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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ____ to ____
Commission File Number 0-20421
LIBERTY MEDIA CORPORATION
------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1288730
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9197 So. Peoria Street
Englewood, Colorado 80112
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-5400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of March 1, 2000, there were 1,000 shares of Class A Common Stock,
1,000 shares of Class B Common Stock and 1,000 shares of Class C Common Stock of
Liberty Media Corporation outstanding, all of which were held indirectly by AT&T
Corp.
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PART I.
Item 1. Business.
(a) General Development of Business
Liberty Media Corporation owns interests in a broad range of video
programming, communications and Internet businesses in the United States,
Europe, South America and Asia. Liberty Media's principal assets include
interests in Starz Encore Group LLC, Discovery Communications, Inc., Time Warner
Inc., QVC, Inc., USA Networks, Inc., Telewest Communications, plc, TV Guide,
Inc., Motorola, Inc., Sprint PCS Group, The News Corporation Limited and Liberty
Digital, Inc.
Our Corporate History
Liberty's former parent, Tele-Communications, Inc. ("TCI"), began
acquiring interests in programming businesses in the late 1970s in an effort to
ensure quality content for distribution on its cable television systems. 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. The spinoff was effected 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. 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
reacquired LMC largely because of the Federal Communication Commission's
adoption in 1994 of vertical and horizontal cable and programming regulations,
which a combined TCI and LMC fit within. 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 Programming 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.
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The Liberty Media Group tracking stock began trading on August 10,
1995. 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.
On March 9, 1999, TCI was acquired by AT&T Corp. 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. Liberty 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 AT&T Liberty Media Group tracking stock began trading on the New York
Stock Exchange on March 10, 1999, under the symbols LMG.A and LMG.B.
As a result of the merger with AT&T, TCI and Liberty became
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. On March 10, 2000, in connection with certain restructuring transactions,
TCI was converted into a Delaware limited liability company, of which AT&T is
the sole member, and renamed AT&T Broadband, LLC.
Our Governance Structure
We have 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 and TCI Ventures Group prior to the AT&T merger. 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" in Part III.
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Recent Developments
On March 1, 1999, United Video Satellite Group, Inc. 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 from
The News Corporation Limited, in exchange for cash and shares of UVSG common
stock, the stock of certain corporations that publish TV Guide Magazine and
other printed television program listing guides and distribute TV Guide Online.
Following this transaction UVSG, which changed its name to TV Guide, Inc.,
became jointly controlled by Liberty and News Corp. with each, owning
approximately 44% of its equity and 49% of its voting power. In October 1999, TV
Guide announced that it had entered into a definitive merger agreement with
Gemstar International Group Limited, pursuant to which TV Guide would become a
wholly owned subsidiary of Gemstar. This transaction is subject to the approval
of the shareholders of each company (which was received on March 17, 2000) as
well as customary closing conditions.
On March 22, 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. 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.
On July 7, 1999, Liberty issued its 7-7/8% Senior Notes due 2009, in
the aggregate principal amount of $750 million, and its 8-1/2% Senior Debentures
due 2029, in the aggregate principal amount of $500 million. Liberty received
net cash proceeds from these issuances of $741 million and $494 million,
respectively, which were used to repay outstanding borrowings under certain
credit facilities. On January 13, 2000, Liberty completed a registered exchange
offer for these securities that provided tendering holders with identical
securities "freely" transferable under the Securities Act of 1933.
On July 15, 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, as of March
1, 2000, Liberty owned approximately 81.7 million ADRs representing preferred
limited voting ordinary shares of News Corp. or approximately 8.5% of News
Corp.'s ordinary shares on a fully diluted basis.
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On September 9, 1999, TCI Music, Inc. and Liberty completed a
transaction pursuant to which Liberty and certain of its affiliates contributed
to TCI Music substantially all of their respective Internet content and
interactive television assets, certain rights with respect to access to AT&T
cable systems for the provision of interactive video services, and a combination
of cash and notes receivable equal to $150 million, in exchange for preferred
and common stock of TCI Music. Following this transaction, Liberty owned an
approximately 87% interest in TCI Music, which changed its name to Liberty
Digital, Inc. A member of the Liberty Media Group that is not part of Liberty or
its consolidated subsidiaries owned an additional approximately 8% interest in
Liberty Digital. In addition, Liberty adopted a policy that Liberty Digital
would be its primary (but not exclusive) vehicle to pursue corporate
opportunities relating to interactive programming and content related services
in the United States and Canada, subject to certain exceptions.
On September 30, 1999, Liberty purchased 9.9 million class B shares of
UnitedGlobalCom, Inc. for approximately $493 million in cash. UnitedGlobalCom is
a global broadband communications provider of video, voice and data services
with operations in over 20 countries throughout the world. As part of the
transaction, Liberty expects to form a 50/50 joint venture or similar
arrangement with United Pan-Europe Communications N.V., UnitedGlobalCom's
European subsidiary, to own the UnitedGlobalCom shares and to evaluate joint
content and distribution opportunities in Europe. Liberty would contribute to
the joint venture its 9.9 million class B shares of UnitedGlobalCom and United
Pan-Europe would contribute its 5.6 million class A shares of UnitedGlobalCom.
Liberty expects to assign 50% of its interest in the joint venture to Microsoft
Corporation. In addition to its 25% interest (after the assignment to
Microsoft), Liberty would receive approximately $144 million of redeemable
preferred interests in the joint venture. When formed, the joint venture would
own approximately 14.5% of the total outstanding common shares of
UnitedGlobalCom on a fully diluted basis. The joint venture and its members
would be bound by voting and standstill agreements with UnitedGlobalCom and
certain of its controlling shareholders.
On November 16, 1999, Liberty issued its 4% Senior Exchangeable
Debentures due 2029, in the aggregate principal amount of $869 million. Liberty
received net cash proceeds from this issuance of $854 million. On February 9,
2000, Liberty registered the resale of these debentures under the Securities Act
of 1933.
On December 6, 1999, Liberty entered into an agreement with Four Media
Company with respect to a transaction pursuant to which Liberty Media Group
would acquire all of the outstanding common stock of Four Media in exchange for
approximately $123 million in cash, the issuance of approximately 3.2 million
shares of AT&T Class A Liberty Media Group tracking stock and a warrant to
purchase approximately 350,000 shares of AT&T Class A Liberty Media Group
tracking stock at an exercise price of $46.00 per share. Four Media is a
provider of technical and creative services to owners, producers and
distributors of television programming, feature films and other entertainment
products both domestically and internationally. The transaction with Four Media
is subject to the approval of Four Media's shareholders, as well as other
customary closing conditions and is expected to close in the second quarter of
2000.
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On December 10, 1999, Liberty entered into an agreement with The
Todd-AO Corporation with respect to a transaction pursuant to which the Liberty
Media Group would acquire approximately 60% of the outstanding equity and 94% of
the voting power of Todd in exchange for approximately 3 million shares of AT&T
Class A Liberty Media Group tracking stock. Todd provides sound, video and
ancillary post production and distribution services to the motion picture and
television industries in the United States and Europe. The transaction with Todd
is subject to the approval of Todd's shareholders, as well as other customary
closing conditions and is expected to close in the second quarter of 2000.
On December 30, 1999, Liberty entered into an agreement with Soundelux
Entertainment Group, Inc. with respect to a transaction pursuant to which the
Liberty Media Group would acquire approximately 55% of the outstanding equity
and 92% of the voting power of Soundelux in exchange for approximately 2 million
shares of AT&T Class A Liberty Media Group tracking stock. Soundelux provides
video, audio, show production, design and installation services to
location-based entertainment venues and provides production and post-production
sound services, including content, editing, re-recording and music supervision,
to the motion picture, television and interactive gaming industries. The
transaction with Soundelux is subject to the approval of Soundelux's
shareholders and the closing of the Todd transaction, as well as other customary
closing conditions and is expected to close in the second quarter of 2000.
Following the acquisitions of majority interests in Todd and Soundelux
and of 100% of the voting securities of Four Media, and subject to certain
conditions, the Liberty Media Group has agreed to cause the following additional
transactions to occur: (i) contribution of the Liberty Media Group's controlling
interest in Todd to Soundelux, in exchange for additional shares of voting stock
of Soundelux; (ii) contribution by Soundelux to Todd of 100% of the business and
operations of Soundelux, in exchange for additional shares of voting stock of
Todd and the assumption by Todd of 100% of the liabilities of Soundelux; and
(iii) contribution by the Liberty Media Group to Soundelux, and by Soundelux to
Todd, of 100% of the stock of Four Media. As a result of such transactions, the
assets and operations now owned and operated by Four Media, Soundelux and Todd
would be consolidated within Todd, which would change its name to Liberty
Livewire, Inc. Liberty Livewire would become a subsidiary of Liberty.
On December 15, 1999, a trust for Liberty's benefit entered into a
"cashless collar" with a financial institution with respect to 18 million shares
of Sprint PCS stock--Series 1, secured by 18 million shares of the trust's
Sprint PCS stock--Series 2. The Sprint PCS stock--Series 2 is convertible into
the Sprint PCS stock--Series 1 on a one-for-one basis. The collar consists of a
put option that gives the trust the right to require its counterparty to buy 18
million shares of Sprint PCS stock--Series 1 from the trust in three tranches in
approximately two years for $50 per share. The counterparty has a call option
giving the counterparty the right to buy the same shares from the trust in three
tranches in approximately two years for $65.23 per share. The put and the call
options were equally priced, resulting in no cash cost to the trust or Liberty.
Share amounts and prices have been adjusted to reflect Sprint's February
two-for-one stock split.
On January 5, 2000, General Instrument Corporation merged with
Motorola, Inc. As a result of this merger, Liberty's 21% interest in GI was
exchanged for an approximate 3% interest in Motorola.
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On January 14, 2000, Liberty Media Group completed its acquisition of
The Associated Group, Inc. pursuant to a merger agreement among AT&T, Liberty
and Associated Group. Under the merger agreement each share of Associated
Group's Class A common stock and Class B common stock was converted into 0.49634
shares of AT&T common stock and 1.20711 shares of AT&T Class A Liberty Media
Group tracking stock. Prior to the merger, Associated Group's primary assets
were (1) approximately 19.7 million shares of AT&T common stock, (2)
approximately 23.4 million shares of AT&T Class A Liberty Media Group tracking
stock, (3) approximately 5.3 million shares of AT&T Class B Liberty Media Group
tracking stock, (4) approximately 21.4 million shares of common stock,
representing approximately a 40% interest, of Teligent, Inc., a full-service,
facilities-based communications company, and (5) all of the outstanding shares
of common stock of TruePosition, Inc., which provides location services for
wireless carriers and users designed to determine the location of any wireless
transmitters, including cellular and PCS telephones. Immediately following the
completion of the merger, all of the assets and businesses of Associated Group,
other than its interest in Teligent, were transferred to Liberty. Associated
Group's interest in Teligent is held by a member of the Liberty Media Group
other than Liberty. All of the shares of AT&T common stock, AT&T Class A Liberty
Media Group tracking stock and AT&T Class B Liberty Media Group tracking stock
previously held by Associated Group were retired by AT&T.
On February 2, 2000, Liberty issued its 8-1/4% Senior Debentures due
2030, in the aggregate principal amount of $1 billion. Liberty received net cash
proceeds from this issuance of $983 million. Pursuant to a registration rights
agreement entered into with the purchasers of these debentures, Liberty is
required to effect a registered exchange offer for the debentures which will
provide tendering holders with identical securities "freely" transferable under
the Securities Act of 1933.
On February 7, 2000, Liberty purchased 18 million shares of Cendant
Corporation common stock and a warrant to purchase up to an additional
approximate 29 million shares of common stock at an exercise price of $23.00 per
share (subject to anti-dilution adjustments), which resulted in Liberty having
an approximate 6.5% ownership interest in Cendant. Liberty paid $300 million in
cash for the common stock and $100 million in cash for the warrants. Cendant is
primarily engaged in the consumer and business services industries, with its
principal operations in travel related services, real estate related services
and alliance marketing related services.
On February 10, 2000, Liberty issued its 3-3/4% Senior Exchangeable
Debentures due 2030, in the aggregate principal amount of $750 million. Liberty
received net cash proceeds from this issuance of $735 million. On March 8, 2000,
Liberty issued an additional $60 million principal amount of its 3-3/4% Senior
Exchangeable Debentures due 2030. Liberty received net cash proceeds from this
issuance of $59 million. Pursuant to a registration rights agreement entered
into with the purchasers of these debentures, Liberty is required to register
the resale of these debentures under the Securities Act of 1933.
On February 27, 2000, Liberty entered into an agreement with ICG
Communications, Inc. pursuant to which Liberty would purchase for $500 million
(a) 500,000 shares of ICG Communications convertible preferred stock, which are
initially convertible into 17,857,142 shares of ICG Communications common stock,
and (b) warrants to purchase 6,666,667 shares of ICG Communications common stock
at an initial exercise price of $34.00 per share. The transaction is subject to
customary closing conditions.
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On February 29, 2000, Liberty commenced a cash tender offer for all of
the outstanding common stock of Ascent Entertainment Group, Inc. at a price of
$15.25 per share. Pursuant to a merger agreement entered into with Ascent on
February 22, 2000, if a majority of the outstanding shares of Ascent are
tendered in the offer and the other conditions to the offer are satisfied or
waived, Liberty will acquire control of Ascent and, as soon as practicable
thereafter, will acquire the remaining Ascent shares by merging a subsidiary
into Ascent. This transaction is subject to approval of Ascent's shareholders,
as well as other customary closing conditions. If the merger is effected,
Liberty expects to pay approximately $460 million for the Ascent stock. In
addition, Ascent will have approximately $295 million in indebtedness
outstanding immediately after the merger. Ascent's principal business is
providing pay-per-view entertainment and information services through its
majority owned subsidiary, On Command Corporation. Ascent also provides
satellite service to the NBC television network and owns the National Basketball
Association's Denver Nuggets, the National Hockey League's Colorado Avalanche
and the Pepsi Center, Denver's new entertainment facility which is home to both
the Nuggets and the Avalanche. If it acquires Ascent, Liberty intends to seek a
buyer for the sports teams and the Pepsi Center.
On March 16, 2000 Liberty purchased shares of cumulative preferred
stock in TCI Satellite Entertainment, Inc. ("TSAT") in exchange for Liberty's
economic interest in 5,084,745 shares of Sprint Corporation PCS common stock,
valued at $300 million. Liberty received 150,000 shares of TSAT Series A 12%
Cumulative Preferred Stock and 150,000 shares of TSAT Series B 8% Cumulative
Convertible Voting Preferred Stock. The Series A preferred stock does not have
voting rights, while the Series B preferred stock gives Liberty approximately
85% of the voting power of TSAT. Liberty and TSAT also formed a joint venture
named Liberty Satellite, LLC to hold and manage interests in entities engaged
globally in the distribution of internet data and other content via satellite
and related businesses. As part of this transaction, Liberty contributed its
interests in XM Satellite Radio Holdings, Inc., iSKY, Inc., Astrolink
International LLC and Sky Latin America in exchange for an approximately 89%
interest in the joint venture. TSAT contributed its interest in JATO
Communications Corp. and General Motors Class H Common Stock in exchange for an
approximately 11% interest in the joint venture which will be managed by TSAT.
In a related transaction, TSAT paid Liberty $60 million in the form of an
unsecured promissory note in exchange for an approximately 14% interest in a
limited liability company with holdings in Astrolink International LLC. The
remaining 86% of the limited liability company is held by Liberty Satellite,
LLC.
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* * * * *
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," are forward-looking. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of Liberty (or entities in which Liberty has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors as to both Liberty and the entities in
which Liberty has an interest, include, among others: general economic and
business conditions and industry trends; the regulatory and competitive
environment of the industries in which Liberty, and the entities in which
Liberty has interests, operate; uncertainties inherent in new business
strategies; uncertainties inherent in the changeover to the year 2000, including
Liberty's projected state of readiness, the projected costs of remediation, the
expected date of completion of each program or phase, the projected worst case
scenarios, and the expected contingency plans associated with such worst case
scenarios of Liberty and the entities in which Liberty has an interest; new
product launches and development plans; rapid technological changes; the
acquisition, development and/or financing of telecommunications networks and
services; the development and provision of programming for new television and
telecommunications technologies; future financial performance, including
availability, terms and deployment of capital; the ability of vendors to deliver
required equipment, software and services; availability of qualified personnel;
changes in, or failure or inability to comply with, government regulations,
including, without limitation, regulations of the Federal Communications
Commission ("FCC"), and adverse outcomes from regulatory proceedings; changes in
the nature of key strategic relationships with partners and joint venturers;
competitor responses to Liberty's products and services, and the products and
services of the entities in which Liberty has interests, and the overall market
acceptance of such products and services; and other factors. These
forward-looking statements (and such risks, uncertainties and other factors)
speak only as of the date of this Report, and Liberty expressly disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein, to reflect any change in Liberty's
expectations with regard thereto, or any other change in events, conditions or
circumstances on which any such statement is based. Any statement contained
within Management's Discussion and Analysis of Financial Condition and Results
of Operations in this Form 10-K related to the changeover to the year 2000 are
hereby denominated as "Year 2000 Statements" within the meaning of the Year 2000
Information and Readiness Disclosure Act.
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(b) Financial Information about Operating Segments
Liberty is a holding company with a variety of subsidiaries and
investments operating in the media, communications and entertainment industries.
Each of these businesses is separately managed. Liberty identifies its
reportable segments as those consolidated subsidiaries that represent 10% or
more of its combined revenue and those equity method affiliates whose share of
earnings or losses represent 10% or more of its pre-tax earnings or loss.
Subsidiaries and affiliates not meeting this threshold are aggregated together
for segment reporting purposes. For the ten months ended December 31, 1999,
Liberty had three operating segments: Starz Encore Media Group, Liberty Digital
and Other. Financial information related to Liberty's operating segments can be
found in note 15 to Liberty's consolidated financial statements found in Part II
of this report.
(c) Narrative Description of Business
The following table sets forth information concerning Liberty's
subsidiaries and business affiliates. Liberty holds its interests either
directly or indirectly through partnerships, joint ventures, common stock
investments or instruments convertible or exchangeable into common stock.
Ownership percentages in the table are approximate, calculated as of March 1,
2000, and, where applicable and except as otherwise noted, assume conversion to
common equity by Liberty and, to the extent known by Liberty, other holders. In
some cases, Liberty's interest may be subject to buy/sell procedures, repurchase
rights or, under certain circumstances, dilution.
<TABLE>
<CAPTION>
- --------------------------------------------- -------------- -------- -----------
SUBSCRIBERS AT ATTRIBUTED
12/31/99 YEAR OWNERSHIP
ENTITY (000'S) LAUNCHED % AT 3/1/00
- --------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
VIDEO PROGRAMMING SERVICES
BET Holdings II, Inc. 35%
BET Cable Network 58,600 1980
BET Action Pay-Per-View 10,000(1) 1990
BET on Jazz 7,000 1996
BET.com Online 1999 50%
Canales n 17(2) 1998 100%
Court TV 37,543 1991 50%
Discovery Communications, Inc. 49%
Discovery Channel 77,829 1985
The Learning Channel 72,175 1980
Animal Planet 54,018 1996
Discovery People 8,200 1997
Travel Channel 35,466 1987
Discovery Digital Services 5,026(2)
Discovery Civilization 1996
Discovery Health 1998
Discovery Home & Leisure 1996
Discovery Kids 1996
Discovery Science 1996
Discovery Wings 1998
Discovery en Espanol 1998
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------- -------------- -------- -----------
SUBSCRIBERS AT ATTRIBUTED
12/31/99 YEAR OWNERSHIP
ENTITY (000'S) LAUNCHED % AT 3/1/00
- --------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
VIDEO PROGRAMMING SERVICES (CONTINUED)
Animal Planet Asia 6,445 1998 25%
Animal Planet Europe 6,328 1998
Animal Planet Latin America 6,774 1998 25%
Discovery Asia 37,712 1994
Discovery India 14,100 1996
Discovery Japan(3) 1,542 1996
Discovery Europe 19,155 1989
Discovery Turkey 600 1997
Discovery Germany 1,206 1996 25%
Discovery Italy/Africa 1,423 1996
Discovery Latin America 12,145 1996
Discovery Latin America Kids Network 8,490 1996
People & Arts (Latin America) 9,453 1995 25%
Discovery Channel Online Online 1995
Discovery Home & Leisure (Europe) 5,911
Starz Encore Group LLC 100%
Encore 13,745 1991
MOVIEplex 7,598 1995
Thematic Multiplex (aggregate units) 26,012(2) 1994
Love Stories
Westerns
Mystery
Action
True Stories
WAM! America's Kidz Network
STARZ! 10,240 1994
STARZ! Multiplex (aggregate units) 6,180(2)
STARZ! Theater 1996
BET Movies/STARZ!3 88%
STARZ! Family
STARZ! cinema 1997
E! Entertainment Television 59,318 1990 10%
Style 4,630 1998
Flextech p.l.c. (UK) 37%
(LN(4): FLXT)
Bravo 5,188 1985 37%
Challenge TV 5,383 1993 37%
HSN Direct International N/A 1994 42%
KinderNet 5,751 1988 12%
Living 6,175 1993 37%
SMG N/A 1957 7%
Trouble 5,164 1984 37%
TV Travel Shop 7,010 1998 37%
UK Arena (UKTV) 3,139 1997 18%
UK Gold (UKTV) 6,279 1992 18%
UK Gold Classics (UKTV) 1,993 1999 18%
UK Horizons (UKTV) 4,840 1997 18%
UK Style (UKTV) 3,191 1997 18%
UK Play (UKTV) 2,450 1998 18%
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------- -------------- -------- -----------
SUBSCRIBERS AT ATTRIBUTED
12/31/99 YEAR OWNERSHIP
ENTITY (000'S) LAUNCHED % AT 3/1/00
- --------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
VIDEO PROGRAMMING SERVICES (CONTINUED)
Fox Kids Worldwide, Inc. (5)
International Channel 8,558 1990 90%
Jupiter Programming Co., Ltd. (Japan) 50%
Cable Soft Network 2,486 1989 50%
CNBC Japan/Nikkei N/A 1997 10%
Golf Network 2,076 1996 45%
Discovery Japan 1,601 1996 49%
J-Sports 697 1998 66%
Shop Channel 6,800 1996 41%
MacNeil/Lehrer Productions N/A N/A 67%
MultiThematiques, S.A 30%
Canal Jimmy (France) 2,285 1991
Canal Jimmy (Italy) 700 1997
Cine Cinemas (France) 729 1991
Cine Cinemas (Italy) 144 1997
Cine Classics (France) 631 1991
Cine Classics (Spain) 225 1995 15%
Cine Classics (Italy) 144 1997
Forum Planete (France) 1,365 1997
Planete (France) 3,119 1988
Planete (Poland) 1,944 1996
Planete (Germany) 1,206 1997
Planete (Italy) 670 1997
Seasons (France) 106 1996
Seasons (Spain) 37 1997
Seasons (Germany) 35 1997
Seasons (Italy) 46 1997
The News Corporation Limited 8%
(NYSE: NWS.A; ASX(4): NCPDP)
Odyssey 26,920 1988 33%(6)
Pramer S.C.A. (Argentina) 100%
America Sports 2,360 1990
Big Channel 2,352 1992
Canal a 2,268 1996
Cineplaneta 2,038 1997
Magic Kids 3,858 1995
P&E 781 1996
Plus Satelital (fka CV SAT) 3,925 1988
The Premium Movie Partnership 890 1995 20%
(Australia)
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------- -------------- -------- -----------
SUBSCRIBERS AT ATTRIBUTED
12/31/99 YEAR OWNERSHIP
ENTITY (000'S) LAUNCHED % AT 3/1/00
- --------------------------------------------- -------------- -------- -----------
<S> <C> <C> <C>
VIDEO PROGRAMMING SERVICES (CONTINUED)
QVC Inc. 43%
QVC Network 66,702 1986
QVC-The Shopping Channel (UK) 7,867 1993 34%
QVC-Germany 16,726 1996
iQVC Online 1995
Telemundo Network (7) 50%
Telemundo Station Group (8) 25%
Time Warner Inc. (NYSE: TWX) 9%
Torneos y Competencias, S.A N/A N/A 40%
TV Guide, Inc. (Nasdaq: TVGIA) 44%(9)
TV Guide Channel 50,000 1988
TV Guide Interactive (2) 1998
TV Guide Sneak Prevue 34,000 1991 32%
UVTV 57,000 (10) N/A
Superstar/Netlink 952 N/A 35%
TV Guide Magazine 11,000 (11) N/A
TV Guide Online Online
The Television Games Network N/A 1999 43%
Infomedia SA N/A 1991 33%
USA Networks, Inc. (Nasdaq: USAI) 21%(12)
HSN 73,700 (13) 1985
America's Store 6,800 (13) 1986
Internet Shopping Network Online 1995
HSN en Espanol 2,700 11%
HOT (Germany) 29,000 1996 9%
Shop Channel (Japan) 3,370 1996 (3)
Sci-Fi Channel 59,700 1992
USA Network 77,200 1980
USA Broadcasting 37,500 (14) 1986
Ticketmaster N/A
Studios USA N/A
USA Films N/A
Hotel Reservations Network Online 1991
(Nasdaq:ROOM)
Ticketmaster Online-City Search Online 1998 11%
(Nasdaq: TMCS)
</TABLE>
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<TABLE>
<CAPTION>
- --------------------------------------------- ------------ -------- ------------ ----------- ----------
HOMES IN HOMES
SERVICE AREA PASSED BASIC SUBS ATTRIBUTED
12/31/99(15) 12/31/99(16) 12/31/99(17) PENETRATION OWNERSHIP
ENTITY (000) (000) (000) 12/31/99 AT 3/1/00
- --------------------------------------------- ------------ -------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
CABLE AND TELEPHONY
Cable Management Ireland 130 97 60 62% 100%
TCI Chile L.P. 100%
Metropolis-Intercom, S.A. 1,600 1,092 269 25% 30%
Cablevision S.A. 4,000 3,386 1,453 43% 28%
(Argentina)
Grupo Portatel 24%
Jupiter
Telecommunications Co.,
Ltd. (Japan) 4,830 3,709 536 14% 40%
Omnipoint
Communications, Inc. 3%
Princes Holdings Limited
(Ireland) 497 387 163 42% 50%
Sprint PCS Group 5,700 24%(18)
(NYSE: PCS)
Liberty Cablevision of
Puerto Rico, Inc 442 288 108 38% 100%
Telewest Communications
plc (UK) 6,074 4,444 1,156 26% 22%
(LN(4): TWT) (Nasdaq: TWSTY)
UnitedGlobalCom, Inc. 10%
(Nasdaq: UCOMA)
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------------------------------------- ---------------------
ATTRIBUTED
OWNERSHIP
ENTITY BUSINESS DESCRIPTION AT 3/1/00
- ------------------------------------------------ ---------------------------------------------------------- ---------------------
<S> <C> <C>
SATELLITE COMMUNICATIONS SERVICES
Astrolink International LLC Will build a global telecom network using 4 ka-band 32%
geostationary satellites to provide broadband data
communications services. The first 2 satellites, to be
launched in 2002, will service customers in North and
South America, Europe and the Middle East. The third
and fourth spacecraft will extend the network worldwide.
iSKY, Inc. Will build a ka-band satellite network that will focus 19%
on providing broadband services to homes and small
offices in North America and Latin America.
Sky Latin America Satellite delivered television platform currently 10%
servicing Mexico, Brazil, Chile and Columbia
TCI Satellite Entertainment, Inc. Holds interests in certain communications assets 3%(19)
(Nasdaq:TSATA) including General Motors Class H stock (NYSE:GMH) which
tracks the performance of Hughes Electronics Corp.,
owner of DirecTV
XM Satellite Radio, Inc. Plans to transmit up to 100 national audio channels of 2%
(Nasdaq:XMSR) music, news, talk, sports and children's programming
from two satellites directly to vehicle, home and
portable radios
TECHNOLOGY AND MANUFACTURING
Antec Corporation Manufacturer of products for hybrid fiber/coaxial
(Nasdaq: ANTC) broadband networks 19%
Motorola, Inc. Provider of integrated communications solutions and 3%
(NYSE: MOT) embedded electronic solutions
TruePosition Provider of wireless location technology and services 100%
</TABLE>
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<TABLE>
<CAPTION>
- ------------------------------------------------ ---------------------------------------------------------- ---------------------
ATTRIBUTED
OWNERSHIP
ENTITY BUSINESS DESCRIPTION AT 3/1/00
- ------------------------------------------------ ---------------------------------------------------------- ---------------------
<S> <C> <C>
INTERNET/INTERACTIVE TELEVISION SERVICES
BroadbandNOW, Inc. Provides high-speed Internet access and customized 5%
broadband content and applications to subscribers via a
private IP network that can connect such subscribers via
multiple broadband technologies, including DSL, cable
modem, wireless and Ethernet
Geocast Network Systems, Inc. Building a new network that uses digital broadcast 8%
infrastructure to deliver rich media information and
programming to the PC desktop
Liberty Digital, Inc. A diversified new media company with investments in 86%
(Nasdaq:LDIG) Internet content and infrastructure and interactive
television
OTHER
Emmis Communications Emmis owns and operates 16 radio stations, including 12%
Corporation five in the markets of New York, Chicago and Los
(Nasdaq:EMMS) Angeles. Emmis also operates six television stations
and six magazines.
Cendant Corporation Cendant is a franchiser of hotels, rental car agencies, 7%
(NYSE:CO) tax preparation services and real estate brokerage
offices. In direct marketing, Cendant provides access
to insurance, travel, shopping, auto and other services
primarily through its buying clubs. Cendant also
provides vacation time share services, mortgage
services and employee relocation. It operates in over
100 countries.
</TABLE>
- ------------------
(1) Number of subscribers to whom service is available.
(2) Digital services.
(3) Liberty's attributed ownership interest in this entity is listed under
Jupiter Programming Co., Ltd. ("Jupiter") of which Liberty Media
International, Inc. owns 50%.
(4) LN - London Stock Exchange; ASX - Australian Stock Exchange.
(5) Liberty's interest consists of shares of 30-year 9% preferred stock
which has a stated aggregate value of $345 million and is not
convertible into common stock.
(6) Odyssey will be contributed to Crown Media Holdings in exchange for an
approximate 18% interest in Crown Media Holdings.
I-15
<PAGE> 17
(7) Telemundo Network is a 24-hour broadcast network serving 61 markets in
the United States, including the 37 largest Hispanic markets.
(8) Telemundo Station Group 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.
(9) See "General Development of Business--Video Programming Services--TV
Guide, Inc." for proposed changes in ownership of TV Guide.
(10) Aggregate number of units. UVTV uplinks three superstations (WGN, WPIX,
KTLA) and six Denver broadcast stations. One household subscribing to
six services would be counted as six "units."
(11) Magazine circulation - includes subscription and newsstand
distribution.
(12) Liberty owns direct and indirect interests in various USAI and Home
Shopping Network, Inc. securities which may be converted or exchanged
for USAI common stock. Assuming the conversion or exchange of such
securities, the conversion or exchange of certain securities owned by
Universal Studios, Inc. and certain of its affiliates for USAI common
stock Liberty would own approximately 21% of USAI.
(13) Includes broadcast households and cable subscribers.
(14) A group of UHF and low power television stations which operate in 12 of
the country's top 22 broadcast markets, including in 7 of the top 10
markets, which reach approximately 31% of TV households in the U.S.
(15) 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.
(16) Homes Passed: Homes that can be connected to a cable distribution
system without further extension of the distribution network.
(17) Basic Subscribers: A subscriber to a cable or other television
distribution system who receives the basic television service and who
is usually charged a flat monthly rate for a specific number of
channels.
(18) Less than 1% of voting power. Liberty holds securities of Sprint which
are exercisable for or convertible into Sprint PCS stock-Series 1,
which is publicly traded.
(19) On March 16, 2000, Liberty acquired 85% voting power in TCI Satellite
Entertainment.
BUSINESS OPERATIONS
Liberty is engaged principally in three fundamental areas of business:
o Programming, consisting principally of interests in video programming
services;
o Communications, consisting principally of interests in cable
television systems and other communications systems; and
o Internet services and technology.
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The principal assets and consolidated subsidiaries of Liberty are
described in greater detail below.
VIDEO PROGRAMMING SERVICES
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.
Relationship with AT&T Broadband. Most of the networks affiliated with
Liberty have entered into affiliation agreements with Satellite Services, Inc.
("SSI") a company within AT&T Broadband, the successor company to TCI. SSI
purchases programming services from programming suppliers and then makes such
services available to cable television systems owned by or affiliated with AT&T
Broadband ("SSI Affiliates"). Customers served by SSI Affiliates ("SSI
Subscribers") represented approximately 25% of U.S. households which received
cable or satellite delivered programming at December 31, 1999. Except as
described below, substantially all of the video programming services operated by
Liberty's subsidiaries and business affiliates received less than 25% of their
revenues from AT&T Broadband. Each of Starz Encore Group and Liberty Digital,
Inc. has entered into long term, fixed rate affiliation agreements with AT&T
Broadband pursuant to which AT&T Broadband pays monthly fixed amounts in
exchange for unlimited access to certain programming services of such companies.
For the year ended December 31, 1999, such fixed rate affiliation fees
represented approximately 37% and 28% of the total revenues of Starz Encore
Group and Liberty Digital, respectively.
STARZ ENCORE GROUP LLC
Starz Encore Group LLC provides cable and satellite-delivered premium
movie networks in the United States. It currently owns and operates 13 full-time
domestic movie channels, including Encore, which airs first-run movies and
classic contemporary movies, STARZ!, a first-run premium movie service and its
four multiplex channels, six digital movie services programmed by theme ("Encore
Thematic Multiplex"), and MOVIEplex, a "theme-by-day" channel featuring a
different Encore or Encore Thematic Multiplex channel each day, on a weekly
rotation. Starz Encore Group currently has agreements in place with most of the
major program distributors and many smaller distributors to carry its Encore
Thematic Multiplex services in digital packages.
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<PAGE> 19
Starz Encore Group currently has access to approximately 5,700 movies
through long-term library licensing agreements. In addition, it has licensed the
exclusive rights to first-run output from Disney's Hollywood Pictures,
Touchstone and Miramax, Universal Studios, New Line and Fine Line, Sony's
Columbia Pictures and Sony Classics and other major studios. Starz Encore Group
also has exclusive rights to first run output from four independent studios. The
output agreements expire between 2003 and 2011. Unlike vertically integrated
programmers, Starz Encore 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, through long-term output or library agreements. Additionally,
Starz Encore Group is involved in several original programming productions.
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 in which it does not have an ownership
interest, 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.
DISCOVERY COMMUNICATIONS, INC.
Discovery Communications, Inc. is the largest originator of
documentary, nonfiction programming in the world. Since its 1985 launch of
Discovery Channel, Discovery has grown into a global media enterprise with 1999
revenues of $1.4 billion. It currently operates programming services reaching
more than 160 million people across six continents.
Discovery's programming, products and services derive from the
following three business units:
o Discovery Networks, U.S., which is comprised of Discovery Channel, The
Learning Channel, Animal Planet, The Travel Channel, Discovery Health
Channel and a package of six digital services;
o Discovery Networks International, which extends Discovery's
programminHg globally and currently reaches more than 85 million
subscribers in 147 foreign countries in 24 languages; and
o Discovery Enterprises Worldwide, which includes Discovery's brand
extension business in retail, online, video, multimedia, publishing,
licensing and education.
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.
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<PAGE> 20
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."
Terms of Ownership. Liberty has the right to appoint two members of
Flextech's board of directors 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 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 the two joint ventures
that Flextech 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."
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<PAGE> 21
On March 7, 2000, Telewest offered to acquire Flextech at a purchase
price of approximately (pound)2.76 billion. Pursuant to the offer by Telewest,
each share of Flextech would be exchanged for 3.78 new Telewest shares. Liberty
owns approximately a 37% equity interest in Flextech and a 22% equity interest
in Telewest. See "-Communications-Telewest Communications plc." The proposed
acquisition is subject to approval of the shareholders of Telewest, acceptance
of the offer by the shareholders of Flextech and certain other conditions.
Liberty, as a shareholder of Flextech, has agreed to tender its Flextech shares,
subject to certain conditions. Otherwise, Liberty has agreed with Telewest not
to dispose of any of Liberty's interest in Flextech through March 31, 2000.
Liberty, MediaOne and Microsoft as shareholders of approximately 51% of
Telewest, in the aggregate, have agreed to vote in favor of resolutions put to
Telewest shareholders in connection with the offer to the extent applicable law
and stock exchange rules permit them to do so. Because of Liberty's holdings,
the Listing Rules of the London Stock Exchange require a separate vote by
Telewest's shareholders, excluding Liberty, to approve Telewest's acquisition of
Liberty's interests in Flextech in the merger. MediaOne and Microsoft have
agreed to vote in favor of this acquisition.
THE NEWS CORPORATION LIMITED
News Corp. is a diversified international communications company
principally engaged in:
o the production and distribution of motion pictures and television
programming;
o television, satellite and cable broadcasting;
o publication of newspapers, magazines and books;
o production and distribution of promotional and advertising products
and services;
o development of digital broadcasting;
o development of conditional access and subscriber management systems;
and
o 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 NYSE by ADRs under the symbol
"NWS.A."
In July 1999, Liberty sold to News Corp. its 50% interest in their
jointly owned Fox/Liberty Networks sports 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, as of March
1, 2000, Liberty owned approximately 81.7 million ADRs representing preferred
limited voting ordinary shares of News Corp. or approximately 8% of News Corp.'s
ordinary shares on a fully diluted basis.
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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) or in Canada, subject to certain exceptions,
until July 2004.
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. 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.
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<PAGE> 23
Terms of Ownership. Liberty owns approximately 43% of QVC, and Comcast
owns the remaining 57%. 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 has the
right to initiate a put/call procedure with Comcast in respect of Liberty's
interest in QVC.
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:
o 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;
o Publishing, consisting principally of interests in magazine
publishing, book publishing and direct marketing;
o Entertainment, consisting principally of interests in filmed
entertainment, television production, television broadcasting,
recorded music and music publishing; and
o Cable, consisting principally of interests in cable television systems
which, as of December 31, 1999, reached approximately 12.6 million
subscribers.
Time Warner's common stock trades on the NYSE under the symbol "TWX."
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In connection with the 1996 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 merger 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.
On January 10, 2000, Time Warner and America Online, Inc. announced
that they had entered into an Agreement and Plan of Merger relating to the
combination of their businesses. Pursuant to this Agreement and Plan of Merger,
Time Warner and America Online would each merge with, and become wholly-owned
subsidiaries of, a newly-formed holding company called "AOL Time Warner Inc."
According to publicly available information, in this transaction each share of
Series LMCN-V Common Stock of Time Warner held by Liberty would be converted
into 1.5 shares of a new Series LMCN-V Common Stock, par value $0.01 per share,
of AOL Time Warner Inc. These securities of AOL Time Warner Inc. would have
substantially the same terms as the Series LMCN-V Common Stock of Time Warner
currently held by Liberty. This transaction is subject to several conditions,
including the approval of Time Warner's and America Online's stockholders, as
well as regulatory approvals.
TV GUIDE, INC.
TV Guide, Inc., formerly named United Video Satellite Group, Inc., is a
media and communications company that provides print, passive and interactive
program listings guides to households, distributes programming to cable
television systems and direct-to-home satellite providers, and markets
satellite-delivered programming to C-band satellite dish owners. 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:
o TV Guide Magazine Group,
o TV Guide Entertainment Group, and
o United Video Group.
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<PAGE> 25
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. 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 the United States. Its retail
subscriber base was approximately one million at December 31, 1999. In November
of 1999, TV Guide announced an exclusive direct broadcast satellite marketing
alliance agreement with EchoStar to convert the existing and inactive C-band
customers of Superstar/Netlink to the high power (small satellite dish) DISH
Network Service. Under the conversion process, EchoStar will compensate
Superstar/Netlink Group on a per subscriber base, both upon successful
conversion and with residual payments over time. The United Video Group also
markets and distributes three independent superstations--WGN (Chicago), KTLA
(Los Angeles) and WPIX (New York)--and six Denver-based broadcast television
stations to cable television systems and other multi-channel video programming
distributors, and offers programming packages to satellite master antenna
television systems.
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 Untied 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. 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.
