 50.5% general and a 0.5% limited partner interest and
was the general and managing partner. Holdings increased its ownership in Cox
PCS to 59.2% through an additional capital contribution of approximately
$81 million and became managing partner upon FCC approval in June 1998. CPP's
remaining ownership interest in Cox PCS is reflected as minority interest in
the consolidated balance sheet and statements of operations. CPP has been
allocated approximately $145 million in losses in Cox PCS since the date of
acquisition. Under the partnership agreement, Cox has the right to require
Holdings to purchase, under certain circumstances, all or part of CPP's
interest in Cox PCS, which could involve significant cash requirements. Cox may
require Holdings to acquire an additional 10.2% interest in Cox PCS per year
through 2000. Beginning in 2001 through 2005, CPP may require Holdings to
acquire up to all of its interest in Cox PCS. Cox has given Holdings notice to
start the appraisal process related to a potential put of all or a portion of
CPP's remaining partnership interest to Holdings.
The acquisition of APC was accounted for as a purchase and, accordingly, the
operating results of APC have been consolidated since the acquisition. The
acquisition of Cox PCS increasing ownership to 59.2% was also accounted for as
a purchase. The operating results of Cox PCS have been consolidated since the
beginning of 1998. In conjunction with the acquisitions liabilities assumed
were (in millions):
<TABLE>
<CAPTION>
Cox
APC PCS
---- -----
<S> <C> <C>
Assets acquired.............................................. $503 $ 725
Cash paid.................................................... (30) (81)
Minority interest............................................ 50 (104)
---- -----
Liabilities assumed.......................................... $523 $ 540
==== =====
</TABLE>
F-62
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The purchase price was allocated to the assets acquired and the liabilities
assumed based on an estimate of fair value. The ultimate purchase price of Cox
PCS may differ from the initial estimate. In connection with the
above acquisitions, the excess of the purchase price over the fair value of the
net assets acquired was accounted for as goodwill.
Prior to acquisition of controlling interest, Holdings' investments in APC
and Cox PCS were accounted for under the equity method. Losses of APC and Cox
PCS of approximately $61 million and $108 million, respectively, in 1997 and
losses of APC of $97 million in 1996 are included in equity in losses of
unconsolidated partnerships during the period prior to the acquisition of
controlling interest.
Under the terms of the partnership agreement, CPP and Holdings are obligated
to make additional capital contributions in an amount equal to such partner's
percentage interest times the amount of additional capital contributions being
requested. In 1998, Holdings completed its funding obligation to Cox PCS under
the partnership agreement by contributing $34 million, including $33 million in
interest that had accrued on the unfunded obligation. Holdings had previously
contributed equity of approximately $180 million in 1997 and $168 million in
1996.
The following unaudited pro forma financial information assumes the
acquisition of APC had occurred on January 1 of each year and the acquisition
of Cox PCS had occurred on January 1, 1997. It also assumes that Holdings had
owned 100% of each entity and consolidated their results in the Holdings'
financial statements (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Net sales................................................... $ 392 $ 76
Net loss (before minority interest)......................... (1,747) (553)
</TABLE>
These proforma amounts are for comparative purposes only and do not
necessarily represent what actual results of operations would have been, nor do
they indicate the results of future operations.
4. Employee Benefit Plans
Defined Contribution and Profit Sharing Plans
Holdings sponsors a savings and retirement program (the "Savings Plan") for
certain employees. Most permanent full-time, and certain part-time, employees
are eligible to participate after one year of service or on their 35th
birthday, whichever occurs first. The maximum contribution for any participant
for any year is 16% of their pay. Holdings matches contributions equal to 50%
of the contribution of each participant, up to the first 6% that the employee
elects to contribute. Contributions to the Savings Plan are invested, at the
participant's discretion, in several designated investment funds. Expense under
the Savings Plan was $6 million in 1998, $5 million in 1997 and $1 million in
1996. Effective January 1999, Holdings' employees began making contributions to
Sprint's defined contribution plan. The existing assets of the Savings Plan
will be rolled over to Sprint's defined contribution plan in early 1999.
Effective January 1999, Holdings' employees were also eligible to participate
in Sprint's pension and postretirement plans.
The Cox PCS Savings and Investment Plan (the "Cox PCS Plan") was established
effective July 1, 1997. Substantially all Cox PCS employees are eligible to
participate in the Cox PCS Plan after completing one year
F-63
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of eligible service (as defined) and attaining age 21. Employees may make
contributions to the Cox PCS Plan on a pretax basis pursuant to Section 401(k)
of the Internal Revenue Code. Cox PCS makes matching contributions equal to 75%
of the employee's contribution up to a maximum amount equal to 4.5% of the
employee's annual compensation. Employee contributions vest immediately, and
Cox PCS' matching contributions vest over three years of service. Expense under
the Cox PCS Plan approximated $1 million in
1998. The Cox PCS Plan will be terminated in early 1999, and the existing
assets will be rolled over to Sprint's defined contribution plan.
Profit Sharing (Retirement) Plan
Effective January, 1996, Holdings established a profit sharing plan for its
employees. Employees are eligible to participate in the plan after completing
one year of service. Profit sharing contributions are based on the
compensation, age, and years of service of the employee. Profit sharing
contributions are deposited into individual accounts of Holdings' retirement
plan. Vesting occurs once a participant completes five years of service.
Expense under the profit sharing plan approximated $3 million in 1998, $3
million in 1997 and $1 million in 1996. The existing assets of the profit
sharing will be rolled over to Sprint's defined contribution plan in early
1999.
Deferred Compensation Plan for Executives
Effective January, 1997, Holdings established a non-qualified deferred
compensation plan which permits certain eligible executives to defer a portion
of their compensation. The plan allows the participants to defer up to 80% of
their base salary and up to 100% of their annual short-term incentive
compensation. The deferred amounts earn interest at the prime rate. Payments
will be made to participants upon retirement, disability, death or the
expiration of the deferral election under the payment method selected by the
participant. The deferred compensation plan will be terminated in early 1999,
and participants will be eligible to participate in Sprint's deferred
compensation plan.
Long-Term Incentive Plan
Holdings maintains a long-term incentive plan. Prior to the PCS Restructuring
employees meeting certain eligibility requirements were included in Holdings'
long-term incentive plan (LTIP). Under this plan, participants received
appreciation units based on independent appraisals. The 1997 plan appreciation
units vest 25% per year beginning on the first anniversary of the grant date
and expire after 10 years. Under the 1996 plan, appreciation units vest 25% per
year beginning two years after the grant date, and expire after 10 years.
Holdings expensed $3 million in 1998, $18 million in 1997 and $10 million in
1996. In 1996, Holdings adopted the pro forma disclosure requirements under
SFAS 123, "Accounting for Stock-Based Compensation." Holdings has continued to
apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." No significant difference would have resulted had SFAS 123 been
applied.
After the PCS Restructuring, Sprint discontinued the LTIP plan. The
appreciation units were replaced with PCS shares and options to buy PCS shares
based on a formula designed to replace the appreciated value of the units at
the beginning of July 1998. For vested units at year-end 1998, participants
could elect to receive the appreciation in cash, or in shares and options. Most
elected to receive shares and options. Sprint will issue the shares, and the
options will become exercisable, based on the vesting requirements of the units
those awards replaced.
F-64
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sprint Corporation Management Incentive Stock Option Plan and Stock Option
Plan
Effective January 1, 1999, employees are eligible to participate in Sprint's
Management Incentive Stock Option Plan (MISOP) and the Sprint Corporation Stock
Option Plan (SOP). Under the MISOP, Sprint may grant stock options to employees
who are eligible to receive annual incentive compensation. Eligible employees
are entitled to receive stock options in lieu of a portion of the target
incentive under Sprint's management incentive plans. The options generally
become exercisable on December 31 of the year granted and have a
maximum term of 10 years. MISOP options are granted with exercise prices equal
to the market price of Sprint's FON Group and PCS Group stock on the grant
date.
Under the SOP, Sprint may grant stock options to officers and key employees.
The options generally become exercisable at the rate of 25% per year, beginning
one year from the grant date, and have a maximum term of 10 years. SOP options
are granted with exercise prices equal to the market price of Sprint's FON
Group and PCS Group stock on the grant date.
Employee Stock Purchase Plan
Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to
purchase Sprint common stock at a price equal to 85% of the market value on the
grant or exercise date, whichever is less.
5. Long-term Debt
Long term debt consists of the following as of December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
Maturing 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Senior notes
8.6% to 9.5% (/1/)............................ 2008 to 2028 $3,346.6 $ --
11.0% to 12.5% (/2/).......................... 2006 613.8 572.3
Revolving credit facilities
variable rates................................ 2005 to 2006 1,800.0 746.4
Due to FCC at 7.75% (/3/)....................... 2001 265.2 90.4
Vendor Financing................................ -- 1,612.9
Other
2.3% to 14.4% (/4/)........................... 1998 to 2007 585.4 546.5
-------- --------
Total Debt...................................... 6,611.0 3,568.5
Less: current maturities........................ 119.4 34.6
-------- --------
Long-term debt.................................. $6,491.6 $3,533.9
======== ========
</TABLE>
- --------
(1) Holdings has notes payable to Sprint totaling $3.3 billion. See Note 2 for
a more detailed description of Holdings and PCS Group financing.
(2) Balances are net of unamortized discounts of $136.2 million in 1998 and
$177.7 million in 1997. Sprint holds approximately $133 million at year-end
1998 and $118 million at year-end 1997 of the Senior Discount Notes.
(3) Balances are net of unamortized discounts of $8.0 million in 1998 and $12.0
million in 1997.
(4) In 1998, Holdings received $180 million under grid notes from Sprint. These
notes had a weighted average interest rate of 7.8% at year-end 1998 and
mature in 2001.
F-65
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Holdings' long-term debt maturities, during each of the next five years are
as follows:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
1999........................................................ $119.4
2000........................................................ 126.4
2001........................................................ 354.6
2002........................................................ 301.1
2003........................................................ 462.1
</TABLE>
Revolving Credit Facilities
At year-end 1998, available revolving credit facilities with banks totaled
$2.1 billion and Holdings had borrowed $1.8 billion at a weighted average
interest rate of 5.8%. At year-end 1997, $746 million had been drawn under the
revolving credit facilities at a weighted average interest rate of 8.4%.
Availability will be reduced commencing January 2002 and expires in 2007.
Borrowings under the term loans are included in Other debt and totaled $400
million with a weighted average interest rate of 7.7% at year-end 1998 and $300
million with a weighted average interest rate of 8.4% at year-end 1997.
Provisions of the credit facilities required the transfer of certain of
Holdings' assets into special purpose subsidiaries to facilitate the
collateralization of Holdings' assets.
Senior Notes and Senior Discount Notes (the Notes)
On August 15, 2001, Holdings will be required to redeem an amount equal to
$192 million in aggregate principal amount at maturity, assuming all of the
Senior Discount Notes remain outstanding at such date. The Notes are redeemable
at the option of Holdings, in whole or in part, at any time on or after August
15, 2001 at the stipulated redemption prices plus accrued and unpaid interest.
Interest on the Senior Discount Notes is not payable prior to August 15, 2001.
Vendor Financing
In 1996, Holdings entered into financing agreements with Northern Telecom,
Inc. (Nortel) and Lucent Technologies, Inc. (Lucent and together with Nortel,
the Vendors) for multiple drawdown term loan facilities totaling $1.3 billion
and $1.8 billion, respectively. At year-end 1997, approximately $1.6 billion,
including converted accrued interest of $52 million, had been borrowed at a
weighted average interest rate of 9.0% under the vendor financing agreements.
Amounts outstanding at year-end 1997 included $300 million that was syndicated
to Sprint. In 1998, all borrowings under the Vendor Financing were repaid using
long-term borrowings from Sprint.
Other
In 1998, Holdings redeemed, prior to scheduled maturities, $3.3 billion of
debt with a weighted average interest rate of 8.3%. This resulted in a $51
million extraordinary loss. The debt was repaid with a portion of the long-term
borrowings from Sprint.
Holdings has complied with all restrictive or financial covenants relating to
its debt arrangements at year-end 1998.
Holdings' PCS licenses and property, plant and equipment totaling $4.4
billion is pledged as security for certain notes.
F-66
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value
The estimated fair value of Holdings' long-term debt was $6.8 billion at
year-end 1998 and $3.6 billion at year-end 1997.
6. Equity
Following is a reconciliation of Holdings' equity:
<TABLE>
<CAPTION>
Partners' Accumulated
Capital Deficit Total
--------- ----------- --------
(in millions)
<S> <C> <C> <C>
Balance January 1, 1996....................... $2,291.7 $ (113.7) $2,178.0
Contributions of capital...................... 711.7 -- 711.7
Net loss...................................... -- (443.1) (443.1)
-------- --------- --------
Balance December 31, 1996..................... 3,003.4 (556.8) 2,446.6
Contributions of capital...................... 973.0 -- 973.0
Net loss...................................... -- (1,563.4) (1,563.4)
Return of capital............................. (11.7) -- (11.7)
-------- --------- --------
Balance December 31, 1997..................... 3,964.7 (2,120.2) 1,844.5
Contributions of capital...................... 517.1 -- 517.1
Net loss...................................... -- (2,358.0) (2,358.0)
Return of capital............................. (33.3) -- (33.3)
-------- --------- --------
Balance December 31, 1998..................... $4,448.5 $(4,478.2) $ (29.7)
======== ========= ========
</TABLE>
7. Commitments and Contingencies
Litigation, Claims and Assessments
Various suits arising in the ordinary course of business are pending against
Holdings. Holdings cannot predict the final outcome of these actions but
believes they will not be material to its consolidated financial statements.
Commitments
In 1998 Holdings amended a procurement and services contract with a vendor
for the engineering and construction of a PCS network. This contract provides
for an initial term of three years with renewals for additional one-year
periods. The minimum commitment for the initial term is $400 million. At year-
end 1998, $257 million had been purchased under the commitment with remaining
minimum commitment of $143 million.
In 1996 Holdings entered into a purchase and supply agreement with a vendor
for the purchase of handsets and other equipment. The total purchase commitment
must be satisfied by April 2000. Purchases under the commitment totaled $289
million in 1998 and $148 million in 1997. No purchases were made in 1996. At
year-end 1998, remaining commitments totaled $163 million.
Holdings has an agreement with a vendor to provide PCS call record and
retention services. Monthly rates per subscriber are variable based on overall
subscriber volume. If subscriber fees are less than specified annual minimum
charges, Holdings will be obligated to pay the difference between the amounts
paid for processing
F-67
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fees and the annual minimum. Annual minimums range from $20 million to $60
million through 2001. The agreement extends through December 31, 2001, with two
automatic, two-year renewal periods, unless terminated by Holdings. Holdings
may terminate the agreement prior to the expiration date, but would be subject
to specified termination penalties.
Holdings has a contract for consulting services. Under the terms of the
agreement, consulting services will be provided at specified hourly rates for a
minimum number of hours. Purchases under the contract totaled $38 million in
1998 and $20 million in 1997. The remaining commitment of $67 million must be
satisfied by the end of June 2000.
Operating Leases
Minimum rental commitments at year-end 1998 for all noncancelable operating
leases, consisting mainly of leases for cell and switch sites and office space,
are as follows:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
1999........................................................ $139.2
2000........................................................ 131.8
2001........................................................ 92.3
2002........................................................ 43.3
2003........................................................ 19.0
Thereafter.................................................. 56.7
</TABLE>
Gross rental expense totaled $192 million in 1998, $125 million in 1997 and
$25 million in 1996. The table excludes renewal options related to certain cell
and switch site leases. These renewal options are generally for five-year terms
and may be exercised from time to time.
8. Related Party Transactions
Sprint
Sprint provides management, printing/mailing and warehousing services to
Holdings. Charges to Holdings for these services totaled $25 million in 1998,
$11 million in 1997, and $12 million in 1996.
Holdings has entered into agreements with Sprint for invoicing services,
operator services, and switching equipment. Holdings is also using the long
distance division of Sprint as its interexchange carrier. Charges to Holdings
for these services totaled $125 million in 1998, $61 million in 1997 and $1
million in 1996.
Holdings makes payments for inventory and payroll for PhillieCo and
SprintCom, resulting in receivables due from the affiliates. These receivables
are reflected on the consolidated balance sheet.
APC
Holdings has an affiliation agreement with APC which provides for the
reimbursement of certain allocable costs and payment of affiliation fees. In
1997, the reimbursement of allocable costs of approximately $14 million is
included in selling, general and administrative expenses. There were no
reimbursements
F-68
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recognized in 1996. Additionally, affiliation fees were recognized based on a
percentage of APC's net revenues. In 1997, affiliation fees of $4 million were
included in other income.
Cox PCS
Holdings has entered into an affiliation agreement with Cox PCS which
provides for the reimbursement of certain allocable costs and payment of
affiliate fees. These costs totaled $20 million in 1997 and $7 million in 1996
and are netted against selling, general and administrative expenses in the
accompanying consolidated statements of operations. Of these total allocated
costs, approximately $2 million in 1997 and $7 million in 1996 were included in
receivables from affiliates in the consolidated balance sheets. In addition,
Holdings purchases certain equipment, such as handsets, on behalf of Cox PCS.
Receivables from affiliates for handsets and related equipment were
approximately $31 million in 1997 and $6 million in 1996.
PhillieCo
Allocable costs of approximately $21 million in 1998 and $36 million in 1997
were allocated to PhillieCo and are included as a reduction of selling, general
and administrative expenses in the accompanying consolidated statements of
operations. Additionally, affiliation fees are recognized based on a percentage
of PhillieCo's net revenues. Affiliation fees of $1 million in 1998 and $0.3
million in 1997 are included in other income in the accompanying consolidated
statements of operations. The allocated costs and affiliate fees of $3 million
in 1998 and $37 million in 1997 are included in receivable from affiliates.
There were no such costs in 1996.
SprintCom
In 1997 Holdings began building out the network infrastructure for SprintCom.
These services include engineering, management, purchasing, accounting and
other related services. Costs totaling $100 million in 1998 and $29 million in
1997 were allocated to SprintCom, and are included as a reduction of selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Receivables from affiliates included $78 million at year-end
1998 and $14 million at year-end 1997.
9. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter
------------------------------
1998 1st 2nd 3rd 4th
- ---- ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues.......................... $197.2 256.0 311.8 410.5
Operating loss.................................. (435.3) (471.0) (506.9) (602.1)
Loss before extraordinary items................. (497.9) (543.4) (599.3) (666.3)
Net loss........................................ (497.9) (543.4) (599.3) (717.4)
<CAPTION>
Quarter
------------------------------
1997 1st 2nd 3rd 4th
- ---- ------ ------ ------ ------
(in millions)
<S> <C> <C> <C> <C>
Net operating revenues.......................... $ 9.5 $ 25.4 $ 72.5 $141.2
Operating loss.................................. (190.8) (277.7) (382.7) (459.5)
Net Loss........................................ (188.9) (287.7) (420.9) (665.9)
</TABLE>
F-69
<PAGE>
SPRINT SPECTRUM HOLDING COMPANY, L.P.
SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
----------------
Charged Charged Balance
Beginning to to Other Other End of
Balance Income Accounts Deductions Year
--------- ------- -------- ---------- -------
(in millions)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1998...................... $9.0 $76.7 $-- $(64.7)(/1/) $21.0
1997...................... 0.2 11.3 -- (2.5)(/1/) 9.0
1996...................... -- 0.2 -- -- 0.2
</TABLE>
- --------
(1) Accounts written off, net of recoveries.
F-70
<PAGE>
---------------------------------------------------------------------------
---------------------------------------------------------------------------
$1,250,000,000
[LOGO OF LIBERTY MEDIA CORPORATION]
Liberty Media Corporation
-------------------------
OFFER TO EXCHANGE
-------------------------
<TABLE>
<S> <C> <C>
$750,000,000 $500,000,000
7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029
for for
any and all of its any and all of its
outstanding unregistered outstanding unregistered
7 7/8% Senior Notes due 2009 8 1/2% Debentures due 2029
</TABLE>
Prospectus
The Bank of New York, as Exchange Agent
101 Barclay Street
New York, New York 10286
, 1999
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") provides,
generally, that a corporation shall have the power 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 (except actions 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 the corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
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 his or her conduct was unlawful. A corporation may similarly indemnify
such person for expenses actually and reasonably incurred by such person in
connection with the defense or settlement of any action or suit by or in the
right of the corporation, provided such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of claims, issues and matters as
to which such person shall have been adjudged liable to the corporation,
provided that a court shall have determined, upon application, that, despite
the adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No such provision
may eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision became effective.
Article V, Section E of the Restated Certificate of Incorporation, as amended
("Liberty Charter"), of Liberty Media Corporation, a Delaware corporation
("Liberty"), provides as follows:
"1.Limitation on Liability.
To the fullest extent permitted by the DGCL as the same exists or
may hereafter be amended, a director of the Corporation shall not be
liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or
modification of this subparagraph 1 shall be prospective only and shall
not adversely affect any limitation, right or protection of a director
of the Corporation existing at the time of such repeal or modification.
2.Indemnification.
(a) Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, limited liability company, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against
II-1
<PAGE>
all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such person. Such right of indemnification
shall inure whether or not the claim asserted is based on matters which
antedate the adoption of this Section E. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
(b) Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or officer
in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this
subparagraph 2 or otherwise.
(c) Claims. If a claim for indemnification or payment of expenses
under this subparagraph 2 is not paid in full within 60 days after a
written claim therefor has been received by the Corporation, the
claimant may file suit to recover the unpaid amount of such claim and,
if successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the Corporation
shall have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable
law.
(d) Non-Exclusivity of Rights. The rights conferred on any person by
this subparagraph 2 shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision
of this Certificate, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
(e) Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity.
3. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this
Section E shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the
time of such repeal or modification."
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement:
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8,
1999.
3.2 Bylaws of Liberty, as adopted March 8, 1999.
4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of
New York.
4.2 First Supplemental Indenture dated as of July 7, 1999, between
Liberty and The Bank of New York.
4.3 Registration Rights Agreement dated as of July 7, 1999, between
Liberty and the Initial Purchasers.
4.4 Form of 7 7/8% Senior Note due 2009.
4.5 Form of 8 1/2% Senior Debenture due 2029.
4.6 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt
not filed herewith.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<C> <S>
Opinion of Baker & Botts, L.L.P. with respect to legality of
5 securities being registered.+
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty
Media Corporation, Liberty Media Management LLC, Liberty Media Group
LLC and Liberty Ventures Group LLC.
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp.
and Liberty Media Corporation, Liberty Media Group LLC and each
Covered Entity listed on the signature pages thereof.
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp.
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T
Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty
Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the signature pages
thereof.
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by
and among AT&T Corp., Liberty Media Corporation, Tele-Communications
Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz,
Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the
signature pages thereof.
10.6 Restated and Amended Employment Agreement dated November 1, 1992,
between Tele-Communications, Inc. and John C. Malone (assumed by
Liberty as of March 9, 1999), and the amendment thereto dated June
30, 1999 and effective as of March 9, 1999, between Liberty and John
C. Malone.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of Liberty.
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).
24 Powers of Attorney (included on page II-6).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
+ To be filed by Amendment.
(b) Financial Statement Schedules. Schedules not listed above have been
omitted because the information to be set forth therein is not material, not
applicable or is shown in the financial statements or notes thereto.
Item 22. Undertakings
(a) Liberty hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
II-3
<PAGE>
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of the prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(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;
(2) 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 that time shall be deemed to be the initial bona
fide offering thereof.
(3) 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.
(4) 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.
(5) 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, provided, in the case of a transaction that (but for the
possibility of integration with other transactions) would itself qualify for an
exemption from registration, that (i) such transaction by itself or when
aggregated with other such transactions made since the filing of the most
recent audited financial statements of Liberty would have a material financial
effect upon Liberty and (ii) the information required to be supplied in a post-
effective amendment by this paragraph 6 is not contained in periodic reports
filed by Liberty pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration
statement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Liberty pursuant to the foregoing provisions or otherwise, Liberty has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Liberty of
expenses incurred or paid by a director, officer or controlling person of
Liberty in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Liberty will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the county of Douglas, state of
Colorado, on September 2, 1999.
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President and
General Counsel
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Y. Tanabe, Esq. and Robert W. Murray,
Jr., Esq., and each of them, his true and lawful attorneys-in-fact and agents
with full power of substitution and re-substitution for him and in his name,
place and stead, in any and all capacities, to sign and file (i) any or all
amendments (including post-effective amendments) to this Registration
Statement, with all exhibits thereto, and other documents in connection
therewith, and (ii) a registration statement, and any and all exhibits thereto,
relating to the offering covered hereby filed pursuant to Rule 462(b) under the
Securities Act of 1933, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them full power and
authority, to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, to all intents and purposes and
as fully as they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or their substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons (which persons
constitute a majority of the Board of Directors) in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chairman of the Board and September 1, 1999
- ---------------------------------- Director
John C. Malone
President, Chief Executive
- ---------------------------------- Officer and Director (Principal
Robert R. Bennett Executive Officer)
/s/ Gary S. Howard Executive Vice President, Chief September 1, 1999
- ---------------------------------- Officer and Director
Gary S. Howard
/s/ Paul A. Gould Director September 1, 1999
- ----------------------------------
Paul A. Gould
/s/ Leo J. Hindery, Jr. Director September 1, 1999
- ----------------------------------
Leo J. Hindery, Jr.
/s/ Jerome H. Kern Director September 2, 1999
- ----------------------------------
Jerome H. Kern
Director
- ----------------------------------
John C. Petrillo
/s/ Larry E. Romrell Director September 1, 1999
- ----------------------------------
Larry E. Romrell
Director
- ----------------------------------
Daniel E. Somers
/s/ Kathryn S. Douglass Vice President and Controller September 1, 1999
- ---------------------------------- (Principal Financial Officer
Kathryn S. Douglass and Principal Accounting
Officer)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999.
3.2 Bylaws of Liberty, as adopted March 8, 1999.
Indenture dated as of July 7, 1999, between Liberty and The Bank of New
4.1 York.
First Supplemental Indenture dated as of July 7, 1999, between Liberty
4.2 and The Bank of New York.
Registration Rights Agreement dated as of July 7, 1999, between Liberty
4.3 and the Initial Purchasers.
4.4 Form of 7 7/8% Senior Note due 2009.
4.5 Form of 8 1/2% Senior Debenture due 2029.
4.6 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt
not filed herewith.
Opinion of Baker & Botts, L.L.P. with respect to legality of securities
5 being registered.+
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media
Corporation, Liberty Media Management LLC, Liberty Media Group LLC and
Liberty Ventures Group LLC.
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp. and
Liberty Media Corporation, Liberty Media Group LLC and each Covered
Entity listed on the signature pages thereof.
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp.
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T Corp.,
Liberty Media Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages thereof.
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by and
among AT&T Corp., Liberty Media Corporation, Tele-Communications, Inc.,
Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI
CT Holdings, Inc. and each Covered Entity listed on the signature pages
thereof.
10.6 Restated and Amended Employment Agreement dated November 1, 1992, between
Tele-Communications, Inc. and John C. Malone (assumed by Liberty as of
March 9, 1999), and the amendment thereto dated June 30, 1999 and
effective as of March 9, 1999, between Liberty and John C. Malone.
12 Computation of Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of Liberty.
23.1 Consent of KPMG LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5).
24 Powers of Attorney (included on page II-6).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal with respect to Exchange Offer.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
+ To be filed by Amendment.
<PAGE>
EXHIBIT 3.1
-----------
RESTATED CERTIFICATE OF INCORPORATION
OF
LIBERTY MEDIA CORPORATION
LIBERTY MEDIA CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(1) The name of the Corporation is Liberty Media Corporation. The
original Certificate of Incorporation of the Corporation was filed on
September 30, 1994. The name under which the Corporation was originally
incorporated is Liberty Media Corporation.
(2) This Restated Certificate of Incorporation amends and restates in
its entirety the Certificate of Incorporation of the Corporation.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, the text of the Certificate of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Liberty Media Corporation (the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City
of Wilmington, County of New Castle, 19801. The name of its registered agent at
such address is RL&F Service Corp.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law (the "DGCL").
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is 3,100,000 shares, of which 3,000,000 shares shall be
common stock ("Common Stock") and 100,000 shares shall be preferred stock
("Preferred Stock"). Said shares of Common Stock shall be divided into the
following classes: (a) 1,000,000 shares shall be designated as Class A Common
Stock with a par value of $.0001 per share ("Class A Common Stock"); (b)
1,000,000 shares shall be designated as Class B Common Stock with a par value of
$.0001 per share ("Class B Common Stock"); and (c) 1,000,000 shares shall be
designated as Class C Common Stock with a par value of $.0001 per share ("Class
C Common Stock"). Said shares of Preferred Stock shall be all of one class with
a par value of $.0001 per share, and shall be issued in one or more series as
set forth in Section B below.
<PAGE>
Effective upon the filing of this Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware, each share of the Common
Stock, par value $1.00 per share, of the Corporation that is issued and
outstanding shall thereupon be reclassified and changed, ipso facto and without
any other action on the part of the stockholders thereof, into one share of
Class A Common Stock, one share of Class B Common Stock and one share of Class C
Common Stock. Such shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock shall be fully paid and nonassessable.
SECTION A
---------
CLASS A COMMON STOCK, CLASS B COMMON STOCK
AND CLASS C COMMON STOCK
Each share of the Class A Common Stock, each share of the Class B Common
Stock and each share of the Class C Common Stock of the Corporation shall,
except as otherwise provided in this Article IV, Section A, be identical in all
respects and shall have equal rights and privileges.
1. Voting Rights.
-------------
Holders of Common Stock shall be entitled to one (1) vote for each
share of such stock held on all matters presented to such stockholders. The
holders of outstanding shares of Class A Common Stock shall vote separately as a
class with respect to any election of Class A Directors (as defined below). The
holders of outstanding shares of Class B Common Stock shall vote separately as a
class with respect to any election of Class B Directors (as defined below). The
holders of outstanding shares of Class C Common Stock shall vote separately as a
class with respect to any election of Class C Directors (as defined below).
Except as set forth above or as may otherwise be required by the laws of the
State of Delaware and, with respect to any series of Preferred Stock, except as
may be provided in any resolution or resolutions providing for the establishment
of such series pursuant to authority vested in the Board of Directors by Article
IV, Section B, of this Certificate, the holders of outstanding shares of Class A
Common Stock, the holders of outstanding shares of Class B Common Stock, the
holders of outstanding shares of Class C Common Stock and the holders of
outstanding shares of each series of Preferred Stock shall vote together as one
class with respect to all other matters to be voted on by stockholders of the
Corporation (including, without limitation, any proposed amendment to this
Certificate that would increase the number of authorized shares of any class of
Common Stock or any series of Preferred Stock or decrease the number of
authorized shares of any such class or series of stock (but not below the number
of shares thereof then outstanding)), and no separate vote or consent of the
holders of shares of Class A Common Stock, Class B Common Stock, Class C Common
Stock or any series of Preferred Stock shall be required for the approval of any
such matter.
2. Conversion Rights.
-----------------
Shares of Class A Common Stock, Class B Common Stock and Class C
Common Stock shall not be convertible, whether at the option of the holder
thereof or of the Corporation, into shares of any other class of Common Stock of
the Corporation.
3. Dividends.
---------
Subject to subparagraph 4 of this Section A, whenever a dividend is
paid to the holders of shares of any class of Common Stock, the Corporation also
shall pay an equal per share dividend to the holders of each other class of
Common Stock of the Corporation. Dividends shall be payable only as and when
declared by the Board of Directors out of funds legally available therefor.
2
<PAGE>
4. Share Distributions.
-------------------
If at any time a distribution paid in Class A Common Stock, Class B
Common Stock, Class C Common Stock or any other securities of the Corporation or
any other entity (hereinafter sometimes called a "share distribution") is to be
made with respect to the Class A Common Stock, Class B Common Stock or Class C
Common Stock, such share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Class A Common Stock
(or securities convertible into or exercisable or exchangeable for shares
of Class A Common Stock) to holders of Class A Common Stock, Class B Common
Stock and Class C Common Stock, on an equal per share basis; or consisting
of shares of Class B Common Stock (or securities convertible into or
exercisable or exchangeable for shares of Class B Common Stock) to holders
of Class B Common Stock, Class C Common Stock and Class A Common Stock, on
an equal per share basis; or consisting of shares of Class C Common Stock
(or securities convertible into or exercisable or exchangeable for shares
of Class C Common Stock) to holders of Class C Common Stock, Class A Common
Stock and Class B Common Stock, on an equal per share basis; or consisting
of shares of Class A Common Stock (or securities convertible into or
exercisable or exchangeable for shares of Class A Common Stock) to holders
of Class A Common Stock and, on an equal per share basis, shares of Class B
Common Stock (or like securities convertible into or exercisable or
exchangeable for shares of Class B Common Stock) to holders of Class B
Common Stock and, on an equal per share basis, shares of Class C Common
Stock (or like securities convertible into or exercisable or exchangeable
for shares of Class C Common Stock) to holders of Class C Common Stock; and
(ii) a share distribution consisting of any class or series of
securities of the Corporation or any other entity other than Class A Common
Stock, Class B Common Stock or Class C Common Stock (or securities
convertible into or exercisable or exchangeable for shares of Class A Common
Stock, Class B Common Stock or Class C Common Stock), on the basis of a
distribution of identical securities, on an equal per share basis, to
holders of Class A Common Stock, Class B Common Stock and Class C Common
Stock.
The Corporation shall not reclassify, subdivide or combine the Class A
Common Stock without reclassifying, subdividing or combining the Class B Common
Stock and the Class C Common Stock, each on an equal per share basis. The
Corporation shall not reclassify, subdivide or combine the Class B Common Stock
without reclassifying, subdividing or combining the Class A Common Stock and the
Class C Common Stock, each on an equal per share basis. The Corporation shall
not reclassify, subdivide or combine the Class C Common Stock without
reclassifying, subdividing or combining the Class A Common Stock and the Class B
Common Stock, each on an equal per share basis.
5. Liquidation and Mergers.
-----------------------
Subject to the prior payment in full of the preferential amounts to
which any Preferred Stock is entitled, the holders of Class A Common Stock, the
holders of Class B Common Stock and the holders of Class C Common Stock shall
share equally, on an equal per share basis, in any distribution of the
Corporation's assets upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment or provisions for
payment of the debts and other liabilities of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other corporation or
corporations nor the sale, transfer or lease of all or substantially all of the
assets of the Corporation shall itself be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
subparagraph 5.
3
<PAGE>
SECTION B
---------
PREFERRED STOCK
The Preferred Stock may be issued, from time to time, in one or more
series, with such powers, designations, preferences and relative, participating,
optional or other rights, and qualifications, limitations or restrictions
thereof, as shall be stated and expressed in a resolution or resolutions
providing for the issue of each such series adopted by the Board of Directors.
The Board of Directors, in such resolution or resolutions (a copy of which shall
be filed and recorded as required by law), is also expressly authorized to fix
with respect to each series:
(1) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(2) the dividend rate or amounts, if any, for the particular series,
the date or dates from which dividends on all shares of such series shall be
cumulative, if dividends on stock of the particular series shall be
cumulative and the relative rights of priority, if any, or participation, if
any, with respect to payment of dividends on shares of that series;
(3) the rights of the shares of each series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation,
and the relative rights of priority, if any, of payment of shares of each
series;
(4) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes or series of a
class of stock or indebtedness of the Corporation or of another entity, and
the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the Board of Directors may determine;
(5) the voting rights, if any, of the holders of a particular series;
and
(6) the terms and conditions, if any, for the Corporation to purchase
or redeem shares of a particular series.
All shares of any one series of the Preferred Stock shall be alike in every
particular. Except to the extent otherwise provided in the resolution or
resolutions providing for the issue of any series of Preferred Stock, the
holders of shares of such series shall have no voting rights, except as may be
required by the laws of the State of Delaware.
ARTICLE V
DIRECTORS
SECTION A
---------
NUMBER OF DIRECTORS
The governing body of the Corporation shall be the Board of Directors. The
number of directors shall not be less than three (3) and the exact number of
directors shall be fixed by the Board of Directors by resolution, provided that
the number of directors shall always be a multiple of three (3) divided evenly
among Class A Directors, Class B Directors and Class C Directors. Election of
directors need not be by written ballot. No series of Preferred Stock shall be
entitled to elect any additional directors, although the terms of any series of
Preferred
4
<PAGE>
Stock may provide that the shares of such series are entitled to vote in
elections of Class A Directors, Class B Directors and/or Class C Directors.
SECTION B
---------
TERM OF OFFICE
The Corporation shall have three classes of directors: Class A, Class B
and Class C (the directors of each such class being a "Class A Director", a
"Class B Director" or a "Class C Director", respectively). Subject to the last
sentence of Section A of this Article V, the Class A Directors shall be elected
by the holders of the Class A Common Stock, voting as a separate class, the
Class B Directors shall be elected by the holders of the Class B Common Stock,
voting as a separate class, and the Class C Directors shall be elected by the
holders of the Class C Common Stock, voting as a separate class. Each class of
directors shall consist of a number of directors equal to one-third (33 1/3%) of
the then authorized number of members of the Board of Directors. The initial
term of office of the Class A Directors shall expire at the annual meeting of
stockholders in 2000; the initial term of office of the Class B Directors shall
expire at the annual meeting of stockholders in 2006; and the initial term of
office of the Class C Directors shall expire at the annual meeting of
stockholders in 2009. At each annual meeting of stockholders of the Corporation
the successors of that class or classes of directors whose term(s) expire at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held, in the case of the Class A Directors, in the
following year, in the case of the Class B Directors, in the seventh year
following the year of such election and, in the case of the Class C Directors,
in the tenth year following the year of such election. The directors of each
class will hold office until their respective death, resignation or removal and
until their respective successors are elected and qualified.
SECTION C
---------
REMOVAL OF DIRECTORS
Notwithstanding any provision of the Certificate of Incorporation or the
Bylaws, any removal of a director may only be acted upon at a special meeting of
stockholders called for such purpose on sixty days' prior written notice (which
notice shall also be provided to each member of the Board of Directors).
Directors may be removed from office only for cause upon the affirmative vote of
the holders of 75% of the then outstanding Class A Common Stock (in the case of
Class A Directors), Class B Common Stock (in the case of Class B Directors), or
Class C Common Stock (in the case of Class C Directors) entitled to vote at an
any election of directors of the applicable class. For such purposes, "cause"
shall mean the conviction of a felony including moral turpitude.
SECTION D
---------
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Vacancies among the Class A Directors, the Class B Directors or the Class C
Directors resulting from death, resignation, removal, disqualification or other
cause, and newly created directorships resulting from any increase in the number
of Class A Directors, Class B Directors or Class C Directors, shall be filled by
the affirmative vote of a majority of the remaining directors of the applicable
class of directors then in office (even though less than a quorum) or by the
sole remaining director of such class (if there be one). Any director elected
in accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the vacancy occurred or to
which the new directorship is apportioned, and until such director's successor
shall have been elected and qualified. No increase or decrease in the number of
directors shall be made if after such increase or decrease the number of Class A
Directors, Class B Directors and Class C Directors would not be equal. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
5
<PAGE>
SECTION E
---------
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
-----------------------
To the fullest extent permitted by the DGCL as the same exists or may
hereafter be amended, a director of the Corporation shall not be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this subparagraph 1
shall be prospective only and shall not adversely affect any limitation, right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
2. Indemnification.
---------------
a. Right to Indemnification. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, limited liability
company, joint venture, trust, enterprise or nonprofit entity, including service
with respect to employee benefit plans, against all liability and loss suffered
and expenses (including attorneys' fees) reasonably incurred by such person.
Such right of indemnification shall inure whether or not the claim asserted is
based on matters which antedate the adoption of this Section E. The Corporation
shall be required to indemnify a person in connection with a proceeding (or part
thereof) initiated by such person only if the proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
b. Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this subparagraph 2 or otherwise.
c. Claims. If a claim for indemnification or payment of expenses under
this subparagraph 2 is not paid in full within 60 days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
d. Non-Exclusivity of Rights. The rights conferred on any person by this
subparagraph 2 shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
e. Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture, trust, enterprise or nonprofit entity shall be
reduced by any amount such person may collect as indemnification from such other
corporation, partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity.
6
<PAGE>
3. Amendment or Repeal.
-------------------
Any repeal or modification of the foregoing provisions of this Section E
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION F
---------
AMENDMENT OF BYLAWS
The Board of Directors of the Corporation is hereby expressly authorized
and empowered to adopt, amend or repeal any provision of the bylaws of the
Corporation except as and to the extent provided in the bylaws.
SECTION G
---------
REQUIRED MAJORITY VOTE
All actions taken by the Board of Directors shall be authorized by the
affirmative vote at a meeting of not less than a Required Majority or by
unanimous written consent. The term "Required Majority" means a majority of the
total number of members of the Board of Directors as constituted from time to
time, provided that such majority includes a majority of the Class B Directors
and Class C Directors.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable if fully
paid. It shall be issued as fully paid, and the private property of the
stockholders shall not be liable for the debts, obligations or liabilities of
this Corporation.
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
---------
ANNUAL AND SPECIAL MEETINGS
Stockholder action may be taken only at an annual or special meeting.
Special meetings of the stockholders of the Corporation, for any purpose or
purposes, shall be called by the Secretary of the Corporation only (i) upon the
written request of the holders of not less than 66 2/3% of the total voting
power of the outstanding Voting Securities (as defined below) or (ii) at the
request of at least 66 2/3% of the members of the Board of Directors then in
office. The term "Voting Securities" shall include the Class A Common Stock, the
Class B Common Stock, the Class C Common Stock and any series of Preferred Stock
entitled to vote with the holders of Common Stock generally upon all matters
which may be submitted to a vote of stockholders at any annual meeting or
special meeting thereof. Election of directors need not be by written ballot.
7
<PAGE>
SECTION B
---------
STOCKHOLDER ACTION WITHOUT A MEETING
Except as otherwise provided in the terms of any series of Preferred Stock,
no action required to be taken or which may be taken at any annual meeting or
special meeting of stockholders may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, is specifically denied."
. . .
(4) This Restated Certificate of Incorporation has been duly adopted in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
(5) This Amended and Restated Certificate of Incorporation shall become
effective at 12:00 noon, Eastern Time, on March 8, 1999.
8
<PAGE>
IN WITNESS WHEREOF, LIBERTY MEDIA CORPORATION has caused this
certificate to be signed by Robert R. Bennett, its President and Chief Executive
Officer, and attested by Vivian J. Carr, its Secretary, this 3rd day of March,
1999.
/s/ Robert R. Bennett
-------------------------------------
Robert R. Bennett
President and Chief Executive Officer
ATTEST:
By: /s/ Stephen M. Brett
---------------------------
Vivian J. Carr
Secretary
9
<PAGE>
EXHIBIT 3.2
-----------
LIBERTY MEDIA CORPORATION
A Delaware Corporation
BYLAWS
------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 Annual Meeting.
--------------
An annual meeting of stockholders for the purpose of electing those
directors whose term of office expires at such meeting and transacting such
other business as may come before it shall be held each year at such date, time
and place, either within or without the State of Delaware, as may be specified
by the Board of Directors.
Section 1.2 Special Meetings.
----------------
Special meetings of stockholders shall be called by the Secretary as and
when provided for by the Certificate of Incorporation, as amended from time to
time (the "Certificate"). Special meetings of stockholders for any purpose or
purposes may be held at such time and place either within or without the State
of Delaware as may be stated in the notice.
Section 1.3 Notice of Meetings.
------------------
Written notice of stockholders meetings, stating the place, date, and hour
thereof, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, shall be given by the Chairman of the Board, if
any, the President, the Secretary, or any other officer, to each stockholder
entitled to vote thereat at least ten days but not more than sixty days before
the date of the meeting, unless a different period is prescribed by law or the
Certificate.
Section 1.4 Quorum.
------
Except as otherwise provided by law or in the Certificate or elsewhere in
these Bylaws, at any meeting of stockholders the holders of a majority in voting
power of the outstanding shares of each class of common stock entitled to vote
at the meeting shall be present or represented by proxy in order to constitute a
quorum for the transaction of any business. In the absence of a quorum, a
majority in voting power of the stockholders present or the chairman of the
meeting may adjourn the meeting from time to time in the manner provided in
Section 1.5 of these Bylaws until a quorum shall attend.
Section 1.5 Adjournment.
-----------
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 1.6 Organization.
------------
The Chairman of the Board, if any, or in his absence the Vice Chairman of
the Board of Directors, shall call to order meetings of stockholders and shall
act as chairman of such meetings. The Board of Directors or, if the Board
<PAGE>
of Directors fails to act, the stockholders may appoint any stockholder,
director, or officer of the Corporation to act as chairman of any meeting in the
absence of the Chairman of the Board or the Vice Chairman.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 1.7 Voting.
------
Except as otherwise provided by law, the Certificate or elsewhere in these
Bylaws and except for the election of directors, at any meeting duly called and
held at which a quorum is present, a majority of the votes cast at such meeting
upon a given question by the holders of shares of capital stock of the
Corporation entitled to vote thereon, who are present in person or by proxy,
shall decide such question. At any meeting duly called and held for the election
of a particular class of directors at which a quorum is present, directors of
such class shall be elected by a plurality of the votes cast by the holders
(acting as such) of shares of the applicable class of common stock of the
Corporation as set forth in the Certificate, who are present in person or by
proxy.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 Number and Term of Office.
-------------------------
The business, property, and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors of at least three directors. The
number and term of office of the members of the Board of Directors shall be
determined as set forth in the Certificate.
Section 2.2 Chairman of the Board.
---------------------
The directors may elect one of their members to be Chairman of the Board of
Directors and a Vice Chairman. The Chairman and the Vice Chairman shall be
subject to the control of and may be removed from such office by the Board of
Directors. The Chairman and the Vice Chairman shall perform such duties as may
from time to time be assigned to him by the Board of Directors.
Section 2.3 Meetings.
--------
The annual meeting of the Board of Directors, for the election of officers
and the transaction of such other business as may come before the meeting, shall
be held without notice at the same place as, and immediately following, the
annual meeting of the stockholders.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board of
Directors.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by the
Chairman of the Board, if any, the President or by a majority of the directors
then in office.
Section 2.4 Notice of Special Meetings.
--------------------------
The Secretary, or in his absence any other officer of the Corporation,
shall give each director notice of the time and place of holding of special
meetings of the Board of Directors by mail at least 5 days before the meeting,
or by telegram, cable, facsimile transmission or personal service at least 24
hours before the meeting. Unless otherwise stated
2
<PAGE>
in the notice thereof, any and all business may be transacted at any meeting
without specification of such business in the notice.
Section 2.5 Quorum and Organization of Meetings.
-----------------------------------
Two-thirds of the total number of members of the Board of Directors as
constituted from time to time shall constitute a quorum for the transaction of
business. If at any meeting of the Board of Directors (whether or not adjourned
from a previous meeting) there shall be less than a quorum present, a majority
of those present may adjourn the meeting to another time and place, and the
meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law, or unless the Certificate or these Bylaws requires a
greater vote, a majority of the whole Board present at any meeting at which a
quorum is present may decide any question brought before such meeting; provided,
that any such majority shall include a majority of the Class B Directors and
Class C Directors (such a majority, a "Required Majority"). Meetings shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman or in the absence of both by such other person as the directors
may select. The Secretary of the Corporation shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 2.6 Committees.
----------
The Board of Directors may, by resolution passed by a Required Majority,
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have power or authority
in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
General Corporation Law of the State of Delaware to be submitted to stockholders
for approval or (ii) adopting, amending or repealing any Bylaw of the
Corporation. Each committee which may be established by the Board of Directors
pursuant to these Bylaws may fix its own rules and procedures. Notice of
meetings of committees, other than of regular meetings provided for by such
rules, shall be given to committee members. All action taken by committees shall
be recorded in minutes of the meetings.
Section 2.7 Action Without Meeting.
----------------------
Nothing contained in these Bylaws shall be deemed to restrict the power of
members of the Board of Directors, or any committee designated by the Board of
Directors, to take any action required or permitted to be taken by them without
a meeting.
Section 2.8 Telephone Meetings.
------------------
Nothing contained in these Bylaws shall be deemed to restrict the power of
members of the Board of Directors, or any committee designated by the Board of
Directors, to participate in a meeting of the Board of Directors, or committee,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
3
<PAGE>
ARTICLE III
OFFICERS
Section 3.1 Executive Officers.
------------------
The executive officers of the Corporation shall be a Chairman of the Board,
a Vice Chairman of the Board, a President and a Secretary, each of whom shall be
elected by the Board of Directors. The Board of Directors may elect or appoint
such other officers (including a Treasurer and one or more Assistant
Secretaries) as it may deem necessary or desirable. Each officer shall hold
office for such term as may be prescribed by the Board of Directors from time to
time. Any person may hold at one time two or more offices.
Section 3.2 Powers and Duties.
-----------------
The Chairman of the Board, if any, or, in his absence, the Vice Chairman
shall preside at all meetings of the stockholders and of the Board of Directors.
The Chairman of the Board and the Vice Chairman shall also have such additional
powers and duties as may be prescribed for such offices from time to time by the
Board of Directors. The President shall be the chief executive officer of the
Corporation. In the absence of the President, an officer appointed by the
President, or if the President fails to make such appointment, by the Board of
Directors, shall perform all the duties of the President. The officers and
agents of the Corporation shall each have such powers and authority and shall
perform such duties in the management of the business, property, and affairs of
the Corporation as generally pertain to their respective offices, as well as
such powers and authorities and such duties as from time to time may be
prescribed by the Board of Directors.
ARTICLE IV
RESIGNATIONS, REMOVALS AND VACANCIES
Section 4.1 Resignations.
------------
Any director or officer of the corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
Chairman, the President, or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if the time be
not specified therein, then upon receipt thereof. The acceptance of such
resignation shall not be necessary to make it effective.
Section 4.2 Removals.
--------
The Board of Directors, by a Required Majority vote, at any meeting
thereof, or by unanimous written consent, at any time, may, to the extent
permitted by otherwise applicable Delaware law, remove with or without cause
from office or terminate the employment of any officer or member of any
committee and may, with or without cause, disband any committee.
Section 4.3 Vacancies.
---------
Any vacancy in the office of any officer through death, resignation,
removal, disqualification, or other cause, may be filled at any time by a
Required Majority of the directors, and, subject to the provisions of this
Article IV, the person so chosen shall hold office until his successor shall
have been elected and qualified.
4
<PAGE>
ARTICLE V
CAPITAL STOCK
Section 5.1 Stock Certificates.
------------------
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be prescribed by law and approved, from time to time,
by the Board of Directors.
Section 5.2 Transfer of Shares.
------------------
Shares of the capital stock of the Corporation may be transferred on the
books of the Corporation only by the holder of such shares or by his duly
authorized attorney, upon the surrender to the Corporation or its transfer agent
of the certificate representing such stock properly endorsed.
Section 5.3 Fixing Record Date.
------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which, unless
otherwise provided by law, shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action.
Section 5.4 Lost Certificates.
-----------------
The Board of Directors or any transfer agent of the Corporation may direct
a new certificate or certificates representing stock of the Corporation to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
Section 5.5 Regulations.
-----------
The Board of Directors shall have power and authority to make all such
rules and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Corporate Seal.
--------------
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal" and
"Delaware".
5
<PAGE>
Section 6.2 Fiscal Year.
-----------
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
Section 6.3 Notices and Waivers Thereof.
---------------------------
Whenever any notice whatsoever is required by law, the Certificate or these
Bylaws to be given to any stockholder, director or officer, such notice, except
as otherwise provided by law, may be given personally, or by mail, or, in the
case of directors or officers, by telegram, cable or facsimile transmission,
addressed to such person at his or her address as it appears on the books of the
Corporation. Any notice given by telegram, cable or facsimile transmission shall
be deemed to have been given when it shall have been delivered for transmission
and any notice given by mail shall be deemed to have been given when it shall
have been deposited in the United States mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate or
these Bylaws, a written waiver thereof, signed by the person entitled to such
notice, whether before or after the meeting or the time stated therein, shall be
deemed equivalent in all respects to such notice to the full extent permitted by
law.
Section 6.4 Stock of Other Corporations or Other Interests.
----------------------------------------------
Unless otherwise ordered by the Board of Directors, the President, the
Secretary, and such attorneys or agents of the Corporation as may be from time
to time authorized by the Board of Directors or the President, shall have full
power and authority on behalf of this Corporation to attend and to act and vote
in person or by proxy at any meeting of the holders of securities of any
corporation or other entity in which this Corporation may own or hold shares or
other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The President, the Secretary, or such attorneys or
agents, may also execute and deliver on behalf of this Corporation powers of
attorney, proxies, consents, waivers, and other instruments relating to the
shares or securities owned or held by this Corporation.
ARTICLE VII
AMENDMENTS
The holders of shares of capital stock entitled at the time to vote in any
general election of directors shall have power to adopt, amend, or repeal the
Bylaws of the Corporation by vote of the holders of not less than a majority in
voting power of the outstanding shares of each class of common stock of the
Corporation, voting as separate classes, and except as otherwise provided by
law, the Board of Directors shall have power equal in all respects to that of
the stockholders to adopt, amend, or repeal the Bylaws by vote of not less than
a Required Majority.
6
<PAGE>
EXHIBIT 4.1
-----------
LIBERTY MEDIA CORPORATION,
Issuer
to
The Bank of New York,
Trustee
_______________
INDENTURE
_______________
Dated as of July 7, 1999
Senior Debt Securities
<PAGE>
EXHIBIT 4.1
-----------
Reconciliation and tie between
Trust Indenture Act of 1939 (the "Trust Indenture Act")
and Indenture
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
--------------------------- -----------------
<S> <C>
(S)310(a)(1)............................................. 607
(a)(2).................................................. 607
(b)..................................................... 608
(S)312(a)................................................ 701
(b)..................................................... 702
(c)..................................................... 702
(S)313(a)................................................ 703
(b)(2).................................................. 703
(c)..................................................... 703
(d)..................................................... 703
(S)314(a)................................................ 704
(c)(1).................................................. 102
(c)(2).................................................. 102
(e)..................................................... 102
(f)..................................................... 102
(S)316(a) (last sentence)................................ 101
(a)(1)(A)............................................... 502, 512
(a)(1)(B)............................................... 513
(b)..................................................... 508
(S)317(a)(1)............................................. 503
(a)(2)................................................... 504
(b)...................................................... 1003
(S)318(a)................................................ 108
</TABLE>
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE ONE
Definitions and Other Provisions of General Application
<TABLE>
<S> <C>
Section 101 Definitions; Rules of Construction.................. 1
Section 102 Compliance Certificates and Opinions................ 11
Section 103 Form of Documents Delivered to Trustee.............. 11
Section 104 Acts of Holders..................................... 11
Section 105 Notices, etc. to Trustee and Company............... 13
Section 106 Notice to Holders of Securities; Waiver............. 13
Section 107 Language of Notices................................. 14
Section 108 Conflict with Trust Indenture Act................... 14
Section 109 Effect of Headings and Table of Contents............ 14
Section 110 Successors and Assigns.............................. 14
Section 111 Separability Clause................................. 14
Section 112 Benefits of Indenture............................... 14
Section 113 Governing Law....................................... 14
Section 114 Legal Holidays...................................... 14
Section 115 Counterparts........................................ 15
Section 116 Judgment Currency................................... 15
Section 117 No Security Interest Created........................ 15
Section 118 Limitation on Individual Liability.................. 15
ARTICLE TWO
Securities Forms
Section 201 Forms Generally..................................... 16
Section 202 Form of Trustee's Certificate of Authentication..... 16
Section 203 Securities in Global Form........................... 16
ARTICLE THREE
The Securities
Section 301 Amount Unlimited; Issuable in Series................ 17
Section 302 Currency; Denominations............................. 19
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 303 Execution, Authentication, Delivery and Dating.............................. 20
Section 304 Temporary Securities........................................................ 21
Section 305 Registration, Transfer and Exchange......................................... 21
Section 306 Mutilated, Destroyed, Lost and Stolen Securities............................ 24
Section 307 Payment of Interest and Certain Additional Amounts; Rights
to Interest and Certain Additional Amounts Preserved........................ 25
Section 308 Persons Deemed Owners....................................................... 26
Section 309 Cancellation................................................................ 26
Section 310 Computation of Interest..................................................... 27
Section 311 CUSIP Numbers............................................................... 27
ARTICLE FOUR
Satisfaction and Discharge of Indenture
Section 401 Satisfaction and Discharge.................................................. 27
Section 402 Defeasance and Covenant Defeasance.......................................... 28
Section 403 Application of Trust Money.................................................. 31
ARTICLE FIVE
Remedies
Section 501 Events of Default........................................................... 31
Section 502 Acceleration of Maturity; Rescission and Annulment.......................... 33
Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee............. 33
Section 504 Trustee May File Proofs of Claim............................................ 34
Section 505 Trustee May Enforce Claims without Possession of Securities or Coupons...... 34
Section 506 Application of Money Collected.............................................. 35
Section 507 Limitations on Suits........................................................ 35
Section 508 Unconditional Right of Holders to Receive Principal and any Premium,
Interest and Additional Amounts............................................. 35
Section 509 Restoration of Rights and Remedies.......................................... 36
Section 510 Rights and Remedies Cumulative.............................................. 36
Section 511 Delay or Omission Not Waiver................................................ 36
Section 512 Control by Holders of Securities............................................ 36
Section 513 Waiver of Past Defaults..................................................... 36
Section 514 Waiver of Stay or Extension Laws............................................ 37
Section 515 Undertaking for Costs....................................................... 37
</TABLE>
ii
<PAGE>
ARTICLE SIX
The Trustee
<TABLE>
<S> <C>
Section 601 Certain Rights of Trustee.............................................. 37
Section 602 Notice of Defaults..................................................... 38
Section 603 Not Responsible for Recitals or Issuance of Securities................. 39
Section 604 May Hold Securities.................................................... 39
Section 605 Money Held in Trust.................................................... 39
Section 606 Compensation and Reimbursement......................................... 39
Section 607 Corporate Trustee Required; Eligibility................................ 40
Section 608 Resignation and Removal; Appointment of Successor...................... 40
Section 609 Acceptance of Appointment by Successor................................. 41
Section 610 Merger, Conversion, Consolidation or Succession to Business............ 42
Section 611 Appointment of Authenticating Agent.................................... 42
ARTICLE SEVEN
Holders Lists and Reports by Trustee and Company
Section 701 Company to Furnish Trustee Names and Addresses of Holders.............. 43
Section 702 Preservation of Information; Communications to Holders................. 44
Section 703 Reports by Trustee..................................................... 44
Section 704 Reports by Company; Rule 144A Information.............................. 44
ARTICLE EIGHT
Consolidation, Merger and Sales
Section 801 Company May Consolidate, Etc., Only on Certain Terms................... 45
Section 802 Successor Person Substituted for Company............................... 46
ARTICLE NINE
Supplemental Indentures
Section 901 Supplemental Indentures without Consent of Holders..................... 46
Section 902 Supplemental Indentures With Consent of Holders........................ 47
Section 903 Execution of Supplemental Indentures................................... 48
Section 904 Effect of Supplemental Indentures...................................... 48
Section 905 Reference in Securities to Supplemental Indentures..................... 48
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 906 Conformity with Trust Indenture Act.................................... 48
Section 907 Notice of Supplemental Indenture....................................... 48
ARTICLE TEN
Covenants
Section 1001 Payment of Principal, any Premium, Interest and Additional Amounts..... 48
Section 1002 Maintenance of Office or Agency........................................ 49
Section 1003 Money for Securities Payments to Be Held in Trust...................... 50
Section 1004 Additional Amounts..................................................... 51
Section 1005 Limitation on Liens.................................................... 51
Section 1006 Limitation on Sale and Leaseback....................................... 52
Section 1007 Designation of Restricted Subsidiaries................................. 53
Section 1008 Corporate Existence.................................................... 53
Section 1009 Waiver of Certain Covenants............................................ 53
Section 1010 Company Statement as to Compliance; Notice of Certain Defaults......... 53
Section 1011 Calculation of Original Issue Discount................................. 54
ARTICLE ELEVEN
Redemption of Securities
Section 1101 Applicability of Article............................................... 54
Section 1102 Election to Redeem; Notice to Trustee.................................. 54
Section 1103 Selection by Trustee of Securities to be Redeemed...................... 54
Section 1104 Notice of Redemption................................................... 55
Section 1105 Deposit of Redemption Price............................................ 56
Section 1106 Securities Payable on Redemption Date.................................. 56
Section 1107 Securities Redeemed in Part............................................ 56
ARTICLE TWELVE
Sinking Funds
Section 1201 Applicability of Article............................................... 57
Section 1202 Satisfaction of Sinking Fund Payments with Securities.................. 57
Section 1203 Redemption of Securities for Sinking Fund.............................. 57
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
ARTICLE THIRTEEN
Repayment at the Option of Holders
Section 1301 Applicability of Article............................................... 58
ARTICLE FOURTEEN
Securities in Foreign Currencies
Section 1401 Applicability of Article............................................... 58
ARTICLE FIFTEEN
Meetings of Holders of Securities
Section 1501 Purposes for Which Meetings May Be Called.............................. 58
Section 1502 Call, Notice and Place of Meetings..................................... 58
Section 1503 Persons Entitled to Vote at Meetings................................... 59
Section 1504 Quorum; Action......................................................... 59
Section 1505 Determination of Voting Rights; Conduct and Adjournment of Meetings.... 60
Section 1506 Counting Votes and Recording Action of Meetings........................ 60
</TABLE>
v
<PAGE>
INDENTURE, dated as of July 7, 1999 (the "Indenture"), among LIBERTY MEDIA
CORPORATION, a corporation duly organized and existing under the laws of
Delaware (hereinafter called the "Company"), having its principal executive
office located at 8101 E. Prentice Avenue, Ste. 500, Englewood, Colorado 80111,
and The Bank of New York, a New York banking corporation (hereinafter called the
"Trustee"), having its Corporate Trust Office located at 101 Barclay Street, New
York, New York 10286.
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its senior unsecured
debentures, notes or other evidences of Indebtedness (hereinafter called the
"Securities"), unlimited as to principal amount, to bear such rates of interest,
to mature at such time or times, to be issued in one or more series and to have
such other provisions as shall be fixed as hereinafter provided.
The Company has duly authorized the execution and delivery of this
Indenture. All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder that are required to be part of this Indenture
and, to the extent applicable, shall be governed by such provisions.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders (as herein defined) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the Securities
or of any series thereof and any Coupons (as herein defined) as follows:
ARTICLE ONE
Definitions and Other Provisions of General Application
Section 101 Definitions; Rules of Construction.
Except as otherwise expressly provided in or pursuant to this Indenture or
unless the context otherwise requires, for all purposes of this Indenture:
(1) the terms defined in this Article have the meanings assigned to them in
this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles
and, except as otherwise herein expressly provided, the terms "generally
accepted accounting principles" or "GAAP" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation;
(4) the words "herein", "hereof", "hereto" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(5) the word "or" is always used inclusively (for example, the phrase "A or
B" means "A or B or both", not "either A or B but not both").
(6) provisions apply to successive events and transactions;
(7) the masculine gender includes the feminine and the neuter; and
1
<PAGE>
(8) references to agreements and other instruments include subsequent
amendments thereto.
Certain terms used principally in certain Articles hereof are defined in
those Articles.
"Act", when used with respect to any Holders, has the meaning specified in
Section 104.
"Additional Amounts" means any additional amounts which are required hereby
or by any Security, under circumstances specified herein or therein, to be paid
by the Company in respect of certain taxes, assessments or other governmental
charges imposed on Holders specified therein and which are owing to such
Holders.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"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 the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.
"Attributable Debt" in respect of a Sale and Leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 611 to act on behalf of the Trustee to authenticate Securities of one
or more series.
"Authorized Newspaper" means a newspaper, in an official language of the
place of publication or in the English language, customarily published on each
day that is a Business Day in the place of publication, whether or not published
on days that are Legal Holidays in the place of publication, and of general
circulation in each place in connection with which the term is used or in the
financial community of each such place. Where successive publications are
required to be made in Authorized Newspapers, the successive publications may be
made in the same or in different newspapers in the same city meeting the
foregoing requirements and in each case on any day that is a Business Day in the
place of publication.
"Bearer Security" means any Security in the form established pursuant to
Section 201 which is payable to bearer.
"Board of Directors" means the board of directors of the Company or any
committee of that board duly authorized to act generally or in any particular
respect for the Company hereunder.
"Board Resolution" means a copy of one or more resolutions, certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, delivered to the Trustee.
"Business Day", with respect to any Place of Payment or other location,
means, unless otherwise specified with respect to any Securities pursuant to
Section 301, any day other than a Saturday, Sunday or other day on which banking
institutions in such Place of Payment or other location are authorized or
obligated by law, regulation or executive order to close.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person to pay rent or other amounts under a lease with respect to any property
(whether real, personal or mixed) acquired or leased by such Person and used in
its business that is required to be accounted for as a liability on the balance
sheet of such Person in accordance with GAAP and the amount of such Capitalized
Lease Obligation shall be the amount so required to be accounted for as a
liability.
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"Closing Price" means, with respect to any security on any date of
determination, the closing sale price (or, if no closing sale price is reported,
the last reported sale price) of such security on the NYSE on such date or, if
such security is not listed for trading on the NYSE on such date, as reported in
the composite transactions (or comparable system) for the principal United
States national or regional securities exchange on which such security is so
listed or a recognized international securities exchange, or, if such security
is not listed on a U.S. national or regional securities exchange or on a
recognized international securities exchange, as reported by the Nasdaq Stock
Market, or, if such security is not so reported, the last quoted bid price for
such security in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of such security on such date as determined by a
nationally recognized independent investment banking firm retained for this
purpose by the Company; provided that, (1) with respect to options, warrants and
other rights to purchase Marketable Securities, the Closing Price shall be the
value of the underlying Marketable Security determined as aforesaid minus the
exercise price and (2) with respect to securities exchangeable for or
convertible into Marketable Securities, the Closing Price shall be the Closing
Price of the exchangeable or convertible security determined as aforesaid or, if
it has no Closing Price, the fully converted value based upon the Closing Price
of the underlying Marketable Security determined as aforesaid.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act.
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person, and any other obligor upon the Securities.
"Company Request" and "Company Order" mean, respectively, a written request
or order, as the case may be, signed in the name of the Company by the Chairman
of the Board of Directors, a Vice Chairman, the President or a Vice President,
and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Consolidated Asset Value" shall mean, with respect to any date of
determination, the sum of
(A) the amount of cash of the Company and its Restricted Subsidiaries on
the last day of the preceding month, plus the following assets of the
Company and its Restricted Subsidiaries on the last day of the
preceding month that have the indicated ratings and maturities no
greater than 270 days:
(i) the aggregate principal amount of certificates of deposit
and bankers' acceptances rated A/2 or P/2 or higher by the
Rating Agencies,
(ii) the aggregate principal amount of participations in loans
with obligors with short-term ratings of A/2 or P/2 or
higher by the Rating Agencies or long-term ratings of Baa1or
BBB+ or higher by the Rating Agencies, and
(iii) the aggregate principal amount of repurchase agreements of
securities issued by the U.S. government or any agency
thereof with counterparties with short-term ratings of A/2
or P/2 or higher by the Rating Agencies or long-term ratings
of Baa1or BBB+ or higher by the Rating Agencies, and
(iv) the aggregate principal amount at maturity of commercial
paper rated A/2 or P/2 or higher by the Rating Agencies,
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(B) the aggregate value of all Marketable Securities owned by the Company
and its Restricted Subsidiaries based upon the Closing Price of each
Marketable Security on the last day of the preceding month, or if such
day is not a Trading Day, on the immediately preceding Trading Day,
and
(C) the arithmetic mean of the aggregate market values (or the midpoint of
a range of values) of the assets of the Company and its Restricted
Subsidiaries having a value in excess of $200 million, other than the
assets referred to in clauses (A) and (B) above, as of a date within
90 days of the date of determination (or to the extent the research
reports referred to below have not been issued within such 90-day
period, as of a date within 180 days of the date of determination) as
evidenced either
(i) by research reports issued by three nationally recognized
independent investment banking firms selected by the Company or
(ii) if three such research reports have not been issued within 180
days prior to the date of determination, by an appraisal by two
nationally recognized independent investment banking or appraisal
firms retained by the Company for this purpose.
"Conversion Event" means the cessation of use of (i) a Foreign Currency
both by the government of the country or the confederation which issued such
Foreign Currency and for the settlement of transactions by a central bank or
other public institutions of or within the international banking community or
(ii) any currency unit or composite currency for the purposes for which it was
established.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee at which at any particular time its corporate trust business shall be
administered, which office at the date of original execution of this Indenture
is located at 101 Barclay Street, Floor 21 West, New York, New York 10286.
"Corporation" includes corporations and limited liability companies and,
except for purposes of Article Eight, associations, companies (other than
limited liability companies) and business trusts.
"Coupon" means any interest coupon appertaining to a Bearer Security.
"Currency", with respect to any payment, deposit or other transfer in
respect of the principal of or any premium or interest on or any Additional
Amounts with respect to any Security, means Dollars or the Foreign Currency, as
the case may be, in which such payment, deposit or other transfer is required to
be made by or pursuant to the terms hereof or such Security and, with respect to
any other payment, deposit or transfer pursuant to or contemplated by the terms
hereof or such Security, means Dollars.
