-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VQAKBYFQhaTfyMPcS3aJKDz9KICwLbvXOc6lSfc0BP4xOlk10F3nvXWdM9M0ipem m+SwvzwAEH9lE0QLVu9E9A== 0000940180-99-001048.txt : 19990906 0000940180-99-001048.hdr.sgml : 19990906 ACCESSION NUMBER: 0000940180-99-001048 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19990903 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTY MEDIA CORP /DE/ CENTRAL INDEX KEY: 0001082114 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 841288730 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-86491 FILM NUMBER: 99705993 BUSINESS ADDRESS: STREET 1: 8101 EAST PRENTICE AVENUE SUITE 500 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037215400 MAIL ADDRESS: STREET 1: 8101 EAST PRENTICE AVENUE SUITE 500 CITY: ENGLEWOOD STATE: CO ZIP: 80111 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on September 3, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------- LIBERTY MEDIA CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 4841 84-1288730 (Primary Standard Industrial Classification Code Number) (I.R.S. Employer (State or Other Identification Number) Jurisdictionof Incorporation or Organization) 9197 South Peoria Street Englewood, Colorado 80112 (720) 875-5400 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) --------------- Charles Y. Tanabe, Esq. Liberty Media Corporation 9197 South Peoria Street Englewood, Colorado 80112 (720) 875-5400 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------- Copy to: Robert W. Murray Jr., Esq. Lee D. Charles, Esq. Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022-6030 (212) 705-5000 --------------- Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after this Registration Statement is declared effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] --------------- CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Proposed Title of Each Class of Amount Maximum Proposed Maximum Amount of Securities to be to be Offering Price Aggregate Offering Registration Registered Registered Per Unit(1) Price(1) Fee(2) - --------------------------------------------------------------------------------------------------- 7 7/8% Senior Notes due 2009.... $ 750,000,000 100% $ 750,000,000 $208,500 8 1/2% Senior Debentures due 2029........................... $ 500,000,000 100% $ 500,000,000 $139,000 -------------- ---------------- ---------- Total..................... $1,250,000,000 $1,250,000,000 $347,500
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f)(2) under the Securities Act. (2) Calculated pursuant to Rule 457(f)(2) under the Securities Act. --------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell these securities and it is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, dated September 3, 1999 PROSPECTUS [LOGO OF LIBERTY MEDIA CORPORATION] Liberty Media Corporation Offer to Exchange $750,000,000 $500,000,000 7 7/8% Senior Notes due 8 1/2% Senior Debentures due 2009 2029 which have been which have been registered under the registered under the Securities Act of 1933 Securities Act of 1933 for any and all for any and all outstanding unregistered outstanding unregistered 7 7/8% Senior Notes due 8 1/2% Senior Debentures due 2009 2029 We are offering to exchange our 7 7/8% senior notes due 2009 and 8 1/2% senior debentures due 2029, which we refer to collectively in this prospectus as the "exchange securities," for our outstanding 7 7/8% senior notes due 2009 and 8 1/2% senior debentures due 2029, which we refer to collectively in this prospectus as the "outstanding securities." The terms of the exchange securities are substantially identical to the terms of the outstanding securities, except that the exchange securities will be freely transferable and will not have covenants regarding registration rights or additional interest. Material Terms of the Exchange Offer . We will exchange all outstanding securities that are validly tendered and not withdrawn for an equal principal amount of exchange securities. . You may withdraw tenders of outstanding securities at any time before the expiration of the exchange offer. . The exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless it is extended. We do not currently intend to extend the exchange offer. . The exchange offer is subject to customary conditions, including the condition that the exchange offer not violate applicable law or any applicable interpretation of the SEC staff. . We believe that the exchange of outstanding securities for exchange securities should not be a taxable transaction for U.S. federal income tax purposes, but you should see the discussion under "Certain United States Federal Income Tax Considerations" beginning on page 125 for more information. . We will not receive any proceeds from the exchange offer. . All broker-dealers must comply with the registration and prospectus delivery requirements of the Securities Act. . We do not intend to apply for listing of the exchange securities on any securities exchange or to arrange for them to be quoted on any quotation system. ----------- Investing in the exchange securities involves risks. See "Risk Factors" beginning on page 10. ----------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------- The date of this prospectus is , 1999. TABLE OF CONTENTS
Page ---- Cautionary Statement Concerning Forward Looking Statements............... ii Information Provided in this Prospectus.................................. iii Prospectus Summary....................................................... 1 Risk Factors............................................................. 10 Use of Proceeds.......................................................... 19 Capitalization........................................................... 19 Selected Historical Financial Data....................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 21 Corporate History........................................................ 40 Business................................................................. 42 Management............................................................... 71 Relationship with AT&T and Certain Related Transactions.................. 85 Description of Certain Indebtedness...................................... 92 The Exchange Offer....................................................... 97 Description of the Securities............................................ 106 Certain United States Federal Income Tax Considerations.................. 125 Plan of Distribution..................................................... 126 Legal Matters............................................................ 127 Experts.................................................................. 127 Where to Find More Information........................................... 127 Index to Financial Statements............................................ F-1
---------------- We have filed with the SEC a registration statement on Form S-4 under the Securities Act with respect to the exchange securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement. You may read and copy the registration statement, including all of its exhibits, as set forth under "Where to Find More Information." Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and, where any contract or other document is an exhibit to the registration statement, each statement is qualified by the relevant provisions in the applicable exhibit to which we make reference and we refer you to that exhibit for a more complete description of the matter involved. ---------------- CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS Certain statements made in this prospectus under the captions entitled "Prospectus Summary," "Risk Factors," "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus are forward-looking statements. These forward-looking statements are based on our current expectations and projections about future events. When used in this prospectus, the words "believe," "anticipate," "intend," "estimate," "expect" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are subject to risks, uncertainties and assumptions about us and our subsidiaries and business affiliates, including, among other things, the following: . general economic and business conditions and industry trends; . the continued strength of the industries in which we are involved; . uncertainties inherent in our proposed business strategies; . our future financial performance, including availability, terms and deployment of capital; ii . availability of qualified personnel; . changes in, or our failure or inability to comply with, government regulations and adverse outcomes from regulatory proceedings; . changes in the nature of key strategic relationships with partners and business affiliates; . uncertainties inherent in the change over to the year 2000; . rapid technological changes; . our inability to obtain regulatory or other necessary approvals of any strategic transactions; and . social, political and economic situations in foreign countries where we do business. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. Furthermore, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and other assumptions, the forward- looking events discussed in this prospectus might not occur. INFORMATION PROVIDED IN THIS PROSPECTUS This prospectus is based on information provided by us and other sources that we believe to be reliable. We cannot assure you that this information is accurate or complete. This prospectus summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this prospectus. This prospectus includes information concerning The News Corporation Limited, Time Warner Inc., TV Guide, Inc., USA Networks, Inc., Sprint Corporation, Telewest Communications plc, and General Instrument Corporation, all of which are public companies that file reports and other information with the SEC in accordance with the requirements of the Securities Act and the Securities Exchange Act. Information contained in this prospectus concerning those companies has been derived from the reports and other information filed by them with the SEC and is qualified in its entirety by reference to those reports and other information. Liberty had no part in the preparation of those reports and other information, nor are they incorporated by reference in this prospectus, and Liberty takes no responsibility for their accuracy. You may read and copy any reports and other information filed by those companies as set forth under "Where to Find More Information." ---------------- You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized any person to provide you with different information. We are offering to exchange the outstanding securities for exchange securities only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of when this prospectus is delivered or any outstanding securities are exchanged. iii PROSPECTUS SUMMARY The following summary highlights selected information from this prospectus. For a more complete understanding of Liberty and this exchange offer, we encourage you to read this entire document, including the "Risk Factors" section. All references to "Liberty," "we," "us" and words to similar effect refer to Liberty Media Corporation and, unless the context indicates otherwise, its consolidated subsidiaries. The term "notes" refers to the outstanding notes and the exchange notes, collectively, and the term "debentures" refers to the outstanding debentures and the exchange debentures, collectively. The notes and the debentures are collectively referred to as the "securities." Liberty Media Corporation We are a leading media, entertainment and communications company with interests in a diverse group of public and private companies that are market leaders in their respective industries. Our subsidiaries and business affiliates are engaged in a broad range of programming, communications, technology and Internet businesses and have some of the most recognized and respected brands. These brands include Encore, STARZ!, Discovery, TV Guide, Fox, USA, QVC, CNN, TBS and Sprint PCS. Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert R. Bennett, our President and Chief Executive Officer, has extensive expertise in creating and developing new businesses and opportunities for our subsidiaries and business affiliates and in building scale, brand power and market leadership. This expertise dates back to the late 1970's when members of our management were instrumental in identifying and executing strategic transactions to provide TCI, Liberty's former parent, with quality programming for its cable television systems. Today, our management team continues to leverage its expertise and industry relationships on behalf of our subsidiaries and business affiliates to identify and execute strategic transactions that improve the value of their businesses and that allow us to take full advantage of new developments in consumer and technological trends. The media, entertainment and communications industries are currently undergoing tremendous changes due in part to the growth of new distribution technologies, led by the Internet and the implementation of digital compression. The growth in distribution technologies has, in turn, created strong demand for an ever increasing array of multimedia products and services. Liberty is working with its subsidiaries and business affiliates to extend their established brands, quality content and networks across multiple distribution platforms to keep them at the forefront of these ongoing changes. The following table lists our principal subsidiaries and business affiliates and our direct equity interests or indirect attributed equity interests based on ownership of capital stock. Our direct or attributed equity interest in a particular company does not necessarily represent our voting interest in that company. Our indirect attributed interest is determined by multiplying our ownership interest in the holder of an equity interest by that equity holder's ownership interest in the listed subsidiary or business affiliate. The ownership percentages are approximate, calculated as of August 15, 1999 and, in the case of convertible securities we hold, assume conversion to common stock by us and, to the extent known by us, other holders. In some cases our interest is subject to buy/sell procedures, rights of first refusal or other obligations. The table assumes that we have consummated a transaction involving TCI Music, Inc. (to be renamed Liberty Digital, Inc.) that is expected to be completed on or about September 9, 1999. See "Business." 1
Subsidiary/Business Affiliate Attributed Ownership % ----------------------------- ---------------------- Encore Media Group LLC ............................ 100% Liberty Digital, Inc. ............................. 87% Discovery Communications, Inc. .................... 49% TV Guide, Inc. .................................... 44% QVC Inc. .......................................... 43% Flextech, plc...................................... 37% Sprint PCS Group................................... 23% Telewest Communications plc........................ 22% USA Networks, Inc. ................................ 21% General Instrument Corporation..................... 21% Time Warner Inc. .................................. 9% The News Corporation Limited....................... 8.5%
Business Strategy Our business strategy is to maximize the value of Liberty by (1) working with the management teams of our existing subsidiaries and business affiliates to grow their established businesses and create new businesses and (2) identifying and executing strategic transactions that improve the value or optimize the efficiency of Liberty's assets. Key elements of our business strategy include the following: Promote the internal growth of our subsidiaries and business affiliates. We actively seek to foster the internal growth of our subsidiaries and business affiliates by working with their management teams to expand their established businesses and create new businesses, often by extending their existing brands across multiple distribution platforms or effecting transactions that enhance the scale of their operations. Our emphasis is on the creation and development of multiple sources of revenue that enhance cash flow. We also seek to use our extensive industry experience and relationships to provide our subsidiaries and business affiliates with strategic alliances, greater visibility and improved positioning in their respective markets. While the form of our participation in our subsidiaries and business affiliates may change over time as a result of acquisitions, mergers and other strategic transactions, we generally seek to retain a significant long-term interest in their successors. Maintain significant involvement in governance. We seek to add considerable value to our subsidiaries and business affiliates through our strategic, operational and financial advice. To ensure Liberty can exert significant influence over management where we own less than a majority voting interest in a business affiliate, we often seek representation at the board of directors level and contractual rights that assure our participation in material decision making. These contractual rights will typically include participation in budget decisions, veto rights over significant corporate actions and rights of first refusal with respect to significant dispositions of stock by management or strategic partners. Participate with experienced management and strategic partners. We seek to participate in companies with experienced management teams that are led by strong entrepreneurs, and partner with strategic investors that are engaged in complementary businesses with a demand for the products and services of our subsidiaries and business affiliates. Our existing business affiliates are led by such entrepreneurs as Barry Diller of USA Networks, Inc., Rupert Murdoch of News Corp. and John Hendricks of Discovery Communications, Inc., while our existing strategic partners include Comcast Corporation, News Corp. and Time Warner. Execute strategic transactions that optimize the efficiency of our assets. We seek to identify and execute acquisitions, consolidations and other strategic transactions that rationalize our participation in the businesses of our subsidiaries and business affiliates. We often undertake transactions of this nature to obtain the benefits of scale and liquidity as well as to further diversify Liberty's businesses. In pursuing 2 new acquisition opportunities, we focus on businesses that have attractive growth characteristics and offer strategic benefits to our existing subsidiaries and business affiliates. We employ a conservative capital structure in managing our assets and rationalizing our businesses. We also seek to enhance our financial flexibility by utilizing multiple sources of capital and preserving liquidity through our ownership of a mix of public and private assets. Relationship with AT&T Corp. We have been a wholly owned subsidiary of AT&T Corp. since March 9, 1999. On that date, AT&T acquired by merger our former parent Tele-Communications, Inc. ("TCI"). As part of that merger, AT&T issued AT&T common stock (NYSE: T) and Class A and Class B Liberty Media Group common stock (NYSE: LMG.A and LMG.B). AT&T's Liberty Media Group common stock is a tracking stock designed to reflect the economic performance of the businesses and assets of AT&T attributed to the "Liberty Media Group." We are included in the Liberty Media Group, and the businesses and assets of Liberty and its subsidiaries constitute substantially all of the businesses and assets of the Liberty Media Group. The AT&T common stock is intended to reflect all other assets and businesses of AT&T, which we refer to as the AT&T Common Stock Group. For a more detailed description of the relationship between AT&T and Liberty, see "Relationship with AT&T and Certain Related Transactions" on page 85. We enjoy a substantial degree of managerial autonomy from AT&T as a result of our corporate governance arrangement with AT&T. Our board of directors is controlled by persons designated by TCI prior to its acquisition by AT&T, and our board will continue to be controlled by those persons, or others chosen by them, until at least 2006. Our management consists of individuals who managed the businesses of Liberty while it was a subsidiary of TCI. We have entered into agreements with AT&T which provide us with a level of financial and operational separation from AT&T, define our rights and obligations as a member of AT&T's consolidated tax group, enable us to finance our operations separately from those of AT&T and provide us with certain programming rights with respect to AT&T's cable systems. See "Relationship with AT&T and Certain Related Transactions" starting on page 85. Our principal executive offices are located at 9197 South Peoria Street, Englewood, Colorado 80112. Our main telephone number is (720) 875-5400. 3 Relationship of Liberty Media Corporation to the Liberty Media Group Liberty Media Corporation and its consolidated subsidiaries are attributed to the Liberty Media Group. The businesses and assets of Liberty and its subsidiaries currently constitute substantially all of the businesses and assets of the Liberty Media Group. The following diagram illustrates the assets of AT&T that are attributed to the Liberty Media Group and to the AT&T Common Stock Group. The following diagram also illustrates the assets of Liberty, which is a holding company. The composition of the assets of the Liberty Media Group and Liberty Media Corporation in the following diagram gives pro forma effect to a transaction involving TCI Music, Inc. that is expected to be completed on or about September 9, 1999. Upon the closing of that transaction, TCI Music will change its name to Liberty Digital, Inc. For a more complete description of the relationship of Liberty Media Corporation to AT&T and the Liberty Media Group, see "Relationship with AT&T and Certain Related Transactions" starting on page 85. For a discussion of Liberty's consolidated subsidiaries (including TCI Music, Inc.) and principal business affiliates, see "Business" starting on page 42. [CHART] 4 The Exchange Offer On July 7, 1999, we completed the private offering of $750,000,000 aggregate principal amount of our 7 7/8% senior notes due 2009 and $500,000,000 aggregate principal amount of our 8 1/2% senior debentures due 2029. These outstanding securities were not registered under the Securities Act and, therefore, they are subject to significant restrictions on resale. Accordingly, when we sold these outstanding securities, we entered into a registration rights agreement with the initial purchasers that provides for the exchange offer. In the registration rights agreement, we agreed to deliver to you this prospectus and to permit you to exchange your outstanding securities for exchange securities that have substantially identical terms to the outstanding securities except that the exchange securities will be freely transferable and will not have covenants regarding registration rights or additional interest. In order to exchange your outstanding securities, you must properly tender them and we must accept your tender. We will exchange all outstanding securities that are validly tendered and not validly withdrawn. The exchange securities will be issued under the same indenture under which the outstanding securities were issued and, as a holder of exchange securities, you will be entitled to the same rights under the indenture that you had as a holder of outstanding securities. The outstanding notes and the exchange notes, on the one hand, and the outstanding debentures and the exchange debentures, on the other hand, will each be treated as a single series of debt securities under the indenture. Set forth below is a summary description of the terms of the exchange offer. We refer you to "The Exchange Offer," beginning on page 97, for a more complete description of the terms of the exchange offer. Exchange Offer............. We are offering to exchange up to $750,000,000 aggregate principal amount of exchange notes for a like aggregate principal amount of outstanding notes and up to $500,000,000 aggregate principal amount of exchange debentures for a like aggregate principal amount of outstanding debentures. Outstanding notes and outstanding debentures may be tendered only in integral multiples of $1,000. Resale of Exchange We believe that the exchange securities issued in Securities................. the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that: . you are acquiring the exchange securities in the ordinary course of your business; . you have no arrangements or understandings with any person to participate in the exchange offer for the purpose of distributing the exchange securities; and . you are not our "affiliate," within the meaning of Rule 405 under the Securities Act. If any of the statements above are not true and you transfer any exchange securities without delivering a prospectus that meets the requirements of the Securities Act or without an exemption from registration of your exchange securities from those requirements, you may incur liability under the Securities Act. We will not assume or indemnify you against that liability. Each broker-dealer that receives exchange securities for its own account in exchange for outstanding securities that were acquired by such broker-dealer as a result of market-making or other trading activities may be a statutory underwriter and must acknowledge that it will comply with the prospectus delivery requirements of the 5 Securities Act in connection with any resale of the exchange securities. A broker-dealer may use this prospectus for an offer to resell, resale or other transfer of the exchange securities. See "Plan of Distribution." Consequences of Failure to Exchange.................. If you do not exchange your outstanding securities for exchange securities, you will not be able to offer, sell or otherwise transfer the outstanding securities except: . in compliance with the registration requirements of the Securities Act and any other applicable securities laws; . pursuant to an exemption from the securities laws; or . in a transaction not subject to the securities laws. Outstanding securities that remain outstanding after completion of the exchange offer will continue to bear a legend reflecting these restrictions on transfer. In addition, upon completion of the exchange offer, you will not be entitled to any rights to have the resale of outstanding securities registered under the Securities Act, and we currently do not intend to register under the Securities Act the resale of any outstanding securities that remain outstanding after completion of the exchange offer. Expiration Date............ The exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it. We do not currently intend to extend the exchange offer. Interest on the Exchange Interest on the exchange securities will accrue at Securities................ the rate of 7 7/8% in the case of the exchange notes and at the rate of 8 1/2% in the case of the exchange debentures, from the date of the last periodic payment of interest on the outstanding securities or, if no interest has been paid, from the original issue date of the outstanding securities. No additional interest will be paid on outstanding securities tendered and accepted for exchange. Conditions to the Exchange The exchange offer is subject to customary Offer..................... conditions, including that: . the exchange offer does not violate applicable law or any applicable interpretation of the SEC staff; . the outstanding securities are validly tendered in accordance with the exchange offer; and . no action or proceeding would impair our ability to proceed with the exchange offer. Procedures for Tendering Outstanding Securities.... If you wish to accept the exchange offer, you must complete, sign and date the letter of transmittal and mail or otherwise deliver it, together with your outstanding securities to be exchanged and any other required documentation, to The Bank of New York, as exchange agent, at the address specified on the cover page of the 6 letter of transmittal. Alternatively, you can tender your outstanding securities by following the procedures for book-entry transfer, as described under "The Exchange Offer--Book-Entry Transfer." Questions regarding the tender of outstanding securities or the exchange offer generally should be directed to the exchange agent at one of its addresses specified in "The Exchange Offer--Exchange Agent." Guaranteed Delivery If you wish to tender your outstanding securities Procedures................ and you cannot get the required documents to the exchange agent by the expiration date, you may tender your outstanding securities according to the guaranteed delivery procedures described under the heading "The Exchange Offer--Guaranteed Delivery Procedures." Withdrawal Rights.......... You may withdraw the tender of your outstanding securities at any time before 5:00 p.m., New York City time, on the expiration date of the exchange offer. To withdraw, you must send a written notice of withdrawal to the exchange agent at one of its addresses specified in "The Exchange Offer-- Exchange Agent" before 5:00 p.m., New York City time, on the expiration date of the exchange offer. Acceptance of Outstanding Securities and Delivery of Exchange Securities.... We will accept for exchange any and all outstanding securities that are properly tendered in the exchange offer before 5:00 p.m., New York City time, on the expiration date, as long as all of the terms and conditions of the exchange offer are met. We will deliver the exchange securities promptly following the expiration date. Certain Tax We believe that the exchange of outstanding Considerations............ securities for exchange securities should not be a taxable transaction for U.S. federal income tax purposes, but you should see the discussion under "Certain United States Federal Income Tax Considerations" beginning on page 125 for more information. Exchange Agent............. The Bank of New York is serving as exchange agent for the exchange offer. Use of Proceeds............ We will not receive any proceeds from the issuance of the exchange securities. We are making the exchange offer solely to satisfy our obligations under the registration rights agreement. 7 Terms of the Exchange Securities Set forth below is a summary description of the terms of the exchange securities. We refer you to "Description of the Securities," beginning on page 106, for a more complete description of the terms of the exchange securities. Issuer..................... Liberty Media Corporation Securities Offered......... $750,000,000 aggregate principal amount of 7 7/8% Senior Notes due 2009 and $500,000,000 aggregate principal amount of 8 1/2% Senior Debentures due 2029 Maturity Dates............. July 15, 2009 as to the exchange notes and July 15, 2029 as to the exchange debentures Interest Payment Dates..... January 15 and July 15, commencing January 15, 2000 Form and Denominations of Securities................ The exchange securities will be issued in denominations of $1,000 and integral multiples thereof. The exchange securities will be in book- entry form and will be represented by one or more global securities, deposited with, or on behalf of, The Depository Trust Company. Interests in the global securities will be shown on, and transfers will be effected only through, records maintained by DTC and its participants. See "Description of the Securities--General" and "--Form, Denomination and Registration." Ranking.................... The exchange securities will be unsecured general obligations and will rank equally with all of our existing and future unsecured and unsubordinated indebtedness. The exchange securities will effectively rank junior to all of our secured indebtedness with respect to the value of our assets securing that indebtedness and to all of the liabilities, including trade payables, of our subsidiaries. Optional Redemption........ We may redeem the exchange notes and the exchange debentures at any time before maturity in whole or in part at the make-whole redemption prices described in this prospectus. See "Description of the Securities--Optional Redemption." Certain Covenants.......... The indenture governing the securities contains certain covenants, including covenants with respect to: .limitations on liens; .limitations on sale and leasebacks; and . limitations on certain merger, consolidation and similar transactions. These covenants are subject to a number of important qualifications and exceptions. See "Description of the Securities--Certain Covenants." Risk Factors An investment in the exchange securities involves risk. See "Risk Factors" beginning on page 10 for a discussion of factors you should carefully consider before deciding to accept the exchange offer. 8 Summary Historical Financial Data In the table below we provide you with selected historical consolidated financial data of Liberty. We derived the historical consolidated financial data from our consolidated financial statements included elsewhere in this prospectus. The unaudited financial data at June 30, 1999, February 28, 1999, June 30, 1998 and for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998 contain all adjustments, consisting only of normal recurring accruals, that, in the opinion of our management, are necessary for a fair presentation of our results for these periods. The interim results of operations are not necessarily indicative of results that may be expected for the full year. Liberty has been a wholly owned subsidiary of TCI since August 1994. On March 9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting purposes, the merger of AT&T and TCI is deemed to have occurred on March 1, 1999. In connection with the merger, the assets and liabilities of Liberty were adjusted to their respective fair values pursuant to the purchase method of accounting. For periods prior to March 1, 1999, the assets and liabilities of Liberty and the related consolidated results of operations are referred to below as "Old Liberty," and for periods subsequent to February 28, 1999, the assets and liabilities of Liberty and the related consolidated results of operations are referred to as "New Liberty." In connection with the merger, TCI effected an internal restructuring as a result of which certain assets and approximately $5.5 billion in cash were contributed to Liberty. The financial data presented below are not necessarily comparable from period to period as a result of several transactions, including acquisitions and dispositions of consolidated subsidiaries. For this and other reasons, you should read the selected historical financial data provided below in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1 and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21.
New Liberty Old Liberty ----------- ---------------------------------------------------- Four months Two months Six months ended ended ended Year ended December 31, June 30, February 28, June 30, --------------------------- 1999 1999 1998 1998 1997 1996 ----------- ------------ ----------- -------- ------- -------- (unaudited) (unaudited) (unaudited) (in millions, except ratios) Operating Data: Revenue................. $ 292 235 647 1,359 1,225 2,208 Operating loss.......... (633) (158) (227) (431) (260) (66) Interest expense........ (46) (26) (33) (104) (40) (53) Share of losses of affiliates, net........ (359) (66) (523) (1,002) (785) (332) Gains (losses) on dispositions, net...... (2) 14 553 2,449 406 1,558 Net income (loss)....... (601) (70) (125) 622 (470) 741 Balance Sheet Data (at period end): Cash and cash equivalents............ $ 1,504 31 158 228 100 434 Marketable securities... 3,393 125 85 159 248 59 Investments in affiliates............. 16,775 3,971 1,931 3,079 2,359 1,519 Investment in Time Warner, Inc............ 8,212 7,361 4,875 7,083 3,538 2,017 Investment in Sprint Corporation............ 5,989 3,381 -- 2,446 -- -- Total assets............ 50,000 16,886 9,975 15,567 7,735 6,722 Debt including current portion................ 2,176 2,087 1,394 2,096 785 555 Stockholder's equity.... 35,327 9,449 5,961 9,230 4,721 4,519 Other Data: Ratio of earnings to fixed charges (a)...... -- 5.12x 4.06x 11.03x 2.06x 21.36x
- -------- (a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for the four-month period ended June 30, 1999. Thus, earnings available for fixed charges were inadequate to cover fixed charges for such period. The amount of coverage deficiency for the four-month period ended June 30, 1999 was $886 million. The ratios of earnings to fixed charges for the two-month period ended February 28, 1999 and the year ended December 31, 1998, as adjusted to reflect the sale of the outstanding securities and the application of the net proceeds as described under "Use of Proceeds," are 4.55x and 9.47x, respectively. The deficiency of earnings to fixed charges for the four months ended June 30, 1999, as adjusted to reflect the sale of the securities and the application of the estimated net proceeds as described under "Use of Proceeds," was $897 million. For the ratio calculations, earnings available for fixed charges consist of earnings (losses) before income taxes plus fixed charges, distributions from and losses of less than 50%-owned affiliates with debt not guaranteed by Liberty (net of earnings not distributed of less than 50%-owned affiliates) and minority interests in (earnings) losses of consolidated subsidiaries. Fixed charges consist of (1) interest on debt, including interest related to debt guaranteed by Liberty of less than 50%-owned affiliates where the investment in such affiliates results in the recognition of a loss, (2) Liberty's proportionate share of interest of 50%-owned affiliates, (3) that portion of rental expense which Liberty believes to be representative of interest (one-third of rental expense) and (4) amortization of debt issuance costs. 9 RISK FACTORS An investment in the exchange securities involves risk. You should carefully consider the following factors as well as the other information included in this prospectus before deciding to accept the exchange offer. Any of the following risks could have a material adverse effect on our business, financial condition or results of operations or on the value of the exchange securities. This prospectus contains forward-looking statements about us and our future results of operations that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those expressed in these forward-looking statements as a result of a variety of factors, including the risks described below, the factors described under the heading "Cautionary Statement Concerning Forward Looking Statements" and matters described elsewhere in this prospectus. We are a holding company with our assets held primarily by our subsidiaries. Creditors of those companies have a claim on their assets that is senior to that of holders of the securities. Liberty is a holding company with no significant assets other than its equity interests in its subsidiaries and cash, cash equivalents and marketable securities. Liberty is the only company obligated to make payments under the securities. Our subsidiaries are separate and distinct legal entities and they have no obligation, contingent or otherwise, to pay any amounts due under the securities or to make any funds available for any of those payments. In addition, neither AT&T nor any of its subsidiaries other than Liberty have any obligation to make payments under the securities or to make any funds available for those payments. A substantial portion of the consolidated liabilities of Liberty consists of liabilities incurred by its subsidiaries. Moreover, the indenture governing the securities does not limit the amount of indebtedness that may be incurred by Liberty's subsidiaries in the future. All of the liabilities of our subsidiaries effectively rank senior to the securities. The rights of Liberty and of its creditors, including holders of the securities, to participate in the distribution of assets of any subsidiary upon the latter's liquidation or reorganization will be subject to prior claims of the subsidiary's creditors, including trade creditors, except to the extent Liberty may itself be a creditor with recognized claims against the subsidiary. Where Liberty is itself a creditor of a subsidiary, its claims will still be subject to the prior claims of any secured creditor of that subsidiary and to the claims of any holder of indebtedness that is senior to the claim held by Liberty. As of June 30, 1999, the aggregate amount of the total liabilities of our consolidated subsidiaries was approximately $13.7 billion, of which approximately $11.1 billion was deferred income taxes. Liberty must obtain cash from its financing activities, the operations of its subsidiaries and its investments to service its financial obligations. It is possible that Liberty could be unable in the future to obtain a sufficient amount of cash with which to service those obligations. Our ability to meet our debt service requirements, including those with respect to the securities, is dependent upon our ability to access cash. Liberty's sources of cash include its available cash balances, net cash from the operating activities of its subsidiaries, dividends and interest from its investments, availability under credit facilities and proceeds from asset sales. Although at June 30, 1999, Liberty had cash and cash equivalents of approximately $1.5 billion and marketable securities of approximately $3.4 billion, there is no requirement in the indenture governing the securities that any of Liberty's cash or cash equivalents or proceeds from the sale of any of its marketable securities be reserved for the payment of Liberty's obligations under the securities. We cannot assure you that Liberty will maintain significant amounts of cash, cash equivalents or marketable securities in the future. Liberty obtained from its subsidiary TCI Cablevision of Puerto Rico net cash of $5 million in 1998 and net cash of $6.5 million in the first six months of 1999. Liberty did not obtain cash, in the form of dividends, loans, advances or otherwise, from any of its other operating subsidiaries during those periods. The ability of Liberty's operating subsidiaries to pay dividends or to make other payments or advances to Liberty depends on their individual operating results and any statutory, regulatory or contractual restrictions to which they may be or may become subject. Some of our subsidiaries, including TCI Cablevision of Puerto Rico, are subject to loan 10 agreements that restrict sales of assets and prohibit or limit the payment of dividends or the making of distributions, loans or advances to stockholders and partners. See "Description of Certain Indebtedness." Liberty also receives cash from subsidiaries that receive interest and dividend income from securities they hold. Some of those securities are pledged to secure financial obligations or are subject to equity derivatives. Liberty generally does not receive cash, in the form of dividends, loans, advances or otherwise, from its business affiliates. As in the case of our subsidiaries, the ability of our business affiliates to make net cash available to Liberty depends on their individual operating results and is also subject to various statutory, regulatory and/or contractual restrictions. Moreover, we do not have voting control over most of our business affiliates and cannot cause those companies to pay dividends or make other payments or advances to their partners or shareholders (including us). See "--We do not have the right to manage our business affiliates" below. To the extent necessary to obtain additional funds with which to meet its debt service and other liquidity requirements in the future, Liberty may: . seek additional bank financing or engage in other capital markets transactions; . invest in companies that, in management's opinion, have a significant prospect of making net cash available to Liberty; . seek to raise cash by monetizing, through derivatives and other financial transactions, our equity holdings in certain of our affiliates; or . sell some of our more liquid equity securities, such as those we hold in public companies. There can be no assurance, however, that we will be able to successfully obtain a sufficient amount of funds to meet our debt service and other liquidity requirements in the future through any of the foregoing means. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." AT&T has no obligation to provide financing for our operations and we do not expect AT&T to provide us with any financing during the term of the securities. In addition, AT&T does not guarantee any of our indebtedness, and it will have no obligations to the holders of the securities in the event of a payment default or other default by Liberty. Although we do not currently have substantial leverage, we may in the future. The following table shows the indebtedness of Liberty and its consolidated subsidiaries, as of June 30, 1999, on a pro forma basis after giving effect to the sale of the outstanding securities and our use of the net proceeds as described under "Use of Proceeds":
Pro Forma as of June 30, 1999 --------------- (in millions) Senior secured indebtedness of Liberty..................... $ -- Senior unsecured indebtedness of Liberty, other than the securities................................................ 454 Securities to be issued in this offering................... 1,250 Indebtedness of consolidated subsidiaries.................. 487 ------ Total.................................................... $2,191 ======
The indenture governing the securities does not restrict Liberty and its subsidiaries from incurring additional unsecured indebtedness. Also, the indenture does not restrict the ability of Liberty to pledge shares of capital stock or other securities that it owns to secure indebtedness. To the extent Liberty pledges shares of capital stock or other securities to secure indebtedness, the indebtedness so secured will effectively rank senior to the securities to the extent of the value of the shares or other securities pledged. The indenture also does not restrict the ability of Liberty's subsidiaries to pledge shares of capital stock or other assets that they own to secure indebtedness. See "Description of the Securities--Certain Covenants-- Limitation on Liens." 11 Our incurrence of substantial indebtedness could have important consequences to holders of securities. For example, it could: . require us to dedicate a substantial portion of our cash and net cash we receive from our subsidiaries to make debt service payments, thereby reducing the amount of cash we can use for other purposes; . require us to dispose of investments at a time and under circumstances that preclude us from obtaining fair market value or using an advantageous transaction structure; . limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and . increase our vulnerability to general adverse economic and industry conditions. We have entered into credit agreements and agreements with AT&T that contain restrictions on how we finance our operations and operate our business. Liberty and its subsidiaries are subject to significant financial and operating restrictions contained in outstanding credit facilities. See "Description of Certain Indebtedness." These restrictions will affect, and in some cases significantly limit or prohibit, among other things, our ability or the ability of our subsidiaries to: . borrow more funds; . pay dividends or make other distributions; . make investments; . engage in transactions with affiliates; or . create liens. In addition, Liberty has entered into an Inter-Group Agreement with AT&T that restricts the amount of indebtedness that Liberty may incur as a member of the Liberty Media Group and the amount of its stock that Liberty may issue. Under the Inter-Group Agreement, no subsidiary of AT&T that is attributed to the Liberty Media Group may incur any debt, other than the refinancing of debt without any increase in amount, that would cause the total indebtedness of all the subsidiaries of AT&T that are attributed to the Liberty Media Group at any time to be in excess of 25% of the total market capitalization of the Class A and Class B Liberty Media Group common stock, unless the excess would not adversely affect the credit rating of AT&T. See "Relationship with AT&T and Certain Related Transactions--Relationship with AT&T--Inter-Group Agreement." The restrictions contained in these credit agreements and the restriction on debt incurrence and equity issuances contained in the Inter-Group Agreement could have the following adverse effects on us, among others: . we could be unable to obtain additional capital in the future to . fund capital expenditures or acquisitions that could improve the value of Liberty; . permit us to meet our loan and capital commitments to our business affiliates or allow us to help fund their operating losses or future development; . help us to withstand a downturn in our business or in the economy in general; or . allow us to conduct necessary corporate activities; . we could be unable to access the net cash of our subsidiaries to help meet our own financial obligations; . we could be unable to invest in companies that we would otherwise invest in; and . we could be unable to obtain lower borrowing costs that are available from secured lenders or engage in advantageous transactions that monetize our assets. 12 In addition, some of the credit agreements to which our subsidiaries are a party require them to maintain financial ratios, including ratios of total debt to operating cash flow and operating cash flow to interest expense. If Liberty or its subsidiaries fail to comply with the covenant restrictions contained in their credit agreements, that could result in a default which accelerates the maturity of the indebtedness borrowed pursuant to those agreements. Such a default could also result in indebtedness under other credit agreements and the securities becoming due and payable due to the existence of cross-default or cross-acceleration provisions of our credit agreements and in the indenture governing the securities. We may make significant capital contributions and loans to our subsidiaries and business affiliates to cover operating losses and fund development and growth. To the extent cash is used for this purpose, that cash will not be available to pay Liberty's own financial obligations. The development of video programming, communications, technology and Internet businesses involves substantial costs and capital expenditures. As a result, many of our business affiliates have incurred operating and net losses to date and are expected to continue to incur significant losses for the foreseeable future. Liberty's results of operations include Liberty's and its consolidated subsidiaries' share of the net losses of their affiliates. The share of net losses amounted to $785 million for 1997, $1,002 million for 1998, $66 million for the two months ended February 28, 1999, and $359 million for the four months ended June 30, 1999. We may make significant capital contributions and loans to our existing and future subsidiaries and business affiliates to help cover their operating losses and fund the development and growth of their respective businesses and assets. We have assisted, and may in the future assist, our subsidiaries and business affiliates in their financing activities by guaranteeing bank and other financial obligations. At June 30, 1999, we had guaranteed various loans, notes payable, letters of credit and other obligations of certain of our subsidiaries and business affiliates totaling $502 million. Subsequent to June 30, 1999, we entered into an agreement that may require us to make capital contributions or loans to a business affiliate in the maximum amount of approximately $100 million. It is expected that these commitments will be funded over the next two years. To the extent Liberty makes loans and capital contributions to its subsidiaries and business affiliates or Liberty is required to expend cash due to a default by a subsidiary or business affiliate of any obligation guaranteed by Liberty, there will be that much less cash available to Liberty with which to pay its own financial obligations, including the securities. We are parties to shareholder and partnership agreements that provide for possible capital calls on shareholders and partners. Our failure to meet a capital call, or other commitment to provide capital or loans to a particular company, may have adverse consequences to us. These consequences may include, among others, the dilution of our equity interest in that company, the forfeiture of our right to vote or exercise other rights, the right of the other shareholders or partners to force us to sell our interest at less than fair value, the forced dissolution of the company to which we have made the commitment or, in some instances, a breach of contract action for damages against us. Our ability to meet capital calls or other capital or loan commitments is subject to our ability to access cash. See "--Liberty must obtain cash from its financing activities, the operations of its subsidiaries and its investments to service its financial obligations. It is possible that Liberty could be unable in the future to obtain a sufficient amount of cash with which to service those obligations" above. We are a member of the Liberty Media Group of AT&T, and that may have important consequences to you. We have entered into agreements with AT&T pursuant to which we have agreed, on a joint and several basis with each other member of the Liberty Media Group, to indemnify AT&T against any liabilities arising from the operations and businesses of any of the members of the Liberty Media Group. Hence, we may be obligated to indemnify AT&T against liabilities incurred by members of the Liberty Media Group other than Liberty Media Corporation and its consolidated subsidiaries. Although we anticipate that if we were required to indemnify AT&T against such a liability we would seek reimbursement or contribution from the other members of the Liberty Media Group, we cannot assure you that those members would be financially capable of making that reimbursement or contribution. Liberty is also jointly and severally liable with the other 13 members of the Liberty Media Group for any amounts owed by members of the Liberty Media Group to AT&T under a tax sharing agreement, and those amounts could be substantial. See "Relationship with AT&T and Certain Related Transactions." Some of the officers of Liberty Media Corporation are also officers of other members of the Liberty Media Group. Hence, to the extent those officers devote attention to the operations of the other members of the Liberty Media Group, that attention will be diverted from the assets and businesses of Liberty Media Corporation and its consolidated subsidiaries. In addition, although we anticipate that acquisitions involving companies that are attributed to the Liberty Media Group will be effected through Liberty Media Corporation or its consolidated subsidiaries, it is possible that some of these acquisitions will be effected through other members of the Liberty Media Group. In addition to the diversion of management's attention from the assets and business of Liberty Media Corporation, acquisitions outside of Liberty Media Corporation and its consolidated subsidiaries could have important consequences to the holders of the securities, including the following: . Liberty may provide cash or other assets with which to effect these acquisitions; and . Liberty may provide cash for the purpose of funding subsequent operating losses or the development and growth of the businesses of the acquired companies. Liberty Media Group recently announced the proposed acquisition of Associated Group, Inc. with shares of AT&T common stock and Liberty Media Group common stock. If that transaction closes, a significant portion of the assets of Associated Group will be contributed to another member of the Liberty Media Group and only a portion of the assets of Associated Group will be contributed to Liberty. The liquidity and value of our interests in our business affiliates may be adversely affected by shareholder agreements and similar agreements. A significant portion of the equity securities we own is held pursuant to stockholder agreements, partnership agreements and other instruments and agreements that contain provisions that affect the liquidity, and therefore the realizable value, of those securities. Most of these agreements subject the transfer of the stock, partnership or other interests constituting the equity security to consent rights or rights of first refusal of the other stockholders or partners. In certain cases, a change in control of Liberty or of the subsidiary holding our equity interest will give rise to rights or remedies exercisable by other stockholders or partners, such as a right to initiate or require the initiation of buy/sell procedures. Some of our subsidiaries and business affiliates are parties to loan agreements that restrict changes in ownership of the borrower without the consent of the lenders. All of these provisions will restrict our ability to sell those equity securities and may adversely affect the price at which those securities may be sold. For example, in the event buy/sell procedures are initiated at a time when we are not in a financial position to buy the initiating party's interest, we could be forced to sell our interest at a price based on the value established by the initiating party, and that price might be significantly less than what we might otherwise obtain. We do not have the right to manage our business affiliates. We do not have the right to manage the businesses or affairs of any of our business affiliates in which we have less than a majority voting interest. Rather, our rights, at most, may take the form of representation on the board of directors or a partners' or similar committee that supervises management or possession of veto rights over significant or extraordinary actions. The scope of our veto rights varies from agreement to agreement. Although our board representation and veto rights may enable us to prevent the sale by a business affiliate of assets or prevent it from paying dividends or making distributions to its stockholders or partners, they do not enable us to cause these actions to be taken. Our ability to use our stock as acquisition currency is limited. In addition to participating in the continuing development of the companies in which we currently have an interest, we presently intend to pursue acquisitions of equity interests in additional companies. Our ability to successfully complete acquisitions may be hampered by restrictions imposed by virtue of our being a wholly owned subsidiary of AT&T and agreements we have entered into with AT&T. Under the Inter-Group Agreement that governs our relationship with AT&T and the AT&T Common Stock Group, Liberty may issue shares of its common stock and may 14 authorize and issue shares of its preferred stock only if, after giving effect to the issuance, AT&T would still be able to include Liberty on its consolidated federal income tax return and Liberty would still be a "Qualified Subsidiary" within the meaning of the Inter-Group Agreement. Under current law, this generally means that Liberty may not issue an amount of shares if that amount would result in neither AT&T nor a subsidiary of AT&T owning at least 80% of the total combined voting power of all classes of stock of Liberty entitled to vote and 80% of the fair market value of all classes of stock of Liberty and 80% of each class of non-voting stock of Liberty. See "Relationship with AT&T and Certain Related Transactions--Relationship with AT&T--Inter-Group Agreement." Our business is subject to risks of adverse government regulation. In the United States, the Federal Communications Commission regulates the providers of satellite communications services and facilities for the transmission of programming services, the cable television systems that carry such services, and, to some extent, the availability of the programming services themselves through its regulation of program licensing. Cable television systems and other forms of video distribution in the United States are also regulated by municipalities or other state and local government authorities. Cable television companies are currently subject to federal rate regulation on the provision of basic service, and continued rate regulation or other franchise conditions could place downward pressure on the fees cable television companies are willing or able to pay for programming services in which we have interests and regulatory carriage requirements could adversely affect the number of channels available to carry the programming services in which we have an interest. In addition, Liberty's programming subsidiaries and business affiliates may be limited in their ability to sell programming to AT&T's cable television subsidiaries and affiliates as a result of federal regulations. See "Business--Regulatory Matters." The regulation of programming services, cable television systems, satellite carriers and television stations is subject to the political process and has been in constant flux over the past decade. Further material changes in the law and regulatory requirements must be anticipated and there can be no assurance that our business will not be adversely affected by future legislation, new regulation or deregulation. See "Business--Regulatory Matters." In addition, substantially every foreign country in which we have, or may in the future make, an investment regulates, in varying degrees, the distribution and content of programming services and foreign investment in programming companies and wireline and wireless cable communications, satellite, telephony and Internet services. Regulations or laws that exist at the time we make an investment in a subsidiary or business affiliate may subsequently change, and there can be no assurance that material and adverse changes in the regulation of the services provided by our foreign subsidiaries and business affiliates will not occur in the future. Regulation can take the form of price controls, service requirements and programming and other content restrictions, among others. Moreover, some countries where we have or may in the future acquire interests in a cable television operator do not issue exclusive licenses or franchises to provide multi-channel television services within a geographic area, and in those instances we may be adversely affected by an overbuild by one or more competing cable operators. In certain countries where multi-channel television is less developed, there is minimal regulation of cable television and other forms of video distribution, and, hence, the protections of the distributor's investment available in the United States and other countries (such as rights to renewal of licenses, franchises and pole attachment) may not be available in these countries. The Internet companies in which we have interests are subject, both directly and indirectly, to various laws and governmental regulations relating to their respective businesses. Due to the increasing popularity and use of commercial online services and the Internet, it is possible that a number of laws and regulations may be adopted with respect to commercial online services and the Internet. The adoption of such laws or regulations in the future may decrease the growth of such services and the Internet, which could in turn decrease the demand for the services and products of the Internet companies in which we have interests and increase such companies' costs of doing business or otherwise have an adverse effect on their businesses, operating results and financial conditions. 15 Our operations are subject to constraints imposed by the Investment Company Act. Our operations are primarily conducted through subsidiaries and business affiliates, and certain of our investments in those companies have been made with strategic partners where we have a less than 50% voting interest. Under the Investment Company Act of 1940, a company that is deemed to be an "investment company," and which is not exempt from the provisions of the Investment Company Act, is required to register as an investment company under that Act. Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner Liberty operates its business, nor are registered investment companies permitted to have many of the relationships that Liberty has with its affiliated companies. Liberty's current holdings in its subsidiaries and business affiliates are such that Liberty is not an "investment company" required to register under the Investment Company Act, and Liberty intends to conduct its business in a manner designed to avoid becoming subject to regulation under that Act. To avoid regulation under the Investment Company Act, Liberty's operations will to an extent be limited by concerns that it acquire investments in companies that assure to it majority ownership or primary control of a magnitude sufficient to cause Liberty not to fall within the definition of an investment company. These considerations could require Liberty to dispose of otherwise desirable assets at disadvantageous prices, structure transactions in a manner that assures Liberty has a majority interest or primary control, irrespective of whether such a structure is the one that is most desirable, or avoid otherwise economically desirable transactions, including the addition of strategic partners in Liberty's current majority-owned subsidiaries and business affiliates that it primarily controls. In addition, events beyond our control, including significant appreciation in the market value of certain of our publicly traded investments that may be deemed investment securities, could result in our becoming an inadvertent investment company. If Liberty were to become an inadvertent investment company, it would have one year to divest of a sufficient amount of investment securities and/or acquire other assets sufficient to cause Liberty to no longer be an investment company subject to registration under the Investment Company Act. If it were established that Liberty is an unregistered investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC, that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the period it was established that we were an unregistered investment company. We cannot assure you that our critical computer systems or those of persons with whom we do business are Year 2000 ready. Many existing computer programs were designed and developed without considering the upcoming change in the century, which could lead to the failure of computer applications or create erroneous results by or at the Year 2000. The Year 2000 issue is a broad business issue, the impact of which extends beyond traditional computer hardware and software to possible failure of a wide variety of automated systems and instrumentation, including equipment that we use and equipment used by third parties with whom we do business. We are in the process of assessing and remediating potential risks to our business related to the Year 2000 issue. Although we believe that, as a result of these efforts, our critical systems are or will be substantially Year 2000 ready, we cannot assure you that this will be the case. In addition, the ability of third parties with whom we do business and many of the companies in which we have interests to address adequately their Year 2000 issues is outside our control. Our failure or the failure of such third parties to address adequately their respective Year 2000 issues may have a material adverse effect on our business, financial condition and results of operations. For a detailed discussion of our Year 2000 assessment and compliance efforts, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000." 16 We are dependent on a limited number of potential customers for carriage of our programming services. The cable television and direct-to-home satellite industries are currently undergoing a period of consolidation. As a result, the number of potential buyers of our programming services and those of our business affiliates is decreasing. AT&T's cable television subsidiaries and affiliates, which as a group comprise one of the two largest operators of cable television systems in the United States, are collectively the largest single customer of Liberty's programming companies. With respect to some of our programming services and those of our business affiliates, this is the case by a significant margin. The existing agreements between AT&T's cable television subsidiaries and affiliates and the program suppliers owned or affiliated with Liberty were entered into when Liberty was a wholly owned subsidiary of TCI. There can be no assurance that our owned and affiliated program suppliers will be able to negotiate renewal agreements with AT&T's cable television subsidiaries and affiliates. Although AT&T has agreed to extend any existing affiliation agreement of Liberty and its affiliates that expires on or before March 9, 2004 to a date not before March 9, 2009, that agreement is conditioned on mutual most favored nation terms being offered and the arrangements being consistent with industry practice. For more information about our relationship with AT&T, see "Relationship with AT&T and Certain Related Transactions." There is no public market for the exchange securities. The exchange securities will constitute new issues of securities with no established trading market. If a trading market does not develop or is not maintained, holders of the exchange securities may experience difficulty in reselling the exchange securities or may be unable to sell them at all. We cannot assure you that an active public or other market for the exchange securities will develop or be maintained. If a market for the exchange securities develops, it may be discontinued at any time. Although the initial purchasers of the outstanding securities have advised us that they currently intend to make a market in the exchange securities, they are not obligated to do so and may discontinue market-making activity at any time without notice. In addition, any market- making activity by the initial purchasers will be subject to the limits imposed by the Securities Act and the Securities Exchange Act and may be limited during the exchange offer. We do not intend to apply for the listing of the exchange securities on any securities exchange or automated quotation system. The liquidity of any market for the exchange securities will depend upon the number of holders of the exchange securities, our operating performance, the interest of securities dealers in making a market in the exchange securities and other factors. A liquid trading market may not develop for the exchange securities. Furthermore, the market price for the exchange securities may be subject to substantial fluctuations. Factors such as the following may have a significant effect on the market price of the exchange securities: . actual or anticipated fluctuations in our operating results; . our perceived business prospects; . general economic conditions, including prevailing interest rates; and . the market for similar securities. The issuance of the exchange securities may adversely affect the market for the outstanding securities. If outstanding securities are tendered for exchange and accepted in the exchange offer, the trading market, if any, for the untendered and tendered but unaccepted outstanding securities could be adversely affected. Your failure to participate in the exchange offer will have material adverse consequences. We issued the outstanding securities in a private offering exempt from the registration requirements of the Securities Act. Accordingly, you may not offer, sell or otherwise transfer your outstanding securities except in compliance with the registration requirements of the Securities Act and any other applicable securities laws, or pursuant to an exemption from the securities laws, or in a transaction not subject to the securities laws. If you do not exchange your outstanding securities for exchange securities in the exchange offer, or if you do not properly 17 tender your outstanding securities in the exchange offer, your outstanding securities will continue to be subject to these transfer restrictions after the completion of the exchange offer. In addition, after completion of the exchange offer, you will no longer be able to obligate us to register the outstanding securities under the Securities Act. Some persons who participate in the exchange offer must deliver a prospectus in connection with resales of the exchange securities. Based on certain no- action letters issued by the SEC staff, we believe that, in general, you may offer for resale, resell or otherwise transfer the exchange securities without compliance with the registration and prospectus delivery requirements of the Securities Act. However, in some instances described in this prospectus under "The Exchange Offer," you will remain obligated to comply with the registration and prospectus delivery requirements of the Securities Act to transfer your exchange securities. In these instances, if you transfer any exchange security without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from registration of your exchange securities under the Securities Act, you may incur liability under the Securities Act. We do not and will not assume, or indemnify you against, this liability. 18 USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange securities in exchange for the outstanding securities. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement. In consideration for issuing the exchange securities, we will receive outstanding securities in aggregate value equal to the value of the exchange securities. The outstanding securities surrendered in exchange for the exchange securities will be retired and canceled. Accordingly, the issuance of the exchange securities will not result in any change in our indebtedness. We received approximately $1,235,000,000 in net proceeds from the sale of the outstanding securities, after deducting discounts but before deducting other offering expenses. We used these net proceeds to repay (1) $500 million of outstanding indebtedness under a $500 million secured revolving credit facility, entered into by Communication Capital Corp., an indirect wholly owned subsidiary of Liberty, (2) $580 million of outstanding indebtedness under a $640 million guaranteed revolving credit facility, entered into by LMC Capital LLC, an indirect wholly owned subsidiary of Liberty, and (3) $155 million of outstanding indebtedness under separate unsecured revolving credit facilities, entered into by Liberty, that provide for borrowings in the aggregate principal amount of $1.2 billion. Following these repayments, the credit facilities entered into by Communication Capital Corp. and LMC Capital LLC were terminated. Amounts repaid under Liberty's unsecured revolving credit facilities may be reborrowed in the future. See"Description of Certain Indebtedness." CAPITALIZATION The following table sets forth our consolidated capitalization as of June 30, 1999, on an actual basis and as adjusted to reflect the issuance and sale of the outstanding securities and the application of the net proceeds therefrom. This table should be read in conjunction with Liberty's consolidated financial statements and the related notes included elsewhere in this prospectus. See "Index to Financial Statements."
June 30, 1999 -------------------- Actual As Adjusted ------- ----------- (in millions) Cash and cash equivalents.................................. $ 1,504 1,504 ======= ====== Marketable securities...................................... 3,393 3,393 ======= ====== Long-term debt (including current portion): Bank credit facilities................................... $ 2,094 859 Other debt............................................... 82 82 7 7/8% Senior Notes due 2009............................. -- 750 8 1/2% Senior Debentures due 2029........................ -- 500 ------- ------ Total debt............................................. $ 2,176 2,191 ------- ------ Stockholder's equity: Common stock............................................. -- -- Additional paid-in capital............................... $33,862 33,862 Accumulated other comprehensive earnings, net of taxes... 1,963 1,963 Retained earnings (deficit).............................. (601) (601) ------- ------ 35,224 35,224 ------- ------ Due to related parties................................... 103 103 ------- ------ Total stockholder's equity............................. 35,327 35,327 ------- ------ Total capitalization................................... $37,503 37,518 ======= ======
19 SELECTED HISTORICAL FINANCIAL DATA In the table below we provide you with selected historical consolidated financial data of Liberty. We derived the historical consolidated financial data from our consolidated financial statements included elsewhere in this prospectus. The unaudited financial data at June 30, 1999, February 28, 1999, June 30, 1998 and for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998 contain all adjustments, consisting only of normal recurring accruals, that, in the opinion of our management, are necessary for a fair presentation of our results for these periods. The interim results of operations are not necessarily indicative of results that may be expected for the full year. Liberty has been a wholly owned subsidiary of TCI since August 1994. On March 9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting purposes, the merger of AT&T and TCI is deemed to have occurred on March 1, 1999. In connection with the merger, the assets and liabilities of Liberty were adjusted to their respective fair values pursuant to the purchase method of accounting. For periods prior to March 1, 1999, the assets and liabilities of Liberty and the related consolidated results of operations are referred to below as "Old Liberty," and for periods subsequent to February 28, 1999, the assets and liabilities of Liberty and the related consolidated results of operations are referred to as "New Liberty." In connection with the merger, TCI effected an internal restructuring as a result of which certain assets and approximately $5.5 billion in cash were contributed to Liberty. The financial data presented below are not necessarily comparable from period to period as a result of several transactions, including acquisitions and dispositions of consolidated subsidiaries. For this and other reasons, you should read the selected historical financial data provided below in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1 and the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" beginning on page 21.
New Liberty Old Liberty ----------- ----------------------------------------------------------- Four months Two months Six months ended ended ended Year ended December 31, June 30, February 28, June 30, ---------------------------------- 1999 1999 1998 1998 1997 1996 1995 1994 ----------- ------------ ----------- ------ ----- ----- ----- ----- (unaudited) (unaudited) (unaudited) (in millions, except ratios) Operating Data: Revenue................. $ 292 235 647 1,359 1,225 2,208 1,821 1,577 Operating loss.......... (633) (158) (227) (431) (260) (66) (214) (5) Interest expense........ (46) (26) (33) (104) (40) (53) (34) (11) Share of losses of affiliates, net........ (359) (66) (523) (1,002) (785) (332) (190) (59) Gains (losses) on dispositions, net...... (2) 14 553 2,449 406 1,558 (78) 181 Net income (loss)....... (601) (70) (125) 622 (470) 741 (56) 164 Balance Sheet Data (at period end): Cash and cash equivalents............ $ 1,504 31 158 228 100 434 179 72 Marketable securities... 3,393 125 85 159 248 59 -- -- Investments in affiliates............. 16,775 3,971 1,931 3,079 2,359 1,519 1,932 835 Investment in Time Warner, Inc............ 8,212 7,361 4,875 7,083 3,538 2,017 945 654 Investment in Sprint Corporation............ 5,989 3,381 -- 2,446 -- -- -- -- Total assets............ 50,000 16,886 9,975 15,567 7,735 6,722 5,605 3,482 Debt including current portion................ 2,176 2,087 1,394 2,096 785 555 516 98 Stockholder's equity.... 35,327 9,449 5,961 9,230 4,721 4,519 3,731 2,386 Other Data: Ratio of earnings to fixed charges (a)...... -- 5.12x 4.06x 11.03x 2.06x 21.36x 3.86x 9.20x
- -------- (a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for the four-month period ended June 30, 1999. Thus, earnings available for fixed charges were inadequate to cover fixed charges for such period. The amount of coverage deficiency for the four-month period ended June 30, 1999 was $886 million. The ratios of earnings to fixed charges for the two-month period ended February 28, 1999 and the year ended December 31, 1998, as adjusted to reflect the sale of the outstanding securities and the application of the net proceeds as described under "Use of Proceeds," are 4.55x and 9.47x, respectively. The deficiency of earnings to fixed charges for the four months ended June 30, 1999, as adjusted to reflect the sale of the securities and the application of the estimated net proceeds as described under "Use of Proceeds," was $897 million. For the ratio calculations, earnings available for fixed charges consist of earnings (losses) before income taxes plus fixed charges, distributions from and losses of less than 50%-owned affiliates with debt not guaranteed by Liberty (net of earnings not distributed of less than 50%-owned affiliates) and minority interests in (earnings) losses of consolidated subsidiaries. Fixed charges consist of (1) interest on debt, including interest related to debt guaranteed by Liberty of less than 50%-owned affiliates where the investment in such affiliates results in the recognition of a loss, (2) Liberty's proportionate share of interest of 50%-owned affiliates, (3) that portion of rental expense which Liberty believes to be representative of interest (one-third of rental expense) and (4) amortization of debt issuance costs. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our consolidated financial statements and accompanying notes beginning on page F-1. Liberty's domestic subsidiaries generally operate or hold interests in businesses which provide programming services including production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software. In addition, certain of Liberty's subsidiaries hold interests in businesses engaged in wireless telephony, electronic retailing, direct marketing and advertising sales relating to programming services, infomercials and transaction processing. Liberty also has significant interests in foreign affiliates which operate in cable television, programming and satellite distribution. Liberty's consolidated subsidiaries at June 30, 1999 include Encore Media Group, TCI Music, Pramer S.C.A. and TCI Cablevision of Puerto Rico. These businesses are majority or wholly owned and accordingly, the results of operations of these businesses are included in the consolidated results of Liberty for the periods in which they were majority or wholly owned. A significant portion of Liberty's operations are conducted through entities in which Liberty holds a 20%-50% ownership interest. These businesses are accounted for under the equity method of accounting and accordingly are not included in the consolidated results of Liberty except as they affect Liberty's interest in earnings or losses of affiliates for the period in which they were accounted for under the equity method. Included in Liberty's investments in affiliates at June 30, 1999 are USA Networks, Inc., Discovery Communications, Inc., TV Guide, Inc., QVC Inc., Flextech, plc and Telewest Communications plc. Liberty holds interests in companies that are neither consolidated subsidiaries nor affiliates accounted for under the equity method. The most significant of these include Time Warner and Sprint Corporation. The Time Warner stock and Sprint Corporation tracking stock that Liberty holds are classified as available-for-sale securities and are carried at fair value. Unrealized holding gains and losses on these securities are carried net of taxes as a component of accumulated other comprehensive earnings in stockholders' equity. Realized gains and losses are determined on a specific- identification basis. As a result of AT&T's acquisition of TCI by merger on March 9, 1999, the shares of each series of TCI common stock were converted into shares of a class of AT&T common stock subject to applicable exchange ratios. The AT&T merger has been accounted for using the purchase method. For financial reporting purposes the AT&T merger is deemed to have occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and liabilities of Liberty and the related consolidated financial statements are sometimes referred to herein as "Old Liberty," and for periods subsequent to February 28, 1999 the assets and liabilities of Liberty and the related consolidated financial statements are sometimes referred to herein as "New Liberty." "Liberty" refers to both New Liberty and Old Liberty. Summary of Operations Liberty's programming businesses include Encore Media Group which provides premium programming distributed by cable, direct-to-home satellite and other distribution media throughout the United States. Additionally, TCI Music is included in Liberty's financial results. TCI Music, through its subsidiaries and affiliates, is principally engaged in programming, distributing and marketing digital and analog music services to homes, businesses and over the Internet. Also included in Liberty's financial results through March 1, 1999 are those of TV Guide (formerly named United Video Satellite Group, Inc. which, during the period it was consolidated, was engaged in the business of providing satellite-delivered video, audio, data, and program promotion services to cable television systems, direct-to-home satellite dish users, radio stations and private network users throughout the United States. Effective March 1, 1999, Liberty began accounting for its investment in TV Guide under the equity method of accounting. To enhance the reader's understanding, separate financial data has been provided below for Encore Media Group, TCI Music and TV Guide due to the significance of those operations. The table sets forth, for the periods indicated, certain financial information and the percentage relationship that certain items bear to revenue. Liberty holds significant equity investments, the 21 results of which are not a component of operating income, but are discussed below under "--Investments in Affiliates Accounted for Under the Equity Method." Other items of significance are discussed separately below. Six months ended June 30, 1999 compared to six months ended June 30, 1998 General Information Due to the consummation of the AT&T merger, Liberty's 1999 statements of operations include information reflecting the four-month period ended June 30, 1999 and the two-month period ended February 28, 1999. Also, prior to March 1, 1999, Liberty consolidated the operations of TV Guide, and subsequent to February 28, 1999, Liberty accounted for its ownership interests in TV Guide under the equity method. (See note 6 to the accompanying June 30, 1999 consolidated financial statements.) The following discussion of Liberty's results of operations includes a section that addresses the combined operating results of "Old Liberty" and "New Liberty," collectively "Combined Liberty."
New Liberty Old Liberty ------------------- ------------------------------------- Six Four months Two months months ended % of ended % of ended % of June 30, total February 28, total June 30, total 1999 revenue 1999 revenue 1998 revenue ----------- ------- ------------ ------- -------- ------- (dollar amounts in millions) Encore Media Group Revenue........................................................ $ 211 100% $ 101 100% $ 249 100% Operating, selling, general and administrative................. 158 75 60 59 209 84 Stock compensation............................................. -- -- 3 3 14 6 Depreciation and amortization.................................. 60 28 1 1 3 1 ----- ----- ----- --- ----- ---- Operating income (loss)...................................... $ (7) (3)% $ 37 37% $ 23 9% ===== ===== ===== === ===== ==== TCI Music Revenue........................................................ $ 33 100% $ 15 100% $ 40 100% Operating, selling, general and administrative................. 33 100 14 93 37 93 Stock compensation............................................. 257 778 -- -- -- -- Depreciation and amortization.................................. 15 45 4 27 11 27 ----- ----- ----- --- ----- ---- Operating loss............................................... $(272) (823)% $ (3) (20)% $ (8) (20)% ===== ===== ===== === ===== ==== TV Guide Revenue........................................................ $ -- -- $ 97 100% $ 290 100% Operating, selling, general and administrative................. -- -- 76 79 234 81 Stock compensation............................................. -- -- -- -- -- -- Depreciation and amortization.................................. -- -- 10 10 13 4 ----- ----- ----- --- ----- ---- Operating income............................................. $ -- -- $ 11 11% $ 43 15% ===== ===== ===== === ===== ==== Other Revenue........................................................ $ 48 (a) $ 22 (a) $ 68 (a) Operating, selling, general and administrative................. 49 38 73 Stock compensation............................................. 198 180 251 Depreciation and amortization.................................. 155 7 29 ----- ----- ----- Operating loss............................................... $(354) $(203) $(285) - -------------------------------------------------- ===== ===== =====
- -------- (a) Not meaningful. In order to provide a meaningful basis for comparing the six months ended June 30, 1999 and 1998 for purposes of the following table and discussion, the operating results of Combined Liberty for the four months ended June 30, 1999 have been combined with the operating results of Combined Liberty for the two months ended February 28, 1999, and the resulting six-month operating results are compared to the operating results for the six months ended June 30, 1998. Depreciation, amortization and certain other line items included in 22 the operating results of Combined Liberty are not comparable between periods as the four-month successor period ended June 30, 1999 includes the effects of purchase accounting adjustments related to the AT&T merger, and prior periods do not. The combining of predecessor and successor accounting periods is not acceptable under generally accepted accounting principles.
Combined Liberty -------------------------------------- Six months Six months ended % of ended % of June 30, total June 30, total 1999 revenue 1998 revenue ---------- ------- ---------- ------- (dollar amounts in millions) Encore Media Group Revenue................................ $ 312 100 % $ 249 100 % Operating, selling, general and administrative........................ 218 70 209 84 Stock compensation..................... 3 1 14 6 Depreciation and amortization.......... 61 19 3 1 ----- ---- ----- --- Operating income..................... $ 30 10 % $ 23 9 % ===== ==== ===== === TCI Music Revenue................................ $ 48 100 % $ 40 100 % Operating, selling, general and administrative........................ 47 98 37 93 Stock compensation..................... 257 535 -- -- Depreciation and amortization.......... 19 40 11 27 ----- ---- ----- --- Operating loss....................... $(275) (573)% $ (8) (20)% ===== ==== ===== === TV Guide Revenue................................ $ 97 100 % $ 290 100 % Operating, selling, general and administrative........................ 76 78 234 81 Stock compensation..................... -- -- -- -- Depreciation and amortization.......... 10 10 13 4 ----- ---- ----- --- Operating income..................... $ 11 11 % $ 43 15 % ===== ==== ===== === Other Revenue................................ $ 70 (a) $ 68 (a) Operating, selling, general and administrative........................ 87 73 Stock compensation..................... 378 251 Depreciation and amortization.......... 162 29 ----- ----- Operating loss....................... $(557) $(285) ===== =====
- -------- (a) Not meaningful. Consolidated Subsidiaries Encore Media Group. The majority of Encore Media Group's revenue is derived from the delivery of movies to subscribers under affiliation agreements between Encore Media Group and cable operators and satellite direct-to-home distributors. Encore Media Group entered into a 25 year affiliation agreement in 1997 with TCI. TCI cable systems subsequently acquired by AT&T in the AT&T merger operate under the name AT&T Broadband & Internet Services. Revenue from AT&T Broadband accounted for approximately 61% of total revenue during 1998. Under this affiliation agreement with AT&T Broadband, Encore Media Group receives fixed monthly payments in exchange for unlimited access to all of the existing Encore and STARZ! services. The payment from AT&T Broadband is adjusted, in certain instances, if AT&T acquires or disposes of cable systems. Encore Media Group's other affiliation agreements generally provide for payments based on the number of subscribers that receive Encore Media Group's services. Revenue from AT&T Broadband increased 11% to $119 million during the first six months of 1999 compared to the same period of 1998 pursuant to the terms of the AT&T/Encore Media Group affiliation agreement. Under this agreement, the amount paid by AT&T Broadband does not vary with the number of subscription units from AT&T Broadband. This category also includes revenue from cable systems that have been contributed by AT&T to joint ventures and are subject to the AT&T/Encore Media Group affiliation agreement. Revenue from cable affiliates other than AT&T Broadband increased 38% to $69 million during the first six months of 1999 compared to the same period of 1998 mainly due to 18% and 47% increases in 23 subscription units for Encore and STARZ! services, respectively, combined with increases in rates charged. MOVIEplex and Thematic Multiplex subscribers from cable affiliates other than AT&T Broadband increased by 2.0 million or 75% and 1.3 million or 439%, respectively, during the first six months of 1999 compared to the same period in 1998, contributing to the increase in revenue. Revenue from satellite providers and other distribution technologies increased 35% to $124 million during the first six months of 1999 from $92 million during the first six months of 1998 due to 19%, 19% and 36% increases in STARZ!, Encore and Thematic Multiplex subscription units, respectively. Programming and operating expenses increased by 8% during the first six months in 1999 compared to the same period in 1998 primarily due to increased first run exhibitions on Encore and the Thematic Multiplex channels. Sales and marketing expenses decreased by 4% during the first six months of 1999 because of decreases in spending on affiliate and consumer marketing efforts caused primarily by an aggressive STARZ! branding campaign during the same period in 1998. The majority of Encore Media Group's national consumer awareness campaign will continue into the third quarter of 1999; therefore, operating expenses are expected to be higher during the third quarter in 1999. The "New Encore" campaign is branding Encore as a first-run premium pay service. The fluctuations in depreciation, amortization and stock compensation are a direct result of the effects of purchase accounting adjustments related to the AT&T merger. TCI Music. TCI Music's revenue is derived from its audio business which is engaged in programming, distributing and marketing a digital music service delivered to homes and business; its video business which is engaged in programming, distributing and marketing a television programming service; and its Internet business which is engaged in creating, distributing and marketing interactive music programming, products and services through the Internet. Revenue increased 20% to $48 million for the six months ended June 30, 1999 from $40 million for the corresponding period in 1998. The increase in revenue is primarily due to increased residential and commercial subscribers in its audio business. Additionally, revenue for the six months ended June 30, 1999 included a $2.8 million settlement from PRIMESTAR, Inc., a provider of digital satellite television programming services, for the loss of future revenue after the DMX service was terminated from distribution to PRIMESTAR customers on April 28, 1999 as a result of the acquisition of PRIMESTAR by Hughes Electronic Corp. Operating, selling, general and administrative expenses increased 27% to $47 million for the six months ended June 30, 1999 from $37 million for the corresponding period in 1998. The increase in expenses is primarily due to increased affiliation fees in TCI Music's audio business as well as increases in selling, general and administrative expenses due to increased personnel, occupancy and promotional expenses associated with the audio business's expansion. Depreciation and amortization increased 73% to $19 million for the six months ended June 30, 1999 from $11 million for the corresponding period in 1998. The increase is a result of the effects of purchase accounting adjustments related to the AT&T merger. The amount of expense associated with stock compensation is generally based on the vesting of the related stock options and stock appreciation rights and the market price of the underlying common stock. The expense reflected in the table is based on the market price of the underlying stock as of June 30, 1999 and is subject to future adjustment based on market price fluctuations and, ultimately, on the final determination of market value when the rights are exercised. TV Guide. On March 1, 1999, United Video Satellite Group and News Corp. completed a transaction whereby United Video Satellite Group acquired News Corp.'s TV Guide properties in exchange for stock of United Video Satellite Group and cash, creating a broader platform for offering television guide services to consumers and advertisers. United Video Satellite Group was renamed TV Guide. Upon consummation, Liberty began accounting for its interest in TV Guide using the equity method of accounting and accordingly the results of operations of TV Guide were no longer included in the consolidated financial results of Liberty as of that date. Other. Included in this information are the results of Liberty Media International, Inc.'s consolidated subsidiaries, TCI Cablevision of Puerto Rico and Pramer, and corporate expenses of Liberty. Revenue 24 increased 3% from $68 million for the six months ended June 30, 1998 to $70 million for the six months ended June 30, 1999. The acquisition of Pramer in August of 1998 accounted for a $33 million increase in the first six months of 1999. This increase was offset by a decrease in revenue from the sale in February 1999 of CareerTrack, Inc., a subsidiary that was a provider of business and educational seminars and related publications. Operating, selling, general and administrative expenses increased 19% to $87 million for the six months ended June 30, 1999 from $73 million for the corresponding period in 1998. The increase in expenses due to the acquisition of Pramer was more than offset by the decrease in expenses as a result of the sale of CareerTrack. Corporate expenses for the six months ended June 30, 1999 included $12 million in costs associated with the AT&T merger. Depreciation and amortization increased 459% to $162 million for the six months ended June 30, 1999 from $29 million during the same period in 1998. The increase is a result of the effects of purchase accounting adjustments related to the AT&T merger. The amount of expense associated with stock compensation is generally based on the vesting of the related stock options and stock appreciation rights and the market price of the underlying common stock. The expense reflected in the table is based on the market price of the underlying common stock as of June 30, 1999 and is subject to future adjustment based on market price fluctuations and, ultimately, on the final determination of market value when the rights are exercised. Other Income and Expense. Interest expense was $46 million, $26 million and $33 million for the four months ending June 30, 1999, the two month period ending February 28, 1999 and the six months ended June 30, 1998, respectively. The increase in interest expense during the 1999 periods is a result of additional borrowings on Liberty's bank credit facilities during the last part of 1998 and the first half of 1999. Dividend and interest income was $106 million, $10 million and $33 million for the four months ending June 30, 1999, the two month period ending February 28, 1999 and the six months ending June 30, 1998, respectively. The increase in dividend and interest income during 1999 primarily represents dividends and interest income from the investment of the $5.5 billion received in connection with the AT&T merger. There were no gains included in operations during the four month period ended June 30, 1999. Aggregate gains from dispositions and issuance of equity by subsidiaries during the two month period ended February 28, 1999 and the six months ended June 30, 1998 were $386 million and $591 million, respectively. Liberty recognized a gain of $372 million (before deducting deferred income taxes of $147 million) during the two months ended February 28, 1999 in connection with the acquisition by United Video Satellite Group of the TV Guide properties. In September 1997, Time Warner exercised an option to acquire the business of Southern Satellite Systems, Inc. from Liberty. Pursuant to the option, Time Warner acquired the business of Southern Satellite, effective January 1, 1998, for $213 million in cash. Time Warner had paid Liberty shares of Time Warner Series LMCN-V Common Stock, which are convertible into 12.8 million shares of Time Warner common stock, valued at $306 million for the option. Liberty recognized a $515 million pre-tax gain in connection with these transactions in the first quarter of 1998. Investments in Affiliates Accounted for Under the Equity Method Liberty's share of losses of affiliates was $359 million, $66 million and $523 million during the four month period ending June 30, 1999, the two month period ending February 28, 1999 and the six months ending June 30, 1998, respectively. Discovery. Discovery's revenue increased $161 million or 33% from $487 million for the six months ended June 30, 1998 to $648 million for the same period in 1999. The increase in revenue resulted from increases in rates charged to affiliates and increases in advertising rates due to higher ratings and a generally 25 strong advertising sales market. Subscriber growth at Discovery's international and developing networks also contributed to the increase in revenue. Earnings before interest, taxes, depreciation and amortization ("Operating Cash Flow") increased by $32 million or 87% from $37 million for the six months ended June 30, 1998 to $69 million for the six months ended June 30, 1999. The increase in Operating Cash Flow was due to the increase in revenue offset by increases in programming and marketing expenses. Marketing expenses have increased as Discovery continued the rollout of Animal Planet and launched other developing networks. Discovery's net loss increased $13 million or 41% from $32 million for the six months ended June 30, 1998 to $45 million for the six months ended June 30, 1999. The increase in net loss is due to increased interest expense and launch amortization due to the company's efforts to increase launch support related to developing networks. Liberty's share of Discovery's net loss was approximately $76 million, $8 million and $18 million for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998, respectively. Liberty's share of losses for the four months ended June 30, 1999 included $62 million in amortization related to purchase accounting adjustments associated with Liberty's investment in Discovery in connection with the AT&T merger. USA Networks, Inc. Revenue increased $274 million or 22% for the six months ended June 30, 1999 from $1,227 million for the six months ended June 30, 1998 to $1,501 million for the same period in 1999. The increase was due to increased advertising revenue from the Networks and Television Production businesses of USA Networks and higher continuity (off-air) sales, as well as the launch of Home Shopping en Espanol in the electronic retailing sector. Operating Cash Flow increased $57 million or 26% from $215 million for the six months ended June 30, 1998 to $272 million for the six months ended June 30, 1999. The increase in Operating Cash Flow was largely due to the increase in revenue offset by increased cost of goods sold at the electronic retailing unit due to the increased sales and increased Internet services expenses as the company continued to rollout new web sites. Net income decreased from $31 million for the six months ended June 30, 1998 to a net loss of $5 million for the six months ended June 30, 1999, representing a decrease of $36 million or 117%. The decrease in net income is primarily due to an increase in minority interests in earnings of subsidiaries due to ownership changes at USA Networks, Inc. Liberty's share of USA Networks, Inc.'s net earnings (loss) was approximately $(9) million, $10 million and $9 million for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998, respectively. Liberty's share of losses for the four months ended June 30, 1999 included $21 million in amortization related to purchase accounting adjustments associated with Liberty's investment in USA Networks in connection with the AT&T merger. QVC. Revenue increased by $207 million or 19% for the six months ended June 30, 1999 from $1,075 million for the six months ended June 30, 1998 to $1,282 million for the same period of 1999. The increase in revenue is due to increased subscribers as well as increases in the average sales per home for each of QVC's domestic, UK and German operations. Operating Cash Flow increased by 34% or $64 million from $188 million for the six months ended June 30, 1998 to $252 million for the same period in 1999 due to the revenue increase and the corresponding increase in cost of goods sold, offset further by higher variable costs and additional costs associated with QVC's expansion in the UK and Germany. Net income increased by $46 million or 94% to $95 million for the six months ended June 30, 1999 as compared to $49 million for the same period in 1998. The increase in net income was due to the increase in Operating Cash Flow offset by increased income tax expense. Liberty's share of QVC's net earnings (loss) was approximately $(9) million, $13 million and $21 million for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998, respectively. Liberty's share of losses for the four months ended June 30, 1999 included $37 million in amortization related to purchase accounting adjustments associated with Liberty's investment in QVC in connection with the AT&T merger. Fox/Liberty Networks. Revenue increased $59 million or 18% from $326 million for the six months ended June 30, 1998 to $385 million for the same period in 1999 due to increased programming and advertising revenue. These increases were due to subscriber growth and increased advertising rates due to improved ratings. Operating Cash Flow decreased $5 million or 15% from $34 million for the six months ended June 30, 1998 to $29 million for the same period in 1999. The decrease in Operating Cash Flow was due 26 to the revenue increase offset by increased operating expenses. Operating expenses increased from 77% of total revenue for the six months ended June 30, 1998 to 82% for the same period in 1999. This increase is largely due to increased programming rights fees resulting from the resumption of the National Basketball Association's season in late February. Fox/Liberty Networks' net loss increased $27 million or 100% from $27 million for the six months ended June 30, 1998 to $54 million for the same period in 1999. The increased net loss is due to reduced Operating Cash Flow, a $16 million decrease in equity in earnings from affiliates and a $5 million loss on sale of investments. The decrease in equity in earnings from affiliates was mainly due to the NBA lockout and the bankruptcy of the Pittsburgh Penguins, a professional hockey team. Liberty's share of Fox/Liberty Networks' net loss was approximately $48 million, $1 million and $77 million for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998, respectively. Liberty's share of losses for the four months ended June 30, 1999 included $23 million in amortization related to purchase accounting adjustments associated with Liberty's investment in Fox/Liberty Networks in connection with the AT&T merger. Liberty's share of losses for the six months ended June 30, 1998 includes previously unrecognized losses of Fox/Liberty Networks of approximately $64 million. Losses for Fox/Liberty Networks were not recognized in prior periods due to the fact that Liberty's investment in Fox/Liberty Networks was less than zero. (See note 3 to the accompanying June 30, 1999 consolidated financial statements). Telewest. Revenue increased $242 million or 65% from $374 million for the six months ended June 30, 1998 to $616 million for the same period in 1999. The increase was primarily due to the acquisition of General Cable plc and Birmingham Cable Corporation Limited in September of 1998 and increased cable penetration due to the success of Telewest's low-cost bundled television and telephony services introduced during 1998. Operating Cash Flow increased $83 million or 92% from $90 million for the six months ended June 30, 1998 to $173 million for the six months ended June 30, 1999. The increase in Operating Cash Flow was largely due to the increase in revenue and economies of scale resulting from the enlarged operations. Telewest's net loss increased $240 million or 100% from $240 million for the six months ended June 30, 1999 to $480 million for the six months ended June 30, 1999. The increase in net loss was due to increased interest expense of $129 million and increased foreign currency transaction losses of $76 million. Telewest experiences unrealized foreign currency transaction losses on its U.S. dollar denominated debentures resulting from the translation of the debentures into UK pounds sterling and the adjustment of a related foreign currency option contract to market value. Liberty's share of Telewest's net losses was approximately $97 million, $38 million and $64 million for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998, respectively. Liberty's share of losses for the four months ended June 30, 1999 included $29 million in amortization related to purchase accounting adjustments associated with Liberty's investment in Telewest in connection with the AT&T merger. PCS Ventures. Liberty's share of losses from its investment in the PCS Ventures was $324 million during the six months ended June 30, 1998. At that time, the PCS Ventures included Sprint Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P. The partners of each of the Sprint PCS partnerships were subsidiaries of Sprint, Comcast Corporation, Cox Communications, Inc. and Liberty. The partners of PhillieCo were subsidiaries of Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the Sprint PCS partnerships and a 35% partnership interest in PhillieCo. On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective interests in Sprint PCS and PhillieCo for shares of Sprint PCS Group stock which tracks the performance of Sprint's newly created PCS Group (consisting initially of the PCS Ventures and certain PCS licenses which were separately owned by Sprint). Through November 23, 1998, Liberty accounted for its interest in the PCS Ventures using the equity method of accounting; however, as a result of the foregoing exchange and Liberty's less than 1% voting interest in Sprint, Liberty no longer exercises significant influence with respect to its investment in the PCS Ventures. Accordingly, Liberty accounts for its investment in the Sprint PCS Group stock as an available-for-sale security. (See note 5 to the accompanying June 30, 1999 consolidated financial statements). 27 Year Ended December 31, 1998 compared to December 31, 1997 and December 31, 1996 General Information Due to a number of transactions that were completed during the three year period ended December 31, 1998, the results of operations during this period are not comparable from year to year. These transactions resulted in the consolidation or deconsolidation of several entities: . Effective February 1, 1998, Turner-Vision, Inc. contributed the assets, obligations and operations of its retail C-band satellite business to Superstar/Netlink Group LLC, a consolidated subsidiary of TV Guide, in exchange for an approximate 20% ownership interest in Superstar/Netlink. As a result of this transaction, Turner-Vision's results of operations have been included in the consolidated financial results of TV Guide, and therefore the consolidated results of Liberty, as of February 1, 1998. . Effective January 1, 1998, Time Warner exercised an option to acquire the business of Southern Satellite and accordingly the results of operations of that business were no longer included in the consolidated financial results of Liberty as of that date. . During October 1997, Liberty Media International sold a portion of its interest in Cablevision. As a result, effective October 1, 1997, Liberty ceased to consolidate Cablevision and began to account for its investment in Cablevision using the equity method of accounting. . Effective July 1, 1997, as a result of the merger of TCI Music and DMX, LLC, TCI Music's results of operations have been included in the consolidated financial results of Liberty (see note 11 to the accompanying December 31, 1998 consolidated financial statements). . In January 1997, Liberty Media International's voting interest in Flextech was reduced to 50% and Liberty ceased to consolidate Flextech and began to account for its investment in Flextech using the equity method of accounting. . Effective December 1996, Home Shopping Network, Inc. merged with Silver King Communications, Inc. As a result of this merger, Liberty no longer had voting control of Home Shopping Network and accordingly, Liberty ceased to consolidate Home Shopping Network and began to account for its investment in Home Shopping Network using the equity method of accounting. 28 The table below sets forth, for the periods indicated, certain financial information and percentage relationship that certain items bear to revenue.
Year ended December 31, ----------------------------------------------- 1998 1997 1996 --------------- --------------- --------------- % of % of % of total total total Amount revenue Amount revenue Amount revenue ------ ------- ------ ------- ------ ------- (dollar amounts in millions) Encore Media Group Revenue........................ $ 541 100% $ 350 100% $ 195 100% Operating, selling, general and administrative................ 445 82 382 109 290 149 Stock compensation............. 58 11 60 17 17 9 Depreciation and amortization.. 8 1 4 1 3 2 ----- --- ----- --- ------ --- Operating income (loss)....... $ 30 6% $ (96) (27)% $ (115) (59)% ===== === ===== === ====== === TV Guide Revenue........................ $ 598 100% $ 508 100% $ 410 100% Operating, selling, general and administrative................ 475 79 404 80 343 84 Depreciation and amortization.. 28 5 19 4 16 4 ----- --- ----- --- ------ --- Operating income.............. $ 95 16% $ 85 17% $ 51 12% ===== === ===== === ====== === Other Revenue........................ $ 220 (a) $ 367 (a) $1,603 (a) Operating, selling, general and administrative................ 223 280 1,475 Stock compensation............. 460 236 (23) Depreciation and amortization.. 94 100 154 ----- ----- ------ Operating loss................ $(557) $(249) $ (3) ===== ===== ======
- -------- (a) Not meaningful. Consolidated Subsidiaries Encore Media Group. Revenue generated from Encore Media Group increased to $541 million in 1998 from $350 million in 1997. This increase of $191 million, or 55%, was primarily attributable to higher revenue from AT&T Broadband, consistent with the terms of the affiliation agreement with AT&T Broadband, and the increases in the distribution of Encore and STARZ! services to cable operators other than AT&T Broadband and direct-to-home satellite providers combined with increases in rates charged. Revenue generated from Encore Media Group increased to $350 million in 1997 from $195 million in 1996. This increase of $155 million, or 79%, can be attributed to higher revenue from AT&T Broadband during the year as a result of an increase in units and the AT&T Broadband/Encore Media Group affiliation agreement, and an increase in the number of Encore and Multiplex units distributed to other cable operators and direct broadcast satellite operators, when compared to 1996. Operating, selling, general and administrative expenses increased to $445 million in 1998 from $382 million in 1997. The increase of $63 million, or 16%, is the result of an increase in the first run program license fees during 1998 compared to 1997. Operating, selling, general and administrative expenses increased to $382 million in 1997 from $290 million in 1996. This increase of $92 million, or 32%, was caused by an increase in programming costs due to Encore and Multiplex purchasing more recent programming, the transition to digital technology, and an increase in national marketing and advertising expenses. TV Guide. Revenue increased 18% to $598 million in 1998 from $508 million in 1997, which in turn represented an increase of 24% from $410 million in 1996. The increase in revenue in 1998 over 1997 was primarily due to the acquisition of Turner-Vision's retail C-band operations which were consolidated with those of Superstar/Netlink effective February 1, 1998 and increased advertising and service fee revenue. These 29 increases were partially offset by a decrease in commission revenue from Superstar/Netlink acting as a service agent in the direct broadcast satellite market. The increase in revenue in 1997 over 1996 was attributable to the acquisitions of the retail C-band operations of Liberty's Netlink USA division which were consolidated with those of Superstar/Netlink's retail operations effective April 1, 1996. The remainder of the increase in 1997 was due to increased advertising and fee service revenue. Operating, selling and general and administrative expenses consist primarily of costs for programming content for the C-band operations and personnel costs. Operating, selling, general and administrative expenses increased 18% to $475 million in 1998 from $404 million in 1997. Operating, selling, general and administrative expenses increased 18% to $404 million in 1997 from $343 million in 1996. The increase in 1998 over 1997 was primarily attributable to additional expenses due to the inclusion of Turner-Vision, increased personnel costs due to internal growth and increased legal fees related to litigation and periodic filings with the SEC, and increased costs associated with Prevue Channel's new format under the TV Guide Brand. The increase in operating, selling, general and administrative expenses in 1997 over 1996 was largely attributable to additional expenses due to the C-band retail operations of Netlink USA and increased personnel costs resulting from internal growth. Depreciation and amortization consists primarily of depreciation of leased transponders, electronic and other equipment and amortization of intangible assets resulting from acquisitions and patents. Depreciation and amortization increased $9 million to $28 million in 1998 from $19 million in 1997 which in turn represented an increase of 19% from $16 million in 1996. The increase in 1998 over 1997 was attributable to the amortization of intangibles resulting from the acquisition of Turner-Vision and increased depreciation resulting from the acquisition of certain equipment to support the various Prevue products. The increase in depreciation and amortization in 1997 over 1996 was largely due to increased depreciation resulting from the acquisition of equipment to support the various Prevue products. Other. Included in this information are the results of Liberty Media International, TCI Music and Home Shopping Network. Revenue decreased to $220 million in 1998 from $367 million in 1997. Liberty Media International's revenue decreased from $220 million in 1997 to $65 million in 1998. This $154 million decrease was attributable to the deconsolidation of Cablevision. Cablevision represented $173 million in revenue during 1997. Additionally, revenue decreased as a result of the sale of the business of Southern Satellite. The business of Southern Satellite contributed $31 million to revenue during 1997. In August 1998, Liberty Media International purchased Pramer, which contributed an additional $17 million in revenue from the date of acquisition to December 31, 1998. Revenue decreased to $367 million in 1997 from $1,603 million in 1996. This $1,236 million decrease is primarily attributable to the deconsolidation of Home Shopping Network into an equity method investment in December 1996. Revenue generated in 1996 by Home Shopping Network through the date of deconsolidation amounted to $984 million. Effective January 1, 1997, Liberty Media International ceased to consolidate the operations of Flextech. Flextech represented $94 million in revenue during 1996. Operating, selling, general and administrative expenses decreased to $223 million in 1998 from $280 million in 1997. The primary reason for this decrease is the deconsolidation of Cablevision in October, 1997. Cablevision accounted for approximately $105 million of operating expenses in 1997. Operating, selling, general and administrative expenses decreased to $280 million in 1997 from $1,475 million in 1996. The decrease of $1,195 million was primarily attributable to the deconsolidation of Home Shopping Network which accounted for about $911 million in operating, selling and general and administrative expense in 1996. An additional decrease was caused in operating, selling, general and administrative expenses in 1997 because of the deconsolidation of Flextech. Flextech represented $126 million in operating, selling, general and administrative expenses during 1996. The decrease of $54 million in depreciation and amortization expense in 1997 was attributable to the deconsolidation of Home Shopping Network in December 1996 and Flextech effective January 1, 1997. 30 The $224 million and $259 million increase in stock compensation in 1998 and 1997, respectively, is primarily attributable to Liberty corporate expenses. The amount of expense associated with stock compensation is based on the vesting of the related stock options and stock appreciation rights and the market price of the underlying common stock as of the date of the financial statements. The expense is subject to future adjustment based on vesting and market price fluctuations and, ultimately, on the final determination of market value when the rights are exercised. Other Income and Expense. Interest expense was $104 million, $40 million and $53 million for 1998, 1997 and 1996, respectively. The increase in interest expense of $64 million from 1997 to 1998 was a result of additional borrowing on Liberty's credit facilities during 1998. There was a $13 million decrease in interest expense from 1996 to 1997. Because the operations of Home Shopping Network have not been included in Liberty's consolidated financial results since December 20, 1996 interest expense related to Home Shopping Network accounted for a majority of this decrease. Dividend and interest income was $65 million, $59 million and $35 million for 1998, 1997 and 1996, respectively. Dividend and interest income for 1998 primarily represents dividends received of approximately $21 million on a series of Time Warner common stock designated as Series LMCN-V Common Stock and $31 million in dividends received on a new series of 30 year non-convertible 9% preferred stock of Fox Kids Worldwide, Inc. During 1997 dividends received from the Time Warner Series LMCN-V Common Stock and the Fox Kids Worldwide preferred stock amounted to $19 million and $14 million, respectively. During 1997, Liberty also recognized an additional $14 million in interest income relating to short-term investments. The increase in dividend and interest income from 1996 to 1997 is due to the increase in both the Fox Kids Worldwide preferred stock and Time Warner Series LMCN-V Common Stock dividends. Aggregate gains from dispositions and issuance of equity by affiliates and subsidiaries during 1998, 1997 and 1996 were $2,554 million, $406 million and $1,558 million, respectively. As a result of the exchange by Liberty, Comcast and Cox of their respective interests in Sprint PCS and PhillieCo Partnership I, L.P. for shares of Sprint PCS Group stock, Liberty recorded a non-cash gain of $1.9 billion (before deducting deferred income tax expense of $647 million) during 1998 based on the difference between the carrying amount of Liberty's interest in the PCS Ventures and the fair value of the Sprint securities received. Pursuant to an option from Liberty, Time Warner acquired the business of Southern Satellite, effective January 1, 1998 for $213 million in cash. Time Warner had paid Liberty shares of Time Warner Series LMCN-V Common Stock, which are convertible into 12.8 million shares of Time Warner common stock, valued at $306 million for the option. Liberty recognized a $515 million pre-tax gain in connection with these transactions in 1998. Effective September 1, 1998, Telewest and General Cable PLC consummated a merger in which holders of General Cable received Telewest shares and cash for each share of General Cable held. As a result of the merger, Liberty recognized a non-cash gain of $60 million (excluding related tax expense of $21 million) during 1998. Liberty recognized a gain of $38 million in 1998 from the increase in Superstar/Netlink's equity, net of the dilution of its interest in Superstar/Netlink, that resulted from the above described transaction with Turner-Vision. On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of Liberty, which held non-voting Class C common stock of International Family Entertainment, Inc. and $23 million of International Family Entertainment 6% convertible secured notes due 2004, convertible into International Family Entertainment Class C common stock, contributed its International Family Entertainment Class C common stock and International Family Entertainment 6% convertible secured notes to Fox Kids Worldwide in exchange for the Fox Kids Worldwide preferred stock. As a result of the exchange, Liberty recognized a pre-tax gain of approximately $304 million during 1997. On October 10, 1996, Time Warner and Turner Broadcasting System, Inc. consummated a merger in which Liberty received shares of Time Warner Series LMCN-V Common Stock, which are convertible into approximately 101.2 million shares of Time Warner common stock, in exchange for its Turner Broadcasting System holdings. As a result of the merger, Liberty recognized a pre-tax gain of approximately $1.5 billion in 1996. 31 Investments in Affiliates Accounted for Under the Equity Method Liberty's share of losses of affiliates was $1,002 million, $785 million and $332 million during 1998, 1997 and 1996, respectively. Discovery. Revenue increased $234 million or 27% to $1,094 million in 1998 from $860 million in 1997, which in turn represented a $192 million or 29% increase over revenue of $668 million in 1996. The increase in revenue for each of the respective periods was due to increases in the number of subscribers at Discovery's various networks along with an increase in the average per subscriber affiliate fee. Advertising revenue also contributed to the increases due to the increase in subscribers combined with an increase in ratings. Operating Cash Flow increased $80 million or 267% to $110 million in 1998 from $30 million in 1997, which in turn represented a decrease of $41 million or 58% from Operating Cash Flow of $71 million in 1996. The increase in Operating Cash Flow from 1998 to 1997 was due to the revenue growth at the developed domestic and international networks offset by a smaller corresponding increase in operating expenses at those networks. The decrease from 1996 to 1997 was due to continued growth in the developed domestic and international networks offset by the launch of an array of new networks and services. Late in 1996 and during 1997, Discovery launched Animal Planet, the Travel Channel, BBC/Discovery joint venture networks, Your Choice TV, the digital networks and retail operations. The launch of these networks and services caused Operating Cash Flow to decrease due to large marketing support payments and significant start-up costs. Discovery's net loss increased by $19 million or 36% to $72 million in 1998 from $53 million in 1997, which in turn represented a decrease of $56 million from net income of $3 million in 1996. The increase in the net loss from 1997 to 1998 was due to the improvement in Operating Cash Flow offset by an increase in interest expense, launch amortization and stock compensation as well as the write off of Your Choice TV. The increase in the net loss from 1996 to 1997 was due to the decrease in Operating Cash Flow as well as increases in launch amortization, interest expense and stock compensation. Liberty's share of losses was $39 million and $29 million, for each of 1998 and 1997, respectively and Liberty's share of earnings for 1996 was less than $1 million. USA Networks, Inc. Revenue increased $1,372 million or 109% to $2,634 million in 1998 from $1,262 million in 1997, which in turn represented a $1,187 million increase over revenue of $75 million in 1996. The increase in revenue from 1997 to 1998 was due to the Universal and Ticketmaster transactions being completed by USA Networks during 1998 (see note 5 to the accompanying December 31, 1998 consolidated financial statements). The increase from 1996 to 1997 was primarily due to a $1 billion increase in electronic retailing revenue and a $156 million increase in ticketing revenue. Operating Cash Flow increased $272 million to $464 million in 1998 from $192 million in 1997, which in turn represented an increase of $173 million over Operating Cash Flow of $19 million in 1996. The increase in Operating Cash Flow from 1997 to 1998 was due to the Universal and Ticketmaster transactions. The increase from 1996 to 1997 was due to the revenue increase offset by an increase in operating costs of $898 million and $144 million related to electronic retailing and ticketing operations, respectively. Net income increased by $64 million to $77 million in 1998 from $13 million in 1997, which in turn represented an increase of $20 million from a net loss of $7 million in 1996. The increase in net income from 1997 to 1998 was due to the increase in Operating Cash Flow along with one-time transactional gains offset by significant increases in depreciation, amortization, interest and income tax expenses. The increase from 1996 to 1997 was also due to the increase in Operating Cash Flow offset by increases in depreciation, amortization, interest and income tax expenses. Liberty's share of earnings (loss) of USA Networks and related investments was $30 million, $6 million and ($1) million for 1998, 1997, and 1996, respectively. QVC Inc. Revenue increased $321 million or 15% to $2,403 million in 1998 from $2,082 million in 1997, which in turn represented a $246 million increase or 13% over revenue of $1,836 in 1996. The respective 32 increase in revenue for the years ended December 31, 1998 and 1997 were primarily attributable to the effects of 5.6% and 7.4% increases, respectively, in the average number of homes receiving QVC services in the U.S. and 11.8% and 13.7% increases, respectively, in the average number of homes receiving QVC services in the United Kingdom. Operating Cash Flow increased $96 million or 28% to $434 million in 1998 from $338 million in 1997, which in turn represented a $38 million or 13% increase over Operating Cash Flow of $300 million in 1996. The increase in Operating Cash Flow was caused by the increase in revenue offset by increases in cost of goods sold and variable costs associated with the increased sales. Start-up costs of QVC Germany also contributed $3 million and $26 million to the respective increases in offsetting costs for the years ended December 31, 1998 and 1997. Net income increased 110% or $78 million to $149 million in 1998 from $71 million in 1997, which in turn represented an increase of $18 million or 34% over net income of $53 million in 1996. The increases in net income were due to the increases in Operating Cash Flow offset by increases in depreciation, amortization and income tax expenses in each of the respective periods presented. Liberty's share of earnings was $64 million, $30 million and $23 million for 1998, 1997 and 1996, respectively. Fox/Liberty Networks. Revenue increased 39% or $183 million to $655 million in 1998 from $472 million in 1997, which in turn represented an increase of 226% or $327 million from $145 million in 1996. A large portion of the increase in revenue is due to the acquisition of Affiliated Regional Communications by Fox/Liberty Networks on March 13, 1997 which increased the number of consolidated subsidiaries and their respective operations. Had the acquisition of Affiliated Regional Communications been completed for all periods presented, revenue would have increased $128 million and $30 million for 1998 and 1997, respectively. The increases in revenue were attributable to continued subscriber growth at the regional sports networks and the FX network along with increased advertising revenue due to increased subscribers and ratings. Operating Cash Flow increased $94 million to $79 million in 1998 from a deficit of $15 million in 1997, which in turn represented an increase of $69 million from a deficit of $84 million in 1996. The increases in Operating Cash Flow were caused by the revenue growth coupled with an increase in operating expenses. The increases in operating expenses for all periods presented were due to an increase in the number of professional events, primarily Major League Baseball games, as well as increased programming rights fees of regional sports networks due to renegotiated and newly entered into sports rights agreements. Fox/Liberty Networks net loss decreased by $16 million or 21% to $62 million in 1998 from $78 million in 1997, which in turn represented a decrease of $39 million or 33% from a net loss of $117 million in 1996. The decrease in the net loss was due to the improvement in Operating Cash Flow offset primarily by interest expense. In 1998, interest expense increased to $113 million from $49 million due to additional indebtedness that was entered into in the latter half of 1997. Liberty's share of losses was $83 million for 1998 and zero for both 1997 and 1996, as Liberty's basis in the investment was less than zero (see note 5 to the accompanying December 31, 1998 consolidated financial statements). PCS Ventures. Liberty's share of losses from its investment in the PCS Ventures was $629 million, $493 million and $133 million in 1998, 1997 and 1996, respectively. The increase in the share of losses in each year was attributed primarily to increases in (1) selling, general and administrative costs associated with Sprint PCS's efforts to increase its customer base, (2) depreciation expense resulting from capital expenditures made to expand its PCS network and (3) interest expense associated with higher amounts of outstanding debt. Telewest. Telewest accounted for $134 million, $145 million and $109 million of Liberty's share of its affiliates' losses during 1998, 1997 and 1996, respectively. The increase in the share of losses in each year was primarily attributable to the net effects of (1) changes in foreign currency transaction losses, (2) an increase in Operating Cash Flow resulting from revenue growth and (3) an increase in interest expense. Telewest issued debentures in connection with a previous merger transaction. Changes in the exchange rate used to translate the 33 Telewest debentures into U.K. pounds sterling and the adjustment of a foreign currency option contract to market value caused Telewest to experience foreign currency transaction gains/losses that affected Liberty's share of Telewest's losses. Liquidity and Capital Resources Liberty's sources of funds include its available cash balances, net cash from operating activities, dividend and interest receipts, proceeds from asset sales and availability under certain credit facilities. Liberty is a holding company and as such is generally not entitled to the cash resources or cash generated by operations of its subsidiaries and business affiliates. Liberty is primarily dependent upon its financing activities to generate sufficient cash resources to meet its cash requirements. See "Risk Factors--We are a holding company with our assets held primarily by our subsidiaries. Creditors of those companies have a claim on their assets that is senior to that of holders of the securities." In connection with the AT&T merger and other related transactions, Liberty received approximately $5.5 billion in cash. Also, upon consummation of the AT&T merger, through a new tax sharing agreement between Liberty and AT&T, Liberty became entitled to the benefit of all of the net operating loss carryforwards available to the entities included in TCI's consolidated income tax return as of the date of the AT&T merger. In addition, under the tax sharing agreement, Liberty will receive a cash payment from AT&T in periods when it generates taxable losses and those taxable losses are utilized by AT&T to reduce the consolidated income tax liability. Additionally, certain warrants held by TCI were transferred to Liberty in exchange for $176 million in cash. At June 30, 1999, Liberty had bank credit facilities which provided for borrowings of up to $3.0 billion. Borrowings under these facilities of $2.1 billion were outstanding at June 30, 1999. Certain assets of Liberty serve as collateral for borrowings under these bank credit facilities. Also, these bank credit facilities contain provisions which limit additional indebtedness, sale of assets, liens, guarantees, and distributions by the borrowers. On July 7, 1999, Liberty received net cash proceeds of approximately $741 million and $494 million from the issuance of the outstanding notes and the outstanding debentures, respectively. The proceeds were used to repay outstanding borrowings under certain of Liberty's credit facilities, two of which were subsequently terminated. See "Description of Certain Indebtedness" and note 7 to the accompanying June 30, 1999 consolidated financial statements of Liberty. Additionally, there are restrictions on incurrence of debt of Liberty Media Group and therefore on Liberty, through an Inter-Group Agreement with AT&T. Liberty Media Group may not incur any debt that would cause the total indebtedness of Liberty Media Group at any time to be in excess of 25% of the total market capitalization of the Liberty Media Group tracking stock, if the excess would adversely affect the credit rating of AT&T. See "Relationship with AT&T and Certain Related Transactions--Relationship with AT&T--Inter-Group Agreement--There are Restrictions on the Incurrence of Debt and Other Financial Obligations." Various partnerships and other affiliates of Liberty accounted for under the equity method finance a substantial portion of their acquisitions and capital expenditures through borrowings under their own credit facilities and net cash provided by their operating activities. On April 8, 1999, substantially all of Liberty Media International's 4 1/2% convertible subordinated debentures were converted into shares of Liberty Media Group tracking stock. Since substantially all of the debenture holders elected to convert, no payment of interest and no adjustment in respect of interest was made. On July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty Networks in exchange for 51.8 million News Corp. American Depository Receipts ("ADRs") representing preferred limited voting ordinary shares of News Corp. Liberty also acquired from News Corp. 28.1 million additional ADRs representing preferred limited voting ordinary shares of News Corp. for approximately $695 million. As a result of these transactions and subsequent open market purchases, Liberty owns approximately 82.7 million ADRs representing preferred limited voting ordinary shares of News Corp., or approximately 8.5% of News Corp.'s diluted outstanding shares. News Corp. has historically paid cash dividends on its common stock and it is anticipated that they will continue to do so. Holders of the ADRs are entitled to receive dividends ratably 34 with News Corp. common stock, and consequently, Liberty would receive cash dividends on the ADRs received in the above described transactions. However, there can be no assurance that such dividends will continue to be paid. As of June 30, 1999, Liberty holds shares of Time Warner Series LMCN-V Common Stock which are convertible into 114 million shares of Time Warner common stock. Holders of Time Warner Series LMCN-V Common Stock are entitled to receive dividends ratably with Time Warner common stock. Liberty has received approximately $5 million in cash dividends quarterly from Time Warner. It is anticipated that Time Warner will continue to pay dividends on its common stock and consequently that Liberty will receive dividends on the Time Warner Series LMCN-V Common Stock it holds. However, there can be no assurance that such dividends will continue to be paid. Liberty receives approximately $8 million in cash dividends quarterly on the Fox Kids Worldwide preferred stock. This preferred stock pays quarterly dividends at the annual rate of 9% of the liquidation value of $1,000 per share. If Fox Kids Worldwide does not declare or pay a quarterly dividend, that dividend will be added to the liquidation value and the dividend rate will increase to 11.5% per annum until all accrued and unpaid dividends are paid. News Corp. has undertaken to fund all amounts needed by Fox Kids Worldwide to pay any amounts it is required to pay under the certificate of designations for the Fox Kids Worldwide preferred stock, including payment of the liquidation value of that stock upon any optional or mandatory redemption of that stock. Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United States Department of Justice on December 30, 1998, Liberty transferred all of its beneficially owned securities of Sprint to a trust prior to the AT&T merger. The proposed final judgment, if entered by the United States District Court for the District of Columbia, would require the trustee, on or before May 23, 2002, to dispose of a portion of the Sprint securities held by the trust sufficient to cause Liberty to own beneficially no more than 10% of the outstanding Sprint PCS Group Stock that would be outstanding on a fully diluted basis on such date. On or before May 23, 2004, the trustee must divest the remainder of the Sprint securities held by the trust. The proposed final judgment would provide that the trustee vote the Sprint securities beneficially owned by Liberty in the same proportion as other holders of Sprint PCS Group stock so long as such securities are held by the trust. The proposed final judgment would also prohibit the acquisition by Liberty of additional Sprint securities, with certain exceptions, without the prior written consent of the Department of Justice. During the four month period ended June 30, 1999, the unrealized appreciation, net of taxes, of the fair value of Liberty's shares of Time Warner Series LMCN-V Common Stock was $230 million based upon the market value of the Time Warner common stock into which the Time Warner Series LMCN-V Common Stock is convertible. During the four month period ended June 30, 1999, the unrealized appreciation, net of taxes, of the fair value of the Sprint PCS Group stock held by Liberty was $1,396 million based upon the market value of such shares. Liberty has guaranteed notes payable and other obligations of certain affiliates. At June 30, 1999, the U.S. dollar equivalent of the amounts borrowed pursuant to these guaranteed obligations aggregated approximately $377 million. Flextech has undertaken to finance the working capital requirements of a joint venture that it has formed with BBC Worldwide Limited and is obligated to provide this joint venture with a primary credit facility of (Pounds)88 million ($139 million) and, subject to certain restrictions, a standby credit facility of (Pounds)30 million ($49 million). As of June 30, 1999, this joint venture had borrowed (Pounds)40 million ($63 million) under the primary credit facility. If Flextech defaults in its funding obligation to the joint venture and fails to cure the default within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to require that Liberty assume all of Flextech's funding obligations to the joint venture. Liberty intends to continue to develop its entertainment and information programming services and has made certain financial commitments related to the acquisition of programming. As of June 30, 1999, Encore 35 Media Group's future minimum obligation related to certain film licensing agreements was $775 million. The amount of the total obligation is not currently estimable because such amount is dependent upon the number of qualifying films released theatrically by certain motion picture studios as well as the domestic theatrical exhibition receipts upon the release of such qualifying films. Continued development may require additional financing and it cannot be predicted whether Encore Media Group will obtain such financing. If additional financing cannot be obtained by Encore Media Group, Encore Media Group or Liberty could attempt to sell assets but there can be no assurance that asset sales, if any, can be consummated at a price and on terms acceptable to Liberty. Market Risk Liberty is exposed to market risk in the normal course of its business operations due to its investments in different foreign countries and ongoing investing and financial activities. Market risk refers to the risk of loss arising from adverse changes in foreign currency exchange rates, interest rates and stock prices. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. Liberty has established policies, procedures and internal processes governing its management of market risks and the use of financial instruments to manage its exposure to such risks. Contributions to Liberty's foreign affiliates are denominated in foreign currency. Liberty therefore is exposed to changes in foreign currency exchange rates. Currently, Liberty does not hedge any foreign currency exchange risk because of the long-term nature of its interests in foreign affiliates. Liberty attempts to limit its exposure to changing foreign currency exchange rates through operations and financial market actions, but Liberty continually evaluates its foreign currency exposure (primarily the Argentine Peso, British Pound Sterling, Japanese Yen and French Franc) based on current market conditions and the business environment. Liberty is exposed to changes in interest rates primarily as a result of its borrowing and investment activities, which include short-term fixed and floating rate investments and borrowings used to maintain liquidity and fund its business operations. The nature and amount of Liberty's long-term and short-term debt are expected to vary as a result of future requirements, market conditions, and other factors. Interest rate swaps are used to manage interest rate risk. Liberty is exposed to changes in stock prices primarily as a result of its significant holdings in publicly traded securities. Liberty continually monitors changes in stock markets, in general, and a change in the stock prices of its significant holdings, specifically. Changes in stock prices can be expected to vary as a result of general market conditions, technological changes, specific industry changes and other factors. Equity collars and equity swaps are used to hedge investment positions subject to fluctuations in stock prices. Liberty measures the market risk of its derivative financial instruments through comparison of the blended rates achieved by those derivative financial instruments to the historical trends in the underlying market risk hedged. With regard to interest rate swaps, Liberty monitors the fair value of interest rate swaps as well as the effective interest rate the interest rate swap yields, in comparison to historical interest rate trends. Liberty believes that any losses incurred with regard to interest rate swaps would be offset by the effects of interest rate movements on the underlying hedged facilities. With regard to equity collars and hedges, Liberty monitors historical market trends relative to values currently present in the market. Liberty believes that any unrealized losses incurred with regard to equity collars and swaps would be offset by the effects of fair value changes on the underlying hedged assets. These measures allow Liberty's management to measure the success of its use of derivative instruments and to determine when to enter into or exit from derivative instruments. Accounting Standards During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("Statement 133"), which is effective for all fiscal years beginning after June 15, 2000. Statement 133 establishes accounting and 36 reporting standards for derivative instruments and hedging activities by requiring that all derivative instruments be reported as assets or liabilities and measured at their fair values. Under Statement 133, changes in the fair values of derivative instruments are recognized immediately in earnings unless those instruments qualify as hedges of the (1) fair values of existing assets, liabilities, or firm commitments, (2) variability of cash flows of forecasted transactions, or (3) foreign currency exposures of net investments in foreign operations. Although our management has not completed its assessment of the impact of Statement 133 on its consolidated results of operations and financial position, management estimates that the impact of Statement 133 will not be significant. Year 2000 Liberty, in conjunction with TCI, and following the AT&T merger, AT&T, has implemented enterprise-wide, comprehensive efforts to assess and remediate its computer systems and related software and equipment to ensure such systems, software and equipment recognize, process and store information in the year 2000 and thereafter. Liberty's year 2000 remediation efforts include an assessment of its most critical systems. The majority of these efforts have been focused on our operating subsidiaries, primarily TCI Music, Encore Media Group and TCI Cablevision of Puerto Rico. The most critical systems for these operating subsidiaries include their customer service systems, product delivery systems and billing systems. We continue our efforts to verify the year 2000 readiness of our significant suppliers and vendors and continue to communicate with significant business partners and affiliates to assess such partners and affiliates' year 2000 status. AT&T has a year 2000 Program Management Office (the "PMO") to organize and manage its year 2000 remediation efforts. The PMO is responsible for overseeing, coordinating and reporting Liberty's year 2000 remediation efforts. At June 30, 1999, it was comprised of a 340-member, full-time staff, accountable to executive management of AT&T. The PMO has defined a four-phase approach to determining the year 2000 readiness of our systems, software and equipment. This approach is intended to provide a detailed method for tracking the evaluation, repair and testing of our critical systems, software and equipment. Phase 1, Assessment, involves the inventory of all critical systems, software and equipment and the identification of any year 2000 issues. Phase 1 also includes the preparation of the workplans needed for remediation. Phase 2, Remediation, involves repairing, upgrading and/or replacing any non-compliant critical equipment and systems. Phase 3, Testing, involves testing our critical systems, software, and equipment for year 2000 readiness, or in certain cases, relying on test results provided to us. Phase 4, Implementation, involves placing compliant systems, software and equipment into production or service. At June 30, 1999, Liberty's overall progress by phase was as follows:
Percentage of Expected Completion year 2000 Projects Date -- Phase Completed by Phase* All year 2000 Projects -------------------------------- ------------------- ----------------------- Phase 1-Assessment.............. 100% Complete Phase 2-Remediation............. 85% July 1999 Phase 3-Testing................. 69% September 1999 Phase 4-Implementation.......... 59% October 1999
-------- * The percentages set forth above were calculated by dividing the number of year 2000 projects that have completed a given phase by the total number of year 2000 projects. The completion dates set forth above are based on our current expectations. However, due to the uncertainties inherent in year 2000 remediation, no assurances can be given as to whether such projects will be completed on such dates. 37 We have completed the inventory and assessment of critical systems with embedded technologies that impact our operations. During 1999, we are continuing our survey of significant third-party vendors and suppliers whose systems, services or products are important to our operations, including billing systems for TCI Cablevision of Puerto Rico. We have received information that critical systems, services or products supplied to us by third parties are either year 2000 ready or are expected to be year 2000 ready by the third quarter of 1999. In addition to the survey process described above, our management has identified our most critical supplier/vendor relationships and has instituted a verification process to determine the vendors' year 2000 readiness. Such verification includes, as deemed necessary, reviewing vendors' test and other data and engaging in regular conferences with vendors' year 2000 teams. For those vendors and suppliers who do not expect to be year 2000 ready by December 31, 1999, or are deemed to be critical to our operations, contingency planning efforts are underway to make such changes as are required to continue critical operations. Significant market value is associated with our investments in certain public and private corporations, partnerships and other businesses. Accordingly, we are monitoring the public disclosure of such publicly-held business entities to determine their year 2000 readiness, including Time Warner and Sprint. In addition, we have surveyed and monitored the year 2000 status of certain privately held business entities in which we have significant investments. For updated information related to such companies' year 2000 programs, please refer to the most recent periodic filings with the SEC of Time Warner and Sprint. See "Where to Find More Information." Year 2000 expenses and capital expenditures incurred during the six months ended June 30, 1999 were each less than $1 million. Our management currently estimates the remaining costs to be not less than $4 million, bringing the total estimated cost associated with our year 2000 remediation efforts to be not less than $6 million (including $1 million for replacement of noncompliant information technology ("IT") systems). Although no assurances can be given, management currently expects that (1) cash flow from operations will fund the costs associated with year 2000 compliance and (2) the total projected cost associated with our year 2000 program will not be material to our financial position, results of operations or cash flows. AT&T is a widely distributed enterprise in which allocation of certain resources, including IT support is decentralized. Accordingly, AT&T does not consolidate an IT budget. Therefore, total estimated year 2000 costs as a percentage of an IT budget are not available. There are currently no planned IT projects being deferred due to year 2000 costs. The failure to correct a material year 2000 problem could result in an interruption or failure of certain important business operations. Management believes that our year 2000 program will significantly reduce our risks associated with the changeover to the year 2000 and has implemented certain contingency plans to minimize the effect of any potential year 2000 related disruptions. The risks and the uncertainties discussed below and the associated contingency plans relate to systems, software, equipment, and services that we have deemed critical in regard to customer service, product delivery, revenue stream or public safety. Product delivery could be adversely impacted by the failure of certain equipment and software to deliver the audio signals and the related commercials at TCI Music and load and play movie tapes at Encore Media Group. If this were to happen, we anticipate TCI Music would be able to use alternative equipment to manually deliver the audio signals and the related commercials and Encore Media Group would be able to manually load and play the movie tapes to avoid disruption of delivery. Customer service networks and/or automated voice response systems failure could prevent access to customer account information and disable or slow the processing of music-on-demand requests. If this were to happen, we anticipate TCI Music and TCI Cablevision of Puerto Rico would have its customer service representatives answer telephone calls from customers in the event of outages and could retrieve needed customer information manually from the billing service provider. 38 Billing systems services failure could result in a loss of customer records which could disrupt the ability to bill customers for a protracted period. We anticipate TCI Music will prepare electronic backup records of its customer billing information prior to the year 2000 to allow for any necessary data recovery. We own investments in numerous cable programming operators and other businesses. The market value of our investment in these entities could be adversely impacted by material failures of such entities to address year 2000 remediation issues (including supplier and vendor issues) related to their programming services and businesses. Further, due to tax and strategic considerations, we have a limited ability to dispose of these investments if year 2000 issues develop. Therefore, as a contingency plan, we have undertaken an extensive effort to verify and in certain cases assist in the year 2000 remediation efforts of companies in which we have significant investments. Security and fire protection systems failure could leave facilities vulnerable to intrusion and fire. In the event of such a failure we would expect to return such systems to normal functioning by turning the power off and then on again ("power off/on"). We also plan to have additional security staff on site and if necessary, will implement a backup plan for communicating with local fire and police departments. Also, certain personal computers interface with and control elevators, escalators, wireless systems, public access systems and certain telephony systems. In the event such computers cease operating, conducting a power off/on is expected to result in the computers resuming normal functioning. If a power off/on does not result in normal functioning, management expects to resolve any problem by resetting the computer to a pre-designated date which precedes the year 2000. We have not and cannot estimate the financial impact of any or all of the above worst-case scenarios due to the numerous uncertainties and variables associated with such scenarios. 39 CORPORATE HISTORY Liberty's former parent, TCI, began acquiring interests in programming businesses in the late 1970's in an effort to ensure quality content for distribution on its cable television systems. TCI's early programming interests included those in Black Entertainment Television (since renamed BET Network), Turner Broadcasting System (since acquired by Time Warner), Cable Educational Network (since renamed Discovery Communications, Inc.), QVC Network, Inc., International Family Entertainment, Inc. and several regional sports networks. TCI formed Liberty's predecessor (which we refer to as "LMC") for the purpose of spinning off to TCI's shareholders, by means of an exchange offer, TCI's interests in most of its cable television programming businesses and certain of its affiliated cable television systems. TCI retained a significant interest in LMC through its ownership of preferred stock, and effected the spinoff due to concerns over proposals that were then pending before Congress that, if enacted, would impose horizontal limits on the number of subscribers that could be served by a single cable operator and vertical limits on the ownership by cable operators of interests in cable programming services. LMC began trading on March 28, 1991 with a fully diluted equity market capitalization of approximately $190 million. At that time, its assets included interests in cable television systems serving approximately 1.6 million subscribers, regional sports networks and eight national programming services, including QVC, Black Entertainment Television and The Family Channel. Over the next three years LMC increased its programming assets by acquiring interests in and developing companies that produced branded programming content, including Encore Media Corporation, the Home Shopping Network and two national and several regional sports networks. On August 4, 1994, TCI reacquired the public's interest in LMC by means of a merger, and LMC again became a wholly owned subsidiary of TCI. TCI determined to reacquire LMC largely because the FCC adopted in 1994 vertical and horizontal cable and programming regulations that a combined TCI and LMC could fit within. At the time LMC was reacquired by TCI, LMC's fully diluted equity market capitalization had grown to approximately $3.2 billion. At that time, Liberty had interests in cable television systems serving approximately 3.2 million subscribers, 11 national programming services, including Encore, STARZ! and QVC and two national and 13 regional sports networks. In the fourth quarter of 1994, TCI reorganized its businesses into four divisions: (1) Domestic Cable and Communications, (2) Programming, (3) International Cable and Programming and (4) Technology/Venture Capital. This business-line reorganization was effected in an effort to better focus management expertise in the various areas into which TCI had evolved, and to gain greater market recognition of the value of TCI's four lines of businesses. In an effort to further gain market recognition of what TCI believed to be hidden values in its asset base, in August 1995, TCI divided its common stock into two tracking stocks, with one series of tracking stock intended to reflect the separate performance of a newly created "Liberty Media Group." The assets attributed to the Liberty Media Group were comprised primarily of the assets of TCI's Programing division. The other series of tracking stock was intended to reflect the separate performance of the "TCI Group," which was comprised of the three other divisions of TCI. The Liberty Media Group tracking stock began trading on August 10, 1995 with a fully diluted equity market capitalization of approximately $4.5 billion. At that time, Liberty's assets included interests in more than 30 national cable programming services, three national and 15 regional sports networks and various other businesses involved in television programming production and distribution. Over the course of the next three years, Liberty continued to expand its interests in programming services and leveraged several of its interests to obtain the benefits of scale and liquidity. This included Liberty's acquisition of an approximately 9% interest in Time Warner in exchange for its interest in Turner Broadcasting System and the exchange of its shares in International Family Entertainment for a preferred stock interest in Fox Kids Worldwide. In August 1997, TCI created a third class of tracking stock intended to track the separate performance of the "TCI Ventures Group," which was comprised of the International Cable and Programming division and the Technology/Venture Capital division of TCI. 40 On March 9, 1999, TCI was acquired by AT&T in a merger transaction in which the holders of TCI Group tracking stock received AT&T common stock and holders of Liberty Media Group tracking stock and TCI Ventures Group tracking stock received shares of AT&T's Liberty Media Group tracking stock. In the merger with AT&T, the holders of TCI's Liberty Media Group and TCI Ventures Group tracking stocks received shares of AT&T's Liberty Media Group tracking stock with a value of approximately $24 billion and $13 billion, respectively, based on the closing price of AT&T's Liberty Media Group tracking stock on the New York Stock Exchange on March 10, 1999 (which was the first day of trading). At the time of the merger, Liberty's assets included interests in more than 50 national cable programming services, six national, 25 regional and six international sports networks, 23 digital networks, ten Internet businesses, over 65 international programming services, and cable and cable telephony systems in Europe, Latin America and Japan. As a result of the merger with AT&T, TCI and Liberty became wholly owned subsidiaries of AT&T. In connection with the merger, most of the assets formerly attributed to the TCI Ventures Group were transferred to Liberty. Other assets that had been attributed to the TCI Ventures Group were transferred to TCI in exchange for a cash contribution of approximately $5.5 billion to Liberty. As a result of these asset transfers, Liberty obtained interests in foreign distribution companies, interests in certain foreign programming businesses and interests in Internet and technology companies as well as approximately $5.5 billion cash and the right to the U.S. federal income tax benefits of a net operating tax loss carryforward possessed by TCI at the time of its merger with AT&T. In addition, certain transaction agreements were entered into in connection with the merger which provide Liberty with a level of financial and operational separation from AT&T and certain programming rights with respect to AT&T's cable systems. See "Relationship with AT&T and Certain Related Transactions." 41 BUSINESS Overview We are a leading media, entertainment and communications company with interests in a diverse group of public and private companies that are market leaders in their respective industries. Our subsidiaries and business affiliates are engaged in a broad range of programming, communications, technology and Internet businesses and have some of the most recognized and respected brands. These brands include Encore, STARZ!, Discovery, TV Guide, Fox, USA, QVC, CNN, TBS and Sprint PCS. Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert R. Bennett, our President and Chief Executive Officer, has extensive expertise in creating and developing new businesses and opportunities for our subsidiaries and business affiliates and in building scale, brand power and market leadership. This expertise dates back to the late 1970's when members of our management were instrumental in identifying and executing strategic transactions to provide TCI, Liberty's former parent, with quality programming for its cable television systems. Today, our management team continues to leverage its expertise and industry relationships on behalf of our subsidiaries and business affiliates to identify and execute strategic transactions that improve the value of their businesses and that allow us to take full advantage of new developments in consumer and technological trends. The media, entertainment and communications industries are currently undergoing tremendous changes due in part to the growth of new distribution technologies, led by the Internet and the implementation of digital compression. The growth in distribution technologies has, in turn, created strong demand for an ever increasing array of multimedia products and services. Liberty is working with its subsidiaries and business affiliates to extend their established brands, quality content and networks across multiple distribution platforms to keep them at the forefront of these ongoing changes. Business Strategy Our business strategy is to maximize the value of Liberty by (1) working with the management teams of our existing subsidiaries and business affiliates to grow their established businesses and create new businesses and (2) identifying and executing strategic transactions that improve the value or optimize the efficiency of Liberty's assets. Key elements of our business strategy include the following: Promote the internal growth of our subsidiaries and business affiliates. We actively seek to foster the internal growth of our subsidiaries and business affiliates by working with their management teams to expand their established businesses and create new businesses, often by extending their existing brands across multiple distribution platforms or effecting transactions that enhance the scale of their operations. Our emphasis is on the creation and development of multiple sources of revenue that enhance cash flow. We also seek to use our extensive industry experience and relationships to provide our subsidiaries and business affiliates with strategic alliances, greater visibility and improved positioning in their respective markets. While the form of our participation in our subsidiaries and business affiliates may change over time as a result of acquisitions, mergers and other strategic transactions, we generally seek to retain a significant long-term interest in their successors. Maintain significant involvement in governance. We seek to add considerable value to our subsidiaries and business affiliates through our strategic, operational and financial advice. To ensure Liberty can exert significant influence over management where we own less than a majority voting interest in a business affiliate, we often seek representation at the board of directors level and contractual rights that assure our participation in material decision making. These contractual rights will typically include participation in budget decisions, veto rights over significant corporate actions and rights of first refusal with respect to significant dispositions of stock by management or strategic partners. Participate with experienced management and strategic partners. We seek to participate in companies with experienced management teams that are led by strong entrepreneurs, and partner with strategic investors 42 that are engaged in complementary businesses with a demand for the products and services of our subsidiaries and business affiliates. Our existing business affiliates are led by such entrepreneurs as Barry Diller of USA Networks, Inc., Rupert Murdoch of News Corp. and John Hendricks of Discovery Communications, Inc., while our existing strategic partners include Comcast Corporation, News Corp. and Time Warner. Execute strategic transactions that optimize the efficiency of our assets. We seek to identify and execute acquisitions, consolidations and other strategic transactions that rationalize our participation in the businesses of our subsidiaries and business affiliates. We often undertake transactions of this nature to obtain the benefits of scale and liquidity as well as to further diversify Liberty's businesses. In pursuing new acquisition opportunities, we focus on businesses that have attractive growth characteristics and offer strategic benefits to our existing subsidiaries and business affiliates. We employ a conservative capital structure in managing our assets and rationalizing our businesses. We also seek to enhance our financial flexibility by utilizing multiple sources of capital and preserving liquidity through our ownership of a mix of public and private assets. Business Operations Liberty is engaged principally in three fundamental areas of business: . Programming, consisting principally of interests in video programming services; . Communications, consisting principally of interests in cable television systems and other communications systems; and . Internet services and technology. Programming Programming networks distribute their services through a number of distribution technologies, including cable television, direct-to-home satellite, broadcast television and the Internet. Programming services may be delivered to subscribers as part of a video distributor's basic package of programming services for a fixed monthly fee, or may be delivered as a "premium" programming service for an additional monthly charge. Whether a programming service is on a basic or premium tier, the programmer generally enters into separate multi-year agreements, known as "affiliation agreements," with those distributors that agree to carry the service. Basic programming services derive their revenues principally from the sale of advertising time on their networks and from per subscriber license fees received from distributors. Premium services do not sell advertising and primarily generate their revenues from subscriber fees. Basic programming services have benefited from strong industry dynamics and fundamentals in recent years and, according to Paul Kagan Associates, Inc., have experienced a 20% compounded annual growth rate in their revenues over the past 10 years. Revenues of premium programming services have also grown significantly. Subscriptions to pay television services increased significantly during this period, as more programming choices and distribution formats became available. With the growth in subscriptions and demand for programming options, many programming networks have been able to impose significant rate increases when entering into or renegotiating their affiliation agreements. The global proliferation of multi-channel distribution technologies and new distribution technologies, such as the Internet, are expected to continue to expand the demand for quality, branded programming services. In addition, existing distributors are upgrading their networks to provide digital and multimedia services, which will increase channel capacity as well as demand for programming services. According to Paul Kagan Associates, Inc., digital subscribers in the United States should increase to 43.4 million by 2006 accounting for 60.4% of total cable subscribers, up from 5.9 million subscribers in 1998. In response to the expected increase in demand for programming services, programming service providers are expanding their service offerings, including through additional channel launches and the development of new multimedia and interactive services. The programming companies in which Liberty has interests are actively involved in this expansion and development. 43 Consolidated Subsidiaries Encore Media Group LLC Encore Media Group LLC is a leading provider of cable and satellite-delivered premium movie networks in the United States. It currently owns and operates 13 full-time domestic movie channels with 29 different feeds, including Encore, which airs first-run movies and classic contemporary movies, STARZ!, a first- run premium movie service, ten digital movie services programmed by theme, and MOVIEplex, a "theme by day" channel featuring a different Encore or Encore Thematic Multiplex channel each day, on a weekly rotation. Through the use of thematic multiplexing--that is, the creation of multiple channels of programming by reorganizing the movies by theme--Encore Media Group is well positioned to take advantage of the increasing channel capacities created by compressed digital distribution systems. In addition, Encore Media Group currently has agreements in place with most of the major program distributors and many smaller distributors to carry its thematic multiplex services in digital packages. As digital service becomes more widely available, these services will be available to most cable homes. Encore Media Group currently has access to approximately 5,000 movies through long-term licensing agreements and owns exclusive rights to the studio first- run output from Disney's Hollywood Pictures, Touchstone and Miramax, as well as Universal, New Line and Fine Line. Unlike vertically integrated programmers, Encore Media Group is not committed to or dependent on any one source of film productions. As a result, it has affiliations with every major Hollywood studio, either through long-term output agreements or library access arrangements. Encore Media Group's most significant long-term output agreements are with Universal Pay Television, Inc., New Line Television, Inc. and Walt Disney Pictures, and these output agreements expire between 2003 and 2007. Encore Media Group also engages in original programming production. The table below sets forth certain information about each of Encore Media Group's domestic programming services.