In October 1999, TV Guide announced that it had entered into a
definitive merger agreement with Gemstar International Group Limited, pursuant
to which TV Guide would become a wholly owned subsidiary of Gemstar. Under the
merger agreement, TV Guide shareholders would receive 0.6573 shares of Gemstar
common stock for each share of TV Guide common stock. TV Guide shareholders
would, in the aggregate, receive approximately 45% of the fully diluted shares
of the combined company. Consummation of the transaction is subject to limited
conditions, including approval by the shareholders of each company (which was
received on March 17, 2000) and the satisfaction of regulatory requirements. It
is anticipated that the transaction will close in the first half of 2000. Upon
consummation of the transaction, the company is expected to be renamed TV Guide
International Inc. and the board of directors will be expanded to twelve
members, of which 6 members will be persons designated by the board of directors
of TV Guide prior to the merger.
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<PAGE> 26
Gemstar develops, markets and licenses proprietary technologies and
systems that simplify and enhance consumers' interaction with electronics
products and other platforms that deliver video, programming information and
other data. Gemstar seeks to have its technologies widely licensed, incorporated
and accepted as the technologies and systems of choice by
o consumer electronics manufacturers,
o service providers such as owners or operators of cable systems,
telephone networks, Internet service providers, direct broadcast
satellite providers, wireless systems and other multi-channel video
programming distributors,
o software developers and
o consumers.
Gemstar's first proprietary system, VCR Plus+, was introduced in 1990
and is widely accepted as an industry standard for programming VCRs. VCR Plus+
enables consumers to record a television program by entering a number--the
PlusCode number--into a VCR or television equipped with the VCR Plus+
technology. Gemstar is also a leading provider of interactive program guide
services, which allow a user to view a television program guide on screen,
obtain details about a program, sort programs by themes or categories, and
select programs for tuning or recording through the remote control. Gemstar's
common stock trades on the National Market tier of The Nasdaq Stock Market under
the symbol "GMST."
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. 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.
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<PAGE> 27
USA NETWORKS, INC.
USA Networks, through its subsidiaries, is a diversified media and
electronic commerce company that is engaged in seven principal areas of
business:
o Networks and Television Production, which operates USA Network, a
general entertainment basic cable television network, Sci-Fi Channel,
which features science fiction, horror, fantasy and science-fact
oriented programming, and Studios USA, which produces and distributes
television programming;
o Electronic Retailing, which primarily consists of Home Shopping
Network and America's Store, which are engaged in the electronic
retailing business;
o Broadcasting, which owns and operates television stations;
o Ticketing Operations, which includes Ticketmaster, the leading
provider of automated ticketing services in the United States, and
Ticketmaster.com, Ticketmaster's exclusive agent for online ticket
sales;
o Hotel Reservations, consisting of Hotel Reservations Network, a
leading consolidator of hotel rooms for resale in the consumer market
in the United States;
o Internet Services, which includes the Internet Shopping Network, USA
Networks' online retailing networks business and local city guide
business; and
o Filmed Entertainment, which primarily represents USA Networks'
domestic theatrical film distribution and production businesses.
USA Networks' common stock trades on the National Market tier of The Nasdaq
Stock Market under the symbol "USAI."
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.
Terms of Ownership. USA Networks, Universal, Liberty and Mr. Diller
have 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 USANi LLC,
which was formed to hold USA Networks' non-broadcast businesses). 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.
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<PAGE> 28
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 USANi 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 Network's capital stock, subject to certain limitations.
Liberty has agreed to certain limitations on increases in its percentage of
ownership of USA Networks. 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.
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 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.
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<PAGE> 29
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. 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.
LIBERTY CABLEVISION OF PUERTO RICO, INC.
Liberty 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 Liberty
Cablevision of Puerto Rico's cable television systems. However, all of Liberty
Cablevision of Puerto Rico's systems have been rebuilt, and as of December 31,
1999, all of its pre-hurricane basic customers were receiving cable television
services.
As of December 31, 1999, approximately 85% of Liberty Cablevision of
Puerto Rico's network had been rebuilt utilizing 550 MHz bandwidth capacity,
with the remainder consisting of 450 MHz. At December 31, 1999, Liberty
Cablevision of Puerto Rico operated from five headends, and provided subscribers
with 63 channels.
A significant portion of Liberty Cablevision of Puerto Rico's cable
network consists of fiber-optic and coaxial cable. This infrastructure allows
Liberty Cablevision of Puerto Rico to offer enhanced entertainment, information
and telecommunications services and, when and to the extent permitted by law,
cable telephony services. Liberty 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, Liberty
Cablevision of Puerto Rico expects to aggressively market those products and
services to its subscribers in areas with sufficient bandwidth capacity. Liberty
Cablevision of Puerto Rico expects to begin offering high speed data
transmission services and Internet access using high speed cable modems to its
subscribers during the first half of 2001.
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<PAGE> 30
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, 1999, Sprint, together with certain
affiliates, operated PCS systems in the majority of the metropolitan areas in
the U.S. At that date, Sprint served more than 4,000 cities and communities and
had approximately 5.7 million customers. Sprint attributes this business and its
assets to Sprint's "Sprint PCS Group." The Sprint PCS stock is a tracking stock
intended to reflect the performance of the Sprint PCS Group.
The Sprint PCS stock-Series 1 trades on the NYSE under the symbol "PCS."
On October 5, 1999, Sprint announced that it had entered into a
definitive merger agreement with MCI WorldCom, Inc. Under the merger agreement,
each share of Sprint's FON common stock would be exchanged for $76.00 of MCI
WorldCom common stock, subject to a collar, and each share of Sprint PCS
stock-Series 1, Sprint PCS stock-Series 2 and Sprint PCS stock-Series 3 would be
exchanged for one share of a new MCI WorldCom PCS tracking stock of the
corresponding series and 0.116025 shares of MCI WorldCom common stock. The terms
of each series of MCI WorldCom PCS tracking stock would be equivalent to those
of the corresponding Sprint security and would track the performance of the PCS
business of the surviving company. The merger would be tax free to stockholders
of Sprint and accounted for as a purchase. Consummation of the merger is subject
to the approvals of the stockholders of Sprint and MCI WorldCom as well as
customary regulatory approvals. Upon consummation of the merger, the company is
expected to be renamed WorldCom and its board of directors is to have 16
members, 10 from MCI WorldCom and 6 from Sprint.
Liberty owns approximately 23% (on a fully diluted basis) of the Sprint
PCS stock through its ownership of shares of Sprint PCS stock-Series 2 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.
In exchange for its approximate 30% limited partnership interest in Sprint PCS,
TCI received shares of limited-voting Sprint PCS stock-Series 2, shares of
Sprint PCS convertible preferred stock and warrants to purchase shares of Sprint
PCS stock-Series 2.
Pursuant to a final judgment agreed to by TCI, AT&T and the United
States Department of Justice in connection with the AT&T merger, all of the
Sprint securities held by TCI were deposited into a trust with an independent
trustee. Liberty holds trust certificates evidencing its beneficial interest in
the assets of the trust. The final judgment, which was entered by the United
States District Court for the District of Columbia on August 23, 1999, requires
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 Sprint PCS stock that would be outstanding on a fully
diluted basis on such date. On or before May 23, 2004, the trustee is required
to divest the remainder of the Sprint securities held by the trust.
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<PAGE> 31
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.
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 stock so long as such securities are held by the trust. The 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 Sprint PCS stock-Series 2 are
transferred, the transferred shares become shares of full voting Sprint PCS
stock-Series 1.
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. 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 41 cable franchises. As of December 31,
1999, these owned and operated 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. As of December 31, 1999, the network in these
franchises passed approximately 4.7 million homes (approximately 4.4 million of
which had been passed and marketed) and Telewest had approximately 1.2 million
cable television customers, 1.6 million residential telephone lines and 306,000
business telephone lines. According to Telewest, approximately 62% of its
customers subscribe for both cable television and cable telephony services.
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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 owns an approximately 22% interest in
Telewest through the limited liability company. In addition, MediaOne owns an
approximately 8% interest in Telewest outside the limited liability company.
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 for so long as each holds 15% or more of the outstanding Telewest
ordinary shares. 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 that any proposed transfer of
its Telewest shares 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 with Telewest, 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, subject to certain modifications agreed to in connection with
the Telewest offer for Flextech.
On March 7, 2000, Telewest offered to acquire Flextech at a purchase
price of approximately (pound)2.76 billion. Pursuant to the offer by Telewest,
each share of Flextech would be exchanged for 3.78 new Telewest shares. Liberty
owns approximately a 37% equity interest in Flextech and a 22% equity interest
in Telewest. The proposed acquisition is subject to approval of the shareholders
of Telewest, acceptance of the offer by the shareholders of Flextech and certain
other conditions. Liberty, as a shareholder of Flextech, has agreed to tender
its Flextech shares, subject to certain conditions. Otherwise, Liberty has
agreed with Telewest not to dispose of any of Liberty's interest in Flextech
through March 31, 2000. Liberty, MediaOne and Microsoft as shareholders of
approximately 51% of Telewest, in the aggregate, have agreed to vote in favor of
resolutions put to Telewest shareholders in connection with the offer to the
extent applicable law and stock exchange rules permit them to do so. Because of
Liberty's holdings, the Listing Rules of the London Stock Exchange require a
separate vote by Telewest's shareholders, excluding Liberty, to approve
Telewest's acquisition of Liberty's interests in Flextech in the merger.
MediaOne and Microsoft have agreed to vote in favor of this acquisition.
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INTERNET SERVICES AND TECHNOLOGY
LIBERTY DIGITAL, INC.
Liberty Digital, Inc. (formerly named TCI Music, Inc.) is a diversified
new media company with investments in Internet content and interactive
television businesses, as well as music services delivered to commercial and
residential customers via cable, satellite, the Internet and other platforms.
Liberty Digital's series A common stock trades on the National Market tier of
The Nasdaq Stock Market under the symbol "LDIG."
As of March 1, 2000, the assets of Liberty Digital consisted 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
ACTV, Inc.
(Nasdaq: IATV) 12%(1) Producer of tools for interactive programming for
television and Internet platforms
BET.com 5% Web site with content directed towards African Americans
CarsDirect.com, Inc. 1% Online car retailer
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. 1% Online grocery store
(Nasdaq: HOMG)
iBeam Broadcasting Corporation 8% Satellite delivery of streaming media from programmers to
Internet service providers
iFilm, Inc. 1% Metamediary for making, distributing and consuming film
entertainment
Interactive Pictures 4% Interactive photographic technology for the Internet
Corporation
(Nasdaq: IPIX)
iVillage, Inc. 3% Internet and on-line provider of branded communications
(Nasdaq: IVIL) and information services for adult women
Kaleidoscope Interactive, LLC 50% Online provider of information and services related to
health concerns and disabilities
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
- ----------------------------------- ----------- -----------------------------------------------------------
<S> <C> <C>
Kaleidoscope Network, Inc. 12% 24-hour cable network that provides video programming
related to health concerns and disabilities
KPCB Java Fund, L.P. 6% Investor in Java application development
Lifescape, LLC 15% Online provider of information concerning substance
abuse, addictions and health problems
The Lightspan Partnership, Inc. 11% Developer of educational programming
(Nasdaq:LSPN)
MedScholar Digital Network, LLC 50% Provider of continuous medical education services to
healthcare professionals
MTVN Online L.P. 10% Online music venture with MTV Networks
netLibrary, Inc. 2% Electronic library
Online Retail Partners 21% Creates e-commerce partnerships with brick-and-mortar
retailers
OpenTV Inc. 4% Provider of software to enable interactive television
(Nasdaq:OPTV)
OrderTrust, Inc. 9% Provider of total order life cycle management services
OurHouse.com 3% Ace Hardware co-branded vertical portal for online home
improvement products, services and information
pogo.com, Inc. 19% Online game service targeting family Internet game players
priceline.com Incorporated
(Nasdaq: PCLN) 2% E-commerce service allowing consumers to make offers on
products and services
Quokka Sports, Inc.
(Nasdaq: QKKA) 3% Internet provider of live digital sports entertainment
Replay TV, Inc. 1%(2) 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
TiVo Inc.
(Nasdaq: TIVO) 1% Producer of technology that allows customers to customize
television viewing
UGO Networks, Inc. 4% Online provider of underground entertainment news and
video games
</TABLE>
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(1) Liberty Digital also holds 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%.
(2) Discovery, Starz Encore and TV Guide each owns an additional 1% of
Replay.
Liberty owns an approximately 86% interest in Liberty Digital, and a
member of the Liberty Media Group that is not part of Liberty Media Corporation
or its consolidated subsidiaries owns an additional approximately 8% interest in
Liberty Digital.
Liberty's interest in Liberty Digital 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
1997, TCI Music acquired The Box Worldwide, Inc., which programs and distributes
a subscriber selected 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 July 1999, TCI Music entered into a joint venture with MTV Networks,
a division of Viacom, Inc., to form and operate an online music venture, MTVN
Online L.P. As part of that transaction, TCI Music contributed to MTVN Online
substantially all of the assets and businesses of The Box and SonicNet, subject
to certain exceptions. In return, TCI Music received a 10% interest in MTVN
Online. In connection with this transaction, TCI Music and Liberty each agreed
not to compete with MTVN Online in its online music video business until July
15, 2002 or in the music video business generally until July 15, 2004, subject
to certain exceptions.
In September 1999, TCI Music and Liberty completed a transaction
pursuant to which Liberty and certain of its affiliates contributed to TCI Music
substantially all of their respective Internet content and interactive
television assets, certain rights with respect to access to AT&T cable systems
for the provision of interactive video services, and a combination of cash and
notes receivable equal to $150 million, in exchange for preferred and common
stock of TCI Music. Following this transaction, TCI Music changed its name to
Liberty Digital, Inc. In addition, Liberty adopted a policy that Liberty Digital
would be its primary (but not exclusive) vehicle to pursue corporate
opportunities relating to interactive programming and content related services
in the United States and Canada, subject to certain exceptions.
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<PAGE> 36
MOTOROLA, INC. (SUCCESSOR TO GENERAL INSTRUMENT CORPORATION)
Liberty's interest in Motorola, Inc. derives from its former interest
in General Instrument Corporation. GI merged with Motorola on January 5, 2000.
Prior to its merger with Motorola, General Instrument Corporation was a leading
worldwide provider of integrated and interactive broadband access solutions and,
with its strategic partners and customers, GI sought to advance the convergence
of the Internet, telecommunications and video entertainment industries. To that
end, GI made products that allow video, voice and data to be delivered over
cable, digital satellite and telephony networks. GI was 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 provided 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 provided next-generation
broadband access solutions for local telephone companies. GI also had audio and
Internet/data-delivery systems among its product lines.
In the Motorola merger, each share of GI common stock was exchanged for
0.575 shares of Motorola common stock. In connection with the merger, Liberty
entered into an agreement with Motorola, pursuant to which Liberty agreed to
vote its shares of GI common stock in favor of the transaction and Motorola
granted to Liberty certain registration rights with respect to the shares of
Motorola common stock acquired by Liberty in the merger. Immediately following
the merger, GI stockholders owned approximately 17% of Motorola.
Motorola is a global leader in providing integrated communications
solutions and embedded electronic solutions. These include:
o software-enhanced wireless telephone, two-way radio, messaging and
satellite communications products and systems, as well as networking
and Internet access products, for consumers, network operators, and
commercial, government and industrial customers,
o embedded semiconductor solutions for customers in networking,
transportation, wireless communications and imaging and entertainment
markets, and
o embedded electronic systems for automotive, communications, imaging,
manufacturing systems, computer and consumer markets.
Motorola's common stock trades on the NYSE under the symbol "MOT."
Liberty currently holds common stock representing a 2.5% interest in
Motorola, excluding vested warrants to purchase common stock in Motorola.
Liberty also holds warrants to purchase approximately 12.3 million additional
shares of Motorola common stock at $24.78 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 $14.35 for each warrant terminated, adjusted
as appropriate for any changes in the capitalization of Motorola. Warrants to
purchase 6.1 million shares are currently vested, and assuming Liberty's
exercise of such vested warrants, its ownership interest in Motorola would
increase to 3.3%.
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<PAGE> 37
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:
o certain of the assets of NDTC's set-top authorization business,
o the license of certain related software to GI,
o a $50 million promissory note from TCI to GI and
o 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
21% and made Liberty the largest stockholder of GI.
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.
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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 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 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.
The FCC's rules also generally prohibit common ownership of a cable
system and broadcast television stations or multichannel multi-point
distribution systems ("MMDS") with overlapping service areas. In August 1999,
the FCC revised the attribution standards, which are used to implement these
ownership rules, and adopted new attribution standards based upon a combination
of equity, debt and other indicia of influence. The new attribution criteria
could limit Liberty's ability to engage in certain transactions involving
broadcast stations and MMDS systems. The ownership attribution standards used to
enforce other rules, including the horizontal cable system ownership, channel
occupancy limits, program access and program carriage rules, also were revised
in October 1999.
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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.
Closed Captioning and Video Description 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. In November 1999, the FCC also issued a notice of
proposed rulemaking that would require certain broadcasters and the largest
national video programming services to begin to provide audio descriptions of
visual events for the visually impaired on the secondary audio program.
Depending upon the final requirements of any rule, increased costs for
programmers may result.
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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"). The Intellectual Property and Communications Omnibus
Reform Act of 1999 ("IPCORA"), enacted into law in November 1999, extends the
SHV Act license until December 31, 2004. Under the SHV Act, satellite carriers
previously paid a monthly fee of 27 cents per subscriber for the secondary
transmission of distant superstations and distant network stations. However,
IPCORA has decreased 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. 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 station affiliated with such network. IPCORA requires the FCC to
conduct a number of rulemaking proceedings that may ultimately subject
superstations and distant network stations delivered by satellite directly to
dish owners to new program exclusivity rules (similar to those imposed on cable
operators), including syndicated exclusivity, network non-duplication and sports
blackout rules. The FCC also will commence rule makings to review the signal
strength measurement and subscriber eligibility standards. The new legislation
provides a copyright liability moratorium for all satellite carriers
distributing distant network signals to existing (as of October 31, 1999) and
recently terminated (after July 1, 1998) subscribers who are within Grade B
contours of local network affiliates. Moreover, the entire C-band satellite
industry is exempt from all restrictions on delivering distant network signals
to subscribers who received C-band service before October 31, 1999. IPCORA and
rulemakings, exemptions, and regulatory requirements adopted under it will
substantially impact the C-band and DBS industry, potentially affecting the
economics of uplinking and distributing distant network stations and
superstations to dish owners. A subsidiary of 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
to identify by zip code those geographic areas which are "unserved" by network
affiliated stations in May 1998. With the passage of IPCORA, that subsidiary has
opted to discontinue that agreement. The broadcasters have, however, objected to
such termination and have asserted claims for liquidated damages and other
damages as a result of the failure to terminate distant network signal
subscribers during the period from September, 1999 through the passage of IPCORA
and the termination of the agreement.
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.
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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 and the National Historic Preservation 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 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.
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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, personal
privacy and taxation is uncertain and could expose these companies to
substantial liability.
BROADCASTERS
Liberty also has nonattributable minority ownership interests in group
owners of broadcast television and radio stations. The FCC extensively regulates
the ownership and operation of such stations through a variety of rules.
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.
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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 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:
o other Internet companies and web sites targeted to the respective
audiences of the Internet companies and web sites in which we have
interests;
o 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;
o 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;
o vendors of information, merchandise, products and services distributed
through other means, including retail stores, mail, facsimile and
private bulletin board services; and
o web search and retrieval services and other high-traffic web sites.
Liberty anticipates that the number of such competitors will increase in the
future.
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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 December 31, 1999, Liberty had approximately 40 employees and
Liberty's consolidated subsidiaries had an aggregate of approximately 1,629
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.
Item 2. 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
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.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) There is no market for Liberty's common equity. See "Relationship
with AT&T and Certain Related Parties" in Part I of this report.
(b) Recent Sales of Unregistered Securities. On March 8, 1999, in
connection with the merger of AT&T and TCI, we reclassified each share of our
existing and outstanding common stock, $1.00 par value per share, held by TCI
into one share of Class A Common Stock, $.0001 par value per share, one share of
Class B Common Stock, $.0001 par value per share, and one share of Class C
Common Stock, $.0001 par value per share. We believe this transaction was exempt
from registration under the Securities Act either because it did not involve a
"sale" of securities as defined in Section 2(3) of the Securities Act or, if it
did involve a "sale", the transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the Securities
Act since it did not involve a public offering.
We believe that the sales of the following securities were exempt from
the registration requirements of the Securities Act by virtue of Section 4(2) of
the Securities Act because none of these transactions involved a public
offering.
On June 30, 1999, we sold to Lehman Brothers, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital
Markets, Inc., Credit Lyonnais Securities, Donaldson, Lufkin & Jenrette, Morgan
Stanley Dean Witter, Salomon Smith Barney, Schroder & Co. Inc. and TD Securities
our 7-7/8% Senior Notes due 2009 at an aggregate offering price of $750 million
(less a discount to these initial purchasers of $4.9 million) and our 8-1/2%
Senior Debentures due 2029 at an aggregate offering price of $500 million (less
a discount to these initial purchasers of $4.4 million).
On November 16, 1999, we sold our 4% Senior Exchangeable Debentures due
2029 to Donaldson, Lufkin & Jenrette, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and Salomon Smith Barney at an aggregate
offering price of $868.8 million (less a discount to these initial purchasers of
$15 million).
On February 2, 2000, we sold to Lehman Brothers and Salomon Smith
Barney Inc. our 8-1/4% Senior Debentures due 2030, at an aggregate offering
price of $1 billion (less a discount to the initial purchasers of $8.8 million).
On February 10, 2000, we sold to Salomon Smith Barney Inc. our 3-3/4%
Senior Exchangeable Debentures due 2030 at an aggregate offering price of $750
million (less a discount to the initial purchaser of $15 million). On March 8,
2000, we sold to Salomon Smith Barney Inc. an additional $60 million principal
amount of our 3-3/4% Senior Exchangeable Debentures due 2030 (less a discount to
the initial purchaser of $1 million).
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Item 6. Selected Financial Data.
The following tables present selected historical information relating
to the financial condition and results of operations of Liberty for the past
five years. The following data should be read in conjunction with Liberty's
consolidated financial statements. Liberty was a wholly owned subsidiary of
Tele-Communications, Inc. ("TCI") since August 1994. On March 9, 1999, AT&T
Corp. 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.
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ --------------------------------------------------------
December 31, December 31,
------------ --------------------------------------------------------
1999 1998 1997 1996 1995
------------ -------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Investment in affiliates $ 15,922 3,079 2,359 1,519 1,932
Investments in available-for-sale securities
and others $ 28,593 10,539 3,971 2,257 1,464
Total assets $ 58,650 15,783 7,735 6,722 5,605
Debt, including current portion $ 3,277 2,096 785 555 516
Stockholder's equity $ 38,408 9,230 4,721 4,519 3,731
</TABLE>
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ -------------------------------------------------------------------------
Ten months Two months
ended ended
December 31, February 28, Years ended December 31,
------------ ------------ --------------------------------------------------------
1999 1999 1998 1997 1996 1995
------------ ------------ -------- -------- -------- --------
amounts in millions, except per share data
<S> <C> <C> <C> <C> <C> <C>
Summary Statement of Operations
Data:
Revenue $ 729 235 1,359 1,225 2,208 1,821
Operating loss $ (2,214) (158) (431) (260) (66) (214)
Interest expense $ (287) (25) (104) (40) (53) (34)
Share of losses of
affiliates, net
$ (904) (66) (1,002) (785) (332) (190)
Gains (losses) on
dispositions, net
$ 4 14 2,449 406 1,558 (78)
Net earnings (loss) $ (1,975) (70) 622 (470) 741 (56)
</TABLE>
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Item 7. 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 accompanying consolidated financial statements and
the notes thereto.
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 December 31, 1999, included
Starz Encore Group (formerly named Encore Media Group), Liberty Digital, Inc.
(formerly named TCI Music, Inc.), Pramer S.C.A. and Liberty 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 using 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 using the equity method. Included in Liberty's
investments in affiliates at December 31, 1999 were USA Networks, Inc.,
Discovery Communications, Inc., TV Guide, Inc., QVC Inc. and Telewest
Communications plc.
Liberty holds interests in companies that are neither consolidated
subsidiaries nor affiliates accounted for using the equity method. The most
significant of these include Time Warner, Sprint Corporation and Motorola Inc.
(successor to General Instrument Corporation). The Time Warner stock, Sprint
Corporation tracking stock and Motorola 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 stockholder's 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. Accordingly, Liberty's
assets and liabilities have been recorded at their respective fair values
therefore creating a new cost basis. 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.
II-3
<PAGE> 48
SUMMARY OF OPERATIONS
Liberty's programming businesses include Starz Encore Group, which
provides premium programming distributed by cable, direct-to-home satellite and
other distribution media throughout the United States. Additionally, Liberty
Digital is included in Liberty's financial results. Liberty Digital, 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 the periods in which they were consolidated for
Starz Encore Group, Liberty Digital 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 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.
General Information
Due to the consummation of the AT&T merger, Liberty's 1999 statements
of operations include information reflecting the ten month period ended December
31, 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 7 to the accompanying 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."
II-4
<PAGE> 49
<TABLE>
<CAPTION>
New Liberty Old Liberty
--------------------- ------------------------------------------------------------------
Ten months Two months Year Year
ended % of ended % of ended % of ended % of
December 31, total February 28, total December 31, total December 31, total
1999 revenue 1999 revenue 1998 revenue 1997 revenue
------------ -------- ------------ ------- ------------ ------- ------------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Starz Encore Group
Revenue $ 539 100% $ 101 100% $ 541 100% $ 350 100%
Operating, selling, general and
administrative 415 77 60 59 445 82 382 109
Stock compensation 283 53 3 3 58 11 60 17
Depreciation and amortization 148 27 1 1 8 1 4 1
-------- -------- ------- ------- ------- ------- ------- -------
Operating income (loss) $ (307) (57)% $ 37 37% $ 30 6% $ (96) (27)%
======== ======== ======= ======= ======= ======= ======= =======
Liberty Digital
Revenue $ 66 100% $ 15 100% $ 86 100% $ 23 100%
Operating, selling, general and
administrative 62 94 14 93 85 99 14 61
Stock compensation 703 1,065 -- -- -- -- 1 4
Depreciation and amortization 30 45 4 27 25 29 6 26
-------- -------- ------- ------- ------- ------- ------- -------
Operating income (loss) $ (729) (1,104)% $ (3) (20)% $ (24) (28)% $ 2 9%
======== ======== ======= ======= ======= ======= ======= =======
TV Guide
Revenue $ -- -- $ 97 100% $ 598 100% $ 508 100%
Operating, selling, general and
administrative -- -- 76 78 475 79 404 79
Depreciation and amortization -- -- 10 10 28 5 19 4
-------- -------- ------- ------- ------- ------- ------- -------
Operating income $ -- -- $ 11 12% $ 95 16% $ 85 17%
======== -------- ======= ======= ======= ======= ======= =======
Other
Revenue $ 124 (a) $ 22 (a) $ 134 (a) $ 344 (a)
Operating, selling, general and
administrative 119 38 138 266
Stock compensation 799 180 460 235
Depreciation and amortization 384 7 68 94
-------- ------- ------- -------
Operating loss $ (1,178) $ (203) $ (532) $ (251)
======== ======= ======= =======
</TABLE>
- -------------------
(a) Not meaningful.
II-5
<PAGE> 50
In order to provide a meaningful basis for comparing the years ended
December 31, 1999 and 1998 for purposes of the following table and discussion,
the operating results of Combined Liberty for the ten months ended December 31,
1999 have been combined with the operating results of Combined Liberty for the
two months ended February 28, 1999, and the operating results for the year ended
December 31, 1998. Depreciation, amortization and certain other line items
included in the operating results of Combined Liberty are not comparable between
periods as the ten month successor period ended December 31, 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 permitted by generally accepted accounting principles.
<TABLE>
<CAPTION>
Combined Liberty
-----------------------------------------------------------------------------------------
Year Year Year
ended % of ended % of ended % of
December 31, total December 31, total December 31, total
1999 revenue 1998 revenue 1997 revenue
------------ -------- ------------ -------- ------------ --------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Starz Encore Group
Revenue $ 640 100% $ 541 100% $ 350 100%
Operating, selling, general and
administrative 475 74 445 82 382 109
Stock compensation 286 45 58 11 60 17
Depreciation and amortization
149 23 8 1 4 1
-------- -------- -------- -------- -------- --------
Operating income (loss)
$ (270) (42)% $ 30 6% $ (96) (27)%
======== ======== ======== ======== ======== ========
Liberty Digital
Revenue $ 81 100% $ 86 100% $ 23 100%
Operating, selling, general and
administrative 76 94 85 99 14 61
Stock compensation 703 868 -- -- 1 4
Depreciation and amortization
34 42 25 29 6 26
-------- -------- -------- -------- -------- --------
Operating income (loss)
$ (732) (904)% $ (24) (28)% $ 2 9%
======== ======== ======== ======== ======== ========
TV Guide
Revenue $ 97 100% $ 598 100% $ 508 100%
Operating, selling, general and
administrative 76 78 475 79 404 79
Depreciation and amortization
10 10 28 5 19 4
-------- -------- -------- -------- -------- --------
Operating income $ 11 12% $ 95 16% $ 85 17%
======== ======== ======== ======== ======== ========
Other
Revenue $ 146 (a) $ 134 (a) $ 344 (a)
Operating, selling, general and
administrative 157 138 266
Stock compensation 979 460 235
Depreciation and amortization
391 68 94
-------- -------- --------
Operating loss $ (1,381) $ (532) $ (251)
======== ======== ========
</TABLE>
- -------------------
(a) Not meaningful.
II-6
<PAGE> 51
YEAR ENDED DECEMBER 31, 1999, COMPARED TO DECEMBER 31, 1998
CONSOLIDATED SUBSIDIARIES
Starz Encore Group. The majority of Starz Encore Group's revenue is
derived from the delivery of movies to subscribers under affiliation agreements
between Starz Encore Group and cable operators and satellite direct-to-home
distributors. Starz Encore 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. Under this affiliation agreement
with AT&T Broadband, Starz Encore 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 or if Starz Encore Group's programming
costs increase above certain specified levels. Starz Encore Group's other
affiliation agreements generally provide for payments based on the number of
subscribers that receive Starz Encore Group's services.
Revenue increased to $640 million in 1999 from $541 million in 1998.
Revenue from AT&T Broadband increased 13% during 1999, compared to the same
period of 1998, pursuant to the terms of the AT&T/Starz Encore 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/Starz Encore Group affiliation agreement.
Revenue from cable affiliates other than AT&T Broadband increased 33% during
1999, compared to 1998 mainly due to increases in subscription units for Encore
and STARZ! services, combined with small increases in rates charged. MOVIEplex
and Thematic Multiplex subscribers from cable affiliates other than AT&T
Broadband increased by 42% and 414%, respectively, during 1999 compared to 1998,
contributing to the increase in revenue. Revenue from satellite providers and
other distribution technologies increased 21% during 1999, due to 17%, 15% and
26% increases in STARZ!, Encore and Thematic Multiplex subscription units,
respectively, partially offset by subscriber volume and penetration discounts.
Programming and other operating expenses increased by 12% during 1999,
compared to 1998, primarily due to increased first run exhibitions on Encore and
the Thematic Multiplex channels. Sales and marketing expenses increased by 6%
during 1999, compared to 1998, due to the "New Encore" national awareness
campaign during 1999. The "New Encore" campaign is branding Encore as a
first-run premium pay service.
Depreciation and amortization increased from $8 million during 1998 to
$149 million during 1999. The increase was a direct result of the effects of
purchase accounting adjustments related to the AT&T merger.
Starz Encore Group has granted phantom stock appreciation rights to
certain of its officers. Estimates of compensation relating to the phantom stock
appreciation rights have been recorded in Starz Encore Group's financial
statements based upon third-party appraisals, but are subject to future
adjustments based upon the appraised value of Starz Encore Group.
II-7
<PAGE> 52
Liberty Digital. Liberty Digital's revenue is derived from its audio
business, which is engaged in programming, distributing and marketing a digital
music service, Digital Music Express(R) (DMX Service). This service provides
continuous, commercial free, CD-quality music programming to homes and
businesses. Liberty Digital's results of operations also include its interactive
media business, which is engaged in the development of interactive television
businesses and the management of investments in interactive programming content
and interactive television businesses.
Revenue decreased 6% to $81 million for 1999 from $86 million for 1998.
The decrease in revenue was primarily caused by reduced revenue due to the sale
of Liberty Digital's video business and certain Internet businesses offset by
increased residential and commercial subscribers in its audio business.
Additionally, revenue for 1999 included a $3 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 decreased 11%
to $76 million for 1999, from $85 million for 1998. The decrease in expenses was
primarily due to the sale of Liberty Digital's video and Internet businesses,
which was partially offset by increased affiliation fees and selling, general
and administrative expenses due to the audio business's expansion.
Depreciation and amortization increased 36% to $34 million for 1999,
from $25 million for 1998. The increase was 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 December
31, 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, Liberty Cablevision of Puerto
Rico and Pramer, and corporate expenses of Liberty. Revenue increased 9% from
$134 million for 1998, to $146 million for 1999. The acquisition of Pramer in
August 1998 accounted for a $47 million increase in revenue in 1999. This
increase was partially offset by a decrease in revenue from the sale of Netlink
Wholesale, Inc. during January 1999 and the sale in February 1999 of
CareerTrack, Inc., a subsidiary that provided business and educational seminars
and related publications.
Operating, selling, general and administrative expenses increased 14%
to $157 million for 1999, from $138 million for 1998. The increase in expenses
was primarily due to additional corporate expenses of $12 million in 1999
associated with the AT&T merger. The increase in expenses due to the acquisition
of Pramer was offset by the decrease in expenses as a result of the sales of
Netlink and CareerTrack.
II-8
<PAGE> 53
Depreciation and amortization increased $323 million to $391 million
for 1999 from $68 million during 1998. The increase was 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 the
date of the financial statements 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 $287 million, $25
million and $104 million for the ten month period ending December 31, 1999, the
two month period ending February 28, 1999, and the year ended December 31, 1998,
respectively. The increase in interest expense during the 1999 periods was a
result of increased borrowings by Liberty during 1999.
Dividend and interest income was $242 million, $10 million and $65
million for the ten month period ending December 31, 1999, the two month period
ending February 28, 1999 and the year ending December 31, 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.
Aggregate gains from dispositions and issuance of equity by affiliates
and subsidiaries during the ten month period ended December 31, 1999, the two
month period ended February 28, 1999, and the year ended December 31, 1998 were
$4 million, $386 million and $2,554 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. Liberty
recorded a non-cash gain of $1.9 billion (before deducting deferred income tax
expenses of $647 million) during 1998 as a result of the exchange of its
interest in Sprint PCS and PhillieCo Partnership I, L.P. for shares of Sprint
PCS Group stock. Effective January 1, 1998, Time Warner acquired the business of
Southern Satellite from Liberty for $213 million in cash resulting in a $515
million pre-tax gain.
INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty's share of losses of affiliates was $904 million, $66 million
and $1,002 million during the ten month period ending December 31, 1999, the two
month period ending February 28, 1999, and the year ending December 31, 1998,
respectively.
II-9
<PAGE> 54
Discovery. Discovery's revenue increased $302 million or 28% from
$1,094 million for 1998, to $1,396 million for 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 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") decreased by $2 million or
2% from $110 million for 1998, to $108 million for 1999. The decrease in
Operating Cash Flow was due to increases in programming and marketing expenses
offset by the increase in revenue. Marketing expenses have increased as
Discovery continued the rollout of Animal Planet and launched other developing
networks. Discovery's net loss increased $175 million or 243% from $72 million
for 1998, to $247 million for 1999. The increase in the 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 $269 million, $8 million and $39 million
for the ten month period ended December 31, 1999, the two month period ended
February 28, 1999 and the year ended December 31, 1998, respectively. Liberty's
share of losses for the ten month period ended December 31, 1999, included $155
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 $602 million or 23% for 1999, from
$2,634 million for 1998, to $3,236 million for 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. The
inclusion of revenue from the Hotel Reservations Network since its acquisition
on May 10, 1999, also contributed to the increase in revenue. Operating Cash
Flow increased $109 million or 23% from $464 million for 1998, to $573 million
for 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 USA
Networks continued to rollout new web sites. Net income decreased from $77
million for 1998, to a net loss of $28 million for 1999, representing a decrease
of $105 million. 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 $(20) million, $10 million and $30 million for the ten month
period ended December 31, 1999, the two month period ended February 28, 1999 and
the year ended December 31, 1998, respectively. Liberty's share of losses for
the ten month period ended December 31, 1999, included $53 million in
amortization related to purchase accounting adjustments associated with
Liberty's investment in USA Networks in connection with the AT&T merger.
II-10
<PAGE> 55
QVC. Revenue increased by $444 million or 18% for 1999, from $2,403
million for 1998, to $2,847 million for 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, U.K. and German operations. Operating Cash Flow
increased by 24% or $105 million from $434 million for 1998 to $539 million for
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
$72 million or 48% to $221 million for 1999, as compared to $149 million for
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 $(11) million, $13 million and $64 million for the ten
month period ended December 31, 1999, the two month period ended February 28,
1999, and the year ended December 31, 1998, respectively. Liberty's share of
losses for the ten month period ended December 31, 1999 included $92 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. Liberty's share of Fox/Liberty Networks' net loss
was approximately $48 million, $1 million and $83 million for the ten month
period ended December 31, 1999, the two month period ended February 28, 1999 and
the year ended December 31, 1998, respectively. Liberty's share of losses for
1998 includes previously unrecognized losses of Fox/Liberty Networks of
approximately $64 million. Losses of 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. On July 15, 1999, News Corp. acquired Liberty's 50% interest
in Fox/Liberty Networks. (See note 6 to the accompanying consolidated financial
statements).
Telewest. Revenue increased $375 million or 42%, from $896 million for
1998, to $1,271 million for 1999. The increase was primarily due to the
acquisition of General Cable plc and Birmingham Cable Corporation Limited in
September 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 $96 million or 40% from $243 million for 1998, to
$339 million for 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 $308 million or 56% from $553 million
for 1998, to $861 million for 1999. The increase in net loss was due to
increased interest expense, increased depreciation and amortization expense
resulting from acquisitions and increased foreign currency transaction losses.
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 $222 million, $38 million and $134 million for the ten month
period ended December 31, 1999, the two month period ended February 28, 1999,
and the year ended December 31, 1998, respectively. Liberty's share of losses
for the ten month period ended December 31, 1999, included $73 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 $629 million during 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.
II-11
<PAGE> 56
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 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, Liberty's less than 1% voting interest in Sprint and the
transfer of its Sprint Securities to a trust prior to the AT&T merger, 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 6 to the accompanying
consolidated financial statements.)
YEAR ENDED DECEMBER 31, 1998, COMPARED TO DECEMBER 31, 1997
CONSOLIDATED SUBSIDIARIES
Starz Encore Group. Revenue generated from Starz Encore 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.
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.
Liberty Digital. Revenue increased 274% to $86 million in 1998 from $23
million in 1997. The increase in revenue was due to the acquisition of DMX in
July of 1997. Effective July 11, 1997, a subsidiary of Liberty Digital was
merged with and into DMX, Inc. As a result of the DMX merger, DMX's results of
operations have been included in the consolidated financial results of Liberty
as of the date of the merger. See note 8 to the accompanying consolidated
financial statements.
Operating, selling and general administrative expenses increased 507%
to $85 million in 1998 from $14 million in 1997. The increase in expenses was
due to the inclusion of the operations of DMX since July of 1997.
Depreciation and amortization increased $19 million to $25 million in
1998 from $6 million in 1997. The increase was primarily attributable to
increased amortization of intangibles resulting from the acquisition of DMX.
TV Guide. Revenue increased 18% to $598 million in 1998 from $508
million in 1997. The increase in revenue was primarily due to the acquisition of
Turner-Vision's retail C-band operations and increased advertising and service
fee revenue. 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. These increases were partially
offset by a decrease in commission revenue from Superstar/Netlink acting as a
service agent in the direct broadcast satellite market.
II-12
<PAGE> 57
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. The increase
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.
Depreciation and amortization increased $9 million to $28 million in
1998 from $19 million in 1997. The increase 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.
Other. Included in this information are the results of Liberty Media
International, Southern Satellite Systems, Inc. and corporate expenses of
Liberty. Revenue decreased to $134 million in 1998 from $344 million in 1997.
Liberty Media International's revenue decreased from $220 million in 1997 to $65
million in 1998. This $155 million decrease was attributable to the
deconsolidation of Cablevision in October 1997. Cablevision represented $173
million in revenue during 1997. Additionally, revenue decreased as a result of
the sale of the business of Southern Satellite. 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. 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.