"CUSIP number" means the alphanumeric designation assigned to a Security by
Standard & Poor's Corporation, CUSIP Service Bureau.
"Defaulted Interest" has the meaning specified in Section 307.
"Dollars" or "$" means a dollar or other equivalent unit of legal tender
for payment of public or private debts in the United States of America.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor thereto, in each case as amended from time to time.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Except as otherwise provided herein,
fair market value shall be determined by the Board of Directors of the Company
acting in good faith evidenced by a Board Resolution.
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"Foreign Currency" means any currency, currency unit or composite currency,
including, without limitation, the euro, issued by the government of one or more
countries other than the United States of America or by any recognized
confederation or association of such governments.
"Funded Indebtedness" of any Person means, as of the date as of which the
amount thereof is to be determined, without duplication, all Indebtedness of
such Person, and all Capitalized Lease Obligations of such Person, which by the
terms thereof have a final maturity, duration or payment date more than one year
from the date of determination thereof (including, without limitation, any
balance of such Indebtedness or obligation which was Funded Indebtedness at the
time of its creation maturing within one year from such date of determination)
or which has a final maturity, duration or payment date within one year from
such date of determination but which by its terms may be renewed or extended at
the option of such Person for more than one year from such date of
determination, whether or not theretofore renewed or extended; provided,
however, "Funded Indebtedness" shall not include (1) any Indebtedness of the
Company or any Subsidiary to the Company or another Subsidiary, (2) any
guarantee by the Company or any Subsidiary of Indebtedness of the Company or
another Subsidiary, provided that such guarantee is not secured by a Lien on any
Principal Property, (3) any guarantee by the Company or any Subsidiary of the
Indebtedness of any Person (including, without limitation, a business trust), if
the obligation of the Company or such Subsidiary under such guaranty is limited
in amount to the amount of funds held by or on behalf of such Person that are
available for the payment of such Indebtedness, (4) liabilities under interest
rate swap, exchange, collar or cap agreements and all other agreements or
arrangements designed to protect against fluctuations in interest rates or
currency exchange rates, and (5) liabilities under commodity hedge, commodity
swap, exchange, collar or cap agreements, fixed price agreements and all other
agreements or arrangements designed to protect against fluctuations in prices.
For purposes of determining the outstanding principal amount of Funded
Indebtedness at any date, the amount of Indebtedness issued at a price less than
the principal amount at maturity thereof shall be equal to the amount of the
liability in respect thereof at such date determined in accordance with
generally accepted accounting principles.
"GAAP" means such accounting principles as are generally accepted in the
United States of America as of the date or time of any computation required
hereunder.
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the other government or governments in the
confederation which issued the Foreign Currency in which the principal of or any
premium or interest on any Security or any Additional Amounts in respect thereof
shall be payable, in each case where the payment or payments thereunder are
supported by the full faith and credit of the United States or such government
or governments or (ii) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America or such
other government or governments, in each case where the timely payment or
payments thereunder are unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government or
governments, and which, in the case of (i) or (ii), are not callable or
redeemable at the option of the issuer or issuers thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of or other amount with respect to any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of or other
amount with respect to the Government Obligation evidenced by such depository
receipt.
"Holder", in the case of any Registered Security, means the Person in whose
name such Security is registered in the Security Register and, in the case of
any Bearer Security, means the bearer thereof and, in the case of any Coupon,
means the bearer thereof.
"Indebtedness" of any Person means:
(1) any indebtedness of such Person (i) for borrowed money or (ii)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any property
or assets, including securities;
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(2) any guarantee by such Person of any indebtedness of others
described in the preceding clause (1); and
(3) any amendment, renewal, extension or refunding of any such
indebtedness or guarantee.
"Indenture" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and, with respect to any
Security, by the terms and provisions of such Security and any Coupon
appertaining thereto established pursuant to Section 301 (as such terms and
provisions may be amended pursuant to the applicable provisions hereof);
provided, however, that, if at any time more than one Person is acting as
Trustee under this instrument, "Indenture" shall mean, with respect to any one
or more series of Securities for which such Person is Trustee, this instrument
as originally executed or as it may from time to time be supplemented or amended
by one or more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof and shall include the terms of those particular
series of Securities for which such Person is Trustee established pursuant to
Section 301, exclusive, however, of any provisions or terms which relate solely
to other series of Securities for which such Person is not Trustee, regardless
of when such terms or provisions were adopted.
"Independent Public Accountants" means accountants or a firm of accountants
that, with respect to the Company and any other obligor under the Securities or
the Coupons, are independent public accountants within the meaning of the
Securities Act of 1933, as amended, and the rules and regulations promulgated by
the Commission thereunder, who may be the independent public accountants
regularly retained by the Company or who may be other independent public
accountants. Such accountants or firm shall be entitled to rely upon any
Opinion of Counsel as to the interpretation of any legal matters relating to
this Indenture or certificates required to be provided hereunder.
"Indexed Security" means a Security the terms of which provide that the
principal amount thereof payable at Stated Maturity may be more or less than the
principal face amount thereof at original issuance.
"Interest", with respect to any Original Issue Discount Security which by
its terms bears interest only after Maturity, means interest payable after
Maturity and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 1004, includes such Additional
Amounts.
"Interest Payment Date", with respect to any Security, means the Stated
Maturity of an installment of interest on such Security.
"Judgment Currency" has the meaning specified in Section 116.
"Legal Holidays" has the meaning specified in Section 114.
"Lien" means any mortgage, pledge, lien, security interest, or other
similar encumbrance.
"Marketable Securities" means any securities listed on a U.S. national
securities exchange or reported by the Nasdaq Stock Market or listed on a
recognized international securities exchange or traded in the over-the-counter
market and quoted by at least two broker-dealers as reported by the National
Quotation Bureau or similar organization, including as Marketable Securities
options, warrants and other rights to purchase, and securities exchangeable for
or convertible into, Marketable Securities.
"Material Subsidiary" means, at any relevant time, any Subsidiary that
meets any of the following conditions:
(1) the Company's and its other Subsidiaries' investments in and
advances to the Subsidiary exceed 10% of the total consolidated assets of
the Company and its Subsidiaries; or
(2) the Company's and its other Subsidiaries' proportionate share of
the total assets (after intercompany eliminations) of the Subsidiary
exceeds 10% of the total consolidated assets of the Company and its
Subsidiaries; or
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(3) the Company's and its other Subsidiaries' proportionate share of
the total revenues (after intercompany eliminations) of the Subsidiary
exceeds 10% of the total consolidated revenue of the Company and its
Subsidiaries; or
(4) the Company's and its other Subsidiaries' equity in the income
from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the Subsidiary
exceeds 10% of such income of the Company and its Subsidiaries;
all as calculated by reference to the then latest fiscal year-end accounts (or
consolidated fiscal year-end accounts, as the case may be) of such Subsidiary
and the then latest audited consolidated fiscal year-end accounts of the Company
and its Subsidiaries.
"Maturity", with respect to any Security, means the date on which the
principal of such Security or an installment of principal becomes due and
payable as provided in or pursuant to this Indenture, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption or repurchase,
notice of option to elect repayment or otherwise, and includes the Redemption
Date.
"Moody's" means Moody's Investors Service, Inc.
"Nasdaq Stock Market" means the Nasdaq Stock Market, a subsidiary of the
National Association of Securities Dealers, Inc.
"New York Banking Day" has the meaning specified in Section 116.
"NYSE" means the New York Stock Exchange, Inc.
"Office" or "Agency", with respect to any Securities, means an office or
agency of the Company maintained or designated in a Place of Payment for such
Securities pursuant to Section 1002 or any other office or agency of the Company
maintained or designated for such Securities pursuant to Section 1002 or, to the
extent designated or required by Section 1002 in lieu of such office or agency,
the Corporate Trust Office of the Trustee.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman, the President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company,
that, if applicable, complies with the requirements of Section 314(e) of the
Trust Indenture Act and is delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee, that, if required by the Trust Indenture Act,
complies with the requirements of Section 314(e) of the Trust Indenture Act.
"Original Issue Discount Security" means a Security issued pursuant to this
Indenture which provides, at any time prior to the final Stated Maturity of such
Security, for declaration of an amount less than the principal face amount
thereof to be due and payable upon acceleration pursuant to Section 502.
"Outstanding", when used with respect to any Securities, means, as of the
date of determination, all such Securities theretofore authenticated and
delivered under this Indenture, except:
(a) any such Security theretofore cancelled by the Trustee or the
Security Registrar or delivered to the Trustee or the Security Registrar
for cancellation;
(b) any such Security for whose payment at the Maturity thereof money
in the necessary amount has been theretofore deposited pursuant hereto
(other than pursuant to Section 402) with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities and any Coupons
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appertaining thereto, provided that, if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor satisfactory to the Trustee has been made;
(c) any such Security with respect to which the Company has effected
defeasance or covenant defeasance pursuant to the terms hereof, except to
the extent provided in Section 402;
(d) any such Security which has been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, unless there shall
have been presented to the Trustee proof satisfactory to it that such
Security is held by a bona fide purchaser in whose hands such Security is a
valid obligation of the Company; and
(e) any such Security converted or exchanged as contemplated by this
Indenture into Common Stock or other securities, cash or other property, if
the terms of such Security provide for such conversion or exchange pursuant
to Section 301;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders of Securities for quorum purposes, (i) the principal amount
of an Original Issue Discount Security that may be counted in making such
determination and that shall be deemed to be Outstanding for such purposes shall
be equal to the amount of the principal thereof that pursuant to the terms of
such Original Issue Discount Security would be declared (or shall have been
declared to be) due and payable upon a declaration of acceleration thereof
pursuant to Section 502 at the time of such determination, and (ii) the
principal amount of any Indexed Security that may be counted in making such
determination and that shall be deemed outstanding for such purpose shall be
equal to the principal face amount of such Indexed Security at original
issuance, unless otherwise provided in or pursuant to this Indenture, and (iii)
the principal amount of a Security denominated in a Foreign Currency shall be
the Dollar equivalent, determined on the date of original issuance of such
Security, of the principal amount (or, in the case of an Original Issue Discount
Security, the Dollar equivalent on the date of original issuance of such
Security of the amount determined as provided in (i) above) of such Security,
and (iv) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or such other obligor, shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in making any such determination or
relying upon any such request, demand, authorization, direction, notice, consent
or waiver, only Securities which a Responsible Officer of the Trustee actually
knows to be so owned shall be so disregarded. Securities so owned which shall
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee (A) the pledgee's right so to act
with respect to such Securities and (B) that the pledgee is not the Company or
any other obligor upon the Securities or any Coupons appertaining thereto or an
Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, or any premium or interest on, or any Additional Amounts with
respect to, any Security or any Coupon on behalf of the Company.
"Permitted Liens" has the meaning specified in Section 1005.
"Person" means any individual, corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Place of Payment", with respect to any Security, means the place or places
where the principal of, or any premium or interest on, or any Additional Amounts
with respect to such Security are payable as provided in or pursuant to this
Indenture or such Security.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same Indebtedness as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a lost, destroyed, mutilated or stolen Security or any Security to which
a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to
evidence the same Indebtedness as the lost, destroyed, mutilated or stolen
Security or the Security to which a mutilated, destroyed, lost or stolen Coupon
appertains.
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"Principal Property" means, as of any date of determination, (a) any cable
system or manufacturing or production facility, including land and buildings and
other improvements thereon and equipment located therein, owned by the Company
or a Restricted Subsidiary and used in the ordinary course of its business and
(b) any executive offices, administrative buildings, and research and
development facilities, including land and buildings and other improvements
thereon and equipment located therein, of the Company or a Restricted
Subsidiary, other than any such property which, in the good faith opinion of the
Board of Directors, is not of material importance to the business conducted by
the Company and its Restricted Subsidiaries taken as a whole.
"Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or
Moody's or both shall not make a rating of the Securities publicly available, a
nationally recognized United States securities rating agency or agencies, as the
case may be, selected by the Company, which shall be substituted for S&P or
Moody's or both, as the case may be.
"Redemption Date", with respect to any Security or portion thereof to be
redeemed, means each date fixed for such redemption by or pursuant to this
Indenture or such Security.
"Redemption Price", with respect to any Security or portion thereof to be
redeemed, means the price at which it is to be redeemed as determined by or
pursuant to this Indenture or such Security.
"Registered Security" means any Security established pursuant to Section
201 which is registered in the Security Register.
"Regular Record Date" for the interest payable on any Registered Security
on any Interest Payment Date therefor means the date, if any, specified in or
pursuant to this Indenture or such Security as the "Regular Record Date".
"Required Currency" has the meaning specified in Section 116.
"Responsible Officer" means any officer of the Trustee in its Corporate
Trust Office and also means, with respect to a particular corporate trust
matter, any other officer of the Trustee to whom such matter is referred because
of his knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means, as of any date of determination, a
Subsidiary designated a Restricted Subsidiary in accordance with Section 1007,
unless and until designated an Unrestricted Subsidiary in accordance with such
covenant.
"S&P" means Standard & Poor's, a division of The Mc-Graw-Hill Companies,
Inc.
"Sale and Leaseback Transactions" means any arrangement providing for the
leasing to the Company or a Restricted Subsidiary of any Principal Property
(except for temporary leases for a term, including renewals, of not more than
three years) which has been or is to be sold by the Company or such Restricted
Subsidiary to the lessor.
"Security" or "Securities" means any note or notes, bond or bonds,
debenture or debentures, or any other evidences of Indebtedness, as the case may
be, authenticated and delivered under this Indenture; provided, however, that,
if at any time there is more than one Person acting as Trustee under this
Indenture, "Securities", with respect to any such Person, shall mean Securities
authenticated and delivered under this Indenture, exclusive, however, of
Securities of any series as to which such Person is not Trustee.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Special Record Date" for the payment of any Defaulted Interest on any
Registered Security means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", with respect to any Security or any installment of
principal thereof or interest thereon or any Additional Amounts with respect
thereto, means the date established by or pursuant to this Indenture or such
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Security as the fixed date on which the principal of such Security or such
installment of principal or interest is, or such Additional Amounts are, due and
payable.
"Subsidiary" means any corporation, association, limited liability company,
partnership or other business entity of which a majority of the total voting
power of the capital stock or other interests (including partnership interests)
entitled (without regard to the incurrence of a contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned,
directly or indirectly, by (i) the Company, (ii) the Company and one or more of
its Subsidiaries or (iii) one or more Subsidiaries of the Company.
"Trading Day" means, with respect to any security the Closing Price of
which is being determined, a day on which there is trading on the United States
national or regional securities exchange or recognized international securities
exchange, in the Nasdaq Stock Market or in over-the-counter market used to
determine such Closing Price.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
and any reference herein to the Trust Indenture Act or a particular provision
thereof shall mean such Act or provision, as the case may be, as amended or
replaced from time to time or as supplemented from time to time by rules or
regulations adopted by the Commission under or in furtherance of the purposes of
such Act or provision, as the case may be.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such with respect to
one or more series of Securities pursuant to the applicable provisions of this
Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee
hereunder; provided, however, that if at any time there is more than one such
Person, "Trustee" shall mean each such Person and as used with respect to the
Securities of any series shall mean the Trustee with respect to the Securities
of such series.
"United States", except as otherwise provided in or pursuant to this
Indenture or any Security, means the United States of America (including the
states thereof and the District of Columbia), its territories and possessions
and other areas subject to its jurisdiction.
"United States Alien", except as otherwise provided in or pursuant to this
Indenture or any Security, means any Person who, for United States Federal
income tax purposes, is a foreign corporation, a non-resident alien individual,
a non-resident alien fiduciary of a foreign estate or trust, or a foreign
partnership one or more of the members of which is, for United States Federal
income tax purposes, a foreign corporation, a non-resident alien individual or a
non-resident alien fiduciary of a foreign estate or trust.
"Unrestricted Subsidiary" means, as of any date of determination, any
Subsidiary of the Company that is not a Restricted Subsidiary.
"U.S. Depository" or "Depository" means, with respect to any Security
issuable or issued in the form of one or more global Securities, the Person
designated as U.S. Depository or Depository by the Company in or pursuant to
this Indenture, which Person must be, to the extent required by applicable law
or regulation, a clearing agency registered under the Exchange Act and, if so
provided with respect to any Security, any successor to such Person. If at any
time there is more than one such Person, "U.S. Depository" or "Depository" shall
mean, with respect to any Securities, the qualifying entity which has been
appointed with respect to such Securities.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "Vice President".
"Voting Stock" means stock of a Corporation of the class or classes having
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of such Corporation provided
that, for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered voting stock
whether or not such event shall have happened.
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Section 102 Compliance Certificates and Opinions.
Except as otherwise expressly provided in or pursuant to this Indenture,
upon any application or request by the Company to the Trustee to take any action
under any provision of this Indenture, the Company shall furnish to the Trustee
an Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that, in the opinion of such counsel, all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
or any of them is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or opinion
has read such condition or covenant and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such condition or covenant has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 103 Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon an Opinion of Counsel, unless such
officer knows, or in the exercise of reasonable care should know, that the
opinion with respect to the matters upon which his certificate or opinion is
based are erroneous. Any such Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the information with
respect to such factual matters is in the possession of the Company unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Security, they may, but need not, be
consolidated and form one instrument.
Section 104 Acts of Holders.
(1) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by or pursuant to this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing. If, but only if, Securities of a series are issuable as
Bearer Securities, any request, demand, authorization, direction, notice,
consent, waiver or other action provided in or pursuant to this Indenture to be
given or taken by Holders of Securities of such series may, alternatively, be
embodied in and evidenced by the record of Holders of Securities of such series
voting in favor thereof, either in person or by proxies duly appointed in
writing, at any meeting of Holders of Securities of such series duly called and
held in accordance with the provisions of Article Fifteen, or a
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combination of such instruments and any such record. Except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments or record or both are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments and
any such record (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such instrument
or instruments or so voting at any such meeting. Proof of execution of any such
instrument or of a writing appointing any such agent, or of the holding by any
Person of a Security, shall be sufficient for any purpose of this Indenture and
(subject to Section 315 of the Trust Indenture Act) conclusive in favor of the
Trustee and the Company and any agent of the Trustee or the Company, if made in
the manner provided in this Section. The record of any meeting of Holders of
Securities shall be proved in the manner provided in Section 1506.
Without limiting the generality of this Section 104, unless otherwise
provided in or pursuant to this Indenture, a Holder, including a U.S. Depository
that is a Holder of a global Security, may make, give or take, by a proxy or
proxies, duly appointed in writing, any request, demand, authorization,
direction, notice, consent, waiver or other Act provided in or pursuant to this
Indenture or the Securities to be made, given or taken by Holders, and a U.S.
Depository that is a Holder of a global Security may provide its proxy or
proxies to the beneficial owners of interests in any such global Security
through such U.S. Depository's standing instructions and customary practices.
The Trustee shall fix a record date for the purpose of determining the
Persons who are beneficial owners of interest in any permanent global Security
held by a U.S. Depository entitled under the procedures of such U.S. Depository
to make, give or take, by a proxy or proxies duly appointed in writing, any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided in or pursuant to this Indenture to be made, given or taken by Holders.
If such a record date is fixed, the Holders on such record date or their duly
appointed proxy or proxies, and only such Persons, shall be entitled to make,
give or take such request, demand, authorization, direction, notice, consent,
waiver or other Act, whether or not such Holders remain Holders after such
record date. No such request, demand, authorization, direction, notice,
consent, waiver or other Act shall be valid or effective if made, given or taken
more than 90 days after such record date.
(2) The fact and date of the execution by any Person of any such
instrument or writing referred to in this Section 104 may be proved in any
reasonable manner which the Trustee deems sufficient and in accordance with such
reasonable rules as the Trustee may determine; and the Trustee may in any
instance require further proof with respect to any of the matters referred to in
this Section.
(3) The ownership, principal amount and serial numbers of Registered
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, shall be proved by the Security Register.
(4) The ownership, principal amount and serial numbers of Bearer
Securities held by any Person, and the date of the commencement and the date of
the termination of holding the same, may be proved by the production of such
Bearer Securities or by a certificate executed, as depositary, by any trust
company, bank, banker or other depositary reasonably acceptable to the Company,
wherever situated, if such certificate shall be deemed by the Company and the
Trustee to be satisfactory, showing that at the date therein mentioned such
Person had on deposit with such depositary, or exhibited to it, the Bearer
Securities therein described; or such facts may be proved by the certificate or
affidavit of the Person holding such Bearer Securities, if such certificate or
affidavit is deemed by the Trustee to be satisfactory. The Trustee and the
Company may assume that such ownership of any Bearer Security continues until
(1) another certificate or affidavit bearing a later date issued in respect of
the same Bearer Security is produced, (2) such Bearer Security is produced to
the Trustee by some other Person, (3) such Bearer Security is surrendered in
exchange for a Registered Security or (4) such Bearer Security is no longer
Outstanding. The ownership, principal amount and serial numbers of Bearer
Securities held by the Person so executing such instrument or writing and the
date of the commencement and the date of the termination of holding the same may
also be proved in any other manner which the Company and the Trustee deem
sufficient.
(5) If the Company shall solicit from the Holders of any Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may at its option (but is not obligated to), by
Board Resolution, fix in advance a record date for the determination of Holders
of Registered Securities entitled to give such request, demand, authorization,
direction, notice, consent, waiver or other Act. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given
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before or after such record date, but only the Holders of Registered Securities
of record at the close of business on such record date shall be deemed to be
Holders for the purpose of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders of Registered Securities shall be deemed effective unless it shall
become effective pursuant to the provisions of this Indenture not later than six
months after the record date.
(6) Any request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done or suffered to be done by the Trustee, any Security Registrar, any
Paying Agent or the Company in reliance thereon, whether or not notation of such
Act is made upon such Security.
Section 105 Notices, etc. to Trustee and Company
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or the Company shall be sufficient for every
purpose hereunder if made, given, furnished or filed in writing to or with the
Trustee at its Corporate Trust Office, or
(2) the Company by the Trustee or any Holder shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if in writing and
mailed, first-class postage prepaid, to the Company addressed to the attention
of its Treasurer at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
Section 106 Notice to Holders of Securities; Waiver.
Except as otherwise expressly provided in or pursuant to this Indenture,
where this Indenture provides for notice to Holders of Securities of any event,
(1) such notice shall be sufficiently given to Holders of Registered
Securities if in writing and mailed, first-class postage prepaid, to each Holder
of a Registered Security affected by such event, at his address as it appears in
the Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice; and
(2) such notice shall be sufficiently given to Holders of Bearer
Securities, if any, if published in an Authorized Newspaper in The City of New
York and, if such Securities are then listed on any stock exchange outside the
United States, in an Authorized Newspaper in such city as the Company shall
advise the Trustee that such stock exchange so requires, on a Business Day at
least twice, the first such publication to be not earlier than the earliest date
and the second such publication not later than the latest date prescribed for
the giving of such notice.
In any case where notice to Holders of Registered Securities is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Holder of a Registered Security shall affect the
sufficiency of such notice with respect to other Holders of Registered
Securities or the sufficiency of any notice to Holders of Bearer Securities
given as provided herein. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided. In
the case by reason of the suspension of regular mail service or by reason of any
other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
In case by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearers Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither failure to give notice
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by publication to Holders of Bearer Securities as provided above, nor any defect
in any notice so published, shall affect the sufficiency of any notice mailed to
Holders of Registered Securities as provided above.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
Section 107 Language of Notices.
Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language, except that, if the Company so elects, any published notice may be in
an official language of the country of publication.
Section 108 Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act, such required provision
shall control.
Section 109 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 110 Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 111 Separability Clause.
In case any provision in this Indenture, any Security or any Coupon shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 112 Benefits of Indenture.
Nothing in this Indenture, any Security or any Coupon, express or implied,
shall give to any Person, other than the parties hereto, any Security Registrar,
any Paying Agent, any Authentication Agent and their successors hereunder and
the Holders of Securities or Coupons, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
Section 113 Governing Law.
This Indenture, the Securities and any Coupons shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in said
state.
Section 114 Legal Holidays.
Unless otherwise specified in or pursuant to this Indenture or any
Securities, in any case where any Interest Payment Date, Stated Maturity or
Maturity of any Security, or the last date on which a Holder has the right to
convert or exchange Securities of a series that are convertible or exchangeable,
shall not be a Business Day (a "Legal Holiday") at any Place of Payment, then
(notwithstanding any other provision of this Indenture, any Security or any
Coupon other than a provision in any Security or Coupon that specifically states
that such provision shall apply in lieu hereof) payment need not be made at such
Place of Payment on such date, and such Securities need not be converted or
exchanged on such date but such payment may be made, and such Securities may be
converted or exchanged, on the next succeeding day that is a Business Day at
such Place of Payment with the same force and effect as if made on the Interest
Payment Date or at the Stated Maturity or Maturity or on such last day for
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conversion or exchange, and no interest shall accrue on the amount payable on
such date or at such time for the period from and after such Interest Payment
Date, Stated Maturity, Maturity or last day for conversion or exchange, as the
case may be, to the next succeeding Business Day.
Section 115 Counterparts.
This Indenture may be executed in several counterparts, each of which shall
be an original and all of which shall constitute but one and the same
instrument.
Section 116 Judgment Currency.
The Company agrees, to the fullest extent that it may effectively do so
under applicable law, that (a) if for the purpose of obtaining judgment in any
court it is necessary to convert the sum due in respect of the principal of, or
premium or interest, if any, or Additional Amounts on the Securities of any
series (the "Required Currency") into a currency in which a judgment will be
rendered (the "Judgment Currency"), the rate of exchange used shall be the rate
at which in accordance with normal banking procedures the Trustee could purchase
in The City of New York the requisite amount of the Required Currency with the
Judgment Currency on the New York Banking Day preceding the day on which a final
unappealable judgment is given and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not entered
in accordance with clause (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt, by the payee, of the full amount of the Required Currency
expressed to be payable in respect of such payments, (ii) shall be enforceable
as an alternative or additional cause of action for the purpose of recovering in
the Required Currency the amount, if any, by which such actual receipt shall
fall short of the full amount of the Required Currency so expressed to be
payable and (iii) shall not be affected by judgment being obtained for any other
sum due under this Indenture. For purposes of the foregoing, "New York Banking
Day" means any day except a Saturday, Sunday or a legal holiday in The City of
New York or a day on which banking institutions in The City of New York are
authorized or obligated by law, regulation or executive order to be closed.
Section 117 No Security Interest Created
Subject to the provisions of Section 1005, nothing in this Indenture or in
any Securities, express or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect in any jurisdiction where property of the
Company or its Subsidiaries is or may be located.
Section 118 Limitation on Individual Liability
No recourse under or upon any obligation, covenant or agreement contained
in this Indenture or in any Security, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
shareholder, officer or director, as such, past, present or future, of the
Company, either directly or through the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no such
personal liability whatever shall attach to, or is or shall be incurred by, the
incorporators, shareholders, officers or directors, as such, of the Company, or
any of them, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in this
Indenture or in any Security or implied therefrom; and that any and all such
personal liability of every name and nature, either at common law or in equity
or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, shareholder, officer or director, as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any Security or implied therefrom, are hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issuance of such Security.
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ARTICLE TWO
Securities Forms
Section 201 Forms Generally.
Each Registered Security, Bearer Security, Coupon and temporary or
permanent global Security issued pursuant to this Indenture shall be in the form
established by or pursuant to a Board Resolution and set forth in an Officers'
Certificate, or established in one or more indentures supplemental hereto, shall
have such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by or pursuant to this Indenture or any indenture
supplemental hereto and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Security or
Coupon as evidenced by their execution of such Security or Coupon.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall be issuable in registered form without Coupons
and shall not be issuable upon the exercise of warrants.
Definitive Securities and definitive Coupons shall be printed, lithographed
or engraved or produced by any combination of these methods on a steel engraved
border or steel engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Securities or Coupons,
as evidenced by their execution of such Securities or Coupons.
Section 202 Form of Trustee's Certificate of Authentication.
Subject to Section 611, the Trustee's certificate of authentication shall
be in substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By _________________________________________
Authorized Signatory
Section 203 Securities in Global Form.
Unless otherwise provided in or pursuant to this Indenture or any
Securities, the Securities shall not be issuable in temporary or permanent
global form. If Securities of a series shall be issuable in global form, any
such Security may provide that it or any number of such Securities shall
represent the aggregate amount of all Outstanding Securities of such series (or
such lesser amount as is permitted by the terms thereof) from time to time
endorsed thereon and may also provide that the aggregate amount of Outstanding
Securities represented thereby may from time to time be increased or reduced to
reflect exchanges. Any endorsement of any Security in global form to reflect
the amount, or any increase or decrease in the amount, or changes in the rights
of Holders, of Outstanding Securities represented thereby shall be made in such
manner and by such Person or Persons as shall be specified therein or in the
Company Order to be delivered pursuant to Section 303 or Section 304 with
respect thereto. Subject to the provisions of Section 303 and, if applicable,
Section 304, the Trustee shall deliver and redeliver any Security in permanent
global form in the manner and upon instructions given by the Person or Persons
specified therein or in the applicable Company Order. If a Company Order
pursuant to Section 303 or Section 304 has been, or simultaneously is,
delivered, any instructions by the Company with respect to a Security in global
form shall be in writing but need not be accompanied by or contained in an
Officers' Certificate and need not be accompanied by an Opinion of Counsel.
Notwithstanding the provisions of Section 307, unless otherwise specified
in or pursuant to this Indenture or any Securities, payment of principal of, any
premium and interest on, and any Additional Amounts in respect of, any Security
in temporary or permanent global form shall be made to the Person or Persons
specified therein.
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Notwithstanding the provisions of Section 308 and except as provided in the
preceding paragraph, the Company, the Trustee and any agent of the Company and
the Trustee shall treat as the Holder of such principal amount of Outstanding
Securities as is represented by a global Security (i) in the case of a global
Security in registered form, the Holder of such global Security in registered
form, or (ii) in the case of a global Security in bearer form, the Person or
Persons specified pursuant to Section 3018.
ARTICLE THREE
The Securities
Section 301 Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited. The Securities may be issued in
one or more series. With respect to any Securities to be authenticated and
delivered hereunder, there shall be established in or pursuant to a Board
Resolution and set forth in an Officers' Certificate, or established in one or
more indentures supplemental hereto,
(1) the title of such Securities and the series in which such Securities
shall be included;
(2) any limit upon the aggregate principal amount of the Securities of
such title or the Securities of such series which may be authenticated and
delivered under this Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Section 304, Section 305, Section
306, Section 904 or Section 1107, upon repayment in part of any Registered
Security of such series pursuant to Article Thirteen, upon surrender in part of
any Registered Security for conversion or exchange into Common Stock or other
securities, cash or other property pursuant to its terms, or pursuant to the
terms of such Securities);
(3) if such Securities are to be issuable as Registered Securities, as
Bearer Securities or alternatively as Bearer Securities and Registered
Securities, and whether the Bearer Securities are to be issuable with Coupons,
without Coupons or both, and any restrictions applicable to the offer, sale or
delivery of the Bearer Securities and the terms, if any, upon which Bearer
Securities may be exchanged for Registered Securities and vice versa;
(4) if any of such Securities are to be issuable in global form, when any
of such Securities are to be issuable in global form and (i) whether such
Securities are to be issued in temporary or permanent global form or both, (ii)
whether beneficial owners of interests in any such global Security may exchange
such interests for Securities of the same series and of like tenor and of any
authorized form and denomination, and the circumstances under which any such
exchanges may occur, if other than in the manner specified in Section 305, and
(iii) the name of the Depository or the U.S. Depository, as the case may be,
with respect to any global Security;
(5) if any of such Securities are to be issuable as Bearer Securities or
in global form, the date as of which any such Bearer Security or global Security
shall be dated (if other than the date of original issuance of the first of such
Securities to be issued);
(6) if any of such Securities are to be issuable as Bearer Securities,
whether interest in respect of any portion of a temporary Bearer Security in
global form payable in respect of an Interest Payment Date therefor prior to the
exchange, if any, of such temporary Bearer Security for definitive Securities
shall be paid to any clearing organization with respect to the portion of such
temporary Bearer Security held for its account and, in such event, the terms and
conditions (including any certification requirements) upon which any such
interest payment received by a clearing organization will be credited to the
Persons entitled to interest payable on such Interest Payment Date;
(7) the date or dates, or the method or methods, if any, by which such
date or dates shall be determined, on which the principal and premium, if any,
of such Securities is payable;
(8) the rate or rates at which such Securities shall bear interest, if
any, or the method or methods, if any, by which such rate or rates are to be
determined, the date or dates, if any, from which such interest shall accrue or
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the method or methods, if any, by which such date or dates are to be determined,
the Interest Payment Dates, if any, on which such interest shall be payable and
the Regular Record Date, if any, for the interest payable on Registered
Securities on any Interest Payment Date, whether and under what circumstances
Additional Amounts on such Securities or any of them shall be payable, the
notice, if any, to Holders regarding the determination of interest on a floating
rate Security and the manner of giving such notice, and the basis upon which
interest shall be calculated if other than that of a 360-day year of twelve 30-
day months;
(9) if in addition to or other than the Borough of Manhattan, The City of
New York, the place or places where the principal of, any premium and interest
on or any Additional Amounts with respect to such Securities shall be payable,
any of such Securities that are Registered Securities may be surrendered for
registration of transfer or exchange, any of such Securities may be surrendered
for conversion or exchange and notices or demands to or upon the Company in
respect of such Securities and this Indenture may be served, the extent to
which, or the manner in which, any interest payment or Additional Amounts on a
global Security on an Interest Payment Date, will be paid and the manner in
which any principal of or premium, if any, on any global Security will be paid;
(10) whether any of such Securities are to be redeemable at the option of
the Company and, if so, the date or dates on which, the period or periods within
which, the price or prices at which and the other terms and conditions upon
which such Securities may be redeemed, in whole or in part, at the option of the
Company;
(11) whether the Company is obligated to redeem or purchase any of such
Securities pursuant to any sinking fund or analogous provision or at the option
of any Holder thereof and, if so, the date or dates on which, the period or
periods within which, the price or prices at which and the other terms and
conditions upon which such Securities shall be redeemed or purchased, in whole
or in part, pursuant to such obligation, and any provisions for the remarketing
of such Securities so redeemed or purchased;
(12) the denominations in which any of such Securities that are Registered
Securities shall be issuable if other than denominations of $1,000 and any
integral multiple thereof, and the denominations in which any of such Securities
that are Bearer Securities shall be issuable if other than the denomination of
$5,000;
(13) whether the Securities of the series will be convertible into shares
of Common Stock and/or exchangeable for other securities, cash or other
property, and if so, the terms and conditions upon which such Securities will be
so convertible or exchangeable, and any deletions from or modifications or
additions to this Indenture to permit or to facilitate the issuance of such
convertible or exchangeable Securities or the administration thereof;
(14) if other than the principal amount thereof, the portion of the
principal amount of any of such Securities that shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502 or
the method by which such portion is to be determined;
(15) if other than Dollars, the Foreign Currency in which payment of the
principal of, any premium or interest on or any Additional Amounts with respect
to any of such Securities shall be payable;
(16) if the principal of, any premium or interest on or any Additional
Amounts with respect to any of such Securities are to be payable, at the
election of the Company or a Holder thereof or otherwise, in Dollars or in a
Foreign Currency other than that in which such Securities are stated to be
payable, the date or dates on which, the period or periods within which, and the
other terms and conditions upon which, such election may be made, and the time
and manner of determining the exchange rate between the Currency in which such
Securities are stated to be payable and the Currency in which such Securities or
any of them are to be paid pursuant to such election, and any deletions from or
modifications of or additions to the terms of this Indenture to provide for or
to facilitate the issuance of Securities denominated or payable, at the election
of the Company or a Holder thereof or otherwise, in a Foreign Currency;
(17) whether the amount of payments of principal of, any premium or
interest on or any Additional Amounts with respect to such Securities may be
determined with reference to an index, formula or other method or methods (which
index, formula or method or methods may be based, without limitation, on one or
more Currencies,
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commodities, equity indices or other indices), and, if so, the terms and
conditions upon which and the manner in which such amounts shall be determined
and paid or be payable;
(18) any deletions from, modifications of or additions to the Events of
Default or covenants of the Company with respect to any of such Securities,
whether or not such Events of Default or covenants are consistent with the
Events of Default or covenants set forth herein;
(19) whether either or both of Section 402(2) relating to defeasance or
Section 402(3) relating to covenant defeasance shall not be applicable to the
Securities of such series, or any covenants in addition to those specified in
Section 402(3) relating to the Securities of such series which shall be subject
to covenant defeasance, and, if the Securities of such series are subject to
repurchase or repayment at the option of the Holders thereof, whether the
Company's obligation to repurchase or repay such Securities will be subject to
defeasance or covenant defeasance, and any deletions from, or modifications or
additions to, the provisions of Article Four in respect of the Securities of
such series;
(20) whether any of such Securities are to be issuable upon the exercise of
warrants, and the time, manner and place for such Securities to be authenticated
and delivered;
(21) if any of such Securities are to be issuable in global form and are to
be issuable in definitive form (whether upon original issue or upon exchange of
a temporary Security) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and terms of such
certificates, documents or conditions;
(22) if there is more than one Trustee, the identity of the Trustee and, if
not the Trustee, the identity of each Security Registrar, Paying Agent or
Authenticating Agent with respect to such Securities; and
(23) any other terms of such Securities and any deletions from or
modifications or additions to this Indenture in respect of such Securities.
All Securities of any one series and all Coupons, if any, appertaining to
Bearer Securities of such series shall be substantially identical except as to
Currency of payments due thereunder, denomination and the rate of interest, or
method of determining the rate of interest, if any, Maturity, and the date from
which interest, if any, shall accrue and except as may otherwise be provided by
the Company in or pursuant to the Board Resolution and set forth in the
Officers' Certificate or in any indenture or indentures supplemental hereto
pertaining to such series of Securities. The terms of the Securities of any
series may provide, without limitation, that the Securities shall be
authenticated and delivered by the Trustee on original issue from time to time
upon telephonic or written order of persons designated in the Officers'
Certificate or supplemental indenture (telephonic instructions to be promptly
confirmed in writing by such person) and that such persons are authorized to
determine, consistent with such Officers' Certificate or any applicable
supplemental indenture, such terms and conditions of the Securities of such
series as are specified in such Officers' Certificate or supplemental indenture.
All Securities of any one series need not be issued at the same time and, unless
otherwise so provided by the Company, a series may be reopened for issuances of
additional Securities of such series or to establish additional terms of such
series of Securities. If any of the terms of the Securities of any series shall
be established by action taken by or pursuant to a Board Resolution, the Board
Resolution shall be delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth the terms of such series.
Section 302 Currency; Denominations.
Unless otherwise provided in or pursuant to this Indenture, the principal
of, any premium and interest on and any Additional Amounts with respect to the
Securities shall be payable in Dollars. Unless otherwise provided in or
pursuant to this Indenture, Registered Securities denominated in Dollars shall
be issuable in registered form without Coupons in denominations of $1,000 and
any integral multiple thereof, and the Bearer Securities denominated in Dollars
shall be issuable in the denomination of $5,000. Securities not denominated in
Dollars shall be issuable in such denominations as are established with respect
to such Securities in or pursuant to this Indenture.
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Section 303 Execution, Authentication, Delivery and Dating.
Securities shall be executed on behalf of the Company by its Chairman of
the Board, one of its Vice Chairmen, its President, its Treasurer or one of its
Vice Presidents attested by its Secretary or one of its Assistant Secretaries.
Coupons shall be executed on behalf of the Company by the Treasurer or any
Assistant Treasurer of the Company. The signature of any of these officers on
the Securities or any Coupons appertaining thereto may be manual or facsimile.
Securities and any Coupons appertaining thereto bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Company shall bind the Company, notwithstanding that such individuals or any
of them have ceased to hold such offices prior to the authentication and
delivery of such Securities or did not hold such offices at the date of such
Securities or Coupons.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities, together with any Coupons
appertaining thereto, executed by the Company, to the Trustee for authentication
and, provided that the Board Resolution and Officers' Certificate or
supplemental indenture or indentures with respect to such Securities referred to
in Section 301 and a Company Order for the authentication and delivery of such
Securities have been delivered to the Trustee, the Trustee in accordance with
the Company Order and subject to the provisions hereof and of such Securities
shall authenticate and deliver such Securities. In authenticating such
Securities, and accepting the additional responsibilities under this Indenture
in relation to such Securities and any Coupons appertaining thereto, the Trustee
shall be entitled to receive, and (subject to Sections 315(a) through 315(d) of
the Trust Indenture Act) shall be fully protected in relying upon,
(1) an Opinion of Counsel to the effect that:
(a) the form or forms and terms of such Securities and Coupons, if
any, have been established in conformity with the provisions of this
Indenture;
(b) all conditions precedent to the authentication and delivery of
such Securities and Coupons, if any, appertaining thereto, have been
complied with and that such Securities, and Coupons, when completed by
appropriate insertions, executed under the Company's corporate seal and
attested by duly authorized officers of the Company, delivered by duly
authorized officers of the Company to the Trustee for authentication
pursuant to this Indenture, and authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions
specified in such Opinion of Counsel, will constitute legally valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforcement thereof may be subject
to or limited by bankruptcy, insolvency, reorganization, moratorium,
arrangement, fraudulent conveyance, fraudulent transfer or other similar
laws relating to or affecting creditors' rights generally, and subject to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and will entitle the Holders thereof
to the benefits of this Indenture; such Opinion of Counsel need express no
opinion as to the availability of equitable remedies;
(c) all laws and requirements in respect of the execution and
delivery by the Company of such Securities and Coupons, if any, have been
complied with;
and, to the extent that this Indenture is required to be qualified under the
Trust Indenture Act in connection with the issuance of such Securities, to the
further effect that:
(d) this Indenture has been qualified under the Trust Indenture Act;
and
(2) an Officers' Certificate stating that all conditions precedent to the
execution, authentication and delivery of such Securities and Coupons, if any,
appertaining thereto, have been complied with and that, to the best knowledge of
the Persons executing such certificate, no event which is, or after notice or
lapse of time would become, an Event of Default with respect to any of the
Securities shall have occurred and be continuing.
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If all the Securities of any series are not to be issued at one time, it
shall not be necessary to deliver an Opinion of Counsel and an Officers'
Certificate at the time of issuance of each Security, but such opinion and
certificate, with appropriate modifications, shall be delivered at or before the
time of issuance of the first Security of such series. After any such first
delivery, any separate request by the Company that the Trustee authenticate
Securities of such series for original issue will be deemed to be a
certification by the Company that all conditions precedent provided for in this
Indenture relating to authentication and delivery of such Securities continue to
have been complied with.
The Trustee shall not be required to authenticate or to cause an
Authenticating Agent to authenticate any Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee or if the Trustee,
being advised by counsel, determines that such action may not lawfully be taken.
Each Registered Security shall be dated the date of its authentication.
Each Bearer Security and any Bearer Security in global form shall be dated as of
the date specified in or pursuant to this Indenture.
No Security or Coupon appertaining thereto shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose, unless there
appears on such Security a certificate of authentication substantially in the
form provided for in Section 202 or Section 611 executed by or on behalf of the
Trustee or by the Authenticating Agent by the manual signature of one of its
authorized officers. Such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder. Except as permitted by Section 306 or Section 307, the
Trustee shall not authenticate and deliver any Bearer Security unless all
Coupons appertaining thereto then matured have been detached and cancelled.
Section 304 Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute
and deliver to the Trustee and, upon Company Order, the Trustee shall
authenticate and deliver, in the manner provided in Section 303, temporary
Securities in lieu thereof which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form or, if authorized in or pursuant to this
Indenture, in bearer form with one or more Coupons or without Coupons and with
such appropriate insertions, omissions, substitutions and other variations as
the officers of the Company executing such Securities may determine, as
conclusively evidenced by their execution of such Securities. Such temporary
Securities may be in global form.
Except in the case of temporary Securities in global form, which shall be
exchanged in accordance with the provisions thereof, if temporary Securities are
issued, the Company shall cause definitive Securities to be prepared without
unreasonable delay. After the preparation of definitive Securities of the same
series and containing terms and provisions that are identical to those of any
temporary Securities, such temporary Securities shall be exchangeable for such
definitive Securities upon surrender of such temporary Securities at an Office
or Agency for such Securities, without charge to any Holder thereof. Upon
surrender for cancellation of any one or more temporary Securities (accompanied
by any unmatured Coupons appertaining thereto), the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations of the same series
and containing identical terms and provisions; provided, however, that no
definitive Bearer Security, except as provided in or pursuant to this Indenture,
shall be delivered in exchange for a temporary Registered Security; and
provided, further, that a definitive Bearer Security shall be delivered in
exchange for a temporary Bearer Security only in compliance with the conditions
set forth in or pursuant to this Indenture. Unless otherwise provided in or
pursuant to this Indenture with respect to a temporary global Security, until so
exchanged the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
Section 305 Registration, Transfer and Exchange.
With respect to the Registered Securities of each series, if any, the
Company shall cause to be kept a register (each such register being herein
sometimes referred to as the "Security Register") at an Office or Agency for
such series in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Registered
Securities of such series and of transfers of the Registered Securities of such
series.
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Such Office or Agency shall be the "Security Registrar" for that series
of Securities. Unless otherwise specified in or pursuant to this Indenture or
the Securities, the Trustee shall be the initial Security Registrar for each
series of Securities. The Company shall have the right to remove and replace
from time to time the Security Registrar for any series of Securities; provided
that no such removal or replacement shall be effective until a successor
Security Registrar with respect to such series of Securities shall have been
appointed by the Company and shall have accepted such appointment by the
Company. In the event that the Trustee shall not be or shall cease to be
Security Registrar with respect to a series of Securities, it shall have the
right to examine the Security Register for such series at all reasonable times.
There shall be only one Security Register for each series of Securities.
Upon surrender for registration of transfer of any Registered Security of
any series at any Office or Agency for such series, the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Registered Securities of the same
series denominated as authorized in or pursuant to this Indenture, of a like
aggregate principal amount bearing a number not contemporaneously outstanding
and containing identical terms and provisions.
At the option of the Holder, Registered Securities of any series may be
exchanged for other Registered Securities of the same series containing
identical terms and provisions, in any authorized denominations, and of a like
aggregate principal amount, upon surrender of the Securities to be exchanged at
any Office or Agency for such series. Whenever any Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Registered Securities which the Holder making the
exchange is entitled to receive.
If provided in or pursuant to this Indenture, with respect to Securities of
any series, at the option of the Holder, Bearer Securities of such series may be
exchanged for Registered Securities of such series containing identical terms,
denominated as authorized in or pursuant to this Indenture and in the same
aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at any Office or Agency for such series, with all unmatured Coupons
and all matured Coupons in default thereto appertaining. If the Holder of a
Bearer Security is unable to produce any such unmatured Coupon or Coupons or
matured Coupon or Coupons in default, such exchange may be effected if the
Bearer Securities are accompanied by payment in funds acceptable to the Company
and the Trustee in an amount equal to the face amount of such missing Coupon or
Coupons, or the surrender of such missing Coupon or Coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Bearer Security shall surrender to any Paying
Agent any such missing Coupon in respect of which such a payment shall have been
made, such Holder shall be entitled to receive the amount of such payment;
provided, however, that, except as otherwise provided in Section 1002, interest
represented by Coupons shall be payable only upon presentation and surrender of
those Coupons at an Office or Agency for such series located outside the United
States. Notwithstanding the foregoing, in case a Bearer Security of any series
is surrendered at any such Office or Agency for such series in exchange for a
Registered Security of such series and like tenor after the close of business at
such Office or Agency on (i) any Regular Record Date and before the opening of
business at such Office or Agency on the relevant Interest Payment Date, or (ii)
any Special Record Date and before the opening of business at such Office or
Agency on the related date for payment of Defaulted Interest, such Bearer
Security shall be surrendered without the Coupon relating to such Interest
Payment Date or proposed date of payment, as the case may be (or, if such Coupon
is so surrendered with such Bearer Security, such Coupon shall be returned to
the Person so surrendering the Bearer Security), and interest or Defaulted
Interest, as the case may be, shall not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of the Registered
Security issued in exchange for such Bearer Security, but shall be payable only
to the Holder of such Coupon when due in accordance with the provisions of this
Indenture.
If provided in or pursuant to this Indenture with respect to Securities of
any series, at the option of the Holder, Registered Securities of such series
may be exchanged for Bearer Securities upon such terms and conditions as may be
provided in or pursuant to this Indenture with respect to such series.
Whenever any Securities are surrendered for exchange as contemplated by the
immediately preceding two paragraphs, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive.
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Notwithstanding the foregoing, except as otherwise provided in or pursuant
to this Indenture, any global Security shall be exchangeable for definitive
Securities only if (i) the Depository is at any time unwilling, unable or
ineligible to continue as Depository and a successor depository is not appointed
by the Company within 90 days of the date the Company is so informed in writing,
(ii) the Depositary ceases to be a clearing agency registered under the Exchange
Act of 1934, (iii) the Company executes and delivers to the Trustee a Company
Order to the effect that such global Security shall be so exchangeable or (iv)
an Event of Default has occurred and is continuing with respect to the
Securities. If the beneficial owners of interests in a global Security are
entitled to exchange such interests for definitive Securities as the result of
an event described in clause (i), (ii), (iii) or (iv) of the preceding sentence,
then without unnecessary delay but in any event not later than the earliest date
on which such interests may be so exchanged, the Company shall deliver to the
Trustee definitive Securities in such form and denominations as are required by
or pursuant to this Indenture, and of the same series, containing identical
terms and in aggregate principal amount equal to the principal amount of such
global Security, executed by the Company. On or after the earliest date on
which such interests may be so exchanged, such global Security shall be
surrendered from time to time by the U.S. Depository or such other Depository as
shall be specified in the Company Order with respect thereto, and in accordance
with instructions given to the Trustee and the U.S. Depository or such other
Depository, as the case may be (which instructions shall be in writing but need
not be contained in or accompanied by an Officers' Certificate or be accompanied
by an Opinion of Counsel), as shall be specified in the Company Order with
respect thereto to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or in part, for definitive Securities as described above
without charge. The Trustee shall authenticate and make available for delivery,
in exchange for each portion of such surrendered global Security, a like
aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such global
Security to be exchanged, which (unless such Securities are not issuable both as
Bearer Securities and as Registered Securities, in which case the definitive
Securities exchanged for the global Security shall be issuable only in the form
in which the Securities are issuable, as provided in or pursuant to this
Indenture) shall be in the form of Bearer Securities or Registered Securities,
or any combination thereof, as shall be specified by the beneficial owner
thereof, but subject to the satisfaction of any certification or other
requirements to the issuance of Bearer Securities; provided, however, that no
such exchanges may occur during a period beginning at the opening of business 15
days before any selection of Securities of the same series to be redeemed and
ending on the relevant Redemption Date; and provided, further, that (unless
otherwise provided in or pursuant to this Indenture) no Bearer Security
delivered in exchange for a portion of a global Security shall be mailed or
otherwise delivered to any location in the United States. Promptly following
any such exchange in part, such global Security shall be returned by the Trustee
to such Depository or the U.S. Depository, as the case may be, or such other
Depository or U.S. Depository referred to above in accordance with the
instructions of the Company referred to above. If a Registered portion of a
global Security after the close of business at the Office or Agency for such
Security where such exchange occurs on or after (i) any Regular Record Date for
such Security and before the opening of business at such Office or Agency on the
next Interest Payment Date, or (ii) any Special Record Date for such Security
and before the opening of business at such Office or Agency on the related
proposed date for payment of interest or Defaulted Interest, as the case may be,
interest shall not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of such Registered Security, but shall
be payable on such Interest Payment Date or proposed date for payment, as the
case may be, only to the Person to whom interest in respect of such portion of
such global Security shall be payable in accordance with the provisions of this
Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt and entitling the Holders thereof to the same benefits under this Indenture
as the Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange or redemption shall (if so required by the Company or
the Security Registrar for such Security) be duly endorsed, or be accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Security Registrar for such Security duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange, or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge and any other
expenses (including fees and expenses of the Trustee) that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Sections 304, 306 and 1107 not involving any
transfer.
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Except as otherwise provided in or pursuant to this Indenture, the Company
shall not be required (i) to issue, register the transfer of or exchange any
Securities during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption of Securities of like tenor and
the same series under Section 1103 and ending at the close of business on the
day of such mailing, (ii) to register the transfer of or exchange any Registered
Security so selected for redemption in whole or in part, except in the case of
any Security to be redeemed in part, the portion thereof not to be redeemed
(iii) to exchange any Bearer Security so selected for redemption except, to the
extent provided with respect to such Bearer Security, that such Bearer Security
may be exchanged for a Registered Security of like tenor and the same series,
provided that such Registered Security shall be immediately surrendered for
redemption with written instruction for payment consistent with the provisions
of this Indenture or (iv) to issue, register the transfer of or exchange any
Security which, in accordance with its terms, has been surrendered for repayment
at the option of the Holder, except the portion, if any, of such Security not to
be so repaid.
Section 306 Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security or a Security with a mutilated Coupon
appertaining to it is surrendered to the Trustee, subject to the provisions of
this Section 306, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a new Security of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding, with Coupons appertaining thereto corresponding
to the Coupons, if any, appertaining to the surrendered Security.
If there be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security or Coupon,
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security or Coupon has been acquired by a
bona fide purchaser, the Company shall execute and, upon the Company's request
the Trustee shall authenticate and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Security or in exchange for the
Security to which a destroyed, lost or stolen Coupon appertains with all
appurtenant Coupons not destroyed, lost or stolen, a new Security of the same
series containing identical terms and of like principal amount and bearing a
number not contemporaneously outstanding, with Coupons corresponding to the
Coupons, if any, appertaining to such destroyed, lost or stolen Security or to
the Security to which such destroyed, lost or stolen Coupon appertains.
Notwithstanding the foregoing provisions of this Section 306, in case any
mutilated, destroyed, lost or stolen Security or Coupon has become or is about
to become due and payable, the Company in its discretion may, instead of issuing
a new Security, pay such Security or Coupon; provided, however, that payment of
principal of, any premium or interest on or any Additional Amounts with respect
to any Bearer Securities shall, except as otherwise provided in Section 1002, be
payable only at an Office or Agency for such Securities located outside the
United States and, unless otherwise provided in or pursuant to this Indenture,
any interest on Bearer Securities and any Additional Amounts with respect to
such interest shall be payable only upon presentation and surrender of the
Coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security, with any Coupons appertaining thereto issued pursuant
to this Section in lieu of any destroyed, lost or stolen Security, or in
exchange for a Security to which a destroyed, lost or stolen Coupon appertains
shall constitute a separate obligation of the Company, whether or not the
destroyed, lost or stolen Security and Coupons appertaining thereto or the
destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities of such series and any
Coupons, if any, duly issued hereunder.
The provisions of this Section, as amended or supplemented pursuant to this
Indenture with respect to particular Securities or generally, shall be exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities or Coupons.
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Section 307 Payment of Interest and Certain Additional Amounts; Rights to
Interest and Certain Additional Amounts Preserved.
Unless otherwise provided in or pursuant to this Indenture, any interest on
and any Additional Amounts with respect to any Registered Security which shall
be payable, and are punctually paid or duly provided for, on any Interest
Payment Date shall be paid to the Person in whose name such Security (or one or
more Predecessor Securities) is registered as of the close of business on the
Regular Record Date for such interest. Unless otherwise provided in or pursuant
to this Indenture, in case a Bearer Security is surrendered in exchange for a
Registered Security after the close of business at an Office or Agency for such
Security on any Regular Record Date therefor and before the opening of business
at such Office or Agency on the next succeeding Interest Payment Date therefor,
such Bearer Security shall be surrendered without the Coupon relating to such
Interest Payment Date and interest shall not be payable on such Interest Payment
Date in respect of the Registered Security issued in exchange for such Bearer
Security, but shall be payable only to the Holder of such Coupon when due in
accordance with the provisions of this Indenture.
Unless otherwise provided in or pursuant to this Indenture, any interest on
and any Additional Amounts with respect to any Registered Security which shall
be payable, but shall not be punctually paid or duly provided for, on any
Interest Payment Date for such Registered Security (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder thereof on the
relevant Regular Record Date by virtue of having been such Holder; and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Person in whose name such Registered Security (or a Predecessor Security
thereof) shall be registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the amount
of Defaulted Interest proposed to be paid on such Registered Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the date of the
proposed payment, such money when so deposited to be held in trust for the
benefit of the Person entitled to such Defaulted Interest as in this clause
provided. Thereupon, the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed payment and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to the Holder of such Registered Security
(or a Predecessor Security thereof) at his address as it appears in the Security
Register not less than 10 days prior to such Special Record Date. The Trustee
may, in its discretion, in the name and at the expense of the Company, cause a
similar notice to be published at least once in an Authorized Newspaper of
general circulation in the Borough of Manhattan, The City of New York, but such
publication shall not be a condition precedent to the establishment of such
Special Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Person in whose name such Registered
Security (or a Predecessor Security thereof) shall be registered at the close of
business on such Special Record Date and shall no longer be payable pursuant to
the following clause (2). In case a Bearer Security is surrendered at the Office
or Agency for such Security in exchange for a Registered Security after the
close of business at such Office or Agency on any Special Record Date and before
the opening of business at such Office or Agency on the related proposed date
for payment of Defaulted Interest, such Bearer Security shall be surrendered
without the Coupon relating to such Defaulted Interest and Defaulted Interest
shall not be payable on such proposed date of payment in respect of the
Registered Security issued in exchange for such Bearer Security, but shall be
payable only to the Holder of such Coupon when due in accordance with the
provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which such Security may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such payment shall be deemed
practicable by the Trustee.
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Unless otherwise provided in or pursuant to this Indenture or the
Securities of any particular series pursuant to the provisions of this
Indenture, at the option of the Company, interest on Registered Securities that
bear interest may be paid by mailing a check to the address of the Person
entitled thereto as such address shall appear in the Security Register or by
transfer to an account maintained by the payee with a bank located in the United
States.
Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
In the case of any Registered Security of any series that is convertible,
which Registered Security is converted after any Regular Record Date and on or
prior to the next succeeding Interest Payment Date (other than any Registered
Security with respect to which the Stated Maturity is prior to such Interest
Payment Date), interest with respect to which the Stated Maturity is on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest (whether or not punctually
paid or duly provided for) shall be paid to the Person in whose name that
Registered Security (or one or more predecessor Registered Securities) is
registered at the close of business on such Regular Record Date. Except as
otherwise expressly provided in the immediately preceding sentence, in the case
of any Registered Security which is converted, interest with respect to which
the Stated Maturity is after the date of conversion of such Registered Security
shall not be payable.
Section 308 Persons Deemed Owners.
Prior to due presentment of a Registered Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Registered Security is registered in the
Security Register as the owner of such Registered Security for the purpose of
receiving payment of principal of, any premium and (subject to Section 305 and
Section 307) interest on and any Additional Amounts with respect to such
Registered Security and for all other purposes whatsoever, whether or not any
payment with respect to such Registered Security shall be overdue, and none of
the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the bearer of any Bearer Security or the bearer of any Coupon as the
absolute owner of such Security or Coupon for the purpose of receiving payment
thereof or on account thereof and for all other purposes whatsoever, whether or
not any payment with respect to such Security or Coupon shall be overdue, and
none of the Company, the Trustee or any agent of the Company or the Trustee
shall be affected by notice to the contrary.
No Holder of any beneficial interest in any global Security held on its
behalf by a Depository shall have any rights under this Indenture with respect
to such global Security, and such Depository may be treated by the Company, the
Trustee and any agent of the Company or the Trustee as the owner of such global
Security for all purposes whatsoever. None of the Company, the Trustee, any
Paying Agent or the Security Registrar will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Section 309 Cancellation.
All Securities and Coupons surrendered for payment, redemption,
registration of transfer, exchange or conversion or for credit against any
sinking fund payment shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee, and any such Securities and Coupons, as well as
Securities and Coupons surrendered directly to the Trustee for any such purpose,
shall be cancelled promptly by the Trustee. The Company may at any time deliver
to the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be cancelled promptly by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by or pursuant to this Indenture. All cancelled Securities and Coupons held by
the Trustee shall be disposed of by the Trustee in accordance with its customary
procedures.
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Section 310 Computation of Interest.
Except as otherwise provided in or pursuant to this Indenture, or in any
Security, interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
Section 311 CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
ARTICLE FOUR
Satisfaction and Discharge of Indenture
Section 401 Satisfaction and Discharge.
Upon the direction of the Company by a Company Order, this Indenture shall
cease to be of further effect with respect to any series of Securities specified
in such Company Order and any Coupons appertaining thereto, and the Trustee, on
receipt of a Company Order, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture as to
such series, when
(1) either
(a) all Securities of such series theretofore authenticated and
delivered and all Coupons appertaining thereto (other than (i) Coupons
appertaining to Bearer Securities of such series surrendered in exchange
for Registered Securities of such series and maturing after such exchange
whose surrender is not required or has been waived as provided in Section
305, (ii) Securities and Coupons of such series which have been destroyed,
lost or stolen and which have been replaced or paid as provided in Section
306, (iii) Coupons appertaining to Securities of such series called for
redemption and maturing after the relevant Redemption Date whose surrender
has been waived as provided in Section 1107, and (iv) Securities and
Coupons of such series 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, as provided
in Section 1003) have been delivered to the Trustee for cancellation; or
(b) all Securities of such series and, in the case of (i) or (ii)
below, any Coupons appertaining thereto not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within
one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee
in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited or
caused to be deposited with the Trustee as trust funds in trust for such
purpose, money in the Currency in which such Securities are payable in an
amount sufficient to pay and discharge the entire indebtedness on such
Securities and any Coupons appertaining thereto not theretofore delivered
to the Trustee for cancellation, including the principal of, any premium
and interest on, and any Additional Amounts with respect to such Securities
and any Coupons appertaining thereto, to the date of such deposit (in the
case of Securities which have become due and payable) or to the Maturity
thereof, as the case may be;
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(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to the Outstanding Securities of such
series and any Coupons appertaining thereto; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture as to
such series have been complied with.
In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of such series as to which it is Trustee and if the other conditions
thereto are met.
Notwithstanding the satisfaction and discharge of this Indenture with
respect to any series of Securities, the obligations of the Company to the
Trustee under Section 306 and, if money shall have been deposited with the
Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations
of the Company and the Trustee with respect to the Securities of such series
under Section 305, Section 306, Section 403, Section 1002 and Section 1003, with
respect to the payment of Additional Amounts, if any, with respect to such
Securities as contemplated by Section 1004 (but only to the extent that the
Additional Amounts payable with respect to such Securities exceed the amount
deposited in respect of such Additional Amounts pursuant to Section 401(1)(b),
and with respect to any rights to convert or exchange such Securities into
Common Stock or other securities, cash or other property shall survive.
Section 402 Defeasance and Covenant Defeasance.
(1) Unless pursuant to Section 301, either or both of (i) defeasance of
the Securities of or within a series under clause (2) of this Section 402 shall
not be applicable with respect to the Securities of such series or (ii) covenant
defeasance of the Securities of or within a series under clause (3) of this
Section 402 shall not be applicable with respect to the Securities of such
series, then such provisions, together with the other provisions of this Section
402 (with such modifications thereto as may be specified pursuant to Section 301
with respect to any Securities), shall be applicable to such Securities and any
Coupons appertaining thereto, and the Company may at its option by Board
Resolution, at any time, with respect to such Securities and any Coupons
appertaining thereto, elect to have Section 402(2) or Section 402(3) be applied
to such Outstanding Securities and any Coupons appertaining thereto upon
compliance with the conditions set forth below in this Section 402.
(2) Upon the Company's exercise of the above option applicable to this
Section 402(2) with respect to any Securities of or within a series, the Company
shall be deemed to have been discharged from its obligations with respect to
such Outstanding Securities and any Coupons appertaining thereto on the date the
conditions set forth in clause (4) of this Section 402 are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire Indebtedness
represented by such Outstanding Securities and any Coupons appertaining thereto,
which shall thereafter be deemed to be "Outstanding" only for the purposes of
clause (6) of this Section 402 and the other Sections of this Indenture referred
to in clauses (i) and (ii) below, and to have satisfied all of its other
obligations under such Securities and any Coupons appertaining thereto and this
Indenture insofar as such Securities and any Coupons appertaining thereto are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (i) the rights of
Holders of such Outstanding Securities and any Coupons appertaining thereto to
receive, solely from the trust fund described in clause (4) of this Section 402
and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any) and interest, if any, on, and Additional
Amounts, if any, with respect to, such Securities and any Coupons appertaining
thereto when such payments are due, and any rights of such Holder to convert or
exchange such Securities into Common Stock or other securities, cash or other
property, (ii) the obligations of the Company and the Trustee with respect to
such Securities under Section 305, Section 306, Section 1002 and Section 1003
and with respect to the payment of Additional Amounts, if any, on such
Securities as contemplated by Section 1004 (but only to the extent that the
Additional Amounts payable with respect to such Securities exceed the amount
deposited in respect of such Additional Amounts pursuant to Section 402(4)(a)
below), and with respect to any rights to convert or exchange such Securities
into Common Stock or other securities, cash or other property, (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (iv) this
Section 402. The Company may exercise its
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option under this Section 402(2) notwithstanding the prior exercise of its
option under clause (3) of this Section 402 with respect to such Securities and
any Coupons appertaining thereto.
(3) Upon the Company's exercise of the above option applicable to this
Section 402(3) with respect to any Securities of or within a series, the Company
shall be released from its obligations under Section 1005, Section 1006 and
Section 1007, and, to the extent specified pursuant to Section 301, any other
covenant applicable to such Securities, with respect to such Outstanding
Securities and any Coupons appertaining thereto on and after the date the
conditions set forth in clause (4) of this Section 402 are satisfied
(hereinafter, "covenant defeasance"), and such Securities and any Coupons
appertaining thereto shall thereafter be deemed to be not "Outstanding" for the
purposes of any direction, waiver, consent or declaration or Act of Holders (and
the consequences of any thereof) in connection with any such covenant, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to such Outstanding
Securities and any Coupons appertaining thereto, the Company may omit to comply
with, and shall have no liability in respect of, any term, condition or
limitation set forth in any such Section or such other covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
Section or such other covenant or by reason of reference in any such Section or
such other covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a default or an Event of Default
under Section 501(5) insofar as it relates to Section 1005, Section 1006 and
Section 1007 and, to the extent specified pursuant to Section 301 any other
covenant applicable to such Security, Section 501(7) or Section 501(9) or
otherwise, as the case may be, but, except as specified above, the remainder of
this Indenture and such Securities and Coupons appertaining thereto shall be
unaffected thereby.
(4) The following shall be the conditions to application of clause (2) or
(3) of this Section 402 to any Outstanding Securities of or within a series and
any Coupons appertaining thereto:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Section 402 applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities and any
Coupons appertaining thereto, (1) an amount in Dollars or in such Foreign
Currency in which such Securities and any Coupons appertaining thereto are
then specified as payable at Stated Maturity, or (2) Government Obligations
applicable to such Securities and Coupons appertaining thereto (determined
on the basis of the Currency in which such Securities and Coupons
appertaining thereto are then specified as payable at Stated Maturity)
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one day
before the due date of any payment of principal of (and premium, if any)
and interest, if any, on such Securities and any Coupons appertaining
thereto, money in an amount, or (3) a combination thereof, in any case, in
an amount, sufficient, without consideration of any reinvestment of such
principal and interest, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied
by the Trustee (or other qualifying trustee) to pay and discharge, (y) the
principal of (and premium, if any) and interest, if any, on such
Outstanding Securities and any Coupons appertaining thereto on the Stated
Maturity of such principal or installment of principal or interest and (z)
any mandatory sinking fund payments or analogous payments applicable to
such Outstanding Securities and any Coupons appertaining thereto on the day
on which such payments are due and payable in accordance with the terms of
this Indenture and of such Securities and any Coupons appertaining thereto.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(c) No Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to such Securities
and any Coupons appertaining thereto shall have occurred and be continuing
on the date of such deposit and, with respect to defeasance only, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
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(d) In the case of an election under clause (2) of this Section 402,
the Company shall have delivered to the Trustee an Opinion of Counsel
stating that
(i) the Company has received from the Internal Revenue Service
a letter ruling, or there has been published by the Internal Revenue
Service a Revenue Ruling, or
(ii) since the date of execution of this Indenture, there has
been a change in the applicable Federal income tax law,
in either case to the effect that, and based thereon such opinion shall confirm
that, the Holders of such Outstanding Securities and any Coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax purposes
as a result of such 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 had not occurred.
(e) In the case of an election under clause (3) of this Section 402,
the Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of such Outstanding Securities and any Coupons
appertaining thereto will not recognize income, gain or loss for Federal
income tax purposes as a result of such 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 covenant defeasance
had not occurred.
(f) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that, after the 91st day after the date of
establishment of such trust, all money and Government Obligations (or other
property as may be provided pursuant to Section 301) (including the
proceeds thereof) deposited or caused to be deposited with the Trustee (or
other qualifying trustee) pursuant to this clause (4) to be held in trust
will not be subject to any case or proceeding (whether voluntary or
involuntary) in respect of the Company under any Federal or State
bankruptcy, insolvency, reorganization or other similar law, or any decree
or order for relief in respect of the Company issued in connection
therewith.
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance or covenant defeasance under clause (2) or (3)
of this Section 402 (as the case may be) have been complied with.
(h) Notwithstanding any other provisions of this Section 402(4), such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 301.