Liberty's Subscribers/Units/1/ Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ------------------------------------- -------------------- -------- ----------- Encore Media Group LLC............... 100% Encore............................. 13,366 1991 100% MOVIEplex.......................... 7,620 1995 100% Thematic Multiplex (aggregate units)............................ 22,137/2/ 1994 100% Love Stories Westerns Mystery Action True Stories WAM! America's Kidz Network STARZ!............................. 9,543 1994 100% STARZ! Multiplex (aggregate units)............................ 5,557/2/ STARZ! Theater................... 1996 100% STARZ! Family.................... 1999 100% STARZ! Cinema.................... 1999 100% BET Movies/STARZ!................ 1997 88%
- -------- (1) Each premium service to which a household subscribes is counted as one "unit." For example, one household subscribing to four services would be counted as four "units." (2) Digital services. 44 Encore Media Group's business objective is to be the premier provider of movie services. Its strategies for achieving its objective include: (1) continuing to strengthen its core business assets in an effort to promote the premium television category and increase cash flow from operations, (2) driving demand for digital services to enable cable operators and direct broadcast satellite providers to position themselves as a viable alternative to video stores through a combination of pay-per-view channels, thematic multiplexing and multiple time scheduled feeds, and (3) leveraging the strength of its brand by extending its franchises into other forms of media, including online applications, such as e-commerce. Ownership Interest. Liberty's ownership in Encore Media Group began with an investment in its predecessor in 1991 when Encore was launched as a low-priced movie channel that cable operators could offer individually or packaged with higher-priced services such as HBO and Showtime. Since December 31, 1992, Encore's subscribers have grown from approximately 3.5 million to more than 13 million at June 30, 1999, and Encore Media Group's program offerings have grown from one movie channel in 1991 to its current slate of 13 full-time movie channels, with 29 different feeds. Pramer S.C.A. Pramer S.C.A. is the largest owner and distributor of cable television programming services in Argentina. Pramer currently owns eight programming services and distributes them throughout Argentina. Pramer also distributes eight additional programming services, including two of Argentina's four terrestrial broadcast stations, throughout Argentina. Of the 16 programming services owned and/or distributed by Pramer, nine of them are distributed throughout Latin America. Pramer intends to continue to develop and acquire branded programming services and to further expand the carriage of its programming to distribution networks outside Argentina. The table below sets forth certain information about each of Pramer's owned programming services.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ----------------------------------------------- ----------- -------- ----------- Pramer S.C.A. (Argentina)...................... 100% Plus Satelital............................... 3,930 1988 100% Magic Kids................................... 3,863 1995 100% Big Channel.................................. 2,359 1992 100% America Sports............................... 2,367 1990 100% Cineplaneta.................................. 2,044 1997 100% Canal a...................................... 1,573 1996 100% P&E.......................................... 788 1996 100% Ideas........................................ 788 1991 100%
Ownership Interest. Liberty's ownership in Pramer evolved out of a 1995 transaction in which Liberty Media International, Inc., a wholly owned subsidiary of Liberty, acquired an equity interest in Cablevision S.A. from its founding stockholders. As part of the transaction, Liberty Media International was granted a right of first refusal to purchase the programming assets of Pramer, which at that time were owned by the former Cablevision stockholders. In August 1998, Liberty Media International exercised this right and purchased 100% of Pramer's issued and outstanding common stock for $32 million in cash and $65 million in notes payable. Liberty made an $11 million payment on the notes on October 1, 1998 and the remainder is due in 20 equal monthly installments beginning October 15, 1998. Business Affiliates Discovery Communications, Inc. Discovery Communications, Inc. is the largest originator of documentary, nonfiction programming in the world. Since the 1985 launch of its flagship domestic cable service and brand, Discovery Channel, Discovery has grown into a global media enterprise with 1998 revenues exceeding $1 billion. It currently operates programming services reaching more than 150 million people across six continents. 45 Discovery's programming, products and services derive from the following four business units: (1) Discovery Networks, U.S., which is comprised of Discovery Channel, The Learning Channel, Animal Planet, The Travel Channel and a package of seven digital services; (2) Discovery Networks, International, which extends Discovery's programming globally and currently reaches more than 73 million subscribers in 155 foreign countries through 32 different network feeds in 24 languages; (3) Discovery Enterprises Worldwide, which includes Discovery's brand extension business in retail, online, video, multimedia, publishing, licensing and education; and (4) Discovery Themed Entertainment, which seeks to extend Discovery's documentary platform into destination experiences, including touring exhibits, live shows and attractions, events and site-based media. Discovery's business objective is to be the premier global creator and distributor of nonfiction entertainment content, including products, programs and destination experiences, across all significant media platforms. Its strategies for achieving its objective include: (1) leveraging the strength of its brand by exploiting it over several platforms, including television, retail and the Internet, (2) capitalizing on the global reach of its programming business through the introduction of additional branded products and services in foreign markets, (3) developing universally distributed networks that appeal strongly to significant advertising categories (such as travel, health and youth), and (4) continuing to preserve and strengthen its core business assets. The table below sets forth certain information about Discovery's programming services.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ----------------------------------------------- ----------- -------- ----------- Discovery Communications, Inc.................. 49% Discovery Channel............................ 76,303 1985 49% The Learning Channel......................... 69,494 1980 49% Animal Planet................................ 50,054 1996 49% Discovery People............................. 10,000 1997 49% Travel Channel............................... 30,911 1987 49% Discovery Digital Services................... 5,222/1/ 49% Discovery Civilization..................... 1996 49% Discovery Health........................... 1998 49% Discovery Home & Leisure................... 1996 49% Discovery Kids............................. 1996 49% Discovery Science.......................... 1996 49% Discovery Wings............................ 1998 49% Discovery en Espanol....................... 1998 49% Animal Planet Asia........................... 476 1998 25% Animal Planet Europe......................... 5,166 1998 49% Animal Planet Latin America.................. 5,862 1998 25% Discovery Asia............................... 33,520 1994 49% Discovery India.............................. 9,500 1996 49% Discovery Japan.............................. 1,153 1996 49% Discovery Europe............................. 18,088 1989 49% Discovery Turkey............................. 600 1997 49% Discovery Germany............................ 386 1996 25% Discovery Italy/Africa....................... 985 1996 49% Discovery Latin America...................... 11,209 1996 49% Discovery Latin America Kids Network......... 7,723 1996 49% People & Arts (Latin America)................ 8,648 1995 25% Discovery Channel Online..................... Online 1995 49%
- -------- (1) Digital services. 46 Ownership Interest. Liberty holds a 49.3% interest in Discovery with Cox Communications, Inc., Advance/Newhouse Communications and Discovery's founder and Chairman, John S. Hendricks, holding interests of 24.65%, 24.65% and 1.4%, respectively. Liberty's involvement in Discovery dates back to 1986, when TCI provided Discovery with $25 million of capital in furtherance of TCI's strategy of supporting quality, cable-exclusive programming companies. Terms of Ownership. Discovery is organized as a close corporation managed by its stockholders rather than a board of directors. Generally, all actions to be taken by Discovery require the approval of the holders of a majority of Discovery's shares, subject to certain exceptions, including certain fundamental actions, which require the approval of the holders of at least 80% of Discovery's shares. The stockholders of Discovery have agreed that they will not be required to make additional capital contributions to Discovery unless they all consent. They have also agreed not to own another basic programming service carried by domestic cable systems that consists primarily of documentary, science and nature programming, subject to certain exceptions. Each stockholder has been granted preemptive rights on share issuances by Discovery. Any proposed transfer of Discovery shares by a stockholder will be subject to rights of first refusal in favor of the other stockholders, subject to certain exceptions, with Liberty's right of first refusal being secondary under certain circumstances. In addition, Liberty is not permitted to hold in excess of 50% of Discovery's stock unless its increased ownership results from exercises of its preemptive rights or rights of first refusal. Flextech, plc Flextech, through its subsidiaries and affiliates, creates, packages and markets entertainment and information programming for distribution on cable television, direct-to-home satellite and digital terrestrial television providers throughout the United Kingdom and parts of continental Europe. By acquiring interests in and establishing alliances among providers of a variety of entertainment programming, Flextech has been able to achieve significant economies of scale and establish itself as a major low-cost provider of European television programming. Flextech has interests in 14 cable and satellite channels, 13 of which are distributed in the United Kingdom market. In addition to managing its five wholly owned programming services, Flextech currently provides management services to two joint ventures that it has formed with BBC Worldwide Limited, which operate several subscription television channels, and to Discovery Europe, Animal Planet Europe, Discovery Home and Leisure (formerly The Learning Channel) and HSN Direct International Limited. For its management and consultancy services, Flextech receives a management fee and, in some cases, a percentage of the programming company's gross revenues. Flextech also holds interests in programming production and distribution companies and a terrestrial broadcast network. Flextech's ordinary shares trade on the London Stock Exchange under the symbol "FLXT." 47 The table below sets forth certain information about each of Flextech's programming services.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ----------------------------------------------- ----------- -------- ----------- Flextech plc................................... 37% Bravo........................................ 4,787 1985 37% Challenge TV................................. 5,048 1993 37% HSN Direct................................... N/A 1994 42% KinderNet.................................... 5,751 1988 12% Living....................................... 5,722 1993 37% SMG.......................................... N/A 1957 7% Trouble...................................... 4,768 1984 37% TV Travel Shop............................... 4,755 1998 37% UK Arena (UKTV).............................. 1,983 1997 18% UK Gold (UKTV)............................... 5,953 1992 18% UK Gold Classics (UKTV)...................... 736 1999 18% UK Horizons (UKTV)........................... 4,268 1997 18% UK Style (UKTV).............................. 2,038 1997 18% UK Play (UKTV)............................... 1,256 1998 18%
Flextech's business objective is to develop, package and market regionally appealing television programming at the lowest practicable cost. To achieve its objective, Flextech's strategy has been to spread production costs over multiple revenue sources. Through co-management of several thematic programming services, Flextech's programming channels have been able to share operating costs, including those associated with marketing, administration, affiliate relations, financial services and technical operations. In addition, by acquiring interests in and creating alliances with established content producers, Flextech has been able to secure a steady supply of programming capable of being distributed over various distribution platforms. Ownership Interest. Liberty holds a 37% equity interest in Flextech, representing a 50% voting interest. Liberty's involvement with Flextech developed out of programming investments made by TCI in the United Kingdom and continental Europe beginning in 1988. TCI found that the United Kingdom, like other parts of Europe, lacked the size necessary to sustain a large number of niche-oriented programming services. Attracted by Flextech's business model of co-managing several programming services to achieve economies of scale, TCI chose Flextech as the vehicle to pursue its European programming strategy in 1994 by consolidating its U.K. and European programming investments and merging those investments into Flextech. Terms of Ownership. Liberty has the right to cast 50% of the votes on most matters that are presented to Flextech's shareholders due to its ownership of a special voting share. This special voting right will expire on the earlier of April 14, 2000 and the occurrence of certain events that involve a decline in Liberty's ownership of ordinary shares of Flextech. Liberty has the right to appoint three of the 15 members of Flextech's board of directors for so long as it has the special voting right, and will thereafter have the right to appoint two members for so long as it owns at least 25% of Flextech's ordinary shares. In addition, the appointment of some of Flextech's senior executive officers, including its managing director and its chief executive, requires Liberty's approval. Liberty has granted a tag-along sale right to a shareholder of Flextech that, at August 15, 1999, owned 6.7% of Flextech's ordinary shares. The tag-along right will apply if Liberty sells more than 10% of its Flextech stock. In addition, Liberty has agreed to purchase that shareholder's initial equity stake in Flextech for not less than current market value if Flextech's ordinary shares cease to be traded on the London Stock Exchange due to actions taken by Liberty. 48 Liberty has undertaken to Flextech and BBC Worldwide Limited that it will not, subject to certain exceptions, acquire an interest in excess of 20% in any entity that competes with certain of the channels of two joint ventures that Liberty has formed with BBC Worldwide Limited. The non-compete will terminate on March 31, 2007 or, if earlier, at such time as Liberty's contingent funding obligation to the joint ventures terminates or Liberty owns not more than 10% of the ordinary shares of Flextech. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The News Corporation Limited News Corp. is a diversified international communications company principally engaged in the production and distribution of motion pictures and television programming; television, satellite and cable broadcasting; publication of newspapers, magazines and books; production and distribution of promotional and advertising products and services; development of digital broadcasting; development of conditional access and subscriber management systems; and the provision of computer information services. News Corp.'s operations, are located in the United States, Canada, the United Kingdom, Australia, Latin America and the Pacific Basin. News Corp.'s preferred limited voting ordinary shares trade on the Australian Stock Exchange under the symbol "NCPDP," and are represented on the New York Stock Exchange by ADRs under the symbol "NWS.A." Ownership Interest. In July 1999, Liberty sold to News Corp. its 50% interest in their jointly owned Fox/Liberty Networks programming venture, in exchange for 51.8 million News Corp. ADRs representing preferred limited voting ordinary shares of News Corp., valued at approximately $1.425 billion (or approximately $27.52 per ADR). In a related transaction, Liberty acquired from News Corp. 28.1 million additional ADRs representing preferred limited voting ordinary shares of News Corp. for approximately $695 million (or approximately $24.74 per ADR). As a result of these transactions and subsequent open market purchases, Liberty owns approximately 82.7 million ADRs representing preferred limited voting ordinary shares of News Corp. or approximately 8.5% of News Corp.'s diluted outstanding shares. Liberty's involvement in sports programming originated in 1988 when TCI began to pursue a strategy of creating regional sports networks. In April 1996, Liberty and News Corp. formed Fox/Liberty Networks, a joint venture to hold Liberty's national and regional sports networks and News Corp.'s FX, a general entertainment network which also carries various sporting events. Also in 1996, Liberty and News Corp. formed an alliance to hold their respective international sports interests (the "International Interests"). These include Fox Sports World Espanol, a Spanish language sports network, distributed in the United States and in Latin America, as well as Fox Sports Americas (Latin America) and Fox Sports Middle East. As part of their agreement relating to the acquisition by News Corp. of Liberty's interest in Fox/Liberty Networks, Liberty and News Corp. agreed that, during a specified period following the second anniversary of the closing date of this transaction, each will have the right to cause News Corp. to acquire and Liberty to sell to News Corp. the International Interests in exchange for News Corp. ADRs with an aggregate value at April 1, 1999 of approximately $100 million plus an additional number of ADRs representing the aggregate number of News Corp. shares which could have been purchased by reinvesting in ADRs each cash dividend declared on such number of shares between the closing of the sale of Liberty's interest in Fox/Liberty Networks and the sale of the International Interests. Between the closing of the sale of Liberty's interest in Fox/Liberty Networks and the sale of the International Interests, Liberty has further agreed to make capital contributions in respect of the International Interests in the amount of $100 million, as and when requested by News Corp. Terms of Ownership. In connection with the acquisition by News Corp. of Liberty's interest in Fox/Liberty Networks, certain agreements were entered into regarding Liberty's ability to transfer News Corp. shares and other matters. Under these agreements, the ADRs and the underlying News Corp. shares issued to Liberty are subject to a lock-up of either two years (as to 51.8 million ADRs) or nine months (as to 28.1 million ADRs), subject to certain exceptions. Liberty is entitled to certain registration rights with respect to its News Corp. shares. In addition, Liberty has agreed that it will not engage, directly or indirectly, in any sports programming service in the United States and its territories (excluding Puerto Rico) and Canada, subject to certain exceptions, until July 2004. 49 QVC Inc. QVC Inc. is one of the two largest home shopping companies in the United States. QVC markets and sells a wide variety of consumer products and accessories primarily by means of televised shopping programs on the QVC network and via the Internet through iQVC. QVC also operates shopping networks in Germany, the United Kingdom and Ireland. QVC purchases, or obtains on consignment, products from domestic and foreign manufacturers and wholesalers, often on favorable terms based on the volume of the transactions. QVC does not depend upon any one particular supplier for any significant portion of its inventory. QVC distributes its television programs, via satellite, to affiliated video program distributors for retransmission to subscribers. Generally, there are no additional charges to U.S. subscribers for the distribution of QVC. In return for carrying QVC, each domestic programming distributor receives an allocated portion, based upon market share, of up to 5% of the net sales of merchandise sold to customers located in the programming distributor's service area. QVC has stated that it intends to continue introducing new products and product lines and to recruit additional programming distributors in an effort to enlarge both its audience and its sales. The table below sets forth certain information about QVC's programming interests.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ------------------------- ----------- -------- ----------- QVC Inc.................. 43% QVC Network............. 66,065 1986 43% QVC-The Shopping Channel (U.K. and Ireland)..... 7,817 1993 34% QVC-Germany............. 14,994 1996 43% iQVC.................... Online 1995 43%
Ownership Interest. Liberty owns approximately 43% of QVC, and Comcast owns the remaining 57%. Liberty's involvement in the televised home shopping business originated in 1986 when TCI began acquiring ownership interests in QVC Networks, Inc. in exchange for agreeing to carry QVC's programming to a specified number of subscribers. During the same period, TCI also invested in another home shopping channel, CVN Companies, Inc. In October 1989, CVN and QVC merged which resulted in TCI owning approximately 34% of the combined company. In August 1994, Liberty and Comcast purchased all of the remaining equity interests in QVC not owned by them, resulting in their current ownership interests. Terms of Ownership. QVC is managed on a day-to-day basis by Comcast and Comcast has the right to appoint all of the members of the QVC board of directors. Liberty's interests are represented by two members on QVC's five- member management committee. Generally, QVC's management committee votes on every matter submitted, or required to be submitted, to a vote of the QVC board, and Liberty and Comcast are required to use their best efforts to cause QVC to follow the direction of any resolution of the management committee. Liberty also has veto rights with respect to certain fundamental actions proposed to be taken by QVC. Liberty has been granted a tag-along right that will apply if Comcast proposes to transfer control of QVC and Comcast may require Liberty to sell its QVC stock as part of the transaction, under certain circumstances and subject to certain conditions. In addition, under certain circumstances, Liberty will have the right, exercisable after February 9, 2000, to initiate a put/call procedure with Comcast in respect of Liberty's interest in QVC. Prior to February 9, 2000, however, neither Liberty nor Comcast may directly or indirectly transfer their interests in QVC, except under certain conditions. 50 Liberty and Comcast have certain mutual rights of first refusal and mutual rights to purchase the other party's QVC stock following certain events, including change of control events affecting them. Both also have registration rights. Time Warner Inc. Time Warner is one of the largest media and entertainment companies in the world. Time Warner classifies its business interests into four fundamental areas: (1) Cable Networks, consisting principally of interests in cable television programming, including the following networks: CNN, Cartoon Network, Headline News, TNT, Turner Classic Movies, TBS Superstation, CNNfn, HBO, Cinemax, Comedy Central and TVKO; (2) Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; (3) Entertainment, consisting principally of interests in filmed entertainment, television production, television broadcasting, recorded music and music publishing; and (4) Cable, consisting principally of interests in cable television systems which, as of December 31, 1998, reached over 12 million subscribers. Time Warner's common stock trades on the New York Stock Exchange under the symbol "TWX." Ownership Interest. Liberty currently owns an approximate 9% interest in Time Warner. Liberty's interest in Time Warner evolved from a 1987 transaction in which TCI led a consortium of cable operators in providing Turner Broadcasting System with an aggregate cash infusion of approximately $560 million. Motivated by its belief that the continued development of quality cable programming was a critical element in driving its cable distribution business, TCI invested approximately $250 million in Turner Broadcasting System in exchange for two series of preferred stock. The terms of the preferred stock and agreements entered into in connection with the investment provided the holders with significant control rights, including representation on the Turner Broadcasting System board and veto rights over extraordinary transactions, and with rights of first refusal on certain dispositions of Turner Broadcasting System stock held by Ted Turner. In 1996, Time Warner acquired Turner Broadcasting System in a merger transaction. In connection with the Turner Broadcasting System/Time Warner merger, Time Warner, Turner Broadcasting System, TCI and Liberty entered into an Agreement Containing Consent Order (the "FTC Consent Decree") with the Federal Trade Commission ("FTC"). The FTC Consent Decree effectively prohibits Liberty and its affiliates from owning voting securities of Time Warner other than securities that have limited voting rights. Pursuant to the FTC Consent Decree, among other things, Liberty agreed to exchange the shares of Time Warner common stock it was to receive in the Turner Broadcasting System/Time Warner combination for shares of a separate series of Time Warner common stock with limited voting rights designated as Series LMCN-V Common Stock. The Series LMCN-V Common Stock entitles the holder to one one-hundredth (1/100th) of a vote for each share with respect to the election of directors. Liberty holds approximately 114 million shares of such stock, which represent less than 1% of the voting power of Time Warner's outstanding common stock. The Series LMCN-V Common Stock is not transferable, except in limited circumstances, and is not listed on any securities exchange. Each share of the Series LMCN-V Common Stock is convertible at Liberty's option into one share of ordinary Time Warner common stock, at any time when such conversion would not violate the federal communications laws, subject to the FTC Consent Decree, and is mandatorily convertible into ordinary Time Warner common stock upon transfer to a non- affiliate of Liberty. Further, while shares of ordinary Time Warner common stock are redeemable by action of the Time Warner board of directors under certain circumstances, to the extent necessary to prevent the loss of certain types of governmental licenses or franchises, shares of Series LMCN-V Common Stock are not redeemable under these circumstances. In March 1999, Liberty entered into a seven-year "cashless collar" with a financial institution with respect to 15 million shares of Time Warner common stock, secured by 15 million shares of its approximately 114 million shares of Time Warner Series LMCN-V Common Stock. In effect, Liberty purchased a put option that gives it the right to require its counterparty to buy 15 million Time Warner shares from Liberty in approximately seven years for $67.45 per share. Liberty simultaneously sold a call option giving the counterparty the right to buy the same shares from Liberty in approximately seven years for $158.33 per share. 51 Since the purchase price of the put option was equal to the proceeds from the sale of the call option, the collar transaction had no cash cost to Liberty. As a result of this transaction, Liberty has effectively locked in the value of these 15 million Time Warner shares at between $1 billion and $2.4 billion in the future, regardless of potential fluctuations in the stock price. TV Guide, Inc. TV Guide, Inc., formerly known as United Video Satellite Group, Inc., is a media and communications company and the market leader in the program listings guide business. TV Guide is engaged predominantly in providing print, passive and interactive program listings guides to households, distributing programming to cable television systems and direct-to-home satellite providers, and marketing satellite-delivered programming to C-band satellite dish owners. TV Guide markets and distributes its products in the United States to over 100 million cable and satellite homes each week, and also markets its products internationally in over 30 countries. TV Guide Magazine, TV Guide Channel, TV Guide Interactive and TV Guide Online are the largest print, electronic, interactive and Internet guidance products in the world. TV Guide's Class A common stock trades on the National Market tier of The Nasdaq Stock Market under the symbol "TVGIA." TV Guide is organized into three primary business units: (1) TV Guide Magazine Group; (2) TV Guide Entertainment Group; and (3) United Video Group. The TV Guide Magazine Group publishes and distributes TV Guide magazine, the most widely circulated paid weekly magazine in the United States, to households and newsstands. In addition, the TV Guide Magazine Group provides customized monthly television programming guides for cable and satellite operators in the United States and internationally. The TV Guide Entertainment Group supplies satellite-delivered on-screen program promotion and guide services, including TV Guide Channel and Sneak Prevue, to cable television systems and other multi- channel video programming distributors, both nationally and internationally. The TV Guide Entertainment Group also offers interactive television technology that allows television viewers to retrieve on demand continuously updated program guide information through their cable television systems and provides TV Guide Online, an Internet-based program listings guide. The United Video Group provides direct-to-home satellite services, satellite distribution of video entertainment services, software development and systems integration services and satellite transmission services for private networks. This group owns TV Guide's 80% interest in Superstar/Netlink Group LLC, which markets satellite entertainment programming packages to C-band satellite dish owners in North America. Its retail subscriber base was approximately 1.1 million at June 30, 1999. The United Video Group also markets and distributes three independent superstations--WGN (Chicago), KTLA (Los Angeles) and WPIX (New York)--to cable television systems and other multi-channel video programming distributors, and offers six Denver-based broadcast television stations and programming packages to satellite master antenna television systems. TV Guide's business objective is, among other things, to be the dominant provider of program listings guides for traditional and emerging distribution platforms. Its strategies for achieving its objective include (1) extending its brand by exploiting it over several platforms, including home shopping, e- commerce and database marketing, (2) capitalizing on the success of TV Guide Channel, TV Guide Interactive and TV Guide Sneak Prevue through the introduction of customized programming and service promotion on a localized platform, (3) capitalizing on cross platform advertising and promotion opportunities by taking advantage of audience exposure across multiple platforms (print, cable, satellite and Internet), and (4) continuing to develop product and brand extensions that will leverage its distribution footprint, including interactive services, home shopping, e-commerce and data base marketing. 52 The table below sets forth certain information about TV Guides's programming services and other assets.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - --------------------------------------------- ----------- -------- ----------- TV Guide, Inc................................ 44% TV Guide Channel........................... 49,418 1988 44% TV Guide Interactive....................... 2,300/1/ /2/ 44% TV Guide Sneak Prevue...................... 33,298 1991 32% UVTV....................................... 59,587/3/ N/A 44% Superstar/Netlink.......................... 1,053 N/A 35% TV Guide Magazine.......................... 11,706/4/ N/A 44% TV Guide Online............................ Online 44% The Television Games Network............... N/A 1999 43% Infomedia S.A.............................. N/A 1991 33%/5/
- -------- (1)Digital services. (2) TV Guide's original interactive service was launched in the early 1990s, followed by the current digital version. (3) Aggregate number of units. UVTV uplinks three superstations (WGN, KTLA, and WPIX) and six Denver broadcast stations. One household subscribing to six services would be counted as six "units." (4) Magazine circulation--includes subscription and newsstand distribution. (5) In May 1999, TV Guide acquired a 75% stake in Infomedia S.A., Luxembourg, and has an option to buy the remaining 25%. Infomedia S.A. is a leading provider of television program listings in Europe, offering program schedules and related information for more than 300 channels in 13 languages to clients in 29 countries throughout Europe and North Africa. Ownership Interest. TV Guide is jointly controlled by Liberty and News Corp., with each owning approximately 44% of its equity and 49% of its voting power. Liberty's interest in TV Guide began in January 1996 when TCI acquired a controlling interest in United Video Satellite Group, Inc. ("UVSG"), a provider of satellite-delivered video, audio, data and program promotion services to cable television systems, satellite dish owners, radio stations and private network users primarily throughout North America. TCI believed that the availability of electronic program guide services was becoming an increasingly important element of video programming delivery due to developments in digital and other technologies that were increasing the volume and variety of video programming. As a result of the transaction, UVSG became a majority-controlled subsidiary of TCI. In January 1998, TCI increased its equity interest in UVSG to approximately 73% and its voting interest to approximately 93%. On March 1, 1999, UVSG acquired Liberty's 40% interest in Superstar/Netlink Group and its 100% interest in Netlink USA, which uplinks the signals of six Denver-based broadcast television stations, in exchange for shares of UVSG common stock. On the same date, UVSG acquired News Corp.'s TV Guide properties in exchange for cash and shares of UVSG common stock. By combining UVSG's passive and interactive electronic program listing guides with TV Guide's well-recognized magazine and brand name, UVSG became a leading provider of program listing guides. Following this transaction, UVSG changed its name to TV Guide, Inc. Terms of Ownership. Pursuant to a stockholders agreement between Liberty and News Corp., each of them is entitled to designate one director to the ten- member TV Guide board for each 12.5% of the outstanding shares of TV Guide Class B common stock owned by such party, with the remaining directors being designated by the TV Guide board. So long as Liberty or News Corp., as the case may be, is entitled to designate at least one director to TV Guide's board of directors, the other party is subject to certain restrictions on its ability to sell any of its shares of TV Guide common stock or to convert any of its shares of TV Guide Class B common stock (10 votes per share) into shares of TV Guide Class A common stock (one vote per share) unless it first offers to sell the stock to the other party. 53 For so long as there continues to be at least two stockholders that each own in the aggregate at least 30% of the outstanding TV Guide Class B common stock, such stockholders are required to vote their shares on all matters submitted to a vote of TV Guide's stockholders only as shall be mutually agreed upon by such stockholders and, if they are unable to agree on how to vote with respect to a proposal, they will each be obligated to vote against that proposal. In addition, Liberty and News Corp. have mutual rights of first refusal, tag-along rights on transfers of significant interests and registration rights. Liberty and News Corp. have further agreed that, for so long as they both are entitled to appoint at least one of TV Guide's directors, TV Guide will be the exclusive vehicle through which they will each conduct program guide businesses worldwide, subject to certain limited exceptions. USA Networks, Inc. USA Networks is a diversified media and electronic commerce company that is engaged in five principal areas of business: (1) Networks and Television Production, which operates the USA Network, a general entertainment basic cable television network, The Sci-Fi Channel, which features science fiction, horror, fantasy and science-fact oriented programming, and Studios USA, which produces and distributes television programming; (2) Electronic Retailing, which primarily consists of Home Shopping Network and America's Store, which are engaged in the electronic retailing business; (3) Television Broadcasting, which owns and operates a group of UHF and low power television stations; (4) Ticketing Operations, which includes Ticketmaster, the leading provider of automated ticketing services in the United States, and Ticketmaster Online, Ticketmaster's exclusive agent for online ticket sales; and (5) Internet Services, which includes USA Networks' interest in Ticketmaster Online- CitySearch, Inc., an online retail and local city guide business. USA Networks' common stock trades on the National Market tier of The Nasdaq Stock Market under the symbol "USAI." The table below sets forth certain information about USA Networks' assets.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership % Entity (000's) Launched at 8/15/99 - ---------------------------------------------- ----------- -------- ----------- USA Networks, Inc. ........................... 21%/1/ HSN......................................... 72,700/2/ 1985 21% America's Store............................. 9,300/2/ 1986 21% ISN......................................... Online 1995 21% HSN en Espanol.............................. 2,600 1998 11% HOT (Germany)............................... 20,600 1996 9% Shop Channel (Japan)........................ 2,900 1996 41% SciFi Channel............................... 55,900 1992 21% USA Network................................. 75,700 1980 21% USA Broadcasting............................ 37,409/3/ 1986 21% Ticketmaster................................ N/A 21% Studios USA................................. N/A 21% USA Films................................... N/A 21% Hotel Reservations Network.................. Online 1991 21% Ticketmaster Online-CitySearch.............. Online 1998 11%/4/
- -------- (1) Assumes the conversion or exchange by Liberty of direct and indirect interests in various USA Networks and HSN securities for USA Networks common stock, and the conversion or exchange of certain securities owned by Universal Studios, Inc. and certain of its affiliates for USA Networks common stock. (2) Includes broadcast households and cable subscribers. (3) A group of UHF and low power television stations which operate in 12 of the top 22 broadcast markets in the United States, including 7 of the top 10 markets which reach approximately 31% of television households in the United States. (4) Assumes consummation of pending transactions. 54 Ownership Interest. Liberty's interest in USA Networks consists of shares of USA Networks common stock held by Liberty and its subsidiaries, shares of USA Networks common stock held by certain entities in which Liberty has an equity interest but only limited voting rights, and securities of certain subsidiaries of USA Networks which are exchangeable for shares of USA Networks common stock. Assuming the exchange of these securities and the conversion or exchange of certain securities owned by Universal Studios, Inc. ("Universal") and certain of its affiliates for USA Networks common stock, Liberty and Universal would own approximately 21% and 45%, respectively, of USA Networks. In general, until the occurrence of certain events and with the exception of certain negative controls, Mr. Barry Diller has voting power over Liberty's interest in USA Networks, as more fully described below under "--Terms of Ownership." Liberty's ownership in USA Networks began in 1993 when it purchased a controlling stake in Home Shopping Network, Inc., which at the time was principally engaged in the sale of merchandise to viewers of its home shopping programming. In connection with that acquisition, Liberty also obtained an option to acquire a controlling interest in Silver King Communications, Inc., an owner and operator of broadcast television stations. In August 1995, Liberty formed an alliance with Mr. Barry Diller that resulted in a significant shift in Liberty's strategy for Home Shopping Network and Silver King. As part of this alliance, Liberty contributed its control option relating to Silver King to a new corporation in which it retained substantially all of the equity interests and ceded control over the voting securities of Silver King held by the corporation to Mr. Diller, except with respect to certain fundamental matters. At the same time, Mr. Diller agreed to join Home Shopping Networks' board of directors. In December 1996, Silver King and Home Shopping Network were combined to form HSN, Inc., which also acquired Savoy Pictures Entertainment, Inc., a television broadcasting and filmed entertainment company, and Ticketmaster Group, Inc., a leading provider of automated ticketing services. In February 1998, HSN, Inc. acquired from Universal USA Networks, consisting of USA Network and Sci-Fi Channel, and the domestic television production and distribution business of Universal. Following this transaction, HSN, Inc. changed its name to USA Networks, Inc. In connection with this transaction, Liberty contributed $300 million in cash to a subsidiary of USA Networks (the "LLC") in exchange for equity shares of that subsidiary ("LLC Shares") (which are generally exchangeable for USA Networks common stock on a one-for-one basis). The LLC holds all of the assets acquired from Universal and all of the businesses of HSN, Inc. and its subsidiaries, other than the broadcasting business. Terms of Ownership. In connection with the Universal transaction, USA Networks, Universal, Liberty and Mr. Diller entered into several agreements involving governance matters relating to USA Networks and stockholder arrangements. With respect to governance matters, Mr. Diller generally has full authority to operate the day-to-day business affairs of USA Networks and has an irrevocable proxy over all USA Networks securities owned by Universal, Liberty and certain of their affiliates for all matters except for certain fundamental changes. However, each of Liberty, Universal and Mr. Diller has veto rights with respect to certain fundamental changes relating to USA Networks and its subsidiaries (including the LLC). If Mr. Diller and Universal agree to certain fundamental changes that Liberty does not agree to, Universal will be entitled to purchase Liberty's entire equity interest in USA Networks, subject to certain conditions, at a price determined by an independent appraiser taking into account a number of agreed upon factors. Pursuant to FCC law and regulations, Liberty is not currently permitted to have a designee on the board of directors of USA Networks. However, at such time as Liberty is no longer subject to such prohibition, Liberty will have the right to designate up to two directors if its stock ownership in USA Networks remains at certain levels. Liberty currently has the right to designate up to two directors to the LLC board and will continue to have that right for so long as it is not permitted to designate directors of USA Networks and continues to maintain certain ownership levels. Each of Universal and Liberty has a preemptive right with respect to future issuances of USA Networks's capital stock, subject to certain limitations. Liberty has agreed with Universal that Liberty will not beneficially own more than approximately 21% of the equity of USA Networks until the earlier of such time as Liberty beneficially owns less than 5% of the shares of USA Networks securities or the date that Universal beneficially 55 owns fewer shares than Liberty beneficially owns. Also, Liberty has agreed not to propose to the board of directors of USA Networks the acquisition by Liberty of the outstanding USA Networks securities or to otherwise influence the management of USA Networks, including by proposing or supporting certain transactions relating to USA Networks that are not supported by USA Networks' board of directors. Liberty is subject to a number of agreements that limit or control its ability to transfer its USA Network securities. As long as Mr. Diller is Chief Executive Officer of USA Networks, Liberty generally cannot transfer shares of USA Networks stock prior to August 24, 2000, subject to certain exceptions. Each of Universal and Mr. Diller has a right of first refusal with respect to certain sales of USA Networks securities by the other party. Liberty's rights in this regard are secondary to any Universal right of refusal on transfers by Mr. Diller. Each of Liberty and Mr. Diller also generally has a right of first refusal with respect to certain transfers by the other party and tag-along sale rights on certain sales of USA Networks stock by the transferring stockholder and in the event Universal transfers a substantial amount of its USA Networks stock. Liberty, Universal and Mr. Diller are each entitled to registration rights relating to their USA Networks securities and have agreed to certain put and call arrangements, pursuant to which one party has the right to sell (or the other party has the right to acquire) shares of USA Networks stock held by another party, at a price determined by an independent appraiser taking into account a number of agreed upon factors. Other Programming Assets The table below sets forth certain information about some of Liberty's other programming interests.
Liberty's Subscribers Attributed at 6/30/99 Year Ownership Entity (000's) Launched % at 8/15/99 Partner(s) --------------------------------------- ----------- -------- ------------ ------------------------ BET Holdings II, Inc................... 35% Robert Johnson BET Cable Network.................... 55,792 1980 35% BET Action Pay-Per-View.............. 10,793/1/ 1990 35% BET on Jazz.......................... 1,797 1996 35% Canales n.............................. 9/2/ 1998 100% -- Court TV............................... 33,697 1991 50% Time Warner Inc. E! Entertainment Television............ 55,797 1990 10% Comcast Corporation, The Style................................ 3,135 1998 10% Walt Disney Company, MediaOne Group, Inc. Fox Kids Worldwide, Inc................ N/A N/A /3/ The News Corporation Limited, former stockholders of Saban Entertainment, Inc. International Channel/4/............... 8,090 1990 90% JJS II Communications, LLC Jupiter Programming Co., Ltd. (Japan).. 50% Sumitomo Corporation Cable Soft Network................... 2,208 1989 50% CNBC Asia Business News Japan........ N/A 1997 10% Golf Network......................... 1,660 1996 44% Discovery Japan...................... 1,153 1996 49% J-Sports............................. 563 1998 67% Shop Channel......................... 2,900 1996 41% MultiThematiques, S.A. ................ 30% Canal + S.A., Havas Canal Jimmy (France)................. 2,095 1991 30% Images, Part'Com Canal Jimmy (Italy).................. 451 1997 30%
56
Liberty's Subscribers Attributed at 6/30/99 Year Ownership Entity (000's) Launched % at 8/15/99 Partner(s) - ------------------------ ----------- -------- ------------ --------------------------- Cine Cinemas (France).. 676 1991 30% Cine Cinemas (Italy)... 164 1997 30% Cine Classics (France).............. 603 1991 30% Cine Classics (Spain).. 165 1995 15% Cine Classics (Italy).. 164 1997 30% Forum Planete (France).............. 1,171 1997 30% Planete (France)....... 2,774 1988 30% Planete (Poland)....... 1,683 1996 30% Planete (Germany)...... 369 1997 30% Planete (Italy)........ 451 1997 30% Seasons (France)....... 99 1996 30% Seasons (Spain)........ 27 1997 30% Seasons (Germany)...... 11 1997 30% Seasons (Italy)........ 33 1997 30% Odyssey................. 27,178 1998 33% Hallmark Entertainment, The Jim Henson Company, National Interfaith Cable Coalition, Inc. Premium Movie 787 1995 20% Twentieth Century Fox Partnership Films, Universal Studios, (Australia)............ Paramount Pictures, Columbia TriStar Telemundo Network/5/.... N/A N/A 50% Sony Pictures Entertainment Inc. Telemundo Station Group/6/............... N/A N/A 25% Sony Pictures Entertainment Inc., Station Partners, LLC Torneos y Competencias, S.A. (Argentina)/7/.... N/A N/A 40% CEI CitiCorp Holdings S.A.
- -------- (1) Number of subscribers to whom service is available. (2) Digital services. (3) Liberty's interest consists of shares of 30-year 9% preferred stock which have a stated aggregate value of $345 million and are not convertible into common stock. (4) International Channel provides news, sports, music, movies and general entertainment programming from around the world in more than 20 different languages. (5) Telemundo Network is a 24-hour broadcast network serving 61 markets in the United States, including the 37 largest Hispanic markets. (6) Telemundo Station Group, Inc. owns and operates eight full power UHF broadcast stations and 15 low power television stations serving some of the largest Hispanic markets in the United States and Puerto Rico. Although Liberty has an approximately 25% equity interest in Telemundo Station Group, Inc., its voting power is less than 5% to meet certain regulatory requirements. (7) Torneos y Competencias, S.A. is Argentina's dominant sports programming service. It also owns an indirect interest in Canal 9, a general entertainment broadcast channel in Buenos Aires, Argentina, which has become an international superchannel, providing programming to the United States and, via cable, to outlying areas of Argentina. Communications Cable television systems deliver multiple channels of television programming to subscribers who pay a monthly fee for the service. Video, audio and data signals are received over-the-air or via satellite delivery by antennas, microwave relay stations and satellite earth stations and are modulated, amplified and distributed over a network of coaxial and fiber optic cable to the subscribers' television sets. Cable television providers in most markets are currently upgrading their cable systems to deliver new technologies, products and services to their customers. These upgraded systems allow cable operators to expand channel offerings, add new digital video 57 services, offer high-speed data services and, where permitted, provide telephony services. The implementation of digital technology significantly enhances the quantity and quality of channel offerings, allows the cable operator to offer video-on-demand, additional pay-per-view offerings, premium services and incremental niche programming. Upgraded systems also enable cable networks to transmit data and gain access to the Internet at significantly faster speeds, up to 100 times faster, than data can be transmitted over conventional dial-up connections. Lastly, cable providers have been developing the capability to provide telephony services to residential and commercial users at rates well below those offered by incumbent telephone providers. Each of these businesses represents a significant opportunity for cable providers to increase their revenue and operating cash flow from the traditional pay television services currently offered today. Telephony providers offer local, long distance, switched services, private line and advanced networking features to customers who pay a monthly fee for the service, generally based on usage. Wireless telecommunications networks use a variety of radio frequencies to transmit voice and data in place of, or in addition to, standard landline telephone networks. Wireless telecommunications technologies include two-way radio applications, such as cellular, personal communications services, specialized mobile radio and enhanced specialized mobile radio networks, and one-way radio applications, such as paging services. Each application operates within a distinct radio frequency block. As a result of advances in digital technology, digital-based wireless system operators are able to offer enhanced services, such as integrated voicemail, enhanced custom- calling and short-messaging, high-speed data transmissions to and from computers, advanced paging services, facsimile services and Internet access service. The wireless industry has benefited in recent years from increasing demand for its services and industry experts expect this demand to continue to increase. According to International Data Corporation, subscribers to wireless communications services in the United States are expected to increase to over 118 million by 2003, up from approximately 64.4 million subscribers at the end of 1998. Wireless subscribers generally are charged for service activation, monthly access, air time, long distance calls and custom-calling features. Wireless system operators pay fees to local exchange companies for access to their networks and toll charges based on standard or negotiated rates. When wireless operators provide service to roamers from other systems, they generally charge roamer air time usage rates, which usually are higher than standard air time usage rates for their own subscribers, and additionally may charge daily access fees. Consolidated Subsidiaries TCI Cablevision of Puerto Rico, Inc. TCI Cablevision of Puerto Rico, Inc. is one of the largest providers of cable television services in Puerto Rico. It owns and operates cable television franchises, serving the communities of Luquillo, Arecibo, Florida, Caguas, Humacao, Cayey and Barranquitas. On September 21, 1998, hurricane Georges struck Puerto Rico and caused considerable property damage to the area in general, including TCI Cablevision of Puerto Rico's cable television systems. However, all of TCI Cablevision of Puerto Rico's systems have been rebuilt, and as of June 30, 1999, approximately 93% of its pre-hurricane basic customers were receiving cable television services. TCI Cablevision of Puerto Rico estimates that it will regain 100% of its pre-hurricane customer base during the fourth quarter of 1999. At June 30, 1999, the Puerto Rico cable systems passed an aggregate of approximately 264,000 homes and served approximately 103,000 basic subscribers, resulting in a penetration rate of approximately 40%. As of that date, approximately 30% of TCI Cablevision of Puerto Rico's network had been rebuilt utilizing 550 MHz bandwidth capacity, with the remainder consisting of 450 MHz. By the end of 1999, 100% of the network is expected to be upgraded to 550 MHz. At June 30, 1999, TCI Cablevision of Puerto Rico operated from five headends, and provided subscribers with 63 channels. A significant portion of TCI Cablevision of Puerto Rico's cable network consists of fiber-optic and coaxial cable. This infrastructure allows TCI Cablevision of Puerto Rico to offer enhanced entertainment information and telecommunications services and, when and to the extent permitted by law, cable telephony services. TCI 58 Cablevision of Puerto Rico currently offers its subscribers pay-per-view events and premium movies and as it introduces new revenue generating products and services, such as interactive services, TCI Cablevision of Puerto Rico expects to aggressively market those products and services to its subscribers in areas with sufficient bandwidth capacity. TCI Cablevision of Puerto Rico expects to begin offering high speed data transmission services and Internet access using high speed cable modems to its subscribers in November 1999. Business Affiliates Sprint PCS Group Sprint Corporation operates the only 100% digital PCS wireless network in the United States with licenses to provide service nationwide utilizing a single frequency band and a single technology. Sprint owns licenses to provide service to the entire United States population, including Puerto Rico and the U.S. Virgin Islands. At December 31, 1998, Sprint, together with certain affiliates, operated PCS systems in 45 of the 50 largest U.S. metropolitan areas. Since the end of 1997, the number of metropolitan markets served by Sprint has doubled to 280 and the number of its customers has more than tripled to 3.35 million. Sprint attributes this business and its assets to Sprint's "Sprint PCS Group." The Series 1 Sprint PCS Group stock and the Series 2 Sprint PCS Group stock are intended to reflect the performance of the Sprint PCS Group. The Series 1 Sprint PCS Group stock trades on the New York Stock Exchange under the symbol "PCS." The business objective of the Sprint PCS Group is to expand network coverage and increase market penetration by aggressively marketing competitively priced PCS products and services under the "Sprint" and "Sprint PCS" brand names. Ownership Interest. Liberty owns approximately 23% (on a fully diluted basis) of the Sprint PCS Group stock through its ownership of shares of Series 2 Sprint PCS Group stock (which have limited voting rights) and certain warrants and shares of convertible preferred stock exercisable for or convertible into these shares. Liberty's interest in the business that makes up the Sprint PCS Group began in 1994 when TCI, Comcast Corporation, Cox Communications, Inc. and Sprint Corporation determined to engage in the wireless communications business through a series of limited partnerships known collectively as "Sprint PCS." In November 1998, Sprint Corporation assumed ownership and management control of Sprint PCS and issued a new class of Sprint stock, the "Sprint PCS Group stock," to track the performance of Sprint's combined wireless operations. In exchange for its approximate 30% limited partnership interest in Sprint PCS, TCI received shares of Series 2 Sprint PCS Group stock, shares of Sprint PCS preferred stock and warrants to purchase shares of Series 2 Sprint PCS Group stock. Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United States Department of Justice on December 30, 1998 in connection with the AT&T merger, all of the Sprint securities were deposited in a trust with an independent trustee, pursuant to a trust agreement approved by the Department of Justice and the FCC. Liberty holds trust certificates evidencing its beneficial interest in the assets of the trust. The proposed final judgment, if entered by the United States District Court for the District of Columbia, would require the trustee, on or before May 23, 2002, to dispose of a portion of the Sprint securities held by the trust sufficient to cause Liberty to own beneficially no more than 10% of the outstanding Sprint PCS Group stock that would be outstanding on a fully diluted basis on such date. On or before May 23, 2004, the trustee must divest the remainder of the Sprint securities held by the trust. The trust agreement grants the trustee the sole right to sell the Sprint securities beneficially owned by Liberty and provides that all decisions regarding such divestiture will be made by the trustee without discussion or consultation with AT&T or Liberty; however, the trustee is required to consult with the board of directors of Liberty (other than AT&T representatives and John C. Malone) regarding such divestiture. The trustee has the power and authority to accomplish such divestiture only in a manner reasonably calculated to maximize the value of the Sprint securities beneficially owned by Liberty. 59 The trust agreement provides for the trustee to vote the Sprint securities beneficially owned by Liberty in the same proportion as other holders of Sprint PCS Group stock so long as such securities are held by the trust. The proposed final judgment also prohibits the acquisition by Liberty of additional Sprint securities without the prior written consent of the Department of Justice, subject to limited exceptions. Terms of Ownership. Liberty was granted registration rights with respect to its Sprint PCS holdings. These registration rights are currently exercisable by the trustee. If Liberty's shares of Series 2 Sprint PCS Group stock are transferred, the transferred shares become shares of full vote Series 1 Sprint PCS Group stock. Telewest Communications plc Telewest is a leading provider of cable television and residential and business cable telephony services in the United Kingdom. Telewest provides cable television services over a broadband network and uses its network, together with twisted-pair copper wire connections for final delivery to the customer premises, to provide telephony services to its customers. The broadband network enables Telewest to deliver a wide variety of both television and telephony services to its customers and to provide customers with a wide range of interactive and integrated entertainment, telecommunications and information services as they become more widely available in the future. By offering both television and telephony service, Telewest is able to spread the costs of its network over two revenue sources as well as take advantage of various efficiencies such as cross marketing. Telewest has installed its own telephone switches, which permits it to minimize fees otherwise charged by public telephone companies and to offer a variety of value-added services without relying on public telephone operators for implementation. Telewest also offers home access to the Internet in all of its franchises. Telewest's ordinary shares trade on the London Stock Exchange under the symbol "TWT.L," and are represented by ADRs in the United States, where they trade on the National Market tier of The Nasdaq Stock Market under the symbol "TWSTY." Telewest owns and operates 37 cable franchises and has a minority equity interest in an affiliated company which owns and operates four affiliated franchises. As of June 30, 1999, these owned and operated and affiliated franchises covered approximately 34% of the homes in the United Kingdom in areas for which cable franchises have been awarded. At that date, these franchises together included approximately 6.1 million homes and over 400,000 businesses, of which approximately 5.9 million and approximately 383,000 were Telewest's equity homes and equity businesses, respectively. As of June 30, 1999, the network in these franchises had passed approximately 4.4 million of Telewest's equity homes (approximately 4.2 million of which had been passed and marketed) and Telewest had approximately 1.1 million equity cable television customers, 1.4 million equity residential telephone lines and 256,000 equity business telephone lines. As of June 30, 1999, Telewest's owned and operated franchises served more than 1.0 million cable subscribers and 1.3 million telephone customers, and its affiliated franchise provided Telewest with an additional 98,000 subscribers and 100,000 telephone customers. According to Telewest, approximately 61% of its customers subscribe for both cable television and cable telephony services. Telewest believes that it is well positioned in key growth markets and will benefit from the growing demand for voice, video, data and Internet services. Telewest plans to introduce digital services in 1999, offering greater opportunity for the development of differentiated products and exploitation of the full potential of interactive, broadband cable. Telewest's business objective is to be the premier provider of telephony, television, multimedia, data, Internet and e-commerce services in the United Kingdom. Its strategies for achieving its objective include: (1) leveraging the scale and scope of its business to provide new content and services, (2) increasing market share and generating additional revenue from existing customers through the development of innovative and targeted products and the launch of digital services and high-speed Internet service delivered via cable modem technology, and (3) capitalizing on the growing demand for advanced business voice and data services, digital television and high-speed Internet access through its high capacity local networks and its national backbone network. 60 Ownership Interest. Liberty owns approximately a 22% interest in Telewest through a limited liability company, which is 50% owned by Liberty and 50% owned by MediaOne Group, Inc. MediaOne also owns an approximately 22% interest in Telewest through the limited liability company. In addition, MediaOne owns an approximately 8% interest outside the limited liability company. Liberty's involvement with Telewest developed out of investments in the cable business made by TCI in the United Kingdom beginning in 1986. In April 1992, U S WEST, Inc. and TCI contributed substantially all of their respective U.K. cable interests to a joint venture in which each held a 50% interest. TCI and U S WEST combined substantially all of their respective U.K. cable interests in an effort to obtain cost and other efficiencies inherent in a larger network, as well as to gain greater access to the capital markets. The combination also permitted TCI to gain the benefits of U S WEST's telephony experience, and U S WEST to gain the benefits of TCI's cable television experience. Telewest was formed in anticipation of its initial public offering (which was effected in November 1994) to acquire the assets of the TCI/U S WEST joint venture. TCI contributed its interests in the joint venture and Telewest to Liberty Media International. Subsequent to Telewest's initial public offering, Liberty Media International and U S WEST contributed all of their respective equity ownership interests in Telewest to the limited liability company referred to above. In June 1998, MediaOne separated from U S WEST and, in connection with that transaction, succeeded to all of U S WEST's rights and obligations relating to its Telewest investment. Terms of Ownership. Liberty and MediaOne have been granted preemptive rights on share issuances by Telewest which enable them to collectively maintain a majority of the voting rights in Telewest. Liberty and MediaOne have agreements with respect to the voting of shares of Telewest beneficially owned by them and the manner in which they will cause their designees to the Telewest board of directors to vote. In general, Liberty and MediaOne have agreed that, on any matter requiring shareholder approval, they will vote their Telewest shares together in such manner as may be agreed by them. As a result, Liberty and MediaOne together generally will be able to influence materially the outcome of any matter requiring shareholder approval. In addition, each of Liberty and MediaOne has veto rights with respect to certain fundamental matters affecting Telewest. Further, for so long as each of them beneficially owns at least 15% of the outstanding Telewest ordinary shares, each is entitled to appoint two members to the 10-member Telewest board of directors, and they have agreed that on any matter requiring board approval, they will cause the directors designated by them to vote together as agreed by them. Each of Liberty and MediaOne has agreed not to transfer its Telewest shares prior to December 31, 1999, and thereafter, any proposed transfer will be subject to rights of first refusal in favor of the other party, in each case subject to certain exceptions. In addition, each of Liberty and MediaOne has the right to trigger a put/call procedure in the event the other is deemed to undergo a change of control. Each of Liberty and MediaOne has agreed, subject to certain exceptions, not to acquire interests in other cable television or cable telephony companies in the United Kingdom, and Telewest has agreed to certain restrictions on its ability to engage in businesses in the United Kingdom outside of cable television, cable telephony and wireless telephony. In May 1999, as part of a series of agreements entered into with AT&T in connection with AT&T's proposed acquisition of MediaOne, Microsoft Corporation agreed to purchase MediaOne's interest in Telewest through a tax-free exchange of Microsoft shares, subject to certain conditions, including receipt of the consent of Liberty and the closing of the proposed business combination between AT&T and MediaOne. It is expected that if this purchase is completed, Microsoft will succeed to all of MediaOne's rights and obligations set forth above. 61 Other Communications Assets The table below sets forth certain information about Liberty's other communications assets.
Homes in Liberty's Service Homes Basic Attributed Area/1/ at Passed/2/ at Subscribers/3 Ownership 6/30/99 6/30/99 / at 6/30/99 % at Entity (000's) (000's) (000's) 8/15/99 Partner(s) - ----------------------------------- ---------- ------------ ------------- ---------- -------------------------------- Metropolis-Intercom, S.A. (Chile).. 1,600 1,068 273 30% Cordillera Communicaciones, Ltda, Compania de Telecomunicaciones de Chile S.A. Cablevision S.A. (Argentina)....... 4,000 3,374 1,451 28% CEI CitiCorp Holdings S.A., Telefonica Internacional S.A. Jupiter Telecommunications Co., Ltd. (Japan)................. 2,697 1,743 253 40% Sumitomo Corporation Princes Holdings Limited (Ireland)......................... 490 380 155 50% Independent Newspapers plc Sky Latin America LLC/4........./.. N/A N/A 761 10% Organizacoes Globo, Grupo Televisa, S.A., News Corp.
- -------- (1) Homes in Service Area: The number of homes to which the relevant operating company is permitted by law to offer its services. Not all service areas are granted exclusively to the respective operating company. (2) Homes Passed: The homes that can be connected to a cable distribution system without further extension of the distribution network. (3) Basic Subscribers: Subscribers to a cable or other television distribution system who receive the basic television service and who are usually charged a flat monthly rate for a specific number of channels. (4) Satellite-delivered television platform currently serving Mexico, Brazil, Chile and Columbia. Internet Services and Technology The Internet has emerged as a significant global communications and commerce medium, enabling millions of people worldwide to share information, create community among individuals with similar interests and conduct business electronically. International Data Corporation projects that the number of Internet users will increase from approximately 100 million at the end of 1998 to approximately 320 million by the end of 2002. In addition to its emergence as a significant global communications medium, the Internet has features and functions that are unavailable in traditional media, which enable online merchants to communicate effectively with customers and advertisers to target users with specific needs and interests. As a result, the Internet has emerged as an attractive medium for advertising and electronic commerce. According to International Data Corporation, worldwide commerce revenue on the Internet is expected to increase from approximately $32 billion at the end of 1998 to more than $425 billion in 2002. Jupiter Communications, a new media research firm that specializes in online research and analysis, estimates that the amount of advertising dollars spent on the Internet is expected to increase from approximately $1.9 billion in 1998 to $7.7 billion by 2002, a compound annual growth rate of 42%. Consolidated Subsidiaries Liberty Digital, Inc. Liberty Digital, Inc. (currently known as TCI Music, Inc.) is expected to become Liberty's primary vehicle for investing in and/or developing interactive programming and content. In April 1999, Liberty determined to contribute various Internet and interactive television assets to TCI Music in an effort to consolidate those assets under one platform. To that end, Liberty and certain of its affiliates have agreed to contribute to TCI Music substantially all of their respective Internet and interactive television assets and a combination of cash and debt payable to Liberty equal to $150 million, in exchange for preferred and common stock of TCI Music. As part of the transaction, Liberty will also assign to TCI Music certain of its rights under an agreement with AT&T, which provides for certain programming rights with respect to AT&T's cable systems. See "Relationship with AT&T and Certain Related Transactions-- Relationship with AT&T--Intercompany Agreement--Interactive Video Services." The proposed transaction is expected to be completed in September 1999, subject to the 62 satisfaction of certain closing conditions. TCI Music's Series A common stock trades on the Small Cap Market Tier of The Nasdaq Stock Market under the symbol "TUNE." Upon consummation of the transaction, TCI Music is expected to change its name to Liberty Digital, Inc. In furtherance of this strategy, in July 1999, TCI Music entered into an Internet music alliance with MTV Networks, a division of Viacom, Inc., whereby TCI Music and MTV Networks formed and operate an online music venture, MTVN Online L.P. In exchange for their respective contributions to MTVN Online of certain music-related assets and businesses, TCI Music received a 10% interest, and MTV Networks received a 90% interest, in MTVN Online. Liberty's management believes that the combination of the assets and businesses contributed to MTVN Online by TCI Music and MTV Networks will build scale and creates a stronger platform from which to pursue an on-line music business. In connection with this transaction, TCI Music and Liberty have each agreed not to compete with MTVN Online in its online music video business or in the music video business generally, subject to certain exceptions. Following Liberty's contribution to TCI Music of various Internet and interactive television assets and TCI Music's name change to Liberty Digital, Inc., the assets of Liberty Digital are expected to consist primarily of the following:
Liberty Digital's Ownership Entity % Business - --------------------------------- ---------- ------------------------------------------------- AT&T Access Agreement............ N/A Certain programming rights with respect to AT&T's cable systems Academic Systems Corporation..... 5% Provider of higher education multimedia instruction manuals ACTV, Inc. (Nasdaq: IATV)................... 12%/1/ Producer of tools for interactive programming for television and Internet platforms DMX, LLC......................... 100% Programs, markets and distributes the premium digital audio service, Digital Music Express Drugstore.com, Inc. (Nasdaq: DSCM)................... 1% Online pharmacy and sundries HomeGrocer.com, Inc.............. 2% Online grocery store iBeam Broadcasting Corporation... 7% Satellite delivery of streaming media from programmers to Internet service providers Interactive Pictures Corporation (Nasdaq: IPIX)................... 4% Interactive photographic technology for the Internet iVillage, Inc. (Nasdaq: IVIL)................... 3% Internet and on-line provider of branded communications and information services for adult women Kaleidoscope Interactive, LLC.... 50% Online provider of information and services related to health concerns and disabilities Kaleidoscope Network, Inc........ 12% 24-hour cable network that provides video programming related to health concerns and disabilities KPCB Java Fund, L.P. ............ 5% Investor in Java application development Lifescape, LLC................... 50% Online provider of information concerning substance abuse, addictions and health problems MedScholar Digital Network, LLC.. 100% Provider of continuous medical education services to healthcare professionals
63
Liberty Digital's Ownership Entity % Business - ------------------------ ---------- ------------------------------------------------- MTVN Online L.P. ....... 10% Online music venture with MTV Networks priceline.com Incorporated (Nasdaq: PCLN).......... 2% E-commerce service allowing consumers to make offers on products and services Quokka Sports, Inc...... 3% Internet provider of live digital sports entertainment Replay Networks, Inc. .. 1% Producer of technology that allows customers to customize television viewing Sportsline USA, Inc. (Nasdaq: SPLN).......... 3% Internet provider of branded interactive sports information, programming and merchandise The Lightspan Partnership, Inc. ..... 8% Developer of educational programming TE Network, Inc......... 19% Online game service targeting family Internet game players TiVo Inc. .............. 1% Producer of technology that allows customers to customize television viewing
- -------- (1) Liberty Digital will also hold warrants to purchase additional shares of ACTV, Inc. common stock, which it may exercise over a period of one to five years. Exercise of these warrants would increase Liberty Digital's ownership to approximately 25%. Ownership Interest. Liberty currently owns approximately 86% of the outstanding common equity of TCI Music and approximately 98% of its total voting power. Assuming Liberty's contribution to TCI Music is consummated as described above, members of the Liberty Media Group will own approximately 95% of the outstanding common equity of Liberty Digital, with Liberty owning approximately 87% of Liberty Digital and a member of the Liberty Media Group that is not part of Liberty Media Corporation or its consolidated subsidiaries owning the remaining approximately 8% interest. Liberty's interest in TCI Music began in 1997 when TCI Music was formed as a wholly owned subsidiary of TCI for the purpose of entering into a business combination with DMX, LLC. DMX currently programs, markets and distributes the premium digital audio music service known as Digital Music Express, to more than 29 million subscribers in the United States. In December of 1997, TCI Music acquired The Box Worldwide, Inc., which programs and distributes an interactive music video television programming service to cable and broadcast television systems via satellite delivery, and SonicNet, Inc., a leading Internet music network consisting of a group of music web sites. TCI Music acquired The Box to serve as the platform for music video and acquired SonicNet to provide music-related content to DMX and The Box and to position itself to take advantage of developments in music distribution through the Internet. In connection with the MTVN Online transaction, TCI Music transferred substantially all of the assets and businesses of The Box and SonicNet to MTVN Online, subject to certain exceptions. Liberty believes that MTVN Online provides a stronger platform through which TCI Music can participate in future online music opportunities. Business Affiliates General Instrument Corporation General Instrument Corporation is a leading worldwide provider of integrated and interactive broadband access solutions and, with its strategic partners and customers, GI seeks to advance the convergence of the Internet, telecommunications and video entertainment industries. To that end, GI makes products that allow video, voice and data to be delivered over cable, digital satellite and telephony networks. GI is a leading supplier of digital and analog set-top terminals and systems for wired and wireless cable television networks, as well as hybrid fiber/coaxial network transmission systems used by cable television operators. GI also provides digital satellite television systems for programmers, direct-to-home satellite networks and private networks for business communications. Through its limited partnership interest in Next Level Communications L.P., GI provides next-generation broadband access solutions for local telephone companies. GI also has audio and Internet/data- delivery systems among its product lines. GI has facilities in Asia, Europe, Latin America, and the United States. GI's common stock trades on the New York Stock Exchange under the symbol "GIC." 64 Ownership Interest. Liberty currently holds an 18% interest in GI, and is the largest stockholder of GI. Liberty also holds warrants to purchase approximately 21.4 million additional shares of GI common stock at $14.25 per share. The warrants vest at specified dates, with the number of warrants vesting on each such date relating to the number of advanced digital set-top terminals purchased by AT&T and certain of its affiliates. If the warrants do not vest on the specified date, the warrants will terminate. If any warrants terminate solely because AT&T fails to purchase the required number of advanced digital set-top terminals, AT&T will pay to Liberty an amount equal to $8.25 for each warrant terminated, adjusted as appropriate for any changes in the capitalization of GI. Warrants to purchase 4.9 million shares are currently vested, and assuming Liberty's exercise of such vested warrants, its ownership interest in GI would increase to 21%. Liberty's relationship with GI began in December 1997 when National Digital Television Center, Inc., a wholly owned subsidiary of TCI ("NDTC"), entered into an agreement with GI to purchase advanced digital set-top terminals. In connection with NDTC's purchase commitment, GI granted the warrants specified above. In July 1998, TCI acquired 21.4 million restricted shares of GI common stock in exchange for (1) certain of the assets of NDTC's set-top authorization business, (2) the license of certain related software to GI, (3) a $50 million promissory note from TCI to GI and (4) a nine year revenue guarantee from TCI in favor of GI. In connection with the AT&T merger, the shares of GI common stock and the note payable were contributed to Liberty. In April 1999, Liberty acquired an additional 10 million shares of GI from Forstmann Little & Co. for $280 million. This purchase by Liberty increased Liberty's ownership in GI to approximately 18% and made Liberty the largest stockholder of GI. Terms of Ownership. In general, Liberty has certain registration rights with respect to the GI shares it currently holds and those that it has a right to acquire upon exercise of the GI warrants. In addition, a portion of Liberty's GI shares are non-transferable until July 2001 and Liberty is further restricted in its ability to knowingly transfer a portion of its GI shares to a competitor of GI until December 2002 or, in some cases, prior to that date if a change of control occurs with respect to GI. Other Assets Liberty also holds an approximately 19% interest in Antec Corporation, an international communications technology company specializing in the design and engineering of hybrid fiber/coaxial broadband networks and the development and distribution of products for these broadband networks. Antec provides its customers, primarily cable system operators, with products and services that enable reliable, high-speed, two-way broadband transmission of video, telephony, and data. In addition, Antec has developed a full line of technologically advanced fiber optic products to capitalize on current and future upgrades of cable systems employing hybrid fiber/coaxial technology capable of providing state-of-the-art video, voice and data services. Antec's common stock trades on the National Market tier of The Nasdaq Stock Market under the symbol "ANTC." Regulatory Matters Domestic Programming In the United States, the FCC regulates the providers of satellite communications services and facilities for the transmission of programming services, the cable television systems that carry such services, and, to some extent, the availability of the programming services themselves through its regulation of program licensing. Cable television systems in the United States are also regulated by municipalities or other state and local government authorities. Cable television companies are currently subject to federal rate regulation on the provision of basic service, and continued rate regulation or other franchise conditions could place downward pressure on the fees cable television companies are willing or able to pay for programming services in which Liberty has interests and regulatory carriage requirements could adversely affect the number of channels available to carry the programming services in which we have an interest. Regulation of Program Licensing. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") directed the FCC to promulgate regulations regarding the sale and acquisition of 65 cable programming between multi-channel video programming distributors (including cable operators) and satellite-delivered programming services in which a cable operator has an attributable interest. The legislation and the implementing regulations adopted by the FCC preclude virtually all exclusive programming contracts between cable operators and satellite programmers affiliated with any cable operator (unless the FCC first determines the contract serves the public interest) and generally prohibit a cable operator that has an attributable interest in a satellite programmer from improperly influencing the terms and conditions of sale to unaffiliated multi-channel video programming distributors. Further, the 1992 Cable Act requires that such affiliated programmers make their programming services available to cable operators and competing multi-channel video programming distributors such as multi-channel multi-point distribution systems and direct broadcast satellite distributors on terms and conditions that do not unfairly discriminate among distributors. The Telecommunications Act of 1996 has extended these rules to programming services in which telephone companies and other common carriers have attributable ownership interests. The FCC recently revised its program licensing rules, by implementing a damages remedy in situations where the defendant knowingly violates the regulations and by establishing a timeline for the resolution of such complaints, among other things. Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC has adopted regulations prohibiting cable operators from requiring a financial interest in a programming service as a condition to carriage of such service, coercing exclusive rights in a programming service or favoring affiliated programmers so as to restrain unreasonably the ability of unaffiliated programmers to compete. Regulation of Ownership. The 1992 Cable Act required the FCC, among other things, (a) to prescribe rules and regulations establishing reasonable limits on the number of channels on a cable system that will be allowed to carry programming in which the owner of such cable system has an attributable interest and (b) to consider the necessity and appropriateness of imposing limitations on the degree to which multi-channel video programming distributors (including cable operators) may engage in the creation or production of video programming. In 1993, the FCC adopted regulations limiting carriage by a cable operator of national programming services in which that operator holds an attributable interest to 40% of the first 75 activated channels on each of the cable operator's systems. The rules provide for the use of two additional channels or a 45% limit, whichever is greater, provided that the additional channels carry minority-controlled programming services. The regulations also grandfather existing carriage arrangements that exceed the channel limits, but require new channel capacity to be devoted to unaffiliated programming services until the system achieves compliance with the regulations. These channel occupancy limits apply only up to 75 activated channels on the cable system, and the rules do not apply to local or regional programming services. These rules may limit carriage of the programming companies in which Liberty has interests on certain systems of affiliated cable operators. In the same rulemaking, the FCC concluded that additional restrictions on the ability of multi-channel distributors to engage in the creation or production of video programming were then unwarranted. Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted broadcasters a choice of must carry rights or retransmission consent rights. The rules adopted by the FCC generally provided for mandatory carriage by cable systems of all local full-power commercial television broadcast signals selecting must carry rights and, depending on a cable system's channel capacity, non-commercial television broadcast signals. Such statutorily mandated carriage of broadcast stations coupled with the provisions of the Cable Communications Policy Act of 1984, which require cable television systems with 36 or more "activated" channels to reserve a percentage of such channels for commercial use by unaffiliated third parties and permit franchise authorities to require the cable operator to provide channel capacity, equipment and facilities for public, educational and government access channels, could adversely affect some or substantially all of the programming companies in which Liberty has interests by limiting the carriage of such services in cable systems with limited channel capacity. The FCC recently initiated a proceeding asking to what extent cable operators must carry all digital signals transmitted by broadcasters. The imposition of such additional must carry regulation, in conjunction with the current limited cable system channel capacity, would make it likely that cable operators will be forced to drop cable programming services, which may have an adverse impact on the programming companies in which Liberty has interests. 66 Closed Captioning Regulation. The Telecommunications Act of 1996 also required the FCC to establish rules and an implementation schedule to ensure that video programming is fully accessible to the hearing impaired through closed captioning. The rules adopted by the FCC will require substantial closed captioning over an eight to ten year phase-in period with only limited exemptions. As a result, the programming companies in which Liberty has interests are expected to incur significant additional costs for closed captioning. Copyright Regulation. Satellite carriers, such as TV Guide's UVTV division, retransmit the broadcast signals of "superstations," such as KWGN and WGN, and of network stations to home satellite dish owners for private home viewing under statutory license pursuant to the Satellite Home Viewer Act of 1994 (the "SHV Act"), which license is scheduled to expire on December 31, 1999. Although bills, which, among other things, would extend the license granted under the SHV Act and change the eligibility criteria for receipt of network station signals, have been introduced in Congress, if the license granted under the SHV Act is not further extended, satellite carriers will be required to negotiate private licenses for the retransmission of copyright material to home satellite dish owners after 1999. Under the House of Representatives bill, the license granted under the SHV Act would be extended by five years, and under the Senate bill, such license would be extended by six years. Satellite carriers may only distribute the signals of network broadcast stations, as distinguished from superstations, to "unserved households" that are outside the Grade B contours of a primary station affiliated with such network. The FCC released new rules on February 2, 1999 for determining whether households are unserved. TV Guide entered into an agreement with the National Association of Broadcasters, the ABC, CBS, FOX and NBC networks, their affiliate associations, and several hundred broadcast stations, effective May 1, 1998, to identify by zip code those geographic areas which are "unserved" by network affiliated stations. Depending upon the implementation of the agreement and such identification, TV Guide may be required, after expiration of a transition period to occur no earlier than September 10, 1999, to disconnect a substantial number of existing subscribers. Under the SHV Act, satellite carriers must pay a monthly fee of 27c per subscriber for the secondary transmission of distant superstations and distant network stations. However, both the House of Representatives and the Senate have recently passed bills which, among other things, include a provision that would decrease the royalty fee for distant superstations by 30% and distant network stations by 45%. To the extent that satellite carriers transmit superstation or network station signals to cable operators, such cable operators pay the copyright fee under the separate compulsory license. Satellites and Uplink. In general, authorization from the FCC must be obtained for the construction and operation of a communications satellite. The FCC authorizes utilization of satellite orbital slots assigned to the United States by the World Administrative Radio Conference. Such slots are finite in number, thus limiting the number of carriers that can provide satellite transponders and the number of transponders available for transmission of programming services. At present, however, there are numerous competing satellite service providers that make transponders available for video services to the cable industry. Proposed Changes in Regulation. The regulation of programming services, cable television systems, satellite carriers and television stations is subject to the political process and has been in constant flux over the past decade. Further material changes in the law and regulatory requirements must be anticipated and there can be no assurance that Liberty's business will not be adversely affected by future legislation, new regulation or deregulation. Domestic Telephony The FCC regulates the licensing, construction, operation, acquisition, resale and interconnection arrangements of domestic wireless telecommunications systems. The activities of wireless service providers, such as the Sprint PCS Group, are subject to regulation in varying degrees, depending on the jurisdiction, by state and local regulatory agencies as well. The FCC, in conjunction with the U.S. Federal Aviation Administration, also regulates tower marking and lighting, and FCC environmental rules may cause certain PCS network facilities to become subject to regulation under the National Environmental Policy Act. International Cable, Telephony and Programming Some of the foreign countries in which Liberty has, or proposes to make, an investment regulate, in varying degrees, (a) the granting of cable and telephony franchises, the construction of cable and telephony 67 systems and the operations of cable, other multi-channel television operators and telephony operators and service providers, as well as the acquisition of, and foreign investments in, such operators and service providers, and (b) the distribution and content of programming and Internet services and foreign investment in programming companies. Regulations or laws may cover wireline and wireless telephony, satellite and cable communications and Internet services, among others. Regulations or laws that exist at the time Liberty makes an investment in a foreign subsidiary or business affiliate may thereafter change, and there can be no assurance that material and adverse changes in the regulation of the services provided by Liberty's subsidiaries and business affiliates will not occur in the future. Regulation can take the form of price controls, service requirements and programming and other content restrictions, among others. Moreover, some countries do not issue exclusive licenses to provide multi-channel television services within a geographic area, and in those instances Liberty may be adversely affected by an overbuild by one or more competing cable operators. In certain countries where multi-channel television is less developed, there is minimal regulation of cable television, and, hence, the protections of the cable operator's investment available in the United States and other countries (such as rights to renewal of franchises and utility pole attachment) may not be available in these countries. Internet Services The Internet companies in which we have interests are subject, both directly and indirectly, to various laws and governmental regulations relating to their respective businesses. There are currently few laws or regulations directly applicable to access to or commerce on commercial online services or the Internet. For example, the Digital Millennium Copyright Act, enacted into law in 1998, protects certain qualifying online service providers from copyright infringement liability, the Internet Tax Freedom Act, also enacted in 1998, placed a three year moratorium on new state and local taxes on Internet access and commerce, and under the Communications Decency Act, an Internet service provider will not be treated as the publisher or speaker of any information provided by another information content provider. However, due to the increasing popularity and use of commercial online services and the Internet, it is possible that a number of laws and regulations may be adopted with respect to commercial online services and the Internet. Such laws and regulations may cover issues such as user privacy, defamatory speech, copyright infringement, pricing and characteristics and quality of products and services. The adoption of such laws or regulations in the future may slow the growth of commercial online services and the Internet, which could in turn cause a decline in the demand for the services and products of the Internet companies in which we have interests and increase such companies' costs of doing business or otherwise have an adverse effect on their businesses, operating results and financial conditions. Moreover, the applicability to commercial online services and the Internet of existing laws governing issues such as property ownership, libel and personal privacy is uncertain and could expose these companies to substantial liability. Competition Programming. The business of distributing programming for cable and satellite television is highly competitive, both in the United States and in foreign countries. The programming companies in which we have interests directly compete with other programmers for distribution on a limited number of channels. Once distribution is obtained, our programming services and our business affiliates' programming services compete, in varying degrees, for viewers and advertisers with other cable and off-air broadcast television programming services as well as with other entertainment media, including home video (generally video rentals), pay-per-view services, online activities, movies and other forms of news, information and entertainment. The programming companies in which we have interests also compete, to varying degrees, for creative talent and programming content. Our management believes that important competitive factors include the prices charged for programming, the quantity, quality and variety of the programming offered and the effectiveness of marketing efforts. In addition, HSN and QVC operate in direct competition with businesses that are engaged in retail merchandising. Communications. The cable television systems and other forms of media distribution in which we have interests directly compete for viewer attention and subscriptions in local markets with other providers of 68 entertainment, news and information, including other cable television systems in those countries that do not grant exclusive franchises, broadcast television stations, direct-to-home satellite companies, satellite master antenna television systems, multi-channel multi-point distribution systems and telephone companies, other sources of video programs (such as videocassettes) and additional sources for entertainment news and information, including the Internet. Cable television systems also face strong competition from all media for advertising dollars. Our management believes that important competitive factors include fees charged for basic and premium services, the quantity, quality and variety of the programming offered, the quality of signal reception, customer service and the effectiveness of marketing efforts. In addition, there is substantial competition in the domestic wireless telecommunications industry, and it is expected that such competition will intensify as a result of the entrance of new competitors and the increasing pace of development of new technologies, products and services. Each of the markets in which the Sprint PCS Group competes is served by other two-way wireless service providers, including cellular and PCS operators and resellers. A majority of the markets will have five or more commercial mobile radio service providers and each of the top 50 metropolitan markets have at least one other PCS competitor in addition to two cellular incumbents. Many of these competitors have been operating for a number of years and currently service a significant subscriber base. Internet Services and Technology. The markets for Internet services, online content and products are relatively new, intensely competitive and rapidly changing. Since the Internet's commercialization in the early 1990's, the number of Internet companies and web sites competing for consumers' attention and spending has proliferated with no substantial barriers to entry, and we expect that competition will continue to intensify in the future. The Internet companies and web sites in which we have interests compete, directly and indirectly, for members, visitors, advertisers, content providers and merchandise sales with many categories of companies, including: (1) other Internet companies and web sites targeted to the respective audiences of the Internet companies and web sites in which we have interests; (2) publishers and distributors of traditional off-line media (such as television, radio and print), including those targeted to the respective audiences of the Internet companies and web sites in which we have interests, many of which have made, or may in the future make, significant acquisitions of or investments in Internet companies and/or have established, or may in the future establish, web sites; (3) general purpose consumer online services such as America Online and Microsoft Network, each of which provides access to content and services targeted to the respective audiences of the Internet companies and web sites in which we have interests; (4) vendors of information, merchandise, products and services distributed through other means, including retail stores, mail, facsimile and private bulletin board services; and (5) web search and retrieval services and other high-traffic web sites. Liberty anticipates that the number of such competitors will increase in the future. The technology companies in which we have interests compete with a substantial number of foreign and domestic companies, and the rapid technological changes occurring in such companies' markets are expected to lead to the entry of new competitors. The ability of the technology companies in which we have interests to anticipate technological changes and introduce enhanced products on a timely basis will be a significant factor in their ability to expand and remain competitive. Existing competitors' actions and new entrants may have an adverse impact on these companies' sales and profitability. Employees As of June 30, 1999, Liberty had approximately 40 employees and Liberty's consolidated subsidiaries had an aggregate of approximately 1,580 employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We believe that our employee relations are good. Properties With the exception of its corporate offices in Englewood, Colorado (which Liberty leases), Liberty does not own or lease any real or personal property other than through its interests in its subsidiaries and business 69 affiliates. Liberty's subsidiaries and business affiliates own or lease the fixed assets necessary for the operation of their respective businesses, including office space, transponder space, headends, cable television and telecommunications distribution equipment, telecommunications switches and customer equipment (including converter boxes). Liberty's management believes that its current facilities are suitable and adequate for its business operations for the foreseeable future. Legal Proceedings There are no material pending legal proceedings, other than ordinary routine litigation incidental to Liberty's business, to which Liberty or any of its subsidiaries is a party or of which any of their property is subject. 70 MANAGEMENT Directors and Executive Officers The following table sets forth certain information concerning our directors and executive officers.
Date of Name Birth Position ---- -------- -------- John C. Malone.......... 3/7/41 Chairman of the Board and Director Robert R. Bennett....... 4/19/58 President, Chief Executive Officer and Director Gary S. Howard.......... 2/22/51 Executive Vice President, Chief Operating Officer and Director David B. Koff........... 12/26/58 Senior Vice President Charles Y. Tanabe....... 11/27/51 Senior Vice President and General Counsel Peter N. Zolintakis..... 7/10/57 Senior Vice President Vivian J. Carr.......... 12/13/47 Vice President and Secretary Kathryn S. Douglass..... 3/5/65 Vice President and Controller David J.A. Flowers...... 5/17/54 Vice President and Treasurer Paul A. Gould........... 9/27/45 Director Leo J. Hindery, Jr...... 10/31/47 Director Jerome H. Kern.......... 6/1/37 Director John C. Petrillo........ 4/30/49 Director Larry E. Romrell........ 12/30/39 Director Daniel E. Somers........ 12/9/47 Director
The following is a five-year employment history for our directors and executive officers, including any directorships held in public companies. John C. Malone has served as Chairman of the Board and one of our directors since 1990. Dr. Malone has also served, since December 1996, as Chairman of the Board and a director of TCI Satellite Entertainment, Inc. Dr. Malone served as Chairman of the Board of TCI from November 1996 to March 1999, as Chief Executive Officer of TCI from January 1994 to March 1999, and as President of TCI from January 1994 to March 1997. Dr. Malone served as Chief Executive Officer of TCI Communications, Inc., the domestic cable subsidiary of TCI prior to the AT&T merger ("TCIC"), from March 1992 to October 1994, and as President of TCIC from 1973 to October 1994. Dr. Malone is also a director of AT&T, The Bank of New York and Excite@Home Corporation. Robert R. Bennett has served as our President and Chief Executive Officer and one of our directors since April 1997. Mr. Bennett served as Executive Vice President of TCI from April 1997 to March 1999. Mr. Bennett served as our Executive Vice President and Chief Financial Officer, Secretary and Treasurer from June 1995 through March 1997, and as our Senior Vice President from September 1991 to June 1995. Mr. Bennett also served as acting Chief Financial Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett is a director of TV Guide, Inc. and Chairman of the Board of Liberty Digital, Inc. Gary S. Howard has served as our Executive Vice President, Chief Operating Officer and one of our directors since July 1998. Mr. Howard has also served as Chief Executive Officer of TCI Satellite Entertainment, Inc. since December 1996. Mr. Howard served as Executive Vice President of TCI from December 1997 to March 1999; as Chief Executive Officer, Chairman of the Board and a director of TV Guide, 71 Inc. from June 1997 to March 1999; and as President and Chief Executive Officer of TCI Ventures Group, LLC from December 1997 to March 1999. Mr. Howard served as President of TV Guide, Inc. from June 1997 to September 1997; as President of TCI Satellite Entertainment, Inc. from February 1995 through August 1997; as Senior Vice President of TCIC from October 1994 to December 1996; and as Vice President of TCIC from December 1991 through October 1994. Mr. Howard is a director of TV Guide, Inc. and TCI Satellite Entertainment, Inc. David B. Koff has served as a Senior Vice President of Liberty since February 1998. Mr. Koff has also served as Vice President and Assistant Secretary of TCI Music, Inc. since January 1998. Mr. Koff served as Vice President--Corporate Development of Liberty from August 1994 to February 1998, and as special counsel to Liberty from March 1993 to August 1994. Mr. Koff also served as interim President and Chief Executive Officer of TCI Music, Inc. from May 1997 to January 1998. Mr. Koff is a director of TCI Music, Inc. Charles Y. Tanabe has served as a Senior Vice President and General Counsel of Liberty since January 1999. Prior to joining Liberty, Mr. Tanabe was a member of Sherman & Howard L.L.C., a law firm based in Denver, Colorado. Peter N. Zolintakis has served as Senior Vice President of Tax Strategy of Liberty since November 1998. Prior to joining Liberty, Mr. Zolintakis was a partner of PricewaterhouseCoopers, where he specialized in the tax issues relating to corporate mergers, acquisitions, divestitures and restructurings for clients primarily in the cable television and high technology industries. Vivian J. Carr has served as a Vice President of Liberty since June 1993 and was appointed Secretary of Liberty in August 1994. Ms. Carr served as Director of Investor Relations of Liberty from March 1991 to June 1993. Kathryn S. Douglass has served as a Vice President of Liberty since September 1997 and as Controller of Liberty since September 1993. Ms. Douglass served as Accounting Manager of Liberty from October 1991 to September 1993. David J.A. Flowers has served as a Vice President and Treasurer of Liberty since April 1997. Mr. Flowers served as Vice President--Portfolio Manager of Liberty from June 1995 to April 1997. Prior to joining Liberty, Mr. Flowers held several positions at Toronto Dominion Bank from August 1989 to June 1995, including Managing Director in its Media Finance Group. Paul A. Gould has served as one of our directors since March 1999. Mr. Gould has also served as a Managing Director and Executive Vice President of Allen & Company Incorporated, an investment banking services company, for more than the last five years. Mr. Gould served as a director of TCI from December 1996 to March 1999 and of Liberty from November 1992 to August 1994. Mr. Gould is a director of Ascent Entertainment Group, Inc. and Sunburst Hospitality Corporation. Leo J. Hindery, Jr. has served as one of our directors since March 1999. Mr. Hindery has also served as President and Chief Executive Officer of AT&T Broadband & Internet Services since March 1999, and as Chairman of the Board and a director of TCI Music since January 1997. Mr. Hindery has also served as the President and Chief Operating Officer of TCI since March 1997, and as a director of TCI since May 1997. Mr. Hindery served as President and Chief Executive Officer of TCIC from March 1997 to June 1998 and from November 1998 to March 1999, and served as a director of TCIC from March 1997 to March 1999. Mr. Hindery, the founder of InterMedia Partners, an operator of cable television systems, served as the Managing General Partner and Chief Executive Officer of InterMedia Partners and its affiliated entities from 1988 to March 1997. Mr. Hindery is also a director of Excite@Home Corporation, Cablevision Systems Corporation and TCI Music, Inc. 72 Jerome H. Kern has served as one of our directors since March 1999. Mr. Kern served as Vice Chairman and as a consultant of TCI from June 1998 to March 1999. Prior to joining TCI, Mr. Kern was Special Counsel with the law firm of Baker & Botts, L.L.P. from July 1996 to June 1998, and a senior partner of Baker & Botts, L.L.P. from September 1992 to July 1996. Mr. Kern served as a director of TCI from June 1994 to March 1999, and as a director of TCIC from December 1993 to August 1994. John C. Petrillo has served as one of our directors since March 1999. Mr. Petrillo has also served as Executive Vice President--Strategy and Business Development of AT&T since July 1995. Mr. Petrillo is a director of Excite@Home Corporation. Larry E. Romrell has served as one of our directors since March 1999. Mr. Romrell has also served as a consultant to Liberty since March 1999. Mr. Romrell served as Executive Vice President of TCI from January 1994 to March 1999. Mr. Romrell also served, from December 1997 to March 1999, as Executive Vice President and Chief Executive Officer of TCI Business Alliance and Technology Co., a subsidiary of TCI prior to the AT&T merger that oversaw and developed TCI's technology activities; from December 1997 to March 1999, as Senior Vice President of TCI Ventures Group, LLC; and, from September 1994 to October 1997, as President of TCI Technology Ventures, Inc., a subsidiary of TCI prior to the AT&T merger that invested in and developed companies engaged in advancing telecommunications technology. Mr. Romrell served as Senior Vice President of TCIC from 1991 to October 1994. Mr. Romrell is a director of TV Guide, Inc. and General Communication, Inc. Daniel E. Somers has served as one of our directors since March 1999. Mr. Somers has also served as Senior Executive Vice President and Chief Financial Officer of AT&T since May 1997. Prior to joining AT&T, Mr. Somers served as Chairman and Chief Executive Officer of Bell Cablemedia, plc from 1995 to 1997, and as Executive Vice President and Chief Financial Officer of Bell Canada International, Inc. from 1992 to 1995. Mr. Somers is a member of AT&T's Executive Council and Operations Group. He is also a director of Lubrizol Corporation. The executive officers named above will serve in such capacities until the next annual meeting of our board of directors, or until their respective successors have been duly elected and have been qualified, or until their earlier death, resignation, disqualification or removal from office. There is no family relationship between any of the directors. Board Composition Our certificate of incorporation (the "Liberty Charter") provides for a classified board of directors of not less than three members, with the exact number of directors to be fixed by resolution of our board. The Liberty Charter further provides for the number of directors to always be a multiple of three, divided evenly among three classes. The number of directors on our board is currently nine. Of the nine members of our board, three are elected by the holders of our Class A common stock, voting as a separate class (the "Class A Directors"), three are elected by the holders of our Class B common stock, voting as a separate class (the "Class B Directors"), and three are elected by the holders of our Class C common stock, voting as a separate class (the "Class C Directors"). Currently, all of our common stock is owned by AT&T; however, the Class B Directors and the Class C Directors were designated by TCI prior to the AT&T merger. The Class A Directors, whose terms expire at the annual meeting of stockholders in 2000, are Leo J. Hindery, Jr., Daniel E. Somers and John C. Petrillo. The Class B Directors, whose terms expire at the annual meeting of stockholders in 2006, are Larry E. Romrell, Jerome H. Kern and Gary S. Howard. The Class C Directors, whose terms expire at the annual meeting of stockholders in 2009, are John C. Malone, Paul A. Gould and Robert R. Bennett. At each annual meeting of our stockholders, the successors of that class or 73 classes of directors whose term(s) expire at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held, in the case of the Class A Directors, in the following year, in the case of the Class B Directors, in the seventh year following the year of such election and, in the case of the Class C Directors, in the tenth year following the year of such election. The directors of each class will hold office until their respective death, resignation or removal and until their respective successors are elected and qualified. Committees of the Board Our board of directors has established an Executive Committee, whose members are the Class C Directors. The Executive Committee has been granted and may exercise all the powers and authority of the board in the management of our business and affairs, except as specifically prohibited by the General Corporation Law of the State of Delaware (the "DGCL"), the Liberty Charter or Liberty's bylaws. The Executive Committee does not have power or authority to: (1) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (2) adopt, amend or repeal any of Liberty's bylaws. The board, by resolution passed by a majority of the whole board present at any meeting at which a quorum is present (provided that any such majority must include a majority of the Class B Directors and Class C Directors) may from time to time establish certain other committees of the board, consisting of one or more directors of Liberty. Any committee so established will have the powers delegated to it by resolution of the board, subject to applicable law and the Liberty Charter. Compensation of Directors No member of our board of directors receives any compensation for serving on our board. However, all members of our board are reimbursed for travel expenses incurred to attend any meetings of our board or any committee thereof. Compensation of Executive Officers The following tables set forth information relating to compensation (which compensation includes grants of stock options and stock appreciation rights ("SARs") in respect of securities of TCI and certain of its affiliates) for (1) our Chief Executive Officer, (2) our four other most highly compensated executive officers, whose salary and bonus from Liberty exceeded $100,000 for the fiscal year ended December 31, 1998, and (3) two additional executive officers who would have been included in (2) above but for the fact that they were not serving as executive officers of Liberty at the end of or for the full fiscal year ended December 31, 1998 (collectively, our "named executive officers"). Prior to the AT&T merger, each of our named executive officers held options (and SARs granted in tandem with those options) to purchase shares of one or more series of TCI tracking stock, including TCI Group tracking stock, Liberty Media Group tracking stock and TCI Ventures Group tracking stock. In the AT&T merger, each option to purchase shares of TCI Group tracking stock was converted into an option to purchase a number of shares of AT&T common stock determined by multiplying the number of shares of TCI Group tracking stock subject to such option by 1.16355 (as adjusted for a subsequent 3-for-2 stock split), in the case of options to purchase shares of Series A TCI Group tracking stock, and by 1.27995 (as adjusted for a subsequent 3-for-2 stock split), in the case of options to purchase shares of Series B TCI Group tracking stock. The per share exercise price of each AT&T common stock option is equal to the exercise price per share of the corresponding TCI Group tracking stock option on March 9, 1999, divided by the applicable split- adjusted exchange ratio (1.16355 or 1.27995). Each option to purchase shares of TCI's Liberty Media Group tracking stock was converted into an option to purchase a number of shares of AT&T's Liberty Media Group tracking stock equal to the number of shares of TCI's Liberty Media Group tracking stock subject to such option, at the same per share exercise price in effect for each such option on March 9, 1999. At the time of the AT&T merger, each option to purchase shares of TCI Ventures Group tracking stock was converted into an option to 74 purchase a number of shares of AT&T's Liberty Media Group tracking stock determined by multiplying the number of shares of TCI Ventures Group tracking stock subject to such option by 1.04 (as adjusted for a subsequent 2-for-1 stock split). The per share exercise price of each AT&T Liberty Media Group tracking stock option is equal to the exercise price per share of the corresponding TCI Ventures Group tracking stock option on March 9, 1999, divided by the split-adjusted exchange ratio of 1.04. Summary Compensation Table. The following table sets forth information concerning the compensation paid to the named executive officers by Liberty for the fiscal year ended December 31, 1998. Compensation for Messrs. Tanabe and Zolintakis reflects the annual compensation that would have been paid to them had they been serving as executive officers of Liberty since the beginning of 1998 based on 1999 annual compensation levels. Summary Compensation Table
Annual Compensation Long-Term Compensation ------------- --------------------------------------------------- Securities Restricted Underlying Other Annual Stock Award Options/ SARs All Other Name and Principal Salary Compensation ($ in (# in Compensation Position with Liberty Year ($) ($) thousands) thousands) ($) - ------------------------ ---- -------- ------------ ----------- ------------- ------------ Robert R. Bennett....... 1998 $559,354 $10,473(1) $7,738(2) 6,000(4) $36,540(5)(6) President and Chief Executive Officer John C. Malone.......... 1998 $950,000 $ -- $ -- -- $15,000(6) Chairman of the Board Gary S. Howard.......... 1998 $533,769 $ -- $ -- 5,000(4) $15,000(6) Executive Vice President and Chief Operating Officer Charles Y. Tanabe....... 1998 $500,000 $ -- $ -- 1,200(4) $15,000(6) Senior Vice President and General Counsel Peter N. Zolintakis..... 1998 $500,000 $ -- $1,978(3) 1,200(4) $15,000(6) Senior Vice President David B. Koff........... 1998 $275,000 $ -- $ -- 1,200(4) $14,985(6) Senior Vice President David J.A. Flowers...... 1998 $250,000 $ -- $ -- 250(4) $10,000(6) Vice President and Treasurer
- -------- (1) Consists of additional compensation paid by Liberty in an amount equal to premium payments made in 1998 by Mr. Bennett on split dollar, whole life insurance policies. The additional compensation may be paid in the sole discretion of the Compensation Committee exercised annually. (2) On June 23, 1998, pursuant to the Tele-Communications, Inc. 1998 Incentive Plan (the "1998 Incentive Plan"), Mr. Bennett was granted 200,000 restricted shares of Series A TCI Group tracking stock. These restricted shares, as adjusted for the AT&T merger and subsequent AT&T stock split, became 232,710 restricted shares of AT&T common stock. The restricted shares vest as to 50% of the shares in June 2002 and as to the remaining 50% in June 2003. At the end of 1998, the restricted shares had an aggregate value of $11,062,500, based upon the closing sales price per share of the Series A TCI Group tracking stock on the National Market tier of The Nasdaq Stock Market ("Nasdaq") on December 31, 1998. Cash dividends on the restricted shares of AT&T common stock are paid to Mr. Bennett. (3) On November 15, 1998, pursuant to the 1998 Incentive Plan, Mr. Zolintakis was granted 50,000 restricted shares of Series A TCI Group tracking stock. These restricted shares, as adjusted for the AT&T merger and subsequent AT&T stock split, became 58,177 restricted shares of AT&T common stock. All of the restricted shares vest in November 2000. At the end of 1998, the restricted shares had an aggregate value of $2,765,625, based upon the closing sales price per share of the Series A TCI Group tracking stock on Nasdaq on December 31, 1998. Cash dividends on the restricted shares of AT&T common stock are paid to Mr. Zolintakis. 75 (4) On December 29, 1998, pursuant to the 1998 Incentive Plan, these executive officers were granted options in tandem with SARs to acquire shares of TCI's Series A Liberty Media Group tracking stock. In the AT&T merger, those options and tandem SARs were converted into options and rights with respect to AT&T Class A Liberty Media Group tracking stock at an exercise price of $21.62, as adjusted for a subsequent two-for-one stock split. The options and tandem SARs vest evenly over five years on each anniversary of the date of grant. The options and tandem SARs expire on December 29, 2008, subject to earlier termination in certain events. Notwithstanding the vesting schedule as set forth in the option agreements, the options and SARs will immediately vest and become exercisable if the grantee's employment with Liberty terminates by reason of disability or the grantee dies while employed by Liberty. (5) Includes $21,540 which consists of the amount of premiums paid by Liberty in fiscal 1998 pursuant to split dollar, whole life insurance policies for the insured executive officer. Liberty will pay a portion of the premiums annually until the first to occur of (a) 10 years from the date of the policy; (b) the insured executive's death; (c) the premiums are waived under a waiver of premium provision; (d) the policy is terminated as set forth below; and (e) premiums are prepaid in full for the 10-year period as set forth below. The insured executive has granted an assignment of policy benefits in favor of Liberty in the amounts of the premiums paid by Liberty. At the end of such 10-year period or upon acceleration of premiums as described below, the entire policy vests to the sole benefit of the insured executive and Liberty will remove or cancel the assignment in its favor against the policy. In the event of a change of control of Liberty, liquidation of Liberty or sale of substantially all of the assets of Liberty, the policy will immediately be prepaid in full through the tenth year, prior to such event. Similarly, if the insured executive is dismissed for any reason (except for conviction of a felony class miscarriage of responsibilities as a Liberty officer), Liberty will immediately prepay and fully fund the policy through the tenth year. Upon any of the foregoing events, the policy will vest to the sole benefit of the insured executive. If, however, the insured executive voluntarily chooses to terminate employment (and that decision is not a result of pressure from Liberty to resign or a resignation related to an adverse change in Liberty or its affiliates) without cause, Liberty will have no further obligation to fund premiums, but the policy will vest to the sole benefit of the insured executive. (6) Amounts represent contributions to the TCI 401(k) Stock Plan (the "TCI Stock Plan"). The TCI Stock Plan provides benefits upon an employee's retirement which generally is when the employee reaches 65 years of age. TCI Stock Plan participants may contribute up to 10% of their compensation and Liberty (by annual resolution of the TCI Board of Directors) may contribute up to a matching 100% of the participants' contributions. Participant contributions to the TCI Stock Plan are fully vested upon contribution. Generally, participants acquire a vested right in Liberty contributions as follows:
Years of service Vesting Percentage ---------------- ------------------ Less than 1................... 0% 1-2........................... 33% 2-3........................... 66% 3 or more..................... 100%
With respect to Liberty contributions made to the TCI Stock Plan in 1998, Messrs. Bennett, Malone, Howard, Koff and Flowers are fully vested. Directors who are not employees of Liberty are ineligible to participate in the TCI Stock Plan. Under the terms of the TCI Stock Plan, employees are eligible to participate after three months of service. 76 Option and SAR Grants in Last Fiscal Year. The following table sets forth information regarding stock options granted in tandem with SARs to each of the named executive officers during the year ended December 31, 1998 (numbers of securities and dollar amounts present value in thousands). Option and SAR Grants in the Last Fiscal Year
Number of % of Total Securities Options Exercise Underlying Granted to or Base Grant Options Employees in Price Expiration Date Present Name Granted (1) 1998 ($/Sh) Date Value (2) - ---- ----------- ------------ -------- ---------- ------------ Robert R. Bennett.... 6,000 35% $21.62 12/29/08 $170,520 Gary S. Howard....... 5,000 30% $21.62 12/29/08 $142,100 David B. Koff........ 1,200 7% $21.62 12/29/08 $ 34,104 Charles Y Tanabe..... 1,200 7% $21.62 12/29/08 $ 34,104 Peter N. Zolintakis.. 1,200 7% $21.62 12/29/08 $ 34,104 David J.A. Flowers... 250 1% $21.62 12/29/08 $ 7,105
- -------- (1) On December 29, 1998, pursuant to the 1998 Incentive Plan, officers and other employees of Liberty were granted options in tandem with SARs to acquire TCI's Series A Liberty Media Group tracking stock. In the AT&T merger, those options and tandem SARs were converted into options and rights with respect to a total of 16,927,000 shares of AT&T Class A Liberty Media Group tracking stock at an exercise price of $21.62, as adjusted for a subsequent two-for-one stock split. The options and tandem SARs vest evenly over five years on each anniversary of the date of grant. The options and tandem SARs expire on December 29, 2008, subject to earlier termination in certain events. Notwithstanding the vesting schedule as set forth in the option agreements, the options and SARs will immediately vest and become exercisable if the grantee's employment with Liberty terminates by reason of disability or the grantee dies while employed by Liberty. (2) The values shown are based on the Black-Scholes model and are stated in current annualized dollars on a present value basis. The key assumptions used in the model for purposes of this calculation include the following: (a) a 6.15% discount rate; (b) a volatility factor based upon the historical trading pattern of AT&T Class A Liberty Media Group tracking stock; (c) the 10-year option term; and (d) the closing price of AT&T Class A Liberty Media Group tracking stock on June 30, 1999. The actual value an executive may realize will depend upon the extent to which the stock price exceeds the exercise price on the date the option is exercised. Accordingly, the value, if any, realized by an executive would not necessarily be the value determined by the model. Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values. The following table sets forth information concerning exercises of stock options and SARs by the named executive officers during the year ended December 31, 1998 (numbers of securities and dollar amounts in thousands). Aggregated Option/SAR Exercises in the Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Options/SARs at Options/SARs at Acquired Value December 31, 1998 (#) December 31, 1998 on Exercise Realized Exercisable/ ($) Exercisable/ Name (#)(1)(2) ($) Unexercisable (2) Unexercisable - ---- ----------- -------- ---------------------- -------------------- Robert R. Bennett Exercisable TCI Group Series A..... -- -- 41 $ 1,679 TCI Liberty Media Group Series A.............. -- -- 818 $28,224 TCI Ventures Group Series A.............. -- -- 35 $ 574 Unexercisable TCI Group Series A..... -- -- 60 $ 2,396 TCI Liberty Media Group Series A.............. -- -- 3,936 $38,638 TCI Ventures Group Series A.............. -- -- 52 $ 816
77
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Shares Options/SARs at Options/SARs at Acquired Value December 31, 1998 (#) December 31, 1998 on Exercise Realized Exercisable/ ($) Exercisable/ Name (#)(1)(2) ($) Unexercisable (2) Unexercisable - ---- ----------- -------- ---------------------- -------------------- John C. Malone Exercisable TCI Group Series A..... 50 $1,575 1,070 $46,056 TCI Liberty Media Group Series A.............. -- -- 912 $33,885 TCI Ventures Group Series A.............. -- -- 960 $16,760 TCI Ventures Group Series B.............. -- -- 560 $ 7,213 Unexercisable TCI Group Series A..... -- -- 280 $11,394 TCI Liberty Media Group Series A.............. -- -- 242 $ 8,285 TCI Ventures Group Series A.............. -- -- 240 $ 3,901 TCI Ventures Group Series B.............. -- -- 2,240 $28,851 Gary S. Howard Exercisable TCI Group Series A..... -- -- 161 $ 6,834 TCI Liberty Media Group Series A.............. -- -- 79 $ 2,989 TCI Ventures Group Series A.............. -- -- 138 $ 2,364 Unexercisable TCI Group Series A..... -- -- 49 $ 1,977 TCI Liberty Media Group Series A.............. -- -- 2,506 $ 7,235 TCI Ventures Group Series A.............. -- -- 42 $ 684 Charles Y. Tanabe Unexercisable TCI Liberty Media Group Series A.............. -- -- 600 $ 1,688 Peter N. Zolintakis Unexercisable TCI Liberty Media Group Series A.............. -- -- 600 $ 1,688 David B. Koff Exercisable TCI Group Series A..... -- -- 4 $ 164 TCI Liberty Media Group Series A.............. 10 $ 223 116 $ 4,033 TCI Ventures Group Series A.............. -- -- 12 $ 198 Unexercisable TCI Group Series A..... -- -- 4 $ 143 TCI Liberty Media Group Series A.............. -- -- 753 $ 6,734 TCI Ventures Group Series A.............. -- -- 3 $ 49 David J.A. Flowers Exercisable TCI Liberty Media Group Series A.............. -- -- 150 $ 5,218 Unexercisable TCI Liberty Media Group Series A.............. -- -- 275 $ 5,296
- -------- (1) Represents the number of shares underlying the SARs which were exercised in 1998. (2) Amounts have not been adjusted for the AT&T merger or any stock splits subsequent to December 31, 1998. 78 Employment Contracts In connection with the AT&T merger, an employment agreement between Dr. Malone and TCI was assigned to Liberty. The term of Dr. Malone's employment agreement is extended daily so that the remainder of the employment term is five years. The employment agreement was amended in June 1999 to provide for, among other things, an annual salary of $2,600, subject to increase upon approval of Liberty's board. Additionally, the employment agreement provides for personal use of Liberty's aircraft and flight crew, limited to an aggregate value of $200,000 per year, and payment or reimbursement of professional fees and expenses incurred by Dr. Malone for estate and tax planning services. Dr. Malone's employment agreement provides, among other things, for deferral of a portion (not in excess of 40%) of the monthly compensation payable to him. The deferred amounts will be payable in monthly installments over a 20-year period commencing on the termination of Dr. Malone's employment, together with interest thereon at the rate of 8% per annum compounded annually from the date of deferral to the date of payment. Dr. Malone's employment agreement also provides that, upon termination of his employment by Liberty (other than for cause, as defined in the agreement) or if Dr. Malone elects to terminate the agreement because of a change in control of Liberty, all remaining compensation due under the agreement for the balance of the employment term shall be immediately due and payable. Dr. Malone's agreement provides that, during his employment with Liberty and for a period of two years following the effective date of his termination of employment with Liberty, unless termination results from a change in control of Liberty, he will not be connected with any entity in any manner specified in the agreement, which competes in a material respect with the business of Liberty. The agreement provides, however, that Dr. Malone may own securities of any corporation listed on a national securities exchange or quoted in The Nasdaq Stock Market to the extent of an aggregate of 5% of the amount of such securities outstanding. For a period of 12 months following a change in control, as defined in Dr. Malone's employment agreement, Liberty's ability to terminate Dr. Malone's employment for cause will be limited to situations in which Dr. Malone has entered a plea of guilty to, or has been convicted of, the commission of a felony offense. Dr. Malone's agreement also provides that in the event of termination of his employment with Liberty, he will be entitled to receive 240 consecutive monthly payments of $15,000 (increased at the rate of 12% per annum compounded annually from January 1, 1988 to the date payment commences), the first of which will be payable on the first day of the month succeeding the termination of Dr. Malone's employment. In the event of Dr. Malone's death, his beneficiaries will be entitled to receive the foregoing monthly payments. Liberty pays a portion of the annual premiums (equal to the "PS-58" costs) on three whole-life insurance policies of which Dr. Malone is the insured and trusts for the benefit of members of his family are the owners. Liberty is the designated beneficiary of the proceeds of such policies less an amount equal to the greater of the cash surrender value thereof at the time of Dr. Malone's death and the amounts of the premiums paid by the policy owners. Dr. Malone deferred a portion of his monthly compensation under his previous employment agreement. The obligation to pay that deferred compensation was assumed by Liberty in connection with the AT&T merger. The compensation that he deferred (together with interest on that compensation at the rate of 13% per annum compounded annually from the date of deferral to the date of payment) will continue to be payable under the terms of the previous agreement. The rate at which interest accrues on the previously deferred compensation was established in 1983 pursuant to the previous agreement. Liberty Media 401(k) Savings Plan Liberty maintains an employee benefit plan known as the Liberty Media 401(k) Savings Plan. This plan is intended to be a qualified employee plan under Sections 401(a) and 401(k) of the Internal Revenue Code of 79 1986. An employee must be an employee of Liberty or of an employer owned 80% or more by Liberty (a "Participating Employer") and must complete three months of continuous employment and be at least 18 years of age to participate in the plan. Credit will be given for service with TCI, Liberty and their affiliates for eligibility and vesting service under the plan. The employee will commence participation as of the first payroll period following the employee's completion of the eligibility requirements and his or her enrollment in the plan. Upon commencing participation, the participant may elect to make pre-tax contributions, after-tax contributions, or both to the plan. All participant contributions are made by payroll deduction and all participant contributions may not exceed 10% of the participant's wages from the Participating Employer. Pre-tax participant contributions are not subject to income tax when contributed to the plan, but will be subject to FICA taxes when contributed to the plan. Those pre-tax participant contributions (and earnings) will be taxed to the participant when the participant receives a distribution from the plan. Pre-tax participant contributions are limited to $10,000 for each year (as adjusted for cost of living increases). After-tax participant contributions are subject to income taxes and FICA taxes when contributed to the plan, but earnings on those contributions will not be taxed to the participant until the participant receives a distribution from the plan. A participant may change the amount of his or her participant contributions as of any prospective payroll period. Participant contributions always are 100% vested. The participant may direct the investment of his or her participant contributions, and earnings on those amounts, into a variety of investment options, including the AT&T Class A Liberty Media Group Common Stock Fund and the AT&T Common Stock Fund (the "Employer Stock Funds"). Only the first $160,000 (as adjusted in 2000 and thereafter for cost of living increases) of any participant's wages is taken into account for all purposes under the plan, as required by law. Generally, Liberty will make a matching contribution to the plan for each plan year equal to 100% of each participant's participant contributions to the plan, unless Liberty, in its discretion, decides upon a different percentage for the matching contribution. All Liberty contributions to the plan are invested solely in the AT&T Class A Liberty Media Group Common Stock Fund. Liberty contributions to the plan become 33% vested after one year of service, 66% vested after two years of service, and 100% vested after three years of service. Generally, a year of service will be credited for each twelve-month period of employment completed by the participant. In addition, a participant will be 100% vested in his or her Liberty contributions upon attaining normal retirement age (age 65), upon becoming totally disabled, or upon the participant's death while employed with a Participating Employer. Liberty contributions to the plan (and earnings on those contributions) on behalf of a participant are not taxable to the participant until those amounts are distributed from the plan. Liberty receives a deduction for the amounts it contributes to the plan. A participant can withdraw his or her participant contributions and Liberty contributions while he or she remains employed only in the following limited circumstances: upon attaining age 59 1/2, the participant may request a withdrawal of all or any portion of his or her Liberty contributions account (including earnings on such contributions) and his or her pre-tax participant contributions account (including earnings on such contributions). A participant may withdraw any portion of his or her after-tax participant contributions at any time. Upon experiencing a financial hardship, a participant may request a withdrawal of his or her pre-tax participant contributions (but not the earnings on such contributions) in an amount necessary to meet the financial need. A participant who takes a hardship withdrawal may not contribute to the plan for 12 months after the withdrawal, and there are limitations on the maximum salary reduction amounts that may be made in the year following the year of the hardship withdrawal. 80 Upon terminating employment with Liberty, the participant may receive a distribution of his or her entire vested account in the plan. If the vested account equals $5,000 or less, the distribution will be made as soon as administratively reasonable after the participant's termination of employment occurs. If the participant's vested account exceeds $5,000, the participant must consent to the distribution and such distribution will be made as soon as administratively reasonable after the participant's consent to the distribution is received. The participant must commence distributions from the plan by April 1 of the year following the year in which occurs the later of the participant's attainment of age 70 1/2 or the participant's retirement. Distributions will be made in cash, however, the participant may elect to receive that portion of his or her vested account which is invested in the Employer Stock Funds in whole shares of those Employer Stocks. Any qualified distribution from the plan may be rolled over to an IRA or other qualified plan upon the election of the participant. A 10% federal penalty tax may be imposed on the taxable amount of certain early distributions from the plan. The early distribution penalty tax does not apply to distributions made on account of: the death or disability of the participant, the participant's attainment of age 55 and separation from service, the participant's payment of certain medical expenses, payment to an alternate payee under a qualified domestic relations order, or the participant's attainment of age 59 1/2. Security Ownership of Management The following table sets forth information with respect to the ownership by each director and each of the named executive officers of Liberty and by all directors and executive officers of Liberty as a group of shares of AT&T common stock and Class A and Class B Liberty Media Group tracking stock, all of which are equity securities of AT&T Corp., which beneficially owns 100% of the outstanding common stock of Liberty Media Corporation. The table also sets forth information with respect to the ownership by each director and each of the named executive officers of Liberty and by all directors and executive officers of Liberty as a group of shares of Series A common stock of TCI Music, Inc., a subsidiary of Liberty. This information is given as of June 30, 1999 and, in the case of percentage ownership information, is based on 3,196,236,144 shares of AT&T common stock, 1,156,716,104 shares of Class A Liberty Media Group tracking stock, 108,430,704 shares of Class B Liberty Media Group tracking stock, and 23,755,997 shares of TCI Music Series A common stock outstanding on that date. Shares of AT&T common stock, Class A and Class B Liberty Media Group tracking stock and TCI Music, Inc. Series A common stock issuable upon exercise or conversion of convertible securities are deemed to be outstanding for the purpose of computing the percentage ownership of persons beneficially owning such convertible securities, but have not been deemed to be outstanding for the purpose of computing the percentage ownership of any other person. So far as is known to Liberty, the persons indicated below have sole voting power with respect to the shares indicated as owned by them except as otherwise stated in the notes to the table.