Operating, selling, general and administrative expenses decreased to
$138 million in 1998 from $266 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.
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 and $40
million for 1998 and 1997, respectively. The increase in interest expense of $64
million was a result of additional borrowing on Liberty's credit facilities
during 1998.
Dividend and interest income was $65 million and $59 million for 1998
and 1997, 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 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.
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Aggregate gains from dispositions and issuance of equity by affiliates
and subsidiaries during 1998 and 1997 were $2,554 million and $406 million,
respectively. As a result of the exchange by Liberty of its investment in the
PCS Ventures 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. Additionally, Liberty recognized a $515 million pre-tax
gain in connection with the sale of Southern Satellite 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.
INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD
Liberty's share of losses of affiliates was $1,002 million and $785
million during 1998 and 1997, respectively.
Discovery. Revenue increased $234 million or 27% to $1,094 million in
1998 from $860 million in 1997. The increase in revenue 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. 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. Discovery's net loss increased by $19 million or 36%
to $72 million in 1998 from $53 million in 1997. 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. Liberty's share of losses was $39 million
and $29 million, for each of 1998 and 1997, respectively.
USA Networks, Inc. Revenue increased $1,372 million or 109% to $2,634
million in 1998 from $1,262 million in 1997. 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 consolidated
financial statements). Operating Cash Flow increased $272 million to $464
million in 1998 from $192 million in 1997. The increase in Operating Cash Flow
from 1997 to 1998 was due to the Universal and Ticketmaster transactions. Net
income increased by $64 million to $77 million in 1998 from $13 million in 1997.
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. Liberty's share of earnings (loss) of USA Networks and related
investments was $30 million and $5 million for 1998 and 1997, respectively.
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<PAGE> 59
QVC Inc. Revenue increased $321 million or 15% to $2,403 million in
1998 from $2,082 million in 1997. The increase in revenue for 1998 was primarily
attributable to the effects of a 5.6% increase in the average number of homes
receiving QVC services in the U.S. and an 11.8% increase 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.
The increase in Operating Cash Flow was caused by the increase in revenue offset
by increased cost of goods sold and variable costs associated with the increased
sales. Start-up costs of QVC Germany also contributed $3 million to the increase
in offsetting costs for 1998. Net income increased 110% or $78 million to $149
million in 1998 from $71 million in 1997. 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 and $30 million for 1998
and 1997, respectively.
Fox/Liberty Networks. Revenue increased 39% or $183 million to $655
million in 1998 from $472 million in 1997. A large portion of the increase in
revenue was 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 for 1998. The increase in revenue was
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. The increase in Operating
Cash Flow was caused by the revenue growth coupled with an increase in operating
expenses. The increase in operating expenses was 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. 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 in 1997 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 1997, as Liberty's basis in the
investment was less than zero (see note 5 to the accompanying consolidated
financial statements).
PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million and $493 million in 1998 and 1997, respectively. The
increase in the share of losses as attributed primarily to increases in:
o selling, general and administrative costs associated with Sprint
PCS's efforts to increase its customer base;
o depreciation expense resulting from capital expenditures made to
expand its PCS network; and
o interest expense associated with higher amounts of outstanding
debt.
Telewest. Telewest accounted for $134 million and $145 million of
Liberty's share of its affiliates' losses during 1998 and 1997, respectively.
The increase in the share of losses was primarily attributable to the net
effects of:
o changes in foreign currency transaction losses;
o an increase in Operating Cash Flow resulting from revenue growth;
and
o an increase in interest expense.
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<PAGE> 60
Telewest issued debentures in connection with a previous merger transaction.
Changes in the exchange rate used to translate the 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 proceeds from financing activities. 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.
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 December 31, 1999, Liberty and its consolidated subsidiaries had
bank credit facilities which provided for borrowings of up to $1.1 billion.
Borrowings under these facilities of $963 million were outstanding at December
31, 1999. Certain assets of Liberty's consolidated subsidiaries 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 its 7-7/8% Senior Notes due
2009 and 8-1/2% Senior Debentures due 2029, respectively. The proceeds were used
to repay outstanding borrowings under certain of Liberty's credit facilities,
two of which were subsequently terminated. On January 13, 2000, Liberty
completed an exchange offer for the 7-7/8% Senior Notes due 2009 and 8-1/2%
Senior Debentures due 2029 that provided tendering holders with identical
securities registered under the Securities Act.
On November 16, 1999, Liberty received net cash proceeds of $854
million from the issuance of its 4% Senior Exchangeable Debentures due 2029, in
the aggregate principal amount of $869 million. Each debenture has a $1,000 face
amount and is exchangeable at the holder's option for the value of 11.4743
shares of Sprint PCS Group stock. This amount will be paid only in cash until
the later of December 31, 2001 and the date the direct and indirect ownership
level of Sprint PCS Group stock owned by Liberty falls below a designated level,
after which at Liberty's election, Liberty may pay the amount in cash, Sprint
PCS Group stock or a combination thereof. The carrying amount of the
exchangeable debentures in excess of the principal amount is based on the fair
value of the underlying Sprint PCS Group stock. On February 9, 2000, Liberty
registered the resale of these debentures under the Securities Act of 1933.
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On January 7, 2000, a trust, which holds Liberty's investment in
Sprint, entered into agreements to loan 18 million shares of Sprint PCS Group
stock (as adjusted for a two-for-one stock split) to a third party, as Agent, in
exchange for cash collateral equal to 100% of the market value of that stock.
During the period of the loan, which is terminable by either party at any time,
the cash collateral is to be marked-to-market daily. The trust has the use of
80% of the cash collateral plus any interest earned thereon during the term of
the loan, and is required to pay a rebate fee equal to the Federal funds rate
less 30 basis points to the borrower of the loaned shares.
On February 2, 2000, Liberty received net cash proceeds of $983 million
from the issuance of its 8-1/4% Senior Debentures due 2030.
On February 10, 2000, Liberty received net cash proceeds of $735
million from the issuance of its 3-3/4% Senior Exchangeable Debentures due 2030.
On March 8, 2000, Liberty received net cash proceeds of $59 million, including
accrued interest from February 10, 2000, from the issuance of an additional $60
million principal amount of its 3-3/4% Senior Exchangeable Debentures due 2030.
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% ($19 billion at December
31, 1999) of the total market capitalization of the Liberty Media Group tracking
stock, if the excess would adversely affect the credit rating of AT&T.
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 were made.
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.
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<PAGE> 62
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 other open
market transactions, at December 31, 1999, Liberty owned approximately 81.7
million ADRs representing preferred limited voting shares of News Corp. News
Corp. has historically paid cash dividends on its common stock and it is
anticipated that it will continue to do so. Holders of the ADRs are entitled to
receive dividends ratably with News Corp. common stock, and, consequently,
Liberty receives cash dividends on the ADRs that it holds. However, there can be
no assurance that such dividends will continue to be paid.
On January 5, 2000, Motorola, Inc. completed the acquisition of General
Instrument Corporation through a merger of General Instrument with a wholly
owned subsidiary of Motorola. In the merger, each outstanding share of General
Instrument common stock was converted into the right to receive 0.575 shares of
Motorola common stock. In connection with the merger Liberty received 18 million
shares and warrants to purchase 12 million shares of Motorola common stock in
exchange for its holdings in General Instrument. Motorola has historically paid
cash dividends on its common stock and it is anticipated that it will continue
to do so. Consequently, Liberty expects to receive cash dividends on its shares
of Motorola common stock. However, there can be no assurance that such dividends
will continue to be paid.
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 final judgment, which was entered by the United States District
Court for the District of Columbia on August 23, 1999, requires 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 final judgment
requires 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 final judgment also prohibits the
acquisition by Liberty of additional Sprint securities, with certain exceptions,
without the prior written consent of the Department of Justice.
During the ten month period ended December 31, 1999, the unrealized
appreciation, net of taxes, of the fair value of Liberty's shares of Time Warner
Series LMCN-V common stock was $224 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 ten month period ended December 31, 1999, the
unrealized appreciation, net of taxes, of the fair value of the Sprint PCS Group
stock held by Liberty was $3.9 billion based upon the market value of such
shares. During the ten month period ended December 31, 1999, the unrealized
appreciation, net of taxes, of the fair value of Liberty's interest in General
Instrument was $1.5 billion based upon the market value of the General
Instrument securities held.
Liberty has guaranteed notes payable and other obligations of certain
affiliates. At December 31, 1999, the U.S. dollar equivalent of the amounts
borrowed pursuant to these guaranteed obligations aggregated approximately $655
million.
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<PAGE> 63
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 (pound)88
million and, subject to certain restrictions, a standby credit facility of
(pound)30 million. As of December 31, 1999, this joint venture had borrowed
(pound)53 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 December 31, 1999, Starz Encore
Group's future minimum obligation related to certain film licensing agreements
was $900 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 Starz Encore Group will obtain such financing. If additional
financing cannot be obtained by Starz Encore Group, Starz Encore 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.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows from operating activities for the ten month period ended
December 31, 1999 were $133 million. Cash flows used in operating activities for
the two month period ended February 28, 1999 were $107 million and cash flows
from operating activities for the years ended December 31, 1998 and 1997 were
$26 million and $149 million, respectively. Improved Operating Cash Flow for
Starz Encore Group and increased dividend and interest income contributed to the
higher cash flows from operating activities for the ten month period ended
December 31, 1999. Dividends and interest income from the investment of the $5.5
billion received in the AT&T merger contributed $178 million to cash flows from
operating activities during the ten month period ended December 31, 1999. Cash
used during the two month period ended February 28, 1999 included payments
related to stock appreciation rights of $126 million. Due to a number of
transactions during the two-year period ended December 31, 1998, the results of
operations, and consequently cash flows from operating activities, during this
period are not comparable from year to year. These transactions resulted in the
consolidation or deconsolidation of several entities, as discussed above in the
"Summary of Operations."
CASH FLOWS FROM INVESTING ACTIVITIES
Investing cash flows were primarily used in the purchase of marketable
securities during the ten month period ended December 31, 1999. Liberty made
purchases of marketable securities of $7.8 billion and had sales and maturities
of marketable securities of $5.7 billion during the ten month period ended
December 31, 1999. Liberty is a holding company and as such it uses investing
cash flows to make contributions and investments in entities in which Liberty
holds a 50% or less ownership interest. Cash flows from investing activities
were used for investments in and loans to affiliates amounting to $2.6 billion,
$51 million, $1.4 billion and $580 million during the ten month period ended
December 31, 1999, the two month period ended February 28, 1999, and the years
ended December 31, 1998 and 1997, respectively. Additionally, Liberty had cash
proceeds from dispositions of $130 million, $43 million, $423 million and $268
million during the ten month period ended December 31, 1999, the two month
period ended February 28, 1999, and the years ended December 31, 1998 and 1997,
respectively. Liberty invested $109 million, $92 million and $41 million in
acquisitions during the ten months ended December 31, 1999 and the years ended
December 31, 1998 and 1997, respectively.
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<PAGE> 64
CASH FLOWS FROM FINANCING ACTIVITIES
Liberty is primarily dependent on financing activities to generate
sufficient cash resources to meet its cash requirements. Financing cash flows
consist primarily of borrowings and repayments of debt. Liberty had borrowings
of $3.2 billion, $155 million, $2.2 billion and $661 million and repayments of
$2.2 billion, $145 million, $609 million and $341 million during the ten month
period ended December 31, 1999, the two month period ended February 28, 1999,
and the years ended December 31, 1998 and 1997, respectively. Cash transfers to
related parties during the ten months ended December 31, 1999 and the years
ended December 31, 1998 and 1997 were $159 million, $215 million and $428
million, respectively.
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
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:
o fair values of existing assets, liabilities, or firm commitments,
o variability of cash flows of forecasted transactions, or
o foreign currency exposures of net investments in foreign
operations.
Although our management has not completed its assessment of the impact of
Statement 133 on Liberty's consolidated results of operations and financial
position, management does not expect that the impact of Statement 133 will be
significant, however, no assurances can be given that it will not be
significant.
Item 7A. Quantitative and Qualitative Disclosures about 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 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.
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<PAGE> 65
Liberty is exposed to changes in interest rates primarily as a result
of its borrowing and investment activities, which include 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. As of December 31, 1999, the majority of Liberty's debt was composed of
fixed rate debt resulting from the 1999 issuances of notes and debentures for
net proceeds of approximately $2.1 billion. The proceeds were used to repay
floating rate debt, which reduced Liberty's exposure to interest rate risk
associated with rising variable interest rates. Had market interest rates been
1% higher throughout the years ended December 31, 1999 and 1998, Liberty would
have recorded approximately $16 million and $14 million of additional interest
expense for the years ended December 31, 1999 and 1998, respectively. At
December 31, 1999, the aggregate fair value of Liberty's notes and debentures
was $2.3 billion.
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 changes 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.
In order to illustrate the effect of changes in stock prices on Liberty
we provide the following sensitivity analysis. Had the stock price of our
investments accounted for as available-for-sale securities been 10% lower at
December 31, 1999, and 1998, the value of such securities would have been lower
by $2.4 billion and $1.0 billion, respectively. Our unrealized gains, net of
taxes would have also been lower by $1.5 billion and $622 million, respectively.
Had the stock price of our publicly traded investments accounted for using the
equity method been 10% lower at December 31, 1999 and 1998, there would have
been no impact on the carrying value of such investments. Had the stock price of
the Sprint PCS Group stock underlying Liberty's 4% Senior Exchangeable
Debentures due 2029 been 10% higher at December 31, 1999, Liberty's total debt
and correspondingly, Liberty's interest expense would have been higher by $102
million.
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.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of Liberty Media Corporation are
filed under this Item, beginning on Page II-22. The financial statement
schedules required by Regulation S-X are filed under Item 14 of this Annual
Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
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<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Liberty Media Corporation:
We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries ("New Liberty" or "Successor") as of December 31,
1999, and of Liberty Media Corporation and subsidiaries ("Old Liberty" or
"Predecessor") as of December 31, 1998, and the related consolidated statements
of operations and comprehensive earnings, stockholders' equity, and cash flows
for the periods from March 1, 1999 to December 31, 1999 (Successor period) and
from January 1, 1999 to February 28, 1999 and for each of the years in the
two-year period ended December 31, 1998 (Predecessor periods). These
consolidated financial statements are the responsibility of the Companies'
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 aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of New Liberty
as of December 31, 1999, and the results of their operations and their cash
flows for the Successor period, in conformity with generally accepted accounting
principles. Further, in our opinion, the aforementioned Predecessor consolidated
financial statements present fairly, in all material respects, the financial
position of Old Liberty as of December 31, 1998, and the results of their
operations and their cash flows for the Predecessor periods, in conformity with
generally accepted accounting principles.
As discussed in note 1, effective March 9, 1999, AT&T Corp., parent company of
New Liberty, acquired Tele-Communications, Inc., parent company of Old Liberty,
in a business combination accounted for as a purchase. As a result of the
acquisition, the consolidated financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and therefore, is not comparable.
KPMG LLP
Denver, Colorado
February 29, 2000
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<PAGE> 67
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
1999 1998
---------- ----------
(note 2)
amounts in millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,714 228
Short-term investments 378 159
Trade and other receivables, net 116 142
Prepaid expenses and committed program rights 405 263
Deferred income tax assets 750 216
Other current assets 5 21
---------- ----------
Total current assets 3,368 1,029
---------- ----------
Investments in affiliates, accounted for under the equity
method, and related receivables (note 5) 15,922 3,079
Investments in available-for-sale securities and others
(note 6) 28,593 10,539
Property and equipment, at cost 162 279
Less accumulated depreciation 19 124
---------- ----------
143 155
---------- ----------
Intangible assets:
Excess cost over acquired net assets 9,966 940
Franchise costs 273 99
---------- ----------
10,239 1,039
Less accumulated amortization 454 140
---------- ----------
9,785 899
---------- ----------
Other assets, at cost, net of accumulated amortization 839 82
---------- ----------
Total assets $ 58,650 15,783
========== ==========
</TABLE>
(continued)
II-23
<PAGE> 68
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
1999 1998
---------- ----------
(note 2)
amounts in millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 44 49
Accrued liabilities 201 199
Accrued stock compensation 2,405 126
Program rights payable 166 156
Customer prepayments -- 124
Current portion of debt 554 184
---------- ----------
Total current liabilities 3,370 838
---------- ----------
Long-term debt (note 9) 2,723 1,912
Deferred income tax liabilities (note 10) 14,103 3,582
Other liabilities 23 89
---------- ----------
Total liabilities 20,219 6,421
---------- ----------
Minority interests in equity of subsidiaries (notes 7 and 8) 23 132
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 33,838 4,682
Accumulated other comprehensive earnings, net of
taxes (note 13) 6,518 3,186
Accumulated (deficit) earnings (1,975) 952
---------- ----------
38,381 8,820
Due to related parties 27 410
---------- ----------
Total stockholder's equity 38,408 9,230
---------- ----------
Commitments and contingencies (note 14)
Total liabilities and stockholder's equity $ 58,650 15,783
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
II-24
<PAGE> 69
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ --------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ -------- --------
amounts in millions
(note 2)
<S> <C> <C> <C> <C>
Revenue:
Unaffiliated parties $ 549 192 1,197 1,070
Related parties (note 11) 180 43 162 155
---------- -------- -------- --------
729 235 1,359 1,225
---------- -------- -------- --------
Operating costs and expenses:
Operating 343 95 713 627
Selling, general and administrative 229 87 387 342
Charges from related parties (note 11) 24 6 43 97
Stock compensation (note 12) 1,785 183 518 296
Depreciation and amortization 562 22 129 123
---------- -------- -------- --------
2,943 393 1,790 1,485
---------- -------- -------- --------
Operating loss (2,214) (158) (431) (260)
Other income (expense):
Interest expense (287) (25) (104) (40)
Interest expense to related parties, net (note 11) (1) (1) (9) (15)
Dividend and interest income 242 10 65 59
Share of losses of affiliates, net (note 5) (904) (66) (1,002) (785)
Minority interests in losses (earnings) of
subsidiaries 92 4 13 (10)
Gains on dispositions, net (notes 5 and 6) 4 14 2,449 406
Gains on issuance of equity by affiliates and subsidiaries
(notes 5 and 7) -- 372 105 --
Other, net (4) (9) (3) --
---------- -------- -------- --------
(858) 299 1,514 (385)
---------- -------- -------- --------
Earnings (loss) before income taxes (3,072) 141 1,083 (645)
Income tax benefit (expense) (note 10) 1,097 (211) (461) 175
---------- -------- -------- --------
Net earnings (loss) $ (1,975) (70) 622 (470)
---------- -------- -------- --------
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments 60 (15) 2 (23)
Unrealized holding gains arising during the period, net of
reclassification adjustments 6,458 885 2,417 747
---------- -------- -------- --------
Other comprehensive earnings (loss) 6,518 870 2,419 724
---------- -------- -------- --------
Comprehensive earnings (note 13) $ 4,543 800 3,041 254
========== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-25
<PAGE> 70
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
Common stock Additional earnings, Accumulated Due to Total
Preferred ----------------------- paid-in net of (deficit) related stockholder's
stock Class A Class B Class C capital taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- ----------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 -- -- -- -- 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)
Gains in connection with
issuances of stock of affiliates
and subsidiaries (note 5) -- -- -- -- 85 -- -- -- 85
Excess of cash received over
carryover basis of
SUMMITrak Assets -- -- -- -- 30 -- -- -- 30
Contribution to equity from
related party 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
and subsidiaries (note 5) -- -- -- -- 70 -- -- -- 70
Transfers from related party
due to acquisitions of minority
interests (note 7) -- -- -- -- 772 -- -- -- 772
Assignment of option from related
party -- -- -- -- 16 -- -- (16) --
Transfer from related party for
acquisition of cost investment -- -- -- -- 354 -- -- -- 354
Other transfers from related
parties, net -- -- -- -- -- -- -- 412 412
---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
(continued)
II-26
<PAGE> 71
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
Common stock Additional earnings, Accumulated Due to Total
Preferred ----------------------- paid-in net of (deficit) related stockholder's
stock Class A Class B Class C capital taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- ----------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ -- -- -- -- 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 on February 28, 1999 $ -- -- -- -- 5,112 4,056 882 (601) 9,449
==== ==== ==== ==== ====== ===== ====== ====== ======
Balance at March 1, 1999 $ -- -- -- -- 33,468 -- -- 197 33,665
Net loss -- -- -- -- -- -- (1,975) -- (1,975)
Foreign currency translation
adjustments -- -- -- -- -- 60 -- -- 60
Recognition of previously unrealized
losses on available-for-sale
securities, net -- -- -- -- -- 7 -- -- 7
Unrealized gains on available-for-
sale securities -- -- -- -- -- 6,451 -- -- 6,451
Transfer from related party for
redemption of debentures -- -- -- -- 354 -- -- -- 354
Gains in connection with issuances
of stock of affiliates and
subsidiaries (note 8) -- -- -- -- 104 -- -- -- 104
Utilization of net operating
losses of Liberty by AT&T (note 10) -- -- -- -- (88) -- -- -- (88)
Other transfers to related
parties, net -- -- -- -- -- -- -- (170) (170)
---- ---- ---- ---- ------ ----- ------ ------ ------
Balance at December 31, 1999 $ -- -- -- -- 33,838 6,518 (1,975) 27 38,408
==== ==== ==== ==== ====== ===== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
II-27
<PAGE> 72
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ---------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ------------ ----------
amounts in millions
(note 4)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,975) (70) 622 (470)
Adjustments to reconcile net earnings (loss)
to net cash provided (used) by
operating activities:
Depreciation and amortization 562 22 129 123
Stock compensation 1,785 183 518 296
Payments of stock compensation (111) (126) (58) (75)
Share of losses of affiliates, net 904 66 1,002 785
Deferred income tax (benefit) expense (1,025) 212 546 11
Intergroup tax allocation (75) (1) (89) (189)
Cash payment from AT&T pursuant to tax
sharing agreement 1 -- -- --
Minority interests in (losses) earnings of
subsidiaries (92) (4) (13) 10
Gains on issuance of equity by affiliates and
subsidiaries -- (372) (105) --
Gains on disposition of assets, net (4) (14) (2,449) (406)
Noncash interest 153 -- -- --
Other noncash charges 3 18 -- 32
Changes in operating assets and liabilities,
net of the effect
of acquisitions and dispositions:
Change in receivables 7 33 (56) 6
Change in prepaid expenses and committed
program rights (119) (23) (65) (1)
Change in payables, accruals and
customer prepayments 119 (31) 44 27
---------- ---------- ---------- ----------
Net cash provided (used) by
operating activities 133 (107) 26 149
---------- ---------- ---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions (109) -- (92) (41)
Capital expended for property and equipment (40) (15) (60) (110)
Cash balances of deconsolidated subsidiaries -- (53) -- (39)
Investments in and loans to affiliates and others (2,596) (51) (1,404) (580)
Purchases of marketable securities (7,757) (3) -- --
Sales and maturities of marketable securities 5,725 9 -- --
Return of capital from affiliates 7 -- 12 5
Collections on loans to affiliates and others -- -- -- 133
Cash proceeds from dispositions 130 43 423 268
Other, net (18) (9) -- (6)
---------- ---------- ---------- ----------
Net cash used by investing activities (4,658) (79) (1,121) (370)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Borrowings of debt 3,187 155 2,199 661
Repayments of debt (2,211) (145) (609) (341)
Net proceeds from issuance of stock by
subsidiaries 123 -- -- --
Payments for call agreements -- -- (140) --
Cash transfers (to) from related parties (159) 31 (215) (428)
Repurchase of stock of subsidiary -- (45) -- --
Other, net (20) (7) (12) (5)
---------- ---------- ---------- ----------
Net cash provided (used) by financing
activities 920 (11) 1,223 (113)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (3,605) (197) 128 (334)
Cash and cash equivalents at beginning of year 5,319 228 100 434
---------- ---------- ---------- ----------
Cash and cash equivalents at end of year $ 1,714 31 228 100
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
II-28
<PAGE> 73
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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. Effective March
9, 1999, AT&T Corp. ("AT&T") indirectly owns 100% of the outstanding
common stock of Liberty. Previously, Liberty was a wholly owned
subsidiary of TCI.
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 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. Accordingly,
Liberty's assets and liabilities have been recorded at their respective
fair values therefore, creating a new cost basis. 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.
(continued)
II-29
<PAGE> 74
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 affiliates and 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 410 434
Investments in affiliates 3,971 17,116
Investment in Time Warner 7,361 7,832
Investment in Sprint 3,381 3,681
Other investments 1,232 1,540
Property and equipment, net 111 125
Intangibles and other assets 389 11,159
---------- ----------
$ 16,886 47,206
========== ==========
Liabilities and Equity:
Current liabilities $ 1,051 1,675
Long-term debt 2,087 1,845
Deferred income taxes 4,147 9,963
Other liabilities 90 19
---------- ----------
Total liabilities 7,375 13,502
---------- ----------
Minority interests in equity of subsidiaries 62 39
Stockholder's equity 9,449 33,665
---------- ----------
$ 16,886 47,206
========== ==========
</TABLE>
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 24,216
--------
Initial stockholder's equity of New Liberty
subsequent to the AT&T Merger $ 33,665
========
</TABLE>
The following unaudited condensed results of operations for the years
ended December 31, 1999 and 1998 were prepared assuming the AT&T Merger
occurred on January 1, 1998. These pro forma amounts are not
necessarily indicative of operating results that would have occurred if
the AT&T Merger had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Years ended
December 31,
----------------------
1999 1998
-------- --------
(amounts in millions)
<S> <C> <C>
Revenue $ 964 1,359
Net loss $ (2,201) (306)
</TABLE>
(continued)
II-30
<PAGE> 75
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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, 1999 and 1998 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
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.
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.
Subsequent to the AT&T Merger, 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 stockholder's equity.
(continued)
II-31
<PAGE> 76
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property and Equipment
Property and equipment, including significant improvements, is stated
at cost. Depreciation is computed on a straight-line basis using
estimated useful lives of 3 to 20 years for support equipment and 10 to
40 years for buildings and improvements.
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 generally amortized on a
straight-line basis over 20 years.
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.
(continued)
II-32
<PAGE> 77
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 ("(pound)" or "pounds"), the French franc ("FF") and the
Japanese yen ("(Y)"). 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.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot
rate at December 31, 1999, as published in The Wall Street Journal.
Derivative Instruments and Hedging Activities
Liberty has entered into "cashless collar" transactions with respect to
certain securities held by Liberty. The cashless collar provides
Liberty with a put option that gives it the right to require its
counterparty to buy designated shares at a designated price per share
and simultaneously provides the counterparty a call option giving it
the right to buy the same number of shares at a designated price per
share.
As Liberty's cashless collars are designated to specific shares of
stock held by Liberty and the changes in the fair value of the cashless
collars are correlated with changes in the fair value of the underlying
securities, the cashless collars function as hedges. Accordingly,
changes in the fair value of the cashless collars designated to
specific shares which are accounted for as available-for-sale
securities are reported as a component of comprehensive earnings (in
unrealized gains) along with the changes in the fair value of the
underlying securities.
(continued)
II-33
<PAGE> 78
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
does not expect that the impact of Statement 133 will be significant,
however, there can be no assurances that the impact 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").
Reclassifications
Certain prior period amounts have been reclassified for comparability
with the 1999 presentation.
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.
(continued)
II-34
<PAGE> 79
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $93 million, $32 million, $103 million and
$41 million for the ten months ended December 31, 1999, the two months
ended February 28, 1999 and the years ended December 31, 1998 and 1997,
respectively. Cash paid for income taxes during the ten months ended
December 31, 1999 and the two months ended February 28, 1999 was not
material. Cash paid for income taxes during the years ended December
31, 1998 and 1997 was $29 million and $35 million, respectively.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- --------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
------------ ------------ ---------- ----------
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
Cash paid for acquisitions:
<S> <C> <C> <C> <C>
Fair value of assets acquired $ 122 -- 162 260
Net liabilities assumed (13) -- (107) (72)
Debt issued to related parties
and others -- -- -- (128)
Deferred tax asset recorded in
acquisition -- -- -- 14
Minority interest in equity of
acquired subsidiaries -- -- 39 (119)
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 $ 109 -- 92 41
========== ========== ========== ==========
</TABLE>
(continued)
II-35
<PAGE> 80
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- --------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Exchange of subsidiaries for
limited partnership
interest $ 135 -- -- --
========== ========== ========== ==========
Noncash acquisitions of
minority interests in
equity of subsidiaries
(note 7):
Fair value of assets $ -- -- (741) (29)
Deferred tax liability
recorded -- -- 154 --
Minority interests in
equity of subsidiaries -- -- (185) (1)
Contribution to equity from
related party 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 6) $ -- -- -- 371
========== ========== ========== ==========
</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 ("General Instrument") (176)
----------
Cash and cash equivalents subsequent to the AT&T Merger $ 5,319
==========
</TABLE>
(continued)
II-36
<PAGE> 81
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 7).
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 these investments from the
consolidation method to the equity method are summarized below:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- --------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Assets (other than cash and cash
equivalents) reclassified to
investments in affiliates $ -- (200) -- (596)
Liabilities reclassified to
investments in affiliates -- 190 -- 484
Minority interests in equity of
subsidiaries reclassified to
investments in affiliates -- 63 -- 151
---------- ---------- ---------- ----------
Decrease in cash and cash
equivalents $ -- 53 -- 39
========== ========== ========== ==========
</TABLE>
(continued)
II-37
<PAGE> 82
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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 in affiliates at December
31, 1999 and the carrying amount at December 31, 1998:
<TABLE>
<CAPTION>
New Liberty Old Liberty
--------------------------- -----------------
December 31, 1999 December 31, 1998
--------------------------- -----------------
Percentage
Ownership Carrying Amount Carrying Amount
---------- --------------- -----------------
amounts in millions
<S> <C> <C> <C>
USA Networks, Inc. ("USAI") and
related investments 21% $ 2,699 1,042
Telewest Communications plc
("Telewest") 22% 1,996 515
Discovery Communications, Inc.
("Discovery") 49% 3,441 49
TV Guide 44% 1,732 --
QVC Inc. ("QVC") 43% 2,515 197
Flextech 37% 727 320
UnitedGlobalCom, Inc.
("UnitedGlobalCom") 10% 505 --
Jupiter Telecommunications Co., Ltd.
("Jupiter") 40% 399 143
Various foreign equity investments
(other than Telewest, Flextech and
Jupiter)
various 1,064 518
Other various 844 295
---------- ----------
$ 15,922 3,079
========== ==========
</TABLE>
(continued)
II-38
<PAGE> 83
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table reflects Liberty's share of earnings (losses) of
affiliates:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- --------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
USAI and related investments $ (20) 10 30 5
(222) (38) (134) (145)
Telewest (269) (8) (39) (29)
Discovery (46) -- -- --
TV Guide (11) 13 64 30
QVC (41) (5) (21) (16)
Flextech
Fox/Liberty Networks LLC (48) (1) (83) --
("Fox/Liberty Networks") 23 -- -- --
UnitedGlobalCom (54) (7) (26) (23)
Jupiter (113) (15) (99) (80)
Other foreign investments
Sprint Spectrum Holding Company,
L.P., MinorCo, L.P. and
PhillieCo Partnership I, L.P.
(the "PCS Ventures") (note 6) -- -- (629) (493)
(103) (15) (65) (34)
---------- ---------- -------- ----------
Other $ (904) (66) (1,002) (785)
========== ========== ======== ==========
</TABLE>
Summarized unaudited combined financial information for affiliates is
as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
---------- ----------
amounts in millions
<S> <C> <C>
Combined Financial Position
Investments $ 1,415 2,003
Property and equipment, net 8,885 8,147
Other intangibles, net 19,778 14,395
Other assets, net 9,207 7,553
---------- ----------
Total assets $ 39,285 32,098
========== ==========
Debt $ 17,210 15,264
Other liabilities 12,645 11,620
Owners' equity 9,430 5,214
---------- ----------
Total liabilities and equity $ 39,285 32,098
========== ==========
</TABLE>
(continued)
II-39
<PAGE> 84
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ --------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Combined Operations
Revenue $ 10,492 2,341 14,062 6,613
Operating expenses (9,066) (1,894) (13,092) (7,163)
Depreciation and amortization (1,461) (353) (2,629) (997)
---------- ---------- ---------- ----------
Operating income (loss) (35) 94 (1,659) (1,547)
Interest expense (886) (281) (1,728) (540)
Other, net (151) (127) (166) (469)
---------- ---------- ---------- ----------
Net loss $ (1,072) (314) (3,553) (2,556)
========== ========== ========== ==========
</TABLE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations,
and internet services. At December 31, 1999, Liberty directly and
indirectly held 66.5 million shares of USAI's common stock (as adjusted
for a subsequent two-for-one stock split). Liberty also held shares
directly in certain subsidiaries of USAI which are exchangeable into
79.0 million shares of USAI common stock (as adjusted for the
two-for-one stock split). 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 December 31, 1999, Liberty would own
145.5 million shares (as adjusted for the two-for-one stock split) or
approximately 21% (on a fully-diluted basis) of USAI common stock.
USAI's common stock had a closing market value of $27.63 per share (as
adjusted for the two-for-one stock split) on December 31, 1999. Liberty
accounts for its investments in USAI and related subsidiaries on a
combined basis under the equity method.
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.
(continued)
II-40
<PAGE> 85
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Telewest currently operates and constructs cable television and
telephone systems in the UK. At December 31, 1999 Liberty indirectly
owned 506 million of the issued and outstanding Telewest ordinary
shares. The reported closing price on the London Stock Exchange of
Telewest ordinary shares was $5.34 per share at December 31, 1999.
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 New Telewest shares and cash. Based
upon Telewest's closing price of $1.51 per share on April 14, 1998, the
General Cable Merger was valued at approximately $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 $1.57 per share (the
"Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary
shares at an aggregate cost of $133 million in connection with the
Telewest Offer. 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.
The Class A common stock of TV Guide is publicly traded. At December
31, 1999, Liberty held 58 million shares of TV Guide Class A common
stock (as adjusted for a two-for-one stock split) and 75 million shares
of TV Guide Class B common stock (as adjusted for a two-for-one stock
split). See note 7. 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 $43.00 per share on December 31,
1999.
Flextech develops and sells a variety of television programming in the
UK. At December 31, 1999, Liberty indirectly owned 58 million Flextech
ordinary shares. The reported closing price on the London Stock
Exchange of the Flextech ordinary shares was $18.58 per share at
December 31, 1999.
(continued)
II-41
<PAGE> 86
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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).
Liberty and The News Corporation Limited ("News Corp.") each previously
owned 50% of Fox/Liberty Networks which operates national and regional
sports networks. Prior to the first quarter of 1998, Liberty had no
obligation, nor intention, to fund Fox/Liberty Networks. During 1998,
Liberty made the determination to provide funding to Fox/Liberty
Networks based on specific transactions consummated by Fox/Liberty
Networks. Consequently, Liberty's share of losses of Fox/Liberty
Networks for the year ended December 31, 1998 included 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. During 1999, News Corp. acquired Liberty's
50% interest in Fox/Liberty Networks (see note 6).
On September 30, 1999, Liberty purchased 9.9 million class B shares of
UnitedGlobalCom for approximately $493 million in cash. UnitedGlobalCom
is the largest global broadband communications provider of video, voice
and data services with operations in over 20 countries throughout the
world. At December 31, 1999, Liberty owned an approximate 10% economic
ownership interest representing an approximate 36% voting interest in
UnitedGlobalCom. The closing price for UnitedGlobalCom Class A common
stock was $70.63 per share on December 31, 1999. The UnitedGlobalCom
Class B common stock is convertible, on a one-for-one basis, into
UnitedGlobalCom Class A common stock.
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. Liberty's equity interest in Cablevision was 28% at December
31, 1999.
The $13 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 estimated useful life of 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.
(continued)
II-42
<PAGE> 87
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Investments in Available-for-sale Securities and Others
Investments in available-for-sale securities and others are summarized
as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
----------------------------
1999 1998
---------- ----------
amounts in millions
<S> <C> <C>
Sprint Corporation ("Sprint") (a) $ 10,186 2,446
Time Warner, Inc. ("Time Warner") (b) 8,202 7,083
News Corp. (c) 2,403 --
General Instrument (d) 3,430 396
Other available-for-sale securities 3,765 315
Other investments, at cost, and related
receivables (e) 985 458
---------- ----------
28,971 10,698
Less short-term investments 378 159
---------- ----------
$ 28,593 10,539
========== ==========
</TABLE>
(a) Pursuant to a 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, which was entered by the
United States District Court for the District of Columbia on
August 23, 1999, 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 requires 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 also
prohibits the acquisition of 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.
(continued)
II-43
<PAGE> 88
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 then 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, through the trust established pursuant to the Final
Judgment, 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, Liberty's less than 1% voting
interest in Sprint and the Final Judgment, 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.
In September 1999, a trust for Liberty's benefit entered into a four
and one-half year "cashless collar" with a financial institution with
respect to 35 million shares of Sprint PCS Group Stock (as adjusted for
a two-for-one stock split), secured by 35 million shares of such stock
(as adjusted for a two-for-one stock split). The collar provides the
trust with a put option that gives it the right to require its
counterparty to buy 35 million shares of Sprint PCS Group Stock from
the trust in five tranches in approximately four and one-half years for
a weighted average price of $27.62 per share (as adjusted for a
two-for-one stock split). Liberty simultaneously sold a call option
giving the counterparty the right to buy the same shares of stock from
the trust in five tranches in approximately four and one-half years for
a weighted average price of $57.42 per share (as adjusted for a
two-for-one stock split).
Additionally, on December 15, 1999, the trust entered into a "cashless
collar" with a financial institution with respect to 18 million shares
of Sprint PCS Group Stock (as adjusted for a two-for-one stock split).
The collar consists of a put option that gives the trust the right to
require its counterparty to buy 18 million shares of Sprint PCS Group
Stock (as adjusted for a two-for-one stock split) from the trust in
three tranches in approximately two years for $50.00 per share (as
adjusted for a two-for-one stock split). The counterparty has a call
option giving the counterparty the right to buy the same shares from
the trust in three tranches in approximately two years for $65.23 per
share (as adjusted for a two-for-one stock split). The put and the call
options of each of these collars were equally priced, resulting in no
cash cost to the trust or Liberty.
(continued)
II-44
<PAGE> 89
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) 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. 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. (the
"Southern Business") from Liberty. Liberty received 6.4
million shares of TW Exchange Stock valued at $306 million in
consideration for the grant. 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 transaction in
the first quarter of 1998.
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 TW Exchange Stock. This cashless collar
provides Liberty with 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 number of Time Warner
shares from Liberty in approximately seven years for $158.33
per share. The put and the call options were equally priced,
resulting in no cash cost to Liberty.
(c) 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. Of the
51.8 million ADRs received, 3.6 million were placed in an
escrow (the "Escrow Shares") pending an independent third
party valuation, as of the third anniversary of the
transaction. The remainder of the 51.8 million ADRs received
(the "Restricted Shares") are subject to a two-year lockup
which restricts any transfer of the securities for a period of
two years from the date of the transaction. Liberty recorded
the ADRs at fair value of $1,403 million, which included a
discount from market value for the Restricted Shares due to
the two-year restriction on transfer, resulting in a $13
million gain on the transaction. 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. Liberty accounts for its
investment in News Corp. as an available-for-sale security,
with the exception of the Restricted Shares and the Escrow
Shares.
(continued)
II-45
<PAGE> 90
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) On July 17, 1998, TCI acquired 21.4 million shares of
restricted stock of General Instrument in exchange for (i)
certain of the assets of the National Digital Television
Center, Inc.'s ("NDTC") set-top authorization business, (ii)
the license of certain related software to General Instrument,
(iii) a $50 million promissory note from TCI to General
Instrument and (iv) a nine year revenue guarantee from TCI in
favor of General Instrument. In connection therewith, NDTC
also entered into a service agreement pursuant to which it
will provide certain postcontract services to General
Instrument's set-top authorization business. Such shares of
General Instrument stock and the promissory note were
contributed to Liberty. The 21.4 million shares of General
Instrument common stock were, in addition to other transfer
restrictions, originally restricted as to their sale by
Liberty for a three year period. Liberty recorded its
investment in such shares at fair value which included a
discount attributable to the above-described liquidity
restriction. The $396 million fair value of General Instrument
common stock received net of the $42 million present value of
the promissory note due from Liberty to General Instrument,
has been reflected as an increase in additional paid-in
capital.