(5) Subject to the provisions of the last paragraph of Section 1003, all
money and Government Obligations (or other property as may be provided pursuant
to Section 301) (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 402(5) and
Section 403, the "Trustee") pursuant to clause (4) of Section 402 in respect of
any Outstanding Securities of any series and any Coupons appertaining thereto
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and any Coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities and any Coupons appertaining
thereto of all sums due and to become due thereon in respect of principal (and
premium, if any) and interest and Additional Amounts, if any, but such money
need not be segregated from other funds except to the extent required by law.
(6) Unless otherwise specified in or pursuant to this Indenture or any
Security, if, after a deposit referred to in Section 402(4)(a) has been made,
(a) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 301 or the terms of such
Security to receive payment in a Currency other than that in which the deposit
pursuant to Section 402(4)(a) has been made in respect of such Security, or (b)
a Conversion Event occurs in respect of the Foreign Currency in which the
deposit pursuant to Section 402(4)(a) has been made, the indebtedness
represented by such Security and any Coupons appertaining thereto shall be
deemed to have been, and will be, fully discharged and satisfied through the
payment of the principal of (and premium, if any),
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and interest, if any, on, and Additional Amounts, if any, with respect to, such
Security as the same becomes due out of the proceeds yielded by converting (from
time to time as specified below in the case of any such election) the amount or
other property deposited in respect of such Security into the Currency in which
such Security becomes payable as a result of such election or Conversion Event
based on (x) in the case of payments made pursuant to clause (a) above, the
applicable market exchange rate for such Currency in effect on the second
Business Day prior to each payment date, or (y) with respect to a Conversion
Event, the applicable market exchange rate for such Foreign Currency in effect
(as nearly as feasible) at the time of the Conversion Event.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge, imposed on or assessed against the Government Obligations
deposited pursuant to this Section 402 or the principal or interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Securities and any Coupons
appertaining thereto.
Anything in this Section 402 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Company from time to time upon Company Request any
money or Government Obligations (or other property and any proceeds therefrom)
held by it as provided in clause (4) of this Section 402 which, in the opinion
of a nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in excess of the
amount thereof which would then be required to be deposited to effect a
defeasance or covenant defeasance, as applicable, in accordance with this
Section 402.
Section 403 Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
and Government Obligations deposited with the Trustee pursuant to Section 401 or
Section 402 in respect of any Outstanding Securities of any series and any
Coupons appertaining thereto shall be held in trust and applied by the Trustee,
in accordance with the provisions of the Securities, the Coupons and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal, premium, if any,
interest and Additional Amounts, if any, for whose payment such money has or
Government Obligations have been deposited with or received by the Trustee; but
such money and Government Obligations need not be segregated from other funds
except to the extent required by law.
ARTICLE FIVE
Remedies
Section 501 Events of Default.
"Event of Default", wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body),
unless such event is specifically deleted or modified in or pursuant to the
supplemental indenture, Board Resolution or Officers' Certificate establishing
the terms of such series pursuant to this Indenture:
(1) default in the payment of any interest on any Security of such series,
or any Additional Amounts payable with respect thereto, when the interest
becomes or the Additional Amounts become due and payable, and continuance of the
default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any
Security of such series, or any Additional Amounts payable with respect thereto,
when the principal or premium becomes or the Additional Amounts with respect
thereto become due and payable at their maturity;
(3) failure of the Company to comply with any of its obligations described
under Article Eight;
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(4) default in the deposit of any sinking fund payment when and as due by
the terms of any Security of such series;
(5) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture or the Securities (other than a covenant or
warranty a default in the performance or the breach of which is elsewhere in
this Section 501 specifically dealt with or which has been expressly included in
this Indenture solely for the benefit of a series of Securities other than such
series), and continuance of the default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of such series, a written notice
specifying the default or breach and requiring it to be remedied and stating
that the notice is a "Notice of Default" under Section 602;
(6) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be secured or
evidenced, any indebtedness of the Company, whether such indebtedness now exists
or shall hereafter be created, shall happen and shall result in such
indebtedness in aggregate principal amount (or, if applicable, with an issue
price and accreted original issue discount) in excess of $100 million becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable, and (i) the acceleration shall not be rescinded or
annulled, (ii) such Indebtedness shall not have been paid or (iii) the Company
shall not have contested such acceleration in good faith by appropriate
proceedings and have obtained and thereafter maintained a stay of all
consequences that would have a material adverse effect on the Company in each
case within a period of 30 days after there shall have been given, by registered
or certified mail, to the Company by the Trustee or to the Company and the
Trustee by the holders of at least 25% in principal amount of the outstanding
Securities of such series then outstanding, a written notice specifying the
default or breaches and requiring it to be remedied and stating that the notice
is a "Notice of Default" or other notice as prescribed under Section 602;
provided, however, that if after the expiration of such period, such event of
default shall be remedied or cured by the Company or be waived by the Holders of
such Indebtedness in any manner authorized by such mortgage, indenture or
instrument, then the Event of Default with respect to such series of Securities
or by reason thereof shall, without further action by the Company, the Trustee
or any holder of Securities of such series, be deemed cured and not continuing ;
(7) the entry by a court having competent jurisdiction of:
(a) a decree or order for relief in respect of the Company or any
Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and the decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days;
(b) a decree or order adjudging the Company or any Material
Subsidiary to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of the Company or any Material
Subsidiary and the decree or order shall remain unstayed and in effect for
a period of 60 consecutive days; or
(c) a final and non-appealable order appointing a custodian,
receiver, liquidator, assignee, trustee or other similar official of the
Company or any Material Subsidiary or of any substantial part of the
property of the Company or any Material Subsidiary or ordering the winding
up or liquidation of the affairs of the Company;
(8) the commencement by the Company or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency, reorganization
or other similar law or of a voluntary proceeding seeking to be adjudicated
insolvent or the consent by the Company or any Material Subsidiary to the entry
of a decree or order for relief in an involuntary proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any insolvency proceedings against it, or the filing by the
Company or any Material Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable law, or the consent by the Company
or any Material Subsidiary to the filing of the petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee
or similar official of the Company or any Material Subsidiary or any substantial
part of the property of the Company or any Material Subsidiary or the making by
the
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Company or any Material Subsidiary or an assignment for the benefit of
creditors, or the taking of corporate action by the Company or any Material
Subsidiary in furtherance of any such action; or
(9) any other Event of Default provided in or pursuant to the Indenture
with respect to Securities of the series.
Section 502 Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the time
Outstanding (other than an Event of Default specified in clause (7) or (8) of
Section 501) occurs and is continuing, then the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities of such series
may declare the principal of all the Securities of such series, or such lesser
amount as may be provided for in the Securities of such series, to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by the Holders), and upon any declaration the principal or such lesser
amount shall become immediately due and payable. If an Event of Default
specified in clause (7) or (8) of Section 501 above occurs, all unpaid principal
of and accrued interest on the Outstanding Securities of that series (or such
lesser amount as may be provided for in the Securities of such series) shall
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder of any Security of such series.
At any time after a declaration of acceleration or automatic acceleration
with respect to the Securities of any series has been made and before a judgment
or decree for payment of the money due has been obtained by the Trustee as
hereafter in this Article provided, the Holders of not less than a majority in
principal amount of the Outstanding Securities of such series, by written notice
to the Company and the Trustee, may rescind and annul the declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum of money
sufficient to pay all overdue installments of interest on all Securities of
such series and any Additional Amounts payable with respect thereto and any
Coupon appertaining thereto, and the principal of and any premium on any
Securities of the series which have become due otherwise than by the
declaration of acceleration and interest thereon and any Additional Amounts
with respect thereto at the rate or rates borne by or provided in such
Securities; and
(2) all Events of Default with respect to Securities of such series,
other than the non-payment of the principal of, any premium and interest
on, and any additional amounts with respect to Securities of such series
which shall have become due solely by the acceleration, shall have been
cured or waived as provided in Section 513.
Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any installment of interest on any
Security, or any Additional Amounts payable with respect thereto, or any Coupon
appertaining thereto, when such interest or Additional Amounts shall have become
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of any principal of or premium, if any,
on, or any Additional Amounts payable in respect of any principal of or premium,
if any, on any Security at its Maturity.
The Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities and any Coupons appertaining thereto,
the whole amount of money then due and payable with respect to such Securities
and any Coupons appertaining thereto, with interest upon the overdue principal,
any premium and, to the extent that payment of such interest shall be legally
enforceable, upon any overdue installments of interest and Additional Amounts at
the rate or rates borne by or provided for in such Securities, and, in addition
thereto, such further amount of money as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all other
amounts due to the Trustee under Section 606.
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If the Company fails to pay the money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and any Coupons
appertaining thereto and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of the Company or any other
obligor upon such Securities and any Coupons appertaining thereto, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series and any
Coupons appertaining thereto by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or such Securities or in aid of the exercise of any power granted
herein or therein, or to enforce any other proper remedy.
Section 504 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of any overdue principal, premium, interest or
Additional Amounts) shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(1) to file and prove a claim for the whole amount, or such lesser amount
as may be provided for in the Securities of such series, of the principal and
any premium, interest and Additional Amounts owing and unpaid in respect of the
Securities and any Coupons appertaining thereto and to file such other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents or counsel) and of the
Holders of Securities or any Coupons allowed in such judicial proceeding, and
(2) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder of Securities or any Coupons to make such payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders of Securities or any Coupons, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any other amounts due the
Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or any Coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or Coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or any Coupon in any such proceeding.
Section 505 Trustee May Enforce Claims without Possession of Securities or
Coupons.
All rights of action and claims under this Indenture or any of the
Securities or Coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or Coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery or judgment, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, shall be for the ratable benefit of each and every Holder of a
Security or Coupon in respect of which such judgment has been recovered.
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Section 506 Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, or any
premium, interest or Additional Amounts, upon presentation of the Securities or
Coupons, or both, as the case may be, and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 606;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities and any Coupons for principal and any premium, interest and
Additional Amounts in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any kind,
according to the aggregate amounts due and payable on such Securities and
Coupons for principal and any premium, interest and Additional Amounts,
respectively;
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 507 Limitations on Suits.
No Holder of any Security of any series or any Coupons appertaining thereto
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of such series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to it against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of such series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other such Holders or Holders of Securities of any other series, or to
obtain or to seek to obtain priority or preference over any other Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.
Section 508 Unconditional Right of Holders to Receive Principal and any
Premium, Interest and Additional Amounts.
Notwithstanding any other provision in this Indenture, the Holder of any
Security or Coupon shall have the right, which is absolute and unconditional, to
receive payment of the principal of, any premium and (subject to Section 305 and
Section 307) interest on, and any Additional Amounts with respect to such
Security or payment of such Coupon, as the case may be, on the respective Stated
Maturity or Maturities therefor specified in such Security or Coupon (or, in the
case of redemption, on the Redemption Date or, in the case of repayment at the
option of such Holder if provided in or pursuant to this Indenture, on the date
such repayment is due) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
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Section 509 Restoration of Rights and Remedies.
If the Trustee or any Holder of a Security or a Coupon has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, the Trustee and each such Holder shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and each such Holder shall continue as though no such proceeding had
been instituted.
Section 510 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities or Coupons in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to each and every Holder of a Security or a Coupon is intended to be
exclusive of any other right or remedy, and every right and remedy, to the
extent permitted by law, shall be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not, to the extent permitted by law, prevent the
concurrent assertion or employment of any other appropriate right or remedy.
Section 511 Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security or
Coupon to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to any Holder of a Security or a Coupon may
be exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by such Holder, as the case may be.
Section 512 Control by Holders of Securities.
The Holders of a majority in principal amount of the Outstanding Securities
of any series shall 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 with respect to the Securities of
such series and any Coupons appertaining thereto, provided that
(1) such direction shall not be in conflict with any rule of law or with
this Indenture or with the Securities of any series,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) such direction is not unduly prejudicial to the rights of the other
Holders of Securities of such series not joining in such action.
Section 513 Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series on behalf of the Holders of all the
Securities of such series and any Coupons appertaining thereto may waive any
past default hereunder with respect to such series and its consequences, except
a default
(1) in the payment of the principal of, any premium or interest on, or any
Additional Amounts with respect to, any Security of such series or any Coupons
appertaining thereto, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
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Section 514 Waiver of Stay or Extension Laws.
The Company covenants that (to the extent that it may lawfully do so) it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company expressly waives (to the extent
that it may lawfully do so) all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 515 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in such suit of any
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees and
expenses, against any party litigant in such suit having due regard to the
merits and good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 515 shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of Outstanding Securities of any
series, or to any suit instituted by any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest, if any, on or
Additional Amounts, if any, with respect to any Security or any Coupon on or
after the respective Stated Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date, and, in the case of
repayment, on or after the date for repayment) or for the enforcement of the
right, if any, to convert or exchange any Security into Common Stock or other
securities, cash or other property in accordance with its terms.
ARTICLE SIX
The Trustee
Section 601 Certain Rights of Trustee.
Subject to Sections 315(a) through 315(d) of the Trust Indenture Act:
(1) the Trustee may conclusively rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, coupon or other paper or document reasonably believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or a Company Order (in each case,
other than delivery of any Security, together with any Coupons appertaining
thereto, to the Trustee for authentication and delivery pursuant to Section 303
which shall be sufficiently evidenced as provided therein) and any resolution of
the Board of Directors may be sufficiently evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
shall be herein specifically prescribed) may, in the absence of bad faith on its
part, conclusively rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel of its selection and the advice
of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by or pursuant to this Indenture at the request or
direction of any of the Holders of Securities of any series or any Coupons
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appertaining thereto pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
coupon or other paper or document, but the Trustee, in its discretion, may but
shall not be obligated to make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine, during
business hours and upon reasonable notice, the books, records and premises of
the Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder;
(8) the Trustee shall not be liable for any action taken or error of
judgment made in good faith by a Responsible Officer or Responsible Officers of
the Trustee, unless it shall be proved that the Trustee was negligent, acted in
bad faith or engaged in willful misconduct;
(9) the Authenticating Agent, Paying Agent, and Security Registrar shall
have the same protections as the Trustee set forth hereunder;
(10) the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance with an Act of
the Holders hereunder, and, to the extent not so provided herein, with respect
to any act requiring the Trustee to exercise its own discretion, relating to the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture or any Securities, unless it shall be proved that, in connection
with any such action taken, suffered or omitted or any such act, the Trustee was
negligent, acted in bad faith or engaged in willful misconduct;
(11) no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it; and
(12) the Trustee shall not be deemed to have notice of any default or Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default or
Event of Default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
Section 602 Notice of Defaults.
Within 90 days after the occurrence of any default hereunder with respect
to the Securities of any series, the Trustee shall transmit by mail to all
Holders of Securities of such series entitled to receive reports pursuant to
Section 703(3), notice of such default hereunder actually known to a Responsible
Officer of the Trustee, unless such default shall have been cured or waived;
provided, however, that, except in the case of a default in the payment of the
principal of (or premium, if any), or interest, if any, on, or Additional
Amounts or any sinking fund or purchase fund installment with respect to, any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determine that the withholding of such notice is in the best interest of
the Holders of Securities and Coupons of such series; and provided, further,
that in the case of any default of the character specified in Section 501(5)
with respect to Securities of such series, no such notice to Holders shall be
given until at least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default with respect to
Securities of such series.
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Section 603 Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any Coupons shall be taken as the
statements of the Company, and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Securities or the Coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1, if necessary, supplied to the Company are
true and accurate, subject to the qualifications set forth therein. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of the Securities or the proceeds thereof.
Section 604 May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other Person that may be an agent of the Trustee or the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the
Trust Indenture Act, may otherwise deal with the Company with the same rights it
would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other Person.
Section 605 Money Held in Trust.
Except as provided in Section 403 and Section 1003, money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company.
Section 606 Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such compensation as shall be
agreed in writing between the Company and the Trustee for all services rendered
by the Trustee hereunder (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to the Trustee's negligence or
willful misconduct; and
(3) to indemnify each of the Trustee and any predecessor Trustee and its
agents, officers, directors and employees for, and to hold them harmless
against, any loss, liability, damage, claim or expense, including taxes (other
than taxes based on the income of the Trustee), incurred without negligence or
bad faith on their part, arising out of or in connection with the acceptance or
administration of the trust or trusts hereunder, including the costs and
expenses of defending themselves against any claim or liability (whether
asserted by the Company, a Holder of Securities, or any other Person) in
connection with the exercise or performance of any of their powers or duties
hereunder, except to the extent that any such loss, liability or expense was due
to the Trustee's negligence or willful misconduct.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities of any
series upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of, and premium or
interest on or any Additional Amounts with respect to Securities or any Coupons
appertaining thereto.
To the extent permitted by law any compensation or expense incurred by the
Trustee after a default specified in or pursuant to Section 501 is intended to
constitute an expense of administration under any then applicable bankruptcy or
insolvency law. "Trustee" for purposes of this Section 606 shall include any
predecessor
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Trustee but the negligence or willful misconduct of any Trustee shall not affect
the rights of any other Trustee under this Section 606.
The provisions of this Section 606 shall survive the satisfaction and
discharge of this Indenture or the earlier resignation or removal of the Trustee
and shall apply with equal force and effect to the Trustee in its capacity as
Authenticating Agent, Paying Agent or Security Registrar.
Section 607 Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder that is a Corporation,
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, eligible under Section 310(a)(1) of
the Trust Indenture Act to act as trustee under an indenture qualified under the
Trust Indenture Act and that has a combined capital and surplus (computed in
accordance with Section 310(a)(2) of the Trust Indenture Act) of at least
$50,000,000 subject to supervision or examination by Federal or state authority.
If at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
Section 608 Resignation and Removal; Appointment of Successor.
(1) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 609.
(2) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 609 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition, at the expense of the
Company, any court of competent jurisdiction for the appointment of a successor
Trustee with respect to such series.
(3) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and the Company.
If the instrument of acceptance by a successor Trustee required by Section 609
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of removal, the Trustee being removed may petition, at the expense
of the Company, any court of competent jurisdiction for the appointment of a
successor Trustee with respect to such series.
(4) If at any time:
(a) the Trustee shall fail to comply with the obligations imposed
upon it under Section 310(b) of the Trust Indenture Act with respect to
Securities of any series after written request therefor by the Company or
any Holder of a Security of such series who has been a bona fide Holder of
a Security of such series for at least six months, or
(b) the Trustee shall cease to be eligible under Section 607 and
shall fail to resign after written request therefor by the Company or any
such Holder, or
(c) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case,
(i) the Company, by or pursuant to a Board Resolution, may
remove the Trustee with respect to all Securities or the Securities of
such series, or
(ii) subject to Section 315(e) of the Trust Indenture Act, any
Holder of a Security who has been a bona fide Holder of a Security of
such series for at least six months may, on behalf of
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himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to
all Securities of such series and the appointment of a successor
Trustee or Trustees.
(5) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by or pursuant to a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of such series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 609. If, within one year after such resignation, removal
or incapacity, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 609, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders of Securities and accepted appointment in the manner required by
Section 609, any Holder of a Security who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(6) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Registered Securities, if any, of such series as their names and
addresses appear in the Security Register and, if Securities of such series are
issued as Bearer Securities, by publishing notice of such event once in an
Authorized Newspaper in each Place of Payment located outside the United States.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
(7) In no event shall any retiring Trustee be liable for the acts or
omissions of any successor Trustee hereunder.
Section 609 Acceptance of Appointment by Successor.
(1) Upon the appointment hereunder of any successor Trustee with respect
to all Securities, such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties hereunder of the retiring Trustee; but, on the request
of the Company or such successor Trustee, such retiring Trustee, upon payment of
its charges, shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and,
subject to Section 1003, shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder, subject nevertheless to its claim, if any, provided for in Section
606.
(2) Upon the appointment hereunder of any successor Trustee with respect
to the Securities of one or more (but not all) series, the Company, the retiring
Trustee and such successor Trustee shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, such successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to all
Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall constitute such Trustees
co-trustees of the same trust, that each such Trustee shall be trustee of a
trust
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or trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee and that no Trustee shall be responsible
for any notice given to, or received by, or any act or failure to act on the
part of any other Trustee hereunder, and, upon the execution and delivery of
such supplemental indenture, the resignation or removal of the retiring Trustee
shall become effective to the extent provided therein, such retiring Trustee
shall have no further responsibility for the exercise of rights and powers or
for the performance of the duties and obligations vested in the Trustee under
this Indenture with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates other than as hereinafter
expressly set forth, and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates; but, on
request of the Company or such successor Trustee, such retiring Trustee, upon
payment of its charges with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates and subject to Section
1003 shall duly assign, transfer and deliver to such successor Trustee, to the
extent contemplated by such supplemental indenture, the property and money held
by such retiring Trustee hereunder with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates, subject
to its claim, if any, provided for in Section 606.
(3) Upon request of any Person appointed hereunder as a successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts referred to in clause (1) or (2) of this Section 609, as the case may be.
(4) No Person shall accept its appointment hereunder as a successor
Trustee unless at the time of such acceptance such successor Person shall be
qualified and eligible under this Article.
Section 610 Merger, Conversion, Consolidation or Succession to Business.
Any Corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any Corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
Corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated
but not delivered by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
Section 611 Appointment of Authenticating Agent.
The Trustee may appoint one or more Authenticating Agents acceptable to the
Company with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of that or
those series issued upon original issue, exchange, registration of transfer,
partial redemption or partial repayment or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent.
Each Authenticating Agent must be acceptable to the Company and, except as
provided in or pursuant to this Indenture, shall at all times be a Corporation
that would be permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act, is authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $50,000,000. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.
Any Corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any Corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any Corporation succeeding to all or substantially all of
the corporate
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agency or corporate trust business of an Authenticating Agent, shall be the
successor of such Authenticating Agent hereunder, provided such Corporation
shall be otherwise eligible under this Section, without the execution or filing
of any paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall (i) mail written notice
of such appointment by first-class mail, postage prepaid, to all Holders of
Registered Securities, if any, of the series with respect to which such
Authenticating Agent shall serve, as their names and addresses appear in the
Security Register, and (ii) if Securities of the series are issued as Bearer
Securities, publish notice of such appointment at least once in an Authorized
Newspaper in the place where such successor Authenticating Agent has its
principal office if such office is located outside the United States. Any
successor Authenticating Agent, upon acceptance of its appointment hereunder,
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
The provisions of Section 308, Section 603 and Section 604 shall be
applicable to each Authenticating Agent.
If an Authenticating Agent is appointed with respect to one or more series
of Securities pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
THE BANK OF NEW YORK,
As Trustee
By:
------------------------------
As Authenticating Agent
By:
------------------------------
Authorized Officer
If all of the Securities of any series may not be originally issued at one
time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested in writing (which writing need not be
accompanied by or contained in an Officers' Certificate), shall appoint in
accordance with this Section an Authenticating Agent having an office in a Place
of Payment designated by the Company with respect to such series of Securities.
ARTICLE SEVEN
Holders Lists and Reports by Trustee and Company
Section 701 Company to Furnish Trustee Names and Addresses of Holders.
In accordance with Section 312(a) of the Trust Indenture Act, the Company
shall furnish or cause to be furnished to the Trustee
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(1) semi-annually with respect to Securities of each series not later than
January 15 and July 15 of the year or upon such other dates as are set forth in
or pursuant to the Board Resolution or indenture supplemental hereto authorizing
such series, a list, in each case in such form as the Trustee may reasonably
require, of the names and addresses of Holders as of the applicable date, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished,
provided, however, that so long as the Trustee is the Security Registrar no such
list shall be required to be furnished.
Section 702 Preservation of Information; Communications to Holders.
The Trustee shall comply with the obligations imposed upon it pursuant to
Section 312 of the Trust Indenture Act.
Every Holder of Securities or Coupons, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company, the Trustee,
any Paying Agent or any Security Registrar shall be held accountable by reason
of the disclosure of any such information as to the names and addresses of the
Holders of Securities in accordance with Section 312(c) of the Trust Indenture
Act, regardless of the source from which such information was derived, and that
the Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under Section 312(b) of the Trust Indenture Act.
Section 703 Reports by Trustee.
(1) Within 60 days after June 15 of each year commencing with the first
June 15 following the first issuance of Securities pursuant to Section 301, if
required by Section 313(a) of the Trust Indenture Act, the Trustee shall
transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report
dated as of such June 15 with respect to any of the events specified in said
Section 313(a) which may have occurred since the later of the immediately
preceding June 15 and the date of this Indenture.
(2) The Trustee shall transmit the reports required by Section 313(a) of
the Trust Indenture Act at the times specified therein.
(3) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange, if any, upon which
the Securities are listed, with the Commission and with the Company. The Company
will promptly notify the Trustee when the Securities are listed on any stock
exchange and of any delisting thereof.
Section 704 Reports by Company; Rule 144A Information.
The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall:
(1) file with the Trustee, within 15 days after the Company is required to
file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
said Sections, then it shall file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations; provided,
however, that the Company shall not be required to file a quarterly report on
Form 10-Q (or an analogous form) for any of its fiscal quarters prior to its
fiscal quarter ended September 30, 1999; and provided further, however, that if
the Company files information, documents or reports by virtue of its being
subject to the requirements of Section 12, Section 13 or Section 15(d) of the
Exchange Act and its duty to file such information, documents or reports is
subsequently suspended, then the Company shall no longer be required to file any
such information, documents or
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reports pursuant to the provisions of this Section 704 with respect to
Securities of any series that were issued prior to the effectiveness of the
suspension of such duty.
(2) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations; and
(3) transmit within 30 days after the filing thereof with the Trustee, in
the manner and to the extent provided in Section 313(c) of the Trust Indenture
Act, such summaries of any information, documents and reports required to be
filed by the Company pursuant to paragraphs (1) and (2) of this Section as may
be required by rules and regulations prescribed from time to time by the
Commission.
(4) Unless the Company furnishes information to the Commission pursuant to
Section 13 or 15(d) of the Exchange Act or this Section, the Company shall
promptly furnish or cause to be furnished such information as is specified
pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision
thereto) to such Holder or to a prospective purchaser of a Security who is
designated by such Holder and is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act), upon the request of such Holder or
prospective purchaser, in order to permit compliance by such Holder with Rule
144A under the Securities Act.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
ARTICLE EIGHT
Consolidation, Merger and Sales
Section 801 Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into, or sell, assign,
transfer, lease, convey or other dispose of all or substantially all of its
assets and the properties and the assets and properties of its Subsidiaries
(taken as a whole) to, any entity or entities (including limited liability
companies) unless:
(1) the successor entity or entities, each of which shall be a Corporation
organized and existing under the laws the United States of America, any state
thereof or the District of Columbia, shall expressly assume, by an indenture (or
indentures, if at such time there is more than one Trustee) supplemental hereto
executed by the successor Person and delivered to the Trustee, the due and
punctual payment of the principal of, any premium and interest on and any
Additional Amounts with respect to all the Securities and the performance of
every obligation in this Indenture and the Outstanding Securities on the part of
the Company to be performed or observed and shall provide for conversion or
exchange rights in accordance with the provisions of the Securities of any
series that are convertible or exchangeable into Common Stock or other
securities, cash or other property;
(2) immediately after giving effect to such transaction or series of
transactions, no Event of Default or event which, after notice or lapse of time,
or both, would become an Event of Default, shall have occurred and be
continuing; and
(3) either the Company or the successor Person shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with this Article and that all conditions precedent herein
provided for relating to such transaction have been complied with.
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Section 802 Successor Person Substituted for Company.
Upon any consolidation by the Company with or merger of the Company into
any other Person or Persons or any sale, assignment, transfer, lease, conveyance
or other disposition of all or substantially all of the properties and assets of
the Company and the properties and assets of its Subsidiaries (taken as a whole)
to any Person or Persons in accordance with Section 801, the successor Person
formed by such consolidation or into which the Company is merged or to which
such sale, assignment, transfer, lease, conveyance or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
Person had been named as the Company herein; and thereafter, except in the case
of a lease, the predecessor Person shall be released from all obligations and
covenants under this Indenture, the Securities and any Coupons.
ARTICLE NINE
Supplemental Indentures
Section 901 Supplemental Indentures without Consent of Holders.
Without the consent of any Holders of Securities or Coupons, the Company
(when authorized by or pursuant to a Board Resolution) and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company contained
herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (as shall be specified in such supplemental
indenture or indentures) or to surrender any right or power herein conferred
upon the Company; or
(3) to add to or change any of the provisions of this Indenture to provide
that Bearer Securities may be registrable as to principal, to change or
eliminate any restrictions on the payment of principal of, any premium or
interest on or any Additional Amounts with respect to Securities, to permit
Bearer Securities to be issued in exchange for Registered Securities, to permit
Bearer Securities to be exchanged for Bearer Securities of other authorized
denominations or to permit or facilitate the issuance of Securities in
uncertificated form, provided any such action shall not adversely affect the
interests of the Holders of Outstanding Securities of any series or any Coupons
appertaining thereto in any material respect; or
(4) to establish the form or terms of Securities of any series and any
Coupons appertaining thereto as permitted by Section 201 and Section 301; or
(5) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 609; or
(6) to cure any ambiguity or to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising under
this Indenture which shall not adversely affect the interests of the Holders of
Securities of any series then Outstanding or any Coupons appertaining thereto in
any material respect; or
(7) to add to, delete from or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issue,
authentication and delivery of Securities, as herein set forth; or
(8) to add any additional Events of Default with respect to all or any
series of Securities (as shall be specified in such supplemental indenture); or
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(9) to supplement any of the provisions of this Indenture to such extent
as shall be necessary to permit or facilitate the defeasance and discharge of
any series of Securities pursuant to Article Four, provided that any such action
shall not adversely affect the interests of any Holder of an Outstanding
Security of such series and any Coupons appertaining thereto or any other
Security or Coupon in any material respect; or
(10) to secure the Securities pursuant to Section 1005 or Section 1006 or
otherwise; or
(11) to make provisions with respect to conversion or exchange rights of
Holders of Securities of any series; or
(12) to amend or supplement any provision contained herein or in any
supplemental indenture, provided that no such amendment or supplement shall
materially adversely affect the interests of the Holders of any Securities then
Outstanding; or
(13) to qualify the Indenture under the Trust Indenture Act.
Section 902 Supplemental Indentures With Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and the
Trustee, the Company (when authorized by or pursuant to a Board Resolution) and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of Securities of such series under this Indenture or of the
Securities of such series; provided, however, that no such supplemental
indenture, without the consent of the Holder of each Outstanding Security
affected thereby, shall
(1) change the Stated Maturity of the principal of, or any premium or
installment of interest on or any Additional Amounts with respect to, any
Security, or reduce the principal amount thereof or the rate (or modify the
calculation of such rate) of interest thereon or any Additional Amounts with
respect thereto, or any premium payable upon the redemption thereof or
otherwise, or change the obligation of the Company to pay Additional Amounts
pursuant to Section 1004 (except as contemplated by Section 801(1) and permitted
by Section 901(1)), or reduce the amount of the principal of an Original Issue
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 502 or the amount
thereof provable in bankruptcy pursuant to Section 504, change the redemption
provisions or adversely affect the right of repayment at the option of any
Holder as contemplated by Article Thirteen, or change the Place of Payment,
Currency in which the principal of, any premium or interest on, or any
Additional Amounts with respect to any Security is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the Redemption Date
or, in the case of repayment at the option of the Holder, on or after the date
for repayment), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
reduce the requirements of Section 1504 for quorum or voting, or
(3) modify any of the provisions of this Section, Section 513 or Section
1009, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent of
the Holder of each Outstanding Security affected thereby, or
(4) make any change that adversely affects the right to convert or
exchange any Security into or for Common Stock or other securities, cash or
other property in accordance with the terms of such Security.
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which shall have been included expressly and solely
for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other
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provision, shall be deemed not to affect the rights under this Indenture of the
Holders of Securities of any other series.
It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Section 903 Execution of Supplemental Indentures.
As a condition to executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trust created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully
protected in relying upon, an Officers' Certificate and Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
Section 904 Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of a Security theretofore or thereafter authenticated and delivered hereunder
and of any Coupon appertaining thereto shall be bound thereby.
Section 905 Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
Section 906 Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 907 Notice of Supplemental Indenture.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to Section 902, the Company shall transmit to
the Holders of Outstanding Securities of any series affected thereby a notice
setting forth the substance of such supplemental indenture.
ARTICLE TEN
Covenants
Section 1001 Payment of Principal, any Premium, Interest and Additional
Amounts.
The Company covenants and agrees for the benefit of the Holders of the
Securities of each series that it will duly and punctually pay the principal of,
any premium and interest on and any Additional Amounts with respect to the
Securities of such series in accordance with the terms thereof, any Coupons
appertaining thereto and this Indenture. Any interest due on any Bearer
Security on or before the Maturity thereof, and any Additional Amounts payable
with respect to such interest, shall be payable only upon presentation and
surrender of the Coupons appertaining thereto for such interest as they
severally mature.
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Section 1002 Maintenance of Office or Agency.
The Company shall maintain in each Place of Payment for any series of
Securities an Office or Agency where Securities of such series (but not Bearer
Securities, except as otherwise provided below, unless such Place of Payment is
located outside the United States) may be presented or surrendered for payment,
where Securities of such series may be surrendered for registration of transfer
or exchange, where Securities of such series that are convertible or
exchangeable may be surrendered for conversion or exchange, and where notices
and demands to or upon the Company in respect of the Securities of such series
relating thereto and this Indenture may be served. If Securities of a series
are issuable as Bearer Securities, the Company shall maintain, subject to any
laws or regulations applicable thereto, an Office or Agency in a Place of
Payment for such series which is located outside the United States where
Securities of such series and any Coupons appertaining thereto may be presented
and surrendered for payment; provided, however, that if the Securities of such
series are listed on The Stock Exchange of the United Kingdom and the Republic
of Ireland or the Luxembourg Stock Exchange or any other stock exchange located
outside the United States and such stock exchange shall so require, the Company
shall maintain a Paying Agent in London, Luxembourg or any other required city
located outside the United States, as the case may be, so long as the Securities
of such series are listed on such exchange. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such Office or Agency. If at any time the Company shall fail to maintain any
such required Office or Agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, except that Bearer
Securities of such series and any Coupons appertaining thereto may be presented
and surrendered for payment at the place specified for the purpose with respect
to such Securities as provided in or pursuant to this Indenture, and the Company
hereby appoints the Trustee as its agent to receive all such presentations,
surrenders, notices and demands.
Except as otherwise provided in or pursuant to this Indenture, no payment
of principal, premium, interest or Additional Amounts with respect to Bearer
Securities shall be made at any Office or Agency in the United States or by
check mailed to any address in the United States or by transfer to an account
maintained with a bank located in the United States; provided, however, if
amounts owing with respect to any Bearer Securities shall be payable in Dollars,
payment of principal of, any premium or interest on and any Additional Amounts
with respect to any such Security may be made at the Corporate Trust Office of
the Trustee or any Office or Agency designated by the Company in the Borough of
Manhattan, The City of New York, if (but only if) payment of the full amount of
such principal, premium, interest or Additional Amounts at all offices outside
the United States maintained for such purpose by the Company in accordance with
this Indenture is illegal or effectively precluded by exchange controls or other
similar restrictions.
The Company may also from time to time designate one or more other Offices
or Agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an Office or Agency
in each Place of Payment for Securities of any series for such purposes. The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other Office or
Agency.
Unless otherwise provided in or pursuant to this Indenture, the Company
hereby designates as the Place of Payment for each series of Securities the
Borough of Manhattan, The City of New York, and initially appoints the Corporate
Trust Office of the Trustee located at 101 Barclay Street, New York, New York
10286 as the Office or Agency of the Company in the Borough of Manhattan, The
City of New York for such purpose. The Company may subsequently appoint a
different Office or Agency in the Borough of Manhattan, The City of New York for
the Securities of any series.
Unless otherwise specified with respect to any Securities pursuant to
Section 301, if and so long as the Securities of any series (i) are denominated
in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long
as it is required under any other provision of this Indenture, then the Company
will maintain with respect to each such series of Securities, or as so required,
at least one exchange rate agent.
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Section 1003 Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it shall, on or before each due date of the
principal of, any premium or interest on or Additional Amounts with respect to
any of the Securities of such series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum in the currency or currencies,
currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified pursuant to
Section 301 for the Securities of such series) sufficient to pay the principal
or any premium, interest or Additional Amounts so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein provided, and
shall promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it shall, on or prior to each due date of the principal of, any
premium or interest on or any Additional Amounts with respect to any Securities
of such series, deposit with any Paying Agent a sum (in the currency or
currencies, currency unit or units or composite currency or currencies described
in the preceding paragraph) sufficient to pay the principal or any premium,
interest or Additional Amounts so becoming due, such sum to be held in trust for
the benefit of the Persons entitled thereto, and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of its action or
failure so to act.
The Company shall cause each Paying Agent for any series of Securities
(other than the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of, any
premium or interest on or any Additional Amounts with respect to Securities of
such series in trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as provided in or
pursuant to this Indenture;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities of such series) in the making of any payment of
principal, any premium or interest on or any Additional Amounts with respect to
the Securities of such series; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such sums.
Except as otherwise provided herein or pursuant hereto, any money deposited
with the Trustee or any Paying Agent, or then held by the Company, in trust for
the payment of the principal of, any premium or interest on or any Additional
Amounts with respect to any Security of any series or any Coupon appertaining
thereto and remaining unclaimed for two years after such principal or any such
premium or interest or any such Additional Amounts shall have become due and
payable shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security or
any Coupon appertaining thereto shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in an
Authorized Newspaper in each Place of Payment for such series or to be mailed to
Holders of Registered Securities of such series, or both, notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such publication or mailing nor shall it be
later than two years after such principal and any premium or interest or
Additional Amounts shall have become due and payable, any unclaimed balance of
such money then remaining will be repaid to the Company.
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Section 1004 Additional Amounts.
If any Securities of a series provide for the payment of Additional
Amounts, the Company agrees to pay to the Holder of any such Security or any
Coupon appertaining thereto Additional Amounts as provided in or pursuant to
this Indenture or such Securities. Whenever in this Indenture there is
mentioned, in any context, the payment of the principal of or any premium or
interest on, or in respect of, any Security of any series or any Coupon, such
mention shall be deemed to include mention of the payment of Additional Amounts
provided by the terms of such series established hereby or pursuant hereto to
the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof pursuant to such terms, and express mention of the
payment of Additional Amounts (if applicable) in any provision hereof shall not
be construed as excluding Additional Amounts in those provisions hereof where
such express mention is not made.
Except as otherwise provided in or pursuant to this Indenture or the
Securities of the applicable series, if the Securities of a series provide for
the payment of Additional Amounts, at least 10 days prior to the first Interest
Payment Date with respect to such series of Securities (or if the Securities of
such series shall not bear interest prior to Maturity, the first day on which a
payment of principal is made), and at least 10 days prior to each date of
payment of principal or interest if there has been any change with respect to
the matters set forth in the below-mentioned Officers' Certificate, the Company
shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if
other than the Trustee, an Officers' Certificate instructing the Trustee and
such Paying Agent or Paying Agents whether such payment of principal of and
premium, if any, or interest on the Securities of such series shall be made to
Holders of Securities of such series or the Coupons appertaining thereto who are
United States Aliens without withholding for or on account of any tax,
assessment or other governmental charge described in the Securities of such
series. If any such withholding shall be required, then such Officers'
Certificate shall specify by country the amount, if any, required to be withheld
on such payments to such Holders of Securities or Coupons, and the Company
agrees to pay to the Trustee or such Paying Agent the Additional Amounts
required by the terms of such Securities. The Company covenants to indemnify the
Trustee and any Paying Agent for, and to hold them harmless against, any loss,
liability or expense reasonably incurred without negligence or bad faith on
their part arising out of or in connection with actions taken or omitted by any
of them in reliance on any Officers' Certificate furnished pursuant to this
Section.
Section 1005 Limitation on Liens.
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur or assume any Lien, except for Permitted Liens, on any Principal
Property to secure the payment of Funded Indebtedness of the Company or any
Restricted Subsidiary if, immediately after the creation, incurrence or
assumption of such Lien, the sum of (A) the aggregate outstanding principal
amount of all Funded Indebtedness of the Company and the Restricted Subsidiaries
that is secured by Liens (other than Permitted Liens) on any Principal Property
and (B) the Attributable Debt relating to any Sale and Leaseback Transaction
which would otherwise be subject to the provisions of Section 1006 would exceed
15% of the Consolidated Asset Value, unless effective provision is made whereby
the Securities (together with, if the Company shall so determine, any other
Funded Indebtedness ranking equally with the Securities, whether then existing
or thereafter created) are secured equally and ratably with (or prior to) such
Funded Indebtedness (but only for so long as such Funded Indebtedness is so
secured).
The foregoing limitation on Liens shall not apply to the creation,
incurrence or assumption of the following Liens ("Permitted Liens"):
(1) any Lien which arises out of a judgment or award against the
Company or any Restricted Subsidiary with respect to which the Company or
such Restricted Subsidiary at the time shall be prosecuting an appeal or
proceeding for review (or with respect to which the period within which
such appeal or proceeding for review may be initiated shall not have
expired) and with respect to which it shall have secured a stay of
execution pending such appeal or proceedings for review or with respect to
which the Company or such Restricted Subsidiary shall have posted a bond
and established adequate reserves (in accordance with GAAP) for the payment
of such judgment or award;
(2) Liens on assets or property of a Person existing at the time
such Person is merged into or consolidated with the Company or any
Restricted Subsidiary or becomes a Restricted Subsidiary; provided, that
such Liens were in existence prior to the contemplation of such merger,
consolidation or acquisition
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and do not secure any property of the Company or any Restricted Subsidiary
other than the property and assets subject to the Liens prior to such
merger, consolidation or acquisition;
(3) Liens existing on the date of original issuance of the
Securities;
(4) Liens securing Funded Indebtedness (including in the form of
Capitalized Lease Obligations and purchase money indebtedness) incurred for
the purpose of financing the cost (including without limitation the cost of
design, development, site acquisition, construction, integration,
manufacture or acquisition) of real or personal property (tangible or
intangible) which is incurred contemporaneously therewith or within 60 days
thereafter; provided (i) such Liens secure Funded Indebtedness in an amount
not in excess of the cost of such property (plus an amount equal to the
reasonable fees and expenses incurred in connection with the incurrence of
such Funded Indebtedness) and (ii) such Liens do not extend to any property
of the Company or any Restricted Subsidiary other than the property for
which such Funded Indebtedness was incurred;
(5) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens to secure the Securities;
(7) Liens granted in favor of the Company; and
(8) any Lien in respect of Funded Indebtedness representing the
extension, refinancing, renewal or replacement (or successive extensions,
refinancings, renewals or replacements) of Funded Indebtedness secured by
Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above,
provided that the principal of the Funded Indebtedness secured thereby does
not exceed the principal of the Funded Indebtedness secured thereby
immediately prior to such extension, renewal or replacement, plus any
accrued and unpaid interest or capitalized interest payable thereon,
reasonable fees and expenses incurred in connection therewith, and the
amount of any prepayment premium necessary to accomplish any refinancing;
provided, that such extension, renewal or replacement shall be limited to
all or a part of the property (or interest therein) subject to the Lien so
extended, renewed or replaced (plus improvements and construction on such
property).
Section 1006 Limitation on Sale and Leaseback.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction; provided, that the Company or any
Restricted Subsidiary may enter into a Sale and Leaseback Transaction if:
(1) the gross cash proceeds of the Sale and Leaseback Transaction are at
least equal to the fair market value, as determined in good faith by
the Board of Directors and set forth in a Board Resolution, of the
Principal Property that is the subject of the Sale and Leaseback
Transaction, and
(2) either
(A) the Company or the Restricted Subsidiary, as applicable, either
(i) could have incurred a Lien to secure Funded Indebtedness in
an amount equal to the Attributable Debt relating to such Sale
and Leaseback Transaction pursuant to Section 1005, or (ii) makes
effective provision whereby the Securities (together with, if the
Company shall so determine, any other Funded Indebtedness ranking
equally with the Securities, whether then existing or thereafter
created) are secured equally and ratably with (or prior to) the
obligations of the Company or the Restricted Subsidiary under the
lease of the Principal Property that is the subject of the Sale
and Leaseback Transaction, or
(B) within 180 days, the Company or the Restricted Subsidiary either
(i) applies an amount equal to the fair market value of the
Principal Property that is the subject of the Sale and Leaseback
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Transaction to purchase the Securities or to retire other Funded
Indebtedness, or (ii) enters into a bona fide commitment to
expend for the acquisition or improvement of a Principal Property
an amount at least equal to the fair market value of such
Principal Property.
Section 1007 Designation of Restricted Subsidiaries.
The Company may designate an Unrestricted Subsidiary as a Restricted
Subsidiary or designate a Restricted Subsidiary as an Unrestricted Subsidiary at
any time, provided that (1) immediately after giving effect to such designation,
the Company and its Restricted Subsidiaries would have been permitted to incur
at least $1.00 of additional Funded Indebtedness secured by a Lien pursuant to
Section 1005, (2) no Default or Event of Default shall have occurred and be
continuing, and (3) an Officers' Certificate with respect to such designation is
delivered to the Trustee within 75 days after the end of the fiscal quarter of
the Company in which such designation is made (or, in the case of a designation
made during the last fiscal quarter of the Company's fiscal year, within 120
days after the end of such fiscal year), which Officers' Certificate shall state
the effective date of such designation; the Company has made the initial
designation of all of its Subsidiaries as Restricted Subsidiaries and will
deliver the required Officers' Certificate with respect thereto to the Trustee,
on or prior to the date of initial issuance of the first series of Securities
pursuant to this Indenture.
Section 1008 Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Restricted Subsidiary and their respective rights
(charter and statutory) and franchises; provided, however, that the foregoing
shall not obligate the Company or any Restricted Subsidiary to preserve any such
right or franchise if the Company or any Restricted Subsidiary shall determine
that the preservation thereof is no longer desirable in the conduct of its
business or the business of such Restricted Subsidiary and that the loss thereof
is not disadvantageous in any material respect to any Holder.
Section 1009 Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1002 to 1008, inclusive with
respect to the Securities of any series if before the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities of such series, by Act of such Holders, either shall waive such
compliance in such instance or generally shall have waived compliance with such
term, provision or condition, but no such waiver shall extend to or affect such
term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
Section 1010 Company Statement as to Compliance; Notice of Certain Defaults.
(1) The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, a written statement (which need not be contained in or
accompanied by an Officers' Certificate) signed by the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company, stating that
(a) a review of the activities of the Company during such year
and of its performance under this Indenture has been made under his or her
supervision, and
(b) to the best of his or her knowledge, based on such review,
(a) the Company has complied with all the conditions and covenants imposed
on it under this Indenture throughout such year, or, if there has been a
default in the fulfillment of any such condition or covenant, specifying
each such default known to him or her and the nature and status thereof,
and (b) no event has occurred and is continuing which is, or after notice
or lapse of time or both would become, an Event of Default, or, if such an
event has occurred and is continuing, specifying each such event known to
him or her and the nature and status thereof.
(2) The Company shall deliver to the Trustee, within 10 days after the
occurrence thereof, written notice of any Event of Default or any event which
after notice or lapse of time or both would become an Event of Default pursuant
to clause (5) of Section 501.
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(3) The Trustee shall have no duty to monitor the Company's compliance
with the covenants contained in this Article Nine to other than as specifically
set forth in the this Section 1010.
Section 1011 Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on Outstanding
Securities as of the end of such year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time.
ARTICLE ELEVEN
Redemption of Securities
Section 1101 Applicability of Article.
Redemption of Securities of any series at the option of the Company as
permitted or required by the terms of such Securities shall be made in
accordance with the terms of such Securities and (except as otherwise provided
herein or pursuant hereto) this Article.
Section 1102 Election to Redeem; Notice to Trustee.
The election of the Company to optionally redeem any Securities shall be
evidenced by or pursuant to a Board Resolution. In case of any redemption at the
election of the Company of (a) less than all of the Securities of any series or
(b) all of the Securities of any series with the same issue date, interest rate
or formula, Stated Maturity and other terms, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed.
Section 1103 Selection by Trustee of Securities to be Redeemed.
If less than all of the Securities of any series with the same issue date,
interest rate or formula, Stated Maturity and other terms are to be redeemed,
the particular Securities to be redeemed shall be selected not more than 60 days
prior to the Redemption Date by the Trustee from the Outstanding Securities of
such series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of portions of the principal amount of Registered Securities of such
series; provided, however, that no such partial redemption shall reduce the
portion of the principal amount of a Registered Security of such series not
redeemed to less than the minimum denomination for a Security of such series
established herein or pursuant hereto.
The Trustee shall promptly notify the Company and the Security Registrar
(if other than itself) in writing of the Securities selected for redemption and,
in the case of any Securities selected for partial redemption, the principal
amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal of such Securities which has been or is to be redeemed.
Unless otherwise specified in or pursuant to this Indenture or the
Securities of any series, if any Security selected for partial redemption is
converted into or exchanged for Common Stock or other securities, cash or other
property in part before termination of the conversion or exchange right with
respect to the portion of the Security so selected, the converted portion of
such Security shall be deemed (so far as may be) to be the portion selected for
redemption. Securities which have been converted or exchanged during a selection
of Securities to be redeemed shall be treated by the Trustee as Outstanding for
the purpose of such selection.
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Section 1104 Notice of Redemption.
Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 nor more than 60 days prior to the Redemption Date, unless a
shorter period is specified in the Securities to be redeemed, to the Holders of
Securities to be redeemed. Failure to give notice by mailing in the manner
herein provided to the Holder of any Registered Securities designated for
redemption as a whole or in part, or any defect in the notice to any such
Holder, shall not affect the validity of the proceedings for the redemption of
any other Securities or portion thereof.
Any notice that is mailed to the Holder of any Registered Securities in the
manner herein provided shall be conclusively presumed to have been duly given,
whether or not such Holder receives the notice.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption,
the principal amount) of the particular Security or Securities to be
redeemed,
(4) in case any Security is to be redeemed in part only, the notice which
relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder of such Security
will receive, without charge, a new Security or Securities of
authorized denominations for the principal amount thereof remaining
unredeemed,
(5) that, on the Redemption Date, the Redemption Price shall become due
and payable upon each such Security or portion thereof to be redeemed,
and, if applicable, that interest thereon shall cease to accrue on and
after said date,
(6) the place or places where such Securities, together (in the case of
Bearer Securities) with all Coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment
of the Redemption Price and any accrued interest and Additional
Amounts pertaining thereto,
(7) that the redemption is for a sinking fund, if such is the case,
(8) that, unless otherwise specified in such notice, Bearer Securities of
any series, if any, surrendered for redemption must be accompanied by
all Coupons maturing subsequent to the date fixed for redemption or
the amount of any such missing Coupon or Coupons will be deducted from
the Redemption Price, unless security or indemnity satisfactory to the
Company, the Trustee and any Paying Agent is furnished,
(9) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if
such Bearer Securities may be exchanged for Registered Securities not
subject to redemption on the Redemption Date pursuant to Section 305
or otherwise, the last date, as determined by the Company, on which
such exchanges may be made,
(10) in the case of Securities of any series that are convertible or
exchangeable into Common Stock or other securities, cash or other
property, the conversion or exchange price or rate, the date or dates
on which the right to convert or exchange the principal of the
Securities of such series to be redeemed will commence or terminate
and the place or places where such Securities may be surrendered for
conversion or exchange, and
(11) the CUSIP number or the Euroclear or the Cedelbank reference numbers
of such Securities, if any (or any other numbers used by a Depository
to identify such Securities).
A notice of redemption published as contemplated by Section 106 need not
identify particular Registered Securities to be redeemed.
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Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 1105 Deposit of Redemption Price.
At or prior to 10:00 a.m., New York City time, on any Redemption Date, the
Company shall deposit, with respect to the Securities of any series called for
redemption pursuant to Section 1104, with the Trustee or with a Paying Agent
(or, if the Company is acting as its own Paying Agent, segregate and hold in
trust as provided in Section 1003) an amount of money in the applicable Currency
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date, unless otherwise specified pursuant to
Section 301 or in the Securities of such series) any accrued interest on and
Additional Amounts with respect thereto, all such Securities or portions thereof
which are to be redeemed on that date.
Section 1106 Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest and the Coupons for such
interest appertaining to any Bearer Securities so to be redeemed, except to the
extent provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all Coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with any accrued interest
and Additional Amounts to the Redemption Date; provided, however, that, except
as otherwise provided in or pursuant to this Indenture or the Bearer Securities
of such series, installments of interest on Bearer Securities whose Stated
Maturity is on or prior to the Redemption Date shall be payable only upon
presentation and surrender of Coupons for such interest (at an Office or Agency
located outside the United States except as otherwise provided in Section 1002),
and provided, further, that, except as otherwise specified in or pursuant to
this Indenture or the Registered Securities of such series, installments of
interest on Registered Securities whose Stated Maturity is on or prior to the
Redemption Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
Regular Record Dates therefor according to their terms and the provisions of
Section 307.
If any Bearer Security surrendered for redemption shall not be accompanied
by all appurtenant Coupons maturing after the Redemption Date, such Security may
be paid after deducting from the Redemption Price an amount equal to the face
amount of all such missing Coupons, or the surrender of such missing Coupon or
Coupons may be waived by the Company and the Trustee if there be furnished to
them such security or indemnity as they may require to save each of them and any
Paying Agent harmless. If thereafter the Holder of such Security shall surrender
to the Trustee or any Paying Agent any such missing Coupon in respect of which a
deduction shall have been made from the Redemption Price, such Holder shall be
entitled to receive the amount so deducted; provided, however, that any interest
or Additional Amounts represented by Coupons shall be payable only upon
presentation and surrender of those Coupons at an Office or Agency for such
Security located outside of the United States except as otherwise provided in
Section 1002.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium, until paid, shall bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
Section 1107 Securities Redeemed in Part.
Any Registered Security which is to be redeemed only in part shall be
surrendered at any Office or Agency for such Security (with, if the Company or
the Trustee so requires, due endorsement by, or 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) and the Company shall
execute and the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Registered Security or Securities of the
same series, containing identical terms and provisions, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered. If a Security in global form is so surrendered, the Company shall
execute, and the Trustee shall
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authenticate and deliver to the U.S. Depository or other Depository for such
Security in global form as shall be specified in the Company Order with respect
thereto to the Trustee, without service charge, a new Security in global form in
a denomination equal to and in exchange for the unredeemed portion of the
principal of the Security in global form so surrendered.
ARTICLE TWELVE
Sinking Funds
Section 1201 Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series, except as otherwise permitted or
required in or pursuant to this Indenture or any Security of such series issued
pursuant to this Indenture.
The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of such series is herein referred to as an "optional sinking
fund payment". If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series and this Indenture.
Section 1202 Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of any series to be made pursuant to the
terms of such Securities (1) deliver Outstanding Securities of such series
(other than any of such Securities previously called for redemption or any of
such Securities in respect of which cash shall have been released to the
Company), together in the case of any Bearer Securities of such series with all
unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of
such series which have been redeemed either at the election of the Company
pursuant to the terms of such series of Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, provided that such Securities have not been previously so credited.
Such Securities shall be received and credited for such purpose by the Trustee
at the Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly. If as a result of the delivery or credit of Securities
of any series in lieu of cash payments pursuant to this Section 1202, the
principal amount of Securities of such series to be redeemed in order to satisfy
the remaining sinking fund payment shall be less than $100,000, the Trustee need
not call Securities of such series for redemption, except upon Company Request,
and such cash payment shall be held by the Trustee or a Paying Agent and applied
to the next succeeding sinking fund payment, provided, however, that the Trustee
or such Paying Agent shall at the request of the Company from time to time pay
over and deliver to the Company any cash payment so being held by the Trustee or
such Paying Agent upon delivery by the Company to the Trustee of Securities of
that series purchased by the Company having an unpaid principal amount equal to
the cash payment requested to be released to the Company.
Section 1203 Redemption of Securities for Sinking Fund.
Not less than 75 days prior to each sinking fund payment date for any
series of Securities, the Company shall deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that series pursuant to Section 1202, and the optional amount, if
any, to be added in cash to the next ensuing mandatory sinking fund payment, and
will also deliver to the Trustee any Securities to be so credited and not
theretofore delivered. If such Officers' Certificate shall specify an optional
amount to be added in cash to the next ensuing mandatory sinking fund payment,
the Company shall thereupon be obligated to pay the amount therein specified.
Not less than 60 days before each such sinking fund payment date the Trustee
shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 1103 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company in the
manner provided in
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Section 1104. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Section 1106
and Section 1107.
ARTICLE THIRTEEN
Repayment at the Option of Holders
Section 1301 Applicability of Article.
Securities of any series which are repayable at the option of the Holders
thereof before their Stated Maturity shall be repaid in accordance with the
terms of the Securities of such series. The repayment of any principal amount of
Securities pursuant to such option of the Holder to require repayment of
Securities before their Stated Maturity, for purposes of Section 309, shall not
operate as a payment, redemption or satisfaction of the Indebtedness represented
by such Securities unless and until the Company, at its option, shall deliver or
surrender the same to the Trustee with a directive that such Securities be
cancelled. Notwithstanding anything to the contrary contained in this Section
1301, in connection with any repayment of Securities, the Company may arrange
for the purchase of any Securities by an agreement with one or more investment
bankers or other purchasers to purchase such Securities by paying to the Holders
of such Securities on or before the close of business on the repayment date an
amount not less than the repayment price payable by the Company on repayment of
such Securities, and the obligation of the Company to pay the repayment price of
such Securities shall be satisfied and discharged to the extent such payment is
so paid by such purchasers.
ARTICLE FOURTEEN
Securities in Foreign Currencies
Section 1401 Applicability of Article.
Whenever this Indenture provides for (i) any action by, or the
determination of any of the rights of, Holders of Securities of any series in
which not all of such Securities are denominated in the same Currency, or (ii)
any distribution to Holders of Securities, in the absence of any provision to
the contrary pursuant to this Indenture or the Securities of any particular
series, any amount in respect of any Security denominated in a Foreign Currency
shall be treated for any such action or distribution as that amount of Dollars
that could be obtained for such amount on such reasonable basis of exchange and
as of the record date with respect to Registered Securities of such series (if
any) for such action, determination of rights or distribution (or, if there
shall be no applicable record date, such other date reasonably proximate to the
date of such action, determination of rights or distribution) as the Company may
specify in a written notice to the Trustee or, in the absence of such written
notice, as the Trustee may determine.
ARTICLE FIFTEEN
Meetings of Holders of Securities
Section 1501 Purposes for Which Meetings May Be Called.
A meeting of Holders of Securities of any series may be called at any time
and from time to time pursuant to this Article to make, give or take any
request, demand, authorization, direction, notice, consent, waiver or other Act
provided by this Indenture to be made, given or taken by Holders of Securities
of such series.
Section 1502 Call, Notice and Place of Meetings.
(1) The Trustee may at any time call a meeting of Holders of Securities of
any series for any purpose specified in Section 1501, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, or, if
Securities of such series have been issued in whole or in part as Bearer
Securities, in London or in such place outside the United States as the Trustee
shall determine. Notice of every meeting of Holders of Securities of
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any series, setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be given, in the
manner provided in Section 106, not less than 21 nor more than 180 days prior to
the date fixed for the meeting.
(2) In case at any time the Company (by or pursuant to a Board Resolution)
or the Holders of at least 10% in principal amount of the Outstanding Securities
of any series shall have requested the Trustee to call a meeting of the Holders
of Securities of such series for any purpose specified in Section 1501, by
written request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed notice of or made
the first publication of the notice of such meeting within 21 days after receipt
of such request (whichever shall be required pursuant to Section 106) or shall
not thereafter proceed to cause the meeting to be held as provided herein, then
the Company or the Holders of Securities of such series in the amount above
specified, as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York, or, if Securities of such series
have been issued in whole or in part as Bearer Securities, in London for such
meeting and may call such meeting for such purposes by giving notice thereof as
provided in clause (1) of this Section.
Section 1503 Persons Entitled to Vote at Meetings.
To be entitled to vote at any meeting of Holders of Securities of any
series, a Person shall be (1) a Holder of one or more Outstanding Securities of
such series, or (2) a Person appointed by an instrument in writing as proxy for
a Holder or Holders of one or more Outstanding Securities of such series by such
Holder or Holders. The only Persons who shall be entitled to be present or to
speak at any meeting of Holders of Securities of any series shall be the Persons
entitled to vote at such meeting and their counsel, any representatives of the
Trustee and its counsel and any representatives of the Company and its counsel.
Section 1504 Quorum; Action.
The Persons entitled to vote a majority in principal amount of the
Outstanding Securities of a series shall constitute a quorum for a meeting of
Holders of Securities of such series; provided, however, that if any action is
to be taken at such meeting with respect to a consent or waiver which this
Indenture expressly provides may be given by the Holders of at least 66-2/3% in
principal amount of the Outstanding Securities of a series, the Persons entitled
to vote 66-2/3% in principal amount of the Outstanding Securities of such series
shall constitute a quorum. In the absence of a quorum within 30 minutes after
the time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities of such series, be dissolved. In any other case
the meeting may be adjourned for a period of not less than 10 days as determined
by the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be
further adjourned for a period of not less than 10 days as determined by the
chairman of the meeting prior to the adjournment of such adjourned meeting.
Notice of the reconvening of any adjourned meeting shall be given as provided in
Section 1502(1), except that such notice need be given only once not less than
five days prior to the date on which the meeting is scheduled to be reconvened.
Notice of the reconvening of an adjourned meeting shall state expressly the
percentage, as provided above, of the principal amount of the Outstanding
Securities of such series which shall constitute a quorum.
Except as limited by the proviso to Section 902, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Securities of that series;
provided, however, that, except as limited by the proviso to Section 902, any
resolution with respect to any consent or waiver which this Indenture expressly
provides may be given by the Holders of at least 66-2/3% in principal amount of
the Outstanding Securities of a series may be adopted at a meeting or an
adjourned meeting duly convened and at which a quorum is present as aforesaid
only by the affirmative vote of the Holders of 66-2/3% in principal amount of
the Outstanding Securities of that series; and provided, further, that, except
as limited by the proviso to Section 902, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other Act
which this Indenture expressly provides may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Securities of a series may be adopted at a meeting or
an adjourned meeting duly reconvened and at which a quorum is present as
aforesaid by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Securities of such series.
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Any resolution passed or decision taken at any meeting of Holders of
Securities of any series duly held in accordance with this Section shall be
binding on all the Holders of Securities of such series and the Coupons
appertaining thereto, whether or not such Holders were present or represented at
the meeting.
Section 1505 Determination of Voting Rights; Conduct and Adjournment of
Meetings.
(1) Notwithstanding any other provisions of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any meeting of
Holders of Securities of such series in regard to proof of the holding of
Securities of such series and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations, the holding
of Securities shall be proved in the manner specified in Section 104 and the
appointment of any proxy shall be proved in the manner specified in Section 104
or by having the signature of the Person executing the proxy witnessed or
guaranteed by any trust company, bank or banker authorized by Section 104 to
certify to the holding of Bearer Securities. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be presumed
valid and genuine without the proof specified in Section 104 or other proof.
(2) The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Holders of Securities as provided in Section 1502(2), in which
case the Company or the Holders of Securities of the series calling the meeting,
as the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting.
(3) At any meeting, each Holder of a Security of such series or proxy
shall be entitled to one vote for each $1,000 principal amount of Securities of
such series held or represented by him; provided, however, that no vote shall be
cast or counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not Outstanding. The
chairman of the meeting shall have no right to vote, except as a Holder of a
Security of such series or proxy.
(4) Any meeting of Holders of Securities of any series duly called
pursuant to Section 1502 at which a quorum is present may be adjourned from time
to time by Persons entitled to vote a majority in principal amount of the
Outstanding Securities of such series represented at the meeting; and the
meeting may be held as so adjourned without further notice.
Section 1506 Counting Votes and Recording Action of Meetings.
The vote upon any resolution submitted to any meeting of Holders of
Securities of any series shall be by written ballots on which shall be
subscribed the signatures of the Holders of Securities of such series or of
their representatives by proxy and the principal amounts and serial numbers of
the Outstanding Securities of such series held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the permanent secretary of the meeting their verified
written reports in triplicate of all votes cast at the meeting. A record, at
least in triplicate, of the proceedings of each meeting of Holders of Securities
of any series shall be prepared by the permanent secretary of the meeting and
there shall be attached to said record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more Persons
having knowledge of the facts setting forth a copy of the notice of the meeting
and showing that said notice was given as provided in Section 1502 and, if
applicable, Section 1504. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
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* * * * * * * * * *
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
-----------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
THE BANK OF NEW YORK, as Trustee
By /s/ Walter S. Gitlin
-----------------------------------
Name: Walter S. Gitlin
Title
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EXHIBIT 4.2
-----------
LIBERTY MEDIA CORPORATION
AND
THE BANK OF NEW YORK
Trustee
_____________________
FIRST SUPPLEMENTAL INDENTURE
Dated as of July 7, 1999
_____________________
Supplementing the Trust Indenture
Dated as of July 7, 1999
____________________
$750,000,000 7-7/8% Senior Notes due 2009
$500,000,000 8-1/2% Senior Debentures due 2029
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of the 7th day of July, 1999,
between LIBERTY MEDIA CORPORATION, a corporation existing under the laws of the
State of Delaware (the "Company"), and The Bank of New York, a New York banking
corporation, having its principal corporate trust office in The City of New
York, New York, as trustee (the "Trustee");
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an Indenture dated as of July 7, 1999 (the "Original Indenture" and, together
with this First Supplemental Indenture, the "Indenture") providing for the
issuance by the Company from time to time of its senior debt securities to be
issued in one or more series (in the Original Indenture and herein called the
"Securities");
WHEREAS, the Company, in the exercise of the power and authority conferred
upon and reserved to it under the provisions of the Original Indenture and
pursuant to appropriate resolutions of the Board of Directors, has duly
determined to make, execute and deliver to the Trustee this First Supplemental
Indenture to the Original Indenture in order to establish the form and terms of,
and to provide for the creation and issue of, two series of Securities
designated as the "7-7/8% Senior Notes due 2009" and the "8-1/2% Senior
Debentures due 2029" under the Original Indenture in the aggregate principal
amounts of $750,000,000 and $500,000,000, respectively;
WHEREAS, Section 901 of the Original Indenture provides, among other
things, that the Company, when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, without the consent of any Holders,
may enter into an indenture supplemental to the Original Indenture to establish
the terms of Securities of any series as permitted by Sections 201 and 301 of
the Original Indenture; and
WHEREAS, all things necessary to make the Securities, when executed by the
Company and authenticated and delivered by the Trustee or any Authenticating
Agent and issued upon the terms and subject to the conditions hereinafter and in
the Indenture set forth against payment therefor, the valid, binding and legal
obligations of the Company and to make this First Supplemental Indenture a
valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to
establish the terms of the two series of Securities designated as the "7-7/8%
Senior Notes due 2009" and the "8-1/2% Senior Debentures due 2029," and for and
in consideration of the premises and of the covenants contained in the Original
Indenture and in this First Supplemental Indenture and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, it is mutually covenanted and agreed as follows:
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ARTICLE ONE
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
Each capitalized term that is used herein and is defined in the Original
Indenture shall have the meaning specified in the Original Indenture unless such
term is otherwise defined herein.
"Cedel" shall mean Cedelbank.
"Comparable Treasury Issue" shall mean the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the Remaining Life of the Notes or the Debentures, as the case may be, that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the Remaining Life of such securities.
"Comparable Treasury Price" shall mean, with respect to any Redemption
Date, (1) the average of five Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest of such Reference
Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than five such
Reference Treasury Dealer Quotations, the average of all such quotations.
"Debentures" shall mean the Company's 8-1/2% Senior Debentures due 2029.
"Depository" shall have the meaning assigned to it in the Original
Indenture.
"DTC" shall mean The Depository Trust Company.
"Euroclear" shall mean the Euroclear System.
"Independent Investment Banker" shall mean one of the Reference Treasury
Dealers appointed by the Company.
"Initial Purchasers" shall mean Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital
Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon
Smith Barney Inc., Schroder & Co. Inc. and TD Securities (USA) Inc.
"Interest Payment Date" shall have the meaning assigned to it in Section
206.
"Notes" shall mean the Company's 7-7/8% Senior Notes due 2009.
"Permanent Regulation S Security" shall have the meaning assigned to it in
Section 213(c).
"Reference Treasury Dealer" shall mean each of Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. and their respective successors; provided, however, that if any of
the foregoing shall cease to be a primary U.S. government securities dealer (a
"Primary Treasury Dealer"), the Company shall substitute therefor another
nationally recognized investment banking firm that is a Primary Treasury Dealer.
"Reference Treasury Dealer Quotations" shall mean, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York
City time, on the third Business Day preceding such Redemption Date.
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"Regulation S" shall mean Regulation S under the Securities Act.
"Remaining Scheduled Payments" shall mean, with respect to the Notes or the
Debentures, as the case may be, the remaining scheduled payments of principal
thereof and interest thereon that would be due after the related Redemption Date
but for such redemption.
"Restricted Certificated Security" shall have the meaning assigned to it in
Section 213(d).
"Restricted Period" shall have the meaning assigned to it in Section 207.
"Rule 144A" shall mean Rule 144A under the Securities Act.
"Rule 144A Security" shall have the meaning assigned to it in Section
213(b).
"Securities" shall mean the Notes and the Debentures collectively.