Amount and Nature of Beneficial Percent Ownership of Name of Beneficial Owner Title of Class (in thousands) Class - ------------------------ -------------- -------------- ------- John C. Malone.......... AT&T common stock 34,956(/1/)(/2/) 1.09% Class A Liberty Media Group 3,498(/1/)(/2/) * Class B Liberty Media Group 73,068(/1/)(/2/)(/3/) 67.03% TCI Music Series A common stock 0 Robert R. Bennett....... AT&T common stock 267(/4/)(/5/) * Class A Liberty Media Group 2,857(/4/) * Class B Liberty Media Group 0 * TCI Music Series A common stock 40(/6/) * Gary S. Howard.......... AT&T common stock 48(/7/)(/8/) * Class A Liberty Media Group 232(/7/)(/8/) * Class B Liberty Media Group 0 TCI Music Series A common stock 0
81
Amount and Nature of Percent Beneficial of Name of Beneficial Owner Title of Class Ownership Class - ------------------------ -------------- ---------- ------- Paul A. Gould........... AT&T common stock 0 * Class A Liberty Media Group 753(/9/) * Class B Liberty Media Group 214 * TCI Music Series A common stock 0 Leo J. Hindery, Jr...... AT&T common stock 1,389(/10/) * Class A Liberty Media Group 53(/10/) * Class B Liberty Media Group 0 * TCI Music Series A common stock 333(/11/) 1.38% Jerome H. Kern.......... AT&T common stock 936(/12/)(/13/) * Class A Liberty Media Group 1,007(/12/)(/13/) * Class B Liberty Media Group 0 TCI Music Series A common stock 0 John C. Petrillo........ AT&T common stock 405(/14/) * Class A Liberty Media Group 0 Class B Liberty Media Group 0 TCI Music Series A common stock 0 Larry E. Romrell........ AT&T common stock 314(/15/)(/16/) * Class A Liberty Media Group 1,152(/15/) * Class B Liberty Media Group 2 * TCI Music Series A common stock 0 Daniel E. Somers........ AT&T common stock 935(/17/) * Class A Liberty Media Group 0 Class B Liberty Media Group 0 TCI Music Series A common stock 0 David B. Koff........... AT&T common stock 1 * Class A Liberty Media Group 372(/18/) * Class B Liberty Media Group 0 TCI Music Series A common stock 40(/19/) * Charles Y. Tanabe....... AT&T common stock 0 Class A Liberty Media Group 1 * Class B Liberty Media Group 0 * TCI Music Series A common stock 0 Peter N. Zolintakis..... AT&T common stock 58(/20/) * Class A Liberty Media Group 88 * Class B Liberty Media Group 0 TCI Music Series A common stock 0 David J. A. Flowers..... AT&T common stock 2 * Class A Liberty Media Group 375(/21/) * Class B Liberty Media Group 0 TCI Music Series A common stock 0 All directors and executive officers as a group (15 persons)..... AT&T common stock 39,318(/22/)(/23/) 1.23% Class A Liberty Media Group 10,709(/3/)(/22/)(/23/) * Class B Liberty Media Group 73,284(/22/)(/23/) 67.22% TCI Music Series A common stock 413(/24/) 1.71%
82 - -------- *Less than one percent (1) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 162,897 shares of AT&T common stock; (b) 3,194,600 shares of Class A Liberty Media Group tracking stock; and (c) 582,400 shares of Class B Liberty Media Group tracking stock. (2) Includes 1,004,620 shares of AT&T common stock, 25,452 shares of Class A Liberty Media Group tracking stock and 1,704,718 shares of Class B Liberty Media Group tracking stock held by Dr. Malone's wife, Mrs. Leslie Malone, as to which Dr. Malone has disclaimed beneficial ownership. (3) On February 9, 1998, in connection with the settlement of certain legal proceedings relative to the Estate of Bob Magness (the "Magness Estate"), TCI entered into a call agreement with Dr. Malone and Dr. Malone's wife (the "Malones"), and a call agreement with the Magness Estate, the Estate of Betsy Magness, Gary Magness (individually and in certain representative capacities) and Kim Magness (individually and in certain representative capacities) (collectively, the "Magness Group"). Under these call agreements, each of the Magness Group and the Malones granted to TCI the right under certain circumstances to acquire all of the shares of TCI's common stock that entitled the holder to cast more than one vote per share (the "High Voting Stock"). Also, in February 1998, TCI, the Magness Group and the Malones entered into a shareholders' agreement, pursuant to which, among other things, the Magness Group and the Malones agreed to consult with each other in connection with matters to be brought to the vote of TCI's shareholders, subject to the proviso that if they could not agree on how to vote, Dr. Malone would have an irrevocable proxy to vote the High- Voting shares held by the Magness Group. In March 1999, in connection with the AT&T merger, the call agreements and the shareholders' agreement were amended so that Liberty became entitled to exercise TCI's rights and became subject to its obligations under those agreements. In addition, the shareholders' agreement was amended so that Dr. Malone's irrevocable proxy to vote shares held by the Magness Group now relates to the Class B Liberty Media Group tracking stock or any super voting class of equity securities issued by Liberty held by the Magness Group. See "Relationship with AT&T and Certain Related Transactions--Other Related Party Transactions--Certain Rights to Purchase Liberty Media Group Tracking Stock," below for additional information related to the call agreements and the shareholders' agreement. As a result of certain provisions of the shareholders' agreement described above, Dr. Malone's beneficial ownership of Class B Liberty Media Group tracking stock includes 23,895,583 shares held by the Magness Group. (4) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 15,475 shares of AT&T common stock; and (b) 2,808,872 shares of Class A Liberty Media Group tracking stock. (5) Includes 232,710 restricted shares of AT&T common stock, none of which are currently vested. (6) Assumes the exercise in full of stock options to acquire 40,000 shares of TCI Music, Inc. Series A common stock, all of which are currently exercisable. (7) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 28,842 shares of AT&T common stock; and (b) 178,183 shares of Class A Liberty Media Group tracking stock. (8) Includes 11,103 restricted shares of AT&T common stock and 5,674 restricted shares of Class A Liberty Media Group tracking stock, none of which are currently vested. (9) Includes beneficial ownership of 57,300 shares of Class A Liberty Media Group tracking stock which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights. (10) Includes 1,366,629 restricted shares of AT&T common stock and 52,968 restricted shares of Class A Liberty Media Group tracking stock, none of which are currently vested. 83 (11) Assumes the exercise in full of stock options to acquire 333,334 shares of TCI Music, Inc. Series A common stock, all of which are currently exercisable. (12) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 296,705 shares of AT&T common stock; and (b) 629,551 shares of Class A Liberty Media Group tracking stock. (13) Includes 481,267 restricted shares of AT&T common stock and 72,760 restricted shares of Class A Liberty Media Group tracking stock, none of which are currently vested. (14) Includes beneficial ownership of 195,945 shares of AT&T common stock which may be acquired within 60 days pursuant to stock options. (15) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 136,833 shares of AT&T common stock; and (b) 1,004,292 shares of Class A Liberty Media Group tracking stock. (16) Includes 149,456 restricted shares of AT&T common stock, none of which are currently vested. (17) Includes beneficial ownership of 103,998 shares of AT&T common stock which may be acquired within 60 days pursuant to stock options. (18) Includes beneficial ownership of 364,979 shares of Class A Liberty Media Group tracking stock which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights. (19) Assumes the exercise in full of stock options to acquire 40,000 shares of TCI Music, Inc. Series A common stock, all of which are currently exercisable. (20) Includes 58,177 restricted shares of AT&T common stock, none of which are currently vested. (21) Includes beneficial ownership of 370,000 shares of Class A Liberty Media Group tracking stock which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights. (22) Includes beneficial ownership of the following shares which may be acquired within 60 days pursuant to stock options granted in tandem with stock appreciation rights: (a) 940,695 shares of AT&T common stock; (b) 8,897,777 shares of Class A Liberty Media Group tracking stock; and (c) 582,400 shares of Class B Liberty Media Group tracking stock. (23) Includes 2,299,342 restricted shares of AT&T common stock and 131,402 restricted shares of Class A Liberty Media Group tracking stock, none of which are currently vested. (24) Assumes the exercise in full of stock options to acquire 413,334 shares of TCI Music, Inc. Series A common stock, all of which are currently exercisable. 84 RELATIONSHIP WITH AT&T AND CERTAIN RELATED TRANSACTIONS Relationship with AT&T Liberty is a wholly owned subsidiary of AT&T. The businesses and assets of Liberty and its subsidiaries constitute substantially all of the businesses and assets of AT&T's Liberty Media Group, which was created in connection with the AT&T merger. The assets attributed to the Liberty Media Group that are not also currently assets of Liberty consist of 90,000 shares of common stock of the Associated Group, Inc., and interests in each of the "Covered Entities" and their respective properties and assets. The Covered Entities are the following subsidiaries of AT&T: Silver Spur Land and Cattle Co., TCIP, Inc. and TCI Interactive, Inc. At such time as all of the equity in, or all of the assets of, a company identified as a Covered Entity are held by Liberty, that company will cease to be a Covered Entity. Two companies that were identified in AT&T's certificate of incorporation as Covered Entities have since been transferred to Liberty. Neither TCIP, Inc. nor Silver Spur Land and Cattle Co. currently has any significant assets. TCI Interactive, Inc.'s assets include 533,334 shares of common stock of Sportsline USA Inc. and 753,864 shares of common stock of iVillage, Inc. The equity interests in Sportsline and iVillage will be transferred to a subsidiary of Liberty in connection with Liberty's contribution of certain Internet and interactive television assets to TCI Music, Inc. See "Business--Internet Services and Technology--Consolidated Subsidiaries--Liberty Digital, Inc." In exchange for these equity interests TCI Interactive will receive approximately an 8% interest in the company that holds Liberty's interest in TCI Music. The Liberty Media Group also includes any proceeds of issuances or sales of AT&T's Liberty Media Group tracking stock and any dividends or distributions from Liberty or a Covered Entity. AT&T's Liberty Media Group tracking stock, which is intended to reflect the separate performance of the Liberty Media Group, is capital stock of AT&T. It is not stock of Liberty. In connection with the AT&T merger, a number of agreements were entered into and governance arrangements put in place that address the relationship between AT&T and Liberty. Liberty Organizational Documents. The Liberty Charter provides that Liberty will have three classes of directors, each of which is to have the same number of directors, as follows: . the Class A Directors, who are elected for a term of one year; . the Class B Directors, who are elected for a term of seven years; and . the Class C Directors, who are elected for a term of ten years. The current Class B Directors and Class C Directors were designated by TCI prior to the AT&T merger and, unless they resign, die or are otherwise removed, will comprise two-thirds of the Liberty board until at least 2006. The members of the Liberty board are only removable for cause (as defined in the Liberty Charter) and, in the event of the death or resignation of a director in any class, the remaining directors of that class are to choose a successor. Under Delaware law, the Liberty board manages the business and affairs of Liberty. In accordance with the Liberty Charter and bylaws, action by the Liberty board generally requires the affirmative vote of a majority of the directors present at a meeting at which a quorum is present, which majority must include a majority of the Class B Directors and Class C Directors. The officers of Liberty include the executive officers who were formerly in charge of overseeing the businesses of TCI's former Liberty Media Group and TCI Ventures Group. See "Management." The Liberty Charter provides that officers of Liberty may only be removed by the Liberty board by the affirmative vote described above. Similar governance arrangements were instituted with respect to each of the Covered Entities. 85 Contribution Agreement. Liberty is a party to a Contribution Agreement entered into immediately prior to the AT&T merger. The Contribution Agreement provides that, in the event of a Triggering Event, Liberty will be obligated to transfer all of its assets and liabilities to Liberty Media Group LLC, an entity controlled by Liberty's current management through Liberty Management LLC, the managing member, unless the Triggering Event is waived by Liberty Management LLC. The subsidiary of AT&T that holds the stock of the Covered Entities and Liberty is also a party to the Contribution Agreement and is obligated under the same circumstances to contribute the Contributed Entities or their assets to Liberty Media Group LLC. A Triggering Event will occur if the incumbent Class B and Class C directors, and their successors, cease to constitute a majority of the Liberty board, or Liberty Management LLC reasonably determines that such event is reasonably likely to occur. AT&T Tracking Stock Amendment. AT&T's certificate of incorporation was amended in connection with the AT&T merger in order to authorize the AT&T Liberty Media Group tracking stock. Of particular relevance to Liberty is a provision that requires a separate class vote of the holders of Liberty Media Group tracking stock to authorize a Covered Disposition, which generally includes a sale or transfer by AT&T of its equity interest in Liberty or Liberty Media Group LLC or a grant of a pledge or other security interest in the equity interest of AT&T in Liberty or Liberty Media Group LLC. Such separate approval would not be required in connection with a redemption permitted by AT&T's amended certificate of incorporation of all of the outstanding Liberty Media Group tracking stock in exchange for all of the shares of common stock of a subsidiary of AT&T that holds all of the assets and liabilities of the Liberty Media Group and satisfies certain other requirements. AT&T's amended certificate of incorporation also provides that neither the Liberty Media Group nor the AT&T Common Stock Group will have any duty, responsibility or obligation to refrain from any of the following: . engaging in the same or similar activities or lines of business as any member of the other group; . doing business with any potential or actual supplier or customer of any member of the other group; or . engaging in, or refraining from, any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of the other group. Further, neither the Liberty Media Group nor the AT&T Common Stock Group will have any duty, responsibility or obligation: . to communicate or offer any business or other corporate opportunity to any other person (including any business or other corporate opportunity that may arise that either group may be financially able to undertake, and that are, from their nature, in the line of more than one group's business and are of practical advantage to more than one group); . to provide financial support to the other group (or any member thereof); or . otherwise to assist the other group. The foregoing provisions of the AT&T certificate of incorporation do not prevent any member of the Liberty Media Group (including Liberty) from entering into written agreements with AT&T or any other member of the AT&T Common Stock Group to define or restrict any aspect of the relationship between the groups. Inter-Group Agreement. AT&T, for itself and on behalf of the members of the Common Stock Group, on the one hand, and Liberty, Liberty Media Group LLC and each Covered Entity, for themselves and on behalf of the members of the Liberty Media Group, on the other hand, entered into the Inter-Group Agreement, in connection with the AT&T merger. A summary of the material provisions of the Inter-Group Agreement is set forth below. Neither the AT&T Common Stock Group Nor the Liberty Media Group Is Required to Offer Financial Support or Corporate Opportunities to the Other. In general, neither the AT&T Common Stock Group nor the Liberty Media Group will have any obligation or responsibility to provide financial support or offer 86 corporate opportunities to the other group or to otherwise assist the other group. Generally, neither group will have any rights to the tradenames, trademarks or other intellectual property rights of the other group. There are Restrictions on the Incurrence of Debt and Other Financial Obligations. Neither the Liberty Media Group nor the AT&T Common Stock Group may incur any debt or other obligation, including any preferred equity obligation, that has or purports to have recourse to any member, or to the assets of any member, of the other group. In addition, unless otherwise expressly agreed between the two groups, no member of the Liberty Media Group or the AT&T Common Stock Group may enter into any agreement, or incur any other liability or obligation, that binds or purports to bind or impose any liabilities or obligation on any member of the other group. AT&T may not attribute any debt or other obligation to, or create, authorize or issue any AT&T preferred stock that is attributed to, the Liberty Media Group without the consent of the Liberty board. The Liberty Media Group may not incur any debt, other than the refinancing of debt without any increase in amount, that would cause the total indebtedness of the Liberty Media Group at any time to be in excess of 25% of the total market capitalization of the Liberty Media Group tracking stock, if the excess debt would adversely affect the credit rating of AT&T. Prior to incurring any debt that would exceed the 25% threshold, the Liberty Media Group is required to consult with AT&T and, if requested by AT&T, with two nationally recognized credit rating agencies to be selected by each of Liberty and AT&T to determine if the incurrence of the excess debt would adversely affect the credit rating of AT&T. Each Group is Solely Responsible for its Costs and Liabilities; Indemnification. Each of the Liberty Media Group and the AT&T Common Stock Group will be solely responsible for all claims, obligations, liabilities and costs arising from that group's operations and businesses, whether arising before or after the AT&T merger. Each of the Liberty Media Group and the AT&T Common Stock Group is required to indemnify the other group and to hold the other group harmless against all claims, liabilities, losses and expenses, including attorneys' fees, allocated to the indemnifying group in accordance with the previous paragraph. AT&T May Generally Not Allocate Corporate Overhead Expenses to the Liberty Media Group. The AT&T Common Stock Group may not allocate general overhead expenses to the Liberty Media Group, except (1) to the extent that the Liberty Media Group receives specific services pursuant to services agreements or similar arrangements between the AT&T Common Stock Group and the Liberty Media Group and (2) if the Liberty Media Group uses the same independent accounting firm as AT&T, an allocable share of the fees and expenses of such firm for AT&T's annual audits. Liberty Has a Limited Ability to Issue its own Stock. Liberty may issue shares of its common stock and may authorize and issue shares of its preferred stock only if, after giving effect to the issuance, AT&T would still be able to include Liberty on its consolidated federal income tax return and Liberty would remain a "Qualified Subsidiary" for purposes of the tax-free distribution rules of Section 355 of the Code. Currently, Liberty would deconsolidate from AT&T if Liberty issued an amount of shares that would result in neither AT&T nor a subsidiary of AT&T owning at least 80% of the total combined voting power of all classes of stock of Liberty entitled to vote and 80% of the fair market value of all classes of stock of Liberty. For purposes of the preceding sentence, "stock" does not include stock which is not entitled to vote, which is limited and preferred as to dividends and does not participate in corporate growth to any significant extent, which has redemption and liquidation rights which do not exceed the issue price of such stock (except for a reasonable redemption or liquidation premium), and which is not convertible into another class of stock. Any Proceeds from the Issuance of Liberty Media Group Tracking Stock will be Contributed to Liberty. The net proceeds of any issuance or sale of Liberty Media Group tracking stock are generally required to be contributed by AT&T to Liberty. The parties have entered into a supplement to the Inter-Group Agreement to provide an exception to this requirement and to make alternative arrangements for the proposed acquisition of Associated Group, Inc. 87 AT&T will Include in its SEC Reports Combined Financial Statements of the Liberty Media Group. For so long as Liberty Media Group tracking stock is outstanding, AT&T will include in its filings with the SEC combined financial statements of the Liberty Media Group. AT&T Will Not Take Any Actions Involving the Equity of Liberty. AT&T has also agreed that it will not, and will not permit any member of the AT&T Common Stock Group to, directly or indirectly: . sell, transfer, dispose of or otherwise convey, whether by merger, consolidation, sale or contribution of assets or stock, or otherwise, any direct or indirect equity interest of AT&T in Liberty; . incur any indebtedness secured by, or pledge or grant a lien, security interest or other encumbrance on, any direct or indirect equity interest of AT&T in Liberty; or . create any derivative instrument whose value is based on any direct or indirect equity interest of AT&T in Liberty; except that the foregoing will not apply to: . any of the foregoing approved by the Liberty board by the affirmative vote described under "--Liberty Organizational Documents" above; . AT&T's issuance or sale of its own securities, other than indebtedness secured by any direct or indirect equity interest of AT&T in Liberty and other than any security convertible into or exercisable or exchangeable for, or any derivative instrument whose value is based on, any direct or indirect equity interest of AT&T in Liberty; or . AT&T's participation in any merger, consolidation, exchange of shares or other business combination transaction in which AT&T, or its successors, continues immediately following the transaction to hold the same interest in the business, assets and liabilities comprising the Liberty Media Group that it held immediately prior to the transaction, other than as a result of any action by Liberty or any other person included in the Liberty Media Group. AT&T has also agreed that for so long as any AT&T Liberty Media Group tracking stock is outstanding, AT&T will not, and will not permit any member of the AT&T Common Stock Group to, intentionally take any action that AT&T knows would have the effect of deconsolidating Liberty from the AT&T consolidated group for federal income tax purposes. This restriction will not apply to certain dispositions or redemptions expressly contemplated by AT&T's amended certificate of incorporation or to a Covered Disposition approved by the separate class vote of the holders of Liberty Media Group tracking stock. Intercompany Agreement. In connection with the AT&T merger, AT&T, on behalf of itself and the members of the Common Stock Group, and Liberty, on behalf of itself and the members of the Liberty Media Group, entered into an Intercompany Agreement, the material provisions of which are described below. Preferred Vendor Status. Liberty will be granted preferred vendor status with respect to access, timing and placement of new programming services. This means that AT&T will use its reasonable efforts to provide digital basic distribution of new services created by Liberty and its affiliates, on mutual "most favored nation" terms and conditions and otherwise consistent with industry practices, subject to the programming meeting standards that are consistent with the type, quality and character of AT&T's cable services as they may evolve over time. Extension of Term of Affiliation Agreements. AT&T will agree to extend any existing affiliation agreement of Liberty and its affiliates that expires on or before March 9, 2004 to a date not before March 9, 2009, if most favored nation terms are offered and the arrangements are consistent with industry practice. Interactive Video Services. AT&T will enter into arrangements with Liberty for interactive video services under one of the following two arrangements, which will be at the election of AT&T: 88 . Pursuant to a five-year arrangement, renewable for an additional four- year period on then-current most favored nation terms, AT&T will make available to Liberty capacity equal to one 6 megahertz channel (in digital form and including interactive enablement, first screen access and hot links to relevant web sites--all to the extent implemented by AT&T cable systems) to be used for interactive, category-specific video channels that will provide entertainment, information and merchandising programming. The foregoing, however, will not compel AT&T to disrupt other programming or other channel arrangements. The suite of services are to be accessible through advanced set-top devices or boxes deployed by AT&T, except that, unless specifically addressed in a mutually acceptable manner, AT&T will have no obligation to deploy set-top devices or boxes of a type, design or cost materially different from that it would otherwise have deployed. The content categories may include, among others, music, travel, health, sports, books, personal finance, automotive, home video sales and games; or . AT&T may enter into one or more mutually agreeable ventures with Liberty for interactive, category-specific video channels that will provide entertainment, information and merchandising programming. Each venture will be structured as a 50/50 venture for a reasonable commercial term and provide that AT&T and Liberty will not provide interactive services in the category(s) of interactive video services provided through the venture for the duration of such term other than the joint venture services in the applicable categories. When the distribution of interactive video services occurs through a venture arrangement, AT&T will share in the revenue and expense of the provision of the interactive services pro rata to its ownership interest in lieu of the commercial arrangements described in the preceding paragraph. At the third anniversary of the formation of any such venture, AT&T may elect to purchase the ownership interest of Liberty in the venture at fair market value. The parties will endeavor to make any such transaction tax efficient to Liberty. Tax Sharing Agreement. Liberty, for itself and each member of the Liberty Media Group, is a party to a tax sharing agreement that provides, among other things, that: . to the extent that the inclusion of the Liberty Media Group within the consolidated U.S. federal income tax return (or any combined, consolidated or unitary tax return) filed by a member of the AT&T Common Stock Group increases tax liability for any period, the Liberty Media Group will be responsible for paying the AT&T Common Stock Group an amount equal to the increased tax liability; and . to the extent that the Liberty Media Group's inclusion within the consolidated U.S. federal income tax return (or any combined, consolidated or unitary tax return) filed by a member of the AT&T Common Stock Group reduces tax liability for any period, the AT&T Common Stock Group will be responsible for paying the Liberty Media Group an amount equal to the reduced tax liability. The net operating loss for U.S. federal income tax purposes of the affiliated group of which TCI was the common parent at the time of the AT&T merger (the "TCI Affiliated Group") will be allocated to the Liberty Media Group (the "Allocated NOL") to offset any obligations it would otherwise incur under the tax sharing agreement for periods subsequent to March 9, 1999 (the date of the AT&T merger). If the Liberty Media Group is deconsolidated for U.S. federal income tax purposes from the affiliated group of which AT&T is the parent corporation, the AT&T Common Stock Group will be required to pay the Liberty Media Group an amount equal to the product of (a) the amount of the Allocated NOL that has not been used as an offset to the Liberty Media Group's obligations under the tax sharing agreement, and that has been, or is reasonably expected to be, utilized by the AT&T Common Stock Group and (b) 35%. Certain other tax carryovers of the TCI Affiliated Group will be allocated to the AT&T Common Stock Group to offset any obligations it would otherwise incur under the tax sharing agreement for periods subsequent to the AT&T merger on March 9, 1999. In general, with respect to the TCI Affiliated Group, for periods ending on or prior to March 9, 1999: . the Liberty Media Group will pay the TCI Group any portion of regular tax liability attributable to TCI's former Liberty Media Group or TCI Ventures Group; 89 . any regular tax losses or other tax attributes may be used by the Liberty Media Group or the TCI Group without compensation to any other group; and . if the TCI Affiliated Group has an alternative minimum tax liability, the group, if any, generating alternative minimum tax losses will be paid for such losses to the extent that such losses reduce alternative minimum tax liability of the TCI Affiliated Group but the Liberty Media Group will not otherwise be required to pay its share of such alternative minimum tax liability. Facilities and Services Agreement. TCI and Liberty entered into a facilities and services agreement effective upon the consummation of the AT&T merger. Pursuant to the agreement, TCI provides Liberty with administrative and operational services necessary for the conduct of its business, including, but not limited to, such services as are generally performed by TCI's accounting, finance, corporate, legal and tax departments. In addition, the agreement provides Liberty with office space at TCI's facilities, permits Liberty to obtain certain liability, property and casualty insurance under TCI's policies and allows for the reciprocal use by TCI and Liberty of each other's aircraft. Pursuant to the agreement, Liberty reimburses TCI for all direct expenses incurred by TCI in providing services thereunder and a pro rata share of all indirect expenses incurred by TCI in connection with the rendering of such services, including a pro rata share of the salary and other compensation of TCI employees performing services for Liberty and rental expenses for the office space of TCI used by Liberty. The obligations of TCI to provide services under the Agreement will continue in effect (A) until terminated by Liberty at any time on not less than 180 days' notice to TCI, or by TCI at any time after December 31, 2001, on not less than six months' notice to Liberty; or (B) until March 31, 2000 with respect to the services of personnel and December 31, 2001 with respect to all other services. Other Related Party Transactions Affiliation Agreements. AT&T Broadband is party to affiliation agreements pursuant to which it purchases programming from subsidiaries and affiliates of Liberty. Certain of these agreements provide for penalties and charges in the event the supplier's programming is not carried on AT&T Broadband's cable systems or not delivered to a contractually specified number of customers. Charges to AT&T Broadband for such programming is generally based on customary rates and often provide for payments to AT&T Broadband by Liberty's subsidiaries and business affiliates for marketing support. In July 1997, TCI entered into a 25 year affiliation agreement with Encore Media Group pursuant to which TCI (now AT&T Broadband) is obligated to pay monthly fixed amounts in exchange for unlimited access to Encore and STARZ! programming. Also in 1997, in connection with the merger of TCI Music and DMX, TCI transferred to TCI Music the right to receive all revenue from sales of DMX Music services to their residential and commercial subscribers, net of an amount equal to 10% of revenue from such sales to residential subscribers and net of the revenue otherwise payable to DMX as license fees under their existing affiliation agreements. Indemnification of Certain of Our Employees. In connection with the AT&T merger, certain employees (including directors and executive officers) of Liberty who were officers or directors of TCI prior to the AT&T merger received undertakings of indemnification from TCI with respect to the effects of U.S. federal excise taxes that may become payable by them as a result of the AT&T merger and the resulting change in control of TCI. Pursuant to the Inter-Group Agreement, each of the Liberty Media Group and the AT&T Common Stock Group are responsible for all obligations to their respective officers and employees. Accordingly, following the AT&T merger, these tax protection undertakings to Liberty Media Group officers and employees became Liberty's obligations. Certain Rights to Purchase Liberty Media Group Tracking Stock. On February 9, 1998, in connection with the settlement of certain legal proceedings relative to the Estate of Bob Magness (the "Magness Estate"), the late founder and former Chairman of the Board of TCI, TCI entered into a call agreement with Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), and a call agreement with the Estate of Bob Magness, the Estate of Betsy Magness, Gary Magness (individually and in certain representative capacities) and Kim Magness (individually and in certain representative capacities) (collectively, the "Magness 90 Group"). Under these call agreements, each of the Magness Group and the Malones granted to TCI the right to acquire all of the shares of TCI's common stock owned by them ("High Voting Shares") that entitle the holder to cast more than one vote per share (the "High-Voting Stock") upon Dr. Malone's death or upon a contemplated sale of the High-Voting Shares (other than a minimal amount) to third parties. In either such event, TCI had the right to acquire such shares at a price equal to the then market price of shares of TCI's common stock of the corresponding series that entitled the holder to cast no more than one vote per share (the "Low-Voting Stock"), plus a 10% premium, or in the case of a sale, the lesser of such price and the price offered by the third party. In addition, each call agreement provides that if TCI were ever to be sold to a third party, then the maximum premium that the Magness Group or the Malones would receive for their High-Voting Shares would be the price paid for shares of the relevant series of Low-Voting Stock by the third party, plus a 10% premium. Each call agreement also prohibits any member of the Magness Group or the Malones from disposing of their High-Voting Shares, except for certain exempt transfers (such as transfers to related parties or to the other group or public sales of up to an aggregate of 5% of their High-Voting Shares after conversion to the respective series of Low-Voting Stock) and except for a transfer made in compliance with TCI's purchase right described above. TCI paid $150 million to the Malones and $124 million to the Magness Group in consideration of their entering into the call agreements, of which an aggregate of $140 million was allocated to and paid by Liberty. Also in February 1998, TCI, the Magness Group and the Malones entered into a shareholders' agreement which provides for, among other things, certain participation rights by the Magness Group with respect to transactions by Dr. Malone, and certain "tag-along" rights in favor of the Magness Group and certain "drag-along" rights in favor of the Malones, with respect to transactions in the High-Voting Stock. Such agreement also provides that a representative of Dr. Malone and a representative of the Magness Group will consult with each other on all matters to be brought to a vote of TCI's shareholders, but if a mutual agreement on how to vote cannot be reached, Dr. Malone will vote the High-Voting Stock owned by the Magness Group pursuant to an irrevocable proxy granted by the Magness Group. In connection with the AT&T merger, Liberty became entitled to exercise TCI's rights and became subject to its obligations under the call agreement and the shareholders' agreement with respect to the Liberty Media Group Class B tracking stock acquired by the Malones and the Magness Group as a result of the AT&T merger. If Liberty were to exercise its call right under the call agreement with the Malones or the Magness Group, it may also be required to purchase High-Voting Shares of the other group if such group exercises its "tag-along" rights under the shareholders' agreement. 91 DESCRIPTION OF CERTAIN INDEBTEDNESS Liberty and its consolidated subsidiaries identified below entered into credit facilities pursuant to which indebtedness was outstanding at June 30, 1999. Set forth below is a summary of the material terms of each of these credit facilities. The outstanding borrowings under certain of these credit facilities were repaid from the net proceeds of the sale of the outstanding securities. See "Use of Proceeds." To the extent indebtedness is incurred or guaranteed by a subsidiary of Liberty, that indebtedness will be effectively senior to the indebtedness represented by the securities. See "Risk Factors--We are a holding company with our assets held primarily by our subsidiaries. Creditors of those companies have a claim on their assets that is senior to that of holders of the securities." Credit Facilities Entered Into By Liberty $1,200,000,000 in Revolving Credit Facilities Liberty has entered into four separate unsecured revolving credit agreements with substantially identical terms. The aggregate principal amount that Liberty may borrow under these facilities is $1,200,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final stated maturity date under the facilities of September 29, 1999. Liberty is required to make mandatory prepayments under these credit facilities with net proceeds received by Liberty or any of its restricted subsidiaries from sales of assets in any calendar year in excess of $2 billion. Restricted subsidiaries under these credit agreements include all subsidiaries of Liberty other than (1) TCI Music, Inc., Encore Media Group LLC, Liberty Media International, Inc. and their respective majority owned subsidiaries; and (2) any other subsidiary of Liberty that the lenders permit Liberty to designate as an unrestricted subsidiary. At June 30, 1999, borrowings in the aggregate principal amount of $609 million were outstanding under these credit facilities, of which $155 million were repaid by Liberty from the net proceeds it received from the sale of the outstanding securities. Amounts repaid under these credit facilities may be reborrowed in the future. Interest. Each borrowing by Liberty bears interest, at the election of Liberty, at a variable rate per annum equal to a base rate or LIBOR plus a margin. Covenants. These credit facilities provide for customary affirmative and negative covenants. The negative covenants include restrictions on incurrence of indebtedness, restriction on liens and restrictions on merger and sales of assets. Events of Default. The credit facilities contain customary events of default, including an event of default if AT&T, TCI, John C. Malone or the estate or legal heirs of John C. Malone cease to control Liberty. Revolving Credit Facilities Entered Into By Subsidiaries of Liberty $500,000,000 Secured Revolving Credit Facility Liberty's indirect wholly owned subsidiary, Communication Capital Corp., has entered into a secured revolving credit agreement under which it may borrow up to $500,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final stated maturity date of August 15, 2000. Borrowings under the credit facility are secured by shares of Time Warner LMCN-V common stock. It is a condition to each borrowing that the aggregate amount of all outstanding borrowings plus the amount of the 92 requested borrowings not exceed a "Loan/Value Percentage" of 50%. The term "Loan/Value Percentage" is defined as the aggregate amount of all outstanding borrowings under the credit facility, plus all borrowings requested by Communication Capital Corp. of the lenders, as a percentage of the current market value of the pledged securities on the date of determination. If the Loan/Value Percentage exceeds 55% during any 10 consecutive days or 57% on any day, Communication Capital Corp. is required to prepay outstanding borrowings, or pledge additional shares of Time Warner LMCN-V common stock, so that the Loan/Value Percentage is no greater than 50%. At June 30, 1999, borrowings in the principal amount of $500 million were outstanding under this credit facility. These borrowings were repaid by Liberty from the net proceeds it received from the sale of the outstanding securities. Following that repayment, this facility was terminated. Interest. Each borrowing by Communication Capital Corp. bears interest, at the election of Communication Capital Corp., at a variable rate per annum equal to a base rate or LIBOR plus a margin, with the margin based on the Loan/Value Percentage at dates specified in the credit facility. Covenants. The credit facility provides for customary affirmative and negative covenants. The negative covenants include restrictions on encumbering pledged securities, restrictions on incurrence of indebtedness and guarantees and restrictions on making loans and dividends. Events of Default. The credit facility provides for customary events of default. $640,000,000 Guaranteed Revolving Credit Facility Liberty's indirect wholly owned subsidiary, LMC Capital LLC, has entered into a guaranteed revolving credit agreement under which it may borrow up to $640,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final stated maturity date of June 4, 2003. LMC Capital is a holding company that owns, through wholly owned subsidiaries, shares of capital stock, limited partnership interests and limited liability company interests in the following companies, which we refer to later in this discussion as the "LMC Capital group of companies": . BET Holdings II, Inc. . Discovery Communications, Inc. . USA Networks, Inc. . QVC, Inc. . Fox/Liberty Networks, LLC . Fox Kids Worldwide, Inc. . Encore Media Group LLC . Time Warner Inc. . TV Guide, Inc. . TCI Music, Inc. . Telemundo Group, Inc. Borrowings under the credit facility are to be secured by the shares of capital stock, limited partnership interests and limited liability company interests indirectly owned by LMC Capital in the LMC Capital group of companies and which are designated as "Designated Assets" under the credit agreement, if any of the following events occur: . LMC Capital fails to maintain on deposit with the administrative agent an amount equal to the interest payable during the succeeding three- month period on loans outstanding under the credit facility; or . a non-payment or bankruptcy-related event of default occurs; or 93 . LMC Capital fails to meet the "Loan/Value Requirement," which is met only if: . the aggregate value of the shares of capital stock, limited partnership interests and limited liability company interests that are Designated Assets exceeds 300% (or 400%, if less than 37.5% of the aggregate value of the Designated Assets consists of publicly traded securities) of the aggregate principal amount of all outstanding borrowings under the credit facility; and . the aggregate value of the shares of capital stock of TCI Music, Inc. and Telemundo Group, Inc. constitute 20% or less of the aggregate value of the Designated Assets. If, at any time, the Loan/Value Requirement is not satisfied, LMC Capital must make mandatory prepayments of outstanding loans such that the Loan/Value Requirement is met on the day of repayment. Alternatively, LMC Capital can cause the Designated Assets to be pledged to secure all outstanding loans. At June 30, 1999, borrowings in the principal amount of $580 million were outstanding under this credit facility. These borrowings were repaid by Liberty from the net proceeds it received from the sale of the outstanding securities. Following that repayment, this facility was terminated. Guarantee. The payment of LMC Capital's obligations under the credit facility is unconditionally and irrevocably guaranteed by its wholly owned subsidiaries. Interest. Each borrowing by LMC Capital bears interest, at the election of LMC Capital, at a variable rate per annum equal to a base rate or LIBOR plus a margin, with the margin based on the ratio of the value of the Designated Assets at dates specified in the credit facility to the aggregate outstanding principal amount of borrowings under the credit facility. Covenants. The credit facility provides for customary affirmative and negative covenants. The negative covenants include restrictions on encumbering pledged securities and restrictions on incurrence of indebtedness and guarantees. Events of Default. The credit facility provides for customary events of default. $100,000,000 Guaranteed Revolving Credit Facility Liberty's indirect wholly owned subsidiary, TCI Music, Inc., has entered into a guaranteed revolving credit agreement under which it may borrow up to $100,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final stated maturity date of June 30, 2005, subject to semi-annual amortizing mandatory repayments commencing June 30, 2000. At June 30, 1999, borrowings in the principal amount of $100 million were outstanding under this credit facility. Guarantee. The payment of TCI Music's obligations under this credit facility is unconditionally and irrevocably guaranteed by TCI Music's subsidiaries that it designates as "restricted subsidiaries" under the credit facility. Interest. Each borrowing by TCI Music bears interest, at the election of TCI Music, at a variable rate per annum equal to a base rate or LIBOR plus a margin, with the margin based on a leverage ratio. Covenants. The credit facility provides for customary affirmative and negative covenants. The negative covenants include maintenance ratios, (including debt to cash flow, cash flow to interest expense and cash flow to pro forma debt service), restrictions on incurrence of indebtedness and guarantees and restrictions on liens. Events of Default. The credit facility is subject to customary events of default, including any change in ownership of TCI Music, not consented to by the banks, that results in less than 50.1% of all voting rights of TCI Music being owned, directly or indirectly, by one or more of TCI, Liberty, AT&T, John Malone or his estate or legal heirs or the estate or legal heirs of Bob Magness. 94 $485,000,000 Revolving Credit Facility and Term Facility Liberty's indirect wholly owned subsidiary, Encore Investments LLC, has entered into a revolving credit agreement under which it may borrow up to $225,000,000. Amounts borrowed and prepaid under this facility may be reborrowed prior to the final stated maturity date of June 30, 2004, subject to quarterly amortizing mandatory repayments commencing March 31, 2000. Encore Investments may also obtain letters of credit under this facility in the aggregate amount of up to $25,000,000. Encore Investments has also entered into a term loan agreement under which it has borrowed $260,000,000. This facility has a stated maturity of June 30, 2004. Encore Investments is a holding company for subsidiaries of Encore Media Group LLC that own limited liability company interests in the following companies: . Encore Media Group LLC . STARZ! LLC . Dry Creek Productions LLC . BET Movies/STARZ! LLC At June 30, 1999, borrowings in the principal amount of $260 million were outstanding under the term credit facility and no borrowings were outstanding under the revolving credit facility. Security; Guarantee. Encore Investments will be required to secure its obligations under both credit facilities with a pledge of the shares it owns in its direct subsidiaries if a specified leverage ratio is exceeded, for so long as that ratio is exceeded. For so long as Encore Investments is required to pledge these shares, its direct subsidiaries will also be required to guarantee Encore Investment's obligations under both credit facilities. Interest. Each borrowing by Encore Investments bears interest, at the election of Encore Investments, at a variable rate per annum equal to a base rate or LIBOR plus a margin, with the margin based on a leverage ratio. Covenants. The credit facility provides for customary affirmative and negative covenants. The negative covenants include maintenance ratios (including debt to cash flow, cash flow to interest expense and cash flow to pro forma debt service), restrictions on incurrence of indebtedness and guarantees, restrictions on liens and limitations on restricted payments. Events of Default. The credit facility provides for customary events of default, including an event of default if there is a change in the ownership of Encore Investments that results in less than 90% of all voting rights of the limited liability company interests of Encore Investments being owned by a person 80% or more of which is owned directly or indirectly by TCI or Liberty. $45,000,000 Secured Guaranteed Revolving Credit Facility Liberty's indirect wholly owned subsidiary, TCI Cablevision of Puerto Rico, Inc., has entered into a secured guaranteed revolving credit agreement under which it may borrow up to $45,000,000. Amounts borrowed and prepaid may be reborrowed prior to the final stated maturity date of March 31, 2006, subject to quarterly amortizing mandatory repayments commencing March 31, 2000. At June 30, 1999, borrowings in the principal amount of $45 million were outstanding under this credit facility. Security; Guaranty. The payment of TCI Cablevision of Puerto Rico's obligations under the credit facility is secured by the pledge to the banks of the limited liability company interests it owns in its direct subsidiaries, and is guaranteed by those subsidiaries of TCI Cablevision of Puerto Rico that it has designated as "restricted subsidiaries" under the credit facility. 95 Interest. Each borrowing by TCI Cablevision of Puerto Rico bears interest, at the election of TCI Cablevision of Puerto Rico, at a variable rate per annum equal to a base rate or LIBOR plus a margin, with the margin based on a leverage ratio. Covenants. The credit facility provides for customary affirmative and negative covenants. The negative covenants include maintenance ratios (including debt to cash flow, cash flow to interest expense and cash flow to pro forma debt service), restrictions on incurrence of indebtedness and guarantees, restrictions on liens and limitations on restricted payments. Events of Default. The credit facility provides for customary events of default. 96 THE EXCHANGE OFFER The following summary of certain provisions of the registration rights agreement does not purport to be complete. The following discussion is qualified in its entirety by reference to the registration rights agreement, which has been filed as an exhibit to the registration statement of which this prospectus is a part. Purpose of the Exchange Offer We issued and sold the outstanding securities on July 7, 1999 in a private placement. In connection with that issuance and sale, we entered into a registration rights agreement with the initial purchasers of the outstanding securities. In the registration rights agreement we agreed to: . file with the SEC a registration statement within 90 days of the original issue date of the outstanding securities relating to an offer to exchange the outstanding securities for the exchange securities; . use our reasonable best efforts to cause the registration statement to be declared effective under the Securities Act within 180 days of the original issue date of the outstanding securities, . use our best efforts to keep the registration statement effective until the closing of the exchange offer, and . use our best efforts to cause the exchange offer to be completed not later than 210 days following the original issue date of the outstanding securities. The exchange offer being made by this prospectus is intended to satisfy our obligations under the registration rights agreement. If we fail to timely comply with these obligations, we will be required to pay additional interest to holders of outstanding securities until we have complied with these obligations. See "Description of the Securities--Registration Rights; Additional Interest." Once the exchange offer is complete, we will have no further obligation to register any of the outstanding securities not tendered by the holders thereof for exchange. See "Risk Factors--Your failure to participate in the exchange offer will have material adverse consequences." Effect of the Exchange Offer Based on interpretations by the SEC staff set forth in Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5, 1991), Shearman & Sterling (available July 7, 1993) and other no-action letters issued to third parties, we believe that you may offer for resale, resell and otherwise transfer the exchange securities issued to you under the exchange offer without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that you can represent that: . you are acquiring the exchange securities in the ordinary course of your business; . you have no arrangements or understandings with any person to participate in the exchange offer for the purpose of distributing the exchange securities; and . you are not our "affiliate," within the meaning of Rule 405 under the Securities Act. If you are not able to make these representations, you are a "restricted holder." As a restricted holder, you will not be able to participate in the exchange offer, you may not rely on the interpretations of the SEC staff set forth in the above referenced no-action letters and you may only sell your outstanding securities in compliance with the registration and prospectus delivery requirements of the Securities Act or under an exemption from the registration requirements of the Securities Act or in a transaction not subject to the Securities Act. In addition, each broker-dealer (other than a restricted holder) that receives exchange securities for its own account in exchange for outstanding securities that were acquired by such broker-dealer as a result of market- making activities or other trading activities (a "participating broker- dealer") may be a statutory underwriter 97 and must acknowledge in the letter of transmittal that it will deliver a prospectus meeting the requirements of the Securities Act upon any resale of such exchange securities. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Based on interpretations by the SEC staff, we believe that a participating broker-dealer may offer for resale, resell and otherwise transfer exchange securities issued under the exchange offer upon compliance with the prospectus delivery requirements, but without compliance with the registration requirements, of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a participating broker-dealer as part of their resales. We have agreed that, for a period of 90 days after the completion of the exchange offer, we will make this prospectus available to any broker-dealer for use by the broker-dealer in any resale. By acceptance of this exchange offer, each broker-dealer that receives exchange securities under the exchange offer agrees to notify us prior to using this prospectus in a sale or transfer of exchange securities. See "Plan of Distribution." Except as described above, this prospectus may not be used for an offer to resell, resale or other transfer of exchange securities. To the extent outstanding securities are tendered and accepted in the exchange offer, the principal amount of outstanding securities that will be outstanding will decrease with a resulting decrease in the liquidity in the market for the outstanding securities. Outstanding securities that are still outstanding following the completion of the exchange offer will continue to be subject to transfer restrictions. Terms of the Exchange Offer Upon the terms and subject to the conditions of the exchange offer described in this prospectus and in the letter of transmittal, we will accept for exchange any and all outstanding securities validly tendered and not withdrawn before 5:00 p.m., New York City time, on the expiration date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes accepted in the exchange offer and $1,000 principal amount of exchange debentures in exchange for each $1,000 principal amount of outstanding debentures accepted in the exchange offer. You may tender some or all of your outstanding securities pursuant to the exchange offer. However, outstanding securities may be tendered only in integral multiples of $1,000 principal amount. The form and terms of the exchange securities will be substantially identical to the form and terms of the outstanding securities, except that: . the offering of the exchange securities has been registered under the Act; . the exchange securities will not be subject to transfer restrictions; and . the exchange securities will be issued free of any covenants regarding registration rights and free of any provision for additional interest. The exchange securities will evidence the same debt as the outstanding securities and will be issued under and be entitled to the benefits of the same indenture under which the outstanding securities were issued. The outstanding notes and the exchange notes, on the one hand, and the outstanding debentures and the exchange debentures, on the other hand, will each be treated as a single series of debt securities under the indenture. For a description of the terms of the indenture and the exchange securities, see "Description of the Securities." The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding securities being tendered for exchange. As of the date of this prospectus, an aggregate of $750 million principal amount of outstanding notes is outstanding and an aggregate of $500 million principal amount of outstanding debentures is outstanding. This prospectus is being sent to all registered holders of outstanding securities. There will be no fixed record date for determining registered holders of outstanding securities entitled to participate in the exchange offer. 98 We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Act and the Securities Exchange Act and the rules and regulations of the SEC. Holders of outstanding securities do not have any appraisal or dissenters rights under law or under the indenture in connection with the exchange offer. Outstanding securities that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits their holders have under the indenture relating to the outstanding securities. We will be deemed to have accepted for exchange validly tendered outstanding securities when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of outstanding securities for the purposes of receiving the exchange securities from us and delivering the exchange securities to the tendering holders. Subject to the terms of the registration rights agreement, we expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any outstanding securities not previously accepted for exchange, upon the occurrence of any of the conditions specified below under "--Conditions." If we do not accept for exchange any tendered outstanding securities because of an invalid tender, the occurrence of certain other events described in this prospectus or otherwise, such unaccepted outstanding securities will be returned, without expense, to the holder tendering them or the appropriate book-entry will be made, in each case, as promptly as practicable after the expiration date. We are not making, nor is our board of directors making, any recommendation to you as to whether to tender or refrain from tendering all or any portion of your outstanding securities in the exchange offer. No one has been authorized to make any such recommendation. You must make your own decision whether to tender in the exchange offer and, if you decide to do so, you must also make your own decision as to the aggregate amount of outstanding securities to tender after reading this prospectus and the letter of transmittal and consulting with your advisers, if any, based on your own financial position and requirements. Expiration Date; Extensions; Amendments The term "expiration date" means 5:00 p.m., New York City time, on , 1999, unless we, in our sole discretion, extend the exchange offer, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended. If we determine to extend the exchange offer, we will notify the exchange agent of any extension by oral or written notice. We will notify the registered holders of outstanding securities of the extension no later than 9:00 a.m., New York City time, on the business day immediately following the previously scheduled expiration date. We reserve the right, in our sole discretion: . to delay accepting for exchange any outstanding securities, . to extend the exchange offer or to terminate the exchange offer and to refuse to accept outstanding securities not previously accepted if any of the conditions set forth below under "--Conditions" have not been satisfied, or . subject to the terms of the registration rights agreement, to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice to the registered holders of outstanding securities. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose the amendment in a manner reasonably calculated to inform the holders of the outstanding securities of the amendment. 99 Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we will have no obligation to publish, advertise or otherwise communicate any public announcement, other than by making a timely release to a financial news service. During any extension of the exchange offer, all outstanding securities previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any outstanding securities that we do not accept for exchange for any reason without expense to the tendering holder as promptly as practicable after the expiration or earlier termination of the exchange offer. Interest on the Exchange Securities and the Outstanding Securities The outstanding notes will continue to accrue interest at the rate of 7 7/8% per annum through (but not including) the date of issuance of the exchange notes, and the outstanding debentures will continue to accrue interest at the rate of 8 1/2% per annum through (but not including) the date of issuance of the exchange debentures. Any outstanding notes not tendered or accepted for exchange will continue to accrue interest at the rate of 7 7/8% per annum, and any outstanding debentures not tendered or accepted for exchange will continue to accrue interest at the rate of 8 1/2% per annum, in each case in accordance with their terms. From and after the date of issuance of the exchange notes, the exchange notes will accrue interest at the rate of 7 7/8% per annum, and from and after the date of issuance of the exchange debentures, the exchange debentures will accrue interest at the rate of 8 1/2% per annum. Interest on the exchange notes and the exchange debentures and any outstanding notes and outstanding debentures not tendered or accepted for exchange will be payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2000. Procedures for Tendering Only a holder of outstanding securities may tender the outstanding securities in the exchange offer. To tender in the exchange offer, a holder must complete, sign and date the letter of transmittal, have the signatures thereon guaranteed if required by the letter of transmittal, and mail or otherwise deliver such letter of transmittal, together with all other documents required by the letter of transmittal, to the exchange agent at one of the addresses set forth below under "--Exchange Agent," before 5:00 p.m., New York City time, on the expiration date. In addition, either: . the exchange agent must receive, before the expiration date, a timely confirmation of a book-entry transfer of the tendered outstanding securities into the exchange agent's account at The Depository Trust Company ("DTC" or the "depositary") according to the procedure for book- entry transfer described below; or . the holder must comply with the guaranteed delivery procedures described below. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. The method of delivery of outstanding securities, letters of transmittal and all other required documents to the exchange agent, including delivery through DTC, is at the holder's election and risk. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. If delivery is by mail, we recommend that holders use certified or registered mail, properly insured, with return receipt requested. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send letters of transmittal or other required documents to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them. Any beneficial owner whose outstanding securities are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender outstanding securities should contact the registered holder promptly and instruct it to tender on the beneficial owner's behalf. 100 We will determine, in our sole discretion, all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered outstanding securities and withdrawal of tendered outstanding securities, and our determination will be final and binding. We reserve the absolute right to reject any and all outstanding securities not properly tendered or any outstanding securities the acceptance of which would, in the opinion of us or our counsel, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any particular outstanding securities either before or after the expiration date. Our interpretation of the terms and conditions of the exchange offer as to any particular outstanding securities either before or after the expiration date (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding securities for exchange must be cured within such time as we shall determine. Although we intend to notify holders of any defects or irregularities with respect to tenders of outstanding securities for exchange, neither we nor the exchange agent nor any other person shall be under any duty to give such notification, nor shall any of them incur any liability for failure to give such notification. Tenders of outstanding securities will not be deemed to have been made until all defects or irregularities have been cured or waived. Any outstanding securities received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders (or, in the case of outstanding securities delivered by book-entry transfer within DTC, will be credited to the account maintained within DTC by the participant in DTC which delivered such outstanding securities), unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In addition, we reserve the right in our sole discretion (a) to purchase or make offers for any outstanding securities that remain outstanding after the expiration date, (b) as set forth below under "--Conditions," to terminate the exchange offer and (c) to the extent permitted by applicable law, purchase outstanding securities in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer. By signing, or otherwise becoming bound by, the letter of transmittal, each tendering holder of outstanding securities (other than certain specified holders) will represent to us that: . it is acquiring the exchange securities in the ordinary course of its business; . it has no arrangements or understandings with any person to participate in the exchange offer for the purpose of distributing the exchange securities; and . it is not our "affiliate," within the meaning of Rule 405 under the Securities Act, or, if it is our affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the tendering holder is a broker-dealer that will receive exchange securities for its own account in exchange for outstanding securities that were acquired as a result of market-making activities or other trading activities, it may be deemed to be an "underwriter" within the meaning of the Securities Act. Any such holder will be required to acknowledge in the letter of transmittal that it will deliver a prospectus in connection with any resale of these exchange securities. However, by so acknowledging and by delivering a prospectus, the holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Book-Entry Transfer The exchange agent will establish a new account or utilize an existing account with respect to the outstanding securities at DTC promptly after the date of this prospectus, and any financial institution that is a participant in DTC's systems may make book-entry delivery of outstanding securities by causing DTC to transfer these outstanding securities into the exchange agent's account in accordance with DTC's procedures for transfer. However, the exchange for the outstanding securities so tendered will only be made after timely confirmation of this book-entry transfer of outstanding securities into the exchange agent's account, and timely receipt by the exchange agent of an agent's message and any other documents required by the letter of transmittal. The term "agent's message" means a message transmitted by DTC to, and received by, the 101 exchange agent and forming a part of a book-entry confirmation, that states that DTC has received an express acknowledgment from a participant in DTC tendering outstanding securities that are the subject of the book-entry confirmation stating (1) the aggregate principal amount of outstanding securities that have been tendered by such participant, (2) that such participant has received and agrees to be bound by the terms of the letter of transmittal and (3) that we may enforce such agreement against the participant. Although delivery of outstanding securities must be effected through book- entry transfer into the exchange agent's account at DTC, the letter of transmittal, properly completely and validly executed, with any required signature guarantees, or an agent's message in lieu of the letter of transmittal, and any other required documents, must be delivered to and received by the exchange agent at one of its addresses listed below under "-- Exchange Agent," before 5:00 p.m., New York City time, on the expiration date, or the guaranteed delivery procedure described below must be complied with. Delivery of documents to DTC in accordance with its procedures does not constitute delivery to the exchange agent. All references in this prospectus to deposit or delivery of outstanding securities shall be deemed to refer to DTC's book-entry delivery method. Guaranteed Delivery Procedures Holders who wish to tender their outstanding securities and (1) whose outstanding securities are not immediately available or (2) who cannot deliver a confirmation of book-entry transfer of outstanding securities into the exchange agent's account at DTC, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date or (3) who cannot complete the procedure for book-entry transfer on a timely basis, may effect a tender if: . the tender is made through an eligible institution; . before the expiration date, the exchange agent receives from the eligible institution a properly completed and duly executed notice of guaranteed delivery (by facsimile transmission, mail or hand delivery) listing the principal amount of outstanding securities tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange, Inc. trading days after the expiration date, a duly executed letter of transmittal together with a confirmation of book-entry transfer of such outstanding securities into the exchange agent's account at DTC, and any other documents required by the letter of transmittal and the instructions thereto, will be deposited by such eligible institution with the exchange agent; and . the properly completed and executed letter of transmittal and a confirmation of book-entry transfer of all tendered outstanding securities into the exchange agent's account at DTC and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange, Inc. trading days after the expiration date. Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their outstanding securities according to the guaranteed delivery procedures described above. Withdrawal of Tenders Except as otherwise provided in this prospectus, tenders of outstanding securities may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective, the exchange agent must receive a written or facsimile transmission notice of withdrawal at one of its addresses set forth below under "--Exchange Agent." Any notice of withdrawal must: . specify the name of the person who tendered the outstanding securities to be withdrawn; . identify the outstanding securities to be withdrawn, including the principal amount of such outstanding securities; 102 . be signed by the holder in the same manner as the original signature on the letter of transmittal by which the outstanding securities were tendered (including any required signature guarantees); and . specify the name and number of the account at DTC to be credited with the withdrawn outstanding securities and otherwise comply with the procedures of this facility. We will determine, in our sole discretion, all questions as to the validity, form and eligibility (including time of receipt) of any notice of withdrawal, and our determination shall be final and binding on all parties. Any outstanding securities so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer and no exchange securities will be issued with respect thereto unless the outstanding securities so withdrawn are validly retendered. Properly withdrawn outstanding securities may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the expiration date. Any outstanding securities that are tendered for exchange but that are not exchanged for any reason will be credited to an account maintained with DTC for the outstanding securities as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Conditions Despite any other term of the exchange offer, we will not be required to accept for exchange, or to issue exchange securities in exchange for, any outstanding securities, and we may terminate the exchange offer as provided in this prospectus before the acceptance of any outstanding securities, if: . the exchange offer, or the making of any exchange by a holder of outstanding securities, would violate applicable law or any applicable interpretation of the SEC Staff; or . the outstanding securities are not tendered in accordance with the exchange offer; or . you do not represent that you are acquiring the exchange securities in the ordinary course of your business and that you have no arrangement or understanding with any person to participate in a distribution of the exchange securities and you do not make any other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render available the use of an appropriate form for registration of the exchange securities under the Securities Act; or . any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer. These conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any of these conditions or may be waived by us, in whole or in part, at any time and from time to time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights shall not be deemed a waiver of the right and each right shall be deemed an ongoing right which may be asserted at any time and from time to time. If we determine in our reasonable judgment that any of the conditions are not satisfied, we may: . refuse to accept any outstanding securities and credit any tendered outstanding securities to the account maintained within DTC by the participant in DTC which delivered the outstanding securities, or . extend the exchange offer and retain all outstanding securities tendered before the expiration date, subject to the rights of holders to withdraw the tenders of outstanding securities (see "--Withdrawal of Tenders" above), or 103 . waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered outstanding securities that have not been withdrawn or otherwise amend the terms of the exchange offer in any respect as provided under "--Expiration Date; Extensions; Amendments." If a waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that will be distributed to the registered holders, and we will extend the exchange offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the exchange offer would otherwise expire during such five to ten business day period. In addition, we will not accept for exchange any outstanding securities tendered, and we will not issue exchange securities in exchange for any of the outstanding securities, if at that time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. Exchange Agent The Bank of New York has been appointed as the exchange agent for the exchange offer. All signed letters of transmittal and other documents required for a valid tender of your outstanding securities should be directed to the exchange agent at one of the addresses set forth below. Questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for notices of guaranteed delivery should be directed to the exchange agent addressed as follows: BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York 101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E New York, New York 10286 Corporate Trust Services Window Attention: Gertrude Jeanpierre New York, New York 10286 Reorganization Section Attention: Gertrude Jeanpierre BY FACSIMILE (for Eligible Institutions only): (212) 815-6339 The Bank of New York Attention: Gertrude Jeanpierre Confirm by Telephone: (212) 815-5920 For Information Call: (212) 815-5920 Delivery to other than the above addresses or facsimile number will not constitute a valid delivery. Fees and Expenses We will bear the expenses of soliciting tenders. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptance of the exchange offer. The principal solicitation is being made by mail; however, additional solicitation may be made by facsimile, telephone or in person by our officers and employees. We will pay the expenses to be incurred in connection with the exchange offer. These expenses include fees and expenses of the exchange agent and the trustee, accounting and legal fees, printing costs, and related fees and expenses. Transfer Taxes Holders who tender their outstanding securities for exchange will not be obligated to pay any transfer taxes in connection with the exchange offer. 104 Accounting Treatment We will record the exchange securities in our accounting records at the same carrying values as the outstanding securities on the date of the exchange. Accordingly, we will recognize no gain or loss, for accounting purposes, as a result of the exchange offer. The expenses of the exchange offer and the unamortized expenses relating to the issuance of the outstanding securities will be amortized over the term of the exchange securities. Consequences of Failure to Exchange Holders of outstanding securities who do not exchange their outstanding securities for exchange securities pursuant to the exchange offer will continue to be subject to the restrictions on transfer of the outstanding securities as set forth in the legend printed thereon as a consequence of the issuance of the outstanding securities pursuant to an exemption from the Securities Act and applicable state securities laws. Outstanding notes not exchanged pursuant to the exchange offer will continue to accrue interest at 7 7/8% per annum, outstanding debentures not exchanged pursuant to the exchange offer will continue to accrue interest at 8 1/2% per annum, and the outstanding notes and outstanding debentures will otherwise remain outstanding in accordance with their respective terms. Holders of outstanding securities do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the exchange offer. In general, the outstanding securities may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Upon completion of the exchange offer, holders of outstanding securities will not be entitled to any rights to have the resale of outstanding securities registered under the Securities Act, and we currently do not intend to register under the Securities Act the resale of any outstanding securities that remain outstanding after completion of the exchange offer. 105 DESCRIPTION OF THE SECURITIES We issued the outstanding securities and will issue the exchange securities under an indenture dated as of July 7, 1999, between Liberty, as issuer, and The Bank of New York, as trustee, as supplemented by a first supplemental indenture dated July 7, 1999 between Liberty and the trustee. The indenture and first supplemental indenture are collectively referred to in this prospectus as the "indenture." The outstanding notes and the exchange notes have substantially identical terms and will constitute a single series of securities under the indenture. The outstanding debentures and the exchange debentures also have substantially identical terms and will constitute another series of securities under the indenture. The difference between the outstanding securities and the exchange securities is that the offer and sale of the exchange securities have been registered under the Securities Act and, therefore, the exchange securities will not bear legends restricting their transfer and will not be entitled to registration under the Securities Act or other rights relating to such registration. If the exchange offer is completed, holders of any remaining outstanding securities will vote together with holders of the applicable exchange securities for all relevant purposes under the indenture. Upon the issuance of the exchange securities, the indenture will be subject to and governed by the Trust Indenture Act of 1939. The terms of the exchange securities include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act. The following summary of certain provisions of the indenture and the exchange securities does not purport to be complete and is subject to, and qualified in its entirety by, reference to the provisions of the indenture, including the definitions of certain terms contained in the indenture and those terms made a part of it by the Trust Indenture Act. A copy of the indenture has been filed as an exhibit to the registration statement of which this prospectus is a part. Capitalized terms used and not otherwise defined in this section have the meanings ascribed to them in the indenture. General The indenture does not limit the aggregate principal amount of senior debt securities that may be issued under the indenture and provides that Liberty may issue senior debt securities from time to time in one or more series. The senior debt securities that Liberty may issue under the indenture, including the outstanding securities and the exchange securities, are collectively referred to in this section as the "senior debt securities." The 7 7/8% senior notes due 2009 and the 8 1/2% senior debentures due 2029 constitute separate series of senior debt securities under the indenture. The outstanding notes and the exchange notes are collectively referred to in this prospectus as the "notes," and the outstanding debentures and the exchange debentures are collectively referred to in this prospectus as the "debentures," and together with the notes, as the "securities." If the exchange offer is consummated, holders of outstanding notes and outstanding debentures who do not exchange their outstanding notes and outstanding debentures for exchange notes and exchange debentures will vote together as separate series of senior debt securities with holders of the exchange notes and exchange debentures, respectively, for all relevant purposes under the indenture. In that regard, the indenture requires that certain actions by the holders under the notes and debentures, respectively (including acceleration following an event of default), must be taken, and certain rights must be exercised, by specified minimum percentages of the aggregate principal amount of the notes and debentures, respectively, outstanding. In determining whether holders of the requisite percentage in principal amount have given any notice, consent or waiver or taken any other action permitted under the indenture, any outstanding notes and outstanding debentures which remain outstanding after the exchange offer will be aggregated with the exchange notes and exchange debentures, respectively, and the holders of the outstanding notes and exchange notes and the holders of the outstanding debentures and exchange debentures will each vote together as a single series for all purposes. Accordingly, all references in this section to specified percentages in aggregate principal amount of the outstanding senior debt securities of a series will be deemed to mean, at any time after the exchange offer is consummated, the percentages in aggregate principal amount of the outstanding notes and exchange notes, on the one hand, and the outstanding debentures and exchange debentures, on the other hand, then outstanding. 106 The securities are unsecured senior obligations of Liberty and are initially limited to an aggregate principal amount of $750,000,000 of notes and $500,000,000 of debentures. Liberty may "reopen" any security series and issue additional securities of that series. The notes and the debentures bear interest at the rate per annum shown above from the date of original issuance or from the most recent date to which interest has been paid or duly provided for, payable semiannually on January 15 and July 15 of each year, each of which is referred to in this prospectus as an "interest payment date," commencing January 15, 2000 to the persons in whose names the securities are registered at the close of business on the January 1 or July 1 next preceding the interest payment date. Interest payable on January 15, 2000 with respect to each $1,000 principal amount of notes and debentures will be $41.125 and $44.389, respectively. Interest payable at maturity, or upon any earlier date of redemption, will be payable to the person to whom principal shall be payable on that date. Interest on the securities will be calculated on the basis of a 360- day year of twelve 30-day months. The maturity dates for the notes and the debentures are July 15, 2009 and July 15, 2029, respectively. If any interest payment date, redemption date or maturity date would otherwise be a day that is not a business day, the related payment of principal and interest will be made on the next succeeding business day as if it were made on the date the payment was due, and no interest will accrue on the amounts so payable for the period from and after the interest payment date, the redemption date or the maturity date, as the case may be, to the next succeeding business day. A business day means a day other than a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or obligated by law, regulation or executive order to close. The securities are not subject to any sinking fund. For a discussion of the circumstances in which the interest rate on the securities may be adjusted, see "--Registration Rights; Additional Interest." The indenture does not contain any provision that would limit the ability of Liberty to incur indebtedness or to substantially reduce or eliminate Liberty's assets or that would afford the holders of the securities protection in the event of a decline in Liberty's credit quality or a takeover, recapitalization or highly leveraged or similar transaction involving Liberty. In addition, subject to the limitations set forth under "--Successor Corporation," Liberty may, in the future, enter into certain transactions, including the sale of substantially all of its assets or the merger or consolidation of Liberty, that would increase the amount of Liberty's indebtedness or substantially reduce or eliminate Liberty's assets, which may have an adverse effect on Liberty's ability to service its indebtedness, including the securities. Each security will be issued in book-entry form (a "book-entry security") in minimum denominations of $1,000 and integral multiples thereof. Each book-entry security will be represented by one or more global securities in fully registered form, registered in the name of The Depository Trust Company, which is referred to in this prospectus as "DTC" or the "depositary," or its nominee. Beneficial interest in the global securities will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. See "--Form, Denomination and Registration." Except in the limited circumstances described in this prospectus, book-entry securities will not be exchangeable for securities issued in fully registered form ("certificated securities"). Book-entry securities may be transferred or exchanged only through the depositary. See "--Form, Denomination and Registration." Registration of transfer or exchange of certificated securities will be made at the office or agency, maintained by Liberty for this purpose in the Borough of Manhattan, The City of New York, currently the office of the trustee at 101 Barclay Street, New York, N.Y. 10286. Neither Liberty nor the trustee will charge a service charge for any registration of transfer or exchange of securities, but Liberty may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with the transfer or exchange (other than exchanges pursuant to the indenture not involving any transfer). Liberty will make payments of principal, and premium, if any, and interest on book-entry securities through the trustee to the depositary. See "--Form, Denomination and Registration." In the case of certificated securities, Liberty will pay the principal and premium, if any, due on the maturity date in immediately available 107 funds upon presentation and surrender by the holder of the securities at the office or agency maintained by Liberty for this purpose at the Borough of Manhattan, The City of New York, currently the office of the trustee at 101 Barclay Street, New York, N.Y. 10286. Liberty will pay interest due on the maturity date of a certificated security to the person to whom payment of the principal and premium, if any, will be made. Liberty will pay interest due on a certificated security on any interest payment date other than the maturity date by check mailed to the address of the holder entitled to the payment as the address shall appear in the security register of Liberty. Notwithstanding the foregoing, a holder of $10 million or more in aggregate principal amount of certificated securities (whether having identical or different terms and provisions) will be entitled to receive interest payments, if any, on any interest payment date other than the maturity date by wire transfer of immediately available funds if appropriate wire transfer instructions have been received in writing by the trustee not less than 15 calendar days prior to the interest payment date. Any wire transfer instructions received by the trustee will remain in effect until revoked by the holder. Any interest not punctually paid or duly provided for on a certificated security on any interest payment date other than the maturity date will cease to be payable to the holder of the security as of the close of business on the related record date and may either be paid (1) to the person in whose name the certificated security is registered at the close of business on a special record date for the payment of the defaulted interest that is fixed by Liberty, written notice of which will be given to the holders of the securities not less than 30 calendar days prior to the special record date, or (2) at any time in any other lawful manner. All moneys paid by Liberty to the trustee or any paying agent for the payment of principal of, and premium and interest on, any security which remain unclaimed for two years after the principal, premium or interest is due and payable may be repaid to Liberty and, after that payment, the holder of the security will look only to Liberty for payment. Ranking and Holding Company Structure The securities are unsecured senior indebtedness of Liberty and rank equally with Liberty's existing and future unsubordinated unsecured indebtedness and senior in right of payment to all subordinated indebtedness of Liberty. The securities are effectively subordinated to all secured indebtedness of Liberty with respect to the assets securing the indebtedness and are effectively subordinated to all liabilities of Liberty's subsidiaries. As of June 30, 1999, after giving effect to the issuance and sale of the outstanding securities and our use of the net proceeds therefrom as described under "Use of Proceeds," our consolidated subsidiaries would have had outstanding $12.6 billion of liabilities, all of which would have effectively ranked senior to the securities. At the same date and using the same assumption, we would also have had outstanding $2.2 billion of unsecured and unsubordinated indebtedness, all of which would have ranked equally with the securities. Liberty is a holding company and is largely dependent on dividends, distributions and other payments from its subsidiaries and business affiliates and other investments to meet its financial obligations, and is dependent on those payments to meet its obligations under the securities. Liberty's subsidiaries and business affiliates, as well as AT&T and its subsidiaries other than Liberty, have no obligation, contingent or otherwise, to pay any amounts due under the securities or to make any funds available for any of those payments. In addition, neither AT&T nor any of its subsidiaries other than Liberty has any obligation to make payments under the securities or to make any funds available for those payments. See "Risk Factors--We are a holding company with our assets held primarily by our subsidiaries. Creditors of those companies have a claim on their assets that is senior to that of holders of the securities." and "Relationship with AT&T and Certain Related Transactions." Optional Redemption The securities are redeemable, as a whole or in part, at our option, at any time or from time to time, on at least 30 days, but not more than 60 days, prior notice mailed to the registered address of each holder of the securities. The redemption prices will be equal to the greater of (1) 100% of the principal amount of the securities to be redeemed or (2) the sum of the present values of the Remaining Scheduled Payments (as 108 defined below) discounted, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months), at a rate equal to the sum of the Treasury Rate (as defined below) and: . 30 basis points for the notes . 35 basis points for the debentures. In the case of each of clause (1) and (2), accrued interest will be payable to the redemption date. "Treasury Rate" means, with respect to any redemption date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes or the debentures, as the case may be, to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such securities. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by us. "Comparable Treasury Price" means, with respect to any redemption date, (1) the average of the Reference Treasury Dealer Quotations for such redemption date after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the trustee obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day preceding such redemption date. "Reference Treasury Dealer" means each of Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. and their respective successors. If any of the foregoing shall cease to be a primary U.S. Government securities dealer (a "Primary Treasury Dealer"), we shall substitute another nationally recognized investment banking firm that is a Primary Treasury Dealer. "Remaining Scheduled Payments" means, with respect to each security to be redeemed, the remaining scheduled payments of principal of and interest on such security that would be due after the related redemption date but for such redemption. If such redemption date is not an interest payment date with respect to such security, the amount of the next succeeding scheduled interest payment on such security will be reduced by the amount of interest accrued on such security to such redemption date. On and after the redemption date, interest will cease to accrue on the securities or any portion of the securities called for redemption (unless we default in the payment of the redemption price and accrued interest). On or before the redemption date, we will deposit with a paying agent (or the trustee) money sufficient to pay the redemption price of and accrued interest on the securities to be redeemed on such date. If less than all of the securities of any series are to be redeemed, the securities to be redeemed shall be selected by the trustee by such method as the trustee shall deem fair and appropriate. Form, Denomination and Registration The securities will initially be represented by one or more global securities in definitive, fully registered book-entry form, without interest coupons that will be deposited with, or on behalf of, the depositary or its nominee. So long as the depositary, which initially will be DTC, or its nominee is the registered owner of a global security, the depositary or its nominee, as the case may be, will be the sole holder of the securities represented by the global security for all purposes under the indenture. Except as otherwise provided in this section, the 109 beneficial owners of the global securities representing the securities will not be entitled to receive physical delivery of certificated securities and will not be considered the holders of the securities for any purpose under the indenture, and no global security representing the book-entry securities will be exchangeable or transferable. Accordingly, each beneficial owner must rely on the procedures of the depositary and, if the beneficial owner is not a participant of the depositary, then the beneficial owner must rely on the procedures of the participant through which the beneficial owner owns its interest in order to exercise any rights of a holder under the global securities or the indenture. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of the securities in certificated form. Such limits and laws may impair the ability to transfer beneficial interests in a global security representing the securities. The global securities representing the securities will be exchangeable for certificated securities of like tenor and terms and of differing authorized denominations aggregating a like principal amount, only if (1) the depositary notifies Liberty that it is unwilling or unable to continue as depositary for the global securities, (2) the depositary ceases to be a clearing agency registered under the Securities Exchange Act, (3) Liberty in its sole discretion determines that the global securities shall be exchangeable for certificated securities, or (4) there shall have occurred and be continuing an event of default under the indenture with respect to the securities. Upon any exchange, the certificated securities shall be registered in the names of the beneficial owners of the global securities representing the securities, which names shall be provided by the depositary's relevant participants (as identified by the depositary) to the trustee. Cross-Market Transfers. Subject to compliance with the transfer restrictions applicable to any exchange securities and the certification and other requirements set forth in the indenture, any cross-market transfer between participants in the depositary, on the one hand, and participants in the Euroclear System or Cedelbank, on the other hand, will be effected in the depositary's book-entry system on behalf of Euroclear or Cedelbank, as the case may be, in accordance with the rules of the depositary. However, these cross-market transfers will require delivery of instructions to Euroclear or Cedelbank, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines. Euroclear or Cedelbank, as the case may be, will, if the transfer meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving the beneficial interests in the applicable global security in the depositary, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to the depositary. Participants in Euroclear or Cedelbank may not deliver instructions directly to the depositaries for Euroclear or Cedelbank, as the case may be. Because of time zone differences, the securities account of a Euroclear or Cedelbank participant purchasing a beneficial interest in a global security from a depositary participant will be credited during the securities settlement processing day, which must be a business day for Euroclear or Cedelbank, as applicable, immediately following the depositary's settlement date. Credit of a transfer of a beneficial interest in a global security settled during that processing day will be reported to the applicable Euroclear or Cedelbank participant on that day. Cash received in Euroclear or Cedelbank as a result of a transfer of a beneficial interest in a global security by or through a Euroclear or Cedelbank participant to a depositary participant will be received with value on the depositary's settlement date but will be available in the applicable Euroclear or Cedelbank cash account only as of the business day following settlement in the depositary. In order to insure the availability of Rule 144(k) under the Securities Act, the indenture provides that all securities, other than exchange securities, which are redeemed, purchased or otherwise acquired by Liberty or any of its subsidiaries or "affiliates," as defined in Rule 144 under the Securities Act, may not be resold or otherwise transferred and will be delivered to the trustee for cancellation. 110 Information Relating to the Depositary. The following is based on information furnished by the depositary: The depositary will act as the depositary for the securities. The securities will be issued as fully registered senior debt securities registered in the name of Cede & Co., which is the depositary's partnership nominee. Fully registered global securities will be issued for the securities, in the aggregate principal amount of the issue, and will be deposited with the depositary. The depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The depositary holds securities that its participants deposit with the depositary. The depositary also facilitates the settlement among participants of securities transactions, including transfers and pledges, in deposited securities through electronic computerized book-entry changes to participants' accounts, thereby eliminating the need for physical movement of senior debt securities certificates. Direct participants of the depositary include securities brokers and dealers, including the initial purchasers of the outstanding securities, banks, trust companies, clearing corporations and certain other organizations. The depositary is owned by a number of its direct participants, including the initial purchasers of the outstanding securities and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the depositary's system is also available to indirect participants, which includes securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a direct participant, either directly or indirectly. The rules applicable to the depositary and its participants are on file with the SEC. Purchases of securities under the depositary's system must be made by or through direct participants, which will receive a credit for the securities on the depositary's record. The ownership interest of each beneficial owner, which is the actual purchaser of each security, represented by global securities, is in turn to be recorded on the direct and indirect participants' records. Beneficial owners will not receive written confirmation from the depositary of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participants through which the beneficial owner entered into the transaction. Transfers of ownership interests in the global securities representing the securities are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners of the global securities representing the securities will not receive certificated securities representing their ownership interests therein, except in the event that use of the book-entry system for the securities is discontinued. To facilitate subsequent transfers, all global securities representing the securities which are deposited with, or on behalf of, the depositary are registered in the name of the depositary's nominee, Cede & Co. The deposit of global securities with, or on behalf of, the depositary and their registration in the name of Cede & Co. effect no change in beneficial ownership. The depositary has no knowledge of the actual beneficial owners of the global securities representing the securities; the depositary's records reflect only the identity of the direct participants to whose accounts the securities are credited, which may or may not be the beneficial owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the depositary to direct participants, by direct participants to indirect participants, and by direct and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither the depositary nor Cede & Co. will consent or vote with respect to the global securities representing the securities. Under its usual procedure, the depositary mails an omnibus proxy to Liberty as soon as possible after the applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or voting rights to those direct participants to whose accounts the securities are credited on the applicable record date (identified in a listing attached to the omnibus proxy). 111 Principal, premium, if any, and/or interest payments on the global securities representing the securities will be made to the depositary. The depositary's practice is to credit direct participants' accounts on the applicable payment date in accordance with their respective holdings shown on the depositary's records unless the depositary has reason to believe that it will not receive payment on the date. Payments by participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of the participant and not of the depositary, the trustee or Liberty, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium, if any, and/or interest to the depositary is the responsibility of Liberty or the trustee, disbursement of the payments to direct participants will be the responsibility of the depositary, and disbursement of the payments to the beneficial owners will be the responsibility of direct and indirect participants. The depositary may discontinue providing its services as securities depositary with respect to the securities at any time by giving reasonable notice to Liberty or the trustee. Under such circumstances, in the event that a successor securities depositary is not obtained, certificated securities are required to be printed and delivered. Liberty may decide to discontinue use of the system of book-entry transfers through the depositary or a successor securities depositary. In that event, certificated securities will be printed and delivered. The depositary has further advised Liberty that management of the depositary is aware that some computer applications, systems, and the like for processing data ("Systems") that are dependent upon calendar dates, including dates before, on, and after January 1, 2000, may encounter "Year 2000 problems." The depositary has informed its participants and other members of the financial community (the "Industry") that it has developed and is implementing a program so that its Systems, as they relate to the timely payment of distributions (including principal and income payments) to securityholders, book-entry deliveries, and settlement of trades within the depositary, continue to function appropriately. This program includes a technical assessment and a remediation plan, each of which is complete. Additionally, the depositary's plan includes a testing phase, which is expected to be completed within appropriate time frames. However, the depositary's ability to perform properly its service is also dependent upon other parties, including but not limited to issuers and their agents, as well as the depositary's direct participants and indirect participants and third party vendors from whom the depositary licenses software and hardware, and third party vendors on whom the depositary relies for information or the provision of services, including telecommunication and electrical utility service providers, among others. The depositary has informed the Industry that it is contacting, and will continue to contact, third party vendors from whom the depositary acquires services to: (1) impress upon them the importance of the services being Year 2000 compliant, and (2) determine the extent of their efforts for Year 2000 remediation (and, as appropriate, testing) of their services. In addition, the depositary is in the process of developing such contingency plans as it deems appropriate. According to the depositary, the information in the preceding two paragraphs with respect to the depositary has been provided to the Industry for informational purposes only and is not intended to serve as a representation, warranty, or contract modification of any kind. Although the depositary, Euroclear and Cedelbank have agreed to the procedures described above in order to facilitate transfers of interests in the global securities among participants of the depositary, Euroclear and Cedelbank, they are under no obligation to perform or continue to perform these procedures, and these procedures may be discontinued at any time. Neither the trustee nor Liberty will have any responsibility for the performance by the depositary, Euroclear or Cedelbank or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Trading. Except for trades involving Euroclear and Cedelbank participants, beneficial interests in the global securities will trade in the depositary's same-day funds settlement System until maturity or earlier redemption, and secondary market trading activity in the global securities will therefore settle in immediately 112 available funds, subject in all cases to the rules and operating procedures of the depositary. Transfers between participants in the depositary will be effected in the ordinary way in accordance with the depositary's rules and operating procedures and will be settled in same-day funds, while transfers between participants in Euroclear and Cedelbank will be effected in the ordinary way in accordance with their respective rules and operating procedures. The information in this subsection "--Form, Denomination and Registration" concerning the depositary, Euroclear and Cedelbank and their respective book- entry systems has been obtained from sources that Liberty believes to be reliable, but Liberty takes no responsibility for its accuracy. Certain Covenants The indenture provides that the covenants set forth below will be applicable to Liberty and its Subsidiaries. Limitation on Liens. Liberty will not, and will not permit any Restricted Subsidiary to, create, incur or assume any Lien, except for Permitted Liens, on any Principal Property to secure the payment of Funded Indebtedness of Liberty or any Restricted Subsidiary if, immediately after the creation, incurrence or assumption of such Lien, the sum of (A) the aggregate outstanding principal amount of all Funded Indebtedness of Liberty and the Restricted Subsidiaries that is secured by Liens (other than Permitted Liens) on any Principal Property and (B) the Attributable Debt relating to any Sale and Leaseback Transaction which would otherwise be subject to the provisions of clause 2(A)(i) of the "Limitation on Sale and Leaseback" covenant would exceed 15% of the Consolidated Asset Value, unless effective provision is made whereby the securities (together with, if Liberty shall so determine, any other Funded Indebtedness ranking equally with the securities, whether then existing or thereafter created) are secured equally and ratably with (or prior to) such Funded Indebtedness (but only for so long as such Funded Indebtedness is so secured). The foregoing limitation on Liens shall not apply to the creation, incurrence or assumption of the following Liens ("Permitted Liens"): (1) Any Lien which arises out of a judgment or award against Liberty or any Restricted Subsidiary with respect to which Liberty or such Restricted Subsidiary at the time shall be prosecuting an appeal or proceeding for review (or with respect to which the period within which such appeal or proceeding for review may be initiated shall not have expired) and with respect to which it shall have secured a stay of execution pending such appeal or proceedings for review or with respect to which Liberty or such Restricted Subsidiary shall have posted a bond and established adequate reserves (in accordance with generally accepted accounting principles) for the payment of such judgment or award; (2) Liens on assets or property of a person existing at the time such person is merged into or consolidated with Liberty or any Restricted Subsidiary or becomes a Restricted Subsidiary; provided, that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not secure any property of Liberty or any Restricted Subsidiary other than the property and assets subject to the Liens prior to such merger, consolidation or acquisition; (3) Liens existing on the date of original issuance of the securities; (4) Liens securing Funded Indebtedness (including in the form of Capitalized Lease Obligations and purchase money indebtedness) incurred for the purpose of financing the cost (including without limitation the cost of design, development, site acquisition, construction, integration, manufacture or acquisition) of real or personal property (tangible or intangible) which is incurred contemporaneously therewith or within 60 days thereafter; provided (i) such Liens secure Funded Indebtedness in an amount not in excess of the cost of such property (plus an amount equal to the reasonable fees and expenses incurred in connection with the incurrence of such Funded Indebtedness) and (ii) such Liens do not extend to any property of Liberty or any Restricted Subsidiary other than the property for which such Funded Indebtedness was incurred; 113 (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure the securities; (7) Liens granted in favor of Liberty; and (8) Any Lien in respect of Funded Indebtedness representing the extension, refinancing, renewal or replacement (or successive extensions, refinancings, renewals or replacements) of Funded Indebtedness secured by Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above, provided that the principal of the Funded Indebtedness secured thereby does not exceed the principal of the Funded Indebtedness secured thereby immediately prior to such extension, renewal or replacement, plus any accrued and unpaid interest or capitalized interest payable thereon, reasonable fees and expenses incurred in connection therewith, and the amount of any prepayment premium necessary to accomplish any refinancing; provided, that such extension, renewal or replacement shall be limited to all or a part of the property (or interest therein) subject to the Lien so extended, renewed or replaced (plus improvements and construction on such property). Limitation on Sale and Leaseback. Liberty will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction; provided, that Liberty or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if: (1) the gross cash proceeds of the Sale and Leaseback Transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in a board resolution delivered to the trustee, of the Principal Property that is the subject of the Sale and Leaseback Transaction, and (2) either (A) Liberty or the Restricted Subsidiary, as applicable, either (i) could have incurred a Lien to secure Funded Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to the "Limitation on Liens" covenant, or (ii) makes effective provision whereby the securities (together with, if Liberty shall so determine, any other Funded Indebtedness ranking equally with the securities, whether then existing or thereafter created) are secured equally and ratably with (or prior to) the obligations of Liberty or the Restricted Subsidiary under the lease of the Principal Property that is the subject of the Sale and Leaseback Transaction, or (B) within 180 days, Liberty or the Restricted Subsidiary either (i) applies an amount equal to the fair market value of the Principal Property that is the subject of the Sale and Leaseback Transaction to purchase the securities or to retire other Funded Indebtedness, or (ii) enters into a bona fide commitment to expend for the acquisition or improvement of a Principal Property an amount at least equal to the fair market value of such Principal Property. Designation of Restricted Subsidiaries. Liberty may designate an Unrestricted Subsidiary as a Restricted Subsidiary or designate a Restricted Subsidiary as an Unrestricted Subsidiary at any time, provided that (1) immediately after giving effect to such designation, Liberty and its Restricted Subsidiaries would have been permitted to incur at least $1.00 of additional Funded Indebtedness secured by a Lien pursuant to the "Limitation on Liens" covenant, (2) no default or event of default shall have occurred and be continuing, and (3) an Officers' Certificate with respect to such designation is delivered to the trustee within 75 days after the end of the fiscal quarter of Liberty in which such designation is made (or, in the case of a designation made during the last fiscal quarter of Liberty's fiscal year, within 120 days after the end of such fiscal year), which Officers' Certificate shall state the effective date of such designation; Liberty has made the initial designation of all of its Subsidiaries as Restricted Subsidiaries and will deliver the required Officers' Certificate with respect thereto to the trustee, on or prior to the date of initial issuance of the securities. 114 Successor Corporation Liberty may not consolidate with or merge into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets and the properties and assets of its Subsidiaries (taken as a whole) to, any entity or entities (including limited liability companies) unless (1) the successor entity or entities, each of which shall be organized under the laws of the United States or a State thereof, shall assume by supplemental indenture all the obligations of Liberty under the securities and the indenture and (2) immediately after giving effect to the transaction or series of transactions, no default or event of default shall have occurred and be continuing. Thereafter, all such obligations of Liberty shall terminate. Events of Default The term "event of default" means any one of the following events with respect to any series of senior debt securities, including the notes and the debentures: (1) default in the payment of any interest on any senior debt security of the series, or any additional amounts payable with respect thereto, when the interest becomes or the additional amounts become due and payable, and continuance of the default for a period of 30 days; (2) default in the payment of the principal of or any premium on any senior debt security of the series, or any additional amounts payable with respect thereto, when the principal or premium becomes or the additional amounts become due and payable at their maturity; (3) failure of Liberty to comply with any of its obligations described above under "--Successor Corporation"; (4) default in the deposit of any sinking fund payment when and as due by the terms of a senior debt security of the series; (5) default in the performance, or breach, of any covenant or warranty of Liberty in the indenture or the senior debt securities (other than a covenant or warranty a default in the performance or the breach of which is elsewhere in the indenture specifically dealt with or which has been expressly included in the indenture solely for the benefit of a series of senior debt securities other than the relevant series), and continuance of the default or breach for a period of 60 days after there has been given, by registered or certified mail, to Liberty by the trustee or to Liberty and the trustee by the holders of at least 25% in principal amount of the outstanding senior debt securities of the series, a written notice specifying the default or breach and requiring it to be remedied and stating that the notice is a "Notice of Default" under the indenture; (6) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of Liberty, whether the Indebtedness now exists or shall hereafter be created, shall happen and shall result in Indebtedness in aggregate principal amount (or, if applicable, with an issue price and accreted original issue discount) in excess of $100 million becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and (i) the acceleration shall not be rescinded or annulled, (ii) such Indebtedness shall not have been paid or (iii) Liberty shall not have contested such acceleration in good faith by appropriate proceedings and have obtained and thereafter maintained a stay of all consequences that would have a material adverse effect on Liberty, in each case within a period of 30 days after there shall have been given, by registered or certified mail, to Liberty by the trustee or to Liberty and the trustee by the holders of at least 25% in principal amount of the outstanding senior debt securities of the series then outstanding, a written notice specifying the default or breaches and requiring it to be remedied and stating that the notice is a "Notice of Default" or other notice as prescribed in the indenture; provided, however, that if after the expiration of such period, such event of default shall be remedied or cured by Liberty or be waived by the holders of such Indebtedness in any manner authorized by such mortgage, indenture or instrument, then the event of default with respect to such series of senior debt securities or by reason thereof shall, without further action by Liberty, the trustee or any holder of senior debt securities of such series, be deemed cured and not continuing; 115 (7) the entry by a court having competent jurisdiction of: (a) a decree or order for relief in respect of Liberty or any Material Subsidiary in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law and the decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (b) a decree or order adjudging Liberty or any Material Subsidiary to be insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of Liberty or any Material Subsidiary and the decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (c) a final and non-appealable order appointing a custodian, receiver, liquidator, assignee, trustee or other similar official of Liberty or any Material Subsidiary or of any substantial part of the property of Liberty or any Material Subsidiary or ordering the winding up or liquidation of the affairs of Liberty; (8) the commencement by Liberty or any Material Subsidiary of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent by Liberty or any Material Subsidiary to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any insolvency proceedings against it, or the filing by Liberty or any Material Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by Liberty or any Material Subsidiary to the filing of the petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or similar official of Liberty or any Material Subsidiary or any substantial part of the property of Liberty or any Material Subsidiary or the making by Liberty or any Material Subsidiary of an assignment for the benefit of creditors, or the taking of corporate action by Liberty or any Material Subsidiary in furtherance of any such action; or (9) any other event of default provided in or pursuant to the indenture with respect to senior debt securities of the series. If an event of default with respect to senior debt securities of any series at the time outstanding (other than an event of default specified in clause (7) or (8) above) occurs and is continuing, then the trustee or the holders of not less than 25% in principal amount of the outstanding senior debt securities of the series may declare the principal of all the senior debt securities of the series, or such lesser amount as may be provided for in the senior debt securities of the series, to be due and payable immediately, by a notice in writing to Liberty (and to the trustee if given by the holders), and upon any declaration the principal or such lesser amount shall become immediately due and payable. If an event of default specified in clause (7) or (8) above occurs, all unpaid principal of and accrued interest on the outstanding senior debt securities of that series (or such lesser amount as may be provided for in the senior debt securities of the series) shall become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of any senior debt security of that series. At any time after a declaration of acceleration or automatic acceleration with respect to the senior debt securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of not less than a majority in principal amount of the outstanding senior debt securities of the series, by written notice to Liberty and the trustee, may rescind and annul the declaration and its consequences if: (1) Liberty has paid or deposited with the trustee a sum of money sufficient to pay all overdue installments of any interest on all senior debt securities of the series and additional amounts payable with respect thereto and the principal of and any premium on any senior debt securities of the series which have become due otherwise than by the declaration of acceleration and interest on the senior debt securities; and 116 (2) all events of default with respect to senior debt securities of the series, other than the non-payment of the principal of, any premium and interest on, and any additional amounts with respect to senior debt securities of the series which shall have become due solely by the acceleration, shall have been cured or waived. No rescission shall affect any subsequent default or impair any right consequent thereon. Certain Definitions The following are certain of the terms defined in the indenture: "Attributable Debt" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with generally accepted accounting principles. "Capitalized Lease Obligation" of any person means any obligation of such person to pay rent or other amounts under a lease with respect to any property (whether real, personal or mixed) acquired or leased by such person and used in its business that is required to be accounted for as a liability on the balance sheet of such person in accordance with generally accepted accounting principles and the amount of such Capitalized Lease Obligation shall be the amount so required to be accounted for as a liability. "Closing Price" means, with respect to any security on any date of determination, the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security on the NYSE on such date or, if such security is not listed for trading on the NYSE on such date, as reported in the composite transactions (or comparable system) for the principal United States national or regional securities exchange on which such security is so listed or a recognized international securities exchange, or, if such security is not listed on a U.S. national or regional securities exchange or on a recognized international securities exchange, as reported by the Nasdaq Stock Market, or, if such security is not so reported, the last quoted bid price for such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of such security on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by Liberty; provided that, (1) with respect to options, warrants and other rights to purchase Marketable Securities, the Closing Price shall be the value based on the Closing Price of the underlying Marketable Security minus the exercise price and (2) with respect to securities exchangeable for or convertible into Marketable Securities, the Closing Price shall be the Closing Price of the exchangeable or convertible security or, if it has no Closing Price, the fully converted value based upon the Closing Price of the underlying Marketable Security. "Consolidated Asset Value" shall mean, with respect to any date of determination, the sum of (A) the amount of cash of Liberty and its Restricted Subsidiaries on the last day of the preceding month, plus the following assets owned by Liberty and its Restricted Subsidiaries on the last day of the preceding month that have the indicated ratings and maturities no greater than 270 days: . the aggregate principal amount of certificates of deposit and bankers' acceptances rated A/2 or P/2 or higher by the Rating Agencies, . the aggregate principal amount of participations in loans with obligors with short-term ratings of A/2 or P/2 or higher by the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the Rating Agencies, and . the aggregate principal amount of repurchase agreements of securities issued by the U.S. government or any agency thereof with counterparties with short-term ratings of A/2 or P/2 or higher by the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the Rating Agencies, and 117 . the aggregate principal amount at maturity of commercial paper rated A/2 or P/2 or higher by the Rating Agencies, (B) the aggregate value of all Marketable Securities owned by Liberty and its Restricted Subsidiaries based upon the Closing Price of each Marketable Security on the last day of the preceding month, or if such day is not a Trading Day, on the immediately preceding Trading Day, and (C) the arithmetic mean of the aggregate market values (or the midpoint of a range of values) of the assets of Liberty and its Restricted Subsidiaries having a value in excess of $200 million, other than the assets referred to in clauses (A) and (B) above, as of a date within 90 days of the date of determination (or to the extent the research reports referred to below have not been issued within such 90-day period, as of a date within 180 days of the date of determination) as evidenced either . by research reports issued by three nationally recognized independent investment banking firms selected by Liberty or . if three such research reports have not been issued within 180 days prior to the date of determination, by an appraisal by two nationally recognized independent investment banking or appraisal firms retained by Liberty for this purpose. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Fair market value shall be determined by the Board of Directors of Liberty acting in good faith evidenced by a board resolution thereof delivered to the trustee. "Funded Indebtedness" of any person means, as of the date as of which the amount thereof is to be determined, without duplication, all Indebtedness of such person and all Capitalized Lease Obligations of such person, which by the terms thereof have a final maturity, duration or payment date more than one year from the date of determination thereof (including, without limitation, any balance of such Indebtedness or obligation which was Funded Indebtedness at the time of its creation maturing within one year from such date of determination) or which has a final maturity, duration or payment date within one year from such date of determination but which by its terms may be renewed or extended at the option of such person for more than one year from such date of determination, whether or not theretofore renewed or extended; provided, however, "Funded Indebtedness" shall not include (1) any Indebtedness of Liberty or any Subsidiary to Liberty or another Subsidiary, (2) any guarantee by Liberty or any Subsidiary of Indebtedness of Liberty or another Subsidiary, provided that such guarantee is not secured by a Lien on any Principal Property, (3) any guarantee by Liberty or any Subsidiary of the Indebtedness of any person (including, without limitation, a business trust), if the obligation of Liberty or such Subsidiary under such guaranty is limited in amount to the amount of funds held by or on behalf of such person that are available for the payment of such Indebtedness, (4) liabilities under interest rate swap, exchange, collar or cap agreements and all other agreements or arrangements designed to protect against fluctuations in interest rates or currency exchange rates, and (5) liabilities under commodity hedge, commodity swap, exchange, collar or cap agreements, fixed price agreements and all other agreements or arrangements designed to protect against fluctuations in prices. For purposes of determining the outstanding principal amount of Funded Indebtedness at any date, the amount of Indebtedness issued at a price less than the principal amount at maturity thereof shall be equal to the amount of the liability in respect thereof at such date determined in accordance with generally accepted accounting principles. "Indebtedness" of any person means: (1) any indebtedness of such person (i) for borrowed money or (ii) evidenced by a note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any property or assets, including securities; (2) any guarantee by such person of any indebtedness of others described in the preceding clause (1); and 118 (3) any amendment, renewal, extension or refunding of any such indebtedness or guarantee. "Liberty" means Liberty Media Corporation, a Delaware corporation, until a successor replaces it pursuant to the applicable provisions of the indenture and thereafter means the successor. "Lien" means any mortgage, pledge, lien, security interest, or other similar encumbrance. "Marketable Securities" means any securities listed on a U.S. national securities exchange or reported by the Nasdaq Stock Market or listed on a recognized international securities exchange or traded in the over-the-counter market and quoted by at least two broker-dealers as reported by the National Quotation Bureau or similar organization, including as Marketable Securities options, warrants and other rights to purchase, and securities exchangeable for or convertible into, Marketable Securities. "Material Subsidiary" means, at any relevant time, any Subsidiary that meets any of the following conditions: (1) Liberty's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total consolidated assets of Liberty and its Subsidiaries; or (2) Liberty's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total consolidated assets of Liberty and its Subsidiaries; or (3) Liberty's and its other Subsidiaries' proportionate share of the total revenues (after intercompany eliminations) of the Subsidiary exceeds 10% of the total consolidated revenue of Liberty and its Subsidiaries; or (4) Liberty's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of Liberty and its Subsidiaries; all as calculated by reference to the then latest fiscal year-end accounts (or consolidated fiscal year-end accounts, as the case may be) of such Subsidiary and the then latest audited consolidated fiscal year-end accounts of Liberty and its Subsidiaries. Based on the 1998 fiscal year-end accounts, as of the date of this prospectus, the only Material Subsidiary of Liberty is Encore Media Group LLC. "Nasdaq Stock Market" means The Nasdaq Stock Market, a subsidiary of the National Association of Securities Dealers, Inc. "Principal Property" means, as of any date of determination, (a) any cable system or manufacturing or production facility, including land and buildings and other improvements thereon and equipment located therein, owned by Liberty or a Restricted Subsidiary and used in the ordinary course of its business and (b) any executive offices, administrative buildings, and research and development facilities, including land and buildings and other improvements thereon and equipment located therein, of Liberty or a Restricted Subsidiary, other than any such property which, in the good faith opinion of the Board of Directors, is not of material importance to the business conducted by Liberty and its Restricted Subsidiaries taken as a whole. "Rating Agencies" means (i) Standard & Poors, a division of The McGraw-Hill Companies, Inc. and (ii) Moody's Investors Service, Inc. and (iii) if S&P or Moody's or both shall not make a rating publicly available, a nationally recognized United States securities rating agency or agencies, as the case may be, selected by Liberty, which shall be substituted for S&P or Moody's or both, as the case may be. "Restricted Subsidiary" means, as of any date of determination, a corporation a majority of whose voting stock is owned by Liberty and/or one or more Restricted Subsidiaries, which corporation has been, or is then being, designated a Restricted Subsidiary in accordance with the "Designation of Restricted Subsidiaries" covenant, unless and until designated an Unrestricted Subsidiary in accordance with such covenant. 119 "Sale and Leaseback Transaction" means any arrangement providing for the leasing to Liberty or a Restricted Subsidiary of any Principal Property (except for temporary leases for a term, including renewals, of not more than three years) which has been or is to be sold by Liberty or such Restricted Subsidiary to the lessor. "Subsidiary" means any corporation, association, limited liability company, partnership or other business entity of which a majority of the total voting power of the capital stock or other interests (including partnership interests) entitled (without regard to the incurrence of a contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned, directly or indirectly, by (i) Liberty, (ii) Liberty and one or more of its Subsidiaries or (iii) one or more Subsidiaries of Liberty. "Trading Day" means, with respect to any security the Closing Price of which is being determined, a day on which there is trading on the principal United States national or regional securities exchange or recognized international securities exchange, in the Nasdaq Stock Market or in the over-the-counter market used to determine such Closing Price. "Unrestricted Subsidiary" means, as of any date of determination, any Subsidiary of Liberty that is not a Restricted Subsidiary. Modification and Waiver Modification and amendments of the indenture may be made by Liberty and the trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding senior debt securities of each series affected thereby; provided, however, that no modification or amendment may, without the consent of the holder of each outstanding senior debt security affected thereby, (1) change the stated maturity of the principal of, or any premium or installment of interest on, or any additional amounts with respect to, any senior debt security, (2) reduce the principal amount of, or the rate (or modify the calculation of the rate) of interest on, or any additional amounts with respect to, or any premium payable upon the redemption of, any senior debt security, (3) change the redemption provisions of any senior debt security or adversely affect the right of repayment at the option of any holder of any senior debt security, (4) change the place of payment or the coin or currency in which the principal of, any premium or interest on or any additional amounts with respect to any senior debt security is payable, (5) impair the right to institute suit for the enforcement of any payment on or after the stated maturity of any senior debt security (or, in the case of redemption, on or after the redemption date or, in the case of repayment at the option of any holder, on or after the date for repayment), (6) reduce the percentage in principal amount of the outstanding senior debt securities, the consent of whose holders is required in order to take certain actions, (7) reduce the requirements for quorum or voting by holders of senior debt securities as provided in the indenture, (8) modify any of the provisions in the indenture regarding the waiver of past defaults and the waiver of certain covenants by the holders of senior debt securities except to increase any percentage vote required or to provide that certain other provisions of the indenture cannot be modified or waived without the consent of the holder of each senior debt security affected thereby, or (9) modify any of the above provisions. 120 The holders of at least a majority in aggregate principal amount of the senior debt securities of any series may, on behalf of the holders of all senior debt securities of the series, waive compliance by Liberty with certain restrictive provisions of the indenture. The holders of not less than a majority in aggregate principal amount of the outstanding senior debt securities of any series may, on behalf of the holders of all senior debt securities of the series, waive any past default and its consequences under the indenture with respect to the senior debt securities of the series, except a default . in the payment of principal (or premium, if any), or any interest on or any additional amounts with respect to senior debt securities of the series, or . in respect of a covenant or provision of the indenture that cannot be modified or amended without the consent of the holder of each senior debt security of any series. Under the indenture, Liberty is required to furnish the trustee annually a statement as to performance by Liberty of certain of its obligations under the indenture and as to any default in the performance. Liberty is also required to deliver to the trustee, within five days after becoming aware thereof, written notice of any event of default or any event which after notice or lapse of time or both would constitute an event of default. Discharge, Defeasance and Covenant Defeasance Liberty may discharge certain obligations to holders of any series of senior debt securities that have not already been delivered to the trustee for cancellation and that either have become due and payable or will become due and payable within one year (or scheduled for redemption within one year) by depositing with the trustee, in trust, funds in U.S. dollars in an amount sufficient to pay the entire indebtedness on the senior debt securities with respect to principal (and premium, if any) and interest to the date of the deposit (if the senior debt securities have become due and payable) or to the maturity thereof, as the case may be. The indenture provides that, unless the provisions of Section 402 thereof are made inapplicable to the senior debt securities of or within any series pursuant to Section 301 thereof, Liberty may elect either . to defease and be discharged from any and all obligations with respect to the senior debt securities (except for, among other things, the obligation to pay additional amounts, if any, upon the occurrence of certain events of taxation, assessment or governmental charge with respect to payments on the senior debt securities and other obligations to register the transfer or exchange of the senior debt securities, to replace temporary or mutilated, destroyed, lost or stolen senior debt securities, to maintain an office or agency with respect to the senior debt securities and to hold moneys for payment in trust) ("defeasance") or . to be released from its obligations with respect to the senior debt securities under the covenants described under "--Certain Covenants" above or, if provided pursuant to Section 301 of the indenture, its obligations with respect to any other covenant, and any omission to comply with the obligations shall not constitute a default or an event of default with respect to the senior debt securities ("covenant defeasance"). Defeasance or covenant defeasance, as the case may be, shall be conditioned upon the irrevocable deposit by Liberty with the trustee, in trust, of an amount in U.S. dollars at stated maturity, or Government Obligations, which is defined below, or both, applicable to the senior debt securities which through the scheduled payment of principal and interest in accordance with their terms will provide money in an amount sufficient to pay the principal of (and premium, if any) and interest on the senior debt securities on the scheduled due dates therefor. Such a trust may only be established if, among other things, . the applicable defeasance or covenant defeasance does not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to which Liberty is a party or by which it is bound, and 121 . Liberty has delivered to the trustee an Opinion of Counsel (as specified in the indenture) to the effect that the holders of the senior debt securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the defeasance or covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if the defeasance or covenant defeasance had not occurred, and the Opinion of Counsel, in the case of defeasance, must refer to and be based upon a letter ruling of the Internal Revenue Service received by Liberty, a Revenue Ruling published by the Internal Revenue Service or a change in applicable U.S. federal income tax law occurring after the date of the indenture. "Government Obligations" means senior debt securities which are (1) direct obligations of the United States of America or the government or the governments in the confederation which issued the Currency in which the senior debt securities of a particular series are payable, for the payment of which its full faith and credit is pledged or (2) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such other government or governments, the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, which, in the case of clauses (1) and (2), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to the Government Obligation or a specific payment of interest on or principal of or any other amount with respect to the Government Obligation held by the custodian for the account of the holder of the depositary receipt, provided that (except as required by law) the custodian is not authorized to make any deduction from the amount payable to the holder of the depositary receipt from any amount received by the custodian with respect to the Government Obligation or the specific payment of interest on or principal of or any other amount with respect to the Government Obligation evidenced by the depositary receipt. In the event Liberty effects covenant defeasance with respect to any senior debt securities and the senior debt securities are declared due and payable because of the occurrence of any event of default other than an event of default with respect to sections 1005 and 1006 of the indenture (which sections would no longer be applicable to the senior debt securities after the covenant defeasance) or with respect to any other covenant as to which there has been covenant defeasance, the amount in the Currency in which the senior debt securities are payable, and Government Obligations on deposit with the trustee, will be sufficient to pay amounts due on the senior debt securities at the time of the stated maturity but may not be sufficient to pay amounts due on the senior debt securities at the time of the acceleration resulting from the event of default. However, Liberty would remain liable to make payment of the amounts due at the time of acceleration. Governing Law The indenture and the exchange securities will be governed by, and construed in accordance with, the laws of the State of New York. Regarding the Trustee The trustee is permitted to engage in other transactions with Liberty and its subsidiaries from time to time, provided that if the trustee acquires any conflicting interest it must eliminate the conflict upon the occurrence of an event of default, or else resign. Registration Rights; Additional Interest Holders of exchange securities are not entitled to any registration rights with respect to the exchange securities. Holders of outstanding securities are entitled to certain registration rights pursuant to the registration rights agreement. 122 In the registration rights agreement, we agreed to keep this exchange offer open for not less than 20 business days (or longer if required by applicable law) after the date notice of this exchange offer is mailed to the holders of the outstanding securities. See "The Exchange Offer." We further agreed that: . if we determine, after consultation with counsel, that any changes in law, SEC rules or regulations or applicable interpretations thereof by the SEC staff do not permit us to consummate the exchange offer, . if for any other reason, the exchange offer is not consummated by January 26, 2000, which is 210 days after the original issue date of the outstanding securities, . if any initial purchaser requests with respect to securities representing an unsold allotment from the original sale of the outstanding securities, or . if any holder of outstanding securities notifies us within 30 days after the commencement of the exchange offer that (1) due to a change in law or policy it is not entitled to participate in the exchange offer, (2) due to a change in law or policy it is not permitted to resell the exchange securities to the public without delivering a prospectus and this prospectus is not appropriate or available, or (3) it is a broker- dealer and owns outstanding securities acquired directly from us or our affiliate; we will, in lieu of effecting the registration of the exchange securities pursuant to the registration statement of which this prospectus is a part: . as promptly as practicable, file with the SEC a shelf registration statement covering resales of the outstanding securities, . use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act not later than January 26, 2000, which is 210 days after the original issue date of the outstanding securities, . use our reasonable best efforts to keep effective the shelf registration statement until July 7, 2001, which is two years after the original issue date of the outstanding securities, or until all of the outstanding securities covered by the shelf registration statement have been sold or otherwise cease to be "Registrable Securities" within the meaning of the registration rights agreement, and . use our reasonable best efforts to ensure that . the shelf registration statement and any amendment thereto and any prospectus included therein complies in all material respects with the Securities Act, and . the shelf registration statement and any amendment thereto and any prospectus included therein does not, when it becomes effective, contain an untrue statement of a material fact. We will, in the event of the filing of a shelf registration statement, provide to each holder of outstanding securities that are covered by the shelf registration statement copies of the prospectus which is a part of the shelf registration statement and notify each such holder when the shelf registration statement has become effective. A holder of outstanding securities that sells the outstanding securities pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with the sales and will be bound by the provisions of the registration rights agreement which are applicable to the holder (including certain indemnification obligations). Each outstanding security contains a legend to the effect that the holder of that security, by its acceptance thereof, has agreed to be bound by the provisions of the registration rights agreement. In that regard, if a holder receives notice from Liberty that any event which . makes any statement in the prospectus which is part of the shelf registration statement (or, in the case of participating broker-dealers, this prospectus) untrue in any material respect, or 123 . requires the making of any changes in the prospectus to make the statements therein not misleading, or . is specified in the registration rights agreement occurs, the holder (or participating broker-dealer, as the case may be) will suspend the sale of securities pursuant to that prospectus until Liberty has . either . amended or supplemented the prospectus to correct the misstatement or omission and . furnished copies of the amended or supplemented prospectus to the holder (or participating broker-dealer, as the case may be) or, . given notice that the sale of the securities may be resumed, as the case may be. If a registration default occurs, which means that the exchange offer is not consummated or a shelf registration statement with respect to the securities is not declared effective on or prior to January 26, 2000, which is 210 days after the original issue date of the outstanding securities, then the interest rate borne by the securities that are affected by the registration default with respect to the first 90-day period, or portion thereof, will be increased by an additional interest of 0.25% per annum upon the occurrence of each registration default. The amount of additional interest will increase by an additional 0.25% each 90-day period, or portion thereof, while a registration default is continuing until all registration defaults have been cured, provided that the maximum aggregate increase in the interest rate will in no event exceed one percent (1%) per annum. Upon . the consummation of the exchange offer; . the effectiveness of the shelf registration statement after January 26, 2000; or . the date on which all exchange securities are saleable pursuant to Rule 144(k) under the Securities Act or any successor provision, the interest rate on the securities will be reduced, in the case of the notes to 7 7/8%, and in the case of the debentures to 8 1/2%, if Liberty is otherwise in compliance with this paragraph. If after any such reduction in interest rate, a different event specified above occurs, the interest rate will again be increased pursuant to the foregoing provisions. If the shelf registration statement is unusable by the holders for any reason for more than 30 days, then the interest rate borne by the securities will be increased by 0.25% per annum of the principal amount of the securities for the first 90-day period (or portion thereof) beginning on the 31st day that the shelf registration statement ceased to be usable. This interest rate will be increased by an additional 0.25% per annum of the principal amount of the securities at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate will in no event exceed one percent (1%) per annum. Any amounts payable under this paragraph shall also be deemed "additional interest" for purposes of the registration rights agreement. Upon the shelf registration statement once again becoming usable, the interest rate borne by the securities will be reduced to the original interest rate if Liberty is otherwise in compliance with the registration rights agreement at such time. Additional interest shall be computed based on the actual number of days elapsed in each 90-day period in which the shelf registration statement is unusable. Liberty shall notify the trustee within three business days of an event date, which is each and every date on which an event occurs in respect of which additional interest is required to be paid. Additional interest shall be paid by depositing with the trustee, in trust, for the benefit of the holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the additional interest then due. The additional interest due shall be payable on each interest payment date to the record holder of securities entitled to receive the interest payment to be paid on such date as set forth in the indenture. Each obligation to pay additional interest shall be deemed to accrue from and including the day following the applicable event date. 124 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of the material United States federal income tax consequences to holders of outstanding securities who exchange their outstanding securities for exchange securities in the exchange offer. This discussion is based on currently existing provisions of the Internal Revenue Code, the applicable Treasury Regulations promulgated and proposed thereunder, judicial authority and current administrative rulings and practice, all of which are subject to change, possibly with retroactive effect, or different interpretation. There can be no assurance that the Internal Revenue Service will not challenge one or more of the conclusions described herein, and Liberty has not obtained, nor does it intend to obtain, a ruling from the Internal Revenue Service or an opinion of counsel with respect to the United States federal income tax consequences of the exchange of outstanding securities for exchange securities. This discussion is limited to holders of outstanding securities who hold the outstanding securities as capital assets, within the meaning of section 1221 of the Internal Revenue Code. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to holders of outstanding securities and exchange securities in light of their personal circumstances or to some types of holders of outstanding securities and exchange securities including financial institutions, insurance companies, tax exempt entities, dealers in securities or persons who have hedged the risk of owning a security. In addition, this discussion does not address any tax consequences arising under the laws of any state, locality or foreign jurisdiction, or any estate or gift tax considerations. The exchange of outstanding securities for exchange securities pursuant to the exchange offer should not be treated as a taxable exchange for United States federal income tax purposes. Accordingly, a holder should have the same adjusted tax basis and holding period in the exchange securities as it had in the outstanding securities immediately before the exchange. 125 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange securities for its own account under the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of the exchange securities. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker- dealer in connection with resales of exchange securities received in exchange for outstanding securities where the outstanding securities were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 90 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. We will not receive any proceeds from any sale of exchange securities by broker-dealers or any other holder of exchange securities. Exchange securities received by broker-dealers for their own account under the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange securities or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or at negotiated prices. The resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any of these broker-dealers and/or the purchasers of any such exchange securities. Any broker-dealer that resells exchange securities that were received by it for its own account in the exchange offer or participates in a distribution of the exchange securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on their resale of exchange securities and any commissions or concessions received by them may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver a prospectus and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, including the reasonable expenses of one counsel for the holders of the outstanding securities, other than commissions or concessions of any brokers or dealers. In addition, we will indemnify the holders of the outstanding securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 126 LEGAL MATTERS Certain legal matters with respect to the validity of the exchange securities offered hereby will be passed upon for us by Baker & Botts, L.L.P., New York, New York. EXPERTS The consolidated financial statements of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997, and for each of the years in the three-year period ended December 31, 1998, have been included herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Sprint Spectrum Holding Company, L.P. and subsidiaries as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, included in this prospectus and the related financial statement schedule included elsewhere in this registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ---------------- WHERE TO FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-4 under the Securities Act with respect to the exchange securities offered by this prospectus. This prospectus, which forms a part of the registration statement, does not contain all the information included in the registration statement. You should refer to the registration statement, including its exhibits and schedules, for further information about us or the exchange securities offered by this prospectus. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and, where any contract or other document is an exhibit to the registration statement, each statement is qualified by the relevant provisions in the applicable exhibit to which we make reference and we refer you to that exhibit for a more complete description of the matter involved. We are not currently subject to the informational requirements of the Securities Exchange Act of 1934. However, as a result of this offering of exchange securities, we will become subject to the informational requirements of the Securities Exchange Act. Accordingly, following this offering, we will file reports and other information with the SEC. In addition, AT&T files annual, quarterly and special reports, proxy statements and other information with the SEC, and such reports, proxy statements and other information may contain important information about us. AT&T has agreed, pursuant to the Inter- Group Agreement, that for so long as Liberty Media Group tracking stock is outstanding, AT&T will prepare and include in its SEC filings consolidated financial statements of AT&T and combined financial statements of the Liberty Media Group (of which we are the primary operating unit). You may read and copy the registration statement and the reports and other information we file and any reports and other information AT&T files at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings and AT&T's SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at www.sec.gov. Additionally, we have agreed that, even if we are not required to file periodic reports and information with the SEC, for so long as any exchange securities remain outstanding we will furnish to you the information that would be required to be furnished by us under Section 13 of the Securities Exchange Act. ---------------- 127 INDEX TO FINANCIAL STATEMENTS