On January 5, 2000, Motorola, Inc. completed the acquisition
of General Instrument through a merger of General Instrument
with a wholly owned subsidiary of Motorola. In the merger,
each outstanding share of General Instrument common stock was
converted into the right to receive 0.575 shares of Motorola
common stock. In connection with the merger Liberty received
18 million shares and warrants to purchase 12 million shares
of Motorola common stock in exchange for its holdings in
General Instrument. Subsequent to the merger, the Motorola
securities are no longer subject to the three year restriction
and accordingly, Liberty accounted for its investment in
General Instrument as an available-for-sale security at
December 31, 1999. Liberty has agreed not to transfer or
encumber the Motorola securities for a specified period which
is less than one year.
Liberty's ability to exercise warrants to purchase 6.1 million
shares of Motorola common stock are subject to AT&T satisfying
the terms of a purchase commitment in 2000. AT&T has agreed to
pay Liberty $14.35 for each warrant that does not vest as a
result of the purchase commitment not being met.
(e) 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. As
a result of the exchange, Liberty recognized a pre-tax gain of
approximately $304 million during the third quarter of 1997.
(continued)
II-46
<PAGE> 91
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investments in available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
----------------------------
1999 1998
---------- ----------
amounts in millions
<S> <C> <C>
Equity securities:
Fair value $ 24,464 9,721
Gross unrealized holding gains 11,453 3,998
Gross unrealized holding losses (646) --
Debt securities:
Fair value $ 1,995 --
Gross unrealized holding losses (22) --
</TABLE>
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 investments in
available-for-sale securities and others aggregated $29.2 billion and
$11.2 billion at December 31, 1999 and December 31, 1998, respectively.
No independent appraisals were conducted for those assets.
(7) Acquisitions and Dispositions
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 TV
Guide, formerly named United Video Satellite Group, Inc. ("UVSG"), 49.6
million shares of UVSG Class A common stock (as adjusted for a
two-for-one stock split) 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 purchase price 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.
(continued)
II-47
<PAGE> 92
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On August 24, 1998, Liberty purchased 100% of the issued and
outstanding common stock of Pramer S.A. ("Pramer"), an Argentine
programming company, for a total purchase price of $97 million, which
was satisfied by $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, 10.1
million 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 the total purchase price of $426 million
as an 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. News Corp. received total
consideration of $1.9 billion including $800 million in cash, 22.5
million shares of UVSG's Class A common stock and 37.5 million shares
of UVSG's Class B common stock valued at an average of $18.65 per
share. 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 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.
(8) Liberty Digital, Inc.
Effective July 11, 1997, a wholly-owned subsidiary of Liberty Digital
(then named TCI Music) was merged with and into DMX, Inc. with DMX as
the surviving corporation (the "DMX Merger"). As a result of the DMX
Merger, stockholders of DMX became stockholders of TCI Music.
In connection with the DMX Merger, 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").
(continued)
II-48
<PAGE> 93
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 were 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. TCI Music was included in the consolidated
financial results of Liberty as of the date of the DMX 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 was repaid during 1999.
Prior to the July 1998 expiration of the Rights, Liberty was notified
of the tender of 4.9 million shares of TCI Music Series A common stock
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.
On September 9, 1999, Liberty and TCI Music completed a transaction
(the "Liberty Digital Transaction") pursuant to which Liberty
contributed to TCI Music substantially all of its directly held
internet content and interactive television assets, its rights to
provide interactive video services on AT&T's cable television systems
and a combination of cash and notes receivable equal to $150 million.
In exchange, TCI Music issued common stock and convertible preferred
stock to Liberty and was renamed Liberty Digital, Inc.
During 1999, Liberty Digital issued approximately 4.8 million shares of
common stock in connection with the conversion of its preferred stock
and approximately 2.8 million shares of common stock in connection with
the exercise of certain employee stock options. In connection with the
increase in Liberty Digital's equity, net of the dilution of Liberty's
interest in Liberty Digital, that resulted from such stock issuances,
Liberty recorded a $102 million increase to additional paid-in-capital.
(continued)
II-49
<PAGE> 94
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
interest December 31,
rate --------------------------
1999 1999 1998
-------- ----------- -----------
amounts in millions
<S> <C> <C> <C>
Parent company debt:
Bank credit facilities 5.7% $ 390 116
Senior notes (a) 7.875% 741 --
Senior debentures (a) 8.5% 494 --
Senior exchangeable debentures (b) 4.0% 1,022 --
----------- -----------
2,647 116
Debt of subsidiaries:
Bank credit facilities 6.2% 573 1,513
Convertible subordinated debentures (note 11)
-- -- 345
Other debt, at varying rates 57 122
----------- -----------
630 1,980
----------- -----------
Total debt 3,277 2,096
Less current maturities 554 184
----------- -----------
Total long-term debt $ 2,723 1,912
=========== ===========
</TABLE>
(a) 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, which are stated net of
unamortized discount of $9 million, have an aggregate
principal amount of $750 million and the Senior Debentures,
which are stated net of unamortized discount of $6 million,
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, which were subsequently canceled.
(b) On November 16, 1999, Liberty received net cash proceeds of
$854 million from the issuance of 4% Senior Exchangeable
Debentures due 2030. The exchangeable debentures have an
aggregate principal amount of $869 million. Each debenture has
a $1,000 face amount and is exchangeable at the holder's
option for the value of 22.9486 shares of Sprint PCS Group
Stock (as adjusted for a two-for-one stock split). This amount
will be paid only in cash until the later of December 31, 2001
and the date the direct and indirect ownership level of Sprint
PCS Group Stock owned by Liberty falls below a designated
level, after which at Liberty's election, Liberty may pay the
amount in cash, Sprint PCS Group Stock or a combination
thereof. Interest on these exchangeable debentures is payable
on May 15 and November 15 of each year. The carrying amount of
the exchangeable debentures in excess of the principal amount
(the "Contingent Portion) is based on the fair value of the
underlying Sprint PCS Group Stock. The increase or decrease in
the Contingent Portion is recorded as an increase or decrease
to interest expense in the consolidated statement of
operations and comprehensive earnings.
(continued)
II-50
<PAGE> 95
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1999, Liberty had approximately $160 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, encumbrances,
acquisitions, dispositions, guarantees and dividends. Liberty was in
compliance with its debt covenants at December 31, 1999. 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.
The U.S. dollar equivalent of the annual maturities of Liberty's debt
for each of the next five years are as follows: 2000: $554 million;
2001: $72 million; 2002: $80 million; 2003: $99 million and 2004: $145
million.
Based on quoted market prices, the fair value of Liberty's debt at
December 31, 1999 is as follows (amounts in millions):
Senior Notes $ 742
Senior Debentures 506
4% Senior Exchangeable Debentures 1,088
Liberty believes that the carrying amount of the remainder of its debt
approximated its fair value at December 31, 1999.
(10) 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"). Liberty calculates its
respective tax liability on a separate return basis. 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 an addition 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.
(continued)
II-51
<PAGE> 96
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. During the ten month period ending December
31, 1999, AT&T utilized net operating losses of Liberty with a tax
effected carrying value of $88 million.
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.
Prior to the AT&T Merger, Liberty was included in TCI's consolidated
tax return and was a party to the TCI tax sharing agreements.
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.
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
---------- ---------- ----------
amounts in millions
<S> <C> <C> <C>
Ten months ended December 31, 1999:
State and local income tax (expense) benefit,
including intercompany tax allocation $ (3) 152 149
Federal income tax benefit, including
intercompany tax allocation 75 873 948
---------- ---------- ----------
$ 72 1,025 1,097
========== ========== ==========
Two months ended February 28, 1999:
State and local income tax expense,
including intercompany tax allocation $ -- (44) (44)
Federal income tax benefit (expense),
including intercompany tax allocation 1 (168) (167)
---------- ---------- ----------
$ 1 (212) (211)
========== ========== ==========
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
========== ========== ==========
</TABLE>
(continued)
II-52
<PAGE> 97
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
New Liberty Old Liberty
----------- ---------------------------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
------------ ------------ ---------------------------
1999 1999 1998 1997
------------ ------------ ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Computed expected tax benefit
(expense) $ 1,075 (49) (379) 226
Dividends excluded for income tax
purposes 11 2 13 8
Minority interest in equity of
subsidiaries 32 -- (5) 4
Amortization not deductible for
income tax purposes (122) (4) (21) (10)
State and local income taxes, net
of federal income taxes 97 (29) (74) (18)
Recognition of difference in income
tax basis of investments in
subsidiaries -- (130) -- (25)
Other, net 4 (1) 5 (10)
---------- ---------- ---------- ----------
$ 1,097 (211) (461) 175
========== ========== ========== ==========
</TABLE>
(continued)
II-53
<PAGE> 98
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
----------------------------
1999 1998
---------- ----------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss
carryforwards $ 43 99
Future deductible amount attributable
to accrued stock compensation
and deferred compensation 749 218
Other future deductible amounts due
principally to non-deductible accruals 37 33
---------- ----------
Deferred tax assets 829 350
Less valuation allowance 50 42
---------- ----------
Net deferred tax assets 779 308
---------- ----------
Deferred tax liabilities:
Investments in affiliates, due principally
to the application of purchase accounting
and losses of affiliates recognized for
income tax purposes in excess of losses
recognized for financial statement purposes 13,912 3,637
Intangibles, principally due to differences
in amortization 200 3
Other, net 20 34
---------- ----------
Deferred tax liabilities 14,132 3,674
---------- ----------
Net deferred tax liabilities $ 13,353 3,366
========== ==========
</TABLE>
At December 31, 1999, Liberty had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $94
million which, if not utilized to reduce taxable income in future
periods, will expire as follows: 2004: $18 million; 2005: $14 million;
2006: $14 million; 2007: $13 million; 2008: $12 million; and $23
million between 2009 and 2010. 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.
(continued)
II-54
<PAGE> 99
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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, 1999, all of the issued and outstanding common stock
of Liberty was held by AT&T.
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 were 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 that entitle the holder to
cast more than one vote per share (the "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 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.
(continued)
II-55
<PAGE> 100
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Transactions with AT&T (formerly transactions with TCI) and Other
Related Parties
Certain AT&T 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. Management believes this allocation method
is reasonable. During the ten months ended December 31, 1999, the two
months ended February 28, 1999 and the years ended December 31, 1998
and 1997 Liberty was allocated less than $1 million, $2 million, $13
million and $13 million, respectively, in corporate general and
administrative costs by AT&T. These costs are included in charges from
related parties in the accompanying consolidated statements of
operations and comprehensive earnings.
Subsidiaries of Liberty lease satellite transponder facilities from a
subsidiary of AT&T. Charges for such arrangements and other related
operating expenses for the ten months ended December 31, 1999, two
months ended February 28, 1999 and the years ended December 31, 1998
and 1997 aggregated $20 million, $4 million, $25 million and $65
million, respectively, and are included in charges from related parties
in the accompanying consolidated statements of operations and
comprehensive earnings.
During 1999, 1998 and 1997, Liberty made marketing support payments to
AT&T. Charges by AT&T for such arrangements for the ten months ended
December 31, 1999, the two months ended February 28, 1999 and the years
ended December 31, 1998 and 1997 aggregated $4 million, less than $1
million, $5 million and $19 million, respectively, and are included in
charges from related parties in the accompanying consolidated
statements of operations and comprehensive earnings.
The Puerto Rico Subsidiary purchases programming services from AT&T.
The charges, which approximate AT&T's cost and are based on the
aggregate number of subscribers served by the Puerto Rico Subsidiary,
aggregated $6 million and $1 million during the ten months ended
December 31, 1999, the two months ended February 28, 1999,
respectively, and $6 million for each of the years ended December 31,
1998 and 1997, and are included in operating expenses in the
accompanying consolidated statements of operations and comprehensive
earnings.
In connection with the AT&T Merger, warrants to buy 3 million shares of
common stock of CSG Systems International, Inc. ("CSG") and related
registration rights were transferred to Liberty. On April 13, 1999,
AT&T purchased these warrants from Liberty for an aggregate purchase
price of $75 million along with the related registration rights. The
vesting of the CSG warrants is contingent on AT&T meeting certain
subscriber commitments to CSG. If any warrants do not vest, Liberty
must repurchase the unvested warrants from AT&T, with interest at 6%
from April 12, 1999. Accordingly, Liberty has recorded the unvested CSG
warrants as deferred income until such time as the CSG warrants vest.
(continued)
II-56
<PAGE> 101
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
During September 1998, TCI assigned its obligation under an 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.
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 were included in operating costs in the accompanying
consolidated statements of operations and comprehensive earnings.
During July 1997, AT&T entered into a 25 year affiliation agreement
with Starz Encore Group (the "EMG Affiliation Agreement") pursuant to
which AT&T will pay monthly fixed amounts in exchange for unlimited
access to all of the existing Encore and STARZ! services.
Liberty Digital and AT&T entered into an Amended and Restated
Contribution Agreement to be effective as of July 11, 1997 which
provides, among other things, for AT&T to deliver, or cause certain of
its subsidiaries to deliver to Liberty Digital fixed monthly payments
(subject to inflation and other adjustments) through 2017.
During the third quarter of 1997, Liberty sold certain assets (the
"SUMMITrak Assets") to 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.
(continued)
II-57
<PAGE> 102
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Due to Related Parties
The components of "Due to related parties" are as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
1999 1998
---------- ----------
amounts in millions
<S> <C> <C>
Notes payable to TCI, including accrued
interest $ -- 141
Intercompany account 27 269
---------- ----------
$ 27 410
========== ==========
</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.
Amounts outstanding at December 31, 1998 under notes payable to TCI had
varying rates of interest. 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.
(continued)
II-58
<PAGE> 103
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stock Options and Stock Appreciation Rights
Certain officers and other key employees of Liberty had been granted
restricted stock awards and/or options with tandem stock appreciation
rights ("SARs") to acquire certain series of TCI stock. In connection
with the AT&T Merger, all series of TCI stock were converted to classes
of AT&T stock. As a result of the AT&T Merger, each stock option and
SAR to purchase TCI Group Series A tracking stock was converted into a
stock option and SAR to purchase 0.7757 of a share of AT&T common stock
at an exercise price divided by 0.7757, each stock option and SAR to
purchase TCI Ventures Group Series A tracking stock was converted into
a stock option and SAR to purchase 0.52 of a share of AT&T Liberty
Media Group Class A tracking stock at an exercise price divided by 0.52
and each option and SAR to purchase Liberty Media Group Series A
tracking stock was converted into a stock option and SAR to purchase
one share of AT&T Liberty Media Group Class A tracking stock at an
unchanged exercise price. Certain officers and employees of Liberty
hold options with tandem SARs to acquire AT&T common stock and AT&T
Liberty Media Group Class A tracking stock as well as restricted stock
awards of AT&T common stock and AT&T Liberty Media Group Class A
tracking 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 AT&T common
stock and AT&T Liberty Media Group Class A tracking stock and,
ultimately, on the final determination of market value when the rights
are exercised. 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 due to substantially all of Liberty's stock option plans
having tandem SARs, which are treated as liabilities for financial
statement purposes and require periodic remeasurement under both APB
Opinion No. 25 and Statement 123. The following descriptions of stock
options and/or SARs have been adjusted to reflect the AT&T Merger and
any subsequent stock splits.
(continued)
II-59
<PAGE> 104
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the number and weighted average exercise
price ("WAEP") of certain options in tandem with SARs to purchase AT&T
common stock and AT&T Liberty Media Group Class A tracking stock
granted to certain officers and other key employees of the Company.
<TABLE>
<CAPTION>
AT&T Liberty
AT&T Media Group
common Class A
stock WAEP stock WAEP
---------- ---------- ---------- ----------
amounts in thousands, except for WAEP
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 8,033 $ 9.14 18,836 $ 19.62
Adjustment for TCI Ventures
Exchange (2,500) 12.27 4,470 7.43
Adjustment for transfer of
employees 265 10.38 (8) 46.73
Granted 692 12.93 2,495 8.96
Exercised (2,827) 8.43 (1,469) 10.71
Canceled (35) 9.24 (46) 21.34
---------- ----------
Outstanding at December 31, 1997 3,628 10.38 24,278 16.84
Granted 137 22.10 16,681 86.22
Exercised (1,549) 8.90 (4,769) 13.25
Canceled (27) 12.82 (23) 8.79
---------- ----------
Outstanding at December 31, 1998 2,189 12.06 36,167 49.32
Granted -- -- 69 32.72
Exercised (316) 11.65 (3,755) 10.03
Adjustment for transfer of
employees (1,140) 8.14 (579) 13.39
---------- ----------
Outstanding at December 31, 1999 733 13.23 31,902 13.89
========== ==========
Exercisable at December 31, 1999 389 14,341
========== ==========
Vesting period 5 yrs 5 yrs
</TABLE>
On November 2, 1999, the Company granted 500,000 free-standing SARs to
an officer of the Company. The SARs vest and become exercisable ratably
over a five-year term, commencing on each anniversary of the date of
the grant. The SARs expire on November 2, 2009, subject to earlier
termination in certain events. Upon the valid exercise of SARs, the
officer shall be entitled to receive from Liberty cash equal to the
excess of the fair value of each share of AT&T Class A Liberty Media
Group tracking stock with respect to which such SARs have been
exercised over $37.25 per share.
On December 16, 1997, the Company granted options in tandem with SARs
to acquire 2,912,000 shares of AT&T Liberty Media Group Class B
tracking stock to an officer and director of the Company. The options
in tandem with SARs have an exercise price of $9.97 and vest ratably
over five years with such vesting period beginning December 16, 1997,
first became exercisable on December 16, 1998 and expire on December
16, 2007.
(continued)
II-60
<PAGE> 105
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Liberty Digital, Inc. Stock Incentive Plan. During 1997, 1998 and 1999,
Liberty Digital granted stock options with tandem SARs to employees
under the Liberty Digital 1997 Stock Inventive Plan (the "Stock Plan")
which is authorized to issue up to 4,000,000 shares. Options granted
under the Stock Plan expire ten years from the date of grant. In
addition, Liberty Digital granted stock options with tandem SARs to the
board of directors and employees in connection with the DMX Merger.
Options issued under the Stock Plan and in connection with the DMX
Merger vest annually in 20% cumulative increments.
On December 11, 1998, Liberty Digital re-priced the stock options with
tandem SARs at $4.00 for all grants to executive officers and employees
of Liberty Digital and its subsidiaries.
The following table presents the number and WAEP of options in tandem
with SARs to purchase Liberty Digital Series A Common Stock, for 1997,
1998 and 1999.
<TABLE>
<CAPTION>
Liberty Digital
Stock Options
Tandem SARs WAEP
--------------- ----------
amounts in millions,
except for WAEP
<S> <C> <C>
Outstanding at July 1, 1997
Granted 3,609 $ 5.75
----------
Outstanding at December 31, 1997 3,609 5.75
Granted 1,771 4.00
Exercised (21) 4.00
Canceled (311) 4.00
----------
Outstanding at December 31, 1998 5,048 5.25
Granted 1,038 10.10
Exercised (2,708) 5.60
Canceled (864) 4.00
----------
Outstanding at December 31, 1999 2,514 7.32
==========
Exercisable at December 31, 1999 563
==========
</TABLE>
Exercise prices for options outstanding at the end of year for 1999,
1998 and 1997 ranged from $4.00 to $22.13, $4.00 to $6.25, and $5.75,
respectively. The 1999, 1998, and 1997 year-end weighted average
remaining contractual life of such options is 8.2 years, 8.7 years and
9.5 years, respectively.
(continued)
II-61
<PAGE> 106
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Deferred Compensation and Stock Option Plan. On September 8, 1999, the
Deferred Compensation and Stock Appreciation Rights Plan was adopted
for key executives. This plan is comprised of a deferred compensation
component and SARs grants. The deferred compensation component provides
participants with the right to receive an aggregate of nine and one
half percent of the appreciation in the Liberty Digital Series A common
stock market price over $2.46 subject to a maximum amount of $19.125.
The SARs provide participants with the appreciation in the market price
of the Liberty Digital Series A common stock above the maximum amount
payable under the deferred compensation component.
There are 19,295,193 shares subject to this plan all of which were
granted in 1999 at an effective exercise price of $2.46 and a weighted
average remaining life of 4 years at year end. The deferred
compensation and SARs components vest 20% annually beginning with the
first vesting date of December 15, 1999. Fully vested options total
3,859,038 at year-end. No options were exercised, cancelled or expired
during 1999. This plan terminates on December 15, 2003.
(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>
Accumulated
Foreign other
currency Unrealized comprehensive
translation gains on earnings, net
adjustments securities of taxes
----------- ---------- -------------
amounts in millions
<S> <C> <C> <C>
Balance at January 1, 1997 $ 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
Other comprehensive earnings (loss) (15) 885 870
---------- ---------- ----------
Balance at February 28, 1999 $ (10) 4,066 4,056
========== ========== ==========
Balance at March 1, 1999 $ -- -- --
Other comprehensive earnings 60 6,458 6,518
---------- ---------- ----------
Balance at December 31, 1999 $ 60 6,458 6,518
========== ========== ==========
</TABLE>
(continued)
II-62
<PAGE> 107
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
Ten months ended December 31, 1999:
Foreign currency translation adjustments $ 99 (39) 60
---------- ---------- ----------
Unrealized gains on securities:
Unrealized holding gains arising during
period 10,671 (4,220) 6,451
Less: reclassification adjustment for losses realized in
net loss 12 (5) 7
---------- ---------- ----------
Net unrealized gains 10,683 (4,225) 6,458
---------- ---------- ----------
Other comprehensive earnings $ 10,782 (4,264) 6,518
========== ========== ==========
Two months ended February 28, 1999:
Foreign currency translation adjustments $ (25) 10 (15)
Unrealized gains on securities:
Unrealized holding gains arising during
period 1,464 (579) 885
---------- ---------- ----------
Other comprehensive earnings $ 1,439 (569) 870
========== ========== ==========
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
========== ========== ==========
</TABLE>
(continued)
II-63
<PAGE> 108
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Commitments and Contingencies
Starz Encore Group, a wholly owned subsidiary of Liberty, provides
premium programming distributed by cable, direct satellite, TVRO and
other distributors throughout the United States. Starz Encore 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, 1999, these
agreements require minimum payments aggregating approximately $900
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 (pound)88 million and, subject to certain
restrictions, a standby credit facility of (pound)30 million. As of
December 31, 1999, the Principal Joint Venture had borrowed (pound)53
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, 1999, the Guaranteed Obligations aggregated
approximately $655 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 $30
million, $9 million, $27 million and $20 million for the ten months
ended December 31, 1999, the two months ended February 28, 1999 and the
years ended December 31, 1998 and 1997, respectively.
A summary of future minimum lease payments under noncancelable
operating leases as of December 31, 1999 follows (amounts in millions):
Years ending December 31:
2000 $ 21
2001 18
2002 16
2003 16
2004 13
Thereafter 21
(continued)
II-64
<PAGE> 109
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 2000.
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 is a holding company with a variety of subsidiaries and
investments operating in the media, communications and entertainment
industries. Each of these businesses is separately managed. Liberty
identifies its reportable segments as those consolidated subsidiaries
that represent 10% or more of its combined revenue and those equity
method affiliates whose share of earnings or losses represent 10% or
more of its pre-tax earnings or loss. Subsidiaries and affiliates not
meeting this threshold are aggregated together for segment reporting
purposes.
For the ten months ended December 31, 1999, Liberty had three operating
segments: Starz Encore Group, Liberty Digital and Other. Starz Encore
Group owns and operates cable and satellite-delivered premium movie
networks in the United States. Starz Encore Group is wholly owned and
consolidated by Liberty. Liberty Digital is primarily engaged in
programming, distributing and marketing a digital music service
delivered to homes and businesses. Liberty Digital is majority owned
and consolidated by Liberty. Other includes Liberty's investments,
primarily in cable television programming entities, corporate and other
consolidated businesses not representing separately reportable
segments.
The accounting policies of the segments that are also consolidated
subsidiaries 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 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.
(continued)
II-65
<PAGE> 110
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
Starz
Encore Liberty
Group Digital Other Total
---------- ---------- ---------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Ten months ended December 31, 1999
Segment revenue from external
customers including intersegment
revenue $ 539 66 124 729
Segment operating cash flow 124 4 5 133
Two months ended February 28, 1999
Segment revenue from external
customers including
intersegment revenue $ 101 15 119 235
Segment operating cash flow 41 1 5 47
Year ended December 31, 1998
Segment revenue from external
customers including
intersegment revenue 541 86 732 1,359
Segment operating cash flow 96 1 119 216
Year ended December 31, 1997
Segment revenue from external
customers including
intersegment revenue 350 23 852 1,225
Segment operating cash flow (deficit) (32) 9 182 159
As of December 31, 1999
Segment assets 2,636 1,728 54,286 58,650
Investments in affiliates -- -- 15,922 15,922
As of December 31, 1998
Segment assets 355 200 15,228 15,783
Investments in affiliates -- -- 3,079 3,079
</TABLE>
(continued)
II-66
<PAGE> 111
The following table provides a reconciliation of segment operating cash
flow to earnings before income taxes:
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------- --------------------------------------------
Ten months Two months
ended ended Year ended
December 31, February 28, December 31,
1999 1999 1998 1997
----------- ------------ ---------- --------
(amounts in millions)
<S> <C> <C> <C> <C>
Segment operating cash flow $ 133 47 216 159
Stock compensation (1,785) (183) (518) (296)
Depreciation and amortization (562) (22) (129) (123)
Interest expense, including
amounts to related parties (288) (26) (113) (55)
Segment equity in losses of
affiliates (904) (66) (1,002) (785)
Gains on dispositions, net 4 14 2,449 406
Gain on issuance of equity by
affiliates and subsidiaries -- 372 105 --
Other, net 330 5 75 49
---------- ---------- ---------- ----------
Earnings (loss) before
income taxes $ (3,072) 141 1,083 (645)
========== ========== ========== ==========
</TABLE>
(16) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------------------------------------------------
Two months One month
ended ended 2nd 3rd 4th
February 28 March 31, Quarter Quarter Quarter
----------- ---------- -------- -------- --------
amounts in millions
<S> <C> <C> <C> <C> <C>
1999:
Revenue $ 235 71 221 214 223
======== ======== ======== ======== ========
Operating income (loss) $ (158) 3 (636) (95) (1,486)
======== ======== ======== ======== ========
Net loss $ (70) (58) (543) (213) (1,161)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Old Liberty
-----------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- ---------
amounts in millions
<S> <C> <C> <C> <C>
1998:
Revenue $ 313 334 358 354
======== ======== ======== ========
Operating income (loss) $ (135) (92) 39 (243)
======== ======== ======== ========
Net earnings (loss) $ 126 (251) (135) 882
======== ======== ======== ========
</TABLE>
II-67
<PAGE> 112
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information concerning the
directors and executive officers of the Company, including a five year
employment history and any directorships held in public companies:
<TABLE>
<CAPTION>
Name Positions
- ---- ---------
<S> <C>
John C. Malone Chairman of the Board and one of our directors since 1990. Dr. Malone
Born March 7, 1941 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 is also a
director of AT&T, The Bank of New York, TCI Satellite Entertainment, Inc.,
USANi LLC, At Home Corporation, UnitedGlobalCom, Inc., and Cendant
Corporation.
Robert R. Bennett President and Chief Executive Officer and one of our directors since April
Born April 19, 1958 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., USANi LLC, Teligent, Inc. and Chairman of the Board of Liberty
Digital, Inc.
Gary S. Howard Executive Vice President, Chief Operating Officer and one of our directors
Born February 22, 1951 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,
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; and as Senior Vice President of TCI Communications,
Inc. from October 1994 to December 1996. Mr. Howard is a director of TV
Guide, Inc., Liberty Digital, Inc., TCI Satellite Entertainment, Inc. and
Teligent, Inc.
</TABLE>
(continued)
III-1
<PAGE> 113
<TABLE>
<CAPTION>
Name Positions
- ---- ---------
<S> <C>
David B. Koff A Senior Vice President of Liberty since February 1998. Mr. Koff has also
Born December 26, 1958 served as Vice President and Assistant Secretary of Liberty Digital, Inc.
since January 1998. Mr. Koff served as Vice President--Corporate
Development of Liberty from August 1994 to February 1998. Mr. Koff also
served as interim President and Chief Executive Officer of Liberty Digital,
Inc. from May 1997 to January 1998. Mr. Koff is a director of Liberty
Digital, Inc.
Charles Y. Tanabe A Senior Vice President and General Counsel of Liberty since January 1999.
Born November 27, 1951 Prior to joining Liberty, Mr. Tanabe was a member of Sherman & Howard
L.L.C., a law firm based in Denver, Colorado, for more than five years.
Carl E. Vogel A Senior Vice President of Liberty since December 1999. Mr. Vogel served
Born October 18, 1957 as Executive Vice President/Chief Operating Officer of Field Operations for
AT&T Broadband from June 1999 until joining Liberty. He served as Chairman
and Chief Executive Officer of Primestar, Inc. from June 1998 to June
1999. From October 1997 to June 1998, Mr. Vogel was Chief Executive
Officer of Star Choice Communications. From March 1994 to March 1997, he
served first as Executive Vice President and Chief Operating Officer and
later as President of EchoStar Communications Corporation. Mr. Vogel is a
director of Canadian Satellite Communications.
Peter N. Zolintakis A Senior Vice President of Tax Strategy of Liberty since November 1998.
Born July 10, 1957 Prior to joining Liberty, Mr. Zolintakis was a partner of PricewaterhouseCoopers LLP,
where he specialized, for more than five years, 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 A Vice President of Liberty since June 1993 and was appointed Secretary of
Born December 13, 1947 Liberty in August 1994. Ms. Carr served as Director of Investor Relations
of Liberty from March 1991 to June 1993.
Kathryn S. Douglass A Vice President of Liberty since September 1997 and Controller of Liberty
Born March 5, 1965 since September 1993. Ms. Douglass served as Accounting Manager of Liberty
from October 1991 to September 1993.
</TABLE>
(continued)
III-2
<PAGE> 114
<TABLE>
<CAPTION>
Name Positions
- ---- ---------
<S> <C>
David J.A. Flowers A Vice President and Treasurer of Liberty since April 1997. Mr. Flowers
Born May 17, 1954 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 A director since March 1999. Mr. Gould has served as a Managing Director
Born September 27, 1945 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 LMC from November 1992 to December 1994. Mr. Gould
is a director of Ascent Entertainment Group, Inc. and Sunburst Hospitality
Corporation.
Jerome H. Kern A director since March 1999. Mr. Kern served as Vice Chairman and as a
Born June 1, 1937 consultant to 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 is a director of TCI Pacific
Communications, Inc.
John C. Petrillo A director since March 1999. Mr. Petrillo has served as Executive Vice
Born April 30, 1949 President of Corporate Strategy and Business Development for AT&T since May
1996. Mr. Petrillo was Vice President of AT&T's Business Communications
Services from 1993 to 1995 and also served as AT&T Vice President of
Strategic Planning from 1991 to 1993, AT&T Vice President of Business
Communications Services in 1990, AT&T Services Vice President in 1987 and
AT&T Director of Personnel in 1986. Mr. Petrillo is a director of At Home
Corporation.
</TABLE>
(continued)
III-3
<PAGE> 115
<TABLE>
<CAPTION>
Name Positions
- ---- ---------
<S> <C>
Larry E. Romrell A director since March 1999. Mr. Romrell has also served as a consultant
Born December 30, 1939 to Liberty since March 1999. Mr. Romrell served as Executive Vice
President of TCI from January 1994 to March 1999 and since March 1999
has served as a consultant to TCI. 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 is a director of TV Guide, Inc. and General
Communication, Inc.
Daniel E. Somers A director since March 1999. Mr. Somers has also served as President and
Born December 9, 1947 Chief Executive Officer of AT&T Broadband since December 6, 1999, prior to
which he was Acting Co-Chief Executive Officer of AT&T Broadband from
October 6, 1999 to December 6, 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, Cablevision, Inc. and Chase Manhattan Advisory Board.
John D. Zeglis A director since October 11, 1999. Mr. Zeglis has also served as Chairman
Born May 2, 1947 and Chief Executive Officer of AT&T Wireless Group since December, 1999 and
as President of AT&T since November 1997. Mr. Zeglis served as Vice Chairman
of AT&T from June to November 1997, General Counsel and Senior Executive Vice
President of AT&T from 1996 to 1997, and Senior Vice President and General
Counsel of AT&T from 1986 to 1996. He is also a director of AT&T, Helmerich
and Payne Corporation, Sara Lee Corporation and Illinova Corporation.
</TABLE>
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.
During the past five years, none of the above persons has had any
involvement in such legal proceedings as would be material to an evaluation of
his or her ability or integrity.
(continued)
III-4
<PAGE> 116
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 John D. Zeglis, 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 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.
(continued)
III-5
<PAGE> 117
Item 11. Executive Compensation.
(a) Summary Compensation Table of Liberty Media Corporation
The following tables set forth information relating to compensation
including grants of stock options and stock appreciation rights ("SARs") in
respect of securities of AT&T for:
o our Chief Executive Officer;
o our four other most highly compensated executive officers for the
fiscal year ended December 31, 1999; and
o one additional executive officer who would have been included above
but for the fact that he was not serving as an executive officer of
Liberty for the full fiscal year ended December 31, 1999.
These executive officers are collectively referred to as our "named executive
officers".
Summary Compensation Table. The following table sets forth information
concerning the compensation paid to the named executive officers by Liberty for
the two years ended December 31, 1999. Compensation for Mr. Vogel reflects the
annual compensation that would have been paid to him had he been serving as an
executive officer of Liberty since the beginning of 1999 based on his 2000
annual compensation. Mr. Vogel became an executive officer of Liberty on
December 4, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
-------------------- ----------------------------------------------------------------
Securities
Restricted Underlying
Name and Principal Stock Award Options/SARs All Other
Position ($ in (# in Compensation
with Liberty Year Salary ($) Bonus ($) thousands) thousands) ($)
- --------------------------- ---- ------------ ---------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Bennett 1999 $ 1,000,000 $ -- $ -- -- $ 47,013 (5)(6)
President and Chief 1998 $ 559,354 $ -- $ 7,738 (1) 6,000 (3) $ 36,540 (5)(6)
Executive Officer
Gary S. Howard 1999 $ 750,000 $ 23,210 $ -- -- $ 15,000 (6)
Executive Vice President 1998 $ 533,769 $ -- $ -- 5,000 (3) $ 15,000 (6)
and Chief Operating
Officer
Charles Y. Tanabe 1999 $ 492,308 $ -- $ -- -- $ 15,000 (6)
Senior Vice President 1998 $ --- $ -- $ -- 1,200 (3) $ --
and General Counsel
Peter N. Zolintakis 1999 $ 496,865 $ -- $ -- -- $ 15,000 (6)
Senior Vice President 1998 $ 76,946 $ -- $ 1,978 (2) 1,200 (3) $ --
David B. Koff 1999 $ 375,000 $ -- $ -- -- $ 15,000 (6)
Senior Vice President 1998 $ 275,000 $ -- $ -- 1,200 (3) $ 14,985 (6)
Carl E. Vogel 1999 $ 500,000 $ -- $ -- 500 (4) $ 15,000 (6)
Senior Vice President 1998 $ --- $ -- $ -- -- $ --
</TABLE>
- --------------------
(continued)
III-6
<PAGE> 118
(1) 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 a 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 1999, the
restricted shares had an aggregate value of $11,824,577, based upon the
closing sales price per share of AT&T common stock on the New York
Stock Exchange ("NYSE") on December 31, 1999. Cash dividends on the
restricted shares of AT&T common stock are paid to Mr. Bennett.
(2) 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 a 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 1999, the restricted shares had an
aggregate value of $2,956,119, based upon the closing sales price per
share of AT&T common stock on the NYSE on December 31, 1999. Cash
dividends on the restricted shares of AT&T common stock are paid to Mr.
Zolintakis.
(3) 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 per share, 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.
(4) Consists of SARs granted to Mr. Vogel on November 2, 1999, which vest
and become exercisable ratably over a five-year term, commencing on
each anniversary of the date of the grant. The SARs expire on November
2, 2009, subject to earlier termination in certain events. Upon the
valid exercise of SARs, Mr. Vogel shall be entitled to receive from
Liberty cash equal to the excess of the fair value of each share of
AT&T Class A Liberty Media Group tracking stock with respect to which
such SARs have been exercised over $37.25 per share. Notwithstanding
the vesting schedule as set forth in the option agreements, the 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 $32,013 and $21,540 which consists of the amounts of premiums
paid by Liberty in fiscal 1999 and 1998, respectively, pursuant to
split dollar, whole life insurance polices for the insured executive
officer. Liberty will pay a portion of the premiums annually until the
first to occur of:
o 10 years from the date of the policy;
o the insured executive's death;
o the premiums are waived under a waiver of premium provision;
o the policy is terminated as set forth below; and o premiums are
prepaid in full for the 10-year period as set forth below.
(continued)
III-7
<PAGE> 119
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 Liberty Media 401(k) Savings
Plan (the "Liberty Savings Plan"). The Liberty Savings Plan provides
employees with an opportunity to save for retirement. The Liberty
Savings Plan participants may contribute up to 10% of their
compensation and Liberty contributes a matching contribution of 100% of
the participants' contributions. Participant contributions to the
Liberty Savings 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 Liberty Savings Plan
in 1999 and 1998, Messrs. Bennett, Howard and Koff are fully vested.
Directors who are not employees of Liberty are ineligible to
participate in the Liberty Savings Plan. Under the terms of the Liberty
Savings Plan, employees are eligible to participate after three months
of service.
(continued)
III-8
<PAGE> 120
(b) Option and SAR Grants in Last Fiscal Year. The following table sets
forth information regarding free-standing SARs granted to the executive officer
named in the table below during the year ended December 31, 1999 (numbers of
securities and dollar amounts present value in thousands). No other named
executive officer was granted stock options or SARs during the year ended
December 31, 1999.
OPTION AND SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
No. of % of Total
Securities SARs Exercise
Underlying Granted to or Base Grant
SARs Employees in Price Expiration Date Present
Name Granted(1) 1999 ($/Sh)(2) Date Value(3)
- ------------------------------- ----------------- ------------------ -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Carl E. Vogel 500 90% $ 37.25 11/02/09 $ 21,765
</TABLE>
- -----------------------
(1) Consists of SARs granted to Mr. Vogel on November 2, 1999, which vest
and become exercisable ratably over a five-year term, commencing on
each anniversary of the date of the grant. The SARs expire on November
2, 2009, subject to earlier termination in certain events. Upon the
valid exercise of SARs, Mr. Vogel shall be entitled to receive from
Liberty cash equal to the excess of the fair value of each share of
AT&T Class A Liberty Media Group tracking stock with respect to which
such SARs have been exercised over $37.25 per share. Notwithstanding
the vesting schedule as set forth in the option agreements, the SARs
will immediately vest and become exercisable if the grantee's
employment with Liberty terminates by reason of disability or the
grantee dies while employed by Liberty.
(2) Liberty used the low sales price per share of AT&T Class A Liberty
Media Group tracking stock on the NYSE on the date of the grant in
determining the grant-date market price of the security underlying the
free-standing SARs.
(3) The value shown is based on the Black-Scholes model and is stated in
current annualized dollars on a present value basis. The key
assumptions used in the model for purposes of this calculation include
the following:
o a 6.73% discount rate;
o a volatility factor based upon the historical trading pattern of
AT&T Class A Liberty Media Group tracking stock;
o the 10-year option term; and
o the closing price of AT&T Class A Liberty Media Group tracking stock
on December 31, 1999.
The actual value the executive may realize will depend upon the extent
to which the stock price exceeds the exercise price on the date the
option is exercised. Accordingly, the value, if any, realized by the
executive would not necessarily be the value determined by the model.
(continued)
III-9
<PAGE> 121
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Values. The following table sets forth information concerning exercises of stock
options and SARs by the named executive officers during the year ended December
31, 1999 (numbers of securities and dollar amounts in thousands).