"Securities Act" shall mean the United States Securities Act of 1933, as
amended.
"Temporary Regulation S Security" shall have the meaning assigned to it in
Section 213(c).
"Treasury Rate" shall mean, with respect to any Redemption Date, the rate
per annum equal to the semi-annual yield to maturity of the Comparable Treasury
Issue, calculated on the third Business Day preceding such Redemption Date
assuming a price for the Comparable Treasury Issue (expressed as a percentage of
its principal amount) equal to the Comparable Treasury Price for such Redemption
Date.
Section 102. Section References.
Each reference to a particular section set forth in this First Supplemental
Indenture shall, unless the context otherwise requires, refer to this First
Supplemental Indenture.
ARTICLE TWO
TITLE AND TERMS OF THE SECURITIES
Section 201. Title of the Securities.
The respective titles of the Securities of the two series established
hereby are the "7-7/8% Senior Notes due 2009" and the "8-1/2% Senior Debentures
due 2029".
Section 202. Amount and Denominations.
The aggregate principal amount of the Notes and Debentures which may be
authenticated and delivered under the Indenture is limited to $750,000,000 and
$500,000,000, respectively, except for Securities of each series authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the same series pursuant to Section 304, 305, 306, 904
or 1107 of the Original Indenture; provided, however, that the Notes and the
Debentures may be reopened, without the consent of the Holders thereof, for
issuance of additional Securities of each series.
Section 203. Registered Securities.
The certificates for the Notes and the Debentures shall be Registered
Securities and shall be in substantially the form attached hereto as Exhibits A-
1, A-2, A-3 and A-4 and B-1, B-2, B-3 and B-4, respectively, and shall bear the
legends as are inscribed thereon.
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Section 204. Issuance and Pricing.
The Securities of each series shall be issued and sold by the Company to
the Initial Purchasers, parties to the Purchase Agreement dated June 30, 1999
with the Company, at a price equal to 99.754% of the principal amount thereof
(in the case of the Notes) and 98.852% of the principal amount thereof (in the
case of the Debentures); and the initial price to purchasers of the Securities
from the Initial Purchasers shall be 99.404% of the principal amount thereof (in
the case of the Notes), plus accrued interest, if any, from July 7, 1999, and
99.727% of the principal amount thereof (in the case of the Debentures), plus
accrued interest, if any, from July 7, 1999.
Section 205. Stated Maturity.
The Stated Maturity of (i) the Notes on which the principal thereof is due
and payable shall be July 15, 2009 and (ii) the Debentures on which the
principal thereof is due and payable shall be July 15, 2029.
Section 206. Interest.
The principal of the Securities shall bear interest from July 7, 1999 or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on January 15 and July 15 of each year (each,
an "Interest Payment Date"), commencing January 15, 2000, to the Persons in
whose names the Securities (or one or more Predecessor Securities) are
registered at the close of business on the January 1 or July 1 next preceding
such Interest Payment Date. Interest on the Securities shall be computed on the
basis of a 360-day year of twelve 30-day months.
Interest on the Notes will accrue at the rate of 7-7/8% per annum and
interest on the Debentures will accrue at the rate of 8-1/2% per annum, in each
case until the principal thereof is paid or made available for payment.
Section 207. Registration, Transfer and Exchange.
The principal of and interest on the Securities of each series shall be
payable and the Securities of each series may be surrendered or presented for
payment, the Securities of each series may be surrendered for registration of
transfer or exchange, and notices and demands to or upon the Company in respect
of the Securities of each series and the Indenture may be served, at the office
or agency of the Company maintained for such purposes in The City of New York,
State of New York from time to time, and the Company hereby appoints the
Trustee, acting through its office or agency in The City of New York designated
from time to time for such purpose, as its agent for the foregoing purposes;
provided, however, that at the option of the Company payment of interest on
either series may be made by check mailed to the address of the Persons entitled
thereto, as such addresses shall appear in the Security Register; and provided,
further, that (subject to Section 1002 of the Indenture) the Company may at any
time remove the Trustee as its office or agency in The City of New York
designated for the foregoing purposes and may from time to time designate one or
more other offices or agencies for the foregoing purposes and may from time to
time rescind such designations. Notwithstanding the foregoing, a Holder of $10
million or more in aggregate principal amount of certificated Securities
(whether or not of the same series) on a Regular Record Date shall be entitled
to receive interest payments on the next succeeding Interest Payment Date, other
than an Interest Payment Date that is also the date of Maturity, by wire
transfer of immediately available funds if appropriate wire transfer
instructions have been received in writing by the Trustee not less than 15
calendar days prior to the applicable Interest Payment Date. Any wire transfer
instructions received by the Trustee will remain in effect until revoked by the
Holder.
Rule 144A Security or Restricted Certificated Security to Temporary
Regulation S Security. Prior to the expiration of the "40-day restricted
period" (within the meaning of Rule 903(c)(3) of Regulation S) (the "Restricted
Period"), if a holder of a beneficial interest in a Rule 144A Security deposited
with the Depository or a Holder of a Restricted Certificated Security wishes at
any time to exchange all or a portion of its interest in such Rule 144A Security
or to exchange all or a portion of its Restricted Certificated Security, as the
case may be, for an interest in the Temporary Regulation S Security, or to
transfer all or a portion of its interest in such Rule 144A Security or transfer
all or a portion of its Restricted Certificated Security, as the case may be, to
a Person who wishes to take delivery thereof in the form of an interest in such
Temporary Regulation S Security, such holder or Holder may, subject to the rules
and procedures of the Depository and to the requirements set forth below,
exchange or cause the
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exchange or transfer or cause the transfer of such interest or Restricted
Certificated Security for an equivalent beneficial interest in such Temporary
Regulation S Security:
Rule 144A Security. Upon receipt by the Trustee, as transfer agent, at
its office in The City of New York of (1) instructions given in accordance
with the Depository's procedures from an agent member directing the Trustee
to credit or cause to be credited a beneficial interest in the Temporary
Regulation S Security in an amount equal to the beneficial interest in the
Rule 144A Security to be exchanged or transferred, (2) a written order
given in accordance with the Depository's procedures containing information
regarding the Euroclear or Cedel account to be credited with such increase
and the name of such account and (3) a certificate substantially in the
form of Exhibit C hereto given by the holder of such beneficial interest,
the Trustee, as transfer agent, shall instruct the Depository, its nominee,
or the custodian for the Depository, as the case may be, to reduce or
reflect on its records a reduction of the Rule 144A Security by the
aggregate principal amount of the beneficial interest in such Rule 144A
Security to be so exchanged or transferred and the Trustee, as transfer
agent, shall instruct the Depository, its nominee, or the custodian for the
Depository, as the case may be, concurrently with such reduction, to
increase or reflect on its records an increase of the principal amount of
such Temporary Regulation S Security by the aggregate principal amount of
the beneficial interest in such Rule 144A Security to be so exchanged or
transferred, and to credit or cause to be credited to the account of the
Person specified in such instructions (who shall be the agent member of
Euroclear or Cedel, or both, as the case may be) a beneficial interest in
such Temporary Regulation S Security equal to the reduction in the
principal amount of such Rule 144A Security.
Restricted Certificated Security. Upon receipt by the Trustee, as
transfer agent, at its office in The City of New York of (1) a certificate
substantially in the form of Exhibit D hereto given by the Holder of a
Restricted Certificated Security, (2) the Restricted Certificated Security
to be exchanged or transferred duly endorsed, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the Holder or his attorney duly authorized in writing
providing for the transfer of the amount to be exchanged or transferred to
the Depository, its nominee, or the custodian for the Depository, as the
case may be, (3) instructions from the Holder of the Restricted
Certificated Security directing the Trustee to credit or cause to be
credited a beneficial interest in the Temporary Regulation S Security in an
amount equal to the amount of the Restricted Certificated Security to be
exchanged or transferred, and (4) a written order given in accordance with
the Depository's procedures containing information regarding the Euroclear
or Cedel account to be credited with such increase and the name of such
account, the Trustee, as transfer agent, shall cancel the Restricted
Certificated Security and instruct the Depository, its nominee, or the
custodian for the Depository, as the case may be, to increase or reflect on
its records an increase of the principal amount of such Temporary
Regulation S Security by the aggregate principal amount of the Restricted
Certificated Security to be so exchanged or transferred, and to credit or
cause to be credited to the account of the Person specified in such
instructions (who shall be the agent member of Euroclear or Cedel, or both,
as the case may be) a beneficial interest in such Temporary Regulation S
Security equal to the reduction in the principal amount of such Restricted
Certificated Security. If any Restricted Certificated Security is so
exchanged or transferred in part but not in whole, then the Company shall
execute, and the Trustee shall authenticate and deliver, a new Restricted
Certificated Security registered in the name of the Holder of the
Restricted Certificated Security so exchanged or transferred.
Rule 144A Security or Restricted Certificated Security to Permanent
Regulation S Security. After the expiration of the Restricted Period, if a
holder of a beneficial interest in the Rule 144A Security deposited with the
Depository or a Holder of a Restricted Certificated Security wishes at any time
to exchange all or a portion of its interest in such Rule 144A Security or all
of a portion of its Restricted Certificated Security, as the case may be, for an
interest in the Permanent Regulation S Security, or to transfer all or a portion
of its interest in such Rule 144A Security or to transfer all or a portion of
its Restricted Certificated Security, as the case may be, to a Person who wishes
to take delivery thereof in the form of an interest in such Permanent Regulation
S Security, such holder or Holder may, subject to the rules and procedures of
the Depository and to the requirements set forth below, exchange or cause the
exchange or transfer or cause the transfer of such interest or Restricted
Certificated Security for an equivalent beneficial interest in such Permanent
Regulation S Security:
6
<PAGE>
Rule 144A Security. Upon receipt by the Trustee, as transfer agent,
at its office in The City of New York of (1) instructions given in
accordance with the Depository's procedures from an agent member directing
the Trustee to credit or cause to be credited a beneficial interest in the
Permanent Regulation S Security in an amount equal to the beneficial
interest in the Rule 144A Security to be exchanged or transferred, (2) a
written order given in accordance with the Depository's procedures
containing information regarding the Euroclear or Cedel account to be
credited with such increase and (3) a certificate substantially in the form
of Exhibit E hereto given by the holder of such beneficial interest, the
Trustee, as transfer agent, shall instruct the Depository, its nominee, or
the custodian for the Depository, as the case may be, to reduce or reflect
on its records a reduction of the Rule 144A Security by the aggregate
principal amount of the beneficial interest in such Rule 144A Security to
be so exchanged or transferred and the Trustee, as transfer agent, shall
instruct the Depository, its nominee, or the custodian for the Depository,
as the case may be, concurrently with such reduction, to increase or
reflect on its records an increase of the principal amount of such
Permanent Regulation S Security by the aggregate principal amount of the
beneficial interest in such Rule 144A Security to be so exchanged or
transferred, and to credit or cause to be credited to the account of the
Person specified in such instructions (who shall be the agent member of
Euroclear or Cedel, or both, as the case may be) a beneficial interest in
such Permanent Regulation S Security equal to the reduction in the
principal amount of such Rule 144A Security.
Restricted Certificated Security. Upon receipt by the Trustee, as
transfer agent, at its office in The City of New York of (1) a certificate
substantially in the form of Exhibit F hereto given by the Holder of a
Restricted Certificated Security, (2) the Restricted Certificated Security
to be exchanged or transferred duly endorsed, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Trustee
duly executed by, the Holder or his attorney duly authorized in writing
providing for the transfer of the amount to be exchanged or transferred to
the Depository, its nominee, or the custodian for the Depository, as the
case may be, (3) instructions from the Holder of the Restricted
Certificated Security directing the Trustee to credit or cause to be
credited a beneficial interest in the Permanent Regulation S Security in an
amount equal to the amount of the Restricted Certificated Security to be
exchanged or transferred and (4) a written order given in accordance with
the Depository's procedures containing information regarding the Euroclear
or Cedel account to be credited with such increase and the name of such
account, the Trustee, as transfer agent, shall cancel the Restricted
Certificated Security and instruct the Depository, its nominee, or the
custodian for the Depository, as the case may be, to increase or reflect on
its records an increase of the principal amount of such Permanent
Regulation S Security by the aggregate principal amount of the Restricted
Certificated Security to be so exchanged or transferred, and to credit or
cause to be credited to the account of the Person specified in such
instructions (who shall be the agent member of Euroclear or Cedel, or both,
as the case may be) a beneficial interest in such Permanent Regulation S
Security equal to the reduction in the principal amount of such Restricted
Certificated Security. If any Restricted Certificated Security is so
exchanged or transferred in part but not in whole, then the Company shall
execute, and the Trustee shall authenticate and deliver, a new Restricted
Certificated Security registered in the name of the Holder of the
Restricted Certificated Security so exchanged or transferred.
Regulation S Security to Rule 144A Security. If a holder of a beneficial
interest in the Temporary Regulation S Security or the Permanent Regulation S
Security which is deposited with the Depository wishes at any time to exchange
its interest for an interest in the Rule 144A Security, or to transfer its
interest in such Temporary Regulation S Security or Permanent Regulation S
Security to a Person who wishes to take delivery thereof in the form of an
interest in such Rule 144A Security, such holder may, subject to the rules and
procedures of Euroclear or Cedel and the Depository, as the case may be, and to
the requirements set forth in the following sentence, exchange or cause the
exchange or transfer or cause the transfer of such interest for an equivalent
beneficial interest in such Rule 144A Security. Upon receipt by the Trustee, as
transfer agent, at its offices in The City of New York of (1) instructions from
Euroclear or Cedel or the Depository, as the case may be, directing the Trustee,
as transfer agent, to credit or cause to be credited a beneficial interest in
the Rule 144A Security in an amount equal to the beneficial interest in the
Temporary Regulation S Security or the Permanent Regulation S Security to be
exchanged or transferred, such instructions to contain information regarding the
agent member's account with the Depository to be credited with such increase,
and (2) with respect to an exchange or transfer of an interest in the Temporary
Regulation S Security (but not the Permanent Regulation S Security) for an
interest in the Rule 144A Security, a certificate substantially in the form of
Exhibit G hereto given by the holder of such beneficial interest, the Trustee,
7
<PAGE>
as transfer agent, shall instruct the Depository, its nominee, or the custodian
for the Depository, as the case may be, to reduce or reflect on its records a
reduction of the Temporary Regulation S Security or such Permanent Regulation S
Security, as the case may be, by the aggregate principal amount of the
beneficial interest in such Temporary Regulation S Security or such Permanent
Regulation S Security to be exchanged or transferred, and the Trustee, as
transfer agent, shall instruct the Depository, its nominee, or the custodian for
the Depository, as the case may be, concurrently with such reduction, to
increase or reflect on its records an increase of the principal amount of such
Rule 144A Security by the aggregate principal amount of the beneficial interest
in such Permanent Regulation S Security or such Temporary Regulation S Security,
as the case may be, to be so exchanged or transferred, and to credit or cause to
be credited to the account of the Person specified in such instructions a
beneficial interest in such Rule 144A Security equal to the reduction in the
principal amount of such Permanent Regulation S Security or such Temporary
Regulation S Security, as the case may be.
Temporary Regulation S Security to Permanent Regulation S Security. After
the expiration of the Restricted Period, interests in a Temporary Regulation S
Security as to which the Trustee has received from Euroclear or Cedel, as the
case may be, a certificate substantially in the form of Exhibit H hereto to the
effect that Euroclear or Cedel, as applicable, has received a certificate
substantially in the form of Exhibit I hereto from the holder of a beneficial
interest in such Temporary Regulation S Security, will be exchanged, on and
after the Restricted Period, for interests in the Permanent Regulation S
Security. The Trustee shall effect such exchange by delivering to the
Depository for credit to the respective accounts of the holders of Securities
represented by a beneficial interest in the Temporary Regulation S Global
Security, a duly executed and authenticated Permanent Regulation S Security,
representing the principal amount of interests in the Temporary Regulation S
Security initially exchanged for interests in the Permanent Regulation S
Security. The delivery to the Trustee by Euroclear or Cedel of the certificate
or certificates referred to above may be relied upon by the Company and the
Trustee as conclusive evidence that the certificate or certificates referred to
therein has or have been delivered to Euroclear or Cedel pursuant to the terms
of this First Supplemental Indenture and the Temporary Regulation S Security.
Upon any exchange of interests in a Temporary Regulation S Security for
interests in a Permanent Regulation S Security, the Trustee shall endorse the
Temporary Regulation S Security to reflect the reduction in the principal amount
represented thereby by the amount so exchanged and shall endorse the Permanent
Regulation S Security to reflect the corresponding increase in the amount
represented thereby. Until so exchanged in full and except as provided therein,
the Temporary Regulation S Security, and the Securities evidenced thereby, shall
in all respects be entitled to the same benefits under the Indenture as the
Permanent Regulation S Security, the Rule 144A Security and the Restricted
Certificated Securities authenticated and delivered hereunder.
Restricted Certificated Security to Rule 144A Security. If a holder of a
Restricted Certificated Security wishes at any time to exchange all or any
portion of such Restricted Certificated Security for an interest in the Rule
144A Security, or to transfer all or any portion of such Restricted Certificated
Security to a Person who wishes to take delivery thereof in the form of an
interest in the Rule 144A Security, such Holder may, subject to the rules and
procedures of the Depository and to the requirements set forth in the following
sentence, exchange or cause the exchange or transfer or cause the transfer of
the principal amount of the Restricted Certificated Security to be so exchanged
or transferred. Upon receipt by the Trustee, as transfer agent, at its offices
in The City of New York of (1) a certificate substantially in the form of
Exhibit J hereto given by the Holder of such Restricted Certificated Security,
(2) the Restricted Certificated Security to be exchanged or transferred duly
endorsed, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder or his
attorney duly authorized in writing providing for the transfer of the amount to
be exchanged or transferred to the Depository, its nominee, or the custodian for
the Depository, as the case may be, (3) instructions from the Holder of the
Restricted Certificated Security directing the Trustee to credit or cause to be
credited a beneficial interest in the Rule 144A Security in an amount equal to
the amount of the Restricted Certificated Security to be exchanged or
transferred, and (4) a written order given in accordance with the Depository's
procedures containing information regarding the member's account to be credited
with such increase and the name of such account, the Trustee, as transfer agent,
shall cancel the Restricted Certificated Security and instruct the Depository,
its nominee, or the custodian for the Depository, as the case may be, to
increase or reflect on its records an increase of the principal amount of such
Rule 144A Security by the aggregate principal amount of the Restricted
Certificated Security to be so exchanged or transferred, and to credit or cause
to be credited to the account of the Person specified in such instructions (who
shall be an agent member of the Depository) a beneficial interest in such Rule
144A Security equal to the principal amount of such Restricted Certificated
Security to be exchanged or transferred. If any Restricted Certificated
Security is so exchanged or transferred in part but not in whole, then the
Company shall
8
<PAGE>
execute, and the Trustee shall authenticate and deliver, a new Restricted
Certificated Security registered in the name of the Holder of the Restricted
Certificated Security so exchanged or transferred.
Restricted Certificated Security to Restricted Certificated Security. If a
Holder of a Restricted Certificated Security wishes at any time to transfer all
or any portion of such Restricted Certificated Security to a person who wishes
to take delivery thereof in the form of a Restricted Certificated Security, such
Holder may, subject to the requirements set forth in the following sentence,
transfer or cause the transfer of the principal amount of the Restricted
Certificated Security to be so transferred. Upon receipt by the Trustee, as
transfer agent, at its offices in The City of New York of (1) a certificate
substantially in the form of Exhibit K hereto given by the Holder of such
Restricted Certificated Security, (2) the Restricted Certificated Security to be
transferred duly endorsed, or accompanied by a written instrument of transfer
for the amount to be transferred in form satisfactory to the Company and the
Trustee duly executed by, the Holder or his attorney duly authorized in writing,
and (3) if the transfer is other than (i) to the Company or to an Initial
Purchaser or by, through or in a transaction approved by an Initial Purchaser,
(ii) to a Person who the transferor thereof reasonably believes is a Qualified
Institutional Buyer (as that term is defined in Rule 144A) in a transaction
meeting the requirements of Rule 144A, (iii) in an offshore transaction in
accordance with Rule 903 or Rule 904 (as applicable) of Regulation S, or (iv)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 (if available), a Bond Power from the transferor and the transferee in
substantially the form of Exhibit L hereto duly executed, and any other
additional documentation and evidence (including but not limited to an opinion
of counsel) as the Company may, in its absolute discretion, require to evidence
that the transfer is being made in compliance with an applicable exemption from
registration, the Trustee, as Security Registrar, shall cancel the Restricted
Certificated Security, and the Company shall execute and the Trustee shall
authenticate and deliver, a new Restricted Certificated Security in a principal
amount equal to the principal amount of the Restricted Certificatd Security to
be transferred, registered in the name of the transferee. If any Restricted
Certificated Security is so transferred in part but not in whole, then the
Company shall execute and the Trustee shall authenticate and deliver, a new
Restricted Certificated Security registered in the name of the transferor.
Section 208. Redemption of the Securities.
The Notes and the Debentures will be redeemable at the option of the
Company, in whole or in part at any time or from time to time, on at least 30
but not more than 60 days prior notice, at a Redemption Price equal to the
greater of (i) 100% of the principal amount of the Securities of such series to
be redeemed or (ii) the sum, as determined by the Independent Investment Banker,
of the present values of the Remaining Scheduled Payments of the securities to
be redeemed, discounted, on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points in
the case of the Notes and 35 basis points in the case of the Debentures. In the
case of each of clause (i) and (ii), accrued interest will be payable to the
redemption date.
Section 209. Denominations.
The Securities shall be issued in denominations of $1,000 and integral
multiples in excess thereof.
Section 210. Currency.
The interest, premium, if any, and principal on the Securities shall be
payable only in Dollars.
Section 211. Applicability of Certain Indenture Provisions.
Sections 402 (including, without limitation, Sections 402(2) and 402(3)),
403, 1005, 1006 and 1007 of the Indenture shall apply to the Securities.
Section 212. Security Registrar and Paying Agent.
The Trustee shall be Security Registrar and the initial Paying Agent and
initial transfer agent for the Securities of each series (subject to the
Company's right (subject to Section 1002 of the Indenture) to remove the Trustee
as such Paying Agent and/or transfer agent with respect to each series and, from
time to time, to designate
9
<PAGE>
one or more co-registrars and one or more other Paying Agents and transfer
agents and to rescind from time to time any such designations), and The City of
New York is designated as a Place of Payment for the Securities of each series.
Section 213. Global Securities and Restricted Certificated Securities.
(a) Each series of Securities may be issued in whole or in part in the
form of one or more permanent certificated Securities or temporary or permanent
global Securities. The initial Depository for the global Securities of each
series shall be DTC, and the depositary arrangements shall be those employed by
whoever shall be the Depositary with respect to the Securities of each series
from time to time.
(b) Rule 144A Securities. Notes and Debentures initially offered and sold
--------------------
in reliance on Rule 144A to Qualified Institutional Buyers (as such term is
defined in Rule 144A) shall be issued in the form of permanent Global Securities
in definitive fully registered form without interest coupons, substantially in
the form of Exhibit A-1 in the case of the Notes and B-1 in the case of the
Debentures (each, a "Rule 144A Security"). Each Rule 144A Security shall be
deposited on behalf of the purchasers of the Securities represented thereby with
the custodian for the Depositary, and registered in the name of a nominee of the
Depositary, duly executed by the Company and authenticated by the Trustee as
provided in the Original Indenture. The aggregate principal amount of a Rule
144A Security may from time to time be increased or decreased by adjustments
made on the records of the custodian for the Depositary or the Depositary or its
nominee, as the case may be.
(c) Temporary Regulation S Securities; Permanent Regulation S Securities.
--------------------------------------------------------------------
Notes and Debentures initially offered and sold in reliance on Regulation S
shall be issued in the form of temporary Global Securities in definitive fully
registered form without interest coupons, substantially in the form of Exhibits
A-2 in the case of the Notes and B-2 hereto in the case of the Debentures (each,
a "Temporary Regulation S Security"). Each Temporary Regulation S Security shall
be deposited on behalf of the purchasers of the Securities represented thereby
with the custodian for the Depositary, and registered in the name of a nominee
of the Depositary, duly executed by the Company and authenticated by the Trustee
as provided herein, for credit to their respective accounts (or to such other
accounts as they may direct) at Euroclear or Cedel. After the expiration of the
Restricted Period, each Temporary Regulation S Security will be exchanged for a
permanent Global Security, substantially in the form of Exhibits A-3 in the case
of the Notes and B-3 in the case of the Debentures (each, a "Permanent
Regulation S Security"). Until the expiration of the Restricted Period,
interests in a Temporary Regulation S Security may only be held by agent members
of Euroclear and Cedel. During the Restricted Period, interests in a Temporary
Regulation S Security may be exchanged for interests in the applicable Rule 144A
Security. The aggregate principal amount of a Temporary Regulation S Security
and a Permanent Regulation S Security may from time to time be increased or
decreased by adjustments made on the records of the custodian for the Depositary
or the Depositary or its nominee, as the case may be, as provided herein.
The provisions of the "Operating Procedures of the Euroclear System" and
the "Terms and Conditions Governing Use of Euroclear" and the "Management
Regulations" and "Instructions to Participants" of Cedel, respectively, shall be
applicable to any Global Security insofar as interests in such Global Security
are held by the agent members of Euroclear or Cedel. Account holders or
participants in Euroclear and Cedel shall have no rights under the Indenture
with respect to such Global Security, and the Depositary or its nominee may be
treated by the Company, the Trustee, and any agent of the Company or the Trustee
as the owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee, or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between DTC and its agent members, the operation of customary
practices governing the exercise of the rights of a holder of any Security.
(d) Restricted Certificated Securities. Notes and Debentures initially
----------------------------------
offered and sold to institutional investors that are "accredited investors" as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act shall be
issued in the form of permanent certificated Securities in definitive fully
registered form without interest coupons, substantially in the form of Exhibits
A-4 in the case of the Notes and B-4 in the case of the Debentures (each a
"Restricted Certificated Security").
10
<PAGE>
Section 214. Payments on Temporary Regulation S Security.
Prior to expiration of the Restricted Period, payments (if any) on the
Temporary Regulation S Securities will only be paid to the Holder thereof to the
extent that there is presented by Cedel or Euroclear to the Trustee a
certificate, substantially in the form set out in Exhibit F hereto, to the
effect that it has received from or in respect of a beneficial owner of an
interest in such Temporary Regulation S Securities (as shown by its records) a
certificate substantially in the form of Exhibit G hereto. After the Restricted
Period, the Holders of Temporary Regulation S Securities will not be entitled to
receive any payment thereon.
Section 215. Sinking Fund.
Neither the Notes nor the Debentures shall be subject to any sinking fund
or similar provision and shall not be redeemable at the option of the holder
thereof.
Section 216. Conversion.
Neither the Notes nor the Debentures shall be convertible into Common Stock
and shall not be exchangeable for any other securities.
ARTICLE THREE
MISCELLANEOUS PROVISIONS
The Trustee makes no undertaking or representations in respect of, and
shall not be responsible in any manner whatsoever for and in respect of, the
validity or sufficiency of this First Supplemental Indenture or the proper
authorization or the due execution hereof by the Company or for or in respect of
the recitals and statements contained herein, all of which recitals and
statements are made solely by the Company.
Except as expressly amended hereby, the Original Indenture shall continue
in full force and effect in accordance with the provisions thereof and the
Original Indenture is in all respects hereby ratified and confirmed. This First
Supplemental Indenture and all its provisions shall be deemed a part of the
Original Indenture in the manner and to the extent herein and therein provided.
This First Supplemental Indenture shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to conflicts
of laws principles thereof.
This First Supplemental Indenture may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above written.
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
-------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
THE BANK OF NEW YORK, as Trustee
By: /s/ Walter Gitlin
--------------------------------------
Name: Walter Gitlin
Title:
12
<PAGE>
EXHIBIT 4.3
-----------
_____________________
Registration Rights Agreement
Dated As of July 7, 1999
among
Liberty Media Corporation
and
Lehman Brothers Inc.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Banc of America Securities LLC,
BNY Capital Markets, Inc.,
Credit Lyonnais Securities (USA) Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation,
Morgan Stanley & Co. Incorporated,
Salomon Smith Barney Inc.,
Schroder & Co. Inc.
and
TD Securities (USA) Inc.
_____________________
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into this 7th day of July, 1999, among Liberty Media Corporation, a Delaware
corporation (the "Company"), and Lehman Brothers Inc. ("Lehman Brothers"),
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc of
America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities
(USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley
& Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co., Inc. and TD
Securities (USA) Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated June 30,
1999, among the Company and the Initial Purchasers (the "Purchase Agreement"),
which provides for the sale by the Company to the Initial Purchasers of an
aggregate of $750,000,000 million principal amount of the Company's 7-7/8%
Senior Notes due 2009 (the "Notes") and $500,000,000 principal amount of the
Company's 8-1/2% Senior Debentures due 2029 (the "Debentures" and, together with
the Notes, the "Securities"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Company has agreed to provide to the
Initial Purchasers and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
--------
time.
"1934 Act" shall mean the Securities Exchange Act of l934, as amended from
--------
time to time.
"Business Day" shall mean a day that is not a Saturday, a Sunday, or a day
------------
on which banking institutions in New York, New York or Wilmington, Delaware are
authorized or required to be closed.
"Closing Date" shall mean the Closing Time as defined in the Purchase
------------
Agreement.
"Company" shall have the meaning set forth in the preamble and shall also
-------
include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
----------
depositary appointed by the Company, provided, however, that such depositary
must have an address in the Borough of Manhattan, in The City of New York.
"Exchange Offer" shall mean the exchange offer by the Company of Exchange
--------------
Securities for Registrable Securities pursuant to Section 2.1 hereof.
"Exchange Offer Registration" shall mean a registration under the 1933 Act
---------------------------
effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement,
including the Prospectus contained therein, all exhibits thereto and all
documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2.1 hereof.
---------------
"Exchange Securities" shall mean the 7-7/8% Senior Notes due 2009, Series B
-------------------
and the 8-1/2% Senior Debentures due 2029, Series B issued by the Company under
the Indenture containing terms identical to the
<PAGE>
Securities in all material respects (except for references to certain interest
rate provisions, restrictions on transfers and restrictive legends), to be
offered to Holders of Securities in exchange for Registrable Securities pursuant
to the Exchange Offer.
"Holder" shall mean an Initial Purchaser, for so long as it owns any
------
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture and each Participating Broker-Dealer that holds Exchange
Securities for so long as such Participating Broker-Dealer is required to
deliver a prospectus meeting the requirements of the 1933 Act in connection with
any resale of such Exchange Securities.
"Indenture" shall mean the Indenture relating to the Securities, dated as
---------
of July 7, 1999, between the Company and The Bank of New York, as trustee, as
supplemented by the First Supplemental Indenture, dated as of July 7, 1999,
between the Company and The Bank of New York, as trustee, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Purchaser" or "Initial Purchasers" shall have the meaning set
----------------- ------------------
forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the aggregate
----------------
principal amount of Outstanding (as defined in the Indenture) Registrable
Securities; provided that whenever the consent or approval of Holders of a
--------
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company and other obligors on the Securities
or any Affiliate (as defined in the Indenture) of the Company shall be
disregarded in determining whether such consent or approval was given by the
Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean any of Lehman Brothers Inc.,
---------------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities
LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co.
Incorporated, Salomon Smith Barney Inc., Schroder & Co., Inc., TD Securities
(USA) Inc. and any other broker-dealer which makes a market in the Securities
and exchanges Registrable Securities in the Exchange Offer for Exchange
Securities.
"Person" shall mean an individual, partnership (general or limited),
------
corporation, limited liability company, trust or unincorporated organization, or
a government or agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section 2.1 hereof.
----------------
"Private Exchange Securities" shall have the meaning set forth in Section
---------------------------
2.1 hereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Shelf Registration Statement, and by
all other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the preamble.
------------------
"Registrable Securities" shall mean the Securities and, if issued, the
----------------------
Private Exchange Securities; provided, however, that Securities and, if issued,
-------- -------
the Private Exchange Securities, shall cease to be Registrable Securities when
(i) a Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities have
been sold to the public pursuant to Rule l44 (or any similar provision then in
force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have
ceased to be outstanding or (iv) the Exchange Offer is consummated (except in
the case of Securities purchased from the Company and continued to be held by
the Initial Purchasers).
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees, including,
if applicable, the fees and expenses of
2
<PAGE>
any "qualified independent underwriter" (and its counsel) that is required to be
retained by any holder of Registrable Securities in accordance with the rules
and regulations of the NASD, (ii) all fees and expenses incurred in connection
with compliance with state securities or blue sky laws and compliance with the
rules of the NASD (including reasonable fees and disbursements of counsel for
any underwriters or Holders in connection with blue sky qualification of any of
the Exchange Securities or Registrable Securities and any filings with the
NASD), (iii) all expenses of any Persons in preparing or assisting in preparing,
word processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities on any
securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such performance and
compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or
custodian, (viii) the reasonable expenses of the Initial Purchasers in
connection with the Exchange Offer, including the reasonable fees and expenses
of counsel to the Initial Purchasers in connection therewith, (ix) the
reasonable fees and disbursements of Brown & Wood LLP, counsel representing the
Holders of Registrable Securities and (x) the reasonable fees and disbursements
of the underwriters customarily required to be paid by issuers or sellers of
securities and the fees and expenses of any special experts retained by the
Company in connection with any Registration Statement, but excluding
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of the
----------------------
Company which covers any of the Exchange Securities or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"SAS 72" shall have the meaning set forth in Section 3(f)(B).
------
"SEC" shall mean the Securities and Exchange Commission or any successor
---
agency or government body performing the functions currently performed by the
United States Securities and Exchange Commission.
"Shelf Registrable Securities" shall have the meaning set forth in Section
----------------------------
2.5.
"Shelf Registration" shall mean a registration effected pursuant to Section
------------------
2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 2.2 of this Agreement which
covers all of the Registrable Securities or all of the Private Exchange
Securities on an appropriate form under Rule 415 under the 1933 Act, or any
similar rule that may be adopted by the SEC, and all amendments and supplements
to such registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Special Counsel" shall have the meaning set forth in Section 3(g)(i).
---------------
"TIA" shall have the meaning set forth in Section 2.1.
---
"Trustee" shall mean the trustee with respect to the Securities under the
-------
Indenture.
2. Registration Under the 1933 Act.
-------------------------------
2.1 Exchange Offer. The Company shall, for the benefit of the Holders, at
--------------
the Company's cost, (A) prepare and, as soon as practicable but not later than
90 days following the Closing Date, file with the SEC an Exchange Offer
Registration Statement on an appropriate form under the 1933 Act with respect to
a proposed Exchange Offer and the issuance and delivery to the Holders, in
exchange for the Registrable Securities (other than Private Exchange
Securities), of a like principal amount of Exchange Securities, (B) use its
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the 1933 Act within 180 days of the
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<PAGE>
Closing Date, (C) use its best efforts to keep the Exchange Offer Registration
Statement effective until the closing of the Exchange Offer and (D) use its best
efforts to cause the Exchange Offer to be consummated not later than 210 days
following the Closing Date. The Exchange Securities will be issued under the
Indenture. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities (assuming that such Holder (a) is
not an affiliate of the Company within the meaning of Rule 405 under the 1933
Act, (b) is not a broker-dealer tendering Registrable Securities acquired
directly from the Company for its own account, (c) acquired the Exchange
Securities in the ordinary course of such Holder's business and (d) has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) to transfer such
Exchange Securities from and after their receipt without any limitations or
restrictions under the 1933 Act and under state securities or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(a) mail as promptly as practicable to each Holder a copy of the
Prospectus forming part of the Exchange Offer Registration Statement, together
with an appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period of not
less than 20 Business Days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange Offer;
(d) permit Holders to withdraw tendered Registrable Securities at any
time prior to 12:00 midnight (Eastern Time), on the last Business Day of the
Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for exchange,
and a statement that such Holder is withdrawing such Holder's election to have
such Securities exchanged;
(e) notify each Holder that any Registrable Security not tendered
will remain outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial Purchasers and
Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, the Initial Purchasers
hold any Securities acquired by them and having the status of an unsold
allotment in the initial distribution, the Company upon the request of any
Initial Purchaser shall, simultaneously with the delivery of the Exchange
Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in
exchange (the "Private Exchange") for the Securities held by such Initial
Purchaser, a like principal amount of debt securities of the Company on a senior
basis, that are identical (except that such securities shall bear appropriate
transfer restrictions) to the Exchange Securities (the "Private Exchange
Securities").
The Exchange Securities and the Private Exchange Securities shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture and which, in either case, has been qualified under the TIA, or
is exempt from such qualification and shall provide that the Exchange Securities
shall not be subject to the transfer restrictions set forth in the Indenture but
that the Private Exchange Securities shall be subject to such transfer
restrictions. The Indenture or such indenture shall provide that the Exchange
Securities, the Private Exchange Securities and the Securities shall vote and
consent together on all matters as one class and that none of the Exchange
Securities, the Private Exchange Securities or the Securities will have the
right to vote or consent as a separate class on any matter. The Private
Exchange Securities shall be of the same series as the Exchange Securities and
the Company shall use all commercially reasonable efforts to have the Private
Exchange Securities bear the same CUSIP number as the Exchange Securities. The
Company shall not have any liability under this Agreement
4
<PAGE>
solely as a result of such Private Exchange Securities not bearing the same
CUSIP number as the Exchange Securities.
As soon as practicable after the close of the Exchange Offer and/or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Registrable Securities duly tendered
and not validly withdrawn pursuant to the Exchange Offer in accordance with
the terms of the Exchange Offer Registration Statement and the letter of
transmittal which shall be an exhibit thereto;
(ii) accept for exchange all Securities properly tendered and not
validly withdrawn pursuant to the Private Exchange;
(iii) deliver to the Trustee for cancellation all Registrable
Securities so accepted for exchange; and
(iv) cause the Trustee promptly to authenticate and deliver Exchange
Securities or Private Exchange Securities, as the case may be, to each
Holder of Registrable Securities so accepted for exchange in a principal
amount equal to the principal amount of the Registrable Securities of such
Holder so accepted for exchange.
Interest on each Exchange Security and Private Exchange Security will
accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the valid tendering of Registrable
Securities in accordance with the Exchange Offer and the Private Exchange, (iii)
that each Holder of Registrable Securities exchanged in the Exchange Offer shall
have represented that all Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and that at the time of the
consummation of the Exchange Offer it shall have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
1933 Act) of the Exchange Securities and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available and (iv) that no action or
proceeding shall have been instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer or the Private
Exchange which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer or the
Private Exchange. The Company shall inform the Initial Purchasers of the names
and addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right to contact such Holders and otherwise facilitate
the tender of Registrable Securities in the Exchange Offer.
Upon consummation of the Exchange Offer in accordance with this Agreement,
the Company shall have no further obligation to register the Registrable
Securities pursuant to Section 2.2 of this Agreement.
2.2 Shelf Registration. (i) If, because of any changes in law, SEC rules
------------------
or regulations or applicable interpretations thereof by the staff of the SEC,
the Company determines after consultation with its outside counsel that it is
not permitted to effect the Exchange Offer as contemplated by Section 2.1
hereof, (ii) if for any other reason (A) the Exchange Offer Registration
Statement is not declared effective within 180 days following the original issue
of the Registrable Securities or (B) the Exchange Offer is not consummated
within 210 days after the original issue of the Registrable Securities, (iii)
upon the request of any of the Initial Purchasers holding Private Exchange
Securities or (iv) upon notice of any Holder given to the Company within 30 days
after the commencement of the Exchange Offer that (A) due to a change in law or
policy it is not entitled to participate in the Exchange Offer, (B) due to a
change in law or policy it may not resell the Exchange Securities acquired by it
in the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (D) it is a broker-
dealer and owns Registrable acquired directly from the Company or an affiliate
of the Company, then in case of each of clauses (i) through (iv) the Company
shall, at its cost:
5
<PAGE>
(a) As promptly as practicable, file with the SEC, and
thereafter shall use its reasonable best efforts to cause to be declared
effective as promptly as practicable but no later than 210 days after the
original issue of the Registrable Securities, a Shelf Registration
Statement relating to the offer and sale of the Registrable Securities by
the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf Registration Statement.
(b) Use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years from the original issue of the Registrable Securities, or for such
shorter period that will terminate when all Registrable Securities covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise to be
Registrable Securities (the "Effectiveness Period"); provided, however,
that the Effectiveness Period in respect of the Shelf Registration
Statement shall be extended up to a maximum of 90 days if necessary to
permit dealers to comply with the applicable prospectus delivery
requirements of Rule 174 under the 1933 Act and as otherwise provided
herein.
(c) Notwithstanding any other provisions hereof, use its
reasonable best efforts to ensure that (i) any Shelf Registration Statement
and any amendment thereto and any Prospectus forming part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement
and any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements, in light of the circumstances under which they were made,
not misleading.
The Company shall not permit any securities other than Registrable
Securities to be included in the Shelf Registration Statement. The Company
further agrees, if necessary, to supplement or amend the Shelf Registration
Statement, as required by Section 3(b) below, and to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly as
reasonably practicable after its being used or filed with the SEC.
2.3 Expenses. The Company shall pay all Registration Expenses in
--------
connection with the registration pursuant to Section 2.1 or 2.2. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
2.4 Effectiveness. (a) The Company will be deemed not to have used its
-------------
reasonable best efforts to cause the Exchange Offer Registration Statement or
the Shelf Registration Statement, as the case may be, to become, or to remain,
effective during the requisite period if the Company voluntarily takes any
action that would, or omits to take any action which omission would, result in
any such Registration Statement not being declared effective or in the Holders
of Registrable Securities covered thereby not being able to exchange or offer
and sell such Registrable Securities during that period as and to the extent
contemplated hereby, unless (i) such action is required by applicable law, or
(ii) such action is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations hereunder),
including the acquisition or divestiture of assets, so long as the Company
promptly thereafter complies with the requirements of Section 3(k) hereof, if
applicable.
(b) An Exchange Offer Registration Statement pursuant to Section 2.1
hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not
be deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to an Exchange Offer Registration
Statement or a Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.
6
<PAGE>
2.5 Interest. The Indenture executed in connection with the Securities
--------
will provide that in the event that either (a) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to the 90th calendar day
following the date of original issue of the Securities, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 180th
calendar day following the date of original issue of the Securities or (c) the
Exchange Offer is not consummated or, if required, a Shelf Registration
Statement is not declared effective, in either case, on or prior to the 210th
calendar day following the date of original issue of the Securities (each such
event referred to in clauses (a) through (c) above, a "Registration Default"),
the interest rate borne by the Securities shall be increased ("Additional
Interest") by one-quarter of one percent (0.25%) per annum upon the occurrence
of each Registration Default, which rate will increase by one quarter of one
percent at the beginning of each 90-day period (or portion thereof) that such
Additional Interest continues to accrue under any such circumstance, provided
that the maximum aggregate increase in the interest rate will in no event exceed
one percent (1%) per annum. Immediately following the cure of a Registration
Default, the accrual of Additional Interest with respect to that particular
Registration Default will cease. Immediately following the cure of all
Registration Defaults or the date on which the Exchange Securities are saleable
pursuant to Rule 144(k) under the 1933 Act or any successor provision, the
accrual of Additional Interest will cease and the interest rate will revert to
the original rate.
If the Shelf Registration Statement is declared effective but becomes
unusable by the Holders of Registrable Securities covered by such Shelf
Registration Statement ("Shelf Registrable Securities") for any reason, and the
aggregate number of days in any consecutive twelve-month period for which the
Shelf Registration Statement shall not be usable exceeds 30 days in the
aggregate, then the interest rate borne by the Shelf Registrable Securities will
be increased by 0.25% per annum of the principal amount of the Securities for
the first 90-day period (or portion thereof) beginning on the 31st such date
that such Shelf Registration Statement ceases to be usable, which rate shall be
increased by an additional 0.25% per annum of the principal amount of the
Securities at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate as a result of a Shelf
Registration Statement being unusable (inclusive of any interest that accrues on
such Shelf Registrable Securities pursuant to the first paragraph of this
Section 2.5) will in no event exceed one percent (1%) per annum. Upon the Shelf
Registration Statement once again becoming usable, the interest rate borne by
the Shelf Registrable Securities will be reduced to the original interest rate.
Additional Interest shall be computed based on the actual number of days elapsed
in each 90-day period in which the Shelf Registration Statement is unusable.
The Company shall notify the Trustee within three business days after each
and every date on which an event occurs in respect of which Additional Interest
is required to be paid (an "Event Date"). Additional Interest shall be paid by
depositing with the Trustee, in trust, for the benefit of the Holders of
Registrable Securities, on or before the applicable semiannual interest payment
date, immediately available funds in sums sufficient to pay the Additional
Interest then due. The Additional Interest due shall be payable on each
interest payment date to the record Holder of Securities entitled to receive the
interest payment to be paid on such date as set forth in the Indenture. Each
obligation to pay Additional Interest shall be deemed to accrue from and
including the day following the applicable Event Date.
3. Registration Procedures.
-----------------------
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall,
in the case of a Shelf Registration, be available for the sale of the Shelf
Registrable Securities by the selling Holders thereof, (iii) shall comply as to
form in all material respects with the requirements of the applicable form and
include or incorporate by reference all financial statements required by the SEC
to be filed therewith or incorporated by reference therein, and (iv) shall
comply in all respects with the requirements of Regulation S-T under the 1933
Act;
(b) prepare and file with the SEC such amendments and post-
effective amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the applicable
period; and cause each Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provision then in force) under the 1933 Act and
7
<PAGE>
comply with the provisions of the 1933 Act, the 1934 Act and the rules and
regulations thereunder applicable to them with respect to the disposition of all
securities covered by each Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the selling
Holders thereof (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder
of Registrable Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits in order to facilitate the public sale or other
disposition of the Registrable Securities; and (iii) hereby consent to the use
of the Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(d) use its best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a Registration
Statement and each underwriter of an underwritten offering of Registrable
Securities shall reasonably request by the time the applicable Registration
Statement is declared effective by the SEC, and do any and all other acts and
things which may be reasonably necessary or advisable to enable each such Holder
and underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d), (ii) take any action which would subject it
to general service of process or taxation in any such jurisdiction where it is
not then so subject, or (iii) conform its capitalization or the composition of
its assets at the time to the securities or blue sky laws of such jurisdiction;
(e) notify promptly each Holder of Registrable Securities under
a Shelf Registration or any Participating Broker-Dealer who has notified the
Company that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in writing promptly (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) in the case of a Shelf Registration, if,
between the effective date of a Registration Statement and the closing of any
sale of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement, securities
sales agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects, (v) of the happening of
any event or the discovery of any facts during the period a Shelf Registration
Statement is effective which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or Prospectus
in order to make the statements therein not misleading, (vi) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registrable Securities or the Exchange Securities, as the
case may be, for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purpose and (vii) of any determination by the Company
that a post-effective amendment to such Registration Statement would be
appropriate;
(f) (A) in the case of the Exchange Offer Registration
Statement (i) include in the Exchange Offer Registration Statement a section
entitled "Plan of Distribution" which section shall be reasonably acceptable to
Lehman Brothers and Merrill Lynch on behalf of the Participating Broker-Dealers,
and which shall contain a summary statement of the positions taken or policies
made by the staff of the SEC with respect to the potential "underwriter" status
of any broker-dealer that holds Registrable Securities acquired for its own
account as a result of market-making activities or other trading activities and
that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) of Exchange Securities to be received by such broker-dealer in the Exchange
Offer,
8
<PAGE>
whether such positions or policies have been publicly disseminated by the staff
of the SEC or such positions or policies, in the reasonable judgment of Lehman
Brothers and Merrill Lynch on behalf of the Participating Broker-Dealers and its
counsel, represent the prevailing views of the staff of the SEC, including a
statement that any such broker-dealer who receives Exchange Securities for
Registrable Securities pursuant to the Exchange Offer may be deemed a statutory
underwriter and must deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Securities, (ii) furnish to
each Participating Broker-Dealer who has delivered to the Company the notice
referred to in Section 3(e), without charge, as many copies of each Prospectus
included in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any Person subject to the prospectus
delivery requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is a broker-dealer holding Registrable Securities
acquired for its own account as a result of market-making activities or
other trading activities, it will deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of Exchange
Securities received in respect of such Registrable Securities pursuant to
the Exchange Offer;"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer will
not be deemed to admit that it is an underwriter within the meaning of the 1933
Act; and
(B) in the case of any Exchange Offer Registration
Statement, the Company agrees to deliver to Lehman Brothers and Merrill Lynch on
behalf of the Participating Broker-Dealers upon the effectiveness of the
Exchange Offer Registration Statement (i) an opinion of counsel or opinions of
counsel substantially in the form attached hereto as Exhibit A, (ii) officers'
certificates substantially in the form customarily delivered in a public
offering of debt securities and (iii) a comfort letter or comfort letters in
customary form to the extent permitted by SAS 72 (or if such a comfort letter is
not permitted by SAS 72, an agreed upon procedures letter in customary form)
from the Company's independent certified public accountants (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements are, or are required to be, included in the Registration Statement)
at least as broad in scope and coverage as the comfort letter or comfort letters
delivered to the Initial Purchasers in connection with the initial sale of the
Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for
the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish
Brown & Wood llp, as special counsel for the Holders of Shelf Registrable
Securities (or, if Brown & Wood llp is unable or unwilling to serve, such other
special counsel (but not more than one) as may be selected by the Holders of a
majority in principal amount of such Shelf Registrable Securities ("Special
Counsel"), copies of any comment letters received from the SEC or any other
request by the SEC or any state securities authority for amendments or
supplements to a Registration Statement and Prospectus or for additional
information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder
of Registrable Securities, and each underwriter, if any, without charge, at
least one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Shelf Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Shelf Registrable
Securities to be sold and not bearing any restrictive legends; and enable such
Shelf Registrable Securities to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the selling Holders
9
<PAGE>
or the underwriters, if any, may reasonably request at least three business days
prior to the closing of any sale of Shelf Registrable Shelf Securities;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections 3(e)(v)
and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an
event, use its best efforts to prepare a supplement or post-effective amendment
to the Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Shelf Registrable Securities or
Participating Broker-Dealers, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. At such time as such
public disclosure is otherwise made or the Company determines that such
disclosure is not necessary, in each case to correct any misstatement of a
material fact or to include any omitted material fact, the Company agrees
promptly to notify each Holder of such determination and to furnish each Holder
such number of copies of the Prospectus as amended or supplemented, as such
Holder may reasonably request;
(l) obtain a CUSIP number for all Exchange Securities, Private
Exchange Securities or Registrable Securities, as the case may be, not later
than the effective date of a Registration Statement, and provide the Trustee
with printed certificates for the Exchange Securities, Private Exchange
Securities or the Registrable Securities, as the case may be, in a form eligible
for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be, (ii) cooperate with the Trustee and the Holders
to effect such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and (iii) execute, and
use its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Shelf
Registrable Securities and in such connection whether or not an underwriting
agreement is entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of such
Shelf Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters in
similar underwritten offerings as may be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the
holders of a majority in principal amount of the Shelf Registrable
Securities being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered in opinions
requested in sales of securities or underwritten offerings and such other
matters as may be reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants (and, if necessary, any
other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements are, or are required to be, included in the Registration
Statement) addressed to the underwriters, if any, and use reasonable
efforts to have such letter addressed to the selling Holders of Shelf
Registrable Securities (to the extent consistent with SAS 72), such letters
to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters to underwriters in connection with
similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders and an
agent of the Holders providing for, among other things, the appointment of
such agent for the selling Holders for the purpose of
10
<PAGE>
soliciting purchases of Shelf Registrable Securities, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same to
set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth in
Section 4 hereof with respect to the underwriters and all other parties to
be indemnified pursuant to said Section or, at the request of any
underwriters, in the form customarily provided to such underwriters in
similar types of transactions; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of a majority in principal amount of the Shelf Registrable
Securities being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(o) in the case of a Shelf Registration or if a Prospectus is
required to be delivered by any Participating Broker-Dealer in the case of an
Exchange Offer, make available for inspection by representatives of the Holders
of the Registrable Securities, any underwriters participating in any disposition
pursuant to a Shelf Registration Statement, any Participating Broker-Dealer, any
Special Counsel or any accountant retained by any of the foregoing, all
financial and other records, pertinent corporate documents and properties of the
Company reasonably requested by any such persons, and cause the respective
officers, directors, employees, and any other agents of the Company to supply
all information reasonably requested by any such representative, underwriter,
Special Counsel or accountant in connection with a Registration Statement, and
make such representatives of the Company available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers;
(p) (i) in the case of an Exchange Offer Registration Statement, a
reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and to Brown & Wood
llp, as counsel to the Holders of Registrable Securities, and make such changes
in any such document prior to the filing thereof as the Initial Purchasers or
such counsel to the Holders of Registrable Securities may reasonably request
and, except as otherwise required by applicable law, not file any such document
in a form to which the Initial Purchasers on behalf of the Holders of
Registrable Securities and such counsel to the Holders of Registrable Securities
shall not have previously been advised and furnished a copy of or to which the
Initial Purchasers on behalf of the Holders of Registrable Securities or such
counsel to the Holders of Registrable Securities shall reasonably object, and
make the representatives of the Company available for discussion of such
documents as shall be reasonably requested by the Initial Purchasers; and
(ii) in the case of a Shelf Registration, a reasonable time
prior to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the Holders of
Shelf Registrable Securities, to the Initial Purchasers, to Special Counsel and
to the underwriter or underwriters of an underwritten offering of Shelf
Registrable Securities, if any, make such changes in any such document prior to
the filing thereof as the Initial Purchasers, Special Counsel or the underwriter
or underwriters reasonably request and not file any such document in a form to
which the Majority Holders of Shelf Registrable Securities, the Initial
Purchasers on behalf of the Holders of Registrable Securities, Special Counsel
or any underwriter shall not have previously been advised and furnished a copy
of or to which such Majority Holders, the Initial Purchasers of behalf of the
Holders of Registrable Securities, Special Counsel or any underwriter shall
reasonably object, and make the representatives of the Company available for
discussion of such document as shall be reasonably requested by the Holders of
Registrable Securities, the Initial Purchasers on behalf of such Holders,
Special Counsel or any underwriter.
(q) in the case of a Shelf Registration, use its best efforts to
cause all Shelf Registrable Securities to be listed on any securities exchange
on which similar debt securities issued by the Company are then listed if
requested by the Majority Holders or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;
11
<PAGE>
(r) in the case of a Shelf Registration, use its best efforts to
cause the Shelf Registrable Securities to be rated by the appropriate rating
agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(s) otherwise comply with all applicable rules and regulations of the
SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder;
(t) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(u) upon consummation of an Exchange Offer or a Private Exchange,
obtain a customary opinion of counsel to the Company addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in the
Exchange Offer or Private Exchange, and which includes an opinion that (i) the
Company has duly authorized, executed and delivered the Exchange Securities
and/or Private Exchange Securities, as applicable, and the related indenture,
and (ii) each of the Exchange Securities and related indenture constitute a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Shelf Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Shelf Registrable Securities as the Company may from time to time
reasonably request in writing for use in connection with any Shelf Registration
Statement or Prospectus included therein, including without limitation,
information specified in Item 507 of Regulation S-K under the 1933 Act.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(v) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
pursuant to a Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 3(k) hereof,
and, if so directed by the Company, such Holder will deliver to the Company (at
its expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such Shelf
Registrable Securities current at the time of receipt of such notice.
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering, provided such selection is acceptable to the Company. No Holder of
Registrable Securities may participate in any underwritten registration
hereunder unless such Holder (a) agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
4. Indemnification; Contribution.
-----------------------------
(a) The Company agrees to indemnify and hold harmless the
Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person
who participates as an underwriter (any such Person being an "Underwriter") and
each Person, if any, who controls any Holder or Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or
any amendment or supplement thereto) pursuant to which Exchange Securities
or Registrable Securities
12
<PAGE>
were registered under the 1933 Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or arising out of any untrue statement
or alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense,
as incurred, to the extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 4(d) below) any such settlement
is effected with the written consent of the Company; and
(iii) against any and all expense, as incurred (including the fees
and disbursements of counsel chosen by any indemnified party as provided
therein), reasonably incurred in investigating or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under subparagraph (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Holder or Underwriter expressly for use in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto),
and provided further, that the Company shall not indemnify any Underwriter or
-------- -------
any person who controls such Underwriter from any loss, liability, claim or
damage (or expense incurred in connection therewith) alleged by any person who
purchased Exchange Securities or Registrable Securities from such Underwriter if
the untrue statement, omission or allegation thereof upon which such loss,
liability, claim or damage is based was made in (i) any preliminary prospectus,
if a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person at or prior to the
written confirmation of the sale of Exchange Securities or Registrable
Securities to such person, and if the Prospectus (as so amended or supplemented)
corrected the untrue statement or omission giving rise to such loss, claim,
damage or liability; (ii) any Prospectus used by such Underwriter or any person
who controls such Underwriter, after such time as the Company advised the
Underwriters that the filing of a post-effective amendment or supplement thereto
was required, except the Prospectus as so amended or supplemented, if the
Prospectus as amended or supplemented by such post-effective amendment or
supplement would not have given rise to such loss, liability, claim or damage;
or (iii) any Prospectus used after such time as the obligation of the Company to
keep the same current and effective has expired.
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Company, the Initial Purchasers, each Underwriter and the
other selling Holders, and each of their respective directors and officers, and
each Person, if any, who controls the Company, the Initial Purchasers, any
Underwriter or any other selling Holder within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity contained in Section 4(a)
hereof, as incurred, but only with respect to untrue statements or omissions, or
alleged untrue statements or omissions, made in the Shelf Registration Statement
(or any amendment thereto) or any Prospectus included therein (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information with respect to such Holder furnished to the Company by such Holder
expressly for use in the Shelf Registration Statement (or any amendment thereto)
or such Prospectus (or any amendment or supplement thereto); provided, however,
that no such Holder shall be liable for any claims hereunder in excess of the
amount of net proceeds received by such Holder from the sale of Registrable
Securities pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give written notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, and
the indemnifying party shall assume the defense thereof, including the
employment of counsel satisfactory to the indemnified party, and the payment of
all expenses. Any omission to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not
materially
13
<PAGE>
prejudiced as a result thereof and in any event shall not relieve it from any
liability which it may have otherwise than on account of this indemnity
agreement. Any such indemnified party shall have the right to employ separate
counsel in any such action or proceeding and to participate in the defense
thereof, but the fees and expenses of such separate counsel shall be paid by
such indemnified party unless (a) the indemnifying party has agreed to pay such
fees and expenses or (b) the indemnifying party shall have failed to assume the
defense of such action or proceeding and employ counsel reasonably satisfactory
to the indemnified party in any such action or proceeding or (c) the named
parties to any such action or proceeding (including any impleaded parties)
include both such indemnified party and indemnifying party, and the indemnified
party shall have been advised by its counsel that there may be a conflict of
interest between such indemnified party and indemnifying party in the conduct of
the defense of such action (in which case, if such indemnified party notifies
the indemnifying party in writing that it elects to employ separate counsel at
the expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action or proceeding on behalf of such
indemnified party), it being understood, however, that the indemnifying party
shall not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (unless the members of such
firm are not admitted to practice in a jurisdiction where an action is pending,
in which case the indemnifying party shall pay the reasonable fees and expenses
of one additional firm of attorneys to act as local counsel in such
jurisdiction, provided the services of such counsel are substantially limited to
that of appearing as attorneys of record) at any time for all indemnified
parties, which firm shall be designated in writing by the indemnified party. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 4 (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to hold harmless an indemnified party (other than by reason
of the first sentence of Section 4(c)) in respect of any losses, liabilities,
claims, damages or expenses referred to therein, then each indemnifying party
shall contribute to the aggregate amount of such losses, liabilities, claims,
damages and expenses incurred by such indemnified party, as incurred, (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand and the Holders and the Initial Purchasers on the
other hand from the offering of the Securities, the Exchange Securities and the
Registrable Securities (taken together) included in such offering or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Holders and the Initial Purchasers on the other hand in connection
with the statements or omissions which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities, the Exchange Securities and the Registrable Securities (taken
together) included in such offering shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to the Purchase Agreement (before deducting expenses) received by the
Company and the total underwriting discount received by the Initial Purchasers,
bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Holders and the
Initial Purchasers on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement
14
<PAGE>
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, the Holders or the Initial
Purchasers and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Holders and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 4 were determined
by pro rata allocation (even if the Initial Purchasers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
4. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 4 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities purchased and sold by it were offered
exceeds the amount of any damages which such Initial Purchaser has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each Person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 4 are
several in proportion to the principal amount of Securities set forth opposite
their respective names in Schedule A to the Purchase Agreement and not joint.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company is subject to the
----------------------
reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company covenants that it will upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales pursuant to Rule 144 under the 1933
Act, (b) deliver such information to a prospective purchaser as is necessary to
permit sales pursuant to Rule 144A under the 1933 Act and it will take such
further action as any Holder of Registrable Securities may reasonably request,
and (c) take such further action that is reasonable in the circumstances, in
each case, to the extent required from time to time to enable such Holder to
sell its Registrable Securities without registration under the 1933 Act within
the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act,
as such Rule may be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements. The Company's
obligations under this Section 5.1 shall terminate upon the later of the
consummation of the Exchange Offer and the Effectiveness Period.
5.2 No Inconsistent Agreements. The Company has not entered into and the
--------------------------
Company will not after the date of this Agreement enter into any agreement which
is inconsistent with the rights granted to the Holders of Registrable Securities
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the Holders hereunder do not and will not for the term of this
Agreement in any way conflict with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
5.3 Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the
15
<PAGE>
provisions hereof may not be given unless the Company has obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure.
5.4 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, registered first-
class mail, telecopier, or any courier guaranteeing overnight delivery (a) if to
a Holder, at the most current address given by such Holder to the Company by
means of a notice given in accordance with the provisions of this Section 5.4,
which address initially is the address set forth in the Purchase Agreement with
respect to the Initial Purchasers; and (b) if to the Company, initially at the
Company's address set forth in the Purchase Agreement, and thereafter at such
other address of which notice is given in accordance with the provisions of this
Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to the benefit of
---------------------
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
--------
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial
-------------------------
Purchasers are not Holders of Registrable Securities) shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Holders, on the other hand, and shall have the right to enforce
such agreements directly to the extent they deem such enforcement necessary or
advisable to protect their rights or the rights of Holders hereunder. Each
Holder of Registrable Securities shall be a third party beneficiary to the
agreements made hereunder between the Company, on the one hand, and the Initial
Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder.
5.7 Specific Enforcement. Without limiting the remedies available to the
--------------------
Initial Purchasers and the Holders, the Company acknowledges that any failure by
the Company to comply with its obligations under Sections 2.1 through 2.4 hereof
may result in material irreparable injury to the Initial Purchasers or the
Holders for which there is no adequate remedy at law, that it would not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Company's obligations under
Sections 2.1 through 2.4 hereof.
5.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.9 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
16
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5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.11 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LIBERTY MEDIA CORPORATION
By:/s/ Charles Y. Tanabe
---------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
Confirmed and accepted as
of the date first above
written:
LEHMAN BROTHERS INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BANC OF AMERICA SECURITIES LLC
BNY CAPITAL MARKETS, INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
MORGAN STANLEY & CO. INCORPORATED
SALOMON SMITH BARNEY INC.
SCHRODER & CO. INC.
TD SECURITIES (USA) INC.
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
For itself and the other Initial Purchasers set forth above
By: /s/ Eric Federman
-----------------
Name: Eric Federman
Title: Authorized Signatory
18
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EXHIBIT A
---------
Form of Opinion of Counsel
--------------------------
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Banc of America Securities LLC
BNY Capital Markets, Inc.
Credit Lyonnais Securities (USA) Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
Schroder & Co. Inc.
TD Securities (USA) Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as counsel for Liberty Media Corporation, a Delaware
corporation (the "Company"), in connection with the sale by the Company to the
Initial Purchasers (as defined below) of $750,000,000 aggregate principal amount
of 7-7/8% Senior Notes due 2009 (the "Notes") and $500,000,000 aggregate
principal amount of 8-1/2% Senior Debentures due 2029 (the "Debentures" and,
together with the Notes, the "Securities") of the Company pursuant to the
Purchase Agreement dated June 30, 1999 (the "Purchase Agreement") among the
Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers
Inc., Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais
Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Smith Barney Inc., Schroder & Co., Inc. and TD Securities (collectively,
the "Initial Purchasers") and the filing by the Company of an Exchange Offer
Registration Statement (the "Registration Statement") in connection with an
Exchange Offer to be effected pursuant to the Registration Rights Agreement (the
"Registration Rights Agreement"), dated July 7, 1999, between the Company and
the Initial Purchasers. This opinion is furnished to you pursuant to Section
3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein,
capitalized terms used in this opinion that are defined in the Registration
Rights Agreement are used herein as so defined.
We have examined such documents, records and matters of law as we have
deemed necessary for purposes of this opinion. In rendering this opinion, as to
all matters of fact relevant to this opinion, we have assumed the completeness
and accuracy of, and are relying solely upon, the representations and warranties
of the Company set forth in the Purchase Agreement and the statements set forth
in certificates of public officials and officers of the Company, without making
any independent investigation or inquiry with respect to the completeness or
accuracy of such representations, warranties or statements, other than a review
of the certificate of incorporation, by-laws and relevant minute books of the
Company.
Based on and subject to the foregoing, we are of the opinion that:
A-1
<PAGE>
The Exchange Offer Registration Statement, as of its effective date, and
the Prospectus, as of the date hereof (except as to (x) the financial
statements, notes and schedules thereto and other financial and statistical data
contained or incorporated by reference therein, (y) the documents incorporated
or deemed incorporated by reference therein, and (z) the Form T-1, as to which
such counsel need express no opinion), comply as to form in all material
respects with the requirements of the 1933 Act and the applicable rules and
regulations promulgated under the 1933 Act. In passing upon the form of such
documents, we have necessarily assumed the correctness and completeness of the
statements made or included therein by the Company and take no responsibility
for the accuracy, completeness or fairness of the statements contained therein
except insofar as such statements related to the description of the Exchange
Securities and the Indenture or relate to us. However, in connection with our
examination of the Registration Statement and the Prospectus, we have had
conferences with certain officers and other representatives of the Company, and
our examination of the Registration Statement and the Prospectus and our
discussions in such conferences did not disclose to us any information (relying
as to the materiality of any such information primarily upon officers and other
representatives of the Company) which gave us reason to believe that either the
Registration Statement, as of its effective date, or the Prospectus, as of the
date hereof (except as to (x) the financial statements, notes and schedules
thereto and other financial and statistical data contained or incorporated by
reference therein and (y) the documents incorporated or deemed incorporated by
reference therein, as to which such counsel need express no opinion), contains
any untrue statement of a material fact or omits any material fact required to
be stated therein or necessary to make the statements therein (in the case of
the Prospectus, in light of the circumstances under which they were made) not
misleading.
This opinion is being furnished to you solely for your benefit in
connection with the transactions contemplated by the Registration Rights
Agreement, and may not be used for any other purpose or relied upon by any
person other than you. Except with our prior written consent, the opinions
herein expressed are not to be used, circulated, quoted or otherwise referred to
in connection with any transactions other than those contemplated by the
Registration Rights Agreement by or to any other person.
Very truly yours,
A-2
<PAGE>
EXHIBIT 4.4
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FORM OF 7-7/8% SENIOR NOTE DUE 2009
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS
DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS GLOBAL
SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE
OF THE DEPOSITORY, OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
No. $______________
CUSIP No.
Liberty Media Corporation
7-7/8% Senior Notes due 2009
Liberty Media Corporation, a Delaware corporation (hereinafter called the
"Company", which term includes any successor corporation under the Indenture
referred to below), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of ________________________ ($___________)
on July 15, 2009, and to pay interest thereon from July 7, 1999 or from the most
recent date to which interest has been paid or provided for, semiannually on
January 15 and July 15 in each year (each, an "Interest Payment Date"),
commencing January 15, 2000, at the rate of 7-7/8% per annum, until the
principal hereof is paid or made available for payment. Interest on this Note
shall be calculated on the basis of a 360-day year consisting of twelve 30-day
months. The interest so payable and paid or provided for on any Interest
Payment Date will, as provided in such Indenture, be paid to the Person in whose
name this Note (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the January 1 or July 1 (whether or not a Business Day), as the case may be,
next preceding such Interest Payment Date. Any such interest which is payable,
but is not paid or provided for, on any Interest Payment Date shall forthwith
cease to be payable to the registered Holder hereof on the relevant Regular
Record Date by virtue of having been such Holder, and may be paid to the Person
in whose name this Note (or one or more Predecessor Securities) is registered at
the close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Company, notice whereof shall be given to the
Holders of Notes not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in such Indenture.
Payment of the principal of and the interest on this Note will be made at
the office or agency of the Company maintained for that purpose in The Borough
of Manhattan, The City of New York, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that, at the option of the Company,
interest may be paid by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register; provided,
further, that payment to DTC or any successor Depository may be made by wire
transfer to the account designated by DTC or such successor Depository in
writing.