Page ---- Liberty Media Corporation Audited Consolidated Financial Statements Independent Auditors' Report.......................................... F-2 Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-3 Consolidated Statements of Operations and Comprehensive Earnings for the years ended December 31, 1998, 1997 and 1996..................... F-5 Consolidated Statements of Stockholder's Equity for the years ended December 31, 1998, 1997 and 1996..................................... F-6 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.................................................. F-7 Notes to Consolidated Financial Statements............................ F-8 Unaudited Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998................................................................. F-37 Consolidated Statements of Operations and Comprehensive Earnings for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998...................... F-39 Consolidated Statements of Stockholder's Equity for the four months ended June 30, 1999 and the two months ended February 28, 1999....... F-40 Consolidated Statements of Cash Flows for the four months ended June 30, 1999, the two months ended February 28, 1999 and the six months ended June 30, 1998.................................................. F-41 Notes to Consolidated Financial Statements............................ F-42 Sprint Spectrum Holding Company, L.P. Audited Consolidated Financial Statements Report of Independent Auditors........................................ F-55 Consolidated Statements of Operations for the years ended December 31, 1998, 1997 and 1996.................................................. F-56 Consolidated Balance Sheets as of December 31, 1998 and 1997.......... F-57 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.................................................. F-58 Notes to Consolidated Financial Statements............................ F-59 Schedule II--Consolidated Valuation and Qualifying Accounts........... F-70
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholder Liberty Media Corporation: We have audited the accompanying consolidated balance sheets of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations and comprehensive earnings, stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Denver, Colorado March 9, 1999 F-2 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED BALANCE SHEETS December 31, 1998 and 1997
1998 1997 ------- ----- amounts in millions Assets Current assets: Cash and cash equivalents..................................... $ 228 100 Marketable securities......................................... 159 248 Trade and other receivables, net.............................. 142 109 Prepaid expenses and committed program rights................. 263 221 Other current assets.......................................... 21 6 ------- ----- Total current assets........................................ 813 684 ------- ----- Investments in affiliates, accounted for under the equity method, and related receivables (note 5)....................... 3,079 2,359 Investment in Time Warner, Inc. ("Time Warner") (note 6)........ 7,083 3,538 Investment in Sprint Corporation ("Sprint") (notes 2 and 5)..... 2,446 -- Other investments and related receivables (note 7).............. 1,010 433 Property and equipment, at cost................................. 279 269 Less accumulated depreciation................................. 124 93 ------- ----- 155 176 ------- ----- Intangible assets: Excess cost over acquired net assets.......................... 940 429 Franchise costs............................................... 99 78 ------- ----- 1,039 507 Less accumulated amortization............................... 140 61 ------- ----- 899 446 ------- ----- Other assets, at cost, net of accumulated amortization.......... 82 99 ------- ----- Total assets................................................ $15,567 7,735 ======= =====
F-3 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED BALANCE SHEETS--(Continued) December 31, 1998 and 1997
1998 1997 ------- ----- amounts in millions Liabilities and Stockholder's Equity Current liabilities: Accounts payable............................................... $ 49 28 Accrued liabilities............................................ 199 157 Accrued stock compensation..................................... 126 70 Program rights payable......................................... 156 156 Customer prepayments........................................... 124 103 Deferred option premium (note 6)............................... -- 306 Current portion of debt........................................ 184 31 ------- ----- Total current liabilities.................................... 838 851 ------- ----- Long-term debt (note 9).......................................... 1,912 754 Deferred income taxes (note 10).................................. 3,366 1,015 Other liabilities................................................ 89 20 ------- ----- Total liabilities............................................ 6,205 2,640 ------- ----- Minority interests in equity of subsidiaries (notes 5, 8 and 11)............................................................. 132 374 Stockholder's equity (note 11): Preferred stock, $.0001 par value. Authorized 100,000 shares; no shares issued and outstanding.............................. -- -- Class A common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares .................. -- -- Class B common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares .................. -- -- Class C common stock, $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares .................. -- -- Additional paid-in capital..................................... 4,682 3,610 Accumulated other comprehensive earnings, net of taxes (note 13)........................................................... 3,186 767 Retained earnings.............................................. 952 330 ------- ----- 8,820 4,707 Due to related parties......................................... 410 14 ------- ----- Total stockholder's equity................................... 9,230 4,721 ------- ----- Commitments and contingencies (note 14) Total liabilities and stockholder's equity................... $15,567 7,735 ======= =====
See accompanying notes to consolidated financial statements. F-4 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------- ----- ------ amounts in millions Revenue: Unaffiliated parties................................. $ 1,197 1,070 998 Related parties (note 11)............................ 162 155 30 Net sales from electronic retailing services......... -- -- 1,180 ------- ----- ------ 1,359 1,225 2,208 ------- ----- ------ Cost of sales, operating costs and expenses: Cost of sales........................................ -- -- 816 Operating............................................ 729 627 698 Selling, general and administrative.................. 387 342 455 Charges from related parties (note 11)............... 27 97 139 Stock compensation (note 11)......................... 518 296 (6) Depreciation and amortization........................ 129 123 172 ------- ----- ------ 1,790 1,485 2,274 ------- ----- ------ Operating loss..................................... (431) (260) (66) Other income (expense): Interest expense..................................... (104) (40) (53) Interest expense (income) to related parties, net (note 11)........................................... (9) (15) 11 Dividend and interest income......................... 65 59 35 Share of losses of affiliates, net (note 5).......... (1,002) (785) (332) Minority interests in losses (earnings) of subsidiaries........................................ 13 (10) 18 Gains on dispositions, net (notes 5, 6 and 7)........ 2,449 406 1,558 Gains on issuance of equity by affiliates and subsidiaries (notes 5 and 8).............................................. 105 -- -- Other, net........................................... (3) -- 3 ------- ----- ------ 1,514 (385) 1,240 ------- ----- ------ Earnings (loss) before income taxes................ 1,083 (645) 1,174 Income tax (expense) benefit (note 10)................. (461) 175 (433) ------- ----- ------ Net earnings (loss)................................ $ 622 (470) 741 ------- ----- ------ Other comprehensive earnings, net of taxes: Foreign currency translation adjustments............. 2 (23) 35 Unrealized holding gains arising during the period, net of reclassification adjustments................. 2,417 747 (319) ------- ----- ------ Other comprehensive earnings (loss).................. 2,419 724 (284) ------- ----- ------ Comprehensive earnings (note 13)....................... $ 3,041 254 457 ======= ===== ======
See accompanying notes to consolidated financial statements. F-5 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY Years ended December 31, 1998, 1997 and 1996
Accumulated other Common stock Additional comprehensive Due to Total Preferred ----------------------- paid-in earnings, Retained related stockholder's stock Class A Class B Class C captial net of taxes earnings parties equity --------- ------- ------- ------- ---------- ------------- -------- ------- ------------- amounts in millions Balance at January 1, 1996................... $-- -- -- -- 3,030 327 59 314 3,730 Net earnings........... -- -- -- -- -- -- 741 -- 741 Foreign currency translation adjustments........... -- -- -- -- -- 35 -- -- 35 Recognition of previously unrealized gains on available- for-sale securities... -- -- -- -- -- (356) -- -- (356) Unrealized gains on available-for-sale securities............ -- -- -- -- -- 37 -- -- 37 Other transfers from (to) related parties, net.......... -- -- -- -- 465 -- -- (137) 328 ---- --- --- --- ----- ----- ----- ----- ----- Balance at December 31, 1996................... -- -- -- -- 3,495 43 800 177 4,515 Net loss............... -- -- -- -- -- -- (470) -- (470) Foreign currency translation adjustments........... -- -- -- -- -- (23) -- -- (23) Unrealized gains on available-for-sale securities............ -- -- -- -- -- 747 -- -- 747 Excess of consideration paid over carryover basis of net assets acquired from related party................. -- -- -- -- (86) -- -- -- (86) Gain in connection with issuance of stock of affiliate (note 5).... -- -- -- -- 66 -- -- -- 66 Issuance of stock by subsidiary............ -- -- -- -- 19 -- -- -- 19 Excess of cash received over carryover basis of SUMMITrak Assets... -- -- -- -- 30 -- -- -- 30 Contribution to equity from Tele-Communications, Inc. ("TCI") for acquisitions.......... -- -- -- -- 30 -- -- -- 30 Other transfers from (to) related parties, net.......... -- -- -- -- 56 -- -- (163) (107) ---- --- --- --- ----- ----- ----- ----- ----- Balance at December 31, 1997................... -- -- -- -- 3,610 767 330 14 4,721 Net earnings........... -- -- -- -- -- -- 622 -- 622 Foreign currency translation adjustments........... -- -- -- -- -- 2 -- -- 2 Unrealized gains on available-for-sale securities............ -- -- -- -- -- 2,417 -- -- 2,417 Payments for call agreements............ -- -- -- -- (140) -- -- -- (140) Gains in connection with issuances of stock of affiliates (note 5).............. -- -- -- -- 68 -- -- -- 68 Gain in connection with the issuance of stock by subsidiary (note 8).................... -- -- -- -- 2 -- -- -- 2 Transfers from related party due to acquisitions of minority interests (note 8).............. -- -- -- -- 772 -- -- -- 772 Assignment of option from related party.... -- -- -- -- 16 -- -- (16) -- Transfer from related party for acquisition of cost investment (note 14)............. -- -- -- -- 354 -- -- -- 354 Other transfers from related parties, net.. -- -- -- -- -- -- -- 412 412 ---- --- --- --- ----- ----- ----- ----- ----- Balance at December 31, 1998................... $-- -- -- -- 4,682 3,186 952 410 9,230 ==== === === === ===== ===== ===== ===== =====
See accompanying notes to consolidated financial statements. F-6 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------- ---- ------- amounts in millions (see note 4) Cash flows from operating activities: Net earnings (loss).................................... $ 622 (470) 741 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 129 123 172 Stock compensation..................................... 518 296 (6) Payments of stock compensation......................... (58) (75) (1) Share of losses of affiliates, net..................... 1,002 785 332 Deferred income tax expense............................ 546 11 484 Intercompany tax allocation............................ (89) (189) (54) Minority interests in (losses) earnings of subsidiaries.......................................... (13) 10 (18) Gains on issuance of equity by affiliates and subsidiaries.......................................... (105) -- -- Gains on disposition of assets, net.................... (2,449) (406) (1,558) Other noncash charges.................................. -- 32 18 Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: Change in receivables................................. (56) 6 (41) Change in prepaid expenses and committed program rights............................................... (65) (1) (11) Change in payables, accruals and customer prepayments.......................................... 44 27 27 ------- ---- ------- Net cash provided by operating activities............ 26 149 85 ------- ---- ------- Cash flows from investing activities: Cash paid for acquisitions............................. (92) (41) (168) Capital expended for property and equipment............ (60) (110) (149) Cash balances of deconsolidated subsidiaries........... -- (39) -- Investments in and loans to affiliates and others...... (1,404) (580) (536) Return of capital from affiliates...................... 12 5 6 Collections on loans to affiliates and others.......... -- 133 24 Cash proceeds from dispositions........................ 423 268 170 Other, net............................................. -- (6) (45) ------- ---- ------- Net cash used by investing activities................ (1,121) (370) (698) ------- ---- ------- Cash flows from financing activities: Borrowings of debt..................................... 2,199 661 465 Repayments of debt..................................... (609) (341) (628) Issuance of debentures................................. -- -- 345 Payments for call agreements........................... (140) -- -- Cash transfers (to) from related parties............... (215) (428) 372 Contributions by minority shareholders of subsidiaries.......................................... -- 4 319 Other, net............................................. (12) (9) (9) ------- ---- ------- Net cash provided (used) by financing activities..... 1,223 (113) 864 ------- ---- ------- Effect of exchange rate changes on cash.............. -- -- 4 ------- ---- ------- Net increase (decrease) in cash and cash equivalents........................................ 128 (334) 255 Cash and cash equivalents at beginning of year...... 100 434 179 ------- ---- ------- Cash and cash equivalents at end of year............ $ 228 100 434 ======= ==== =======
See accompanying notes to consolidated financial statements. F-7 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998, 1997 and 1996 (1) Basis of Presentation The accompanying consolidated financial statements include the accounts of Liberty Media Corporation ("Liberty" or the "Company") and those of all majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company is a wholly owned subsidiary of TCI. Effective March 9, 1999, AT&T Corp. ("AT&T") indirectly owns 100% of the outstanding common stock of the Company. Liberty's domestic subsidiaries generally operate or hold interests in businesses which provide programming services including production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software. In addition, certain of Liberty's subsidiaries hold interests in businesses engaged in wireless telephony, electronic retailing, direct marketing and advertising sales relating to programming services, infomercials and transaction processing. Liberty also has significant interests in foreign affiliates which operate in cable television, programming and satellite distribution. (2) Merger with AT&T On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI, and TCI thereby became a wholly owned subsidiary of AT&T. As a result of the AT&T Merger, each series of TCI common stock was converted into a class of AT&T common stock subject to applicable exchange ratios. Pursuant to a proposed final judgment (the "Final Judgment") agreed to by Liberty, AT&T and the United States Department of Justice (the "DOJ") on December 31, 1998, Liberty transferred all of its beneficially owned securities (the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T Merger. The Final Judgment, if entered by the United States District Court for the District of Columbia, would require the Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint Securities sufficient to cause Liberty to beneficially own no more than 10% of the outstanding Series 1 PCS Stock of Sprint on a fully diluted basis on such date. On or before May 23, 2004, the Trustee must divest the remainder of the Sprint Securities beneficially owned by Liberty. The Final Judgment would provide that the Trustee vote the Sprint Securities beneficially owned by Liberty in the same proportion as other holders of Sprint's PCS Stock so long as such securities are held by the trust. The Final Judgment would also prohibit the acquisition of Liberty of additional Sprint Securities, with certain exceptions, without the prior written consent of the DOJ. (3) Summary of Significant Accounting Policies Cash and Cash Equivalents Cash equivalents consist of investments which are readily convertible into cash and have maturities of three months or less at the time of acquisition. Receivables Receivables are reflected net of an allowance for doubtful accounts. Such allowance at December 31, 1998 and 1997 was not material. Program Rights Prepaid program rights are amortized on a film-by-film basis over the anticipated number of exhibitions. Committed program rights and program rights payable are recorded at the estimated cost of the programs when F-8 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) the film is available for airing less prepayments. These amounts are amortized on a film-by-film basis over the anticipated number of exhibitions. Investments All marketable equity securities held by the Company are classified as available-for-sale and are carried at fair value. Unrealized holding gains and losses on securities classified as available-for-sale are carried net of taxes as a component of accumulated other comprehensive earnings in stockholder's equity. Realized gains and losses are determined on a specific-identification basis. Other investments in which the ownership interest is less than 20% and are not considered marketable securities are carried at the lower of cost or net realizable value. For those investments in affiliates in which the Company's voting interest is 20% to 50%, the equity method of accounting is generally used. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of net earnings or losses of the affiliates as they occur rather then as dividends or other distributions are received, limited to the extent of the Company's investment in, advances to and commitments for the investee. The Company's share of net earnings or losses of affiliates includes the amortization of the difference between the Company's investment and its share of the net assets of the investee. However, recognition of gains on sales of properties to affiliates accounted for under the equity method is deferred in proportion to the Company's ownership interest in such affiliates. Changes in the Company's proportionate share of the underlying equity of a subsidiary or equity method investee, which result from the issuance of additional equity securities by such subsidiary or equity investee, generally are recognized as gains or losses in the Company's consolidated statements of operations and comprehensive earnings. Property and Equipment Property and equipment, including significant improvements, is stated at cost which includes acquisition costs allocated to tangible assets acquired. Equipment acquired under capital leases are stated at the present value of minimum lease payments, not to exceed the fair value of the leased asset. Construction and initial customer installation costs, including interest during construction, material, labor and applicable overhead, are capitalized. Interest capitalized during 1998, 1997 and 1996 was not material. Depreciation is computed on a straight-line basis using estimated useful lives of 3 to 20 years for distribution systems (3 to 5 years for converters and in-home wiring and 10 to 20 years for the remaining components of the distribution system) and 3 to 40 years for support equipment and buildings (3 to 5 years for support equipment and 10 to 40 years for buildings and improvements). Equipment held under capital leases are depreciated on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Repairs and maintenance are charged to operations, and additions are capitalized. At the time of ordinary retirements, sales or other dispositions of cable property, the original cost and cost of removal of such property are charged to accumulated depreciation, and salvage, if any, is credited thereto. Gains and losses relating to cable property are only recognized in connection with sales of properties in their entirety. Gains and losses relating to all other assets are recognized at the time of disposal. Excess Cost Over Acquired Net Assets Excess cost over acquired net assets consists of the difference between the cost of acquiring non-cable entities and amounts assigned to their tangible assets. Such amounts are amortized on a straight-line basis over 5 to 30 years. F-9 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Franchise Costs Franchise costs generally include the difference between the cost of acquiring cable companies and amounts allocated to their tangible assets. Such amounts are amortized on a straight-line basis over 40 years. Impairment of Long-lived Assets The Company periodically reviews the carrying amounts of property, plant and equipment and its intangible assets to determine whether current events or circumstances warrant adjustments to such carrying amounts. If an impairment adjustment is deemed necessary, such loss is measured by the amount that the carrying value of such assets exceeds their fair value. Considerable management judgment is necessary to estimate the fair value of assets, accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell. Minority Interests Recognition of minority interests' share of losses of subsidiaries is generally limited to the amount of such minority interests' allocable portion of the common equity of those subsidiaries. Further, the minority interests' share of losses is not recognized if the minority holders of common equity of subsidiaries have the right to cause the Company to repurchase such holders' common equity. Preferred stock (and accumulated dividends thereon) of subsidiaries are included in minority interests in equity of subsidiaries. Dividend requirements on such preferred stocks are reflected as minority interests in earnings of subsidiaries in the accompanying consolidated statements of operations and comprehensive earnings. Foreign Currency Translation The functional currency of the Company is the United States ("U.S.") dollar. The functional currency of the Company's foreign operations generally is the applicable local currency for each foreign subsidiary and foreign equity method investee. In this regard, the functional currency of certain of the Company's foreign subsidiaries and foreign equity investees is the Argentine peso, the United Kingdom ("UK") pound sterling ("(Pounds)" or "pounds"), the French franc ("FF") and the Japanese yen ("(Yen)"). All amounts presented herein with respect to operations in Argentina are stated in U.S. dollars because the Argentine government has maintained an exchange rate of one U.S. dollar to one Argentine peso since April of 1991. However, no assurance can be given that the Argentine government will maintain such an exchange rate in future periods. Assets and liabilities of foreign subsidiaries and foreign equity investees are translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of operations and the Company's share of the results of operations of its foreign equity affiliates are translated at the average exchange rates in effect during the applicable period. The resulting unrealized cumulative translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other comprehensive earnings in stockholder's equity. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses which are reflected in the accompanying consolidated statements of operations and comprehensive earnings as unrealized (based on the applicable period end exchange rate) or realized upon settlement of the transactions. Cash flows from consolidated foreign subsidiaries are calculated in their functional currencies. The effect of exchange rate changes on cash balances held in foreign currencies is reported as a separate line item in the accompanying consolidated statements of cash flows. F-10 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Unless otherwise indicated, convenience translations of foreign currencies into U.S. dollars are calculated using the applicable spot rate at December 31, 1998, as published in The Wall Street Journal. Foreign Currency Derivatives From time to time, the Company uses certain derivative financial instruments to manage its foreign currency risks. Amounts receivable or payable pursuant to derivative financial instruments that qualify as hedges of existing assets, liabilities and firm commitments are reflected as an adjustment of the hedged item. Market value changes in all other derivative financial instruments are recognized currently in the consolidated statements of operations and comprehensive earnings. At December 31, 1998 and 1997, the Company had no significant deferred hedging gains or losses. Derivative Instruments and Hedging Activities During 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("Statement 133"), which is effective for all fiscal years beginning after June 15, 2000. Statement 133 establishes accounting and reporting standards for derivative instruments and hedging activities by requiring that all derivative instruments be reported as assets or liabilities and measured at their fair values. Under Statement 133, changes in the fair values of derivative instruments are recognized immediately in earnings unless those instruments qualify as hedges of the (1) fair values of existing assets, liabilities, or firm commitments, (2) variability of cash flows of forecasted transactions, or (3) foreign currency exposure of net investments in foreign operations. Although the Company's management has not completed its assessment of the impact of Statement 133 on its consolidated results of operations and financial position, management estimates that the impact of Statement 133 will not be significant. Revenue Recognition Programming revenue is recognized in the period during which programming is provided, pursuant to affiliation agreements. Advertising revenue is recognized, net of agency commissions, in the period during which underlying advertisements are broadcast. Cable revenue is recognized in the period that services are rendered. Cable installation revenue is recognized in the period the related services are provided to the extent of direct selling costs. Any remaining amount is deferred and recognized over the estimated average period that customers are expected to remain connected to the cable distribution system. Stock Based Compensation Statement of Financial Accounting Standards No. 123, Accounting for Stock- Based Compensation ("Statement 123"), establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. As allowed by Statement 123, Liberty continues to account for stock-based compensation pursuant to Accounting Principles Board Opinion No. 25 ("APB Opinion No. 25"). Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. F-11 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (4) Supplemental Disclosures to Consolidated Statements of Cash Flows Cash paid for interest was $103 million, $41 million and $46 million for the years ended December 31, 1998, 1997 and 1996, respectively. Cash paid for income taxes during the years ended December 31, 1998, 1997 and 1996 was $29 million, $35 million and $14 million, respectively. In addition, the Company received income tax refunds amounting to $15 million during the year ended December 31, 1996.
Years ended December 31, ------------------- 1998 1997 1996 ----- ----- ----- amounts in millions Cash paid for acquisitions: Fair value of assets acquired....................... $ 162 260 688 Net liabilities assumed............................. (107) (72) (115) Debt issued to related parties and others........... -- (128) (52) Contribution to equity from TCI for acquisitions.... -- -- (196) Deferred tax asset (liability) recorded in acquisition........................................ -- 14 (37) Increase in minority interests in equity of subsidiaries due to issuance of shares by subsidiary......................................... -- -- (43) Minority interest in equity of acquired subsidiaries....................................... 39 (119) (77) Excess consideration paid over carryover basis of net assets acquired from related party............. -- 86 -- Gain in connection with the issuance of stock by subsidiary......................................... (2) -- -- ----- ----- ----- Cash paid for acquisitions........................ $ 92 41 168 ===== ===== ===== Significant noncash investing and financing activities are as follows: Years ended December 31, ------------------- 1998 1997 1996 ----- ----- ----- amounts in millions Noncash acquisitions of minority interests in equity of subsidiaries (note 8): Fair value of assets................................ $(741) (29) -- Deferred tax liability recorded..................... 154 -- -- Minority interests in equity of subsidiaries........ (185) (1) -- Contribution to equity from TCI for acquisitions.... 772 30 -- ----- ----- ----- $ -- -- -- ===== ===== ===== Common stock received in exchange for option (note 6)................................................... $ -- 306 -- ===== ===== ===== Preferred stock received in exchange for common stock and note receivable (note 7)......................... $ -- 371 -- ===== ===== ===== Exchange of subsidiaries for note receivable and equity investments................................... $ -- -- 574 ===== ===== ===== Property and equipment purchased under capital leases............................................... $ -- -- 56 ===== ===== =====
F-12 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Liberty ceased to include Flextech p.l.c. ("Flextech") and Cablevision S.A. ("Cablevision") in its consolidated financial results and began to account for Flextech and Cablevision using the equity method of accounting, effective January 1, 1997 and October 1, 1997, respectively. The effects of changing the method of accounting for Liberty's ownership interests in Flextech and Cablevision as of December 31, 1997 from the consolidation method to the equity method are summarized below (amounts in millions): Assets (other than cash and cash equivalents) reclassified to investments in affiliates....................................... $(596) Liabilities reclassified to investments in affiliates............ 484 Minority interests in equity of subsidiaries reclassified to investments in affiliates....................................... 151 ----- Decrease in cash and cash equivalents............................ $ 39 =====
(5) Investments in Affiliates Accounted for under the Equity Method Liberty has various investments accounted for under the equity method. The following table includes Liberty's carrying amount and percentage ownership of the more significant investments at December 31, 1998 and the carrying amount at December 31, 1997:
December 31, 1998 December 31, 1997 ------------------- ----------------- Percentage Carrying Carrying Ownership Amount Amount ---------- -------- ----------------- amounts in millions USA Networks, Inc. ("USAI") and related investments.................. 21% $1,042 348 Telewest Communications plc ("Telewest")......................... 22% 515 324 Flextech.............................. 37% 320 261 Cablevision........................... 28% 315 239 QVC Inc. ("QVC")...................... 43% 197 134 Sprint Spectrum Holding Company L.P., MinorCo, L.P. and PhillieCo Partnership I, L.P. (the "PCS Ventures")........................... -- -- 607 Various foreign equity investments (other than Telewest, Flextech and Cablevision)......................... various 346 209 Other................................. various 344 237 ------ ----- $3,079 2,359 ====== =====
Summarized unaudited combined financial information for affiliates is as follows:
December 31, -------------- 1998 1997 ------- ------ amounts in millions Combined Financial Position Investments.............................................. $ 2,003 4,085 Property and equipment, net.............................. 8,147 5,757 Franchise costs and other intangibles, net............... 14,395 7,870 Other assets, net........................................ 7,553 9,800 ------- ------ Total assets........................................... $32,098 27,512 ======= ====== Debt..................................................... $15,264 14,934 Other liabilities........................................ 11,620 7,417 Owners' equity........................................... 5,214 5,161 ------- ------ Total liabilities and equity........................... $32,098 27,512 ======= ======
F-13 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years ended December 31, ------------------------ 1998 1997 1996 -------- ------ ------ amounts in millions Combined Operations Revenue......................................... $ 14,062 6,613 4,308 Operating expenses.............................. (13,092) (7,163) (4,484) Depreciation and amortization................... (2,629) (997) (469) -------- ------ ------ Operating loss................................ (1,659) (1,547) (645) Interest expense................................ (1,728) (540) (301) Other, net...................................... (166) (469) (279) -------- ------ ------ Net loss...................................... $ (3,553) (2,556) (1,225) ======== ====== ======
USAI owns and operates businesses in network and television production, television broadcasting, electronic retailing, ticketing operations, and internet services. At December 31, 1998, Liberty directly and indirectly held 29.6 million shares of USAI's common stock. Liberty also held shares directly in certain subsidiaries of USAI which are exchangeable into 39.5 million shares of USAI common stock. Liberty's direct ownership of USAI is currently restricted by Federal Communications Commission ("FCC") regulations. The exchange of these shares can be accomplished only if there is a change to existing regulations or if Liberty obtains permission from the FCC. If the exchange of subsidiary stock into USAI common stock were completed at December 31, 1998, Liberty would own 69.1 million shares or approximately 21% (on a fully-diluted basis) of USAI common stock. USAI's common stock had a closing market value of $33 1/8 per share on December 31, 1998. Liberty accounts for its investments in USAI and related subsidiaries on a combined basis under the equity method. During the years ended December 31, 1998, 1997 and 1996, Liberty's share of affiliates' earnings (losses) from its investments in USAI was $30 million, $5 million and ($1 million), respectively. In February 1998, USAI paid cash and issued shares and one of its subsidiaries issued shares in connection with the acquisition of certain assets from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an increase to its investment in USAI of $54 million and an increase to additional paid-in-capital of $33 million (after deducting deferred income taxes of $21 million) as a result of this share issuance. USAI issued shares in June 1998 to acquire the remaining stock of Ticketmaster Group, Inc. which it did not previously own (the "Ticketmaster Transaction"). Liberty recorded an increase to its investment in USAI of $52 million and an increase to additional paid-in-capital of $31 million (after deducting deferred income taxes of $21 million) as a result of this share issuance. No gain was recognized in the consolidated statement of operations and comprehensive earnings for either the Universal Transaction or the Ticketmaster Transaction due primarily to Liberty's intention to purchase additional equity interests in USAI. In connection with the Universal Transaction, Liberty was granted an antidilutive right with respect to any future issuance of USAI's common stock, subject to certain limitations, that enables it to maintain its percentage ownership interests in USAI. During 1998 Liberty purchased 4.7 million shares of USAI common stock and 22.9 million exchangeable shares of a USAI subsidiary for an aggregate cost of $560 million pursuant to this right. In December 1996, Silver King Communications, Inc. ("Silver King") acquired Home Shopping Network, Inc. ("HSN"), a subsidiary of Liberty, by merger of HSN with a subsidiary of Silver King (the "HSN Merger") where HSN was the surviving corporation and a subsidiary of Silver King following the HSN F-14 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Merger. As a result of the HSN Merger, HSN was no longer included in the consolidated financial results of Liberty. Silver King was renamed HSN, Inc., which was the predecessor of USAI. The PCS Ventures included Sprint Spectrum Holding Company, L. P. and MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P. ("PhillieCo"). The partners of each of the Sprint PCS partnerships were subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and Liberty. The partners of PhillieCo were subsidiaries of Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the Sprint PCS partnerships and a 35% partnership interest in PhillieCo. During the years ended December 31, 1998, 1997 and 1996, the PCS Ventures accounted for $629 million, $493 million and $133 million, respectively, of Liberty's share of affiliates' losses. On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint PCS Group Stock which tracks the performance of Sprint's newly created PCS Group (consisting initially of the PCS Ventures and certain PCS licenses which were separately owned by Sprint). The Sprint PCS Group Stock collectively represents an approximate 17% voting interest in Sprint. As a result of the PCS Exchange, Liberty holds the Sprint Securities which consists of shares of Sprint PCS Group Stock, as well as certain additional securities of Sprint exercisable for or convertible into such securities, representing approximately 24% of the equity value of Sprint attributable to its PCS Group and less than 1% of the voting interest in Sprint. Through November 23, 1998, Liberty accounted for its interest in the PCS Ventures using the equity method of accounting, however, as a result of the PCS Exchange and Liberty's less than 1% voting interest in Sprint, Liberty no longer exercises significant influence with respect to its investment in the PCS Ventures. Accordingly, Liberty accounts for its investment in the Sprint PCS Group Stock as an available-for- sale security. As a result of the PCS Exchange, Liberty recorded a non-cash gain of $1.9 billion (before deducting deferred income taxes of $647 million) during the fourth quarter of 1998 based on the difference between the carrying amount of Liberty's interest in the PCS Ventures and the fair value of the Sprint Securities received. Telewest currently operates and constructs cable television and telephone systems in the UK. Telewest accounted for $134 million, $145 million and $109 million of Liberty's share of its affiliates' losses during the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998 Liberty indirectly owned 463 million of the issued and outstanding Telewest ordinary shares. The reported closing price on the London Stock Exchange of Telewest ordinary shares was (Pounds)1.74 ($2.88) per share at December 31, 1998. Effective September 1, 1998, Telewest and General Cable PLC ("General Cable") consummated a merger (the "General Cable Merger") in which holders of General Cable received 1.243 new Telewest shares and (Pounds)0.65 ($1.11) in cash for each share of General Cable. In addition, holders of American Depository shares of General Cable ("General Cable ADS") (each representing five General Cable shares) received 6.215 new Telewest shares and (Pounds)3.25 ($5.53) in cash for each share of General Cable ADS. Based upon Telewest's closing share price of (Pounds)0.89 ($1.51) on April 14, 1998, the General Cable Merger was valued at approximately (Pounds)649 million ($1.1 billion). The cash portion of the General Cable Merger was financed through an offer to qualifying Telewest shareholders for the purchase of approximately 261 million new Telewest shares at a price of (Pounds)0.925 ($1.57) per share (the "Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary shares at an aggregate cost of (Pounds)78 million ($133 million) in connection with the Telewest Offer. F-15 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the General Cable Merger, Liberty converted its entire holdings of Telewest convertible preference shares (133 million shares) into Telewest ordinary shares. As a result of the General Cable Merger, Liberty's ownership interest in Telewest decreased to 22%. In connection with the increase in Telewest's equity, net of the dilution of Liberty's interest in Telewest, that resulted from the General Cable Merger, Liberty recorded a non- cash gain of $60 million (before deducting deferred income taxes of $21 million) during 1998. In April 1997, Flextech and BBC Worldwide Limited ("BBC Worldwide") formed two separate joint ventures (the "BBC Joint Ventures") and entered into certain related transactions. The consummation of the BBC Joint Ventures and related transactions resulted in, among other things, a reduction of Liberty's economic ownership interest in Flextech from 46.2% to 36.8%. Liberty continues to maintain a voting interest in Flextech of approximately 50%. As a result of such dilution, Liberty recorded a $152 million increase to the carrying amount of Liberty's investment in Flextech, a $53 million increase to deferred income tax liability, a $66 million increase to additional paid-in-capital and a $33 million increase to minority interests in equity of subsidiaries. No gain was recognized in the consolidated statement of operations and comprehensive earnings due primarily to certain contingent obligations of Liberty with respect to one of the BBC Joint Ventures (see note 14). Flextech accounted for $21 million and $16 million of Liberty's share of its affiliates' losses during the years ended December 31, 1998 and 1997, respectively. Based on the (Pounds)6.07 ($10.07) per share closing price of the Flextech ordinary shares on the London Stock Exchange, the 58 million Flextech ordinary shares owned by Liberty had an aggregate market value of (Pounds)352 million ($584 million) at December 31, 1998. On October 9, 1997, Liberty sold a portion of its 51% interest in Cablevision to unaffiliated third parties. In connection with such sale and certain related transactions, Liberty recognized a gain of $49 million. Cablevision accounted for $23 million and $3 million of Liberty's share of its affiliates' losses during the years ended December 31, 1998 and 1997, respectively. On October 13, 1998, one of the Cablevision shareholders exercised a put right representing a 7.2% interest in Cablevision. Consequently, on December 22, 1998, Liberty purchased its pro-rata portion of such shareholder's ownership interest for $25 million, $8 million of which was paid at closing and the remaining amount (including accrued interest thereon) will be paid in four equal semi-annual installments. As a result of the put, Liberty's equity interest in Cablevision increased from 26% to 28%. As of April 29, 1996, Liberty and The News Corporation Limited ("News Corp.") formed two sports programming ventures. In the U.S., Liberty and News Corp. formed Fox/Liberty Networks LLC ("Fox Sports") into which Liberty contributed interests in its national and regional sports networks and into which News Corp. contributed its fx cable network and certain other assets. Liberty received a 50% interest in Fox Sports and a distribution of $350 million in cash. No gain or loss was recognized as the cash distribution approximated the carrying amount of the assets contributed. Prior to the first quarter of 1998, Liberty had no obligation, nor intention, to fund Fox Sports. During 1998, Liberty made the determination to provide funding to Fox Sports based on specific transactions consummated by Fox Sports. Consequently, Liberty's share of losses of Fox Sports of $83 million for the year ended December 31, 1998 includes previously unrecognized losses of Fox Sports of approximately $64 million. Losses for Fox Sports were not recognized in prior periods due to the fact that Liberty's investment in Fox Sports was less than zero. Internationally, News Corp. and Liberty formed a venture ("Fox Sports International") to operate sports programming services in Latin American and Australia and a variety of new sports services throughout the world except in Asia and in the United Kingdom, Japan and New Zealand where prior arrangements preclude F-16 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) an immediate collaboration. Liberty owns 50% of Fox Sports International with News Corp. owning the other 50%. Fox Sports International accounted for $34 million, $30 million and $21 million of Liberty's share of its affiliates' losses during the years ended December 31, 1998, 1997 and 1996, respectively. In addition to Telewest, Flextech, Fox Sports International and Cablevision, Liberty has other less significant investments in affiliates in video distribution and programming businesses located in the UK, other parts of Europe, Asia, Latin America and certain other foreign countries. In the aggregate, such other foreign investments in affiliates accounted for $70 million, $70 million and $54 million of Liberty's share of its affiliates' losses during the years ended December 31, 1998, 1997 and 1996, respectively. The $797 million aggregate excess of Liberty's aggregate historical cost basis in its affiliates over Liberty's proportionate share of its affiliates' net assets is being amortized over estimated useful lives ranging from 10 to 20 years. Certain of Liberty's affiliates are general partnerships and, as such, are liable as a matter of partnership law for all debts (other than non-recourse debts) of that partnership in the event liabilities of that partnership were to exceed its assets. (6) Investment in Time Warner On October 10, 1996, Time Warner and Turner Broadcasting System, Inc. ("TBS") consummated a merger (the "TBS/Time Warner Merger") whereby TBS shareholders received 1.5 Time Warner common shares (as adjusted for a two-for-one stock split) for each TBS Class A and Class B common share held, and each holder of TBS Class C preferred stock received 1.6 Time Warner common shares (as adjusted for a two-for-one stock split) for each of the 6 shares of TBS Class B common stock into which each share of Class C preferred stock could have been converted. Liberty entered into an agreement with the Federal Trade Commission ("FTC") (the "FTC Consent Decree"), pursuant to which, among other things, Liberty agreed to exchange the shares of Time Warner common stock to be received in the TBS/Time Warner Merger for shares of a separate series of Time Warner common stock with limited voting rights (the "TW Exchange Stock"). Holders of the TW Exchange Stock are entitled to one one-hundredth (l/100th) of a vote for each share with respect to the election of directors. Holders of the TW Exchange Stock will not have any other voting rights, except as required by law or with respect to limited matters, including amendments of the terms of the TW Exchange Stock adverse to such holders. Subject to the federal communications laws, each share of the TW Exchange Stock will be convertible at any time at the option of the holder on a one-for-one basis for a share of Time Warner common stock. Holders of TW Exchange Stock are entitled to receive dividends ratably with the Time Warner common stock and to share ratably with the holders of Time Warner common stock in assets remaining for common stockholders upon dissolution, liquidation or winding up of Time Warner. In connection with the TBS/Time Warner Merger, Liberty received approximately 50.6 million shares of the TW Exchange Stock in exchange for its TBS holdings. As a result of the TBS/Time Warner Merger, Liberty recognized a pre-tax gain of $1.5 billion in the fourth quarter of 1996. Liberty accounts for its investment in Time Warner as an available-for-sale security. On June 24, 1997 Liberty granted Time Warner an option to acquire the business of Southern Satellite Systems, Inc. ("Southern") and certain of its subsidiaries (together with Southern, the "Southern Business") through a purchase of assets (the "Southern Option"). Liberty received 6.4 million shares of TW Exchange Stock valued at $306 million in consideration for the grant. In September 1997, Time Warner exercised the Southern Option. Pursuant to the Southern Option, Time Warner acquired the Southern Business, effective F-17 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) January 1, 1998, for $213 million in cash. Liberty recognized a $515 million pre-tax gain in connection with such transactions in the first quarter of 1998. Following a two-for-one stock split of Time Warner common stock during 1999, Liberty's shares of the TW Exchange Stock are convertible into 114 million shares of Time Warner common stock. As security for borrowings under one of its credit facilities, Liberty has pledged a portion of its TW Exchange Stock. At December 31, 1998 such pledged portion had an aggregate fair value of approximately $2.7 billion. (7) Other Investments Other investments and related receivables are summarized as follows:
1998 1997 ------ ---- amounts in millions Investment in preferred stock, at cost, including premium.... $ 371 371 Investment in General Instrument Corporation ("GI") (note 14)......................................................... 396 -- Other investments, at cost, and related receivables.......... 243 62 ------ --- $1,010 433 ====== ===
On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of Liberty, which held non-voting Class C common stock of International Family Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million of IFE 6% convertible secured notes due 2004, convertible into Class C Stock, ("Convertible Notes"), contributed its Class C Stock and Convertible Notes to Fox Kids Worldwide, Inc. ("FKW") in exchange for a new series of 30 year non- convertible 9% preferred stock of FKW with a stated value of $345 million (the "FKW Preferred Stock"). As a result of the exchange, Liberty recognized a pre- tax gain of approximately $304 million during the third quarter of 1997. Management of Liberty estimates the market value, calculated using a variety of approaches including multiple of cash flow, per subscriber value, a value of comparable public or private businesses or publicly quoted market prices, of all of Liberty's other investments aggregated $1,743 million and $766 million at December 31, 1998 and December 31, 1997, respectively. No independent appraisals were conducted for those assets. (8) Acquisitions and Dispositions On January 25, 1996, the stockholders of United Video Satellite Group, Inc. ("UVSG") adopted the Agreement and Plan of Merger dated as of July 10, 1995, as amended, among UVSG, TCI and TCI Merger Sub, Inc. ("UVSG Merger Sub"), pursuant to which UVSG Merger Sub was merged into UVSG, with UVSG as the surviving corporation (the "UVSG Merger"). TCI acquired 24.8 million shares of UVSG Class B common stock and 4.2 million shares of UVSG Class A common stock, together representing approximately 39% of the issued and outstanding common stock of UVSG and approximately 85% of the total voting power of UVSG common stock immediately after the UVSG Merger, resulting in UVSG becoming a majority- controlled subsidiary of TCI. Simultaneously, TCI contributed such UVSG shares of common stock to Liberty. The UVSG Merger has been accounted for by the purchase method. Accordingly, the results of operations of UVSG have been consolidated with those of Liberty since January 25, 1996 and Liberty recorded UVSG's assets and liabilities at fair value. UVSG is engaged in satellite delivered video, audio, data and program promotion services to cable television systems, direct to home satellite users, radio stations and private network users throughout North America. F-18 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) During July 1997, the 10% minority interest in Encore Media Corporation ("EMC") was purchased by TCI for approximately 2.4 million shares of Liberty Media Group Series A Stock. Such 10% interest in EMC was simultaneously contributed to Liberty and was accounted for as an acquisition of a minority interest and resulted in an increase of $30 million in additional paid-in- capital. On January 12, 1998, TCI acquired from a minority shareholder of UVSG 24.8 million shares of UVSG Class A common stock in exchange for shares of TCI stock. The aggregate value assigned to the shares issued by TCI was based upon the market value of such shares at the time the transaction was announced. Such transaction was accounted for as an acquisition of minority interest. Simultaneously, TCI contributed such UVSG shares of common stock to Liberty. As a result of such transaction, Liberty increased its ownership in the equity of UVSG to approximately 73% and the voting power increased to 93%. The issuance of $346 million in TCI stock was recorded as an increase in additional paid-in- capital by Liberty. Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed the assets, obligations and operations of its retail C-band satellite business to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20% interest in SNG. As a result of such transaction, Liberty's ownership interest in SNG decreased to approximately 80%. In connection with the increase in SNG's equity, net of the dilution of Liberty's ownership interest in SNG, that resulted from such transaction, Liberty recognized a gain of $38 million (before deducting deferred income taxes of $15 million). Turner Vision's contribution to SNG was accounted for as a purchase and the $61 million excess of the purchase price over the fair value of the net assets acquired was recorded as excess cost and is being amortized over five years. During 1998, TCI Music, Inc. ("TCI Music") issued approximately 382,000 shares of its Series A Common Stock in connection with certain acquisitions. Such acquisitions were accounted for under the purchase method. Accordingly, the results of operations of the acquired companies have been consolidated with those of Liberty since their respective dates of acquisition. In connection with the issuance of such shares, Liberty's ownership interest was diluted to 80.7% and Liberty recorded a $2 million increase to additional paid-in-capital. No gain was recognized in the consolidated statements of operations and comprehensive earnings due primarily to Liberty's contingent obligation to purchase certain shares from shareholders of TCI Music (see note 11). On August 24, 1998, Liberty purchased 100% of the issued and outstanding common stock of Pramer S.A. ("Pramer"), an Argentine programming company, for $32 million in cash and the issuance of notes payable in the amount of $65 million. Such transaction was accounted for under the purchase method. Accordingly, the results of operations of Pramer have been consolidated with those of Liberty since August 24, 1998. The $101 million excess cost over acquired net assets is being amortized over ten years. On November 19, 1998, TCI exchanged, in a merger transaction, shares of TCI common stock for shares of Tele-Communications International, Inc. ("TINTA") common stock not beneficially owned by TCI. Such transaction was accounted for by Liberty as an acquisition of minority interest in equity of subsidiaries. The aggregate value assigned to the shares issued by TCI was based upon the market value of the common stock at the time the merger was announced. In connection with the contribution to Liberty of the TINTA shares in such merger transaction, Liberty recorded a $426 million increase to additional paid-in- capital. On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG acquired News Corp.'s TV Guide properties creating a broader platform for offering television guide services to consumers and advertisers and UVSG was renamed TV Guide, Inc. ("TV Guide"). News Corp. received $800 million in cash and 60 million shares of UVSG's stock, including 22.5 million shares of its Class A common stock and 37.5 million shares of its Class B common stock. In addition, News Corp. purchased approximately 6.5 million additional shares of UVSG Class A common stock for $129 million in order to equalize its ownership with that of Liberty. As a result of these transactions, and another transaction completed on the same date, News Corp., F-19 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Liberty and TV Guide's public stockholders own on an economic basis approximately 44%, 44% and 12%, respectively, of TV Guide. Following such transactions, News Corp. and Liberty each have approximately 49% of the voting power of TV Guide's outstanding stock. Upon consummation, Liberty began accounting for its interest in TV Guide under the equity method of accounting. (9) Long-Term Debt Debt is summarized as follows:
Weighted December average 31, interest ----------- rate 1998 1997 -------- ------ ---- amounts in millions Bank credit facilities.................................. 6.1% $1,629 390 4 1/2% Convertible Subordinated Debentures.............. 4.5% 345 345 Other................................................... 7.4% 122 50 ------ --- 2,096 785 Less current maturities................................. 184 31 ------ --- Total................................................. $1,912 754 ====== ===
At December 31, 1998, Liberty had approximately $1 billion in unused lines of credit under its bank credit facilities. The bank credit facilities of Liberty generally contain restrictive covenants which require, among other things, the maintenance of certain financial ratios, and include limitations on indebtedness, liens and encumbrances, acquisitions, dispositions, guarantees and dividends. Liberty was in compliance with its debt covenants at December 31, 1998. Additionally, Liberty pays fees ranging from .15% to .375% per annum on the average unborrowed portions of the total amounts available for borrowings under bank credit facilities. As collateral for borrowings under one of Liberty's credit facilities, the banks lend against certain assets designated by Liberty (the "Designated Assets"). The components of the Designated Assets may be changed from time to time. The aggregate market value of the Designated Assets, as determined by certain criteria in the revolving credit agreement, must at all times exceed an amount equal to three times the total outstanding borrowings under the facility. The Designated Assets at December 31, 1998 were Liberty's holdings in Discovery Communications, Inc., QVC and the FKW Preferred Stock. The carrying amount of the Designated Assets as of December 31, 1998 was $617 million. Recourse to the banks for payment of Liberty's obligations under this facility is limited solely to the Designated Assets. Also, as security for borrowings under one of its credit facilities, Liberty has pledged a portion of its TW Exchange Stock. See note 6. Certain of Liberty's bank credit facilities have credit agreements which provide for a three month interest reserve to be held by an administrative agent. Such amounts held in the interest reserve amounted to $17 million and $5 million for the years ended December 31, 1998 and 1997, respectively, and are included in other current assets in the accompanying consolidated balance sheets. Liberty's subsidiary in Puerto Rico (a cable television operator) (the "Puerto Rico Subsidiary") has a reducing revolving bank facility which is unsecured and provides for maximum borrowing commitments of $100 million (the "Puerto Rico Bank Facility"). On September 21, 1998, Hurricane Georges struck Puerto Rico and caused considerable property damage to the area in general, including the Puerto Rico Subsidiary's cable television systems. On September 27, 1998, the Puerto Rico Subsidiary submitted a property damage claim to its insurance carrier for approximately $15 million which represents the estimated replacement costs of its damaged property. In addition to property damage caused by Hurricane Georges, the Puerto Rico Subsidiary suffered a loss in revenue from its pre-hurricane customers. The loss of revenue from September 21, 1998 to F-20 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) December 31, 1998 was $7 million. The estimated loss of revenue exceeded its business interruption insurance by $4 million. Such uncovered losses could cause the Puerto Rico Subsidiary to be in violation of certain financial covenants of the Puerto Rico Bank Facility in the fourth quarter of 1998 and the first quarter of 1999. Violations of certain financial covenants will prevent the Puerto Rico Subsidiary from borrowing any unused borrowing commitments and could result in the acceleration of amounts due under the Puerto Rico Bank Facility. See note 14. The U.S. dollar equivalent of the annual maturities of Liberty's debt for each of the next five years are as follows: 1999: $184 million; 2000: $495 million; 2001: $73 million; 2002: $80 million and 2003: $714 million. A subsidiary of Liberty entered into an Interest Rate Swap effective March 1998, pursuant to which it receives a variable rate based on LIBOR (5.28% at December 31, 1998) and pays a fixed rate of 5.98% on a notional amount of $100 million through March 2000. As of December 31, 1998, the subsidiary would be required to pay an estimated $1.2 million to terminate such Interest Rate Swap. Amounts resulting from this interest rate swap are recorded in interest expense in the consolidated statement of operations and comprehensive earnings. With the exception of the 4 1/2% Convertible Subordinated Debentures, which, based on quoted market prices, had a fair value of $373 million at December 31, 1998, Liberty believes that the carrying value of Liberty's debt approximated its fair value at December 31, 1998. (10) Income Taxes TCI files a consolidated federal income tax return with all of its 80% or more owned subsidiaries. Consolidated subsidiaries in which TCI owns less than 80% each file a separate tax return. TCI and such subsidiaries calculate their respective tax liabilities on a separate return basis. Income tax expense for Liberty is based upon those items in the consolidated tax calculations of TCI applicable to Liberty. The current tax allocation represents an apportionment of tax expense or benefit (other than deferred taxes) and alternative minimum taxes to Liberty in relation to its amount of taxable earnings or losses. Such amounts are reflected as borrowings from or loans to related parties. A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI and certain subsidiaries of TCI was implemented effective July 1, 1995. The Old Tax Sharing Agreement formalized certain of the elements of a pre-existing tax sharing arrangement and contains additional provisions regarding the allocation of certain consolidated income tax attributes and the settlement procedures with respect to the intercompany allocation of current tax attributes. Under the Old Tax Sharing Agreement, Liberty was responsible to TCI for their share of consolidated income tax liabilities (computed as if TCI were not liable for the alternative minimum tax) determined in accordance with the Old Tax Sharing Agreement, and TCI was responsible to Liberty to the extent that the income tax attributes generated by Liberty and its subsidiaries were utilized by TCI to reduce its consolidated income tax liabilities (computed as if TCI were not liable for the alternative minimum tax). In the consolidated financial statements of Liberty, the tax liabilities and benefits of such entities so determined have been charged or credited to an intercompany account between TCI and Liberty. Such intercompany account is required to be settled only upon the date that an entity ceases to be a member of TCI's consolidated group for federal income tax purposes. Under the Old Tax Sharing Agreement, TCI retains the burden of any alternative minimum tax and has the right to receive the tax benefits from an alternative minimum tax credit attributable to any tax period beginning on or after July 1, 1995 and ending on or before October 1, 1997. Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing Agreement was replaced by a new tax sharing agreement (the "New Tax Sharing Agreement"), which governs the allocation and sharing of income taxes. Effective for periods on and after the Effective Date, through the AT&T Merger, federal income F-21 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) taxes were computed based upon the type of tax paid by TCI (on a regular tax or alternative minimum tax basis) on a separate basis for each entity. Based upon these separate calculations, an allocation of tax liabilities and benefits was made such that each entity was required to make cash payments to TCI based on its allocable share of TCI's consolidated federal income tax liabilities (on a regular tax or alternative minimum tax basis, as applicable) attributable to such entity and actually used by TCI in reducing its consolidated federal income tax liability. Tax attributes and tax basis in assets was inventoried and tracked for ultimate credit to or charge against each entity. Similarly, in each taxable period that TCI paid alternative minimum tax, the federal income tax benefits of each entity, computed as if such entity were subject to regular tax, was inventoried and tracked for payment to or payment by each entity in years that TCI utilized the alternative minimum tax credit associated with such taxable period. The entity generating the utilized tax benefits received a cash payment only if, and when, the unutilized taxable losses of the other entity were actually utilized. If the unutilized taxable losses expired without ever being utilized, the entity generating the unutilized tax benefits never received payment for such benefits. Pursuant to the New Tax Sharing Agreement, state and local income taxes were calculated on a separate return basis for each entity (applying provisions of state and local tax law and related regulations as if the entity was a separate unitary or combined group for tax purposes), and TCI's combined or unitary tax liability was allocated among the entities based upon such separate calculation. Notwithstanding the foregoing, items of income, gain, loss, deduction or credit resulting from certain specified transactions that were consummated after the Effective Date pursuant to a letter of intent or agreement that was entered into prior to the Effective Date were shared and allocated pursuant to the terms of the Old Tax Sharing Agreement, as amended. In connection with the AT&T Merger, Liberty became party to a new tax sharing agreement. Income tax benefit (expense) consists of:
Current Deferred Total ------- -------- ----- amounts in millions Year ended December 31, 1998: State and local income tax expense, including intercompany tax allocation...................... $ (4) (109) (113) Federal income tax benefit (expense), including intercompany tax allocation...................... 89 (437) (348) ---- ---- ---- $ 85 (546) (461) ==== ==== ==== Year ended December 31, 1997: State and local income tax expense, including intercompany tax allocation...................... $ (3) (25) (28) Federal income tax benefit, including intercompany tax allocation................................... 189 14 203 ---- ---- ---- $186 (11) 175 ==== ==== ==== Year ended December 31, 1996: State and local income tax expense, including intercompany tax allocation...................... $ (3) (97) (100) Federal income tax benefit (expense), including intercompany tax allocation...................... 54 (387) (333) ---- ---- ---- $ 51 (484) (433) ==== ==== ====
F-22 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following:
Years ended December 31, ----------------- 1998 1997 1996 ----- ---- ---- amounts in millions Computed expected tax benefit (expense)................. $(379) 226 (411) Dividends excluded for income tax purposes.............. 13 8 2 Minority interest in equity of subsidiaries............. (5) 4 (6) Amortization not deductible for income tax purposes..... (21) (10) (15) State and local income taxes, net of federal income taxes.................................................. (74) (18) (65) Recognition of difference in income tax basis of investments in subsidiaries............................ -- (25) 66 Increase in valuation allowance......................... (3) -- (13) Other, net.............................................. 8 (10) 9 ----- --- ---- $(461) 175 (433) ===== === ====
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1997 are presented below:
December 31, ------------ 1998 1997 ------ ----- amounts in millions Deferred tax assets: Net operating and capital loss carryforwards................. $ 99 155 Future deductible amount attributable to accrued stock compensation and deferred compensation...................... 218 36 Other future deductible amounts due principally to non- deductible accruals......................................... 33 36 ------ ----- Deferred tax assets.......................................... 350 227 ------ ----- Less valuation allowance................................... 42 62 ------ ----- Net deferred tax assets...................................... 308 165 ------ ----- Deferred tax liabilities: Investments in affiliates, due principally to losses of affiliates recognized for income tax purposes in excess of losses recognized for financial statement purposes.......... 3,637 1,166 Other, net................................................... 37 14 ------ ----- Deferred tax liabilities..................................... 3,674 1,180 ------ ----- Net deferred tax liabilities................................... $3,366 1,015 ====== =====
The valuation allowance relates principally to deferred tax assets arising from net operating loss carryforwards of TCI Music. At December 31, 1998, Liberty had net operating and capital loss carryforwards for income tax purposes aggregating approximately $144 million which, if not utilized to reduce taxable income in future periods, will begin to expire at various dates beginning in the year 2003. F-23 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Certain subsidiaries of Liberty had additional net operating loss carryforwards for income tax purposes aggregating $106 million and these net operating losses are subject to certain rules limiting their usage. (11) Stockholder's Equity Preferred Stock The Preferred Stock is issuable, from time to time, with such designations, preferences and relative participating, option or other special rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such Preferred Stock adopted by the Board. Common Stock The Class A Stock has one vote per share, and each of the Class B and Class C Stock has ten votes per share. As of December 31, 1998, all of the issued and outstanding common stock of Liberty was held by Tele-Communications, Inc. Transactions with Officers and Directors On January 5, 1998, TCI announced that a settlement (the "Magness Settlement") had been reached in the litigation brought against it and other parties in connection with the administration of the Estate of Bob Magness (the "Magness Estate"), the late founder and former Chairman of the Board of TCI. On February 9, 1998, in connection with the Magness Settlement, TCI entered into a call agreement (the "Malone Call Agreement") with Dr. John C. Malone, and Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the Malones granted to TCI the right to acquire any shares of TCI stock which are entitled to cast more than one vote per share (the "High-Voting Shares") owned by the Malones, which currently consist of an aggregate of approximately 60 million High-Voting shares upon Dr. Malone's death or upon a contemplated sale of the High-Voting Shares (other than a minimal amount) to third persons. In either such event, TCI has the right to acquire the shares at a maximum price equal to the then relevant market price of shares of TCI's Series A stocks plus a ten percent premium. The Malones also agreed that if TCI were ever to be sold to another entity, then the maximum premium that the Malones would receive on their High-Voting Shares would be no greater than a ten percent premium over the price paid for the relevant shares of TCI's Series A stocks. TCI paid $150 million to the Malones in consideration of them entering into the Malone Call Agreement. Also on February 9, 1998, in connection with the Magness Settlement, certain members of the Magness family, individually and in certain cases, on behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the Magness Estate (collectively, the "Magness Family") also entered into a call agreement with TCI (with substantially the same terms as the one entered into by the Malones, including a call on the shares owned by the Magness Family upon Dr. Malone's death) (the "Magness Call Agreement") on the Magness Family's aggregate of approximately 49 million High-Voting Shares. The Magness Family was paid $124 million by TCI in consideration of them entering into the Magness Call Agreement. Additionally, on February 9, 1998, the Magness Family entered into a stockholders' agreement with the Malones and TCI under which (i) the Magness Family and the Malones agreed to consult with each other in connection with matters to be brought to the vote of TCI's stockholders, subject to the proviso that if they cannot mutually agree on how to vote the shares, Dr. Malone has an irrevocable proxy to vote the High-Voting Shares owned by the Magness Family, (ii) the Magness Family may designate a nominee for the Board of TCI and Dr. Malone has agreed to vote his High Voting Shares for such nominee and (iii) certain "tag along rights" have been created in favor of the Magness Family and certain "drag along rights" have been created in favor of the Malones. F-24 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Of the aggregate amount paid by TCI pursuant to the Malone Call Agreement and Magness Call Agreement, $140 million was allocated to Liberty and was paid during the first quarter of 1998. Such payment is reflected as a reduction of additional paid-in-capital. Transactions with TCI and Other Related Parties Certain TCI corporate general and administrative costs are charged to Liberty at rates set at the beginning of the year based on projected utilization for that year. During the years ended December 31, 1998, 1997 and 1996 Liberty was allocated $11 million, $56 million and $4 million, respectively, in corporate general and administrative costs by TCI. Certain Liberty subsidiaries produce and/or distribute sports and other programming and other services to cable distribution operators (including TCI) and others. Charges to TCI are based upon customary rates charged to others. During 1998 and 1997, Liberty made marketing support payments to TCI. Charges by TCI for such arrangements for the years ended December 31, 1998 and 1997 aggregated $5 million and $19 million, respectively. The Puerto Rico Subsidiary purchases programming services from TCI. The charges, which approximate TCI's cost and are based on the aggregate number of subscribers served by the Puerto Rico Subsidiary, aggregated $6 million, $6 million and $4 million during the years ended December 31, 1998, 1997 and 1996, respectively. In 1996, a Liberty subsidiary (i) issued preferred stock in connection with an acquisition, which is convertible at the option of the holders into 1,084,056 of TCI Group Series A Common Stock beginning in April 1999 or sooner in the event of a change in control of TCI and (ii) acquired an option contract from TCI in exchange for a $14 million increase in the intercompany amount due to TCI. Such option contract provided Liberty with the right to acquire 1,084,056 shares of TCI Group Series A Stock at a price equivalent to the fair value at the time of exercise less $14.625 per share. During September 1998, TCI assigned its obligation under the option contract to Liberty. As a result of such assignment, Liberty recorded a $16 million reduction to the intercompany amount due to TCI and a corresponding increase to additional paid- in-capital. In July 1998, Liberty entered into an equity swap transaction with a commercial bank, which provides Liberty with the right but not the obligation to acquire 1,084,056 shares of TCI Group Series A Stock for approximately $45 million on or before April 19, 1999. In the event Liberty does not exercise its right to acquire such shares, any difference between the counterparty's cost and the market value of the shares on the settlement date will be settled in cash or shares of TCI Ventures Group Series A Stock at Liberty's option. Such shares could be used to satisfy the exchange requirements of the aforementioned preferred stock. Cablevision purchases programming services from certain Liberty affiliates. The related charges generally are based upon the number of Cablevision's subscribers that receive the respective services. During the year ended December 31, 1997, such charges aggregated $12 million. Additionally, certain of Cablevision's general and administrative functions are provided by Liberty. The related charges, which generally are based upon the respective affiliate's cost of providing such functions, aggregated $2 million during the year ended December 31, 1997. The above-described programming and general and administrative charges are included in operating costs in the accompanying consolidated statements of operations and comprehensive earnings. During July 1997, TCI entered into a 25 year affiliation agreement with Encore Media Group LLC ("Encore Media Group") (the "EMG Affiliation Agreement") pursuant to which TCI will pay monthly fixed amounts in exchange for unlimited access to all of the existing Encore and STARZ! services. F-25 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Effective July 11, 1997, pursuant to an Agreement and Plan of Merger, dated as of February 6, 1997, as amended (the "DMX Merger Agreement"), by and among TCI, TCI Music, a wholly-owned subsidiary of TCI, a wholly-owned subsidiary of TCI Music ("DMX Merger Sub") and DMX, Inc. ("DMX"), Merger Sub was merged with and into DMX, with DMX as the surviving corporation (the "DMX Merger"). As a result of the DMX Merger, stockholders of DMX became stockholders of TCI Music. TCI Music is engaged in the delivery of music programming and music related services through audio, video and internet distribution channels, primarily cable television. In connection with the DMX Merger, TCI and TCI Music entered into an agreement pursuant to which, effective as of the closing of the DMX Merger: (i) TCI Music issued to TCI (as designee of certain of its indirect subsidiaries), 62.5 million shares of Series B Common Stock, $.01 par value per share, of TCI Music ("TCI Music Series B Common Stock") and a promissory note in the amount of $40 million, (ii) until December 31, 2006, certain subsidiaries of TCI transferred to TCI Music the right to receive all revenue from sales of DMX music services to their residential and commercial subscribers, net of an amount equal to 10% of revenue from such sales to residential subscribers and net of the revenue otherwise payable to DMX as license fees for DMX music services under affiliation agreements currently in effect, (iii) TCI contributed to TCI Music certain commercial digital DMX tuners that were not in service as of the effective date of the DMX Merger, and (iv) TCI granted to each stockholder who became a stockholder of TCI Music pursuant to the DMX Merger, one right (a "Right") with respect to each whole share of TCI Music Series A Common Stock acquired by such stockholder in the DMX Merger pursuant to the terms of a Rights Agreement among TCI, TCI Music and the rights agent (the "Rights Agreement"). Upon consummation of the DMX Merger, each outstanding share of DMX Common Stock was converted into the right to receive (i) one- quarter of a share of TCI Music Series A Common Stock, (ii) one Right with respect to each whole share of TCI Music Series A Common Stock and (iii) cash in lieu of the issuance of fractional shares of TCI Music Series A Common Stock and Rights. Each Right entitled the holder to require TCI to purchase from such holder one share of TCI Music Series A Common Stock for $8.00 per share, subject to reduction by the aggregate amount per share of any dividend and certain other distributions, if any, made by TCI Music to its stockholders, and, payable at the election of TCI, in cash, a number of shares of TCI Group Series A Stock, having an equivalent value or a combination thereof, if during the one-year period beginning on the effective date of the DMX Merger, the price of TCI Music Series A Common Stock did not equal or exceed $8.00 per share for a period of at least 20 consecutive trading days. Subsequently, TCI Music and TCI entered into an Amended and Restated Contribution Agreement to be effective as of July 11, 1997 which provides, among other things, for TCI to deliver, or cause certain of its subsidiaries to deliver to TCI Music fixed monthly payments (subject to inflation and other adjustments) through 2017. Effective with the DMX Merger, TCI beneficially owned approximately 45.7% of the outstanding shares of TCI Music Series A Common Stock and 100% of the outstanding shares of TCI Music Series B Common Stock, which represented 89.6% of the equity and 98.7% of the voting power of TCI Music. Simultaneously with the DMX Merger, Liberty acquired the TCI-owned TCI Music Common Stock by agreeing to reimburse TCI for any amounts required to be paid by TCI pursuant to TCI's contingent obligation under the Rights Agreement to purchase up to 15 million shares (7 million of which are owned by Liberty) of TCI Music Series A Common Stock and issuing an $80 million promissory note (the "Music Note") to TCI. Liberty recorded its contingent obligation to purchase such shares under the Rights Agreement as a component of minority interest in equity of subsidiaries in the accompanying consolidated financial statements. Liberty may elect to pay $50 million of the Music Note by delivery of a Stock Appreciation Rights Agreement that will give TCI the right to receive 20% of the appreciation in value of Liberty's investment in TCI Music, to be determined at July 11, 2002. TCI Music was included in the consolidated financial results of Liberty as of the date of the DMX F-26 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Merger. Due to the related party nature of the transaction, the $86 million excess of the consideration paid over the carryover basis of the TCI Music common stock acquired by Liberty from TCI was reflected as a decrease in additional paid-in-capital. The Music Note is included in amounts due to related parties. In December 1997, TCI Music issued convertible preferred stock and common stock in connection with two acquisitions. After giving effect to such issuances and assuming the conversion of the TCI Music convertible preferred stock, Liberty, at December 31, 1997, owned TCI Music securities representing 78% of TCI Music's common stock and 97% of the voting power attributable to such TCI Music common stock. In connection with the issuance of such common shares, Liberty recorded a $19 million increase to additional paid-in-capital. No gain was recognized in the consolidated statements of operations and comprehensive earnings due primarily to Liberty's contingent obligation under the Rights Agreement. Prior to the July 1998 expiration of the Rights, Liberty was notified of the tender of 4.9 million shares and associated Rights. On August 27, 1998, Liberty paid $39 million to satisfy TCI's obligation under the Rights Agreement. Such transaction was recorded as an acquisition of minority interest in equity of subsidiaries. During the third quarter of 1997, Liberty sold certain assets (the "SUMMITrak Assets") to CSG Systems, Inc. ("CSG") for cash consideration of $106 million, plus five-year warrants to purchase up to 1.5 million shares of CSG common stock at $24 per share and $12 million in cash, once certain numbers of TCI affiliated customers are being processed on a CSG billing system. In connection with the sale of the SUMMITrak Assets, TCI committed to purchase billing services from CSG through 2012. In light of such commitment, Liberty has reflected the $30 million excess (after deducting deferred income taxes of $17 million) of the cash received over the book value of the SUMMITrak Assets as an increase to additional paid-in-capital. During the fourth quarter of 1997, Liberty's remaining assets in TCI SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were transferred to TCI in exchange for a $19 million reduction of the amount owed by Liberty to TCI. Such transfer was accounted for at historical cost due to the related party nature of the transaction. Due to Related Parties The components of "Due to related parties" are as follows:
1998 1997 ---- ---- amounts in millions Notes payable to TCI, including accrued interest................ $141 378 Note receivable from TCI........................................ -- (88) Intercompany account............................................ 269 (276) ---- ---- $410 14 ==== ====
Amounts outstanding at December 31, 1998 under notes payable to TCI bear interest at varying rates. During the second quarter of 1998, TCI made a contribution to Liberty of $5 million, which was used to reduce the amount due under the Music Note. Amounts outstanding under the note receivable from TCI were repaid in their entirety during the third quarter of 1998. F-27 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The non-interest bearing intercompany account includes certain income tax and stock compensation allocations that are to be settled at some future date. All other amounts included in the intercompany account are to be settled within thirty days following notification. (12) Stock Options and Stock Appreciation Rights Certain officers and other key employees of Liberty hold options with tandem stock appreciation rights ("SARs") to acquire TCI Group Series A Stock, Liberty Media Group Series A Stock and TCI Ventures Group Series A Stock as well as restricted stock awards of TCI Group Series A Stock, Liberty Media Group Series A Stock and TCI Ventures Group Series A Stock. Estimates of compensation relating to SARs granted to such employees of Liberty have been recorded in the accompanying consolidated financial statements pursuant to APB Opinion No. 25. Such estimates are subject to future adjustment based upon vesting of the related stock options and SARs and the market value of TCI Group Series A Stock, Liberty Media Group Series A Stock and TCI Ventures Group Series A Stock and, ultimately, on the final determination of market value when the rights are exercised. In connection with the AT&T Merger, all series of TCI stock were converted to classes of AT&T stock. Had Liberty accounted for its stock based compensation pursuant to the fair value based accounting method in Statement 123, the amount of compensation would not have been significantly different from what has been reflected in the accompanying consolidated financial statements. The following table presents the number and weighted average exercise price ("WAEP") of certain options in tandem with SARs to purchase TCI Group Series A Stock, Liberty Media Group Series A Stock (as adjusted for a stock dividend) and TCI Ventures Group Series A Stock (as adjusted for a stock dividend) granted to certain officers and other key employees of the Company.
Liberty Media TCI Ventures TCI Group Group Group Series A Stock WAEP Series A Stock WAEP Series A Stock WAEP -------------- ------ -------------- ------ -------------- ----- amounts in thousands, except for WAEP Outstanding at January 1, 1996................ 3,698 $ 8.46 6,698 $ 9.01 -- -- Adjustment for transfer of employees............ 3,285 13.19 1,998 12.64 -- -- Exercised............. (79) 10.79 (62) 7.60 -- -- ------ ------ Outstanding at December 31, 1996............... 6,904 10.64 8,634 9.93 -- -- Adjustment for TCI Ventures Exchange.... (2,149) 14.28 -- -- 4,298 $7.14 Adjustment for transfer of employees............ 228 12.08 22 8.39 (50) 6.74 Granted............... 595 15.04 591 -- -- -- Exercised............. (2,430) 9.81 (648) 5.62 (166) 6.45 Canceled.............. (30) 10.75 (23) 10.67 -- -- ------ ------ ------ Outstanding at December 31, 1997............... 3,118 12.08 8,576 10.30 4,082 6.76 Granted............... 118 25.72 8,314 43.24 51 5.38 Exercised............. (1,331) 10.36 (1,203) 8.39 (1,714) 6.59 Canceled.............. (23) 14.92 (1) 9.78 (20) 7.46 ------ ------ ------ Outstanding at December 31, 1998............... 1,882 14.03 15,686 29.08 2,399 6.89 ====== ====== ====== Exercisable at December 31, 1998............... 1,117 3,763 1,708 ====== ====== ====== Vesting Period........ 5 yrs 5 yrs 5 yrs
F-28 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Tele-Communications International, Inc. Stock Incentive Plan. In 1995, TINTA adopted the Tele-Communications International, Inc. 1995 Stock Incentive Plan (the "TINTA 1995 Plan"). The TINTA 1995 Plan provides for Awards to be made in respect of a maximum of 3,000,000 shares of TINTA Series A common stock ("TINTA Series A Stock") (subject to certain anti-dilution adjustments). Shares of TINTA Series A Stock that are subject to Awards that expire, terminate or are annulled for any reason without having been exercised (or deemed exercised, by virtue of the exercise of a related stock appreciation right), or are forfeited prior to becoming vested will return to the pool of such shares available for grant under the TINTA 1995 Plan. On December 13, 1995, stock options in tandem with SARs to purchase 1,352,000 shares of TINTA Series A Stock were granted pursuant to the TINTA 1995 Plan. Such options vest ratably over five years, first became exercisable August 4, 1996 and expire on August 4, 2005. During 1997, TINTA granted stock options in tandem with SARs to purchase 1,130,000 shares of TINTA Series A Stock. Such options vest ratably over five years, first become exercisable one year after date of grant, and expire ten years after date of grant. As a result of the TINTA Merger on November 19, 1998, each stock option and SAR to purchase TINTA Series A Stock was converted into a stock option or SAR to purchase Liberty Media Group Series A Stock determined by multiplying the number of TINTA stock options or SARs by 0.58 at an exercise price per share of such stock option or SAR divided by 0.58. The following descriptions of stock options and/or SARs have been adjusted to reflect such change. The following table presents the number and WAEP of certain options in tandem with SARs to purchase TINTA Series A Stock and Liberty Media Group Series A Stock pursuant to the TINTA 1995 Plan:
Liberty Media TINTA Group Series A Series A Stock WAEP Stock WAEP -------- ------ ------------- ----- amounts in thousands, except for WAEP Outstanding at January 1, 1996 and 1997................................. 1,352 $16.00 -- $ -- Granted............................. 1,130 14.69 -- -- ------ ------- Outstanding at December 31, 1997...... 2,482 15.40 -- -- Adjustment for TINTA Merger......... (1,982) 15.31 1,150 26.40 Exercised........................... (500) 15.75 (1) 25.21 ------ ------- Outstanding at December 31, 1998...... -- -- 1,149 26.40 ====== ======= Exercisable at December 31, 1998...... -- -- 448 26.97 ====== ======= Vesting Period........................ -- 5 years
On December 13, 1995, pursuant to the TINTA 1995 Plan, 40,000 restricted shares of TINTA Series A Stock were awarded to certain officers and directors of TINTA. Such restricted shares vest as to 50% in December 1999 and as to the remaining 50% in December 2000. Such restricted shares had a fair value of $25.375 on the date of grant. At December 31, 1998, 23,200 restricted shares of Liberty Media Group Series A Stock (after adjustment for TINTA Merger) were unvested. On July 23, 1997, pursuant to the TINTA 1995 Plan, 150,000 restricted shares of TINTA Series A Stock were awarded to a director of TINTA. Such restricted shares vest as to 50% in July 2001 and as to the remaining 50% in July 2002. Such restricted shares had a fair value of $14.625 on the date of grant. At December 31, 1998, 87,000 restricted shares of Liberty Media Group Series A Stock (after adjustment for TINTA Merger) were unvested. F-29 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Tele-Communications International, Inc. Nonemployee Director Stock Option Plan. On April 11, 1996, TINTA adopted the Tele-Communications International, Inc. 1996 Nonemployee Director Stock Option Plan (the "TINTA Director Plan"). The TINTA Director Plan provides for grants to be made to nonemployee directors of TINTA of options to purchase a maximum of 1,000,000 shares of TINTA Series A Stock (subject to certain anti-dilution adjustments). Shares that are subject to such options that expire or terminate for any reason without having been exercised will return to the pool of shares underlying options available to grant under the TINTA Director Plan. Pursuant to the TINTA Director Plan, options to purchase 200,000 shares of TINTA Series A Stock were granted in April 1996 at an exercise price of $16.00 per share. Such options had a weighted average fair value of $14.01 on the date of grant. Options issued pursuant to the TINTA Director Plan vest and become exercisable over a five- year period from the date of grant and expire 10 years from the date of grant. At December 31, 1998, 116,000 options with respect to Liberty Media Group Series A Stock (after adjustment for TINTA Merger) granted pursuant to the TINTA Director Plan were outstanding, 46,400 of which were exercisable. Such options had an exercise price of $27.58 and a weighted average remaining contractual life of 8 years. United Video Satellite Group, Inc. Equity Incentive Plan and United Video Satellite Group, Inc. Stock Option Plan for Non-Employee Directors. UVSG sponsors the United Video Satellite Group, Inc. Equity Incentive Plan under which 8 million shares of UVSG's Class A Common Stock are authorized to be issued in connection with the exercise of awards of stock options, stock appreciation rights and restricted stock granted under the plan. UVSG's Equity Incentive Plan provides that the price at which each share of stock covered by an option may be acquired shall in no event be less than 100% of the fair market value of the stock on the date the option is granted, except in certain limited circumstances. Additionally, UVSG sponsors the United Video Satellite Group, Inc. Stock Option Plan for Non-Employee Directors under which 500,000 shares of UVSG's Class A Common Stock are authorized to be issued in connection with the exercise of stock options granted thereunder. At December 31, 1998, 6.3 million shares of UVSG's Class A Common Stock were reserved for issuance under the stock option plans. The options granted under the stock option plans expire ten years from the date of grant. Options outstanding are as follows:
UVSG Class A Common Stock (1) WAEP (1) -------------- -------- amounts in thousands, except for WAEP At January 1, 1996................................... 4,121 $ 4.25 Granted............................................ 1,276 11.11 Exercised.......................................... (815) 4.04 Canceled........................................... (805) 9.21 ------ At December 31, 1996................................. 3,777 5.56 Granted............................................ 916 8.54 Exercised.......................................... (2,089) 4.04 Canceled........................................... (252) 5.88 ------ At December 31, 1997................................. 2,352 8.03 Granted............................................ 709 16.61 Exercised.......................................... (254) 6.84 Canceled........................................... (36) 9.41 ------ Exercisable at December 31, 1998..................... 2,771 10.32 ======
- -------- (1) Adjusted for two-for-one stock split. F-30 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Exercise prices for options outstanding as of December 31, 1998 ranged from $4 to $17. The weighted-average remaining contractual life of such options is 7.8 years. TCI Music, Inc. Stock Incentive Plan. During 1997 and 1998, TCI Music granted stock options with tandem SARs to employees under the TCI Music, Inc. 1997 Stock Incentive Plan (the "TCI Music Stock Plan") which is authorized to issue up to 4 million shares. Options granted under the TCI Music Stock Plan expire ten years from the date of grant. In addition TCI Music granted stock options with tandem SARs to the board of directors and employees in connection with certain mergers. Options issued under the TCI Music Stock Plan and in connection with certain mergers generally vest annually in 20% cumulative increments. On December 21, 1998, TCI Music re-priced the stock options with tandem SARs pursuant to the TCI Music Stock Plan at $4.00 for all grants to executive officers and employees of TCI Music and its subsidiaries. The following table presents the number and WAEP of options in tandem with SARs to purchase TCI Music Series A Common Stock, after giving effect to the re-pricing at $4.00 for certain options and tandem SARs:
TCI Music Series A Common Stock WAEP ------------ ----- amounts in thousands, except for WAEP At January 1, 1997....................................... -- -- Granted................................................ 3,609 $5.75 ----- At December 31, 1997..................................... 3,609 5.75 Granted................................................ 1,771 4.00 Exercised.............................................. (21) 4.00 Canceled............................................... (311) 4.00 ----- At December 31, 1998..................................... 5,048 5.25 ===== Exercisable at December 31, 1998......................... 1,373 5.84 =====
Exercise prices for options outstanding as of December 31, 1998 ranged from $4.00 to $6.25. The weighted average remaining contractual life of such options is 8.7 years. The weighted average fair value of options granted during 1998, after giving effect to the re-pricing at $4.00 for certain options and tandem SARs, and 1997 was $3.51 and $3.31, respectively. The estimated fair values of the options noted above are based on the Black- Scholes model and are stated in current annualized dollars on a present value basis. The key assumptions used in the model for purposes of these calculations generally include the following: (a) a discount rate equal to the 10-year Treasury rate on the date of grant; (b) a 35% volatility factor, (c) the 10- year option term; (d) the closing price of the respective common stock on the date of grant; and (e) an expected dividend rate of zero. F-31 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (13) Other Comprehensive Earnings Accumulated other comprehensive earnings included in Liberty's consolidated balance sheets and consolidated statements of stockholder's equity reflect the aggregate of foreign currency translation adjustments and unrealized holding gains and losses on securities classified as available-for-sale. The change in the components of accumulated other comprehensive earnings, net of taxes, is summarized as follows:
Unrealized Accumulated Foreign gains other currency (losses) comprehensive translation on earnings, net adjustments securities of taxes ----------- ---------- ------------- amounts in millions Balance at January 1, 1996................ $ (9) 336 327 Other comprehensive earnings (loss)....... 35 (319) (284) ---- ----- ----- Balance at December 31, 1996.............. 26 17 43 Other comprehensive earnings (loss)....... (23) 747 724 ---- ----- ----- Balance at December 31, 1997.............. 3 764 767 Other comprehensive earnings.............. 2 2,417 2,419 ---- ----- ----- Balance at December 31, 1998.............. $ 5 3,181 3,186 ==== ===== =====
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.
Tax Before-tax (expense) Net-of-tax amount benefit amount ---------- --------- ---------- amounts in millions Year ended December 31, 1998: Foreign currency translation adjustments....... $ 3 (1) 2 Unrealized gains on securities: Unrealized holding gains arising during period...................................... 3,998 (1,581) 2,417 ------ ------ ----- Other comprehensive earnings................... $4,001 (1,582) 2,419 ====== ====== ===== Year ended December 31, 1997: Foreign currency translation adjustments....... $ (38) 15 (23) Unrealized gains on securities: Unrealized holding gains arising during period...................................... 1,236 (489) 747 ------ ------ ----- Other comprehensive earnings................... $1,198 (474) 724 ====== ====== ===== Year ended December 31, 1996: Foreign currency translation adjustments....... $ 58 (23) 35 ------ ------ ----- Unrealized gains on securities: Unrealized holding gains arising during period...................................... 61 (24) 37 Less: reclassification adjustment for gains realized in net earnings.................... (589) 233 (356) ------ ------ ----- Net unrealized losses........................ (528) 209 (319) ------ ------ ----- Other comprehensive loss....................... $ (470) 186 (284) ====== ====== =====
F-32 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (14) Commitments and Contingencies Encore Media Group, a wholly owned subsidiary of Liberty, provides premium programming distributed by cable, direct satellite, TVRO and other distributors throughout the United States. Encore Media Group is obligated to pay fees for the rights to exhibit certain films that are released by various producers through 2017 (the "Film Licensing Obligations"). Based on customer levels at December 31, 1998, these agreements require minimum payments aggregating approximately $808 million. The aggregate amount of the Film Licensing Obligations under these license agreements is not currently estimable because such amount is dependent upon the number of qualifying films released theatrically by certain motion picture studios as well as the domestic theatrical exhibition receipts upon the release of such qualifying films. Nevertheless, required aggregate payments under the Film Licensing Obligations could prove to be significant. Flextech has undertaken to finance the working capital requirements of a joint venture, (the "Principal Joint Venture") formed with BBC Worldwide and is obligated to provide the Principal Joint Venture with a primary credit facility of (Pounds)88 million ($150 million) and subject to certain restrictions, a standby credit facility of (Pounds)30 million ($51 million). As of December 31, 1998, the Principal Joint Venture had borrowed (Pounds)16 million ($27 million) under the primary credit facility. If Flextech defaults in its funding obligation to the Principal Joint Venture and fails to cure within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to require that Liberty assume all of Flextech's funding obligations to the Principal Joint Venture. Liberty has guaranteed various loans, notes payable, letters of credit and other obligations (the "Guaranteed Obligations") of certain affiliates. At December 31, 1998, the Guaranteed Obligations aggregated approximately $243 million. Currently, Liberty is not certain of the likelihood of being required to perform under such guarantees. Liberty leases business offices, has entered into pole rental and transponder lease agreements and uses certain equipment under lease arrangements. Rental expense under such arrangements amounts to $27 million, $20 million and $38 million for the years ended December 31, 1998, 1997 and 1996, respectively. A summary of future minimum lease payments under noncancellable operating leases as of December 31, 1998 follows (amounts in millions): Years ending December 31: 1999.............................................................. $40 2000.............................................................. 35 2001.............................................................. 31 2002.............................................................. 29 2003.............................................................. 23 Thereafter........................................................ 47
It is expected that in the normal course of business, leases that expire generally will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amount shown for 1999. On July 17, 1998, TCI acquired 21.4 million shares of restricted stock of GI in exchange for (i) certain of the assets of NDTC's set-top authorization business, (ii) the license of certain related software to GI, (iii) a $50 million promissory note from TCI to GI and (iv) a nine year revenue guarantee from TCI in favor of GI. In connection therewith, NDTC also entered into a service agreement pursuant to which it will provide certain postcontract services to GI's set-top authorization business. Such shares of GI stock and the promissory note F-33 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) were contributed to Liberty. The 21.4 million shares of GI common stock are, in addition to other transfer restrictions, restricted as to their sale by Liberty for a three year period, and represent approximately 13% of the outstanding common stock of GI at December 31, 1998. Liberty recorded its investment in such shares at fair value which included a discount attributable to the above- described liquidity restriction. Liberty carries its investment in such shares at the lower of cost or net realizable value. The $396 million fair value of GI common stock received net of the $42 million present value of the promissory note due from Liberty to GI, has been reflected as an increase in additional paid-in capital. On September 21, 1998, Hurricane Georges struck Puerto Rico and caused considerable property damage to the area in general, including the Puerto Rico Subsidiary's cable television systems. The Puerto Rico Subsidiary's cable television systems represent $45 million of Liberty's revenue for the year ended December 31, 1998. The Puerto Rico Subsidiary has property and business interruption insurance aggregating $15 million that is subject to a deductible of $1 million. The Puerto Rico Subsidiary has submitted a property damage claim to its insurance carrier for approximately $15 million which represents the estimated replacement cost of its damaged property. As a result of the damage caused by Hurricane Georges, the Puerto Rico Subsidiary, at December 31, 1998, recorded an impairment to reduce the net book value of the damaged property and equipment by $8 million and recorded a receivable in the amount of $12 million as insurance coverage for property damages. The $12 million in insurance coverage for property damages were fully collected prior to December 31, 1998. As of December 31, 1998, approximately 82% of the Puerto Rico Subsidiary's pre-hurricane basic customers were receiving cable television services. The loss of revenue from September 21, 1998 through December 31, 1998 was $7 million. The Puerto Rico Subsidiary's business interruption insurance will cover the first $3 million in lost revenue. The $3 million in business interruption coverage was fully collected prior to December 31, 1998. The Puerto Rico Subsidiary has also claimed coverage for business interruption under a secondary insurance carrier. Such policy, which covers the Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of $2.5 million. This insurance claim is subject to approval by such insurance carrier and accordingly, no assurance can be given that amounts claimed will be paid in their entirety. However, in the event such claims are collected the overall impact in lost revenues for the Puerto Rico Subsidiary as a result of Hurricane Georges will not exceed $2.5 million. Liberty has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Liberty may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements. (15) Information about Liberty's Operating Segments Liberty has three operating segments: Encore Media Group, UVSG and Equity Investments and Other. Equity Investments and Other include Liberty's investments accounted for under the equity method, primarily in cable television programming entities and other businesses not representing separately reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Liberty evaluates performance based on measures of revenue and operating cash flow (as defined by Liberty), appreciation in stock price along with other non-financial measures such as average prime F-34 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) time rating, prime time audience delivery, subscriber growth and penetration, as appropriate. Liberty believes operating cash flow is a widely used financial indicator of companies similar to Liberty and its affiliates, which should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with generally accepted accounting principles. Liberty generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices. Liberty's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technology and marketing strategies. Liberty utilizes the following financial information for purposes of making decisions about allocating resources to a segment and assessing a segment's performance:
Equity Investments EMG UVSG and Other Total ---- ---- ----------- ------ amounts in millions Year ended December 31, 1998 Segment revenue from external customers including intersegment revenue................ $541 598 220 1,359 Segment operating cash flow (deficit).......... 96 123 (3) 216 Segment equity in losses of affiliates......... -- -- (1,002) (1,002) Year ended December 31, 1997 Segment revenue from external customers including intersegment revenue................ 350 508 367 1,225 Segment operating cash flow (deficit).......... (32) 104 87 159 Segment equity in losses of affiliates......... -- -- (785) (785) Year ended December 31, 1996 Segment revenue from external customers including intersegment revenue................ 195 410 1,603 2,208 Segment operating cash flow (deficit).......... (95) 67 128 100 Segment equity in losses of affiliates......... -- -- (332) (332) As of December 31, 1998 Segment assets................................. 355 666 14,546 15,567 Investments in affiliates...................... -- -- 3,079 3,079 As of December 31, 1997 Segment assets................................. 289 428 7,018 7,735 Investments in affiliates...................... -- -- 2,359 2,359
(16) Year 2000 During 1998, TCI continued its enterprise-wide, comprehensive efforts to assess and remediate its computer systems and related software and equipment to ensure such systems, software and equipment recognize, process and store information in the year 2000 and thereafter. TCI's year 2000 remediation efforts include an assessment of Liberty's most critical systems, equipment, and facilities. TCI also continued its efforts to verify the year 2000 readiness of Liberty's significant suppliers and vendors and continued to communicate with significant business partners and affiliates to assess such partners and affiliates' year 2000 status. F-35 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) TCI has a year 2000 Program Management Office (the "PMO") to organize and manage its year 2000 remediation efforts. The PMO is responsible for overseeing, coordinating and reporting on Liberty's year 2000 remediation efforts. During 1998, TCI continued its survey of significant third-party vendors and suppliers whose systems, services or products are important to Liberty's operations. The year 2000 readiness of such providers is critical to continued provision of Liberty's programming services. Year 2000 expenses and capital expenditures incurred during the year ended December 31, 1998 were not material. In addition to the survey process described above, management of Liberty has identified its most critical supplier/vendor relationships and has instituted a verification process to determine the vendor's year 2000 readiness. Such verification includes, as deemed necessary, reviewing vendors' test and other data and engaging in regular conferences with vendors' year 2000 teams. Liberty is also requiring testing to validate the year 2000 compliance of certain critical products and services. Significant market value is associated with Liberty's investments in certain public and private corporations, partnerships and other businesses. Accordingly, Liberty is monitoring the public disclosure of such publicly-held business entities to determine their year 2000 readiness. In addition, Liberty has surveyed and monitored the year 2000 status of certain privately-held business entities in which Liberty has significant investments. The failure to correct a material year 2000 problem could result in an interruption or failure of certain important business operations. There can be no assurance that Liberty's systems or the systems of other companies on which Liberty relies will be converted in time or that any such failure to convert by Liberty or other companies will not have a material adverse effect on its financial position, results of operations or cash flows. F-36 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED BALANCE SHEETS (unaudited)
New Liberty Old Liberty ----------- ------------ June 30, December 31, 1999 1998 ----------- ------------ (note 1) amounts in millions Assets Current assets: Cash and cash equivalents.......................... $ 1,504 228 Marketable securities.............................. 3,393 159 Trade and other receivables, net................... 132 142 Prepaid expenses and committed program rights...... 295 263 Other current assets............................... 22 21 ------- ------ Total current assets............................. 5,346 813 ------- ------ Investments in affiliates, accounted for under the equity method, and related receivables (note 3)..... 16,775 3,079 Investment in Time Warner, Inc. ("Time Warner") (note 4).................................................. 8,212 7,083 Investment in Sprint Corporation ("Sprint") (note 5).................................................. 5,989 2,446 Other investments and related receivables............ 2,521 1,010 Property and equipment, at cost...................... 138 279 Less accumulated depreciation...................... 5 124 ------- ------ 133 155 ------- ------ Intangible assets.................................... 10,308 1,039 Less accumulated amortization...................... 178 140 ------- ------ 10,130 899 ------- ------ Other assets, at cost, net of accumulated amortization........................................ 894 82 ------- ------ Total assets..................................... $50,000 15,567 ======= ======
F-37 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED BALANCE SHEETS--(Continued) (unaudited)
New Liberty Old Liberty ----------- ------------ June 30, December 31, 1999 1998 ----------- ------------ (note 1) amounts in millions Liabilities and Combined Equity Current liabilities: Accounts payable and accrued liabilities............................................................ $ 239 372 Accrued stock compensation.......................................................................... 1,156 126 Program rights payable.............................................................................. 177 156 Current portion of debt............................................................................. 683 184 ------- ------ Total current liabilities......................................................................... 2,255 838 ------- ------ Long-term debt (note 7)............................................................................... 1,493 1,912 Deferred income taxes (note 8)........................................................................ 10,899 3,366 Other liabilities..................................................................................... 26 89 ------- ------ Total liabilities................................................................................. 14,673 6,205 ------- ------ Minority interests in equity of subsidiaries.......................................................... -- 132 Stockholder's equity (note 9): Preferred stock, $.0001 par value. Authorized 100,000 shares; no shares issued and outstanding...... -- -- Class A common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares............................................................................................. -- -- Class B common stock $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares............................................................................................. -- -- Class C common stock, $.0001 par value. Authorized 1,000,000 shares; issued and outstanding 1,000 shares............................................................................................. -- -- Additional paid-in capital.......................................................................... 33,862 4,682 Accumulated other comprehensive earnings, net of taxes.............................................. 1,963 3,186 Retained earnings (deficit)......................................................................... (601) 952 ------- ------ 35,224 8,820 Due to related parties.............................................................................. 103 410 ------- ------ Total stockholder's equity........................................................................ 35,327 9,230 ------- ------ Commitments and contingencies (note 10) Total liabilities and stockholder's equity........................................................ $50,000 15,567 - -------------------------------------------------- ======= ======
See accompanying notes to consolidated financial statements. F-38 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (unaudited)
New Liberty Old Liberty ------------- ------------------------------- (note 1) (note 1) Four months Two months Six months ended ended ended June 30, 1999 February 28, 1999 June 30, 1998 ------------- ----------------- ------------- amounts in millions Revenue......................................................................... $ 292 235 647 Operating costs and expenses: Operating, selling, general and administrative................................ 240 188 553 Stock compensation............................................................ 455 183 265 Depreciation and amortization................................................. 230 22 56 ------ ---- ---- 925 393 874 ------ ---- ---- Operating loss.............................................................. (633) (158) (227) Other income (expense): Interest expense.............................................................. (46) (26) (33) Dividend and interest income.................................................. 106 10 33 Share of losses of affiliates, net (note 3)................................... (359) (66) (523) Gains (losses) on dispositions, net (note 4).................................. (2) 14 553 Gains on issuance of equity by subsidiaries (note 6).......................... -- 372 38 Other, net.................................................................... 8 (5) (5) ------ ---- ---- (293) 299 63 ------ ---- ---- Earnings (loss) before income taxes......................................... (926) 141 (164) Income tax benefit (expense).................................................... 325 (211) 39 ------ ---- ---- Net loss.................................................................... $ (601) (70) (125) ====== ==== ==== Other comprehensive earnings, net of taxes: Foreign currency translation adjustments...................................... (43) (15) (4) Unrealized holding gains arising during the period, net of reclassification adjustments.................................................................. 2,006 885 832 ------ ---- ---- Other comprehensive earnings.................................................. 1,963 870 828 ------ ---- ---- Comprehensive earnings.......................................................... $1,362 800 703 - -------------------------------------------------- ====== ==== ====
See accompanying notes to consolidated financial statements. F-39 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Accumulated other Due to Common stock Additional comprehensive Retained (from) Total Preferred ----------------------- paid-in earnings, earnings, related stockholder's stock Class A Class B Class C capital net of taxes (deficit) parties equity --------- ------- ------- ------- ---------- ------------- --------- ------- ------------- amounts in millions Balance at January 1, 1999................... $ -- -- -- -- 4,682 3,186 952 410 9,230 Net loss............... -- -- -- -- -- -- (70) -- (70) Foreign currency translation adjustments........... -- -- -- -- -- (15) -- -- (15) Unrealized gains on available-for-sale securities............ -- -- -- -- -- 885 -- -- 885 Other transfers from (to) related parties, net................... -- -- -- -- 430 -- -- (1,011) (581) ----- ---- ---- ---- ------ ----- ---- ------ ------ Balance at February 28, 1999................... -- -- -- -- 5,112 4,056 882 (601) 9,449 ===== ==== ==== ==== ====== ===== ==== ====== ====== - -------------------------------------------------------------------------------------------------------------------- Balance at March 1, 1999................... -- -- -- -- 33,468 -- -- 213 33,681 Net loss............... -- -- -- -- -- -- (601) -- (601) Foreign currency translation adjustments........... -- -- -- -- -- (43) -- -- (43) Unrealized gains on available-for-sale securities............ -- -- -- -- 2,006 -- -- 2,006 Transfer from related party for redemption of debentures......... -- -- -- -- 354 -- -- -- 354 Gain in connection with the issuance of common stock of subsidiary... -- -- -- -- 40 -- -- -- 40 Other transfers to related parties, net.. -- -- -- -- -- -- -- (110) (110) ----- ---- ---- ---- ------ ----- ---- ------ ------ Balance at June 30, 1999................... $ -- -- -- -- 33,862 1,963 (601) 103 35,327 ===== ==== ==== ==== ====== ===== ==== ====== ======
See accompanying notes to consolidated financial statements. F-40 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES (wholly-owned by AT&T Corp.) CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
New Liberty Old Liberty ------------- ------------------------------- (note 1) (note 1) Four months Six months ended Two months ended ended June 30, 1999 February 28, 1999 June 30, 1998 ------------- ----------------- ------------- amounts in millions (see note 2) Cash flows from operating activities: Net loss....................................................................... $ (601) (70) (125) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization.................................................. 230 22 56 Stock compensation............................................................. 455 183 265 Payments of stock compensation................................................. (27) (126) (71) Share of losses of affiliates, net............................................. 359 66 523 Deferred income tax expense (benefit).......................................... (314) 212 (17) Intergroup tax allocation...................................................... (14) (1) (22) Cash payment from AT&T pursuant to tax sharing agreement....................... 45 -- -- Losses (gains) on disposition of assets, net................................... 2 (14) (553) Gains on issuance of equity by subsidiaries.................................... -- (372) (38) Other noncash charges.......................................................... (12) 14 6 Changes in current assets and liabilities, net of the effect of acquisitions and dispositions: Change in receivables......................................................... (12) 33 (8) Change in prepaid expenses and committed program rights....................... (7) (23) (31) Change in payables and accruals............................................... 67 (31) 18 ------- ---- ---- Net cash provided (used) by operating activities............................. 171 (107) 3 ------- ---- ---- Cash flows from investing activities: Capital expended for property and equipment.................................... (16) (15) (23) Investments in and loans to affiliates and others.............................. (434) (51) (659) Return of capital from affiliates.............................................. 6 -- 13 Purchases of marketable securities............................................. (6,172) (3) (72) Sales and maturities of marketable securities.................................. 2,759 9 106 Cash paid for acquisitions..................................................... (1) -- (10) Cash proceeds from dispositions................................................ 2 43 298 Cash balances of deconsolidated subsidiaries................................... -- (53) -- Other, net..................................................................... (18) (9) (3) ------- ---- ---- Net cash used by investing activities........................................ (3,874) (79) (350) ------- ---- ---- Cash flows from financing activities: Borrowings of debt............................................................. 495 155 879 Repayments of debt............................................................. (463) (145) (260) Cash transfers (to) from related parties....................................... (160) 31 (73) Repurchase of stock of subsidiary.............................................. -- (45) -- Payments for call agreements................................................... -- -- (140) Other, net..................................................................... 16 (7) (5) ------- ---- ---- Net cash (used) provided by financing activities............................. (112) (11) 401 ------- ---- ---- Net increase (decrease) in cash and cash equivalents........................ (3,815) (197) 54 Cash and cash equivalents at beginning of period............................ 5,319 228 104 ------- ---- ---- Cash and cash equivalents at end of period.................................. $ 1,504 31 158 -------------------------------------------------- ======= ==== ====
See accompanying notes to consolidated financial statements. F-41 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 (unaudited) (1) Basis of Presentation The accompanying consolidated financial statements include the accounts of Liberty Media Corporation and those of all majority-owned subsidiaries ("Liberty" or the "Company"). All intercompany accounts and transactions have been eliminated in consolidation. The Company is a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"). On March 9, 1999, AT&T Corp. ("AT&T") acquired TCI in a merger transaction (the "AT&T Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI, and TCI thereby became a wholly owned subsidiary of AT&T. As a result of the AT&T Merger, each series of TCI common stock was converted into a class of AT&T common stock subject to applicable exchange ratios. The AT&T Merger has been accounted for using the purchase method. For financial reporting purposes the AT&T Merger is deemed to have occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and liabilities of Liberty and the related consolidated financial statements are sometimes referred to herein as "Old Liberty", and for periods subsequent to February 28, 1999 the assets and liabilities of Liberty and the related consolidated financial statements are sometimes referred to herein as "New Liberty". The "Company" and "Liberty" refers to both New Liberty and Old Liberty. The following table represents the summary balance sheet of Old Liberty at February 28, 1999 prior to the AT&T Merger and the opening summary balance sheet of New Liberty subsequent to the AT&T Merger. Certain pre-merger transactions occurring between March 1, 1999 and March 9, 1999 that affected Old Liberty's equity, gains on issuance of equity by subsidiaries and stock compensation have been reflected in the two-month period ended February 28, 1999.