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1999 (#) December 31, 1999
on Exercise Realized Exercisable/ ($)Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
- ----- ------------------ ---------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
Robert R. Bennett
Exercisable
AT&T Class A Liberty Media
Group 935 $ 43,081 3,091 $ 130,861
AT&T common stock -- -- 25 $ 941
TCI Group Series A(2) 191 $ 10,985 -- --
Unexercisable
AT&T Class A Liberty Media
Group -- -- 6,006 $ 228,723
AT&T common stock -- -- 45 $ 1,685
Gary S. Howard
Exercisable
AT&T Class A Liberty Media
Group 256 $ 13,017 1,014 $ 29,876
AT&T common stock 39 $ 1,604 47 $ 1,797
TCI Group Series A(2) 116 $ 5,852 -- --
Unexercisable
AT&T Class A Liberty Media
Group -- -- 4,019 $ 141,702
AT&T common stock -- -- 23 $ 895
Charles Y. Tanabe
Exercisable
AT&T Class A Liberty Media
Group 240 $ 8,011 -- --
Unexercisable
AT&T Class A Liberty Media
Group -- -- 960 $ 33,785
Peter N. Zolintakis
Exercisable
AT&T Class A Liberty Media
Group 240 $ 7,861 -- --
Unexercisable
AT&T Class A Liberty Media
Group -- -- 960 $ 33,785
</TABLE>
(continued)
III-10
<PAGE> 122
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1999 (#) December 31, 1999
on Exercise Realized Exercisable/ ($)Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
- ----- ------------------ ---------------- ----------------------- ------------------
<S> <C> <C> <C> <C>
David B. Koff
Exercisable
AT&T Class A Liberty Media
Group -- -- 623 $ 26,517
AT&T common stock -- -- 4 $ 157
TCI Group Series A(2) 4 $ 187 -- --
Unexercisable
AT&T Class A Liberty Media
Group -- -- 1,131 $ 42,315
Carl E. Vogel
Unexercisable
AT&T Class A Liberty Media
Group -- -- 500 $ 9,781
</TABLE>
- -----------------------
(1) Represents the number of shares underlying SARs which were exercised in
1999.
(2) Represents the number of shares of TCI Group Series A tracking stock
exercised and value realized prior to the AT&T merger.
(d) 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.
(e) Employment Contracts and Termination of Employment and Change in
Control Arrangements. Except as described below, Liberty has no employment
contracts, termination of employment agreements or change of control agreements
with any of the named executive officers of Liberty.
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.
(continued)
III-11
<PAGE> 123
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 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. The portion that Liberty pays is equal to
the "PS-58" costs, which represent the costs to buy one-year term insurance
coverage as set forth in IRS Pension Service Table No. 58. For the year ending
December 31, 1999, such amount will be $447,931. 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.
(continued)
III-12
<PAGE> 124
(f) Compensation Committee Interlocks and Insider Participation in
Compensation Decisions.
Our board of directors has established an Executive Committee, whose
members are John C. Malone, Paul A. Gould and Robert R. Bennett. 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:
o 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
o adopt, amend or repeal any of Liberty's bylaws.
On February 17, 1999, the date of the stockholders meeting approving
the AT&T Merger, the TCI board of directors approved the payment by Liberty of
$1 million to Paul A. Gould for his services on the special committee of TCI's
board of directors in evaluating the merger transaction with AT&T and the
consideration to be received by TCI's stockholders.
Mr. Bennett is Chairman of the Board of Liberty Digital, Inc.
Magness and Malone Transactions. 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.
(continued)
III-13
<PAGE> 125
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners. All of our common
stock is held of record by an indirect subsidiary of AT&T Corp.
(b) 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 owns 100% of the outstanding common stock of TCI, which in turn
indirectly owns 100% of the outstanding common stock of Liberty. 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 Liberty
Digital, Inc., a subsidiary of Liberty. Shares of TCI's Class B 6% Cumulative
Redeemable Exchangeable Junior Preferred Stock ("TCOMP") previously reported as
owned by certain directors and named executive officers of Liberty are not
included in the table as all shares of TCOMP were redeemed on February 22, 2000.
The AT&T Liberty Media Group tracking stock is intended to reflect the separate
performance of the businesses and assets attributed to the Liberty Media Group.
Liberty is 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 charter provides that, except as otherwise required by New
York law or any special voting rights of AT&T preferred stock, the holders of
AT&T common stock, AT&T Liberty Media Group tracking stock and AT&T preferred
stock, if any, entitled to vote with the common shareholders, vote together as
one class. No separate class vote is required for the approval of any matter
except as described in the next sentence. The following circumstances require
the separate class approval of the AT&T Liberty Media Group tracking stock:
o any amendment to the AT&T charter that would change the total
number of authorized shares or the par value of AT&T Liberty Media
Group tracking stock or that would adversely change the rights of
AT&T Liberty Media Group tracking stock;
(continued)
III-14
<PAGE> 126
o 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; and
o any merger or similar transaction in which AT&T Liberty Media
Group tracking stock is converted, reclassified or changed into or
otherwise exchanged for any consideration unless specified
requirements are met that are generally intended to ensure that
the rights of the holders are not materially altered and the
composition of the holders is not changed.
In a separate shareholder vote with respect to any of the foregoing matters, the
ownership of AT&T Class A Liberty Media Group and AT&T Class B Liberty Media
Group tracking stock indicated in the table below as beneficially owned by (1)
Dr. Malone would entitle him to cast 43.38% of the votes on such matter and (2)
by all directors and executive officers as a group would entitle them to cast,
in the aggregate, 43.72% of the votes on such matter. No other person named in
the table below had the right, at December 31, 1999, to cast 1% or more of the
votes on any such matter.
The following information is given as of December 31, 1999 and, in the
case of percentage ownership information, is based on 3,196,524,356 shares of
AT&T common stock, 1,156,778,730 shares of AT&T Class A Liberty Media Group
tracking stock, 108,421,114 shares of AT&T Class B Liberty Media Group tracking
stock and 26,507,489 shares of Liberty Digital Series A common stock outstanding
on that date. Shares of AT&T common stock, AT&T Class A and Class B Liberty
Media Group tracking stock and Liberty Digital, 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 and overall
voting power of persons beneficially owning such convertible securities, but
have not been deemed to be outstanding for the purpose of computing the
percentage ownership or overall voting power 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
Name of Ownership of Voting
Beneficial Owner Title of Class (in thousands) Class Power
--------------------------- --------------------------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
John C. Malone AT&T common stock 32,625 (1)(2) 1.02% 3.11%
Class A Liberty Media
Group 3,220 (1)(2) *
Class B Liberty Media
Group 97,546 (1)(2)(3) 89.01%
Liberty Digital Series A 0
Robert R. Bennett AT&T common stock 273 (4)(5) * *
Class A Liberty Media
Group 3,133 (4) *
Class B Liberty Media
Group 0
Liberty Digital Series A 60 (6) * *
</TABLE>
(continued)
III-15
<PAGE> 127
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Ownership of Voting
Beneficial Owner Title of Class (in thousands) Class Power
- ----------------------- --------------------------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Gary S. Howard AT&T common stock 61 (7)(8) * *
Class A Liberty Media
Group 1,063 (7)(8) *
Class B Liberty Media
Group 0
Liberty Digital Series A 20 (9) * *
Paul A. Gould AT&T common stock 0 *
Class A Liberty Media
Group 765 (10) *
Class B Liberty Media
Group 214 *
Liberty Digital Series A 0
Jerome H. Kern AT&T common stock 906 (11)(12)(13) * *
Class A Liberty Media
Group 1,178 (11)(12)(13) *
Class B Liberty Media
Group 0
Liberty Digital Series A 0
John C. Petrillo AT&T common stock 378 (14) * *
Class A Liberty Media
Group 0
Class B Liberty Media
Group 0
Liberty Digital Series A 0
Larry E. Romrell AT&T common stock 325 (15)(16) * *
Class A Liberty Media
Group 1,250 (15)(16) *
Class B Liberty Media
Group 2 *
Liberty Digital Series A 0
</TABLE>
(continued)
III-16
<PAGE> 128
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Ownership of Voting
Beneficial Owner Title of Class (in thousands) Class Power
- ----------------------- ------------------------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Daniel E. Somers AT&T common stock 176 (17) * *
Class A Liberty Media
Group 0
Class B Liberty Media
Group 0
Liberty Digital Series A 0
David B. Koff AT&T common stock 4 * *
Class A Liberty Media
Group 618 (18) *
Class B Liberty Media
Group 0
Liberty Digital Series A 0
Charles Y. Tanabe AT&T common stock 1 * *
Class A Liberty Media
Group 2 *
Class B Liberty Media
Group 0
Liberty Digital Series A 0
Carl E. Vogel AT&T common stock 0 *
Class A Liberty Media
Group 9 *
Class B Liberty Media
Group 0
Liberty Digital Series A 0
Peter N. Zolintakis AT&T common stock 58 (19) * *
Class A Liberty Media
Group 8 *
Class B Liberty Media
Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0
</TABLE>
(continued)
III-17
<PAGE> 129
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name of Ownership of Voting
Beneficial Owner Title of Class (in thousands) Class Power
- ----------------------------- ------------------------------------ ----------------- ----------- ----------
<S> <C> <C> <C> <C>
John D. Zeglis AT&T common stock 1,162 (20) * *
Class A Liberty Media
Group 0
Class B Liberty Media
Group 0
Liberty Digital Series A 0
All directors and
executive officers as a
group (16 persons)
AT&T common stock 35,970 (21)(22) 1.12% 3.23%
Class A Liberty Media
Group 11,662 (3)(21)(22) *
Class B Liberty Media
Group 97,762 (21) 89.21%
Liberty Digital Series A 80 (23) * *
</TABLE>
- ------------------------
*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 AT&T Class A Liberty Media Group
tracking stock; and (c) 1,164,800 shares of AT&T Class B Liberty Media
Group tracking stock.
(2) Includes 1,004,622 shares of AT&T common stock, 25,452 shares of AT&T
Class A Liberty Media Group tracking stock and 1,704,718 shares of AT&T
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) In connection with the AT&T merger, TCI assigned to Liberty its rights
under a call agreement with Dr. Malone and Dr. Malone's wife (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"). As a
result, Liberty has the right, under certain circumstances, to acquire
the AT&T Class B Liberty Media Group tracking stock owned by the
Malones and the Magness Group. Further, in connection with the AT&T
merger, TCI assigned to Liberty its rights under a shareholders
agreement with the Magness Group and the Malones, pursuant to which,
among other things, Dr. Malone has an irrevocable proxy, under certain
circumstances, to vote the AT&T 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," for additional
information related to the call agreements and the shareholders'
agreement.
(continued)
III-18
<PAGE> 130
As a result of certain provisions of the shareholders' agreement
referred to above, Dr. Malone's beneficial ownership of AT&T Class B
Liberty Media Group tracking stock includes 47,791,166 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) 23,620 shares of AT&T common stock;
and (b) 3,091,162 shares of AT&T 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 60,000 shares
of Liberty Digital 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) 45,835 shares of AT&T common stock;
and (b) 1,013,530 shares of AT&T Class A Liberty Media Group tracking
stock.
(8) Includes 5,551 restricted shares of AT&T common stock and 5,675
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.
(9) Assumes the exercise in full of stock options to acquire 20,000 shares
of Liberty Digital Series A common stock, all of which are currently
exercisable.
(10) Includes beneficial ownership of 68,550 shares of AT&T 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.
(11) 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) 383,972 shares of AT&T common
stock; and (b) 797,576 shares of AT&T Class A Liberty Media Group
tracking stock.
(12) Includes 481,267 restricted shares of AT&T common stock and 75,670
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.
(13) Includes 12,798 shares of AT&T common stock and 40,200 shares of AT&T
Class A Liberty Media Group tracking stock held by Mr. Kern's wife,
Mary Rossick Kern, as to which Mr. Kern has disclaimed beneficial
ownership.
(14) Includes beneficial ownership of 376,047 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) 169,412 shares of AT&T common
stock; and (b) 1,074,252 shares of AT&T Class A Liberty Media Group
tracking stock.
(16) Includes 134,650 restricted shares of AT&T common stock and 37,634
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.
(17) Includes beneficial ownership of 174,498 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options.
(continued)
III-19
<PAGE> 131
(18) 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) 4,073 shares of AT&T common stock;
and (b) 613,724 shares of AT&T Class A Liberty Media Group tracking
stock.
(19) Includes 58,177 restricted shares of AT&T common stock, none of which
are currently vested.
(20) Includes beneficial ownership of 1,153,716 shares of AT&T common stock
which may be acquired within 60 days pursuant to stock options granted
in tandem with stock appreciation rights.
(21) 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) 2,494,070 shares of AT&T common
stock; (b) 10,244,794 shares of AT&T Class A Liberty Media Group
tracking stock; and (c) 1,164,800 shares of AT&T Class B Liberty Media
Group tracking stock.
(22) Includes 912,355 restricted shares of AT&T common stock and 118,979
restricted shares of AT&T Class A Liberty Media Group tracking stock,
none of which are currently vested.
(23) Assumes the exercise in full of stock options to acquire 80,000 shares
of Liberty Digital Series A common stock, all of which are currently
exercisable.
(c) Change of Control. On March 9, 1999, the Company became a
wholly-owned subsidiary of AT&T pursuant to the AT&T Merger. See "Item 8.
Financial Statements and Supplementary Data" for additional information
regarding the AT&T Merger. The Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
(continued)
III-20
<PAGE> 132
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and Others.
RELATIONSHIP WITH AT&T.
Liberty is a wholly owned subsidiary of AT&T Broadband, LLC (the
successor to TCI, which was converted into a Delaware limited liability company
of which AT&T is the sole member on March 10, 2000 and renamed AT&T Broadband,
LLC). 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
approximately 21.4 million shares of common stock of Teligent, Inc., which are
held indirectly by AGI LLC, and interests in each of the following subsidiaries
of AT&T: Liberty AGI, Inc., Liberty SP, Inc. and LMC Interactive, Inc. Neither
Liberty SP, Inc. nor Liberty AGI, Inc. currently has any significant assets. LMC
Interactive, Inc.'s assets consist of an 8% interest in Liberty Digital.
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:
o the Class A Directors, who are elected for a term of one year;
o the Class B Directors, who are elected for a term of seven years; and
o 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. 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 subsidiaries of AT&T which are attributed to Liberty Media Group
that are not also assets of Liberty.
(continued)
III-21
<PAGE> 133
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 Liberty as well as the
subsidiaries of AT&T which are attributed to Liberty Media Group that are not
also assets of Liberty is also a party to the Contribution Agreement and is
obligated under the same circumstances to contribute the subsidiaries of AT&T
which are attributed to Liberty Media Group that are not also assets of Liberty
or the assets of those subsidiaries 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:
o engaging in the same or similar activities or lines of business as any
member of the other group;
o doing business with any potential or actual supplier or customer of any
member of the other group; or
o 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:
o 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);
o to provide financial support to the other group (or any member
thereof); or
o otherwise to assist the other group.
(continued)
III-22
<PAGE> 134
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 subsidiary of AT&T which is attributed to Liberty Media Group that is
not also owned by Liberty, 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
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.
(continued)
III-23
<PAGE> 135
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 AT&T Liberty Media Group Tracking
Stock will be Contributed to Liberty. The net proceeds of any issuance or sale
of AT&T 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 have
made alternative arrangements regarding The Associated Group, Inc.
AT&T will Include in its SEC Reports Combined Financial Statements of
the Liberty Media Group. For so long as AT&T 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:
o 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;
o 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
o 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:
o any of the foregoing approved by the Liberty board by the affirmative
vote described under "--Liberty Organizational Documents" above;
(continued)
III-24
<PAGE> 136
o 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
o 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 AT&T 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:
o 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
III-25
<PAGE> 137
o 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:
o 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
o 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 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 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:
o 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;
o 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
(continued)
III-26
<PAGE> 138
o 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, AT&T Broadband, LLC (as successor to 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 AT&T Broadband's accounting, finance, corporate, legal
and tax departments. In addition, the agreement provides Liberty with office
space at AT&T Broadband's facilities, permits Liberty to obtain certain
liability, property and casualty insurance under AT&T Broadband's policies and
allows for the reciprocal use by AT&T Broadband and Liberty of each other's
aircraft. Pursuant to the agreement, Liberty reimburses AT&T Broadband for all
direct expenses incurred by AT&T Broadband in providing services thereunder and
a pro rata share of all indirect expenses incurred by AT&T Broadband in
connection with the rendering of such services, including a pro rata share of
the salary and other compensation of AT&T Broadband employees performing
services for Liberty and rental expenses for the office space of AT&T Broadband
used by Liberty. The obligations of AT&T Broadband to provide services under the
Agreement will continue in effect:
o until terminated by Liberty at any time on not less than 180 days'
notice to AT&T Broadband, or by AT&T Broadband at any time after
December 31, 2001, on not less than six months' notice to Liberty; or
o until March 31, 2000 with respect to the services of personnel and
December 31, 2001 with respect to all other services.
Liberty was allocated less than $1 million, $2 million, $13 million and $13
million, respectively, in corporate and general and administrative costs by TCI,
for the ten months ended December 31, 1999, the two months ended February 28,
1999 and the years ended December 31, 1998 and 1997, respectively.
OTHER RELATED PARTY TRANSACTIONS
Malone Transactions. For a discussion of certain transactions between
the Malones, the Magness Group and Liberty, see "Item 11. Executive Compensation
- - (f) Compensation Committee Interlocks and Insider Participation in
Compensation Decisions - Magness and Malone Transactions."
(continued)
III-27
<PAGE> 139
Affiliation Agreements. TCI is party to affiliation agreements pursuant
to which it purchases programming from subsidiaries and affiliates of Liberty.
TCI Cable systems subsequently acquired by AT&T in the AT&T merger operate under
the name of AT&T Broadband. 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, AT&T
Broadband entered into a 25 year affiliation agreement with Starz Encore Media
Group pursuant to which 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 Liberty Digital and DMX, AT&T Broadband
transferred to Liberty Digital the right to receive all revenue from sales of
DMX music services to AT&T Broadband's 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 AT&T Broadband's existing affiliation agreements. Liberty received $180
million, $43 million, $162 million and $155 million in revenue for programming
services provided to AT&T Broadband for the ten months ended December 31, 1999,
the two months ended February 28, 1999 and the years ended December 31, 1998 and
1997, respectively.
Business Relationships with Directors. In connection with the AT&T
merger, Liberty paid Jerome H. Kern, a director of Liberty, the sum of $10
million for his services in negotiating the merger agreement and completing the
merger. Liberty also paid Paul A. Gould, a director of Liberty, the sum of $1
million for his services on the special committee of TCI's board of directors in
evaluating the AT&T merger and the consideration to be received by TCI's
stockholders.
From time to time, Liberty retains Peter Kern and/or Gemini Associates,
Inc., a company controlled by Peter Kern, to act as an advisor on certain
business transactions. Peter Kern is the son of Jerome H. Kern, a director of
Liberty. In connection with these engagements, Peter Kern and Gemini Associates
received approximately $1.0 million from Liberty in each of 1998 and 1999, and
approximately $300,000 from TCI in 1998.
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.
Liberty believes that the foregoing business dealings with management
were based upon terms no less advantageous to Liberty than those which would be
available in dealing with unaffiliated persons.
Other Transactions. National Digital Television Center, a subsidiary of
TCI ("NDTC"), leases transponder facilities to certain Liberty subsidiaries.
Charges by NDTC for such arrangements were $20 million for the ten months ended
December 31, 1999, $4 million for the two months ended February 28, 1999,
respectively, and $25 million and $65 million for the years ended December 31,
1998 and 1997, respectively.
(continued)
III-28
<PAGE> 140
In addition, effective as of December 16, 1997, NDTC, on behalf of TCI
and other cable operators that may be designated from time to time by NDTC,
entered into an agreement (the "Digital Terminal Purchase Agreement") with
General Instrument Corporation, which has since merged with Motorola Inc., to
purchase advanced digital set-top terminals during the calendar years 1998, 1999
and 2000. In connection with the Digital Terminal Purchase Agreement, General
Instrument granted to NDTC warrants to purchase shares of General Instrument
common stock, a portion of which become exercisable each year if a sufficient
number of set-top terminals is purchased during that year. The 1998 purchase
commitment of 1.5 million set-top terminals was met, resulting in warrants to
purchase 4.9 million shares of General Instrument common stock vesting on
January 1, 1999. The 1999 purchase commitment of 1.8 million set-top terminals
was met, resulting in warrants to purchase 5.8 million shares of General
Instrument common stock vesting on January 1, 2000. As a result of the merger of
General Instrument and Motorola on January 5, 2000, Liberty's vested warrants
are exercisable for approximately 6.1 million shares of Motorola common stock.
The purchase commitment for 2000 is 3.2 million set-top terminals, which, if
satisfied, will result in warrants to purchase approximately 6.2 million shares
of Motorola common stock vesting on January 1, 2001. In connection with the AT&T
merger, these warrants were transferred to Liberty in exchange for approximately
$176 million in cash. The AT&T Common Stock Group has agreed to pay the Liberty
Media Group $14.35, adjusted as appropriate for any change in the capitalization
of Motorola, for each warrant that does not vest as a result of any purchase
commitment not having been met. In addition, no member of the AT&T Common Stock
Group may amend or modify the Digital Terminal Purchase Agreement without the
prior written consent of the Liberty Media Group.
On January 14, 2000, the Liberty Media Group completed its acquisition
of The Associated Group, Inc. pursuant to an Amended and Restated Agreement and
Plan of Merger, dated October 28, 1999, among AT&T, A-Group Merger Corp., a
wholly owned subsidiary of AT&T, Liberty and Associated Group. In this
transaction, Associated Group was acquired by and became a member of the Liberty
Media Group through the merger of A-Group Merger Corp into Associated Group. In
the merger, each share of Associated Group's Class A common stock and Class B
common stock was converted into 0.49634 shares of AT&T common stock and 1.20711
shares of AT&T Class A Liberty Media Group tracking stock. Prior to the merger,
Associated Group was principally engaged in the ownership and operation of
interests in various communications-related businesses. Associated Group's
primary assets were:
o approximately 19.7 million shares of AT&T common stock;
o approximately 23.4 million shares of AT&T Class A Liberty Media Group
tracking stock;
o approximately 5.3 million shares of AT&T Class B Liberty Media Group
tracking stock;
o approximately 21.4 million shares of common stock, representing
approximately a 40% interest, of Teligent, Inc., a full-service,
facilities-based communications company; and
o all of the outstanding shares of common stock of TruePosition, Inc., a
wholly-owned subsidiary of Associated Group which provides location
services for wireless carriers and users designed to determine the
location of any wireless transmitters, including cellular and PCS
telephones.
(continued)
III-29
<PAGE> 141
Immediately following the completion of the merger, all of the shares of AT&T
common stock, Class A Liberty Media Group tracking stock and Class B Liberty
Media Group tracking stock previously held by Associated Group were retired by
AT&T and all of the businesses and assets of Associated Group, other than its
interest in Teligent, were transferred to Liberty. A member of the Liberty Media
Group other than Liberty holds Associated Group's interest in Teligent.
Pursuant to an asset purchase agreement with CSG Systems International,
Inc., a member of the former TCI Ventures Group acquired warrants to purchase
shares of common stock of CSG, related registration rights and a right to
receive a contingent cash payment of $12 million. In connection with the AT&T
merger, these warrants and rights were transferred to a subsidiary of Liberty.
On April 13, 1999, the CSG warrants were exercisable for 3 million shares of
common stock of CSG, and AT&T purchased these warrants for $25.075 per share, or
an aggregate purchase price of $75.2 million. The related registration rights
were also assigned to AT&T on that date. The vesting of the CSG warrants is
contingent on AT&T meeting certain subscriber commitments to CSG. If any
warrants do not vest, a Liberty subsidiary must repurchase the unvested warrants
from AT&T, with interest at 6% from April 12, 1999. Liberty has guaranteed the
obligation of its subsidiary to repurchase any unvested warrants.
III-30
<PAGE> 142
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Included in Part II of this Report: Page No.
--------
<S> <C>
Liberty Media Corporation:
Independent Auditors' Report II-22
Consolidated Balance Sheets,
December 31, 1999 and 1998 II-23 to II-24
Consolidated Statements of Operations and
Comprehensive Earnings,
Ten months ended December 3, 1999
Two months ended February 28, 1999
Years ended December 31, 1998 and 1997 II-25
Consolidated Statements of Stockholders' Equity,
Ten months ended December 3, 1999
Two months ended February 28, 1999
Years ended December 31, 1998 and 1997 II-26 to II-27
Consolidated Statements of Cash Flows,
Ten months ended December 3, 1999
Two months ended February 28, 1999
Years ended December 31, 1998 and 1997 II-28
Notes to Consolidated Financial Statements,
December 31, 1999, 1998 and 1997 II-29 to II-67
</TABLE>
(a) (2) Financial Statement Schedules
None.
IV-1
<PAGE> 143
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation of Liberty, dated March 8,
1999 (incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of Liberty Media Corporation (File No.
333-86491) as filed on September 3, 1999 (the "Liberty S-4
Registration Statement")).
3.2 Bylaws of Liberty, as adopted March 8, 1999 (incorporated by
reference to Exhibit 3.2 of the Liberty S-4 Registration Statement).
4 - Instruments Defining the Rights of Securities Holders, including Indentures:
4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of
New York (incorporated by reference to Exhibit 4.1 to the Liberty
S-4 Registration Statement).
4.2 First Supplemental Indenture dated as of July 7, 1999, between
Liberty and The Bank of New York (incorporated by reference to
Exhibit 4.2 to the Liberty S-4 Registration Statement).
4.3 Form of 7-7/8% Senior Note due 2009 (incorporated by reference to
Exhibit 4.4 to the Liberty S-4 Registration Statement).
4.4 Form of 8-1/2% Senior Debenture due 2029 (incorporated by reference
to Exhibit 4.5 to the Liberty S-4 Registration Statement).
4.5 Second Supplemental Indenture dated as of November 16, 1999, between
Liberty and The Bank of New York (incorporated by reference to
Exhibit 4.6 to the Registration Statement on Form S-1 of Liberty
Media Corporation (File No. 333-93917) as filed on December 30, 1999
(the "Liberty S-1 Registration Statement")).
4.6 Registration Rights Agreement dated as of November 16, 1999 among
Liberty Media Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., and Salomon Smith Barney Inc.
(incorporated by reference to Exhibit 4.7 to the Liberty S-1
Registration Statement).
4.7 Form of 4% Senior Exchangeable Debentures due 2029 (incorporated by
reference to Exhibit 4.8 to the Liberty S-1 Registration Statement).
4.8 Third Supplemental Indenture dated as of February 2, 2000, between
Liberty and The Bank of New York.
4.9 Registration Rights Agreement dated as of February 2, 2000, among
Liberty, Lehman Brothers Inc. and Salomon Smith Barney Inc.
4.10 Form of 8-1/4% Senior Debenture due 2030.
4.11 Fourth Supplemental Indenture dated as of February 10, 2000, between
Liberty and The Bank of New York.
4.12 Registration Rights Agreement dated as of February 10, 2000, between
Liberty and Salomon Smith Barney Inc.
4.13 Form of 3-3/4% Senior Exchangeable Debenture due 2030.
IV-2
<PAGE> 144
4.14 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.
10 - Material Contracts:
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 (incorporated by reference to
Exhibit 10.1 to the Liberty S-4 Registration Statement).
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 (incorporated
by reference to Exhibit 10.2 to the Liberty S-4 Registration
Statement).
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty
and AT&T Corp. (incorporated by reference to Exhibit 10.3 to the
Liberty S-4 Registration Statement).
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 (incorporated by reference to Exhibit 10.4 to the Liberty
S-4 Registration Statement).
10.5 First Amendment to Tax Sharing Agreement dated as o 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 (incorporated by
reference to Exhibit 10.5 to the Liberty S-4 Registration
Statement).
10.6 Second Amendment to Tax Sharing Agreement dated as of September 24,
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 (incorporated by
reference to Exhibit 10.6 to the Liberty S-l Registration
Statement).
10.7 Third Amendment to Tax Sharing Agreement dated as of October 20,
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 (incorporated by
reference to Exhibit 10.7 to the Liberty S-l Registration
Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of October 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 (incorporated by
reference to Exhibit 10.8 to the Liberty S-l Registration
Statement).
IV-3
<PAGE> 145
10 - Material Contracts:
10.9 Fifth Amendment to Tax Sharing Agreement dated as of December 6,
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 (incorporated by
reference to Exhibit 10.9 to the Liberty S-l Registration
Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of December 10,
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 (incorporated by
reference to Exhibit 10.10 to the Liberty S-l Registration
Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of December 30,
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 (incorporated by
reference to Exhibit 10.11 to the Liberty S-l Registration
Statement).
10.12 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Tax Sharing Agreement dated as of March 9, 1999,
as amended, among The Associated Group, Inc., 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
(incorporated by reference to Exhibit 10.12 to the Liberty S-1
Registration Statement).
10.13 Amended and Restated Contribution Agreement dated January 14, 2000,
by and among Liberty Media Corporation, Liberty Media Management
LLC, Liberty Media Group LLC, Liberty Ventures Group LLC, The
Associated Group, Inc. and Liberty AGI, Inc. (incorporated by
reference to Exhibit 10.13 to the Liberty S-1 Registration
Statement).
10.14 First Supplement to Inter-Group Agreement dated as of May 28, 1999,
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 thereof, on the other hand (incorporated by
reference to Exhibit 10.14 to the Liberty S-1 Registration
Statement).
10.15 Second Supplement to Inter-Group Agreement dated as of September 24,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.15 to the Liberty S-1
Registration Statement).
10.16 Third Supplement to Inter-Group Agreement dated as of October 20,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.16 to the Liberty S-1
Registration Statement).
10.17 Fourth Supplement to Inter-Group Agreement dated as of December 6,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.17 to the Liberty S-1
Registration Statement).
IV-4
<PAGE> 146
10 - Material Contracts:
10.18 Fifth Supplement to Inter-Group Agreement dated as of December 10,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.18 to the Liberty S-1
Registration Statement).
10.19 Sixth Supplement to Inter-Group Agreement dated as of December 30,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.19 to the Liberty S-1
Registration Statement).
10.20 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Inter-Group Agreement dated as of March 9, 1999,
as supplemented, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.20 to the Liberty S-1
Registration Statement).
10.21 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 (incorporated by reference to Exhibit 10.6 to the Liberty
S-4 Registration Statement).
21 - Subsidiaries of Liberty Media Corporation (incorporated by reference to
Exhibit 22 to the Liberty S-4 Registration Statement).
27 - Financial data schedule
(b) Report on Form 8-K filed during the quarter ended December 31, 1999:
None.
IV-5
<PAGE> 147
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LIBERTY MEDIA CORPORATION
Dated: March 27, 2000 By /s/ Charles Y. Tanabe
-------------------------------
Charles Y. Tanabe
Senior Vice President and
General Counsel
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chairman of the Board, March 27, 2000
- -------------------------------------- and Director
John C. Malone
/s/ Robert R. Bennett Director, President and Chief March 27, 2000
- -------------------------------------- Executive Officer
Robert R. Bennett
/s/ Gary S. Howard Director, Executive Vice March 27, 2000
- -------------------------------------- President and Chief
Gary S. Howard Operating Officer
/s/ Jerome H. Kern Director March 27, 2000
- --------------------------------------
Jerome H. Kern
/s/ Paul A. Gould Director March 27, 2000
- --------------------------------------
Paul A. Gould
/s/ Larry E. Romrell Director March 27, 2000
- --------------------------------------
Larry E. Romrell
Director
- --------------------------------------
John C. Petrillo
Director
- --------------------------------------
Daniel E. Somers
Director
- --------------------------------------
John D. Zeglis
/s/ Kathryn Douglass Vice President and Controller March 27, 2000
- -------------------------------------- (Principal Financial Officer
Kathryn Douglass and Principal Accounting
Officer)
</TABLE>
IV-6
<PAGE> 148
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3 - Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation of Liberty, dated March 8,
1999 (incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of Liberty Media Corporation (File No.
333-86491) as filed on September 3, 1999 (the "Liberty S-4
Registration Statement")).
3.2 Bylaws of Liberty, as adopted March 8, 1999 (incorporated by
reference to Exhibit 3.2 of the Liberty S-4 Registration Statement).
4 - Instruments Defining the Rights of Securities Holders, including Indentures:
4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of
New York (incorporated by reference to Exhibit 4.1 to the Liberty
S-4 Registration Statement).
4.2 First Supplemental Indenture dated as of July 7, 1999, between
Liberty and The Bank of New York (incorporated by reference to
Exhibit 4.2 to the Liberty S-4 Registration Statement).
4.3 Form of 7-7/8% Senior Note due 2009 (incorporated by reference to
Exhibit 4.4 to the Liberty S-4 Registration Statement).
4.4 Form of 8-1/2% Senior Debenture due 2029 (incorporated by reference
to Exhibit 4.5 to the Liberty S-4 Registration Statement).
4.5 Second Supplemental Indenture dated as of November 16, 1999, between
Liberty and The Bank of New York (incorporated by reference to
Exhibit 4.6 to the Registration Statement on Form S-1 of Liberty
Media Corporation (File No. 333-93917) as filed on December 30, 1999
(the "Liberty S-1 Registration Statement")).
4.6 Registration Rights Agreement dated as of November 16, 1999 among
Liberty Media Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., and Salomon Smith Barney Inc.
(incorporated by reference to Exhibit 4.7 to the Liberty S-1
Registration Statement).
4.7 Form of 4% Senior Exchangeable Debentures due 2029 (incorporated by
reference to Exhibit 4.8 to the Liberty S-1 Registration Statement).
4.8 Third Supplemental Indenture dated as of February 2, 2000, between
Liberty and The Bank of New York.
4.9 Registration Rights Agreement dated as of February 2, 2000, among
Liberty, Lehman Brothers Inc. and Salomon Smith Barney Inc.
4.10 Form of 8-1/4% Senior Debenture due 2030.
4.11 Fourth Supplemental Indenture dated as of February 10, 2000, between
Liberty and The Bank of New York.
4.12 Registration Rights Agreement dated as of February 10, 2000, between
Liberty and Salomon Smith Barney Inc.
4.13 Form of 3-3/4% Senior Exchangeable Debenture due 2030.
</TABLE>
<PAGE> 149
<TABLE>
<S> <C>
4.14 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.
10 - Material Contracts:
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 (incorporated by reference to
Exhibit 10.1 to the Liberty S-4 Registration Statement).
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 (incorporated
by reference to Exhibit 10.2 to the Liberty S-4 Registration
Statement).
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty
and AT&T Corp. (incorporated by reference to Exhibit 10.3 to the
Liberty S-4 Registration Statement).
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 (incorporated by reference to Exhibit 10.4 to the Liberty
S-4 Registration Statement).
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 (incorporated by
reference to Exhibit 10.5 to the Liberty S-4 Registration
Statement).
10.6 Second Amendment to Tax Sharing Agreement dated as of September 24,
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 (incorporated by
reference to Exhibit 10.6 to the Liberty S-l Registration
Statement).
10.7 Third Amendment to Tax Sharing Agreement dated as of October 20,
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 (incorporated by
reference to Exhibit 10.7 to the Liberty S-l Registration
Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of October 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 (incorporated by
reference to Exhibit 10.8 to the Liberty S-l Registration
Statement).
</TABLE>
<PAGE> 150
<TABLE>
<S> <C>
10 - Material Contracts:
10.9 Fifth Amendment to Tax Sharing Agreement dated as of December 6,
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 (incorporated by
reference to Exhibit 10.9 to the Liberty S-l Registration
Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of December 10,
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 (incorporated by
reference to Exhibit 10.10 to the Liberty S-l Registration
Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of December 30,
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 (incorporated by
reference to Exhibit 10.11 to the Liberty S-l Registration
Statement).
10.12 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Tax Sharing Agreement dated as of March 9, 1999,
as amended, among The Associated Group, Inc., 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
(incorporated by reference to Exhibit 10.12 to the Liberty S-1
Registration Statement).
10.13 Amended and Restated Contribution Agreement dated January 14, 2000,
by and among Liberty Media Corporation, Liberty Media Management
LLC, Liberty Media Group LLC, Liberty Ventures Group LLC, The
Associated Group, Inc. and Liberty AGI, Inc. (incorporated by
reference to Exhibit 10.13 to the Liberty S-1 Registration
Statement).
10.14 First Supplement to Inter-Group Agreement dated as of May 28, 1999,
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 thereof, on the other hand (incorporated by
reference to Exhibit 10.14 to the Liberty S-1 Registration
Statement).
10.15 Second Supplement to Inter-Group Agreement dated as of September 24,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.15 to the Liberty S-1
Registration Statement).
10.16 Third Supplement to Inter-Group Agreement dated as of October 20,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.16 to the Liberty S-1
Registration Statement).
10.17 Fourth Supplement to Inter-Group Agreement dated as of December 6,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.17 to the Liberty S-1
Registration Statement).
</TABLE>
<PAGE> 151
<TABLE>
<S> <C>
10 - Material Contracts:
10.18 Fifth Supplement to Inter-Group Agreement dated as of December 10,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.18 to the Liberty S-1
Registration Statement).
10.19 Sixth Supplement to Inter-Group Agreement dated as of December 30,
1999, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.19 to the Liberty S-1
Registration Statement).
10.20 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Inter-Group Agreement dated as of March 9, 1999,
as supplemented, 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 thereof, on the other hand
(incorporated by reference to Exhibit 10.20 to the Liberty S-1
Registration Statement).
10.21 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 (incorporated by reference to Exhibit 10.6 to the Liberty
S-4 Registration Statement).
21 - Subsidiaries of Liberty Media Corporation (incorporated by reference
to Exhibit 22 to the Liberty S-4 Registration Statement).
27 - Financial data schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.8
LIBERTY MEDIA CORPORATION
AND
THE BANK OF NEW YORK
Trustee
---------------------
THIRD SUPPLEMENTAL INDENTURE
Dated as of February 2, 2000
---------------------
Supplementing the Trust Indenture
Dated as of July 7, 1999
--------------------
$1,000,000,000 8-1/4% Senior Debentures due 2030
<PAGE> 2
THIRD SUPPLEMENTAL INDENTURE, dated as of the 2nd day of February,
2000, 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 Third 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 Third Supplemental
Indenture to the Original Indenture in order to establish the form and terms of,
and to provide for the creation and issue of, a series of Securities designated
as the "8-1/4% Senior Debentures due 2030" under the Original Indenture in the
aggregate principal amount of $1,000,000,000;
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 Third Supplemental Indenture a
valid, binding and legal agreement of the Company, have been done;
NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH that, in order to
establish the terms of a series of Securities designated as the "8-1/4% Senior
Debentures due 2030," and for and in consideration of the premises and of the
covenants contained in the Original Indenture and in this Third 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:
2
<PAGE> 3
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.
"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.
"Initial Purchasers" shall mean Lehman Brothers Inc. and Salomon Smith
Barney Inc.
"Interest Payment Date" shall have the meaning assigned to it in
Section 206.
"Permanent Regulation S Security" shall have the meaning assigned to it
in Section 213(c).
"Regulation S" shall mean Regulation S under the Securities Act.
"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 Company's 8-1/4% Senior Debentures due
2030.
"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).
Section 102. Section References.
Each reference to a particular section set forth in this Third
Supplemental Indenture shall, unless the context otherwise requires, refer to
this Third Supplemental Indenture.
3
<PAGE> 4
ARTICLE TWO
TITLE AND TERMS OF THE SECURITIES
Section 201. Title of the Securities.
The title of the Securities of the series established hereby is the
"8-1/4% Senior Debentures due 2030."
Section 202. Amount and Denominations.
The aggregate principal amount of the Securities which may be
authenticated and delivered under the Indenture is limited to $1,000,000,000,
except for Securities 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 Securities may be reopened, without the consent of
the Holders thereof, for issuance of additional Securities.
Section 203. Registered Securities.
The certificates for the Securities shall be Registered Securities and
shall be in substantially the form attached hereto as Exhibits A-1, A-2 and A-3,
and shall bear the legends as are inscribed thereon.
Section 204. Issuance and Pricing.
The Securities shall be issued and sold by the Company to the Initial
Purchasers, parties to the Purchase Agreement dated January 26, 2000 with the
Company, at a price equal to 98.324% of the principal amount thereof, and the
initial price to purchasers of the Securities from the Initial Purchasers shall
be 99.199% of the principal amount thereof, plus accrued interest, if any, from
February 2, 2000.
Section 205. Stated Maturity.
The Stated Maturity of the Securities on which the principal thereof is
due and payable shall be February 1, 2030.
Section 206. Interest.
The principal of the Securities shall bear interest from February 2,
2000 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually on February 1 and August 1 of each
year (each, an "Interest Payment Date"), commencing August 1, 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 15 or July 15 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.
4
<PAGE> 5
Interest on the Securities will accrue at the rate of 8-1/4% per annum
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 shall be payable and
the Securities may be surrendered or presented for payment, the Securities may
be surrendered for registration of transfer or exchange, and notices and demands
to or upon the Company in respect of the Securities 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 the Securities 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 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 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 wishes
at any time to exchange all or a portion of its interest in such Rule 144A
Security for an interest in the Temporary Regulation S Security, or to transfer
all or a portion of its interest in such Rule 144A Security to a Person who
wishes to take delivery thereof in the form of an interest in such Temporary
Regulation S 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 such
interest for an equivalent beneficial interest in such Temporary Regulation S
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 B 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,
5
<PAGE> 6
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.