This Note is one of a duly authorized issue of securities of the Company
(herein called the "Notes") issued and to be issued in one or more series under
an Indenture dated as of July 7, 1999 (herein called, together with the First
Supplemental Indenture referred to below and all other indentures supplemental
thereto, the "Indenture") between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered. This Note is one of the series designated on the
face hereof, initially limited (subject to exceptions provided in the Indenture)
to the aggregate principal amount specified in the First Supplemental Indenture
between the Company and the Trustee, dated as of July 7, 1999, establishing the
terms of the Notes pursuant to the Indenture (the "First Supplemental
Indenture").
The Notes are redeemable at the option of the Company, in whole or in part
at any time or from time to time, on at least 30 but not more than 60 days prior
notice, at a Redemption Price equal to the greater of (i) 100% of the principal
amount of the Notes to be redeemed or (ii) the sum, as determined by the
Independent Investment Banker, of the present values of the Remaining Scheduled
Payments of the Notes to be redeemed, discounted, on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 30 basis points. In the case of each of clause (i) and (ii), accrued
interest will be payable to the redemption date.
2
<PAGE>
If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series issued
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding of each series affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Notes
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon this
Note or such Notes.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note,
at the times, place and rate, and in the coin or currency, herein and in the
Indenture prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and in this Note, the transfer of this Note may be registered on the
Security Register upon surrender of this Note for registration of transfer at
the office or agency of the Company maintained for the purpose in any place
where the principal of and interest on this Note are payable, duly endorsed by,
or accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or by his
attorney duly authorized in writing, and thereupon one or more new Notes of this
series and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in the
denominations specified in the First Supplemental Indenture establishing the
terms of the Notes, all as more fully provided in the Indenture. As provided in
the Indenture, and subject to certain limitations set forth in the Indenture and
in this Note, the Notes are exchangeable for a like aggregate principal amount
of Notes of this series in different authorized denominations, as requested by
the Holders surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith, other than in
certain cases provided in the Indenture.
Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture contains provisions whereby (i) the Company may be discharged
from its obligations with respect to the Notes (subject to certain exceptions)
or (ii) the Company may be released from its obligation under specified
covenants and agreements in the Indenture, in each case if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations
sufficient to pay and discharge the entire indebtedness on all Notes of this
series, and satisfies certain other conditions, all as more fully provided in
the Indenture.
This Note shall be governed by and construed in accordance with the laws of
the State of New York.
All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.
3
<PAGE>
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee under the Indenture by the manual signature of one of
its authorized signatories, this Note shall not be entitled to any benefits
under the Indenture or be valid or obligatory for any purpose.
* * *
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
[Seal] LIBERTY MEDIA CORPORATION
Attest:________________________ By:_______________________________
Name: Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred
to in the within-mentioned Indenture.
Dated: THE BANK OF NEW YORK,
as Trustee
By:_______________________________
Authorized Signatory
4
<PAGE>
CERTIFICATE OF TRANSFER
To transfer or assign this Note, fill in the form below:
I or we transfer and assign this Note to
_______________________________________________________________________________
(Insert assignee's tax I.D. number)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or Type assignee's name, address and zip code)
and irrevocably appoint ________________ agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
Date:____________________ Your signature:___________________________
<PAGE>
EXHIBIT 4.5
-----------
[FORM OF 8-1/2% SENIOR DEBENTURE DUE 2029]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS
DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED
IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY, OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
No. $________________
CUSIP No.
Liberty Media Corporation
8-1/2% Senior Debentures due 2029
Liberty Media Corporation, a Delaware corporation (hereinafter called the
"Company", which term includes any successor corporation under the Indenture
referred to below), for value received, hereby promises to pay to Cede & Co., or
registered assigns, the principal sum of _____________________________
($___________) on July 15, 2029 and to pay interest thereon from July, 7 1999 or
from the most recent date to which interest has been paid or provided for,
semiannually on January 15 and July 15 in each year (each, an "Interest Payment
Date"), commencing January 15, 2000, at the rate of 8-1/2% per annum, until the
principal hereof is paid or made available for payment. Interest on this
Debenture shall be calculated on the basis of a 360-day year consisting of
twelve 30-day months. The interest so payable and paid or provided for on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the January 1 or July 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest which is payable, but is not paid or provided for, on any Interest
Payment Date shall forthwith cease to be payable to the registered Holder hereof
on the relevant Regular Record Date by virtue of having been such Holder, and
may be paid to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Company, notice whereof shall be given to the Holders of Debentures not less
than 10 days prior to such Special Record Date, or may be paid at any time in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of and the interest on this Debenture will be made
at the office or agency of the Company maintained for that purpose in The
Borough of Manhattan, The City of New York, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that, at the option of the
Company, interest may be paid by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register;
provided, further, that payment to DTC or any successor Depository may be made
by wire transfer to the account designated by DTC or such successor Depository
in writing.
This Debenture is one of a duly authorized issue of securities of the
Company (herein called the "Debentures") issued and to be issued in one or more
series under an Indenture dated as of July 7, 1999 (herein called, together with
the First Supplemental Indenture referred to below and all other indentures
supplemental thereto, the "Indenture") between the Company and The Bank of New
York, as Trustee (herein called the "Trustee", which term includes any successor
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Debentures, and of the terms upon which the
Debentures are, and are to be, authenticated and delivered. This Debenture is
one of the series designated on the face hereof, initially limited (subject to
exceptions provided in the Indenture) to the aggregate principal amount
specified in the First Supplemental Indenture between the Company and the
Trustee, dated as of July 7, 1999, establishing the terms of the Debentures
pursuant to the Indenture (the "First Supplemental Indenture").
The Debentures are redeemable at the option of the Company, in whole or in
part at any time or from time to time, on at least 30 but not more than 60 days
prior notice, at a Redemption Price equal to the greater of (i) 100% of the
principal amount of the Debentures to be redeemed or (ii) the sum, as determined
by the Independent Investment Banker, of the present values of the Remaining
Scheduled Payments of the Debentures to be redeemed, discounted, on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 35 basis points. In the case of each of clause (i) and (ii),
accrued interest will be payable to the redemption date.
2
<PAGE>
If an Event of Default with respect to the Debentures shall occur and be
continuing, the principal of the Debentures may be declared due and payable in
the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series issued
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities at the time Outstanding of each series affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at the
time Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Debenture shall be conclusive and
binding upon such Holder and upon all future Holders of this Debenture and of
any Debentures issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver is
made upon this Debenture or such Debentures.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Debenture, at the times, place and rate, and in the coin or currency herein and
in the Indenture prescribed.
As provided in the Indenture and subject to certain limitations set forth
therein and in this Debenture, the transfer of this Debenture may be registered
on the Security Register upon surrender of this Debenture for registration of
transfer at the office or agency of the Company maintained for the purpose in
any place where the principal of and interest on this Debenture are payable,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or by his attorney duly authorized in writing, and thereupon one
or more new Debentures of this series and of like tenor, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in the
denominations specified in the First Supplemental Indenture establishing the
terms of the Debentures, all as more fully provided in the Indenture. As
provided in the Indenture, and subject to certain limitations set forth in the
Indenture and in this Debenture, the Debentures are exchangeable for a like
aggregate principal amount of Debentures of this series in different authorized
denominations, as requested by the Holders surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith, other than in
certain cases provided in the Indenture.
Prior to due presentment of this Debenture for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Debenture is registered as the owner hereof for
all purposes, whether or not this Debenture be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture contains provisions whereby (i) the Company may be discharged
from its obligations with respect to the Debentures (subject to certain
exceptions) or (ii) the Company may be released from its obligation under
specified covenants and agreements in the Indenture, in each case if the Company
irrevocably deposits with the Trustee money or U.S. Government Obligations
sufficient to pay and discharge the entire indebtedness on all Debentures of
this series, and satisfies certain other conditions, all as more fully provided
in the Indenture.
This Debenture shall be governed by and construed in accordance with the
laws of the State of New York.
All terms used in this Debenture which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
3
<PAGE>
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee under the Indenture by the manual signature of one of its
authorized signatories, this Debenture shall not be entitled to any benefits
under the Indenture or be valid or obligatory for any purpose.
* * *
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
[Seal] LIBERTY MEDIA CORPORATION
Attest:_____________________________ By:____________________________
Name Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
Dated: THE BANK OF NEW YORK,
as Trustee
By:____________________________
Authorized Signatory
4
<PAGE>
CERTIFICATE OF TRANSFER
To transfer or assign this Debenture, fill in the form below:
I or we transfer and assign this Debenture to
________________________________________________________________________________
(Insert assignee's tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or Type assignee's name, address and zip code)
and irrevocably appoint ________________ agent to transfer this Debenture on the
books of the Company. The agent may substitute another to act for him.
Date:____________________________ Your signature:_______________________
<PAGE>
EXHIBIT 10.1
------------
- --------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
BY AND AMONG
LIBERTY MEDIA CORPORATION,
LIBERTY MEDIA MANAGEMENT LLC,
LIBERTY MEDIA GROUP LLC
AND
LIBERTY VENTURES GROUP LLC
March 9, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
<S> <C>
ARTICLE I
DEFINITIONS
Section 1.1. Certain Definitions........................................... 1
Section 1.2. Terms Generally............................................... 5
ARTICLE II
CONTRIBUTION
Section 2.1. Liberty Media Corporation Contribution........................ 5
Section 2.2. Stockholder Contribution...................................... 5
Section 2.3. Liberty Management Contribution............................... 6
Section 2.4. Capital Contributions to Liberty Media Group LLC.............. 6
Section 2.5. Procedures for Determination of Contribution Amount........... 6
Section 2.6. Transfer and Documentation.................................... 7
Section 2.7. Unassignable Assets........................................... 7
Section 2.8. Certain Tax Issues............................................ 7
Section 2.9. Conveyance Taxes; Expenses.................................... 8
Section 2.10. Further Assurances............................................ 8
Section 2.11. Stockholder Consent........................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 3.1. Mutual Representations........................................ 8
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.1. Cooperation................................................... 9
Section 4.2. Conduct of Business Prior to the Closing Date................. 9
Section 4.3. Avoidance of Certain Adverse Effects.......................... 11
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1. Conditions Precedent to Closing............................... 11
ARTICLE VI
CLOSING
Section 6.1. Closing....................................................... 11
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(i)
<PAGE>
TABLE OF CONTENTS(cont'd)
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<TABLE>
<S> <C>
ARTICLE VII
TERMINATION
Section 7.1. Termination.................................................... 12
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Notices........................................................ 12
Section 8.2. Binding Effect................................................. 14
Section 8.3. Construction................................................... 14
Section 8.4. Expenses....................................................... 14
Section 8.5. Table of Contents; Headings.................................... 14
Section 8.6. Governing Law.................................................. 14
Section 8.7. Severability................................................... 14
Section 8.8. Amendments..................................................... 14
Section 8.9. Assignment..................................................... 14
Section 8.10. Waivers; Remedies.............................................. 14
Section 8.11. Consent to Jurisdiction; Specific Performance.................. 15
Section 8.12. Waiver of Jury Trial........................................... 15
Section 8.13. Further Assurances............................................. 15
Section 8.14. Counterparts................................................... 15
Section 8.15. Limitation on Rights of Others................................. 15
</TABLE>
(ii)
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of this 9th day
of March, 1999 by and among Liberty Media Corporation, a Delaware corporation
("Liberty Media Corporation"), Liberty Media Management LLC, a Delaware limited
liability company ("Liberty Management"), Liberty Media Group LLC, a Delaware
limited liability company ("Liberty Media Group LLC"), and Liberty Ventures
Group LLC, a Delaware limited liability company ("Stockholder").
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, the parties desire that, as promptly as practicable following the
occurrence of a Triggering Event (as defined below), Liberty Media Corporation,
Liberty Management and, if applicable, Stockholder shall make the contributions
to Liberty Media Group LLC contemplated by this Agreement pursuant to Section
6.1 of the LLC Agreement (as defined below) of Liberty Media Group LLC as
Subsequent Capital Contributions (as defined therein);
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the meanings specified below:
"Additional Liberty Media Group Assets" has the meaning set forth in
Section 2.2(a).
"Additional Liberty Media Group Liabilities" means all Liabilities to which
the Additional Liberty Media Group Assets are subject (subject to Section 2.7,
other than any such liabilities relating to any Beneficial Assets unless and
until such Asset is contributed to Liberty Media Group LLC).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with such Person. For purposes of
this definition, the term "controls" (including its correlative meanings
"controlled by" and "under common control with") shall mean the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Notwithstanding the foregoing, for
purposes of this Agreement, Liberty Management and its Subsidiaries shall not be
deemed to be Affiliates of Liberty Media Group LLC or its Subsidiaries or of
Parent or its Subsidiaries (including Liberty Media Corporation) and Parent and
its Subsidiaries shall not be deemed to be Affiliates of Liberty Media Group LLC
or its Subsidiaries or of Liberty Management or its Subsidiaries.
"Agreement" means this Contribution Agreement, including the Schedules and
Exhibits attached hereto.
"Assets" of a Person means all of the properties, assets, privileges,
rights interests, claims and goodwill of such Person, real and personal,
tangible and intangible, of every type and description, whether owned or leased
or otherwise possessed, whether or not used or held for use or usable in
connection with the business and assets of such Person and whether or not
reflected on the financial statements or accounts of such Person, including the
capital stock or other interests in any other Person held by such Person.
"Beneficial Assets" has the meaning set forth in Section 2.7 hereto.
<PAGE>
"Business Day" means a day of the year on which banks are not required or
authorized to be closed in the State of New York.
"Capital Contribution" has the meaning ascribed to such term in the LLC
Agreement.
"Capital Stock Committee" means the Capital Stock Committee of the Board of
Directors of Parent, as described in the form of Bylaw Amendment attached to the
Merger Agreement.
"Class B Director" and "Class C Director" mean, respectively, the directors
classified as such in the Liberty Media Corporation Charter.
"Closing" means a meeting at which, in whole or in part, the transactions
contemplated by this Agreement are concluded, held on the date and at the place
fixed in accordance with Article VIII.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder.
"Contract" means any lease, license, contract or other agreement.
"Firewall Agreement" means the agreements referred to in Sections 7.14 and
7.18 of the Merger Agreement.
"GAAP" means generally accepted accounting principles in effect from time
to time in the United States of America.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any arbitrator.
"Incumbent Directors" means (i) those directors who are the Class B
Directors and Class C Directors of Liberty Media Corporation immediately prior
to the Effective Time (as defined in the Merger Agreement) and (ii) those
persons who become Class B Directors or Class C Directors of Liberty Media
Corporation upon the death, disability, resignation, removal or subsequent
election of a Class B or Class C Director (including upon any increase in the
size of the Board of Directors of Liberty Media Corporation), provided, that any
--------
Class B Director or Class C Director elected or appointed following the
Effective Time shall be an Incumbent Director only if (x) in the case of any
person who was appointed or elected to fill any vacancy among the Class B
Directors or Class C Directors resulting from the death, disability, resignation
or removal of a Class B Director or Class C Director, such person was so
appointed or nominated for election as such by a majority of the Incumbent
Directors (or single such director, if only one remains) who were then members
of the class of directors of Liberty Media Corporation in which such vacancy
occurred, or, (y) in the case of any election or appointment of a Class B or
Class C Director which results from any increase in the size of the Board of
Directors of Liberty Media Corporation or of the Class B or Class C Directors,
the person so elected or appointed to fill such directorship shall have been
appointed or nominated for election as such by a majority of the Incumbent
Directors (or single such director, if only one remains) who were then members
of the class of directors to which such newly created directorship was
apportioned.
"Intellectual Property" means all patents, trademarks, trade names, service
marks, copyrights and trade secrets.
2
<PAGE>
"LLC Agreement" means the Limited Liability Company Agreement of Liberty
Media Group LLC, dated as of the date hereof, among Liberty Media Corporation,
Liberty Media Management LLC and Liberty Ventures Group LLC.
"Liabilities" of a Person means all debts, liabilities and obligations,
whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising, and
whether or not the same would properly be reflected on a balance sheet,
including all costs and expenses relating thereto.
"Liberty Management" has the meaning set forth in the preamble hereto.
"Liberty Management Contribution" has the meaning set forth in Section 2.3.
"Liberty Media Corporation" has the meaning set forth in the preamble
hereto.
"Liberty Media Corporation Assets" means all of the Assets of Liberty Media
Corporation, now in existence or hereafter acquired by Liberty Media
Corporation, including, but not limited to, the following:
(i) all rights of any nature whatsoever of Liberty Media Corporation
under the Firewall Agreement and the Tax Sharing Agreement; and
(ii) all Intellectual Property used or usable in connection with the
Liberty Media Corporation Assets.
"Liberty Media Corporation Charter" means the Restated Certificate of
Incorporation of Liberty Media Corporation filed with the Secretary of State of
the State of Delaware, as the same may be amended from time to time.
"Liberty Media Corporation Contribution" has the meaning set forth in
Section 2.1.
"Liberty Media Corporation Liabilities" means all Liabilities of Liberty
Media Corporation (subject to Section 2.7, other than any such liabilities
relating to any Beneficial Assets unless and until such Asset is contributed to
Liberty Media Group LLC) including, without limitation all obligations of any
nature whatsoever of Liberty Media Corporation under the Firewall Agreement.
"Liberty Media Group" has the meaning ascribed to such term in the Parent
Charter.
"Liberty Media Group Assets" means the Liberty Media Corporation Assets and
the Additional Liberty Media Group Assets, collectively.
"Liberty Media Group LLC" has the meaning set forth in the preamble hereto.
"Lien" means any lien, pledge, claim, encumbrance, mortgage or security
interest in real or personal property.
"Material Adverse Effect" means a material adverse change in, or material
adverse effect on, the business, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects of a party considered together
with its consolidated subsidiaries on a combined basis, other than any changes
in, or effects on, any of the foregoing arising primarily out of or resulting
primarily from general economic or industry conditions.
"Merger Agreement" means that certain Agreement and Plan of Restructuring
and Merger, dated as of June 23, 1998, among Parent, Italy Merger Corp. and
Tele-Communications, Inc.
3
<PAGE>
"Parent" means AT&T Corp., a New York corporation.
"Parent Charter" means the Certificate of Incorporation of Parent, as
amended as contemplated by the Merger Agreement.
"Permitted Liens" means (i) Liens for Taxes not yet due and payable, (ii)
Liens for Taxes, the validity of which is being contested in good faith in
appropriate proceedings and with respect to which appropriate reserves have been
set aside on the books of the party against which such Liens have been created,
(iii) inchoate mechanic's and materialmen's Liens for construction in progress
or which are being contested in good faith in appropriate proceedings, (iv)
Liens on property which secure the purchase price of such property, (v)
workmen's, repairmen's, warehousemen's and carriers' Liens arising in the
ordinary course of business and evidencing indebtedness for related services
that is not more than 60 days past due or which is being contested in good faith
in appropriate proceedings, and (vi) minor imperfections in title and
encumbrances and other minor matters, if any, which singly or in the aggregate
are not substantial in amount, do not materially detract from the value of the
property subject thereto or interfere with the present use thereof or otherwise
impair the operations of a Person.
"Person" means any individual, corporation, partnership, limited liability
company, trust, unincorporated association or other entity.
"Stockholder" has the meaning set forth in the preamble hereto.
"Stockholder Contribution" has the meaning set forth in Section 2.2.
"Subsidiary" of any Person as of any date shall mean any other Person more
than 50% of the outstanding number or voting power of the shares, equity
interests or other ownership interests of which are, as of such date, owned or
controlled, directly or indirectly, by such Person and/or one or more of its
Subsidiaries.
"Tax" or "Taxes" means all federal, state, local and foreign income,
profits, franchise, gross receipts, payroll, sales, employment, use, property,
withholding, excise and other taxes, duties or assessments of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts; provided, however, that "Tax" and "Taxes" shall not
-------- -------
include amounts paid to municipalities with respect to operating franchise
arrangements.
"Tax Return" or "Tax Returns" means all returns or reports required to be
filed under any statute, rule or regulation relating to Taxes.
"Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of March
9, 1999, among Parent, Liberty Media Corporation, certain Subsidiaries of
Liberty Media Corporation and Liberty Media Group LLC.
"TCI" means Tele-Communications, Inc., a Delaware corporation.
"Transfer" means, as a noun, any sale, exchange, assignment, conveyance or
transfer and, as a verb, to sell, exchange, assign, convey or transfer.
"Triggering Event" means either (i) the failure of the Incumbent Directors
to constitute a majority of the members of the Board of Directors of Liberty
Media Corporation and to be entitled to cast a majority of the votes entitled to
be cast by all directors at any meeting of the Board of Directors of Liberty
Media Corporation (or to consent in writing thereto) or (ii) Liberty
Management's determination (evidenced by written notice to such effect to
Parent), in its reasonable judgment, that an event described in clause (i) is
reasonably likely to occur (unless Parent provides such assurances as Liberty
Management may reasonably request that such event will not occur within five
Business Days of such notice (and in any event prior to the occurrence of such
event described in clause (i)).
4
<PAGE>
Liberty Management may, in its sole discretion, waive or suspend the
occurrence of a Triggering Event on such terms and conditions as are set forth
in written notice from Liberty Management to the other parties following the
occurrence of a Triggering Event. Any such waiver or suspension shall only be
effective with regard to the specific Triggering Event to which it applies, and
shall in no way impair the respective rights of Liberty Media Group LLC or
Liberty Management in connection with any subsequent occurrence of a Triggering
Event.
Section 1.2. Terms Generally. The definitions in Section 1.1 and
---------------
elsewhere in this Agreement shall apply equally to both the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The words "herein", "hereof", "hereto" and
"hereunder" and words of similar import refer to this Agreement (including the
Schedules and Exhibits) in its entirety and not to any part hereof unless the
context shall otherwise require. All references herein to Articles, Sections,
Exhibits and Schedules shall be deemed references to Articles and Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall otherwise
require. Unless the context shall otherwise require, any references to any
agreement or other instrument (other than in the Schedules hereto) or statute or
regulation are to it as amended and supplemented from time to time (and, in the
case of a statute or regulation, to any corresponding provisions of successor
statutes or regulations). Any reference in this Agreement to a "day" or number
of "days" (without the explicit qualification of "Business") shall be
interpreted as a reference to a calendar day or number of calendar days. If any
action or notice is to be taken or given on or by a particular calendar day, and
such calendar day is not a Business Day, then such action or notice shall be
deferred until, or may be taken or given on, the next Business Day.
ARTICLE II
CONTRIBUTION
Section 2.1. Liberty Media Corporation Contribution.
--------------------------------------
(a) Upon the terms and subject to the conditions set forth in this
Agreement, as soon as practicable after the occurrence of a Triggering Event,
Liberty Media Corporation shall convey, assign and transfer to Liberty Media
Group LLC, and Liberty Media Group LLC shall acquire, accept and receive from
Liberty Media Corporation, all of Liberty Media Corporation's right, title and
interest in and to the Liberty Media Corporation Assets (the "Liberty Media
Corporation Contribution").
(b) Concurrently with the Liberty Media Corporation Contribution,
Liberty Media Group LLC shall assume, and agree to pay and discharge, as and
when they become due, or otherwise take subject to, all of the Liberty Media
Corporation Liabilities.
Section 2.2. Stockholder Contribution.
------------------------
(a) If at the time of the occurrence of a Triggering Event, any of the
Assets included in the Liberty Media Group are held, directly or indirectly, by
Stockholder other than through its ownership interest in Liberty Media
Corporation (such assets, the "Additional Liberty Media Group Assets"), then
upon the terms and subject to the conditions set forth in this Agreement, as
soon as practicable after the occurrence of such Triggering Event, Stockholder
shall convey, assign and transfer, or cause to be conveyed, assigned and
transferred, to Liberty Media Group LLC all of Stockholder's right, title and
interest in and to the Additional Liberty Media Group Assets (the "Stockholder
Contribution"), and Liberty Media Group LLC shall acquire, accept and receive
the Stockholder Contribution from Stockholder.
5
<PAGE>
(b) Concurrently with the Stockholder Contribution, Liberty Media Group
LLC shall assume, and agree to pay and discharge, as and when they become due,
or otherwise take subject to, all of the Additional Liberty Media Group
Liabilities.
Section 2.3. Liberty Management Contribution. Upon the terms and subject
-------------------------------
to the conditions set forth in this Agreement, at the Closing Liberty Management
shall convey, assign and transfer to Liberty Media Group LLC, and Liberty Media
Group LLC shall acquire, accept and receive from Liberty Management, an amount
in cash equal to the lesser of 2.3.ab(i) $20 million and (ii) 0.001001 of the
sum of the Liberty Media Contribution Amount and the Stockholder Contribution
Amount (the "Liberty Management Contribution").
Section 2.4. Capital Contributions to Liberty Media Group LLC. The
------------------------------------------------
Liberty Media Corporation Contribution, the Liberty Management Contribution and,
if applicable, the Stockholder Contribution (collectively, the "Contributions")
as contemplated by this Agreement shall constitute Capital Contributions to
Liberty Media Group LLC by Liberty Media Corporation, Liberty Management and
Stockholder, respectively, as contemplated by Section 6.1(b) of the LLC
Agreement.
Section 2.5. Procedures for Determination of Contribution Amount. Upon
---------------------------------------------------
the occurrence of the Contributions, Liberty Management and the independent
accounting firm responsible for preparing the audited financial statements of
Liberty Media Corporation will each designate one appraiser (the "First
Appraiser" and the "Second Appraiser") to determine the Gross Asset Value (as
defined in the LLC Agreement) of the Liberty Media Corporation Assets and the
fair market value of the Liberty Media Corporation Liabilities (the difference
between such amounts, the "Liberty Media Contribution Amount") and, if
applicable, the Gross Asset Value of the Additional Liberty Media Group Assets
and the fair market value of the Additional Liberty Media Group Liabilities (the
difference between such amounts, the "Stockholder Contribution Amount"). Each
of the First Appraiser and the Second Appraiser shall submit its determination
of the Liberty Media Contribution Amount and the Stockholder Contribution Amount
(each, a "Contribution Amount") to the parties within ten (10) Business Days of
the date of its selection. If the respective determinations of a Contribution
Amount by the First Appraiser and the Second Appraiser vary by less than ten
percent (10%) of the higher determination, the applicable Contribution Amount
shall be the average of the two determinations. If such determinations vary by
ten percent (10%) or more of the higher determination, such appraisers shall
promptly designate a third appraiser (the "Third Appraiser"). No party shall
provide, and each appraiser shall be instructed not to provide, any information
to the Third Appraiser as to the Contribution Amount determinations of the First
Appraiser and the Second Appraiser or otherwise influence such Third Appraiser's
determination in any way. The Third Appraiser shall submit its determination of
the applicable Contribution Amount to the parties within five (5) Business Days
of the date of its selection. The applicable Contribution Amount shall be equal
to the average of the two closest of the three determinations, provided that, if
--------
the difference between the highest and middle determinations is no more than one
hundred and five percent (105%) and no less than ninety-five percent (95%) of
the difference between the middle and lowest determinations, then the applicable
Contribution Amount shall be equal to the middle determination. The
determination of a Contribution Amount in accordance with this Section 2.5 shall
be final and binding on the parties. If any appraiser is only able to provide a
range in which the applicable Contribution Amount would exist, the average of
the highest and lowest value in such range shall be deemed to be such
appraiser's determination of such Contribution Amount. Each appraiser selected
pursuant to the provisions of this Section 2.5 shall be an independent
investment banking firm or other independent qualified Person with prior
experience in appraising businesses comparable to the businesses included in the
Liberty Media Corporation Assets and Additional Liberty Media Group Assets. The
parties agree that the procedures described in this Section 2.5 shall be
conducted in a manner such that the final determination of the Contribution
Amounts (including any determination of the Contribution Amounts by the Third
Appraiser) shall be completed within twenty (20) Business Days of the occurrence
of the applicable Triggering Event. Liberty Media Corporation and, if
applicable, Stockholder shall make customary representations and warranties
regarding the Liberty Media Corporation Assets and Additional Liberty Media
Group Assets, respectively, as agreed by the parties in connection with the
Liberty Media Corporation Contribution or Stockholder Contribution, as
applicable, and any such representations and warranties will be taken into
account by the appraisers referred to above when determining the
6
<PAGE>
Contribution Amounts. The Contribution Amounts shall also take into account the
matters described in Section 2.7 and 2.8.
Section 2.6. Transfer and Documentation. At the Closing, each of
--------------------------
Liberty Media Corporation, Liberty Management and, if applicable, Stockholder
shall execute and deliver to Liberty Media Group LLC such instruments of
conveyance as Liberty Media Group LLC may reasonably request in order to convey,
assign and transfer title to the Liberty Media Corporation Assets, the Liberty
Management Assets and the Additional Liberty Media Group Assets, if any, being
conveyed, assigned and transferred to Liberty Media Group LLC at the Closing,
and Liberty Media Group LLC shall execute an assumption agreement pursuant to
which Liberty Media Group LLC shall assume and agree to pay when due, discharge
and perform the Liberty Media Corporation Liabilities and Additional Liberty
Media Group Liabilities, if any.
Section 2.7. Unassignable Assets. Notwithstanding anything in this
-------------------
Agreement to the contrary, this Agreement shall not constitute an agreement to
assign any Liberty Media Group Asset without the consent of another Person if an
assignment or attempted assignment thereof without the consent of such Person
would constitute a breach thereof or in any way impair the rights thereunder.
If any such consent is not obtained or if an attempted assignment would be
ineffective or would impair any party's rights with respect to such Liberty
Media Group Asset so that Liberty Media Group LLC would not receive all such
rights, then (a) Liberty Media Corporation and Stockholder, as applicable, shall
continue to use their respective best efforts to obtain such consents and
approvals and use their respective best efforts to provide or cause to be
provided to Liberty Media Group LLC, to the extent permitted by law, the
benefits of any such Asset (the "Beneficial Assets"), and (b) if Liberty Media
Corporation or Stockholder, as the case may be, is able to provide Liberty Media
Group LLC with the benefits thereof, Liberty Media Group LLC shall pay, perform
and discharge on behalf of Liberty Media Corporation, Liberty Management and
Stockholder, if applicable, all of Liberty Media Corporation's (and, if
applicable, Stockholder's) liabilities and other obligations with respect
thereto in a timely manner and in accordance with the terms thereof. In
addition, Liberty Media Corporation and Stockholder, as applicable, shall take
such other actions as may reasonably be requested by Liberty Media Group LLC in
order to place Liberty Media Group LLC, insofar as reasonably possible, in the
same position as if such Beneficial Asset had been transferred as contemplated
hereby, so that all the benefits and burdens relating thereto shall inure to
Liberty Media Group LLC. If and when any such consents and approvals are
obtained, the transfer of the applicable Beneficial Asset shall be promptly
effected in accordance with the terms of this Agreement.
Section 2.8. Certain Tax Issues. The exact manner of the contribution
------------------
of each Liberty Media Group Asset by Liberty Media Corporation and Stockholder
to Liberty Media Group LLC (i.e. whether an asset shall be contributed directly
or whether the equity interests of a Person owning the asset shall be
contributed) shall to the extent practicable be designed to ensure, on both an
immediate and an on-going basis, the most efficient tax treatment to all members
and Liberty Media Group LLC, after taking into consideration contractual and
regulatory restrictions on the transfer of assets. To the extent that the
contribution of any Liberty Media Group Asset in the manner contemplated by
Liberty Media Corporation or Stockholder would result in the recognition of
income or gain pursuant to Treasury Regulations governing consolidated federal
income tax revenues and conveyance of such Liberty Media Group Asset by any
alternative means would not result in the recognition of such income or gain,
such Liberty Media Group Asset will be conveyed by such alternative means. If no
such alternative means of conveying such Liberty Media Group Asset exists,
Liberty Media Corporation or Stockholder, as applicable, and Liberty Media Group
LLC shall, at the option of Liberty Media Group LLC, enter into an agreement
providing that (a) such Liberty Media Group Asset shall not be contributed to
Liberty Media Group LLC hereunder and (b) to the extent permissible without
causing the recognition of income or gain, Liberty Media Group LLC shall have
the exclusive and irrevocable power to direct the management, disposition and,
if applicable, voting rights of such Liberty Media Group Asset and shall have
the exclusive right to receive any and all proceeds of any such disposition.
7
<PAGE>
Section 2.9. Conveyance Taxes; Expenses.
--------------------------
(a) Liberty Media Corporation agrees to assume liability for and to
pay all Transfer, stamp, real property transfer taxes (including New York State
Real Property Transfer Gains Tax or similar transfer or gains taxes) and any
other similar Taxes incurred as a result of the transactions contemplated
hereby, and shall hold each of the other parties hereto harmless against any
such Taxes.
(b) Liberty Media Corporation shall bear the fees and expenses of all
of Liberty Media Corporation, Stockholder, Liberty Media Group LLC and Liberty
Management relating to the transactions contemplated by this Article II
(including all legal and accounting fees and expenses and the fees and expenses
of the investment banking firms referred to in Section 2.5), whether or not such
transactions are consummated.
Section 2.10. Further Assurances. At or following the Closing, each
------------------
of the parties hereto will promptly execute such other documents and
instruments, and will take such further actions, as may be necessary to vest,
perfect or confirm any and all right, title and interest in, to and under the
Liberty Media Group Assets in Liberty Media Group LLC, and otherwise to carry
out the provisions hereof.
Section 2.11. Stockholder Consent. Stockholder, as the holder of all
-------------------
of the outstanding capital stock of Liberty Media Corporation, hereby consents
to and approves the transactions contemplated hereby, including the Liberty
Media Corporation Contribution, for all purposes, and agrees and acknowledges
that such consent and approval is irrevocable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Section 3.1. Mutual Representations. Each party hereby represents
----------------------
and warrants to the other parties that:
(a) Due Incorporation or Organization: Authorization of Agreements.
--------------------------------------------------------------
Such party is a corporation or limited liability company duly organized and
validly existing under the laws of the jurisdiction of its incorporation or
organization and has all requisite corporate or organizational power and
authority to own its property and carry on its business as owned and carried on
at the date hereof. Such party is duly qualified to do business and in good
standing (if applicable) in each jurisdiction in which the failure to be so
qualified would have a Material Adverse Effect on such party. Such party has all
requisite corporate or organizational power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such party, and the execution, delivery and performance of this
Agreement by such party have been duly authorized by all requisite corporate or
organizational action, including any required approval of the stockholder(s) or
member(s) of such party. This Agreement constitutes the legal, valid and binding
obligation of such party, enforceable in accordance with its terms (except as
such enforceability may be limited by bankruptcy, insolvency (including all laws
relating to fraudulent transfers), reorganization, moratorium and similar laws
affecting the rights and remedies of creditors generally and the application of
general principles of equity).
(b) No Conflict; No Default. Except, as to clauses (i), (iii), (iv)
-----------------------
and (v) below only, as would not have a Material Adverse Effect on such party,
neither the execution or delivery of this Agreement by such party nor (assuming
all necessary consents, approvals, authorizations and other actions necessary
for the Liberty Media Corporation Contribution, the Stockholder Contribution or
the Liberty Management Contribution, as applicable, have been obtained) the
performance of this Agreement by such party or the consummation by such party of
the transactions contemplated hereby in accordance with the terms and conditions
hereof (i) will conflict with, violate or result in a breach of any of the
terms, conditions or provisions of any law, regulation, order, writ, injunction,
decree, determination
8
<PAGE>
or award of any Governmental Authority applicable to such party or any of its
Subsidiaries, (ii) will conflict with, violate, result in a breach of or
constitute a default under any of the terms, conditions or provisions of the
certificate or articles of incorporation, bylaws or partnership agreement (or
other governing documents) of such party or any of its Subsidiaries, (iii) will
conflict with, violate, result in a breach of or constitute a default under any
of the terms, conditions or provisions of any material agreement or instrument
to which such party or any of its Subsidiaries is a party or by which such party
or any of its Subsidiaries is or may be bound or to which any equity interest
held by such party in any other entity or any of its other material properties
or assets is subject, (iv) will conflict with, violate, result in a breach of,
constitute a default under (whether with notice or lapse of time or both),
accelerate or permit the acceleration of the performance required by, give to
others any interests or rights or require any consent, authorization or approval
under any indenture, mortgage, lease agreement or similar instrument to which
such party or any of its Subsidiaries is a party or by which such party or any
of its Subsidiaries is or may be bound, (v) will result in the creation or
imposition of any Lien upon any asset held by such party that is transferred to
Liberty Media Group LLC pursuant to this Agreement or (vi) will result in the
creation or imposition of any Lien upon any of the other material properties or
assets of such party or any of its Subsidiaries, other than Permitted Liens.
ARTICLE IV
COVENANTS OF THE PARTIES
Each of the parties hereby agrees and covenants as follows:
Section 4.1. Cooperation. Between the date of the occurrence of any
-----------
Triggering Event and the Closing (or, if later, the contribution of the
applicable Liberty Media Group Asset to Liberty Media Group LLC pursuant to
Section 2.7 or 2.8), the parties shall cooperate with each other in their
efforts to obtain all necessary consents and approvals for the consummation of
the transactions contemplated hereby, including making qualified personnel
available for attending hearings and meetings respecting such required consents.
Without limiting the generality of the foregoing, each party shall use its best
efforts (i) to obtain all consents and authorizations of third parties and
Governmental Authorities and to make all filings with and give all notices to
third parties and Governmental Authorities which may be necessary or reasonably
required in order to effect the transactions contemplated hereby and (ii) to
provide the other parties and their respective counsel with copies of all such
filings made and all such notices given as such other parties may reasonably
request and to afford the other parties the opportunity to participate in any
discussions with any such third party or Governmental Authority or
representative thereof in connection with the transactions contemplated hereby
to the extent reasonably requested by any other party hereto. Subject to the
other provisions of this Section 4.1, the parties hereto will not take any
action that will have the effect of delaying, impairing or impeding the receipt
of any required approvals or consents. Without limiting the applicability of
any other provision hereof, Liberty Management and Liberty Media Group LLC shall
be afforded the opportunity by Liberty Media Corporation and Stockholder, if
applicable, to be involved in the process of obtaining required consents from
Governmental Authorities or other third parties, including participation with
Liberty Media Corporation and Stockholder, if applicable, in the analysis of the
correct procedures to be followed (A) to obtain such consents and (B) in the
initiation, negotiation and prosecution of obtaining such consents from
Governmental Authorities or other third parties.
Section 4.2. Conduct of Business Prior to the Closing Date. During
---------------------------------------------
the period from the date hereof to the Closing Date (or as to any applicable
Liberty Media Group Asset, the applicable date of contribution of such asset
pursuant to Section 2.7 or 2.8), except as permitted or otherwise contemplated
by this Agreement, Liberty Media Corporation and Stockholder will not, without
the consent of Liberty Media Group LLC (which shall not be unreasonably
withheld), enter into any agreement that is in conflict with the terms of this
Agreement and Liberty Media Corporation and each Person included in the
Additional Liberty Media Group Assets will use its commercially reasonable
efforts to preserve the current relationships of Liberty Media Corporation and
such Person with its customers, suppliers and other Persons with which it has
significant business relationships and to keep available the services of its key
employees. During the period from the occurrence of a Triggering Event to the
Closing Date, except as permitted
9
<PAGE>
or otherwise contemplated by this Agreement or consented to in writing by
Liberty Media Group LLC (or as approved by a majority of the Incumbent Directors
of Liberty Media Corporation prior to the occurrence of a Triggering Event),
Liberty Media Corporation will not take, or commit to take, any of the following
actions (and Stockholder will not permit any Person included in the Additional
Liberty Media Group Assets to take or commit to take any such action):
(i) amend its charter documents or bylaws;
(ii) merge or consolidate, or obligate itself to do so, or
to be liquidated or dissolved;
(iii) issue or sell any shares of capital stock,
partnership interests, participations or other equity or
ownership interests or any rights relating to any of the
foregoing; provided that in the ordinary course of business,
--------
Liberty Media Corporation may incorporate new wholly owned
subsidiaries for the purpose of the operation of its business as
presently conducted or proposed to be conducted;
(iv) enter into any new lines of business outside of the
business as conducted or proposed to be conducted at such time;
(v) conduct its business other than in a manner
consistent with past practices or enter into any material
transactions outside the ordinary course of business (as such
business is presently conducted or proposed to be conducted);
(vi) change its accounting methods, principles or
practices in any material respect;
(vii) declare, set aside or pay any dividend or equity
distribution (whether in cash, stock, property or any combination
thereof) in respect of its capital stock;
(viii) (A) establish any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing or
other employee benefit plan, or materially increase the
compensation payable or to become payable to any officers or
employees, except in any case in the ordinary course of business
consistent with past practice or as may be required by law, or
(B) establish or increase any stock option, unit appreciation,
stock purchase or other equity-based plan;
(ix) incur any indebtedness for borrowed money, except in
the ordinary course of business;
(x) enter into, or make any offers to enter into, any
partnership or joint venture with any third party if any consent
of any Person is required (that has not been obtained in
connection with the formation of such new partnership or joint
venture) in order to effect the transfer of the interest in such
partnership or joint venture to Liberty Media Group LLC pursuant
to this Agreement;
(xi) transfer or lease to any third party any assets used
in connection with its operations, except for any such transfer
or lease (a) made in the ordinary course of business consistent
with past practice or (b) with respect to which such assets have
been or will be replaced with assets of at least equal value
performing comparable functions; or
(xii) except as specifically provided for by the Firewall
Agreement, enter into any transactions with Parent or its
Affiliates that are not on terms as least as favorable to Liberty
Media Corporation (or such Person included in the Additional
Liberty Media Group Assets) as could be obtained from an
unaffiliated third party.
10
<PAGE>
Section 4.3. Avoidance of Certain Adverse Effects. The parties shall
------------------------------------
use their best efforts to effect the transfer of the Liberty Media Group Assets
to Liberty Media Group LLC in such a form as to (a) avoid or limit the adverse
impact of such transfer on any agreements to which Liberty Media Corporation or
any Person included in the Additional Liberty Media Group Assets is a party and
(b) avoid or minimize the consents and approvals required to effectuate such
Transfer.
ARTICLE V
CONDITIONS TO CLOSING
Section 5.1. Conditions Precedent to Closing. The obligations of
-------------------------------
each of the parties under this Agreement to effect the transactions contemplated
to occur at the Closing are subject to the satisfaction, on or prior to the
Closing Date of the following conditions, compliance with which or the
occurrence of which may be waived in whole or in part by the other parties
hereto.
(a) Consents. Subject to Section 2.7, each consent, authorization
--------
or approval required to be obtained in connection with the consummation of
the transactions contemplated to occur at the Closing shall have been
obtained on or prior to the Closing Date, except for any of the foregoing
the failure of which to obtain would not, individually or in the aggregate,
(i) have a Material Adverse Effect on any party to this Agreement or (ii)
have a Material Adverse Effect on Liberty Media Group LLC following the
consummation of the transactions contemplated by this Agreement.
(b) No Injunction. No preliminary or permanent injunction or other
-------------
order, decree or ruling issued by a Governmental Authority, nor any
statute, rule, regulation or executive order promulgated or enacted by any
Governmental Authority shall be in effect, in any case that enjoins or
delays in any material respect the consummation of the transactions to be
effected at such Closing or imposes any material restrictions or
requirements thereon or on any of the parties in connection therewith.
ARTICLE VI
CLOSING
Section 6.1. Closing.
-------
The Closing will take place at the offices of Baker & Botts, L.L.P.,
599 Lexington Avenue, New York, New York, at 10:00 a.m. (local time at the place
of Closing) on the tenth Business Day after the satisfaction of all conditions
set forth in Section 5.1 (subject to Section 2.7), or at such other location or
on such other date or time as the parties hereto shall agree.
11
<PAGE>
ARTICLE VII
TERMINATION
Section 7.1. Termination.
-----------
(a) This Agreement shall be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing only:
(i) by mutual written consent of all of the parties;
(ii) upon the consummation of the redemption of all (but not
merely substantially all) outstanding shares of Liberty Media Group
Common Stock in exchange for shares of the Liberty Media Group
Subsidiary pursuant to Paragraph 5(a) of Part B of Article Third of
the Parent Charter; or
(iii) upon the consummation of the redemption of all (but not
merely substantially all) of the outstanding shares of Liberty Media
Group Common Stock pursuant to Paragraph 5(b)(ii)(A) of Part B of
Article Third of the Parent Charter.
(b) If this Agreement is terminated in accordance with this Section
7.1, then this Agreement shall become null and void and have no further effect,
without any liability of any party to any other party, except that the
obligations of the parties pursuant to Section 8.4 shall survive the termination
of this Agreement indefinitely.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Notices. Except as expressly provided herein, all
-------
notices, consents, waivers and other communications required or permitted to be
given by any provision of this Agreement shall be in writing and mailed
(certified or registered mail, postage prepaid, return receipt requested) or
sent by hand or overnight courier, or by facsimile transmission (with
acknowledgment received), charges prepaid and addressed to the intended
recipient as follows, or to such other address or number as such Person may from
time to time specify by like notice to the parties:
(a) If to Liberty Media Corporation:
Liberty Media Corporation
8101 East Prentice, Suite 500
Englewood, Colorado 80111
Attention: President
Telephone: (303) 721-5410
Telecopy: (303) 721-5434
with a copy similarly addressed
to the attention of General Counsel:
Telephone: (303) 721-5440
Telecopy: (303) 721-5443
12
<PAGE>
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Elizabeth M. Markowski, Esq.
Telephone: (212) 705-5032
Telecopy: (212) 705-5125
(b) If to Liberty Management or Liberty Media Group LLC:
c/o Liberty Media Corporation
8101 East Prentice, Suite 500
Englewood, Colorado 80111
Attention: President
Telephone: (303) 721-5410
Telecopy: (303) 721-5434
with a copy similarly addressed
to the attention of General Counsel:
Telephone: (303) 721-5440
Telecopy: (303) 721-5443
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Elizabeth M. Markowski, Esq.
Telephone: (212) 705-5032
Telecopy: (212) 705-5125
(c) If to Stockholder:
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: President
Telephone: (303) 267-5204
Telecopy: (303) 488-3201
with a copy similarly addressed
to the attention of General Counsel:
Telephone: (303) 267-4800
Telecopy: (303) 488-3245
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
13
<PAGE>
Attention: Elizabeth M. Markowski, Esq.
Telephone: (212) 705-5032
Telecopy: (212) 705-5125
Any party may from time to time specify a different address for notices by like
notice to the other parties. All notices and other communications given to a
Person in accordance with the provisions of this Agreement shall be deemed to
have been given and received (i) four Business Days after the same are sent by
certified or registered mail, postage prepaid, return receipt requested, (ii)
when delivered by hand or transmitted by facsimile (with acknowledgment received
and, in the case of a facsimile only, a copy of such notice is sent no later
than the next Business Day by a reliable overnight courier service, with
acknowledgment of receipt) or (iii) one Business Day after the same are sent by
a reliable overnight courier service, with acknowledgment of receipt.
Section 8.2. Binding Effect . Except as otherwise provided in this
--------------
Agreement, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, permitted transferees, and permitted
assigns.
Section 8.3. Construction. This Agreement shall be construed simply
------------
according to its fair meaning and not strictly for or against any party.
Section 8.4. Expenses. Except as contemplated by Section 2.9 of this
--------
Agreement, each of the parties shall bear the fees and expenses relating to its
compliance with the various provisions of this Agreement, and each of the
parties agrees to pay all of its own expenses (including all legal and
accounting fees) incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the preparation
made for carrying the same into effect.
Section 8.5. Table of Contents; Headings. The table of contents and
---------------------------
section and other headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement.
Section 8.6. Governing Law. The validity of this Agreement, the
-------------
construction of its terms and the interpretation of the rights and duties of the
parties shall be governed by the internal laws of the State of New York without
regard to principles of conflict of laws.
Section 8.7. Severability. Every provision of this Agreement is
------------
intended to be severable. If any term or provision hereof is illegal, invalid or
unenforceable for any reason whatsoever, that term or provision will be enforced
to the maximum extent permissible so as to effect the intent of the parties, and
such illegality, invalidity or unenforceability shall not affect the validity,
legality or enforceability of the remainder of this Agreement. If necessary to
effect the intent of the parties hereto, the parties hereto will negotiate in
good faith to amend this Agreement to replace the unenforceable language with
enforceable language which as closely as possible reflects such intent.
Section 8.8. Amendments. This Agreement may be modified or amended
----------
only by a written amendment signed by Persons authorized to so bind each party
hereto.
Section 8.9. Assignment. No party shall assign any of its rights
----------
under this Agreement or delegate its duties hereunder unless it obtains the
prior written consent of the other parties hereto, which consent may be withheld
at such party's absolute discretion.
Section 8.10. Waivers; Remedies. The observance of any term of this
-----------------
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party or parties entitled to enforce such
term, but any such waiver shall be effective only if in a writing signed by the
party or parties against which such waiver is to be asserted. Except as
otherwise provided herein, no failure or delay of any party hereto in exercising
14
<PAGE>
any power or right under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power.
Section 8.11. Consent to Jurisdiction; Specific Performance.
---------------------------------------------
(a) Each party hereto irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of any New York State
court sitting in the County of New York or any Federal court of the United
States of America sitting in the Southern District of New York, and any
appellate court from any such court, in any suit, action or proceeding arising
out of or relating to this Agreement, or for recognition or enforcement of any
judgment, and each party hereto irrevocably and unconditionally agrees that all
claims in respect of any such suit, action or proceeding may be heard and
determined in such New York State court or, to the extent permitted by law, in
such Federal court.
(b) Each party hereto irrevocably and unconditionally waives, to the
fullest extent it may legally do so, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement in any New York State court sitting in the County of
New York or any Federal court sitting in the Southern District of New York. Each
party hereto irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such suit, action or
proceeding in any such court and further waives the right to object, with
respect to such suit, action or proceeding, that such court does not have
jurisdiction over such party.
(c) Each party hereto irrevocably consents to service of process in
the manner provided for the giving of notices pursuant to this Agreement;
provided that such service shall be deemed to have been given only when
- --------
actually received by such party. Nothing in this Agreement shall affect the
right of a party to serve process in any other manner permitted by law.
(d) Each party hereto agrees with the other parties that the other
parties would be irreparably damaged if any of the provisions of this Agreement
are not performed in accordance with their specific terms and that monetary
damages would not provide an adequate remedy in such event. Accordingly, in
addition to any other remedy to which the nonbreaching parties may be entitled,
at law or in equity, the nonbreaching parties shall be entitled to injunctive
relief to prevent breaches of this Agreement and specifically to enforce the
terms and provisions hereof.
Section 8.12. Waiver of Jury Trial. Each party hereto waives, to
--------------------
the fullest extent permitted by applicable law, any right it may have to a trial
by jury in respect of any action, suit or proceeding arising out of or relating
to this Agreement.
Section 8.13. Further Assurances. Upon reasonable request from time
------------------
to time, each party hereto shall execute, acknowledge and deliver any documents
and perform all further acts that may be reasonably necessary, appropriate or
desirable to carry out the intent and purposes of this Agreement.
Section 8.14. Counterparts. This Agreement may be executed in any
------------
number of counterparts, any one or more of which may bear facsimile signatures,
with the same effect as if all parties hereto had signed the same document. All
counterparts shall be construed together and shall constitute one agreement.
Section 8.15. Limitation on Rights of Others. Nothing in this
------------------------------
Agreement, whether express or implied, shall be construed to give any Person
other than the parties hereto any legal or equitable right, remedy or claim
under or in respect of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LIBERTY MEDIA CORPORATION
By: /s/ Robert R. Bennett
---------------------
Name: Robert R. Bennett
Title: President
LIBERTY MEDIA MANAGEMENT LLC
By: /s/ John C. Malone
------------------
Name: John C. Malone
Title: Member
LIBERTY MEDIA GROUP LLC
By: /s/ Robert R. Bennett
---------------------
Name: Robert R. Bennett
Title: President
LIBERTY VENTURES GROUP LLC
By: /s/ Stephen M. Brett
--------------------
Name: Stephen M. Brett
Title: Vice President
16
<PAGE>
EXHIBIT 10.2
------------
- --------------------------------------------------------------------------------
INTER-GROUP AGREEMENT
between and among
AT&T CORP.,
on the one hand,
and
LIBERTY MEDIA CORPORATION,
LIBERTY MEDIA GROUP LLC
and each Covered Entity listed on the
signature pages hereof,
on the other hand,
dated as of March 9, 1999
- --------------------------------------------------------------------------------
<PAGE>
INTER-GROUP AGREEMENT
Agreement dated as of March 9, 1999 between AT&T Corp., a New York
corporation ("AT&T"), for itself and on behalf of the members of the Common
Stock Group, on the one hand, and Liberty Media Corporation, a Delaware
corporation, Liberty Media Group LLC, a Delaware limited liability company, and,
for so long as such Covered Entity remains a Covered Entity under the applicable
provisions of the AT&T Charter Amendment, each Covered Entity listed on the
signature pages hereof (collectively, the "Liberty Media Parties"), for
---------------------
themselves and on behalf of the other members of the Liberty Media Group, on the
other hand. Capitalized terms used herein without definition have the meanings
ascribed to such terms in the Merger Agreement (as hereinafter defined).
WHEREAS, AT&T, Italy Merger Corp. ("Merger Sub") and TCI are parties
----------
to an Agreement and Plan of Restructuring and Merger originally dated as of June
23, 1998 (the "Merger Agreement") pursuant to which, among other things, subject
----------------
to the terms and conditions contained in the Merger Agreement, and concurrent
with the execution hereof, Merger Sub shall be merged with and into TCI with TCI
surviving as a wholly owned subsidiary of AT&T (the "Merger");
------
WHEREAS, AT&T and the Liberty Media Parties desire to establish in
this Agreement certain terms and conditions concerning the responsibilities and
obligations of each Group to the other as well as certain additional provisions
concerning the Group's relationship with each other.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, AT&T and the Liberty Media Parties hereby agree as follows:
ARTICLE I
RELATIONSHIP BETWEEN COMMON STOCK GROUP AND LIBERTY MEDIA GROUP
SECTION 1.1. Reciprocal Obligations; Corporate Opportunities. Neither
-----------------------------------------------
the Common Stock Group, on the one hand, nor the Liberty Media Group, on the
other hand, shall have any duty, responsibility or obligation (legal or
otherwise) (and none of the directors or officers of AT&T or the Common Stock
Group, on the one hand, or of LMC or the Liberty Media Group, on the other hand,
shall have any duty, responsibility or obligation) (legal or otherwise) (i) to
communicate, present, make available or offer any business or other corporate
<PAGE>
opportunity to the other Group (including, without limitation, any business or
other corporate opportunity which (x) such other Group may be financially able
to undertake, (y) is in such other Group's line of business, or (z) is of
practical advantage to more than one Group), and the Group which receives any
such business or corporate opportunity may pursue such opportunity for its sole
benefit, (ii) to provide financial support to the other Group (or any member
thereof), or (iii) otherwise to assist the other Group, except in each case as
may be expressly set forth in this Agreement or any other agreement between one
or more members of the Common Stock Group, on the one hand, and one or more
members of the Liberty Media Group, on the other hand (this Agreement and such
other agreements being referred to individually as an Intercompany Agreement
----------------------
and collectively as the Intercompany Agreements). Without limiting the
-----------------------
generality of the foregoing, (x) any person who is serving on the Board of
Directors of LMC or on the Board of Directors of any Covered Entity at the
request of AT&T shall have no duty to communicate, present, make available or
offer to LMC or the Liberty Media Group any business or other corporate
opportunities obtained or presented to such person in such person's capacity as
an officer, director or employee of AT&T or a member of the Common Stock Group
and (y) any officer, director or employee of LMC or any member of the Liberty
Media Group serving on the AT&T Board of Directors (or the Board of Directors of
any other member of the Common Stock Group) shall have no duty to communicate,
present, make available or offer to AT&T or the Common Stock Group any business
or other corporate opportunities obtained or presented to such person in such
persons capacity as an officer, director or employee of LMC or a member of the
Liberty Media Group.
SECTION 1.2. Rights to Intellectual Property and Other Rights. Without
------------------------------------------------
limiting the generality of Section 1.1, neither the Common Stock Group nor the
Liberty Media Group shall have any rights to any Intellectual Property of the
other Group, except as expressly set forth in the Intercompany Agreements or as
set forth in the following sentence. For purposes of clarification, to the
extent a member of one Group is a party to any Intellectual Property agreement
or arrangement that, as of immediately prior to the Merger, also confers rights
to Intellectual Property on one or more members of the other Group, such members
of the other Group shall continue to have such rights to Intellectual Property
after the Merger (on the same terms and conditions, including any related
obligations), in accordance with the provisions of such agreement or
arrangement.
2
<PAGE>
SECTION 1.3. Indebtedness. (a) Neither the Common Stock Group nor
------------
the Liberty Media Group shall incur any indebtedness for borrowed money or
guarantee any indebtedness of any other Person or incur any other Liability
(including any preferred equity obligation) that has or purports to have
recourse to any member, or to the assets of any member, of the other Group.
Except for the Intercompany Agreements, no member of the Common Stock Group or
the Liberty Media Group shall enter into any agreement, or incur any other
Liability, that binds or purports to bind or impose any Liabilities on any
member of the other Group. For purposes of this Agreement, the attribution to
the Liberty Media Group of any indebtedness, guarantee, obligation or other
Liability incurred, created or permitted to exist by AT&T or a member of the
Common Stock Group shall, absent a Liberty Approval (as defined below),
constitute the incurrence of an obligation imposing a Liability on the Liberty
Media Group in violation of the covenant of the Common Stock Group contained in
the first sentence of this Section 1.3(a).
(b) Neither LMC nor any member of the Liberty Media Group will incur
any debt (other than in connection with the refinancing of existing debt without
any increase in the then accrued principal amount thereof) (a "Liberty Debt
------------
Incurrence") that would cause the total debt of the Liberty Media Group at any
- ----------
time to be in excess of 25% of the total market capitalization of the AT&T
Liberty Tracking Shares (the "Liberty Media Group Debt Limit"), if such excess
------------------------------
debt would adversely affect the credit rating of AT&T (after giving effect to
the Merger). Prior to any Liberty Debt Incurrence which would cause the total
debt of the Liberty Media Group to exceed the Liberty Media Group Debt Limit,
LMC shall notify AT&T in writing of the proposed Liberty Debt Incurrence (the
"Liberty Debt Notice"), which Liberty Debt Notice shall include a summary of the
-------------------
principal terms of such proposed Liberty Debt Incurrence. LMC shall thereafter
consult with AT&T regarding the proposed Liberty Debt Incurrence and any
expected adverse effect thereof on AT&T's credit rating. At the written request
of AT&T, which request shall be made no later than 5 business days after receipt
by AT&T of the applicable Liberty Debt Notice, LMC and AT&T shall consult with
two nationally recognized credit rating agencies (each, a "Credit Rating
-------------
Agency"), with one of such Credit Rating Agencies to be selected by each of LMC
- ------
and AT&T, to determine whether such incremental Liberty Debt Incurrence in
excess of the Liberty Debt Limit would adversely affect the credit rating of
AT&T. If both such Credit Rating Agencies determine that the incremental
Liberty Debt Incurrence in
3
<PAGE>
excess of the Liberty Debt Limit would not adversely affect AT&T's credit
rating, then notwithstanding the first sentence of this paragraph (b), the
Liberty Media Group shall be permitted to effect such Liberty Debt Incurrence.
If one or more of the Credit Rating Agencies determines that the incremental
Liberty Debt Incurrence in excess of the Liberty Debt Limit would adversely
affect AT&T's credit rating, then the Liberty Media Group shall not effect such
Liberty Debt Incurrence. In the event that a Liberty Debt Notice describes a
maximum amount of indebtedness that may be incurred under any revolving credit,
multiple drawdown or similar facility and the Credit Rating Agencies (at the
request of LMC), in making their determination as to whether the Liberty Debt
Incurrence in excess of the Liberty Debt Notice would adversely affect AT&T's
credit rating, assume that the maximum amount of indebtedness will be incurred
thereunder, then any subsequent incurrence of indebtedness under such facility
up to such limit shall be deemed not to constitute a Liberty Debt Incurrence for
purposes of this Agreement.
SECTION 1.4. Liabilities; Allocation of Certain Expenses;
--------------------------------------------
Indemnification.
- ---------------
(a) (i) The Liberty Media Group, on the one hand, and the Common
Stock Group, on the other hand, shall be responsible for all Liabilities arising
from such Groups operations and businesses, including, without limitation, (A)
all Liabilities to such Groups officers and employees (including all
Liabilities relating to deferred compensation obligations and, subject to clause
(ii) below, Stock Incentives (as defined below) held by such officers and
employees), (B) all Liabilities relating to or arising from actions taken by
such Groups officers and employees (provided, that with respect to any officer
or employee who prior to the Effective Date (1) was an officer or employee of
both the Liberty Media Group and the TCI Group, (2) was an officer or employee
of one Group, but following the Effective Time is an officer or employee of the
other Group, or (3) was an officer or employee of TCI but exercised authority
over both the Liberty Media Group and the TCI Group, the liability of a Group
for such persons actions shall be determined based upon the capacity in which
such person was acting at the time of such action), and (C) all Liabilities
relating to information publicly disclosed by such Group or information provided
by such Group for inclusion in any such public disclosure, in each case, whether
arising before, on or after the Closing Date. Without limiting the generality
of this Section 1.4, the Liberty Media Group shall be responsible for any
Liabilities relating to (A) any and all transfers of assets between the Liberty
Media Group and the TCI Ventures Group, (B) the exchange of TCI Ventures
Tracking Shares for Liberty Media Tracking Shares (or, if
4
<PAGE>
applicable, the relative Liberty Media Exchange Ratios and TCI Ventures Exchange
Ratios), as contemplated by the Merger Agreement and (C) the amended and
restated Certificate of Incorporation and By-Laws of LMC and any Covered Entity,
the terms of the operating agreement of Liberty Media Group LLC and any
agreements between Liberty Media Group LLC and any member of the Liberty Media
Group.
(ii) Each Group shall be responsible for all payments required to be
made, or consideration required to be delivered, in connection with the exercise
or settlement of any stock options or other equity-linked incentives, including
stock appreciation rights, phantom stock rights and similar equity-linked
instruments (collectively, "Stock Incentives"), (i) by any person who is an
----------------
officer, employee or consultant of such Group at the time of such exercise or
settlement, and (ii) by any person who is no longer an officer, employee or
consultant of either Group at the time of such exercise or settlement but who
was an officer, employee or consultant of such Group on the date of such
person's last employment by either Group. Notwithstanding the foregoing, AT&T
shall be responsible for the issuance and delivery to the transfer agent of any
Parent Common Shares or AT&T Liberty Tracking Shares that become deliverable in
connection with the exercise or settlement of any such Stock Incentive. In
connection with the exercise or settlement of any Stock Incentive by any person
who is (or last was) an officer, employee or consultant of the Common Stock
Group or the Liberty Media Group that results in the delivery of Other Group
Shares in accordance with the terms of the applicable Stock Incentive (and any
elections made by the applicable officer, employee or consultant in connection
with such exercise or settlement), the Group of which such person is (or last
was) an officer, employee or consultant shall pay in cash to the other Group
promptly following any such exercise or settlement (and the issuance and
delivery of the applicable Other Group Shares) an amount in cash equal to the
difference between (i) the value of the Other Group Shares delivered to such
person in connection with such exercise or settlement, with the value of any
such shares determined in accordance with the terms of such Stock Incentive (or
if the procedure for such determination is not specified in such instrument or
is otherwise not determinable in accordance therewith, by reference to the last
reported trade for such shares on the principal exchange on which such shares
are listed for trading on the date of such exercise or settlement (or if such
date is not a trading day, the next trading day thereafter)) and (ii) the
exercise price paid, or other consideration delivered (including shares
theretofore held by such person), by such person upon such exercise or
settlement (other
5
<PAGE>
than the deemed proceeds retained by the Common Stock Group or the Liberty Media
Group as the case may be, in connection with a cashless exercise or the like
effected without the delivery of shares theretofore held by such person).
(b) Notwithstanding anything to the contrary in this Section 1.4,
the Common Stock Group shall be responsible for TCI's legal, financial advisory
and accounting fees and printing expenses, in each case, incurred in connection
with the Merger Agreement and the Merger and the transactions contemplated
thereby. For purposes of clarification, such fees and expenses will be paid by
TCI or one or more of its subsidiaries that are members of the Common Stock
Group (and will be attributed to the Common Stock Group).
(c) (i) AT&T and each member of the Common Stock Group shall
jointly and severally indemnify and hold harmless LMC and each member of the
Liberty Media Group from and against, and pay and reimburse the Liberty Media
Group for, any and all Liabilities (including liabilities for reasonable
attorneys fees and expenses) for which the Common Stock Group is responsible
pursuant to this Section 1.4.
(ii) LMC and each member of the Liberty Media Group shall
jointly and severally indemnify and hold harmless AT&T and each member of the
Common Stock Group from and against, and pay and reimburse the Common Stock
Group for, any and all Liabilities (including liabilities for reasonable
attorneys fees and expenses) for which the Liberty Media Group is responsible
pursuant to this Section 1.4.
(iii) Except with respect to claims for indemnification with
respect to which there exists a good faith dispute, the indemnifying party shall
satisfy its obligations hereunder within 30 days of receipt of the indemnified
party's notice of a claim under this Section 1.4 setting forth in reasonable
detail the indemnified party's basis for making such claim and for calculating
the amount to which it claims to be entitled under this Section 1.4.
(d) The Liberty Media Group shall be entitled to elect to use a
different independent accounting firm in connection with the annual audits of
the Liberty Media Group than the firm used by the Common Stock Group; provided,
that such independent accounting firm shall be reasonably satisfactory to AT&T.
The Common Stock Group acknowledges that KPMG Peat Marwick is satisfactory to
AT&T.
6
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SECTION 1.5. Allocation of Overhead Expenses. AT&T shall not, and
-------------------------------
shall not permit any member of the Common Stock Group to, allocate or charge any
general corporate overhead expenses to the Liberty Media Group except (i) to the
extent that the Liberty Media Group receives specific services pursuant to
services agreements or similar arrangements between the Common Stock Group and
the Liberty Media Group and (ii) that the Common Stock Group shall be entitled
to charge the Liberty Media Group an allocable share of the fees and expenses of
AT&T's independent accountants incurred in connection with AT&T's annual audits
(unless the Liberty Media Group elects to use a different independent accounting
firm in connection with the annual audits of the Liberty Media Group than the
firm used by the Common Stock Group, in which case the Common Stock Group shall
be responsible for all of the fees and expenses of AT&T's independent
accountants and the Liberty Media Group shall be responsible for all of the fees
and expenses of such different independent accounting firm used by the Liberty
Media Group).
SECTION 1.6. LMC Stock and AT&T Liberty Tracking Stock Issuances and
-------------------------------------------------------
Repurchases. (a) LMC shall have the right to authorize, issue, offer and sell
- -----------
additional shares of its common stock and shall have the right to authorize,
issue and sell shares of one or more series of its preferred stock (including
any securities which are convertible into or exercisable or exchangeable for,
common stock or preferred stock) in any such case, only if, after giving effect
to such issuance or sale (and any conversion, exercise or exchange thereof),
Liberty Media Corporation would remain a Qualifying Subsidiary and a member of
the affiliated group of which AT&T is the common parent as described in Section
1504(a)(2) of the Code (as amended from time to time). Subject to the
foregoing, AT&T agrees to vote or cause to be voted all capital stock of LMC
beneficially owned by it and its Subsidiaries in favor of any proposed amendment
to LMC's restated certificate of incorporation approved by a majority of LMC's
directors that increases the number of shares of capital stock of LMC and/or
changes the par value thereof (or otherwise effects a recapitalization of LMC in
connection with any proposed transaction including the authorization, issuance,
offering and/or sale of additional shares of LMC capital stock pursuant to this
subsection (a)).
(b) Subject to Section 1.11(a), AT&T shall contribute to LMC the net
proceeds of (i) any issuance of AT&T Liberty Tracking Shares or other securities
of AT&T or any other Person either (A) controlled by
7
<PAGE>
AT&T or (B) on behalf of AT&T which other securities, in either case, are
convertible into, or exercisable or exchangeable for, shares of AT&T Liberty
Tracking Shares (including upon the exercise or settlement of any Stock
Incentive), including any amounts payable by the holder thereof upon the
conversion, exercise or exchange of such securities (collectively, "Convertible
-----------
Securities"), and (ii) any sale of AT&T Liberty Tracking Shares or Convertible
- ----------
Securities that were acquired by a member of the Common Stock Group or the
Liberty Media Group using cash or assets attributed to the Liberty Media Group
or in exchange for AT&T Liberty Tracking Shares or Convertible Securities that
are attributable to the Liberty Media Group. Following the occurrence of a
Triggering Event, such contribution shall be made through a contribution to LMC,
which in turn shall contribute such net proceeds to Liberty Media Group LLC. In
connection with any such transaction involving the issuance or sale of
additional AT&T Liberty Tracking Shares or Convertible Securities, LMC shall be
entitled to select counsel, investment bankers or other financial advisors and
other professional service firms to represent the issuer in connection with any
such issuance or sale, provided that such professional service firms shall be
reasonably satisfactory to AT&T. AT&T acknowledges that for purposes of this
paragraph Baker & Botts, L.L.P. is satisfactory to AT&T.
(c) AT&T, for and on behalf of each member of the Common Stock Group
(including TCI), agrees and acknowledges that (i) the rights and obligations of
the Company under the Call Agreements and the Stockholders Agreement have
been assigned to LMC and (ii) neither TCI nor any member of the Common Stock
Group has any further rights or obligations under the Call Agreements or the
Stockholders Agreement.