Old Liberty New Liberty ----------- ----------- (amounts in millions) Assets Cash and cash equivalents........................................................................... $ 31 5,319 Other current assets................................................................................ 410 423 Investments in affiliates........................................................................... 3,971 17,073 Investment in Time Warner........................................................................... 7,361 7,832 Investment in Sprint................................................................................ 3,381 3,681 Other investments................................................................................... 1,232 1,539 Property and equipment, net......................................................................... 111 125 Intangibles and other assets........................................................................ 389 11,256 ------- ------ $16,886 47,248 ======= ====== Liabilities and Equity Current liabilities................................................................................. $ 1,051 1,741 Long-term debt...................................................................................... 2,087 1,845 Deferred income taxes............................................................................... 4,147 9,923 Other liabilities................................................................................... 90 19 ------- ------ Total liabilities................................................................................. 7,375 13,528 ------- ------ Minority interests in equity of subsidiaries........................................................ 62 39 Stockholder's equity................................................................................ 9,449 33,681 ------- ------ $16,886 47,248 ======= ======
F-42 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table reflects the recapitalization resulting from the AT&T Merger (amounts in millions): Stockholder's equity of Old Liberty................................ $ 9,449 Purchase accounting adjustments.................................... 24,232 ------- Initial stockholder's equity of New Liberty subsequent to the AT&T Merger............................................................ $33,681 =======
Liberty's domestic subsidiaries generally operate or hold interests in businesses which provide programming services including production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software. In addition, certain of Liberty's subsidiaries hold interests in businesses engaged in wireless telephony, electronic retailing, direct marketing and advertising sales relating to programming services. Liberty also has significant interests in foreign affiliates which operate in cable television, programming and satellite video distribution. The accompanying interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 1998 and notes thereto. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified for comparability with the 1999 presentation. (2) Supplemental Disclosures to Consolidated Statements of Cash Flows Cash paid for interest was $58 million for the four month period ended June 30, 1999, $32 million for the two month period ended February 28, 1999 and $33 million for the six months ended June 30, 1998, respectively. Cash paid for income taxes for the four month period ended June 30, 1999, the two month period ended February 28, 1999 and the six months ended June 30, 1998 was not material.
New Liberty Old Liberty ----------- ----------------------- Four months Two months Six months ended ended ended June 30, February 28, June 30, 1999 1999 1998 ----------- ------------ ---------- amounts in millions Cash paid for acquisitions: Fair value of assets acquired........................................................ $ 3 -- 15 Net liabilities assumed.............................................................. (2) -- (2) Gain in connection with the issuance of stock by subsidiary.......................... -- -- (3) ---- ---- --- Cash paid for acquisitions........................................................ $ 1 -- 10 ==== ==== ===
F-43 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Liberty ceased to include TV Guide, Inc. ("TV Guide") in its consolidated financial results and began to account for TV Guide using the equity method of accounting, effective March 1, 1999 (see note 6). The effects of changing the method of accounting for Liberty's ownership interests in TV Guide as of June 30, 1999 from the consolidation method to the equity method are summarized below (amounts in millions): Assets (other than cash and cash equivalents) reclassified to investments in affiliates......................................... $(572) Liabilities reclassified to investments in affiliates.............. 190 Minority interests in equity of subsidiaries reclassified to investments in affiliates......................................... 63 Gain on issuance of equity by subsidiary........................... 372 ----- Decrease in cash and cash equivalents.............................. $ 53 =====
The following table reflects the change in cash and cash equivalents resulting from the AT&T Merger and related restructuring transactions (amounts in millions): Cash and cash equivalents prior to the AT&T Merger................. $ 31 Cash contribution in connection with the AT&T Merger............. 5,464 Cash paid to TCI for certain warrants to purchase shares of General Instruments Corporation ("GI").......................... (176) ------ Cash and cash equivalents subsequent to the AT&T Merger............ $5,319 ======
(3) Investments in Affiliates Accounted for under the Equity Method Liberty has various investments accounted for under the equity method. The following table includes Liberty's carrying amount of the more significant investments at June 30, 1999 and December 31, 1998:
New Liberty Old Liberty ----------- ------------ June 30, December 31, 1999 1998 ----------- ------------ amounts in millions USA Networks, Inc. ("USAI") and related investments................................................ $ 2,594 1,042 Telewest Communications plc ("Telewest")........................................................... 1,933 515 Discovery Communications, Inc. ("Discovery")....................................................... 3,620 49 Fox/Liberty Networks LLC ("Fox Sports")............................................................ 1,393 (1) TV Guide........................................................................................... 1,769 -- QVC Inc. ("QVC")................................................................................... 2,513 197 Flextech p.l.c. ("Flextech")....................................................................... 736 320 Other foreign investments (other than Telewest and Flextech)....................................... 1,462 346 Other.............................................................................................. 755 611 ------- ----- $16,775 3,079 ======= =====
F-44 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following table reflects Liberty's share of earnings (losses) of affiliates:
New Liberty Old Liberty ----------- ----------------------- Four months Two months Six months ended ended ended June 30, February 28, June 30, 1999 1999 1998 ----------- ------------ ---------- amounts in millions USAI and related investments........................................................... $ (9) 10 9 Telewest............................................................................... (97) (38) (64) Discovery.............................................................................. (76) (8) (18) Fox Sports............................................................................. (48) (1) (77) TV Guide............................................................................... (11) -- -- QVC.................................................................................... (9) 13 21 Flextech............................................................................... (13) (5) (9) Other foreign investments.............................................................. (56) (22) (49) Sprint Spectrum Holding Company L.P., MinorCo, L.P. and PhillieCo Partnership I, L.P. (the "PCS Ventures") (note 5)......................................................... -- -- (324) Other.................................................................................. (40) (15) (12) ----- --- ---- $(359) (66) (523) ===== === ====
Summarized unaudited combined financial information for affiliates is as follows:
New Liberty Old Liberty ----------- ----------------------- Four months Two months Six months ended ended ended June 30, February 28, June 30, 1999 1999 1998 ----------- ------------ ---------- amounts in millions Combined Operations Revenue.............................................................................. $ 4,060 2,341 6,184 Operating expenses................................................................... (3,451) (1,894) (5,712) Depreciation and amortization........................................................ (520) (353) (1,058) ------- ------ ------ Operating income (loss)............................................................ 89 94 (586) Interest expense..................................................................... (323) (281) (757) Other, net........................................................................... (244) (127) (175) ------- ------ ------ Net loss........................................................................... $ (478) (314) (1,518) ======= ====== ======
USAI owns and operates businesses in network and television production, television broadcasting, electronic retailing, ticketing operations, and internet services. At June 30, 1999, Liberty directly and indirectly held 29.6 million shares of USAI's common stock. Liberty also held shares directly in certain subsidiaries of USAI which are exchangeable into 39.5 million shares of USAI common stock. Liberty's direct ownership of USAI is currently restricted by Federal Communications Commission ("FCC") regulations. The exchange of these shares can be accomplished only if there is a change to existing regulations or if Liberty obtains permission from the FCC. If the exchange of subsidiary stock into USAI common stock was completed at June 30, 1999, Liberty would own 69.1 million shares or approximately 21% (on a fully-diluted basis) of USAI common stock. USAI's common stock had a closing market price of $40 1/8 per share on June 30, 1999. Liberty accounts for its investments in USAI and related subsidiaries on a combined basis under the equity method. F-45 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In February 1998, USAI paid cash and issued shares and one of its subsidiaries issued shares in connection with the acquisition of certain assets from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an increase to its investment in USAI of $54 million and an increase to additional paid-in capital of $33 million (after deducting a deferred income taxes of $21 million) as a result of this share issuance. No gain was recognized in the consolidated statement of operations and comprehensive earnings for the Universal Transaction due primarily to Liberty's intention at such time to purchase additional equity interests in USAI. In connection with the Universal Transaction, Liberty was granted an antidilutive right with respect to any future issuance of USAI common stock, subject to certain limitations, that enables it to maintain its percentage ownership interests in USAI. Telewest currently operates and constructs cable television and telephone systems in the UK. At June 30, 1999 Liberty indirectly owned 463 million of the issued and outstanding Telewest ordinary shares. The reported closing price on the London Stock Exchange of Telewest ordinary shares was (Pounds)2.85 ($4.49) per share at June 30, 1999. Liberty and The News Corporation Limited ("News Corp.") each held 50% of Fox Sports which operates national and regional sports networks. Prior to the first quarter of 1998, Liberty had no obligation, nor intention, to fund Fox Sports. During 1998, Liberty made the determination to provide funding to Fox Sports based on specific transactions consummated by Fox Sports. Consequently, Liberty's share of losses of Fox Sports for the six months ended June 30, 1998 included previously unrecognized losses of Fox Sports of approximately $64 million. Losses for Fox Sports were not recognized in prior periods due to the fact that Liberty's investment in Fox Sports was less than zero. On July 15, 1999 News Corp. acquired Liberty's 50% interest in Fox Sports in exchange for 51.8 million News Corp. American Depository Receipts ("ADRs") representing preferred limited voting ordinary shares of News Corp. In a related transaction, Liberty acquired from News Corp. 28.1 million additional ADRs representing preferred limited voting ordinary shares of News Corp. for approximately $695 million. The Class A common stock of TV Guide is publicly traded. At June 30, 1999, Liberty held 29 million shares of TV Guide Class A common stock and 37 million shares of TV Guide Class B common stock. See note 6. The TV Guide Class B common stock is convertible, one-for-one, into TV Guide Class A common stock. The closing price for TV Guide Class A common stock was $36 5/8 per share on June 30, 1999. Flextech develops and sells a variety of television programming in the UK. At June 30, 1999, Liberty indirectly owned 58 million Flextech ordinary shares. The reported closing price on the London Stock Exchange of the Flextech ordinary shares was (Pounds)10.22 ($16.11) per share at June 30, 1999. The $14 billion aggregate excess of Liberty's aggregate carrying amount in its affiliates over Liberty's proportionate share of its affiliates' net assets is being amortized over an estimated useful life of 20 years. Certain of Liberty's affiliates are general partnerships and subsidiaries of Liberty that are general partners in such partnerships are liable as a matter of partnership law for all debts (other than non-recourse debts) of that partnership in the event liabilities of that partnership were to exceed its assets. (4) Investment in Time Warner Liberty holds shares of a series of Time Warner's series common stock with limited voting rights (the "TW Exchange Stock") that are convertible into an aggregate of 114 million shares of Time Warner common stock. F-46 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As security for borrowings under one of its credit facilities, Liberty has pledged a portion of its TW Exchange Stock. At June 30, 1999 such pledged portion had an aggregate fair value of approximately $3.2 billion. In September 1997, Time Warner exercised an option to acquire the business of Southern Satellite Systems, Inc. (the "Southern Business") from Liberty. Pursuant to the option, Time Warner acquired the Southern Business, effective January 1, 1998, for $213 million in cash. Liberty recognized a $515 million pre-tax gain in connection with such transactions in the first quarter of 1998. (5) Investment in Sprint Pursuant to a proposed final judgment (the "Final Judgment") agreed to by Liberty, AT&T and the United States Department of Justice (the "DOJ") on December 31, 1998, Liberty transferred all of its beneficially owned securities (the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T Merger. The Final Judgment, if entered by the United States District Court for the District of Columbia, would require the Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint Securities sufficient to cause Liberty to beneficially own no more than 10% of the outstanding Series 1 PCS Stock of Sprint on a fully diluted basis on such date. On or before May 23, 2004, the Trustee must divest the remainder of the Sprint Securities beneficially owned by Liberty. The Final Judgment would provide that the Trustee vote the Sprint Securities beneficially owned by Liberty in the same proportion as other holders of Sprint's PCS Stock so long as such securities are held by the trust. The Final Judgment would also prohibit the acquisition by Liberty of additional Sprint Securities, with certain exceptions, without the prior written consent of the DOJ. The PCS Ventures included Sprint Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I, L.P. ("PhillieCo"). The partners of each of the Sprint PCS partnerships were subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and Liberty. The partners of PhillieCo were subsidiaries of Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of the Sprint PCS partnerships and a 35% partnership interest in PhillieCo. On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of Sprint PCS Group Stock which tracks the performance of Sprint's newly created PCS Group (consisting initially of the PCS Ventures and certain PCS licenses which were separately owned by Sprint). The Sprint PCS Group Stock collectively represents an approximate 17% voting interest in Sprint. As a result of the PCS Exchange, Liberty holds the Sprint Securities which consists of shares of Sprint PCS Group Stock, as well as certain additional securities of Sprint exercisable for or convertible into such securities, representing approximately 24% of the equity value of Sprint attributable to its PCS Group and less than 1% of the voting interest in Sprint. Through November 23, 1998, Liberty accounted for its interest in the PCS Ventures using the equity method of accounting, however, as a result of the PCS Exchange and Liberty's less than 1% voting interest in Sprint, Liberty no longer exercises significant influence with respect to its investment in the PCS Ventures. Accordingly, Liberty accounts for its investment in the Sprint PCS Group Stock as an available-for- sale security. (6) Acquisitions and Dispositions Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision") contributed the assets, obligations and operations of its retail C-band satellite business to Superstar/Netlink Group LLC ("SNG") in exchange for an approximate 20% interest in SNG. As a result of such transaction, Liberty's direct and indirect (through UVSG) ownership interest in SNG, decreased to approximately 80%. In connection with the increase in SNG's F-47 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) equity, net of the dilution of Liberty's ownership interest in SNG, that resulted from such transaction, Liberty recognized a gain of $38 million (before deducting deferred income taxes of $15 million). On March 1, 1999, United Video Satellite Group, Inc. ("UVSG") and News Corp. completed a transaction whereby UVSG acquired News Corp.'s TV Guide properties creating a broader platform for offering television guide services to consumers and advertisers and UVSG was renamed TV Guide. News Corp. received $800 million in cash and 60 million shares of UVSG's stock, including 22.5 million shares of its Class A common stock and 37.5 million shares of its Class B common stock. In addition, News Corp. purchased approximately 6.5 million additional shares of UVSG Class A common stock for $129 million in order to equalize its ownership with that of Liberty. As a result of these transactions, and another transaction completed on the same date, News Corp., Liberty and TV Guide's public stockholders own on an economic basis approximately 44%, 44% and 12%, respectively, of TV Guide. Following such transactions, News Corp. and Liberty each have approximately 49% of the voting power of TV Guide's outstanding stock. In connection with the increase in TV Guide's equity, net of the dilution of Liberty's ownership interest in TV Guide, Liberty recognized a gain of $372 million (before deducting deferred income taxes of $147 million). Upon consummation, Liberty began accounting for its interest in TV Guide under the equity method of accounting. (7) Long-Term Debt Debt is summarized as follows:
New Liberty Old Liberty ----------- ------------ June 30, December 31, 1999 1998 ----------- ------------ amounts in millions Bank credit facilities............................................................................. $2,094 1,629 4 1/2% Convertible Subordinated Debentures......................................................... -- 345 Other.............................................................................................. 82 122 ------ ----- 2,176 2,096 Less current maturities............................................................................ 683 184 ------ ----- Total............................................................................................ $1,493 1,912 ====== =====
On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% Convertible Subordinated Debentures due February 15, 2005. See note 9. At June 30, 1999, Liberty had approximately $876 million in unused lines of credit under its bank credit facilities. The bank credit facilities of Liberty generally contain restrictive covenants which require, among other things, the maintenance of certain financial ratios, and include limitations on indebtedness, liens and encumbrances, acquisitions, dispositions, guarantees and dividends. Additionally, Liberty pays fees ranging from .15% to .375% per annum on the average unborrowed portions of the total amounts available for borrowings under its bank credit facilities. As collateral for borrowings under one of Liberty's credit facilities, the banks lend against certain assets designated by Liberty (the "Designated Assets"). The carrying amount of the Designated Assets as of June 30, 1999 was $6.5 billion. Recourse to the banks for payment of Liberty's obligations under this facility is limited solely to the Designated Assets. Also, as security for borrowings under one of its credit facilities, Liberty has pledged a portion of its TW Exchange Stock. See note 4. F-48 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Certain of Liberty's bank credit facilities have credit agreements which provide for a three month interest reserve to be held by an administrative agent. Such amounts held in the interest reserves amounted to $18 million and $17 million as of June 30, 1999 and December 31, 1998, respectively, and are included in other current assets in the accompanying consolidated balance sheets. Liberty believes that the carrying value of Liberty's debt approximated its fair value at June 30, 1999. On July 7, 1999, Liberty received net cash proceeds of approximately $741 million and $494 million from the issuance of 7 7/8% Senior Notes due 2009 (the "Senior Notes") and 8 1/2% Senior Debentures due 2029 (the "Senior Debentures"), respectively. The Senior Notes have an aggregate principal amount of $750 million and the Senior Debentures have an aggregate principal amount of $500 million. Interest on the Senior Notes and the Senior Debentures is payable on January 15 and July 15 of each year. The proceeds were used to repay outstanding borrowings under certain of Liberty's credit facilities, two of which were subsequently canceled. (8) Income Taxes Subsequent to the AT&T Merger, Liberty is included in the consolidated federal income tax return of AT&T and party to a tax sharing agreement with AT&T (the "AT&T Tax Sharing Agreement"). The income tax provision for Liberty is calculated based on the increase or decrease in the tax liability of the AT&T consolidated group resulting from the inclusion of those items in the consolidated tax return of AT&T which are attributable to Liberty. Under the AT&T Tax Sharing Agreement, Liberty will receive a cash payment from AT&T in periods when it generates taxable losses and such taxable losses are utilized by AT&T to reduce the consolidated income tax liability. This utilization of taxable losses will be accounted for by Liberty as a current federal intercompany income tax benefit. To the extent such losses are not utilized by AT&T, such amounts will be available to reduce federal taxable income generated by Liberty in future periods, similar to a net operating loss carryforward and will be accounted for as a deferred federal income tax benefit. In periods when Liberty generates federal taxable income, AT&T has agreed to satisfy such tax liability on Liberty's behalf up to a certain amount. The reduction of such computed tax liabilities will be accounted for by Liberty as a credit to additional paid-in-capital. The total amount of future federal tax liabilities of Liberty which AT&T will satisfy under the AT&T Tax Sharing Agreement is approximately $512 million, which represents the tax effect of the net operating loss carryforward reflected in TCI's final federal income tax return, subject to IRS adjustments. Thereafter, Liberty is required to make cash payments to AT&T for federal tax liabilities of Liberty. To the extent AT&T utilizes existing net operating losses of Liberty, such amounts will be accounted for by Liberty as a reduction of additional paid-in- capital. Liberty will generally make cash payments to AT&T related to states where it generates taxable income and receive cash payments from AT&T in states where it generates taxable losses. Liberty's obligation under the 1995 TCI Tax Sharing Agreement of approximately $139 million (subject to adjustment), which is included in "due to related parties," shall be paid at the time, if ever, that Liberty deconsolidates from the AT&T income tax return. Liberty's receivable under the 1997 TCI Tax Sharing Agreement of approximately $220 million was forgiven in the AT&T Tax Sharing Agreement and recorded as an adjustment to additional paid-in-capital by Liberty in connection with the AT&T Merger. F-49 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (9) Stockholders' Equity Preferred Stock The Preferred Stock is issuable, from time to time, with such designations, preferences and relative participating, option or other special rights, qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of such Preferred Stock adopted by the Board. Common Stock The Class A Stock has one vote per share, and each of the Class B and Class C Stock has ten votes per share. As of June 30, 1999, all of the issued and outstanding common stock of Liberty was held by AT&T. Stock Issuances by Subsidiary During the second quarter of 1999, TCI Music issued approximately 4.8 million shares of common stock in connection with the conversion of its preferred stock and approximately 0.4 million shares of common stock in connection with the exercise of certain employee stock options. As a result, Liberty's interest in TCI Music was reduced to 86%. In connection with the increase in TCI Music's equity, net of the dilution of Liberty's interest in TCI Music, that resulted from such stock issuances, Liberty recorded a $40 million increase to additional paid-in-capital. Transactions with AT&T (formerly TCI) and Other Related Parties Certain AT&T corporate general and administrative costs are charged to Liberty. Included in operating, selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive earnings, during the four month period ended June 30, 1999, the two month period ended February 28, 1999 and the six months ended June 30, 1998, Liberty was allocated less than $1 million, $2 million and $9 million, respectively, in corporate general and administrative costs by TCI. Certain subsidiaries attributed to Liberty produce and/or distribute sports and other programming and other services to cable distribution operators (including AT&T) and others. Charges to AT&T are based upon customary rates charged to others. Amounts included in revenue for services provided to AT&T were $71 million, $43 million and $146 million for the four month period ending June 30, 1999, the two month period ending February 28, 1999 and the six months ended June 30, 1998, respectively. Entities included in Liberty lease satellite transponder facilities from NDTC. Charges by NDTC for such arrangements and other related operating expenses for the four months ended June 30, 1999, two months ended February 28, 1999 and six months ended June 30, 1998 aggregated $10 million, $4 million and $11 million, respectively, and are included in operating expenses in the accompanying consolidated statements of operations and comprehensive earnings. On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% convertible subordinated debentures due February 15, 2005. The debentures were convertible into shares of AT&T Liberty Media Group Class A Tracking Stock at a conversion price of $23.54, or 42.48 shares per $1,000 principal amount. Certain holders of the debentures had exercised their rights to convert their debentures and 14.6 million shares of AT&T Liberty Media Group Tracking Stock were issued to such holders. In connection with such issuance of AT&T Liberty Media Group Tracking Stock, Liberty recorded an increase to additional paid-in-capital of $354 million. F-50 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Transactions with Officers and Directors In connection with the AT&T Merger, Liberty paid two of its directors and one other individual, all three of whom are directors of TCI, an aggregate of $12 million for services rendered in connection with the AT&T Merger. Such amount is included in operating, selling, general and administrative expenses for the two months ended February 28, 1999 in the accompanying consolidated statements of operations and comprehensive earnings. On February 9, 1998, in connection with the settlement of certain legal proceedings relative to the Estate of Bob Magness (the "Magness Estate"), the late founder and former Chairman of the Board of TCI, TCI entered into a call agreement with Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), and a call agreement with the Estate of Bob Magness, the Estate of Betsy Magness, Gary Magness (individually and in certain representative capacities) and Kim Magness (individually and in certain representative capacities) (collectively, the "Magness Group"). Under these call agreements, each of the Magness Group and the Malones granted to TCI the right to acquire all of the shares of TCI's common stock owned by them ("High Voting Shares") that entitle the holder to cast more than one vote per share (the "High-Voting Stock") upon Dr. Malone's death or upon a contemplated sale of the High-Voting Shares (other than a minimal amount) to third parties. In either such event, TCI had the right to acquire such shares at a price equal to the then market price of shares of TCI's common stock of the corresponding series that entitled the holder to cast no more than one vote per share (the "Low-Voting Stock"), plus a 10% premium, or in the case of a sale, the lesser of such price and the price offered by the third party. In addition, each call agreement provides that if TCI were ever to be sold to a third party, then the maximum premium that the Magness Group or the Malones would receive for their High-Voting Shares would be the price paid for shares of the relevant series of Low-Voting Stock by the third party, plus a 10% premium. Each call agreement also prohibits any member of the Magness Group or the Malones from disposing of their High-Voting Shares, except for certain exempt transfers (such as transfers to related parties or to the other group or public sales of up to an aggregate of 5% of their High-Voting Shares after conversion to the respective series of Low-Voting Stock) and except for a transfer made in compliance with TCI's purchase right described above. TCI paid $150 million to the Malones and $124 million to the Magness Group in consideration of their entering into the call agreements, of which an aggregate of $140 million was allocated to and paid by Liberty. Also in February 1998, TCI, the Magness Group and the Malones entered into a shareholders' agreement which provides for, among other things, certain participation rights by the Magness Group with respect to transactions by Dr. Malone, and certain "tag-along" rights in favor of the Magness Group and certain "drag-along" rights in favor of the Malones, with respect to transactions in the High-Voting Stock. Such agreement also provides that a representative of Dr. Malone and a representative of the Magness Group will consult with each other on all matters to be brought to a vote of TCI's shareholders, but if a mutual agreement on how to vote cannot be reached, Dr. Malone will vote the High-Voting Stock owned by the Magness Group pursuant to an irrevocable proxy granted by the Magness Group. In connection with the AT&T merger, Liberty became entitled to exercise TCI's rights and became subject to its obligations under the call agreement and the shareholders' agreement with respect to the AT&T Liberty Media Group Class B Tracking Stock acquired by the Malones and the Magness Group as a result of the AT&T merger. If Liberty were to exercise its call right under the call agreement with the Malones or the Magness Group, it may also be required to purchase High-Voting Shares of the other group if such group exercises its "tag-along" rights under the shareholders' agreement. F-51 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Due to Related Parties The components of "Due to related parties" are as follows:
New Liberty Old Liberty ----------- ------------ June 30, December 31, 1999 1998 ----------- ------------ amounts in millions Note payable to TCI, including accrued interest.................................................... $ -- 141 Intercompany account............................................................................... 103 269 ----- --- $ 103 410 ===== ===
The non-interest bearing intercompany account includes certain stock compensation allocations (in Old Liberty) and income tax allocations that are to be settled at some future date. Stock compensation liabilities of New Liberty are classified as a separate component of current liabilities. All other amounts included in the intercompany account are to be settled within thirty days following notification. (10) Commitments and Contingencies Encore Media Group, a wholly owned subsidiary of Liberty, is obligated to pay fees for the rights to exhibit certain films that are released by various producers through 2017 (the "Film Licensing Obligations"). Based on customer levels at June 30, 1999, these agreements require minimum payments aggregating approximately $775 million. The aggregate amount of the Film Licensing Obligations under these license agreements is not currently estimable because such amount is dependent upon the number of qualifying films released theatrically by certain motion picture studios as well as the domestic theatrical exhibition receipts upon the release of such qualifying films. Nevertheless, required aggregate payments under the Film Licensing Obligations could prove to be significant. Flextech has undertaken to finance the working capital requirements of a joint venture, (the "Principal Joint Venture") formed with BBC Worldwide and is obligated to provide the Principal Joint Venture with a primary credit facility of (Pounds)88 million ($139 million) and subject to certain restrictions, a standby credit facility of (Pounds)30 million ($49 million). As of June 30, 1999, the Principal Joint Venture had borrowed (Pounds)40 million ($63 million) under the primary credit facility. If Flextech defaults in its funding obligation to the Principal Joint Venture and fails to cure within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to require that Liberty assume all of Flextech's funding obligations to the Principal Joint Venture. Liberty has guaranteed various loans, notes payable, letters of credit and other obligations (the "Guaranteed Obligations") of certain affiliates. At June 30, 1999, the Guaranteed Obligations aggregated approximately $377 million. Currently, Liberty is not certain of the likelihood of being required to perform under such guarantees. Liberty leases business offices, has entered into pole rental and transponder lease agreements and uses certain equipment under lease arrangements. On September 21, 1998, Hurricane Georges struck Puerto Rico and caused considerable property damage to the area in general, including Liberty's cable television systems owned by its subsidiary (the "Puerto Rico Subsidiary"). The Puerto Rico Subsidiary's cable television systems represent $19 million of Liberty's revenue for the six months ended June 30, 1999. F-52 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of June 30, 1999, approximately 93% of the Puerto Rico Subsidiary's pre- hurricane basic customers were receiving cable television services. The loss of revenue from September 21, 1998 through June 30, 1999 was $12 million. The Puerto Rico Subsidiary's business interruption insurance covered the first $3 million in lost revenue. The Puerto Rico Subsidiary has also claimed coverage for business interruption under a secondary insurance carrier. Such policy, which covers the Puerto Rico Subsidiary's parent company's subsidiaries, carries a deductible of $2.5 million. This insurance claim is subject to approval by such insurance carrier and accordingly, no assurance can be given that amounts claimed will be paid in their entirety. However, in the event such claims are collected the overall impact in lost revenues for the Puerto Rico Subsidiary as a result of Hurricane Georges will not exceed $2.5 million. Liberty has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Liberty may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements. During the six months ended June 30, 1999, Liberty, in conjunction with AT&T, continued its enterprise-wide, comprehensive efforts to assess and remediate its computer systems and related software and equipment to ensure such systems, software and equipment recognize, process and store information in the year 2000 and thereafter. AT&T's year 2000 remediation efforts include an assessment of Liberty's most critical systems, equipment, and facilities. AT&T also continued its efforts to verify the year 2000 readiness of Liberty's significant suppliers and vendors and continued to communicate with significant business partners and affiliates to assess such partners and affiliates' year 2000 status. Failure to achieve year 2000 compliance by Liberty, its significant business partners and affiliates with which it has a relationship could negatively affect Liberty's ability to conduct business for an extended period. There can be no assurance that all of Liberty's computer systems and related software will be fully year 2000 compliant; in addition, other companies on which Liberty's computer systems and related software and operations rely may or may not be fully compliant on a timely basis, and any such failure could have a material adverse effect on Liberty's financial position, results of operation or liquidity. (11) Information about Liberty's Operating Segments For the four months ended June 30, 1999, Liberty has three operating segments: Encore Media Group, TCI Music and Equity Investments and Other. For the two months ended February 28, 1999 and the six months ended June 30, 1998, Liberty has four operating segments: Encore Media Group, TV Guide, TCI Music and Equity Investments and Other. Equity Investments and Other includes Liberty's investments accounted for under the equity method, primarily in cable television programming entities and other businesses not representing separately reportable segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Liberty evaluates performance based on the measures of revenue and operating cash flow (as defined by Liberty), appreciation in stock price along with other non-financial measures such as average prime time rating, prime time audience delivery, subscriber growth and penetration, as appropriate. Liberty believes operating cash flow is a widely used financial indicator of companies similar to Liberty and its affiliates, which should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance F-53 LIBERTY MEDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) with generally accepted accounting principles. Liberty generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices. Liberty's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technology and marketing strategies. Liberty utilizes the following financial information for purposes of making decisions about allocating resources to a segment and assessing a segment's performance:
Equity Investments EMG TCI Music and Other Total ------ --------- ----------- ------ amounts in millions Four months ended June 30, 1999 Segment revenue from external customers including intersegment revenue......... $ 211 33 48 292 Segment operating cash flow (deficit)... 53 -- (1) 52 Segment equity in losses of affiliates.. -- -- (359) (359) As of June 30, 1999 Segment assets.......................... 2,615 495 46,890 50,000 Investments in affiliates............... -- (8) 16,783 16,775
Equity Investments EMG TV Guide TCI Music and Other Total ---- -------- --------- ----------- ----- amounts in millions Two months ended February 28, 1999 Segment revenue from external customers including intersegment revenue........................... $101 97 15 22 235 Segment operating cash flow (deficit)......................... 41 21 1 (16) 47 Segment equity in losses of affiliates........................ -- -- -- (66) (66) Six months ended June 30, 1998 Segment revenue from external customers including intersegment revenue........................... $249 290 40 68 647 Segment operating cash flow (deficit)......................... 40 56 3 (5) 94 Segment equity in losses of affiliates........................ -- -- -- (523) (523)
F-54 REPORT OF INDEPENDENT AUDITORS The Board of Directors of Sprint Corporation and Partners of Sprint Spectrum Holding Company, L.P. We have audited the consolidated balance sheets of Sprint Spectrum Holding Company, L.P. and subsidiaries (the "Holdings") as of December 31, 1998 and 1997, and the related consolidated statements of operations and cash flows for the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule ("Schedule II"). These financial statements and Schedule II are the responsibility of Partnership management. Our responsibility is to express an opinion on these consolidated financial statements and Schedule II based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Sprint Spectrum Holding Company, L.P. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for the three years ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, Schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP February 2, 1999 F-55 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31,
1998 1997 1996 --------- --------- ------- (in millions) Net Operating Revenues.......................... $ 1,175.5 $ 248.6 $ 4.2 --------- --------- ------- Operating Expenses Costs of services and products................ 1,142.8 555.0 36.1 Selling, general and administrative........... 1,334.9 696.9 312.7 Depreciation.................................. 637.1 258.6 9.6 Amortization.................................. 76.0 48.8 1.7 --------- --------- ------- Total operating expenses.................... 3,190.8 1,559.3 360.1 --------- --------- ------- Operating Loss.................................. (2,015.3) (1,310.7) (355.9) Interest expense................................ (469.6) (121.9) (0.3) Minority interest............................... 144.5 6.2 (0.2) Equity in loss of unconsolidated partnerships... -- (168.9) (96.9) Other income, net............................... 33.5 31.9 10.2 --------- --------- ------- Loss before Extraordinary Item.................. (2,306.9) (1,563.4) (443.1) Extraordinary item.............................. (51.1) -- -- --------- --------- ------- Net Loss........................................ $(2,358.0) $(1,563.4) $(443.1) ========= ========= =======
See accompanying notes to consolidated financial statements. F-56 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31,
1998 1997 --------- --------- (in millions) Assets Current assets Cash and equivalents................................. $ 123.5 $ 117.2 Accounts receivable, net of allowance for doubtful accounts of $21.0 and $9.0 in 1998 and 1997, respectively........................................ 280.5 113.5 Receivable from affiliates........................... 147.6 96.3 Inventories.......................................... 113.2 101.4 Prepaid expenses..................................... 31.2 28.4 --------- --------- Total current assets............................... 696.0 456.8 Property, plant and equipment Buildings and leasehold improvements................. 924.2 618.3 Network equipment.................................... 3,371.4 2,265.2 Construction work in progress........................ 864.1 632.9 Other................................................ 338.1 167.4 --------- --------- Total property, plant and equipment.................. 5,497.8 3,683.8 Accumulated depreciation............................. (861.0) (254.6) --------- --------- Net property, plant and equipment.................... 4,636.8 3,429.2 Investment in unconsolidated partnership............... -- 273.5 Minority interest...................................... -- 56.7 Intangibles PCS licenses......................................... 2,464.3 2,223.0 Goodwill............................................. 381.6 125.6 Microwave relocations................................ 335.7 269.4 --------- --------- Total intangibles.................................... 3,181.6 2,618.0 Accumulated amortization............................. (124.5) (50.4) --------- --------- Net intangibles...................................... 3,057.1 2,567.6 --------- --------- Other assets........................................... 45.8 113.2 --------- --------- Total.............................................. $ 8,435.7 $ 6,897.0 ========= ========= Liabilities and Partners' Capital Current liabilities Current maturities of long-term debt................. $ 119.4 $ 34.6 Accounts payable..................................... 539.2 416.0 Construction obligations............................. 636.0 705.3 Accrued expenses and other current liabilities....... 566.2 300.0 --------- --------- Total current liabilities............................ 1,860.8 1,455.9 Long-term debt......................................... 6,491.6 3,533.9 Limited partner interest in consolidated subsidiary.... 34.0 13.7 Other.................................................. 79.0 49.0 Partners' capital and accumulated deficit Partners' capital.................................... 4,448.5 3,964.7 Accumulated deficit.................................. (4,478.2) (2,120.2) --------- --------- Partners' capital and accumulated deficit............ (29.7) 1,844.5 --------- --------- Total.............................................. $ 8,435.7 $ 6,897.0 ========= =========
See accompanying notes to consolidated financial statements. F-57 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31,
1998 1997 1996 ---- ---- ---- (in millions) Cash Flow from Operating Activities: Net loss...................................... $(2,358.0) $(1,563.4) $ (443.1) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in losses of unconsolidated partnerships............................... -- 168.9 96.9 Minority interest........................... (144.5) (6.2) 0.2 Extraordinary item.......................... 51.1 -- -- Depreciation and amortization............... 712.1 307.9 11.3 Amortization of debt discount and issuance costs...................................... 58.8 49.1 14.0 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable, net.................. (195.1) (182.9) (15.9) Inventories............................... (2.2) (24.9) (72.4) Prepaid expenses and other assets......... 4.7 (12.4) (21.6) Accounts payable and other current liabilities.............................. 219.8 361.5 946.7 Other noncurrent liabilities.............. 29.9 37.6 9.5 --------- --------- -------- Net cash provided by (used in) operating activities............................. (1,623.4) (864.8) 525.6 --------- --------- -------- Cash Flows from Investing Activities: Capital expenditures.......................... (1,495.0) (2,041.3) (1,386.3) Microwave relocation costs, net............... (46.8) (116.3) (135.8) Purchase of APC, net of cash acquired......... (28.9) (6.8) -- Purchase of Cox PCS, net of cash acquired..... (28.3) -- -- Investment in unconsolidated partnerships..... -- (191.2) (190.4) Loan to unconsolidated partnership............ -- (111.4) (232.0) Payment received on loan to unconsolidated partnership.................................. -- 246.7 5.9 --------- --------- -------- Net cash used in investing activities... (1,599.0) (2,220.3) (1,938.6) --------- --------- -------- Cash Flows from Financing Activities: Advances from partners........................ -- -- 167.8 Net borrowings under revolving credit facilities................................... 1,253.6 605.0 -- Proceeds from issuance of long-term debt...... 1,358.6 1,763.0 674.2 Long-term borrowings from parent.............. 3,526.6 -- -- Payments on long-term debt.................... (3,393.9) (170.8) -- Debt issuance costs........................... -- (20.0) (71.8) Partner capital contributions................. 517.1 966.8 711.7 Return of capital............................. (33.3) (11.7) -- --------- --------- -------- Net cash provided by financing activities............................. 3,228.7 3,132.3 1,481.9 --------- --------- -------- Increase in Cash and Equivalents.............. 6.3 47.2 68.9 Cash and Equivalents, Beginning of Period..... 117.2 70.0 1.1 --------- --------- -------- Cash and Equivalents, End of Period........... $ 123.5 $ 117.2 $ 70.0 --------- --------- -------- Supplemental Disclosure of Cash Flow Information: . Interest paid, net of amount capitalized.... $ 264.8 $ 35.6 $ 0.3 Non-cash Investing and Financing Activities: . Accrued interest of $154.2 million and $51.7 million related to vendor financing was converted to long-term debt during the years ended December 31, 1998 and 1997, respectively. . A PCS license covering the Omaha MTA and valued at $6.2 million was contributed to Holdings by Cox Communications during the year ended December 31, 1997.
See accompanying notes to consolidated financial statements. F-58 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 1. Organization Sprint Spectrum Holding Company, L.P. Sprint Spectrum Holding Company, L.P. (Holdings) is the 99% general partner of, and is consolidated with, its subsidiaries, including NewTelco, L.P. (NewTelco) and Sprint Spectrum L.P., which, in turn, has several subsidiaries. Sprint Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P. (EquipmentCo), Sprint Spectrum Realty Company, L.P. (RealtyCo), Sprint Spectrum Finance Corporation (FinCo), and WirelessCo, L.P. (WirelessCo). MinorCo, L.P. (MinorCo) holds the minority limited partnership interests of 1% in NewTelco, Sprint Spectrum L.P., EquipmentCo, RealtyCo, WirelessCo and 0.25% in American PCS, L.P. (APC) at December 31, 1998 and 1997. The results of APC are consolidated from November 1997, the date the Federal Communications Commission ("FCC") approved Holdings as the new managing partner (Note 3). APC, through subsidiaries, owns a PCS license for and operates a broadband GSM (global system for mobile communications) in the Washington D.C./Baltimore Major Trading Area ("MTA"), and has launched a code division multiple access ("CDMA") overlay for its existing GSM PCS system. APC includes American PCS Communications, LLC, APC PCS, LLC, APC Realty and Equipment Company, LLC and American Personal Communications Holdings, Inc. As discussed in Note 3, Holdings also became the managing partner of Cox Communications PCS, L.P. ("Cox PCS") in June 1998. Cox PCS results have been included in the consolidated statements of operations from January 1, 1998. Cox PCS, through subsidiaries, holds a PCS license for and operates a PCS system in the Los Angeles-San Diego-Las Vegas MTA. Cox PCS includes Cox PCS License, L.L.C., Cox PCS Assets, L.L.C., and PCS Leasing Co., L.P. Restructuring and Reorganization In November 1998, Sprint Corporation (Sprint) acquired the remaining ownership interests in Holdings. Sprint acquired these ownership interests from Tele-Communications, Inc., Comcast Corporation and Cox Communications, Inc. (the Cable Partners). The purchase of the Cable Partners' interests is referred to as the PCS Restructuring, which included the formation of the PCS Group. Sprint accounted for the transaction as a purchase. Purchase accounting was not "pushed down" to Holdings. PhillieCo, L.P. (PhillieCo) and SprintCom, Inc. (SprintCom) are affiliates of Holdings through common ownership, and provide PCS service in license areas not owned by Holdings. Sprint Spectrum Holding Company, L.P. Partnership Agreement Holdings was originally formed as a Delaware limited partnership on March 28, 1995, by Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Cox Telephony Partnership and Comcast Telephony Services. The Partnership Agreement was amended concurrent with the PCS Restructuring discussed above. This amendment provided for the interests of the Cable Partners in Holdings to be acquired by wholly owned subsidiaries of Sprint. Emergence from Development Stage Company Prior to the third quarter of 1997, Holdings reported its operations as a development stage enterprise. Holdings has commenced service in all of the MTAs in which it owns a license. As a result, Holdings is no F-59 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) longer considered a development stage enterprise, and the consolidated balance sheets and statements of operations and cash flows are no longer presented in development stage format. 2. Summary of Significant Accounting Policies Basis of Consolidation The assets, liabilities, results of operations and cash flows of entities in which Holdings has a controlling interest have been consolidated. All significant intercompany accounts and transactions have been eliminated. Holdings' consolidated financial statements are prepared using generally accepted accounting principles. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the results of operations or partners' capital as previously reported. Allocation of Shared Services and Group Financing Sprint directly assigns, where possible, certain general and administrative costs to Holdings based on the actual use of those services. Where direct assignment of costs is not possible or practicable Sprint uses other methods to estimate the assignment of costs to Holdings. Financing activities for Holdings are managed by Sprint on a centralized basis. Debt and the related interest expense incurred by Sprint and its subsidiaries on behalf of Holdings are specifically allocated to and reflected in these financial statements. Interest expense is allocated to Holdings based on an interest rate that is largely equal to the rate Holdings would be able to obtain from third parties as a direct or indirect wholly owned Sprint subsidiary, but without the benefit of any guaranty by Sprint. Minority Interests In 1998, minority interest consisted primarily of Cox Pioneer Partnership's (CPP) ownership in Cox PCS. Prior to 1998, minority interest primarily included losses attributable to American Personal Communications, II, L.P. (APC II). Trademark Agreement Sprint owns various trademarks and service marks utilized by Holdings. Sprint expects to apply for and develop trademarks, service marks and patents for the benefit of Holdings in the ordinary course of business. Sprint is a registered trademark of Sprint and Sprint PCSSM is a registered service mark of Sprint, both of which are utilized by Holdings on a royalty-free basis under trademark license agreements. Revenue Recognition Holdings recognizes operating revenues as services are rendered or as products are delivered to customers. Holdings records operating revenues net of an estimate for uncollectible accounts. Cash and Equivalents Cash equivalents generally include highly liquid investments with original maturities of three months or less. They are stated at cost, which approximates market value. F-60 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Inventories Inventories are stated at the lower of cost (principally first-in, first-out method) or replacement value. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Generally, ordinary asset retirements and disposals are charged against accumulated depreciation with no gain or loss recognized. Property, plant and equipment is depreciated on a straight-line basis over estimated economic useful lives. Repair and maintenance costs are expensed as incurred. Capitalized Interest Interest costs associated with the construction of capital assets incurred during the period of construction are capitalized. Capitalized interest totaled approximately $63 million in 1998, $99 million in 1997 and $31 million in 1996. PCS Licenses Holdings acquired licenses from the Federal Communications Commission (FCC) to operate as a PCS service provider. These licenses are granted for up to 10- year terms with renewals for additional 10-year terms if license obligations are met. These licenses are recorded at cost and are amortized over 40 years when service begins in a specific geographic area. Accumulated amortization totaled approximately $104 million at year-end 1998 and $45 million at year-end 1997. Goodwill Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in business combinations accounted for as purchases. Goodwill is being amortized over 40 years using the straight-line method for Holdings. Accumulated amortization totaled $8 million at year-end 1998 and $0.4 million at year-end 1997. Microwave Relocations Holdings has incurred costs related to microwave relocation in constructing the PCS network. Microwave relocation costs are being amortized over the remaining lives of the PCS licenses. Accumulated amortization for microwave relocation costs totaled approximately $13 million at year-end 1998 and $5 million at year-end 1997. Income Taxes Holdings has not provided for federal or state income taxes since such taxes are the responsibility of the Partners. Derivative Financial Instruments Prior to the PCS Restructuring, derivative financial instruments (interest rate contracts) were utilized by APC to reduce interest rate risk. APC established a control environment which included risk assessment and management approval, reporting and monitoring of derivative financial instrument activities. APC did not hold or issue derivative financial instruments for trading purposes. At year-end 1998, no derivatives were outstanding. F-61 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Comprehensive Income Holdings' total comprehensive loss for all periods presented did not differ from those amounts reported as net loss in the consolidated statements of operations. Major Customer Holdings markets its products through multiple distribution channels, including its own retail stores as well as other retail outlets. Holdings' subscribers are dispersed throughout the United States. Equipment sales to one retail outlet, and service revenues generated by sales to its customers represented approximately 25% and 21% of net operating revenues in the consolidated statements of operations in 1998 and 1997, respectively. 3. Investments in Partnerships APC--In September 1997, Holdings increased its ownership in APC to 58.3% through additional capital contributions of $30 million, and became the managing partner in November 1997. At the beginning of 1998, Holdings increased its ownership percentage to 99.75% of the partnership interests for approximately $30 million. APC II has been allocated approximately $7 million in losses in APC since November 1997. Prior to November 1997, APC II had been allocated approximately $50 million in losses in excess of its investment. At year-end 1997, these losses totaled $57 million and were recorded as minority interest in Holdings' consolidated balance sheet. This treatment reflects APC II's continued responsibility for funding its share of losses until January 1, 1998 when Holdings and MinorCo acquired the remaining interest in APC. Cox PCS--At year-end 1996, Holdings acquired a 49% limited partner interest in Cox PCS. CPP held a 50.5% general and a 0.5% limited partner interest and was the general and managing partner. Holdings increased its ownership in Cox PCS to 59.2% through an additional capital contribution of approximately $81 million and became managing partner upon FCC approval in June 1998. CPP's remaining ownership interest in Cox PCS is reflected as minority interest in the consolidated balance sheet and statements of operations. CPP has been allocated approximately $145 million in losses in Cox PCS since the date of acquisition. Under the partnership agreement, Cox has the right to require Holdings to purchase, under certain circumstances, all or part of CPP's interest in Cox PCS, which could involve significant cash requirements. Cox may require Holdings to acquire an additional 10.2% interest in Cox PCS per year through 2000. Beginning in 2001 through 2005, CPP may require Holdings to acquire up to all of its interest in Cox PCS. Cox has given Holdings notice to start the appraisal process related to a potential put of all or a portion of CPP's remaining partnership interest to Holdings. The acquisition of APC was accounted for as a purchase and, accordingly, the operating results of APC have been consolidated since the acquisition. The acquisition of Cox PCS increasing ownership to 59.2% was also accounted for as a purchase. The operating results of Cox PCS have been consolidated since the beginning of 1998. In conjunction with the acquisitions liabilities assumed were (in millions):
Cox APC PCS ---- ----- Assets acquired.............................................. $503 $ 725 Cash paid.................................................... (30) (81) Minority interest............................................ 50 (104) ---- ----- Liabilities assumed.......................................... $523 $ 540 ==== =====
F-62 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The purchase price was allocated to the assets acquired and the liabilities assumed based on an estimate of fair value. The ultimate purchase price of Cox PCS may differ from the initial estimate. In connection with the above acquisitions, the excess of the purchase price over the fair value of the net assets acquired was accounted for as goodwill. Prior to acquisition of controlling interest, Holdings' investments in APC and Cox PCS were accounted for under the equity method. Losses of APC and Cox PCS of approximately $61 million and $108 million, respectively, in 1997 and losses of APC of $97 million in 1996 are included in equity in losses of unconsolidated partnerships during the period prior to the acquisition of controlling interest. Under the terms of the partnership agreement, CPP and Holdings are obligated to make additional capital contributions in an amount equal to such partner's percentage interest times the amount of additional capital contributions being requested. In 1998, Holdings completed its funding obligation to Cox PCS under the partnership agreement by contributing $34 million, including $33 million in interest that had accrued on the unfunded obligation. Holdings had previously contributed equity of approximately $180 million in 1997 and $168 million in 1996. The following unaudited pro forma financial information assumes the acquisition of APC had occurred on January 1 of each year and the acquisition of Cox PCS had occurred on January 1, 1997. It also assumes that Holdings had owned 100% of each entity and consolidated their results in the Holdings' financial statements (in millions):
1997 1996 ------ ---- Net sales................................................... $ 392 $ 76 Net loss (before minority interest)......................... (1,747) (553)
These proforma amounts are for comparative purposes only and do not necessarily represent what actual results of operations would have been, nor do they indicate the results of future operations. 4. Employee Benefit Plans Defined Contribution and Profit Sharing Plans Holdings sponsors a savings and retirement program (the "Savings Plan") for certain employees. Most permanent full-time, and certain part-time, employees are eligible to participate after one year of service or on their 35th birthday, whichever occurs first. The maximum contribution for any participant for any year is 16% of their pay. Holdings matches contributions equal to 50% of the contribution of each participant, up to the first 6% that the employee elects to contribute. Contributions to the Savings Plan are invested, at the participant's discretion, in several designated investment funds. Expense under the Savings Plan was $6 million in 1998, $5 million in 1997 and $1 million in 1996. Effective January 1999, Holdings' employees began making contributions to Sprint's defined contribution plan. The existing assets of the Savings Plan will be rolled over to Sprint's defined contribution plan in early 1999. Effective January 1999, Holdings' employees were also eligible to participate in Sprint's pension and postretirement plans. The Cox PCS Savings and Investment Plan (the "Cox PCS Plan") was established effective July 1, 1997. Substantially all Cox PCS employees are eligible to participate in the Cox PCS Plan after completing one year F-63 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) of eligible service (as defined) and attaining age 21. Employees may make contributions to the Cox PCS Plan on a pretax basis pursuant to Section 401(k) of the Internal Revenue Code. Cox PCS makes matching contributions equal to 75% of the employee's contribution up to a maximum amount equal to 4.5% of the employee's annual compensation. Employee contributions vest immediately, and Cox PCS' matching contributions vest over three years of service. Expense under the Cox PCS Plan approximated $1 million in 1998. The Cox PCS Plan will be terminated in early 1999, and the existing assets will be rolled over to Sprint's defined contribution plan. Profit Sharing (Retirement) Plan Effective January, 1996, Holdings established a profit sharing plan for its employees. Employees are eligible to participate in the plan after completing one year of service. Profit sharing contributions are based on the compensation, age, and years of service of the employee. Profit sharing contributions are deposited into individual accounts of Holdings' retirement plan. Vesting occurs once a participant completes five years of service. Expense under the profit sharing plan approximated $3 million in 1998, $3 million in 1997 and $1 million in 1996. The existing assets of the profit sharing will be rolled over to Sprint's defined contribution plan in early 1999. Deferred Compensation Plan for Executives Effective January, 1997, Holdings established a non-qualified deferred compensation plan which permits certain eligible executives to defer a portion of their compensation. The plan allows the participants to defer up to 80% of their base salary and up to 100% of their annual short-term incentive compensation. The deferred amounts earn interest at the prime rate. Payments will be made to participants upon retirement, disability, death or the expiration of the deferral election under the payment method selected by the participant. The deferred compensation plan will be terminated in early 1999, and participants will be eligible to participate in Sprint's deferred compensation plan. Long-Term Incentive Plan Holdings maintains a long-term incentive plan. Prior to the PCS Restructuring employees meeting certain eligibility requirements were included in Holdings' long-term incentive plan (LTIP). Under this plan, participants received appreciation units based on independent appraisals. The 1997 plan appreciation units vest 25% per year beginning on the first anniversary of the grant date and expire after 10 years. Under the 1996 plan, appreciation units vest 25% per year beginning two years after the grant date, and expire after 10 years. Holdings expensed $3 million in 1998, $18 million in 1997 and $10 million in 1996. In 1996, Holdings adopted the pro forma disclosure requirements under SFAS 123, "Accounting for Stock-Based Compensation." Holdings has continued to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." No significant difference would have resulted had SFAS 123 been applied. After the PCS Restructuring, Sprint discontinued the LTIP plan. The appreciation units were replaced with PCS shares and options to buy PCS shares based on a formula designed to replace the appreciated value of the units at the beginning of July 1998. For vested units at year-end 1998, participants could elect to receive the appreciation in cash, or in shares and options. Most elected to receive shares and options. Sprint will issue the shares, and the options will become exercisable, based on the vesting requirements of the units those awards replaced. F-64 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Sprint Corporation Management Incentive Stock Option Plan and Stock Option Plan Effective January 1, 1999, employees are eligible to participate in Sprint's Management Incentive Stock Option Plan (MISOP) and the Sprint Corporation Stock Option Plan (SOP). Under the MISOP, Sprint may grant stock options to employees who are eligible to receive annual incentive compensation. Eligible employees are entitled to receive stock options in lieu of a portion of the target incentive under Sprint's management incentive plans. The options generally become exercisable on December 31 of the year granted and have a maximum term of 10 years. MISOP options are granted with exercise prices equal to the market price of Sprint's FON Group and PCS Group stock on the grant date. Under the SOP, Sprint may grant stock options to officers and key employees. The options generally become exercisable at the rate of 25% per year, beginning one year from the grant date, and have a maximum term of 10 years. SOP options are granted with exercise prices equal to the market price of Sprint's FON Group and PCS Group stock on the grant date. Employee Stock Purchase Plan Under Sprint's Employees Stock Purchase Plan (ESPP), employees may elect to purchase Sprint common stock at a price equal to 85% of the market value on the grant or exercise date, whichever is less. 5. Long-term Debt Long term debt consists of the following as of December 31, 1998 and 1997 (in millions):
Maturing 1998 1997 ------------ -------- -------- Senior notes 8.6% to 9.5% (/1/)............................ 2008 to 2028 $3,346.6 $ -- 11.0% to 12.5% (/2/).......................... 2006 613.8 572.3 Revolving credit facilities variable rates................................ 2005 to 2006 1,800.0 746.4 Due to FCC at 7.75% (/3/)....................... 2001 265.2 90.4 Vendor Financing................................ -- 1,612.9 Other 2.3% to 14.4% (/4/)........................... 1998 to 2007 585.4 546.5 -------- -------- Total Debt...................................... 6,611.0 3,568.5 Less: current maturities........................ 119.4 34.6 -------- -------- Long-term debt.................................. $6,491.6 $3,533.9 ======== ========
- -------- (1) Holdings has notes payable to Sprint totaling $3.3 billion. See Note 2 for a more detailed description of Holdings and PCS Group financing. (2) Balances are net of unamortized discounts of $136.2 million in 1998 and $177.7 million in 1997. Sprint holds approximately $133 million at year-end 1998 and $118 million at year-end 1997 of the Senior Discount Notes. (3) Balances are net of unamortized discounts of $8.0 million in 1998 and $12.0 million in 1997. (4) In 1998, Holdings received $180 million under grid notes from Sprint. These notes had a weighted average interest rate of 7.8% at year-end 1998 and mature in 2001. F-65 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Holdings' long-term debt maturities, during each of the next five years are as follows:
(in millions) ------------- 1999........................................................ $119.4 2000........................................................ 126.4 2001........................................................ 354.6 2002........................................................ 301.1 2003........................................................ 462.1
Revolving Credit Facilities At year-end 1998, available revolving credit facilities with banks totaled $2.1 billion and Holdings had borrowed $1.8 billion at a weighted average interest rate of 5.8%. At year-end 1997, $746 million had been drawn under the revolving credit facilities at a weighted average interest rate of 8.4%. Availability will be reduced commencing January 2002 and expires in 2007. Borrowings under the term loans are included in Other debt and totaled $400 million with a weighted average interest rate of 7.7% at year-end 1998 and $300 million with a weighted average interest rate of 8.4% at year-end 1997. Provisions of the credit facilities required the transfer of certain of Holdings' assets into special purpose subsidiaries to facilitate the collateralization of Holdings' assets. Senior Notes and Senior Discount Notes (the Notes) On August 15, 2001, Holdings will be required to redeem an amount equal to $192 million in aggregate principal amount at maturity, assuming all of the Senior Discount Notes remain outstanding at such date. The Notes are redeemable at the option of Holdings, in whole or in part, at any time on or after August 15, 2001 at the stipulated redemption prices plus accrued and unpaid interest. Interest on the Senior Discount Notes is not payable prior to August 15, 2001. Vendor Financing In 1996, Holdings entered into financing agreements with Northern Telecom, Inc. (Nortel) and Lucent Technologies, Inc. (Lucent and together with Nortel, the Vendors) for multiple drawdown term loan facilities totaling $1.3 billion and $1.8 billion, respectively. At year-end 1997, approximately $1.6 billion, including converted accrued interest of $52 million, had been borrowed at a weighted average interest rate of 9.0% under the vendor financing agreements. Amounts outstanding at year-end 1997 included $300 million that was syndicated to Sprint. In 1998, all borrowings under the Vendor Financing were repaid using long-term borrowings from Sprint. Other In 1998, Holdings redeemed, prior to scheduled maturities, $3.3 billion of debt with a weighted average interest rate of 8.3%. This resulted in a $51 million extraordinary loss. The debt was repaid with a portion of the long-term borrowings from Sprint. Holdings has complied with all restrictive or financial covenants relating to its debt arrangements at year-end 1998. Holdings' PCS licenses and property, plant and equipment totaling $4.4 billion is pledged as security for certain notes. F-66 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fair Value The estimated fair value of Holdings' long-term debt was $6.8 billion at year-end 1998 and $3.6 billion at year-end 1997. 6. Equity Following is a reconciliation of Holdings' equity:
Partners' Accumulated Capital Deficit Total --------- ----------- -------- (in millions) Balance January 1, 1996....................... $2,291.7 $ (113.7) $2,178.0 Contributions of capital...................... 711.7 -- 711.7 Net loss...................................... -- (443.1) (443.1) -------- --------- -------- Balance December 31, 1996..................... 3,003.4 (556.8) 2,446.6 Contributions of capital...................... 973.0 -- 973.0 Net loss...................................... -- (1,563.4) (1,563.4) Return of capital............................. (11.7) -- (11.7) -------- --------- -------- Balance December 31, 1997..................... 3,964.7 (2,120.2) 1,844.5 Contributions of capital...................... 517.1 -- 517.1 Net loss...................................... -- (2,358.0) (2,358.0) Return of capital............................. (33.3) -- (33.3) -------- --------- -------- Balance December 31, 1998..................... $4,448.5 $(4,478.2) $ (29.7) ======== ========= ========
7. Commitments and Contingencies Litigation, Claims and Assessments Various suits arising in the ordinary course of business are pending against Holdings. Holdings cannot predict the final outcome of these actions but believes they will not be material to its consolidated financial statements. Commitments In 1998 Holdings amended a procurement and services contract with a vendor for the engineering and construction of a PCS network. This contract provides for an initial term of three years with renewals for additional one-year periods. The minimum commitment for the initial term is $400 million. At year- end 1998, $257 million had been purchased under the commitment with remaining minimum commitment of $143 million. In 1996 Holdings entered into a purchase and supply agreement with a vendor for the purchase of handsets and other equipment. The total purchase commitment must be satisfied by April 2000. Purchases under the commitment totaled $289 million in 1998 and $148 million in 1997. No purchases were made in 1996. At year-end 1998, remaining commitments totaled $163 million. Holdings has an agreement with a vendor to provide PCS call record and retention services. Monthly rates per subscriber are variable based on overall subscriber volume. If subscriber fees are less than specified annual minimum charges, Holdings will be obligated to pay the difference between the amounts paid for processing F-67 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) fees and the annual minimum. Annual minimums range from $20 million to $60 million through 2001. The agreement extends through December 31, 2001, with two automatic, two-year renewal periods, unless terminated by Holdings. Holdings may terminate the agreement prior to the expiration date, but would be subject to specified termination penalties. Holdings has a contract for consulting services. Under the terms of the agreement, consulting services will be provided at specified hourly rates for a minimum number of hours. Purchases under the contract totaled $38 million in 1998 and $20 million in 1997. The remaining commitment of $67 million must be satisfied by the end of June 2000. Operating Leases Minimum rental commitments at year-end 1998 for all noncancelable operating leases, consisting mainly of leases for cell and switch sites and office space, are as follows:
(in millions) ------------- 1999........................................................ $139.2 2000........................................................ 131.8 2001........................................................ 92.3 2002........................................................ 43.3 2003........................................................ 19.0 Thereafter.................................................. 56.7
Gross rental expense totaled $192 million in 1998, $125 million in 1997 and $25 million in 1996. The table excludes renewal options related to certain cell and switch site leases. These renewal options are generally for five-year terms and may be exercised from time to time. 8. Related Party Transactions Sprint Sprint provides management, printing/mailing and warehousing services to Holdings. Charges to Holdings for these services totaled $25 million in 1998, $11 million in 1997, and $12 million in 1996. Holdings has entered into agreements with Sprint for invoicing services, operator services, and switching equipment. Holdings is also using the long distance division of Sprint as its interexchange carrier. Charges to Holdings for these services totaled $125 million in 1998, $61 million in 1997 and $1 million in 1996. Holdings makes payments for inventory and payroll for PhillieCo and SprintCom, resulting in receivables due from the affiliates. These receivables are reflected on the consolidated balance sheet. APC Holdings has an affiliation agreement with APC which provides for the reimbursement of certain allocable costs and payment of affiliation fees. In 1997, the reimbursement of allocable costs of approximately $14 million is included in selling, general and administrative expenses. There were no reimbursements F-68 SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) recognized in 1996. Additionally, affiliation fees were recognized based on a percentage of APC's net revenues. In 1997, affiliation fees of $4 million were included in other income. Cox PCS Holdings has entered into an affiliation agreement with Cox PCS which provides for the reimbursement of certain allocable costs and payment of affiliate fees. These costs totaled $20 million in 1997 and $7 million in 1996 and are netted against selling, general and administrative expenses in the accompanying consolidated statements of operations. Of these total allocated costs, approximately $2 million in 1997 and $7 million in 1996 were included in receivables from affiliates in the consolidated balance sheets. In addition, Holdings purchases certain equipment, such as handsets, on behalf of Cox PCS. Receivables from affiliates for handsets and related equipment were approximately $31 million in 1997 and $6 million in 1996. PhillieCo Allocable costs of approximately $21 million in 1998 and $36 million in 1997 were allocated to PhillieCo and are included as a reduction of selling, general and administrative expenses in the accompanying consolidated statements of operations. Additionally, affiliation fees are recognized based on a percentage of PhillieCo's net revenues. Affiliation fees of $1 million in 1998 and $0.3 million in 1997 are included in other income in the accompanying consolidated statements of operations. The allocated costs and affiliate fees of $3 million in 1998 and $37 million in 1997 are included in receivable from affiliates. There were no such costs in 1996. SprintCom In 1997 Holdings began building out the network infrastructure for SprintCom. These services include engineering, management, purchasing, accounting and other related services. Costs totaling $100 million in 1998 and $29 million in 1997 were allocated to SprintCom, and are included as a reduction of selling, general and administrative expenses in the accompanying consolidated statements of operations. Receivables from affiliates included $78 million at year-end 1998 and $14 million at year-end 1997. 9. Quarterly Financial Data (Unaudited)
Quarter ------------------------------ 1998 1st 2nd 3rd 4th - ---- ------ ------ ------ ------ (in millions) Net operating revenues.......................... $197.2 256.0 311.8 410.5 Operating loss.................................. (435.3) (471.0) (506.9) (602.1) Loss before extraordinary items................. (497.9) (543.4) (599.3) (666.3) Net loss........................................ (497.9) (543.4) (599.3) (717.4) Quarter ------------------------------ 1997 1st 2nd 3rd 4th - ---- ------ ------ ------ ------ (in millions) Net operating revenues.......................... $ 9.5 $ 25.4 $ 72.5 $141.2 Operating loss.................................. (190.8) (277.7) (382.7) (459.5) Net Loss........................................ (188.9) (287.7) (420.9) (665.9)
F-69 SPRINT SPECTRUM HOLDING COMPANY, L.P. SCHEDULE II--CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1998, 1997 and 1996
Additions ---------------- Charged Charged Balance Beginning to to Other Other End of Balance Income Accounts Deductions Year --------- ------- -------- ---------- ------- (in millions) Allowance for doubtful accounts: 1998...................... $9.0 $76.7 $-- $(64.7)(/1/) $21.0 1997...................... 0.2 11.3 -- (2.5)(/1/) 9.0 1996...................... -- 0.2 -- -- 0.2
- -------- (1) Accounts written off, net of recoveries. F-70 --------------------------------------------------------------------------- --------------------------------------------------------------------------- $1,250,000,000 [LOGO OF LIBERTY MEDIA CORPORATION] Liberty Media Corporation ------------------------- OFFER TO EXCHANGE ------------------------- $750,000,000 $500,000,000 7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029 for for any and all of its any and all of its outstanding unregistered outstanding unregistered 7 7/8% Senior Notes due 2009 8 1/2% Debentures due 2029
Prospectus The Bank of New York, as Exchange Agent 101 Barclay Street New York, New York 10286 , 1999 --------------------------------------------------------------------------- --------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 20. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law ("DGCL") provides, generally, that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (except actions by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A corporation may similarly indemnify such person for expenses actually and reasonably incurred by such person in connection with the defense or settlement of any action or suit by or in the right of the corporation, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, in the case of claims, issues and matters as to which such person shall have been adjudged liable to the corporation, provided that a court shall have determined, upon application, that, despite the adjudication of liability but in view of all of the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Section 102(b)(7) of the DGCL provides, generally, that the certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision may not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. No such provision may eliminate or limit the liability of a director for any act or omission occurring prior to the date when such provision became effective. Article V, Section E of the Restated Certificate of Incorporation, as amended ("Liberty Charter"), of Liberty Media Corporation, a Delaware corporation ("Liberty"), provides as follows: "1.Limitation on Liability. To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this subparagraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing at the time of such repeal or modification. 2.Indemnification. (a) Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against II-1 all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Section E. The Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. (b) Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys' fees) incurred by a director or officer in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this subparagraph 2 or otherwise. (c) Claims. If a claim for indemnification or payment of expenses under this subparagraph 2 is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. (d) Non-Exclusivity of Rights. The rights conferred on any person by this subparagraph 2 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of this Certificate, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. (e) Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity. 3. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Section E shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification." Item 21. Exhibits and Financial Statement Schedules (a) Exhibits. The following is a complete list of Exhibits filed as part of this Registration Statement:
Exhibits Description -------- ----------- 3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999. 3.2 Bylaws of Liberty, as adopted March 8, 1999. 4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of New York. 4.2 First Supplemental Indenture dated as of July 7, 1999, between Liberty and The Bank of New York. 4.3 Registration Rights Agreement dated as of July 7, 1999, between Liberty and the Initial Purchasers. 4.4 Form of 7 7/8% Senior Note due 2009. 4.5 Form of 8 1/2% Senior Debenture due 2029. 4.6 Liberty undertakes to furnish the Securities and Exchange Commission, upon request, a copy of all instruments with respect to long-term debt not filed herewith.
II-2
Exhibits Description -------- ----------- Opinion of Baker & Botts, L.L.P. with respect to legality of 5 securities being registered.+ 10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media Corporation, Liberty Media Management LLC, Liberty Media Group LLC and Liberty Ventures Group LLC. 10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp. and Liberty Media Corporation, Liberty Media Group LLC and each Covered Entity listed on the signature pages thereof. 10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and AT&T Corp. 10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the signature pages thereof. 10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by and among AT&T Corp., Liberty Media Corporation, Tele-Communications Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the signature pages thereof. 10.6 Restated and Amended Employment Agreement dated November 1, 1992, between Tele-Communications, Inc. and John C. Malone (assumed by Liberty as of March 9, 1999), and the amendment thereto dated June 30, 1999 and effective as of March 9, 1999, between Liberty and John C. Malone. 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries of Liberty. 23.1 Consent of KPMG LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5). 24 Powers of Attorney (included on page II-6). 25 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal with respect to Exchange Offer. 99.2 Form of Notice of Guaranteed Delivery.
- -------- + To be filed by Amendment. (b) Financial Statement Schedules. Schedules not listed above have been omitted because the information to be set forth therein is not material, not applicable or is shown in the financial statements or notes thereto. Item 22. Undertakings (a) Liberty hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar II-3 value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of the prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (5) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective, provided, in the case of a transaction that (but for the possibility of integration with other transactions) would itself qualify for an exemption from registration, that (i) such transaction by itself or when aggregated with other such transactions made since the filing of the most recent audited financial statements of Liberty would have a material financial effect upon Liberty and (ii) the information required to be supplied in a post- effective amendment by this paragraph 6 is not contained in periodic reports filed by Liberty pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of Liberty pursuant to the foregoing provisions or otherwise, Liberty has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Liberty of expenses incurred or paid by a director, officer or controlling person of Liberty in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, Liberty will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the county of Douglas, state of Colorado, on September 2, 1999. LIBERTY MEDIA CORPORATION By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President and General Counsel II-5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Charles Y. Tanabe, Esq. and Robert W. Murray, Jr., Esq., and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution and re-substitution for him and in his name, place and stead, in any and all capacities, to sign and file (i) any or all amendments (including post-effective amendments) to this Registration Statement, with all exhibits thereto, and other documents in connection therewith, and (ii) a registration statement, and any and all exhibits thereto, relating to the offering covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them full power and authority, to do and perform each and every act and thing requisite or necessary to be done in and about the premises, to all intents and purposes and as fully as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons (which persons constitute a majority of the Board of Directors) in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ John C. Malone Chairman of the Board and September 1, 1999 - ---------------------------------- Director John C. Malone President, Chief Executive - ---------------------------------- Officer and Director (Principal Robert R. Bennett Executive Officer) /s/ Gary S. Howard Executive Vice President, Chief September 1, 1999 - ---------------------------------- Officer and Director Gary S. Howard /s/ Paul A. Gould Director September 1, 1999 - ---------------------------------- Paul A. Gould /s/ Leo J. Hindery, Jr. Director September 1, 1999 - ---------------------------------- Leo J. Hindery, Jr. /s/ Jerome H. Kern Director September 2, 1999 - ---------------------------------- Jerome H. Kern Director - ---------------------------------- John C. Petrillo /s/ Larry E. Romrell Director September 1, 1999 - ---------------------------------- Larry E. Romrell Director - ---------------------------------- Daniel E. Somers /s/ Kathryn S. Douglass Vice President and Controller September 1, 1999 - ---------------------------------- (Principal Financial Officer Kathryn S. Douglass and Principal Accounting Officer)
II-6 EXHIBIT INDEX
Exhibit Number Description -------------- ----------- 3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999. 3.2 Bylaws of Liberty, as adopted March 8, 1999. Indenture dated as of July 7, 1999, between Liberty and The Bank of New 4.1 York. First Supplemental Indenture dated as of July 7, 1999, between Liberty 4.2 and The Bank of New York. Registration Rights Agreement dated as of July 7, 1999, between Liberty 4.3 and the Initial Purchasers. 4.4 Form of 7 7/8% Senior Note due 2009. 4.5 Form of 8 1/2% Senior Debenture due 2029. 4.6 Liberty undertakes to furnish the Securities and Exchange Commission, upon request, a copy of all instruments with respect to long-term debt not filed herewith. Opinion of Baker & Botts, L.L.P. with respect to legality of securities 5 being registered.+ 10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media Corporation, Liberty Media Management LLC, Liberty Media Group LLC and Liberty Ventures Group LLC. 10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp. and Liberty Media Corporation, Liberty Media Group LLC and each Covered Entity listed on the signature pages thereof. 10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and AT&T Corp. 10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the signature pages thereof. 10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by and among AT&T Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the signature pages thereof. 10.6 Restated and Amended Employment Agreement dated November 1, 1992, between Tele-Communications, Inc. and John C. Malone (assumed by Liberty as of March 9, 1999), and the amendment thereto dated June 30, 1999 and effective as of March 9, 1999, between Liberty and John C. Malone. 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries of Liberty. 23.1 Consent of KPMG LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Baker & Botts, L.L.P. (included in Exhibit 5). 24 Powers of Attorney (included on page II-6). 25 Statement of Eligibility of Trustee. 99.1 Form of Letter of Transmittal with respect to Exchange Offer. 99.2 Form of Notice of Guaranteed Delivery.
- -------- + To be filed by Amendment. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 ----------- RESTATED CERTIFICATE OF INCORPORATION OF LIBERTY MEDIA CORPORATION LIBERTY MEDIA CORPORATION, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (1) The name of the Corporation is Liberty Media Corporation. The original Certificate of Incorporation of the Corporation was filed on September 30, 1994. The name under which the Corporation was originally incorporated is Liberty Media Corporation. (2) This Restated Certificate of Incorporation amends and restates in its entirety the Certificate of Incorporation of the Corporation. (3) Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, the text of the Certificate of Incorporation is hereby restated to read in its entirety as follows: ARTICLE I NAME The name of the corporation is Liberty Media Corporation (the "Corporation"). ARTICLE II REGISTERED OFFICE The address of the registered office of the Corporation in the State of Delaware is One Rodney Square, 10th Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle, 19801. The name of its registered agent at such address is RL&F Service Corp. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law (the "DGCL"). ARTICLE IV AUTHORIZED STOCK The total number of shares of capital stock which the Corporation shall have authority to issue is 3,100,000 shares, of which 3,000,000 shares shall be common stock ("Common Stock") and 100,000 shares shall be preferred stock ("Preferred Stock"). Said shares of Common Stock shall be divided into the following classes: (a) 1,000,000 shares shall be designated as Class A Common Stock with a par value of $.0001 per share ("Class A Common Stock"); (b) 1,000,000 shares shall be designated as Class B Common Stock with a par value of $.0001 per share ("Class B Common Stock"); and (c) 1,000,000 shares shall be designated as Class C Common Stock with a par value of $.0001 per share ("Class C Common Stock"). Said shares of Preferred Stock shall be all of one class with a par value of $.0001 per share, and shall be issued in one or more series as set forth in Section B below. Effective upon the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, each share of the Common Stock, par value $1.00 per share, of the Corporation that is issued and outstanding shall thereupon be reclassified and changed, ipso facto and without any other action on the part of the stockholders thereof, into one share of Class A Common Stock, one share of Class B Common Stock and one share of Class C Common Stock. Such shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be fully paid and nonassessable. SECTION A --------- CLASS A COMMON STOCK, CLASS B COMMON STOCK AND CLASS C COMMON STOCK Each share of the Class A Common Stock, each share of the Class B Common Stock and each share of the Class C Common Stock of the Corporation shall, except as otherwise provided in this Article IV, Section A, be identical in all respects and shall have equal rights and privileges. 1. Voting Rights. ------------- Holders of Common Stock shall be entitled to one (1) vote for each share of such stock held on all matters presented to such stockholders. The holders of outstanding shares of Class A Common Stock shall vote separately as a class with respect to any election of Class A Directors (as defined below). The holders of outstanding shares of Class B Common Stock shall vote separately as a class with respect to any election of Class B Directors (as defined below). The holders of outstanding shares of Class C Common Stock shall vote separately as a class with respect to any election of Class C Directors (as defined below). Except as set forth above or as may otherwise be required by the laws of the State of Delaware and, with respect to any series of Preferred Stock, except as may be provided in any resolution or resolutions providing for the establishment of such series pursuant to authority vested in the Board of Directors by Article IV, Section B, of this Certificate, the holders of outstanding shares of Class A Common Stock, the holders of outstanding shares of Class B Common Stock, the holders of outstanding shares of Class C Common Stock and the holders of outstanding shares of each series of Preferred Stock shall vote together as one class with respect to all other matters to be voted on by stockholders of the Corporation (including, without limitation, any proposed amendment to this Certificate that would increase the number of authorized shares of any class of Common Stock or any series of Preferred Stock or decrease the number of authorized shares of any such class or series of stock (but not below the number of shares thereof then outstanding)), and no separate vote or consent of the holders of shares of Class A Common Stock, Class B Common Stock, Class C Common Stock or any series of Preferred Stock shall be required for the approval of any such matter. 2. Conversion Rights. ----------------- Shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall not be convertible, whether at the option of the holder thereof or of the Corporation, into shares of any other class of Common Stock of the Corporation. 3. Dividends. --------- Subject to subparagraph 4 of this Section A, whenever a dividend is paid to the holders of shares of any class of Common Stock, the Corporation also shall pay an equal per share dividend to the holders of each other class of Common Stock of the Corporation. Dividends shall be payable only as and when declared by the Board of Directors out of funds legally available therefor. 2 4. Share Distributions. ------------------- If at any time a distribution paid in Class A Common Stock, Class B Common Stock, Class C Common Stock or any other securities of the Corporation or any other entity (hereinafter sometimes called a "share distribution") is to be made with respect to the Class A Common Stock, Class B Common Stock or Class C Common Stock, such share distribution may be declared and paid only as follows: (i) a share distribution consisting of shares of Class A Common Stock (or securities convertible into or exercisable or exchangeable for shares of Class A Common Stock) to holders of Class A Common Stock, Class B Common Stock and Class C Common Stock, on an equal per share basis; or consisting of shares of Class B Common Stock (or securities convertible into or exercisable or exchangeable for shares of Class B Common Stock) to holders of Class B Common Stock, Class C Common Stock and Class A Common Stock, on an equal per share basis; or consisting of shares of Class C Common Stock (or securities convertible into or exercisable or exchangeable for shares of Class C Common Stock) to holders of Class C Common Stock, Class A Common Stock and Class B Common Stock, on an equal per share basis; or consisting of shares of Class A Common Stock (or securities convertible into or exercisable or exchangeable for shares of Class A Common Stock) to holders of Class A Common Stock and, on an equal per share basis, shares of Class B Common Stock (or like securities convertible into or exercisable or exchangeable for shares of Class B Common Stock) to holders of Class B Common Stock and, on an equal per share basis, shares of Class C Common Stock (or like securities convertible into or exercisable or exchangeable for shares of Class C Common Stock) to holders of Class C Common Stock; and (ii) a share distribution consisting of any class or series of securities of the Corporation or any other entity other than Class A Common Stock, Class B Common Stock or Class C Common Stock (or securities convertible into or exercisable or exchangeable for shares of Class A Common Stock, Class B Common Stock or Class C Common Stock), on the basis of a distribution of identical securities, on an equal per share basis, to holders of Class A Common Stock, Class B Common Stock and Class C Common Stock. The Corporation shall not reclassify, subdivide or combine the Class A Common Stock without reclassifying, subdividing or combining the Class B Common Stock and the Class C Common Stock, each on an equal per share basis. The Corporation shall not reclassify, subdivide or combine the Class B Common Stock without reclassifying, subdividing or combining the Class A Common Stock and the Class C Common Stock, each on an equal per share basis. The Corporation shall not reclassify, subdivide or combine the Class C Common Stock without reclassifying, subdividing or combining the Class A Common Stock and the Class B Common Stock, each on an equal per share basis. 5. Liquidation and Mergers. ----------------------- Subject to the prior payment in full of the preferential amounts to which any Preferred Stock is entitled, the holders of Class A Common Stock, the holders of Class B Common Stock and the holders of Class C Common Stock shall share equally, on an equal per share basis, in any distribution of the Corporation's assets upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment or provisions for payment of the debts and other liabilities of the Corporation. Neither the consolidation or merger of the Corporation with or into any other corporation or corporations nor the sale, transfer or lease of all or substantially all of the assets of the Corporation shall itself be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this subparagraph 5. 3 SECTION B --------- PREFERRED STOCK The Preferred Stock may be issued, from time to time, in one or more series, with such powers, designations, preferences and relative, participating, optional or other rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in a resolution or resolutions providing for the issue of each such series adopted by the Board of Directors. The Board of Directors, in such resolution or resolutions (a copy of which shall be filed and recorded as required by law), is also expressly authorized to fix with respect to each series: (1) the distinctive serial designations and the division of such shares into series and the number of shares of a particular series, which may be increased or decreased, but not below the number of shares thereof then outstanding, by a certificate made, signed, filed and recorded as required by law; (2) the dividend rate or amounts, if any, for the particular series, the date or dates from which dividends on all shares of such series shall be cumulative, if dividends on stock of the particular series shall be cumulative and the relative rights of priority, if any, or participation, if any, with respect to payment of dividends on shares of that series; (3) the rights of the shares of each series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of each series; (4) the right, if any, of the holders of a particular series to convert or exchange such stock into or for other classes or series of a class of stock or indebtedness of the Corporation or of another entity, and the terms and conditions of such conversion or exchange, including provision for the adjustment of the conversion or exchange rate in such events as the Board of Directors may determine; (5) the voting rights, if any, of the holders of a particular series; and (6) the terms and conditions, if any, for the Corporation to purchase or redeem shares of a particular series. All shares of any one series of the Preferred Stock shall be alike in every particular. Except to the extent otherwise provided in the resolution or resolutions providing for the issue of any series of Preferred Stock, the holders of shares of such series shall have no voting rights, except as may be required by the laws of the State of Delaware. ARTICLE V DIRECTORS SECTION A --------- NUMBER OF DIRECTORS The governing body of the Corporation shall be the Board of Directors. The number of directors shall not be less than three (3) and the exact number of directors shall be fixed by the Board of Directors by resolution, provided that the number of directors shall always be a multiple of three (3) divided evenly among Class A Directors, Class B Directors and Class C Directors. Election of directors need not be by written ballot. No series of Preferred Stock shall be entitled to elect any additional directors, although the terms of any series of Preferred 4 Stock may provide that the shares of such series are entitled to vote in elections of Class A Directors, Class B Directors and/or Class C Directors. SECTION B --------- TERM OF OFFICE The Corporation shall have three classes of directors: Class A, Class B and Class C (the directors of each such class being a "Class A Director", a "Class B Director" or a "Class C Director", respectively). Subject to the last sentence of Section A of this Article V, the Class A Directors shall be elected by the holders of the Class A Common Stock, voting as a separate class, the Class B Directors shall be elected by the holders of the Class B Common Stock, voting as a separate class, and the Class C Directors shall be elected by the holders of the Class C Common Stock, voting as a separate class. Each class of directors shall consist of a number of directors equal to one-third (33 1/3%) of the then authorized number of members of the Board of Directors. The initial term of office of the Class A Directors shall expire at the annual meeting of stockholders in 2000; the initial term of office of the Class B Directors shall expire at the annual meeting of stockholders in 2006; and the initial term of office of the Class C Directors shall expire at the annual meeting of stockholders in 2009. At each annual meeting of stockholders of the Corporation the successors of that class or classes of directors whose term(s) expire at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held, in the case of the Class A Directors, in the following year, in the case of the Class B Directors, in the seventh year following the year of such election and, in the case of the Class C Directors, in the tenth year following the year of such election. The directors of each class will hold office until their respective death, resignation or removal and until their respective successors are elected and qualified. SECTION C --------- REMOVAL OF DIRECTORS Notwithstanding any provision of the Certificate of Incorporation or the Bylaws, any removal of a director may only be acted upon at a special meeting of stockholders called for such purpose on sixty days' prior written notice (which notice shall also be provided to each member of the Board of Directors). Directors may be removed from office only for cause upon the affirmative vote of the holders of 75% of the then outstanding Class A Common Stock (in the case of Class A Directors), Class B Common Stock (in the case of Class B Directors), or Class C Common Stock (in the case of Class C Directors) entitled to vote at an any election of directors of the applicable class. For such purposes, "cause" shall mean the conviction of a felony including moral turpitude. SECTION D --------- NEWLY CREATED DIRECTORSHIPS AND VACANCIES Vacancies among the Class A Directors, the Class B Directors or the Class C Directors resulting from death, resignation, removal, disqualification or other cause, and newly created directorships resulting from any increase in the number of Class A Directors, Class B Directors or Class C Directors, shall be filled by the affirmative vote of a majority of the remaining directors of the applicable class of directors then in office (even though less than a quorum) or by the sole remaining director of such class (if there be one). Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred or to which the new directorship is apportioned, and until such director's successor shall have been elected and qualified. No increase or decrease in the number of directors shall be made if after such increase or decrease the number of Class A Directors, Class B Directors and Class C Directors would not be equal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 5 SECTION E --------- LIMITATION ON LIABILITY AND INDEMNIFICATION 1. Limitation On Liability. ----------------------- To the fullest extent permitted by the DGCL as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this subparagraph 1 shall be prospective only and shall not adversely affect any limitation, right or protection of a director of the Corporation existing at the time of such repeal or modification. 2. Indemnification. --------------- a. Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such person. Such right of indemnification shall inure whether or not the claim asserted is based on matters which antedate the adoption of this Section E. The Corporation shall be required to indemnify a person in connection with a proceeding (or part thereof) initiated by such person only if the proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. b. Prepayment of Expenses. The Corporation shall pay the expenses (including attorneys' fees) incurred by a director or officer in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this subparagraph 2 or otherwise. c. Claims. If a claim for indemnification or payment of expenses under this subparagraph 2 is not paid in full within 60 days after a written claim therefor has been received by the Corporation, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the Corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law. d. Non-Exclusivity of Rights. The rights conferred on any person by this subparagraph 2 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of this Certificate, the Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. e. Other Indemnification. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity. 6 3. Amendment or Repeal. ------------------- Any repeal or modification of the foregoing provisions of this Section E shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. SECTION F --------- AMENDMENT OF BYLAWS The Board of Directors of the Corporation is hereby expressly authorized and empowered to adopt, amend or repeal any provision of the bylaws of the Corporation except as and to the extent provided in the bylaws. SECTION G --------- REQUIRED MAJORITY VOTE All actions taken by the Board of Directors shall be authorized by the affirmative vote at a meeting of not less than a Required Majority or by unanimous written consent. The term "Required Majority" means a majority of the total number of members of the Board of Directors as constituted from time to time, provided that such majority includes a majority of the Class B Directors and Class C Directors. ARTICLE VI TERM The term of existence of this Corporation shall be perpetual. ARTICLE VII STOCK NOT ASSESSABLE The capital stock of this Corporation shall not be assessable if fully paid. It shall be issued as fully paid, and the private property of the stockholders shall not be liable for the debts, obligations or liabilities of this Corporation. ARTICLE VIII MEETINGS OF STOCKHOLDERS SECTION A --------- ANNUAL AND SPECIAL MEETINGS Stockholder action may be taken only at an annual or special meeting. Special meetings of the stockholders of the Corporation, for any purpose or purposes, shall be called by the Secretary of the Corporation only (i) upon the written request of the holders of not less than 66 2/3% of the total voting power of the outstanding Voting Securities (as defined below) or (ii) at the request of at least 66 2/3% of the members of the Board of Directors then in office. The term "Voting Securities" shall include the Class A Common Stock, the Class B Common Stock, the Class C Common Stock and any series of Preferred Stock entitled to vote with the holders of Common Stock generally upon all matters which may be submitted to a vote of stockholders at any annual meeting or special meeting thereof. Election of directors need not be by written ballot. 7 SECTION B --------- STOCKHOLDER ACTION WITHOUT A MEETING Except as otherwise provided in the terms of any series of Preferred Stock, no action required to be taken or which may be taken at any annual meeting or special meeting of stockholders may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, is specifically denied." . . . (4) This Restated Certificate of Incorporation has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware. (5) This Amended and Restated Certificate of Incorporation shall become effective at 12:00 noon, Eastern Time, on March 8, 1999. 8 IN WITNESS WHEREOF, LIBERTY MEDIA CORPORATION has caused this certificate to be signed by Robert R. Bennett, its President and Chief Executive Officer, and attested by Vivian J. Carr, its Secretary, this 3rd day of March, 1999. /s/ Robert R. Bennett ------------------------------------- Robert R. Bennett President and Chief Executive Officer ATTEST: By: /s/ Stephen M. Brett --------------------------- Vivian J. Carr Secretary 9 EX-3.2 3 BYLAWS OF LIBERTY EXHIBIT 3.2 ----------- LIBERTY MEDIA CORPORATION A Delaware Corporation BYLAWS ------------------ ARTICLE I STOCKHOLDERS Section 1.1 Annual Meeting. -------------- An annual meeting of stockholders for the purpose of electing those directors whose term of office expires at such meeting and transacting such other business as may come before it shall be held each year at such date, time and place, either within or without the State of Delaware, as may be specified by the Board of Directors. Section 1.2 Special Meetings. ---------------- Special meetings of stockholders shall be called by the Secretary as and when provided for by the Certificate of Incorporation, as amended from time to time (the "Certificate"). Special meetings of stockholders for any purpose or purposes may be held at such time and place either within or without the State of Delaware as may be stated in the notice. Section 1.3 Notice of Meetings. ------------------ Written notice of stockholders meetings, stating the place, date, and hour thereof, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by the Chairman of the Board, if any, the President, the Secretary, or any other officer, to each stockholder entitled to vote thereat at least ten days but not more than sixty days before the date of the meeting, unless a different period is prescribed by law or the Certificate. Section 1.4 Quorum. ------ Except as otherwise provided by law or in the Certificate or elsewhere in these Bylaws, at any meeting of stockholders the holders of a majority in voting power of the outstanding shares of each class of common stock entitled to vote at the meeting shall be present or represented by proxy in order to constitute a quorum for the transaction of any business. In the absence of a quorum, a majority in voting power of the stockholders present or the chairman of the meeting may adjourn the meeting from time to time in the manner provided in Section 1.5 of these Bylaws until a quorum shall attend. Section 1.5 Adjournment. ----------- Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 1.6 Organization. ------------ The Chairman of the Board, if any, or in his absence the Vice Chairman of the Board of Directors, shall call to order meetings of stockholders and shall act as chairman of such meetings. The Board of Directors or, if the Board of Directors fails to act, the stockholders may appoint any stockholder, director, or officer of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board or the Vice Chairman. The Secretary of the Corporation shall act as secretary of all meetings of stockholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any other person to act as secretary of the meeting. Section 1.7 Voting. ------ Except as otherwise provided by law, the Certificate or elsewhere in these Bylaws and except for the election of directors, at any meeting duly called and held at which a quorum is present, a majority of the votes cast at such meeting upon a given question by the holders of shares of capital stock of the Corporation entitled to vote thereon, who are present in person or by proxy, shall decide such question. At any meeting duly called and held for the election of a particular class of directors at which a quorum is present, directors of such class shall be elected by a plurality of the votes cast by the holders (acting as such) of shares of the applicable class of common stock of the Corporation as set forth in the Certificate, who are present in person or by proxy. ARTICLE II BOARD OF DIRECTORS Section 2.1 Number and Term of Office. ------------------------- The business, property, and affairs of the Corporation shall be managed by or under the direction of a Board of Directors of at least three directors. The number and term of office of the members of the Board of Directors shall be determined as set forth in the Certificate. Section 2.2 Chairman of the Board. --------------------- The directors may elect one of their members to be Chairman of the Board of Directors and a Vice Chairman. The Chairman and the Vice Chairman shall be subject to the control of and may be removed from such office by the Board of Directors. The Chairman and the Vice Chairman shall perform such duties as may from time to time be assigned to him by the Board of Directors. Section 2.3 Meetings. -------- The annual meeting of the Board of Directors, for the election of officers and the transaction of such other business as may come before the meeting, shall be held without notice at the same place as, and immediately following, the annual meeting of the stockholders. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Special meetings of the Board of Directors shall be held at such time and place as shall be designated in the notice of the meeting whenever called by the Chairman of the Board, if any, the President or by a majority of the directors then in office. Section 2.4 Notice of Special Meetings. -------------------------- The Secretary, or in his absence any other officer of the Corporation, shall give each director notice of the time and place of holding of special meetings of the Board of Directors by mail at least 5 days before the meeting, or by telegram, cable, facsimile transmission or personal service at least 24 hours before the meeting. Unless otherwise stated 2 in the notice thereof, any and all business may be transacted at any meeting without specification of such business in the notice. Section 2.5 Quorum and Organization of Meetings. ----------------------------------- Two-thirds of the total number of members of the Board of Directors as constituted from time to time shall constitute a quorum for the transaction of business. If at any meeting of the Board of Directors (whether or not adjourned from a previous meeting) there shall be less than a quorum present, a majority of those present may adjourn the meeting to another time and place, and the meeting may be held as adjourned without further notice or waiver. Except as otherwise provided by law, or unless the Certificate or these Bylaws requires a greater vote, a majority of the whole Board present at any meeting at which a quorum is present may decide any question brought before such meeting; provided, that any such majority shall include a majority of the Class B Directors and Class C Directors (such a majority, a "Required Majority"). Meetings shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman or in the absence of both by such other person as the directors may select. The Secretary of the Corporation shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. Section 2.6 Committees. ---------- The Board of Directors may, by resolution passed by a Required Majority, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the Corporation. Each committee which may be established by the Board of Directors pursuant to these Bylaws may fix its own rules and procedures. Notice of meetings of committees, other than of regular meetings provided for by such rules, shall be given to committee members. All action taken by committees shall be recorded in minutes of the meetings. Section 2.7 Action Without Meeting. ---------------------- Nothing contained in these Bylaws shall be deemed to restrict the power of members of the Board of Directors, or any committee designated by the Board of Directors, to take any action required or permitted to be taken by them without a meeting. Section 2.8 Telephone Meetings. ------------------ Nothing contained in these Bylaws shall be deemed to restrict the power of members of the Board of Directors, or any committee designated by the Board of Directors, to participate in a meeting of the Board of Directors, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. 3 ARTICLE III OFFICERS Section 3.1 Executive Officers. ------------------ The executive officers of the Corporation shall be a Chairman of the Board, a Vice Chairman of the Board, a President and a Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint such other officers (including a Treasurer and one or more Assistant Secretaries) as it may deem necessary or desirable. Each officer shall hold office for such term as may be prescribed by the Board of Directors from time to time. Any person may hold at one time two or more offices. Section 3.2 Powers and Duties. ----------------- The Chairman of the Board, if any, or, in his absence, the Vice Chairman shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board and the Vice Chairman shall also have such additional powers and duties as may be prescribed for such offices from time to time by the Board of Directors. The President shall be the chief executive officer of the Corporation. In the absence of the President, an officer appointed by the President, or if the President fails to make such appointment, by the Board of Directors, shall perform all the duties of the President. The officers and agents of the Corporation shall each have such powers and authority and shall perform such duties in the management of the business, property, and affairs of the Corporation as generally pertain to their respective offices, as well as such powers and authorities and such duties as from time to time may be prescribed by the Board of Directors. ARTICLE IV RESIGNATIONS, REMOVALS AND VACANCIES Section 4.1 Resignations. ------------ Any director or officer of the corporation, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, the Chairman, the President, or the Secretary of the Corporation. Any such resignation shall take effect at the time specified therein or, if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective. Section 4.2 Removals. -------- The Board of Directors, by a Required Majority vote, at any meeting thereof, or by unanimous written consent, at any time, may, to the extent permitted by otherwise applicable Delaware law, remove with or without cause from office or terminate the employment of any officer or member of any committee and may, with or without cause, disband any committee. Section 4.3 Vacancies. --------- Any vacancy in the office of any officer through death, resignation, removal, disqualification, or other cause, may be filled at any time by a Required Majority of the directors, and, subject to the provisions of this Article IV, the person so chosen shall hold office until his successor shall have been elected and qualified. 4 ARTICLE V CAPITAL STOCK Section 5.1 Stock Certificates. ------------------ The certificates for shares of the capital stock of the Corporation shall be in such form as shall be prescribed by law and approved, from time to time, by the Board of Directors. Section 5.2 Transfer of Shares. ------------------ Shares of the capital stock of the Corporation may be transferred on the books of the Corporation only by the holder of such shares or by his duly authorized attorney, upon the surrender to the Corporation or its transfer agent of the certificate representing such stock properly endorsed. Section 5.3 Fixing Record Date. ------------------ In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which, unless otherwise provided by law, shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. Section 5.4 Lost Certificates. ----------------- The Board of Directors or any transfer agent of the Corporation may direct a new certificate or certificates representing stock of the Corporation to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors (or any transfer agent of the Corporation authorized to do so by a resolution of the Board of Directors) may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as the Board of Directors (or any transfer agent so authorized) shall direct to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed or the issuance of such new certificates, and such requirement may be general or confined to specific instances. Section 5.5 Regulations. ----------- The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, registration, cancellation, and replacement of certificates representing stock of the Corporation. ARTICLE VI MISCELLANEOUS Section 6.1 Corporate Seal. -------------- The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal" and "Delaware". 5 Section 6.2 Fiscal Year. ----------- The fiscal year of the Corporation shall be determined by resolution of the Board of Directors. Section 6.3 Notices and Waivers Thereof. --------------------------- Whenever any notice whatsoever is required by law, the Certificate or these Bylaws to be given to any stockholder, director or officer, such notice, except as otherwise provided by law, may be given personally, or by mail, or, in the case of directors or officers, by telegram, cable or facsimile transmission, addressed to such person at his or her address as it appears on the books of the Corporation. Any notice given by telegram, cable or facsimile transmission shall be deemed to have been given when it shall have been delivered for transmission and any notice given by mail shall be deemed to have been given when it shall have been deposited in the United States mail with postage thereon prepaid. Whenever any notice is required to be given by law, the Certificate or these Bylaws, a written waiver thereof, signed by the person entitled to such notice, whether before or after the meeting or the time stated therein, shall be deemed equivalent in all respects to such notice to the full extent permitted by law. Section 6.4 Stock of Other Corporations or Other Interests. ---------------------------------------------- Unless otherwise ordered by the Board of Directors, the President, the Secretary, and such attorneys or agents of the Corporation as may be from time to time authorized by the Board of Directors or the President, shall have full power and authority on behalf of this Corporation to attend and to act and vote in person or by proxy at any meeting of the holders of securities of any corporation or other entity in which this Corporation may own or hold shares or other securities, and at such meetings shall possess and may exercise all the rights and powers incident to the ownership of such shares or other securities which this Corporation, as the owner or holder thereof, might have possessed and exercised if present. The President, the Secretary, or such attorneys or agents, may also execute and deliver on behalf of this Corporation powers of attorney, proxies, consents, waivers, and other instruments relating to the shares or securities owned or held by this Corporation. ARTICLE VII AMENDMENTS The holders of shares of capital stock entitled at the time to vote in any general election of directors shall have power to adopt, amend, or repeal the Bylaws of the Corporation by vote of the holders of not less than a majority in voting power of the outstanding shares of each class of common stock of the Corporation, voting as separate classes, and except as otherwise provided by law, the Board of Directors shall have power equal in all respects to that of the stockholders to adopt, amend, or repeal the Bylaws by vote of not less than a Required Majority. 6 EX-4.1 4 INDENTURE DATED AS OF JULY 7, 1999 EXHIBIT 4.1 ----------- LIBERTY MEDIA CORPORATION, Issuer to The Bank of New York, Trustee _______________ INDENTURE _______________ Dated as of July 7, 1999 Senior Debt Securities EXHIBIT 4.1 ----------- Reconciliation and tie between Trust Indenture Act of 1939 (the "Trust Indenture Act") and Indenture
Trust Indenture Act Section Indenture Section --------------------------- ----------------- (S)310(a)(1)............................................. 607 (a)(2).................................................. 607 (b)..................................................... 608 (S)312(a)................................................ 701 (b)..................................................... 702 (c)..................................................... 702 (S)313(a)................................................ 703 (b)(2).................................................. 703 (c)..................................................... 703 (d)..................................................... 703 (S)314(a)................................................ 704 (c)(1).................................................. 102 (c)(2).................................................. 102 (e)..................................................... 102 (f)..................................................... 102 (S)316(a) (last sentence)................................ 101 (a)(1)(A)............................................... 502, 512 (a)(1)(B)............................................... 513 (b)..................................................... 508 (S)317(a)(1)............................................. 503 (a)(2)................................................... 504 (b)...................................................... 1003 (S)318(a)................................................ 108
Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS ----------------- ARTICLE ONE Definitions and Other Provisions of General Application Section 101 Definitions; Rules of Construction.................. 1 Section 102 Compliance Certificates and Opinions................ 11 Section 103 Form of Documents Delivered to Trustee.............. 11 Section 104 Acts of Holders..................................... 11 Section 105 Notices, etc. to Trustee and Company............... 13 Section 106 Notice to Holders of Securities; Waiver............. 13 Section 107 Language of Notices................................. 14 Section 108 Conflict with Trust Indenture Act................... 14 Section 109 Effect of Headings and Table of Contents............ 14 Section 110 Successors and Assigns.............................. 14 Section 111 Separability Clause................................. 14 Section 112 Benefits of Indenture............................... 14 Section 113 Governing Law....................................... 14 Section 114 Legal Holidays...................................... 14 Section 115 Counterparts........................................ 15 Section 116 Judgment Currency................................... 15 Section 117 No Security Interest Created........................ 15 Section 118 Limitation on Individual Liability.................. 15 ARTICLE TWO Securities Forms Section 201 Forms Generally..................................... 16 Section 202 Form of Trustee's Certificate of Authentication..... 16 Section 203 Securities in Global Form........................... 16 ARTICLE THREE The Securities Section 301 Amount Unlimited; Issuable in Series................ 17 Section 302 Currency; Denominations............................. 19
i Section 303 Execution, Authentication, Delivery and Dating.............................. 20 Section 304 Temporary Securities........................................................ 21 Section 305 Registration, Transfer and Exchange......................................... 21 Section 306 Mutilated, Destroyed, Lost and Stolen Securities............................ 24 Section 307 Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved........................ 25 Section 308 Persons Deemed Owners....................................................... 26 Section 309 Cancellation................................................................ 26 Section 310 Computation of Interest..................................................... 27 Section 311 CUSIP Numbers............................................................... 27 ARTICLE FOUR Satisfaction and Discharge of Indenture Section 401 Satisfaction and Discharge.................................................. 27 Section 402 Defeasance and Covenant Defeasance.......................................... 28 Section 403 Application of Trust Money.................................................. 31 ARTICLE FIVE Remedies Section 501 Events of Default........................................................... 31 Section 502 Acceleration of Maturity; Rescission and Annulment.......................... 33 Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee............. 33 Section 504 Trustee May File Proofs of Claim............................................ 34 Section 505 Trustee May Enforce Claims without Possession of Securities or Coupons...... 34 Section 506 Application of Money Collected.............................................. 35 Section 507 Limitations on Suits........................................................ 35 Section 508 Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts............................................. 35 Section 509 Restoration of Rights and Remedies.......................................... 36 Section 510 Rights and Remedies Cumulative.............................................. 36 Section 511 Delay or Omission Not Waiver................................................ 36 Section 512 Control by Holders of Securities............................................ 36 Section 513 Waiver of Past Defaults..................................................... 36 Section 514 Waiver of Stay or Extension Laws............................................ 37 Section 515 Undertaking for Costs....................................................... 37
ii ARTICLE SIX The Trustee Section 601 Certain Rights of Trustee.............................................. 37 Section 602 Notice of Defaults..................................................... 38 Section 603 Not Responsible for Recitals or Issuance of Securities................. 39 Section 604 May Hold Securities.................................................... 39 Section 605 Money Held in Trust.................................................... 39 Section 606 Compensation and Reimbursement......................................... 39 Section 607 Corporate Trustee Required; Eligibility................................ 40 Section 608 Resignation and Removal; Appointment of Successor...................... 40 Section 609 Acceptance of Appointment by Successor................................. 41 Section 610 Merger, Conversion, Consolidation or Succession to Business............ 42 Section 611 Appointment of Authenticating Agent.................................... 42 ARTICLE SEVEN Holders Lists and Reports by Trustee and Company Section 701 Company to Furnish Trustee Names and Addresses of Holders.............. 43 Section 702 Preservation of Information; Communications to Holders................. 44 Section 703 Reports by Trustee..................................................... 44 Section 704 Reports by Company; Rule 144A Information.............................. 44 ARTICLE EIGHT Consolidation, Merger and Sales Section 801 Company May Consolidate, Etc., Only on Certain Terms................... 45 Section 802 Successor Person Substituted for Company............................... 46 ARTICLE NINE Supplemental Indentures Section 901 Supplemental Indentures without Consent of Holders..................... 46 Section 902 Supplemental Indentures With Consent of Holders........................ 47 Section 903 Execution of Supplemental Indentures................................... 48 Section 904 Effect of Supplemental Indentures...................................... 48 Section 905 Reference in Securities to Supplemental Indentures..................... 48
iii Section 906 Conformity with Trust Indenture Act.................................... 48 Section 907 Notice of Supplemental Indenture....................................... 48 ARTICLE TEN Covenants Section 1001 Payment of Principal, any Premium, Interest and Additional Amounts..... 48 Section 1002 Maintenance of Office or Agency........................................ 49 Section 1003 Money for Securities Payments to Be Held in Trust...................... 50 Section 1004 Additional Amounts..................................................... 51 Section 1005 Limitation on Liens.................................................... 51 Section 1006 Limitation on Sale and Leaseback....................................... 52 Section 1007 Designation of Restricted Subsidiaries................................. 53 Section 1008 Corporate Existence.................................................... 53 Section 1009 Waiver of Certain Covenants............................................ 53 Section 1010 Company Statement as to Compliance; Notice of Certain Defaults......... 53 Section 1011 Calculation of Original Issue Discount................................. 54 ARTICLE ELEVEN Redemption of Securities Section 1101 Applicability of Article............................................... 54 Section 1102 Election to Redeem; Notice to Trustee.................................. 54 Section 1103 Selection by Trustee of Securities to be Redeemed...................... 54 Section 1104 Notice of Redemption................................................... 55 Section 1105 Deposit of Redemption Price............................................ 56 Section 1106 Securities Payable on Redemption Date.................................. 56 Section 1107 Securities Redeemed in Part............................................ 56 ARTICLE TWELVE Sinking Funds Section 1201 Applicability of Article............................................... 57 Section 1202 Satisfaction of Sinking Fund Payments with Securities.................. 57 Section 1203 Redemption of Securities for Sinking Fund.............................. 57
iv ARTICLE THIRTEEN Repayment at the Option of Holders Section 1301 Applicability of Article............................................... 58 ARTICLE FOURTEEN Securities in Foreign Currencies Section 1401 Applicability of Article............................................... 58 ARTICLE FIFTEEN Meetings of Holders of Securities Section 1501 Purposes for Which Meetings May Be Called.............................. 58 Section 1502 Call, Notice and Place of Meetings..................................... 58 Section 1503 Persons Entitled to Vote at Meetings................................... 59 Section 1504 Quorum; Action......................................................... 59 Section 1505 Determination of Voting Rights; Conduct and Adjournment of Meetings.... 60 Section 1506 Counting Votes and Recording Action of Meetings........................ 60