Rule 144A 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 wishes at any time to exchange
all or a portion of its interest in such Rule 144A Security for an interest in
the Permanent Regulation S Security, or to transfer all or a portion of its
interest in such Rule 144A Security to a Person who wishes to take delivery
thereof in the form of an interest in such Permanent Regulation S 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 such interest for an equivalent beneficial
interest in such Permanent Regulation S 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 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
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.
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
6
<PAGE> 7
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 D 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 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 E
hereto to the effect that Euroclear or Cedel, as applicable, has received a
certificate substantially in the form of Exhibit F 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 Third 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.
7
<PAGE> 8
Section 208. Redemption of the Securities.
The Securities may not be redeemed by the Company prior to their Stated
Maturity.
Section 209. Denominations.
The Securities shall be issued in denominations of $1,000 and integral
multiples in excess thereof.
Section 210. Currency.
The interest 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 (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 the Securities and, from time to
time, to designate 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.
Section 213. Global Securities.
(a) Securities may be issued in whole or in part in the form of one or
more temporary or permanent global Securities. The initial Depository for the
global Securities shall be DTC, and the depositary arrangements shall be those
employed by whoever shall be the Depositary with respect to the Securities from
time to time.
(b) Rule 144A Securities. Securities 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 (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. Securities 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
8
<PAGE> 9
form of Exhibit A-2 (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 Exhibit A-3 (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 a 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.
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 E 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 F 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.
The Securities shall not be subject to any sinking fund or similar
provision and shall not be redeemable at the option of the holder thereof.
Section 216. Conversion.
The Securities shall not be convertible into Common Stock and shall not
be exchangeable for any other securities.
9
<PAGE> 10
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 Third 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
Third 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 Third 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 Third 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.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the day and year first above
written.
LIBERTY MEDIA CORPORATION
By:
--------------------------------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By:
--------------------------------------------------
Name:
Title:
11
<PAGE> 12
EXHIBITS A-1 THROUGH A-4 ARE INTENTIONALLY OMITTED.
A-1
<PAGE> 13
Exhibit B
FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM RULE 144A SECURITY
TO TEMPORARY REGULATION S SECURITY
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
[$1,000,000,000 8-1/4% Senior Debentures due 2030
(the "Securities")]
Reference is hereby made to the Indenture dated as of July 7, 1999,
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Third Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________ principal amount of
Securities represented by a beneficial interest in the Rule 144A Security (CUSIP
No.____) held through the Depository by or on behalf of [transferor] as
beneficial owner (the "Transferor"). The Transferor has requested an exchange or
transfer of its beneficial interest for an interest in the Temporary Regulation
S Security (CUSIP (CINS) No._____) to be held with [Euroclear] [Cedel] (ISIN
Code _____) (Common Code _____) through the Depository.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Securities and
pursuant to and in accordance with Rule 903 or Rule 904 (as applicable) of
Regulation S under the Securities Act, and accordingly the Transferor does
hereby certify that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either: (A) at the time the buy order was originated,
the transferee was outside the United States
or the Transferor and any person acting on
its behalf reasonably believed that the
transferee was outside the United States, or
(B) the transaction was executed in, on or
through the facilities of, a designated
offshore securities market and neither the
Transferor nor any person acting on its
behalf knows that the transaction was
prearranged with a buyer in the United
States;
B-1
<PAGE> 14
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest
being transferred as described above is to be held with the
Depository through Euroclear or Cedel or both (Common Code
____ (ISIN Code _____)).
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchasers of the
Securities being exchanged or transferred. Terms used in this Certificate and
not otherwise defined in the Indenture have the meanings set forth in Regulation
S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------------------------------
Name:
Title:
Dated:
--------------------------------
cc: Liberty Media Corporation
B-2
<PAGE> 15
Exhibit C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
OR EXCHANGE FROM RULE 144A SECURITY
TO PERMANENT REGULATION S SECURITY
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
[$1,000,000,000 8-1/4% Senior Debentures due 2030
(the "Securities")]
Reference is hereby made to the Indenture dated as of July 7, 1999,
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Third Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________ principal amount of
Securities represented by a beneficial interest in the Rule 144A Security (CUSIP
No.____) held through the Depository by or on behalf of [transferor] as
beneficial owner (the "Transferor"). The Transferor has requested an exchange or
transfer of its interest for an interest in the Permanent Regulation S Security
(CUSIP (CINS) No. [____]) to be held by [Euroclear][Cedel] (ISIN Code _______)
(Common Code) through the Depositary.
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Securities and
that, with respect to transfers made in reliance on Regulation S under the
Securities Act:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either: (A) at the time the buy order was originated,
the transferee was outside the United States
or the Transferor and any person acting on
its behalf reasonably believed that the
transferee was outside the United States, or
(B) the transaction was executed in, on or
through the facilities of, a designated
offshore securities market and neither the
Transferor nor any person acting on its
behalf knows that the transaction was
pre-arranged with a buyer in the United
States;
(3) no directed selling efforts have been made in contravention of
the requirements of Rule 903(b) or 904(b) of Regulation S, as
applicable; and
C-1
<PAGE> 16
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchasers of the
Securities being exchanged or transferred. Terms used in this Certificate and
not otherwise defined in the Indenture have the meanings set forth in Regulation
S under the Securities Act.
[Insert Name of Transferor]
By:
--------------------------------------------
Name:
Title:
Dated:
--------------------------
cc: Liberty Media Corporation
C-2
<PAGE> 17
Exhibit D
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR
EXCHANGE FROM TEMPORARY REGULATION S SECURITY
TO RULE 144A SECURITY
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
[$1,000,000,000 8-1/4% Senior Debentures due 2030
(the "Securities")]
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Third Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________________________________
principal amount of Securities which are held in the form of the Temporary
Regulation S Security (CUSIP No. ___) with [Euroclear/Cedel] (ISIN Code [___])
(Common Code [___]) through the Depository by or on behalf of transferor as
beneficial owner (the "Transferor"). The Transferor has requested an exchange or
transfer of its interest in the Securities for an interest in the Rule 144A
Security (CUSIP NO. [___]).
In connection with such request, and in respect of such Securities, the
Transferor does hereby certify that such transfer is being effected in
accordance with the transfer restrictions set forth in the Indenture and
pursuant to and in accordance with Rule 144A under the United States Securities
Act of 1933, as amended (the "Securities Act"), to a transferee that the
Transferor reasonably believes is purchasing the Securities for its own account
or an account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A, in each case in a transaction meeting
the requirements of Rule 144A and in accordance with any applicable securities
laws of any state of the United States or any other jurisdiction.
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchasers of the
Securities being transferred.
[Insert Name of Transferor]
By:
---------------------------------------------
Name:
Title:
Dated:
----------------------------
cc: Liberty Media Corporation
D-1
<PAGE> 18
Exhibit E
FORM OF CLEARING SYSTEM CERTIFICATE
Re: Liberty Media Corporation
[$1,000,000,000 8-1/4% Senior Debentures due 2030
(the "Securities")]
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Third Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This is to certify that, based solely on certifications we have
received in writing, by tested telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
to the effect set forth in the Indenture, as of the date hereof,
$_________________ aggregate principal amount of Securities represented by such
Temporary Regulation S Global Security is owned by (a) non-U.S. Persons or (b)
U.S. Persons who purchased such Securities in transactions that did not require
registration under the United States Securities Act of 1933, as amended (the
"Securities Act"). As used in this paragraph, the term "U.S. Person" has the
meaning given to it by Regulation S under the Securities Act.(1)
We further certify (i) that we are not making available herewith for
payment of interest any portion of a Temporary Regulation S Global Security
excepted in such certifications and (ii) that as of the date hereof we have not
received any notification from any of our Member Organizations to the effect
that the statements made by such Member Organizations with respect to any
portion of a Temporary Regulation S Global Security submitted herewith for
payment of interest are no longer true and cannot be relied upon as the date
hereof.
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Yours faithfully,
- --------
(1) Note: Unless Morgan Guaranty Brussels and Cedelbank are otherwise
informed by the Initial Purchasers or the Trustee, the Standard
Long-Form Certification set out in the Operating Procedures of
Euroclear will be deemed to meet the requirements of this sentence.
E-1
<PAGE> 19
[MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, Brussels office, as operator of
the Euroclear System]
or
[CEDELBANK]
By:
--------------------------------------
Dated: (2)
------------------------
- ---------------------
(2) Not earlier than 15 days prior to the relevant Interest Payment Date
or Redemption Date, as the case may be.
E-2
<PAGE> 20
Exhibit F
FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
Re: Liberty Media Corporation
[$1,000,000,000 8-1/4% Senior Debentures due 2030
(the "Securities")]
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Third Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This is to certify that as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account are
beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who purchased
the Securities in transactions which did not require registration under the
Securities Act of 1933, as amended (the "Act"). As used in this paragraph, the
term "U.S. person" has the meaning given to it by Regulation S under the
Securities Act.
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
included Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We undertake to advise you promptly by tested telex or by electronic
transmission on or prior to the date on which you intend to submit your
certification relating to the Securities held by you for our account in
accordance with your operating procedures if any applicable statement herein is
not correct on such date, and in the absence of any such notification it may be
assumed that this certification applies as of such date.
This certification excepts and does not relate to $____________________
of such interest in the above Securities in respect of which we are not able to
certify and as to which we understand exchange and delivery of definitive
Securities (or, if relevant, exercise of any rights or collection of any
interest) cannot be made until we do so certify.
F-1
<PAGE> 21
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Date: (3)
------------------------------ By:
----------------------------------
As, or as agent for, the beneficial owner(s) of the Securities to which
this certificate relates.
- -----------------------
(3) Not earlier than 15 days prior to the certification event to which the
certification relates.
F-2
<PAGE> 1
EXHIBIT 4.9
---------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 2, 2000
AMONG
LIBERTY MEDIA CORPORATION
AND
LEHMAN BROTHERS INC.
AND
SALOMON SMITH BARNEY INC.
---------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into this 2nd day of February, 2000, among Liberty Media Corporation, a Delaware
corporation (the "Company"), and Lehman Brothers Inc. and Salomon Smith Barney
Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated January
26, 2000, 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 $1,000,000,000 principal amount of the Company's
8-1/4% Senior Debentures due 2030 (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 1934, 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.
2
<PAGE> 3
"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 8-1/4% Senior Debentures due 2030
issued by the Company under the Indenture containing terms identical to the
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 Third Supplemental Indenture, dated as of February 2, 2000,
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.,
Salomon Smith Barney 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.
3
<PAGE> 4
"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 144 (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 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.
4
<PAGE> 5
"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 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
5
<PAGE> 6
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
6
<PAGE> 7
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 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
7
<PAGE> 8
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:
(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,
8
<PAGE> 9
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.
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
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<PAGE> 10
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)
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<PAGE> 11
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 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;
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<PAGE> 12
(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 the Initial
Purchasers, 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, 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 the Initial Purchasers and their
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
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<PAGE> 13
(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 the Initial Purchasers 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
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<PAGE> 14
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 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
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;
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<PAGE> 15
(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 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
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<PAGE> 16
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;
(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
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<PAGE> 17
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.
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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 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
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<PAGE> 19
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 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
19
<PAGE> 20
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
20
<PAGE> 21
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 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
21
<PAGE> 22
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 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.
22
<PAGE> 23
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.
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.
23
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LIBERTY MEDIA CORPORATION
By:
------------------------------------------------
Name:
Title:
Confirmed and accepted as
of the date first above
written:
LEHMAN BROTHERS INC.
SALOMON SMITH BARNEY INC.
BY: LEHMAN BROTHERS INC.
For itself and the other Initial Purchaser set forth above
By:
--------------------------
Name:
Title:
24
<PAGE> 25
EXHIBIT A
FORM OF OPINION OF COUNSEL
Lehman Brothers Inc.
Salomon Smith Barney Inc.
c/o Lehman Brothers Inc.
3 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 $1,000,000,000 aggregate principal
amount 8-1/4% Senior Debentures due 2030 (the "Securities") of the Company
pursuant to the purchase agreement dated January 26, 2000 (the "Purchase
Agreement") among the Company and Lehman Brothers Inc. and Salomon Smith Barney
Inc. (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 dated February 2, 2000, (the "Registration Rights Agreement")
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:
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
A-1
<PAGE> 26
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> 1
EXHIBIT 4.10
FORM OF RULE 144A SECURITY
THIS SECURITY IS A RULE 144A 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.
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH THE
COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE
REQUIRED BY APPLICABLE LAWS (THE
<PAGE> 2
"RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) INSIDE THE UNITED
STATES TO AN INSTITUTIONAL "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT THAT PRIOR TO SUCH TRANSFER, FURNISHES
(OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE OR
TRANSFER AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS
SECURITY), (E) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, PURSUANT TO RULE 904 OF REGULATION S OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT
THE COMPANY, THE TRUSTEE AND THE TRANSFER AGENT AND REGISTRAR RESERVE THE RIGHT
PRIOR TO ANY OFFER, SALE OR OTHER TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F)
ABOVE TO REQUIRE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND OTHER
INFORMATION SATISFACTORY TO THE COMPANY, THE TRUSTEE AND THE TRANSFER AGENT AND
REGISTRAR. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE
RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS
GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO BE BOUND BY THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT RELATING TO ALL THE SECURITIES.
2
<PAGE> 3
No. R-1 $1,000,000,000
CUSIP No. 530715AH4
LIBERTY MEDIA CORPORATION
8-1/4% Senior Debentures due 2030
Rule 144A Security
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 One Billion Dollars ($1,000,000,000)
(or such lesser amount as shall be the outstanding principal amount of this U.S.
Global Security shown in Schedule A hereto) on February 1, 2030, and to pay
interest thereon from February 2, 2000 or from the most recent date to which
interest has been paid or provided for, semiannually on February 1 and August 1
in each year (each, an "Interest Payment Date"), commencing August 1, 2000, at
the rate of 8-1/4% 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 15 or July 15
(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 Security is a global Rule 144A Security issued on the date hereof
which represents $1,000,000,000 of the principal amount of the Company's 8-1/4%
Senior Debentures due 2030, initially offered and sold to qualified
institutional buyers, as defined in Rule 144A under the Securities Act. This
Debenture is one of a duly authorized issue of securities of the Company
3
<PAGE> 4
(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
Third 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 Third Supplemental Indenture between the Company and the
Trustee, dated as of February 2, 2000, establishing the terms of the Debentures
pursuant to the Indenture (the "Third Supplemental Indenture").
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.
4
<PAGE> 5
The Debentures are issuable only in registered form without coupons in
the denominations specified in the Third 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.
Interests in this Debenture are exchangeable or transferable in whole
or in part for interests in the Temporary Regulation S Security or Permanent
Regulation S Security, in each case of the same series, only if such exchange or
transfer complies with the terms for transfer contained 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.
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.
5
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate 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: February 2, 2000 THE BANK OF NEW YORK,
as Trustee
By:
----------------------
Authorized Signatory
6
<PAGE> 7
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:
-------------------------- --------------------------
7
<PAGE> 8
SCHEDULE A
SCHEDULE OF EXCHANGES
The following exchanges of Debentures for Debentures represented by this Rule
144A Security have been made:
<TABLE>
<CAPTION>
======================================================================================================================
Principal amount of Change in principal Principal amount of
this Rule 144A Amount of this Rule this Rule 144A Notation made by or
Security as of Date exchange 144A Security due to Security following on behalf of the
February 2, 2000 made Exchange such exchange Company
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
$1,000,000,000
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
======================================================================================================================
</TABLE>
8
<PAGE> 1
EXHIBIT 4.11
LIBERTY MEDIA CORPORATION
AND
THE BANK OF NEW YORK
Trustee
---------------------
FOURTH SUPPLEMENTAL INDENTURE
Dated February 10, 2000
---------------------
Supplementing the Indenture
Dated as of July 7, 1999
--------------------
3 3/4% Senior Exchangeable Debentures Due 2030
<PAGE> 2
FOURTH SUPPLEMENTAL INDENTURE, dated the 10th day of February, 2000,
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, as
supplemented to the date hereof, 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 Fourth
Supplemental Indenture to the Original Indenture in order to establish the form
and terms of, and to provide for the creation and issue of, a series of
Securities designated as the "3 3/4% Senior Exchangeable Debentures due 2030"
under the Original Indenture in an aggregate principal amount of up to
$1,000,000,000 (the "Debentures");
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 Fourth
Supplemental Indenture a valid, binding and legal agreement of the Company,
have been done.
NOW, THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH that, in
order to establish the terms of the series of Securities designated as the
"3 3/4% Senior Exchangeable Debentures due 2030," and for and in consideration
of the premises and of the covenants contained in the Original Indenture and in
this Fourth 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:
<PAGE> 3
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, in which case such term shall
have the meaning specified herein.
"Additional Distribution" shall mean any distribution to Holders of
the Debentures made pursuant to Section 206 as a result of a Reference Share
Distribution.
"Adjusted Principal Amount" shall mean, for each $1,000 Original
Principal Amount of the Debentures, $1,000, minus any and all Extraordinary
Additional Distributions and any Yield Adjustments made in respect to such
Original Principal Amount of Debentures pursuant to Section 204.
"Average Transaction Consideration" shall mean, with respect to a
holder of one Reference Share in a Reference Share Offer, (a) the aggregate
consideration actually paid or distributed in respect of all Reference Shares
accepted in such Reference Share Offer, divided by (b) the total number of
Reference Shares outstanding immediately prior to the expiration of the
Reference Share Offer and entitled to participate in such Reference Share
Offer.
"Borrow Cost Period" shall mean the period beginning on May 15, 2000
and ending on February 15, 2004.
"Business Day" shall mean any day that is not a Saturday, Sunday or
legal holiday, on which banking institutions or trust companies in The City of
New York are authorized or obligated by law or regulation to close.
"Closing Price" shall mean, 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 that security (regular way) on the
New York Stock Exchange on that date or, if the security is not listed for
trading on the New York Stock Exchange on that date, as reported in the
composite transactions for the principal United States national or regional
securities exchange on which the security is so listed, or if the security is
not so listed on a United States national or regional securities exchange, as
reported by the Nasdaq National Market or, if the security is not so reported,
the last quoted bid price for the security in the over-the-counter market as
reported by the National Quotation Bureau or a similar organization. In the
event that no such quotation is available for that day, the Board of Directors
will be entitled to determine the Closing Price on the basis of those
quotations that it in good faith considers appropriate, unless "Closing Price"
is to be determined for purposes of valuing securities to be distributed
pursuant to a Reference Share Distribution and such securities have an
aggregate value in excess of $100,000,000, in which event the Closing Price
will be determined by a nationally recognized investment banking or appraisal
firm appointed by the Company for such purpose. With respect to options,
warrants and other rights to purchase a security, the Closing Price shall be
the value of the underlying
1
<PAGE> 4
security determined as aforesaid, minus the exercise price; and with respect to
securities exchangeable for or convertible into a relevant security, 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 security
determined as aforesaid. If an "ex-dividend" date for a security occurs during
the period used in determining the security's Current Market Value or Exchange
Market Value, the Closing Price of the security on any day prior to the
"ex-dividend" date used in such determination shall be reduced by the amount of
the dividend. For this purpose, the amount of a non-cash dividend will be equal
to the amount of the dividend, as of the record date therefor, as determined by
a nationally recognized investment banking firm retained by the Company for
this purpose. To the extent that trading (regular way) of, or quotations for,
any security as to which "Closing Price" is to be determined continues past
4:00 p.m., New York City time, on the applicable securities exchange, the
National Market System or over-the-counter market, as the case may be, "Closing
Price" shall be deemed to refer to the price or bid at the time that is then
customary for determining the trading day's index levels for stocks traded on
such securities exchange, the National Market System or over-the-counter
market.
"Common Equity Securities" shall mean any securities (i) that are
common stock or participate without limitation in earnings and dividends in
parity with common stock and (ii) that are Marketable Securities. For greater
certainty, the term "Common Equity Securities" does not mean warrants, options
or other rights to purchase, or securities exchangeable or convertible into,
Common Equity Securities.
"Company" shall mean 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 the Indenture, and thereafter
"Company" shall mean such successor Person, and any other obligor upon the
Debentures.
"Current Market Value" shall mean, with respect to any Reference
Share, the average of the Closing Prices for such Reference Share over the 20
Trading Day period immediately prior to (but not including) the fifth Trading
Day preceding the applicable Redemption Date (or, in the case of Section
204(b), Stated Maturity).
"Debenture" shall mean $1,000 Original Principal Amount of the
Debentures.
"Debentures" shall mean the Company's 3 3/4% Senior Exchangeable
Debentures due 2030.
"Depository" shall have the meaning assigned to it in the Original
Indenture.
"Determination Agent" shall mean Salomon Smith Barney Inc. or any
successor designated by the Company.
"DTC" shall mean The Depository Trust Company.
"Excess Borrow Cost" shall mean the determination by the Determination
Agent that, for any Trading Day, (i) the weighted average rebate paid on cash
collateral posted to borrow Reference Shares from the Determination Agent, as
principal or agent, is less than 200 basis
2
<PAGE> 5
points below the Federal Funds Rate and (ii) the Determination Agent is not
able to effectively lend Reference Shares to beneficial owners of the
Debentures for a rebate that is not less than 200 basis points below the
Federal Funds Rate.
"Excess Borrow Cost Period" shall mean each quarter ending February
15, May 15, August 15 or November 15, during the Borrow Cost Period, in which
the Determination Agent determines that Excess Borrow Costs exist for 20 or
more Trading Days in such quarter.
"Excess Borrow Cost Redemption" shall mean the redemption of the
Debentures pursuant to Section 208(d) following the occurrence of an Excess
Borrow Cost Period.
"Exchange Agent" shall mean any Person authorized by the Company to
act as Exchange Agent under the Indenture. The Company initially authorizes the
Trustee to act as Exchange Agent for the Debentures on its behalf. The Company
may at any time and from time to time authorize one or more Persons (including
the Company) to act as Exchange Agent in addition to or in place of the Trustee
with respect to the Debentures.
"Exchange Date" shall mean, with respect to any Notice of Exchange,
the date on which the Notice of Exchange and all documents, instruments and
payments required to be tendered in connection with the related exchange have
been received by the Exchange Agent.
"Exchange Market Value" shall mean, for each Reference Share
attributable to the Debentures at the date of determination, (a) in the case of
a Notice of Exchange delivered to the Exchange Agent prior to February 15,
2001, the Closing Price for such Reference Share on the twentieth Trading Day
following the Exchange Date (unless more than $1,000,000 aggregate Original
Principal Amount of Debentures have been validly tendered for exchange on such
date, in which case Exchange Market Value shall mean the average of the Closing
Prices for such Reference Share over the five Trading Day period ending on the
twentieth Trading Day immediately following the Exchange Date); and (b) in the
case of a Notice of Exchange delivered to the Exchange Agent on or after
February 15, 2001, the Closing Price for such Reference Share on the Trading
Day following the Exchange Date (unless more than $1,000,000 aggregate Original
Principal Amount of Debentures have been validly tendered for exchange on such
date, in which case the Exchange Market Value shall mean the average of the
Closing Prices for such Reference Share over the five Trading Day period
immediately following the Exchange Date). The aggregate Exchange Market Value
of the Reference Shares attributable to any Debenture for which a Notice of
Exchange is delivered to the Trustee shall equal the sum of the Exchange Market
Values of the Reference Shares attributable to such Debenture.
"Extraordinary Additional Distribution" shall mean any Additional
Distribution other than a Regular Additional Distribution, whether of cash or
property; provided that in the event of a Reference Share Offer, the amount of
the Extraordinary Additional Distribution on each Debenture in respect of such
Reference Share Offer shall equal the portion of the Average Transaction
Consideration deemed to be received on the Reference Shares of the class or
series subject to the Reference Share Offer attributable to such Debenture
(immediately prior to giving effect to the Reference Share Proportionate
Reduction relating to that Reference Share Offer) other than the portion of the
Average Transaction Consideration that consists of Common Equity
3
<PAGE> 6
Securities, which themselves become part of the Reference Shares as a result of
the Reference Share Offer Adjustment.
"Extraordinary Distribution" shall mean any Reference Share
Distribution other than a Regular Cash Dividend.
"Federal Funds Rate," for any date of determination, shall mean:
(1) the rate on the applicable date for United States dollar
federal funds as published in H.15(519) under the caption
"Federal Funds (Effective)" as displayed on Bridge Telerate,
Inc. or any successor service on page 120 or any other page
as may replace the applicable page on that service ("Telerate
Page 120"); or
(2) if the rate referred to in clause (1) does not appear on
Telerate Page 120 or is not so published by 3:00 P.M., New
York City time, on the applicable date, the rate on the
applicable date for United States dollar federal funds as
published in H.15 Daily Update, or other recognized
electronic source used for the purpose of displaying the
applicable rate, under the caption "Federal Funds/Effective
Rate;" or
(3) if the rate referred to in clause (2) is not published by
3:00 P.M., New York City time, on the applicable date, the
rate on the applicable date calculated by the determination
agent as the arithmetic mean of the rates for the last
transaction in overnight United States dollar federal funds
arranged by three leading brokers of United States dollar
federal funds transactions in The City of New York, selected
by the Determination Agent before 9:00 A.M., New York City
time, on the Trading Day immediately following the applicable
date; or
(4) if the brokers selected by the Determination Agent are not
quoting as mentioned in clause (3), the rate in effect on the
most recent preceding date for which a rate may be determined
in accordance with the foregoing.
"Final Period Distribution" shall mean, for each Debenture, (a) all
Regular Cash Dividends on any Reference Shares attributable to such Debenture
for which the ex-dividend date has occurred but which, at the date of
determination, have not been received by the holders of such Reference Shares
and (b) all Extraordinary Distributions on any Reference Shares attributable to
such Debenture for which the ex-dividend date has occurred but which, at the
date of determination, have not been received by the holders of such Reference
Shares, but only to the extent that the value of such Extraordinary
Distributions (determined in accordance with Section 206(d) or (e)) exceeds the
Adjusted Principal Amount of such Debenture.
"H.15 Daily Update" shall mean the daily update of H.15(519),
available through the world-wide-web site of the Board of Governors of the
Federal Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
"H.15(519)" shall mean the weekly statistical release designated as
H.15(519), or any successor publication, published by the Board of Governors of
the Federal Reserve System.
4
<PAGE> 7
"Initial Purchaser" shall mean Salomon Smith Barney Inc.
"Interest Payment Date" shall have the meaning assigned to it in
Section 205.
"Maturity Repayment Amount" shall have the meaning assigned to it in
the form of Debenture attached hereto as Exhibit A.
"Notice of Exchange" shall mean the notice of exchange given to the
Exchange Agent by a Holder of its request to exchange Debentures pursuant to
Section 209(c).
"Optional Redemption" shall mean any redemption of the Debentures, in
whole or in part, at the option of the Company pursuant to Section 208(a).
"Original Principal Amount" shall mean the face value of $1,000
principal amount per Debenture.
"Permanent Regulation S Debenture" shall have the meaning assigned to
it in Section 213(c).
"Premium Adjustment" shall mean the factor by which the Exchange
Market Value or the Current Market Value of the Reference Shares attributable
to a Debenture, as the case may be, is to be multiplied pursuant to Section
218(a). The initial Premium Adjustment shall equal a factor of 1.00625, and
each additional Premium Adjustment shall increase such factor by an additional
.00625. For greater certainty, and by way of example, two Premium Adjustments
would require the Exchange Market Value or the Current Market Value of the
Reference Shares attributable to a Debenture, as the case may be, to be
multiplied by a factor of 1.0125.
"Reference Company" shall mean Sprint Corporation, for so long as any
Reference Shares are Sprint PCS Stock, and any other issuer of a Reference
Share.
"Reference Share" shall initially mean one share of Sprint PCS Stock;
and after the date hereof shall mean and include each share or fraction of a
share of Common Equity Securities received by a holder of a Reference Share in
respect of that Reference Share, and, to the extent the Reference Share remains
outstanding after any of the following events but without duplication,
including the Reference Share outstanding immediately prior thereto, in each
case directly or as the result of successive applications of this paragraph
upon any of the following events: (i) a distribution on or in respect of a
Reference Share, made in Reference Shares; (ii) the combination of a Reference
Share into a smaller number of shares or other units; (iii) the subdivision of
outstanding shares or other units of a Reference Share; (iv) the conversion or
reclassification of Reference Shares by issuance or exchange of other Common
Equity Securities; (v) any Common Equity Securities issued for a Reference
Share in any consolidation or merger of a Reference Company, or any surviving
entity or subsequent surviving entity of a Reference Company (referred to
herein as a "Reference Company Successor"), with or into another entity (other
than any Common Equity Securities issued in connection with (A) a Reference
Share Offer or (B) a merger or consolidation in which (x) the Reference Company
is the continuing corporation and in which the Reference Shares outstanding
immediately prior to the merger or consolidation are not exchanged for cash,
securities or other property of the
5
<PAGE> 8
Reference Company or another corporation or (y) an election is given as to the
consideration to be received by a holder of Reference Shares); (vi) any Common
Equity Securities issued in exchange for a Reference Share in any statutory
exchange of securities of a Reference Company or any Reference Company
Successor with another corporation (other than any Common Equity Securities
issued in connection with (A) a Reference Share Offer or (B) a statutory
exchange of securities in which (x) the Reference Company is the continuing
corporation and in which the Reference Shares outstanding immediately prior to
the statutory exchange are not exchanged for cash, securities or other property
of the Reference Company or another corporation or (y) an election is given as
to the consideration to be received by a holder of Reference Shares); (vii) any
Common Equity Securities issued with respect to a Reference Share in connection
with any liquidation, dissolution or winding up of the Reference Company or any
Reference Company Successor; and (viii) any Common Equity Securities received
in exchange for a Reference Share as part of the Average Transaction
Consideration deemed received in any Reference Share Offer. For purposes of
this definition, (I) a conversion or redemption by Sprint Corporation of all
shares of Sprint PCS Stock pursuant to Article Sixth, Section 7.1 of its
Articles of Incorporation shall be deemed a consolidation or merger; and (II) a
redemption by Sprint Corporation pursuant to Article Sixth, Section 7.2 of its
Articles of Incorporation of all of the outstanding shares of Sprint PCS Stock
in exchange for common stock of one or more wholly-owned subsidiaries that
collectively hold all of the assets and liabilities attributed to its PCS Group
shall be deemed a statutory exchange of shares of Sprint PCS Stock for shares
of common stock of the relevant subsidiary or subsidiaries; provided, however,
that if there is an election given to holders of Sprint PCS Stock in connection
with any such conversion or redemption, the transaction shall be deemed a
Reference Share Offer.
"Reference Share Distribution" shall mean any dividend or distribution
on or in respect of the Reference Shares, including payments and distributions
in connection with (i) the consolidation or merger of a Reference Company or
Reference Company Successor, a statutory exchange of securities of a Reference
Company or Reference Company Successor or a liquidation or dissolution of a
Reference Company or Reference Company Successor or (ii) any Reference Share
Offer, but shall not include any dividend or distribution made in the form of
additional Reference Shares.
"Reference Shares Eligibility Date" shall mean the later of (i)
February 15, 2002, and (ii) the date on which an Officers' Certificate is
delivered to the Trustee which certifies that the Company and the Trust, taken
together, no longer have a direct or indirect ownership interest of 10% or more
of the outstanding shares of any class or series of Reference Shares that are
equity securities registered under the Securities Exchange Act, assuming the
exercise and conversion by the Company and the Trust (but not by any other
holder) of all securities that are convertible into, or exchangeable or
exercisable for, shares or such class or series (but without regard to any
restriction or limitation on the conversion, exchange or exercise thereof). The
Company shall issue a press release announcing the Reference Shares Eligibility
Date, and provide it to DTC for dissemination through the DTC broadcast
facility.
"Reference Share Offer" shall mean any tender offer or exchange offer
made for 30% or more of the outstanding shares of a class or series of
Reference Shares of a Reference Company or any consolidation, merger or
statutory exchange involving a class or series of Reference Shares of a
Reference Company in which an election is given to holders of such Reference
6
<PAGE> 9
Shares as to the consideration to be received in the transaction. A "Reference
Share Offer" shall include a conversion or redemption by Sprint Corporation of
less than all shares of Sprint PCS stock pursuant to Article Sixth, Section 7.1
of its Articles of Incorporation or any conversion or redemption by Sprint
Corporation of all shares of Sprint PCS Stock pursuant to Article Sixth,
Section 7.1 or Section 7.2 of its Articles of Incorporation in which a holder
of Sprint PCS Stock is given an election as to the consideration that he or she
may receive.
"Reference Share Offer Adjustment" shall mean (a) an adjustment to the
Reference Shares attributable to each Debenture to include the portion of the
Average Transaction Consideration received in a Reference Share Offer that
consists of Reference Shares, and (b) a reduction in the number of Reference
Shares attributable to each Debenture prior to such Reference Share Offer by
the Reference Share Proportionate Reduction.
"Reference Share Proportionate Reduction" shall mean a proportionate
reduction in the number of Reference Shares which are the subject of the
applicable Reference Share Offer and attributable to each Debenture, calculated
in accordance with the following formula:
X
R = ---
N
where:
R = the fraction by which the number of Reference Shares of the
class or series of Reference Shares subject to the Reference
Share Offer and attributable to each Debenture will be
reduced;
X = the aggregate number of Reference Shares of the class or
series of Reference Shares subject to the Reference Share
Offer accepted in the Reference Share Offer; and
N = the aggregate number of Reference Shares of the class or
series of Reference Shares subject to the Reference Share
Offer outstanding immediately prior to the expiration of the
Reference Share Offer.
"Registration Default" shall mean either (a) the Shelf Registration
Statement is not filed with the Securities and Exchange Commission on or prior
to the 90th calendar day following the date of original issuance of the
Debentures or (b) such Shelf Registration Statement has not been declared
effective on or prior to the 180th calendar day following the date of original
issuance of the Debentures.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of February 10, 2000, among the Company and the Initial
Purchaser.
"Registration Suspension" shall mean any period of more than an
aggregate of 30 calendar days in any consecutive twelve-month period, occurring
after the Shelf Registration Statement has been declared effective, during
which such Shelf Registration Statement is not usable as contemplated by the
Registration Rights Agreement.
7
<PAGE> 10
"Regular Additional Distribution" shall mean any Additional
Distribution as a result of a Reference Share Distribution that consists of a
Regular Cash Dividend.
"Regular Cash Dividend" shall mean any cash dividend declared by a
Reference Company on its Reference Shares in accordance with the Reference
Company's publicly announced regular common equity dividend policy.
"Regulation S" shall mean Regulation S under the Securities Act.
"Restricted Period" shall have the meaning assigned to it in Section
207.
"Rule 144A" shall mean Rule 144A under the Securities Act, as such
rule may be amended from time to time.
"Rule 144A Debentures" shall have the meaning assigned to it in
Section 215.
"Securities Act" shall mean the United States Securities Act of 1933,
as amended.
"Securities Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended.
"Share Event" shall mean that the Trustee shall have received an
Officers' Certificate which states that the Trust no longer holds the entire
pecuniary interest in an amount of Sprint PCS Stock or securities convertible
or exercisable therefor, or in Reference Shares received by the trustee of the
Trust for such securities, free and clear of any rights or other claims of
others, including rights or claims relating to the market value of such
securities, that are equal to or greater than the aggregate amount of Reference
Shares attributable to all Debentures then outstanding; provided, however, that
a Share Event shall not be deemed to have occurred if the Trust no longer holds
the prescribed securities by reason of its transfer of such securities to or
upon the order of the Company.
"Share Event Redemption" shall mean the redemption of the Debentures
pursuant to Section 208(c) following the occurrence of a Share Event.
"Shelf Registration Statement" shall mean the registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement.
"Special Payment Adjustment" shall mean each special interest payment
on a Debenture in an amount equal to 0.625% of the Original Principal Amount of
each Debenture.
"Sprint Corporation" shall mean Sprint Corporation, a Kansas
corporation.
"Sprint PCS Stock" shall mean the Sprint Corporation PCS common
stock-Series 1, par value $1.00 per share.
"Tax Event" shall mean that the Trustee shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters to
the effect that as a result of (a) any amendment to, clarification of, or
change in the laws, or any regulations thereunder, of
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the United States or any political subdivision or taxing authority thereof or
therein, or (b) any judicial decision, official administrative pronouncement,
ruling, regulatory procedure, notice or announcement, including any
announcement of proposed procedures or regulations, in each case, on or after
February 3, 2000 (a "change in tax law"), there is the creation by such change
in tax law of a substantial risk that, pursuant to Section 263(g) of the
Internal Revenue Code, the Company will not be able to deduct all of the
interest (including original issue discount) paid or accrued with respect to
the Debentures in calculating its U.S. federal income tax liability.
"Tax Event Redemption" shall mean the redemption of the Debentures
pursuant to Section 208(b) following the occurrence of a Tax Event.
"Temporary Regulation S Debenture" shall have the meaning assigned to
it in Section 213(c).
"Trading Day" shall mean (i) where the Closing Price of a security is
to be determined, a day on which the security (a) is not suspended from trading
or quotation at the close of business on the national or regional securities
exchange, the National Market System or over-the-counter market that is the
primary market for the trading or quotation of that security and (b) has traded
or been quoted at least once on the national or regional securities exchange,
the National Market System or over-the-counter market that is the primary
market for the trading or quotation of that security and (ii), for any other
purpose under this Fourth Supplemental Indenture, any day on which the Nasdaq
National Market and the New York Stock Exchange are open for the transaction of
business.
"Trust" shall mean the Liberty PCS Trust created by that certain trust
agreement, entered into as of March 9, 1999, between TCI Wireless Holdings,
Inc., as grantor, and M. LaVoy Robison, as trustee, as the same may be amended
from time to time.
"Yield Adjustment" shall mean any adjustment required to be made to
the Adjusted Principal Amount on any Interest Payment Date following any
Extraordinary Additional Distribution (except for the Interest Payment Date
immediately following such Extraordinary Additional Distribution) so that the
interest payment on such Interest Payment Date does not represent an annualized
yield in excess of 3 3/4% on the Adjusted Principal Amount (exclusive of any
Special Payment Adjustment) of the Debentures during the semi-annual period
immediately preceding such Interest Payment Date.
Section 102. Section References.
Each reference to a particular section set forth in this Fourth
Supplemental Indenture shall, unless the context otherwise requires, refer to
this Fourth Supplemental Indenture.
Section 103. Conflict with Original Indenture.
To the extent that any of the terms set forth in this Fourth
Supplemental Indenture or the certificates representing the Debentures shall
conflict with any of the terms of the Original Indenture, the terms of this
Fourth Supplemental Indenture and the certificates representing the Debentures
shall be controlling with respect to the Debentures.
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ARTICLE TWO
TITLE AND TERMS OF THE SECURITIES
Section 201. Title of the Securities.
The title of the Securities of the series established hereby is the
"3 3/4% Senior Exchangeable Debentures due 2030".
Section 202. Amount and Denominations.
The aggregate Original Principal Amount of the Debentures which may be
authenticated and delivered under the Indenture is initially limited to
$1,000,000,000, except for Debentures authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Debentures pursuant to Section 304, 305, 306, 904 or 1107 of the Original
Indenture; provided, however, that the series of Securities established hereby
may be reopened, without the consent of the Holders of Outstanding Debentures,
for issuance of additional Debentures.
Section 203. Registered Securities.
The certificates for the Debentures shall be Registered Securities and
shall be in substantially the forms attached hereto as Exhibits A-1, A-2 or
A-3, and shall bear the legends as are inscribed thereon.
Section 204. Stated Maturity; Changes to Original Principal Amount or
Adjusted Principal Amount.
(a) The Stated Maturity of the principal of the Debentures shall
be February 15, 2030.
(b) Not less than 30 Business Days prior to the Stated Maturity
of the principal of the Debentures, the Company shall issue a press release and
provide it to DTC for dissemination through the DTC broadcast facility, as to
whether or not the Company will deliver, or cause to be delivered, Reference
Shares in exchange for any Debentures submitted for exchange, in accordance
with Section 209, from the date of such notice through 5:00 p.m., New York City
time, on the Trading Day next preceding such Stated Maturity. If Reference
Shares are to be delivered in connection with any such exchange, Debentures
validly exchanged during that period, in accordance with Section 209, will be
exchanged for the Reference Shares attributable to such Debentures, and the
Company shall pay at Stated Maturity to Holders that do not exchange their
Debentures an amount, in cash, determined in the same manner as the Redemption
Price is determined in Section 208(a)(ii) (substituting the term "Stated
Maturity" for "Redemption Date" therein), in full payment for such Debentures.