(d) AT&T will contribute to capital of TCI from time to time such
number of Class A AT&T Liberty Tracking Shares as may be necessary for TCI to
contribute such shares to Tele-Communications International, Inc. ("TINTA"), for
-----
delivery upon conversion of the currently outstanding 4 1/2% Convertible
Subordinated Debentures due 2006 of TINTA, in accordance with the agreement
dated as of November 19, 1998, between TINTA and TCI (as if references in such
agreement to LMG Series A Stock were references to Class A AT&T Liberty Tracking
Shares). In addition, AT&T shall use its reasonable efforts to list such Class
A AT&T Liberty Tracking Shares on the NYSE.
SECTION 1.7. Asset Transfers. (a) To the extent not already
---------------
accomplished pursuant to Section 2.1(d) of the Merger Agreement, following the
Effective Time the Liberty Media Group and the Common Stock
8
<PAGE>
Group shall continue to make such transfers of assets and businesses, and
assumptions of liabilities, if any, as may be necessary in order to cause the
representations and warranties set forth in Section 5.17(c)(ii) of the Merger
Agreement (as if the references therein to TCI Ventures LLC referred to LMC and
the Covered Entities) to be true and correct in all material respects (including
to complete the transactions described in Schedule 2.1(a) of the Merger
Agreement and the letter agreement regarding TCI Wireless Holdings, Inc., dated
as of February 11, 1999, among AT&T, TCI and LMC (the "Letter Agreement")). To
----------------
the extent any matter specifically addressed in Schedule 2.1(a) of the Merger
Agreement or the Letter Agreement is inconsistent with such Section 5.17(c)(ii)
of the Merger Agreement, Schedule 2.1(a) of the Merger Agreement and/or the
Letter Agreement shall control. In furtherance of the foregoing, any contract
right or other similar right that is part of any asset that is attributed to a
particular Group in accordance with this Section 1.7 and the representation and
warranty in Section 5.17(c)(ii) of the Merger Agreement shall be the right of
the Group to which such related asset is so attributed.
(b) Each of the Liberty Media Parties represents and warrants to AT&T
that, as of the Effective Time, none of the Covered Entities will own, directly
or indirectly, any asset attributable to the Common Stock Group, and to the
extent not true and correct at the Effective Time, LMC and the Liberty Media
Group shall make such transfers of assets, and assumptions and liabilities, if
any, or take any other actions as are necessary to cause the representations and
warranties set forth in this paragraph (b) to be true and correct as promptly as
practicable following the Effective Time. To the extent any matter specifically
addressed in Schedule 2.1(a) of the Merger Agreement or the Letter Agreement is
inconsistent with this Section 1.7(b), Schedule 2.1(a) of the Merger Agreement
and/or the Letter Agreement shall control.
SECTION 1.8. Appraisal Rights. In the event that the holders of any
----------------
TCI Preferred Stock or TCIC Preferred Stock are entitled to and validly exercise
appraisal rights under the DGCL, (a) the Liberty Media Group shall be entitled
to control, and shall be responsible for, all matters relating to the exercise
of appraisal rights with respect to shares of Series C Liberty Media Group
Preferred Stock and Series H Preferred Stock, and (b) the Common Stock Group
shall be entitled to control, and shall be responsible for, all matters relating
to the exercise of appraisal rights with respect to shares of Series C-TCI Group
Preferred Stock, Series G Preferred Stock and TCIC Preferred Stock.
9
<PAGE>
SECTION 1.9. Certain Redemptions of AT&T Liberty Tracking Shares.
---------------------------------------------------
(a) If AT&T redeems the outstanding AT&T Liberty Tracking Shares pursuant to
paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, then
prior to such redemption (i) the certificate of incorporation and bylaws or
other organizational or constituent instruments (collectively, the "LMC
---
Charters") of each applicable Liberty Media Group Subsidiary (as defined in the
- --------
AT&T Charter Amendment) shall be amended and/or restated (A) so that the LMC
Charters contain provisions relating to the election of directors (including
without limitation provisions relating to the term and removal of directors) and
each other matter which could reasonably be expected to impair the ability of a
third party to seek control of such entity which are equivalent to, but no more
restrictive than, those contained in the certificate of incorporation and by-
laws of TCI in effect as of June 23, 1998, (B) to increase the authorized number
of shares of common stock of such Liberty Media Group Subsidiary to at least a
sufficient number to permit such redemption or dividend on a share-for-share
basis (or a reasonable fraction thereof), and (C) if and to the extent
practicable, to reclassify the existing common stock of such Liberty Media Group
Subsidiary into shares of two separate classes or series with relative voting
rights and related differences in designation, conversion, redemption and share
distribution provisions equivalent to but not greater than the corresponding
differences in voting rights, designation, conversion, redemption and share
distribution provisions between the Class A AT&T Liberty Tracking Shares and the
Class B AT&T Liberty Tracking Shares (with the holders of the Class B AT&T
Liberty Tracking Shares receiving the class or series having the higher relative
voting rights) (which reclassification in the case of LMC and any Covered
Entity, would be of its Class A Common Stock into the series with the lower
relative voting rights and unless otherwise approved and recommended by the
board of directors of such entity, of the Class B and Class C Common Stock into
the series with the higher relative voting rights), (ii) no Triggering Event
shall thereafter occur, and (iii) in the event that a Triggering Event has
occurred, Liberty Media Group LLC shall be automatically dissolved immediately
prior to such redemption. Prior to such redemption, the applicable Liberty
Media Group Subsidiary may propose the forms of such LMC Charters, which LMC
Charters shall contain the provisions set forth in this Section 1.9(a), and may
contain such additional provisions as may be proposed by the applicable Liberty
Media Group Subsidiary (which shall be subject to AT&T's reasonable approval).
AT&T will vote or cause to be voted its direct or indirect equity interest in
each applicable Liberty
10
<PAGE>
Media Group Subsidiary in favor of the LMC Charters described in the previous
sentence. Neither the Liberty Media Group nor the Common Stock Group shall
permit any of the LMC Charters to include any provision that would be
inconsistent with this Section 1.9(a). The parties shall enter into such
agreements and other arrangements (or add provisions to constituent instruments)
as are necessary to give effect to this Section 1.9(a).
(b) If AT&T pays a mandatory dividend on, or redeems all or a portion
of, the AT&T Liberty Tracking Shares pursuant to paragraph 5(b) of Part B of
Article Third of the AT&T Charter Amendment in shares of the outstanding capital
stock of a Person that at the time of such dividend or other redemption was a
direct or indirect Subsidiary of AT&T, then prior to such redemption or dividend
the certificate of incorporation or other organizational instruments of each
such Subsidiary of AT&T the ("Sub Charters") shall be amended and/or restated
------------
(A) so that such instruments contain provisions relating to the election of
directors (including without limitation provisions relating to the term and
removal of directors) and each other matter which could reasonably be expected
to impair the ability of a third party to seek control of such entity which are
equivalent to, but no more restrictive than, those contained in the certificate
of incorporation and by-laws of TCI in effect as of June 23, 1998, (B) to
increase the authorized number of shares of common stock of such Subsidiary to
at least a sufficient number to permit such redemption or dividend on a share-
for-share basis (or a reasonable fraction thereof), and (C) if and to the extent
practicable, to reclassify the existing common stock of such Subsidiary into
shares of two separate classes or series with relative voting rights and related
differences in designation, conversion, redemption and share distribution
provisions equivalent to but not greater than the corresponding differences in
voting rights, designation, conversion, redemption and share distribution
provisions between the Class A AT&T Liberty Tracking Shares and the Class B AT&T
Liberty Tracking Shares (with the holders of the Class B AT&T Liberty Tracking
Shares receiving the class or series having the higher relative voting rights).
Prior to such redemption, LMC may propose the forms of such Sub Charters, which
Sub Charters shall contain the provisions set forth in this Section 1.9(b), and
may contain such additional provisions as may be proposed by LMC (which shall be
subject to AT&T's reasonable approval). AT&T will vote or cause to be voted its
direct or indirect equity interest in each applicable Liberty Media Group
Subsidiary in favor of the Sub Charters described in the previous sentence.
Neither the Liberty Media Group nor the Common Stock Group shall permit any of
the Sub Charters to include any provision that would be
11
<PAGE>
inconsistent with this Section 1.9(b). The parties shall enter into such
agreements and other arrangements (or add provisions to constituent instruments)
as are necessary to give effect to this Section 1.9(b).
(c) In the event of any redemption of any AT&T Liberty Tracking Shares
in exchange for any shares of any class of capital stock of any Subsidiary or
Subsidiaries of AT&T that is or are members of the Liberty Media Group (each, a
Liberty Co), including without limitation, any such redemption pursuant to
- ----------
paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, then
prior to any such redemption, the Liberty Media Group shall take such action as
is necessary to cause each such Liberty Co to enter into an agreement providing
that in the event that any holder of any of the convertible notes referred to in
Note 9(c) of TCI's consolidated audited financial statements for the year ended
December 31, 1997 (the Convertible Notes), convert all or part of such
-----------------
Convertible Notes, each such Liberty Co shall deliver any consideration required
to be paid in respect of its capital stock in accordance with the terms of the
Convertible Notes to the holders of the Convertible Notes upon conversion
thereof (or upon request of the applicable issuer of such Convertible Notes in
connection with any such conversion, to deliver such consideration to the
applicable issuer for delivery to such converting holder(s)). With reference to
a redemption pursuant to paragraph 5(a) of Part B of Article Third of the AT&T
Charter Amendment, if there is any direct or indirect tax liability to AT&T or
any other obligor of the Convertible Notes arising from the performance by any
such Liberty Co of its obligations in connection with the preceding sentence and
this sentence, such tax liability shall be borne 40% by the Liberty Media Group
and 60% by the Common Stock Group.
SECTION 1.10. AT&T SEC Filings; Financial Statements; Cooperation.
---------------------------------------------------
(a) For so long as any AT&T Liberty Tracking Shares are outstanding, AT&T shall
include in its filings with the SEC under the Exchange Act (or amendments
thereto), combined financial statements of the Liberty Media Group provided by
LMC. The combined financial statements of the Liberty Media Group shall reflect
the combined financial position, results of operations and cash flows of the
businesses attributed to the Liberty Media Group, and in the case of annual
financial statements, shall be audited. If so requested by LMC, AT&T shall
include, together with the copies of its annual report to stockholders that are
mailed to holders of AT&T Liberty Tracking Shares, such separate materials
containing the following information as LMC may timely provide to AT&T for
inclusion therein: (i) the combined
12
<PAGE>
financial statements referred to in the preceding sentence and (ii) other
narrative and statistical information relating to the Liberty Media Group.
Alternatively, if so requested by LMC, AT&T will reasonably cooperate with LMC
in forwarding such materials provided to AT&T by LMC to the holders of the AT&T
Liberty Tracking Shares. In either case, all incremental expenses associated
therewith shall be borne solely by the Liberty Media Group.
(b) AT&T shall, and shall cause the members of the Common Stock Group
to, cooperate with the Liberty Media Group, and LMC shall, and shall cause the
members of the Liberty Media Group to, cooperate with the Common Stock Group,
with respect to common functions such as financial reporting, tax reporting and
governmental and regulatory filings.
(c) Upon the request of LMC, AT&T shall cooperate with LMC in
establishing and maintaining for the benefit of the officers and employees of
the Liberty Media Group, at the Liberty Media Group's sole cost and expense,
employee stock purchase, stock option and 401(k) plans, as well as such other
customary employee benefit and incentive plans as LMC may reasonably request;
provided, that the trustees, administrators or other managers of any such plan
established solely for the benefit of all or a portion of the officers and
employees of the Liberty Media Group shall be persons designated by LMC.
SECTION 1.11. Restricted Actions of the Common Stock Group. (a)
--------------------------------------------
AT&T shall not, and shall not permit any member of the Common Stock Group to,
directly or indirectly, (i) Transfer (other than Transfers pursuant to a
redemption of the AT&T Liberty Tracking Shares in accordance with paragraph 5 of
Part B of Article Third of the AT&T Charter Amendment), (ii) incur any
indebtedness secured by or pledge or grant a lien, security interest or other
encumbrance on, or (iii) create any derivative instrument whose value is based
on, any equity interest, direct or indirect, of AT&T in LMC, Liberty Media Group
LLC, or any Covered Entity; provided, however, that the foregoing shall not
-------- -------
apply to (A) any of the foregoing approved (x) by a Required Majority of the
members of the Board of Directors of LMC or the applicable Covered Entity prior
to the occurrence of a Triggering Event, or (y) by Liberty Management after the
occurrence of a Triggering Event ((x) or (y), as applicable, a Liberty
-------
Approval) (but in either such case only to the extent the net proceeds of such
- --------
Transfer, incurrence or creation are contributed to LMC or, following the
occurrence of a Triggering Event, Liberty Media Group LLC), (B) any issuance or
sale by AT&T of any of its own securities (other than (x) indebtedness secured
by any equity interest,
13
<PAGE>
direct or indirect, of AT&T in LMC or Liberty Media Group LLC or any Covered
Entity, (y) any security which is convertible into or exercisable or
exchangeable for, or any derivative instrument whose value is based on, any
equity interest, direct or indirect, of AT&T in LMC or Liberty Media Group LLC
or any Covered Entity or (z) any issuance or sale of AT&T Liberty Tracking
Shares (or any security convertible into or exercisable or exchangeable for,
AT&T Liberty Tracking Shares) in which the proceeds of such issuance and sale
are not contributed to the Liberty Media Group), or (C) any merger,
consolidation, exchange of shares or other business combination transaction
involving AT&T in which AT&T (or its successors) continues immediately following
such transaction to hold the same interest in the business, assets and
liabilities comprising the Liberty Media Group that it held immediately prior to
such transaction (other than as a result of any action by LMC or any other
Person included in the Liberty Media Group).
(b) For so long as any AT&T Liberty Tracking Shares are outstanding,
AT&T shall not, and shall cause each member of the Common Stock Group not to,
intentionally take any action that AT&T knows would have the effect of
deconsolidating LMC or any Covered Entity from the AT&T consolidated group for
United States federal income tax purposes; provided, however, that the foregoing
shall not apply to (i) a disposition of all or substantially all of the
properties and assets of the Liberty Group pursuant to paragraph 5(b) of Part B
of Article Third of the AT&T Charter Amendment, (ii) any redemption of the
outstanding AT&T Liberty Tracking Shares pursuant to paragraph 5(a) of Part B of
Article Third of the AT&T Charter Amendment, (iii) any deconsolidation of a
Covered Entity which occurs as a result of the consummation of the transactions
contemplated by the Contribution Agreement following the occurrence of a
Triggering Event, or (iv) any such deconsolidation pursuant to a Covered
Disposition approved by the holders of the AT&T Liberty Tracking Shares in
accordance with paragraph 1(b)(ii) of Part B of Article Third of the AT&T
Charter Amendment.
(c) AT&T shall not create, authorize or issue any preferred stock of
AT&T attributable to the Liberty Media Group without a Liberty Approval.
(d) Neither AT&T nor any other member of the Common Stock Group shall
intentionally acquire or agree to acquire, directly or indirectly, by purchase
or otherwise, any beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) of any shares
of any
14
<PAGE>
class of capital stock of Flextech plc ("Flextech") or any of its subsidiaries
--------
listed on a schedule to be provided to AT&T by LMC, which schedule shall be
updated periodically by LMC, or any direct or indirect rights or options to
acquire (through purchase, exchange, conversion or otherwise) any shares of any
class of capital stock of Flextech or any of such subsidiaries; provided,
however, that nothing herein shall prevent AT&T or any member of the Common
Stock Group from acquiring less than 10 percent by vote and value of any company
which is incorporated in a state of the United States which owns shares of
Flextech. If AT&T or any member of the Common Stock Group inadvertently
acquires, directly or indirectly, any beneficial ownership of any such shares or
any rights or options to acquire such shares, AT&T or such member of the Common
Stock Group shall divest such shares, rights or options within 30 days of such
acquisition. At such time and to the extent that the covenant contained herein
is no longer necessary to prevent adverse tax consequences, the covenant shall
expire and LMC will so notify AT&T. Neither AT&T nor any member of the Common
Stock Group has any beneficial ownership of any shares of any class of capital
stock of Flextech or any of its subsidiaries or any direct or indirect rights or
options to acquire (through purchase, exchange, conversion or otherwise) any
shares of any class of capital stock of Flextech or any of its subsidiaries.
SECTION 1.12. Restricted Actions of the Liberty Media Group. Neither
---------------------------------------------
LMC nor any other member of the Liberty Media Group shall intentionally acquire
or agree to acquire, directly or indirectly, by purchase or otherwise, any
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) of any shares of any class of
capital stock of British Telecommunications plc, a company organized under the
laws of England and Wales ("BT") or any of its subsidiaries listed on a schedule
--
to be provided to LMC by AT&T, which schedule shall be updated periodically by
AT&T, or any direct or indirect rights or options to acquire (through purchase,
exchange, conversion or otherwise) any shares of any class of capital stock of
BT or any of such subsidiaries; provided, however, that nothing herein shall
prevent LMC or any member of the Liberty Media Group from acquiring (1) any
interest in any subsidiary of BT which is incorporated in a state of the United
States and is not the direct or indirect shareholder of any equity interest in
Thistle BV and (2) less than 10 percent by vote and value of any company which
is incorporated in a state of the United States which owns shares of BT. If LMC
or any member of the Liberty Media Group inadvertently
15
<PAGE>
acquires, directly or indirectly, any beneficial ownership of any such shares or
any rights or options to acquire such shares, LMC or such member of the Liberty
Media Group shall divest such shares, rights or options within 30 days of such
acquisition. At such time and to the extent that the covenant contained herein
is no longer necessary to prevent adverse tax consequences, the covenant shall
expire and AT&T will so notify LMC. Neither LMC nor any member of the Liberty
Media Group has any beneficial ownership of any shares of any class of capital
stock of BT or any of its subsidiaries or any direct or indirect rights or
options to acquire (through purchase, exchange, conversion or otherwise) any
shares of any class of capital stock of BT or any of its subsidiaries.
SECTION 1.13 Telewest Communications plc. Effective no later than
---------------------------
the date of closing of the transactions contemplated by the Framework Agreement,
dated as of October 23, 1998, by and among AT&T, VLT Corporation, British
Telecommunications plc, BT (Netherlands) Holdings B.V., and Thistle B.V., a
Besloten Vennotschap organized under the laws of the Netherlands, LMC agrees (i)
to create a committee of the Board of Directors of LMC, in which the Class A
Directors (as such term is defined in the Restated Certificate of Incorporation
of LMC) will not participate; (ii) that the Board of Directors of LMC will
delegate to such committee its authority to discuss and receive information and
take all decisions regarding Telewest Communications plc, a public limited
company incorporated in England and Wales (Telewest), or and of its
Subsidiaries, (iii) that the Board of Directors of LMC will not participate in
any discussions or decisions regarding Telewest or any of its Subsidiaries and
(iv) that the Class A Directors will not accept or receive any information
regarding Telewest or any of its Subsidiaries.
SECTION 1.14 GI Warrants.
-----------
(a) For purposes of this Section 1.14, the following terms shall have
the following meanings:
(i) Digital Terminals shall mean the Terminals, as defined in
-----------------
the Digital Terminal Purchase Agreement.
(ii) Digital Terminal Purchase Agreement shall mean the
-----------------------------------
Digital Terminal Purchase Agreement, dated as of December 16, 1997, by and
between GI and NDTC.
16
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(iii) GI shall mean General Instrument Corporation (formerly
--
known as NextLevel Systems, Inc.), or any successor thereto (by merger,
consolidation, sale of all or substantially all of its assets or otherwise) or
affiliate thereof.
(iv) GI Common Stock shall mean the common stock of GI.
---------------
(v) GI Warrant Agreement shall mean the Warrant Issuance
--------------------
Agreement, dated as of December 16, 1997, by and between GI and NDTC.
(vi) NDTC shall mean National Digital Television Center, Inc.
----
(or any successor thereto (by merger, consolidation, sale of all or
substantially all of its assets or otherwise)) and any Approved Purchaser (as
defined in the GI Warrant Agreement) for purposes of determining whether the
obligations of NDTC to purchase the Threshold Numbers of Digital Terminals under
the Digital Terminal Purchase Agreement and the GI Warrant Agreement have been
satisfied.
(vii) Threshold Number shall mean the minimum number of Digital
----------------
Terminals that must be purchased by NDTC by December 31st of each calendar year
for the calendar years 1998, 1999 and 2000, as described in Schedule A to the GI
Warrant Agreement.
(viii) Terminated Warrant shall mean a Warrant that is the
------------------
subject of a Warrant Termination.
(ix) Warrants shall mean the warrants, originally issued to
--------
NDTC pursuant to the GI Warrant Agreement and transferred and assigned to LMC
pursuant to an Assignment and Assumption Agreement, dated as of March 9, 1999,
to purchase up to 21,356,000 shares of GI Common Stock (subject to adjustments
provided for in the GI Warrant Agreement).
(b) (i) If any Warrant terminates prior to vesting or fails
to vest solely because of the failure of the Common Stock Group to purchase the
required amount of advanced set top boxes (a Warrant Termination), and the
-------------------
Liberty Media Group so notifies AT&T in writing, and provides AT&T with
documentation verifying such Warrant Termination (such notification and
documentation, the Warrant Notice), the Common Stock Group shall pay to the
Liberty Media Group an amount in cash equal to $8.25 per share of GI Common
Stock that would have been issuable upon exercise of such Terminated Warrant had
it vested and been exercised in full
17
<PAGE>
(such dollar amount to be appropriately adjusted to reflect any adjustment in
the number of shares so issuable) (a Warrant Compensation), such payment to be
--------------------
made in immediately available funds no later than the 10th day following receipt
by AT&T of the Warrant Notice. Nothing herein shall preclude the Common Stock
Group from seeking legal recourse against GI in the event of a Warrant
Termination; provided, however, that if the Common Stock Group receives any
Alternate Consideration, the Liberty Media Group shall have the right, but not
the obligation, to exchange all or a portion of any Warrant Compensation for all
or an allocable portion of any Alternate Consideration received by any member of
the Common Stock Group from GI that directly or indirectly relates to such
Warrant Termination.
(ii) The Common Stock Group agrees to notify promptly the
Liberty Media Group, pursuant to Section 4.1 hereof, of any communication
received from GI by the Common Stock Group regarding a Warrant Termination or an
assertion by GI that a Warrant Termination has occurred.
(iii) The Common Stock Group agrees that before any member
of the Common Stock Group enters into any agreement, arrangement or
understanding, whether verbal or written, with GI relating to the purchase of
any Digital Terminal or like equipment or any other transaction contemplated by
the Digital Terminal Purchase Agreement or the GI Warrant Agreement (other than
the placement of purchase orders pursuant to the terms of the Digital Terminal
Purchase Agreement in effect on the date hereof) which would be reasonably
likely to have an adverse effect on the Warrants (including the vesting or
exercisability thereof), the Common Stock Group will first notify the Liberty
Media Group of the proposed terms of such agreement, arrangement or
understanding by providing a copy thereof or, if such agreement is verbal, a
summary of the terms thereof, to the Liberty Media Group, in each case pursuant
to Section 4.1 hereof. Notwithstanding the foregoing, the Common Stock Group
shall not agree to any amendment or modification to the Digital Terminal
Purchase Agreement or the GI Warrant Agreement, or waive any rights thereunder
(or enter into any agreement, arrangement or understanding relating to a Warrant
Termination or the payment of any Alternate Consideration) without the prior
written consent of LMC, which consent shall not be unreasonably withheld or
delayed.
SECTION 1.15. AT&T Board of Directors. As promptly as practicable
-----------------------
following the Effective Time, AT&T will expand the size of its Board of
Directors by one and will appoint Dr. John C. Malone (or, in the
18
<PAGE>
event Dr. Malone is unable to serve, such other person as may be designated by
LMC and reasonably satisfactory to AT&T) to the AT&T Board of Directors. From
the Effective Time until the third anniversary thereof, AT&T will nominate Dr.
Malone (or such other person) for reelection to the AT&T Board of Directors at
each subsequent annual or special meeting of the stockholders of AT&T at which
Dr. Malone's (or such other person's) term is to expire. Thereafter (and during
such period to the extent Dr. Malone or such other person is unable to serve as
a director), so long as any AT&T Liberty Tracking Shares remain outstanding,
AT&T will nominate and recommend the election to the AT&T Board of Directors a
person (who may be Dr. Malone) who, in the AT&T Board of Directors' reasonable
judgment, by virtue of his or her background and experience, will understand and
reflect issues of concern to the Liberty Media Group and the holders of AT&T
Liberty Tracking Shares.
SECTION 1.16. Tax Law Change. In the event of any Tax Law Change,
--------------
AT&T covenants and agrees that it will not thereafter issue or sell, or obligate
itself to issue or sell, any additional AT&T Liberty Tracking Shares (including
through the issuance of any additional Convertible Securities); provided that if
such Tax Law Change is applicable to some but not all future issuances or sales
of AT&T Liberty Tracking Shares, the covenants contained in this Section 1.16
shall not apply to issuances or sales to which the Tax Law Change does not
apply. While a proposed Tax Law Change is pending, AT&T covenants and agrees it
will not incur any new obligation to issue or sell any additional AT&T Liberty
Tracking Shares (including through issuance of any additional Convertible
Securities). If at the time of the Tax Law Change, AT&T or any member of the
Common Stock Group has a pre-existing unsatisfied obligation (a "Tracking Stock
--------------
Obligation") to issue AT&T Liberty Tracking Shares (including upon conversion,
- ----------
exercise or exchange of any Convertible Securities), LMC will have the right to
direct that such Tracking Stock Obligation be satisfied through the payment in
cash of the value of the shares that would otherwise have been issued or the
delivery of AT&T Liberty Tracking Shares acquired by LMC or an agent thereof or
in any other reasonable manner; provided that, if any such Tracking Stock
Obligation is satisfied at LMC's direction other than by the delivery of AT&T
Liberty Tracking Shares in accordance with the terms of such Tracking Stock
Obligation, then if such Tracking Stock Obligation was outstanding at the time
of the Merger or thereafter incurred prior to the Tax Law Change with a Liberty
Approval, LMC shall be solely responsible for and shall indemnify and hold AT&T
and its subsidiaries, and their respective directors and officers,
19
<PAGE>
harmless from and against any claims, actions, proceedings, losses or damages
arising as a result of any claim by the obligee that such manner of payment
constitutes a breach or nonperformance of such Tracking Stock Obligation. LMC
shall have the right to direct the defense of any such claim with counsel of its
choosing and shall be solely responsible for the payment of the legal and other
expenses arising therefrom. AT&T further agrees to cooperate with all reasonable
requests of LMC that are intended to mitigate the risks of triggering the
recognition of income upon issuance of AT&T Liberty Tracking Shares or the
amounts payable to obligees in lieu of issuances of AT&T Liberty Tracking
Shares.
In furtherance of LMC's rights pursuant to the foregoing, following
the occurrence of a Tax Law Change, LMC shall have the right, at its expense, to
direct AT&T or the applicable member of the Common Stock Group in the exercise
of its rights under any contract, instrument or agreement containing the
applicable Tracking Stock Obligation or pursuant to which the Tracking Stock
Obligation was incurred, as such rights relate to the AT&T Liberty Tracking
Shares. By way of example and not limitation, if at the time of a Tax Law
Change any UA Notes remain outstanding, LMC shall be entitled, at its expense,
to direct the exercise by AT&T or the applicable members of the Common Stock
Group of its rights under the stock purchase agreement pursuant to which such
notes were issued, as such rights relate to the AT&T Liberty Tracking Shares
issuable upon conversion of such notes, including, without limitation, the right
of first refusal on certain proposed sales of such AT&T Liberty Tracking Shares.
If LMC exercises its right to direct that a Tracking Stock Obligation
be satisfied in cash, then LMC shall pay AT&T an amount equal to the amount of
such cash payment or, in the case of Stock Incentives for which the Common Stock
Group is responsible under Section 1.4(a)(ii) hereof, the positive difference,
if any, between (i) the amount of such cash payment and (ii) the amount that
AT&T would have been obligated to pay LMC if such Tracking Stock Obligation had
been satisfied in AT&T Liberty Tracking Shares. With respect to Stock
Incentives for which the Common Stock Group is responsible, if LMC delivers AT&T
Liberty Tracking Shares to the obligee in satisfaction of such Tracking Stock
Obligation (or to AT&T or the applicable Common Stock Group member to deliver in
satisfaction of such Tracking Stock Obligation), AT&T shall pay LMC the
20
<PAGE>
amounts that would have been payable to LMC pursuant to Section 1.4(a)(ii) in
the event of the issuance of AT&T Liberty Tracking Shares on exercise or
settlement of such Stock Incentives.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1. Representations and Warranties of AT&T. AT&T represents
--------------------------------------
and warrants to LMC that (a) AT&T is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
AT&T and the consummation by AT&T of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of AT&T and
no other corporate proceedings on the part of AT&T are necessary to authorize
this Agreement or any of the transactions contemplated hereby, (c) this
Agreement has been duly executed and delivered by AT&T and constitutes a valid
and binding obligation of AT&T, and, assuming this Agreement constitutes a valid
and binding obligation of LMC and each of the Covered Entities, is enforceable
against AT&T and each member of the Common Stock Group in accordance with its
terms, (d) neither the execution, delivery or performance of this Agreement by
AT&T constitutes a breach or violation of or conflicts with the AT&T Charter or
AT&T's By-Laws or any material agreement to which AT&T is a party, and (e) none
of such material agreements would impair in any material respect the ability of
AT&T to perform its obligations hereunder.
SECTION 2.2. Representations and Warranties of LMC. LMC represents
-------------------------------------
and warrants to AT&T that: (a) (i) LMC is a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder, (ii) the execution and delivery of this Agreement by LMC
and the consummation by LMC of the transactions contemplated hereby have been
duly authorized by all necessary action on the part of LMC and no other
proceedings on the part of LMC are necessary to authorize this Agreement or any
of the transactions contemplated hereby, (iii) this Agreement has been duly
executed and delivered by LMC and each Covered Entity and constitutes a valid
and binding obligation of LMC and each Covered Entity, and, assuming this
Agreement constitutes a valid and binding obligation of AT&T, is enforceable
against LMC and each Covered Entity in accordance with its terms,
21
<PAGE>
(iv) neither the execution, delivery or performance of this Agreement by LMC
constitutes a breach or violation of or conflicts with its certificate of
incorporation or by-laws or any material agreement to which LMC is a party, and
(v) none of such material agreements would impair in any material respect the
ability of LMC to perform its obligations hereunder.
(b) As of the date hereof and after giving effect to the Merger, the
total indebtedness of the Liberty Media Group is not in excess of the Liberty
Media Group Debt Limit.
ARTICLE III
DEFINITIONS
SECTION 3.1. Certain Defined Terms. For purposes of this Agreement,
---------------------
the following terms shall have the following meanings:
(a) "AT&T" shall have the meaning set forth in the preamble.
-----
(b) "AT&T Charter" shall mean the Certificate of Incorporation of
------------
AT&T, as amended to the date hereof.
(c) "AT&T Charter Amendment" shall mean the proposed amendment to the
----------------------
AT&T Charter attached as Appendix B to TCI's proxy statement, dated as of
January 8, 1999, providing for, among other things, the creation of the Liberty
Media Group and the authorization of the AT&T Liberty Tracking Shares, which
amendment is to become effective immediately prior to the Merger and the
execution of this Agreement.
(d) "AT&T Liberty Tracking Shares" shall mean collectively, the
----------------------------
shares of Class A Liberty Media Group Common Stock, par value $1.00 per share,
of AT&T and the shares of Class B Liberty Media Group Common Stock, par value
$1.00 per share, of AT&T, in each case, having the rights, privileges and
preferences as set forth in the AT&T Charter Amendment.
(e) "BT" shall have the meaning set forth in Section 1.12.
--
(f) "Call Agreements" shall mean collectively the Call Agreements,
---------------
each dated as of February 9, 1998, between TCI, on the one hand, and certain
stockholders of TCI, including John C. Malone, holding shares of Company Common
Stock having more than one vote per share, on the other hand.
22
<PAGE>
(g) "Capital Stock Committee" means the committee of the Board of
-----------------------
Directors of AT&T established pursuant to the amendment to the bylaws of AT&T
adopted pursuant to Section 7.16 of the Merger Agreement.
(h) "Common Stock Group" shall have the meaning ascribed to such term
------------------
in the AT&T Charter Amendment (including, for purposes of this Agreement for
periods prior to the Merger, the TCI Group).
(i) "Contribution Agreement" means the Contribution Agreement, dated
----------------------
as of March 9, 1999, by and among LMC, Liberty Management, Liberty Media Group
LLC and Liberty Ventures LLC, a Delaware limited liability company.
(j) "Convertible Securities" shall have the meaning set forth in
----------------------
Section 1.6(b).
(k) "Convertible Notes" shall have the meaning set forth in Section
-----------------
1.9(c).
(l) "Covered Entities" shall have the meaning given to such term in
----------------
the AT&T Charter Amendment.
(m) "Credit Rating Agency" shall have the meaning set forth in
--------------------
Section 1.3(b).
(n) "Flextech" shall have the meaning set forth in Section 1.11(d).
--------
(o) "Group" shall mean either the Common Stock Group or the Liberty
-----
Media Group.
(p) "Intercompany Agreements" shall have the meaning set forth in
-----------------------
Section 1.1.
(q) "Letter Agreement" shall have the meaning set forth in Section
----------------
1.7(a).
(r) "Liability" shall mean any debt, loss, liability, claim, fine,
---------
royalty, deficiency, damage, obligation, restriction, limitation, payment, cost
or expense, in each case, whether mature or unmatured, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated or known or unknown.
(s) "Liberty Approval" shall have the meaning set forth in Section
----------------
1.11(a).
(t) "Liberty Media Parties" shall have the meaning set forth in the
---------------------
preamble.
(u) "Liberty Co" shall have the meaning set forth in Section 1.9(c).
----------
(v) "Liberty Debt Incurrence" shall have the meaning set forth in
-----------------------
Section 1.3(b).
(w) "Liberty Debt Notice" shall have the meaning set forth in Section
-------------------
1.3(b).
23
<PAGE>
(x) "Liberty Media Group" shall have the meaning ascribed to the term
-------------------
Liberty Media Group in the AT&T Charter Amendment.
(y) "Liberty Media Group Debt Limit" shall have the meaning set forth
------------------------------
in Section 1.3(b).
(z) "Liberty Media Group LLC" shall mean Liberty Media Group LLC, a
-----------------------
Delaware limited liability company.
(aa) "Liberty Management" shall mean Liberty Media Management LLC, a
------------------
Delaware limited liability company.
(bb) "Liberty Media Group Subsidiary" shall have the meaning ascribed
------------------------------
to such term in the AT&T Charter Amendment.
(cc) "LMC" shall mean Liberty Media Corporation, a Delaware
---
corporation (provided that, unless the context otherwise requires, following the
occurrence of a Triggering Event, each reference herein to LMC shall be deemed a
reference to Liberty Media Group LLC).
(dd) "LMC Charters" shall have the meaning set forth in Section
------------
1.9(a).
(ee) "Merger" shall have the meaning set forth in the Recitals.
------
(ff) "Merger Agreement" shall have the meaning set forth in the
----------------
Recitals.
(gg) "Merger Sub" shall have the meaning set forth in the Recitals.
----------
(hh) "Other Group Shares" shall mean (i) in the case of a Stock
------------------
Incentive held by an officer or employee of the Common Stock Group, the AT&T
Liberty Tracking Shares, or (ii) in the case of a Stock Incentive held by an
officer or employee of the Liberty Media Group, the Parent Common Shares.
(ii) "Person" shall mean any individual, partnership, joint venture,
------
corporation, trust, unincorporated organization, government or department or
agency of a government.
(jj) "Qualifying Subsidiary" of a Person shall mean a Subsidiary of
---------------------
such Person in which such Person's ownership and voting interest is sufficient
to satisfy the ownership and voting requirements of the Internal Revenue Code
and the regulations thereunder (each as amended from time to time) for a
distribution of such Person's interest in such Subsidiary to the holders of
Class A Liberty Media Group Common Stock and Class B Liberty Media Group Common
Stock to be tax free to such holders.
24
<PAGE>
(kk) "Stockholders Agreement" shall mean the Stockholders Agreement,
----------------------
dated as of February 9, 1998, by and among TCI, John C. Malone, and certain
other stockholders of TCI.
(ll) "Stock Incentive" shall have the meaning set forth in Section
---------------
1.4(a)(ii).
(mm) "Sub Charters" shall have the meaning set forth in Section
------------
1.9(b).
(nn) "Subsidiary" shall have the meaning given to such term in the
----------
AT&T Charter Amendment.
(oo) "Tax Law Change" means the enactment into Law of the applicable
--------------
revenue provisions of the President's Fiscal Year 2000 Budget proposal, as
submitted to the Congress on February 21, 1999, or any similar proposal, that
would result in the issuance of a tracking stock causing the issuer or any
member of its consolidated group to recognize income on such issuance, unless
such Law by its terms is inapplicable to future issuances of AT&T Liberty
Tracking Shares.
(pp) "TCI" shall mean Tele-Communications, Inc., a Delaware
---
corporation.
(qq) "TCI Preferred Stock" shall mean preferred stock, par value $.0l
-------------------
per share, of TCI.
(rr) "TCI Preferred Stock" shall mean the Cumulative Exchangeable
-------------------
Preferred Stock, Series A, of TCI Communications, Inc. a Delaware corporation
and formerly a wholly owned subsidiary of TCI.
(ss) "TINTA" shall have the meaning set forth in Section 1.6(d).
-----
(tt) "Tracking Stock Obligation" shall have the meaning set forth in
-------------------------
Section 1.16.
(uu) "Transfer" shall mean, directly or indirectly, to sell, issue,
--------
transfer, dispose, assign, pledge, encumber, hypothecate or otherwise convey,
either voluntarily or involuntarily (whether by merger, consolidation, sale or
issuance or contribution of assets or stock, or otherwise), or to enter into any
contract, option or other arrangement or understanding with respect to the sale,
transfer, disposition, assignment, pledge, encumbrance, hypothecation or other
conveyance (whether by merger, consolidation, sale or issuance or contribution
of assets or stock, or otherwise).
(vv) "Triggering Event" shall have the meaning ascribed to such term
----------------
in the Contribution Agreement.
25
<PAGE>
SECTION 3.2 Other Definitional Provisions. The language used in this
-----------------------------
Agreement shall be deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall be applied against
any party. Any references to any statute or law shall also refer to all rules
and regulations promulgated thereunder, unless the context requires otherwise.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words include, includes, and including
shall be deemed to be followed by the phrase without limitation. The words
hereof, herein and hereunder and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article and Section references are to this
Agreement unless otherwise specified. The meanings given to terms defined herein
shall be equally applicable to both the singular and plural forms of such terms.
Unless the context shall otherwise require, any references to any agreement or
other instrument or statute or regulation are to it as amended and supplemented
from time to time (and, in the case of a statute or regulation, to any successor
provisions). Any reference in this Agreement to a day or number of days (without
the explicit qualification of business) shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
business day, then such action or notice shall be deferred until, or may be
taken or given on, the next business day.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1. Notices. All notices, requests, demands or other
-------
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed to have been given to any party when delivered
personally (by courier service or otherwise), when delivered by telecopy and
confirmed by return telecopy, or upon receipt after being mailed by first-class
mail, postage prepaid and return receipt requested in each case to the
applicable addresses set forth below:
If to AT&T or any member of the Common Stock Group:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
26
<PAGE>
Attention: Vice President-Law
and Corporate Secretary
Facsimile: (908) 221-6618
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard D. Katcher, Esq.
Steven A. Rosenblum, Esq.
Facsimile: (212) 403-2000
If to LMC or any member of the Liberty Media Group:
Liberty Media Corporation
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Attention: Charles Y. Tanabe, Esq.
Facsimile: (303) 721-5443
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Elizabeth M. Markowski, Esq.
Frederick H. McGrath, Esq.
Facsimile: (212) 705-5125
or such address as such party shall have designated by notice so given to each
other party.
SECTION 4.2. Amendments; No Waivers. (a) This Agreement shall be
----------------------
amended, changed, supplemented, waived or otherwise modified only by an
instrument in writing signed by each of AT&T and LMC (and following a Triggering
Event, Liberty Media Group LLC).
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 4.3. Successors and Assigns. Neither this Agreement nor any
----------------------
of the rights or obligations under this Agreement shall be assigned, in whole or
in part, by any party without the prior written consent of the other party
hereto; provided, however, that the assignment of its rights and obligations
-------- -------
under this
27
<PAGE>
Agreement by LMC to Liberty Media Group LLC in connection with the transactions
contemplated by the Contribution Agreement shall not require the consent of
AT&T. Subject to the foregoing, the provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
SECTION 4.4. Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
and all disputes hereunder shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware, without regard to
the principles of conflicts of laws. Each party hereto irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the United
States District Court for the District of Delaware or the Chancery Court of the
State of Delaware in any action, suit or proceeding arising in connection with
this Agreement, and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
----- ---
conveniens or any other objection to venue therein); provided, however, that
- ---------- -------- -------
such consent to jurisdiction is solely for the purpose referred to in this
Section 4.4 and shall not be deemed to be a general submission to the
jurisdiction of said courts or of the State of Delaware other than for such
purpose. AT&T and LMC each hereby waive any right to a trial by jury in
connection with any such action, suit or proceeding.
SECTION 4.5. Counterparts; Effectiveness. This Agreement may be
---------------------------
executed in any number of counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts thereof signed by the other party hereto.
SECTION 4.6. Specific Performance. Each of AT&T and LMC acknowledges
--------------------
and agrees that money damages are not an effective remedy for violations of this
Agreement and that any party may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper in order to enforce this Agreement
or prevent any violation hereof and, to the extent permitted by applicable Law,
each party waives any objection to the imposition of such relief.
SECTION 4.7. Remedies Cumulative. All rights, powers and remedies
-------------------
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and
28
<PAGE>
the exercise or beginning of the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party.
SECTION 4.8. Termination. This Agreement shall remain in full force
-----------
and effect until such time as no outstanding shares of AT&T Liberty Tracking
Shares are outstanding, at which time this Agreement shall terminate and upon
termination, no party shall have any liability or further obligation to the
other under this Agreement except that the provisions of Sections 1.4 and this
Section 4.8 shall survive the termination of this Agreement; provided, however,
that such termination shall not relieve any party hereto of any liability for
any breach of this Agreement.
SECTION 4.9. Severability. In case any provision in this Agreement
------------
shall be held invalid, illegal or unenforceable in a jurisdiction, such
provision shall be modified or deleted, as to the jurisdiction involved, only to
the extent necessary to render the same valid, legal and enforceable, and the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.
SECTION 4.10. Cooperation. (a) Each of AT&T and LMC covenants and
-----------
agrees with the other to use its reasonable best efforts to cause each member of
the Common Stock Group and each member of the Liberty Media Group, respectively,
to fulfill each of its respective obligations under this Agreement.
(b) Each of AT&T and LMC covenants and agrees with the other to use
its reasonable best efforts to cause each member of the Common Stock Group and
each member of the Liberty Media Group, respectively, to cooperate with the
other Group with respect to all common functions, including without limitation,
tax and financial reporting.
SECTION 4.11. Entire Agreement. Except as otherwise provided herein,
----------------
this Agreement (together with the Merger Agreement, the Intercompany Agreements
and each of the other agreements contemplated by the Merger Agreement or the
Intercompany Agreements) embodies the entire agreement and understanding between
the parties relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter. There are no
representations, warranties or covenants by the parties hereto relating to such
subject matter other than those expressly set forth in this Agreement (or the
Merger
29
<PAGE>
Agreement, the Intercompany Agreements or each of the other agreements
contemplated by the Merger Agreement or the Intercompany Agreements) and any
writings expressly required hereby.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
AT&T CORP.
By: /s/ Marilyn J. Wasser
----------------------------------------------
Name: Marilyn J. Wasser
Title: Vice President - Law and Secretary
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
LIBERTY MEDIA GROUP LLC
By: /s/ Charles Y. Tanabe
----------------------------------------------
Name: Charles Y. Tanabe
Title: Vice President
31
<PAGE>
Each of the following Covered Entities hereby executes
this Agreement as a member of the Liberty Media Group
to become a party to this Agreement for so long as it
remains a Covered Entity under the applicable
provisions of the AT&T Charter Amendment:
TCI WIRELESS HOLDINGS, INC.
By: /s/ Charles Y. Tanabe
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
TCIP, INC.
By: /s/ Charles Y. Tanabe
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
SILVER SPUR LAND AND CATTLE CO.
By: /s/ Charles Y. Tanabe
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
TCI INTERACTIVE, INC.
By: /s/ Charles Y. Tanabe
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
32
<PAGE>
EXHIBIT 10.3
------------
LIBERTY MEDIA CORPORATION
8101 East Prentice Avenue
Englewood, Colorado 80111
March 9, 1999
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Re: Intercompany Agreement
----------------------
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Restructuring and
Merger, dated as of June 23, 1998, among Tele-Communications, Inc. ("TCI"), AT&T
Corp. ("AT&T") and Italy Merger Corp., as amended or supplemented to the date
hereof (the "Merger Agreement"). Section 7.14 of the Merger Agreement
contemplates that at the Effective Time the parties will enter into an agreement
having the terms set forth in Schedule 7.14 to the Merger Agreement ("Schedule
7.14"). Capitalized terms used in this letter agreement (this "Letter
Agreement") and not otherwise defined shall have the meanings ascribed thereto
in the Merger Agreement.
This Letter Agreement sets forth the agreement between AT&T, on behalf
of itself and the members of the Common Stock Group (as defined in the Parent
Charter Amendment), and Liberty Media Corporation ("LMC"), on behalf of itself
and the members of the Liberty Media Group (as defined in the Parent Charter
Amendment), contemplated by Section 7.14 of the Merger Agreement.
In consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Binding Agreement. The parties acknowledge and agree that
-----------------
Schedule 7.14 is hereby incorporated by reference as if completely restated
herein, and the term "Letter Agreement" as used herein shall be deemed to refer
to this letter including Schedule 7.14 as if attached hereto. This Letter
Agreement constitutes a valid, binding and enforceable agreement between the
parties, subject to the terms and conditions set forth herein, and shall
<PAGE>
be binding upon and inure to the benefit of the parties hereto, the members of
their respective Groups (as defined in the Parent Charter Amendment) and their
respective successors and assigns. AT&T shall cause each of its Controlled
Affiliates (as defined below) immediately following the Effective Time, and each
other Person which thereafter becomes a Controlled Affiliate of AT&T, to be
bound by the terms of this Letter Agreement for so long as they remain members
of the Common Stock Group. LMC shall cause each of its Controlled Affiliates
immediately following the Effective Time, each of the Covered Entities (as such
term is defined in the Parent Charter Amendment), and each other Person which
thereafter becomes a Controlled Affiliate of LMC or of any of the Covered
Entities, to be bound by the terms of this Letter Agreement for so long as they
remain members of the Liberty Media Group. The term "Controlled Affiliate" shall
mean, as to any Person, any other Person which such first Person Controls.
2. Affiliation Documentation. The parties acknowledge that the
-------------------------
transactions referred to in paragraph 2 of Schedule 7.14 and Exhibit 1 thereto
have been documented and entered into prior to the Effective Time to the mutual
satisfaction of the parties (with the affiliation arrangements between the
Company and TV Guide, Inc. being substituted for the transaction referred to in
Schedule 7.14 as "Prevue Interactive Guide").
3. Definitive Agreement. Upon the written request of either party,
--------------------
AT&T and LMC shall (a) negotiate in good faith the terms and conditions of a
definitive agreement (the "Definitive Agreement") which (i) would contain
provisions incorporating and expanding upon the agreements set forth herein,
together with other provisions customary in the case of transactions of the type
described herein, and (ii) would supersede this Letter Agreement, and (b) use
reasonable efforts to execute and deliver, subject to clause (a) of this Section
3, such Definitive Agreement; provided, however, that the foregoing shall not
-------- -------
constitute an agreement to agree and (subject to the obligation to negotiate in
good faith and use reasonable efforts to enter into such Definitive Agreement)
neither party shall be obligated to enter into any Definitive Agreement.
Notwithstanding anything to the contrary set forth herein, until such Definitive
Agreement is executed by both parties, this Letter Agreement shall continue to
be a valid, binding and enforceable obligation of the parties.
4. Representations and Warranties. (a) AT&T represents and warrants
------------------------------
to LMC that (i) AT&T is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has the corporate
power and authority to enter into this Letter Agreement and to carry out its
obligations hereunder, (ii) the
2
<PAGE>
execution and delivery of this Letter Agreement by AT&T and the consummation
by AT&T of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of AT&T and no other corporate
proceedings on the part of AT&T are necessary to authorize this Letter Agreement
or any of the transactions contemplated hereby, (iii) this Letter Agreement has
been duly executed and delivered by AT&T and constitutes a valid and binding
obligation of AT&T, and, assuming this Letter Agreement constitutes a valid and
binding obligation of LMC, is enforceable against AT&T in accordance with its
terms, (iv) none of the execution, delivery or performance of this Letter
Agreement by AT&T constitutes a breach or violation of or conflicts with AT&T's
certificate of incorporation or by-laws or any material agreement to which AT&T
is a party or by which its properties are bound, and (v) none of such material
agreements would impair in any material respect the ability of AT&T to perform
its obligations hereunder.
(b) LMC represents and warrants to AT&T that (i) LMC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Letter Agreement and to carry out its obligations hereunder, (ii) the
execution and delivery of this Letter Agreement by LMC and the consummation by
LMC of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of LMC and no other proceedings on the part of LMC
are necessary to authorize this Letter Agreement or any of the transactions
contemplated hereby, (iii) this Letter Agreement has been duly executed and
delivered by LMC and constitutes a valid and binding obligation of LMC, and,
assuming this Letter Agreement constitutes a valid and binding obligation of
AT&T, is enforceable against LMC in accordance with its terms, (iv) none of the
execution, delivery or performance of this Letter Agreement by LMC constitutes a
breach or violation of or conflicts with its certificate of incorporation or by-
laws or any material agreement to which LMC is a party or by which its
properties are bound, and (v) none of such material agreements would impair in
any material respect the ability of LMC to perform its obligations hereunder.
5. Governing Law. This Letter Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, without regard
to principles of conflicts of laws.
6. Specific Performance. Each of AT&T and LMC acknowledges and
--------------------
agrees that money damages are not an effective remedy for violations of this
Letter Agreement and that any party may, in its sole discretion,
3
<PAGE>
apply to a court of competent jurisdiction for specific performance or
injunctive or such other relief as such court may deem just and proper in order
to enforce this Letter Agreement or prevent any violation hereof and, to the
extent permitted by applicable Law, each party waives any objection to the
imposition of such relief.
7. Counterparts. This Letter Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
8. Amendments; No Waivers. This Letter Agreement shall be amended,
----------------------
changed,supplemented, waived or otherwise modified only by an instrument in
writing signed by each of AT&T and LMC.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
9. Severability. In case any provision in this Letter Agreement
------------
shall be held invalid, illegal or unenforceable in a jurisdiction, such
provision shall be modified or deleted, as to the jurisdiction involved, only to
the extent necessary to render the same valid, legal and enforceable, and the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.
10. Cooperation. Each of AT&T and LMC covenants and agrees with the
-----------
other to use its reasonable best efforts to cause each member of the Common
Stock Group and each member of the Liberty Group, respectively, to fulfill each
of its respective obligations under this Letter Agreement.
11. Interpretation. The parties acknowledge and agree that the
--------------
language used in the Term Sheet shall be deemed to be the language chosen by the
parties to express their mutual intent and no rule of strict construction shall
be applied against either party.
4
<PAGE>
If the foregoing is acceptable to you, please confirm your agreement
by countersigning this letter and returning an executed copy to us.
Very truly yours,
LIBERTY MEDIA CORPORATION, for itself and for
each member of the Liberty Media Group
By: /s/ Charles Y. Tanabe
-----------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
ACCEPTED AND AGREED AS
OF THE DATE FIRST ABOVE WRITTEN:
AT&T CORP., for itself and for each
member of the Common Stock Group
By: /s/ Daniel E. Somers
--------------------------------------
Name: Daniel E. Somers
Title: Senior Executive Vice President and
Chief Financial Officer
5
<PAGE>
EXHIBIT 10.4
------------
TAX SHARING AGREEMENT
by and among
AT&T CORP.,
LIBERTY MEDIA CORPORATION,
for itself and each member of the Liberty Group,
TELE-COMMUNICATIONS, INC.,
LIBERTY VENTURES GROUP LLC,
LIBERTY MEDIA GROUP LLC,
TCI STARZ, INC.,
TCI CT HOLDINGS, INC.
and
each Covered Entity listed on the signature pages hereof,
dated as of March 9, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................... 1
2. Treatment of Legal Entities That Would be Members of Both Groups..... 6
3. Tax Sharing Payments................................................. 7
(a) Federal Income Taxes............................................. 7
(b) Consolidated State, Local and Foreign Taxes...................... 7
(c) Certain Pre-Closing Taxes of the TCI Affiliated Group............ 8
(d) Special Rules.................................................... 9
(i) Certain Items for Liberty's Account....................... 9
(ii) Responsibility for DITS................................... 10
(iii) No Acceleration of DITS................................... 10
(iv) Accounts Under Old TCI Tax Sharing Agreements............. 10
(v) Pre-Closing Losses; Pre-Closing Alternative Minimum Tax... 10
(vi) TCI Affiliated Group Non-NOL Carryover.................... 11
(vii) The Unused TCI Affiliated Group NOL....................... 11
(viii) Payment for NOL........................................... 11
(ix) Post-Closing Compensation Deductions...................... 12
(x) Warrants.................................................. 12
4. Subsidiary Payments.................................................. 12
5. Adjustments.......................................................... 12
6. Separate Returns..................................................... 13
7. Interest on Unpaid Amounts........................................... 14
8. Indemnification...................................................... 14
9. Liberty Contests and Filing of Returns............................... 14
10. Appointment of AT&T as Agent......................................... 16
11. Cooperation.......................................................... 16
12. Confidentiality...................................................... 17
13. Payment of Tax....................................................... 17
14. Calculation of Tax Sharing Payments and Resolution of Disputes....... 17
15. Binding Effect; Successors and Assigns............................... 17
16. Interpretation....................................................... 18
17. Legal and Accounting Fees............................................ 18
18. Effect of the Agreement.............................................. 18
19. Entire Agreement..................................................... 18
20. Code References...................................................... 19
21. Notices.............................................................. 19
22. Counterparts......................................................... 19
23. New Members.......................................................... 20
24. Nature of Obligations................................................ 20
25. Termination.......................................................... 20
26. Liberty Representation............................................... 20
</TABLE>
i
<PAGE>
TAX SHARING AGREEMENT
---------------------
TAX SHARING AGREEMENT (the "Agreement") entered into as of March 9,
1999, by and among AT&T Corp., a New York corporation ("AT&T"), Liberty Media
Corporation, a Delaware corporation ("Liberty"), for itself and on behalf of
each member of the Liberty Group (as defined below), Tele-Communications, Inc.,
a Delaware corporation ("TCI"), Liberty Ventures Group LLC, a Delaware limited
liability company, Liberty Media Group LLC, a Delaware limited liability company
("Liberty Group LLC"), TCI Starz, Inc., a Colorado corporation, TCI CT Holdings,
Inc., a Delaware corporation, each Covered Entity listed on the signature pages
hereof, and any entities which become parties hereto pursuant to Section 23
hereof.
WHEREAS, AT&T, Italy Merger Corp. ("Merger Sub") and TCI are parties
to an Agreement and Plan of Restructuring and Merger dated as of June 23, 1998
(the "Merger Agreement") pursuant to which, among other things, subject to the
terms and conditions contained in the Merger Agreement, and concurrent with the
execution hereof, Merger Sub shall be merged with and into TCI with TCI
surviving as a wholly owned subsidiary of AT&T (the "Merger");
WHEREAS Liberty desires to be included, and desires that the
Subsidiaries in the Liberty Group (as defined below) be included to the extent
permitted by applicable law, in the filing of consolidated federal income tax
returns on behalf of the AT&T Affiliated Group (as defined below);
WHEREAS AT&T and Liberty wish to allocate and settle among themselves
in an equitable manner the consolidated federal income tax liability of the AT&T
Affiliated Group;
WHEREAS Liberty desires, to the extent required or permitted by
applicable state, local or foreign law to be included, and that the Subsidiaries
in the Liberty Group be included, in combined, consolidated and unitary state,
local and foreign tax returns on behalf of the AT&T Affiliated Group; and
WHEREAS AT&T and Liberty wish to allocate and settle among themselves
in an equitable manner the state, local or foreign tax liability in connection
with such combined, consolidated and unitary state, local and foreign income tax
returns;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby amend and restate in its entirety the 1995 TCI Tax
Sharing Agreement and the 1997 TCI Tax Sharing Agreement (each as defined below)
and agree as follows:
1. Definitions. Any terms used but not otherwise defined herein
-----------
shall have the meanings ascribed to such terms in the Merger Agreement. For
purposes of this Agreement, the following terms shall be defined as follows:
(a) "Advance" shall have the meaning set forth in Section 9(d).
-------
(b) "Arbiter" shall have the meaning set forth in Section 3(d)(vii).
-------
(c) "AT&T" shall have the meaning set forth in the first paragraph
----
hereof.
(d) "AT&T Affiliated Group" shall mean (i) the affiliated group,
---------------------
within the meaning of Section 1504(a) of the Code, consisting of AT&T and
certain of its Subsidiaries, (ii) any combined,
<PAGE>
consolidated or unitary group for state, local or foreign Tax purposes that
files Joint Returns and (iii) any True Legal Entity that files Joint Returns.
(e) "AT&T Charter" shall mean the Certificate of Incorporation of
------------
AT&T, as amended and in effect on the date hereof, after adoption of the AT&T
Charter Amendment (as defined in the Inter-Group Agreement).
(f) "AT&T Common Stock" shall have the meaning given to such term in
-----------------
the Proxy Statement.
(g) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(h) "Common Stock Group" shall mean AT&T, each of the other Legal
------------------
Entities that is or was at any time owned directly or indirectly by AT&T and any
Legal Entity tracked at any time by the TCI Group Tracking Stock; provided,
--------
however, that the Common Stock Group shall not include any Legal Entity for
- -------
such period as and to the extent that such Legal Entity is a member of the
Liberty Group.
(i) "Common Stock Indemnitee" shall have the meaning set forth in
-----------------------
Section 8(a) hereof.
(j) "Consolidated Return Regulations" shall mean the Treasury
-------------------------------
Regulations promulgated under Chapter 6 of Subtitle A of the Code, including, as
applicable, any predecessors or successors thereto.
(k) "Contested Liberty Group Item" shall have the meaning set forth
----------------------------
in Section 9(d).
(l) "Contribution Agreement" shall have the meaning ascribed to such
----------------------
term in the Proxy Statement.
(m) "Corresponding Item" shall have the meaning set forth in the
------------------
definition of Timing Item.
(n) "Covered Entities" shall have the meaning ascribed to such term
----------------
in the Inter-Group Agreement.
(o) "Designated Rate" shall mean the underpayment rate applicable to
---------------
large corporate underpayments under the Code.
(p) "DIT" shall mean any "deferred intercompany transaction" or
---
"intercompany transaction" within the meaning of the Treasury Regulations (or
predecessors thereto).
(q) "Excess Basis" shall have the meaning set forth in Section 5(e).
------------
(r) "Exhibit D DIT" shall mean any DIT listed on Exhibit D hereto.
-------------
(s) "Federal Tax Allocation Agreement" shall mean the Federal Tax
--------------------------------
Allocation Agreement dated as of February 1, 1996 by and among AT&T and each of
its subsidiaries.
(t) "Final Determination" shall mean a closing agreement with the
-------------------
Internal Revenue Service or the relevant state, local or foreign Taxing
authorities, an agreement contained in Internal Revenue Service Form 870AD or
other comparable form, an agreement that constitutes a determination under
Section 1313(a)(4) of the Code, a claim for refund which has been allowed, a
deficiency notice with respect to which the period for filing a petition with
the Tax Court or the relevant state, local or foreign tribunal has expired or a
-2-
<PAGE>
decision of any court of competent jurisdiction that is not subject to appeal or
as to which the time for appeal has expired.
(u) "GI" shall have the meaning ascribed to such term in the
--
Inter-Group Agreement.
(v) "Governmental Authority" shall have the meaning set forth in the
----------------------
definition of "Tax."
(w) "Group" shall mean either the Common Stock Group or the Liberty
-----
Group.
(x) "Hypothetical Legal Entity" shall have the meaning set forth in
-------------------------
Section 2.
(y) "Intercompany Account" shall have the meaning set forth in
--------------------
Section 3(d)(iv).
(z) "Inter-Group Agreement" shall mean the Inter-Group Agreement by
---------------------
and among AT&T, Liberty and others dated as of the date hereof.
(aa) "Joint Return" shall mean any Tax Return that includes at least
------------
two Legal Entities, of which one Legal Entity is a member of the Liberty Group
and the other Legal Entity is a member of (A) the TCI Group for taxable periods
ending on or prior to the Closing Date or (B) the Common Stock Group for taxable
periods ending after the Closing Date.
(bb) "Legal Entity" shall mean a True Legal Entity or a Hypothetical
------------
Legal Entity.
(cc) "Letter Agreement" shall have the meaning set forth in Section
----------------
3(d)(ii).
(dd) "Liberty" shall have the meaning set forth in the first paragraph
-------
hereof.
(ee) "Liberty Group" shall mean the Legal Entities that own or owned
-------------
the assets, and are or were primarily responsible for the liabilities, tracked
at any time by the TCI Ventures Group Tracking Stock, the Liberty Media Group
Tracking Stock or the New Liberty Media Group Tracking Stock; provided,
--------
however, that (x) the Liberty Group shall not include any such Legal Entity for
- -------
such period as and to the extent that the Legal Entity or its assets or
liabilities are tracked by the AT&T Common Stock or the TCI Group Tracking
Stock, (y) except for purposes of determining the amount of the Intercompany
Account, the Liberty Group shall not include for any period the Legal Entities
listed on Exhibit A hereto, and (z) the Liberty Group shall include the Legal
Entities listed on Exhibit B hereto beginning on the day following the Closing
Date.
(ff) "Liberty Group LLC" shall mean Liberty Media Group LLC, a
-----------------
Delaware limited liability company.
(gg) "Liberty Indemnitee" shall have the meaning set forth in Section
------------------
8(b) hereof.
(hh) "Liberty Media Group Tracking Stock" shall have the meaning
----------------------------------
ascribed to such term in the Proxy Statement.
(ii) "Liberty SRLY NOL" shall have the meaning set forth in Section
----------------
3(d)(vii).
(jj) "Losses" shall mean costs, expenses, fees, liabilities,
------
obligations and losses.
(kk) "Merger" shall have the meaning set forth in the recitals hereto.
------
-3-
<PAGE>
(ll) "Merger Agreement" shall have the meaning set forth in the
----------------
recitals hereto.
(mm) "Merger Sub" shall have the meaning set forth in the recitals
----------
hereto.
(nn) "New Liberty Media Group Tracking Stock" shall have the meaning
--------------------------------------
ascribed to such term in the Proxy Statement.
(oo) "1995 TCI Tax Sharing Agreement" shall mean the Tax Sharing
------------------------------
Agreement dated as of July 1, 1995, as amended, by and among TCI, Liberty,
Tele-Communications International, Inc., TCI Technology Ventures, Inc., TCI
Communications, Inc. and TCI Cable Investments, Inc. and certain subsidiaries
thereof.
(pp) "1997 TCI Tax Sharing Agreement" shall mean the Tax Sharing
------------------------------
Agreement dated as of October 1, 1997, as amended, by and among TCI, TCI
Communications, Inc., Liberty and TCI Ventures Group L.L.C. and certain
subsidiaries thereof.
(qq) "Old TCI Tax Sharing Agreements" shall mean the 1995 TCI Tax
------------------------------
Sharing Agreement and the 1997 TCI Tax Sharing Agreement.
(rr) "Package Position" shall have the meaning set forth in Section
----------------
9(c).
(ss) "Package Preparer" shall have the meaning set forth in Section
----------------
9(c).
(tt) "Person" means any individual or corporation, company,
------
partnership, trust, incorporated or unincorporated association, joint venture or
other entity of any kind.
(uu) "Phantom NOL" shall mean, in the case of any Redetermination,
-----------
the excess of the TCI Affiliated Group NOL determined without regard to such
Redetermination (but with regard to any prior Redeterminations) over the TCI
Affiliated Group NOL.
(vv) "Pre-Closing Group" shall mean, for taxable periods ending on or
-----------------
prior to the Closing Date, the Liberty Group or the TCI Group.
(ww) "Pre-Closing Taxable Period" for any Legal Entity shall mean any
--------------------------
taxabletaxable period that ends on or prior to the Closing Date with respect to
such entity.
(xx) "Proxy Statement" shall mean the Proxy Statement/Prospectus of
---------------
AT&T and TCI dated January 8, 1999.
(yy) "Reasonably Expected" shall have the meaning set forth in
-------------------
Section 3(d)(vii).
(zz) "Redetermination" shall mean any redetermination as the result
---------------
of an audit by the Internal Revenue Service (or the relevant state, local or
foreign Governmental Authority), a claim for refund, an amended Tax Return or
otherwise.
(aaa) "Separate Return" shall mean any Tax Return that is not a Joint
---------------
Return.
(bbb) "Settlement Advisor" shall have the meaning set forth in
------------------
Section 9(d).
(ccc) "Settlement Overpayment" shall have the meaning set forth in
----------------------
Section 9(d).
-4-
<PAGE>
(ddd) "Sprint DIT" shall have the meaning set forth in Section
----------
3(d)(ii).
(eee) "State and Local Income Tax Allocation Agreement" shall mean
-----------------------------------------------
the State and Local Income Tax Allocation Agreement dated as of the first day of
the combined return Taxable year beginning January 1, 1995 by and among AT&T and
each of its subsidiaries.
(fff) "Subsidiary" means, as to any Person, any other Person of which
----------
at least (i) 50% of the equity and (ii) 50% of the voting interests are owned,
directly or indirectly, by such first Person.
(ggg) "Tax" shall mean any tax, wherever created or imposed, and
---
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, federation or other body (a
"Governmental Authority"), and, without limiting the generality of the
foregoing, shall include income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, unemployment insurance, social security,
stamp, environmental, value added, alternative or added minimum, ad valorem,
trade, recording, withholding, occupation or transfer tax, custom or duty or
other like governmental assessment or charge of any kind whatsoever, together
with any related interest, penalties and additions imposed by any Governmental
Authority.
(hhh) "Tax Item" shall mean any item of income, gain, loss,
--------
deduction, credit, recapture of credit or any other item which increases or
decreases Taxes paid or payable, including an adjustment under Code Section 481
resulting from a change in accounting method.
(iii) "Tax Proceeding" shall mean any Tax audit, examination,
--------------
controversy or litigation.
(jjj) "Tax Return" shall mean any Tax report, return or other
----------
information (including any attached schedules or any amendments to such report,
return or other information) required to be supplied to or filed with a
Governmental Authority, including an information return, claim for refund,
amended return or declaration or estimated Tax return.
(kkk) "Tentative Settlement Overpayment" shall have the meaning set
--------------------------------
forth in Section 9(d).
(lll) "TCI" shall have the meaning set forth in the first paragraph
---
hereof.
(mmm) "TCI Affiliated Group" shall mean for taxable periods ending on
--------------------
or prior to the Closing Date: (i) the affiliated group, within the meaning of
Section 1504(a) of the Code, consisting of TCI and certain of its Subsidiaries,
(ii) any combined, consolidated or unitary group, for state, local or foreign
Tax purposes that files Joint Returns that include solely members of the TCI
Group and the Liberty Group, and (iii) any True Legal Entity that files Joint
Returns that include solely members of the TCI Group and Liberty Group.
(nnn) "TCI Affiliated Group NOL" shall mean the unexpired regular Tax
------------------------
net operating loss for federal income Tax purposes of the TCI Affiliated Group,
if any, as of the last day of the last taxable year ending on or prior to the
Closing Date, after giving effect to income, loss, audit adjustments, and the
effects of acts occurring in connection with the Merger Agreement.
(ooo) "TCI Affiliated Group Non-NOL Carryover" shall mean any
--------------------------------------
alternative minimum Tax credit carryover or other carryover of the TCI
Affiliated Group as of the last day of the last taxable year of the TCI
Affiliated Group ending on or prior to the Closing Date, after giving effect to
income, loss, audit adjustments and the effects of acts occurring in connection
with the Merger Agreement; provided, however, that the TCI Affiliated Group Non-
-------- -------
NOL Carryover shall not include (i) the TCI Affiliated Group NOL, (ii) any
foreign tax credit or charitable contribution carryovers allocable under the
Consolidated Return Regulations to
-5-
<PAGE>
Legal Entities in the Liberty Group and (iii) any net operating losses
reportable on a Separate Return of a Legal Entity in the Liberty Group.
(ppp) "TCI Group" shall mean such subset of the group of Legal
---------
Entities that are members of the Common Stock Group as consists of TCI and each
of the Legal Entities that is or was at any time owned directly or indirectly by
TCI and owned or owns the assets and are or were primarily responsible for the
liabilities tracked by the TCI Group Tracking Stock; provided, however, that the
-------- -------
TCI Group shall not include any Legal Entity for such period as and to the
extent that such Legal Entity is a member of the Liberty Group.