v INDENTURE, dated as of July 7, 1999 (the "Indenture"), among LIBERTY MEDIA CORPORATION, a corporation duly organized and existing under the laws of Delaware (hereinafter called the "Company"), having its principal executive office located at 8101 E. Prentice Avenue, Ste. 500, Englewood, Colorado 80111, and The Bank of New York, a New York banking corporation (hereinafter called the "Trustee"), having its Corporate Trust Office located at 101 Barclay Street, New York, New York 10286. RECITALS The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its senior unsecured debentures, notes or other evidences of Indebtedness (hereinafter called the "Securities"), unlimited as to principal amount, to bear such rates of interest, to mature at such time or times, to be issued in one or more series and to have such other provisions as shall be fixed as hereinafter provided. The Company has duly authorized the execution and delivery of this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder that are required to be part of this Indenture and, to the extent applicable, shall be governed by such provisions. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders (as herein defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof and any Coupons (as herein defined) as follows: ARTICLE ONE Definitions and Other Provisions of General Application Section 101 Definitions; Rules of Construction. Except as otherwise expressly provided in or pursuant to this Indenture or unless the context otherwise requires, for all purposes of this Indenture: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the terms "generally accepted accounting principles" or "GAAP" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) the words "herein", "hereof", "hereto" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (5) the word "or" is always used inclusively (for example, the phrase "A or B" means "A or B or both", not "either A or B but not both"). (6) provisions apply to successive events and transactions; (7) the masculine gender includes the feminine and the neuter; and 1 (8) references to agreements and other instruments include subsequent amendments thereto. Certain terms used principally in certain Articles hereof are defined in those Articles. "Act", when used with respect to any Holders, has the meaning specified in Section 104. "Additional Amounts" means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have the meanings correlative to the foregoing. "Attributable Debt" in respect of a Sale and Leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 611 to act on behalf of the Trustee to authenticate Securities of one or more series. "Authorized Newspaper" means a newspaper, in an official language of the place of publication or in the English language, customarily published on each day that is a Business Day in the place of publication, whether or not published on days that are Legal Holidays in the place of publication, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any day that is a Business Day in the place of publication. "Bearer Security" means any Security in the form established pursuant to Section 201 which is payable to bearer. "Board of Directors" means the board of directors of the Company or any committee of that board duly authorized to act generally or in any particular respect for the Company hereunder. "Board Resolution" means a copy of one or more resolutions, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, delivered to the Trustee. "Business Day", with respect to any Place of Payment or other location, means, unless otherwise specified with respect to any Securities pursuant to Section 301, any day other than a Saturday, Sunday or other day on which banking institutions in such Place of Payment or other location are authorized or obligated by law, regulation or executive order to close. "Capitalized Lease Obligation" of any Person means any obligation of such Person to pay rent or other amounts under a lease with respect to any property (whether real, personal or mixed) acquired or leased by such Person and used in its business that is required to be accounted for as a liability on the balance sheet of such Person in accordance with GAAP and the amount of such Capitalized Lease Obligation shall be the amount so required to be accounted for as a liability. 2 "Closing Price" means, with respect to any security on any date of determination, the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security on the NYSE on such date or, if such security is not listed for trading on the NYSE on such date, as reported in the composite transactions (or comparable system) for the principal United States national or regional securities exchange on which such security is so listed or a recognized international securities exchange, or, if such security is not listed on a U.S. national or regional securities exchange or on a recognized international securities exchange, as reported by the Nasdaq Stock Market, or, if such security is not so reported, the last quoted bid price for such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or, if such bid price is not available, the market value of such security on such date as determined by a nationally recognized independent investment banking firm retained for this purpose by the Company; provided that, (1) with respect to options, warrants and other rights to purchase Marketable Securities, the Closing Price shall be the value of the underlying Marketable Security determined as aforesaid minus the exercise price and (2) with respect to securities exchangeable for or convertible into Marketable Securities, the Closing Price shall be the Closing Price of the exchangeable or convertible security determined as aforesaid or, if it has no Closing Price, the fully converted value based upon the Closing Price of the underlying Marketable Security determined as aforesaid. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person, and any other obligor upon the Securities. "Company Request" and "Company Order" mean, respectively, a written request or order, as the case may be, signed in the name of the Company by the Chairman of the Board of Directors, a Vice Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Consolidated Asset Value" shall mean, with respect to any date of determination, the sum of (A) the amount of cash of the Company and its Restricted Subsidiaries on the last day of the preceding month, plus the following assets of the Company and its Restricted Subsidiaries on the last day of the preceding month that have the indicated ratings and maturities no greater than 270 days: (i) the aggregate principal amount of certificates of deposit and bankers' acceptances rated A/2 or P/2 or higher by the Rating Agencies, (ii) the aggregate principal amount of participations in loans with obligors with short-term ratings of A/2 or P/2 or higher by the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the Rating Agencies, and (iii) the aggregate principal amount of repurchase agreements of securities issued by the U.S. government or any agency thereof with counterparties with short-term ratings of A/2 or P/2 or higher by the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the Rating Agencies, and (iv) the aggregate principal amount at maturity of commercial paper rated A/2 or P/2 or higher by the Rating Agencies, 3 (B) the aggregate value of all Marketable Securities owned by the Company and its Restricted Subsidiaries based upon the Closing Price of each Marketable Security on the last day of the preceding month, or if such day is not a Trading Day, on the immediately preceding Trading Day, and (C) the arithmetic mean of the aggregate market values (or the midpoint of a range of values) of the assets of the Company and its Restricted Subsidiaries having a value in excess of $200 million, other than the assets referred to in clauses (A) and (B) above, as of a date within 90 days of the date of determination (or to the extent the research reports referred to below have not been issued within such 90-day period, as of a date within 180 days of the date of determination) as evidenced either (i) by research reports issued by three nationally recognized independent investment banking firms selected by the Company or (ii) if three such research reports have not been issued within 180 days prior to the date of determination, by an appraisal by two nationally recognized independent investment banking or appraisal firms retained by the Company for this purpose. "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country or the confederation which issued such Foreign Currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community or (ii) any currency unit or composite currency for the purposes for which it was established. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of original execution of this Indenture is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Corporation" includes corporations and limited liability companies and, except for purposes of Article Eight, associations, companies (other than limited liability companies) and business trusts. "Coupon" means any interest coupon appertaining to a Bearer Security. "Currency", with respect to any payment, deposit or other transfer in respect of the principal of or any premium or interest on or any Additional Amounts with respect to any Security, means Dollars or the Foreign Currency, as the case may be, in which such payment, deposit or other transfer is required to be made by or pursuant to the terms hereof or such Security and, with respect to any other payment, deposit or transfer pursuant to or contemplated by the terms hereof or such Security, means Dollars. "CUSIP number" means the alphanumeric designation assigned to a Security by Standard & Poor's Corporation, CUSIP Service Bureau. "Defaulted Interest" has the meaning specified in Section 307. "Dollars" or "$" means a dollar or other equivalent unit of legal tender for payment of public or private debts in the United States of America. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor thereto, in each case as amended from time to time. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length transaction, for cash, between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. Except as otherwise provided herein, fair market value shall be determined by the Board of Directors of the Company acting in good faith evidenced by a Board Resolution. 4 "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "Funded Indebtedness" of any Person means, as of the date as of which the amount thereof is to be determined, without duplication, all Indebtedness of such Person, and all Capitalized Lease Obligations of such Person, which by the terms thereof have a final maturity, duration or payment date more than one year from the date of determination thereof (including, without limitation, any balance of such Indebtedness or obligation which was Funded Indebtedness at the time of its creation maturing within one year from such date of determination) or which has a final maturity, duration or payment date within one year from such date of determination but which by its terms may be renewed or extended at the option of such Person for more than one year from such date of determination, whether or not theretofore renewed or extended; provided, however, "Funded Indebtedness" shall not include (1) any Indebtedness of the Company or any Subsidiary to the Company or another Subsidiary, (2) any guarantee by the Company or any Subsidiary of Indebtedness of the Company or another Subsidiary, provided that such guarantee is not secured by a Lien on any Principal Property, (3) any guarantee by the Company or any Subsidiary of the Indebtedness of any Person (including, without limitation, a business trust), if the obligation of the Company or such Subsidiary under such guaranty is limited in amount to the amount of funds held by or on behalf of such Person that are available for the payment of such Indebtedness, (4) liabilities under interest rate swap, exchange, collar or cap agreements and all other agreements or arrangements designed to protect against fluctuations in interest rates or currency exchange rates, and (5) liabilities under commodity hedge, commodity swap, exchange, collar or cap agreements, fixed price agreements and all other agreements or arrangements designed to protect against fluctuations in prices. For purposes of determining the outstanding principal amount of Funded Indebtedness at any date, the amount of Indebtedness issued at a price less than the principal amount at maturity thereof shall be equal to the amount of the liability in respect thereof at such date determined in accordance with generally accepted accounting principles. "GAAP" means such accounting principles as are generally accepted in the United States of America as of the date or time of any computation required hereunder. "Government Obligations" means securities which are (i) direct obligations of the United States of America or the other government or governments in the confederation which issued the Foreign Currency in which the principal of or any premium or interest on any Security or any Additional Amounts in respect thereof shall be payable, in each case where the payment or payments thereunder are supported by the full faith and credit of the United States or such government or governments or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such other government or governments, in each case where the timely payment or payments thereunder are unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, and which, in the case of (i) or (ii), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of or other amount with respect to any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of or other amount with respect to the Government Obligation evidenced by such depository receipt. "Holder", in the case of any Registered Security, means the Person in whose name such Security is registered in the Security Register and, in the case of any Bearer Security, means the bearer thereof and, in the case of any Coupon, means the bearer thereof. "Indebtedness" of any Person means: (1) any indebtedness of such Person (i) for borrowed money or (ii) evidenced by a note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any property or assets, including securities; 5 (2) any guarantee by such Person of any indebtedness of others described in the preceding clause (1); and (3) any amendment, renewal, extension or refunding of any such indebtedness or guarantee. "Indenture" means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, with respect to any Security, by the terms and provisions of such Security and any Coupon appertaining thereto established pursuant to Section 301 (as such terms and provisions may be amended pursuant to the applicable provisions hereof); provided, however, that, if at any time more than one Person is acting as Trustee under this instrument, "Indenture" shall mean, with respect to any one or more series of Securities for which such Person is Trustee, this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of those particular series of Securities for which such Person is Trustee established pursuant to Section 301, exclusive, however, of any provisions or terms which relate solely to other series of Securities for which such Person is not Trustee, regardless of when such terms or provisions were adopted. "Independent Public Accountants" means accountants or a firm of accountants that, with respect to the Company and any other obligor under the Securities or the Coupons, are independent public accountants within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, who may be the independent public accountants regularly retained by the Company or who may be other independent public accountants. Such accountants or firm shall be entitled to rely upon any Opinion of Counsel as to the interpretation of any legal matters relating to this Indenture or certificates required to be provided hereunder. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "Interest", with respect to any Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 1004, includes such Additional Amounts. "Interest Payment Date", with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Judgment Currency" has the meaning specified in Section 116. "Legal Holidays" has the meaning specified in Section 114. "Lien" means any mortgage, pledge, lien, security interest, or other similar encumbrance. "Marketable Securities" means any securities listed on a U.S. national securities exchange or reported by the Nasdaq Stock Market or listed on a recognized international securities exchange or traded in the over-the-counter market and quoted by at least two broker-dealers as reported by the National Quotation Bureau or similar organization, including as Marketable Securities options, warrants and other rights to purchase, and securities exchangeable for or convertible into, Marketable Securities. "Material Subsidiary" means, at any relevant time, any Subsidiary that meets any of the following conditions: (1) the Company's and its other Subsidiaries' investments in and advances to the Subsidiary exceed 10% of the total consolidated assets of the Company and its Subsidiaries; or (2) the Company's and its other Subsidiaries' proportionate share of the total assets (after intercompany eliminations) of the Subsidiary exceeds 10% of the total consolidated assets of the Company and its Subsidiaries; or 6 (3) the Company's and its other Subsidiaries' proportionate share of the total revenues (after intercompany eliminations) of the Subsidiary exceeds 10% of the total consolidated revenue of the Company and its Subsidiaries; or (4) the Company's and its other Subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the Subsidiary exceeds 10% of such income of the Company and its Subsidiaries; all as calculated by reference to the then latest fiscal year-end accounts (or consolidated fiscal year-end accounts, as the case may be) of such Subsidiary and the then latest audited consolidated fiscal year-end accounts of the Company and its Subsidiaries. "Maturity", with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as provided in or pursuant to this Indenture, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or repurchase, notice of option to elect repayment or otherwise, and includes the Redemption Date. "Moody's" means Moody's Investors Service, Inc. "Nasdaq Stock Market" means the Nasdaq Stock Market, a subsidiary of the National Association of Securities Dealers, Inc. "New York Banking Day" has the meaning specified in Section 116. "NYSE" means the New York Stock Exchange, Inc. "Office" or "Agency", with respect to any Securities, means an office or agency of the Company maintained or designated in a Place of Payment for such Securities pursuant to Section 1002 or any other office or agency of the Company maintained or designated for such Securities pursuant to Section 1002 or, to the extent designated or required by Section 1002 in lieu of such office or agency, the Corporate Trust Office of the Trustee. "Officers' Certificate" means a certificate signed by the Chairman of the Board, a Vice Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, that, if applicable, complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company or other counsel who shall be reasonably acceptable to the Trustee, that, if required by the Trust Indenture Act, complies with the requirements of Section 314(e) of the Trust Indenture Act. "Original Issue Discount Security" means a Security issued pursuant to this Indenture which provides, at any time prior to the final Stated Maturity of such Security, for declaration of an amount less than the principal face amount thereof to be due and payable upon acceleration pursuant to Section 502. "Outstanding", when used with respect to any Securities, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (a) any such Security theretofore cancelled by the Trustee or the Security Registrar or delivered to the Trustee or the Security Registrar for cancellation; (b) any such Security for whose payment at the Maturity thereof money in the necessary amount has been theretofore deposited pursuant hereto (other than pursuant to Section 402) with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any Coupons 7 appertaining thereto, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) any such Security with respect to which the Company has effected defeasance or covenant defeasance pursuant to the terms hereof, except to the extent provided in Section 402; (d) any such Security which has been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, unless there shall have been presented to the Trustee proof satisfactory to it that such Security is held by a bona fide purchaser in whose hands such Security is a valid obligation of the Company; and (e) any such Security converted or exchanged as contemplated by this Indenture into Common Stock or other securities, cash or other property, if the terms of such Security provide for such conversion or exchange pursuant to Section 301; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders of Securities for quorum purposes, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that pursuant to the terms of such Original Issue Discount Security would be declared (or shall have been declared to be) due and payable upon a declaration of acceleration thereof pursuant to Section 502 at the time of such determination, and (ii) the principal amount of any Indexed Security that may be counted in making such determination and that shall be deemed outstanding for such purpose shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided in or pursuant to this Indenture, and (iii) the principal amount of a Security denominated in a Foreign Currency shall be the Dollar equivalent, determined on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor, shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making any such determination or relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which shall have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee (A) the pledgee's right so to act with respect to such Securities and (B) that the pledgee is not the Company or any other obligor upon the Securities or any Coupons appertaining thereto or an Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of, or any premium or interest on, or any Additional Amounts with respect to, any Security or any Coupon on behalf of the Company. "Permitted Liens" has the meaning specified in Section 1005. "Person" means any individual, corporation, partnership, joint venture, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", with respect to any Security, means the place or places where the principal of, or any premium or interest on, or any Additional Amounts with respect to such Security are payable as provided in or pursuant to this Indenture or such Security. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Security or any Security to which a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to evidence the same Indebtedness as the lost, destroyed, mutilated or stolen Security or the Security to which a mutilated, destroyed, lost or stolen Coupon appertains. 8 "Principal Property" means, as of any date of determination, (a) any cable system or manufacturing or production facility, including land and buildings and other improvements thereon and equipment located therein, owned by the Company or a Restricted Subsidiary and used in the ordinary course of its business and (b) any executive offices, administrative buildings, and research and development facilities, including land and buildings and other improvements thereon and equipment located therein, of the Company or a Restricted Subsidiary, other than any such property which, in the good faith opinion of the Board of Directors, is not of material importance to the business conducted by the Company and its Restricted Subsidiaries taken as a whole. "Rating Agencies" means (i) S&P and (ii) Moody's and (iii) if S&P or Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized United States securities rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for S&P or Moody's or both, as the case may be. "Redemption Date", with respect to any Security or portion thereof to be redeemed, means each date fixed for such redemption by or pursuant to this Indenture or such Security. "Redemption Price", with respect to any Security or portion thereof to be redeemed, means the price at which it is to be redeemed as determined by or pursuant to this Indenture or such Security. "Registered Security" means any Security established pursuant to Section 201 which is registered in the Security Register. "Regular Record Date" for the interest payable on any Registered Security on any Interest Payment Date therefor means the date, if any, specified in or pursuant to this Indenture or such Security as the "Regular Record Date". "Required Currency" has the meaning specified in Section 116. "Responsible Officer" means any officer of the Trustee in its Corporate Trust Office and also means, with respect to a particular corporate trust matter, any other officer of the Trustee to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means, as of any date of determination, a Subsidiary designated a Restricted Subsidiary in accordance with Section 1007, unless and until designated an Unrestricted Subsidiary in accordance with such covenant. "S&P" means Standard & Poor's, a division of The Mc-Graw-Hill Companies, Inc. "Sale and Leaseback Transactions" means any arrangement providing for the leasing to the Company or a Restricted Subsidiary of any Principal Property (except for temporary leases for a term, including renewals, of not more than three years) which has been or is to be sold by the Company or such Restricted Subsidiary to the lessor. "Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of Indebtedness, as the case may be, authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities", with respect to any such Person, shall mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Special Record Date" for the payment of any Defaulted Interest on any Registered Security means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", with respect to any Security or any installment of principal thereof or interest thereon or any Additional Amounts with respect thereto, means the date established by or pursuant to this Indenture or such 9 Security as the fixed date on which the principal of such Security or such installment of principal or interest is, or such Additional Amounts are, due and payable. "Subsidiary" means any corporation, association, limited liability company, partnership or other business entity of which a majority of the total voting power of the capital stock or other interests (including partnership interests) entitled (without regard to the incurrence of a contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned, directly or indirectly, by (i) the Company, (ii) the Company and one or more of its Subsidiaries or (iii) one or more Subsidiaries of the Company. "Trading Day" means, with respect to any security the Closing Price of which is being determined, a day on which there is trading on the United States national or regional securities exchange or recognized international securities exchange, in the Nasdaq Stock Market or in over-the-counter market used to determine such Closing Price. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and any reference herein to the Trust Indenture Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as supplemented from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such with respect to one or more series of Securities pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" shall mean each such Person and as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of such series. "United States", except as otherwise provided in or pursuant to this Indenture or any Security, means the United States of America (including the states thereof and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction. "United States Alien", except as otherwise provided in or pursuant to this Indenture or any Security, means any Person who, for United States Federal income tax purposes, is a foreign corporation, a non-resident alien individual, a non-resident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust. "Unrestricted Subsidiary" means, as of any date of determination, any Subsidiary of the Company that is not a Restricted Subsidiary. "U.S. Depository" or "Depository" means, with respect to any Security issuable or issued in the form of one or more global Securities, the Person designated as U.S. Depository or Depository by the Company in or pursuant to this Indenture, which Person must be, to the extent required by applicable law or regulation, a clearing agency registered under the Exchange Act and, if so provided with respect to any Security, any successor to such Person. If at any time there is more than one such Person, "U.S. Depository" or "Depository" shall mean, with respect to any Securities, the qualifying entity which has been appointed with respect to such Securities. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "Vice President". "Voting Stock" means stock of a Corporation of the class or classes having general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Corporation provided that, for the purposes hereof, stock which carries only the right to vote conditionally on the happening of an event shall not be considered voting stock whether or not such event shall have happened. 10 Section 102 Compliance Certificates and Opinions. Except as otherwise expressly provided in or pursuant to this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents or any of them is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such officer knows, or in the exercise of reasonable care should know, that the opinion with respect to the matters upon which his certificate or opinion is based are erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture or any Security, they may, but need not, be consolidated and form one instrument. Section 104 Acts of Holders. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by or pursuant to this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. If, but only if, Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article Fifteen, or a 11 combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1506. Without limiting the generality of this Section 104, unless otherwise provided in or pursuant to this Indenture, a Holder, including a U.S. Depository that is a Holder of a global Security, may make, give or take, by a proxy or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture or the Securities to be made, given or taken by Holders, and a U.S. Depository that is a Holder of a global Security may provide its proxy or proxies to the beneficial owners of interests in any such global Security through such U.S. Depository's standing instructions and customary practices. The Trustee shall fix a record date for the purpose of determining the Persons who are beneficial owners of interest in any permanent global Security held by a U.S. Depository entitled under the procedures of such U.S. Depository to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other Act, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other Act shall be valid or effective if made, given or taken more than 90 days after such record date. (2) The fact and date of the execution by any Person of any such instrument or writing referred to in this Section 104 may be proved in any reasonable manner which the Trustee deems sufficient and in accordance with such reasonable rules as the Trustee may determine; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section. (3) The ownership, principal amount and serial numbers of Registered Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, shall be proved by the Security Register. (4) The ownership, principal amount and serial numbers of Bearer Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary reasonably acceptable to the Company, wherever situated, if such certificate shall be deemed by the Company and the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (1) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, (2) such Bearer Security is produced to the Trustee by some other Person, (3) such Bearer Security is surrendered in exchange for a Registered Security or (4) such Bearer Security is no longer Outstanding. The ownership, principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of the commencement and the date of the termination of holding the same may also be proved in any other manner which the Company and the Trustee deem sufficient. (5) If the Company shall solicit from the Holders of any Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may at its option (but is not obligated to), by Board Resolution, fix in advance a record date for the determination of Holders of Registered Securities entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given 12 before or after such record date, but only the Holders of Registered Securities of record at the close of business on such record date shall be deemed to be Holders for the purpose of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders of Registered Securities shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (6) Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee, any Security Registrar, any Paying Agent or the Company in reliance thereon, whether or not notation of such Act is made upon such Security. Section 105 Notices, etc. to Trustee and Company Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to the attention of its Treasurer at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 106 Notice to Holders of Securities; Waiver. Except as otherwise expressly provided in or pursuant to this Indenture, where this Indenture provides for notice to Holders of Securities of any event, (1) such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Registered Security affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and (2) such notice shall be sufficiently given to Holders of Bearer Securities, if any, if published in an Authorized Newspaper in The City of New York and, if such Securities are then listed on any stock exchange outside the United States, in an Authorized Newspaper in such city as the Company shall advise the Trustee that such stock exchange so requires, on a Business Day at least twice, the first such publication to be not earlier than the earliest date and the second such publication not later than the latest date prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. In the case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. In case by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearers Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither failure to give notice 13 by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 107 Language of Notices. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that, if the Company so elects, any published notice may be in an official language of the country of publication. Section 108 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act, such required provision shall control. Section 109 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 110 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 111 Separability Clause. In case any provision in this Indenture, any Security or any Coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 112 Benefits of Indenture. Nothing in this Indenture, any Security or any Coupon, express or implied, shall give to any Person, other than the parties hereto, any Security Registrar, any Paying Agent, any Authentication Agent and their successors hereunder and the Holders of Securities or Coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 113 Governing Law. This Indenture, the Securities and any Coupons shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state. Section 114 Legal Holidays. Unless otherwise specified in or pursuant to this Indenture or any Securities, in any case where any Interest Payment Date, Stated Maturity or Maturity of any Security, or the last date on which a Holder has the right to convert or exchange Securities of a series that are convertible or exchangeable, shall not be a Business Day (a "Legal Holiday") at any Place of Payment, then (notwithstanding any other provision of this Indenture, any Security or any Coupon other than a provision in any Security or Coupon that specifically states that such provision shall apply in lieu hereof) payment need not be made at such Place of Payment on such date, and such Securities need not be converted or exchanged on such date but such payment may be made, and such Securities may be converted or exchanged, on the next succeeding day that is a Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or at the Stated Maturity or Maturity or on such last day for 14 conversion or exchange, and no interest shall accrue on the amount payable on such date or at such time for the period from and after such Interest Payment Date, Stated Maturity, Maturity or last day for conversion or exchange, as the case may be, to the next succeeding Business Day. Section 115 Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 116 Judgment Currency. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, or Additional Amounts on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. Section 117 No Security Interest Created Subject to the provisions of Section 1005, nothing in this Indenture or in any Securities, express or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where property of the Company or its Subsidiaries is or may be located. Section 118 Limitation on Individual Liability No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security. 15 ARTICLE TWO Securities Forms Section 201 Forms Generally. Each Registered Security, Bearer Security, Coupon and temporary or permanent global Security issued pursuant to this Indenture shall be in the form established by or pursuant to a Board Resolution and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by or pursuant to this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Security or Coupon as evidenced by their execution of such Security or Coupon. Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall be issuable in registered form without Coupons and shall not be issuable upon the exercise of warrants. Definitive Securities and definitive Coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or Coupons, as evidenced by their execution of such Securities or Coupons. Section 202 Form of Trustee's Certificate of Authentication. Subject to Section 611, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By _________________________________________ Authorized Signatory Section 203 Securities in Global Form. Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall not be issuable in temporary or permanent global form. If Securities of a series shall be issuable in global form, any such Security may provide that it or any number of such Securities shall represent the aggregate amount of all Outstanding Securities of such series (or such lesser amount as is permitted by the terms thereof) from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be increased or reduced to reflect exchanges. Any endorsement of any Security in global form to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders, of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered pursuant to Section 303 or Section 304 with respect thereto. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or Section 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to a Security in global form shall be in writing but need not be accompanied by or contained in an Officers' Certificate and need not be accompanied by an Opinion of Counsel. Notwithstanding the provisions of Section 307, unless otherwise specified in or pursuant to this Indenture or any Securities, payment of principal of, any premium and interest on, and any Additional Amounts in respect of, any Security in temporary or permanent global form shall be made to the Person or Persons specified therein. 16 Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities as is represented by a global Security (i) in the case of a global Security in registered form, the Holder of such global Security in registered form, or (ii) in the case of a global Security in bearer form, the Person or Persons specified pursuant to Section 3018. ARTICLE THREE The Securities Section 301 Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. With respect to any Securities to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto, (1) the title of such Securities and the series in which such Securities shall be included; (2) any limit upon the aggregate principal amount of the Securities of such title or the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 304, Section 305, Section 306, Section 904 or Section 1107, upon repayment in part of any Registered Security of such series pursuant to Article Thirteen, upon surrender in part of any Registered Security for conversion or exchange into Common Stock or other securities, cash or other property pursuant to its terms, or pursuant to the terms of such Securities); (3) if such Securities are to be issuable as Registered Securities, as Bearer Securities or alternatively as Bearer Securities and Registered Securities, and whether the Bearer Securities are to be issuable with Coupons, without Coupons or both, and any restrictions applicable to the offer, sale or delivery of the Bearer Securities and the terms, if any, upon which Bearer Securities may be exchanged for Registered Securities and vice versa; (4) if any of such Securities are to be issuable in global form, when any of such Securities are to be issuable in global form and (i) whether such Securities are to be issued in temporary or permanent global form or both, (ii) whether beneficial owners of interests in any such global Security may exchange such interests for Securities of the same series and of like tenor and of any authorized form and denomination, and the circumstances under which any such exchanges may occur, if other than in the manner specified in Section 305, and (iii) the name of the Depository or the U.S. Depository, as the case may be, with respect to any global Security; (5) if any of such Securities are to be issuable as Bearer Securities or in global form, the date as of which any such Bearer Security or global Security shall be dated (if other than the date of original issuance of the first of such Securities to be issued); (6) if any of such Securities are to be issuable as Bearer Securities, whether interest in respect of any portion of a temporary Bearer Security in global form payable in respect of an Interest Payment Date therefor prior to the exchange, if any, of such temporary Bearer Security for definitive Securities shall be paid to any clearing organization with respect to the portion of such temporary Bearer Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date; (7) the date or dates, or the method or methods, if any, by which such date or dates shall be determined, on which the principal and premium, if any, of such Securities is payable; (8) the rate or rates at which such Securities shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined, the date or dates, if any, from which such interest shall accrue or 17 the method or methods, if any, by which such date or dates are to be determined, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on Registered Securities on any Interest Payment Date, whether and under what circumstances Additional Amounts on such Securities or any of them shall be payable, the notice, if any, to Holders regarding the determination of interest on a floating rate Security and the manner of giving such notice, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30- day months; (9) if in addition to or other than the Borough of Manhattan, The City of New York, the place or places where the principal of, any premium and interest on or any Additional Amounts with respect to such Securities shall be payable, any of such Securities that are Registered Securities may be surrendered for registration of transfer or exchange, any of such Securities may be surrendered for conversion or exchange and notices or demands to or upon the Company in respect of such Securities and this Indenture may be served, the extent to which, or the manner in which, any interest payment or Additional Amounts on a global Security on an Interest Payment Date, will be paid and the manner in which any principal of or premium, if any, on any global Security will be paid; (10) whether any of such Securities are to be redeemable at the option of the Company and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities may be redeemed, in whole or in part, at the option of the Company; (11) whether the Company is obligated to redeem or purchase any of such Securities pursuant to any sinking fund or analogous provision or at the option of any Holder thereof and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such Securities so redeemed or purchased; (12) the denominations in which any of such Securities that are Registered Securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which any of such Securities that are Bearer Securities shall be issuable if other than the denomination of $5,000; (13) whether the Securities of the series will be convertible into shares of Common Stock and/or exchangeable for other securities, cash or other property, and if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Securities or the administration thereof; (14) if other than the principal amount thereof, the portion of the principal amount of any of such Securities that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or the method by which such portion is to be determined; (15) if other than Dollars, the Foreign Currency in which payment of the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities shall be payable; (16) if the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities are to be payable, at the election of the Company or a Holder thereof or otherwise, in Dollars or in a Foreign Currency other than that in which such Securities are stated to be payable, the date or dates on which, the period or periods within which, and the other terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency in which such Securities are stated to be payable and the Currency in which such Securities or any of them are to be paid pursuant to such election, and any deletions from or modifications of or additions to the terms of this Indenture to provide for or to facilitate the issuance of Securities denominated or payable, at the election of the Company or a Holder thereof or otherwise, in a Foreign Currency; (17) whether the amount of payments of principal of, any premium or interest on or any Additional Amounts with respect to such Securities may be determined with reference to an index, formula or other method or methods (which index, formula or method or methods may be based, without limitation, on one or more Currencies, 18 commodities, equity indices or other indices), and, if so, the terms and conditions upon which and the manner in which such amounts shall be determined and paid or be payable; (18) any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to any of such Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (19) whether either or both of Section 402(2) relating to defeasance or Section 402(3) relating to covenant defeasance shall not be applicable to the Securities of such series, or any covenants in addition to those specified in Section 402(3) relating to the Securities of such series which shall be subject to covenant defeasance, and, if the Securities of such series are subject to repurchase or repayment at the option of the Holders thereof, whether the Company's obligation to repurchase or repay such Securities will be subject to defeasance or covenant defeasance, and any deletions from, or modifications or additions to, the provisions of Article Four in respect of the Securities of such series; (20) whether any of such Securities are to be issuable upon the exercise of warrants, and the time, manner and place for such Securities to be authenticated and delivered; (21) if any of such Securities are to be issuable in global form and are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and terms of such certificates, documents or conditions; (22) if there is more than one Trustee, the identity of the Trustee and, if not the Trustee, the identity of each Security Registrar, Paying Agent or Authenticating Agent with respect to such Securities; and (23) any other terms of such Securities and any deletions from or modifications or additions to this Indenture in respect of such Securities. All Securities of any one series and all Coupons, if any, appertaining to Bearer Securities of such series shall be substantially identical except as to Currency of payments due thereunder, denomination and the rate of interest, or method of determining the rate of interest, if any, Maturity, and the date from which interest, if any, shall accrue and except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officers' Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Securities. The terms of the Securities of any series may provide, without limitation, that the Securities shall be authenticated and delivered by the Trustee on original issue from time to time upon telephonic or written order of persons designated in the Officers' Certificate or supplemental indenture (telephonic instructions to be promptly confirmed in writing by such person) and that such persons are authorized to determine, consistent with such Officers' Certificate or any applicable supplemental indenture, such terms and conditions of the Securities of such series as are specified in such Officers' Certificate or supplemental indenture. All Securities of any one series need not be issued at the same time and, unless otherwise so provided by the Company, a series may be reopened for issuances of additional Securities of such series or to establish additional terms of such series of Securities. If any of the terms of the Securities of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of such series. Section 302 Currency; Denominations. Unless otherwise provided in or pursuant to this Indenture, the principal of, any premium and interest on and any Additional Amounts with respect to the Securities shall be payable in Dollars. Unless otherwise provided in or pursuant to this Indenture, Registered Securities denominated in Dollars shall be issuable in registered form without Coupons in denominations of $1,000 and any integral multiple thereof, and the Bearer Securities denominated in Dollars shall be issuable in the denomination of $5,000. Securities not denominated in Dollars shall be issuable in such denominations as are established with respect to such Securities in or pursuant to this Indenture. 19 Section 303 Execution, Authentication, Delivery and Dating. Securities shall be executed on behalf of the Company by its Chairman of the Board, one of its Vice Chairmen, its President, its Treasurer or one of its Vice Presidents attested by its Secretary or one of its Assistant Secretaries. Coupons shall be executed on behalf of the Company by the Treasurer or any Assistant Treasurer of the Company. The signature of any of these officers on the Securities or any Coupons appertaining thereto may be manual or facsimile. Securities and any Coupons appertaining thereto bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities or Coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities, together with any Coupons appertaining thereto, executed by the Company, to the Trustee for authentication and, provided that the Board Resolution and Officers' Certificate or supplemental indenture or indentures with respect to such Securities referred to in Section 301 and a Company Order for the authentication and delivery of such Securities have been delivered to the Trustee, the Trustee in accordance with the Company Order and subject to the provisions hereof and of such Securities shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities and any Coupons appertaining thereto, the Trustee shall be entitled to receive, and (subject to Sections 315(a) through 315(d) of the Trust Indenture Act) shall be fully protected in relying upon, (1) an Opinion of Counsel to the effect that: (a) the form or forms and terms of such Securities and Coupons, if any, have been established in conformity with the provisions of this Indenture; (b) all conditions precedent to the authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that such Securities, and Coupons, when completed by appropriate insertions, executed under the Company's corporate seal and attested by duly authorized officers of the Company, delivered by duly authorized officers of the Company to the Trustee for authentication pursuant to this Indenture, and authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally, and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and will entitle the Holders thereof to the benefits of this Indenture; such Opinion of Counsel need express no opinion as to the availability of equitable remedies; (c) all laws and requirements in respect of the execution and delivery by the Company of such Securities and Coupons, if any, have been complied with; and, to the extent that this Indenture is required to be qualified under the Trust Indenture Act in connection with the issuance of such Securities, to the further effect that: (d) this Indenture has been qualified under the Trust Indenture Act; and (2) an Officers' Certificate stating that all conditions precedent to the execution, authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that, to the best knowledge of the Persons executing such certificate, no event which is, or after notice or lapse of time would become, an Event of Default with respect to any of the Securities shall have occurred and be continuing. 20 If all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officers' Certificate at the time of issuance of each Security, but such opinion and certificate, with appropriate modifications, shall be delivered at or before the time of issuance of the first Security of such series. After any such first delivery, any separate request by the Company that the Trustee authenticate Securities of such series for original issue will be deemed to be a certification by the Company that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Securities continue to have been complied with. The Trustee shall not be required to authenticate or to cause an Authenticating Agent to authenticate any Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee, being advised by counsel, determines that such action may not lawfully be taken. Each Registered Security shall be dated the date of its authentication. Each Bearer Security and any Bearer Security in global form shall be dated as of the date specified in or pursuant to this Indenture. No Security or Coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for in Section 202 or Section 611 executed by or on behalf of the Trustee or by the Authenticating Agent by the manual signature of one of its authorized officers. Such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Except as permitted by Section 306 or Section 307, the Trustee shall not authenticate and deliver any Bearer Security unless all Coupons appertaining thereto then matured have been detached and cancelled. Section 304 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and deliver to the Trustee and, upon Company Order, the Trustee shall authenticate and deliver, in the manner provided in Section 303, temporary Securities in lieu thereof which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized in or pursuant to this Indenture, in bearer form with one or more Coupons or without Coupons and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. Such temporary Securities may be in global form. Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities are issued, the Company shall cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities of the same series and containing terms and provisions that are identical to those of any temporary Securities, such temporary Securities shall be exchangeable for such definitive Securities upon surrender of such temporary Securities at an Office or Agency for such Securities, without charge to any Holder thereof. Upon surrender for cancellation of any one or more temporary Securities (accompanied by any unmatured Coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series and containing identical terms and provisions; provided, however, that no definitive Bearer Security, except as provided in or pursuant to this Indenture, shall be delivered in exchange for a temporary Registered Security; and provided, further, that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in or pursuant to this Indenture. Unless otherwise provided in or pursuant to this Indenture with respect to a temporary global Security, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 305 Registration, Transfer and Exchange. With respect to the Registered Securities of each series, if any, the Company shall cause to be kept a register (each such register being herein sometimes referred to as the "Security Register") at an Office or Agency for such series in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Registered Securities of such series and of transfers of the Registered Securities of such series. 21 Such Office or Agency shall be the "Security Registrar" for that series of Securities. Unless otherwise specified in or pursuant to this Indenture or the Securities, the Trustee shall be the initial Security Registrar for each series of Securities. The Company shall have the right to remove and replace from time to time the Security Registrar for any series of Securities; provided that no such removal or replacement shall be effective until a successor Security Registrar with respect to such series of Securities shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Security Registrar with respect to a series of Securities, it shall have the right to examine the Security Register for such series at all reasonable times. There shall be only one Security Register for each series of Securities. Upon surrender for registration of transfer of any Registered Security of any series at any Office or Agency for such series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series denominated as authorized in or pursuant to this Indenture, of a like aggregate principal amount bearing a number not contemporaneously outstanding and containing identical terms and provisions. At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any Office or Agency for such series. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. If provided in or pursuant to this Indenture, with respect to Securities of any series, at the option of the Holder, Bearer Securities of such series may be exchanged for Registered Securities of such series containing identical terms, denominated as authorized in or pursuant to this Indenture and in the same aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any Office or Agency for such series, with all unmatured Coupons and all matured Coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company and the Trustee in an amount equal to the face amount of such missing Coupon or Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to any Paying Agent any such missing Coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 1002, interest represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such series located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such Office or Agency for such series in exchange for a Registered Security of such series and like tenor after the close of business at such Office or Agency on (i) any Regular Record Date and before the opening of business at such Office or Agency on the relevant Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such Office or Agency on the related date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the Coupon relating to such Interest Payment Date or proposed date of payment, as the case may be (or, if such Coupon is so surrendered with such Bearer Security, such Coupon shall be returned to the Person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture. If provided in or pursuant to this Indenture with respect to Securities of any series, at the option of the Holder, Registered Securities of such series may be exchanged for Bearer Securities upon such terms and conditions as may be provided in or pursuant to this Indenture with respect to such series. Whenever any Securities are surrendered for exchange as contemplated by the immediately preceding two paragraphs, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. 22 Notwithstanding the foregoing, except as otherwise provided in or pursuant to this Indenture, any global Security shall be exchangeable for definitive Securities only if (i) the Depository is at any time unwilling, unable or ineligible to continue as Depository and a successor depository is not appointed by the Company within 90 days of the date the Company is so informed in writing, (ii) the Depositary ceases to be a clearing agency registered under the Exchange Act of 1934, (iii) the Company executes and delivers to the Trustee a Company Order to the effect that such global Security shall be so exchangeable or (iv) an Event of Default has occurred and is continuing with respect to the Securities. If the beneficial owners of interests in a global Security are entitled to exchange such interests for definitive Securities as the result of an event described in clause (i), (ii), (iii) or (iv) of the preceding sentence, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities in such form and denominations as are required by or pursuant to this Indenture, and of the same series, containing identical terms and in aggregate principal amount equal to the principal amount of such global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such global Security shall be surrendered from time to time by the U.S. Depository or such other Depository as shall be specified in the Company Order with respect thereto, and in accordance with instructions given to the Trustee and the U.S. Depository or such other Depository, as the case may be (which instructions shall be in writing but need not be contained in or accompanied by an Officers' Certificate or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or in part, for definitive Securities as described above without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered global Security, a like aggregate principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such global Security to be exchanged, which (unless such Securities are not issuable both as Bearer Securities and as Registered Securities, in which case the definitive Securities exchanged for the global Security shall be issuable only in the form in which the Securities are issuable, as provided in or pursuant to this Indenture) shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof, but subject to the satisfaction of any certification or other requirements to the issuance of Bearer Securities; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities of the same series to be redeemed and ending on the relevant Redemption Date; and provided, further, that (unless otherwise provided in or pursuant to this Indenture) no Bearer Security delivered in exchange for a portion of a global Security shall be mailed or otherwise delivered to any location in the United States. Promptly following any such exchange in part, such global Security shall be returned by the Trustee to such Depository or the U.S. Depository, as the case may be, or such other Depository or U.S. Depository referred to above in accordance with the instructions of the Company referred to above. If a Registered portion of a global Security after the close of business at the Office or Agency for such Security where such exchange occurs on or after (i) any Regular Record Date for such Security and before the opening of business at such Office or Agency on the next Interest Payment Date, or (ii) any Special Record Date for such Security and before the opening of business at such Office or Agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but shall be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such global Security shall be payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company evidencing the same debt and entitling the Holders thereof to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar for such Security) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar for such Security duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange, or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including fees and expenses of the Trustee) that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 304, 306 and 1107 not involving any transfer. 23 Except as otherwise provided in or pursuant to this Indenture, the Company shall not be required (i) to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of like tenor and the same series under Section 1103 and ending at the close of business on the day of such mailing, (ii) to register the transfer of or exchange any Registered Security so selected for redemption in whole or in part, except in the case of any Security to be redeemed in part, the portion thereof not to be redeemed (iii) to exchange any Bearer Security so selected for redemption except, to the extent provided with respect to such Bearer Security, that such Bearer Security may be exchanged for a Registered Security of like tenor and the same series, provided that such Registered Security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of this Indenture or (iv) to issue, register the transfer of or exchange any Security which, in accordance with its terms, has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid. Section 306 Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated Coupon appertaining to it is surrendered to the Trustee, subject to the provisions of this Section 306, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to the surrendered Security. If there be delivered to the Company and to the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or Coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security or Coupon has been acquired by a bona fide purchaser, the Company shall execute and, upon the Company's request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen Coupon appertains with all appurtenant Coupons not destroyed, lost or stolen, a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons corresponding to the Coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen Coupon appertains. Notwithstanding the foregoing provisions of this Section 306, in case any mutilated, destroyed, lost or stolen Security or Coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or Coupon; provided, however, that payment of principal of, any premium or interest on or any Additional Amounts with respect to any Bearer Securities shall, except as otherwise provided in Section 1002, be payable only at an Office or Agency for such Securities located outside the United States and, unless otherwise provided in or pursuant to this Indenture, any interest on Bearer Securities and any Additional Amounts with respect to such interest shall be payable only upon presentation and surrender of the Coupons appertaining thereto. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security, with any Coupons appertaining thereto issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen Coupon appertains shall constitute a separate obligation of the Company, whether or not the destroyed, lost or stolen Security and Coupons appertaining thereto or the destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of such series and any Coupons, if any, duly issued hereunder. The provisions of this Section, as amended or supplemented pursuant to this Indenture with respect to particular Securities or generally, shall be exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons. 24 Section 307 Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, and are punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered as of the close of business on the Regular Record Date for such interest. Unless otherwise provided in or pursuant to this Indenture, in case a Bearer Security is surrendered in exchange for a Registered Security after the close of business at an Office or Agency for such Security on any Regular Record Date therefor and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date therefor, such Bearer Security shall be surrendered without the Coupon relating to such Interest Payment Date and interest shall not be payable on such Interest Payment Date in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, but shall not be punctually paid or duly provided for, on any Interest Payment Date for such Registered Security (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on such Registered Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this clause provided. Thereupon, the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to the Holder of such Registered Security (or a Predecessor Security thereof) at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). In case a Bearer Security is surrendered at the Office or Agency for such Security in exchange for a Registered Security after the close of business at such Office or Agency on any Special Record Date and before the opening of business at such Office or Agency on the related proposed date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the Coupon relating to such Defaulted Interest and Defaulted Interest shall not be payable on such proposed date of payment in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture. (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Security may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Trustee. 25 Unless otherwise provided in or pursuant to this Indenture or the Securities of any particular series pursuant to the provisions of this Indenture, at the option of the Company, interest on Registered Securities that bear interest may be paid by mailing a check to the address of the Person entitled thereto as such address shall appear in the Security Register or by transfer to an account maintained by the payee with a bank located in the United States. Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Registered Security of any series that is convertible, which Registered Security is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Registered Security with respect to which the Stated Maturity is prior to such Interest Payment Date), interest with respect to which the Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Registered Security (or one or more predecessor Registered Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Registered Security which is converted, interest with respect to which the Stated Maturity is after the date of conversion of such Registered Security shall not be payable. Section 308 Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered in the Security Register as the owner of such Registered Security for the purpose of receiving payment of principal of, any premium and (subject to Section 305 and Section 307) interest on and any Additional Amounts with respect to such Registered Security and for all other purposes whatsoever, whether or not any payment with respect to such Registered Security shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. The Company, the Trustee and any agent of the Company or the Trustee may treat the bearer of any Bearer Security or the bearer of any Coupon as the absolute owner of such Security or Coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not any payment with respect to such Security or Coupon shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. No Holder of any beneficial interest in any global Security held on its behalf by a Depository shall have any rights under this Indenture with respect to such global Security, and such Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the owner of such global Security for all purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Section 309 Cancellation. All Securities and Coupons surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Coupons, as well as Securities and Coupons surrendered directly to the Trustee for any such purpose, shall be cancelled promptly by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be cancelled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by or pursuant to this Indenture. All cancelled Securities and Coupons held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures. 26 Section 310 Computation of Interest. Except as otherwise provided in or pursuant to this Indenture, or in any Security, interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Section 311 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE FOUR Satisfaction and Discharge of Indenture Section 401 Satisfaction and Discharge. Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect with respect to any series of Securities specified in such Company Order and any Coupons appertaining thereto, and the Trustee, on receipt of a Company Order, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when (1) either (a) all Securities of such series theretofore authenticated and delivered and all Coupons appertaining thereto (other than (i) Coupons appertaining to Bearer Securities of such series surrendered in exchange for Registered Securities of such series and maturing after such exchange whose surrender is not required or has been waived as provided in Section 305, (ii) Securities and Coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (iii) Coupons appertaining to Securities of such series called for redemption and maturing after the relevant Redemption Date whose surrender has been waived as provided in Section 1107, and (iv) Securities and Coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (b) all Securities of such series and, in the case of (i) or (ii) below, any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, money in the Currency in which such Securities are payable in an amount sufficient to pay and discharge the entire indebtedness on such Securities and any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation, including the principal of, any premium and interest on, and any Additional Amounts with respect to such Securities and any Coupons appertaining thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Maturity thereof, as the case may be; 27 (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Outstanding Securities of such series and any Coupons appertaining thereto; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. In the event there are Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee under Section 306 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Company and the Trustee with respect to the Securities of such series under Section 305, Section 306, Section 403, Section 1002 and Section 1003, with respect to the payment of Additional Amounts, if any, with respect to such Securities as contemplated by Section 1004 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 401(1)(b), and with respect to any rights to convert or exchange such Securities into Common Stock or other securities, cash or other property shall survive. Section 402 Defeasance and Covenant Defeasance. (1) Unless pursuant to Section 301, either or both of (i) defeasance of the Securities of or within a series under clause (2) of this Section 402 shall not be applicable with respect to the Securities of such series or (ii) covenant defeasance of the Securities of or within a series under clause (3) of this Section 402 shall not be applicable with respect to the Securities of such series, then such provisions, together with the other provisions of this Section 402 (with such modifications thereto as may be specified pursuant to Section 301 with respect to any Securities), shall be applicable to such Securities and any Coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any Coupons appertaining thereto, elect to have Section 402(2) or Section 402(3) be applied to such Outstanding Securities and any Coupons appertaining thereto upon compliance with the conditions set forth below in this Section 402. (2) Upon the Company's exercise of the above option applicable to this Section 402(2) with respect to any Securities of or within a series, the Company shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any Coupons appertaining thereto on the date the conditions set forth in clause (4) of this Section 402 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by such Outstanding Securities and any Coupons appertaining thereto, which shall thereafter be deemed to be "Outstanding" only for the purposes of clause (6) of this Section 402 and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all of its other obligations under such Securities and any Coupons appertaining thereto and this Indenture insofar as such Securities and any Coupons appertaining thereto are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of such Outstanding Securities and any Coupons appertaining thereto to receive, solely from the trust fund described in clause (4) of this Section 402 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest, if any, on, and Additional Amounts, if any, with respect to, such Securities and any Coupons appertaining thereto when such payments are due, and any rights of such Holder to convert or exchange such Securities into Common Stock or other securities, cash or other property, (ii) the obligations of the Company and the Trustee with respect to such Securities under Section 305, Section 306, Section 1002 and Section 1003 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 1004 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 402(4)(a) below), and with respect to any rights to convert or exchange such Securities into Common Stock or other securities, cash or other property, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 402. The Company may exercise its 28 option under this Section 402(2) notwithstanding the prior exercise of its option under clause (3) of this Section 402 with respect to such Securities and any Coupons appertaining thereto. (3) Upon the Company's exercise of the above option applicable to this Section 402(3) with respect to any Securities of or within a series, the Company shall be released from its obligations under Section 1005, Section 1006 and Section 1007, and, to the extent specified pursuant to Section 301, any other covenant applicable to such Securities, with respect to such Outstanding Securities and any Coupons appertaining thereto on and after the date the conditions set forth in clause (4) of this Section 402 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any Coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with any such covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any Coupons appertaining thereto, the Company may omit to comply with, and shall have no liability in respect of, any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 501(5) insofar as it relates to Section 1005, Section 1006 and Section 1007 and, to the extent specified pursuant to Section 301 any other covenant applicable to such Security, Section 501(7) or Section 501(9) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities and Coupons appertaining thereto shall be unaffected thereby. (4) The following shall be the conditions to application of clause (2) or (3) of this Section 402 to any Outstanding Securities of or within a series and any Coupons appertaining thereto: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Section 402 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any Coupons appertaining thereto, (1) an amount in Dollars or in such Foreign Currency in which such Securities and any Coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and Coupons appertaining thereto (determined on the basis of the Currency in which such Securities and Coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest, if any, on such Securities and any Coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (y) the principal of (and premium, if any) and interest, if any, on such Outstanding Securities and any Coupons appertaining thereto on the Stated Maturity of such principal or installment of principal or interest and (z) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any Coupons appertaining thereto on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any Coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any Coupons appertaining thereto shall have occurred and be continuing on the date of such deposit and, with respect to defeasance only, at any time during the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). 29 (d) In the case of an election under clause (2) of this Section 402, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from the Internal Revenue Service a letter ruling, or there has been published by the Internal Revenue Service a Revenue Ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under clause (3) of this Section 402, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 91st day after the date of establishment of such trust, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited or caused to be deposited with the Trustee (or other qualifying trustee) pursuant to this clause (4) to be held in trust will not be subject to any case or proceeding (whether voluntary or involuntary) in respect of the Company under any Federal or State bankruptcy, insolvency, reorganization or other similar law, or any decree or order for relief in respect of the Company issued in connection therewith. (g) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent to the defeasance or covenant defeasance under clause (2) or (3) of this Section 402 (as the case may be) have been complied with. (h) Notwithstanding any other provisions of this Section 402(4), such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301. (5) Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations (or other property as may be provided pursuant to Section 301) (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 402(5) and Section 403, the "Trustee") pursuant to clause (4) of Section 402 in respect of any Outstanding Securities of any series and any Coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any Coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any Coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest and Additional Amounts, if any, but such money need not be segregated from other funds except to the extent required by law. (6) Unless otherwise specified in or pursuant to this Indenture or any Security, if, after a deposit referred to in Section 402(4)(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 301 or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 402(4)(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the Foreign Currency in which the deposit pursuant to Section 402(4)(a) has been made, the indebtedness represented by such Security and any Coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), 30 and interest, if any, on, and Additional Amounts, if any, with respect to, such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on (x) in the case of payments made pursuant to clause (a) above, the applicable market exchange rate for such Currency in effect on the second Business Day prior to each payment date, or (y) with respect to a Conversion Event, the applicable market exchange rate for such Foreign Currency in effect (as nearly as feasible) at the time of the Conversion Event. The Company shall pay and indemnify the Trustee against any tax, fee or other charge, imposed on or assessed against the Government Obligations deposited pursuant to this Section 402 or the principal or interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any Coupons appertaining thereto. Anything in this Section 402 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in clause (4) of this Section 402 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Section 402. Section 403 Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money and Government Obligations deposited with the Trustee pursuant to Section 401 or Section 402 in respect of any Outstanding Securities of any series and any Coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities, the Coupons and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal, premium, if any, interest and Additional Amounts, if any, for whose payment such money has or Government Obligations have been deposited with or received by the Trustee; but such money and Government Obligations need not be segregated from other funds except to the extent required by law. ARTICLE FIVE Remedies Section 501 Events of Default. "Event of Default", wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, Board Resolution or Officers' Certificate establishing the terms of such series pursuant to this Indenture: (1) default in the payment of any interest on any Security of such series, or any Additional Amounts payable with respect thereto, when the interest becomes or the Additional Amounts become due and payable, and continuance of the default for a period of 30 days; (2) default in the payment of the principal of or any premium on any Security of such series, or any Additional Amounts payable with respect thereto, when the principal or premium becomes or the Additional Amounts with respect thereto become due and payable at their maturity; (3) failure of the Company to comply with any of its obligations described under Article Eight; 31 (4) default in the deposit of any sinking fund payment when and as due by the terms of any Security of such series; (5) default in the performance, or breach, of any covenant or warranty of the Company in the Indenture or the Securities (other than a covenant or warranty a default in the performance or the breach of which is elsewhere in this Section 501 specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than such series), and continuance of the default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying the default or breach and requiring it to be remedied and stating that the notice is a "Notice of Default" under Section 602; (6) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company, whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in such indebtedness in aggregate principal amount (or, if applicable, with an issue price and accreted original issue discount) in excess of $100 million becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and (i) the acceleration shall not be rescinded or annulled, (ii) such Indebtedness shall not have been paid or (iii) the Company shall not have contested such acceleration in good faith by appropriate proceedings and have obtained and thereafter maintained a stay of all consequences that would have a material adverse effect on the Company in each case within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in principal amount of the outstanding Securities of such series then outstanding, a written notice specifying the default or breaches and requiring it to be remedied and stating that the notice is a "Notice of Default" or other notice as prescribed under Section 602; provided, however, that if after the expiration of such period, such event of default shall be remedied or cured by the Company or be waived by the Holders of such Indebtedness in any manner authorized by such mortgage, indenture or instrument, then the Event of Default with respect to such series of Securities or by reason thereof shall, without further action by the Company, the Trustee or any holder of Securities of such series, be deemed cured and not continuing ; (7) the entry by a court having competent jurisdiction of: (a) a decree or order for relief in respect of the Company or any Material Subsidiary in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law and the decree or order shall remain unstayed and in effect for a period of 60 consecutive days; (b) a decree or order adjudging the Company or any Material Subsidiary to be insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of the Company or any Material Subsidiary and the decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (c) a final and non-appealable order appointing a custodian, receiver, liquidator, assignee, trustee or other similar official of the Company or any Material Subsidiary or of any substantial part of the property of the Company or any Material Subsidiary or ordering the winding up or liquidation of the affairs of the Company; (8) the commencement by the Company or any Material Subsidiary of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent by the Company or any Material Subsidiary to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any insolvency proceedings against it, or the filing by the Company or any Material Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable law, or the consent by the Company or any Material Subsidiary to the filing of the petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or similar official of the Company or any Material Subsidiary or any substantial part of the property of the Company or any Material Subsidiary or the making by the 32 Company or any Material Subsidiary or an assignment for the benefit of creditors, or the taking of corporate action by the Company or any Material Subsidiary in furtherance of any such action; or (9) any other Event of Default provided in or pursuant to the Indenture with respect to Securities of the series. Section 502 Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding (other than an Event of Default specified in clause (7) or (8) of Section 501) occurs and is continuing, then the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series may declare the principal of all the Securities of such series, or such lesser amount as may be provided for in the Securities of such series, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any declaration the principal or such lesser amount shall become immediately due and payable. If an Event of Default specified in clause (7) or (8) of Section 501 above occurs, all unpaid principal of and accrued interest on the Outstanding Securities of that series (or such lesser amount as may be provided for in the Securities of such series) shall become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of such series. At any time after a declaration of acceleration or automatic acceleration with respect to the Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereafter in this Article provided, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul the declaration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum of money sufficient to pay all overdue installments of interest on all Securities of such series and any Additional Amounts payable with respect thereto and any Coupon appertaining thereto, and the principal of and any premium on any Securities of the series which have become due otherwise than by the declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided in such Securities; and (2) all Events of Default with respect to Securities of such series, other than the non-payment of the principal of, any premium and interest on, and any additional amounts with respect to Securities of such series which shall have become due solely by the acceleration, shall have been cured or waived as provided in Section 513. Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any installment of interest on any Security, or any Additional Amounts payable with respect thereto, or any Coupon appertaining thereto, when such interest or Additional Amounts shall have become due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of any principal of or premium, if any, on, or any Additional Amounts payable in respect of any principal of or premium, if any, on any Security at its Maturity. The Company shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities and any Coupons appertaining thereto, the whole amount of money then due and payable with respect to such Securities and any Coupons appertaining thereto, with interest upon the overdue principal, any premium and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installments of interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount of money as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee under Section 606. 33 If the Company fails to pay the money it is required to pay the Trustee pursuant to the preceding paragraph forthwith upon the demand of the Trustee, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the money so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and any Coupons appertaining thereto and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities and any Coupons appertaining thereto, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any Coupons appertaining thereto by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or such Securities or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy. Section 504 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any overdue principal, premium, interest or Additional Amounts) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of such series, of the principal and any premium, interest and Additional Amounts owing and unpaid in respect of the Securities and any Coupons appertaining thereto and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents or counsel) and of the Holders of Securities or any Coupons allowed in such judicial proceeding, and (2) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities or any Coupons to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities or any Coupons, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or any Coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or Coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or any Coupon in any such proceeding. Section 505 Trustee May Enforce Claims without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or Coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or Coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery or judgment, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, shall be for the ratable benefit of each and every Holder of a Security or Coupon in respect of which such judgment has been recovered. 34 Section 506 Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, or any premium, interest or Additional Amounts, upon presentation of the Securities or Coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid upon the Securities and any Coupons for principal and any premium, interest and Additional Amounts in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and Coupons for principal and any premium, interest and Additional Amounts, respectively; THIRD: The balance, if any, to the Person or Persons entitled thereto. Section 507 Limitations on Suits. No Holder of any Security of any series or any Coupons appertaining thereto shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other such Holders or Holders of Securities of any other series, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 508 Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts. Notwithstanding any other provision in this Indenture, the Holder of any Security or Coupon shall have the right, which is absolute and unconditional, to receive payment of the principal of, any premium and (subject to Section 305 and Section 307) interest on, and any Additional Amounts with respect to such Security or payment of such Coupon, as the case may be, on the respective Stated Maturity or Maturities therefor specified in such Security or Coupon (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of such Holder if provided in or pursuant to this Indenture, on the date such repayment is due) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. 35 Section 509 Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or a Coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case the Company, the Trustee and each such Holder shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and each such Holder shall continue as though no such proceeding had been instituted. Section 510 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to each and every Holder of a Security or a Coupon is intended to be exclusive of any other right or remedy, and every right and remedy, to the extent permitted by law, shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or Coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to any Holder of a Security or a Coupon may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by such Holder, as the case may be. Section 512 Control by Holders of Securities. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series and any Coupons appertaining thereto, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture or with the Securities of any series, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) such direction is not unduly prejudicial to the rights of the other Holders of Securities of such series not joining in such action. Section 513 Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series on behalf of the Holders of all the Securities of such series and any Coupons appertaining thereto may waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of, any premium or interest on, or any Additional Amounts with respect to, any Security of such series or any Coupons appertaining thereto, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 36 Section 514 Waiver of Stay or Extension Laws. The Company covenants that (to the extent that it may lawfully do so) it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company expressly waives (to the extent that it may lawfully do so) all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 515 Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of any undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 515 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest, if any, on or Additional Amounts, if any, with respect to any Security or any Coupon on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date, and, in the case of repayment, on or after the date for repayment) or for the enforcement of the right, if any, to convert or exchange any Security into Common Stock or other securities, cash or other property in accordance with its terms. ARTICLE SIX The Trustee Section 601 Certain Rights of Trustee. Subject to Sections 315(a) through 315(d) of the Trust Indenture Act: (1) the Trustee may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or a Company Order (in each case, other than delivery of any Security, together with any Coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 303 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Securities of any series or any Coupons 37 appertaining thereto pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may but shall not be obligated to make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken or error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent, acted in bad faith or engaged in willful misconduct; (9) the Authenticating Agent, Paying Agent, and Security Registrar shall have the same protections as the Trustee set forth hereunder; (10) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with an Act of the Holders hereunder, and, to the extent not so provided herein, with respect to any act requiring the Trustee to exercise its own discretion, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any Securities, unless it shall be proved that, in connection with any such action taken, suffered or omitted or any such act, the Trustee was negligent, acted in bad faith or engaged in willful misconduct; (11) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it; and (12) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default or Event of Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture. Section 602 Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series entitled to receive reports pursuant to Section 703(3), notice of such default hereunder actually known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any), or interest, if any, on, or Additional Amounts or any sinking fund or purchase fund installment with respect to, any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the best interest of the Holders of Securities and Coupons of such series; and provided, further, that in the case of any default of the character specified in Section 501(5) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. 38 Section 603 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any Coupons shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or the Coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1, if necessary, supplied to the Company are true and accurate, subject to the qualifications set forth therein. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 604 May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other Person that may be an agent of the Trustee or the Company, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not the Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other Person. Section 605 Money Held in Trust. Except as provided in Section 403 and Section 1003, money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law and shall be held uninvested. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 606 Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by the Trustee hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture arising out of or in connection with the acceptance or administration of the trust or trusts hereunder (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's negligence or willful misconduct; and (3) to indemnify each of the Trustee and any predecessor Trustee and its agents, officers, directors and employees for, and to hold them harmless against, any loss, liability, damage, claim or expense, including taxes (other than taxes based on the income of the Trustee), incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability (whether asserted by the Company, a Holder of Securities, or any other Person) in connection with the exercise or performance of any of their powers or duties hereunder, except to the extent that any such loss, liability or expense was due to the Trustee's negligence or willful misconduct. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities of any series upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of, and premium or interest on or any Additional Amounts with respect to Securities or any Coupons appertaining thereto. To the extent permitted by law any compensation or expense incurred by the Trustee after a default specified in or pursuant to Section 501 is intended to constitute an expense of administration under any then applicable bankruptcy or insolvency law. "Trustee" for purposes of this Section 606 shall include any predecessor 39 Trustee but the negligence or willful misconduct of any Trustee shall not affect the rights of any other Trustee under this Section 606. The provisions of this Section 606 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee and shall apply with equal force and effect to the Trustee in its capacity as Authenticating Agent, Paying Agent or Security Registrar. Section 607 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder that is a Corporation, organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, eligible under Section 310(a)(1) of the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act and that has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000 subject to supervision or examination by Federal or state authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 608 Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee pursuant to Section 609. (2) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (3) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (4) If at any time: (a) the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to Securities of any series after written request therefor by the Company or any Holder of a Security of such series who has been a bona fide Holder of a Security of such series for at least six months, or (b) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or any such Holder, or (c) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by or pursuant to a Board Resolution, may remove the Trustee with respect to all Securities or the Securities of such series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of 40 himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities of such series and the appointment of a successor Trustee or Trustees. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of such series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 609. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 609, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 609, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (6) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Securities of such series are issued as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. (7) In no event shall any retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder. Section 609 Acceptance of Appointment by Successor. (1) Upon the appointment hereunder of any successor Trustee with respect to all Securities, such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties hereunder of the retiring Trustee; but, on the request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges, shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and, subject to Section 1003, shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 606. (2) Upon the appointment hereunder of any successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and such successor Trustee shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, such successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust 41 or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee hereunder, and, upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture with respect to the Securities of that or those series to which the appointment of such successor Trustee relates other than as hereinafter expressly set forth, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges with respect to the Securities of that or those series to which the appointment of such successor Trustee relates and subject to Section 1003 shall duly assign, transfer and deliver to such successor Trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject to its claim, if any, provided for in Section 606. (3) Upon request of any Person appointed hereunder as a successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in clause (1) or (2) of this Section 609, as the case may be. (4) No Person shall accept its appointment hereunder as a successor Trustee unless at the time of such acceptance such successor Person shall be qualified and eligible under this Article. Section 610 Merger, Conversion, Consolidation or Succession to Business. Any Corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 611 Appointment of Authenticating Agent. The Trustee may appoint one or more Authenticating Agents acceptable to the Company with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of that or those series issued upon original issue, exchange, registration of transfer, partial redemption or partial repayment or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent must be acceptable to the Company and, except as provided in or pursuant to this Indenture, shall at all times be a Corporation that would be permitted by the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act, is authorized under applicable law and by its charter to act as an Authenticating Agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section. Any Corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Corporation succeeding to all or substantially all of the corporate 42 agency or corporate trust business of an Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, provided such Corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall (i) mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Registered Securities, if any, of the series with respect to which such Authenticating Agent shall serve, as their names and addresses appear in the Security Register, and (ii) if Securities of the series are issued as Bearer Securities, publish notice of such appointment at least once in an Authorized Newspaper in the place where such successor Authenticating Agent has its principal office if such office is located outside the United States. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section. The provisions of Section 308, Section 603 and Section 604 shall be applicable to each Authenticating Agent. If an Authenticating Agent is appointed with respect to one or more series of Securities pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, As Trustee By: ------------------------------ As Authenticating Agent By: ------------------------------ Authorized Officer If all of the Securities of any series may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested in writing (which writing need not be accompanied by or contained in an Officers' Certificate), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such series of Securities. ARTICLE SEVEN Holders Lists and Reports by Trustee and Company Section 701 Company to Furnish Trustee Names and Addresses of Holders. In accordance with Section 312(a) of the Trust Indenture Act, the Company shall furnish or cause to be furnished to the Trustee 43 (1) semi-annually with respect to Securities of each series not later than January 15 and July 15 of the year or upon such other dates as are set forth in or pursuant to the Board Resolution or indenture supplemental hereto authorizing such series, a list, in each case in such form as the Trustee may reasonably require, of the names and addresses of Holders as of the applicable date, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, provided, however, that so long as the Trustee is the Security Registrar no such list shall be required to be furnished. Section 702 Preservation of Information; Communications to Holders. The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act. Every Holder of Securities or Coupons, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company, the Trustee, any Paying Agent or any Security Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 312(c) of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. Section 703 Reports by Trustee. (1) Within 60 days after June 15 of each year commencing with the first June 15 following the first issuance of Securities pursuant to Section 301, if required by Section 313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report dated as of such June 15 with respect to any of the events specified in said Section 313(a) which may have occurred since the later of the immediately preceding June 15 and the date of this Indenture. (2) The Trustee shall transmit the reports required by Section 313(a) of the Trust Indenture Act at the times specified therein. (3) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange, if any, upon which the Securities are listed, with the Commission and with the Company. The Company will promptly notify the Trustee when the Securities are listed on any stock exchange and of any delisting thereof. Section 704 Reports by Company; Rule 144A Information. The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; provided, however, that the Company shall not be required to file a quarterly report on Form 10-Q (or an analogous form) for any of its fiscal quarters prior to its fiscal quarter ended September 30, 1999; and provided further, however, that if the Company files information, documents or reports by virtue of its being subject to the requirements of Section 12, Section 13 or Section 15(d) of the Exchange Act and its duty to file such information, documents or reports is subsequently suspended, then the Company shall no longer be required to file any such information, documents or 44 reports pursuant to the provisions of this Section 704 with respect to Securities of any series that were issued prior to the effectiveness of the suspension of such duty. (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. (4) Unless the Company furnishes information to the Commission pursuant to Section 13 or 15(d) of the Exchange Act or this Section, the Company shall promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of a Security who is designated by such Holder and is a qualified institutional buyer (as defined in Rule 144A under the Securities Act), upon the request of such Holder or prospective purchaser, in order to permit compliance by such Holder with Rule 144A under the Securities Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE EIGHT Consolidation, Merger and Sales Section 801 Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into, or sell, assign, transfer, lease, convey or other dispose of all or substantially all of its assets and the properties and the assets and properties of its Subsidiaries (taken as a whole) to, any entity or entities (including limited liability companies) unless: (1) the successor entity or entities, each of which shall be a Corporation organized and existing under the laws the United States of America, any state thereof or the District of Columbia, shall expressly assume, by an indenture (or indentures, if at such time there is more than one Trustee) supplemental hereto executed by the successor Person and delivered to the Trustee, the due and punctual payment of the principal of, any premium and interest on and any Additional Amounts with respect to all the Securities and the performance of every obligation in this Indenture and the Outstanding Securities on the part of the Company to be performed or observed and shall provide for conversion or exchange rights in accordance with the provisions of the Securities of any series that are convertible or exchangeable into Common Stock or other securities, cash or other property; (2) immediately after giving effect to such transaction or series of transactions, no Event of Default or event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and (3) either the Company or the successor Person shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. 45 Section 802 Successor Person Substituted for Company. Upon any consolidation by the Company with or merger of the Company into any other Person or Persons or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company and the properties and assets of its Subsidiaries (taken as a whole) to any Person or Persons in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter, except in the case of a lease, the predecessor Person shall be released from all obligations and covenants under this Indenture, the Securities and any Coupons. ARTICLE NINE Supplemental Indentures Section 901 Supplemental Indentures without Consent of Holders. Without the consent of any Holders of Securities or Coupons, the Company (when authorized by or pursuant to a Board Resolution) and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company; or (3) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, any premium or interest on or any Additional Amounts with respect to Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be exchanged for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Outstanding Securities of any series or any Coupons appertaining thereto in any material respect; or (4) to establish the form or terms of Securities of any series and any Coupons appertaining thereto as permitted by Section 201 and Section 301; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 609; or (6) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not adversely affect the interests of the Holders of Securities of any series then Outstanding or any Coupons appertaining thereto in any material respect; or (7) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Securities, as herein set forth; or (8) to add any additional Events of Default with respect to all or any series of Securities (as shall be specified in such supplemental indenture); or 46 (9) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Article Four, provided that any such action shall not adversely affect the interests of any Holder of an Outstanding Security of such series and any Coupons appertaining thereto or any other Security or Coupon in any material respect; or (10) to secure the Securities pursuant to Section 1005 or Section 1006 or otherwise; or (11) to make provisions with respect to conversion or exchange rights of Holders of Securities of any series; or (12) to amend or supplement any provision contained herein or in any supplemental indenture, provided that no such amendment or supplement shall materially adversely affect the interests of the Holders of any Securities then Outstanding; or (13) to qualify the Indenture under the Trust Indenture Act. Section 902 Supplemental Indentures With Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company (when authorized by or pursuant to a Board Resolution) and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or of the Securities of such series; provided, however, that no such supplemental indenture, without the consent of the Holder of each Outstanding Security affected thereby, shall (1) change the Stated Maturity of the principal of, or any premium or installment of interest on or any Additional Amounts with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest thereon or any Additional Amounts with respect thereto, or any premium payable upon the redemption thereof or otherwise, or change the obligation of the Company to pay Additional Amounts pursuant to Section 1004 (except as contemplated by Section 801(1) and permitted by Section 901(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof provable in bankruptcy pursuant to Section 504, change the redemption provisions or adversely affect the right of repayment at the option of any Holder as contemplated by Article Thirteen, or change the Place of Payment, Currency in which the principal of, any premium or interest on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the date for repayment), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 1504 for quorum or voting, or (3) modify any of the provisions of this Section, Section 513 or Section 1009, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or (4) make any change that adversely affects the right to convert or exchange any Security into or for Common Stock or other securities, cash or other property in accordance with the terms of such Security. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which shall have been included expressly and solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other 47 provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903 Execution of Supplemental Indentures. As a condition to executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trust created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully protected in relying upon, an Officers' Certificate and Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a Security theretofore or thereafter authenticated and delivered hereunder and of any Coupon appertaining thereto shall be bound thereby. Section 905 Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. Section 906 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 907 Notice of Supplemental Indenture. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to Section 902, the Company shall transmit to the Holders of Outstanding Securities of any series affected thereby a notice setting forth the substance of such supplemental indenture. ARTICLE TEN Covenants Section 1001 Payment of Principal, any Premium, Interest and Additional Amounts. The Company covenants and agrees for the benefit of the Holders of the Securities of each series that it will duly and punctually pay the principal of, any premium and interest on and any Additional Amounts with respect to the Securities of such series in accordance with the terms thereof, any Coupons appertaining thereto and this Indenture. Any interest due on any Bearer Security on or before the Maturity thereof, and any Additional Amounts payable with respect to such interest, shall be payable only upon presentation and surrender of the Coupons appertaining thereto for such interest as they severally mature. 48 Section 1002 Maintenance of Office or Agency. The Company shall maintain in each Place of Payment for any series of Securities an Office or Agency where Securities of such series (but not Bearer Securities, except as otherwise provided below, unless such Place of Payment is located outside the United States) may be presented or surrendered for payment, where Securities of such series may be surrendered for registration of transfer or exchange, where Securities of such series that are convertible or exchangeable may be surrendered for conversion or exchange, and where notices and demands to or upon the Company in respect of the Securities of such series relating thereto and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company shall maintain, subject to any laws or regulations applicable thereto, an Office or Agency in a Place of Payment for such series which is located outside the United States where Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment; provided, however, that if the Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company shall maintain a Paying Agent in London, Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of such series are listed on such exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such Office or Agency. If at any time the Company shall fail to maintain any such required Office or Agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment at the place specified for the purpose with respect to such Securities as provided in or pursuant to this Indenture, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. Except as otherwise provided in or pursuant to this Indenture, no payment of principal, premium, interest or Additional Amounts with respect to Bearer Securities shall be made at any Office or Agency in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, if amounts owing with respect to any Bearer Securities shall be payable in Dollars, payment of principal of, any premium or interest on and any Additional Amounts with respect to any such Security may be made at the Corporate Trust Office of the Trustee or any Office or Agency designated by the Company in the Borough of Manhattan, The City of New York, if (but only if) payment of the full amount of such principal, premium, interest or Additional Amounts at all offices outside the United States maintained for such purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may also from time to time designate one or more other Offices or Agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an Office or Agency in each Place of Payment for Securities of any series for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other Office or Agency. Unless otherwise provided in or pursuant to this Indenture, the Company hereby designates as the Place of Payment for each series of Securities the Borough of Manhattan, The City of New York, and initially appoints the Corporate Trust Office of the Trustee located at 101 Barclay Street, New York, New York 10286 as the Office or Agency of the Company in the Borough of Manhattan, The City of New York for such purpose. The Company may subsequently appoint a different Office or Agency in the Borough of Manhattan, The City of New York for the Securities of any series. Unless otherwise specified with respect to any Securities pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. 49 Section 1003 Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it shall, on or before each due date of the principal of, any premium or interest on or Additional Amounts with respect to any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal or any premium, interest or Additional Amounts so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it shall, on or prior to each due date of the principal of, any premium or interest on or any Additional Amounts with respect to any Securities of such series, deposit with any Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal or any premium, interest or Additional Amounts so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent for any series of Securities (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of, any premium or interest on or any Additional Amounts with respect to Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in or pursuant to this Indenture; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any payment of principal, any premium or interest on or any Additional Amounts with respect to the Securities of such series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided herein or pursuant hereto, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, any premium or interest on or any Additional Amounts with respect to any Security of any series or any Coupon appertaining thereto and remaining unclaimed for two years after such principal or any such premium or interest or any such Additional Amounts shall have become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security or any Coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment for such series or to be mailed to Holders of Registered Securities of such series, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing nor shall it be later than two years after such principal and any premium or interest or Additional Amounts shall have become due and payable, any unclaimed balance of such money then remaining will be repaid to the Company. 50 Section 1004 Additional Amounts. If any Securities of a series provide for the payment of Additional Amounts, the Company agrees to pay to the Holder of any such Security or any Coupon appertaining thereto Additional Amounts as provided in or pursuant to this Indenture or such Securities. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or any Coupon, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Amounts (if applicable) in any provision hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise provided in or pursuant to this Indenture or the Securities of the applicable series, if the Securities of a series provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to such series of Securities (or if the Securities of such series shall not bear interest prior to Maturity, the first day on which a payment of principal is made), and at least 10 days prior to each date of payment of principal or interest if there has been any change with respect to the matters set forth in the below-mentioned Officers' Certificate, the Company shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if other than the Trustee, an Officers' Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and premium, if any, or interest on the Securities of such series shall be made to Holders of Securities of such series or the Coupons appertaining thereto who are United States Aliens without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of such series. If any such withholding shall be required, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities or Coupons, and the Company agrees to pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section. Section 1005 Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, create, incur or assume any Lien, except for Permitted Liens, on any Principal Property to secure the payment of Funded Indebtedness of the Company or any Restricted Subsidiary if, immediately after the creation, incurrence or assumption of such Lien, the sum of (A) the aggregate outstanding principal amount of all Funded Indebtedness of the Company and the Restricted Subsidiaries that is secured by Liens (other than Permitted Liens) on any Principal Property and (B) the Attributable Debt relating to any Sale and Leaseback Transaction which would otherwise be subject to the provisions of Section 1006 would exceed 15% of the Consolidated Asset Value, unless effective provision is made whereby the Securities (together with, if the Company shall so determine, any other Funded Indebtedness ranking equally with the Securities, whether then existing or thereafter created) are secured equally and ratably with (or prior to) such Funded Indebtedness (but only for so long as such Funded Indebtedness is so secured). The foregoing limitation on Liens shall not apply to the creation, incurrence or assumption of the following Liens ("Permitted Liens"): (1) any Lien which arises out of a judgment or award against the Company or any Restricted Subsidiary with respect to which the Company or such Restricted Subsidiary at the time shall be prosecuting an appeal or proceeding for review (or with respect to which the period within which such appeal or proceeding for review may be initiated shall not have expired) and with respect to which it shall have secured a stay of execution pending such appeal or proceedings for review or with respect to which the Company or such Restricted Subsidiary shall have posted a bond and established adequate reserves (in accordance with GAAP) for the payment of such judgment or award; (2) Liens on assets or property of a Person existing at the time such Person is merged into or consolidated with the Company or any Restricted Subsidiary or becomes a Restricted Subsidiary; provided, that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition 51 and do not secure any property of the Company or any Restricted Subsidiary other than the property and assets subject to the Liens prior to such merger, consolidation or acquisition; (3) Liens existing on the date of original issuance of the Securities; (4) Liens securing Funded Indebtedness (including in the form of Capitalized Lease Obligations and purchase money indebtedness) incurred for the purpose of financing the cost (including without limitation the cost of design, development, site acquisition, construction, integration, manufacture or acquisition) of real or personal property (tangible or intangible) which is incurred contemporaneously therewith or within 60 days thereafter; provided (i) such Liens secure Funded Indebtedness in an amount not in excess of the cost of such property (plus an amount equal to the reasonable fees and expenses incurred in connection with the incurrence of such Funded Indebtedness) and (ii) such Liens do not extend to any property of the Company or any Restricted Subsidiary other than the property for which such Funded Indebtedness was incurred; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure the Securities; (7) Liens granted in favor of the Company; and (8) any Lien in respect of Funded Indebtedness representing the extension, refinancing, renewal or replacement (or successive extensions, refinancings, renewals or replacements) of Funded Indebtedness secured by Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above, provided that the principal of the Funded Indebtedness secured thereby does not exceed the principal of the Funded Indebtedness secured thereby immediately prior to such extension, renewal or replacement, plus any accrued and unpaid interest or capitalized interest payable thereon, reasonable fees and expenses incurred in connection therewith, and the amount of any prepayment premium necessary to accomplish any refinancing; provided, that such extension, renewal or replacement shall be limited to all or a part of the property (or interest therein) subject to the Lien so extended, renewed or replaced (plus improvements and construction on such property). Section 1006 Limitation on Sale and Leaseback. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction; provided, that the Company or any Restricted Subsidiary may enter into a Sale and Leaseback Transaction if: (1) the gross cash proceeds of the Sale and Leaseback Transaction are at least equal to the fair market value, as determined in good faith by the Board of Directors and set forth in a Board Resolution, of the Principal Property that is the subject of the Sale and Leaseback Transaction, and (2) either (A) the Company or the Restricted Subsidiary, as applicable, either (i) could have incurred a Lien to secure Funded Indebtedness in an amount equal to the Attributable Debt relating to such Sale and Leaseback Transaction pursuant to Section 1005, or (ii) makes effective provision whereby the Securities (together with, if the Company shall so determine, any other Funded Indebtedness ranking equally with the Securities, whether then existing or thereafter created) are secured equally and ratably with (or prior to) the obligations of the Company or the Restricted Subsidiary under the lease of the Principal Property that is the subject of the Sale and Leaseback Transaction, or (B) within 180 days, the Company or the Restricted Subsidiary either (i) applies an amount equal to the fair market value of the Principal Property that is the subject of the Sale and Leaseback 52 Transaction to purchase the Securities or to retire other Funded Indebtedness, or (ii) enters into a bona fide commitment to expend for the acquisition or improvement of a Principal Property an amount at least equal to the fair market value of such Principal Property. Section 1007 Designation of Restricted Subsidiaries. The Company may designate an Unrestricted Subsidiary as a Restricted Subsidiary or designate a Restricted Subsidiary as an Unrestricted Subsidiary at any time, provided that (1) immediately after giving effect to such designation, the Company and its Restricted Subsidiaries would have been permitted to incur at least $1.00 of additional Funded Indebtedness secured by a Lien pursuant to Section 1005, (2) no Default or Event of Default shall have occurred and be continuing, and (3) an Officers' Certificate with respect to such designation is delivered to the Trustee within 75 days after the end of the fiscal quarter of the Company in which such designation is made (or, in the case of a designation made during the last fiscal quarter of the Company's fiscal year, within 120 days after the end of such fiscal year), which Officers' Certificate shall state the effective date of such designation; the Company has made the initial designation of all of its Subsidiaries as Restricted Subsidiaries and will deliver the required Officers' Certificate with respect thereto to the Trustee, on or prior to the date of initial issuance of the first series of Securities pursuant to this Indenture. Section 1008 Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each Restricted Subsidiary and their respective rights (charter and statutory) and franchises; provided, however, that the foregoing shall not obligate the Company or any Restricted Subsidiary to preserve any such right or franchise if the Company or any Restricted Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of its business or the business of such Restricted Subsidiary and that the loss thereof is not disadvantageous in any material respect to any Holder. Section 1009 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1002 to 1008, inclusive with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series, by Act of such Holders, either shall waive such compliance in such instance or generally shall have waived compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. Section 1010 Company Statement as to Compliance; Notice of Certain Defaults. (1) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement (which need not be contained in or accompanied by an Officers' Certificate) signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company, stating that (a) a review of the activities of the Company during such year and of its performance under this Indenture has been made under his or her supervision, and (b) to the best of his or her knowledge, based on such review, (a) the Company has complied with all the conditions and covenants imposed on it under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition or covenant, specifying each such default known to him or her and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him or her and the nature and status thereof. (2) The Company shall deliver to the Trustee, within 10 days after the occurrence thereof, written notice of any Event of Default or any event which after notice or lapse of time or both would become an Event of Default pursuant to clause (5) of Section 501. 53 (3) The Trustee shall have no duty to monitor the Company's compliance with the covenants contained in this Article Nine to other than as specifically set forth in the this Section 1010. Section 1011 Calculation of Original Issue Discount. The Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE ELEVEN Redemption of Securities Section 1101 Applicability of Article. Redemption of Securities of any series at the option of the Company as permitted or required by the terms of such Securities shall be made in accordance with the terms of such Securities and (except as otherwise provided herein or pursuant hereto) this Article. Section 1102 Election to Redeem; Notice to Trustee. The election of the Company to optionally redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of (a) less than all of the Securities of any series or (b) all of the Securities of any series with the same issue date, interest rate or formula, Stated Maturity and other terms, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. Section 1103 Selection by Trustee of Securities to be Redeemed. If less than all of the Securities of any series with the same issue date, interest rate or formula, Stated Maturity and other terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Registered Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Registered Security of such series not redeemed to less than the minimum denomination for a Security of such series established herein or pursuant hereto. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal of such Securities which has been or is to be redeemed. Unless otherwise specified in or pursuant to this Indenture or the Securities of any series, if any Security selected for partial redemption is converted into or exchanged for Common Stock or other securities, cash or other property in part before termination of the conversion or exchange right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted or exchanged during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. 54 Section 1104 Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 106, not less than 30 nor more than 60 days prior to the Redemption Date, unless a shorter period is specified in the Securities to be redeemed, to the Holders of Securities to be redeemed. Failure to give notice by mailing in the manner herein provided to the Holder of any Registered Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other Securities or portion thereof. Any notice that is mailed to the Holder of any Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Security or portion thereof to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the place or places where such Securities, together (in the case of Bearer Securities) with all Coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and any accrued interest and Additional Amounts pertaining thereto, (7) that the redemption is for a sinking fund, if such is the case, (8) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all Coupons maturing subsequent to the date fixed for redemption or the amount of any such missing Coupon or Coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and any Registered Securities of such series are not to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on the Redemption Date pursuant to Section 305 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, (10) in the case of Securities of any series that are convertible or exchangeable into Common Stock or other securities, cash or other property, the conversion or exchange price or rate, the date or dates on which the right to convert or exchange the principal of the Securities of such series to be redeemed will commence or terminate and the place or places where such Securities may be surrendered for conversion or exchange, and (11) the CUSIP number or the Euroclear or the Cedelbank reference numbers of such Securities, if any (or any other numbers used by a Depository to identify such Securities). A notice of redemption published as contemplated by Section 106 need not identify particular Registered Securities to be redeemed. 55 Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 1105 Deposit of Redemption Price. At or prior to 10:00 a.m., New York City time, on any Redemption Date, the Company shall deposit, with respect to the Securities of any series called for redemption pursuant to Section 1104, with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the applicable Currency sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date, unless otherwise specified pursuant to Section 301 or in the Securities of such series) any accrued interest on and Additional Amounts with respect thereto, all such Securities or portions thereof which are to be redeemed on that date. Section 1106 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest and the Coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all Coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with any accrued interest and Additional Amounts to the Redemption Date; provided, however, that, except as otherwise provided in or pursuant to this Indenture or the Bearer Securities of such series, installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of Coupons for such interest (at an Office or Agency located outside the United States except as otherwise provided in Section 1002), and provided, further, that, except as otherwise specified in or pursuant to this Indenture or the Registered Securities of such series, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the Regular Record Dates therefor according to their terms and the provisions of Section 307. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant Coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing Coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that any interest or Additional Amounts represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such Security located outside of the United States except as otherwise provided in Section 1002. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium, until paid, shall bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 1107 Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part shall be surrendered at any Office or Agency for such Security (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities of the same series, containing identical terms and provisions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in global form is so surrendered, the Company shall execute, and the Trustee shall 56 authenticate and deliver to the U.S. Depository or other Depository for such Security in global form as shall be specified in the Company Order with respect thereto to the Trustee, without service charge, a new Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in global form so surrendered. ARTICLE TWELVE Sinking Funds Section 1201 Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Security of such series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of such series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series and this Indenture. Section 1202 Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series to be made pursuant to the terms of such Securities (1) deliver Outstanding Securities of such series (other than any of such Securities previously called for redemption or any of such Securities in respect of which cash shall have been released to the Company), together in the case of any Bearer Securities of such series with all unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section 1202, the principal amount of Securities of such series to be redeemed in order to satisfy the remaining sinking fund payment shall be less than $100,000, the Trustee need not call Securities of such series for redemption, except upon Company Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company. Section 1203 Redemption of Securities for Sinking Fund. Not less than 75 days prior to each sinking fund payment date for any series of Securities, the Company shall deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that series pursuant to Section 1202, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officers' Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 60 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in 57 Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Section 1106 and Section 1107. ARTICLE THIRTEEN Repayment at the Option of Holders Section 1301 Applicability of Article. Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with the terms of the Securities of such series. The repayment of any principal amount of Securities pursuant to such option of the Holder to require repayment of Securities before their Stated Maturity, for purposes of Section 309, shall not operate as a payment, redemption or satisfaction of the Indebtedness represented by such Securities unless and until the Company, at its option, shall deliver or surrender the same to the Trustee with a directive that such Securities be cancelled. Notwithstanding anything to the contrary contained in this Section 1301, in connection with any repayment of Securities, the Company may arrange for the purchase of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Holders of such Securities on or before the close of business on the repayment date an amount not less than the repayment price payable by the Company on repayment of such Securities, and the obligation of the Company to pay the repayment price of such Securities shall be satisfied and discharged to the extent such payment is so paid by such purchasers. ARTICLE FOURTEEN Securities in Foreign Currencies Section 1401 Applicability of Article. Whenever this Indenture provides for (i) any action by, or the determination of any of the rights of, Holders of Securities of any series in which not all of such Securities are denominated in the same Currency, or (ii) any distribution to Holders of Securities, in the absence of any provision to the contrary pursuant to this Indenture or the Securities of any particular series, any amount in respect of any Security denominated in a Foreign Currency shall be treated for any such action or distribution as that amount of Dollars that could be obtained for such amount on such reasonable basis of exchange and as of the record date with respect to Registered Securities of such series (if any) for such action, determination of rights or distribution (or, if there shall be no applicable record date, such other date reasonably proximate to the date of such action, determination of rights or distribution) as the Company may specify in a written notice to the Trustee or, in the absence of such written notice, as the Trustee may determine. ARTICLE FIFTEEN Meetings of Holders of Securities Section 1501 Purposes for Which Meetings May Be Called. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other Act provided by this Indenture to be made, given or taken by Holders of Securities of such series. Section 1502 Call, Notice and Place of Meetings. (1) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 1501, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or, if Securities of such series have been issued in whole or in part as Bearer Securities, in London or in such place outside the United States as the Trustee shall determine. Notice of every meeting of Holders of Securities of 58 any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (2) In case at any time the Company (by or pursuant to a Board Resolution) or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 1501, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of or made the first publication of the notice of such meeting within 21 days after receipt of such request (whichever shall be required pursuant to Section 106) or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, or, if Securities of such series have been issued in whole or in part as Bearer Securities, in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (1) of this Section. Section 1503 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 1504 Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for a meeting of Holders of Securities of such series; provided, however, that if any action is to be taken at such meeting with respect to a consent or waiver which this Indenture expressly provides may be given by the Holders of at least 66-2/3% in principal amount of the Outstanding Securities of a series, the Persons entitled to vote 66-2/3% in principal amount of the Outstanding Securities of such series shall constitute a quorum. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1502(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 902, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 902, any resolution with respect to any consent or waiver which this Indenture expressly provides may be given by the Holders of at least 66-2/3% in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly convened and at which a quorum is present as aforesaid only by the affirmative vote of the Holders of 66-2/3% in principal amount of the Outstanding Securities of that series; and provided, further, that, except as limited by the proviso to Section 902, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other Act which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of such series. 59 Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the Coupons appertaining thereto, whether or not such Holders were present or represented at the meeting. Section 1505 Determination of Voting Rights; Conduct and Adjournment of Meetings. (1) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of such series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 104 and the appointment of any proxy shall be proved in the manner specified in Section 104 or by having the signature of the Person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 104 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 104 or other proof. (2) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 1502(2), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (3) At any meeting, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (4) Any meeting of Holders of Securities of any series duly called pursuant to Section 1502 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. Section 1506 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the permanent secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the permanent secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 1502 and, if applicable, Section 1504. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. 60 * * * * * * * * * * This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. LIBERTY MEDIA CORPORATION By: /s/ Charles Y. Tanabe ----------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President THE BANK OF NEW YORK, as Trustee By /s/ Walter S. Gitlin ----------------------------------- Name: Walter S. Gitlin Title 61 EX-4.2 5 FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4.2 ----------- LIBERTY MEDIA CORPORATION AND THE BANK OF NEW YORK Trustee _____________________ FIRST SUPPLEMENTAL INDENTURE Dated as of July 7, 1999 _____________________ Supplementing the Trust Indenture Dated as of July 7, 1999 ____________________ $750,000,000 7-7/8% Senior Notes due 2009 $500,000,000 8-1/2% Senior Debentures due 2029 FIRST SUPPLEMENTAL INDENTURE, dated as of the 7th day of July, 1999, between LIBERTY MEDIA CORPORATION, a corporation existing under the laws of the State of Delaware (the "Company"), and The Bank of New York, a New York banking corporation, having its principal corporate trust office in The City of New York, New York, as trustee (the "Trustee"); WHEREAS, the Company has heretofore executed and delivered to the Trustee an Indenture dated as of July 7, 1999 (the "Original Indenture" and, together with this First Supplemental Indenture, the "Indenture") providing for the issuance by the Company from time to time of its senior debt securities to be issued in one or more series (in the Original Indenture and herein called the "Securities"); WHEREAS, the Company, in the exercise of the power and authority conferred upon and reserved to it under the provisions of the Original Indenture and pursuant to appropriate resolutions of the Board of Directors, has duly determined to make, execute and deliver to the Trustee this First Supplemental Indenture to the Original Indenture in order to establish the form and terms of, and to provide for the creation and issue of, two series of Securities designated as the "7-7/8% Senior Notes due 2009" and the "8-1/2% Senior Debentures due 2029" under the Original Indenture in the aggregate principal amounts of $750,000,000 and $500,000,000, respectively; WHEREAS, Section 901 of the Original Indenture provides, among other things, that the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, without the consent of any Holders, may enter into an indenture supplemental to the Original Indenture to establish the terms of Securities of any series as permitted by Sections 201 and 301 of the Original Indenture; and WHEREAS, all things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee or any Authenticating Agent and issued upon the terms and subject to the conditions hereinafter and in the Indenture set forth against payment therefor, the valid, binding and legal obligations of the Company and to make this First Supplemental Indenture a valid, binding and legal agreement of the Company, have been done; NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH that, in order to establish the terms of the two series of Securities designated as the "7-7/8% Senior Notes due 2009" and the "8-1/2% Senior Debentures due 2029," and for and in consideration of the premises and of the covenants contained in the Original Indenture and in this First Supplemental Indenture and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, it is mutually covenanted and agreed as follows: 2 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. Each capitalized term that is used herein and is defined in the Original Indenture shall have the meaning specified in the Original Indenture unless such term is otherwise defined herein. "Cedel" shall mean Cedelbank. "Comparable Treasury Issue" shall mean the United States Treasury security selected by the Independent Investment Banker as having a maturity comparable to the Remaining Life of the Notes or the Debentures, as the case may be, that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the Remaining Life of such securities. "Comparable Treasury Price" shall mean, with respect to any Redemption Date, (1) the average of five Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (2) if the Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the average of all such quotations. "Debentures" shall mean the Company's 8-1/2% Senior Debentures due 2029. "Depository" shall have the meaning assigned to it in the Original Indenture. "DTC" shall mean The Depository Trust Company. "Euroclear" shall mean the Euroclear System. "Independent Investment Banker" shall mean one of the Reference Treasury Dealers appointed by the Company. "Initial Purchasers" shall mean Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co. Inc. and TD Securities (USA) Inc. "Interest Payment Date" shall have the meaning assigned to it in Section 206. "Notes" shall mean the Company's 7-7/8% Senior Notes due 2009. "Permanent Regulation S Security" shall have the meaning assigned to it in Section 213(c). "Reference Treasury Dealer" shall mean each of Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. government securities dealer (a "Primary Treasury Dealer"), the Company shall substitute therefor another nationally recognized investment banking firm that is a Primary Treasury Dealer. "Reference Treasury Dealer Quotations" shall mean, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third Business Day preceding such Redemption Date. 3 "Regulation S" shall mean Regulation S under the Securities Act. "Remaining Scheduled Payments" shall mean, with respect to the Notes or the Debentures, as the case may be, the remaining scheduled payments of principal thereof and interest thereon that would be due after the related Redemption Date but for such redemption. "Restricted Certificated Security" shall have the meaning assigned to it in Section 213(d). "Restricted Period" shall have the meaning assigned to it in Section 207. "Rule 144A" shall mean Rule 144A under the Securities Act. "Rule 144A Security" shall have the meaning assigned to it in Section 213(b). "Securities" shall mean the Notes and the Debentures collectively. "Securities Act" shall mean the United States Securities Act of 1933, as amended. "Temporary Regulation S Security" shall have the meaning assigned to it in Section 213(c). "Treasury Rate" shall mean, with respect to any Redemption Date, the rate per annum equal to the semi-annual yield to maturity of the Comparable Treasury Issue, calculated on the third Business Day preceding such Redemption Date assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. Section 102. Section References. Each reference to a particular section set forth in this First Supplemental Indenture shall, unless the context otherwise requires, refer to this First Supplemental Indenture. ARTICLE TWO TITLE AND TERMS OF THE SECURITIES Section 201. Title of the Securities. The respective titles of the Securities of the two series established hereby are the "7-7/8% Senior Notes due 2009" and the "8-1/2% Senior Debentures due 2029". Section 202. Amount and Denominations. The aggregate principal amount of the Notes and Debentures which may be authenticated and delivered under the Indenture is limited to $750,000,000 and $500,000,000, respectively, except for Securities of each series authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the same series pursuant to Section 304, 305, 306, 904 or 1107 of the Original Indenture; provided, however, that the Notes and the Debentures may be reopened, without the consent of the Holders thereof, for issuance of additional Securities of each series. Section 203. Registered Securities. The certificates for the Notes and the Debentures shall be Registered Securities and shall be in substantially the form attached hereto as Exhibits A- 1, A-2, A-3 and A-4 and B-1, B-2, B-3 and B-4, respectively, and shall bear the legends as are inscribed thereon. 4 Section 204. Issuance and Pricing. The Securities of each series shall be issued and sold by the Company to the Initial Purchasers, parties to the Purchase Agreement dated June 30, 1999 with the Company, at a price equal to 99.754% of the principal amount thereof (in the case of the Notes) and 98.852% of the principal amount thereof (in the case of the Debentures); and the initial price to purchasers of the Securities from the Initial Purchasers shall be 99.404% of the principal amount thereof (in the case of the Notes), plus accrued interest, if any, from July 7, 1999, and 99.727% of the principal amount thereof (in the case of the Debentures), plus accrued interest, if any, from July 7, 1999. Section 205. Stated Maturity. The Stated Maturity of (i) the Notes on which the principal thereof is due and payable shall be July 15, 2009 and (ii) the Debentures on which the principal thereof is due and payable shall be July 15, 2029. Section 206. Interest. The principal of the Securities shall bear interest from July 7, 1999 or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semiannually on January 15 and July 15 of each year (each, an "Interest Payment Date"), commencing January 15, 2000, to the Persons in whose names the Securities (or one or more Predecessor Securities) are registered at the close of business on the January 1 or July 1 next preceding such Interest Payment Date. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue at the rate of 7-7/8% per annum and interest on the Debentures will accrue at the rate of 8-1/2% per annum, in each case until the principal thereof is paid or made available for payment. Section 207. Registration, Transfer and Exchange. The principal of and interest on the Securities of each series shall be payable and the Securities of each series may be surrendered or presented for payment, the Securities of each series may be surrendered for registration of transfer or exchange, and notices and demands to or upon the Company in respect of the Securities of each series and the Indenture may be served, at the office or agency of the Company maintained for such purposes in The City of New York, State of New York from time to time, and the Company hereby appoints the Trustee, acting through its office or agency in The City of New York designated from time to time for such purpose, as its agent for the foregoing purposes; provided, however, that at the option of the Company payment of interest on either series may be made by check mailed to the address of the Persons entitled thereto, as such addresses shall appear in the Security Register; and provided, further, that (subject to Section 1002 of the Indenture) the Company may at any time remove the Trustee as its office or agency in The City of New York designated for the foregoing purposes and may from time to time designate one or more other offices or agencies for the foregoing purposes and may from time to time rescind such designations. Notwithstanding the foregoing, a Holder of $10 million or more in aggregate principal amount of certificated Securities (whether or not of the same series) on a Regular Record Date shall be entitled to receive interest payments on the next succeeding Interest Payment Date, other than an Interest Payment Date that is also the date of Maturity, by wire transfer of immediately available funds if appropriate wire transfer instructions have been received in writing by the Trustee not less than 15 calendar days prior to the applicable Interest Payment Date. Any wire transfer instructions received by the Trustee will remain in effect until revoked by the Holder. Rule 144A Security or Restricted Certificated Security to Temporary Regulation S Security. Prior to the expiration of the "40-day restricted period" (within the meaning of Rule 903(c)(3) of Regulation S) (the "Restricted Period"), if a holder of a beneficial interest in a Rule 144A Security deposited with the Depository or a Holder of a Restricted Certificated Security wishes at any time to exchange all or a portion of its interest in such Rule 144A Security or to exchange all or a portion of its Restricted Certificated Security, as the case may be, for an interest in the Temporary Regulation S Security, or to transfer all or a portion of its interest in such Rule 144A Security or transfer all or a portion of its Restricted Certificated Security, as the case may be, to a Person who wishes to take delivery thereof in the form of an interest in such Temporary Regulation S Security, such holder or Holder may, subject to the rules and procedures of the Depository and to the requirements set forth below, exchange or cause the 5 exchange or transfer or cause the transfer of such interest or Restricted Certificated Security for an equivalent beneficial interest in such Temporary Regulation S Security: Rule 144A Security. Upon receipt by the Trustee, as transfer agent, at its office in The City of New York of (1) instructions given in accordance with the Depository's procedures from an agent member directing the Trustee to credit or cause to be credited a beneficial interest in the Temporary Regulation S Security in an amount equal to the beneficial interest in the Rule 144A Security to be exchanged or transferred, (2) a written order given in accordance with the Depository's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account and (3) a certificate substantially in the form of Exhibit C hereto given by the holder of such beneficial interest, the Trustee, as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to reduce or reflect on its records a reduction of the Rule 144A Security by the aggregate principal amount of the beneficial interest in such Rule 144A Security to be so exchanged or transferred and the Trustee, as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Temporary Regulation S Security by the aggregate principal amount of the beneficial interest in such Rule 144A Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) a beneficial interest in such Temporary Regulation S Security equal to the reduction in the principal amount of such Rule 144A Security. Restricted Certificated Security. Upon receipt by the Trustee, as transfer agent, at its office in The City of New York of (1) a certificate substantially in the form of Exhibit D hereto given by the Holder of a Restricted Certificated Security, (2) the Restricted Certificated Security to be exchanged or transferred duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder or his attorney duly authorized in writing providing for the transfer of the amount to be exchanged or transferred to the Depository, its nominee, or the custodian for the Depository, as the case may be, (3) instructions from the Holder of the Restricted Certificated Security directing the Trustee to credit or cause to be credited a beneficial interest in the Temporary Regulation S Security in an amount equal to the amount of the Restricted Certificated Security to be exchanged or transferred, and (4) a written order given in accordance with the Depository's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, the Trustee, as transfer agent, shall cancel the Restricted Certificated Security and instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to increase or reflect on its records an increase of the principal amount of such Temporary Regulation S Security by the aggregate principal amount of the Restricted Certificated Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) a beneficial interest in such Temporary Regulation S Security equal to the reduction in the principal amount of such Restricted Certificated Security. If any Restricted Certificated Security is so exchanged or transferred in part but not in whole, then the Company shall execute, and the Trustee shall authenticate and deliver, a new Restricted Certificated Security registered in the name of the Holder of the Restricted Certificated Security so exchanged or transferred. Rule 144A Security or Restricted Certificated Security to Permanent Regulation S Security. After the expiration of the Restricted Period, if a holder of a beneficial interest in the Rule 144A Security deposited with the Depository or a Holder of a Restricted Certificated Security wishes at any time to exchange all or a portion of its interest in such Rule 144A Security or all of a portion of its Restricted Certificated Security, as the case may be, for an interest in the Permanent Regulation S Security, or to transfer all or a portion of its interest in such Rule 144A Security or to transfer all or a portion of its Restricted Certificated Security, as the case may be, to a Person who wishes to take delivery thereof in the form of an interest in such Permanent Regulation S Security, such holder or Holder may, subject to the rules and procedures of the Depository and to the requirements set forth below, exchange or cause the exchange or transfer or cause the transfer of such interest or Restricted Certificated Security for an equivalent beneficial interest in such Permanent Regulation S Security: 6 Rule 144A Security. Upon receipt by the Trustee, as transfer agent, at its office in The City of New York of (1) instructions given in accordance with the Depository's procedures from an agent member directing the Trustee to credit or cause to be credited a beneficial interest in the Permanent Regulation S Security in an amount equal to the beneficial interest in the Rule 144A Security to be exchanged or transferred, (2) a written order given in accordance with the Depository's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and (3) a certificate substantially in the form of Exhibit E hereto given by the holder of such beneficial interest, the Trustee, as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to reduce or reflect on its records a reduction of the Rule 144A Security by the aggregate principal amount of the beneficial interest in such Rule 144A Security to be so exchanged or transferred and the Trustee, as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Permanent Regulation S Security by the aggregate principal amount of the beneficial interest in such Rule 144A Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) a beneficial interest in such Permanent Regulation S Security equal to the reduction in the principal amount of such Rule 144A Security. Restricted Certificated Security. Upon receipt by the Trustee, as transfer agent, at its office in The City of New York of (1) a certificate substantially in the form of Exhibit F hereto given by the Holder of a Restricted Certificated Security, (2) the Restricted Certificated Security to be exchanged or transferred duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder or his attorney duly authorized in writing providing for the transfer of the amount to be exchanged or transferred to the Depository, its nominee, or the custodian for the Depository, as the case may be, (3) instructions from the Holder of the Restricted Certificated Security directing the Trustee to credit or cause to be credited a beneficial interest in the Permanent Regulation S Security in an amount equal to the amount of the Restricted Certificated Security to be exchanged or transferred and (4) a written order given in accordance with the Depository's procedures containing information regarding the Euroclear or Cedel account to be credited with such increase and the name of such account, the Trustee, as transfer agent, shall cancel the Restricted Certificated Security and instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to increase or reflect on its records an increase of the principal amount of such Permanent Regulation S Security by the aggregate principal amount of the Restricted Certificated Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be the agent member of Euroclear or Cedel, or both, as the case may be) a beneficial interest in such Permanent Regulation S Security equal to the reduction in the principal amount of such Restricted Certificated Security. If any Restricted Certificated Security is so exchanged or transferred in part but not in whole, then the Company shall execute, and the Trustee shall authenticate and deliver, a new Restricted Certificated Security registered in the name of the Holder of the Restricted Certificated Security so exchanged or transferred. Regulation S Security to Rule 144A Security. If a holder of a beneficial interest in the Temporary Regulation S Security or the Permanent Regulation S Security which is deposited with the Depository wishes at any time to exchange its interest for an interest in the Rule 144A Security, or to transfer its interest in such Temporary Regulation S Security or Permanent Regulation S Security to a Person who wishes to take delivery thereof in the form of an interest in such Rule 144A Security, such holder may, subject to the rules and procedures of Euroclear or Cedel and the Depository, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in such Rule 144A Security. Upon receipt by the Trustee, as transfer agent, at its offices in The City of New York of (1) instructions from Euroclear or Cedel or the Depository, as the case may be, directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Rule 144A Security in an amount equal to the beneficial interest in the Temporary Regulation S Security or the Permanent Regulation S Security to be exchanged or transferred, such instructions to contain information regarding the agent member's account with the Depository to be credited with such increase, and (2) with respect to an exchange or transfer of an interest in the Temporary Regulation S Security (but not the Permanent Regulation S Security) for an interest in the Rule 144A Security, a certificate substantially in the form of Exhibit G hereto given by the holder of such beneficial interest, the Trustee, 7 as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to reduce or reflect on its records a reduction of the Temporary Regulation S Security or such Permanent Regulation S Security, as the case may be, by the aggregate principal amount of the beneficial interest in such Temporary Regulation S Security or such Permanent Regulation S Security to be exchanged or transferred, and the Trustee, as transfer agent, shall instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Rule 144A Security by the aggregate principal amount of the beneficial interest in such Permanent Regulation S Security or such Temporary Regulation S Security, as the case may be, to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in such Rule 144A Security equal to the reduction in the principal amount of such Permanent Regulation S Security or such Temporary Regulation S Security, as the case may be. Temporary Regulation S Security to Permanent Regulation S Security. After the expiration of the Restricted Period, interests in a Temporary Regulation S Security as to which the Trustee has received from Euroclear or Cedel, as the case may be, a certificate substantially in the form of Exhibit H hereto to the effect that Euroclear or Cedel, as applicable, has received a certificate substantially in the form of Exhibit I hereto from the holder of a beneficial interest in such Temporary Regulation S Security, will be exchanged, on and after the Restricted Period, for interests in the Permanent Regulation S Security. The Trustee shall effect such exchange by delivering to the Depository for credit to the respective accounts of the holders of Securities represented by a beneficial interest in the Temporary Regulation S Global Security, a duly executed and authenticated Permanent Regulation S Security, representing the principal amount of interests in the Temporary Regulation S Security initially exchanged for interests in the Permanent Regulation S Security. The delivery to the Trustee by Euroclear or Cedel of the certificate or certificates referred to above may be relied upon by the Company and the Trustee as conclusive evidence that the certificate or certificates referred to therein has or have been delivered to Euroclear or Cedel pursuant to the terms of this First Supplemental Indenture and the Temporary Regulation S Security. Upon any exchange of interests in a Temporary Regulation S Security for interests in a Permanent Regulation S Security, the Trustee shall endorse the Temporary Regulation S Security to reflect the reduction in the principal amount represented thereby by the amount so exchanged and shall endorse the Permanent Regulation S Security to reflect the corresponding increase in the amount represented thereby. Until so exchanged in full and except as provided therein, the Temporary Regulation S Security, and the Securities evidenced thereby, shall in all respects be entitled to the same benefits under the Indenture as the Permanent Regulation S Security, the Rule 144A Security and the Restricted Certificated Securities authenticated and delivered hereunder. Restricted Certificated Security to Rule 144A Security. If a holder of a Restricted Certificated Security wishes at any time to exchange all or any portion of such Restricted Certificated Security for an interest in the Rule 144A Security, or to transfer all or any portion of such Restricted Certificated Security to a Person who wishes to take delivery thereof in the form of an interest in the Rule 144A Security, such Holder may, subject to the rules and procedures of the Depository and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of the principal amount of the Restricted Certificated Security to be so exchanged or transferred. Upon receipt by the Trustee, as transfer agent, at its offices in The City of New York of (1) a certificate substantially in the form of Exhibit J hereto given by the Holder of such Restricted Certificated Security, (2) the Restricted Certificated Security to be exchanged or transferred duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder or his attorney duly authorized in writing providing for the transfer of the amount to be exchanged or transferred to the Depository, its nominee, or the custodian for the Depository, as the case may be, (3) instructions from the Holder of the Restricted Certificated Security directing the Trustee to credit or cause to be credited a beneficial interest in the Rule 144A Security in an amount equal to the amount of the Restricted Certificated Security to be exchanged or transferred, and (4) a written order given in accordance with the Depository's procedures containing information regarding the member's account to be credited with such increase and the name of such account, the Trustee, as transfer agent, shall cancel the Restricted Certificated Security and instruct the Depository, its nominee, or the custodian for the Depository, as the case may be, to increase or reflect on its records an increase of the principal amount of such Rule 144A Security by the aggregate principal amount of the Restricted Certificated Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the Person specified in such instructions (who shall be an agent member of the Depository) a beneficial interest in such Rule 144A Security equal to the principal amount of such Restricted Certificated Security to be exchanged or transferred. If any Restricted Certificated Security is so exchanged or transferred in part but not in whole, then the Company shall 8 execute, and the Trustee shall authenticate and deliver, a new Restricted Certificated Security registered in the name of the Holder of the Restricted Certificated Security so exchanged or transferred. Restricted Certificated Security to Restricted Certificated Security. If a Holder of a Restricted Certificated Security wishes at any time to transfer all or any portion of such Restricted Certificated Security to a person who wishes to take delivery thereof in the form of a Restricted Certificated Security, such Holder may, subject to the requirements set forth in the following sentence, transfer or cause the transfer of the principal amount of the Restricted Certificated Security to be so transferred. Upon receipt by the Trustee, as transfer agent, at its offices in The City of New York of (1) a certificate substantially in the form of Exhibit K hereto given by the Holder of such Restricted Certificated Security, (2) the Restricted Certificated Security to be transferred duly endorsed, or accompanied by a written instrument of transfer for the amount to be transferred in form satisfactory to the Company and the Trustee duly executed by, the Holder or his attorney duly authorized in writing, and (3) if the transfer is other than (i) to the Company or to an Initial Purchaser or by, through or in a transaction approved by an Initial Purchaser, (ii) to a Person who the transferor thereof reasonably believes is a Qualified Institutional Buyer (as that term is defined in Rule 144A) in a transaction meeting the requirements of Rule 144A, (iii) in an offshore transaction in accordance with Rule 903 or Rule 904 (as applicable) of Regulation S, or (iv) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if available), a Bond Power from the transferor and the transferee in substantially the form of Exhibit L hereto duly executed, and any other additional documentation and evidence (including but not limited to an opinion of counsel) as the Company may, in its absolute discretion, require to evidence that the transfer is being made in compliance with an applicable exemption from registration, the Trustee, as Security Registrar, shall cancel the Restricted Certificated Security, and the Company shall execute and the Trustee shall authenticate and deliver, a new Restricted Certificated Security in a principal amount equal to the principal amount of the Restricted Certificatd Security to be transferred, registered in the name of the transferee. If any Restricted Certificated Security is so transferred in part but not in whole, then the Company shall execute and the Trustee shall authenticate and deliver, a new Restricted Certificated Security registered in the name of the transferor. Section 208. Redemption of the Securities. The Notes and the Debentures will be redeemable at the option of the Company, in whole or in part at any time or from time to time, on at least 30 but not more than 60 days prior notice, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Securities of such series to be redeemed or (ii) the sum, as determined by the Independent Investment Banker, of the present values of the Remaining Scheduled Payments of the securities to be redeemed, discounted, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points in the case of the Notes and 35 basis points in the case of the Debentures. In the case of each of clause (i) and (ii), accrued interest will be payable to the redemption date. Section 209. Denominations. The Securities shall be issued in denominations of $1,000 and integral multiples in excess thereof. Section 210. Currency. The interest, premium, if any, and principal on the Securities shall be payable only in Dollars. Section 211. Applicability of Certain Indenture Provisions. Sections 402 (including, without limitation, Sections 402(2) and 402(3)), 403, 1005, 1006 and 1007 of the Indenture shall apply to the Securities. Section 212. Security Registrar and Paying Agent. The Trustee shall be Security Registrar and the initial Paying Agent and initial transfer agent for the Securities of each series (subject to the Company's right (subject to Section 1002 of the Indenture) to remove the Trustee as such Paying Agent and/or transfer agent with respect to each series and, from time to time, to designate 9 one or more co-registrars and one or more other Paying Agents and transfer agents and to rescind from time to time any such designations), and The City of New York is designated as a Place of Payment for the Securities of each series. Section 213. Global Securities and Restricted Certificated Securities. (a) Each series of Securities may be issued in whole or in part in the form of one or more permanent certificated Securities or temporary or permanent global Securities. The initial Depository for the global Securities of each series shall be DTC, and the depositary arrangements shall be those employed by whoever shall be the Depositary with respect to the Securities of each series from time to time. (b) Rule 144A Securities. Notes and Debentures initially offered and sold -------------------- in reliance on Rule 144A to Qualified Institutional Buyers (as such term is defined in Rule 144A) shall be issued in the form of permanent Global Securities in definitive fully registered form without interest coupons, substantially in the form of Exhibit A-1 in the case of the Notes and B-1 in the case of the Debentures (each, a "Rule 144A Security"). Each Rule 144A Security shall be deposited on behalf of the purchasers of the Securities represented thereby with the custodian for the Depositary, and registered in the name of a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in the Original Indenture. The aggregate principal amount of a Rule 144A Security may from time to time be increased or decreased by adjustments made on the records of the custodian for the Depositary or the Depositary or its nominee, as the case may be. (c) Temporary Regulation S Securities; Permanent Regulation S Securities. -------------------------------------------------------------------- Notes and Debentures initially offered and sold in reliance on Regulation S shall be issued in the form of temporary Global Securities in definitive fully registered form without interest coupons, substantially in the form of Exhibits A-2 in the case of the Notes and B-2 hereto in the case of the Debentures (each, a "Temporary Regulation S Security"). Each Temporary Regulation S Security shall be deposited on behalf of the purchasers of the Securities represented thereby with the custodian for the Depositary, and registered in the name of a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided herein, for credit to their respective accounts (or to such other accounts as they may direct) at Euroclear or Cedel. After the expiration of the Restricted Period, each Temporary Regulation S Security will be exchanged for a permanent Global Security, substantially in the form of Exhibits A-3 in the case of the Notes and B-3 in the case of the Debentures (each, a "Permanent Regulation S Security"). Until the expiration of the Restricted Period, interests in a Temporary Regulation S Security may only be held by agent members of Euroclear and Cedel. During the Restricted Period, interests in a Temporary Regulation S Security may be exchanged for interests in the applicable Rule 144A Security. The aggregate principal amount of a Temporary Regulation S Security and a Permanent Regulation S Security may from time to time be increased or decreased by adjustments made on the records of the custodian for the Depositary or the Depositary or its nominee, as the case may be, as provided herein. The provisions of the "Operating Procedures of the Euroclear System" and the "Terms and Conditions Governing Use of Euroclear" and the "Management Regulations" and "Instructions to Participants" of Cedel, respectively, shall be applicable to any Global Security insofar as interests in such Global Security are held by the agent members of Euroclear or Cedel. Account holders or participants in Euroclear and Cedel shall have no rights under the Indenture with respect to such Global Security, and the Depositary or its nominee may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between DTC and its agent members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (d) Restricted Certificated Securities. Notes and Debentures initially ---------------------------------- offered and sold to institutional investors that are "accredited investors" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act shall be issued in the form of permanent certificated Securities in definitive fully registered form without interest coupons, substantially in the form of Exhibits A-4 in the case of the Notes and B-4 in the case of the Debentures (each a "Restricted Certificated Security"). 