If Reference Shares are not to be delivered in connection with any such
exchange, the exchange right set forth in Section 209 will terminate as of the
30th Business Day prior to the Stated Maturity of the principal of the
Debentures and the Company shall pay at Stated Maturity to Holders of
Debentures an amount, in cash, determined in the same manner as the Redemption
Price is determined in Section 208(a)(i)(B) (substituting the term "Stated
Maturity" for "Redemption Date" therein), in full payment for such Debentures.
Any notice by the Company as to whether or not it will deliver Reference Shares
in exchange for Debentures pursuant to this Section 204(b) shall be
irrevocable.
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(c) The principal amount of each Debenture shall initially equal
the Original Principal Amount. Thereafter, the principal amount of each
Debenture, as of any date of determination, shall equal the Adjusted Principal
Amount. In calculating the Adjusted Principal Amount, (i) the value of any
Extraordinary Additional Distribution shall be subtracted as of the date it is
distributed to holders of the Debentures, and (ii) the amount of each Yield
Adjustment shall be subtracted on the Interest Payment Date to which such Yield
Adjustment relates. In no event will the Adjusted Principal Amount be less than
zero. The Company shall issue a press release upon the occurrence of each
reduction to the Adjusted Principal Amount, and provide it to DTC for
dissemination through the DTC broadcast facility.
(d) At least five Business Days prior to the Stated Maturity of
the principal of Debentures, the Company shall deliver an Officers' Certificate
to the Trustee which: (i) sets forth the amount to be paid in accordance with
Section 204(b) at such Stated Maturity for each Debenture and for all
Debentures then Outstanding, (ii) sets forth a reasonably detailed calculation
of such amounts, and (iii) directs the Trustee to adjust its records
accordingly and to request the Depository to adjust its records accordingly. At
or prior to 10:00 a.m., New York City time, on the date of Stated Maturity of
the principal of the Debentures, the Company shall deposit 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 of the Original
Indenture) an amount in cash sufficient to pay, in accordance with Section
204(b), the amount due on all Debentures that are Outstanding at 5:00 p.m., New
York City time, on the date of such Stated Maturity.
(e) In the event of an acceleration of maturity of the Debentures
pursuant to Section 502 of the Original Indenture, there shall become
immediately due and payable an amount equal to the sum of (1) the greater of
(a) the Adjusted Principal Amount of the Debentures then Outstanding and (b)
the Current Market Value of the Reference Shares attributable to the
Debentures, (2) any accrued and unpaid interest on the Debentures, (3) the
amount of any payment required to made pursuant to Section 218 in respect of
any Special Payment Adjustment and (4), subject to Section 211, any Final
Period Distribution on the Debentures, determined as if (i) in the case of an
Event of Default specified in clause (8) or (9) of Section 501 of the Original
Indenture (as supplemented by Section 217(c) hereof), the date of such Event of
Default were the Stated Maturity of the principal of the Debentures and (ii) in
the case of any other Event of Default, the date of declaration of acceleration
were the Stated Maturity of the principal of the Debentures.
Section 205. Interest.
(a) The Debentures shall bear interest from February 10, 2000 or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semiannually on February 15 and August 15 of each year
(each, an "Interest Payment Date"), commencing August 15, 2000, to the Persons
in whose names the Debentures (or one or more Predecessor Securities) are
registered at the close of business on the February 1 or August 1 immediately
preceding such Interest Payment Date. Calculations of interest on each
Debenture
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shall be based on the Original Principal Amount, without regard to changes in
the Adjusted Principal Amount. Interest on the Debentures shall be computed on
the basis of a 360-day year of twelve 30-day months. The amount of interest
payable on the Debentures on the initial Interest Payment Date shall be
computed on the basis of six 30-day months and an additional five days.
(b) Interest on the Debentures will accrue at the rate of 3 3/4%
per annum until the principal thereof is paid or made available for payment;
provided, however, that such interest rate shall be subject to increase as
follows:
(i) the interest rate shall be increased ("Additional
Interest") by one quarter of one percent (0.25%) per annum upon the
occurrence of each Registration Default or Registration Suspension,
which rate will increase by one quarter of one percent (0.25%) 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 amount of Additional Interest 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 such Registration Default will cease;
(ii) accrual of Additional Interest will cease and the
interest rate will revert to the original rate, in the case of a
Registration Default, upon the earlier to occur of (A) the cure of all
Registration Defaults or (B) the date on which the Debentures are
saleable pursuant to Rule 144(k) under the Securities Act or any
successor provision; and in the case of a Registration Suspension,
upon the Shelf Registration Statement once again becoming usable as
contemplated under the Registration Rights Agreement;
(iii) Additional Interest shall accrue from and including the
day following the applicable Event Date (as defined below), and shall
be computed based on the actual number of days elapsed in each 90-day
period; and
(iv) the Company shall deliver to the Trustee an Officers'
Certificate 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").
(c) At least five Business Days prior to each Interest Payment
Date, the Company shall deliver an Officers' Certificate to the Trustee setting
forth: (i) the amount of interest per Debenture due for that interest period,
(ii) the amount of any payment required to be made under Section 206(b) in
respect of any Regular Cash Dividends, (iii) the amount of any payment required
to be made pursuant to Section 218 in respect of any Special Payment Adjustment
and (iv) the total payment due for that period on all Debentures outstanding.
Section 206. Additional Distributions.
(a) The Company shall distribute, or cause to be distributed, as
an Additional Distribution to all Holders of Debentures, any Reference Share
Distribution received by holders of Reference Shares, or the cash value
thereof, in accordance with this Section 206.
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(b) In the case of any Regular Cash Dividend, the Company shall
pay, to the Holder of each Debenture, as a Regular Additional Distribution, the
amount of cash received by a holder of the number of Reference Shares
attributable to such Debenture in respect of such Regular Cash Dividend. Such
payment shall be made by the Company on the next Interest Payment Date to
Holders of Debentures as of 5:00 p.m., New York City time, on the Regular
Record Date for such Interest Payment Date.
(c) In the case of any Extraordinary Dividend, the Company shall
deliver, to the Holder of each Debenture, as an Extraordinary Additional
Distribution, all dividends and distributions, or the fair market value thereof
(determined in accordance with Section 206(d) or (e)), received by a holder of
the number of Reference Shares attributable to such Debenture in respect of
such Extraordinary Dividend. Any distribution pursuant to this subsection (c)
shall be made by the Company to Holders of Debentures as of a special record
date which shall be the 10th Business Day after the date of the payment of the
Extraordinary Distribution by the applicable Reference Company, and shall be
distributed to such Holders on the 10th Business Day following such special
record date.
(d) If an Extraordinary Distribution consists of securities or
units that are Marketable Securities (other than securities which are, or
become, Reference Shares), such securities or units will be distributed by the
Company to Holders of the Debentures in accordance with Section 206(c);
provided, that the Company shall not distribute fractional securities or units.
In lieu of fractional securities or units, the Company shall pay the Holders of
Debentures an amount in cash equal to the Closing Price, as of the special
record date, of the security or unit to be distributed multiplied by such
fractional interest. For purposes of determining the existence of fractional
interests, all Debentures held by a Holder shall be considered together (no
matter how many separate certificates such Holder may have). In the event the
Company is unable to distribute any securities or units as part of an
Extraordinary Additional Distribution because any necessary qualifications or
registrations of such securities or units under applicable state or federal
securities laws cannot be obtained on a timely basis, the Company may instead
deliver, in lieu of such securities or units, cash based on the average of the
Closing Prices of such securities or units over the five Trading Days ending on
the Trading Day next preceding the distribution by the Company of such
Extraordinary Additional Distribution.
(e) If an Extraordinary Distribution consists of cash, assets or
property other than securities or units that are Marketable Securities, the
Company shall pay to Holders of the Debentures an amount of cash equal to the
fair market value thereof; such fair market value to be determined as of the
date such Extraordinary Distribution is made or paid to holders of the
applicable Reference Shares. Such fair market value shall be equal to the
amount determined in good faith by the Board of Directors, unless the Board of
Directors determines in good faith that there is a substantial likelihood that
the aggregate fair market value will be in excess of $100,000,000, in which
case such fair market value shall be determined by a nationally recognized
investment banking or appraisal firm retained by the Company for this purpose.
The fair market value so determined shall be set forth in a Board Resolution
or, in the case of a determination by an investment banking or appraisal firm,
an Officers' Certificate.
(f) At least five Business Days prior to the payment or delivery
of an Extraordinary Additional Distribution by the Company pursuant to Section
206(c), the Company shall deliver
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to the Trustee a Board Resolution setting a special record date for such
Extraordinary Additional Distribution and an Officers' Certificate setting
forth: (i) the exact amount of Marketable Securities or cash to be distributed
on or with respect to the Reference Shares attributable to each Debenture, and
(ii) the total amount of Marketable Securities or cash to be distributed on or
with respect to the Reference Shares attributable to all Debentures that are
Outstanding as of such special record date. If any distribution relates to any
assets or other property that is not publicly traded, then at least five
Business Days prior to such distribution, the Company shall deliver to the
Trustee: (i) a Board Resolution establishing the fair market value of the
assets or other property, unless such fair market value is determined by a
nationally recognized investment banking or appraisal firm, in which case the
Company shall deliver to the Trustee the report of such firm and (ii) an
Officers' Certificate setting forth (a) the exact amount of cash to be
distributed on or with respect to the Reference Shares attributable to each
Debenture and (b) the total amount of cash to be distributed on or with respect
to the Reference Shares attributable to all Debentures that are Outstanding as
of such special record date in respect of any assets or other property that is
not publicly traded. The Trustee is only responsible for distributing
Marketable Securities in the form of global book entry securities that are DTC
eligible. At or prior to 10:00 a.m., New York City time, on the date an
Extraordinary Additional Distribution is to be made pursuant to Section 206(c),
the Company shall (i) in the case of an Extraordinary Additional Distribution
consisting of cash, deposit with the Trustee or with a Paying Agent an amount
of cash equal to the Extraordinary Additional Distribution to be paid on such
date and (ii) in the case of an Extraordinary Additional Distribution
consisting of Marketable Securities, transfer by book-entry to the account of
the Trustee or a Paying Agent at DTC (or any successor Depository) the amount
of Marketable Securities to be distributed in such Extraordinary Additional
Distribution on such date. The Company shall act as its own Paying Agent for
any Marketable Securities to be delivered other than through book-entry. The
Company shall issue a press release setting forth the amount and composition,
per Debenture, of any Extraordinary Additional Distribution, and shall deliver
such press release to DTC for dissemination through the DTC broadcast facility.
Section 207. Registration, Transfer and Exchange.
The principal of and interest on the Debentures shall be payable and
the Debentures may be surrendered or presented for payment, the Debentures may
be surrendered for registration of transfer or exchange, and notices and
demands to or upon the Company in respect of the Debentures 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 the Debentures 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 Original 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
Original Principal Amount of Debentures on a Regular Record Date shall be
entitled to receive interest payments on the next succeeding Interest Payment
Date, other than an Interest
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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.
(a) Rule 144A Debenture to Temporary Regulation S Debenture.
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 Debenture deposited with the Depository
wishes at any time to exchange all or a portion of its interest in such Rule
144A Debenture for an interest in the Temporary Regulation S Debenture, or to
transfer all or a portion of its interest in such Rule 144A Debenture to a
Person who wishes to take delivery thereof in the form of an interest in such
Temporary Regulation S Debenture, 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
such interest for an equivalent beneficial interest in such Temporary
Regulation S Debenture. Upon receipt by the Trustee, as transfer agent, at its
principal corporate trust 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 Debenture in an amount equal to the beneficial
interest in the Rule 144A Debenture 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 B 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 Debenture by the aggregate principal
amount of the beneficial interest in such Rule 144A Debenture 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 Debenture by
the aggregate principal amount of the beneficial interest in such Rule 144A
Debenture 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 Debenture equal to the
reduction in the principal amount of such Rule 144A Debenture.
(b) Rule 144A Debenture to Permanent Regulation S Debenture.
After the expiration of the Restricted Period, if a holder of a beneficial
interest in the Rule 144A Debenture deposited with the Depository wishes at any
time to exchange all or a portion of its interest in such Rule 144A Debenture
for an interest in the Permanent Regulation S Debenture, or to transfer all or
a portion of its interest in such Rule 144A Debenture to a Person who wishes to
take delivery thereof in the form of an interest in such Permanent Regulation S
Debenture, 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 such
interest for an equivalent beneficial interest in such Permanent Regulation S
Debenture. Upon receipt by the Trustee, as transfer agent, at its principal
corporate trust office in The City of New York of (1) instructions given in
accordance with the Depository's procedures from an agent
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member directing the Trustee to credit or cause to be credited a beneficial
interest in the Permanent Regulation S Debenture in an amount equal to the
beneficial interest in the Rule 144A Debenture 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 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 Debenture by the aggregate principal amount of the
beneficial interest in such Rule 144A Debenture 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 Debenture by
the aggregate principal amount of the beneficial interest in such Rule 144A
Debenture 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 Debenture equal to the
reduction in the principal amount of such Rule 144A Debenture.
(c) Regulation S Security to Rule 144A Debenture. If a holder of
a beneficial interest in the Temporary Regulation S Debenture or the Permanent
Regulation S Debenture which is deposited with the Depository wishes at any
time to exchange its interest for an interest in the Rule 144A Debenture, or to
transfer its interest in such Temporary Regulation S Debenture or Permanent
Regulation S Debenture to a Person who wishes to take delivery thereof in the
form of an interest in such Rule 144A Debenture, 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 Debenture. Upon receipt by the
Trustee, as transfer agent, at its principal corporate trust office 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 Debenture in an amount
equal to the beneficial interest in the Temporary Regulation S Debenture or the
Permanent Regulation S Debenture 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 Debenture
(but not the Permanent Regulation S Debenture) for an interest in the Rule 144A
Debenture, a certificate substantially in the form of Exhibit D 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
Temporary Regulation S Debenture or such Permanent Regulation S Debenture, as
the case may be, by the aggregate principal amount of the beneficial interest
in such Temporary Regulation S Debenture or such Permanent Regulation S
Debenture 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
Debenture by the aggregate principal amount of the beneficial interest in such
Permanent Regulation S Debenture or such Temporary Regulation S Debenture, 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
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specified in such instructions a beneficial interest in such Rule 144A
Debenture equal to the reduction in the principal amount of such Permanent
Regulation S Debenture or such Temporary Regulation S Debenture, as the case
may be.
(d) Temporary Regulation S Debenture to Permanent Regulation S
Debenture. After the expiration of the Restricted Period, interests in a
Temporary Regulation S Debenture as to which the Trustee has received from
Euroclear or Cedel, as the case may be, a certificate substantially in the form
of Exhibit E hereto to the effect that Euroclear or Cedel, as applicable, has
received a certificate substantially in the form of Exhibit F hereto from the
holder of a beneficial interest in such Temporary Regulation S Debenture, will
be exchanged, on and after the Restricted Period, for interests in the
Permanent Regulation S Debenture. The Trustee shall effect such exchange by
delivering to the Depository for credit to the respective accounts of the
holders of Debentures represented by a beneficial interest in the Temporary
Regulation S Global Debenture, a duly executed and authenticated Permanent
Regulation S Debenture, representing the principal amount of interests in the
Temporary Regulation S Debenture initially exchanged for interests in the
Permanent Regulation S Debenture. 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 Fourth Supplemental Indenture and the
Temporary Regulation S Debenture. Upon any exchange of interests in a Temporary
Regulation S Debenture for interests in a Permanent Regulation S Debenture, the
Trustee shall endorse the Temporary Regulation S Debenture to reflect the
reduction in the principal amount represented thereby by the amount so
exchanged and shall endorse the Permanent Regulation S Debenture to reflect the
corresponding increase in the amount represented thereby. Until so exchanged in
full and except as provided therein, the Temporary Regulation S Debenture, and
the Debentures evidenced thereby, shall in all respects be entitled to the same
benefits under the Indenture as the Permanent Regulation S Debenture and the
Rule 144A Debenture authenticated and delivered hereunder.
Section 208. Redemption of the Debentures.
(a) Optional Redemption. The Debentures will be redeemable at the
option of the Company, in whole or in part (provided that immediately after any
partial redemption at least $100,000,000 Original Principal Amount of
Debentures would remain outstanding) at any time or from time to time after
February 15, 2004, on at least 30 Business Days (but not more than 60 days)
prior notice to Holders of the Debentures. In the notice of redemption, the
Company shall specify its irrevocable election of one of the following options:
(i) to terminate Holders' right to exchange, in accordance
with Section 209, Debentures called for redemption (but not affecting
the exchange rights of Holders of any Debentures not called for
redemption), in which case (A) no further exchange of such Debentures
called for redemption pursuant to Section 209 will be permitted on or
after the 30th Business Day preceding the Redemption Date and (B) on
the Redemption Date, the Company shall pay Holders, for each Debenture
to be redeemed, a Redemption Price, in cash, equal to the sum of (1)
the greater of (a) the Adjusted Principal Amount of such Debenture as
of the Redemption Date and (b) 100% of the Current Market Value of the
Reference Shares attributable to such Debenture, subject to adjustment
pursuant to Section 218 in respect of any Premium Adjustments, (2) any
accrued and unpaid interest on such Debenture to the Redemption Date,
(3) the amount of any payment required to made pursuant to
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<PAGE> 20
Section 218 in respect of any Special Payment Adjustment and (4),
subject to Section 211, any Final Period Distribution on such
Debenture; or
(ii) to exchange Debentures surrendered at the option of
Holders in accordance with Section 209, for Reference Shares until
5:00 p.m., New York City time, on the Trading Day next preceding the
Redemption Date, in which case on the Redemption Date the Company
shall pay Holders who do not elect to exchange Debentures for
Reference Shares in accordance with Section 209(c), for each Debenture
to be redeemed, a Redemption Price, in cash, equal to the sum of (1)
the Adjusted Principal Amount of such Debenture at the Redemption
Date, (2) any accrued and unpaid interest on such Debenture to the
Redemption Date, (3) the amount of any payment required to made
pursuant to Section 218 in respect of any Special Payment Adjustment
and (4), subject to Section 211, any Final Period Distribution on such
Debenture.
(b) Tax Event Redemption. If at any time on or prior to May 15,
2000, a Tax Event shall have occurred, the Company shall have the right,
exercisable by giving notice of such redemption to the Trustee within 180 days
after the Tax Event, to give notice to Holders of the Debentures of a Tax Event
Redemption, which shall occur not less than twenty-five (25) Business Days
following the giving of such notice. Any Tax Event Redemption must apply to all
Outstanding Debentures. On the Redemption Date specified in the notice of
redemption to Holders of the Debentures, the Company shall pay Holders for each
Debenture a Redemption Price, in cash, equal to the sum of (1) the greater of
(A) 102% of the Adjusted Principal Amount of such Debenture and (B) 100% of the
Current Market Value of the Reference Shares attributable to such Debenture,
subject to adjustment pursuant to Section 218 in respect of any Premium
Adjustments, (2) any accrued and unpaid interest to the Redemption Date, (3)
the amount of any payment required to made pursuant to Section 218 in respect
of any Special Payment Adjustment and (4), subject to Section 211, any Final
Period Distribution on such Debenture. The Holders' right to exchange
Debentures pursuant to Section 209 shall terminate on the later of the date
notice of a Tax Event Redemption is given or the 25th Business Day prior to the
Redemption Date.
(c) Share Event Redemption. If at any time on or prior to
February 15, 2004, a Share Event shall have occurred, the Company shall have
the right, exercisable by giving notice of such redemption to the Trustee
within five Business Days after the Share Event, to redeem the Debentures, in
whole but not in part, on not less than twenty-five (25) Business Days (but not
more than 60 days) notice to Holders of the Debentures. On the Redemption Date
specified in the notice of redemption, the Company shall pay Holders for each
Debenture a Redemption Price, in cash, equal to the sum of (1) the greater of
(A) the Adjusted Principal Amount of such Debenture as of the Redemption Date
and (B) the sum of 100% of the Current Market Value of the Reference Shares
attributable to such Debenture, subject to adjustment pursuant to Section 218
in respect of any Premium Adjustments, and $115.04, (2) the remaining scheduled
semi-annual interest payments on such Debenture through and including February
15, 2004, (3) the amount of any payment required to made pursuant to Section
218 in respect of any Special Payment Adjustment and (4), subject to Section
211, any Final Period Distribution on such Debenture. The Holders' right to
exchange Debentures pursuant to Section 209 shall terminate on the later of the
date notice of a Share Event Redemption is given or the 25th Business Day prior
to the Redemption Date.
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<PAGE> 21
(d) Excess Borrow Cost Redemption. If at any time on or prior to
February 15, 2004, an Excess Borrow Cost Period shall have occurred, the
Company shall have the right, exercisable by giving notice of such redemption
to the Trustee within 180 days after the occurrence of the Excess Borrow Cost
Period, to redeem the Debentures, in whole but not in part, on not less than
twenty-five (25) Business Days (but not more than 60 days) notice to Holders of
the Debentures. On the Redemption Date specified in the notice of redemption,
the Company shall pay Holders for each Debenture a Redemption Price, in cash,
equal to the sum of (1) the greater of (A) 102% of the Adjusted Principal
Amount of such Debenture as of the Redemption Date and (B) the sum of 100% of
the Current Market Value of the Reference Shares attributable to such
Debenture, subject to adjustment pursuant to Section 218 in respect of any
Premium Adjustments, (2) any accrued but unpaid interest to the Redemption
Date, (3) the amount of any payment required to made pursuant to Section 218 in
respect of any Special Payment Adjustment and (4), subject to Section 211, any
Final Period Distribution on such Debenture. The Holders' right to exchange
Debentures pursuant to Section 209 shall terminate on the later of the date
notice of a Excess Borrow Cost Redemption is given or the 25th Business Day
prior to the Redemption Date.
(e) Notices. In case of any redemption, the Company shall deliver
an Officers' Certificate to the Trustee not less than five Business Days prior
to the Redemption Date which sets forth (i) the Redemption Price to be paid for
each Debenture called for redemption on such Redemption Date and (ii) the
aggregate amount payable for all Debentures called for redemption on such
Redemption Date.
(f) Interest Accrual to Cease. Once notice of redemption has been
given and funds are irrevocably deposited with the Trustee, interest on the
Debentures will cease to accrue on and after the Redemption Date and all rights
of the Holders of the Debentures called for redemption will cease, except for
the right of Holders to receive the Redemption Price (but without interest on
such Redemption Price) and any right to receive payment pursuant to Section
211.
(g) Payment Failure. In the event that the Company fails to pay
any amount due on redemption of the Debentures on a Redemption Date, interest
on the Debentures called for redemption shall continue to accrue at an annual
rate of 3 3/4% of the Original Principal Amount thereof from the date
originally set for redemption to the actual date of payment, and such actual
date of payment shall be deemed to be the Redemption Date for purposes of
calculating the amount to be paid to the Holders of Debentures on redemption,
except that the amount of the Final Period Distribution shall be determined as
of the date originally set for redemption.
(h) Company Notice. Section 1002 of the Original Indenture is
hereby deleted, solely with respect to the Debentures, and in lieu thereof the
following shall be applicable to the Debentures:
"The election of the Company to optionally redeem any
Debentures shall be evidenced by or pursuant to a Board Resolution. In
the case of any optional redemption by the Company that involves less
than all of the Debentures, the Company shall, at least 60 days prior
to the Redemption Date fixed by the Company (unless a shorter period
shall
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<PAGE> 22
be acceptable to the Trustee), notify the Trustee of such Redemption
Date and of the Original Principal Amount of Debentures to be
redeemed."
Section 209. Exchange of the Debentures.
(a) Each Debenture will be exchangeable at the option of the
Holder at any time (except as otherwise provided in subsection (f) below) for
the Exchange Market Value of the Reference Shares attributable to that
Debenture. The number of Reference Shares attributable to each Debenture shall
be 16.7764, subject to adjustment as a result of any Reference Share
Proportionate Reduction, any Premium Adjustment, or any other adjustment
contemplated by the definition of "Reference Shares."
(b) The Company shall pay 100% of the Exchange Market Value,
subject to adjustment pursuant to Section 218 hereof in respect of any Premium
Adjustments, of the Reference Shares attributable to each Debenture, only in
cash, for all exchanges made on or before the Reference Shares Eligibility
Date. From and after the Reference Shares Eligibility Date, the Company may, at
its option, (i) pay 100% of the Exchange Market Value of the Reference Shares
attributable to each Debenture, subject to adjustment pursuant to Section 218
in respect of any Premium Adjustments, in cash; (ii) deliver the Reference
Shares attributable to such Debenture in payment of such Exchange Market Value;
or (iii) deliver a combination of Reference Shares and cash. Such payment or
delivery will be made as promptly as practicable, but in any event within ten
Trading Days after the date of determination of the Exchange Market Value. The
Company shall notify the Exchange Agent of its election to pay cash or deliver
Reference Shares, or a combination of the foregoing, by no later than 9:30
a.m., New York City time, on the Trading Day next following the applicable
Exchange Date. The Exchange Agent shall notify an exchanging Holder of the
Company's election under this Section 209(b) prior to 10:00 a.m., New York City
time, on the next Trading Day after the Exchange Date.
(c) To exchange a Debenture a Holder must (a) in the case of a
Debenture held through the Depository, surrender such Debenture for exchange
through book-entry transfer into the account of the Exchange Agent, transmit an
agent's message requesting such exchange and comply with such other procedures
of the Depository as may be applicable in the case of an exchange and (b) in
the case of a Debenture held in certificated form, (i) complete and manually
sign the Notice of Exchange attached to the Debenture (or complete and sign a
facsimile of the Notice of Exchange) and deliver such Notice of Exchange to the
Exchange Agent, (ii) surrender the Debenture to the Exchange Agent, (iii)
furnish appropriate endorsements and transfer documents, if required by the
Exchange Agent, the Company or the Trustee and (iv) pay any transfer or similar
tax, if required. An exchange shall be deemed to have been effected at 5:00
p.m., New York City time, on the Exchange Date. The delivery of a Notice of
Exchange or, in the case of book-entry, an agent's message requesting exchange,
shall be irrevocable. A Holder may exchange a portion of its Debentures only if
the portion is $1,000 Original Principal Amount or an integral multiple
thereof. Following the Exchange Date for an exchange of Debentures, all rights
of the Holder with respect to such Debentures shall cease, except for the right
of such Holder to receive 100% of the Exchange Market Value, subject to
adjustment pursuant to Section 218 in respect of any Premium Adjustments (but
without interest thereon), of the Reference Shares attributable to such
Debentures.
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<PAGE> 23
(d) By 10:00 a.m., New York City time, on each Trading Day
following receipt by the Exchange Agent of notification from DTC that DTC has
received an agent's message from a DTC participant electing to exercise its
exchange option with respect to its Debentures, and delivery of such Debentures
into the Exchange Agent's DTC participant account, or following receipt of a
complete manually signed Notice of Exchange and receipt of certificated
Debentures from a Holder, the Exchange Agent shall notify the Company of the
principal amount of Debentures which has been tendered. When the Exchange
Market Value has been determined, the Company shall deliver an Officers'
Certificate to the Trustee setting forth the exact amount to be paid or the
amount of Reference Shares to be delivered to the tendering Holder and shall
deposit such amount with the Exchange Agent (except that if the Company elects
to deliver Reference Shares in certificated form, the Company shall act as its
own Paying Agent as to such shares). Upon receipt of such payment or delivery
from the Company, the Exchange Agent shall pay DTC as soon as practicable or,
in the cases of Debentures that are held in certificated form, as directed by
the tendering Holder. Where the Company acts as its own Paying Agent with
respect to certificated Reference Shares, it shall deliver them (i) as directed
by the relevant participants of the Depositary, as identified by the
Depositary, or (ii) to or at the direction of tendering Holders of Debentures.
(e) In the case of any exchange made during the period from (but
excluding) a Regular Record Date for any Interest Payment Date to (but
excluding) such Interest Payment Date, the Holder shall tender funds equal to
the interest and any Additional Distribution payable on such Interest Payment
Date.
(f) The right to exchange Debentures pursuant to this Section 209
shall terminate at 5:00 p.m., New York City time, (i) in the case of Stated
Maturity of the principal amount of the Debentures, on the Trading Day
immediately preceding such Stated Maturity and (ii) in the case of an optional
redemption, on the Trading Day immediately preceding the Redemption Date. A
Holder's right to exchange Debentures under this Section 209 shall further be
subject to termination by the Company (i) in connection with the payment of the
Debentures at Stated Maturity, during the period set forth in the penultimate
sentence of Section 206(b), (ii) in connection with optional redemption, during
the period set forth in clause (i) of Section 208(a), provided, that any such
termination shall only apply to Debentures that have been called for
redemption, (iii) in connection with a Tax Event Redemption, during the period
set forth in Section 208(b), (iv) in connection with a Share Event Redemption,
during the period set forth in Section 208(c) and (v) in connection with an
Excess Borrow Cost Redemption, during the period set forth in Section 208(d).
(g) If more than $1,000,000 aggregate Original Principal Amount
of Debentures are tendered for exchange on any given date, the Company shall
give notice of such event to the Trustee and the Trustee shall give notice
thereof to DTC for distribution through its broadcast facility.
Section 210. Distributions of Reference Shares or Other Securities.
(a) The Company will pay any and all documentary, stamp, transfer
or similar taxes that may be payable in respect of the transfer and delivery of
Reference Shares or in connection with an Extraordinary Additional Distribution
pursuant hereto; provided, however, that the
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<PAGE> 24
Company shall not be required to pay any such tax which may be payable in
respect of any transfer involved in delivery of such property to a name other
than that in which the Debentures were registered, and no such transfer or
delivery shall be made unless and until the Person requesting such transfer has
paid to the Company the amount of any such tax, or has established, to the
satisfaction of the Company, that such tax has been paid.
(b) The Company hereby warrants that upon delivery of any
Reference Shares or any securities in connection with any Extraordinary
Additional Distribution pursuant to this Supplemental Indenture, the Holder of
a Debenture shall receive all rights held by the Company in the securities to
be delivered, free and clear of any and all liens, claims, charges and
encumbrances, other than any liens, claims, charges and encumbrances which may
have been placed thereon by the prior owner thereof prior to the time acquired
by the Company. In addition, the Company further warrants that any securities
to be delivered hereunder shall be free of any transfer restrictions under
federal or state securities laws (other than such as are solely attributable to
any Holder's status as an affiliate of the issuer of such securities).
Section 211. Balance of Final Period Distribution Payment.
(a) In the case of a Final Period Distribution within the meaning
of clause (b) of the definition of "Final Period Distribution," the Company
shall pay such Final Period Distribution to the Holders of Debentures that have
been repaid in accordance with the first sentence of Section 204(b) or redeemed
in accordance with Section 208(a)(ii), (b), (c) or (d) as of a special record
date which shall be the 10th Business Day after the date of the payment of the
relevant Extraordinary Distribution by the applicable Reference Company; and
such payment shall be distributed on the 10th Business Day following such
special record date. The Company shall give notice regarding such distribution
to the Trustee in accordance with the provisions of Section 206(f).
(b) In the event that the applicable Reference Company fails to
make the Extraordinary Distribution referred to in subsection (a) above at the
time or in the amount expected, the Company shall pursue any claim it has
against such Reference Company, whether as a securityholder or otherwise, on
behalf of the Holders of Debentures. Reasonable costs of such actions by the
Company may be deducted from the amount of any Extraordinary Distribution
before any distribution is made to Holders of Debentures pursuant to Section
211(a).
Section 212. Denominations.
The Debentures shall be issued in denominations of $1,000 and integral
multiples in excess thereof.
Section 213. Applicability of Certain Original Indenture Provisions.
Section 402 of the Original Indenture, relating to defeasance and
covenant defeasance, shall not be applicable to the Debentures.
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<PAGE> 25
Section 214. Security Registrar and Paying Agent.
The Trustee shall be the initial Paying Agent and initial transfer
agent for the Debentures (subject to the Company's right (subject to Section
1002 of the Original Indenture) to remove the Trustee as such Paying Agent
and/or transfer agent and, from time to time, to designate 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 Debentures.
Section 215. Global Debentures.
(a) The Debentures shall be issued in the form of one or more
temporary or global Debentures. The initial Depository for the global
Debentures shall be DTC, and the depositary arrangements shall be those
employed by whoever shall be the Depositary with respect to the Debentures from
time to time.
(b) Rule 144A Debentures. 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
Debentures in definitive fully registered form without interest coupons,
substantially in the form of Exhibit A-1 (a "Rule 144A Debenture"). Each Rule
144A Debenture shall be deposited on behalf of the purchasers of the Debentures
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 Debenture 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 Debentures; Permanent Regulation S
Debentures. Debentures initially offered and sold in reliance on Regulation S
shall be issued in the form of temporary global Debentures in definitive fully
registered form without interest coupons, substantially in the form of Exhibit
A-2 (a "Temporary Regulation S Debenture"). Each Temporary Regulation S
Debenture shall be deposited on behalf of the purchasers of the Debentures
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
Debenture will be exchanged for a permanent global Debenture, substantially in
the form of Exhibit A-3 (a "Permanent Regulation S Debenture"). Until the
expiration of the Restricted Period, interests in a Temporary Regulation S
Debenture may only be held by agent members of Euroclear and Cedel. During the
Restricted Period, interests in a Temporary Regulation S Debenture may be
exchanged for interests in a Rule 144A Debenture. The aggregate principal
amount of a Temporary Regulation S Debenture and a Permanent Regulation S
Debenture 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.
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<PAGE> 26
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 Debenture insofar as interests in such global
Debenture 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 Debenture, 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 Debenture 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 Debenture.
(d) The Rule 144A Debentures, the Temporary Regulation S
Debentures and the Permanent Regulation S Debentures will be exchangeable for
certificated Debentures of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Rule 144A Debentures, the Temporary Regulation S Debentures and the
Permanent Regulation S Debentures, (ii) the Depository ceases to be a clearing
agency under the Securities Exchange Act, (iii) the Company in its sole
discretion determines that the Rule 144A Debentures, the Temporary Regulation S
Debentures and the Permanent Regulation S Debentures shall be exchangeable for
certificated Debentures or (iv) there shall have occurred and be continuing an
Event of Default under the Indenture with respect to the Debentures. Upon such
exchange, the certificated Debentures shall be registered in the names of the
beneficial owners of the Rule 144A Debentures which they have replaced; such
names shall be provided to the Trustee by the relevant participants of the
Depository, as identified by the Depository.
Section 216. Sinking Fund.
The Debentures shall not be subject to any sinking fund or similar
provision and shall not be redeemable at the option of the holder thereof.
Section 217. Amendments to Certain Sections of the Original
Indenture.
(a) The amendments to the Original Indenture contained in this
Section 217 shall apply only to the series of Debentures established pursuant
to this Fourth Supplemental Indenture.
(b) Clause (1) of Section 501 of the Original Indenture is hereby
amended by adding the words "or distributions" following the word "interest" on
the first and third lines and the words "(including any Special Payment
Adjustment)" following the word "Series" on the second line thereof.
(c) A new clause (3) is hereby added to Section 501 of the
Original Indenture, to read as follows, and existing clauses (3) through (9)
are renumbered accordingly and all references in the Original Indenture to
existing clauses (3) through (9) are renumbered accordingly:
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<PAGE> 27
(3) failure of the Company to comply with its
obligations to deliver cash or Reference Shares in exchange
for Debentures pursuant to Section 209 of the Fourth
Supplemental Indenture.
(d) The first paragraph of Section 502 of the Original Indenture
is hereby amended by adding the words "(including any Special Payment
Adjustment)" following the word "interest" in the eighth line thereof.
(e) Clauses (1) and (2) of the second paragraph of Section 502 of the
Original Indenture are hereby amended by adding the words "and distributions"
following the word "interest" in the second line of each such clause.
(f) Clause (1) of Section 902 of the Original Indenture is hereby
amended by adding the words "or distributions" following the word "interest" on
the second line and the words "(including any Special Payment Adjustment)"
following the word "Series" on the second line of such clause.
(g) Section 902 of the Original Indenture is hereby further
amended by adding a new clause (5), to read as follows:
(5) reduce the amount of cash or Reference Shares
deliverable upon exchange of the Debentures.
(h) Unless the context otherwise requires, all references to
payment of principal in the Original Indenture shall include the payment of the
Maturity Repayment Amount, and all references to payment of interest shall
include Additional Distributions and any Special Payment Adjustment.
Section 218. Adjustment for Excess Borrow Costs.
(a) If, during the Borrow Period, the Determination Agent
determines that an Excess Borrow Cost Period exists for any quarter ended
February 15, May 15, August 15 or November 15, then the Company, at its
election, must either:
(i) effective as of the first day of the next succeeding
quarter, apply a Premium Adjustment to the Exchange Market Value or
the Current Market Value of the Reference Shares attributable to each
Debenture, as applicable, upon (i) any optional or mandatory
redemption of such Debenture pursuant to Section 208, (ii) any
exchange of such Debenture by the Holder thereof pursuant to Section
209 and (iii) any payment for such Debenture at Stated Maturity or
upon any acceleration of the maturity of such Debenture pursuant to
Section 204; or
(ii) for the next succeeding quarter, pay a Special Payment
Adjustment on each Debenture;
provided, however, that the Company shall not be required to effect a Premium
Adjustment or a Special Payment Adjustment, of any combination thereof, more
than eight times.
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(b) If the Company elects to make a Premium Adjustment in respect
of an Excess Borrow Cost Period, such Premium Adjustment shall be added to any
Premium Adjustments elected by the Company in respect of earlier Excess Borrow
Cost Periods.
(c) If the Company elects to pay a Special Payment Adjustment,
the amount payable as a result of such adjustment shall be paid by the Company
on the next succeeding Interest Payment Date after (or on the last day of) the
quarter in respect of which such payment is made. If the Company elects to pay
a Special Payment Adjustment in respect of an Excess Borrow Cost Period and,
prior to the payment thereof on the succeeding Interest Payment Date, effects
an optional or mandatory redemption of Debentures pursuant to Section 208 or
repays the Debentures upon any acceleration of the maturity of the Debenture
pursuant to Section 204, the amount of the Special Payment Adjustment required
to paid in connection with such redemption or repayment shall be equal to the
amount of the Special Payment Adjustment that would have been payable on such
succeeding Interest Payment Date. If the Company notifies Holders of Debentures
of the Company's election to redeem the Debentures pursuant to Section 208(d)
and after the giving of such notice, and prior to the related Redemption Date,
an Excess Borrow Cost Period occurs, then the Company shall become obligated to
pay a Special Payment Adjustment in respect of such Excess Borrow Cost Period
(in addition to any Special Payment Adjustment that may be payable on such
Redemption Date in respect of an earlier Excess Borrow Cost Period).
(d) Upon any election pursuant to this Section 218, the Company
will give notice of such election to the Trustee and will promptly issue a
press release giving notice of its election to make a Premium Adjustment or to
pay a Special Payment Adjustment and will deliver such press release to DTC for
dissemination through the DTC broadcast facility.
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 Fourth 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
Fourth 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 Fourth 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.
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This Fourth 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.
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<PAGE> 30
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Supplemental Indenture to be duly executed as of the day and year first above
written.
LIBERTY MEDIA CORPORATION
By:
-----------------------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President and
General Counsel
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------------------------
Name: Walter N. Gitlin
Title: Vice President
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<PAGE> 31
EXHIBITS A-1 THROUGH A-4 ARE INTENTIONALLY OMITTED.
)
A-1
<PAGE> 32
EXHIBIT B
FORM OF TRANSFER CERTIFICATE
FOR EXCHANGE OR TRANSFER FROM RULE 144A DEBENTURE
TO TEMPORARY REGULATION S DEBENTURE
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
$750,000,000 3 3/4% Senior Exchangeable Debentures
due 2030 (the "Debentures")
Reference is hereby made to the Indenture dated as of July 7, 1999,
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Fourth Supplemental Indenture, dated as of
February 10, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________ Original Principal Amount
of Debentures represented by a beneficial interest in the Rule 144A Debenture
(CUSIP No.____) held through the Depository by or on behalf of _____________ as
beneficial owner (the "Transferor"). The Transferor has requested an exchange
or transfer of its beneficial interest for an interest in the Temporary
Regulation S Debenture (CUSIP (CINS) No._____) to be held with [Euroclear]
[Cedel] (ISIN Code _____) (Common Code _____) through the Depository.