(qqq) "TCI Group Tracking Stock" shall have the meaning given to such
------------------------
term in the Proxy Statement.
(rrr) "TCI Pre-AT&T Merger Restructuring Plan" shall mean the TCI
--------------------------------------
Pre-AT&T Merger Restructuring Plan that is attached hereto as Exhibit C.
(sss) "TCI SRLY NOL" shall have the meaning set forth in Section
------------
3(d)(vii).
(ttt) "TCI Ventures Group Tracking Stock" shall have the meaning
---------------------------------
ascribed to such term in the Proxy Statement.
(uuu) "Tentative Settlement Overpayment" shall have the meaning set
--------------------------------
forth in Section 9(d).
(vvv) "Timing Item" shall mean a Tax Item, the adjustment of which in
-----------
one taxable year results or may result in an increase in deduction, loss or
credit or a decrease in income, gain or recapture (a "Corresponding Item") in
------------------
another year.
(www) "Treasury Regulations" shall mean the Treasury Regulations
--------------------
promulgated under the Code.
(xxx) "True Legal Entity" shall mean a corporation, partnership,
-----------------
limited liability company or other legal entity under the corporation,
partnership, limited liability company or other organizational laws of a state
or other jurisdiction.
(yyy) "Unfiled Return" shall mean any Joint Return with respect to a
--------------
taxable period ending on or before the Closing Date that is not yet filed as of
the Closing Date.
(zzz) "Unpaid NOL" shall have the meaning given to such term in
----------
Section 3(d).
(aaaa) "Unused TCI Affiliated Group NOL" shall mean the TCI Affiliated
-------------------------------
Group NOL reduced by any portion thereof that has previously been used to
compute the reduction in the Liberty Group's payment obligations under Section
3(d) or been used to compute AT&T's payment obligation to Liberty upon
deconsolidation under Section 3(d).
(bbbb) "Warrants" shall have the meaning ascribed to such term in the
--------
Inter-Group Agreement.
2. Treatment of Legal Entities That Would be Members of Both
---------------------------------------------------------
Groups. In the event that a True Legal Entity owns assets or is primarily
- ------
responsible for liabilities tracked at once by both the TCI Group Tracking Stock
or AT&T Common Stock, on the one hand, and the TCI Ventures Group Tracking
Stock, Liberty Media Group Tracking Stock or New Liberty Media Group Tracking
Stock, on the other hand,
-6-
<PAGE>
each of the assets, liabilities and Tax attributes of the True Legal Entity
shall be treated at such time as divided between two hypothetical corporations,
partnerships, limited liability companies or other legal entities ("Hypothetical
Legal Entities"), each of which shall be treated at such time as owning the
assets, being primarily responsible for the liabilities, and having the Tax
attributes of, and Tax and legal personality comparable to those of, the True
Legal Entity associated with the business or investments of such Group. In the
event that a Tax attribute cannot be associated with the business or investments
of a single Group, it shall be reasonably allocated between the Hypothetical
Legal Entities taking into account the nature of the Tax attribute.
3. Tax Sharing Payments.
--------------------
(a) Federal Income Taxes. With respect to consolidated federal
--------------------
income Taxes, no later than five days prior to the due date (including
extensions) of any consolidated federal income Tax Return of the AT&T Affiliated
Group if such Tax Return is for a taxable period ending after the Closing Date:
(i) Liberty shall pay to AT&T the excess, if any, of (A) the sum
of (I) the aggregate amount of any Tax that would not have been incurred by
the AT&T Affiliated Group but for the inclusion of any Legal Entity that is
a member of the Liberty Group in the AT&T Affiliated Group and (II) the
aggregate amount of any Tax refund, credit or other Tax benefit that would
have been realized or received with respect to such Tax Return (or any
other Tax Return that has been or could have been filed) by the AT&T
Affiliated Group but for the inclusion of any Legal Entity that is a member
of the Liberty Group in the AT&T Affiliated Group over (B) the aggregate
amount previously paid by Liberty pursuant to this clause (i); and
(ii) AT&T shall pay Liberty the excess, if any, of (A) the sum of
(I) the aggregate amount of any Tax that would have been incurred by the
AT&T Affiliated Group but for the inclusion of any Legal Entity that is a
member of the Liberty Group in the AT&T Affiliated Group and (II) the
aggregate amount of any Tax refund, credit or other Tax benefit realized or
received with respect to such Tax Return that would not have been realized
or received by the AT&T Affiliated Group but for the inclusion of any Legal
Entity that is a member of the Liberty Group in the AT&T Affiliated Group
over (B) the aggregate amount previously paid by AT&T pursuant to this
clause (ii);
provided, however, that the Consolidated Return Regulations and the consolidated
- -------- -------
federal income Tax Returns filed by the AT&T Affiliated Group or the TCI
Affiliated Group pursuant to this Agreement or the Old TCI Tax Sharing
Agreements, respectively, shall determine the timing of the recognition of Tax
Items with respect to DITS and the determination of which Group (and which
member thereof) shall bear the Tax benefit or burden of such Tax Items, and each
Group shall be responsible for the Tax Items recognized by its respective
members with respect to any DITS; provided, further, however, that, solely for
-------- ------- -------
purposes of determining the timing of the recognition of Tax Items resulting
from intercompany transactions for the "without" Liberty Group calculation, in
the case of any Tax Item of a member of the Common Stock Group arising from or
relating to any DIT in which a member of the Common Stock Group is the "seller"
and a member of the Liberty Group is the "buyer" (each within the meaning of the
Consolidated Return Regulations), until such time, if any, as the "buyer" is not
in fact a member of the AT&T Affiliated Group, the amounts referred to in
Sections 3(a)(i)(A) and 3(a)(ii)(A) shall be calculated by treating the buyer as
if it is a member of the AT&T Affiliated Group.
(b) Consolidated State, Local and Foreign Taxes. With respect to
-------------------------------------------
consolidated, combined, unitary or other Joint Return Taxes, other than
consolidated federal income Taxes, no later than five days prior to the due date
(including extensions) of any Joint Return of the AT&T Affiliated Group if such
Joint Return is for a taxable period ending after the Closing Date:
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<PAGE>
(i) Liberty shall pay to AT&T the excess, if any, of (A) the
sum of (I) the aggregate amount of any Tax that would not have been
incurred by the AT&T Affiliated Group but for the inclusion of any Legal
Entity that is a member of the Liberty Group in the AT&T Affiliated Group
and (II) the aggregate amount of any Tax refund, credit or other Tax
benefit that would have been realized or received with respect to such Tax
Return (or any other Tax Return that has been or could have been filed) by
the AT&T Affiliated Group but for the inclusion of any Legal Entity that is
a member of the Liberty Group in the AT&T Affiliated Group over (B) the
aggregate amount previously paid by Liberty pursuant to this clause (i);
and
(ii) AT&T shall pay Liberty the excess, if any, of (A) the sum
of (I) the aggregate amount of any Tax that would have been incurred by the
AT&T Affiliated Group but for the inclusion of any Legal Entity that is a
member of the Liberty Group in the AT&T Affiliated Group and (II) the
aggregate amount of any Tax refund, credit or other Tax benefit realized or
received with respect to such Tax Return that would not have been realized
or received by the AT&T Affiliated Group but for the inclusion of any Legal
Entity that is a member of the Liberty Group in the AT&T Affiliated Group
over (B) the aggregate amount previously paid by AT&T pursuant to this
clause (ii);
provided, however, that (x) solely for purposes of determining the timing of the
- -------- -------
recognition of Tax Items resulting from intercompany transactions for the
"without" Liberty Group calculation, in the case of any Tax Item of a member of
the Common Stock Group arising from or relating to any DIT in which a member of
the Common Stock Group is the "seller" and a member of the Liberty Group is the
"buyer" (each within the meaning of the Consolidated Return Regulations or
comparable provision of state, local or foreign law), until such time, if any,
as the "buyer" is not in fact a member of the AT&T Affiliated Group, the amounts
referred to in Sections 3(b)(i)(A) and 3(b)(ii)(A) shall be calculated by
treating the buyer as if it is a member of the AT&T Affiliated Group and for all
other purposes, the Consolidated Return Regulations (or comparable provisions of
state, local or foreign law) shall govern the timing of the recognition of Tax
Items for the members of the AT&T Affiliated Group and (y) all calculations
required to be made for purposes of clauses (b)(i) and (ii) above (including the
"without" Liberty Group calculations) shall be made using the apportionment
factors applicable to the Joint Return on a combined, consolidated or unitary
basis that includes all entities (including the members of the Liberty Group)
that are included in such Joint Return. In the case of any Joint Return of the
TCI Affiliated Group with respect to a taxable period that includes but does not
end on the Closing Date, such taxable period shall, for purposes of this
Agreement, be treated as consisting of one taxable period of the TCI Affiliated
Group ending on the Closing Date and another taxable period of the AT&T
Affiliated Group beginning on the day after the Closing Date, based on an
interim closing of the books as of the end of the day on the Closing Date.
(c) Certain Pre-Closing Taxes of the TCI Affiliated Group.
-----------------------------------------------------
(i) In the case of any Unfiled Return of the TCI Affiliated
Group for consolidated federal income Taxes for any period ending on or
prior to the Closing Date, if such Tax Return as originally filed reflects
a regular federal income Tax liability, then Liberty shall pay AT&T the
portion of such Tax attributable to the Tax Items of the Liberty Group on a
proportionate basis no later than five days prior to the due date
(including extensions) of such Tax Return.
(ii) For each taxable period ending on or prior to the Closing
Date, the liability of each Pre-Closing Group with respect to unitary,
consolidated, nexus combination or other state or local income and
franchise Taxes required to be filed on Joint Returns shall be equal to the
product of: (x) the sum of the state and local income and franchise Taxes
attributable to those jurisdictions in which the TCI Affiliated Group is
liable for state or local income or franchise Taxes with respect to
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<PAGE>
the operations of any Legal Entity that is a member of such Pre-Closing
Group on a unitary, consolidated, nexus combination or other Joint Return
basis, multiplied by (y) a fraction, (I) the numerator of which is the
aggregate amount of such Tax that is attributable to such Pre-Closing Group
in such jurisdictions, determined without regard to the other Pre-Closing
Group, as though such Pre-Closing Group were required to file either a
unitary, consolidated, nexus combination or other Joint Return corporate
income or franchise Tax Return (for this purpose, each limited liability
company that is wholly owned directly by TCI shall be treated as if it were
a corporation) in such jurisdictions for such taxable year or portion
thereof, and (II) the denominator of which is the sum of all such amounts
determined with respect to both Pre-Closing Groups. For each Tax Return
that is the subject of this Section 3(c)(ii), if a member of the Common
Stock Group is required under the law to file the applicable TCI Affiliated
Group Joint Return, then Liberty shall pay AT&T or TCI the amount for which
the Liberty Group is responsible (based on the fraction referred to in
clause (y) above) with respect to such Tax Return no later than five days
prior to the due date (including extensions) of such Tax Return, and if a
member of the Liberty Group is required under the law to file the
applicable TCI Affiliated Group Joint Return, then AT&T or TCI shall pay
Liberty the amount for which the Common Stock Group is responsible (based
on the fraction referred to in clause (y) above) with respect to such Tax
Return no later than five days prior to the due date (including extensions)
of such Tax Return.
(iii) For each taxable period ending on or prior to the
Closing Date, the liability of each Pre-Closing Group with respect to
foreign Taxes required to be filed on Joint Returns shall be determined
under the principles of Section 3(c)(ii) above.
(iv) The Consolidated Return Regulations shall govern the
timing of the recognition of Tax Items of the members of the TCI Affiliated
Group.
(d) Special Rules. Notwithstanding any other provision of this
-------------
Agreement:
(i) Certain Items for Liberty's Account. Any Tax Item
-----------------------------------
arising from or relating to (A) TCI Wireless Holdings Inc. or any of its direct
or indirect assets or subsidiaries, (B) the disposition of certain assets in
exchange for stock of GI or the subsequent disposition of such stock, or (C)
except as provided below in this Section 3(d)(i), the deemed, constructive or
actual disposition (except for the Exhibit D DITS) of the shares or other
interests in any Liberty Group Legal Entity, or measured by reference to the
difference between the value of such shares or interests and the holder's basis
therein, shall be for the account of the Liberty Group, and Liberty shall pay
AT&T any Tax (or any reduction in any Tax refund, credit or other benefit)
attributable thereto. AT&T and Liberty agree that any federal income Tax or
Joint Return Tax liability (including any reduction in the TCI Affiliated Group
NOL) arising from or relating to the federal income tax characterization or
treatment of any class of tracking stock of TCI or AT&T under the federal income
tax law on the date hereof will be equitably apportioned between the TCI Group
or Common Stock Group, on the one hand, and the Liberty Group, on the other
hand. AT&T agrees that (i) any Tax liability (or reduction in Tax benefit
attributable to the Liberty Group under this Agreement) that results from the
breach of AT&T's covenant in the Inter-Group Agreement that it will not issue
any New Liberty Media Group Tracking Stock after a Tax Law Change (as defined in
the Inter-Group Agreement), and (ii) any Tax liability (or reduction in Tax
benefit attributable to the Liberty Group under this Agreement) incurred as a
result of the settlement of a Tracking Stock Obligation (as defined in the
Inter-Group Agreement) incurred after the Merger without the approval of
Liberty, shall be for the account of AT&T for purposes of this Agreement.
Liberty agrees that, except as set forth in the preceding sentence, any Tax
liability (or any reduction in a Tax benefit attributable to the Common Stock
Group under this Agreement) incurred as a result of the Tax Law Change
(including as a result
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<PAGE>
of the settlement of a Tracking Stock Obligation existing at the time of
the Merger (or incurred after the Merger with the approval of Liberty)
satisfied, as directed by Liberty) shall be for the account of Liberty for
purposes of this Agreement.
(ii) Responsibility for DITS. (A) Except for the Exhibit D DITS, any
-----------------------
DITS created in any taxable period ending on or prior to the Closing Date,
any DITS created pursuant to the TCI Pre-AT&T Merger Restructuring Plan,
and any DIT created pursuant to the transactions contemplated by the
Letter Agreement (the "Letter Agreement") dated February 11, 1999 among
AT&T, TCI and Liberty (a "Sprint DIT"), in each case, brought into income
as the result of any deconsolidation of the Liberty Group or the
liquidation of Encore Media Group LLC, a Colorado limited liability
company, or other entity conducting the Encore/Starz business shall be for
the account of the Liberty Group, and Liberty shall pay AT&T any Tax (or
any reduction in any Tax refund, credit or other benefit) attributable
thereto; (B) any Exhibit D DITS shall be for the account of the Common
Stock Group; and (C) except as otherwise provided in clause (A) or (B)
above, any DIT created in any taxable period ending after the Closing Date
that is brought into income as the result of the deconsolidation of the
Liberty Group shall be the obligation of the Group that includes the Legal
Entity that is the selling member (within the meaning of the Consolidated
Return Regulations), unless otherwise agreed upon by AT&T and Liberty.
(iii) No Acceleration of DITS. Without the prior written consent of
-----------------------
AT&T, unless the Liberty Group agrees to assume the Tax burden thereof,
the Liberty Group shall not take any action (inadvertent or otherwise)
that would cause an acceleration of income arising from any DIT that is
disclosed in Part 2 of Section 5.10(b) of the Company Disclosure Statement
or from any Exhibit D DIT or from any Sprint DIT; provided, however, that
-------- -------
restoral of income or gain from a DIT that occurs as a result of
depreciation or amortization deductions taken by the Liberty Group shall
not be considered an acceleration of any DIT.
(iv) Accounts Under Old TCI Tax Sharing Agreements. The
---------------------------------------------
intercompany accounts reflecting the obligation of the Liberty Group
(approximately $237 million as of the date of this Agreement) for periods
on or prior to the Closing Date under the 1995 TCI Tax Sharing Agreement
(the "Intercompany Account") shall be paid by Liberty at such time, if
any, that the Liberty Group deconsolidates from the AT&T Affiliated Group
for federal income Tax purposes; provided, however, that (A) the amount of
-------- -------
the Intercompany Account shall be determined pursuant to the provisions of
the 1995 TCI Tax Sharing Agreement and without regard to clause 3(d)(v)
below; (B) the Legal Entities listed on Exhibit A shall be treated as
Liberty Group members for all relevant periods for purposes of calculating
the Intercompany Account and (C) the amount of the Intercompany Account
shall be reduced by an amount equal to the product of 20 percent and the
amount of any income or gain arising from the exercise, and the sale of
assets pursuant thereto, of the option that was granted pursuant to the
Option Agreement, dated June 24, 1997, among RET Corporation, Southern
Satellite Systems, Inc., et. al., to purchase certain assets of Southern
Satellite Systems, Inc., LMC Satcom, Inc., and Royal Communications, Inc..
All "Benefit Tracking Accounts" and "AMT/Regular Tax Adjustments" under
the 1997 TCI Tax Sharing Agreement shall be eliminated as of the Closing
Date without any obligation or payment with respect thereto and no rights
or obligations shall subsequently arise with respect thereto;
(v) Pre-Closing Losses; Pre-Closing Alternative Minimum Tax. For
-------------------------------------------------------
taxable periods ending on or prior to the Closing Date: (A) net operating
loss carryovers, current losses and other Tax attributes available to the
TCI Affiliated Group may be used by any member of the TCI Affiliated Group
without compensation to the Group generating such attributes, (B) if the
TCI Affiliated Group has only actual alternative minimum Tax liability in
a Taxing jurisdiction, Liberty
-10-
<PAGE>
shall pay AT&T for any alternative minimum Tax losses with respect to such
jurisdiction generated by the Legal Entities in the TCI Affiliated Group
that are not in the Liberty Group that reduce such liability with respect
to such jurisdiction, and AT&T shall pay Liberty for any alternative
minimum Tax losses generated by the Liberty Group that reduce such
liability with respect to such jurisdiction, and (C) if the TCI Affiliated
Group has only actual alternative minimum Tax liability in a Taxing
jurisdiction, except as provided in clause (B) above, Liberty shall not be
required to pay its share;
(vi) TCI Affiliated Group Non-NOL Carryover. For taxable periods
--------------------------------------
beginning after the Closing Date, any TCI Affiliated Group Non-NOL
Carryover shall be treated as a Tax Item of the Common Stock Group;
(vii) The Unused TCI Affiliated Group NOL. The Unused TCI
-----------------------------------
Affiliated Group NOL shall be available to offset any payment obligation
incurred by the Liberty Group pursuant to Section 3(a)(i) hereof at the
applicable federal income tax rate for the taxable period with respect to
which such payment obligation of the Liberty Group is incurred (without
regard to whether the AT&T Affiliated Group is subject to separate return
limitation year, Section 382 or other restrictions, in each case, arising
by reason of the Merger, on the utilization of the Unused TCI Affiliated
Group NOL in a taxable period, or portion thereof, beginning after the
Closing Date); provided, however, that to the extent that the Unused TCI
-------- -------
Affiliated Group NOL is a TCI SRLY NOL or a Liberty SRLY NOL it shall only
be utilized as set forth in this paragraph below. In the case of any
portion of the Unused TCI Affiliated Group NOL arising in a member of the
Liberty Group which is subject to separate return limitation year, Section
382 or other restrictions arising prior to the Merger Date (a "Liberty
SRLY NOL"), such Liberty SRLY NOL shall be available to reduce the Liberty
Group's payment obligation only to the extent such Liberty SRLY NOL is
actually utilized by the AT&T Affiliated Group. In the case of any portion
of the Unused TCI Affiliated Group NOL arising in a member of the TCI
Group which is subject to separate return limitation year, Section 382 or
other restrictions arising prior to the Merger Date (a "TCI SRLY NOL"),
such TCI SRLY NOL shall be available to reduce the Liberty Group's payment
obligation only when an amount of the TCI Affiliated Group NOL in excess
of the sum of the Liberty SRLY NOL and the TCI SRLY NOL has previously
offset such payment obligation and then only as, when and to the extent
that the AT&T Affiliated Group has actually utilized such TCI SRLY NOL or
can be Reasonably Expected to so utilize such TCI SRLY NOL. For these
purposes, the AT&T Affiliated Group shall be "Reasonably Expected" to
-------------------
utilize a TCI SRLY NOL if and to the extent, through use of its reasonable
best efforts, such NOL could have been utilized. Such reasonable best
efforts shall not require the aggregate cost or expense to AT&T (including
AT&T's share of the costs and expenses of the Arbiter) in excess of 12.5
million dollars, it being agreed and understood that AT&T will continue to
use its reasonable best efforts at the Liberty Group's reasonable request
and at the Liberty Group's expense to utilize such NOL. Within six weeks
of the date hereof the parties shall designate a mutually acceptable
neutral arbiter (the "Arbiter") to resolve any disputes with respect to
the calculation of the Reasonably Expected utilization of such TCI SRLY
NOL and also with respect to when or whether AT&T has incurred aggregate
cost or expense in excess of 12.5 million dollars. The costs and expenses
of the Arbiter shall be shared equally between AT&T and Liberty;
(viii) Payment for NOL. Upon any deconsolidation of Liberty from
---------------
the AT&T Affiliated Group for federal income Tax purposes, AT&T shall pay
Liberty an amount equal to the product of (A) the Unused TCI Affiliated
Group NOL (reduced by any Liberty SRLY NOL not utilized by the AT&T
Affiliated Group and, without duplication, any portion of the Unused TCI
Affiliated Group NOL that will become a Tax Item of Liberty or its
Affiliates under the law upon such deconsolidation) that has been, or is
reasonably expected to be (or, in the case of the TCI SRLY NOL, that has
been or is Reasonably Expected to be), utilized by the AT&T Affiliated
Group for
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<PAGE>
federal income tax purposes and (B) 35 percent. AT&T agrees to provide
written notice to Liberty of the amount that will be paid pursuant to this
Section 3(d)(viii) thirty days prior to the anticipated deconsolidation
date of the Liberty Group. If any amount of the Unused TCI Affiliated
Group NOL as of the date of deconsolidation is actually utilized by the
AT&T Affiliated Group after the deconsolidation date of the Liberty Group,
and Liberty has not been paid for such Unused TCI Affiliated Group NOL
pursuant to this Section (such amount shall be referred to as the "Unpaid
NOL"), AT&T shall pay Liberty, within 5 business days after the Tax Return
utilizing the Unpaid NOL has been filed, an amount equal to the product of
(C) the Unpaid NOL that has been utilized and (D) 35 percent. If any TCI
Affiliated Group NOL for which Liberty has been paid pursuant to this
Section 3(d)(viii) expires unutilized (whether by reason of any separate
return limitation year or Section 382 restriction or otherwise), Liberty
shall repay AT&T the amount of the payment in respect of such expired TCI
Affiliated Group NOL, plus interest at 6.5 percent, compounded annually,
from the date of deconsolidation. AT&T (subject, in the case of the TCI
SRLY NOL, to the provisions of clause (vii) above) and TCI each agree to
use reasonable efforts to have the TCI Affiliated Group NOL utilized by
the AT&T Affiliated Group;
(ix) Post-Closing Compensation Deductions. Each Group shall be
------------------------------------
entitled to the deductions arising after the Closing Date from the
exercise by, or settlement of, any stock options or other equity-linked
incentives, including stock appreciation rights, "phantom" stock rights
and similar equity-linked instruments (A) by any person who is an officer,
employee or consultant of such Group at the time of such exercise or
settlement and (B) by any person who is no longer an officer, employee or
consultant of either Group at the time of such exercise or settlement but
who was an officer, employee or consultant of such Group on the date of
such person's last employment by either Group, in each case, regardless of
whether the stock underlying the option or equity-linked incentive tracks
the Common Stock Group or the Liberty Group. Each Group shall be entitled
to the deductions arising after the Closing Date from the payment of other
compensation to the extent that such Group bears the cost of such
compensation; and
(x) Warrants. The parties agree that Liberty's basis in the
--------
Warrants equals $8.25 per Warrant, which is the fair market value of the
Warrants as agreed by AT&T and Liberty and the purchase price paid for the
Warrants by Liberty in a closing transaction, and that they shall take no
action inconsistent with such basis (including in connection with filing
Tax Returns), unless required pursuant to a Final Determination.
4. Subsidiary Payments. Each of the Subsidiaries of the Liberty
-------------------
Group agrees to pay to Liberty or at Liberty's discretion, to AT&T its share of
each of the payments for which Liberty is responsible hereunder no later than
one business day prior to the date upon which the relevant payment by Liberty is
required to be made hereunder.
5. Adjustments.
-----------
(a) In the event of any Redetermination of any Joint Return for any
taxable period, the amounts required to be paid pursuant to Section 3 shall be
recomputed for such taxable period to take into account such Redetermination,
and payments pursuant to Section 3 hereof shall be appropriately adjusted.
Liberty shall pay AT&T or AT&T shall pay Liberty an amount equal to the
difference between the payment or payments previously made between the parties
in respect of such redetermined Tax Return and the amount that would have been
paid pursuant to this Agreement in respect of such redetermined Tax Return if
such redetermined Tax Return had been filed on the basis of the Redetermination,
plus interest at the statutory rate and applicable penalties.
-12-
<PAGE>
(b) In the event of any Redetermination that reduces the amount of the
TCI Affiliated Group NOL, Liberty shall pay AT&T the sum of (A) the amount by
which Liberty's tax sharing obligations were reduced in reliance on the Phantom
NOL pursuant to Section 3(d)(vii), (B) the amount that AT&T paid Liberty
pursuant to Section 3(d)(viii) hereof in reliance on the Phantom NOL and (C)
interest at the statutory rate from the date or dates of such reductions in tax
sharing obligations and payments by AT&T and applicable penalties, and AT&T
shall have no obligation to pay Liberty the amount of any benefit to AT&T
arising as a result of any Redetermination that reduces the amount of the TCI
Affiliated Group NOL. In the event of any Redetermination that reduces the
amount of any Tax Item of the Liberty Group that is a loss, deduction or credit
that was carried back or carried forward and for which Liberty received a
payment hereunder from AT&T (or Liberty's payments hereunder to AT&T were
reduced), Liberty shall pay AT&T the amount of such payment hereunder from AT&T
(or reduction in a payment hereunder by Liberty) plus interest at the statutory
rate and applicable penalties and AT&T shall have no obligation to pay Liberty
the amount of any benefit to AT&T arising as a result of such Redetermination.
(c) Any regular consolidated federal income Tax liability of the TCI
Affiliated Group arising from any Redeterminations of Tax Items of the TCI
Affiliated Group for one or more taxable periods ending on or before the Closing
Date shall be borne by the Common Stock Group and the Liberty Group,
respectively, in proportion to the amount that the sum of all Redeterminations
of Tax Items attributable to the Tax Items of the TCI Group or the Tax Items of
the Liberty Group, respectively, for all such periods bears to the sum of all
Redeterminations of Tax Items attributable to the TCI Affiliated Group for all
such periods.
(d) Any alternative minimum consolidated federal tax liability of the
TCI Affiliated Group arising from any Redetermination of Tax Items of the TCI
Affiliated Group for one or more taxable periods ending on or before the Closing
Date shall be borne by the Common Stock Group to the extent that AT&T reasonably
expects to utilize the credit arising from payment of such liability and any
such remaining alternative minimum consolidated federal tax liability shall be
borne by the Group generating such alternative minimum tax liability; provided,
--------
however, that (A) in the event that AT&T utilizes any credit arising from the
- -------
alternative minimum tax liability that would otherwise be borne by Liberty, AT&T
shall repay Liberty the amount paid by Liberty to AT&T in respect of such
alternative minimum tax liability and (B) in the event that AT&T reasonably
expects to utilize a credit but is not able to utilize such credit, whether by
reason of expiration, Redetermination or otherwise, Liberty shall pay AT&T the
amount that Liberty would have paid AT&T had AT&T not reasonably expected to
utilize such credit.
(e) Notwithstanding any other provision of this Agreement, in the event
of a Final Determination with respect to the Warrants that results in an
increase in basis to Liberty over $8.25 per Warrant (or other property received
in exchange for such Warrant) or over the sum of $8.25 plus the exercise price
in the stock underlying each Warrant (or other property received in exchange for
such stock) ("Excess Basis"), Liberty shall pay to AT&T the amount of any Tax
benefit received by Liberty resulting from such basis increase; provided,
--------
however, that (I) in the event of a deconsolidation of the Liberty Group after
- -------
such Final Determination, Liberty shall pay AT&T on the date of deconsolidation
an amount equal to the product of (A) 35 percent and (B) the amount of any
Excess Basis for which AT&T has not previously been paid and (II) in the event
of such a Final Determination after a deconsolidation of the Liberty Group,
Liberty shall pay AT&T within seven days after the date of such Final
Determination an amount equal to the product of 35 percent and the Excess Basis,
plus interest at 6.5 percent, compounded annually, from the date of
deconsolidation.
(f) Any payment by Liberty or AT&T required by any Redetermination
shall be paid within seven days after the date of a Final Determination with
respect to such Redetermination.
6. Separate Returns. Any Separate Return that includes only a
----------------
member or members of the Liberty Group and any Taxes with respect to such
Separate Return shall be the responsibility of the Liberty
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<PAGE>
Group provided that the Liberty Group timely files such Separate Returns and
--------
pays the Taxes due with respect thereto. In the event that the Liberty Group
does not so file such a Separate Return or does not pay the Taxes due with
respect thereto, Liberty shall indemnify AT&T with respect to such Separate
Return as provided in Section 8 and, notwithstanding any other provision hereof,
AT&T shall be entitled to file such Separate Return in any manner it chooses so
long as it files such Separate Return in good faith.
7. Interest on Unpaid Amounts. In the event that any party fails to
--------------------------
pay any amount owed pursuant to this Agreement on the date when due, interest
shall accrue on any unpaid amount at the Designated Rate from the due date until
such amounts are fully paid.
8. Indemnification.
---------------
(a) From and after the Closing Date, each Legal Entity that is a member
of the Liberty Group shall indemnify and hold harmless each Legal Entity that is
a member of the Common Stock Group and their respective directors, officers,
employees, affiliates, agents, successors and assigns (the "Common Stock
Indemnitees") from and against (i) any Taxes which such member of the Liberty
Group is required to pay to a Governmental Authority (without any right of
reimbursement from AT&T) or in respect of which Liberty is required to make a
payment hereunder to AT&T and (ii) any Losses incurred by any Common Stock
Indemnitee by reason of a breach by any member of the Liberty Group of its
obligations or covenants hereunder.
(b) From and after the Closing Date, each Legal Entity that is a member
of the Common Stock Group shall indemnify and hold harmless each Legal Entity
that is a member of the Liberty Group and their respective directors, officers,
employees, affiliates, agents, successors and assigns (the "Liberty
Indemnitees") from and against (i) any Taxes which such member of the Common
Stock Group is required to pay to a Governmental Authority (without any right of
reimbursement from Liberty) or in respect of which AT&T is required to make a
payment hereunder to Liberty and (ii) any Losses incurred by any Liberty
Indemnitee by reason of a breach by any member of the Common Stock Group of its
obligations or covenants hereunder.
9. Liberty Contests and Filing of Returns.
--------------------------------------
(a) Tax Returns of the TCI Affiliated Group for taxable periods ending
on or prior to the Closing Date shall be prepared by the TCI Affiliated Group
and approved (which approval shall not be unreasonably withheld) by Liberty, and
shall be forwarded to AT&T for its review and approval (which approval shall not
be unreasonably withheld) prior to filing. Such Tax Returns shall be prepared on
a basis consistent with prior periods except insofar as changes in law require a
change in reporting.
(b) From and after the Closing Date, Liberty shall have the right to
control in all respects all Tax Proceedings with respect to any member of the
TCI Affiliated Group with respect to any Pre-Closing Taxable Period; provided,
--------
however, that (i) AT&T shall be entitled to participate in any such Tax
- -------
Proceeding at its expense, (ii) Liberty shall keep AT&T updated and informed and
shall consult with AT&T with respect to any contested Tax Item, (iii) Liberty
shall act in good faith with a view to the merits in connection with the Tax
Proceeding and (iv) any proposed settlement shall require the consent of AT&T,
which consent shall not be unreasonably withheld.
(c) With respect to any Joint Return for any taxable year ending after
the Closing Date, Liberty shall provide a Tax package for the Liberty Group,
prepared at Liberty's sole cost and expense, to AT&T relating to the Liberty
Group's activities no later than the date (provided that Liberty is given
reasonable notice of such date) required by AT&T of its Significant
Subsidiaries. Such packages shall (A) be prepared by
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<PAGE>
a nationally recognized accounting firm (the "Package Preparer") mutually
reasonably satisfactory to AT&T and Liberty, (B) take no position with a
likelihood of success under the law that is less than 33-1/3 percent and include
an opinion of the Package Preparer to such effect and (C) include a list
prepared by the Package Preparer of all positions taken that are not more likely
than not to succeed under the law and an analysis of the issues raised by each
such position. The Joint Return of the AT&T Affiliated Group (including its
consolidated federal income Tax Return) shall be prepared on the basis of the
applicable Tax package prepared in accordance with this Section 9(c); provided,
--------
however, that in the case of any position taken in any such Tax package (a
- -------
"Package Position") with which AT&T disagrees, (I) a neutral mutually reasonably
satisfactory nationally recognized law firm shall opine as to whether the
Package Position has a likelihood of success under the law that is less than 33-
1/3 percent and (II) the AT&T Affiliated Group shall take the Package Position
for such period in the applicable Joint Return if such law firm opines that such
likelihood is at least 33-1/3 percent and shall otherwise take any position that
AT&T deems reasonable in lieu of the Package Position; provided further,
-------- -------
however, that AT&T shall have sole discretion to make all decisions with respect
- -------
to any election, accounting method or other position that, if applicable, would
be required to apply to any member of the Common Stock Group (and in the case of
any election that would not, if made, apply to any member of the Common Stock
Group, AT&T shall make such election if requested in Liberty's Tax package and
AT&T shall not make such election if not requested in Liberty's Tax package).
All costs, fees and expenses incurred with respect to the procedures described
in part I of this Section 9(c) shall be borne 75 percent by Liberty and 25
percent by AT&T.
(d) With respect to taxable years ending after the Closing Date, AT&T
shall have the right to control in all respects (including settlement) all Tax
Proceedings with respect to any member of the Liberty Group; provided, however,
-------- -------
that (A) Liberty (and any other member of the Liberty Group to the extent such
member's Tax Items are Contested Liberty Group Items in the Tax Proceeding)
shall be entitled to participate in any such Tax Proceeding at their expense,
insofar as the Tax liabilities of the Liberty Group are concerned, (B) AT&T
shall keep Liberty updated and informed, and shall consult with Liberty, with
respect to any Tax Item of the Liberty Group that is a subject of such Tax
Proceeding (a "Contested Liberty Group Item"), (C) AT&T shall act in good faith
with a view to the merits in connection with the Tax Proceeding and (D) without
limiting in any respect AT&T's right to settle any such Tax Proceeding in its
absolute discretion, in the event that Liberty objects to a settlement of a
Contested Liberty Group Item that it has identified in a written notice to AT&T
prior to settlement as an item to be subject to this clause (D), (x) a neutral
nationally recognized accountant (the "Settlement Advisor") that is mutually
reasonably satisfactory to the parties shall determine the extent, if any, to
which the amount for which the Contested Liberty Group Item was settled exceeds
the amount at which the Contested Liberty Group Item could reasonably have been
expected to be settled (the "Tentative Settlement Overpayment"), (y) the
Settlement Advisor shall reasonably reduce the Tentative Settlement Overpayment
to take account of the settlement of any Contested Liberty Group Items (and the
resolution of any items of the Liberty Group for the period settled that were
not the subject of the Tax Proceeding but were specifically identified in a
written notice to Liberty from AT&T and discussed with Liberty prior to
settlement) at an amount lower than the amount at which such items could
reasonably have been expected to be settled (the Tentative Overpayment after
such reduction, if any, the "Settlement Overpayment") and (z) AT&T shall pay
Liberty as a Tax sharing payment the excess of the aggregate Settlement
Overpayments for a taxable jurisdiction for a taxable year over the lesser of
(I) 25 percent of the amount at which the Contested Liberty Group Items could
reasonably have been expected to be settled, as determined by the Settlement
Advisor, and (II) $10 million in the case of consolidated federal income Taxes
($2 million in the case of all other Taxes). To the extent that any payment by
AT&T pursuant to clause (z) above arises from an adjustment of a Timing Item
(such payment, an "Advance"), amounts that would otherwise be payable by AT&T to
Liberty with respect to the year that the Corresponding Item is realized shall
be reduced (or amounts that would otherwise have been receivable by AT&T from
Liberty shall be increased) by the amount of the Advance. Liberty shall pay
AT&T the amount of any Advance that has not previously been so applied to reduce
(or increase) payments at such time, if any, that the Liberty Group (or the
member of the Liberty Group to which the Advance relates)
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<PAGE>
deconsolidates from the AT&T Affiliated Group. All costs, fees and expenses of
the Settlement Advisor and the procedures described in Section 9(d)(D)(x) and
(y) shall be borne 50 percent by Liberty and 50 percent by AT&T.
10. Appointment of AT&T as Agent. Liberty and each of the Subsidiaries
----------------------------
in the Liberty Group hereby appoint AT&T as their agent for the purpose of
filing consolidated federal income Tax Returns that are Joint Returns and for
making any election (described in Section 9(c) of this Agreement) or application
or taking any action in connection with any such Tax Return on behalf of Liberty
and each such Subsidiary in the Liberty Group included in such return consistent
with the terms of this Agreement. Liberty and each of the Subsidiaries in the
Liberty Group hereby appoint AT&T as their agent for the purpose of filing any
other Joint Returns, and for making any election (described in 9(c) of this
Agreement) or application or taking any action in connection with any such Joint
Return on behalf of Liberty and each Subsidiary in the Liberty Group consistent
with the terms of this Agreement. Liberty and each of the Subsidiaries in the
Liberty Group hereby consent to the filing of such consolidated federal income
Tax Returns and combined, consolidated or unitary state, local or foreign Tax
Returns, and to the making of such elections and applications. Liberty agrees
that Liberty and each of the Subsidiaries in the Liberty Group will be included,
to the extent permitted by applicable law, in the filing of consolidated federal
income Tax Returns on behalf of the AT&T Affiliated Group for each taxable
period ending after the Closing Date and will be included in any other Joint
Return required or permitted by applicable law, which Joint Return AT&T elects
or is required to file or cause to be filed.
11. Cooperation.
-----------
(a) The parties shall cooperate with one another in all matters
relating to Taxes. The Liberty Group shall each provide AT&T with such
cooperation and information as is necessary in order to enable AT&T to satisfy
its tax, accounting and other legitimate requirements. Such cooperation and
information by the members of the Liberty Group shall include making their
respective knowledgeable employees available during normal business hours,
providing the information required by reasonable AT&T Tax and accounting
questionnaires (at the times and in the format required by AT&T of its
Significant Subsidiaries), maintaining such books and records and providing such
information as may be necessary or useful in the filing of Joint Returns and
Separate Returns, and executing any documents and taking any actions which AT&T
may reasonably request in connection therewith. AT&T shall provide Liberty, upon
request, with copies of any Joint Returns filed by AT&T that include any member
of the Liberty Group, promptly after such Joint Returns are filed and with
copies of schedules and workpapers used to prepare such Joint Returns and to
determine payments pursuant to this Agreement.
(b) AT&T, Liberty and the Covered Entities shall consult with and
cooperate with one another with respect to any restructuring (including, without
limitation, any incorporation, sale, transfer or exchange of assets and any
liquidation, sale, transfer or reorganization of any entity (such a
restructuring, a "Post-Closing Transaction")) of the assets or entities that
were part of the transactions described in the TCI Pre-AT&T Merger Restructuring
Plan or paragraph 1 of the Letter Agreement to the extent that such
restructuring would reasonably be expected to adversely affect the Tax treatment
of any of the steps listed in the TCI Pre-AT&T Merger Restructuring Plan or
paragraph 1 of the Letter Agreement materially. If the Liberty Group has not
given its approval to a Post-Closing Transaction effected by any member of the
Common Stock Group, which approval shall not be unreasonably withheld (provided
that reasonableness shall be based on risk, not dollars), and such Post-Closing
Transaction affects the Tax treatment of any step in the TCI Pre-Merger
Restructuring Plan or paragraph 1 of the Letter Agreement creating either a Tax
liability or a DIT or a reduction in any Tax benefit that would otherwise be for
Liberty's account under this Agreement, then (A) AT&T shall indemnify Liberty
for (i) the amount of any reduction of the TCI Affiliated Group NOL that would
not have arisen but for such Post-Closing Transaction, (ii) any Tax created from
any DIT that would not have arisen but for such Post-Closing Transaction, and
(iii) any other Tax liability (or reduction in any Tax benefit) that would
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<PAGE>
not have arisen but for such Post-Closing Transaction and (B) AT&T shall be
entitled, notwithstanding any other provision of this Agreement, to control any
Tax Proceeding to the extent it relates to any Tax liability, reduction in Tax
benefit or reduction in the TCI Affiliated Group NOL arising from such Post-
Closing Transaction. If AT&T has not given its approval to a Post-Closing
Transaction effected by any member of the Liberty Group, which approval shall
not be unreasonably withheld (provided that reasonableness shall be based on
risk, not dollars), and such Post-Closing Transaction affects the Tax treatment
of any step in the TCI Pre-Merger Restructuring Plan or paragraph 1 of the
Letter Agreement creating either a Tax liability or a DIT or a reduction in any
Tax benefit that would otherwise be for AT&T's account under this Agreement,
then Liberty shall indemnify AT&T for (i) the amount of any reduction of any TCI
Affiliated Group Non-NOL Carryover that would not have arisen but for such Post-
Closing Transaction, (ii) any Tax created from any DIT that would not have
arisen but for such Post-Closing Transaction, and (iii) any other Tax liability
(or reduction in any Tax benefit) that would not have arisen but for such Post-
Closing Transaction.
12. Confidentiality. Any information obtained by any party under
---------------
this Agreement shall be kept confidential, except as may be necessary in
connection with the filing of Tax Returns or claims for refund or in connection
with an audit, dispute, proceeding, suit or action concerning any issues or
matters addressed in this Agreement, or unless a party is compelled to disclose
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law. This Section 12 shall not be construed
to prevent the sharing of information by the parties with their respective legal
advisors or accountants, the independent certified public accountants for
purposes of performing the duties specified in Section 14 hereof, with the
Settlement Advisor for purposes of performing the duties specified in Section
9(d) hereof or with the Arbiter.
13. Payment of Tax. For each taxable period, AT&T shall timely pay
--------------
or discharge, or cause to be timely paid or discharged, the consolidated federal
income Tax liability of the AT&T Affiliated Group for such taxable period and
the combined state, local or foreign Tax liability shown on any Joint Return
that AT&T or any other member of the Common Stock Group elects or is required to
file.
14. Calculation of Tax Sharing Payments and Resolution of Disputes.
--------------------------------------------------------------
The independent certified public accountants for AT&T shall review each
calculation of payments pursuant to this Agreement and provide a written
certification to Liberty that such payments have been calculated and determined
in accordance with the terms and provisions of this Agreement. Any dispute
concerning the calculation or basis of determination of any payment provided for
hereunder or the interpretation of any term or provision or any matter not
contemplated by this Agreement that cannot be resolved in good faith by the
parties shall be resolved by an independent certified public accounting firm
that is mutually reasonably satisfactory to AT&T and Liberty in a manner that
best conforms with the intent of the parties in drafting this Agreement, whose
judgment shall be conclusive and binding upon the parties, in the absence of
mathematical error. All costs, fees and expenses of the independent certified
public accounting firms that are attributable to services rendered under this
Section 14 shall be borne half by AT&T and half by Liberty.
15. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon AT&T, Liberty and each Subsidiary that is a signatory hereto and
the Subsidiaries that become parties hereto pursuant to Section 23 hereof. This
Agreement shall inure to the benefit of, and be binding upon, any successors or
assigns of the parties hereto (including, without limitation, any Subsidiary
that becomes a party hereto pursuant to Section 23). AT&T, Liberty and each
other party hereto may assign their right to receive payments under this
Agreement but may not assign or delegate their obligations hereunder; provided,
--------
however, that concurrently with the Liberty Media Corporation Contribution (as
- -------
defined in the Contribution Agreement) which will occur as soon as practicable
after the occurrence of a Triggering Event (as defined in the Contribution
Agreement), Liberty Group LLC shall assume all the obligations of Liberty and
each other member of the Liberty Group hereunder (and which obligations
thereafter shall be exercisable against Liberty
-17-
<PAGE>
Group LLC, as well as Liberty and each other member of the Liberty Group, for
all purposes of this Agreement), and Liberty shall assign all of the rights of
Liberty under this Agreement to Liberty Group LLC (and which rights thereafter
shall be exercisable by Liberty Group LLC for all purposes of this Agreement, on
behalf of Liberty or otherwise), including, without limitation, Liberty's rights
to tax sharing payments and indemnification from AT&T and Liberty's rights to
file certain Tax Returns, to prepare Tax packages, to control or participate in
Tax Proceedings, to object to settlements by AT&T, to cooperation from AT&T, and
to procedures for the calculation of payments and resolution of disputes.
16. Interpretation. This Agreement is intended to calculate and
--------------
allocate certain federal, state, local and foreign Tax liabilities of the
members of the AT&T Affiliated Group, the Common Stock Group, and the Liberty
Group, and any situation or circumstance concerning such calculation and
allocation that is not specifically contemplated hereby or provided for herein
shall be dealt with in a manner consistent with the underlying principles of
calculation and allocation in this Agreement. This Agreement shall not be
interpreted to require any payment by Liberty to AT&T that is duplicative of any
gross proceeds retained by AT&T for taxes pursuant to part (a) of the definition
of "Liberty Media Group Net Proceeds" found in Section 9, Part B, of Article
Third of the AT&T Charter.
17. Legal and Accounting Fees. Unless otherwise specified herein,
-------------------------
any fees or expenses for legal, accounting or other professional services
rendered in connection with the preparation of a Joint Return or the conduct of
any Tax Proceeding shall be allocated between AT&T and Liberty in a manner
resulting in AT&T and Liberty, respectively, bearing a reasonable approximation
of the actual amount of such fees or expenses hereunder reasonably related to,
and for the benefit of, their respective Groups.
18. Effect of the Agreement. This Agreement shall determine the
-----------------------
liability of AT&T, Liberty and the members of their respective Groups to each
other as to the matters provided for herein, whether or not such determination
is effective for purposes of the Code or of state, local or foreign Tax laws, or
for financial reporting purposes or for any other purposes.
19. Entire Agreement.
----------------
(a) This Agreement embodies the entire understanding among the parties
relating to its subject matter and supersedes and terminates any prior
agreements and understandings among the parties with respect to such subject
matter (including the 1995 TCI Tax Sharing Agreement and the 1997 TCI Tax
Sharing Agreement, each of which shall be of no further force or effect, and
Exhibit C to the Merger Agreement), and no Person shall have any right,
responsibility, obligation or liability thereunder. Any and all prior
correspondence, conversations and memoranda (including the memorandum from AT&T
and Liberty to Wachtell, Lipton, Rosen & Katz and Baker & Botts, L.L.P. dated
March 4, 1999) are merged herein and shall be without effect hereon. No
promises, covenants or representations of any kind, other than those expressly
stated herein, have been made to induce either party to enter into this
Agreement. This Agreement, including this provision against oral modification,
shall not be modified or terminated except by a writing duly signed by each of
the parties hereto, and no waiver of any provisions of this Agreement shall be
effective unless in a writing duly signed by the party sought to be bound.
(b) Notwithstanding Section 19(a), the Federal Tax Allocation
Agreement, the State and Local Income Tax Allocation Agreement and the Tax
Sharing Agreement by and among AT&T, Lucent Technologies Inc. and NCR
Corporation dated as of February 1, 1996 shall each remain fully in effect;
provided, however, that no Legal Entity included in the Liberty Group shall be
considered a party to such agreements or subject to such agreements.
-18-
<PAGE>
20. Code References. Any references to the Code or Treasury
---------------
Regulations shall be deemed to refer to the relevant provisions of any successor
statute or regulation and shall refer to such provisions as in effect from time
to time.
21. Notices. Any payment, notice or communication required or
-------
permitted to be given under this Agreement shall be in writing (including
telecopy communication) and mailed, telecopied or delivered:
If to AT&T or any member of the Common Stock Group:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attention: Vice President-Law
and Corporate Secretary
Facsimile: (908) 221-6618
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52/nd/ Street
New York, New York 10019
Attention: Richard D. Katcher, Esq.
Steven A. Rosenblum, Esq.
Facsimile: (212) 403-2000
If to Liberty or any member of the Liberty Group:
Liberty Media Corporation
8101 East Prentice Avenue, Suite 500
Englewood, Colorado 80111
Attention: Peter Zolintakis
Facsimile: (303) 488-3268
with a copy to:
Baker & Botts, L.L.P.
599 Lexington Avenue
New York, New York 10022
Attention: Elizabeth M. Markowski, Esq.
Frederick H. McGrath, Esq.
Facsimile: (212) 705-5125
or to any other address as AT&T or Liberty shall furnish in writing to one
another. All such notices and communications shall be effective when received.
22. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
23. New Members. Each of the parties to this Agreement recognizes
-----------
that from time to time, new Subsidiaries of Liberty may be added to the Liberty
Group. Each of the parties agree that any new Subsidiary that is part of the
Liberty Group shall, without the express written consent of the other parties,
become a party to this Agreement for all purposes of this Agreement with respect
to taxable periods ending after such Subsidiary was added to the Liberty Group.
24. Nature of Obligations. Each of AT&T and Liberty acknowledges and
---------------------
agrees that its respective obligations under this Agreement shall not be
affected by any impossibility, illegality, impracticability, frustration of
purpose, force majeure, act of government, bankruptcy or insolvency of any party
----- -------
to this Agreement, failure or refusal of any party to this Agreement to perform
its obligations hereunder, dispute, setoff or counterclaim, change in amount,
composition or terms of the assets, liabilities or equity of AT&T or Liberty or
any other party to this Agreement, or any other defense or right which AT&T or
Liberty has or may have that might have the effect of releasing AT&T or Liberty,
as the case may be, from such obligations.
25. Termination. This Agreement shall terminate at such time as all
-----------
obligations and liabilities of the parties hereto have been satisfied. The
obligations and liabilities of the parties arising under this Agreement shall
continue in full force and effect until all such obligations have been met and
such liabilities have been paid in full, whether by expiration of time,
operation of law, or otherwise. The obligations and liabilities of each party
are made for the benefit of, and shall be enforceable by, the other parties and
their successors and permitted assigns.
26. Liberty Representation. Liberty represents that Liberty currently
----------------------
estimates based upon information as of the date hereof that was provided by TCI
personnel to Liberty and evaluated by Liberty personnel in good faith, that with
respect to 1998, for federal income tax purposes, the TCI Group will have $165
million of alternative minimum taxable income (which reflects a $70 million
alternative minimum taxable loss of National Digital Television Center, Inc.)
and the Liberty Group will have $205 million of alternative minimum taxable
income. It has been the general experience of Liberty that final federal income
tax numbers may vary from such estimates by a considerable amount, as much as
100 percent or more, but, apart from such general experience, Liberty has no
reason to believe that the numbers contained in the immediately preceding
sentence are incorrect as of the date hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed by its respective duly authorized officer as of the date first set
forth above.
AT&T CORP.
By: /s/ Daniel E. Somers
-----------------------------------------
Name: Daniel E. Somers
Title: Senior Executive Vice President and
Chief Financial Officer
LIBERTY MEDIA CORPORATION, for itself and for
each member of the Liberty Group
By: /s/ Charles Y. Tanabe
-----------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
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<PAGE>
Each of the Covered Entities listed below on this page hereby executes this
Agreement as a member of the Liberty Group to acknowledge that such Person is
bound by this Agreement as a member of the Liberty Group:
TCI WIRELESS HOLDINGS, INC.
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
TCIP, INC.
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
TCI INTERACTIVE, INC.
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
SILVER SPUR LAND AND CATTLE CO.
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
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<PAGE>
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
LIBERTY VENTURES GROUP LLC
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Executive Vice President
LIBERTY MEDIA GROUP LLC
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Vice President
TCI STARZ, INC.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Vice President
TCI CT HOLDINGS, INC.
By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Vice President
-23-
<PAGE>
EXHIBIT 10.5
------------
FIRST AMENDMENT TO
TAX SHARING AGREEMENT
by and among
AT&T CORP.,
LIBERTY MEDIA CORPORATION,
for itself and each member of the Liberty Group,
TELE-COMMUNICATIONS, INC.,
LIBERTY VENTURES GROUP LLC,
LIBERTY MEDIA GROUP LLC,
TCI STARZ, INC.,
TCI CT HOLDINGS, INC,
and
each Covered Entity listed on the signature pages hereof,
dated as of May 28, 1999
<PAGE>
This First Amendment, dated as of May 28, 1999 (this "First
Amendment"), to the Tax Sharing Agreement, dated as of March 9, 1999 (the
"Agreement"), is entered into by and among AT&T Corp., a New York corporation
("AT&T"), Liberty Media Corporation, a Delaware corporation ("Liberty"), for
itself and on behalf of each member of the Liberty Group, Tele-Communications,
Inc., a Delaware corporation, Liberty Ventures Group LLC, a Delaware limited
liability company, Liberty Media Group LLC, a Delaware limited liability
company, TCI Starz, Inc., a Colorado corporation, TCI CT Holdings, Inc., a
Delaware corporation, each Covered Entity listed on the signature pages hereof,
and each entity which becomes a party to the Agreement pursuant to Section 23
thereto. Unless otherwise stated herein, capitalized terms used in this First
Amendment shall have the meaning ascribed to such terms in the Agreement.
WHEREAS, the parties have entered into the Agreement which governs the
sharing, allocation and reimbursement of federal, state, local and foreign taxes
by the members of the Common Stock Group and the Liberty Group; and
WHEREAS, AT&T intends to acquire The Associated Group, Inc., a
Delaware corporation ("AGI"), in a transaction qualifying as a tax-free
reorganization under Section 368(a) of the Code (the "AGI Acquisition") pursuant
to an Agreement and Plan of Merger dated as of May 28, 1999 (the "AGI Merger
Agreement") for and on behalf of the Liberty Group; and
WHEREAS, certain members of the Liberty Media Group are negotiating a
form of letter (in the form approved in writing by AT&T, the "Telewest Letter")
to Microsoft Corporation ("Microsoft") relating to the interest currently held
by MediaOne Group, Inc. in Telewest that calls for the negotiation, execution
and delivery of certain agreements, instruments and other documents that give
effect to the arrangements described therein (collectively, and including the
obligations to which Microsoft would succeed pursuant to the second paragraph of
the Telewest Letter, but in each case only to the extent approved in writing by
AT&T, the "Microsoft/Telewest Arrangements"); and
WHEREAS, the parties intend that any Tax Items arising from or
relating to the AGI Acquisition, including any Tax Items of AGI or any of its
direct or indirect assets or subsidiaries, shall be considered Tax Items
attributable to the Liberty Group except to the extent set forth herein; and
WHEREAS, the parties intend that any Tax Items arising from or
relating to the Microsoft/Telewest Arrangements shall be considered Tax Items
attributable to the Common Stock Group except to the extent set forth herein;
and
WHEREAS, the parties now wish to amend the Agreement in certain
respects to clarify the intent of the parties with respect to the sharing,
allocation and reimbursement of federal, state, local and foreign taxes by the
members of the Common Stock Group and the Liberty Group and to make such other
amendments, as provided herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. The Agreement is amended by inserting in Section 1(z) the words
", as amended" after the words "as of the date hereof" and before the period.
2. The Agreement is amended by deleting the first sentence of
Section 3(d)(i) and adding in lieu thereof the following:
"Any Tax Item arising from or relating to (A) TCI Wireless Holdings Inc. or
any of its direct or indirect assets or subsidiaries, (B) the disposition
of certain assets in exchange for stock of GI or the subsequent disposition
of such stock, (C) except as provided below in this Section 3(d)(i), the
deemed, constructive or actual disposition (except for the Exhibit D DITS)
of the shares or other interests in any Liberty Group Legal Entity, or
measured by reference to the difference between the value of such shares or
interests and
2
<PAGE>
the holder's basis therein, or (D) AGI, A-Group Merger Corp. ("AGI Merger
Sub"), Cayman LLC (as defined in the AGI Merger Agreement), Delaware LLC
(as defined in the AGI Merger Agreement), Teligent, Inc., TruePosition,
Inc., or any of their respective direct or indirect subsidiaries or
affiliates (or any predecessor or successor of any of the foregoing under
applicable corporate, limited liability company, partnership or other
organizational law) (the "AGI Entities"); the status of any member of the
Common Stock Group as the successor under Code Section 381 (or comparable
provision of state, local or foreign Tax law) to any of the AGI Entities;
any direct or indirect asset, liability, business, investment or operation
of any of the AGI Entities; any AT&T Common Stock or New Liberty Media
Group Tracking Stock held at any time directly or indirectly by any of the
AGI Entities; the amendments made as of the closing date of the merger of
AGI Merger Sub into AGI (the "AGI Merger") to the Contribution Agreement
and to the Limited Liability Company Agreement of Liberty Media Group LLC
and the transactions contemplated by such amendments (and only such
amendments); the AGI Acquisition, the AGI Merger Agreement, the AGI Merger,
any Pre-Merger Restructuring Transaction (as defined in the AGI Merger
Agreement), any Post-Merger Restructuring Transaction (as defined in the
AGI Merger Agreement), the issuance of AT&T Common Stock or New Liberty
Media Group Tracking Stock in the AGI Merger or any other transaction
contemplated by the AGI Merger Agreement, the First Supplement to Inter-
Group Agreement dated May 28, 1999 (the "First Supplement") (other than
Section 1.5 and the preamble paragraph relating to the Telewest Letter
thereof), this Clause D of this First Amendment, or the Voting Agreement
dated May 28, 1999 by and among AT&T, Liberty, and certain stockholders of
AGI (the "Voting Agreement"), or any other document to which the Company,
Liberty or any of their respective Subsidiaries (as defined in the AGI
Merger Agreement) or Affiliates (as defined in the AGI Merger Agreement) is
a party that is referred to in the AGI Merger Agreement, the First
Supplement (other than Section 1.5 and the preamble paragraph relating to
the Telewest Letter thereof), this Clause D of this First Amendment and the
Voting Agreement or executed in connection therewith (any of the foregoing
Tax Items specified in this Clause D shall be referred to hereinafter as a
"Clause D Tax Item"), shall be for the account of the Liberty Group (except
to the extent otherwise provided in this Section 3(d)(i) with respect to
any Clause D Tax Item), and Liberty shall pay AT&T any Tax (or any
reduction in any Tax refund, credit or other benefit) attributable thereto.
Notwithstanding anything in the preceding sentence to the contrary, any
Clause D Tax Item shall be for the account of AT&T if, and to the extent
that, such Clause D Tax Item arises directly from and would not have arisen
but for (i) any inaccuracy in any of the representations by AT&T or AGI
Merger Sub in the Officer's Certificate dated as of the closing date of the
AGI Merger delivered by AT&T and AGI Merger Sub in connection with the
opinions to be delivered pursuant to Section 8.2(j), 8.3(h) and 8.4(h) of
the AGI Merger Agreement, (ii) any breach by AT&T or AGI Merger Sub of any
of their representations or covenants in Sections 3.6, 3.7, 3.11, 3.12,
3.13, 3.14, 5.4, 5.5, 7.7, 7.13, and 7.15 of the AGI Merger Agreement or
(iii) any breach by AT&T of any representation or covenant in the Inter-
Group Agreement (except in the case of clauses (i), (ii) and (iii), to the
extent arising out of or relating to actions taken by AT&T at the request
of Liberty as contemplated by Section 1.2(e) of the First Supplement or
otherwise in writing), and AT&T shall pay to the applicable Governmental
Authority or to Liberty any Tax, and shall pay to Liberty any reduction in
any Tax refund, credit or other benefit that is for the account of Liberty
hereunder, attributable thereto. Any Tax Item arising from or relating to
the execution and delivery of, or the performance of the obligations of the
Liberty Media Group (as defined in the Parent Charter) under, the Telewest
Letter, the Microsoft/Telewest Arrangements, or any other transaction
contemplated thereby or by Section 1.5 of the First Supplement, this
sentence of this First Amendment, or any other document referred to in
Section 1.5 of the First Supplement or this sentence of this First
Amendment (any of the foregoing Tax Items specified in this sentence shall
be referred to hereinafter as a "Telewest Tax Item"), shall be for the
account of the Common Stock Group (except to the extent otherwise provided
in this Section 3(d)(i) with respect to any Telewest Tax Item), and AT&T
shall pay to the applicable Governmental Authority or to Liberty any Tax,
and shall pay to Liberty any reduction in any Tax refund, credit or other
benefit that is for the account of Liberty hereunder, attributable thereto.
Notwithstanding anything in the preceding sentence to the contrary, any
Telewest Tax Item shall be for the account of Liberty if, and to the extent
that, such Telewest Tax Item arises directly from and would not have arisen
but for (i) any breach by Liberty or any member of the Liberty Media Group
(as defined in the Inter-Group Agreement) of any of its representations or
covenants
3
<PAGE>
in the Telewest Letter or the Microsoft/Telewest Arrangements or (ii) any
breach by Liberty of any representation or covenant in the Inter-Group
Agreement (except in the case of clauses (i) and (ii), to the extent
arising out of or relating to actions taken by Liberty at the express
written request of AT&T), and Liberty shall pay AT&T any Tax (or any
reduction in any Tax refund, credit or other benefit that is for the
account of AT&T hereunder) attributable thereto."
3. The Agreement is amended by inserting in Section 3(d)(ii) the
words ", as amended," after the words "dated February 11, 1999" and before the
words "among AT&T, TCI and Liberty."
4. The Agreement is amended by deleting Section 9(b) and adding in
lieu thereof a new sentence as follows:
"From and after the Closing Date, Liberty shall have the right to control
in all respects all Tax Proceedings with respect to (I) any member of the
TCI Affiliated Group with respect to any Pre-Closing Taxable Period or (II)
AGI for any taxable period ending on or prior to the date of the closing of
the AGI Merger or any Subsidiary of AGI during any such period for such
period; provided, however, that (i) AT&T shall be entitled to participate
in any such Tax Proceeding at its expense, (ii) Liberty shall keep AT&T
updated and informed and shall consult with AT&T with respect to any
contested Tax Item, (iii) Liberty shall act in good faith with a view to
the merits in connection with the Tax Proceeding and (iv) any proposed
settlement shall require the consent of AT&T, which consent shall not be
unreasonably withheld."
5. Except as otherwise expressly provided herein, the Agreement
shall continue in full force and effect without modification.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this First
Amendment to be executed by its respective duly authorized officer as of the
date first set forth above.
AT&T CORP.
By:________________________________________
Name:
Title:
LIBERTY MEDIA CORPORATION, for
itself and for each member of the Liberty
Group
By:________________________________________
Name:
Title:
5
<PAGE>
Each of the Covered Entities listed below on this page hereby executes this
First Amendment as a member of the Liberty Group to acknowledge that such Person
is bound by this First Amendment as a member of the Liberty Group:
TCI WIRELESS HOLDINGS, INC.
By:________________________________________
Name:
Title:
TCIP, INC.
By:________________________________________
Name:
Title:
TCI INTERACTIVE, INC.
By:________________________________________
Name:
Title:
SILVER SPUR LAND AND CATTLE CO.
By:________________________________________
Name:
Title:
6
<PAGE>
TELE-COMMUNICATIONS, INC.
By:________________________________________
Name:
Title:
LIBERTY VENTURES GROUP LLC
By:________________________________________
Name:
Title:
LIBERTY MEDIA GROUP LLC
By:________________________________________
Name:
Title:
TCI STARZ, INC.
By:________________________________________
Name:
Title:
TCI CT HOLDINGS, INC.
By:________________________________________
Name:
Title:
7
<PAGE>
EXHIBIT 10.6
------------
RESTATED AND AMENDED EMPLOYMENT AGREEMENT
-----------------------------------------
RESTATED AND AMENDED EMPLOYMENT AGREEMENT dated as of November 1, 1992
between TELE-COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and
John C. Malone, who resides at 12415 Lost Canyon Trail, Parker, Colorado 80134
("Executive").
WHEREAS, the Company and Executive are parties to that certain
Employment Agreement dated as of January 1, 1982, as heretofore amended (the
"Existing Agreement"); and
WHEREAS, the Company and Executive desire to amend the Existing
Agreement to provide for an increase in Executive's annual compensation, to
eliminate certain provisions of the Existing Agreement that have ceased by their
terms to be effective and to make certain other changes, and to restate the
Existing Agreement as so amended in its entirety;
NOW, THEREFORE, in consideration of the mutual covenants and agreement
herein contained and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term and Termination.
--------------------
(a) Term. The term of Executive's employment (the "Employment
----
Term") under the Existing Agreement initially commenced on January 1, 1982 and
ended on December 31, 1986 and, pursuant to the Existing Agreement, has been
and, pursuant to and subject to the terms and conditions of this Agreement, will
continue to be extended daily so that the remainder of the Employment Term shall
at all times on and prior to the effective date of the termination of
Executive's employment as provided herein be five (5) years. During the
Employment Term, the Company agrees to employ Executive and Executive agrees to
serve the Company upon and subject to the terms and conditions set forth in this
Agreement.
(b) Termination by the Company. Executive's employment by the
--------------------------
Company may be terminated by the Company only as provided in clauses (i), (ii)
and (iii) below.
(i) Upon the death of Executive.
(ii) Effective as of December 31 of any year, upon giving
written notice of such termination to Executive six (6) months
prior to the effective date thereof and by paying to Executive in
a lump sum upon such termination all remaining compensation
(other than compensation the payment of which was deferred by
Executive prior to such termination) that would have been payable
under Section 4 hereof if this Agreement remained in full force
and effect for the full five-year balance of the Employment Term.
(iii) At any time for "cause", which for purposes of this
Agreement shall be deemed to have occurred only on the happening of
any of the following:
(A) the plea of guilty to, or conviction for, the
commission of a felony offense by Executive; provided,
--------
however, that after indictment, the Company may suspend
-------
Executive from the rendition of services but without
limiting or modifying in any other way the Company's
obligations under this Agreement;
<PAGE>
(B) a material breach by Executive of a material
fiduciary duty owed to the Company;
(C) a material breach by Executive of the covenants
made by him in Sections 9, 10 and 11 hereof; or
(D) the willful and gross neglect by Executive of the
material duties specifically and expressly required by this
Agreement;
provided, however, that any claim that "cause", within the meaning of
-------- -------
clause (B), (C) or (D) above, exists for the termination of
Executive's employment may be asserted on behalf of the Company only
by a duly adopted resolution of the Board of Directors of the Company
and only after 30 days prior written notice to Executive during which
period he may cure the breach or neglect that is the basis of any such
claim, if curable; provided, further, that during the period of twelve
-------- -------
(12) months following a change in control of the Company (as defined
below), "cause" shall be deemed to have occurred only upon the
happening of an event referred to in clause (A) above; and provided,
--------
further, that the term "material" as used in clauses (B), (C) and (D)
-------
above and in Section 13 hereof shall be construed by reference to the
effect of the relevant action or omission on the Company taken as a
whole. For purposes of the foregoing, a change in control of the
Company will be considered to have occurred if the group in control of
the Company shall no longer include at least one of the following: (x)
Bob Magness, members of his family or representatives thereof, or (y)
representatives of Kearns-Tribune Corporation (but only if the present
shareholders remain in control of such corporation). The term "family"
as used herein means the named person's estate, spouse and lineal
descendants and any trust or other investment vehicle for the primary
benefit of such named person or members of his family and the term
"representatives" includes executors and trustees.
(c) Effect of Termination by the Company. If Executive's
------------------------------------
employment by the Company is terminated by the Company pursuant to Section 1(b)
hereof, all compensation under Section 4 of this Agreement (other than
compensation the payment of which was deferred by Executive prior to such
termination) that has accrued in favor of Executive as of the date of such
termination, to the extent unpaid or delivered, shall be paid or delivered to
Executive on the date of termination. Upon such termination of Executive's
employment and payment of such amount (and, if applicable, the full amount
payable pursuant to clause (ii) of Section 1(b)), the Company's obligations
under this Agreement shall terminate, except as provided in Section 4 (as it
relates to compensation the payment of which was deferred by Executive prior to
such termination), Section 5, Section 6 (as it relates to expenses incurred
prior to such termination) and Section 8 of this Agreement. Executive
acknowledges that his obligations under Sections 9, 10, 11 and 12 hereof will
survive any such termination.
(d) Termination by Executive. Executive shall have the right
------------------------
to terminate his employment by the Company, and be relieved of any obligation to
render or provide any further services hereunder, as provided in clauses (i) and
(ii) below:
(i) Upon six (6) months prior written notice to the
Company of the effective date of such termination.
(ii) Immediately upon the giving of notice of termination
by Executive to the Company following a change in control of the
Company (as defined in Section 1(b) above).