10 Section 214. Payments on Temporary Regulation S Security. Prior to expiration of the Restricted Period, payments (if any) on the Temporary Regulation S Securities will only be paid to the Holder thereof to the extent that there is presented by Cedel or Euroclear to the Trustee a certificate, substantially in the form set out in Exhibit F hereto, to the effect that it has received from or in respect of a beneficial owner of an interest in such Temporary Regulation S Securities (as shown by its records) a certificate substantially in the form of Exhibit G hereto. After the Restricted Period, the Holders of Temporary Regulation S Securities will not be entitled to receive any payment thereon. Section 215. Sinking Fund. Neither the Notes nor the Debentures shall be subject to any sinking fund or similar provision and shall not be redeemable at the option of the holder thereof. Section 216. Conversion. Neither the Notes nor the Debentures shall be convertible into Common Stock and shall not be exchangeable for any other securities. ARTICLE THREE MISCELLANEOUS PROVISIONS The Trustee makes no undertaking or representations in respect of, and shall not be responsible in any manner whatsoever for and in respect of, the validity or sufficiency of this First Supplemental Indenture or the proper authorization or the due execution hereof by the Company or for or in respect of the recitals and statements contained herein, all of which recitals and statements are made solely by the Company. Except as expressly amended hereby, the Original Indenture shall continue in full force and effect in accordance with the provisions thereof and the Original Indenture is in all respects hereby ratified and confirmed. This First Supplemental Indenture and all its provisions shall be deemed a part of the Original Indenture in the manner and to the extent herein and therein provided. This First Supplemental Indenture shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflicts of laws principles thereof. This First Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 11 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. LIBERTY MEDIA CORPORATION By: /s/ Charles Y. Tanabe ------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President THE BANK OF NEW YORK, as Trustee By: /s/ Walter Gitlin -------------------------------------- Name: Walter Gitlin Title: 12 EX-4.3 6 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.3 ----------- _____________________ Registration Rights Agreement Dated As of July 7, 1999 among Liberty Media Corporation and Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co. Inc. and TD Securities (USA) Inc. _____________________ REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made and entered into this 7th day of July, 1999, among Liberty Media Corporation, a Delaware corporation (the "Company"), and Lehman Brothers Inc. ("Lehman Brothers"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co., Inc. and TD Securities (USA) Inc. (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated June 30, 1999, among the Company and the Initial Purchasers (the "Purchase Agreement"), which provides for the sale by the Company to the Initial Purchasers of an aggregate of $750,000,000 million principal amount of the Company's 7-7/8% Senior Notes due 2009 (the "Notes") and $500,000,000 principal amount of the Company's 8-1/2% Senior Debentures due 2029 (the "Debentures" and, together with the Notes, the "Securities"). In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. ----------- As used in this Agreement, the following capitalized defined terms shall have the following meanings: "1933 Act" shall mean the Securities Act of 1933, as amended from time to -------- time. "1934 Act" shall mean the Securities Exchange Act of l934, as amended from -------- time to time. "Business Day" shall mean a day that is not a Saturday, a Sunday, or a day ------------ on which banking institutions in New York, New York or Wilmington, Delaware are authorized or required to be closed. "Closing Date" shall mean the Closing Time as defined in the Purchase ------------ Agreement. "Company" shall have the meaning set forth in the preamble and shall also ------- include the Company's successors. "Depositary" shall mean The Depository Trust Company, or any other ---------- depositary appointed by the Company, provided, however, that such depositary must have an address in the Borough of Manhattan, in The City of New York. "Exchange Offer" shall mean the exchange offer by the Company of Exchange -------------- Securities for Registrable Securities pursuant to Section 2.1 hereof. "Exchange Offer Registration" shall mean a registration under the 1933 Act --------------------------- effected pursuant to Section 2.1 hereof. "Exchange Offer Registration Statement" shall mean an exchange offer ------------------------------------- registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the Prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "Exchange Period" shall have the meaning set forth in Section 2.1 hereof. --------------- "Exchange Securities" shall mean the 7-7/8% Senior Notes due 2009, Series B ------------------- and the 8-1/2% Senior Debentures due 2029, Series B issued by the Company under the Indenture containing terms identical to the Securities in all material respects (except for references to certain interest rate provisions, restrictions on transfers and restrictive legends), to be offered to Holders of Securities in exchange for Registrable Securities pursuant to the Exchange Offer. "Holder" shall mean an Initial Purchaser, for so long as it owns any ------ Registrable Securities, and each of its successors, assigns and direct and indirect transferees who become registered owners of Registrable Securities under the Indenture and each Participating Broker-Dealer that holds Exchange Securities for so long as such Participating Broker-Dealer is required to deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities. "Indenture" shall mean the Indenture relating to the Securities, dated as --------- of July 7, 1999, between the Company and The Bank of New York, as trustee, as supplemented by the First Supplemental Indenture, dated as of July 7, 1999, between the Company and The Bank of New York, as trustee, as the same may be amended, supplemented, waived or otherwise modified from time to time in accordance with the terms thereof. "Initial Purchaser" or "Initial Purchasers" shall have the meaning set ----------------- ------------------ forth in the preamble. "Majority Holders" shall mean the Holders of a majority of the aggregate ---------------- principal amount of Outstanding (as defined in the Indenture) Registrable Securities; provided that whenever the consent or approval of Holders of a -------- specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company and other obligors on the Securities or any Affiliate (as defined in the Indenture) of the Company shall be disregarded in determining whether such consent or approval was given by the Holders of such required percentage amount. "Participating Broker-Dealer" shall mean any of Lehman Brothers Inc., --------------------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co., Inc., TD Securities (USA) Inc. and any other broker-dealer which makes a market in the Securities and exchanges Registrable Securities in the Exchange Offer for Exchange Securities. "Person" shall mean an individual, partnership (general or limited), ------ corporation, limited liability company, trust or unincorporated organization, or a government or agency or political subdivision thereof. "Private Exchange" shall have the meaning set forth in Section 2.1 hereof. ---------------- "Private Exchange Securities" shall have the meaning set forth in Section --------------------------- 2.1 hereof. "Prospectus" shall mean the prospectus included in a Registration ---------- Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including any such prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments and supplements to a prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein. "Purchase Agreement" shall have the meaning set forth in the preamble. ------------------ "Registrable Securities" shall mean the Securities and, if issued, the ---------------------- Private Exchange Securities; provided, however, that Securities and, if issued, -------- ------- the Private Exchange Securities, shall cease to be Registrable Securities when (i) a Registration Statement with respect to such Securities shall have been declared effective under the 1933 Act and such Securities shall have been disposed of pursuant to such Registration Statement, (ii) such Securities have been sold to the public pursuant to Rule l44 (or any similar provision then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities shall have ceased to be outstanding or (iv) the Exchange Offer is consummated (except in the case of Securities purchased from the Company and continued to be held by the Initial Purchasers). "Registration Expenses" shall mean any and all expenses incident to --------------------- performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC, stock exchange or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of 2 any "qualified independent underwriter" (and its counsel) that is required to be retained by any holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws and compliance with the rules of the NASD (including reasonable fees and disbursements of counsel for any underwriters or Holders in connection with blue sky qualification of any of the Exchange Securities or Registrable Securities and any filings with the NASD), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (v) all rating agency fees, (vi) the fees and disbursements of counsel for the Company and of the independent public accountants of the Company, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, (vii) the fees and expenses of the Trustee, and any escrow agent or custodian, (viii) the reasonable expenses of the Initial Purchasers in connection with the Exchange Offer, including the reasonable fees and expenses of counsel to the Initial Purchasers in connection therewith, (ix) the reasonable fees and disbursements of Brown & Wood LLP, counsel representing the Holders of Registrable Securities and (x) the reasonable fees and disbursements of the underwriters customarily required to be paid by issuers or sellers of securities and the fees and expenses of any special experts retained by the Company in connection with any Registration Statement, but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder. "Registration Statement" shall mean any registration statement of the ---------------------- Company which covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "SAS 72" shall have the meaning set forth in Section 3(f)(B). ------ "SEC" shall mean the Securities and Exchange Commission or any successor --- agency or government body performing the functions currently performed by the United States Securities and Exchange Commission. "Shelf Registrable Securities" shall have the meaning set forth in Section ---------------------------- 2.5. "Shelf Registration" shall mean a registration effected pursuant to Section ------------------ 2.2 hereof. "Shelf Registration Statement" shall mean a "shelf" registration statement ---------------------------- of the Company pursuant to the provisions of Section 2.2 of this Agreement which covers all of the Registrable Securities or all of the Private Exchange Securities on an appropriate form under Rule 415 under the 1933 Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Special Counsel" shall have the meaning set forth in Section 3(g)(i). --------------- "TIA" shall have the meaning set forth in Section 2.1. --- "Trustee" shall mean the trustee with respect to the Securities under the ------- Indenture. 2. Registration Under the 1933 Act. ------------------------------- 2.1 Exchange Offer. The Company shall, for the benefit of the Holders, at -------------- the Company's cost, (A) prepare and, as soon as practicable but not later than 90 days following the Closing Date, file with the SEC an Exchange Offer Registration Statement on an appropriate form under the 1933 Act with respect to a proposed Exchange Offer and the issuance and delivery to the Holders, in exchange for the Registrable Securities (other than Private Exchange Securities), of a like principal amount of Exchange Securities, (B) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the 1933 Act within 180 days of the 3 Closing Date, (C) use its best efforts to keep the Exchange Offer Registration Statement effective until the closing of the Exchange Offer and (D) use its best efforts to cause the Exchange Offer to be consummated not later than 210 days following the Closing Date. The Exchange Securities will be issued under the Indenture. Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Exchange Offer, it being the objective of such Exchange Offer to enable each Holder eligible and electing to exchange Registrable Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable Securities acquired directly from the Company for its own account, (c) acquired the Exchange Securities in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any Person to participate in the Exchange Offer for the purpose of distributing the Exchange Securities) to transfer such Exchange Securities from and after their receipt without any limitations or restrictions under the 1933 Act and under state securities or blue sky laws. In connection with the Exchange Offer, the Company shall: (a) mail as promptly as practicable to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Exchange Offer open for acceptance for a period of not less than 20 Business Days after the date notice thereof is mailed to the Holders (or longer if required by applicable law) (such period referred to herein as the "Exchange Period"); (c) utilize the services of the Depositary for the Exchange Offer; (d) permit Holders to withdraw tendered Registrable Securities at any time prior to 12:00 midnight (Eastern Time), on the last Business Day of the Exchange Period, by sending to the institution specified in the notice, a telegram, telex, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange, and a statement that such Holder is withdrawing such Holder's election to have such Securities exchanged; (e) notify each Holder that any Registrable Security not tendered will remain outstanding and continue to accrue interest, but will not retain any rights under this Agreement (except in the case of the Initial Purchasers and Participating Broker-Dealers as provided herein); and (f) otherwise comply in all respects with all applicable laws relating to the Exchange Offer. If, prior to consummation of the Exchange Offer, the Initial Purchasers hold any Securities acquired by them and having the status of an unsold allotment in the initial distribution, the Company upon the request of any Initial Purchaser shall, simultaneously with the delivery of the Exchange Securities in the Exchange Offer, issue and deliver to such Initial Purchaser in exchange (the "Private Exchange") for the Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company on a senior basis, that are identical (except that such securities shall bear appropriate transfer restrictions) to the Exchange Securities (the "Private Exchange Securities"). The Exchange Securities and the Private Exchange Securities shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA, or is exempt from such qualification and shall provide that the Exchange Securities shall not be subject to the transfer restrictions set forth in the Indenture but that the Private Exchange Securities shall be subject to such transfer restrictions. The Indenture or such indenture shall provide that the Exchange Securities, the Private Exchange Securities and the Securities shall vote and consent together on all matters as one class and that none of the Exchange Securities, the Private Exchange Securities or the Securities will have the right to vote or consent as a separate class on any matter. The Private Exchange Securities shall be of the same series as the Exchange Securities and the Company shall use all commercially reasonable efforts to have the Private Exchange Securities bear the same CUSIP number as the Exchange Securities. The Company shall not have any liability under this Agreement 4 solely as a result of such Private Exchange Securities not bearing the same CUSIP number as the Exchange Securities. As soon as practicable after the close of the Exchange Offer and/or the Private Exchange, as the case may be, the Company shall: (i) accept for exchange all Registrable Securities duly tendered and not validly withdrawn pursuant to the Exchange Offer in accordance with the terms of the Exchange Offer Registration Statement and the letter of transmittal which shall be an exhibit thereto; (ii) accept for exchange all Securities properly tendered and not validly withdrawn pursuant to the Private Exchange; (iii) deliver to the Trustee for cancellation all Registrable Securities so accepted for exchange; and (iv) cause the Trustee promptly to authenticate and deliver Exchange Securities or Private Exchange Securities, as the case may be, to each Holder of Registrable Securities so accepted for exchange in a principal amount equal to the principal amount of the Registrable Securities of such Holder so accepted for exchange. Interest on each Exchange Security and Private Exchange Security will accrue from the last date on which interest was paid on the Registrable Securities surrendered in exchange therefor or, if no interest has been paid on the Registrable Securities, from the date of original issuance. The Exchange Offer and the Private Exchange shall not be subject to any conditions, other than (i) that the Exchange Offer or the Private Exchange, or the making of any exchange by a Holder, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) the valid tendering of Registrable Securities in accordance with the Exchange Offer and the Private Exchange, (iii) that each Holder of Registrable Securities exchanged in the Exchange Offer shall have represented that all Exchange Securities to be received by it shall be acquired in the ordinary course of its business and that at the time of the consummation of the Exchange Offer it shall have no arrangement or understanding with any person to participate in the distribution (within the meaning of the 1933 Act) of the Exchange Securities and shall have made such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to render the use of Form S-4 or other appropriate form under the 1933 Act available and (iv) that no action or proceeding shall have been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer or the Private Exchange which, in the Company's judgment, would reasonably be expected to impair the ability of the Company to proceed with the Exchange Offer or the Private Exchange. The Company shall inform the Initial Purchasers of the names and addresses of the Holders to whom the Exchange Offer is made, and the Initial Purchasers shall have the right to contact such Holders and otherwise facilitate the tender of Registrable Securities in the Exchange Offer. Upon consummation of the Exchange Offer in accordance with this Agreement, the Company shall have no further obligation to register the Registrable Securities pursuant to Section 2.2 of this Agreement. 2.2 Shelf Registration. (i) If, because of any changes in law, SEC rules ------------------ or regulations or applicable interpretations thereof by the staff of the SEC, the Company determines after consultation with its outside counsel that it is not permitted to effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason (A) the Exchange Offer Registration Statement is not declared effective within 180 days following the original issue of the Registrable Securities or (B) the Exchange Offer is not consummated within 210 days after the original issue of the Registrable Securities, (iii) upon the request of any of the Initial Purchasers holding Private Exchange Securities or (iv) upon notice of any Holder given to the Company within 30 days after the commencement of the Exchange Offer that (A) due to a change in law or policy it is not entitled to participate in the Exchange Offer, (B) due to a change in law or policy it may not resell the Exchange Securities acquired by it in the Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (D) it is a broker- dealer and owns Registrable acquired directly from the Company or an affiliate of the Company, then in case of each of clauses (i) through (iv) the Company shall, at its cost: 5 (a) As promptly as practicable, file with the SEC, and thereafter shall use its reasonable best efforts to cause to be declared effective as promptly as practicable but no later than 210 days after the original issue of the Registrable Securities, a Shelf Registration Statement relating to the offer and sale of the Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Majority Holders participating in the Shelf Registration and set forth in such Shelf Registration Statement. (b) Use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of two years from the original issue of the Registrable Securities, or for such shorter period that will terminate when all Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or cease to be outstanding or otherwise to be Registrable Securities (the "Effectiveness Period"); provided, however, that the Effectiveness Period in respect of the Shelf Registration Statement shall be extended up to a maximum of 90 days if necessary to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the 1933 Act and as otherwise provided herein. (c) Notwithstanding any other provisions hereof, use its reasonable best efforts to ensure that (i) any Shelf Registration Statement and any amendment thereto and any Prospectus forming part thereof and any supplement thereto complies in all material respects with the 1933 Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Shelf Registration Statement, and any supplement to such Prospectus (as amended or supplemented from time to time), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading. The Company shall not permit any securities other than Registrable Securities to be included in the Shelf Registration Statement. The Company further agrees, if necessary, to supplement or amend the Shelf Registration Statement, as required by Section 3(b) below, and to furnish to the Holders of Registrable Securities copies of any such supplement or amendment promptly as reasonably practicable after its being used or filed with the SEC. 2.3 Expenses. The Company shall pay all Registration Expenses in -------- connection with the registration pursuant to Section 2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to the Shelf Registration Statement. 2.4 Effectiveness. (a) The Company will be deemed not to have used its ------------- reasonable best efforts to cause the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, to become, or to remain, effective during the requisite period if the Company voluntarily takes any action that would, or omits to take any action which omission would, result in any such Registration Statement not being declared effective or in the Holders of Registrable Securities covered thereby not being able to exchange or offer and sell such Registrable Securities during that period as and to the extent contemplated hereby, unless (i) such action is required by applicable law, or (ii) such action is taken by the Company in good faith and for valid business reasons (not including avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 3(k) hereof, if applicable. (b) An Exchange Offer Registration Statement pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of Registrable Securities pursuant to an Exchange Offer Registration Statement or a Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have become effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. 6 2.5 Interest. The Indenture executed in connection with the Securities -------- will provide that in the event that either (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 90th calendar day following the date of original issue of the Securities, (b) the Exchange Offer Registration Statement has not been declared effective on or prior to the 180th calendar day following the date of original issue of the Securities or (c) the Exchange Offer is not consummated or, if required, a Shelf Registration Statement is not declared effective, in either case, on or prior to the 210th calendar day following the date of original issue of the Securities (each such event referred to in clauses (a) through (c) above, a "Registration Default"), the interest rate borne by the Securities shall be increased ("Additional Interest") by one-quarter of one percent (0.25%) per annum upon the occurrence of each Registration Default, which rate will increase by one quarter of one percent at the beginning of each 90-day period (or portion thereof) that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed one percent (1%) per annum. Immediately following the cure of a Registration Default, the accrual of Additional Interest with respect to that particular Registration Default will cease. Immediately following the cure of all Registration Defaults or the date on which the Exchange Securities are saleable pursuant to Rule 144(k) under the 1933 Act or any successor provision, the accrual of Additional Interest will cease and the interest rate will revert to the original rate. If the Shelf Registration Statement is declared effective but becomes unusable by the Holders of Registrable Securities covered by such Shelf Registration Statement ("Shelf Registrable Securities") for any reason, and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days in the aggregate, then the interest rate borne by the Shelf Registrable Securities will be increased by 0.25% per annum of the principal amount of the Securities for the first 90-day period (or portion thereof) beginning on the 31st such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum of the principal amount of the Securities at the beginning of each subsequent 90-day period, provided that the maximum aggregate increase in the interest rate as a result of a Shelf Registration Statement being unusable (inclusive of any interest that accrues on such Shelf Registrable Securities pursuant to the first paragraph of this Section 2.5) will in no event exceed one percent (1%) per annum. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Shelf Registrable Securities will be reduced to the original interest rate. Additional Interest shall be computed based on the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. The Company shall notify the Trustee within three business days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an "Event Date"). Additional Interest shall be paid by depositing with the Trustee, in trust, for the benefit of the Holders of Registrable Securities, on or before the applicable semiannual interest payment date, immediately available funds in sums sufficient to pay the Additional Interest then due. The Additional Interest due shall be payable on each interest payment date to the record Holder of Securities entitled to receive the interest payment to be paid on such date as set forth in the Indenture. Each obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. 3. Registration Procedures. ----------------------- In connection with the obligations of the Company with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company shall: (a) prepare and file with the SEC a Registration Statement, within the relevant time period specified in Section 2, on the appropriate form under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the case of a Shelf Registration, be available for the sale of the Shelf Registrable Securities by the selling Holders thereof, (iii) shall comply as to form in all material respects with the requirements of the applicable form and include or incorporate by reference all financial statements required by the SEC to be filed therewith or incorporated by reference therein, and (iv) shall comply in all respects with the requirements of Regulation S-T under the 1933 Act; (b) prepare and file with the SEC such amendments and post- effective amendments to each Registration Statement as may be necessary under applicable law to keep such Registration Statement effective for the applicable period; and cause each Prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provision then in force) under the 1933 Act and 7 comply with the provisions of the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable to them with respect to the disposition of all securities covered by each Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the selling Holders thereof (including sales by any Participating Broker-Dealer); (c) in the case of a Shelf Registration, (i) notify each Holder of Registrable Securities, at least five business days prior to filing, that a Shelf Registration Statement with respect to the Registrable Securities is being filed and advising such Holders that the distribution of Registrable Securities will be made in accordance with the method selected by the Majority Holders participating in the Shelf Registration; (ii) furnish to each Holder of Registrable Securities and to each underwriter of an underwritten offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, including each preliminary Prospectus, and any amendment or supplement thereto and such other documents as such Holder or underwriter may reasonably request, including financial statements and schedules and, if the Holder so requests, all exhibits in order to facilitate the public sale or other disposition of the Registrable Securities; and (iii) hereby consent to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) use its best efforts to register or qualify the Registrable Securities under all applicable state securities or "blue sky" laws of such jurisdictions as any Holder of Registrable Securities covered by a Registration Statement and each underwriter of an underwritten offering of Registrable Securities shall reasonably request by the time the applicable Registration Statement is declared effective by the SEC, and do any and all other acts and things which may be reasonably necessary or advisable to enable each such Holder and underwriter to consummate the disposition in each such jurisdiction of such Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) take any action which would subject it to general service of process or taxation in any such jurisdiction where it is not then so subject, or (iii) conform its capitalization or the composition of its assets at the time to the securities or blue sky laws of such jurisdiction; (e) notify promptly each Holder of Registrable Securities under a Shelf Registration or any Participating Broker-Dealer who has notified the Company that it is utilizing the Exchange Offer Registration Statement as provided in paragraph (f) below and, if requested by such Holder or Participating Broker-Dealer, confirm such advice in writing promptly (i) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (ii) of any request by the SEC or any state securities authority for post-effective amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) in the case of a Shelf Registration, if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering cease to be true and correct in all material respects, (v) of the happening of any event or the discovery of any facts during the period a Shelf Registration Statement is effective which makes any statement made in such Registration Statement or the related Prospectus untrue in any material respect or which requires the making of any changes in such Registration Statement or Prospectus in order to make the statements therein not misleading, (vi) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities or the Exchange Securities, as the case may be, for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose and (vii) of any determination by the Company that a post-effective amendment to such Registration Statement would be appropriate; (f) (A) in the case of the Exchange Offer Registration Statement (i) include in the Exchange Offer Registration Statement a section entitled "Plan of Distribution" which section shall be reasonably acceptable to Lehman Brothers and Merrill Lynch on behalf of the Participating Broker-Dealers, and which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that holds Registrable Securities acquired for its own account as a result of market-making activities or other trading activities and that will be the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Securities to be received by such broker-dealer in the Exchange Offer, 8 whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the reasonable judgment of Lehman Brothers and Merrill Lynch on behalf of the Participating Broker-Dealers and its counsel, represent the prevailing views of the staff of the SEC, including a statement that any such broker-dealer who receives Exchange Securities for Registrable Securities pursuant to the Exchange Offer may be deemed a statutory underwriter and must deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of such Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has delivered to the Company the notice referred to in Section 3(e), without charge, as many copies of each Prospectus included in the Exchange Offer Registration Statement, including any preliminary prospectus, and any amendment or supplement thereto, as such Participating Broker-Dealer may reasonably request, (iii) hereby consent to the use of the Prospectus forming part of the Exchange Offer Registration Statement or any amendment or supplement thereto, by any Person subject to the prospectus delivery requirements of the SEC, including all Participating Broker-Dealers, in connection with the sale or transfer of the Exchange Securities covered by the Prospectus or any amendment or supplement thereto, and (iv) include in the transmittal letter or similar documentation to be executed by an exchange offeree in order to participate in the Exchange Offer (x) the following provision: "If the exchange offeree is a broker-dealer holding Registrable Securities acquired for its own account as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the 1933 Act in connection with any resale of Exchange Securities received in respect of such Registrable Securities pursuant to the Exchange Offer;" and (y) a statement to the effect that by a broker-dealer making the acknowledgment described in clause (x) and by delivering a Prospectus in connection with the exchange of Registrable Securities, the broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the 1933 Act; and (B) in the case of any Exchange Offer Registration Statement, the Company agrees to deliver to Lehman Brothers and Merrill Lynch on behalf of the Participating Broker-Dealers upon the effectiveness of the Exchange Offer Registration Statement (i) an opinion of counsel or opinions of counsel substantially in the form attached hereto as Exhibit A, (ii) officers' certificates substantially in the form customarily delivered in a public offering of debt securities and (iii) a comfort letter or comfort letters in customary form to the extent permitted by SAS 72 (or if such a comfort letter is not permitted by SAS 72, an agreed upon procedures letter in customary form) from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) at least as broad in scope and coverage as the comfort letter or comfort letters delivered to the Initial Purchasers in connection with the initial sale of the Securities to the Initial Purchasers; (g) (i) in the case of an Exchange Offer, furnish counsel for the Initial Purchasers and (ii) in the case of a Shelf Registration, furnish Brown & Wood llp, as special counsel for the Holders of Shelf Registrable Securities (or, if Brown & Wood llp is unable or unwilling to serve, such other special counsel (but not more than one) as may be selected by the Holders of a majority in principal amount of such Shelf Registrable Securities ("Special Counsel"), copies of any comment letters received from the SEC or any other request by the SEC or any state securities authority for amendments or supplements to a Registration Statement and Prospectus or for additional information; (h) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement at the earliest possible moment; (i) in the case of a Shelf Registration, furnish to each Holder of Registrable Securities, and each underwriter, if any, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto, including financial statements and schedules (without documents incorporated therein by reference and all exhibits thereto, unless requested); (j) in the case of a Shelf Registration, cooperate with the selling Holders of Shelf Registrable Securities to facilitate the timely preparation and delivery of certificates representing Shelf Registrable Securities to be sold and not bearing any restrictive legends; and enable such Shelf Registrable Securities to be in such denominations (consistent with the provisions of the Indenture) and registered in such names as the selling Holders 9 or the underwriters, if any, may reasonably request at least three business days prior to the closing of any sale of Shelf Registrable Shelf Securities; (k) in the case of a Shelf Registration, upon the occurrence of any event or the discovery of any facts, each as contemplated by Sections 3(e)(v) and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an event, use its best efforts to prepare a supplement or post-effective amendment to the Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Shelf Registrable Securities or Participating Broker-Dealers, such Prospectus will not contain at the time of such delivery any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. At such time as such public disclosure is otherwise made or the Company determines that such disclosure is not necessary, in each case to correct any misstatement of a material fact or to include any omitted material fact, the Company agrees promptly to notify each Holder of such determination and to furnish each Holder such number of copies of the Prospectus as amended or supplemented, as such Holder may reasonably request; (l) obtain a CUSIP number for all Exchange Securities, Private Exchange Securities or Registrable Securities, as the case may be, not later than the effective date of a Registration Statement, and provide the Trustee with printed certificates for the Exchange Securities, Private Exchange Securities or the Registrable Securities, as the case may be, in a form eligible for deposit with the Depositary; (m) (i) cause the Indenture to be qualified under the TIA in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be, (ii) cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA and (iii) execute, and use its best efforts to cause the Trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner; (n) in the case of a Shelf Registration, enter into agreements (including underwriting agreements) and take all other customary and appropriate actions in order to expedite or facilitate the disposition of such Shelf Registrable Securities and in such connection whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration: (i) make such representations and warranties to the Holders of such Shelf Registrable Securities and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in similar underwritten offerings as may be reasonably requested by them; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the holders of a majority in principal amount of the Shelf Registrable Securities being sold) addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iii) obtain "cold comfort" letters and updates thereof from the Company's independent certified public accountants (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements are, or are required to be, included in the Registration Statement) addressed to the underwriters, if any, and use reasonable efforts to have such letter addressed to the selling Holders of Shelf Registrable Securities (to the extent consistent with SAS 72), such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters to underwriters in connection with similar underwritten offerings; (iv) enter into a securities sales agreement with the Holders and an agent of the Holders providing for, among other things, the appointment of such agent for the selling Holders for the purpose of 10 soliciting purchases of Shelf Registrable Securities, which agreement shall be in form, substance and scope customary for similar offerings; (v) if an underwriting agreement is entered into, cause the same to set forth indemnification provisions and procedures substantially equivalent to the indemnification provisions and procedures set forth in Section 4 hereof with respect to the underwriters and all other parties to be indemnified pursuant to said Section or, at the request of any underwriters, in the form customarily provided to such underwriters in similar types of transactions; and (vi) deliver such documents and certificates as may be reasonably requested and as are customarily delivered in similar offerings to the Holders of a majority in principal amount of the Shelf Registrable Securities being sold and the managing underwriters, if any. The above shall be done at (i) the effectiveness of such Registration Statement (and each post-effective amendment thereto) and (ii) each closing under any underwriting or similar agreement as and to the extent required thereunder; (o) in the case of a Shelf Registration or if a Prospectus is required to be delivered by any Participating Broker-Dealer in the case of an Exchange Offer, make available for inspection by representatives of the Holders of the Registrable Securities, any underwriters participating in any disposition pursuant to a Shelf Registration Statement, any Participating Broker-Dealer, any Special Counsel or any accountant retained by any of the foregoing, all financial and other records, pertinent corporate documents and properties of the Company reasonably requested by any such persons, and cause the respective officers, directors, employees, and any other agents of the Company to supply all information reasonably requested by any such representative, underwriter, Special Counsel or accountant in connection with a Registration Statement, and make such representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; (p) (i) in the case of an Exchange Offer Registration Statement, a reasonable time prior to the filing of any Exchange Offer Registration Statement, any Prospectus forming a part thereof, any amendment to an Exchange Offer Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Initial Purchasers and to Brown & Wood llp, as counsel to the Holders of Registrable Securities, and make such changes in any such document prior to the filing thereof as the Initial Purchasers or such counsel to the Holders of Registrable Securities may reasonably request and, except as otherwise required by applicable law, not file any such document in a form to which the Initial Purchasers on behalf of the Holders of Registrable Securities and such counsel to the Holders of Registrable Securities shall not have previously been advised and furnished a copy of or to which the Initial Purchasers on behalf of the Holders of Registrable Securities or such counsel to the Holders of Registrable Securities shall reasonably object, and make the representatives of the Company available for discussion of such documents as shall be reasonably requested by the Initial Purchasers; and (ii) in the case of a Shelf Registration, a reasonable time prior to filing any Shelf Registration Statement, any Prospectus forming a part thereof, any amendment to such Shelf Registration Statement or amendment or supplement to such Prospectus, provide copies of such document to the Holders of Shelf Registrable Securities, to the Initial Purchasers, to Special Counsel and to the underwriter or underwriters of an underwritten offering of Shelf Registrable Securities, if any, make such changes in any such document prior to the filing thereof as the Initial Purchasers, Special Counsel or the underwriter or underwriters reasonably request and not file any such document in a form to which the Majority Holders of Shelf Registrable Securities, the Initial Purchasers on behalf of the Holders of Registrable Securities, Special Counsel or any underwriter shall not have previously been advised and furnished a copy of or to which such Majority Holders, the Initial Purchasers of behalf of the Holders of Registrable Securities, Special Counsel or any underwriter shall reasonably object, and make the representatives of the Company available for discussion of such document as shall be reasonably requested by the Holders of Registrable Securities, the Initial Purchasers on behalf of such Holders, Special Counsel or any underwriter. (q) in the case of a Shelf Registration, use its best efforts to cause all Shelf Registrable Securities to be listed on any securities exchange on which similar debt securities issued by the Company are then listed if requested by the Majority Holders or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; 11 (r) in the case of a Shelf Registration, use its best efforts to cause the Shelf Registrable Securities to be rated by the appropriate rating agencies, if so requested by the Majority Holders, or if requested by the underwriter or underwriters of an underwritten offering of Registrable Securities, if any; (s) otherwise comply with all applicable rules and regulations of the SEC and make available to its security holders, as soon as reasonably practicable, an earnings statement covering at least 12 months which shall satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 thereunder; (t) cooperate and assist in any filings required to be made with the NASD and, in the case of a Shelf Registration, in the performance of any due diligence investigation by any underwriter and its counsel (including any "qualified independent underwriter" that is required to be retained in accordance with the rules and regulations of the NASD); and (u) upon consummation of an Exchange Offer or a Private Exchange, obtain a customary opinion of counsel to the Company addressed to the Trustee for the benefit of all Holders of Registrable Securities participating in the Exchange Offer or Private Exchange, and which includes an opinion that (i) the Company has duly authorized, executed and delivered the Exchange Securities and/or Private Exchange Securities, as applicable, and the related indenture, and (ii) each of the Exchange Securities and related indenture constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms (with customary exceptions). In the case of a Shelf Registration Statement, the Company may (as a condition to such Holder's participation in the Shelf Registration) require each Holder of Shelf Registrable Securities to furnish to the Company such information regarding the Holder and the proposed distribution by such Holder of such Shelf Registrable Securities as the Company may from time to time reasonably request in writing for use in connection with any Shelf Registration Statement or Prospectus included therein, including without limitation, information specified in Item 507 of Regulation S-K under the 1933 Act. In the case of a Shelf Registration Statement, each Holder agrees that, upon receipt of any notice from the Company of the happening of any event or the discovery of any facts, each of the kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue disposition of Registrable Securities pursuant to a Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by the Company, such Holder will deliver to the Company (at its expense) all copies in such Holder's possession, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Shelf Registrable Securities current at the time of receipt of such notice. If any of the Registrable Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the underwriter or underwriters and manager or managers that will manage such offering will be selected by the Majority Holders of such Registrable Securities included in such offering, provided such selection is acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 4. Indemnification; Contribution. ----------------------------- (a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each Participating Broker-Dealer, each Person who participates as an underwriter (any such Person being an "Underwriter") and each Person, if any, who controls any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment or supplement thereto) pursuant to which Exchange Securities or Registrable Securities 12 were registered under the 1933 Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 4(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense, as incurred (including the fees and disbursements of counsel chosen by any indemnified party as provided therein), reasonably incurred in investigating or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, - -------- ------- liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Holder or Underwriter expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (or any amendment or supplement thereto), and provided further, that the Company shall not indemnify any Underwriter or -------- ------- any person who controls such Underwriter from any loss, liability, claim or damage (or expense incurred in connection therewith) alleged by any person who purchased Exchange Securities or Registrable Securities from such Underwriter if the untrue statement, omission or allegation thereof upon which such loss, liability, claim or damage is based was made in (i) any preliminary prospectus, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person at or prior to the written confirmation of the sale of Exchange Securities or Registrable Securities to such person, and if the Prospectus (as so amended or supplemented) corrected the untrue statement or omission giving rise to such loss, claim, damage or liability; (ii) any Prospectus used by such Underwriter or any person who controls such Underwriter, after such time as the Company advised the Underwriters that the filing of a post-effective amendment or supplement thereto was required, except the Prospectus as so amended or supplemented, if the Prospectus as amended or supplemented by such post-effective amendment or supplement would not have given rise to such loss, liability, claim or damage; or (iii) any Prospectus used after such time as the obligation of the Company to keep the same current and effective has expired. (b) Each Holder severally, but not jointly, agrees to indemnify and hold harmless the Company, the Initial Purchasers, each Underwriter and the other selling Holders, and each of their respective directors and officers, and each Person, if any, who controls the Company, the Initial Purchasers, any Underwriter or any other selling Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Shelf Registration Statement (or any amendment thereto) or any Prospectus included therein (or any amendment or supplement thereto) in reliance upon and in conformity with written information with respect to such Holder furnished to the Company by such Holder expressly for use in the Shelf Registration Statement (or any amendment thereto) or such Prospectus (or any amendment or supplement thereto); provided, however, that no such Holder shall be liable for any claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Registrable Securities pursuant to such Shelf Registration Statement. (c) Each indemnified party shall give written notice as promptly as reasonably practicable to each indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, and the indemnifying party shall assume the defense thereof, including the employment of counsel satisfactory to the indemnified party, and the payment of all expenses. Any omission to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially 13 prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. Any such indemnified party shall have the right to employ separate counsel in any such action or proceeding and to participate in the defense thereof, but the fees and expenses of such separate counsel shall be paid by such indemnified party unless (a) the indemnifying party has agreed to pay such fees and expenses or (b) the indemnifying party shall have failed to assume the defense of such action or proceeding and employ counsel reasonably satisfactory to the indemnified party in any such action or proceeding or (c) the named parties to any such action or proceeding (including any impleaded parties) include both such indemnified party and indemnifying party, and the indemnified party shall have been advised by its counsel that there may be a conflict of interest between such indemnified party and indemnifying party in the conduct of the defense of such action (in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such action or proceeding on behalf of such indemnified party), it being understood, however, that the indemnifying party shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (unless the members of such firm are not admitted to practice in a jurisdiction where an action is pending, in which case the indemnifying party shall pay the reasonable fees and expenses of one additional firm of attorneys to act as local counsel in such jurisdiction, provided the services of such counsel are substantially limited to that of appearing as attorneys of record) at any time for all indemnified parties, which firm shall be designated in writing by the indemnified party. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 4 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 4(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 4 is for any reason unavailable to hold harmless an indemnified party (other than by reason of the first sentence of Section 4(c)) in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holders and the Initial Purchasers on the other hand from the offering of the Securities, the Exchange Securities and the Registrable Securities (taken together) included in such offering or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Holders and the Initial Purchasers on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other hand in connection with the offering of the Securities, the Exchange Securities and the Registrable Securities (taken together) included in such offering shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to the Purchase Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Initial Purchasers, bear to the aggregate initial offering price of the Securities. The relative fault of the Company on the one hand and the Holders and the Initial Purchasers on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement 14 of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Holders or the Initial Purchasers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Holders and the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 4. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 4 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 4, no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased and sold by it were offered exceeds the amount of any damages which such Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4, each Person, if any, who controls an Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Initial Purchaser or Holder, and each Person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Initial Purchasers' respective obligations to contribute pursuant to this Section 4 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule A to the Purchase Agreement and not joint. 5. Miscellaneous. 5.1 Rule 144 and Rule 144A. For so long as the Company is subject to the ---------------------- reporting requirements of Section 13 or 15 of the 1934 Act, the Company covenants that it will file the reports required to be filed by it under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and regulations adopted by the SEC thereunder. If the Company ceases to be so required to file such reports, the Company covenants that it will upon the request of any Holder of Registrable Securities (a) make publicly available such information as is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver such information to a prospective purchaser as is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it will take such further action as any Holder of Registrable Securities may reasonably request, and (c) take such further action that is reasonable in the circumstances, in each case, to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time to time, or (iii) any similar rules or regulations hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. The Company's obligations under this Section 5.1 shall terminate upon the later of the consummation of the Exchange Offer and the Effectiveness Period. 5.2 No Inconsistent Agreements. The Company has not entered into and the -------------------------- Company will not after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not and will not for the term of this Agreement in any way conflict with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. 5.3 Amendments and Waivers. The provisions of this Agreement, including ---------------------- the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the 15 provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or departure. 5.4 Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand delivery, registered first- class mail, telecopier, or any courier guaranteeing overnight delivery (a) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 5.4, which address initially is the address set forth in the Purchase Agreement with respect to the Initial Purchasers; and (b) if to the Company, initially at the Company's address set forth in the Purchase Agreement, and thereafter at such other address of which notice is given in accordance with the provisions of this Section 5.4. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands, or other communications shall be concurrently delivered by the person giving the same to the Trustee under the Indenture, at the address specified in such Indenture. 5.5 Successor and Assigns. This Agreement shall inure to the benefit of --------------------- and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to -------- permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Registrable Securities, in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such person shall be entitled to receive the benefits hereof. 5.6 Third Party Beneficiaries. The Initial Purchasers (even if the Initial ------------------------- Purchasers are not Holders of Registrable Securities) shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Holders, on the other hand, and shall have the right to enforce such agreements directly to the extent they deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. Each Holder of Registrable Securities shall be a third party beneficiary to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder. 5.7 Specific Enforcement. Without limiting the remedies available to the -------------------- Initial Purchasers and the Holders, the Company acknowledges that any failure by the Company to comply with its obligations under Sections 2.1 through 2.4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it would not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 2.1 through 2.4 hereof. 5.8 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.9 Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. 16 5.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. 5.11 Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 17 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. LIBERTY MEDIA CORPORATION By:/s/ Charles Y. Tanabe --------------------- Name: Charles Y. Tanabe Title: Senior Vice President Confirmed and accepted as of the date first above written: LEHMAN BROTHERS INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BANC OF AMERICA SECURITIES LLC BNY CAPITAL MARKETS, INC. CREDIT LYONNAIS SECURITIES (USA) INC. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION MORGAN STANLEY & CO. INCORPORATED SALOMON SMITH BARNEY INC. SCHRODER & CO. INC. TD SECURITIES (USA) INC. BY: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED For itself and the other Initial Purchasers set forth above By: /s/ Eric Federman ----------------- Name: Eric Federman Title: Authorized Signatory 18 EXHIBIT A --------- Form of Opinion of Counsel -------------------------- Lehman Brothers Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated Banc of America Securities LLC BNY Capital Markets, Inc. Credit Lyonnais Securities (USA) Inc. Donaldson, Lufkin & Jenrette Securities Corporation Morgan Stanley & Co. Incorporated Salomon Smith Barney Inc. Schroder & Co. Inc. TD Securities (USA) Inc. c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: We have acted as counsel for Liberty Media Corporation, a Delaware corporation (the "Company"), in connection with the sale by the Company to the Initial Purchasers (as defined below) of $750,000,000 aggregate principal amount of 7-7/8% Senior Notes due 2009 (the "Notes") and $500,000,000 aggregate principal amount of 8-1/2% Senior Debentures due 2029 (the "Debentures" and, together with the Notes, the "Securities") of the Company pursuant to the Purchase Agreement dated June 30, 1999 (the "Purchase Agreement") among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc., Schroder & Co., Inc. and TD Securities (collectively, the "Initial Purchasers") and the filing by the Company of an Exchange Offer Registration Statement (the "Registration Statement") in connection with an Exchange Offer to be effected pursuant to the Registration Rights Agreement (the "Registration Rights Agreement"), dated July 7, 1999, between the Company and the Initial Purchasers. This opinion is furnished to you pursuant to Section 3(f)(B) of the Registration Rights Agreement. Unless otherwise defined herein, capitalized terms used in this opinion that are defined in the Registration Rights Agreement are used herein as so defined. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion. In rendering this opinion, as to all matters of fact relevant to this opinion, we have assumed the completeness and accuracy of, and are relying solely upon, the representations and warranties of the Company set forth in the Purchase Agreement and the statements set forth in certificates of public officials and officers of the Company, without making any independent investigation or inquiry with respect to the completeness or accuracy of such representations, warranties or statements, other than a review of the certificate of incorporation, by-laws and relevant minute books of the Company. Based on and subject to the foregoing, we are of the opinion that: A-1 The Exchange Offer Registration Statement, as of its effective date, and the Prospectus, as of the date hereof (except as to (x) the financial statements, notes and schedules thereto and other financial and statistical data contained or incorporated by reference therein, (y) the documents incorporated or deemed incorporated by reference therein, and (z) the Form T-1, as to which such counsel need express no opinion), comply as to form in all material respects with the requirements of the 1933 Act and the applicable rules and regulations promulgated under the 1933 Act. In passing upon the form of such documents, we have necessarily assumed the correctness and completeness of the statements made or included therein by the Company and take no responsibility for the accuracy, completeness or fairness of the statements contained therein except insofar as such statements related to the description of the Exchange Securities and the Indenture or relate to us. However, in connection with our examination of the Registration Statement and the Prospectus, we have had conferences with certain officers and other representatives of the Company, and our examination of the Registration Statement and the Prospectus and our discussions in such conferences did not disclose to us any information (relying as to the materiality of any such information primarily upon officers and other representatives of the Company) which gave us reason to believe that either the Registration Statement, as of its effective date, or the Prospectus, as of the date hereof (except as to (x) the financial statements, notes and schedules thereto and other financial and statistical data contained or incorporated by reference therein and (y) the documents incorporated or deemed incorporated by reference therein, as to which such counsel need express no opinion), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. This opinion is being furnished to you solely for your benefit in connection with the transactions contemplated by the Registration Rights Agreement, and may not be used for any other purpose or relied upon by any person other than you. Except with our prior written consent, the opinions herein expressed are not to be used, circulated, quoted or otherwise referred to in connection with any transactions other than those contemplated by the Registration Rights Agreement by or to any other person. Very truly yours, A-2 EX-4.4 7 FORM OF 7 7/8% SENIOR NOTE DUE 2009 EXHIBIT 4.4 ----------- FORM OF 7-7/8% SENIOR NOTE DUE 2009 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. $______________ CUSIP No. Liberty Media Corporation 7-7/8% Senior Notes due 2009 Liberty Media Corporation, a Delaware corporation (hereinafter called the "Company", which term includes any successor corporation under the Indenture referred to below), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of ________________________ ($___________) on July 15, 2009, and to pay interest thereon from July 7, 1999 or from the most recent date to which interest has been paid or provided for, semiannually on January 15 and July 15 in each year (each, an "Interest Payment Date"), commencing January 15, 2000, at the rate of 7-7/8% per annum, until the principal hereof is paid or made available for payment. Interest on this Note shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. The interest so payable and paid or provided for on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest which is payable, but is not paid or provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered Holder hereof on the relevant Regular Record Date by virtue of having been such Holder, and may be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to the Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in such Indenture. Payment of the principal of and the interest on this Note will be made at the office or agency of the Company maintained for that purpose in The Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, that payment to DTC or any successor Depository may be made by wire transfer to the account designated by DTC or such successor Depository in writing. This Note is one of a duly authorized issue of securities of the Company (herein called the "Notes") issued and to be issued in one or more series under an Indenture dated as of July 7, 1999 (herein called, together with the First Supplemental Indenture referred to below and all other indentures supplemental thereto, the "Indenture") between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. This Note is one of the series designated on the face hereof, initially limited (subject to exceptions provided in the Indenture) to the aggregate principal amount specified in the First Supplemental Indenture between the Company and the Trustee, dated as of July 7, 1999, establishing the terms of the Notes pursuant to the Indenture (the "First Supplemental Indenture"). The Notes are redeemable at the option of the Company, in whole or in part at any time or from time to time, on at least 30 but not more than 60 days prior notice, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Notes to be redeemed or (ii) the sum, as determined by the Independent Investment Banker, of the present values of the Remaining Scheduled Payments of the Notes to be redeemed, discounted, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points. In the case of each of clause (i) and (ii), accrued interest will be payable to the redemption date. 2 If an Event of Default with respect to the Notes shall occur and be continuing, the principal of the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series issued under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of each series affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities of any series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Notes issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note or such Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note, at the times, place and rate, and in the coin or currency, herein and in the Indenture prescribed. As provided in the Indenture and subject to certain limitations set forth therein and in this Note, the transfer of this Note may be registered on the Security Register upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for the purpose in any place where the principal of and interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or by his attorney duly authorized in writing, and thereupon one or more new Notes of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in the denominations specified in the First Supplemental Indenture establishing the terms of the Notes, all as more fully provided in the Indenture. As provided in the Indenture, and subject to certain limitations set forth in the Indenture and in this Note, the Notes are exchangeable for a like aggregate principal amount of Notes of this series in different authorized denominations, as requested by the Holders surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, other than in certain cases provided in the Indenture. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture contains provisions whereby (i) the Company may be discharged from its obligations with respect to the Notes (subject to certain exceptions) or (ii) the Company may be released from its obligation under specified covenants and agreements in the Indenture, in each case if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations sufficient to pay and discharge the entire indebtedness on all Notes of this series, and satisfies certain other conditions, all as more fully provided in the Indenture. This Note shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 3 Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee under the Indenture by the manual signature of one of its authorized signatories, this Note shall not be entitled to any benefits under the Indenture or be valid or obligatory for any purpose. * * * IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. [Seal] LIBERTY MEDIA CORPORATION Attest:________________________ By:_______________________________ Name: Name: Title: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee By:_______________________________ Authorized Signatory 4 CERTIFICATE OF TRANSFER To transfer or assign this Note, fill in the form below: I or we transfer and assign this Note to _______________________________________________________________________________ (Insert assignee's tax I.D. number) _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ _______________________________________________________________________________ (Print or Type assignee's name, address and zip code) and irrevocably appoint ________________ agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date:____________________ Your signature:___________________________ EX-4.5 8 FORM OF 8 1/2% SENIOR DEBENTURE DUE 2029 EXHIBIT 4.5 ----------- [FORM OF 8-1/2% SENIOR DEBENTURE DUE 2029] THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY (AS DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. No. $________________ CUSIP No. Liberty Media Corporation 8-1/2% Senior Debentures due 2029 Liberty Media Corporation, a Delaware corporation (hereinafter called the "Company", which term includes any successor corporation under the Indenture referred to below), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of _____________________________ ($___________) on July 15, 2029 and to pay interest thereon from July, 7 1999 or from the most recent date to which interest has been paid or provided for, semiannually on January 15 and July 15 in each year (each, an "Interest Payment Date"), commencing January 15, 2000, at the rate of 8-1/2% per annum, until the principal hereof is paid or made available for payment. Interest on this Debenture shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. The interest so payable and paid or provided for on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest which is payable, but is not paid or provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered Holder hereof on the relevant Regular Record Date by virtue of having been such Holder, and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to the Holders of Debentures not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in such Indenture. Payment of the principal of and the interest on this Debenture will be made at the office or agency of the Company maintained for that purpose in The Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register; provided, further, that payment to DTC or any successor Depository may be made by wire transfer to the account designated by DTC or such successor Depository in writing. This Debenture is one of a duly authorized issue of securities of the Company (herein called the "Debentures") issued and to be issued in one or more series under an Indenture dated as of July 7, 1999 (herein called, together with the First Supplemental Indenture referred to below and all other indentures supplemental thereto, the "Indenture") between the Company and The Bank of New York, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Debentures, and of the terms upon which the Debentures are, and are to be, authenticated and delivered. This Debenture is one of the series designated on the face hereof, initially limited (subject to exceptions provided in the Indenture) to the aggregate principal amount specified in the First Supplemental Indenture between the Company and the Trustee, dated as of July 7, 1999, establishing the terms of the Debentures pursuant to the Indenture (the "First Supplemental Indenture"). The Debentures are redeemable at the option of the Company, in whole or in part at any time or from time to time, on at least 30 but not more than 60 days prior notice, at a Redemption Price equal to the greater of (i) 100% of the principal amount of the Debentures to be redeemed or (ii) the sum, as determined by the Independent Investment Banker, of the present values of the Remaining Scheduled Payments of the Debentures to be redeemed, discounted, on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 35 basis points. In the case of each of clause (i) and (ii), accrued interest will be payable to the redemption date. 2 If an Event of Default with respect to the Debentures shall occur and be continuing, the principal of the Debentures may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series issued under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities at the time Outstanding of each series affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities of any series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debentures issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture or such Debentures. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture, at the times, place and rate, and in the coin or currency herein and in the Indenture prescribed. As provided in the Indenture and subject to certain limitations set forth therein and in this Debenture, the transfer of this Debenture may be registered on the Security Register upon surrender of this Debenture for registration of transfer at the office or agency of the Company maintained for the purpose in any place where the principal of and interest on this Debenture are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or by his attorney duly authorized in writing, and thereupon one or more new Debentures of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Debentures are issuable only in registered form without coupons in the denominations specified in the First Supplemental Indenture establishing the terms of the Debentures, all as more fully provided in the Indenture. As provided in the Indenture, and subject to certain limitations set forth in the Indenture and in this Debenture, the Debentures are exchangeable for a like aggregate principal amount of Debentures of this series in different authorized denominations, as requested by the Holders surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, other than in certain cases provided in the Indenture. Prior to due presentment of this Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Indenture contains provisions whereby (i) the Company may be discharged from its obligations with respect to the Debentures (subject to certain exceptions) or (ii) the Company may be released from its obligation under specified covenants and agreements in the Indenture, in each case if the Company irrevocably deposits with the Trustee money or U.S. Government Obligations sufficient to pay and discharge the entire indebtedness on all Debentures of this series, and satisfies certain other conditions, all as more fully provided in the Indenture. This Debenture shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Debenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 3 Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee under the Indenture by the manual signature of one of its authorized signatories, this Debenture shall not be entitled to any benefits under the Indenture or be valid or obligatory for any purpose. * * * IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. [Seal] LIBERTY MEDIA CORPORATION Attest:_____________________________ By:____________________________ Name Name: Title: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee By:____________________________ Authorized Signatory 4 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:_______________________ EX-10.1 9 CONTRIBUTION AGREEMENT DATED MARCH 9, 1999 EXHIBIT 10.1 ------------ - -------------------------------------------------------------------------------- CONTRIBUTION AGREEMENT BY AND AMONG LIBERTY MEDIA CORPORATION, LIBERTY MEDIA MANAGEMENT LLC, LIBERTY MEDIA GROUP LLC AND LIBERTY VENTURES GROUP LLC March 9, 1999 - -------------------------------------------------------------------------------- TABLE OF CONTENTS -----------------
Page ARTICLE I DEFINITIONS Section 1.1. Certain Definitions........................................... 1 Section 1.2. Terms Generally............................................... 5 ARTICLE II CONTRIBUTION Section 2.1. Liberty Media Corporation Contribution........................ 5 Section 2.2. Stockholder Contribution...................................... 5 Section 2.3. Liberty Management Contribution............................... 6 Section 2.4. Capital Contributions to Liberty Media Group LLC.............. 6 Section 2.5. Procedures for Determination of Contribution Amount........... 6 Section 2.6. Transfer and Documentation.................................... 7 Section 2.7. Unassignable Assets........................................... 7 Section 2.8. Certain Tax Issues............................................ 7 Section 2.9. Conveyance Taxes; Expenses.................................... 8 Section 2.10. Further Assurances............................................ 8 Section 2.11. Stockholder Consent........................................... 8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARTIES Section 3.1. Mutual Representations........................................ 8 ARTICLE IV COVENANTS OF THE PARTIES Section 4.1. Cooperation................................................... 9 Section 4.2. Conduct of Business Prior to the Closing Date................. 9 Section 4.3. Avoidance of Certain Adverse Effects.......................... 11 ARTICLE V CONDITIONS TO CLOSING Section 5.1. Conditions Precedent to Closing............................... 11 ARTICLE VI CLOSING Section 6.1. Closing....................................................... 11
(i) TABLE OF CONTENTS(cont'd) ----------------- ARTICLE VII TERMINATION Section 7.1. Termination.................................................... 12 ARTICLE VIII MISCELLANEOUS Section 8.1. Notices........................................................ 12 Section 8.2. Binding Effect................................................. 14 Section 8.3. Construction................................................... 14 Section 8.4. Expenses....................................................... 14 Section 8.5. Table of Contents; Headings.................................... 14 Section 8.6. Governing Law.................................................. 14 Section 8.7. Severability................................................... 14 Section 8.8. Amendments..................................................... 14 Section 8.9. Assignment..................................................... 14 Section 8.10. Waivers; Remedies.............................................. 14 Section 8.11. Consent to Jurisdiction; Specific Performance.................. 15 Section 8.12. Waiver of Jury Trial........................................... 15 Section 8.13. Further Assurances............................................. 15 Section 8.14. Counterparts................................................... 15 Section 8.15. Limitation on Rights of Others................................. 15
(ii) CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is made as of this 9th day of March, 1999 by and among Liberty Media Corporation, a Delaware corporation ("Liberty Media Corporation"), Liberty Media Management LLC, a Delaware limited liability company ("Liberty Management"), Liberty Media Group LLC, a Delaware limited liability company ("Liberty Media Group LLC"), and Liberty Ventures Group LLC, a Delaware limited liability company ("Stockholder"). WHEREAS, pursuant to the terms and subject to the conditions of this Agreement, the parties desire that, as promptly as practicable following the occurrence of a Triggering Event (as defined below), Liberty Media Corporation, Liberty Management and, if applicable, Stockholder shall make the contributions to Liberty Media Group LLC contemplated by this Agreement pursuant to Section 6.1 of the LLC Agreement (as defined below) of Liberty Media Group LLC as Subsequent Capital Contributions (as defined therein); NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS Section 1.1. Certain Definitions. As used in this Agreement, the ------------------- following terms shall have the meanings specified below: "Additional Liberty Media Group Assets" has the meaning set forth in Section 2.2(a). "Additional Liberty Media Group Liabilities" means all Liabilities to which the Additional Liberty Media Group Assets are subject (subject to Section 2.7, other than any such liabilities relating to any Beneficial Assets unless and until such Asset is contributed to Liberty Media Group LLC). "Affiliate" means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with such Person. For purposes of this definition, the term "controls" (including its correlative meanings "controlled by" and "under common control with") shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, for purposes of this Agreement, Liberty Management and its Subsidiaries shall not be deemed to be Affiliates of Liberty Media Group LLC or its Subsidiaries or of Parent or its Subsidiaries (including Liberty Media Corporation) and Parent and its Subsidiaries shall not be deemed to be Affiliates of Liberty Media Group LLC or its Subsidiaries or of Liberty Management or its Subsidiaries. "Agreement" means this Contribution Agreement, including the Schedules and Exhibits attached hereto. "Assets" of a Person means all of the properties, assets, privileges, rights interests, claims and goodwill of such Person, real and personal, tangible and intangible, of every type and description, whether owned or leased or otherwise possessed, whether or not used or held for use or usable in connection with the business and assets of such Person and whether or not reflected on the financial statements or accounts of such Person, including the capital stock or other interests in any other Person held by such Person. "Beneficial Assets" has the meaning set forth in Section 2.7 hereto. "Business Day" means a day of the year on which banks are not required or authorized to be closed in the State of New York. "Capital Contribution" has the meaning ascribed to such term in the LLC Agreement. "Capital Stock Committee" means the Capital Stock Committee of the Board of Directors of Parent, as described in the form of Bylaw Amendment attached to the Merger Agreement. "Class B Director" and "Class C Director" mean, respectively, the directors classified as such in the Liberty Media Corporation Charter. "Closing" means a meeting at which, in whole or in part, the transactions contemplated by this Agreement are concluded, held on the date and at the place fixed in accordance with Article VIII. "Closing Date" means the date of the Closing. "Code" means the Internal Revenue Code of 1986 and the rules and regulations promulgated thereunder. "Contract" means any lease, license, contract or other agreement. "Firewall Agreement" means the agreements referred to in Sections 7.14 and 7.18 of the Merger Agreement. "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any arbitrator. "Incumbent Directors" means (i) those directors who are the Class B Directors and Class C Directors of Liberty Media Corporation immediately prior to the Effective Time (as defined in the Merger Agreement) and (ii) those persons who become Class B Directors or Class C Directors of Liberty Media Corporation upon the death, disability, resignation, removal or subsequent election of a Class B or Class C Director (including upon any increase in the size of the Board of Directors of Liberty Media Corporation), provided, that any -------- Class B Director or Class C Director elected or appointed following the Effective Time shall be an Incumbent Director only if (x) in the case of any person who was appointed or elected to fill any vacancy among the Class B Directors or Class C Directors resulting from the death, disability, resignation or removal of a Class B Director or Class C Director, such person was so appointed or nominated for election as such by a majority of the Incumbent Directors (or single such director, if only one remains) who were then members of the class of directors of Liberty Media Corporation in which such vacancy occurred, or, (y) in the case of any election or appointment of a Class B or Class C Director which results from any increase in the size of the Board of Directors of Liberty Media Corporation or of the Class B or Class C Directors, the person so elected or appointed to fill such directorship shall have been appointed or nominated for election as such by a majority of the Incumbent Directors (or single such director, if only one remains) who were then members of the class of directors to which such newly created directorship was apportioned. "Intellectual Property" means all patents, trademarks, trade names, service marks, copyrights and trade secrets. 2 "LLC Agreement" means the Limited Liability Company Agreement of Liberty Media Group LLC, dated as of the date hereof, among Liberty Media Corporation, Liberty Media Management LLC and Liberty Ventures Group LLC. "Liabilities" of a Person means all debts, liabilities and obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and whether or not the same would properly be reflected on a balance sheet, including all costs and expenses relating thereto. "Liberty Management" has the meaning set forth in the preamble hereto. "Liberty Management Contribution" has the meaning set forth in Section 2.3. "Liberty Media Corporation" has the meaning set forth in the preamble hereto. "Liberty Media Corporation Assets" means all of the Assets of Liberty Media Corporation, now in existence or hereafter acquired by Liberty Media Corporation, including, but not limited to, the following: (i) all rights of any nature whatsoever of Liberty Media Corporation under the Firewall Agreement and the Tax Sharing Agreement; and (ii) all Intellectual Property used or usable in connection with the Liberty Media Corporation Assets. "Liberty Media Corporation Charter" means the Restated Certificate of Incorporation of Liberty Media Corporation filed with the Secretary of State of the State of Delaware, as the same may be amended from time to time. "Liberty Media Corporation Contribution" has the meaning set forth in Section 2.1. "Liberty Media Corporation Liabilities" means all Liabilities of Liberty Media Corporation (subject to Section 2.7, other than any such liabilities relating to any Beneficial Assets unless and until such Asset is contributed to Liberty Media Group LLC) including, without limitation all obligations of any nature whatsoever of Liberty Media Corporation under the Firewall Agreement. "Liberty Media Group" has the meaning ascribed to such term in the Parent Charter. "Liberty Media Group Assets" means the Liberty Media Corporation Assets and the Additional Liberty Media Group Assets, collectively. "Liberty Media Group LLC" has the meaning set forth in the preamble hereto. "Lien" means any lien, pledge, claim, encumbrance, mortgage or security interest in real or personal property. "Material Adverse Effect" means a material adverse change in, or material adverse effect on, the business, assets, liabilities, results of operations, condition (financial or otherwise) or prospects of a party considered together with its consolidated subsidiaries on a combined basis, other than any changes in, or effects on, any of the foregoing arising primarily out of or resulting primarily from general economic or industry conditions. "Merger Agreement" means that certain Agreement and Plan of Restructuring and Merger, dated as of June 23, 1998, among Parent, Italy Merger Corp. and Tele-Communications, Inc. 3 "Parent" means AT&T Corp., a New York corporation. "Parent Charter" means the Certificate of Incorporation of Parent, as amended as contemplated by the Merger Agreement. "Permitted Liens" means (i) Liens for Taxes not yet due and payable, (ii) Liens for Taxes, the validity of which is being contested in good faith in appropriate proceedings and with respect to which appropriate reserves have been set aside on the books of the party against which such Liens have been created, (iii) inchoate mechanic's and materialmen's Liens for construction in progress or which are being contested in good faith in appropriate proceedings, (iv) Liens on property which secure the purchase price of such property, (v) workmen's, repairmen's, warehousemen's and carriers' Liens arising in the ordinary course of business and evidencing indebtedness for related services that is not more than 60 days past due or which is being contested in good faith in appropriate proceedings, and (vi) minor imperfections in title and encumbrances and other minor matters, if any, which singly or in the aggregate are not substantial in amount, do not materially detract from the value of the property subject thereto or interfere with the present use thereof or otherwise impair the operations of a Person. "Person" means any individual, corporation, partnership, limited liability company, trust, unincorporated association or other entity. "Stockholder" has the meaning set forth in the preamble hereto. "Stockholder Contribution" has the meaning set forth in Section 2.2. "Subsidiary" of any Person as of any date shall mean any other Person more than 50% of the outstanding number or voting power of the shares, equity interests or other ownership interests of which are, as of such date, owned or controlled, directly or indirectly, by such Person and/or one or more of its Subsidiaries. "Tax" or "Taxes" means all federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts; provided, however, that "Tax" and "Taxes" shall not -------- ------- include amounts paid to municipalities with respect to operating franchise arrangements. "Tax Return" or "Tax Returns" means all returns or reports required to be filed under any statute, rule or regulation relating to Taxes. "Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of March 9, 1999, among Parent, Liberty Media Corporation, certain Subsidiaries of Liberty Media Corporation and Liberty Media Group LLC. "TCI" means Tele-Communications, Inc., a Delaware corporation. "Transfer" means, as a noun, any sale, exchange, assignment, conveyance or transfer and, as a verb, to sell, exchange, assign, convey or transfer. "Triggering Event" means either (i) the failure of the Incumbent Directors to constitute a majority of the members of the Board of Directors of Liberty Media Corporation and to be entitled to cast a majority of the votes entitled to be cast by all directors at any meeting of the Board of Directors of Liberty Media Corporation (or to consent in writing thereto) or (ii) Liberty Management's determination (evidenced by written notice to such effect to Parent), in its reasonable judgment, that an event described in clause (i) is reasonably likely to occur (unless Parent provides such assurances as Liberty Management may reasonably request that such event will not occur within five Business Days of such notice (and in any event prior to the occurrence of such event described in clause (i)). 4 Liberty Management may, in its sole discretion, waive or suspend the occurrence of a Triggering Event on such terms and conditions as are set forth in written notice from Liberty Management to the other parties following the occurrence of a Triggering Event. Any such waiver or suspension shall only be effective with regard to the specific Triggering Event to which it applies, and shall in no way impair the respective rights of Liberty Media Group LLC or Liberty Management in connection with any subsequent occurrence of a Triggering Event. Section 1.2. Terms Generally. The definitions in Section 1.1 and --------------- elsewhere in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The words "herein", "hereof", "hereto" and "hereunder" and words of similar import refer to this Agreement (including the Schedules and Exhibits) in its entirety and not to any part hereof unless the context shall otherwise require. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Unless the context shall otherwise require, any references to any agreement or other instrument (other than in the Schedules hereto) or statute or regulation are to it as amended and supplemented from time to time (and, in the case of a statute or regulation, to any corresponding provisions of successor statutes or regulations). Any reference in this Agreement to a "day" or number of "days" (without the explicit qualification of "Business") shall be interpreted as a reference to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action or notice shall be deferred until, or may be taken or given on, the next Business Day. ARTICLE II CONTRIBUTION Section 2.1. Liberty Media Corporation Contribution. -------------------------------------- (a) Upon the terms and subject to the conditions set forth in this Agreement, as soon as practicable after the occurrence of a Triggering Event, Liberty Media Corporation shall convey, assign and transfer to Liberty Media Group LLC, and Liberty Media Group LLC shall acquire, accept and receive from Liberty Media Corporation, all of Liberty Media Corporation's right, title and interest in and to the Liberty Media Corporation Assets (the "Liberty Media Corporation Contribution"). (b) Concurrently with the Liberty Media Corporation Contribution, Liberty Media Group LLC shall assume, and agree to pay and discharge, as and when they become due, or otherwise take subject to, all of the Liberty Media Corporation Liabilities. Section 2.2. Stockholder Contribution. ------------------------ (a) If at the time of the occurrence of a Triggering Event, any of the Assets included in the Liberty Media Group are held, directly or indirectly, by Stockholder other than through its ownership interest in Liberty Media Corporation (such assets, the "Additional Liberty Media Group Assets"), then upon the terms and subject to the conditions set forth in this Agreement, as soon as practicable after the occurrence of such Triggering Event, Stockholder shall convey, assign and transfer, or cause to be conveyed, assigned and transferred, to Liberty Media Group LLC all of Stockholder's right, title and interest in and to the Additional Liberty Media Group Assets (the "Stockholder Contribution"), and Liberty Media Group LLC shall acquire, accept and receive the Stockholder Contribution from Stockholder. 5 (b) Concurrently with the Stockholder Contribution, Liberty Media Group LLC shall assume, and agree to pay and discharge, as and when they become due, or otherwise take subject to, all of the Additional Liberty Media Group Liabilities. Section 2.3. Liberty Management Contribution. Upon the terms and subject ------------------------------- to the conditions set forth in this Agreement, at the Closing Liberty Management shall convey, assign and transfer to Liberty Media Group LLC, and Liberty Media Group LLC shall acquire, accept and receive from Liberty Management, an amount in cash equal to the lesser of 2.3.ab(i) $20 million and (ii) 0.001001 of the sum of the Liberty Media Contribution Amount and the Stockholder Contribution Amount (the "Liberty Management Contribution"). Section 2.4. Capital Contributions to Liberty Media Group LLC. The ------------------------------------------------ Liberty Media Corporation Contribution, the Liberty Management Contribution and, if applicable, the Stockholder Contribution (collectively, the "Contributions") as contemplated by this Agreement shall constitute Capital Contributions to Liberty Media Group LLC by Liberty Media Corporation, Liberty Management and Stockholder, respectively, as contemplated by Section 6.1(b) of the LLC Agreement. Section 2.5. Procedures for Determination of Contribution Amount. Upon --------------------------------------------------- the occurrence of the Contributions, Liberty Management and the independent accounting firm responsible for preparing the audited financial statements of Liberty Media Corporation will each designate one appraiser (the "First Appraiser" and the "Second Appraiser") to determine the Gross Asset Value (as defined in the LLC Agreement) of the Liberty Media Corporation Assets and the fair market value of the Liberty Media Corporation Liabilities (the difference between such amounts, the "Liberty Media Contribution Amount") and, if applicable, the Gross Asset Value of the Additional Liberty Media Group Assets and the fair market value of the Additional Liberty Media Group Liabilities (the difference between such amounts, the "Stockholder Contribution Amount"). Each of the First Appraiser and the Second Appraiser shall submit its determination of the Liberty Media Contribution Amount and the Stockholder Contribution Amount (each, a "Contribution Amount") to the parties within ten (10) Business Days of the date of its selection. If the respective determinations of a Contribution Amount by the First Appraiser and the Second Appraiser vary by less than ten percent (10%) of the higher determination, the applicable Contribution Amount shall be the average of the two determinations. If such determinations vary by ten percent (10%) or more of the higher determination, such appraisers shall promptly designate a third appraiser (the "Third Appraiser"). No party shall provide, and each appraiser shall be instructed not to provide, any information to the Third Appraiser as to the Contribution Amount determinations of the First Appraiser and the Second Appraiser or otherwise influence such Third Appraiser's determination in any way. The Third Appraiser shall submit its determination of the applicable Contribution Amount to the parties within five (5) Business Days of the date of its selection. The applicable Contribution Amount shall be equal to the average of the two closest of the three determinations, provided that, if -------- the difference between the highest and middle determinations is no more than one hundred and five percent (105%) and no less than ninety-five percent (95%) of the difference between the middle and lowest determinations, then the applicable Contribution Amount shall be equal to the middle determination. The determination of a Contribution Amount in accordance with this Section 2.5 shall be final and binding on the parties. If any appraiser is only able to provide a range in which the applicable Contribution Amount would exist, the average of the highest and lowest value in such range shall be deemed to be such appraiser's determination of such Contribution Amount. Each appraiser selected pursuant to the provisions of this Section 2.5 shall be an independent investment banking firm or other independent qualified Person with prior experience in appraising businesses comparable to the businesses included in the Liberty Media Corporation Assets and Additional Liberty Media Group Assets. The parties agree that the procedures described in this Section 2.5 shall be conducted in a manner such that the final determination of the Contribution Amounts (including any determination of the Contribution Amounts by the Third Appraiser) shall be completed within twenty (20) Business Days of the occurrence of the applicable Triggering Event. Liberty Media Corporation and, if applicable, Stockholder shall make customary representations and warranties regarding the Liberty Media Corporation Assets and Additional Liberty Media Group Assets, respectively, as agreed by the parties in connection with the Liberty Media Corporation Contribution or Stockholder Contribution, as applicable, and any such representations and warranties will be taken into account by the appraisers referred to above when determining the 6 Contribution Amounts. The Contribution Amounts shall also take into account the matters described in Section 2.7 and 2.8. Section 2.6. Transfer and Documentation. At the Closing, each of -------------------------- Liberty Media Corporation, Liberty Management and, if applicable, Stockholder shall execute and deliver to Liberty Media Group LLC such instruments of conveyance as Liberty Media Group LLC may reasonably request in order to convey, assign and transfer title to the Liberty Media Corporation Assets, the Liberty Management Assets and the Additional Liberty Media Group Assets, if any, being conveyed, assigned and transferred to Liberty Media Group LLC at the Closing, and Liberty Media Group LLC shall execute an assumption agreement pursuant to which Liberty Media Group LLC shall assume and agree to pay when due, discharge and perform the Liberty Media Corporation Liabilities and Additional Liberty Media Group Liabilities, if any. Section 2.7. Unassignable Assets. Notwithstanding anything in this ------------------- Agreement to the contrary, this Agreement shall not constitute an agreement to assign any Liberty Media Group Asset without the consent of another Person if an assignment or attempted assignment thereof without the consent of such Person would constitute a breach thereof or in any way impair the rights thereunder. If any such consent is not obtained or if an attempted assignment would be ineffective or would impair any party's rights with respect to such Liberty Media Group Asset so that Liberty Media Group LLC would not receive all such rights, then (a) Liberty Media Corporation and Stockholder, as applicable, shall continue to use their respective best efforts to obtain such consents and approvals and use their respective best efforts to provide or cause to be provided to Liberty Media Group LLC, to the extent permitted by law, the benefits of any such Asset (the "Beneficial Assets"), and (b) if Liberty Media Corporation or Stockholder, as the case may be, is able to provide Liberty Media Group LLC with the benefits thereof, Liberty Media Group LLC shall pay, perform and discharge on behalf of Liberty Media Corporation, Liberty Management and Stockholder, if applicable, all of Liberty Media Corporation's (and, if applicable, Stockholder's) liabilities and other obligations with respect thereto in a timely manner and in accordance with the terms thereof. In addition, Liberty Media Corporation and Stockholder, as applicable, shall take such other actions as may reasonably be requested by Liberty Media Group LLC in order to place Liberty Media Group LLC, insofar as reasonably possible, in the same position as if such Beneficial Asset had been transferred as contemplated hereby, so that all the benefits and burdens relating thereto shall inure to Liberty Media Group LLC. If and when any such consents and approvals are obtained, the transfer of the applicable Beneficial Asset shall be promptly effected in accordance with the terms of this Agreement. Section 2.8. Certain Tax Issues. The exact manner of the contribution ------------------ of each Liberty Media Group Asset by Liberty Media Corporation and Stockholder to Liberty Media Group LLC (i.e. whether an asset shall be contributed directly or whether the equity interests of a Person owning the asset shall be contributed) shall to the extent practicable be designed to ensure, on both an immediate and an on-going basis, the most efficient tax treatment to all members and Liberty Media Group LLC, after taking into consideration contractual and regulatory restrictions on the transfer of assets. To the extent that the contribution of any Liberty Media Group Asset in the manner contemplated by Liberty Media Corporation or Stockholder would result in the recognition of income or gain pursuant to Treasury Regulations governing consolidated federal income tax revenues and conveyance of such Liberty Media Group Asset by any alternative means would not result in the recognition of such income or gain, such Liberty Media Group Asset will be conveyed by such alternative means. If no such alternative means of conveying such Liberty Media Group Asset exists, Liberty Media Corporation or Stockholder, as applicable, and Liberty Media Group LLC shall, at the option of Liberty Media Group LLC, enter into an agreement providing that (a) such Liberty Media Group Asset shall not be contributed to Liberty Media Group LLC hereunder and (b) to the extent permissible without causing the recognition of income or gain, Liberty Media Group LLC shall have the exclusive and irrevocable power to direct the management, disposition and, if applicable, voting rights of such Liberty Media Group Asset and shall have the exclusive right to receive any and all proceeds of any such disposition. 7 Section 2.9. Conveyance Taxes; Expenses. -------------------------- (a) Liberty Media Corporation agrees to assume liability for and to pay all Transfer, stamp, real property transfer taxes (including New York State Real Property Transfer Gains Tax or similar transfer or gains taxes) and any other similar Taxes incurred as a result of the transactions contemplated hereby, and shall hold each of the other parties hereto harmless against any such Taxes. (b) Liberty Media Corporation shall bear the fees and expenses of all of Liberty Media Corporation, Stockholder, Liberty Media Group LLC and Liberty Management relating to the transactions contemplated by this Article II (including all legal and accounting fees and expenses and the fees and expenses of the investment banking firms referred to in Section 2.5), whether or not such transactions are consummated. Section 2.10. Further Assurances. At or following the Closing, each ------------------ of the parties hereto will promptly execute such other documents and instruments, and will take such further actions, as may be necessary to vest, perfect or confirm any and all right, title and interest in, to and under the Liberty Media Group Assets in Liberty Media Group LLC, and otherwise to carry out the provisions hereof. Section 2.11. Stockholder Consent. Stockholder, as the holder of all ------------------- of the outstanding capital stock of Liberty Media Corporation, hereby consents to and approves the transactions contemplated hereby, including the Liberty Media Corporation Contribution, for all purposes, and agrees and acknowledges that such consent and approval is irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARTIES Section 3.1. Mutual Representations. Each party hereby represents ---------------------- and warrants to the other parties that: (a) Due Incorporation or Organization: Authorization of Agreements. -------------------------------------------------------------- Such party is a corporation or limited liability company duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization and has all requisite corporate or organizational power and authority to own its property and carry on its business as owned and carried on at the date hereof. Such party is duly qualified to do business and in good standing (if applicable) in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on such party. Such party has all requisite corporate or organizational power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by such party, and the execution, delivery and performance of this Agreement by such party have been duly authorized by all requisite corporate or organizational action, including any required approval of the stockholder(s) or member(s) of such party. This Agreement constitutes the legal, valid and binding obligation of such party, enforceable in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency (including all laws relating to fraudulent transfers), reorganization, moratorium and similar laws affecting the rights and remedies of creditors generally and the application of general principles of equity). (b) No Conflict; No Default. Except, as to clauses (i), (iii), (iv) ----------------------- and (v) below only, as would not have a Material Adverse Effect on such party, neither the execution or delivery of this Agreement by such party nor (assuming all necessary consents, approvals, authorizations and other actions necessary for the Liberty Media Corporation Contribution, the Stockholder Contribution or the Liberty Management Contribution, as applicable, have been obtained) the performance of this Agreement by such party or the consummation by such party of the transactions contemplated hereby in accordance with the terms and conditions hereof (i) will conflict with, violate or result in a breach of any of the terms, conditions or provisions of any law, regulation, order, writ, injunction, decree, determination 8 or award of any Governmental Authority applicable to such party or any of its Subsidiaries, (ii) will conflict with, violate, result in a breach of or constitute a default under any of the terms, conditions or provisions of the certificate or articles of incorporation, bylaws or partnership agreement (or other governing documents) of such party or any of its Subsidiaries, (iii) will conflict with, violate, result in a breach of or constitute a default under any of the terms, conditions or provisions of any material agreement or instrument to which such party or any of its Subsidiaries is a party or by which such party or any of its Subsidiaries is or may be bound or to which any equity interest held by such party in any other entity or any of its other material properties or assets is subject, (iv) will conflict with, violate, result in a breach of, constitute a default under (whether with notice or lapse of time or both), accelerate or permit the acceleration of the performance required by, give to others any interests or rights or require any consent, authorization or approval under any indenture, mortgage, lease agreement or similar instrument to which such party or any of its Subsidiaries is a party or by which such party or any of its Subsidiaries is or may be bound, (v) will result in the creation or imposition of any Lien upon any asset held by such party that is transferred to Liberty Media Group LLC pursuant to this Agreement or (vi) will result in the creation or imposition of any Lien upon any of the other material properties or assets of such party or any of its Subsidiaries, other than Permitted Liens. ARTICLE IV COVENANTS OF THE PARTIES Each of the parties hereby agrees and covenants as follows: Section 4.1. Cooperation. Between the date of the occurrence of any ----------- Triggering Event and the Closing (or, if later, the contribution of the applicable Liberty Media Group Asset to Liberty Media Group LLC pursuant to Section 2.7 or 2.8), the parties shall cooperate with each other in their efforts to obtain all necessary consents and approvals for the consummation of the transactions contemplated hereby, including making qualified personnel available for attending hearings and meetings respecting such required consents. Without limiting the generality of the foregoing, each party shall use its best efforts (i) to obtain all consents and authorizations of third parties and Governmental Authorities and to make all filings with and give all notices to third parties and Governmental Authorities which may be necessary or reasonably required in order to effect the transactions contemplated hereby and (ii) to provide the other parties and their respective counsel with copies of all such filings made and all such notices given as such other parties may reasonably request and to afford the other parties the opportunity to participate in any discussions with any such third party or Governmental Authority or representative thereof in connection with the transactions contemplated hereby to the extent reasonably requested by any other party hereto. Subject to the other provisions of this Section 4.1, the parties hereto will not take any action that will have the effect of delaying, impairing or impeding the receipt of any required approvals or consents. Without limiting the applicability of any other provision hereof, Liberty Management and Liberty Media Group LLC shall be afforded the opportunity by Liberty Media Corporation and Stockholder, if applicable, to be involved in the process of obtaining required consents from Governmental Authorities or other third parties, including participation with Liberty Media Corporation and Stockholder, if applicable, in the analysis of the correct procedures to be followed (A) to obtain such consents and (B) in the initiation, negotiation and prosecution of obtaining such consents from Governmental Authorities or other third parties. Section 4.2. Conduct of Business Prior to the Closing Date. During --------------------------------------------- the period from the date hereof to the Closing Date (or as to any applicable Liberty Media Group Asset, the applicable date of contribution of such asset pursuant to Section 2.7 or 2.8), except as permitted or otherwise contemplated by this Agreement, Liberty Media Corporation and Stockholder will not, without the consent of Liberty Media Group LLC (which shall not be unreasonably withheld), enter into any agreement that is in conflict with the terms of this Agreement and Liberty Media Corporation and each Person included in the Additional Liberty Media Group Assets will use its commercially reasonable efforts to preserve the current relationships of Liberty Media Corporation and such Person with its customers, suppliers and other Persons with which it has significant business relationships and to keep available the services of its key employees. During the period from the occurrence of a Triggering Event to the Closing Date, except as permitted 9 or otherwise contemplated by this Agreement or consented to in writing by Liberty Media Group LLC (or as approved by a majority of the Incumbent Directors of Liberty Media Corporation prior to the occurrence of a Triggering Event), Liberty Media Corporation will not take, or commit to take, any of the following actions (and Stockholder will not permit any Person included in the Additional Liberty Media Group Assets to take or commit to take any such action): (i) amend its charter documents or bylaws; (ii) merge or consolidate, or obligate itself to do so, or to be liquidated or dissolved; (iii) issue or sell any shares of capital stock, partnership interests, participations or other equity or ownership interests or any rights relating to any of the foregoing; provided that in the ordinary course of business, -------- Liberty Media Corporation may incorporate new wholly owned subsidiaries for the purpose of the operation of its business as presently conducted or proposed to be conducted; (iv) enter into any new lines of business outside of the business as conducted or proposed to be conducted at such time; (v) conduct its business other than in a manner consistent with past practices or enter into any material transactions outside the ordinary course of business (as such business is presently conducted or proposed to be conducted); (vi) change its accounting methods, principles or practices in any material respect; (vii) declare, set aside or pay any dividend or equity distribution (whether in cash, stock, property or any combination thereof) in respect of its capital stock; (viii) (A) establish any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing or other employee benefit plan, or materially increase the compensation payable or to become payable to any officers or employees, except in any case in the ordinary course of business consistent with past practice or as may be required by law, or (B) establish or increase any stock option, unit appreciation, stock purchase or other equity-based plan; (ix) incur any indebtedness for borrowed money, except in the ordinary course of business; (x) enter into, or make any offers to enter into, any partnership or joint venture with any third party if any consent of any Person is required (that has not been obtained in connection with the formation of such new partnership or joint venture) in order to effect the transfer of the interest in such partnership or joint venture to Liberty Media Group LLC pursuant to this Agreement; (xi) transfer or lease to any third party any assets used in connection with its operations, except for any such transfer or lease (a) made in the ordinary course of business consistent with past practice or (b) with respect to which such assets have been or will be replaced with assets of at least equal value performing comparable functions; or (xii) except as specifically provided for by the Firewall Agreement, enter into any transactions with Parent or its Affiliates that are not on terms as least as favorable to Liberty Media Corporation (or such Person included in the Additional Liberty Media Group Assets) as could be obtained from an unaffiliated third party. 10 Section 4.3. Avoidance of Certain Adverse Effects. The parties shall ------------------------------------ use their best efforts to effect the transfer of the Liberty Media Group Assets to Liberty Media Group LLC in such a form as to (a) avoid or limit the adverse impact of such transfer on any agreements to which Liberty Media Corporation or any Person included in the Additional Liberty Media Group Assets is a party and (b) avoid or minimize the consents and approvals required to effectuate such Transfer. ARTICLE V CONDITIONS TO CLOSING Section 5.1. Conditions Precedent to Closing. The obligations of ------------------------------- each of the parties under this Agreement to effect the transactions contemplated to occur at the Closing are subject to the satisfaction, on or prior to the Closing Date of the following conditions, compliance with which or the occurrence of which may be waived in whole or in part by the other parties hereto. (a) Consents. Subject to Section 2.7, each consent, authorization -------- or approval required to be obtained in connection with the consummation of the transactions contemplated to occur at the Closing shall have been obtained on or prior to the Closing Date, except for any of the foregoing the failure of which to obtain would not, individually or in the aggregate, (i) have a Material Adverse Effect on any party to this Agreement or (ii) have a Material Adverse Effect on Liberty Media Group LLC following the consummation of the transactions contemplated by this Agreement. (b) No Injunction. No preliminary or permanent injunction or other ------------- order, decree or ruling issued by a Governmental Authority, nor any statute, rule, regulation or executive order promulgated or enacted by any Governmental Authority shall be in effect, in any case that enjoins or delays in any material respect the consummation of the transactions to be effected at such Closing or imposes any material restrictions or requirements thereon or on any of the parties in connection therewith. ARTICLE VI CLOSING Section 6.1. Closing. ------- The Closing will take place at the offices of Baker & Botts, L.L.P., 599 Lexington Avenue, New York, New York, at 10:00 a.m. (local time at the place of Closing) on the tenth Business Day after the satisfaction of all conditions set forth in Section 5.1 (subject to Section 2.7), or at such other location or on such other date or time as the parties hereto shall agree. 11 ARTICLE VII TERMINATION Section 7.1. Termination. ----------- (a) This Agreement shall be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing only: (i) by mutual written consent of all of the parties; (ii) upon the consummation of the redemption of all (but not merely substantially all) outstanding shares of Liberty Media Group Common Stock in exchange for shares of the Liberty Media Group Subsidiary pursuant to Paragraph 5(a) of Part B of Article Third of the Parent Charter; or (iii) upon the consummation of the redemption of all (but not merely substantially all) of the outstanding shares of Liberty Media Group Common Stock pursuant to Paragraph 5(b)(ii)(A) of Part B of Article Third of the Parent Charter. (b) If this Agreement is terminated in accordance with this Section 7.1, then this Agreement shall become null and void and have no further effect, without any liability of any party to any other party, except that the obligations of the parties pursuant to Section 8.4 shall survive the termination of this Agreement indefinitely. ARTICLE VIII MISCELLANEOUS Section 8.1. Notices. Except as expressly provided herein, all ------- notices, consents, waivers and other communications required or permitted to be given by any provision of this Agreement shall be in writing and mailed (certified or registered mail, postage prepaid, return receipt requested) or sent by hand or overnight courier, or by facsimile transmission (with acknowledgment received), charges prepaid and addressed to the intended recipient as follows, or to such other address or number as such Person may from time to time specify by like notice to the parties: (a) If to Liberty Media Corporation: Liberty Media Corporation 8101 East Prentice, Suite 500 Englewood, Colorado 80111 Attention: President Telephone: (303) 721-5410 Telecopy: (303) 721-5434 with a copy similarly addressed to the attention of General Counsel: Telephone: (303) 721-5440 Telecopy: (303) 721-5443 12 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 Attention: Elizabeth M. Markowski, Esq. Telephone: (212) 705-5032 Telecopy: (212) 705-5125 (b) If to Liberty Management or Liberty Media Group LLC: c/o Liberty Media Corporation 8101 East Prentice, Suite 500 Englewood, Colorado 80111 Attention: President Telephone: (303) 721-5410 Telecopy: (303) 721-5434 with a copy similarly addressed to the attention of General Counsel: Telephone: (303) 721-5440 Telecopy: (303) 721-5443 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 Attention: Elizabeth M. Markowski, Esq. Telephone: (212) 705-5032 Telecopy: (212) 705-5125 (c) If to Stockholder: c/o Tele-Communications, Inc. 5619 DTC Parkway Englewood, Colorado 80111 Attention: President Telephone: (303) 267-5204 Telecopy: (303) 488-3201 with a copy similarly addressed to the attention of General Counsel: Telephone: (303) 267-4800 Telecopy: (303) 488-3245 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 13 Attention: Elizabeth M. Markowski, Esq. Telephone: (212) 705-5032 Telecopy: (212) 705-5125 Any party may from time to time specify a different address for notices by like notice to the other parties. All notices and other communications given to a Person in accordance with the provisions of this Agreement shall be deemed to have been given and received (i) four Business Days after the same are sent by certified or registered mail, postage prepaid, return receipt requested, (ii) when delivered by hand or transmitted by facsimile (with acknowledgment received and, in the case of a facsimile only, a copy of such notice is sent no later than the next Business Day by a reliable overnight courier service, with acknowledgment of receipt) or (iii) one Business Day after the same are sent by a reliable overnight courier service, with acknowledgment of receipt. Section 8.2. Binding Effect . Except as otherwise provided in this -------------- Agreement, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted transferees, and permitted assigns. Section 8.3. Construction. This Agreement shall be construed simply ------------ according to its fair meaning and not strictly for or against any party. Section 8.4. Expenses. Except as contemplated by Section 2.9 of this -------- Agreement, each of the parties shall bear the fees and expenses relating to its compliance with the various provisions of this Agreement, and each of the parties agrees to pay all of its own expenses (including all legal and accounting fees) incurred in connection with this Agreement, the transactions contemplated hereby, the negotiations leading to the same and the preparation made for carrying the same into effect. Section 8.5. Table of Contents; Headings. The table of contents and --------------------------- section and other headings contained in this Agreement are for reference purposes only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement. Section 8.6. Governing Law. The validity of this Agreement, the ------------- construction of its terms and the interpretation of the rights and duties of the parties shall be governed by the internal laws of the State of New York without regard to principles of conflict of laws. Section 8.7. Severability. Every provision of this Agreement is ------------ intended to be severable. If any term or provision hereof is illegal, invalid or unenforceable for any reason whatsoever, that term or provision will be enforced to the maximum extent permissible so as to effect the intent of the parties, and such illegality, invalidity or unenforceability shall not affect the validity, legality or enforceability of the remainder of this Agreement. If necessary to effect the intent of the parties hereto, the parties hereto will negotiate in good faith to amend this Agreement to replace the unenforceable language with enforceable language which as closely as possible reflects such intent. Section 8.8. Amendments. This Agreement may be modified or amended ---------- only by a written amendment signed by Persons authorized to so bind each party hereto. Section 8.9. Assignment. No party shall assign any of its rights ---------- under this Agreement or delegate its duties hereunder unless it obtains the prior written consent of the other parties hereto, which consent may be withheld at such party's absolute discretion. Section 8.10. Waivers; Remedies. The observance of any term of this ----------------- Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party or parties entitled to enforce such term, but any such waiver shall be effective only if in a writing signed by the party or parties against which such waiver is to be asserted. Except as otherwise provided herein, no failure or delay of any party hereto in exercising 14 any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power. Section 8.11. Consent to Jurisdiction; Specific Performance. --------------------------------------------- (a) Each party hereto irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court sitting in the County of New York or any Federal court of the United States of America sitting in the Southern District of New York, and any appellate court from any such court, in any suit, action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each party hereto irrevocably and unconditionally agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in such New York State court or, to the extent permitted by law, in such Federal court. (b) Each party hereto irrevocably and unconditionally waives, to the fullest extent it may legally do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State court sitting in the County of New York or any Federal court sitting in the Southern District of New York. Each party hereto irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such suit, action or proceeding in any such court and further waives the right to object, with respect to such suit, action or proceeding, that such court does not have jurisdiction over such party. (c) Each party hereto irrevocably consents to service of process in the manner provided for the giving of notices pursuant to this Agreement; provided that such service shall be deemed to have been given only when - -------- actually received by such party. Nothing in this Agreement shall affect the right of a party to serve process in any other manner permitted by law. (d) Each party hereto agrees with the other parties that the other parties would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, in addition to any other remedy to which the nonbreaching parties may be entitled, at law or in equity, the nonbreaching parties shall be entitled to injunctive relief to prevent breaches of this Agreement and specifically to enforce the terms and provisions hereof. Section 8.12. Waiver of Jury Trial. Each party hereto waives, to -------------------- the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to this Agreement. Section 8.13. Further Assurances. Upon reasonable request from time ------------------ to time, each party hereto shall execute, acknowledge and deliver any documents and perform all further acts that may be reasonably necessary, appropriate or desirable to carry out the intent and purposes of this Agreement. Section 8.14. Counterparts. This Agreement may be executed in any ------------ number of counterparts, any one or more of which may bear facsimile signatures, with the same effect as if all parties hereto had signed the same document. All counterparts shall be construed together and shall constitute one agreement. Section 8.15. Limitation on Rights of Others. Nothing in this ------------------------------ Agreement, whether express or implied, shall be construed to give any Person other than the parties hereto any legal or equitable right, remedy or claim under or in respect of this Agreement. 15 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. LIBERTY MEDIA CORPORATION By: /s/ Robert R. Bennett --------------------- Name: Robert R. Bennett Title: President LIBERTY MEDIA MANAGEMENT LLC By: /s/ John C. Malone ------------------ Name: John C. Malone Title: Member LIBERTY MEDIA GROUP LLC By: /s/ Robert R. Bennett --------------------- Name: Robert R. Bennett Title: President LIBERTY VENTURES GROUP LLC By: /s/ Stephen M. Brett -------------------- Name: Stephen M. Brett Title: Vice President 16 EX-10.2 10 INTER-GROUP AGREEMENT DATED MARCH 9, 1999 EXHIBIT 10.2 ------------ - -------------------------------------------------------------------------------- INTER-GROUP AGREEMENT between and among AT&T CORP., on the one hand, and LIBERTY MEDIA CORPORATION, LIBERTY MEDIA GROUP LLC and each Covered Entity listed on the signature pages hereof, on the other hand, dated as of March 9, 1999 - -------------------------------------------------------------------------------- INTER-GROUP AGREEMENT Agreement dated as of March 9, 1999 between AT&T Corp., a New York corporation ("AT&T"), for itself and on behalf of the members of the Common Stock Group, on the one hand, and Liberty Media Corporation, a Delaware corporation, Liberty Media Group LLC, a Delaware limited liability company, and, for so long as such Covered Entity remains a Covered Entity under the applicable provisions of the AT&T Charter Amendment, each Covered Entity listed on the signature pages hereof (collectively, the "Liberty Media Parties"), for --------------------- themselves and on behalf of the other members of the Liberty Media Group, on the other hand. Capitalized terms used herein without definition have the meanings ascribed to such terms in the Merger Agreement (as hereinafter defined). WHEREAS, AT&T, Italy Merger Corp. ("Merger Sub") and TCI are parties ---------- to an Agreement and Plan of Restructuring and Merger originally dated as of June 23, 1998 (the "Merger Agreement") pursuant to which, among other things, subject ---------------- to the terms and conditions contained in the Merger Agreement, and concurrent with the execution hereof, Merger Sub shall be merged with and into TCI with TCI surviving as a wholly owned subsidiary of AT&T (the "Merger"); ------ WHEREAS, AT&T and the Liberty Media Parties desire to establish in this Agreement certain terms and conditions concerning the responsibilities and obligations of each Group to the other as well as certain additional provisions concerning the Group's relationship with each other. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, AT&T and the Liberty Media Parties hereby agree as follows: ARTICLE I RELATIONSHIP BETWEEN COMMON STOCK GROUP AND LIBERTY MEDIA GROUP SECTION 1.1. Reciprocal Obligations; Corporate Opportunities. Neither ----------------------------------------------- the Common Stock Group, on the one hand, nor the Liberty Media Group, on the other hand, shall have any duty, responsibility or obligation (legal or otherwise) (and none of the directors or officers of AT&T or the Common Stock Group, on the one hand, or of LMC or the Liberty Media Group, on the other hand, shall have any duty, responsibility or obligation) (legal or otherwise) (i) to communicate, present, make available or offer any business or other corporate opportunity to the other Group (including, without limitation, any business or other corporate opportunity which (x) such other Group may be financially able to undertake, (y) is in such other Group's line of business, or (z) is of practical advantage to more than one Group), and the Group which receives any such business or corporate opportunity may pursue such opportunity for its sole benefit, (ii) to provide financial support to the other Group (or any member thereof), or (iii) otherwise to assist the other Group, except in each case as may be expressly set forth in this Agreement or any other agreement between one or more members of the Common Stock Group, on the one hand, and one or more members of the Liberty Media Group, on the other hand (this Agreement and such other agreements being referred to individually as an Intercompany Agreement ---------------------- and collectively as the Intercompany Agreements). Without limiting the ----------------------- generality of the foregoing, (x) any person who is serving on the Board of Directors of LMC or on the Board of Directors of any Covered Entity at the request of AT&T shall have no duty to communicate, present, make available or offer to LMC or the Liberty Media Group any business or other corporate opportunities obtained or presented to such person in such person's capacity as an officer, director or employee of AT&T or a member of the Common Stock Group and (y) any officer, director or employee of LMC or any member of the Liberty Media Group serving on the AT&T Board of Directors (or the Board of Directors of any other member of the Common Stock Group) shall have no duty to communicate, present, make available or offer to AT&T or the Common Stock Group any business or other corporate opportunities obtained or presented to such person in such persons capacity as an officer, director or employee of LMC or a member of the Liberty Media Group. SECTION 1.2. Rights to Intellectual Property and Other Rights. Without ------------------------------------------------ limiting the generality of Section 1.1, neither the Common Stock Group nor the Liberty Media Group shall have any rights to any Intellectual Property of the other Group, except as expressly set forth in the Intercompany Agreements or as set forth in the following sentence. For purposes of clarification, to the extent a member of one Group is a party to any Intellectual Property agreement or arrangement that, as of immediately prior to the Merger, also confers rights to Intellectual Property on one or more members of the other Group, such members of the other Group shall continue to have such rights to Intellectual Property after the Merger (on the same terms and conditions, including any related obligations), in accordance with the provisions of such agreement or arrangement. 2 SECTION 1.3. Indebtedness. (a) Neither the Common Stock Group nor ------------ the Liberty Media Group shall incur any indebtedness for borrowed money or guarantee any indebtedness of any other Person or incur any other Liability (including any preferred equity obligation) that has or purports to have recourse to any member, or to the assets of any member, of the other Group. Except for the Intercompany Agreements, no member of the Common Stock Group or the Liberty Media Group shall enter into any agreement, or incur any other Liability, that binds or purports to bind or impose any Liabilities on any member of the other Group. For purposes of this Agreement, the attribution to the Liberty Media Group of any indebtedness, guarantee, obligation or other Liability incurred, created or permitted to exist by AT&T or a member of the Common Stock Group shall, absent a Liberty Approval (as defined below), constitute the incurrence of an obligation imposing a Liability on the Liberty Media Group in violation of the covenant of the Common Stock Group contained in the first sentence of this Section 1.3(a). (b) Neither LMC nor any member of the Liberty Media Group will incur any debt (other than in connection with the refinancing of existing debt without any increase in the then accrued principal amount thereof) (a "Liberty Debt ------------ Incurrence") that would cause the total debt of the Liberty Media Group at any - ---------- time to be in excess of 25% of the total market capitalization of the AT&T Liberty Tracking Shares (the "Liberty Media Group Debt Limit"), if such excess ------------------------------ debt would adversely affect the credit rating of AT&T (after giving effect to the Merger). Prior to any Liberty Debt Incurrence which would cause the total debt of the Liberty Media Group to exceed the Liberty Media Group Debt Limit, LMC shall notify AT&T in writing of the proposed Liberty Debt Incurrence (the "Liberty Debt Notice"), which Liberty Debt Notice shall include a summary of the ------------------- principal terms of such proposed Liberty Debt Incurrence. LMC shall thereafter consult with AT&T regarding the proposed Liberty Debt Incurrence and any expected adverse effect thereof on AT&T's credit rating. At the written request of AT&T, which request shall be made no later than 5 business days after receipt by AT&T of the applicable Liberty Debt Notice, LMC and AT&T shall consult with two nationally recognized credit rating agencies (each, a "Credit Rating ------------- Agency"), with one of such Credit Rating Agencies to be selected by each of LMC - ------ and AT&T, to determine whether such incremental Liberty Debt Incurrence in excess of the Liberty Debt Limit would adversely affect the credit rating of AT&T. If both such Credit Rating Agencies determine that the incremental Liberty Debt Incurrence in 3 excess of the Liberty Debt Limit would not adversely affect AT&T's credit rating, then notwithstanding the first sentence of this paragraph (b), the Liberty Media Group shall be permitted to effect such Liberty Debt Incurrence. If one or more of the Credit Rating Agencies determines that the incremental Liberty Debt Incurrence in excess of the Liberty Debt Limit would adversely affect AT&T's credit rating, then the Liberty Media Group shall not effect such Liberty Debt Incurrence. In the event that a Liberty Debt Notice describes a maximum amount of indebtedness that may be incurred under any revolving credit, multiple drawdown or similar facility and the Credit Rating Agencies (at the request of LMC), in making their determination as to whether the Liberty Debt Incurrence in excess of the Liberty Debt Notice would adversely affect AT&T's credit rating, assume that the maximum amount of indebtedness will be incurred thereunder, then any subsequent incurrence of indebtedness under such facility up to such limit shall be deemed not to constitute a Liberty Debt Incurrence for purposes of this Agreement. SECTION 1.4. Liabilities; Allocation of Certain Expenses; -------------------------------------------- Indemnification. - --------------- (a) (i) The Liberty Media Group, on the one hand, and the Common Stock Group, on the other hand, shall be responsible for all Liabilities arising from such Groups operations and businesses, including, without limitation, (A) all Liabilities to such Groups officers and employees (including all Liabilities relating to deferred compensation obligations and, subject to clause (ii) below, Stock Incentives (as defined below) held by such officers and employees), (B) all Liabilities relating to or arising from actions taken by such Groups officers and employees (provided, that with respect to any officer or employee who prior to the Effective Date (1) was an officer or employee of both the Liberty Media Group and the TCI Group, (2) was an officer or employee of one Group, but following the Effective Time is an officer or employee of the other Group, or (3) was an officer or employee of TCI but exercised authority over both the Liberty Media Group and the TCI Group, the liability of a Group for such persons actions shall be determined based upon the capacity in which such person was acting at the time of such action), and (C) all Liabilities relating to information publicly disclosed by such Group or information provided by such Group for inclusion in any such public disclosure, in each case, whether arising before, on or after the Closing Date. Without limiting the generality of this Section 1.4, the Liberty Media Group shall be responsible for any Liabilities relating to (A) any and all transfers of assets between the Liberty Media Group and the TCI Ventures Group, (B) the exchange of TCI Ventures Tracking Shares for Liberty Media Tracking Shares (or, if 4 applicable, the relative Liberty Media Exchange Ratios and TCI Ventures Exchange Ratios), as contemplated by the Merger Agreement and (C) the amended and restated Certificate of Incorporation and By-Laws of LMC and any Covered Entity, the terms of the operating agreement of Liberty Media Group LLC and any agreements between Liberty Media Group LLC and any member of the Liberty Media Group. (ii) Each Group shall be responsible for all payments required to be made, or consideration required to be delivered, in connection with the exercise or settlement of any stock options or other equity-linked incentives, including stock appreciation rights, phantom stock rights and similar equity-linked instruments (collectively, "Stock Incentives"), (i) by any person who is an ---------------- officer, employee or consultant of such Group at the time of such exercise or settlement, and (ii) by any person who is no longer an officer, employee or consultant of either Group at the time of such exercise or settlement but who was an officer, employee or consultant of such Group on the date of such person's last employment by either Group. Notwithstanding the foregoing, AT&T shall be responsible for the issuance and delivery to the transfer agent of any Parent Common Shares or AT&T Liberty Tracking Shares that become deliverable in connection with the exercise or settlement of any such Stock Incentive. In connection with the exercise or settlement of any Stock Incentive by any person who is (or last was) an officer, employee or consultant of the Common Stock Group or the Liberty Media Group that results in the delivery of Other Group Shares in accordance with the terms of the applicable Stock Incentive (and any elections made by the applicable officer, employee or consultant in connection with such exercise or settlement), the Group of which such person is (or last was) an officer, employee or consultant shall pay in cash to the other Group promptly following any such exercise or settlement (and the issuance and delivery of the applicable Other Group Shares) an amount in cash equal to the difference between (i) the value of the Other Group Shares delivered to such person in connection with such exercise or settlement, with the value of any such shares determined in accordance with the terms of such Stock Incentive (or if the procedure for such determination is not specified in such instrument or is otherwise not determinable in accordance therewith, by reference to the last reported trade for such shares on the principal exchange on which such shares are listed for trading on the date of such exercise or settlement (or if such date is not a trading day, the next trading day thereafter)) and (ii) the exercise price paid, or other consideration delivered (including shares theretofore held by such person), by such person upon such exercise or settlement (other 5 than the deemed proceeds retained by the Common Stock Group or the Liberty Media Group as the case may be, in connection with a cashless exercise or the like effected without the delivery of shares theretofore held by such person). (b) Notwithstanding anything to the contrary in this Section 1.4, the Common Stock Group shall be responsible for TCI's legal, financial advisory and accounting fees and printing expenses, in each case, incurred in connection with the Merger Agreement and the Merger and the transactions contemplated thereby. For purposes of clarification, such fees and expenses will be paid by TCI or one or more of its subsidiaries that are members of the Common Stock Group (and will be attributed to the Common Stock Group). (c) (i) AT&T and each member of the Common Stock Group shall jointly and severally indemnify and hold harmless LMC and each member of the Liberty Media Group from and against, and pay and reimburse the Liberty Media Group for, any and all Liabilities (including liabilities for reasonable attorneys fees and expenses) for which the Common Stock Group is responsible pursuant to this Section 1.4. (ii) LMC and each member of the Liberty Media Group shall jointly and severally indemnify and hold harmless AT&T and each member of the Common Stock Group from and against, and pay and reimburse the Common Stock Group for, any and all Liabilities (including liabilities for reasonable attorneys fees and expenses) for which the Liberty Media Group is responsible pursuant to this Section 1.4. (iii) Except with respect to claims for indemnification with respect to which there exists a good faith dispute, the indemnifying party shall satisfy its obligations hereunder within 30 days of receipt of the indemnified party's notice of a claim under this Section 1.4 setting forth in reasonable detail the indemnified party's basis for making such claim and for calculating the amount to which it claims to be entitled under this Section 1.4. (d) The Liberty Media Group shall be entitled to elect to use a different independent accounting firm in connection with the annual audits of the Liberty Media Group than the firm used by the Common Stock Group; provided, that such independent accounting firm shall be reasonably satisfactory to AT&T. The Common Stock Group acknowledges that KPMG Peat Marwick is satisfactory to AT&T. 6 SECTION 1.5. Allocation of Overhead Expenses. AT&T shall not, and ------------------------------- shall not permit any member of the Common Stock Group to, allocate or charge any general corporate overhead expenses to the Liberty Media Group except (i) to the extent that the Liberty Media Group receives specific services pursuant to services agreements or similar arrangements between the Common Stock Group and the Liberty Media Group and (ii) that the Common Stock Group shall be entitled to charge the Liberty Media Group an allocable share of the fees and expenses of AT&T's independent accountants incurred in connection with AT&T's annual audits (unless the Liberty Media Group elects to use a different independent accounting firm in connection with the annual audits of the Liberty Media Group than the firm used by the Common Stock Group, in which case the Common Stock Group shall be responsible for all of the fees and expenses of AT&T's independent accountants and the Liberty Media Group shall be responsible for all of the fees and expenses of such different independent accounting firm used by the Liberty Media Group). SECTION 1.6. LMC Stock and AT&T Liberty Tracking Stock Issuances and ------------------------------------------------------- Repurchases. (a) LMC shall have the right to authorize, issue, offer and sell - ----------- additional shares of its common stock and shall have the right to authorize, issue and sell shares of one or more series of its preferred stock (including any securities which are convertible into or exercisable or exchangeable for, common stock or preferred stock) in any such case, only if, after giving effect to such issuance or sale (and any conversion, exercise or exchange thereof), Liberty Media Corporation would remain a Qualifying Subsidiary and a member of the affiliated group of which AT&T is the common parent as described in Section 1504(a)(2) of the Code (as amended from time to time). Subject to the foregoing, AT&T agrees to vote or cause to be voted all capital stock of LMC beneficially owned by it and its Subsidiaries in favor of any proposed amendment to LMC's restated certificate of incorporation approved by a majority of LMC's directors that increases the number of shares of capital stock of LMC and/or changes the par value thereof (or otherwise effects a recapitalization of LMC in connection with any proposed transaction including the authorization, issuance, offering and/or sale of additional shares of LMC capital stock pursuant to this subsection (a)). (b) Subject to Section 1.11(a), AT&T shall contribute to LMC the net proceeds of (i) any issuance of AT&T Liberty Tracking Shares or other securities of AT&T or any other Person either (A) controlled by 7 AT&T or (B) on behalf of AT&T which other securities, in either case, are convertible into, or exercisable or exchangeable for, shares of AT&T Liberty Tracking Shares (including upon the exercise or settlement of any Stock Incentive), including any amounts payable by the holder thereof upon the conversion, exercise or exchange of such securities (collectively, "Convertible ----------- Securities"), and (ii) any sale of AT&T Liberty Tracking Shares or Convertible - ---------- Securities that were acquired by a member of the Common Stock Group or the Liberty Media Group using cash or assets attributed to the Liberty Media Group or in exchange for AT&T Liberty Tracking Shares or Convertible Securities that are attributable to the Liberty Media Group. Following the occurrence of a Triggering Event, such contribution shall be made through a contribution to LMC, which in turn shall contribute such net proceeds to Liberty Media Group LLC. In connection with any such transaction involving the issuance or sale of additional AT&T Liberty Tracking Shares or Convertible Securities, LMC shall be entitled to select counsel, investment bankers or other financial advisors and other professional service firms to represent the issuer in connection with any such issuance or sale, provided that such professional service firms shall be reasonably satisfactory to AT&T. AT&T acknowledges that for purposes of this paragraph Baker & Botts, L.L.P. is satisfactory to AT&T. (c) AT&T, for and on behalf of each member of the Common Stock Group (including TCI), agrees and acknowledges that (i) the rights and obligations of the Company under the Call Agreements and the Stockholders Agreement have been assigned to LMC and (ii) neither TCI nor any member of the Common Stock Group has any further rights or obligations under the Call Agreements or the Stockholders Agreement. (d) AT&T will contribute to capital of TCI from time to time such number of Class A AT&T Liberty Tracking Shares as may be necessary for TCI to contribute such shares to Tele-Communications International, Inc. ("TINTA"), for ----- delivery upon conversion of the currently outstanding 4 1/2% Convertible Subordinated Debentures due 2006 of TINTA, in accordance with the agreement dated as of November 19, 1998, between TINTA and TCI (as if references in such agreement to LMG Series A Stock were references to Class A AT&T Liberty Tracking Shares). In addition, AT&T shall use its reasonable efforts to list such Class A AT&T Liberty Tracking Shares on the NYSE. SECTION 1.7. Asset Transfers. (a) To the extent not already --------------- accomplished pursuant to Section 2.1(d) of the Merger Agreement, following the Effective Time the Liberty Media Group and the Common Stock 8 Group shall continue to make such transfers of assets and businesses, and assumptions of liabilities, if any, as may be necessary in order to cause the representations and warranties set forth in Section 5.17(c)(ii) of the Merger Agreement (as if the references therein to TCI Ventures LLC referred to LMC and the Covered Entities) to be true and correct in all material respects (including to complete the transactions described in Schedule 2.1(a) of the Merger Agreement and the letter agreement regarding TCI Wireless Holdings, Inc., dated as of February 11, 1999, among AT&T, TCI and LMC (the "Letter Agreement")). To ---------------- the extent any matter specifically addressed in Schedule 2.1(a) of the Merger Agreement or the Letter Agreement is inconsistent with such Section 5.17(c)(ii) of the Merger Agreement, Schedule 2.1(a) of the Merger Agreement and/or the Letter Agreement shall control. In furtherance of the foregoing, any contract right or other similar right that is part of any asset that is attributed to a particular Group in accordance with this Section 1.7 and the representation and warranty in Section 5.17(c)(ii) of the Merger Agreement shall be the right of the Group to which such related asset is so attributed. (b) Each of the Liberty Media Parties represents and warrants to AT&T that, as of the Effective Time, none of the Covered Entities will own, directly or indirectly, any asset attributable to the Common Stock Group, and to the extent not true and correct at the Effective Time, LMC and the Liberty Media Group shall make such transfers of assets, and assumptions and liabilities, if any, or take any other actions as are necessary to cause the representations and warranties set forth in this paragraph (b) to be true and correct as promptly as practicable following the Effective Time. To the extent any matter specifically addressed in Schedule 2.1(a) of the Merger Agreement or the Letter Agreement is inconsistent with this Section 1.7(b), Schedule 2.1(a) of the Merger Agreement and/or the Letter Agreement shall control. SECTION 1.8. Appraisal Rights. In the event that the holders of any ---------------- TCI Preferred Stock or TCIC Preferred Stock are entitled to and validly exercise appraisal rights under the DGCL, (a) the Liberty Media Group shall be entitled to control, and shall be responsible for, all matters relating to the exercise of appraisal rights with respect to shares of Series C Liberty Media Group Preferred Stock and Series H Preferred Stock, and (b) the Common Stock Group shall be entitled to control, and shall be responsible for, all matters relating to the exercise of appraisal rights with respect to shares of Series C-TCI Group Preferred Stock, Series G Preferred Stock and TCIC Preferred Stock. 