In connection with such request and in respect of such Debentures, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Debentures and
pursuant to and in accordance with Rule 903 or Rule 904 (as applicable) of
Regulation S under the Securities Act, and accordingly the Transferor does
hereby certify that:
(1) the offer of the Debentures was not made to a person in the
United States;
(2) either: (A) at the time the buy order was originated,
the transferee was outside the United States
or the Transferor and any person acting on
its behalf reasonably believed that the
transferee was outside the United States,
or
(B) the transaction was executed in, on or
through the facilities of a designated
offshore securities market and neither the
Transferor nor any person acting on its
behalf knows that the transaction was
prearranged with a buyer in the United
States;
B-1
<PAGE> 33
(3) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or 904(b) of Regulation S,
as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) upon completion of the transaction, the beneficial interest
being transferred as described above is to be held with the
Depository through Euroclear or Cedel or both (Common Code
____ (ISIN Code _____)).
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchaser of the
Debentures being exchanged or transferred. Terms used in this Certificate and
not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
--------------------------------
Name:
Title:
Dated:
----------------------------
cc: Liberty Media Corporation
B-2
<PAGE> 34
EXHIBIT C
FORM OF TRANSFER CERTIFICATE FOR TRANSFER
OR EXCHANGE FROM RULE 144A DEBENTURE
TO PERMANENT REGULATION S DEBENTURE
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
$750,000,000 3 3/4% Senior Exchangeable Debentures
due 2030 (the "Debentures")
Reference is hereby made to the Indenture dated as of July 7, 1999,
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Fourth Supplemental Indenture, dated as of
February 10, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________ Original Principal Amount
of Debentures represented by a beneficial interest in the Rule 144A Debenture
(CUSIP No.____) held through the Depository by or on behalf of ____________ as
beneficial owner (the "Transferor"). The Transferor has requested an exchange
or transfer of its interest for an interest in the Permanent Regulation S
Debenture (CUSIP (CINS) No. [____]) to be held by [Euroclear][Cedel] (ISIN Code
_______) (Common Code) through the Depositary.
In connection with such request and in respect of such Debentures, the
Transferor does hereby certify that such exchange or transfer has been effected
in accordance with the transfer restrictions set forth in the Debentures and
that, with respect to transfers made in reliance on Regulation S under the
Securities Act:
(1) the offer of the Debentures was not made to a person in the
United States;
(2) either: (A) at the time the buy order was originated,
the transferee was outside the United States
or the Transferor and any person acting on
its behalf reasonably believed that the
transferee was outside the United States, or
(B) the transaction was executed in, on or
through the facilities of, a designated
offshore securities market and neither the
Transferor nor any person acting on its
behalf knows that the transaction was
pre-arranged with a buyer in the United
States;
(3) no directed selling efforts have been made in contravention
of the requirements of Rule 903(b) or 904(b) of Regulation S,
as applicable; and
C-1
<PAGE> 35
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchaser of the
Debentures being exchanged or transferred. Terms used in this Certificate and
not otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-----------------------------------
Name:
Title:
Dated:
-----------------------------
cc: Liberty Media Corporation
C-2
<PAGE> 36
EXHIBIT D
FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR
EXCHANGE FROM TEMPORARY REGULATION S DEBENTURE
TO RULE 144A DEBENTURE
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: Liberty Media Corporation
$750,000,000 3 3/4% Senior Exchangeable Debentures
due 2030 (the "Debentures")
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Fourth Supplemental Indenture, dated as of
February 10, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This Certificate relates to ______________________________________
Original Principal Amount of Debentures which are held in the form of the
Temporary Regulation S Debenture (CUSIP No. ___) with [Euroclear/Cedel] (ISIN
Code [___]) (Common Code [___]) through the Depository by or on behalf of
_____________ as beneficial owner (the "Transferor"). The Transferor has
requested an exchange or transfer of its interest in the Debentures for an
interest in the Rule 144A Debenture (CUSIP NO. [___]).
In connection with such request, and in respect of such Debentures,
the Transferor does hereby certify that such transfer is being effected in
accordance with the transfer restrictions set forth in the Indenture and
pursuant to and in accordance with Rule 144A under the United States Securities
Act of 1933, as amended (the "Securities Act"), to a transferee that the
Transferor reasonably believes is purchasing the Debentures for its own account
or an account with respect to which the transferee exercises sole investment
discretion and the transferee and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction.
This Certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the initial purchaser of the
Debentures being transferred.
[Insert Name of Transferor]
By:
-----------------------------------
Name:
Title:
Dated:
----------------------------
cc: Liberty Media Corporation
D-1
<PAGE> 37
EXHIBIT E
FORM OF CLEARING SYSTEM CERTIFICATE
Re: Liberty Media Corporation
$750,000,000 3 3/4% Senior Exchangeable Debentures
due 2030 (the "Debentures")
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Fourth Supplemental Indenture, dated as of
February 2, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This is to certify that, based solely on certifications we have
received in writing, by tested telex or by electronic transmission from member
organizations appearing in our records as persons being entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
to the effect set forth in the Indenture, as of the date hereof, $___________
aggregate Original Principal Amount of Debentures represented by the Temporary
Regulation S Global Debenture is owned by (a) non-U.S. Persons or (b) U.S.
Persons who purchased such Debentures in transactions that did not require
registration under the United States Securities Act of 1933, as amended (the
"Securities Act"). As used in this paragraph, the term "U.S. Person" has the
meaning given to it by Regulation S under the Securities Act.(1)
We further certify (i) that we are not making available herewith for
payment of interest any portion of a Temporary Regulation S Global Debenture
excepted in such certifications and (ii) that as of the date hereof we have not
received any notification from any of our Member Organizations to the effect
that the statements made by such Member Organizations with respect to any
portion of the Temporary Regulation S Global Debenture submitted herewith for
payment of interest are no longer true and cannot be relied upon as the date
hereof.
- ------------------------------
(1) Note: Unless Morgan Guaranty Brussels and Cedelbank are otherwise
informed by the Initial Purchaser or the Trustee, the Standard
Long-Form Certification set out in the Operating Procedures of
Euroclear will be deemed to meet the requirements of this sentence.
E-1
<PAGE> 38
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Yours faithfully,
[MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, Brussels office, as
operator of the Euroclear System]
or
[CEDELBANK]
By:
---------------------------------
--------------------(2)
Dated:
- ----------------------------
(2) Not earlier than 15 days prior to the relevant Interest Payment Date
or Redemption Date, as the case may be.
E-2
<PAGE> 39
EXHIBIT F
FORM OF CERTIFICATE OF BENEFICIAL OWNERSHIP
Re: Liberty Media Corporation
$750,000,000 3 3/4% Senior Exchangeable Debentures
due 2030 (the "Debentures")
Reference is hereby made to the Indenture dated as of July 7, 1999
between THE BANK OF NEW YORK (the "Trustee") and LIBERTY MEDIA CORPORATION (the
"Company") (as supplemented by the Fourth Supplemental Indenture, dated as of
February 10, 2000, between the Company and the Trustee, the "Indenture").
Capitalized terms not defined in this Certificate shall have the meanings given
to them in the Indenture.
This is to certify that as of the date hereof, and except as set forth
below, the above-captioned Securities held by you for our account are
beneficially owned by (a) non-U.S. person(s) or (b) U.S. person(s) who
purchased the Debentures in transactions which did not require registration
under the Securities Act of 1933, as amended (the "Act"). As used in this
paragraph, the term "U.S. person" has the meaning given to it by Regulation S
under the Securities Act.
We undertake to advise you promptly by tested telex or by electronic
transmission on or prior to the date on which you intend to submit your
certification relating to the Debentures held by you for our account in
accordance with your operating procedures if any applicable statement herein is
not correct on such date, and in the absence of any such notification it may be
assumed that this certification applies as of such date.
This certification excepts and does not relate to $______________ of
such interest in the above Debentures in respect of which we are not able to
certify and as to which we understand exchange and delivery of definitive
Debentures (or, if relevant, exercise of any rights or collection of any
interest) cannot be made until we do so certify.
F-1
<PAGE> 40
We understand that this certification is required in connection with
certain securities laws of the United States. In connection therewith, if
administrative or legal proceedings are commenced or threatened in connection
with which this certification is or would be relevant, we irrevocably authorize
you to produce this certification to any interested party in such proceedings.
Date: (3)
----------------- By:
-----------------------------
As, or as agent for, the beneficial owner(s) of the Debentures to
which this certificate relates.
- ------------------------
(3) Not earlier than 15 days prior to the certification event to which the
certification relates.
F-2
<PAGE> 41
EXHIBIT G
[FORM OF NOTICE OF EXCHANGE]
The Bank of New York
101 Barclay Street
New York, NY 10286
Re: $750,000,000 3 3/4% Senior Exchangeable
Debentures due 2030 (the "Debentures")
Gentlemen:
The undersigned Holder of debentures hereby gives notice of its
intention to exchange $______________ aggregate Original Principal Amount of
Debentures. This notice, once delivered to the Exchange Agent, is irrevocable.
If Reference Shares or any other securities are to be delivered as
part of this exchange, they should be delivered to:
If cash is to be paid as part of this exchange, it should be sent to:
Any communication to the Holder in connection with this exchange
should be directed to:
Very truly yours,
[Name of Holder]
By:
-----------------------------
Name:
Title:
Date of Notice of Exchange:
G-1
<PAGE> 1
EXHIBIT 4.12
---------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF FEBRUARY 10, 2000
BETWEEN
LIBERTY MEDIA CORPORATION
AND
SALOMON SMITH BARNEY INC.
---------------------
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 10th day of February, 2000, between Liberty Media
Corporation, a Delaware corporation (the "Company"), and Salomon Smith Barney
Inc. (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated
February 3, 2000, between the Company and the Initial Purchaser (the "Purchase
Agreement"), which provides for the sale by the Company to the Initial
Purchaser of an aggregate of $750,000,000 original principal amount of the
Company's 3-3/4% Senior Exchangeable Debentures due 2030 (the "Debentures") (or
$1,000,000,000 aggregate original principal amount of such Debentures if the
Initial Purchaser's overallotment option is exercised in full). In order to
induce the Initial Purchaser to enter into the Purchase Agreement, the Company
has agreed to provide to the Initial Purchaser and its 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 1934, as amended
from time to time.
"beneficial owner" shall mean (i), in the case of a Debenture held in
certificated form, the Holder of such Debenture and (ii), in the case of a
Debenture held through the Depositary, the Person identified in the records of
the Depositary's direct or indirect participants as the owner of such
Debenture; provided, however, that in the case of a beneficial owner described
in clause (ii), such beneficial owner is identified to the Company.
"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 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.
"Debentures" shall have the meaning set forth in the second paragraph
of this Agreement.
1
<PAGE> 3
"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.
"Holder" shall mean the Initial Purchaser, for so long as it owns any
Debentures, and each of its successors, assigns and direct and indirect
transferees who become beneficial owners of Debentures under the Indenture.
"Indenture" shall mean the Indenture relating to the Debentures, dated
as of July 7, 1999, between the Company and The Bank of New York, as trustee,
as supplemented by the Fourth Supplemental Indenture, dated as of February 10,
2000, 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" 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)
Debentures; provided that whenever the consent or approval of Holders of a
specified percentage of Debentures is required hereunder, Debentures held by
the Company and other obligors on the Debentures 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.
"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.
"Prospectus" shall mean the prospectus included in the Shelf
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 Debentures covered by the 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.
"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 any "qualified independent underwriter"
(and its counsel) that is required to be retained by any holder of Debentures
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 Debentures and any filings with
2
<PAGE> 4
the NASD), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Shelf 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 Debentures 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 fees and disbursements of
Brown & Wood LLP, counsel representing the Holders of Debentures in connection
with preparing and filing the initial Shelf Registration Statement or any
amendments or supplements thereto, but not in connection with any underwritten
offering under the Shelf Registration Statement, and (ix) the reasonable fees
and disbursements of the underwriters customarily required to be paid by
issuers of securities in connection with secondary offerings of securities and
the fees and expenses of any special experts retained by the Company in
connection with any Shelf Registration Statement, but excluding underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Debentures by a Holder.
"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 Registration" shall mean a registration effected pursuant to
Section 2.1 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.1 of this
Agreement, which covers the resale of all of the Debentures, and all amendments
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(f).
"Trustee" shall mean the trustee with respect to the Debentures under
the Indenture.
2. Registration Under the 1933 Act.
2.1 Shelf Registration. The Company shall, for the benefit of the
beneficial owners, 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 a Shelf Registration Statement on an appropriate form under the 1933
Act covering resales of the Debentures, (B) use its reasonable best efforts to
cause the Shelf Registration Statement to be declared effective under the 1933
Act within 180 days of the Closing Date, (C) 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 the beneficial owners for a
period of two years from the original issue of the
3
<PAGE> 5
Debentures, or for such shorter period that will terminate when all Debentures
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement, exchanged or redeemed in accordance with their
terms or otherwise cease to be outstanding or become saleable pursuant to Rule
144(k) under the 1933 Act (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, and (D) notwithstanding any other
provisions hereof, use its reasonable best efforts to ensure that (i) the 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) the 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 the 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 Debentures to
be included in the Shelf Registration Statement. The Company further agrees, if
necessary, to supplement or amend the Shelf Registration Statement and the
Prospectus, as required by Section 3(b) below, and to furnish to the Holders of
Debentures copies of any such supplement or amendment as promptly as reasonably
practicable after filing with the SEC.
2.2 Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1. Each beneficial owner
shall pay all underwriting expenses, discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such beneficial owner's
Debentures pursuant to the Shelf Registration Statement.
2.3 Effectiveness. (a) The Company will be deemed not to have
used its reasonable best efforts to cause the Shelf Registration Statement 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 Shelf Registration Statement not being declared
effective or in the beneficial owners of Debentures covered thereby not being
able to offer and sell such Debentures 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(j) hereof, if
applicable.
(b) A Shelf Registration Statement 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 Debentures
pursuant to a Shelf Registration Statement is
4
<PAGE> 6
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, the Shelf Registration
Statement will be deemed not to have become effective during the period of such
interference, until the offering of Debentures pursuant to the Shelf
Registration Statement may legally resume.
2.4 Interest. The Indenture executed in connection with the
Debentures provides that in the event that either (a) the Shelf Registration
Statement is not filed with the Commission on or prior to the 90th calendar day
following the date of original issue of the Debentures or (b) the Shelf
Registration Statement has not been declared effective on or prior to the 180th
calendar day following the date of original issue of the Debentures (each such
event referred to in clauses (a) and (b) above, a "Registration Default"), the
interest rate borne by the Debentures 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 Debentures 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 Debentures covered by the Shelf Registration
Statement ("Debentures") 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 Debentures will be increased by 0.25% per annum of the principal
amount of the Debentures for the first 90-day period (or portion thereof)
beginning on the 31st such day that the 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 Debentures 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 Debentures pursuant to the first paragraph of
this Section 2.4) 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 Debentures 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 the Company by depositing with the Trustee, in trust, for the benefit
of the Holders of Debentures, on or before the applicable semiannual interest
payment date, immediately available funds in an amount sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date to
5
<PAGE> 7
the Holder of Debentures 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 the
Shelf Registration Statement, the Company shall:
(a) prepare and file with the SEC a Shelf 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 be available for the sale of the Debentures by the selling
beneficial owners 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 the Shelf Registration Statement as may be
necessary under applicable law to keep the Shelf Registration Statement
effective for the Effectiveness 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 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 Debentures covered by the Shelf Registration Statement
during the Effectiveness Period in accordance with the plan of distribution
included in the Prospectus;
(c) (i) notify each beneficial owner (or, in the case of
Debentures held through the Depositary, the participant in the Depositary
through whom such beneficial owner holds) of Debentures, at least five business
days prior to filing, that a Shelf Registration Statement with respect to the
Debentures is being filed and advising such beneficial owners that the
distribution of Debentures will be made in accordance with the method selected
by the Majority Holders participating in the Shelf Registration; (ii) furnish
to each beneficial owner of Debentures and to each underwriter of an
underwritten offering of Debentures, 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 beneficial owner or
underwriter may reasonably request, including financial statements and
schedules and, if the beneficial owner so requests, all exhibits in order to
facilitate the public sale or other disposition of the Debentures; and (iii)
hereby consent to the use of the Prospectus or any amendment or supplement
thereto by each of the selling beneficial owner of Debentures in connection
with the offering and sale of the Debentures covered by the Prospectus or any
amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify
the Debentures under all applicable state securities or "blue sky" laws of such
jurisdictions as any beneficial owner of Debentures covered by any Shelf
Registration Statement and each underwriter of an underwritten
6
<PAGE> 8
offering of Debentures shall reasonably request by the time the Shelf
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 beneficial owner and underwriter to consummate the disposition in
each such jurisdiction of such Debentures owned by such beneficial owner;
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 beneficial owner of Debentures (i)
when the Shelf 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 the Shelf 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 the Shelf Registration
Statement or the initiation of any proceedings for that purpose, (iv) if,
between the effective date of the Shelf Registration Statement and the closing
of any sale of Debentures 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 the Shelf Registration
Statement is effective which makes any statement made in the Shelf Registration
Statement or the related Prospectus untrue in any material respect or which
requires the making of any changes in the Shelf 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 Debentures 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 the Shelf
Registration Statement would be appropriate;
(f) furnish Brown & Wood LLP, as special counsel for the
Holders of Debentures (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 Majority Holders ("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 Shelf Registration Statement and
Prospectus or for additional information;
(g) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Shelf Registration Statement at
the earliest possible moment;
(h) furnish to each beneficial owner of Debentures, and each
underwriter, if any, without charge, at least one conformed copy of the Shelf
Registration Statement and any
7
<PAGE> 9
post-effective amendment thereto, including financial statements and schedules
(without documents incorporated therein by reference and all exhibits thereto,
unless requested);
(i) facilitate the timely preparation and delivery of a new
global certificate representing Debentures which have been sold through the
Registration Statement that does not bear any restrictive legends;
(j) upon the occurrence of any event or the discovery of any
facts, such as contemplated by Sections 3(e)(v) and 3(e)(vii) hereof, as
promptly as practicable after the occurrence of such an event, use its
reasonable best efforts to prepare a supplement or post-effective amendment to
the Shelf 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 Debentures, 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 beneficial owner of such
determination and to furnish each beneficial owner such number of copies of the
Prospectus as amended or supplemented, as such Holder may reasonably request;
(k) obtain a CUSIP number for the new global certificate
referred to in Section 3(i), above, not later than the effective date of the
Shelf Registration Statement;
(l) (i) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended, in connection with the registration of the
Debentures, (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 reasonable 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;
(m) enter into agreements (including underwriting agreements
containing usual and customary terms) and take all other customary and
appropriate actions in order to expedite or facilitate the disposition of such
Debentures 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
beneficial owners of Debentures named as selling security holders in
the Prospectus 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 (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing
8
<PAGE> 10
underwriters, if any, and the beneficial owners of a majority in
principal amount of the Debentures being sold) addressed to beneficial
owners of Debentures named as selling security holders in the
Prospectus 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 Shelf Registration Statement) addressed to the underwriters, if
any, and use reasonable efforts to have such letter addressed to the
beneficial owners of Debentures named as selling security holders in
the Prospectus (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
beneficial owners and an agent of the beneficial owners providing for,
among other things, the appointment of such agent for the selling
beneficial owners for the purpose of soliciting purchases of
Debentures, 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 beneficial owners of a majority in principal amount
of the Debentures being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of the Shelf 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;
(n) make available for inspection by representatives of the
beneficial owners of the Debentures, any underwriters participating in any
disposition pursuant to the Shelf Registration Statement, 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
9
<PAGE> 11
by any such representative, underwriter, Special Counsel or accountant in
connection with the Shelf Registration Statement, and make such representatives
of the Company available for discussion of such documents as shall be
reasonably requested by the Initial Purchaser; provided, however, that the
Company shall be entitled to first obtain a customary confidentiality agreement
from any such Person;
(o) at least five business days prior to filing the Shelf
Registration Statement or any amendment to the Shelf Registration Statement,
provide copies of such document to each beneficial owner (or, in the case of
Debentures held through the Depositary, the participant in the Depositary
through whom such beneficial owner holds) of Debentures, to the Initial
Purchaser, to Special Counsel and to the underwriter or underwriters of an
underwritten offering of Debentures, if any, make such changes in any such
document prior to the filing thereof as the Initial Purchaser, Special Counsel
or the underwriter or underwriters reasonably request and not file any such
document in a form to which the Majority Holders of Debentures, the Initial
Purchaser on behalf of the beneficial owners of Debentures, Special Counsel or
any underwriter shall not have previously been advised and furnished a copy of
or to which such Majority Holders, the Initial Purchaser of behalf of the
beneficial owners of Debentures, 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 beneficial
owners of Debentures, the Initial Purchaser on behalf of such beneficial
owners, Special Counsel or any underwriter.
(p) 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; and
(q) cooperate and assist in any filings required to be made
with the NASD and 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
The Company may (as a condition to any beneficial owner's
participation in the Shelf Registration) require each beneficial owner of
Debentures to furnish to the Company such information regarding the beneficial
owner and the proposed distribution by such beneficial owner of its Debentures
as the Company may from time to time reasonably request in writing for use in
connection with the Shelf Registration Statement or Prospectus included
therein, including without limitation, information specified in Item 507 of
Regulation S-K under the 1933 Act.
Each beneficial owner 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 beneficial owner will
forthwith discontinue disposition of Debentures pursuant to the Shelf
Registration Statement until such beneficial owner's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 3(j) hereof,
and, if so directed by the Company, such beneficial owner will deliver to the
Company (at its expense) all copies in
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<PAGE> 12
such beneficial owner's possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Debentures current at
the time of receipt of such notice.
If any of the Debentures 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 Debentures included in such offering, provided such
selection is acceptable to the Company. No beneficial owner of Debentures may
participate in any underwritten registration hereunder unless such beneficial
owner (a) agrees to sell such beneficial owner's Debentures 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 Purchaser, each beneficial owner named as a selling security holder in
the Prospectus, each Person who participates as an underwriter (any such Person
being an "Underwriter") and each Person, if any, who controls any beneficial
owner named as a selling security holder in the Prospectus 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 the Shelf
Registration Statement (or any amendment or supplement thereto)
pursuant to which Debentures 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),
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<PAGE> 13
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
beneficial owner or Underwriter expressly for use in the Shelf 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 Debentures 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 Debentures 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 beneficial owner severally, but not jointly, agrees to
indemnify and hold harmless the Company, the Initial Purchaser, each
Underwriter and the other selling beneficial owners, and each of their
respective directors and officers, and each Person, if any, who controls the
Company, the Initial Purchaser, any Underwriter or any other selling beneficial
owner 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 beneficial owner furnished to the Company by such
beneficial owner 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 beneficial owner shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such beneficial
owner from the sale of Debentures pursuant to the Shelf Registration Statement.
12
<PAGE> 14
(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 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
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<PAGE> 15
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 beneficial owners and
the Initial Purchaser on the other hand from the offering of the Debentures
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 beneficial owners and
the Initial Purchaser 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
beneficial owners and the Initial Purchaser on the other hand in connection
with the offering of the Debentures included in such offering shall be deemed
to be in the same respective proportions as the total net proceeds from the
offering of the Debentures pursuant to the Purchase Agreement (before deducting
expenses) received by the Company and the total underwriting discount received
by the Initial Purchaser, bear to the aggregate initial offering price of the
Debentures.
The relative fault of the Company on the one hand and the beneficial
owners and the Initial Purchaser on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the beneficial
owners or the Initial Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the beneficial owners and the Initial Purchaser 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 Holders and the
Initial Purchaser 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.
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<PAGE> 16
Notwithstanding the provisions of this Section 4, the Initial
Purchaser shall not be required to contribute any amount in excess of the
amount by which the total price at which the Debentures purchased and sold by
it were offered exceeds the amount of any damages which the 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 beneficial owner 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 beneficial owner, 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.
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 beneficial owner of Debentures (a) deliver to a prospective
purchaser such information as is necessary to permit sales pursuant to Rule
144A under the 1933 Act and it will take such further action as any beneficial
owner of Debentures may reasonably request, and (b) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to enable such beneficial owner to sell its Debentures
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 beneficial owner of Debentures, the Company
will deliver to such beneficial owner 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 consummation of 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 beneficial
owners of Debentures in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the beneficial owners 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
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<PAGE> 17
consents to departures from the provisions hereof may not be given unless the
Company has obtained the written consent of beneficial owners of at least a
majority in aggregate principal amount of the outstanding Debentures 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 beneficial owner, at the most current address given by such
beneficial owner 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 Purchaser; 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, beneficial owners of the Debentures; provided that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Debentures in violation of the terms of the Purchase Agreement or the
Indenture. If any transferee of the Initial Purchaser or any other beneficial
owner shall acquire Debentures, in any manner, whether by operation of law or
otherwise, such Debentures shall be held subject to all of the terms of this
Agreement, and by taking and holding such Debentures 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 beneficial owners of the
Debentures shall be third party beneficiaries to the agreements made hereunder
between the Company, on the one hand, and the Initial Purchaser, 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.
5.7 Specific Enforcement. Without limiting the remedies available
to the Initial Purchaser and the beneficial owners, the Company acknowledges
that any failure by the Company to comply with its obligations under Sections
2.1 through 2.3 hereof may result in material irreparable injury to the Initial
Purchaser or the beneficial owners for which there is no
16
<PAGE> 18
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
Purchaser or any beneficial owner may obtain such relief as may be required to
specifically enforce the Company's obligations under Sections 2.1 through 2.3
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.
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.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LIBERTY MEDIA CORPORATION
By:
---------------------------------------
Name: David Flowers
Title: Vice President and Treasurer
Confirmed and accepted as
of the date first above
written:
SALOMON SMITH BARNEY INC.
By:
-----------------------------
Name:
Title: Authorized Signatory
<PAGE> 1
EXHIBIT 4.13
FORM OF 3-3/4% DEBENTURE
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF IS DEEMED TO HAVE AGREED TO
BE BOUND BY THE PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT BETWEEN LIBERTY
AND THE INITIAL PURCHASER NAMED THEREIN, DATED FEBRUARY 10, 2000 (THE
"REGISTRATION RIGHTS AGREEMENT"). LIBERTY WILL PROVIDE A COPY OF THE
REGISTRATION RIGHTS AGREEMENT TO SUCH HOLDER WITHOUT CHARGE UPON WRITTEN REQUEST
TO LIBERTY AT ITS PRINCIPAL PLACE OF BUSINESS.
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT
(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES
ACT OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN
"OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF REGULATION S, (2) AGREES
THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY
SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS SECURITY) OR THE LAST DAY ON WHICH LIBERTY
OR ANY AFFILIATE OF LIBERTY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF THIS SECURITY) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY
APPLICABLE LAWS (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO LIBERTY OR ANY SUBSIDIARY
THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE
ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) INSIDE THE UNITED STATES TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7)
OF RULE 501 UNDER THE SECURITIES ACT THAT PRIOR TO SUCH TRANSFER, FURNISHES (OR
HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE OR TRANSFER
AGENT, A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH
LETTER CAN BE OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS SECURITY),
(E) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE
UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT,
PURSUANT TO RULE 904 OF REGULATION S OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT LIBERTY, THE
<PAGE> 2
TRUSTEE AND THE TRANSFER AGENT AND REGISTRAR RESERVE THE RIGHT PRIOR TO ANY
OFFER, SALE OR OTHER TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F) ABOVE TO
REQUIRE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND OTHER INFORMATION
SATISFACTORY TO LIBERTY, THE TRUSTEE AND THE TRANSFER AGENT AND REGISTRAR. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. IN ANY CASE, ANY HOLDER HEREOF THAT HAS
ACQUIRED THIS SECURITY IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904
OF REGULATION S WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING
TRANSACTION WITH REGARD TO THIS SECURITY OR ANY SECURITY ISSUABLE UPON EXCHANGE
OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT.
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO LIBERTY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
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.
No. R-1 $750,000,000
CUSIP No. 530715AK7
LIBERTY MEDIA CORPORATION
3 3/4% Senior Exchangeable Debentures due 2030
Rule 144A Debenture
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 amount provided in Section 204 of the Fourth
Supplemental Indenture referred to herein (such amount being referred to herein
as the Maturity Repayment Amount) on February 15, 2030, and to pay interest on
the Original Principal Amount of this Debenture from February 10, 2000, or from
the most recent date to which interest has been paid or provided for,
semiannually on February 15 and August 15 in each year (each, an "Interest
Payment Date"), commencing August 15, 2000, at the rate of 3 3/4% per annum,
until the Maturity Repayment Amount 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 February 1 or August 1 (whether or not a Business
Day), as
2
<PAGE> 3
the case may be, immediately 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 Maturity Repayment Amount 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 Security is a permanent Rule 144A Debenture issued on the date
hereof which represents $750,000,000 of the Original Principal Amount of the
Company's 3 3/4% Senior Exchangeable Debentures due 2030, offered and sold to
qualified institutional buyers, as defined in Rule 144A under the Securities
Act. 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 Fourth 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 Original Principal Amount
specified in the Fourth Supplemental Indenture between the Company and the
Trustee, dated as of February 10, 2000, establishing the terms of the Debentures
pursuant to the Indenture (the "Fourth 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 or after February 15, 2004, on the
terms set forth in Section 208(a) of the Fourth Supplemental Indenture. In
addition, the Debentures are redeemable at the option of the Company upon the
occurrence of a Tax Event or a Share Event or following an Excess Borrow Cost
Period, each as defined in the Fourth Supplemental Indenture, on the terms set
forth in Sections 208(b), (c) and (d), respectively, of the Fourth Supplemental
Indenture.
The Debentures are exchangeable at the option of the Holders thereof,
on the terms set forth in Section 209 of the Fourth Supplemental Indenture.
3
<PAGE> 4
If an Event of Default (as defined in the Indenture, including the
amendments thereto in the Fourth Supplemental Indenture) 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 Maturity Repayment Amount 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 Maturity Repayment Amount 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 Original 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 Fourth 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 Original 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
4
<PAGE> 5
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.
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.
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.
5
<PAGE> 6
EXHIBIT 4.13
FORM OF 3-3/4% DEBENTURE
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
LIBERTY MEDIA CORPORATION
Attest: By:
----------------------- --------------------------
Name: Name:
Title: Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series designated herein referred
to in the within-mentioned Indenture.
Dated: February 10, 2000 THE BANK OF NEW YORK,
as Trustee
By:
--------------------------
Authorized Signatory
6
<PAGE> 7
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:
------------------- ------------------------
7
<PAGE> 8
SCHEDULE A
SCHEDULE OF EXCHANGES
The following exchanges of Debentures represented by this Rule 144A Debenture
have been made:
<TABLE>
<CAPTION>
Change in Original Original Principal
Original Principal Principal Amount of Amount of this Rule
Amount of this Rule this Rule 144A 144A Debenture
144A Debenture as of Date exchange Debenture due to following such
February 10, 2000 Made Exchange exchange Notation made by
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
$750,000,000
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
========================= ====================== ======================= ====================== ======================
</TABLE>
8
<PAGE> 1
EXHIBIT 21
A TABLE OF THE SUBSIDIARIES OF LIBERTY MEDIA CORPORATION AS OF MARCH 20, 2000,
IS SET FORTH BELOW, INDICATING AS TO EACH THE STATE OR 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.
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
450714B.C., Ltd. Canada
Americana Television Productions LLC CO
Aries Pictures LLC CO CA
Advanced Audio, LLC GA
BET Movies/STARZ!3, LLC DE
Cable Programme Partners (1) Ltd. UK
Clef, Inc. WI
Communication Capital Corp DE CO Colorado Communication
Capital Corp.
DMX, LLC DE
DMX-Europe N.V. NTH
Dry Creek Productions LLC CO
Encore Asia Management Limited (dormant company) HKG
Encore Asia, Inc. CO
Encore Australia Management, Inc. DE
Encore ICCP Investments LLC CO
Encore ICCP, Inc. CO CA EMC Entertainment
International, Inc.
Encore International Newco, Inc. CO
Encore International, Inc. CO
Encore Media Corporation CO MA, NJ,PA,TX
Encore QE Programming Corp. CO
ETC Ingenius Holdings, Inc. DE
ETC w/tci, Inc. DE
ICCP, Inc. CO
International Cable Channels Partnership, Ltd. CO
INtessera Inc. CO Intessera Technologies
Group
LBTW I, Inc. CO
LBTW II, Inc. CO
LBTW III, Inc. CO
LD Bondnet, Inc. DE
LDIG Aloy, Inc. DE
LDIG Cars, Inc. DE
LDIG Film, Inc. DE
LDIG Financing LLC DE
LDIG House, Inc. DE
LDIG Koz, Inc. DE
LDIG Move, Inc. DE
LDIG Music Online II, Inc. DE
LDIG Music Online, Inc. DE
LDIG NL, Inc. DE
LDIG Online Retail, Inc. DE
LDIG Order, Inc. DE
LDIG OTV, Inc. DE
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
LDIG UGON, Inc. DE
Liberty Academic Systems Holdings, Inc. CO
Liberty AEG Acquisition, Inc. DE
Liberty AEG, Inc. DE
Liberty ANTC, Inc. CO
Liberty ARC, Inc. DE
Liberty Argentina, Inc. DE
Liberty Astro, Inc. DE
Liberty ATCL, Inc. CO
Liberty Bay, Inc. CO CA
Liberty BBandnow Holdings, LLC DE
Liberty BBandnow, Inc. DE
Liberty BETI, Inc. DE
Liberty Brasil DTH, LTDA. BRZ
Liberty Brazil DTH, Inc, CO
Liberty Broadcasting, Inc. OR
Liberty Cable Programme Partners, Inc. CO
Liberty Cablevision of Puerto Rico, Inc. DE PR
Liberty Challenger, LLC DE
Liberty CHC, Inc. CO
Liberty Chile, Inc. CO
Liberty Citation, Inc. DE
Liberty CJR, Inc. DE
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, Inc. DE CA
Liberty Digital, LLC DE
Liberty Distribution, Inc. CO
Liberty DMX, Inc. CO
Liberty DS, Inc. DE
Liberty EMMS, Inc. DE
Liberty Equator, Inc. DE
Liberty Europe, Inc. CO
Liberty Flex Holdings Limited (fka United Artists
European Holdings Limited) UK
Liberty Geonet, Inc. DE
Liberty GI II, Inc. DE
Liberty GI, Inc. DE
Liberty GIC. Inc. CO
Liberty Global, Inc. DE
Liberty HG, Inc. DE
Liberty Holdings Europe, Inc. CO
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
Liberty Holdings Japan, Inc. CO
Liberty Home Shop International, Inc. CO
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 ICOMM Warrants, Inc. DE
Liberty ICOMM, Inc. DE
Liberty IFE, Inc. CO
Liberty Interactive Technologies, Inc. DE
Liberty International Cable Management, Inc. CO
Liberty International DLA, Inc. DE
Liberty IP, Inc. DE
Liberty Ireland AL, Inc. DE
Liberty Ireland Limited Liability Company UT
Liberty Ireland, Inc. CO
Liberty J - Sports, Inc. DE
Liberty Japan, Inc. DE
Liberty Java, Inc. CO
Liberty KASTAR Corp. DE
Liberty KHC, Inc. DE
Liberty KI, Inc. DE
Liberty KV Holdings, Inc. DE
Liberty KV Partners I, LLC DE
Liberty Latin Partners, Inc. DE
Liberty Latin Programming Ltd. CAYMAN
Liberty Lightspan Holdings, Inc. CO
Liberty LSAT II, Inc. DE
Liberty LSAT, Inc. DE
Liberty MCNS Holdings, Inc. CO
Liberty Media International, Inc. DE CO TINTA; TCI
Squared
Liberty Medscholar, Inc. DE
Liberty Mexico DTH, Inc. CO
Liberty MicroUnity Holdings, Inc. CO
Liberty MLP, Inc. CO
Liberty MovieCo, Inc. CO
Liberty Movies Australia Pty. Limited AUS
Liberty Multicountry DTH, Inc. CO
Liberty NC II, Inc. DE
Liberty NC III, Inc. DE
Liberty NC IV, Inc. DE
Liberty NC, Inc. DE
Liberty NEA, Inc. DE
Liberty Newco International, Inc. DE
Liberty Next, Inc. DE
Liberty Online Health KI Holdings, Inc. CO
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
Liberty Online Health RN Holdings, Inc. CO
Liberty Online Sports Holdings, Inc. CO
Liberty Online Village Holdings, Inc. CO
Liberty PL, Inc. DE
Liberty Programming Argentina, Inc. DE
Liberty Programming Australia, Inc. CO
Liberty Programming Company LLC DE
Liberty Programming Development Corporation WY
Liberty Programming France, Inc. CO
Liberty Programming South America, Inc. DE
Liberty Programming UK, Inc. DE
Liberty QS, Inc. DE
Liberty QVC, Inc. CO
Liberty Replay, Inc. DE
Liberty SMTRK of Texas, Inc. CO
Liberty SMTRK, LLC DE
Liberty Spanish Group, L.L.C. CO
Liberty Spanish Holdings, Inc. CO
Liberty Sports, Inc. CO
Liberty SRV, Inc. DE
Liberty SSP, Inc. DE
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 Holdings, Inc. (fka UA-France, Inc.) CO
Liberty UK Radio, Inc. CO
Liberty UK, Inc. CO
Liberty UVSG, Inc. CO
Liberty VF, Inc. DE
Liberty Virtual I/O, Inc. CO
Liberty WF Holdings LLC DE
Liberty WF, Inc. DE
Liberty XMSR, Inc. DE
Liberty/TINTA Australia, Inc. DE
Liberty/TINTA Distribution, Inc. DE
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
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
Lifescape LLC DE
LMC Animal Planet, Inc. CO
LMC Bay Area Sports, Inc. CO CA BASN; Bay Area Sports
Network; Pacific Sports
Network; PSN
LMC BET, Inc. CO
LMC Canada, Inc. CAN
LMC Capital LLC DE CA
LMC Denver Arena, Inc. DE
LMC Digital, Inc. DE CA
LMC Discovery, Inc. CO
LMC E!, Inc. CO
LMC Encore, Inc. CO
LMC IATV Events, LLC DE
LMC Information Services, Inc. NV CO
LMC International, Inc. CO TX
LMC Music, Inc. CO
LMC Radio Ltd. UK
LMC Regional Sports, Inc. CO TX,UT
LMC Request, Inc. CO
LMC SatCom, Inc. GA
LMC Sillerman, Inc. CO
LMC Silver King, Inc. CO
LMC Southeast Sports, Inc. CO GA
LMC Sunshine, 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 VII, Inc. DE
LMC USA VIII, Inc. DE
LMC Wireless Holdings, Inc. DE
LMC/LSAT Holdings, Inc. DE
LMI/LSAT Holdings, Inc. DE
LQ I, Inc. CO
LQ II, Inc. CO
LSAT Astro LLC DE
LTWX I, Inc. CO
LTWX II, Inc. CO
LTWX III, Inc. CO
LTWX IV, Inc. CO
LTWX V, Inc. CO
MacNeil/Lehrer Productions [gp] NY
New LMC ARC, Inc. DE
Paradigm Music Entertainment Company DE NY
Pramer S.C.A. ARG
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
Formed in States qualified to do business in Trade Names
--------- ---------------------------------- -----------
<S> <C> <C> <C>
QVC Investment, Inc. CO
Request Holdings, Inc. (f/k/a Reiss Media
Enterprises, Inc.) DE
RL Ingenius, Inc. CO
Royal Communications, Inc. CO WY
RTV Associates, L.P. (lp) DE
SonicNet, Inc. NY
Southern Satellite Systems, Inc. GA OK,PA,WY
Starz Encore Group LLC (fka Starz Encore Media
Group LLC and Encore Media Group LLC) CO CA,CT,GA,MA,NJ,PA,TX
Starz Movies LLC CO CA,CT,FL,GA,IL,MA,NJ,PA
TCI Cathay TV, Inc. CO
TCI CT Holdings, Inc. DE
TCI CT Operations, Inc. f/k/a CareerTrack, Inc. CO
TCI CTrack Asset Corp. CO
TCI ETC Holdings, Inc. DE
TCI Holdings (Chile), Inc. DE
TCI Poland, Inc. CO
TCI Satellite Entertainment, Inc. DE
TCI South America, SRL ARG
The Box Holland, B.V. NTH
The Box Music Network S.L. SPAIN
The Box Worldwide, Inc. FL ALL EXCEPT CT,DC,HI,LA,PR,VT
The Box Worldwide-Europe, B.V. NTH
TruePosition of Louisiana, Inc. DE LA
TruePosition, Inc. DE
United Artists, B.V. NTH
Video Jukebox Network Europe, Ltd. UK
Vision Group Incorporated CO
Wisconsin Music Network, Inc. WI
X*PRESS Electronic Services, Ltd. CO
X*PRESS Information Services, Ltd. CO
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