If Executive's employment by the Company is terminated by Executive
pursuant to this Section 1(d), all compensation under Section 4 of this
Agreement (other than compensation the payment of which was deferred by
Executive prior to such termination) that has accrued in favor of Executive as
of the date of such
2
<PAGE>
termination, to the extent unpaid or undelivered, and, if Executive terminates
his employment pursuant to clause (ii) above, all remaining compensation (other
than compensation the payment of which Executive elected prior to such
termination to defer) that would have been payable under Section 4 hereof if
this Agreement remained in full force and effect for the full five-year balance
of the Employment Term, shall be paid or delivered to Executive in a lump sum on
the date of termination. Upon such termination of Executive's employment and
payment of such amounts, Executive and the Company shall each be relieved of any
further obligations under this Agreement, except (in the case of Executive) as
provided in Sections 9, 10, 11 and 12 of this Agreement, and except (in the case
of the Company) as provided in Section 4 (as it relates to compensation the
payment of which was deferred by Executive prior to such termination), Section
5, Section 6 (as it relates to expenses incurred prior to such termination) and
Section 8 of this Agreement.
2. Services to be Rendered by Executive. Executive Agrees to
------------------------------------
serve the Company as President and Chief Executive Officer of the Company. In
such capacity, Executive shall perform all reasonable acts customarily
associated with such positions, or necessary or desirable to protect and advance
the best interests of the Company. Executive shall perform such acts and carry
out such duties, and shall in all other respects serve the Company faithfully
and to the best of his ability. If Executive is elected a director or an officer
of any of the Company's subsidiaries during the Employment Term, Executive will
serve in any such capacities without further compensation except as may be
decided by the Company at the Company's sole election. The Company agrees that
shall, during the Employment Term, be based at the Company's principal executive
office, which shall be located in the Denver area, with the understanding that
Executive will travel as reasonably required in the performance of his duties
hereunder.
3. Time to be Devoted by Executive. Executive agrees to devote
-------------------------------
eighty percent (80%) of all of his business time, attention, efforts and
abilities to the business of the Company and to use his best efforts to promote
the interests of the Company.
4. Compensation Payable to Executive.
---------------------------------
(a) Commencing on the date of this Agreement and thereafter
during the Employment Term, the Company shall pay to Executive a salary at the
rate of $800,000 per annum. The Board of Directors shall review Executive's
compensation annually to determine, in its sole discretion, whether any increase
in Executive's salary is appropriate.
(b) Executive's annual compensation shall be paid to Executive
in accordance with the Company's regular policy but not less frequently than
once a month. With respect to the employment year commencing January 1, 1993,
Executive shall defer 40% of each monthly payment of Executive's annual
compensation for such year and, with respect to each employment year thereafter,
Executive shall be entitled to elect, by written notice to the Company received
no later than 30 days prior to the commencement of such employment year, to
defer such percentage (not in excess of 40%) as Executive may specify in such
notice, of each monthly payment of Executive's annual compensation for such year
(in each case, the "monthly deferred amount"). Each such monthly deferred amount
shall bear interest, compounded annually, at the rate of 8% per annum, from the
first day of the month of deferral to, but not including, the Determination
Date. As used herein, "Determination Date" shall mean the first business day of
the first full calendar month following the termination of Executive's
employment with the Company.
(c) The sum of the monthly deferred amounts pursuant to Section
4(b) above plus all interest accrued thereon to the Determination Date (the
"total deferred amount") shall be calculated as of the Determination Date and
shall be paid to Executive in substantially equal monthly payments over a 240-
month period commencing on the Determination Date and continuing on the first
day of each calendar month thereafter until paid in full. Each monthly payment
of the total deferred amount shall be accompanied by a payment of interest
thereon computed at the rate of 8% per annum, compounded annually, from and
including the Determination Date to the date of such payment. The Company and
Executive acknowledge that the payment of
3
<PAGE>
40% of each monthly payment of Executive's annual compensation during the
calendar year 1983 and $12,500 of each monthly payment of Executive's annual
compensation thereafter through the end of calendar year 1992 has been (and, in
the case of the December 1992 payment, will be) deferred pursuant to and as
required by the terms of Section 4 of the Existing Agreement (the "previously
deferred compensation"). The provisions of said Section 4 of the Existing
Agreement shall continue to govern with respect to the calculation of, accrual
of interest on, and payment of all such previously deferred compensation, and
such provisions as they relate to such previously deferred compensation shall
survive the execution and delivery of this Agreement unaffected hereby.
(d) If Executive dies while he is a full-time employee of the
Company or before the expiration of the period during which such deferred
payments are to be paid to him, the remaining deferred payments shall be paid
forthwith in a lump sum to Executive's designated beneficiary or beneficiaries.
The phrase "designated beneficiary or beneficiaries" shall mean Executive's
spouse, if she shall survive Executive, or such other person or persons named
from time to time by Executive in a signed instrument filed with the Company. If
the designation made in any such signed instrument shall for any reason be
ineffective, the phrase "designated beneficiary or beneficiaries" shall mean
Executive's estate.
(e) The amount of deferred compensation payable hereunder
(together with the interest applicable thereto) shall not in any way be reserved
or held in trust by the Company. Neither Executive nor any designated
beneficiary or personal representative shall have any rights against the Company
in respect of such deferred payments other than the rights of any unsecured
creditor of the Company. Deferred payments provided for herein shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and shall not in any manner be liable or subject
to the debts, contracts, liabilities, engagements or torts of Executive, nor of
any designated beneficiary or personal representative. The payment to Executive
of such deferred payments shall be subject to the further condition that
Executive shall comply with the provisions of Section 10 of this Agreement
during the entire payment period and Executive shall comply with the provisions
of Sections 9 and 12 of this Agreement, if said provisions are applicable by
their terms, for the first two (2) years of the payment period.
5. Salary Continuation Plan.
------------------------
(a) At such time as Executive's employment with the Company
shall terminate, Executive shall be entitled to receive from the Company 240
consecutive monthly payments of $15,000, the first payment of which shall be
payable on the first day of the month succeeding the termination of Executive's
employment. The amount of the monthly payments provided for in the immediately
preceding sentence shall be increased at the rate of 12% per annum, compounded
annually from January 1, 1998 to the date that the first payment thereof
commences. The foregoing is referred to in this Agreement as the "Benefit."
(b) Upon the death of Executive, the payments provided for in
Section 5(a) above (or, if Executive dies after termination of his employment
and during the payment period contemplated by Section 5(a), any remaining such
payments) shall be made to Executive's designated beneficiary or beneficiaries.
The phrase "designated beneficiary or beneficiaries" shall mean Executive's
spouse, if she shall survive Executive, or such other person or persons named
from time to time by Executive in a signed instrument filed with the Company. If
the designation made in any such signed instrument shall for any reason be
ineffective, the phrase "designated beneficiary or beneficiaries" shall mean
Executive's estate.
(c) The payment to Executive of the Benefit shall be subject to
the condition that Executive shall comply with the provisions of Section 10 of
this Agreement during the entire payment period and Executive shall comply with
the provisions of Sections 9 and 12 of this Agreement, if said provisions are
applicable by their terms, during the first two (2) years of the payment period.
(d) The Benefit payable under this Agreement shall not in any
way be reserved or held in trust by the Company. Neither Executive nor any
designated beneficiary or personal representative shall
4
<PAGE>
have any rights against the Company in respect of such Benefit other than the
rights of an unsecured general creditor of the Company. Payments of the Benefit
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and shall not in any manner be liable
or subject to the debts, contracts, liabilities, engagements or torts of
Executive, nor of any designated beneficiary or personal representative. The
Company shall not be obligated under any circumstances to fund its obligations
under this Section 5, but it may, however, at its sole option elect to fund such
obligations in whole or in part in any manner whatsoever including, but not
limited to, the purchase of life insurance on the life of the Executive, in any
amounts the Company deems appropriate. Any such funding shall remain a general
unrestricted asset of the Company and in no way security for the Company's
performance under this Section 5. Executive agrees to cooperate with the
Company, if so requested, in its obtaining such insurance.
(e) The Benefit provided for in this Section 5 is intended by
the parties to be in substitution for, and not in addition to, the "Benefit" as
defined in and contemplated by Section 16 of the Existing Agreement, the terms
and provisions of which Section 16 are superseded in their entirety by the terms
and provisions of this Section 5.
6. Expenses. The Company shall reimburse Executive for the
--------
reasonable amount of dining, hotel, traveling, entertainment and other expenses
necessarily incurred by Executive in the discharge of his duties hereunder.
7. Executive Benefit Plans; Use of Company Aircraft.
------------------------------------------------
(a) During the Employment Term, Executive shall be entitled to
participate in and to be accorded all rights and benefits under all formal
incentive compensation plans, stock incentive plans, employee stock purchase
plans, retirements plans, disability insurance, life insurance, health and major
medical insurance policy or policies, and other plans or benefits (including,
without limitation, any insurance covering Officers or Directors against errors
or omissions) now in existence or that may hereafter be adopted by the Company
for the benefit of its executive officers or key employees generally or for the
benefit of its employees generally, provided that Executive is eligible by the
terms thereof to participate therein.
(b) While he is employed by the Company pursuant to this
Agreement, Executive will be permitted by the Company to make use of the
Company's aircraft and flight crew from time to time for personal trips (each an
"Executive Flight"), subject to the conditions hereinafter set forth and
provided that the Executive Flights shall be limited to an aggregate Value (as
defined below) of $35,000 per year. The Company will bear the expense of each
Executive Flight permitted hereby and the Value of each Executive Flight shall
be treated as additional compensation to Executive. For purposes of the
foregoing, the Value of each Executive Flight shall be determined in accordance
with Treasury Regulation Section 1.61-21(g) (or any successor regulation
promulgated under the Internal Revenue Code of 1986, as amended) as from time to
time in effect. Executive will give the Company at least 48 hours notice of any
desired Executive Flight, stating the proposed schedule, the points of
origination and destination of the flight and, if so required by the Company,
such information about the general purpose of the Executive Flight as shall be
sufficient for the Company to determine that such flight does not violate any
requirement of applicable law. The Company will promptly thereafter inform
Executive of the availability of the aircraft and its flight crew. The Company
shall have no obligation to provide the aircraft and a flight crew for any
Executive Flight at any time when (i) a requested Executive Flight would
conflict with any actual or planned use of the aircraft by the Company, (ii) the
aircraft is undergoing any scheduled maintenance or repairs or is otherwise not
in a condition to be operated, or (iii) a qualified flight crew is unavailable
to operate the aircraft for a requested Executive Flight. In addition, the
Company will have no obligation hereunder to make the aircraft and its flight
crew available for any use or purpose, and Executive agrees not to use the same
for any use or purpose, which, in the opinion of the Company, is in violation of
or not permitted by applicable law as applied to either the Company or
Executive, or is not permitted under or stipulated in the insurance policies
maintained by the Company. The proposed schedule and points of origination and
destination of each Executive Flight will be subject to the approval of the
captain of the flight crew, who shall at all times be in charge and control of
the aircraft, and in no
5
<PAGE>
event shall the aircraft be operated beyond the geographical limits prescribed
in the insurance policies maintained by the Company.
8. Indemnification. The Company will indemnify and hold harmless
---------------
Executive, to the fullest extent permitted by applicable law, in respect of any
liability, damage, cost or expense (including reasonable counsel fees) incurred
in connection with the defense of any claim, action, suit or proceeding to which
he is a party, or threat thereof, by reason of his being or having been an
officer or director of the Company or any subsidiary of the Company, or his
serving or having served at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, business organization, enterprise or other entity, including service with
respect to employee benefit plans. Without limiting the generality of the
foregoing, the Company will pay the expenses (including reasonable counsel fees)
of defending any such claim, action, suit or proceeding in advance of its final
disposition, upon receipt of an undertaking by Executive to repay all amounts
advanced if it should ultimately be determined that Executive is not entitled to
be indemnified under this Section.
9. Non-Competition. Executive agrees that while in the employ of
---------------
the Company and for a period of two (2) years following the effective date of
the termination of his employment with the Company, unless such termination
results from a change in control of the Company (as defined in Section 1(b)
hereof), he will not, directly or indirectly, as principal or agent, or in any
other capacity, own, manage, operate, participate in or be employed by or
otherwise be interested in, or connected in any manner with, any person, firm,
corporation or other enterprise which directly competes in a material respect
with the business of the Company or any of its majority-owned subsidiaries as it
is conducted while Executive is employed by the Company; provided, however, that
-------- -------
Executive may serve as Chairman of the Board of Liberty Media Corporation, a
Delaware corporation ("Liberty"), and own securities of Liberty without regard
to the foregoing or to the percentage limitation in the following sentence.
Nothing herein contained shall be construed as denying Executive the right to
own securities of any such corporation which is listed on a national securities
exchange or quoted in the NASDAQ System to the extent of an aggregate of 5% of
the amount of such securities outstanding.
10. Confidentiality. Executive agrees that while in the employ of
---------------
the Company (otherwise than in the performance of his duties hereunder) and
thereafter, not to, directly or indirectly, make use of, or divulge to any
person, firm, corporation, entity or business organization and he shall use his
best efforts to prevent the publication or disclosure of, any confidential or
proprietary information concerning the business, accounts or finances of, or any
of the methods of doing business used by the Company or of the dealings,
transactions or affairs of the Company or any of its customers which have or
which may have come to his knowledge during his employment with the Company, but
this Section 10 shall not prevent Executive from responding to any subpoena,
court order or threat of other legal duress, provided Executive notifies the
Company thereof with reasonable promptness so that the Company may seek a
protective order or other appropriate relief.
11. Delivery of Materials. Executive agrees that upon the
---------------------
termination of his employment he will deliver to the Company all documents,
papers, materials and other property of the Company relating to its affairs,
which may then be in his possession or under his control.
12. Non-Interference. Executive agrees that he will not, while in
----------------
the employ of the Company and for a period of two (2) years following the
effective date of the termination of his employment with the Company, unless
such termination results from a change in control of the Company (as defined in
Section 1(b) hereof), solicit the employment of any employee of the Company on
behalf of any other person, firm, corporation, entity or business organization,
or otherwise interfere with the employment relationship between any employee or
officer of the Company and the Company.
13. Remedies of the Company. Executive agrees that, in the event of
-----------------------
a material breach by Executive of this Agreement, in addition to any other
rights that the Company may have pursuant to this Agreement, the Company shall
be entitled, if it so elects, to institute and prosecute proceedings at law or
in equity to obtain damages with respect to such breach or to enforce the
specific performance of this Agreement by Executive or to
6
<PAGE>
enjoin Executive from engaging in any activity in violation hereof. Executive
agrees that because Executive's services to the Company are of such a unique and
extraordinary character, a suit at law may be an inadequate remedy with respect
to a breach by Executive of Sections 9, 10, 11 and 12 hereof, and that upon any
such breach or threatened breach by him of such Sections the Company shall be
entitled, in addition to any other lawful remedies that may be available to it,
to injunctive relief.
14. Notices. All notices to be given hereunder shall be deemed duly
-------
given when delivered personally in writing or mailed, certified mail, return
receipt requested, postage prepaid and addressed, as follows:
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111-3000
Attention: Chairman of the Board
with a copy similarly addressed
and marked to the attention of
the Legal Department
(b) If to be given to Executive:
Mr. John C. Malone
12415 Lost Canyon Trail
Parker, Colorado 80134
or to such other address as a party may request by notice given in accordance
with this Section 14.
15. Miscellaneous. This Agreement constitutes the entire agreement
-------------
between the parties with respect to the subject matter hereof and replaces and
supersedes as of the date hereof any and all prior agreements and understandings
with respect to Executive's employment by the Company, whether oral or written,
between the parties hereto, including, without limitation, except to the extent
provided in Section 4(c) hereof, the Existing Agreement. This Agreement may not
be changed nor may nay provision hereof be waived except by an instrument in
writing duly signed by the party to be charged. This Agreement shall be
interpreted, governed and controlled by the law of the State of Colorado,
without reference to principles of conflict of laws.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
TELE-COMMUNICATIONS, INC.
By:/s/ Bob Magness
---------------------------------
Name: Bob Magness
Title: Authorized Officer
By:/s/ John C. Malone
---------------------------------
Name: John C. Malone
ATTEST:
/s/ Martha L. Flessner
- ------------------------
Name: Martha L. Flessner
8
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This Amendment to Employment Agreement (this "Amendment"), effective
as of March 9, 1999, is between Liberty Media Corporation, a Delaware
corporation (the "Company"), and John C. Malone ("Executive").
Recitals
--------
Executive and Tele-Communications, Inc. ("TCI") are parties to a
Restated and Amended Employment Agreement (the "Employment Agreement") dated as
of November 1, 1992, setting forth various terms applicable to Executive's
employment by TCI. A copy of the Employment Agreement is attached as Appendix A
to this Amendment. In connection with the acquisition of TCI by AT&T Corp. on
March 9, 1999, the Company assumed the obligations of TCI under the Employment
Agreement.
The Company and Executive desire to amend the Employment Agreement in
various respects.
Agreement
---------
In consideration of the mutual covenants set forth in this Amendment
and the Employment Agreement, the parties, intending to be legally bound, agree
as follows:
1. Definitions. As used in this Amendment, all terms with initial
-----------
capital letters that are not defined in this Amendment will have the meaning
ascribed to them in the Employment Agreement.
2. Services to be Rendered by Executive. The first sentence of
------------------------------------
Section 2 of the Employment Agreement is amended in its entirety to read as
follows:
"Executive agrees to serve the Company as the Chairman of the
Company's Board of Directors."
3. Time to be Devoted by Executive. Section 3 of the Employment
-------------------------------
Agreement is amended in its entirety to read as follows:
"Executive will use his best efforts to promote the interests of the
Company and will devote such of his business time, attention, efforts
and abilities as reasonably may be required to perform the duties
contemplated hereby."
4. Compensation Payable to Executive. The first sentence of
---------------------------------
Section 4(a) of the Employment Agreement is amended in its entirety to read as
follows:
"Effective as of March 1, 1999, and thereafter during the Employment
Term, the Company will pay to Executive a salary at the rate of $2,600
per annum."
5. Executive Benefit Plans; Use of Company Aircraft.
------------------------------------------------
(a) The first sentence of Section 7(b) of the Employment
Agreement is amended by changing the reference in that sentence to "$35,000 per
year" to "$200,000 per year."
(b) The following will be added as subsection (c) to Section 7
of the Employment Agreement:
<PAGE>
"(c) The Company will pay, or will reimburse Executive for, all fees
and other costs for professional services reasonably incurred by
Executive in obtaining estate or tax planning advice or services, up
to a maximum amount of $50,000 per year."
6. Notices. The address for notices to Executive set forth in
-------
Section 14 of the Employment Agreement is amended to read as follows:
Mr. John C. Malone
12750 Pine Drive
Parker, CO 80134
This Agreement has been signed on June 30, 1999, but will be effective
as of the date first written above.
LIBERTY MEDIA CORPORATION
By:/s/ Robert R. Bennett
-----------------------------------
Name: Robert R. Bennett
Title: President
/s/ John C. Malone
--------------------------------------
Name: John C. Malone
2
<PAGE>
EXHIBIT 12
----------
<TABLE>
<CAPTION>
Liberty Media Corporation
Calculation of Ratio of Earnings to Fixed Charges
(dollars in millions)
(unaudited)
Two
4 Mos Months 6 Mos
Ended Ended Ended Year Ended December 31,
------------------------------------------------
6/30/99 2/28/99 6/30/98 1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings (losses) before income taxes $ (926) 141 (164) 1,083 (645) 1,174 (100) 283
Add:
Interest on debt 81 38 70 178 71 58 61 23
Interest portion of rentals 4 2 6 11 9 13 22 17
Amortization of debt expense 2 1 2 5 3 1 - -
Distributions from and losses of less
than 50%-owned affiliates with debt
not guaranteed by Liberty 52 31 398 876 723 310 195 45
Minority interest in earnings/(losses) of
consolidated subsidiaries (12) (3) 5 (13) 10 (18) 142 -
----------------------------------------------------------------------------------
Earnings available for fixed charges $ (799) 210 317 2,140 171 1,538 320 368
==================================================================================
Fixed charges:
Interest on debt:
LMC and consolidated subsidiaries 46 26 33 104 40 53 34 11
Less than 50%-owned affiliates with debt
guaranteed by Liberty 6 3 8 16 11 1 2 2
Liberty's proportionate share of interest of
50%-owned affiliates 29 9 29 58 20 4 25 10
----------------------------------------------------------------------------------
Total interest on debt 81 38 70 178 71 58 61 23
Interest portion on rentals 4 2 6 11 9 13 22 17
Amortization of debt expense 2 1 2 5 3 1 - -
Capitalized interest - - - - - - - -
----------------------------------------------------------------------------------
Total fixed charges $ 87 41 78 194 83 72 83 40
==================================================================================
Ratio of earnings to fixed charges - 5.12 4.06 11.03 2.06 21.36 3.86 9.20
Deficiency $ (886) - - - - - - -
</TABLE>
The ratio of earnings to fixed charges of the Company was 11.03, 2.06, 21.36,
3.86 and 9.20 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively, and 5.12 and 4.06 for the two-months ended February 28, 1999 and
the six-month period ended June 30, 1998, respectively. The ratio of earnings to
fixed charges of the Company was less than 1.00 for the four-month period ended
June 30, 1999; thus, earnings available for fixed charges were inadequate to
cover fixed charges for such period. The amount of coverage deficiency for the
four-month period ended June 30, 1999 was $886 million. For the ratio
calculations, earnings available for fixed charges consists of earnings (losses)
before income taxes plus fixed charges, distributions from and losses of less
than 50%-owned affiliates with debt not guaranteed by the Company (net of
earnings not distributed of less than 50%-owned affiliates) and minority
interests in earnings (losses) of consolidated subsidiaries. Fixed charges
consist of (i) interest on debt, including interest related to debt guaranteed
by the Company of less than 50%-owned affiliates where the investment in such
affiliates results in the recognition of a loss, (ii) the Company's
proportionate share of interest of 50%-owned affiliates, (iii) that portion of
rental expense the Company believes to be representative of interest (one-third
of rental expense), and (iv) amortization of debt expense. The Company has
guaranteed the debt of certain less than 50%-owned affiliates and certain
unaffiliated entities in which it has an interest. Fixed charges of $1 million
relating to such guarantees for the years ended December 31, 1998, 1997, 1995
and 1994 and for the six months ended June 30, 1998 and the four months ended
June 30, 1999 have not been included in fixed charges because the investment in
such entities does not result in the recognition of a loss and it is not
probable that the Company will be required to honor the guarantee.
<PAGE>
EXHIBIT 21
----------
A table of the subsidiaries of Liberty Media Corporation as of August 31, 1999,
is set forth below, indicating as to each the state or the jurisdiction of
incorporation or organization and the names under which such subsidiaries do
business (Trade Names). Subsidiaries not included in the table are inactive or,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
ENTITY.NAME....................................... State Trade Names
LIBERTY MEDIA CORPORATION DE
ETC INGENIUS HOLDINGS, INC. DE
ETC w/tci, INC. DE
LIBERTY ACADEMIC SYSTEMS HOLDINGS, INC. CO
LIBERTY LIGHTSPAN HOLDINGS, INC. CO
RL INGENIUS, INC. CO
TCI CT HOLDINGS, INC. DE
TCI CT OPERATIONS, INC. CO
TCI CTRACK ASSET CORP. CO
TCI ETC HOLDINGS, INC. DE
THE LIGHTSPAN PARTNERSHIP, INC. CA
CABLE RIOS DE LOS DELTAS S.A. ARG REAL NAME IS "CABLE
RIOS de los DELTAS
S.A."
CABLEVISION S.A. ARG
CONSTRURED, S.A. ARG
FIBERTEL-TCI2 ARG
LIBERTY ARGENTINA, INC. DE
LIBERTY BRAZIL DTH, INC. CO
LIBERTY CHILE, INC. CO
LIBERTY EUROPE, INC. CO
LIBERTY HOLDINGS EUROPE, INC. CO
LIBERTY HOLDINGS JAPAN, INC. CO
LIBERTY HOME SHOP INTERNATIONAL, INC. CO
LIBERTY INTERNATIONAL CABLE MANAGEMENT, INC. CO
LIBERTY INTERNATIONAL DTH, INC. CO
LIBERTY IRELAND LIMITED LIABILITY COMPANY UT
LIBERTY IRELAND, INC. CO
LIBERTY LATIN PARTNERS, INC. DE
LIBERTY MEDIA INTERNATIONAL, INC. DE TINTA
TCI SQUARED, INC.
LIBERTY MEXICO DTH, INC. CO
LIBERTY MULTICOUNTRY DTH, INC. CO
LIBERTY PROGRAMMING ARGENTINA, INC. DE
LIBERTY PROGRAMMING AUSTRALIA, INC. CO
LIBERTY PROGRAMMING FRANCE, INC. CO
LIBERTY PROGRAMMING SOUTH AMERICA, INC. DE
LIBERTY UK, INC. CO
LIBERTY/TINTA AUSTRALIA, INC. DE
LIBERTY/TINTA DISTRIBUTION, INC. DE
OESTE CABLE COLOR S.A. ARG
PRAMER S.C.A. ARG
TCI AUSTRALIA, LLC DE
TCI CABLE PROGRAMME PARTNERS, INC. CO
TCI CABLEVISION OF PUERTO RICO, INC. DE
TCI CATHAY TV, INC. CO
TCI HOLDINGS (CHILE), INC. DE
<PAGE>
TCI INTERNATIONAL BRASIL, LTDA. BRZ
TCI INTERNATIONAL INVESTMENTS LTD. UK
TCI INTERNATIONAL PARTNERS (CHILE), L.P. DE
TCI INTERNATIONAL PARTNERSHIP HOLDINGS, INC. CO
TCI MOVIES AUSTRALIA PTY LIMITED AUS
TCI POLAND, INC. CO
TCI SOUTH AMERICA, SRL ARG
TCI TELECOMMUNICATIONS IRELAND LTD. IRE
TCI TOKYO CO., LTD LLC DE
TINTA LATIN PROGRAMMING LTD. CAY
UNITED ARTISTS INTERNATIONAL, INC. CO
DMX, LLC DE
PARADIGM MUSIC ENTERTAINMENT COMPANY DE
PURPLE DEMON, INC. NY BIG DEAL
SONICNET, INC. DE
SUPERSOUND
TCI MUSIC, INC. DE
THE BOX ARGENTINA, S.A. ARG
THE BOX HOLLAND, B.V. NTH
THE BOX ITALY, S.R.L. ITL
THE BOX WORLDWIDE, INC. FL
THE BOX WORLDWIDE-EUROPE, B.V. NTH
THE BOX WORLDWIDE-LATIN AMERICA, INC. BVI
THE BOX WORLDWIDE-USA, INC. DE
VIDEO JUKEBOX NETWORK EUROPE, LTD. UK
VJN LPTV CORP. DE
VJN MANAGEMENT SERVICES, INC. BVI
DRY CREEK PRODUCTIONS LLC CO
ENCORE ASIA MANAGEMENT LIMITED HKG
ENCORE ASIA, INC. CO
ENCORE AUSTRALIA MANAGEMENT, INC. DE
ENCORE ICCP INVESTMENTS LLC CO
ENCORE ICCP, INC. CO EMC ENTERTAINMENT
INTERNATIONAL, INC.
ENCORE INTERNATIONAL NEWCO, INC. CO
ENCORE INTERNATIONAL, INC. CO
ENCORE MEDIA CORPORATION CO ENCORE
ENCORE MEDIA GROUP LLC CO
ENCORE QE PROGRAMMING CORP. CO
ICCP, INC. CO
INTERNATIONAL CABLE CHANNELS PARTNERSHIP, LTD. CO
MGM GOLD NETWORKS (ASIA) BV NTH
MGM GOLD NETWORKS ASIA, LLC DE
MGNA DISTRIBUTION LLC CO
STARZ MOVIES LLC CO
AMERICANA TELEVISION PRODUCTIONS LLC CO
BDTV II INC. DE
BDTV III INC. DE
BDTV INC. DE
BDTV IV, INC. DE
COMMUNICATION CAPITAL CORP. DE COLORADO COMMUNICATION
CAPITAL CORP. [CO]
2
<PAGE>
INTESSERA, INC. CO REAL NAME IS
"INtessera, Inc."
INtessera Technologies
Group
LBTW I, INC. CO
LBTW II, INC. CO
LBTW III, INC. CO
LD BONDNET, INC. DE
LIBERTY ANTC, INC. CO
LIBERTY ATCL, INC. CO
LIBERTY BAY, INC. CO
LIBERTY BETI, INC. DE
LIBERTY BROADCASTING, INC. OR
LIBERTY CHALLENGER, LLC DE
LIBERTY CHC, INC. CO
LIBERTY CNBC, INC. CO
LIBERTY CNDT, INC. DE
LIBERTY COURT II, INC. CO
LIBERTY COURT, INC. WY
LIBERTY CSG CASH, LLC DE
LIBERTY CSG WARRANTS, LLC DE
LIBERTY CVC, INC. DE
LIBERTY DENVER ARENA LLC DE
LIBERTY DIGITAL HEALTH GROUP, LLC CO
LIBERTY DIGITAL, LLC DE
LIBERTY DISTRIBUTION, INC. CO
LIBERTY DMX, INC. CO
LIBERTY DS, INC. DE
LIBERTY EQUATOR, INC. DE
LIBERTY GI II, INC. DE
LIBERTY GI, INC. DE
LIBERTY GIC, INC. CO
LIBERTY HG, INC. DE
LIBERTY HSN II, INC. DE
LIBERTY HSN LLC HOLDINGS, INC. DE
LIBERTY HSN, INC. CO
LIBERTY IATV EVENTS, INC. DE
LIBERTY IATV, INC. DE
LIBERTY IB, INC. DE
LIBERTY IFE, INC. CO
LIBERTY IP, INC. DE
LIBERTY JAPAN, INC. DE
LIBERTY JAVA, INC. CO
LIBERTY KASTR CORP. DE
LIBERTY KASTR HOLDINGS LLC
LIBERTY KHC, INC. DE
LIBERTY KI, INC. DE
LIBERTY KSCC, LLC
LIBERTY MCNS HOLDINGS, INC. CO
LIBERTY MEDIA GROUP LLC DE
LIBERTY MEDSCHOLAR, INC. DE
LIBERTY MICROUNITY HOLDINGS, INC. CO
LIBERTY MLP, INC. CO
LIBERTY MOVIECO, INC. CO
LIBERTY NEA, INC. DE
LIBERTY ONLINE HEALTH KI HOLDINGS, INC. CO
LIBERTY ONLINE HEALTH RN HOLDINGS, INC. CO
3
<PAGE>
LIBERTY PL, INC. DE
LIBERTY PL, INC. DE
LIBERTY PROGRAMMING COMPANY LLC DE
LIBERTY PROGRAMMING DEVELOPMENT CORPORATION WY
LIBERTY PROGRAMMING JAPAN, INC. DE
LIBERTY PROGRAMMING UK, INC. DE
LIBERTY QS, INC. DE
LIBERTY QVC, INC. CO
LIBERTY SMTRK OF TEXAS, INC. CO
LIBERTY SMTRK, LLC DE
LIBERTY SPANISH GROUP, L.L.C. CO
LIBERTY SPANISH HOLDINGS, INC. CO
LIBERTY STARZ, INC. CO
LIBERTY TE, INC. DE
LIBERTY TELEMUNDO NETWORK, INC. CO
LIBERTY TELEMUNDO STATIONS, INC. CO
LIBERTY TIV, INC. DE
LIBERTY TOWER, INC. DE
LIBERTY TSAT, INC. DE
LIBERTY TVGIA, INC. DE
LIBERTY TVGOS, INC. CO
LIBERTY TW, LLC CO
LIBERTY UK RADIO, INC. CO
LIBERTY UVSG, INC. CO
LIBERTY VF, INC. DE
LIBERTY VILLAGE, INC. DE
LIBERTY VIRTUAL i/O, INC. CO
LIBERTY VJN, INC. CO
LIFESCAPE, LLC DE
LMC ANIMAL PLANET, INC. CO
LMC BET, INC. CO
LMC CAPITAL LLC DE
LMC DIGITAL, INC. CO
LMC DISCOVERY, INC. CO
LMC E!, INC. CO
LMC ENCORE, INC. CO
LMC IATV EVENTS, LLC DE
LMC INFORMATION SERVICES, INC. NV X*PRESS INFORMATION
SERVICES
LMC MUSIC, INC. CO
LMC REQUEST, INC. CO
LMC SATCOM, INC. GA
LMC SILLERMAN, INC. CO
LMC SILVER KING, INC. CO
LMC USA I, INC. DE
LMC USA II, INC. DE
LMC USA III, INC. DE
LMC USA IV, INC. DE
LMC USA IX, INC. DE
LMC USA V, INC. DE
LMC USA VI, INC. DE
LMC USA VIII, INC. DE
LMC WIRELESS HOLDINGS, INC. DE
LQ I, INC. CO
LQ II, INC. CO
LTWX I, INC. CO
LTWX II, INC. CO
4
<PAGE>
LTWX III, INC. CO
LTWX IV, INC. CO
LTWX V, INC. CO
MACNEIL/LEHRER PRODUCTIONS NY
REQUEST HOLDINGS, INC. DE
ROYAL COMMUNICATIONS, INC. CO
RTV ASSOCIATES, L.P. DE
SOUTHERN SATELLITE SYSTEMS, INC. GA
STT VIDEO PARTNERS, L.P. DE
TCI ONLINE SERVICES, INC. CO
VISION GROUP INCORPORATED CO
X*PRESS ELECTRONIC SERVICES, LTD. CO
X*PRESS INFORMATION SERVICES, LTD. CO
INTERNATIONAL SPORTS PROGRAMMING LLC DE
ISP TRANSPONDER L.L.C. DE
LIBERTY ARC, INC. DE
LIBERTY J - SPORTS, INC. DE
LIBERTY NC II, INC. DE
LIBERTY NC III, INC. DE
LIBERTY NC, INC. DE
LIBERTY NEWCO INTERNATIONAL, INC. DE
LIBERTY SPORTS, INC. CO
LIBERTY SPORTSOUTH, INC. GA
LIBERTY/TINTA LLC DE
LIBERTY/TINTA MIDDLE EAST LLC DE
LIBERTY/TINTA SPORT EQUITY LLC DE
LIBERTY/TINTA TRANSPONDER LLC DE
LIBERTY/TINTA U.S. DEPORTIVA LLC DE
LIBERTY/TINTA WORLD LLC DE
LMC BAY AREA SPORTS, INC. CO BASN (CA)
BAY AREA SPORTS
NETWORK (CA)
PACIFIC SPORTS NETWORK (CA)
PSN (CA)
LMC DENVER ARENA, INC. DE
LMC INTERNATIONAL, INC. CO
LMC REGIONAL SPORTS, INC. CO
LMC SOUTHEAST SPORTS, INC. CO
LMC SUNSHINE, INC. CO
NEW LMC ARC, INC. DE
LIBERTY INTERACTIVE TECHNOLOGIES, INC. DE
5
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Liberty Media Corporation:
We consent to the use of our report dated March 9, 1999, relating to the
consolidated balance sheets of Liberty Media Corporation and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations and comprehensive earnings, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 1998 included
herein and to the reference to our firm under the heading "Experts" in the
registration statement.
KPMG LLP
Denver, Colorado
September 3, 1999
<PAGE>
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Liberty Media
Corporation on Form S-4 of our report dated February 2, 1999, on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries and the related financial statement schedule, for the year ended
December 31, 1998, appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 2, 1999
<PAGE>
EXHIBIT 25
----------
========================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
______________________
LIBERTY MEDIA CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 84-1288730
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
9197 South Peoria Street
Englewood, Colorado 80112
(Address of principal executive offices) (Zip code)
_____________
7-7/8% Senior Notes due 2009
8-1/2% Senior Debentures due 2029
(Title of the indenture securities)
========================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- ----------------------------------------------------------
Name Address
- ----------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-
29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with
Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed
with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-2-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 27th day of August, 1999.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
----------------------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
<PAGE>
EXHIBIT 7 TO EXHIBIT 25
- -----------------------
- -------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION> Dollar Amounts
ASSETS In Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency
and coin............................................................ $ 5,597,807
Interest-bearing balances............................................ 4,075,775
Securities:
Held-to-maturity securities.......................................... 785,167
Available-for-sale securities........................................ 4,159,891
Federal funds sold and Securities purchased
under agreements to resell........................................... 2,476,963
Loans and lease financing receivables:
Loans and leases, net of unearned
income............................................................. 38,028,772
LESS: Allowance for loan and
lease losses......................................................... 568,617
LESS: Allocated transfer risk
reserve.............................................................. 16,352
Loans and leases, net of unearned income,
allowance, and reserve.............................................. 37,443,803
Trading Assets........................................................ 1,563,671
Premises and fixed assets (including
capitalized leases)................................................. 683,587
Other real estate owned............................................... 10,995
Investments in unconsolidated subsidiaries and
associated companies................................................. 184,661
Customers' liability to this bank on
acceptances outstanding............................................. 812,015
Intangible assets..................................................... 1,135,572
Other assets.......................................................... 5,607,019
-----------
Total assets.......................................................... $64,536,926
===========
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LIABILITIES
Deposits:
In domestic offices.................................................. $26,488,980
Noninterest-bearing.................................................. 10,626,811
Interest-bearing..................................................... 15,862,169
In foreign offices, Edge and Agreement
subsidiaries, and IBFs.............................................. 20,655,414
Noninterest-bearing.................................................. 156,471
Interest-bearing..................................................... 20,498,943
Federal funds purchased and Securities sold
under agreements to repurchase....................................... 3,729,439
Demand notes issued to the U.S.Treasury............................... 257,860
Trading liabilities................................................... 1,987,450
Other borrowed money:
With remaining maturity of one year or
less................................................................ 496,235
With remaining maturity of more than one
year through three years........................................... 465
With remaining maturity of more than
three years........................................................ 31,080
Bank's liability on acceptances executed and
outstanding.......................................................... 822,455
Subordinated notes and debentures..................................... 1,308,000
Other liabilities..................................................... 2,846,649
-----------
Total liabilities..................................................... 58,624,027
===========
EQUITY CAPITAL
Common stock.......................................................... 1,135,284
Surplus............................................................... 815,314
Undivided profits and capital reserves................................ 4,001,767
Net unrealized holding gains (losses) on
available-for-sale securities........................................ (7,956)
Cumulative foreign currency translation
adjustments.......................................................... (31,510)
-----------
Total equity capital.................................................. 5,912,899
-----------
Total liabilities and equity capital.................................. $64,536,926
===========
</TABLE>
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni ]
Alan R. Griffith ] Directors
Gerald L. Hassell ]
- -------------------------------------------------------------------------------
<PAGE>
FORM OF
LETTER OF TRANSMITTAL EXHIBIT 99.1
------------
OFFER TO EXCHANGE
<TABLE>
<S> <C>
7 7/8% Senior Notes due 2009 which 8 1/2% Senior Debentures due 2029 which
have been registered under the have been registered
Securities Act of 1933 for any and all under the Securities Act of 1933 for any
outstanding and all outstanding
7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029
</TABLE>
OF
LIBERTY MEDIA CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON 5:00 P.M., 1999 (THE "EXPIRATION
DATE") UNLESS EXTENDED BY LIBERTY MEDIA CORPORATION
THE EXCHANGE AGENT IS:
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E
New York, New York 10286 Corporate Trust Services Window
Attn: Gertrude Jeanpierre New York, New York 10286
Reorganization Section Attn: Gertrude Jeanpierre
Reorganization Section
BY FACSIMILE TRANSMISSION:
(for eligible institutions only)
The Bank of New York
Facsimile No. (212) 815-6339
Attn: Gertrude Jeanpierre
Reorganization Section
Confirm by Telephone: (212) 815-5920
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the prospectus dated [__________],
1999 (the "Prospectus") of Liberty Media Corporation ("Liberty"), and this
letter of transmittal (the "Letter of Transmittal"), which together describe
Liberty's offer (the "Exchange Offer") to exchange (i) its 7 7/8% Senior Notes
due 2009 (the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), for each of its outstanding 7
7/8% Senior Notes due 2009 (the "Outstanding Notes") from the holders thereof,
and (ii) its 8 1/2% Senior Debentures due 2029 (the "Exchange Debentures" and,
together with the Exchange Notes, the "Exchange Securities"), which have been
registered under the Securities Act, for each of its outstanding 8 1/2%
<PAGE>
Senior Debentures due 2029 (the "Outstanding Debentures" and, together with the
Outstanding Notes, the "Outstanding Securities") from the holders thereof.
The terms of the Exchange Securities are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the
Outstanding Securities for which they may be exchanged pursuant to the Exchange
Offer, except that the Exchange Securities are freely transferable by holders
thereof (except as provided herein or in the Prospectus).
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE
LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW.
List below the Outstanding Securities to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
aggregate principal amounts should be listed on a separate signed schedule
affixed hereto.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING SECURITIES TENDERED HEREWITH
- ----------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6
PRINCIPAL PRINCIPAL
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
NAME(S) AND ADDRESS(ES) OF AMOUNT OF OUTSTANDING AMOUNT OF OUTSTANDING
REGISTERED HOLDER(S) CERTIFICATE OUTSTANDING NOTES OUTSTANDING DEBENTURES
(PLEASE FILL IN) NUMBER(S)* NOTES* TENDERED** DEBENTURES* TENDERED**
<S> <C> <C> <C> <C> <C>
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
TOTAL
</TABLE>
______________________________________________________________
* Need not be completed by book-entry holders.
** Outstanding Securities may be tendered in whole or in part in denominations
of $1,000 and integral multiples thereof. All Outstanding Securities held
shall be deemed tendered unless a lesser number is specified in column 4 or
column 6. See instruction 2.
2
<PAGE>
Holders of Outstanding Securities whose Outstanding Securities are not
immediately available or who cannot deliver 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
Outstanding Securities according to the guaranteed delivery procedures set forth
in the Prospectus.
Unless the context otherwise requires, the term "holder" for purposes of
this Letter of Transmittal means any person in whose name Outstanding Securities
are registered or any other person who has obtained a properly completed bond
power from the registered holder or any person whose Outstanding Securities are
held of record by The Depository Trust Company ("DTC").
/ / CHECK HERE IF TENDERED OUTSTANDING SECURITIES ARE BEING DELIVERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)_______________________________________________
Name of Eligible Institution that Guaranteed Delivery______________________
Date of Execution of Notice of Guaranteed Delivery_________________________
If Delivered by Book-Entry Transfer:
Name of Tendering Institution______________________________________________
Account Number_____________________________________________________________
Transaction Code Number____________________________________________________
/ / CHECK HERE IF EXCHANGE SECURITIES ARE TO BE DELIVERED TO PERSON OTHER THAN
PERSON SIGNING THIS LETTER OF TRANSMITTAL:
Name_______________________________________________________________________
Address____________________________________________________________________
/ / CHECK HERE IF EXCHANGE SECURITIES ARE TO BE DELIVERED TO ADDRESS DIFFERENT
FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL:
Name_______________________________________________________________________
Address____________________________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING SECURITIES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND
10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:______________________________________________________________________
Address:___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Securities. If the undersigned is a broker-dealer that will receive
3
<PAGE>
Exchange Securities for its own account in exchange for Outstanding Securities
that were acquired as a result of market-making activities or other trading
activities, it acknowledges that it will deliver a prospectus in connection with
any resale of such Exchange Securities; however, by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. A broker-dealer may
not participate in the Exchange Offer with respect to Outstanding Securities
acquired other than as a result of market-making activities or other trading
activities. Any holder who is an "affiliate" of Liberty or who has an
arrangement or understanding with respect to the distribution of the Exchange
Securities to be acquired pursuant to the Exchange Offer, or any broker-dealer
who purchased Outstanding Securities from Liberty to resell pursuant to Rule
144A under the Securities Act or any other available exemption under the
Securities Act must comply with the registration and prospectus delivery
requirements under the Securities Act.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to Liberty the principal amount of the Outstanding
Securities indicated above. Subject to, and effective upon, the acceptance for
exchange of all or any portion of the Outstanding Securities 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 exchanges, assigns and transfers
to, or upon the order of, Liberty all right, title and interest in and to such
Outstanding Securities as are being tendered herewith. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as its true and lawful
agent and attorney-in-fact of the undersigned (with full knowledge that the
Exchange Agent also acts as the agent of Liberty, in connection with the
Exchange Offer) to cause the Outstanding Securities to be assigned, transferred
and exchanged.
The undersigned represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Outstanding Securities
and to acquire Exchange Securities issuable upon the exchange of such tendered
Outstanding Securities, and that, when the same are accepted for exchange,
Liberty will acquire good and unencumbered title to the tendered Outstanding
Securities, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim. The undersigned also warrants that it
will, upon request, execute and deliver any additional documents deemed by the
Exchange Agent or Liberty to be necessary or desirable to complete the exchange,
assignment and transfer of the tendered Outstanding Securities or transfer
ownership of such Outstanding Securities on the account books maintained by the
book-entry transfer facility. The undersigned further agrees that acceptance of
any and all validly tendered Outstanding Securities by Liberty and the issuance
of Exchange Securities in exchange therefor shall constitute performance in full
by Liberty of its obligations under the Registration Rights Agreement dated as
of July 7, 1999, among Liberty, Lehman Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital
Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon
Smith Barney Inc., Schroder & Co. Inc. and TD Securities (USA) Inc. (the
"Registration Rights Agreement"), and that Liberty shall have no further
obligations or liabilities thereunder. The undersigned will comply with its
obligations under the Registration Rights Agreement. The undersigned has read
and agrees to all terms of the Exchange Offer.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer--Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by Liberty), as more particularly set forth in the Prospectus,
Liberty may not be required to exchange any of the Outstanding Securities
tendered hereby and, in such event, the Outstanding Securities not exchanged
will be returned to the undersigned at the address shown above, promptly
following the expiration or termination of the Exchange Offer. In addition,
Liberty may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth under "The Exchange Offer--Conditions" occur.
4
<PAGE>
The undersigned understands that tenders of Outstanding Securities pursuant
to any one of the procedures described in the Prospectus and in the instructions
attached hereto will, upon Liberty's acceptance for exchange of such tendered
Outstanding Securities, constitute a binding agreement between the undersigned
and Liberty upon the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under circumstances set forth in the
Prospectus, Liberty may not be required to accept for exchange any of the
Outstanding Securities.
By tendering shares of Outstanding Securities and executing this Letter of
Transmittal, the undersigned represents that Exchange Securities acquired in the
exchange will be obtained in the ordinary course of business of the undersigned,
that the undersigned has no arrangement or understanding with any person to
participate in a distribution (within the meaning of the Securities Act) of such
Exchange Securities, that the undersigned is not an "affiliate" of Liberty
within the meaning of Rule 405 under the Securities Act and that if the
undersigned or the person receiving such Exchange Securities, whether or not
such person is the undersigned, is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Securities. If the undersigned or the person receiving
such Exchange Securities, whether or not such person is the undersigned, is a
broker-dealer that will receive Exchange Securities for its own account in
exchange for Outstanding Securities that were acquired as a result of market-
making activities or other trading activities, it acknowledges that it will
deliver a prospectus in connection with any resale of such Exchange Securities;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. If the undersigned is a person in the United Kingdom, the
undersigned represents that its ordinary activities involve it in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of its business.
Any holder of Outstanding Securities using the Exchange Offer to
participate in a distribution of the Exchange Securities (i) cannot rely on the
position of the staff of the Securities and Exchange Commission enunciated in
its interpretive letter with respect to Exxon Capital Holdings Corporation
(available April 13, 1989) or similar interpretive letters and (ii) must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned. Tendered Outstanding Securities may be withdrawn
at any time prior to the Expiration Date in accordance with the terms of this
Letter of Transmittal. Except as stated in the Prospectus, this tender is
irrevocable.
Certificates for all Exchange Securities delivered in exchange for tendered
Outstanding Securities and any Outstanding Securities delivered herewith but not
exchanged, and registered in the name of the undersigned, shall be delivered to
the undersigned at the address shown below the signature of the undersigned.
The undersigned, by completing the box entitled "Description of Outstanding
Securities Tendered Herewith" above and signing this letter, will be deemed to
have tendered the Outstanding Securities as set forth in such box.
5
<PAGE>
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON
CERTIFICATE(S) FOR OUTSTANDING SECURITIES HEREBY TENDERED OR IN WHOSE NAME
OUTSTANDING SECURITIES ARE REGISTERED ON THE BOOKS OF DTC OR ONE OF ITS
PARTICIPANTS, OR BY ANY PERSON(S) AUTHORIZED TO BECOME THE REGISTERED HOLDER(S)
BY ENDORSEMENTS AND DOCUMENTS TRANSMITTED HEREWITH. IF SIGNATURE IS BY A
TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A
CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY,
PLEASE SET FORTH THE FULL TITLE OF SUCH PERSON. SEE INSTRUCTION 3.
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Date____________________________________________________________________________
Name(s)_________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Capacity (full title)___________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(INCLUDING ZIP CODE)
Daytime Area Code and Telephone No._____________________________________________
Taxpayer Identification No._____________________________________________________
6
<PAGE>
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED--SEE INSTRUCTION 3)
Authorized Signature____________________________________________________________
Dated___________________________________________________________________________
Name____________________________________________________________________________
Title___________________________________________________________________________
Name of Firm____________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No._____________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Securities or Outstanding Securities not
tendered are to be issued in the name of someone other than the registered
holder of the Outstanding Securities whose name(s) appear(s) above.
Issue
/ / Outstanding Securities not tendered to:
/ / Exchange Securities to:
Name(s)_________________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Daytime Area Code and Telephone No._____________________________________________
Tax Identification No.__________________________________________________________
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if Exchange Securities or Outstanding Securities not
tendered are to be sent to someone other than the registered holder of the
Outstanding Securities whose name(s) appear(s) above, or such registered
holder(s) at an address other than that shown above.
7
<PAGE>
Mail
/ / Outstanding Securities not tendered to:
/ / Exchange Securities to:
Name(s)_________________________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No._____________________________________________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES.
A holder of Outstanding Securities may tender the same by (i) properly
completing and signing this Letter of Transmittal or a facsimile hereof (all
references in the Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates, if applicable, representing the Outstanding
Securities being tendered, and any required signature guarantees and any other
documents required by this Letter of Transmittal, to the Exchange Agent at its
address set forth above on or prior to the Expiration Date, or (ii) complying
with the procedure for book-entry transfer described below, or (iii) complying
with the guaranteed delivery procedures described below.
Holders of Outstanding Securities may tender Outstanding Securities by
book-entry transfer by crediting the Outstanding Securities to the Exchange
Agent's account at DTC in accordance with DTC's Automated Tender Offer Program
("ATOP") and by complying with applicable ATOP procedures with respect to the
Exchange Offer. DTC participants that are accepting the Exchange Offer should
transmit their acceptance to DTC, which will edit and verify the acceptance and
execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will
then send a computer-generated message (an "Agent's Message") to the Exchange
Agent for its acceptance in which the holder of the Outstanding Securities
acknowledges and agrees to be bound by the terms of, and makes the
representations and warranties contained in, this Letter of Transmittal, the DTC
participant confirms on behalf of itself and the beneficial owners of such
Outstanding Securities all provisions of this Letter of Transmittal (including
any representations and warranties) applicable to it and such beneficial owner
as fully as if it had completed the information required herein and executed and
transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the
Agent's Message by DTC will satisfy the terms of the Exchange Offer as to
execution and delivery of a Letter of Transmittal by the participant identified
in the Agent's Message. DTC participants may also accept the Exchange Offer by
submitting a Notice of Guaranteed Delivery through ATOP.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING
SECURITIES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER, AND EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. RATHER THAN MAIL
THESE ITEMS, LIBERTY RECOMMENDS THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT CERTIFIED OR REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES,
8
<PAGE>
SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. NO OUTSTANDING
SECURITIES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO LIBERTY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
Holders whose Outstanding Securities are not immediately available or who
cannot deliver their Outstanding Securities and all other required documents to
the Exchange Agent on or prior to the Expiration Date or comply with book-entry
transfer procedures on a timely basis must tender their Outstanding Securities
pursuant to the guaranteed delivery procedure set forth in the Prospectus.
Pursuant to such procedure: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) prior to the Expiration Date, the
Exchange Agent must have received 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, the principal amount of Outstanding Securities tendered, stating that
the tender is being made thereby, and guaranteeing that, within three (3) New
York Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal, or facsimile of this Letter of Transmittal, duly executed, together
with a book-entry confirmation, and any other documents required by this Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and (iii) the properly completed and executed Letter of Transmittal, or
facsimile thereof, as well as a book-entry confirmation, and all other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within three (3) New York Stock Exchange trading days after the Expiration Date.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Outstanding Securities for exchange.
2. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Outstanding Notes or
Outstanding Debentures, as the case may be, evidenced by a submitted certificate
is tendered, the tendering holder must fill in the aggregate principal amount of
Outstanding Notes or Outstanding Debentures tendered in the box entitled
"Description of Outstanding Securities Tendered Herewith." A newly issued
certificate for the Outstanding Notes or Outstanding Debentures submitted but
not tendered will be sent to such holder as soon as practicable after the
Expiration Date. All Outstanding Notes and all Outstanding Debentures delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
clearly indicated.
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date.
To be effective with respect to the tender of Outstanding Securities, a
written notice, which may be by telegram, telex, facsimile transmission or
letter of withdrawal, must be received by the Exchange Agent at one of the
addresses for the Exchange Agent set forth above. Any notice of withdrawal must
(i) specify the name of the person who tendered the Outstanding Securities to be
withdrawn; (ii) identify the Outstanding Securities to be withdrawn including
the certificate number or numbers and principal amount of such Outstanding
Securities; and (iii) be signed by the holder in the same manner as the original
signature on this Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
trustee with respect to the Outstanding Securities register the transfer of the
Ourstanding Securities into the name of the person withdrawing the tender. If
Outstanding Notes have been tendered pursuant to the procedure for book-entry
transfer, any notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawn Outstanding Securities and
otherwise comply with the procedures of that facility. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by Liberty, and such determination will be final and binding on all
parties.
9
<PAGE>
Any Outstanding Securities so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any
Outstanding Securities 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 Outstanding Securities tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
transfer procedures described above, such Outstanding Securities will be
credited to an account with DTC for Outstanding Securities as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Outstanding Securities may be retendered by following
one of the procedures described under the caption "The Exchange Offer--
Procedures for Tendering" in the Prospectus at any time prior to the Expiration
Date.
3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder(s) of the
Outstanding Securities tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration,
enlargement or any change whatsoever.
If any of the Outstanding Securities tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Securities registered in different names are
tendered, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
Outstanding Securities.
When this Letter of Transmittal is signed by the registered holder or
holders (which term, for the purposes described herein, shall include the book-
entry transfer facility whose name appears on a security listing as the owner of
the Outstanding Securities) of Outstanding Securities listed and tendered
hereby, no endorsements of certificates or separate written instruments of
transfer or exchange are required.
Signatures on this Letter of Transmittal or a notice of withdrawal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or another
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"),
unless the Outstanding Securities tendered pursuant thereto are tendered: (i) by
a registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on this Letter of Transmittal;
or (ii) for the account of an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Outstanding Securities listed, such
Outstanding Securities must be endorsed by the registered holder with the
signature guaranteed by an eligible instititution or accompanied by proper
documentation of transfer or exchange, in satisfactory form as determined by
Liberty in its sole discretion, and signed by the registered holder with the
signature guaranteed by an Eligible Institution.
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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 Liberty, proper evidence
satisfactory to Liberty of their authority to so act must be submitted with this
Letter of Transmittal.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders should indicate, as applicable, the name and address to
which the Exchange Securities or certificates for Outstanding Securities not
exchanged are to be issued or sent, if different from the name and address
10
<PAGE>
of the person signing this Letter of Transmittal. In the case of issuance in a
different name, the tax identification number of the person named must also be
indicated. Holders tendering Outstanding Securities by book-entry transfer may
request that Outstanding Securities not exchanged be credited to such account
maintained at the book-entry transfer facility as such holder may designate.
5. TRANSFER TAXES.
Holders who tender their Outstanding Securities for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct Liberty to register Exchange Securities in the name of, or request
that Outstanding Securities not tendered or not accepted in the Exchange Offer
be returned to, a person other than the registered tendering holder will be
responsible for the paymbent of any applicable transfer tax thereon. If
satisfactory evidence of payment of such transfer taxes or exception therefrom
is not submitted herewith, the amount of such transfer taxes will be billed
directly to such tendering holder.
6. WAIVER OF CONDITIONS.
Liberty reserves the absolute right to waive, in whole or in part, any of
the conditions to the Exchange Offer set forth in the Prospectus.
7. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES.
Any holder whose Outstanding Securities have been mutilated, lost, stolen
or destroyed, should contact the Exchange Agent at the address indicated below
for further instructions.
8. SUBSTITUTE FORM W-9
Each holder of Outstanding Securities whose Outstanding Securities are
accepted for exchange (or other payee) is required to provide a correct taxpayer
identification number ("TIN"), generally the holder's Social Security or federal
employer identification number, and certain other information, on Substitute
Form W-9, which is provided under "Important Tax Information" below, and to
certify that the holder (or other payee) is not subject to backup withholding.
Failure to provide the information on the Substitute Form W-9 may subject the
holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service
and 31% federal income tax backup withholding on payments made in connection
with the Outstanding Securities. The box in Part 3 of the Substitute Form W-9
may be checked if the holder (or other payee) 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 3 is checked and a TIN is not provided by the time any payment is made
in connection with the Outstanding Securities, 31% of all such payments will be
withheld until a TIN is provided.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Exchange Agent at the address and
telephone number indicated above.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF
(TOGETHER WITH CERTIFICATES OF OUTSTANDING SECURITIES OR CONFIRMATION OF BOOK-
ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION
DATE.
11
<PAGE>
IMPORTANT TAX INFORMATION
Under U.S. Federal income tax law, a holder of Outstanding Securities whose
Outstanding Securities are accepted for exchange may be subject to backup
withholding unless the holder provides The Bank of New York, as Paying Agent
(the "Paying Agent"), through the Exchange Agent, with either (i) such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9 attached
hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such holder of Outstanding Securities is awaiting a TIN) and that (A) the
holder of Outstanding Securities has not been notified by the Internal Revenue
Service that he or she is subject to backup withholding as a result of a failure
to report all interest or dividends or (B) the Internal Revenue Service has
notified the holder of Outstanding Securities that he or she is no longer
subject to backup withholding; or (ii) an adequate basis for exemption from
backup withholding. If such holder of Outstanding Securities is an individual,
the TIN is such holder's social security number. If the Paying Agent is not
provided with the correct TIN, the holder of Outstanding Securities may be
subject to certain penalties imposed by the Internal Revenue Service.
Certain holders of Outstanding Securities (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. However, exempt holders of Outstanding
Securities should indicate their exempt status on Substitute Form W-9. For
example, a corporation must complete the Substitute Form W-9, providing its TIN
and indicating that it is exempt from backup withholding. In order for a foreign
individual to qualify as an exempt recipient, the holder must submit a Form W-8,
signed under penalties of perjury, attesting to that individual's exempt status.
A Form W-8 can be obtained from the Paying Agent. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
If backup withholding applies, the Paying Agent is required to withhold 31%
of any such payments made to the holder of Outstanding Securities or other
payee. Backup withholding is not an additional tax. Rather, the tax liability of
persons 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 from the Internal Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the
surrendering holder of Outstanding Securities 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 3 is checked, the holder of Outstanding Securities 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 3 is
checked and the Certificate of Awaiting Taxpayer Identification Number is
completed, the Paying Agent will withhold 31% of all payments made prior to the
time a properly certified TIN is provided to the Paying Agent.
The holder of Outstanding Securities is required to give the Paying Agent
the TIN (e.g., social security number or employer identification number) of the
record owner of the Outstanding Securities. If the Outstanding Securities are 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.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE
(YOU) TO GIVE THE PAYER.--Social security numbers have nine digits separated by
two hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
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<TABLE>
<CAPTION>
GIVE THE
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF--
<S> <C>
1. Individual The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings trust account The grantor-trustee(1)
(grantor is also trustee)
b. So-called trust account that is not a legal or The actual owner(1)
valid trust under state law
5. Sole proprietorship The owner(3)
</TABLE>
<TABLE>
<CAPTION>
GIVE THE
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<S> <C>
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or pension trust The legal entity(4)
8. Corporate The corporation
9. Association, club, religious, charitable, The organization
educational, or other tax-exempt organization
account
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a state or local
government, school district, or prison) that
receives agricultural program payments
</TABLE>
- -------------------------
1. List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that
person's number must be furnished.
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2. Circle the minor's name and furnish the minor's social security number.
3. You must show your individual name, but you may also enter your business
or"doing business as" name. You may use either your social security number
or your employer identification number (if you have one).
4. List first and circle the name of the legal trust, estate, or pension
trust.(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE
CONSIDERED TO BE THAT OF THE FIRST NAME LISTED.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5. Application for a Social Security Card, at the local
Social Administration office, or Form SS-4, Application for Employer
Identification Number, by calling 1 (800) TAX-FORM, and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
PAYEES SPECIFICALLY EXEMPTED FROM WITHHOLDING INCLUDE:
- - An organization exempt from tax under Section 501(a), an individual
retirement account (IRA), or a custodial account under Section 403(b)(7),
if the account satisfies the requirements of Section 401(f)(2).
- - The United States or a state thereof, the District of Columbia, a
possession of the United States, or a political subdivision or wholly-owned
agency or instrumentality of any one or more of the foregoing.
- - An international organization or any agency or instrumentality thereof.
- - A foreign government and any political subdivision, agency or
instrumentality thereof.
- - Payees that may be exempt from backup withholding include:
- - A corporation.
- - A financial institution.
- - A dealer in securities or commodities required to register in the United
States, the District of Columbia, or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times during the tax year under the Investment
Company Act of 1940.
- - A middleman known in the investment community as a nominee or who is listed
in the most recent publication of the American Society of Corporate
Secretaries, Inc., Nominee List.
- - A futures commission merchant registered with the Commodity Futures Trading
Commission.
- - A foreign central bank of issue.
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PAYMENTS OF DIVIDENDS AND PATRONAGE DIVIDENDS GENERALLY EXEMPT FROM BACKUP
WITHHOLDING INCLUDE:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and that have at least one nonresident alien partner.
- - Payments of patronage dividends not paid in money.
- - Payments made by certain foreign organizations.
- - Section 404(k) payments made by an ESOP.
PAYMENTS OF INTEREST GENERALLY EXEMPT FROM BACKUP WITHHOLDING INCLUDE:
- - Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more and you have
not provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
Section 852).
- - Payments described in Section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under Section 1451.
- - Payments made by certain foreign organizations.
- - Mortgage interest paid to you.
Certain payments, other than payments of interest, dividends, and patronage
dividends, that are exempt from information reporting are also exempt from
backup withholding. For details, see the regulations under sections 6041, 6041A,
6042, 6044, 6045, 6049, 6050A and 6050N.
EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO
AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER,
FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE
FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR
PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM.
PRIVACY ACT NOTICE.--Section 6109 requires you to provide your correct taxpayer
identification number to payers, who must report the payments to the IRS. The
IRS uses the number for identification purposes and may also provide this
information to various government agencies for tax enforcement or litigation
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to payer. Certain penalties may also apply.
PENALTIES
(1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish
your taxpayer identification number to a payer, you are subject to a penalty of
$50 for each such failure unless your failure is due to reasonable cause and not
to willful neglect.
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(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
PAYER'S NAME:
<TABLE>
<S> <C> <C>
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN ___________________________________
FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number
DEPARTMENT OF THE SIGNING AND DATING BELOW. OR
TREASURY INTERNAL
REVENUE SERVICE Employer Identification Number
Payer's Request for PART 2 PART 3--
Taxpayer
Identification CERTIFICATION--Under the penalties of perjury, I / / Awaiting TIN
Number (TIN) certify that:
(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), and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, or (b) I have not been notified
by the Internal Revenue Service (the "IRS") that
I am subject to backup withholding as a result
of a failure to report all interest or
dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the
IRS that you are currently subject to backup withholding because of under-reporting interest
or dividends on your tax return. However, if after being notified by the IRS that you were
subject to backup withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out such item (2).
</TABLE>
SIGNATURE
)
SIGN HERE DATE
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER,
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
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YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 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 reportable payments made to me will be withheld.
Signature ______________________ Date ___________, 1999
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EXHIBIT 99.2
------------
FORM OF
NOTICE OF GUARANTEED DELIVERY
for Tender of
7 7/8% Senior Notes due 2009
and
8 1/2% Senior Debentures due 2029
OF
LIBERTY MEDIA CORPORATION
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999 (THE "EXPIRATION
DATE") UNLESS EXTENDED BY LIBERTY MEDIA CORPORATION
Registered holders of outstanding 7 7/8% Senior Notes due 2009 (the
"Outstanding Notes") who wish to tender their Outstanding Notes in exchange for
a like principal amount of new 7 7/8% Senior Notes due 2009 (the "Exchange
Notes") and registered holders of outstanding 8 1/2% Senior Debentures due 2029
(the "Outstanding Debentures" and, together with the Outstanding Notes, the
"Outstanding Securities") who wish to tender their Outstanding Debentures in
exchange for a like principal amount of new 8 1/2% Senior Debentures due 2029
(the "Exchange Debentures" and, together with the Exchange Notes, the "Exchange
Securities") may use this Notice of Guaranteed Delivery or one substantially
equivalent hereto to tender Outstanding Securities pursuant to the Exchange
Offer (as defined below) if: (1) their Outstanding Securities are not
immediately available or (2) they cannot deliver their Outstanding Securities
(or a confirmation of book-entry transfer of Outstanding Securities into the
account of the Exchange Agent at The Depository Trust Company), the Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date or (3) they cannot complete the
procedure for book-entry transfer on a timely basis.
This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission or mail to the Exchange Agent. See "The Exchange Offer--
Procedures for Tendering" in the prospectus dated ___________, 1999 (the
"Prospectus"), which together with the related Letter of Transmittal constitutes
the "Exchange Offer" of Liberty Media Corporation.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E
New York, New York 10286 Corporate Trust Services Window
Attn: Gertrude Jeanpierre New York, New York 10286
Reorganization Section Attn: Gertrude Jeanpierre
Reorganization Section
<PAGE>
BY FACSIMILE TRANSMISSION:
(for eligible institutions only)
The Bank of New York
Facsimile No. (212) 815-6339
Attn: Gertrude Jeanpierre
Reorganization Section
Confirm by Telephone: (212) 815-5920
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION 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 (as defined in the Prospectus), such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Outstanding
Securities indicated below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and the Letter of Transmittal, upon the terms and
subject to the conditions contained in the Prospectus and the Letter of
Transmittal, receipt of which is hereby acknowledged.
DESCRIPTION OF OUTSTANDING SECURITIES TENDERED
OUTSTANDING NOTES
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT
APPEARS ON THE CERTIFICATE NUMBER(S) OF
PRINCIPAL AMOUNT OF OUTSTANDING NOTES TENDERED (OR
NAME OF TENDERING OUTSTANDING NOTES ACCOUNT NUMBER AT BOOK-ENTRY OUTSTANDING NOTES
HOLDER (PLEASE PRINT) FACILITY) TENDERED*
<S> <C> <C> <C>
</TABLE>
SIGN HERE
___________________
* Must be in denominations of $1,000 and any integral multiple thereof.
NAME OF REGISTERED OR ACTING HOLDER:___________________________________________
SIGNATURE(S):__________________________________________________________________
NAME(S) (PLEASE PRINT):________________________________________________________
ADDRESS:_______________________________________________________________________
_______________________________________________________________________________
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TELEPHONE NUMBER:______________________________________________________________
DATE:__________________________________________________________________________
IF OUTSTANDING NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE
FOLLOWING INFORMATION:
DTC ACCOUNT NUMBER:__________________________________________________
DATE:________________________________________________________________
OUTSTANDING DEBENTURES
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S)
APPEARS ON THE PRINCIPAL AMOUNT OF OF OUTSTANDING DEBENTURES
NAME OF TENDERING OUTSTANDING DEBENTURES TENDERED (OR ACCOUNT NUMBER AT OUTSTANDING DEBENTURES
HOLDER (PLEASE PRINT) BOOK-ENTRY FACILITY) TENDERED*
<S> <C> <C> <C>
</TABLE>
SIGN HERE
___________________
* Must be in denominations of $1,000 and any integral multiple thereof.
NAME OF REGISTERED OR ACTING HOLDER:___________________________________________
SIGNATURE(S):__________________________________________________________________
NAME(S) (PLEASE PRINT):________________________________________________________
ADDRESS:_______________________________________________________________________
TELEPHONE NUMBER:______________________________________________________________
DATE:__________________________________________________________________________
IF OUTSTANDING DEBENTURES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE
FOLLOWING INFORMATION:
DTC ACCOUNT NUMBER:__________________________________________________
DATE:________________________________________________________________
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
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The undersigned, a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange
Agent at one of its addresses set forth above, the certificates representing the
Outstanding Securities being tendered hereby (or a confirmation of book-entry
transfer of such Outstanding Securities into the Exchange Agent's account at The
Depository Trust Company), together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, and any other documents required by the Letter of Transmittal within
three (3) New York Stock Exchange trading days after the Expiration Date.
Name of Firm:_________ Authorized Signature:______________
Address:________________ Title:
________________________ Name:
Zip Code:____________ (Please type or print)
Area Code and Telephone No.:_______
Date:___________________
NOTE: DO NOT SEND OUTSTANDING SECURITIES WITH THIS NOTICE OF
GUARANTEED DELIVERY. OUTSTANDING SECURITIES SHOULD BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
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