9 SECTION 1.9. Certain Redemptions of AT&T Liberty Tracking Shares. --------------------------------------------------- (a) If AT&T redeems the outstanding AT&T Liberty Tracking Shares pursuant to paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, then prior to such redemption (i) the certificate of incorporation and bylaws or other organizational or constituent instruments (collectively, the "LMC --- Charters") of each applicable Liberty Media Group Subsidiary (as defined in the - -------- AT&T Charter Amendment) shall be amended and/or restated (A) so that the LMC Charters contain provisions relating to the election of directors (including without limitation provisions relating to the term and removal of directors) and each other matter which could reasonably be expected to impair the ability of a third party to seek control of such entity which are equivalent to, but no more restrictive than, those contained in the certificate of incorporation and by- laws of TCI in effect as of June 23, 1998, (B) to increase the authorized number of shares of common stock of such Liberty Media Group Subsidiary to at least a sufficient number to permit such redemption or dividend on a share-for-share basis (or a reasonable fraction thereof), and (C) if and to the extent practicable, to reclassify the existing common stock of such Liberty Media Group Subsidiary into shares of two separate classes or series with relative voting rights and related differences in designation, conversion, redemption and share distribution provisions equivalent to but not greater than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Class A AT&T Liberty Tracking Shares and the Class B AT&T Liberty Tracking Shares (with the holders of the Class B AT&T Liberty Tracking Shares receiving the class or series having the higher relative voting rights) (which reclassification in the case of LMC and any Covered Entity, would be of its Class A Common Stock into the series with the lower relative voting rights and unless otherwise approved and recommended by the board of directors of such entity, of the Class B and Class C Common Stock into the series with the higher relative voting rights), (ii) no Triggering Event shall thereafter occur, and (iii) in the event that a Triggering Event has occurred, Liberty Media Group LLC shall be automatically dissolved immediately prior to such redemption. Prior to such redemption, the applicable Liberty Media Group Subsidiary may propose the forms of such LMC Charters, which LMC Charters shall contain the provisions set forth in this Section 1.9(a), and may contain such additional provisions as may be proposed by the applicable Liberty Media Group Subsidiary (which shall be subject to AT&T's reasonable approval). AT&T will vote or cause to be voted its direct or indirect equity interest in each applicable Liberty 10 Media Group Subsidiary in favor of the LMC Charters described in the previous sentence. Neither the Liberty Media Group nor the Common Stock Group shall permit any of the LMC Charters to include any provision that would be inconsistent with this Section 1.9(a). The parties shall enter into such agreements and other arrangements (or add provisions to constituent instruments) as are necessary to give effect to this Section 1.9(a). (b) If AT&T pays a mandatory dividend on, or redeems all or a portion of, the AT&T Liberty Tracking Shares pursuant to paragraph 5(b) of Part B of Article Third of the AT&T Charter Amendment in shares of the outstanding capital stock of a Person that at the time of such dividend or other redemption was a direct or indirect Subsidiary of AT&T, then prior to such redemption or dividend the certificate of incorporation or other organizational instruments of each such Subsidiary of AT&T the ("Sub Charters") shall be amended and/or restated ------------ (A) so that such instruments contain provisions relating to the election of directors (including without limitation provisions relating to the term and removal of directors) and each other matter which could reasonably be expected to impair the ability of a third party to seek control of such entity which are equivalent to, but no more restrictive than, those contained in the certificate of incorporation and by-laws of TCI in effect as of June 23, 1998, (B) to increase the authorized number of shares of common stock of such Subsidiary to at least a sufficient number to permit such redemption or dividend on a share- for-share basis (or a reasonable fraction thereof), and (C) if and to the extent practicable, to reclassify the existing common stock of such Subsidiary into shares of two separate classes or series with relative voting rights and related differences in designation, conversion, redemption and share distribution provisions equivalent to but not greater than the corresponding differences in voting rights, designation, conversion, redemption and share distribution provisions between the Class A AT&T Liberty Tracking Shares and the Class B AT&T Liberty Tracking Shares (with the holders of the Class B AT&T Liberty Tracking Shares receiving the class or series having the higher relative voting rights). Prior to such redemption, LMC may propose the forms of such Sub Charters, which Sub Charters shall contain the provisions set forth in this Section 1.9(b), and may contain such additional provisions as may be proposed by LMC (which shall be subject to AT&T's reasonable approval). AT&T will vote or cause to be voted its direct or indirect equity interest in each applicable Liberty Media Group Subsidiary in favor of the Sub Charters described in the previous sentence. Neither the Liberty Media Group nor the Common Stock Group shall permit any of the Sub Charters to include any provision that would be 11 inconsistent with this Section 1.9(b). The parties shall enter into such agreements and other arrangements (or add provisions to constituent instruments) as are necessary to give effect to this Section 1.9(b). (c) In the event of any redemption of any AT&T Liberty Tracking Shares in exchange for any shares of any class of capital stock of any Subsidiary or Subsidiaries of AT&T that is or are members of the Liberty Media Group (each, a Liberty Co), including without limitation, any such redemption pursuant to - ---------- paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, then prior to any such redemption, the Liberty Media Group shall take such action as is necessary to cause each such Liberty Co to enter into an agreement providing that in the event that any holder of any of the convertible notes referred to in Note 9(c) of TCI's consolidated audited financial statements for the year ended December 31, 1997 (the Convertible Notes), convert all or part of such ----------------- Convertible Notes, each such Liberty Co shall deliver any consideration required to be paid in respect of its capital stock in accordance with the terms of the Convertible Notes to the holders of the Convertible Notes upon conversion thereof (or upon request of the applicable issuer of such Convertible Notes in connection with any such conversion, to deliver such consideration to the applicable issuer for delivery to such converting holder(s)). With reference to a redemption pursuant to paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, if there is any direct or indirect tax liability to AT&T or any other obligor of the Convertible Notes arising from the performance by any such Liberty Co of its obligations in connection with the preceding sentence and this sentence, such tax liability shall be borne 40% by the Liberty Media Group and 60% by the Common Stock Group. SECTION 1.10. AT&T SEC Filings; Financial Statements; Cooperation. --------------------------------------------------- (a) For so long as any AT&T Liberty Tracking Shares are outstanding, AT&T shall include in its filings with the SEC under the Exchange Act (or amendments thereto), combined financial statements of the Liberty Media Group provided by LMC. The combined financial statements of the Liberty Media Group shall reflect the combined financial position, results of operations and cash flows of the businesses attributed to the Liberty Media Group, and in the case of annual financial statements, shall be audited. If so requested by LMC, AT&T shall include, together with the copies of its annual report to stockholders that are mailed to holders of AT&T Liberty Tracking Shares, such separate materials containing the following information as LMC may timely provide to AT&T for inclusion therein: (i) the combined 12 financial statements referred to in the preceding sentence and (ii) other narrative and statistical information relating to the Liberty Media Group. Alternatively, if so requested by LMC, AT&T will reasonably cooperate with LMC in forwarding such materials provided to AT&T by LMC to the holders of the AT&T Liberty Tracking Shares. In either case, all incremental expenses associated therewith shall be borne solely by the Liberty Media Group. (b) AT&T shall, and shall cause the members of the Common Stock Group to, cooperate with the Liberty Media Group, and LMC shall, and shall cause the members of the Liberty Media Group to, cooperate with the Common Stock Group, with respect to common functions such as financial reporting, tax reporting and governmental and regulatory filings. (c) Upon the request of LMC, AT&T shall cooperate with LMC in establishing and maintaining for the benefit of the officers and employees of the Liberty Media Group, at the Liberty Media Group's sole cost and expense, employee stock purchase, stock option and 401(k) plans, as well as such other customary employee benefit and incentive plans as LMC may reasonably request; provided, that the trustees, administrators or other managers of any such plan established solely for the benefit of all or a portion of the officers and employees of the Liberty Media Group shall be persons designated by LMC. SECTION 1.11. Restricted Actions of the Common Stock Group. (a) -------------------------------------------- AT&T shall not, and shall not permit any member of the Common Stock Group to, directly or indirectly, (i) Transfer (other than Transfers pursuant to a redemption of the AT&T Liberty Tracking Shares in accordance with paragraph 5 of Part B of Article Third of the AT&T Charter Amendment), (ii) incur any indebtedness secured by or pledge or grant a lien, security interest or other encumbrance on, or (iii) create any derivative instrument whose value is based on, any equity interest, direct or indirect, of AT&T in LMC, Liberty Media Group LLC, or any Covered Entity; provided, however, that the foregoing shall not -------- ------- apply to (A) any of the foregoing approved (x) by a Required Majority of the members of the Board of Directors of LMC or the applicable Covered Entity prior to the occurrence of a Triggering Event, or (y) by Liberty Management after the occurrence of a Triggering Event ((x) or (y), as applicable, a Liberty ------- Approval) (but in either such case only to the extent the net proceeds of such - -------- Transfer, incurrence or creation are contributed to LMC or, following the occurrence of a Triggering Event, Liberty Media Group LLC), (B) any issuance or sale by AT&T of any of its own securities (other than (x) indebtedness secured by any equity interest, 13 direct or indirect, of AT&T in LMC or Liberty Media Group LLC or any Covered Entity, (y) any security which is convertible into or exercisable or exchangeable for, or any derivative instrument whose value is based on, any equity interest, direct or indirect, of AT&T in LMC or Liberty Media Group LLC or any Covered Entity or (z) any issuance or sale of AT&T Liberty Tracking Shares (or any security convertible into or exercisable or exchangeable for, AT&T Liberty Tracking Shares) in which the proceeds of such issuance and sale are not contributed to the Liberty Media Group), or (C) any merger, consolidation, exchange of shares or other business combination transaction involving AT&T in which AT&T (or its successors) continues immediately following such transaction to hold the same interest in the business, assets and liabilities comprising the Liberty Media Group that it held immediately prior to such transaction (other than as a result of any action by LMC or any other Person included in the Liberty Media Group). (b) For so long as any AT&T Liberty Tracking Shares are outstanding, AT&T shall not, and shall cause each member of the Common Stock Group not to, intentionally take any action that AT&T knows would have the effect of deconsolidating LMC or any Covered Entity from the AT&T consolidated group for United States federal income tax purposes; provided, however, that the foregoing shall not apply to (i) a disposition of all or substantially all of the properties and assets of the Liberty Group pursuant to paragraph 5(b) of Part B of Article Third of the AT&T Charter Amendment, (ii) any redemption of the outstanding AT&T Liberty Tracking Shares pursuant to paragraph 5(a) of Part B of Article Third of the AT&T Charter Amendment, (iii) any deconsolidation of a Covered Entity which occurs as a result of the consummation of the transactions contemplated by the Contribution Agreement following the occurrence of a Triggering Event, or (iv) any such deconsolidation pursuant to a Covered Disposition approved by the holders of the AT&T Liberty Tracking Shares in accordance with paragraph 1(b)(ii) of Part B of Article Third of the AT&T Charter Amendment. (c) AT&T shall not create, authorize or issue any preferred stock of AT&T attributable to the Liberty Media Group without a Liberty Approval. (d) Neither AT&T nor any other member of the Common Stock Group shall intentionally acquire or agree to acquire, directly or indirectly, by purchase or otherwise, any beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of any shares of any 14 class of capital stock of Flextech plc ("Flextech") or any of its subsidiaries -------- listed on a schedule to be provided to AT&T by LMC, which schedule shall be updated periodically by LMC, or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any shares of any class of capital stock of Flextech or any of such subsidiaries; provided, however, that nothing herein shall prevent AT&T or any member of the Common Stock Group from acquiring less than 10 percent by vote and value of any company which is incorporated in a state of the United States which owns shares of Flextech. If AT&T or any member of the Common Stock Group inadvertently acquires, directly or indirectly, any beneficial ownership of any such shares or any rights or options to acquire such shares, AT&T or such member of the Common Stock Group shall divest such shares, rights or options within 30 days of such acquisition. At such time and to the extent that the covenant contained herein is no longer necessary to prevent adverse tax consequences, the covenant shall expire and LMC will so notify AT&T. Neither AT&T nor any member of the Common Stock Group has any beneficial ownership of any shares of any class of capital stock of Flextech or any of its subsidiaries or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any shares of any class of capital stock of Flextech or any of its subsidiaries. SECTION 1.12. Restricted Actions of the Liberty Media Group. Neither --------------------------------------------- LMC nor any other member of the Liberty Media Group shall intentionally acquire or agree to acquire, directly or indirectly, by purchase or otherwise, any beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of any shares of any class of capital stock of British Telecommunications plc, a company organized under the laws of England and Wales ("BT") or any of its subsidiaries listed on a schedule -- to be provided to LMC by AT&T, which schedule shall be updated periodically by AT&T, or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any shares of any class of capital stock of BT or any of such subsidiaries; provided, however, that nothing herein shall prevent LMC or any member of the Liberty Media Group from acquiring (1) any interest in any subsidiary of BT which is incorporated in a state of the United States and is not the direct or indirect shareholder of any equity interest in Thistle BV and (2) less than 10 percent by vote and value of any company which is incorporated in a state of the United States which owns shares of BT. If LMC or any member of the Liberty Media Group inadvertently 15 acquires, directly or indirectly, any beneficial ownership of any such shares or any rights or options to acquire such shares, LMC or such member of the Liberty Media Group shall divest such shares, rights or options within 30 days of such acquisition. At such time and to the extent that the covenant contained herein is no longer necessary to prevent adverse tax consequences, the covenant shall expire and AT&T will so notify LMC. Neither LMC nor any member of the Liberty Media Group has any beneficial ownership of any shares of any class of capital stock of BT or any of its subsidiaries or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any shares of any class of capital stock of BT or any of its subsidiaries. SECTION 1.13 Telewest Communications plc. Effective no later than --------------------------- the date of closing of the transactions contemplated by the Framework Agreement, dated as of October 23, 1998, by and among AT&T, VLT Corporation, British Telecommunications plc, BT (Netherlands) Holdings B.V., and Thistle B.V., a Besloten Vennotschap organized under the laws of the Netherlands, LMC agrees (i) to create a committee of the Board of Directors of LMC, in which the Class A Directors (as such term is defined in the Restated Certificate of Incorporation of LMC) will not participate; (ii) that the Board of Directors of LMC will delegate to such committee its authority to discuss and receive information and take all decisions regarding Telewest Communications plc, a public limited company incorporated in England and Wales (Telewest), or and of its Subsidiaries, (iii) that the Board of Directors of LMC will not participate in any discussions or decisions regarding Telewest or any of its Subsidiaries and (iv) that the Class A Directors will not accept or receive any information regarding Telewest or any of its Subsidiaries. SECTION 1.14 GI Warrants. ----------- (a) For purposes of this Section 1.14, the following terms shall have the following meanings: (i) Digital Terminals shall mean the Terminals, as defined in ----------------- the Digital Terminal Purchase Agreement. (ii) Digital Terminal Purchase Agreement shall mean the ----------------------------------- Digital Terminal Purchase Agreement, dated as of December 16, 1997, by and between GI and NDTC. 16 (iii) GI shall mean General Instrument Corporation (formerly -- known as NextLevel Systems, Inc.), or any successor thereto (by merger, consolidation, sale of all or substantially all of its assets or otherwise) or affiliate thereof. (iv) GI Common Stock shall mean the common stock of GI. --------------- (v) GI Warrant Agreement shall mean the Warrant Issuance -------------------- Agreement, dated as of December 16, 1997, by and between GI and NDTC. (vi) NDTC shall mean National Digital Television Center, Inc. ---- (or any successor thereto (by merger, consolidation, sale of all or substantially all of its assets or otherwise)) and any Approved Purchaser (as defined in the GI Warrant Agreement) for purposes of determining whether the obligations of NDTC to purchase the Threshold Numbers of Digital Terminals under the Digital Terminal Purchase Agreement and the GI Warrant Agreement have been satisfied. (vii) Threshold Number shall mean the minimum number of Digital ---------------- Terminals that must be purchased by NDTC by December 31st of each calendar year for the calendar years 1998, 1999 and 2000, as described in Schedule A to the GI Warrant Agreement. (viii) Terminated Warrant shall mean a Warrant that is the ------------------ subject of a Warrant Termination. (ix) Warrants shall mean the warrants, originally issued to -------- NDTC pursuant to the GI Warrant Agreement and transferred and assigned to LMC pursuant to an Assignment and Assumption Agreement, dated as of March 9, 1999, to purchase up to 21,356,000 shares of GI Common Stock (subject to adjustments provided for in the GI Warrant Agreement). (b) (i) If any Warrant terminates prior to vesting or fails to vest solely because of the failure of the Common Stock Group to purchase the required amount of advanced set top boxes (a Warrant Termination), and the ------------------- Liberty Media Group so notifies AT&T in writing, and provides AT&T with documentation verifying such Warrant Termination (such notification and documentation, the Warrant Notice), the Common Stock Group shall pay to the Liberty Media Group an amount in cash equal to $8.25 per share of GI Common Stock that would have been issuable upon exercise of such Terminated Warrant had it vested and been exercised in full 17 (such dollar amount to be appropriately adjusted to reflect any adjustment in the number of shares so issuable) (a Warrant Compensation), such payment to be -------------------- made in immediately available funds no later than the 10th day following receipt by AT&T of the Warrant Notice. Nothing herein shall preclude the Common Stock Group from seeking legal recourse against GI in the event of a Warrant Termination; provided, however, that if the Common Stock Group receives any Alternate Consideration, the Liberty Media Group shall have the right, but not the obligation, to exchange all or a portion of any Warrant Compensation for all or an allocable portion of any Alternate Consideration received by any member of the Common Stock Group from GI that directly or indirectly relates to such Warrant Termination. (ii) The Common Stock Group agrees to notify promptly the Liberty Media Group, pursuant to Section 4.1 hereof, of any communication received from GI by the Common Stock Group regarding a Warrant Termination or an assertion by GI that a Warrant Termination has occurred. (iii) The Common Stock Group agrees that before any member of the Common Stock Group enters into any agreement, arrangement or understanding, whether verbal or written, with GI relating to the purchase of any Digital Terminal or like equipment or any other transaction contemplated by the Digital Terminal Purchase Agreement or the GI Warrant Agreement (other than the placement of purchase orders pursuant to the terms of the Digital Terminal Purchase Agreement in effect on the date hereof) which would be reasonably likely to have an adverse effect on the Warrants (including the vesting or exercisability thereof), the Common Stock Group will first notify the Liberty Media Group of the proposed terms of such agreement, arrangement or understanding by providing a copy thereof or, if such agreement is verbal, a summary of the terms thereof, to the Liberty Media Group, in each case pursuant to Section 4.1 hereof. Notwithstanding the foregoing, the Common Stock Group shall not agree to any amendment or modification to the Digital Terminal Purchase Agreement or the GI Warrant Agreement, or waive any rights thereunder (or enter into any agreement, arrangement or understanding relating to a Warrant Termination or the payment of any Alternate Consideration) without the prior written consent of LMC, which consent shall not be unreasonably withheld or delayed. SECTION 1.15. AT&T Board of Directors. As promptly as practicable ----------------------- following the Effective Time, AT&T will expand the size of its Board of Directors by one and will appoint Dr. John C. Malone (or, in the 18 event Dr. Malone is unable to serve, such other person as may be designated by LMC and reasonably satisfactory to AT&T) to the AT&T Board of Directors. From the Effective Time until the third anniversary thereof, AT&T will nominate Dr. Malone (or such other person) for reelection to the AT&T Board of Directors at each subsequent annual or special meeting of the stockholders of AT&T at which Dr. Malone's (or such other person's) term is to expire. Thereafter (and during such period to the extent Dr. Malone or such other person is unable to serve as a director), so long as any AT&T Liberty Tracking Shares remain outstanding, AT&T will nominate and recommend the election to the AT&T Board of Directors a person (who may be Dr. Malone) who, in the AT&T Board of Directors' reasonable judgment, by virtue of his or her background and experience, will understand and reflect issues of concern to the Liberty Media Group and the holders of AT&T Liberty Tracking Shares. SECTION 1.16. Tax Law Change. In the event of any Tax Law Change, -------------- AT&T covenants and agrees that it will not thereafter issue or sell, or obligate itself to issue or sell, any additional AT&T Liberty Tracking Shares (including through the issuance of any additional Convertible Securities); provided that if such Tax Law Change is applicable to some but not all future issuances or sales of AT&T Liberty Tracking Shares, the covenants contained in this Section 1.16 shall not apply to issuances or sales to which the Tax Law Change does not apply. While a proposed Tax Law Change is pending, AT&T covenants and agrees it will not incur any new obligation to issue or sell any additional AT&T Liberty Tracking Shares (including through issuance of any additional Convertible Securities). If at the time of the Tax Law Change, AT&T or any member of the Common Stock Group has a pre-existing unsatisfied obligation (a "Tracking Stock -------------- Obligation") to issue AT&T Liberty Tracking Shares (including upon conversion, - ---------- exercise or exchange of any Convertible Securities), LMC will have the right to direct that such Tracking Stock Obligation be satisfied through the payment in cash of the value of the shares that would otherwise have been issued or the delivery of AT&T Liberty Tracking Shares acquired by LMC or an agent thereof or in any other reasonable manner; provided that, if any such Tracking Stock Obligation is satisfied at LMC's direction other than by the delivery of AT&T Liberty Tracking Shares in accordance with the terms of such Tracking Stock Obligation, then if such Tracking Stock Obligation was outstanding at the time of the Merger or thereafter incurred prior to the Tax Law Change with a Liberty Approval, LMC shall be solely responsible for and shall indemnify and hold AT&T and its subsidiaries, and their respective directors and officers, 19 harmless from and against any claims, actions, proceedings, losses or damages arising as a result of any claim by the obligee that such manner of payment constitutes a breach or nonperformance of such Tracking Stock Obligation. LMC shall have the right to direct the defense of any such claim with counsel of its choosing and shall be solely responsible for the payment of the legal and other expenses arising therefrom. AT&T further agrees to cooperate with all reasonable requests of LMC that are intended to mitigate the risks of triggering the recognition of income upon issuance of AT&T Liberty Tracking Shares or the amounts payable to obligees in lieu of issuances of AT&T Liberty Tracking Shares. In furtherance of LMC's rights pursuant to the foregoing, following the occurrence of a Tax Law Change, LMC shall have the right, at its expense, to direct AT&T or the applicable member of the Common Stock Group in the exercise of its rights under any contract, instrument or agreement containing the applicable Tracking Stock Obligation or pursuant to which the Tracking Stock Obligation was incurred, as such rights relate to the AT&T Liberty Tracking Shares. By way of example and not limitation, if at the time of a Tax Law Change any UA Notes remain outstanding, LMC shall be entitled, at its expense, to direct the exercise by AT&T or the applicable members of the Common Stock Group of its rights under the stock purchase agreement pursuant to which such notes were issued, as such rights relate to the AT&T Liberty Tracking Shares issuable upon conversion of such notes, including, without limitation, the right of first refusal on certain proposed sales of such AT&T Liberty Tracking Shares. If LMC exercises its right to direct that a Tracking Stock Obligation be satisfied in cash, then LMC shall pay AT&T an amount equal to the amount of such cash payment or, in the case of Stock Incentives for which the Common Stock Group is responsible under Section 1.4(a)(ii) hereof, the positive difference, if any, between (i) the amount of such cash payment and (ii) the amount that AT&T would have been obligated to pay LMC if such Tracking Stock Obligation had been satisfied in AT&T Liberty Tracking Shares. With respect to Stock Incentives for which the Common Stock Group is responsible, if LMC delivers AT&T Liberty Tracking Shares to the obligee in satisfaction of such Tracking Stock Obligation (or to AT&T or the applicable Common Stock Group member to deliver in satisfaction of such Tracking Stock Obligation), AT&T shall pay LMC the 20 amounts that would have been payable to LMC pursuant to Section 1.4(a)(ii) in the event of the issuance of AT&T Liberty Tracking Shares on exercise or settlement of such Stock Incentives. ARTICLE II REPRESENTATIONS AND WARRANTIES SECTION 2.1. Representations and Warranties of AT&T. AT&T represents -------------------------------------- and warrants to LMC that (a) AT&T is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by AT&T and the consummation by AT&T of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of AT&T and no other corporate proceedings on the part of AT&T are necessary to authorize this Agreement or any of the transactions contemplated hereby, (c) this Agreement has been duly executed and delivered by AT&T and constitutes a valid and binding obligation of AT&T, and, assuming this Agreement constitutes a valid and binding obligation of LMC and each of the Covered Entities, is enforceable against AT&T and each member of the Common Stock Group in accordance with its terms, (d) neither the execution, delivery or performance of this Agreement by AT&T constitutes a breach or violation of or conflicts with the AT&T Charter or AT&T's By-Laws or any material agreement to which AT&T is a party, and (e) none of such material agreements would impair in any material respect the ability of AT&T to perform its obligations hereunder. SECTION 2.2. Representations and Warranties of LMC. LMC represents ------------------------------------- and warrants to AT&T that: (a) (i) LMC is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, (ii) the execution and delivery of this Agreement by LMC and the consummation by LMC of the transactions contemplated hereby have been duly authorized by all necessary action on the part of LMC and no other proceedings on the part of LMC are necessary to authorize this Agreement or any of the transactions contemplated hereby, (iii) this Agreement has been duly executed and delivered by LMC and each Covered Entity and constitutes a valid and binding obligation of LMC and each Covered Entity, and, assuming this Agreement constitutes a valid and binding obligation of AT&T, is enforceable against LMC and each Covered Entity in accordance with its terms, 21 (iv) neither the execution, delivery or performance of this Agreement by LMC constitutes a breach or violation of or conflicts with its certificate of incorporation or by-laws or any material agreement to which LMC is a party, and (v) none of such material agreements would impair in any material respect the ability of LMC to perform its obligations hereunder. (b) As of the date hereof and after giving effect to the Merger, the total indebtedness of the Liberty Media Group is not in excess of the Liberty Media Group Debt Limit. ARTICLE III DEFINITIONS SECTION 3.1. Certain Defined Terms. For purposes of this Agreement, --------------------- the following terms shall have the following meanings: (a) "AT&T" shall have the meaning set forth in the preamble. ----- (b) "AT&T Charter" shall mean the Certificate of Incorporation of ------------ AT&T, as amended to the date hereof. (c) "AT&T Charter Amendment" shall mean the proposed amendment to the ---------------------- AT&T Charter attached as Appendix B to TCI's proxy statement, dated as of January 8, 1999, providing for, among other things, the creation of the Liberty Media Group and the authorization of the AT&T Liberty Tracking Shares, which amendment is to become effective immediately prior to the Merger and the execution of this Agreement. (d) "AT&T Liberty Tracking Shares" shall mean collectively, the ---------------------------- shares of Class A Liberty Media Group Common Stock, par value $1.00 per share, of AT&T and the shares of Class B Liberty Media Group Common Stock, par value $1.00 per share, of AT&T, in each case, having the rights, privileges and preferences as set forth in the AT&T Charter Amendment. (e) "BT" shall have the meaning set forth in Section 1.12. -- (f) "Call Agreements" shall mean collectively the Call Agreements, --------------- each dated as of February 9, 1998, between TCI, on the one hand, and certain stockholders of TCI, including John C. Malone, holding shares of Company Common Stock having more than one vote per share, on the other hand. 22 (g) "Capital Stock Committee" means the committee of the Board of ----------------------- Directors of AT&T established pursuant to the amendment to the bylaws of AT&T adopted pursuant to Section 7.16 of the Merger Agreement. (h) "Common Stock Group" shall have the meaning ascribed to such term ------------------ in the AT&T Charter Amendment (including, for purposes of this Agreement for periods prior to the Merger, the TCI Group). (i) "Contribution Agreement" means the Contribution Agreement, dated ---------------------- as of March 9, 1999, by and among LMC, Liberty Management, Liberty Media Group LLC and Liberty Ventures LLC, a Delaware limited liability company. (j) "Convertible Securities" shall have the meaning set forth in ---------------------- Section 1.6(b). (k) "Convertible Notes" shall have the meaning set forth in Section ----------------- 1.9(c). (l) "Covered Entities" shall have the meaning given to such term in ---------------- the AT&T Charter Amendment. (m) "Credit Rating Agency" shall have the meaning set forth in -------------------- Section 1.3(b). (n) "Flextech" shall have the meaning set forth in Section 1.11(d). -------- (o) "Group" shall mean either the Common Stock Group or the Liberty ----- Media Group. (p) "Intercompany Agreements" shall have the meaning set forth in ----------------------- Section 1.1. (q) "Letter Agreement" shall have the meaning set forth in Section ---------------- 1.7(a). (r) "Liability" shall mean any debt, loss, liability, claim, fine, --------- royalty, deficiency, damage, obligation, restriction, limitation, payment, cost or expense, in each case, whether mature or unmatured, absolute or contingent, accrued or unaccrued, liquidated or unliquidated or known or unknown. (s) "Liberty Approval" shall have the meaning set forth in Section ---------------- 1.11(a). (t) "Liberty Media Parties" shall have the meaning set forth in the --------------------- preamble. (u) "Liberty Co" shall have the meaning set forth in Section 1.9(c). ---------- (v) "Liberty Debt Incurrence" shall have the meaning set forth in ----------------------- Section 1.3(b). (w) "Liberty Debt Notice" shall have the meaning set forth in Section ------------------- 1.3(b). 23 (x) "Liberty Media Group" shall have the meaning ascribed to the term ------------------- Liberty Media Group in the AT&T Charter Amendment. (y) "Liberty Media Group Debt Limit" shall have the meaning set forth ------------------------------ in Section 1.3(b). (z) "Liberty Media Group LLC" shall mean Liberty Media Group LLC, a ----------------------- Delaware limited liability company. (aa) "Liberty Management" shall mean Liberty Media Management LLC, a ------------------ Delaware limited liability company. (bb) "Liberty Media Group Subsidiary" shall have the meaning ascribed ------------------------------ to such term in the AT&T Charter Amendment. (cc) "LMC" shall mean Liberty Media Corporation, a Delaware --- corporation (provided that, unless the context otherwise requires, following the occurrence of a Triggering Event, each reference herein to LMC shall be deemed a reference to Liberty Media Group LLC). (dd) "LMC Charters" shall have the meaning set forth in Section ------------ 1.9(a). (ee) "Merger" shall have the meaning set forth in the Recitals. ------ (ff) "Merger Agreement" shall have the meaning set forth in the ---------------- Recitals. (gg) "Merger Sub" shall have the meaning set forth in the Recitals. ---------- (hh) "Other Group Shares" shall mean (i) in the case of a Stock ------------------ Incentive held by an officer or employee of the Common Stock Group, the AT&T Liberty Tracking Shares, or (ii) in the case of a Stock Incentive held by an officer or employee of the Liberty Media Group, the Parent Common Shares. (ii) "Person" shall mean any individual, partnership, joint venture, ------ corporation, trust, unincorporated organization, government or department or agency of a government. (jj) "Qualifying Subsidiary" of a Person shall mean a Subsidiary of --------------------- such Person in which such Person's ownership and voting interest is sufficient to satisfy the ownership and voting requirements of the Internal Revenue Code and the regulations thereunder (each as amended from time to time) for a distribution of such Person's interest in such Subsidiary to the holders of Class A Liberty Media Group Common Stock and Class B Liberty Media Group Common Stock to be tax free to such holders. 24 (kk) "Stockholders Agreement" shall mean the Stockholders Agreement, ---------------------- dated as of February 9, 1998, by and among TCI, John C. Malone, and certain other stockholders of TCI. (ll) "Stock Incentive" shall have the meaning set forth in Section --------------- 1.4(a)(ii). (mm) "Sub Charters" shall have the meaning set forth in Section ------------ 1.9(b). (nn) "Subsidiary" shall have the meaning given to such term in the ---------- AT&T Charter Amendment. (oo) "Tax Law Change" means the enactment into Law of the applicable -------------- revenue provisions of the President's Fiscal Year 2000 Budget proposal, as submitted to the Congress on February 21, 1999, or any similar proposal, that would result in the issuance of a tracking stock causing the issuer or any member of its consolidated group to recognize income on such issuance, unless such Law by its terms is inapplicable to future issuances of AT&T Liberty Tracking Shares. (pp) "TCI" shall mean Tele-Communications, Inc., a Delaware --- corporation. (qq) "TCI Preferred Stock" shall mean preferred stock, par value $.0l ------------------- per share, of TCI. (rr) "TCI Preferred Stock" shall mean the Cumulative Exchangeable ------------------- Preferred Stock, Series A, of TCI Communications, Inc. a Delaware corporation and formerly a wholly owned subsidiary of TCI. (ss) "TINTA" shall have the meaning set forth in Section 1.6(d). ----- (tt) "Tracking Stock Obligation" shall have the meaning set forth in ------------------------- Section 1.16. (uu) "Transfer" shall mean, directly or indirectly, to sell, issue, -------- transfer, dispose, assign, pledge, encumber, hypothecate or otherwise convey, either voluntarily or involuntarily (whether by merger, consolidation, sale or issuance or contribution of assets or stock, or otherwise), or to enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, disposition, assignment, pledge, encumbrance, hypothecation or other conveyance (whether by merger, consolidation, sale or issuance or contribution of assets or stock, or otherwise). (vv) "Triggering Event" shall have the meaning ascribed to such term ---------------- in the Contribution Agreement. 25 SECTION 3.2 Other Definitional Provisions. The language used in this ----------------------------- Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Any references to any statute or law shall also refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes, and including shall be deemed to be followed by the phrase without limitation. The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to this Agreement unless otherwise specified. The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. Unless the context shall otherwise require, any references to any agreement or other instrument or statute or regulation are to it as amended and supplemented from time to time (and, in the case of a statute or regulation, to any successor provisions). Any reference in this Agreement to a day or number of days (without the explicit qualification of business) shall be interpreted as a reference to a calendar day or number of calendar days. If any action or notice is to be taken or given on or by a particular calendar day, and such calendar day is not a business day, then such action or notice shall be deferred until, or may be taken or given on, the next business day. ARTICLE IV MISCELLANEOUS SECTION 4.1. Notices. All notices, requests, demands or other ------- communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or upon receipt after being mailed by first-class mail, postage prepaid and return receipt requested in each case to the applicable addresses set forth below: If to AT&T or any member of the Common Stock Group: AT&T Corp. 295 North Maple Avenue Basking Ridge, New Jersey 07920 26 Attention: Vice President-Law and Corporate Secretary Facsimile: (908) 221-6618 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Richard D. Katcher, Esq. Steven A. Rosenblum, Esq. Facsimile: (212) 403-2000 If to LMC or any member of the Liberty Media Group: Liberty Media Corporation 8101 East Prentice Avenue, Suite 500 Englewood, Colorado 80111 Attention: Charles Y. Tanabe, Esq. Facsimile: (303) 721-5443 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 Attention: Elizabeth M. Markowski, Esq. Frederick H. McGrath, Esq. Facsimile: (212) 705-5125 or such address as such party shall have designated by notice so given to each other party. SECTION 4.2. Amendments; No Waivers. (a) This Agreement shall be ---------------------- amended, changed, supplemented, waived or otherwise modified only by an instrument in writing signed by each of AT&T and LMC (and following a Triggering Event, Liberty Media Group LLC). (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 4.3. Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights or obligations under this Agreement shall be assigned, in whole or in part, by any party without the prior written consent of the other party hereto; provided, however, that the assignment of its rights and obligations -------- ------- under this 27 Agreement by LMC to Liberty Media Group LLC in connection with the transactions contemplated by the Contribution Agreement shall not require the consent of AT&T. Subject to the foregoing, the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 4.4. Governing Law; Consent to Jurisdiction. This Agreement -------------------------------------- and all disputes hereunder shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflicts of laws. Each party hereto irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the United States District Court for the District of Delaware or the Chancery Court of the State of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non ----- --- conveniens or any other objection to venue therein); provided, however, that - ---------- -------- ------- such consent to jurisdiction is solely for the purpose referred to in this Section 4.4 and shall not be deemed to be a general submission to the jurisdiction of said courts or of the State of Delaware other than for such purpose. AT&T and LMC each hereby waive any right to a trial by jury in connection with any such action, suit or proceeding. SECTION 4.5. Counterparts; Effectiveness. This Agreement may be --------------------------- executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. This Agreement shall become effective when each party hereto shall have received counterparts thereof signed by the other party hereto. SECTION 4.6. Specific Performance. Each of AT&T and LMC acknowledges -------------------- and agrees that money damages are not an effective remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable Law, each party waives any objection to the imposition of such relief. SECTION 4.7. Remedies Cumulative. All rights, powers and remedies ------------------- provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and 28 the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. SECTION 4.8. Termination. This Agreement shall remain in full force ----------- and effect until such time as no outstanding shares of AT&T Liberty Tracking Shares are outstanding, at which time this Agreement shall terminate and upon termination, no party shall have any liability or further obligation to the other under this Agreement except that the provisions of Sections 1.4 and this Section 4.8 shall survive the termination of this Agreement; provided, however, that such termination shall not relieve any party hereto of any liability for any breach of this Agreement. SECTION 4.9. Severability. In case any provision in this Agreement ------------ shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. SECTION 4.10. Cooperation. (a) Each of AT&T and LMC covenants and ----------- agrees with the other to use its reasonable best efforts to cause each member of the Common Stock Group and each member of the Liberty Media Group, respectively, to fulfill each of its respective obligations under this Agreement. (b) Each of AT&T and LMC covenants and agrees with the other to use its reasonable best efforts to cause each member of the Common Stock Group and each member of the Liberty Media Group, respectively, to cooperate with the other Group with respect to all common functions, including without limitation, tax and financial reporting. SECTION 4.11. Entire Agreement. Except as otherwise provided herein, ---------------- this Agreement (together with the Merger Agreement, the Intercompany Agreements and each of the other agreements contemplated by the Merger Agreement or the Intercompany Agreements) embodies the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement (or the Merger 29 Agreement, the Intercompany Agreements or each of the other agreements contemplated by the Merger Agreement or the Intercompany Agreements) and any writings expressly required hereby. 30 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. AT&T CORP. By: /s/ Marilyn J. Wasser ---------------------------------------------- Name: Marilyn J. Wasser Title: Vice President - Law and Secretary LIBERTY MEDIA CORPORATION By: /s/ Charles Y. Tanabe ---------------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President LIBERTY MEDIA GROUP LLC By: /s/ Charles Y. Tanabe ---------------------------------------------- Name: Charles Y. Tanabe Title: Vice President 31 Each of the following Covered Entities hereby executes this Agreement as a member of the Liberty Media Group to become a party to this Agreement for so long as it remains a Covered Entity under the applicable provisions of the AT&T Charter Amendment: TCI WIRELESS HOLDINGS, INC. By: /s/ Charles Y. Tanabe ----------------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President TCIP, INC. By: /s/ Charles Y. Tanabe ----------------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President SILVER SPUR LAND AND CATTLE CO. By: /s/ Charles Y. Tanabe ----------------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President TCI INTERACTIVE, INC. By: /s/ Charles Y. Tanabe ----------------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President 32 EX-10.3 11 INTERCOMPANY AGREEMENT DATED MARCH 9, 1999 EXHIBIT 10.3 ------------ LIBERTY MEDIA CORPORATION 8101 East Prentice Avenue Englewood, Colorado 80111 March 9, 1999 AT&T Corp. 295 North Maple Avenue Basking Ridge, New Jersey 07920 Re: Intercompany Agreement ---------------------- Ladies and Gentlemen: Reference is made to the Agreement and Plan of Restructuring and Merger, dated as of June 23, 1998, among Tele-Communications, Inc. ("TCI"), AT&T Corp. ("AT&T") and Italy Merger Corp., as amended or supplemented to the date hereof (the "Merger Agreement"). Section 7.14 of the Merger Agreement contemplates that at the Effective Time the parties will enter into an agreement having the terms set forth in Schedule 7.14 to the Merger Agreement ("Schedule 7.14"). Capitalized terms used in this letter agreement (this "Letter Agreement") and not otherwise defined shall have the meanings ascribed thereto in the Merger Agreement. This Letter Agreement sets forth the agreement between AT&T, on behalf of itself and the members of the Common Stock Group (as defined in the Parent Charter Amendment), and Liberty Media Corporation ("LMC"), on behalf of itself and the members of the Liberty Media Group (as defined in the Parent Charter Amendment), contemplated by Section 7.14 of the Merger Agreement. In consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Binding Agreement. The parties acknowledge and agree that ----------------- Schedule 7.14 is hereby incorporated by reference as if completely restated herein, and the term "Letter Agreement" as used herein shall be deemed to refer to this letter including Schedule 7.14 as if attached hereto. This Letter Agreement constitutes a valid, binding and enforceable agreement between the parties, subject to the terms and conditions set forth herein, and shall be binding upon and inure to the benefit of the parties hereto, the members of their respective Groups (as defined in the Parent Charter Amendment) and their respective successors and assigns. AT&T shall cause each of its Controlled Affiliates (as defined below) immediately following the Effective Time, and each other Person which thereafter becomes a Controlled Affiliate of AT&T, to be bound by the terms of this Letter Agreement for so long as they remain members of the Common Stock Group. LMC shall cause each of its Controlled Affiliates immediately following the Effective Time, each of the Covered Entities (as such term is defined in the Parent Charter Amendment), and each other Person which thereafter becomes a Controlled Affiliate of LMC or of any of the Covered Entities, to be bound by the terms of this Letter Agreement for so long as they remain members of the Liberty Media Group. The term "Controlled Affiliate" shall mean, as to any Person, any other Person which such first Person Controls. 2. Affiliation Documentation. The parties acknowledge that the ------------------------- transactions referred to in paragraph 2 of Schedule 7.14 and Exhibit 1 thereto have been documented and entered into prior to the Effective Time to the mutual satisfaction of the parties (with the affiliation arrangements between the Company and TV Guide, Inc. being substituted for the transaction referred to in Schedule 7.14 as "Prevue Interactive Guide"). 3. Definitive Agreement. Upon the written request of either party, -------------------- AT&T and LMC shall (a) negotiate in good faith the terms and conditions of a definitive agreement (the "Definitive Agreement") which (i) would contain provisions incorporating and expanding upon the agreements set forth herein, together with other provisions customary in the case of transactions of the type described herein, and (ii) would supersede this Letter Agreement, and (b) use reasonable efforts to execute and deliver, subject to clause (a) of this Section 3, such Definitive Agreement; provided, however, that the foregoing shall not -------- ------- constitute an agreement to agree and (subject to the obligation to negotiate in good faith and use reasonable efforts to enter into such Definitive Agreement) neither party shall be obligated to enter into any Definitive Agreement. Notwithstanding anything to the contrary set forth herein, until such Definitive Agreement is executed by both parties, this Letter Agreement shall continue to be a valid, binding and enforceable obligation of the parties. 4. Representations and Warranties. (a) AT&T represents and warrants ------------------------------ to LMC that (i) AT&T is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has the corporate power and authority to enter into this Letter Agreement and to carry out its obligations hereunder, (ii) the 2 execution and delivery of this Letter Agreement by AT&T and the consummation by AT&T of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of AT&T and no other corporate proceedings on the part of AT&T are necessary to authorize this Letter Agreement or any of the transactions contemplated hereby, (iii) this Letter Agreement has been duly executed and delivered by AT&T and constitutes a valid and binding obligation of AT&T, and, assuming this Letter Agreement constitutes a valid and binding obligation of LMC, is enforceable against AT&T in accordance with its terms, (iv) none of the execution, delivery or performance of this Letter Agreement by AT&T constitutes a breach or violation of or conflicts with AT&T's certificate of incorporation or by-laws or any material agreement to which AT&T is a party or by which its properties are bound, and (v) none of such material agreements would impair in any material respect the ability of AT&T to perform its obligations hereunder. (b) LMC represents and warrants to AT&T that (i) LMC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Letter Agreement and to carry out its obligations hereunder, (ii) the execution and delivery of this Letter Agreement by LMC and the consummation by LMC of the transactions contemplated hereby have been duly authorized by all necessary action on the part of LMC and no other proceedings on the part of LMC are necessary to authorize this Letter Agreement or any of the transactions contemplated hereby, (iii) this Letter Agreement has been duly executed and delivered by LMC and constitutes a valid and binding obligation of LMC, and, assuming this Letter Agreement constitutes a valid and binding obligation of AT&T, is enforceable against LMC in accordance with its terms, (iv) none of the execution, delivery or performance of this Letter Agreement by LMC constitutes a breach or violation of or conflicts with its certificate of incorporation or by- laws or any material agreement to which LMC is a party or by which its properties are bound, and (v) none of such material agreements would impair in any material respect the ability of LMC to perform its obligations hereunder. 5. Governing Law. This Letter Agreement shall be governed by, and ------------- construed in accordance with, the laws of the State of Delaware, without regard to principles of conflicts of laws. 6. Specific Performance. Each of AT&T and LMC acknowledges and -------------------- agrees that money damages are not an effective remedy for violations of this Letter Agreement and that any party may, in its sole discretion, 3 apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Letter Agreement or prevent any violation hereof and, to the extent permitted by applicable Law, each party waives any objection to the imposition of such relief. 7. Counterparts. This Letter Agreement may be executed in ------------ counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 8. Amendments; No Waivers. This Letter Agreement shall be amended, ---------------------- changed,supplemented, waived or otherwise modified only by an instrument in writing signed by each of AT&T and LMC. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. 9. Severability. In case any provision in this Letter Agreement ------------ shall be held invalid, illegal or unenforceable in a jurisdiction, such provision shall be modified or deleted, as to the jurisdiction involved, only to the extent necessary to render the same valid, legal and enforceable, and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby nor shall the validity, legality or enforceability of such provision be affected thereby in any other jurisdiction. 10. Cooperation. Each of AT&T and LMC covenants and agrees with the ----------- other to use its reasonable best efforts to cause each member of the Common Stock Group and each member of the Liberty Group, respectively, to fulfill each of its respective obligations under this Letter Agreement. 11. Interpretation. The parties acknowledge and agree that the -------------- language used in the Term Sheet shall be deemed to be the language chosen by the parties to express their mutual intent and no rule of strict construction shall be applied against either party. 4 If the foregoing is acceptable to you, please confirm your agreement by countersigning this letter and returning an executed copy to us. Very truly yours, LIBERTY MEDIA CORPORATION, for itself and for each member of the Liberty Media Group By: /s/ Charles Y. Tanabe ----------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President ACCEPTED AND AGREED AS OF THE DATE FIRST ABOVE WRITTEN: AT&T CORP., for itself and for each member of the Common Stock Group By: /s/ Daniel E. Somers -------------------------------------- Name: Daniel E. Somers Title: Senior Executive Vice President and Chief Financial Officer 5 EX-10.4 12 TAX SHARING AGREEMENT DATED MARCH 9, 1999 EXHIBIT 10.4 ------------ TAX SHARING AGREEMENT by and among AT&T CORP., LIBERTY MEDIA CORPORATION, for itself and each member of the Liberty Group, TELE-COMMUNICATIONS, INC., LIBERTY VENTURES GROUP LLC, LIBERTY MEDIA GROUP LLC, TCI STARZ, INC., TCI CT HOLDINGS, INC. and each Covered Entity listed on the signature pages hereof, dated as of March 9, 1999 TABLE OF CONTENTS -----------------
Page ---- 1. Definitions.......................................................... 1 2. Treatment of Legal Entities That Would be Members of Both Groups..... 6 3. Tax Sharing Payments................................................. 7 (a) Federal Income Taxes............................................. 7 (b) Consolidated State, Local and Foreign Taxes...................... 7 (c) Certain Pre-Closing Taxes of the TCI Affiliated Group............ 8 (d) Special Rules.................................................... 9 (i) Certain Items for Liberty's Account....................... 9 (ii) Responsibility for DITS................................... 10 (iii) No Acceleration of DITS................................... 10 (iv) Accounts Under Old TCI Tax Sharing Agreements............. 10 (v) Pre-Closing Losses; Pre-Closing Alternative Minimum Tax... 10 (vi) TCI Affiliated Group Non-NOL Carryover.................... 11 (vii) The Unused TCI Affiliated Group NOL....................... 11 (viii) Payment for NOL........................................... 11 (ix) Post-Closing Compensation Deductions...................... 12 (x) Warrants.................................................. 12 4. Subsidiary Payments.................................................. 12 5. Adjustments.......................................................... 12 6. Separate Returns..................................................... 13 7. Interest on Unpaid Amounts........................................... 14 8. Indemnification...................................................... 14 9. Liberty Contests and Filing of Returns............................... 14 10. Appointment of AT&T as Agent......................................... 16 11. Cooperation.......................................................... 16 12. Confidentiality...................................................... 17 13. Payment of Tax....................................................... 17 14. Calculation of Tax Sharing Payments and Resolution of Disputes....... 17 15. Binding Effect; Successors and Assigns............................... 17 16. Interpretation....................................................... 18 17. Legal and Accounting Fees............................................ 18 18. Effect of the Agreement.............................................. 18 19. Entire Agreement..................................................... 18 20. Code References...................................................... 19 21. Notices.............................................................. 19 22. Counterparts......................................................... 19 23. New Members.......................................................... 20 24. Nature of Obligations................................................ 20 25. Termination.......................................................... 20 26. Liberty Representation............................................... 20
i TAX SHARING AGREEMENT --------------------- TAX SHARING AGREEMENT (the "Agreement") entered into as of March 9, 1999, by and among AT&T Corp., a New York corporation ("AT&T"), Liberty Media Corporation, a Delaware corporation ("Liberty"), for itself and on behalf of each member of the Liberty Group (as defined below), Tele-Communications, Inc., a Delaware corporation ("TCI"), Liberty Ventures Group LLC, a Delaware limited liability company, Liberty Media Group LLC, a Delaware limited liability company ("Liberty Group LLC"), TCI Starz, Inc., a Colorado corporation, TCI CT Holdings, Inc., a Delaware corporation, each Covered Entity listed on the signature pages hereof, and any entities which become parties hereto pursuant to Section 23 hereof. WHEREAS, AT&T, Italy Merger Corp. ("Merger Sub") and TCI are parties to an Agreement and Plan of Restructuring and Merger dated as of June 23, 1998 (the "Merger Agreement") pursuant to which, among other things, subject to the terms and conditions contained in the Merger Agreement, and concurrent with the execution hereof, Merger Sub shall be merged with and into TCI with TCI surviving as a wholly owned subsidiary of AT&T (the "Merger"); WHEREAS Liberty desires to be included, and desires that the Subsidiaries in the Liberty Group (as defined below) be included to the extent permitted by applicable law, in the filing of consolidated federal income tax returns on behalf of the AT&T Affiliated Group (as defined below); WHEREAS AT&T and Liberty wish to allocate and settle among themselves in an equitable manner the consolidated federal income tax liability of the AT&T Affiliated Group; WHEREAS Liberty desires, to the extent required or permitted by applicable state, local or foreign law to be included, and that the Subsidiaries in the Liberty Group be included, in combined, consolidated and unitary state, local and foreign tax returns on behalf of the AT&T Affiliated Group; and WHEREAS AT&T and Liberty wish to allocate and settle among themselves in an equitable manner the state, local or foreign tax liability in connection with such combined, consolidated and unitary state, local and foreign income tax returns; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereby amend and restate in its entirety the 1995 TCI Tax Sharing Agreement and the 1997 TCI Tax Sharing Agreement (each as defined below) and agree as follows: 1. Definitions. Any terms used but not otherwise defined herein ----------- shall have the meanings ascribed to such terms in the Merger Agreement. For purposes of this Agreement, the following terms shall be defined as follows: (a) "Advance" shall have the meaning set forth in Section 9(d). ------- (b) "Arbiter" shall have the meaning set forth in Section 3(d)(vii). ------- (c) "AT&T" shall have the meaning set forth in the first paragraph ---- hereof. (d) "AT&T Affiliated Group" shall mean (i) the affiliated group, --------------------- within the meaning of Section 1504(a) of the Code, consisting of AT&T and certain of its Subsidiaries, (ii) any combined, consolidated or unitary group for state, local or foreign Tax purposes that files Joint Returns and (iii) any True Legal Entity that files Joint Returns. (e) "AT&T Charter" shall mean the Certificate of Incorporation of ------------ AT&T, as amended and in effect on the date hereof, after adoption of the AT&T Charter Amendment (as defined in the Inter-Group Agreement). (f) "AT&T Common Stock" shall have the meaning given to such term in ----------------- the Proxy Statement. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (h) "Common Stock Group" shall mean AT&T, each of the other Legal ------------------ Entities that is or was at any time owned directly or indirectly by AT&T and any Legal Entity tracked at any time by the TCI Group Tracking Stock; provided, -------- however, that the Common Stock Group shall not include any Legal Entity for - ------- such period as and to the extent that such Legal Entity is a member of the Liberty Group. (i) "Common Stock Indemnitee" shall have the meaning set forth in ----------------------- Section 8(a) hereof. (j) "Consolidated Return Regulations" shall mean the Treasury ------------------------------- Regulations promulgated under Chapter 6 of Subtitle A of the Code, including, as applicable, any predecessors or successors thereto. (k) "Contested Liberty Group Item" shall have the meaning set forth ---------------------------- in Section 9(d). (l) "Contribution Agreement" shall have the meaning ascribed to such ---------------------- term in the Proxy Statement. (m) "Corresponding Item" shall have the meaning set forth in the ------------------ definition of Timing Item. (n) "Covered Entities" shall have the meaning ascribed to such term ---------------- in the Inter-Group Agreement. (o) "Designated Rate" shall mean the underpayment rate applicable to --------------- large corporate underpayments under the Code. (p) "DIT" shall mean any "deferred intercompany transaction" or --- "intercompany transaction" within the meaning of the Treasury Regulations (or predecessors thereto). (q) "Excess Basis" shall have the meaning set forth in Section 5(e). ------------ (r) "Exhibit D DIT" shall mean any DIT listed on Exhibit D hereto. ------------- (s) "Federal Tax Allocation Agreement" shall mean the Federal Tax -------------------------------- Allocation Agreement dated as of February 1, 1996 by and among AT&T and each of its subsidiaries. (t) "Final Determination" shall mean a closing agreement with the ------------------- Internal Revenue Service or the relevant state, local or foreign Taxing authorities, an agreement contained in Internal Revenue Service Form 870AD or other comparable form, an agreement that constitutes a determination under Section 1313(a)(4) of the Code, a claim for refund which has been allowed, a deficiency notice with respect to which the period for filing a petition with the Tax Court or the relevant state, local or foreign tribunal has expired or a -2- decision of any court of competent jurisdiction that is not subject to appeal or as to which the time for appeal has expired. (u) "GI" shall have the meaning ascribed to such term in the -- Inter-Group Agreement. (v) "Governmental Authority" shall have the meaning set forth in the ---------------------- definition of "Tax." (w) "Group" shall mean either the Common Stock Group or the Liberty ----- Group. (x) "Hypothetical Legal Entity" shall have the meaning set forth in ------------------------- Section 2. (y) "Intercompany Account" shall have the meaning set forth in -------------------- Section 3(d)(iv). (z) "Inter-Group Agreement" shall mean the Inter-Group Agreement by --------------------- and among AT&T, Liberty and others dated as of the date hereof. (aa) "Joint Return" shall mean any Tax Return that includes at least ------------ two Legal Entities, of which one Legal Entity is a member of the Liberty Group and the other Legal Entity is a member of (A) the TCI Group for taxable periods ending on or prior to the Closing Date or (B) the Common Stock Group for taxable periods ending after the Closing Date. (bb) "Legal Entity" shall mean a True Legal Entity or a Hypothetical ------------ Legal Entity. (cc) "Letter Agreement" shall have the meaning set forth in Section ---------------- 3(d)(ii). (dd) "Liberty" shall have the meaning set forth in the first paragraph ------- hereof. (ee) "Liberty Group" shall mean the Legal Entities that own or owned ------------- the assets, and are or were primarily responsible for the liabilities, tracked at any time by the TCI Ventures Group Tracking Stock, the Liberty Media Group Tracking Stock or the New Liberty Media Group Tracking Stock; provided, -------- however, that (x) the Liberty Group shall not include any such Legal Entity for - ------- such period as and to the extent that the Legal Entity or its assets or liabilities are tracked by the AT&T Common Stock or the TCI Group Tracking Stock, (y) except for purposes of determining the amount of the Intercompany Account, the Liberty Group shall not include for any period the Legal Entities listed on Exhibit A hereto, and (z) the Liberty Group shall include the Legal Entities listed on Exhibit B hereto beginning on the day following the Closing Date. (ff) "Liberty Group LLC" shall mean Liberty Media Group LLC, a ----------------- Delaware limited liability company. (gg) "Liberty Indemnitee" shall have the meaning set forth in Section ------------------ 8(b) hereof. (hh) "Liberty Media Group Tracking Stock" shall have the meaning ---------------------------------- ascribed to such term in the Proxy Statement. (ii) "Liberty SRLY NOL" shall have the meaning set forth in Section ---------------- 3(d)(vii). (jj) "Losses" shall mean costs, expenses, fees, liabilities, ------ obligations and losses. (kk) "Merger" shall have the meaning set forth in the recitals hereto. ------ -3- (ll) "Merger Agreement" shall have the meaning set forth in the ---------------- recitals hereto. (mm) "Merger Sub" shall have the meaning set forth in the recitals ---------- hereto. (nn) "New Liberty Media Group Tracking Stock" shall have the meaning -------------------------------------- ascribed to such term in the Proxy Statement. (oo) "1995 TCI Tax Sharing Agreement" shall mean the Tax Sharing ------------------------------ Agreement dated as of July 1, 1995, as amended, by and among TCI, Liberty, Tele-Communications International, Inc., TCI Technology Ventures, Inc., TCI Communications, Inc. and TCI Cable Investments, Inc. and certain subsidiaries thereof. (pp) "1997 TCI Tax Sharing Agreement" shall mean the Tax Sharing ------------------------------ Agreement dated as of October 1, 1997, as amended, by and among TCI, TCI Communications, Inc., Liberty and TCI Ventures Group L.L.C. and certain subsidiaries thereof. (qq) "Old TCI Tax Sharing Agreements" shall mean the 1995 TCI Tax ------------------------------ Sharing Agreement and the 1997 TCI Tax Sharing Agreement. (rr) "Package Position" shall have the meaning set forth in Section ---------------- 9(c). (ss) "Package Preparer" shall have the meaning set forth in Section ---------------- 9(c). (tt) "Person" means any individual or corporation, company, ------ partnership, trust, incorporated or unincorporated association, joint venture or other entity of any kind. (uu) "Phantom NOL" shall mean, in the case of any Redetermination, ----------- the excess of the TCI Affiliated Group NOL determined without regard to such Redetermination (but with regard to any prior Redeterminations) over the TCI Affiliated Group NOL. (vv) "Pre-Closing Group" shall mean, for taxable periods ending on or ----------------- prior to the Closing Date, the Liberty Group or the TCI Group. (ww) "Pre-Closing Taxable Period" for any Legal Entity shall mean any -------------------------- taxabletaxable period that ends on or prior to the Closing Date with respect to such entity. (xx) "Proxy Statement" shall mean the Proxy Statement/Prospectus of --------------- AT&T and TCI dated January 8, 1999. (yy) "Reasonably Expected" shall have the meaning set forth in ------------------- Section 3(d)(vii). (zz) "Redetermination" shall mean any redetermination as the result --------------- of an audit by the Internal Revenue Service (or the relevant state, local or foreign Governmental Authority), a claim for refund, an amended Tax Return or otherwise. (aaa) "Separate Return" shall mean any Tax Return that is not a Joint --------------- Return. (bbb) "Settlement Advisor" shall have the meaning set forth in ------------------ Section 9(d). (ccc) "Settlement Overpayment" shall have the meaning set forth in ---------------------- Section 9(d). -4- (ddd) "Sprint DIT" shall have the meaning set forth in Section ---------- 3(d)(ii). (eee) "State and Local Income Tax Allocation Agreement" shall mean ----------------------------------------------- the State and Local Income Tax Allocation Agreement dated as of the first day of the combined return Taxable year beginning January 1, 1995 by and among AT&T and each of its subsidiaries. (fff) "Subsidiary" means, as to any Person, any other Person of which ---------- at least (i) 50% of the equity and (ii) 50% of the voting interests are owned, directly or indirectly, by such first Person. (ggg) "Tax" shall mean any tax, wherever created or imposed, and --- whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federation or other body (a "Governmental Authority"), and, without limiting the generality of the foregoing, shall include income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, unemployment insurance, social security, stamp, environmental, value added, alternative or added minimum, ad valorem, trade, recording, withholding, occupation or transfer tax, custom or duty or other like governmental assessment or charge of any kind whatsoever, together with any related interest, penalties and additions imposed by any Governmental Authority. (hhh) "Tax Item" shall mean any item of income, gain, loss, -------- deduction, credit, recapture of credit or any other item which increases or decreases Taxes paid or payable, including an adjustment under Code Section 481 resulting from a change in accounting method. (iii) "Tax Proceeding" shall mean any Tax audit, examination, -------------- controversy or litigation. (jjj) "Tax Return" shall mean any Tax report, return or other ---------- information (including any attached schedules or any amendments to such report, return or other information) required to be supplied to or filed with a Governmental Authority, including an information return, claim for refund, amended return or declaration or estimated Tax return. (kkk) "Tentative Settlement Overpayment" shall have the meaning set -------------------------------- forth in Section 9(d). (lll) "TCI" shall have the meaning set forth in the first paragraph --- hereof. (mmm) "TCI Affiliated Group" shall mean for taxable periods ending on -------------------- or prior to the Closing Date: (i) the affiliated group, within the meaning of Section 1504(a) of the Code, consisting of TCI and certain of its Subsidiaries, (ii) any combined, consolidated or unitary group, for state, local or foreign Tax purposes that files Joint Returns that include solely members of the TCI Group and the Liberty Group, and (iii) any True Legal Entity that files Joint Returns that include solely members of the TCI Group and Liberty Group. (nnn) "TCI Affiliated Group NOL" shall mean the unexpired regular Tax ------------------------ net operating loss for federal income Tax purposes of the TCI Affiliated Group, if any, as of the last day of the last taxable year ending on or prior to the Closing Date, after giving effect to income, loss, audit adjustments, and the effects of acts occurring in connection with the Merger Agreement. (ooo) "TCI Affiliated Group Non-NOL Carryover" shall mean any -------------------------------------- alternative minimum Tax credit carryover or other carryover of the TCI Affiliated Group as of the last day of the last taxable year of the TCI Affiliated Group ending on or prior to the Closing Date, after giving effect to income, loss, audit adjustments and the effects of acts occurring in connection with the Merger Agreement; provided, however, that the TCI Affiliated Group Non- -------- ------- NOL Carryover shall not include (i) the TCI Affiliated Group NOL, (ii) any foreign tax credit or charitable contribution carryovers allocable under the Consolidated Return Regulations to -5- Legal Entities in the Liberty Group and (iii) any net operating losses reportable on a Separate Return of a Legal Entity in the Liberty Group. (ppp) "TCI Group" shall mean such subset of the group of Legal --------- Entities that are members of the Common Stock Group as consists of TCI and each of the Legal Entities that is or was at any time owned directly or indirectly by TCI and owned or owns the assets and are or were primarily responsible for the liabilities tracked by the TCI Group Tracking Stock; provided, however, that the -------- ------- TCI Group shall not include any Legal Entity for such period as and to the extent that such Legal Entity is a member of the Liberty Group. (qqq) "TCI Group Tracking Stock" shall have the meaning given to such ------------------------ term in the Proxy Statement. (rrr) "TCI Pre-AT&T Merger Restructuring Plan" shall mean the TCI -------------------------------------- Pre-AT&T Merger Restructuring Plan that is attached hereto as Exhibit C. (sss) "TCI SRLY NOL" shall have the meaning set forth in Section ------------ 3(d)(vii). (ttt) "TCI Ventures Group Tracking Stock" shall have the meaning --------------------------------- ascribed to such term in the Proxy Statement. (uuu) "Tentative Settlement Overpayment" shall have the meaning set -------------------------------- forth in Section 9(d). (vvv) "Timing Item" shall mean a Tax Item, the adjustment of which in ----------- one taxable year results or may result in an increase in deduction, loss or credit or a decrease in income, gain or recapture (a "Corresponding Item") in ------------------ another year. (www) "Treasury Regulations" shall mean the Treasury Regulations -------------------- promulgated under the Code. (xxx) "True Legal Entity" shall mean a corporation, partnership, ----------------- limited liability company or other legal entity under the corporation, partnership, limited liability company or other organizational laws of a state or other jurisdiction. (yyy) "Unfiled Return" shall mean any Joint Return with respect to a -------------- taxable period ending on or before the Closing Date that is not yet filed as of the Closing Date. (zzz) "Unpaid NOL" shall have the meaning given to such term in ---------- Section 3(d). (aaaa) "Unused TCI Affiliated Group NOL" shall mean the TCI Affiliated ------------------------------- Group NOL reduced by any portion thereof that has previously been used to compute the reduction in the Liberty Group's payment obligations under Section 3(d) or been used to compute AT&T's payment obligation to Liberty upon deconsolidation under Section 3(d). (bbbb) "Warrants" shall have the meaning ascribed to such term in the -------- Inter-Group Agreement. 2. Treatment of Legal Entities That Would be Members of Both --------------------------------------------------------- Groups. In the event that a True Legal Entity owns assets or is primarily - ------ responsible for liabilities tracked at once by both the TCI Group Tracking Stock or AT&T Common Stock, on the one hand, and the TCI Ventures Group Tracking Stock, Liberty Media Group Tracking Stock or New Liberty Media Group Tracking Stock, on the other hand, -6- each of the assets, liabilities and Tax attributes of the True Legal Entity shall be treated at such time as divided between two hypothetical corporations, partnerships, limited liability companies or other legal entities ("Hypothetical Legal Entities"), each of which shall be treated at such time as owning the assets, being primarily responsible for the liabilities, and having the Tax attributes of, and Tax and legal personality comparable to those of, the True Legal Entity associated with the business or investments of such Group. In the event that a Tax attribute cannot be associated with the business or investments of a single Group, it shall be reasonably allocated between the Hypothetical Legal Entities taking into account the nature of the Tax attribute. 3. Tax Sharing Payments. -------------------- (a) Federal Income Taxes. With respect to consolidated federal -------------------- income Taxes, no later than five days prior to the due date (including extensions) of any consolidated federal income Tax Return of the AT&T Affiliated Group if such Tax Return is for a taxable period ending after the Closing Date: (i) Liberty shall pay to AT&T the excess, if any, of (A) the sum of (I) the aggregate amount of any Tax that would not have been incurred by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group and (II) the aggregate amount of any Tax refund, credit or other Tax benefit that would have been realized or received with respect to such Tax Return (or any other Tax Return that has been or could have been filed) by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group over (B) the aggregate amount previously paid by Liberty pursuant to this clause (i); and (ii) AT&T shall pay Liberty the excess, if any, of (A) the sum of (I) the aggregate amount of any Tax that would have been incurred by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group and (II) the aggregate amount of any Tax refund, credit or other Tax benefit realized or received with respect to such Tax Return that would not have been realized or received by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group over (B) the aggregate amount previously paid by AT&T pursuant to this clause (ii); provided, however, that the Consolidated Return Regulations and the consolidated - -------- ------- federal income Tax Returns filed by the AT&T Affiliated Group or the TCI Affiliated Group pursuant to this Agreement or the Old TCI Tax Sharing Agreements, respectively, shall determine the timing of the recognition of Tax Items with respect to DITS and the determination of which Group (and which member thereof) shall bear the Tax benefit or burden of such Tax Items, and each Group shall be responsible for the Tax Items recognized by its respective members with respect to any DITS; provided, further, however, that, solely for -------- ------- ------- purposes of determining the timing of the recognition of Tax Items resulting from intercompany transactions for the "without" Liberty Group calculation, in the case of any Tax Item of a member of the Common Stock Group arising from or relating to any DIT in which a member of the Common Stock Group is the "seller" and a member of the Liberty Group is the "buyer" (each within the meaning of the Consolidated Return Regulations), until such time, if any, as the "buyer" is not in fact a member of the AT&T Affiliated Group, the amounts referred to in Sections 3(a)(i)(A) and 3(a)(ii)(A) shall be calculated by treating the buyer as if it is a member of the AT&T Affiliated Group. (b) Consolidated State, Local and Foreign Taxes. With respect to ------------------------------------------- consolidated, combined, unitary or other Joint Return Taxes, other than consolidated federal income Taxes, no later than five days prior to the due date (including extensions) of any Joint Return of the AT&T Affiliated Group if such Joint Return is for a taxable period ending after the Closing Date: -7- (i) Liberty shall pay to AT&T the excess, if any, of (A) the sum of (I) the aggregate amount of any Tax that would not have been incurred by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group and (II) the aggregate amount of any Tax refund, credit or other Tax benefit that would have been realized or received with respect to such Tax Return (or any other Tax Return that has been or could have been filed) by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group over (B) the aggregate amount previously paid by Liberty pursuant to this clause (i); and (ii) AT&T shall pay Liberty the excess, if any, of (A) the sum of (I) the aggregate amount of any Tax that would have been incurred by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group and (II) the aggregate amount of any Tax refund, credit or other Tax benefit realized or received with respect to such Tax Return that would not have been realized or received by the AT&T Affiliated Group but for the inclusion of any Legal Entity that is a member of the Liberty Group in the AT&T Affiliated Group over (B) the aggregate amount previously paid by AT&T pursuant to this clause (ii); provided, however, that (x) solely for purposes of determining the timing of the - -------- ------- recognition of Tax Items resulting from intercompany transactions for the "without" Liberty Group calculation, in the case of any Tax Item of a member of the Common Stock Group arising from or relating to any DIT in which a member of the Common Stock Group is the "seller" and a member of the Liberty Group is the "buyer" (each within the meaning of the Consolidated Return Regulations or comparable provision of state, local or foreign law), until such time, if any, as the "buyer" is not in fact a member of the AT&T Affiliated Group, the amounts referred to in Sections 3(b)(i)(A) and 3(b)(ii)(A) shall be calculated by treating the buyer as if it is a member of the AT&T Affiliated Group and for all other purposes, the Consolidated Return Regulations (or comparable provisions of state, local or foreign law) shall govern the timing of the recognition of Tax Items for the members of the AT&T Affiliated Group and (y) all calculations required to be made for purposes of clauses (b)(i) and (ii) above (including the "without" Liberty Group calculations) shall be made using the apportionment factors applicable to the Joint Return on a combined, consolidated or unitary basis that includes all entities (including the members of the Liberty Group) that are included in such Joint Return. In the case of any Joint Return of the TCI Affiliated Group with respect to a taxable period that includes but does not end on the Closing Date, such taxable period shall, for purposes of this Agreement, be treated as consisting of one taxable period of the TCI Affiliated Group ending on the Closing Date and another taxable period of the AT&T Affiliated Group beginning on the day after the Closing Date, based on an interim closing of the books as of the end of the day on the Closing Date. (c) Certain Pre-Closing Taxes of the TCI Affiliated Group. ----------------------------------------------------- (i) In the case of any Unfiled Return of the TCI Affiliated Group for consolidated federal income Taxes for any period ending on or prior to the Closing Date, if such Tax Return as originally filed reflects a regular federal income Tax liability, then Liberty shall pay AT&T the portion of such Tax attributable to the Tax Items of the Liberty Group on a proportionate basis no later than five days prior to the due date (including extensions) of such Tax Return. (ii) For each taxable period ending on or prior to the Closing Date, the liability of each Pre-Closing Group with respect to unitary, consolidated, nexus combination or other state or local income and franchise Taxes required to be filed on Joint Returns shall be equal to the product of: (x) the sum of the state and local income and franchise Taxes attributable to those jurisdictions in which the TCI Affiliated Group is liable for state or local income or franchise Taxes with respect to -8- the operations of any Legal Entity that is a member of such Pre-Closing Group on a unitary, consolidated, nexus combination or other Joint Return basis, multiplied by (y) a fraction, (I) the numerator of which is the aggregate amount of such Tax that is attributable to such Pre-Closing Group in such jurisdictions, determined without regard to the other Pre-Closing Group, as though such Pre-Closing Group were required to file either a unitary, consolidated, nexus combination or other Joint Return corporate income or franchise Tax Return (for this purpose, each limited liability company that is wholly owned directly by TCI shall be treated as if it were a corporation) in such jurisdictions for such taxable year or portion thereof, and (II) the denominator of which is the sum of all such amounts determined with respect to both Pre-Closing Groups. For each Tax Return that is the subject of this Section 3(c)(ii), if a member of the Common Stock Group is required under the law to file the applicable TCI Affiliated Group Joint Return, then Liberty shall pay AT&T or TCI the amount for which the Liberty Group is responsible (based on the fraction referred to in clause (y) above) with respect to such Tax Return no later than five days prior to the due date (including extensions) of such Tax Return, and if a member of the Liberty Group is required under the law to file the applicable TCI Affiliated Group Joint Return, then AT&T or TCI shall pay Liberty the amount for which the Common Stock Group is responsible (based on the fraction referred to in clause (y) above) with respect to such Tax Return no later than five days prior to the due date (including extensions) of such Tax Return. (iii) For each taxable period ending on or prior to the Closing Date, the liability of each Pre-Closing Group with respect to foreign Taxes required to be filed on Joint Returns shall be determined under the principles of Section 3(c)(ii) above. (iv) The Consolidated Return Regulations shall govern the timing of the recognition of Tax Items of the members of the TCI Affiliated Group. (d) Special Rules. Notwithstanding any other provision of this ------------- Agreement: (i) Certain Items for Liberty's Account. Any Tax Item ----------------------------------- arising from or relating to (A) TCI Wireless Holdings Inc. or any of its direct or indirect assets or subsidiaries, (B) the disposition of certain assets in exchange for stock of GI or the subsequent disposition of such stock, or (C) except as provided below in this Section 3(d)(i), the deemed, constructive or actual disposition (except for the Exhibit D DITS) of the shares or other interests in any Liberty Group Legal Entity, or measured by reference to the difference between the value of such shares or interests and the holder's basis therein, shall be for the account of the Liberty Group, and Liberty shall pay AT&T any Tax (or any reduction in any Tax refund, credit or other benefit) attributable thereto. AT&T and Liberty agree that any federal income Tax or Joint Return Tax liability (including any reduction in the TCI Affiliated Group NOL) arising from or relating to the federal income tax characterization or treatment of any class of tracking stock of TCI or AT&T under the federal income tax law on the date hereof will be equitably apportioned between the TCI Group or Common Stock Group, on the one hand, and the Liberty Group, on the other hand. AT&T agrees that (i) any Tax liability (or reduction in Tax benefit attributable to the Liberty Group under this Agreement) that results from the breach of AT&T's covenant in the Inter-Group Agreement that it will not issue any New Liberty Media Group Tracking Stock after a Tax Law Change (as defined in the Inter-Group Agreement), and (ii) any Tax liability (or reduction in Tax benefit attributable to the Liberty Group under this Agreement) incurred as a result of the settlement of a Tracking Stock Obligation (as defined in the Inter-Group Agreement) incurred after the Merger without the approval of Liberty, shall be for the account of AT&T for purposes of this Agreement. Liberty agrees that, except as set forth in the preceding sentence, any Tax liability (or any reduction in a Tax benefit attributable to the Common Stock Group under this Agreement) incurred as a result of the Tax Law Change (including as a result -9- of the settlement of a Tracking Stock Obligation existing at the time of the Merger (or incurred after the Merger with the approval of Liberty) satisfied, as directed by Liberty) shall be for the account of Liberty for purposes of this Agreement. (ii) Responsibility for DITS. (A) Except for the Exhibit D DITS, any ----------------------- DITS created in any taxable period ending on or prior to the Closing Date, any DITS created pursuant to the TCI Pre-AT&T Merger Restructuring Plan, and any DIT created pursuant to the transactions contemplated by the Letter Agreement (the "Letter Agreement") dated February 11, 1999 among AT&T, TCI and Liberty (a "Sprint DIT"), in each case, brought into income as the result of any deconsolidation of the Liberty Group or the liquidation of Encore Media Group LLC, a Colorado limited liability company, or other entity conducting the Encore/Starz business shall be for the account of the Liberty Group, and Liberty shall pay AT&T any Tax (or any reduction in any Tax refund, credit or other benefit) attributable thereto; (B) any Exhibit D DITS shall be for the account of the Common Stock Group; and (C) except as otherwise provided in clause (A) or (B) above, any DIT created in any taxable period ending after the Closing Date that is brought into income as the result of the deconsolidation of the Liberty Group shall be the obligation of the Group that includes the Legal Entity that is the selling member (within the meaning of the Consolidated Return Regulations), unless otherwise agreed upon by AT&T and Liberty. (iii) No Acceleration of DITS. Without the prior written consent of ----------------------- AT&T, unless the Liberty Group agrees to assume the Tax burden thereof, the Liberty Group shall not take any action (inadvertent or otherwise) that would cause an acceleration of income arising from any DIT that is disclosed in Part 2 of Section 5.10(b) of the Company Disclosure Statement or from any Exhibit D DIT or from any Sprint DIT; provided, however, that -------- ------- restoral of income or gain from a DIT that occurs as a result of depreciation or amortization deductions taken by the Liberty Group shall not be considered an acceleration of any DIT. (iv) Accounts Under Old TCI Tax Sharing Agreements. The --------------------------------------------- intercompany accounts reflecting the obligation of the Liberty Group (approximately $237 million as of the date of this Agreement) for periods on or prior to the Closing Date under the 1995 TCI Tax Sharing Agreement (the "Intercompany Account") shall be paid by Liberty at such time, if any, that the Liberty Group deconsolidates from the AT&T Affiliated Group for federal income Tax purposes; provided, however, that (A) the amount of -------- ------- the Intercompany Account shall be determined pursuant to the provisions of the 1995 TCI Tax Sharing Agreement and without regard to clause 3(d)(v) below; (B) the Legal Entities listed on Exhibit A shall be treated as Liberty Group members for all relevant periods for purposes of calculating the Intercompany Account and (C) the amount of the Intercompany Account shall be reduced by an amount equal to the product of 20 percent and the amount of any income or gain arising from the exercise, and the sale of assets pursuant thereto, of the option that was granted pursuant to the Option Agreement, dated June 24, 1997, among RET Corporation, Southern Satellite Systems, Inc., et. al., to purchase certain assets of Southern Satellite Systems, Inc., LMC Satcom, Inc., and Royal Communications, Inc.. All "Benefit Tracking Accounts" and "AMT/Regular Tax Adjustments" under the 1997 TCI Tax Sharing Agreement shall be eliminated as of the Closing Date without any obligation or payment with respect thereto and no rights or obligations shall subsequently arise with respect thereto; (v) Pre-Closing Losses; Pre-Closing Alternative Minimum Tax. For ------------------------------------------------------- taxable periods ending on or prior to the Closing Date: (A) net operating loss carryovers, current losses and other Tax attributes available to the TCI Affiliated Group may be used by any member of the TCI Affiliated Group without compensation to the Group generating such attributes, (B) if the TCI Affiliated Group has only actual alternative minimum Tax liability in a Taxing jurisdiction, Liberty -10- shall pay AT&T for any alternative minimum Tax losses with respect to such jurisdiction generated by the Legal Entities in the TCI Affiliated Group that are not in the Liberty Group that reduce such liability with respect to such jurisdiction, and AT&T shall pay Liberty for any alternative minimum Tax losses generated by the Liberty Group that reduce such liability with respect to such jurisdiction, and (C) if the TCI Affiliated Group has only actual alternative minimum Tax liability in a Taxing jurisdiction, except as provided in clause (B) above, Liberty shall not be required to pay its share; (vi) TCI Affiliated Group Non-NOL Carryover. For taxable periods -------------------------------------- beginning after the Closing Date, any TCI Affiliated Group Non-NOL Carryover shall be treated as a Tax Item of the Common Stock Group; (vii) The Unused TCI Affiliated Group NOL. The Unused TCI ----------------------------------- Affiliated Group NOL shall be available to offset any payment obligation incurred by the Liberty Group pursuant to Section 3(a)(i) hereof at the applicable federal income tax rate for the taxable period with respect to which such payment obligation of the Liberty Group is incurred (without regard to whether the AT&T Affiliated Group is subject to separate return limitation year, Section 382 or other restrictions, in each case, arising by reason of the Merger, on the utilization of the Unused TCI Affiliated Group NOL in a taxable period, or portion thereof, beginning after the Closing Date); provided, however, that to the extent that the Unused TCI -------- ------- Affiliated Group NOL is a TCI SRLY NOL or a Liberty SRLY NOL it shall only be utilized as set forth in this paragraph below. In the case of any portion of the Unused TCI Affiliated Group NOL arising in a member of the Liberty Group which is subject to separate return limitation year, Section 382 or other restrictions arising prior to the Merger Date (a "Liberty SRLY NOL"), such Liberty SRLY NOL shall be available to reduce the Liberty Group's payment obligation only to the extent such Liberty SRLY NOL is actually utilized by the AT&T Affiliated Group. In the case of any portion of the Unused TCI Affiliated Group NOL arising in a member of the TCI Group which is subject to separate return limitation year, Section 382 or other restrictions arising prior to the Merger Date (a "TCI SRLY NOL"), such TCI SRLY NOL shall be available to reduce the Liberty Group's payment obligation only when an amount of the TCI Affiliated Group NOL in excess of the sum of the Liberty SRLY NOL and the TCI SRLY NOL has previously offset such payment obligation and then only as, when and to the extent that the AT&T Affiliated Group has actually utilized such TCI SRLY NOL or can be Reasonably Expected to so utilize such TCI SRLY NOL. For these purposes, the AT&T Affiliated Group shall be "Reasonably Expected" to ------------------- utilize a TCI SRLY NOL if and to the extent, through use of its reasonable best efforts, such NOL could have been utilized. Such reasonable best efforts shall not require the aggregate cost or expense to AT&T (including AT&T's share of the costs and expenses of the Arbiter) in excess of 12.5 million dollars, it being agreed and understood that AT&T will continue to use its reasonable best efforts at the Liberty Group's reasonable request and at the Liberty Group's expense to utilize such NOL. Within six weeks of the date hereof the parties shall designate a mutually acceptable neutral arbiter (the "Arbiter") to resolve any disputes with respect to the calculation of the Reasonably Expected utilization of such TCI SRLY NOL and also with respect to when or whether AT&T has incurred aggregate cost or expense in excess of 12.5 million dollars. The costs and expenses of the Arbiter shall be shared equally between AT&T and Liberty; (viii) Payment for NOL. Upon any deconsolidation of Liberty from --------------- the AT&T Affiliated Group for federal income Tax purposes, AT&T shall pay Liberty an amount equal to the product of (A) the Unused TCI Affiliated Group NOL (reduced by any Liberty SRLY NOL not utilized by the AT&T Affiliated Group and, without duplication, any portion of the Unused TCI Affiliated Group NOL that will become a Tax Item of Liberty or its Affiliates under the law upon such deconsolidation) that has been, or is reasonably expected to be (or, in the case of the TCI SRLY NOL, that has been or is Reasonably Expected to be), utilized by the AT&T Affiliated Group for -11- federal income tax purposes and (B) 35 percent. AT&T agrees to provide written notice to Liberty of the amount that will be paid pursuant to this Section 3(d)(viii) thirty days prior to the anticipated deconsolidation date of the Liberty Group. If any amount of the Unused TCI Affiliated Group NOL as of the date of deconsolidation is actually utilized by the AT&T Affiliated Group after the deconsolidation date of the Liberty Group, and Liberty has not been paid for such Unused TCI Affiliated Group NOL pursuant to this Section (such amount shall be referred to as the "Unpaid NOL"), AT&T shall pay Liberty, within 5 business days after the Tax Return utilizing the Unpaid NOL has been filed, an amount equal to the product of (C) the Unpaid NOL that has been utilized and (D) 35 percent. If any TCI Affiliated Group NOL for which Liberty has been paid pursuant to this Section 3(d)(viii) expires unutilized (whether by reason of any separate return limitation year or Section 382 restriction or otherwise), Liberty shall repay AT&T the amount of the payment in respect of such expired TCI Affiliated Group NOL, plus interest at 6.5 percent, compounded annually, from the date of deconsolidation. AT&T (subject, in the case of the TCI SRLY NOL, to the provisions of clause (vii) above) and TCI each agree to use reasonable efforts to have the TCI Affiliated Group NOL utilized by the AT&T Affiliated Group; (ix) Post-Closing Compensation Deductions. Each Group shall be ------------------------------------ entitled to the deductions arising after the Closing Date from the exercise by, or settlement of, any stock options or other equity-linked incentives, including stock appreciation rights, "phantom" stock rights and similar equity-linked instruments (A) by any person who is an officer, employee or consultant of such Group at the time of such exercise or settlement and (B) by any person who is no longer an officer, employee or consultant of either Group at the time of such exercise or settlement but who was an officer, employee or consultant of such Group on the date of such person's last employment by either Group, in each case, regardless of whether the stock underlying the option or equity-linked incentive tracks the Common Stock Group or the Liberty Group. Each Group shall be entitled to the deductions arising after the Closing Date from the payment of other compensation to the extent that such Group bears the cost of such compensation; and (x) Warrants. The parties agree that Liberty's basis in the -------- Warrants equals $8.25 per Warrant, which is the fair market value of the Warrants as agreed by AT&T and Liberty and the purchase price paid for the Warrants by Liberty in a closing transaction, and that they shall take no action inconsistent with such basis (including in connection with filing Tax Returns), unless required pursuant to a Final Determination. 4. Subsidiary Payments. Each of the Subsidiaries of the Liberty ------------------- Group agrees to pay to Liberty or at Liberty's discretion, to AT&T its share of each of the payments for which Liberty is responsible hereunder no later than one business day prior to the date upon which the relevant payment by Liberty is required to be made hereunder. 5. Adjustments. ----------- (a) In the event of any Redetermination of any Joint Return for any taxable period, the amounts required to be paid pursuant to Section 3 shall be recomputed for such taxable period to take into account such Redetermination, and payments pursuant to Section 3 hereof shall be appropriately adjusted. Liberty shall pay AT&T or AT&T shall pay Liberty an amount equal to the difference between the payment or payments previously made between the parties in respect of such redetermined Tax Return and the amount that would have been paid pursuant to this Agreement in respect of such redetermined Tax Return if such redetermined Tax Return had been filed on the basis of the Redetermination, plus interest at the statutory rate and applicable penalties. -12- (b) In the event of any Redetermination that reduces the amount of the TCI Affiliated Group NOL, Liberty shall pay AT&T the sum of (A) the amount by which Liberty's tax sharing obligations were reduced in reliance on the Phantom NOL pursuant to Section 3(d)(vii), (B) the amount that AT&T paid Liberty pursuant to Section 3(d)(viii) hereof in reliance on the Phantom NOL and (C) interest at the statutory rate from the date or dates of such reductions in tax sharing obligations and payments by AT&T and applicable penalties, and AT&T shall have no obligation to pay Liberty the amount of any benefit to AT&T arising as a result of any Redetermination that reduces the amount of the TCI Affiliated Group NOL. In the event of any Redetermination that reduces the amount of any Tax Item of the Liberty Group that is a loss, deduction or credit that was carried back or carried forward and for which Liberty received a payment hereunder from AT&T (or Liberty's payments hereunder to AT&T were reduced), Liberty shall pay AT&T the amount of such payment hereunder from AT&T (or reduction in a payment hereunder by Liberty) plus interest at the statutory rate and applicable penalties and AT&T shall have no obligation to pay Liberty the amount of any benefit to AT&T arising as a result of such Redetermination. (c) Any regular consolidated federal income Tax liability of the TCI Affiliated Group arising from any Redeterminations of Tax Items of the TCI Affiliated Group for one or more taxable periods ending on or before the Closing Date shall be borne by the Common Stock Group and the Liberty Group, respectively, in proportion to the amount that the sum of all Redeterminations of Tax Items attributable to the Tax Items of the TCI Group or the Tax Items of the Liberty Group, respectively, for all such periods bears to the sum of all Redeterminations of Tax Items attributable to the TCI Affiliated Group for all such periods. (d) Any alternative minimum consolidated federal tax liability of the TCI Affiliated Group arising from any Redetermination of Tax Items of the TCI Affiliated Group for one or more taxable periods ending on or before the Closing Date shall be borne by the Common Stock Group to the extent that AT&T reasonably expects to utilize the credit arising from payment of such liability and any such remaining alternative minimum consolidated federal tax liability shall be borne by the Group generating such alternative minimum tax liability; provided, -------- however, that (A) in the event that AT&T utilizes any credit arising from the - ------- alternative minimum tax liability that would otherwise be borne by Liberty, AT&T shall repay Liberty the amount paid by Liberty to AT&T in respect of such alternative minimum tax liability and (B) in the event that AT&T reasonably expects to utilize a credit but is not able to utilize such credit, whether by reason of expiration, Redetermination or otherwise, Liberty shall pay AT&T the amount that Liberty would have paid AT&T had AT&T not reasonably expected to utilize such credit. (e) Notwithstanding any other provision of this Agreement, in the event of a Final Determination with respect to the Warrants that results in an increase in basis to Liberty over $8.25 per Warrant (or other property received in exchange for such Warrant) or over the sum of $8.25 plus the exercise price in the stock underlying each Warrant (or other property received in exchange for such stock) ("Excess Basis"), Liberty shall pay to AT&T the amount of any Tax benefit received by Liberty resulting from such basis increase; provided, -------- however, that (I) in the event of a deconsolidation of the Liberty Group after - ------- such Final Determination, Liberty shall pay AT&T on the date of deconsolidation an amount equal to the product of (A) 35 percent and (B) the amount of any Excess Basis for which AT&T has not previously been paid and (II) in the event of such a Final Determination after a deconsolidation of the Liberty Group, Liberty shall pay AT&T within seven days after the date of such Final Determination an amount equal to the product of 35 percent and the Excess Basis, plus interest at 6.5 percent, compounded annually, from the date of deconsolidation. (f) Any payment by Liberty or AT&T required by any Redetermination shall be paid within seven days after the date of a Final Determination with respect to such Redetermination. 6. Separate Returns. Any Separate Return that includes only a ---------------- member or members of the Liberty Group and any Taxes with respect to such Separate Return shall be the responsibility of the Liberty -13- Group provided that the Liberty Group timely files such Separate Returns and -------- pays the Taxes due with respect thereto. In the event that the Liberty Group does not so file such a Separate Return or does not pay the Taxes due with respect thereto, Liberty shall indemnify AT&T with respect to such Separate Return as provided in Section 8 and, notwithstanding any other provision hereof, AT&T shall be entitled to file such Separate Return in any manner it chooses so long as it files such Separate Return in good faith. 7. Interest on Unpaid Amounts. In the event that any party fails to -------------------------- pay any amount owed pursuant to this Agreement on the date when due, interest shall accrue on any unpaid amount at the Designated Rate from the due date until such amounts are fully paid. 8. Indemnification. --------------- (a) From and after the Closing Date, each Legal Entity that is a member of the Liberty Group shall indemnify and hold harmless each Legal Entity that is a member of the Common Stock Group and their respective directors, officers, employees, affiliates, agents, successors and assigns (the "Common Stock Indemnitees") from and against (i) any Taxes which such member of the Liberty Group is required to pay to a Governmental Authority (without any right of reimbursement from AT&T) or in respect of which Liberty is required to make a payment hereunder to AT&T and (ii) any Losses incurred by any Common Stock Indemnitee by reason of a breach by any member of the Liberty Group of its obligations or covenants hereunder. (b) From and after the Closing Date, each Legal Entity that is a member of the Common Stock Group shall indemnify and hold harmless each Legal Entity that is a member of the Liberty Group and their respective directors, officers, employees, affiliates, agents, successors and assigns (the "Liberty Indemnitees") from and against (i) any Taxes which such member of the Common Stock Group is required to pay to a Governmental Authority (without any right of reimbursement from Liberty) or in respect of which AT&T is required to make a payment hereunder to Liberty and (ii) any Losses incurred by any Liberty Indemnitee by reason of a breach by any member of the Common Stock Group of its obligations or covenants hereunder. 9. Liberty Contests and Filing of Returns. -------------------------------------- (a) Tax Returns of the TCI Affiliated Group for taxable periods ending on or prior to the Closing Date shall be prepared by the TCI Affiliated Group and approved (which approval shall not be unreasonably withheld) by Liberty, and shall be forwarded to AT&T for its review and approval (which approval shall not be unreasonably withheld) prior to filing. Such Tax Returns shall be prepared on a basis consistent with prior periods except insofar as changes in law require a change in reporting. (b) From and after the Closing Date, Liberty shall have the right to control in all respects all Tax Proceedings with respect to any member of the TCI Affiliated Group with respect to any Pre-Closing Taxable Period; provided, -------- however, that (i) AT&T shall be entitled to participate in any such Tax - ------- Proceeding at its expense, (ii) Liberty shall keep AT&T updated and informed and shall consult with AT&T with respect to any contested Tax Item, (iii) Liberty shall act in good faith with a view to the merits in connection with the Tax Proceeding and (iv) any proposed settlement shall require the consent of AT&T, which consent shall not be unreasonably withheld. (c) With respect to any Joint Return for any taxable year ending after the Closing Date, Liberty shall provide a Tax package for the Liberty Group, prepared at Liberty's sole cost and expense, to AT&T relating to the Liberty Group's activities no later than the date (provided that Liberty is given reasonable notice of such date) required by AT&T of its Significant Subsidiaries. Such packages shall (A) be prepared by -14- a nationally recognized accounting firm (the "Package Preparer") mutually reasonably satisfactory to AT&T and Liberty, (B) take no position with a likelihood of success under the law that is less than 33-1/3 percent and include an opinion of the Package Preparer to such effect and (C) include a list prepared by the Package Preparer of all positions taken that are not more likely than not to succeed under the law and an analysis of the issues raised by each such position. The Joint Return of the AT&T Affiliated Group (including its consolidated federal income Tax Return) shall be prepared on the basis of the applicable Tax package prepared in accordance with this Section 9(c); provided, -------- however, that in the case of any position taken in any such Tax package (a - ------- "Package Position") with which AT&T disagrees, (I) a neutral mutually reasonably satisfactory nationally recognized law firm shall opine as to whether the Package Position has a likelihood of success under the law that is less than 33- 1/3 percent and (II) the AT&T Affiliated Group shall take the Package Position for such period in the applicable Joint Return if such law firm opines that such likelihood is at least 33-1/3 percent and shall otherwise take any position that AT&T deems reasonable in lieu of the Package Position; provided further, -------- ------- however, that AT&T shall have sole discretion to make all decisions with respect - ------- to any election, accounting method or other position that, if applicable, would be required to apply to any member of the Common Stock Group (and in the case of any election that would not, if made, apply to any member of the Common Stock Group, AT&T shall make such election if requested in Liberty's Tax package and AT&T shall not make such election if not requested in Liberty's Tax package). All costs, fees and expenses incurred with respect to the procedures described in part I of this Section 9(c) shall be borne 75 percent by Liberty and 25 percent by AT&T. (d) With respect to taxable years ending after the Closing Date, AT&T shall have the right to control in all respects (including settlement) all Tax Proceedings with respect to any member of the Liberty Group; provided, however, -------- ------- that (A) Liberty (and any other member of the Liberty Group to the extent such member's Tax Items are Contested Liberty Group Items in the Tax Proceeding) shall be entitled to participate in any such Tax Proceeding at their expense, insofar as the Tax liabilities of the Liberty Group are concerned, (B) AT&T shall keep Liberty updated and informed, and shall consult with Liberty, with respect to any Tax Item of the Liberty Group that is a subject of such Tax Proceeding (a "Contested Liberty Group Item"), (C) AT&T shall act in good faith with a view to the merits in connection with the Tax Proceeding and (D) without limiting in any respect AT&T's right to settle any such Tax Proceeding in its absolute discretion, in the event that Liberty objects to a settlement of a Contested Liberty Group Item that it has identified in a written notice to AT&T prior to settlement as an item to be subject to this clause (D), (x) a neutral nationally recognized accountant (the "Settlement Advisor") that is mutually reasonably satisfactory to the parties shall determine the extent, if any, to which the amount for which the Contested Liberty Group Item was settled exceeds the amount at which the Contested Liberty Group Item could reasonably have been expected to be settled (the "Tentative Settlement Overpayment"), (y) the Settlement Advisor shall reasonably reduce the Tentative Settlement Overpayment to take account of the settlement of any Contested Liberty Group Items (and the resolution of any items of the Liberty Group for the period settled that were not the subject of the Tax Proceeding but were specifically identified in a written notice to Liberty from AT&T and discussed with Liberty prior to settlement) at an amount lower than the amount at which such items could reasonably have been expected to be settled (the Tentative Overpayment after such reduction, if any, the "Settlement Overpayment") and (z) AT&T shall pay Liberty as a Tax sharing payment the excess of the aggregate Settlement Overpayments for a taxable jurisdiction for a taxable year over the lesser of (I) 25 percent of the amount at which the Contested Liberty Group Items could reasonably have been expected to be settled, as determined by the Settlement Advisor, and (II) $10 million in the case of consolidated federal income Taxes ($2 million in the case of all other Taxes). To the extent that any payment by AT&T pursuant to clause (z) above arises from an adjustment of a Timing Item (such payment, an "Advance"), amounts that would otherwise be payable by AT&T to Liberty with respect to the year that the Corresponding Item is realized shall be reduced (or amounts that would otherwise have been receivable by AT&T from Liberty shall be increased) by the amount of the Advance. Liberty shall pay AT&T the amount of any Advance that has not previously been so applied to reduce (or increase) payments at such time, if any, that the Liberty Group (or the member of the Liberty Group to which the Advance relates) -15- deconsolidates from the AT&T Affiliated Group. All costs, fees and expenses of the Settlement Advisor and the procedures described in Section 9(d)(D)(x) and (y) shall be borne 50 percent by Liberty and 50 percent by AT&T. 10. Appointment of AT&T as Agent. Liberty and each of the Subsidiaries ---------------------------- in the Liberty Group hereby appoint AT&T as their agent for the purpose of filing consolidated federal income Tax Returns that are Joint Returns and for making any election (described in Section 9(c) of this Agreement) or application or taking any action in connection with any such Tax Return on behalf of Liberty and each such Subsidiary in the Liberty Group included in such return consistent with the terms of this Agreement. Liberty and each of the Subsidiaries in the Liberty Group hereby appoint AT&T as their agent for the purpose of filing any other Joint Returns, and for making any election (described in 9(c) of this Agreement) or application or taking any action in connection with any such Joint Return on behalf of Liberty and each Subsidiary in the Liberty Group consistent with the terms of this Agreement. Liberty and each of the Subsidiaries in the Liberty Group hereby consent to the filing of such consolidated federal income Tax Returns and combined, consolidated or unitary state, local or foreign Tax Returns, and to the making of such elections and applications. Liberty agrees that Liberty and each of the Subsidiaries in the Liberty Group will be included, to the extent permitted by applicable law, in the filing of consolidated federal income Tax Returns on behalf of the AT&T Affiliated Group for each taxable period ending after the Closing Date and will be included in any other Joint Return required or permitted by applicable law, which Joint Return AT&T elects or is required to file or cause to be filed. 11. Cooperation. ----------- (a) The parties shall cooperate with one another in all matters relating to Taxes. The Liberty Group shall each provide AT&T with such cooperation and information as is necessary in order to enable AT&T to satisfy its tax, accounting and other legitimate requirements. Such cooperation and information by the members of the Liberty Group shall include making their respective knowledgeable employees available during normal business hours, providing the information required by reasonable AT&T Tax and accounting questionnaires (at the times and in the format required by AT&T of its Significant Subsidiaries), maintaining such books and records and providing such information as may be necessary or useful in the filing of Joint Returns and Separate Returns, and executing any documents and taking any actions which AT&T may reasonably request in connection therewith. AT&T shall provide Liberty, upon request, with copies of any Joint Returns filed by AT&T that include any member of the Liberty Group, promptly after such Joint Returns are filed and with copies of schedules and workpapers used to prepare such Joint Returns and to determine payments pursuant to this Agreement. (b) AT&T, Liberty and the Covered Entities shall consult with and cooperate with one another with respect to any restructuring (including, without limitation, any incorporation, sale, transfer or exchange of assets and any liquidation, sale, transfer or reorganization of any entity (such a restructuring, a "Post-Closing Transaction")) of the assets or entities that were part of the transactions described in the TCI Pre-AT&T Merger Restructuring Plan or paragraph 1 of the Letter Agreement to the extent that such restructuring would reasonably be expected to adversely affect the Tax treatment of any of the steps listed in the TCI Pre-AT&T Merger Restructuring Plan or paragraph 1 of the Letter Agreement materially. If the Liberty Group has not given its approval to a Post-Closing Transaction effected by any member of the Common Stock Group, which approval shall not be unreasonably withheld (provided that reasonableness shall be based on risk, not dollars), and such Post-Closing Transaction affects the Tax treatment of any step in the TCI Pre-Merger Restructuring Plan or paragraph 1 of the Letter Agreement creating either a Tax liability or a DIT or a reduction in any Tax benefit that would otherwise be for Liberty's account under this Agreement, then (A) AT&T shall indemnify Liberty for (i) the amount of any reduction of the TCI Affiliated Group NOL that would not have arisen but for such Post-Closing Transaction, (ii) any Tax created from any DIT that would not have arisen but for such Post-Closing Transaction, and (iii) any other Tax liability (or reduction in any Tax benefit) that would -16- not have arisen but for such Post-Closing Transaction and (B) AT&T shall be entitled, notwithstanding any other provision of this Agreement, to control any Tax Proceeding to the extent it relates to any Tax liability, reduction in Tax benefit or reduction in the TCI Affiliated Group NOL arising from such Post- Closing Transaction. If AT&T has not given its approval to a Post-Closing Transaction effected by any member of the Liberty Group, which approval shall not be unreasonably withheld (provided that reasonableness shall be based on risk, not dollars), and such Post-Closing Transaction affects the Tax treatment of any step in the TCI Pre-Merger Restructuring Plan or paragraph 1 of the Letter Agreement creating either a Tax liability or a DIT or a reduction in any Tax benefit that would otherwise be for AT&T's account under this Agreement, then Liberty shall indemnify AT&T for (i) the amount of any reduction of any TCI Affiliated Group Non-NOL Carryover that would not have arisen but for such Post- Closing Transaction, (ii) any Tax created from any DIT that would not have arisen but for such Post-Closing Transaction, and (iii) any other Tax liability (or reduction in any Tax benefit) that would not have arisen but for such Post- Closing Transaction. 12. Confidentiality. Any information obtained by any party under --------------- this Agreement shall be kept confidential, except as may be necessary in connection with the filing of Tax Returns or claims for refund or in connection with an audit, dispute, proceeding, suit or action concerning any issues or matters addressed in this Agreement, or unless a party is compelled to disclose information by judicial or administrative process or, in the opinion of its counsel, by other requirements of law. This Section 12 shall not be construed to prevent the sharing of information by the parties with their respective legal advisors or accountants, the independent certified public accountants for purposes of performing the duties specified in Section 14 hereof, with the Settlement Advisor for purposes of performing the duties specified in Section 9(d) hereof or with the Arbiter. 13. Payment of Tax. For each taxable period, AT&T shall timely pay -------------- or discharge, or cause to be timely paid or discharged, the consolidated federal income Tax liability of the AT&T Affiliated Group for such taxable period and the combined state, local or foreign Tax liability shown on any Joint Return that AT&T or any other member of the Common Stock Group elects or is required to file. 14. Calculation of Tax Sharing Payments and Resolution of Disputes. -------------------------------------------------------------- The independent certified public accountants for AT&T shall review each calculation of payments pursuant to this Agreement and provide a written certification to Liberty that such payments have been calculated and determined in accordance with the terms and provisions of this Agreement. Any dispute concerning the calculation or basis of determination of any payment provided for hereunder or the interpretation of any term or provision or any matter not contemplated by this Agreement that cannot be resolved in good faith by the parties shall be resolved by an independent certified public accounting firm that is mutually reasonably satisfactory to AT&T and Liberty in a manner that best conforms with the intent of the parties in drafting this Agreement, whose judgment shall be conclusive and binding upon the parties, in the absence of mathematical error. All costs, fees and expenses of the independent certified public accounting firms that are attributable to services rendered under this Section 14 shall be borne half by AT&T and half by Liberty. 15. Binding Effect; Successors and Assigns. This Agreement shall be -------------------------------------- binding upon AT&T, Liberty and each Subsidiary that is a signatory hereto and the Subsidiaries that become parties hereto pursuant to Section 23 hereof. This Agreement shall inure to the benefit of, and be binding upon, any successors or assigns of the parties hereto (including, without limitation, any Subsidiary that becomes a party hereto pursuant to Section 23). AT&T, Liberty and each other party hereto may assign their right to receive payments under this Agreement but may not assign or delegate their obligations hereunder; provided, -------- however, that concurrently with the Liberty Media Corporation Contribution (as - ------- defined in the Contribution Agreement) which will occur as soon as practicable after the occurrence of a Triggering Event (as defined in the Contribution Agreement), Liberty Group LLC shall assume all the obligations of Liberty and each other member of the Liberty Group hereunder (and which obligations thereafter shall be exercisable against Liberty -17- Group LLC, as well as Liberty and each other member of the Liberty Group, for all purposes of this Agreement), and Liberty shall assign all of the rights of Liberty under this Agreement to Liberty Group LLC (and which rights thereafter shall be exercisable by Liberty Group LLC for all purposes of this Agreement, on behalf of Liberty or otherwise), including, without limitation, Liberty's rights to tax sharing payments and indemnification from AT&T and Liberty's rights to file certain Tax Returns, to prepare Tax packages, to control or participate in Tax Proceedings, to object to settlements by AT&T, to cooperation from AT&T, and to procedures for the calculation of payments and resolution of disputes. 16. Interpretation. This Agreement is intended to calculate and -------------- allocate certain federal, state, local and foreign Tax liabilities of the members of the AT&T Affiliated Group, the Common Stock Group, and the Liberty Group, and any situation or circumstance concerning such calculation and allocation that is not specifically contemplated hereby or provided for herein shall be dealt with in a manner consistent with the underlying principles of calculation and allocation in this Agreement. This Agreement shall not be interpreted to require any payment by Liberty to AT&T that is duplicative of any gross proceeds retained by AT&T for taxes pursuant to part (a) of the definition of "Liberty Media Group Net Proceeds" found in Section 9, Part B, of Article Third of the AT&T Charter. 17. Legal and Accounting Fees. Unless otherwise specified herein, ------------------------- any fees or expenses for legal, accounting or other professional services rendered in connection with the preparation of a Joint Return or the conduct of any Tax Proceeding shall be allocated between AT&T and Liberty in a manner resulting in AT&T and Liberty, respectively, bearing a reasonable approximation of the actual amount of such fees or expenses hereunder reasonably related to, and for the benefit of, their respective Groups. 18. Effect of the Agreement. This Agreement shall determine the ----------------------- liability of AT&T, Liberty and the members of their respective Groups to each other as to the matters provided for herein, whether or not such determination is effective for purposes of the Code or of state, local or foreign Tax laws, or for financial reporting purposes or for any other purposes. 19. Entire Agreement. ---------------- (a) This Agreement embodies the entire understanding among the parties relating to its subject matter and supersedes and terminates any prior agreements and understandings among the parties with respect to such subject matter (including the 1995 TCI Tax Sharing Agreement and the 1997 TCI Tax Sharing Agreement, each of which shall be of no further force or effect, and Exhibit C to the Merger Agreement), and no Person shall have any right, responsibility, obligation or liability thereunder. Any and all prior correspondence, conversations and memoranda (including the memorandum from AT&T and Liberty to Wachtell, Lipton, Rosen & Katz and Baker & Botts, L.L.P. dated March 4, 1999) are merged herein and shall be without effect hereon. No promises, covenants or representations of any kind, other than those expressly stated herein, have been made to induce either party to enter into this Agreement. This Agreement, including this provision against oral modification, shall not be modified or terminated except by a writing duly signed by each of the parties hereto, and no waiver of any provisions of this Agreement shall be effective unless in a writing duly signed by the party sought to be bound. (b) Notwithstanding Section 19(a), the Federal Tax Allocation Agreement, the State and Local Income Tax Allocation Agreement and the Tax Sharing Agreement by and among AT&T, Lucent Technologies Inc. and NCR Corporation dated as of February 1, 1996 shall each remain fully in effect; provided, however, that no Legal Entity included in the Liberty Group shall be considered a party to such agreements or subject to such agreements. -18- 20. Code References. Any references to the Code or Treasury --------------- Regulations shall be deemed to refer to the relevant provisions of any successor statute or regulation and shall refer to such provisions as in effect from time to time. 21. Notices. Any payment, notice or communication required or ------- permitted to be given under this Agreement shall be in writing (including telecopy communication) and mailed, telecopied or delivered: If to AT&T or any member of the Common Stock Group: AT&T Corp. 295 North Maple Avenue Basking Ridge, New Jersey 07920 Attention: Vice President-Law and Corporate Secretary Facsimile: (908) 221-6618 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52/nd/ Street New York, New York 10019 Attention: Richard D. Katcher, Esq. Steven A. Rosenblum, Esq. Facsimile: (212) 403-2000 If to Liberty or any member of the Liberty Group: Liberty Media Corporation 8101 East Prentice Avenue, Suite 500 Englewood, Colorado 80111 Attention: Peter Zolintakis Facsimile: (303) 488-3268 with a copy to: Baker & Botts, L.L.P. 599 Lexington Avenue New York, New York 10022 Attention: Elizabeth M. Markowski, Esq. Frederick H. McGrath, Esq. Facsimile: (212) 705-5125 or to any other address as AT&T or Liberty shall furnish in writing to one another. All such notices and communications shall be effective when received. 22. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. -19- 23. New Members. Each of the parties to this Agreement recognizes ----------- that from time to time, new Subsidiaries of Liberty may be added to the Liberty Group. Each of the parties agree that any new Subsidiary that is part of the Liberty Group shall, without the express written consent of the other parties, become a party to this Agreement for all purposes of this Agreement with respect to taxable periods ending after such Subsidiary was added to the Liberty Group. 24. Nature of Obligations. Each of AT&T and Liberty acknowledges and --------------------- agrees that its respective obligations under this Agreement shall not be affected by any impossibility, illegality, impracticability, frustration of purpose, force majeure, act of government, bankruptcy or insolvency of any party ----- ------- to this Agreement, failure or refusal of any party to this Agreement to perform its obligations hereunder, dispute, setoff or counterclaim, change in amount, composition or terms of the assets, liabilities or equity of AT&T or Liberty or any other party to this Agreement, or any other defense or right which AT&T or Liberty has or may have that might have the effect of releasing AT&T or Liberty, as the case may be, from such obligations. 25. Termination. This Agreement shall terminate at such time as all ----------- obligations and liabilities of the parties hereto have been satisfied. The obligations and liabilities of the parties arising under this Agreement shall continue in full force and effect until all such obligations have been met and such liabilities have been paid in full, whether by expiration of time, operation of law, or otherwise. The obligations and liabilities of each party are made for the benefit of, and shall be enforceable by, the other parties and their successors and permitted assigns. 26. Liberty Representation. Liberty represents that Liberty currently ---------------------- estimates based upon information as of the date hereof that was provided by TCI personnel to Liberty and evaluated by Liberty personnel in good faith, that with respect to 1998, for federal income tax purposes, the TCI Group will have $165 million of alternative minimum taxable income (which reflects a $70 million alternative minimum taxable loss of National Digital Television Center, Inc.) and the Liberty Group will have $205 million of alternative minimum taxable income. It has been the general experience of Liberty that final federal income tax numbers may vary from such estimates by a considerable amount, as much as 100 percent or more, but, apart from such general experience, Liberty has no reason to believe that the numbers contained in the immediately preceding sentence are incorrect as of the date hereof. -20- IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed by its respective duly authorized officer as of the date first set forth above. AT&T CORP. By: /s/ Daniel E. Somers ----------------------------------------- Name: Daniel E. Somers Title: Senior Executive Vice President and Chief Financial Officer LIBERTY MEDIA CORPORATION, for itself and for each member of the Liberty Group By: /s/ Charles Y. Tanabe ----------------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President -21- Each of the Covered Entities listed below on this page hereby executes this Agreement as a member of the Liberty Group to acknowledge that such Person is bound by this Agreement as a member of the Liberty Group: TCI WIRELESS HOLDINGS, INC. By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President TCIP, INC. By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President TCI INTERACTIVE, INC. By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President SILVER SPUR LAND AND CATTLE CO. By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Senior Vice President -22- TELE-COMMUNICATIONS, INC. By: /s/ Stephen M. Brett --------------------------------- Name: Stephen M. Brett Title: Executive Vice President LIBERTY VENTURES GROUP LLC By: /s/ Stephen M. Brett --------------------------------- Name: Stephen M. Brett Title: Executive Vice President LIBERTY MEDIA GROUP LLC By: /s/ Charles Y. Tanabe --------------------------------- Name: Charles Y. Tanabe Title: Vice President TCI STARZ, INC. By: /s/ Stephen M. Brett --------------------------------- Name: Stephen M. Brett Title: Vice President TCI CT HOLDINGS, INC. By: /s/ Stephen M. Brett --------------------------------- Name: Stephen M. Brett Title: Vice President -23- EX-10.5 13 FIRST AMENDMENT TO TAX SHARING AGREEMENT EXHIBIT 10.5 ------------ FIRST AMENDMENT TO TAX SHARING AGREEMENT by and among AT&T CORP., LIBERTY MEDIA CORPORATION, for itself and each member of the Liberty Group, TELE-COMMUNICATIONS, INC., LIBERTY VENTURES GROUP LLC, LIBERTY MEDIA GROUP LLC, TCI STARZ, INC., TCI CT HOLDINGS, INC, and each Covered Entity listed on the signature pages hereof, dated as of May 28, 1999 This First Amendment, dated as of May 28, 1999 (this "First Amendment"), to the Tax Sharing Agreement, dated as of March 9, 1999 (the "Agreement"), is entered into by and among AT&T Corp., a New York corporation ("AT&T"), Liberty Media Corporation, a Delaware corporation ("Liberty"), for itself and on behalf of each member of the Liberty Group, Tele-Communications, Inc., a Delaware corporation, Liberty Ventures Group LLC, a Delaware limited liability company, Liberty Media Group LLC, a Delaware limited liability company, TCI Starz, Inc., a Colorado corporation, TCI CT Holdings, Inc., a Delaware corporation, each Covered Entity listed on the signature pages hereof, and each entity which becomes a party to the Agreement pursuant to Section 23 thereto. Unless otherwise stated herein, capitalized terms used in this First Amendment shall have the meaning ascribed to such terms in the Agreement. WHEREAS, the parties have entered into the Agreement which governs the sharing, allocation and reimbursement of federal, state, local and foreign taxes by the members of the Common Stock Group and the Liberty Group; and WHEREAS, AT&T intends to acquire The Associated Group, Inc., a Delaware corporation ("AGI"), in a transaction qualifying as a tax-free reorganization under Section 368(a) of the Code (the "AGI Acquisition") pursuant to an Agreement and Plan of Merger dated as of May 28, 1999 (the "AGI Merger Agreement") for and on behalf of the Liberty Group; and WHEREAS, certain members of the Liberty Media Group are negotiating a form of letter (in the form approved in writing by AT&T, the "Telewest Letter") to Microsoft Corporation ("Microsoft") relating to the interest currently held by MediaOne Group, Inc. in Telewest that calls for the negotiation, execution and delivery of certain agreements, instruments and other documents that give effect to the arrangements described therein (collectively, and including the obligations to which Microsoft would succeed pursuant to the second paragraph of the Telewest Letter, but in each case only to the extent approved in writing by AT&T, the "Microsoft/Telewest Arrangements"); and WHEREAS, the parties intend that any Tax Items arising from or relating to the AGI Acquisition, including any Tax Items of AGI or any of its direct or indirect assets or subsidiaries, shall be considered Tax Items attributable to the Liberty Group except to the extent set forth herein; and WHEREAS, the parties intend that any Tax Items arising from or relating to the Microsoft/Telewest Arrangements shall be considered Tax Items attributable to the Common Stock Group except to the extent set forth herein; and WHEREAS, the parties now wish to amend the Agreement in certain respects to clarify the intent of the parties with respect to the sharing, allocation and reimbursement of federal, state, local and foreign taxes by the members of the Common Stock Group and the Liberty Group and to make such other amendments, as provided herein; NOW, THEREFORE, the parties hereby agree as follows: 1. The Agreement is amended by inserting in Section 1(z) the words ", as amended" after the words "as of the date hereof" and before the period. 2. The Agreement is amended by deleting the first sentence of Section 3(d)(i) and adding in lieu thereof the following: "Any Tax Item arising from or relating to (A) TCI Wireless Holdings Inc. or any of its direct or indirect assets or subsidiaries, (B) the disposition of certain assets in exchange for stock of GI or the subsequent disposition of such stock, (C) except as provided below in this Section 3(d)(i), the deemed, constructive or actual disposition (except for the Exhibit D DITS) of the shares or other interests in any Liberty Group Legal Entity, or measured by reference to the difference between the value of such shares or interests and 2 the holder's basis therein, or (D) AGI, A-Group Merger Corp. ("AGI Merger Sub"), Cayman LLC (as defined in the AGI Merger Agreement), Delaware LLC (as defined in the AGI Merger Agreement), Teligent, Inc., TruePosition, Inc., or any of their respective direct or indirect subsidiaries or affiliates (or any predecessor or successor of any of the foregoing under applicable corporate, limited liability company, partnership or other organizational law) (the "AGI Entities"); the status of any member of the Common Stock Group as the successor under Code Section 381 (or comparable provision of state, local or foreign Tax law) to any of the AGI Entities; any direct or indirect asset, liability, business, investment or operation of any of the AGI Entities; any AT&T Common Stock or New Liberty Media Group Tracking Stock held at any time directly or indirectly by any of the AGI Entities; the amendments made as of the closing date of the merger of AGI Merger Sub into AGI (the "AGI Merger") to the Contribution Agreement and to the Limited Liability Company Agreement of Liberty Media Group LLC and the transactions contemplated by such amendments (and only such amendments); the AGI Acquisition, the AGI Merger Agreement, the AGI Merger, any Pre-Merger Restructuring Transaction (as defined in the AGI Merger Agreement), any Post-Merger Restructuring Transaction (as defined in the AGI Merger Agreement), the issuance of AT&T Common Stock or New Liberty Media Group Tracking Stock in the AGI Merger or any other transaction contemplated by the AGI Merger Agreement, the First Supplement to Inter- Group Agreement dated May 28, 1999 (the "First Supplement") (other than Section 1.5 and the preamble paragraph relating to the Telewest Letter thereof), this Clause D of this First Amendment, or the Voting Agreement dated May 28, 1999 by and among AT&T, Liberty, and certain stockholders of AGI (the "Voting Agreement"), or any other document to which the Company, Liberty or any of their respective Subsidiaries (as defined in the AGI Merger Agreement) or Affiliates (as defined in the AGI Merger Agreement) is a party that is referred to in the AGI Merger Agreement, the First Supplement (other than Section 1.5 and the preamble paragraph relating to the Telewest Letter thereof), this Clause D of this First Amendment and the Voting Agreement or executed in connection therewith (any of the foregoing Tax Items specified in this Clause D shall be referred to hereinafter as a "Clause D Tax Item"), shall be for the account of the Liberty Group (except to the extent otherwise provided in this Section 3(d)(i) with respect to any Clause D Tax Item), and Liberty shall pay AT&T any Tax (or any reduction in any Tax refund, credit or other benefit) attributable thereto. Notwithstanding anything in the preceding sentence to the contrary, any Clause D Tax Item shall be for the account of AT&T if, and to the extent that, such Clause D Tax Item arises directly from and would not have arisen but for (i) any inaccuracy in any of the representations by AT&T or AGI Merger Sub in the Officer's Certificate dated as of the closing date of the AGI Merger delivered by AT&T and AGI Merger Sub in connection with the opinions to be delivered pursuant to Section 8.2(j), 8.3(h) and 8.4(h) of the AGI Merger Agreement, (ii) any breach by AT&T or AGI Merger Sub of any of their representations or covenants in Sections 3.6, 3.7, 3.11, 3.12, 3.13, 3.14, 5.4, 5.5, 7.7, 7.13, and 7.15 of the AGI Merger Agreement or (iii) any breach by AT&T of any representation or covenant in the Inter- Group Agreement (except in the case of clauses (i), (ii) and (iii), to the extent arising out of or relating to actions taken by AT&T at the request of Liberty as contemplated by Section 1.2(e) of the First Supplement or otherwise in writing), and AT&T shall pay to the applicable Governmental Authority or to Liberty any Tax, and shall pay to Liberty any reduction in any Tax refund, credit or other benefit that is for the account of Liberty hereunder, attributable thereto. Any Tax Item arising from or relating to the execution and delivery of, or the performance of the obligations of the Liberty Media Group (as defined in the Parent Charter) under, the Telewest Letter, the Microsoft/Telewest Arrangements, or any other transaction contemplated thereby or by Section 1.5 of the First Supplement, this sentence of this First Amendment, or any other document referred to in Section 1.5 of the First Supplement or this sentence of this First Amendment (any of the foregoing Tax Items specified in this sentence shall be referred to hereinafter as a "Telewest Tax Item"), shall be for the account of the Common Stock Group (except to the extent otherwise provided in this Section 3(d)(i) with respect to any Telewest Tax Item), and AT&T shall pay to the applicable Governmental Authority or to Liberty any Tax, and shall pay to Liberty any reduction in any Tax refund, credit or other benefit that is for the account of Liberty hereunder, attributable thereto. Notwithstanding anything in the preceding sentence to the contrary, any Telewest Tax Item shall be for the account of Liberty if, and to the extent that, such Telewest Tax Item arises directly from and would not have arisen but for (i) any breach by Liberty or any member of the Liberty Media Group (as defined in the Inter-Group Agreement) of any of its representations or covenants 3 in the Telewest Letter or the Microsoft/Telewest Arrangements or (ii) any breach by Liberty of any representation or covenant in the Inter-Group Agreement (except in the case of clauses (i) and (ii), to the extent arising out of or relating to actions taken by Liberty at the express written request of AT&T), and Liberty shall pay AT&T any Tax (or any reduction in any Tax refund, credit or other benefit that is for the account of AT&T hereunder) attributable thereto." 3. The Agreement is amended by inserting in Section 3(d)(ii) the words ", as amended," after the words "dated February 11, 1999" and before the words "among AT&T, TCI and Liberty." 4. The Agreement is amended by deleting Section 9(b) and adding in lieu thereof a new sentence as follows: "From and after the Closing Date, Liberty shall have the right to control in all respects all Tax Proceedings with respect to (I) any member of the TCI Affiliated Group with respect to any Pre-Closing Taxable Period or (II) AGI for any taxable period ending on or prior to the date of the closing of the AGI Merger or any Subsidiary of AGI during any such period for such period; provided, however, that (i) AT&T shall be entitled to participate in any such Tax Proceeding at its expense, (ii) Liberty shall keep AT&T updated and informed and shall consult with AT&T with respect to any contested Tax Item, (iii) Liberty shall act in good faith with a view to the merits in connection with the Tax Proceeding and (iv) any proposed settlement shall require the consent of AT&T, which consent shall not be unreasonably withheld." 5. Except as otherwise expressly provided herein, the Agreement shall continue in full force and effect without modification. 4 IN WITNESS WHEREOF, each of the parties has caused this First Amendment to be executed by its respective duly authorized officer as of the date first set forth above. AT&T CORP. By:________________________________________ Name: Title: LIBERTY MEDIA CORPORATION, for itself and for each member of the Liberty Group By:________________________________________ Name: Title: 5 Each of the Covered Entities listed below on this page hereby executes this First Amendment as a member of the Liberty Group to acknowledge that such Person is bound by this First Amendment as a member of the Liberty Group: TCI WIRELESS HOLDINGS, INC. By:________________________________________ Name: Title: TCIP, INC. By:________________________________________ Name: Title: TCI INTERACTIVE, INC. By:________________________________________ Name: Title: SILVER SPUR LAND AND CATTLE CO. By:________________________________________ Name: Title: 6 TELE-COMMUNICATIONS, INC. By:________________________________________ Name: Title: LIBERTY VENTURES GROUP LLC By:________________________________________ Name: Title: LIBERTY MEDIA GROUP LLC By:________________________________________ Name: Title: TCI STARZ, INC. By:________________________________________ Name: Title: TCI CT HOLDINGS, INC. By:________________________________________ Name: Title: 7 EX-10.6 14 RESTATED AND AMENDED EMPLOYMENT AGREEMENT EXHIBIT 10.6 ------------ RESTATED AND AMENDED EMPLOYMENT AGREEMENT ----------------------------------------- RESTATED AND AMENDED EMPLOYMENT AGREEMENT dated as of November 1, 1992 between TELE-COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and John C. Malone, who resides at 12415 Lost Canyon Trail, Parker, Colorado 80134 ("Executive"). WHEREAS, the Company and Executive are parties to that certain Employment Agreement dated as of January 1, 1982, as heretofore amended (the "Existing Agreement"); and WHEREAS, the Company and Executive desire to amend the Existing Agreement to provide for an increase in Executive's annual compensation, to eliminate certain provisions of the Existing Agreement that have ceased by their terms to be effective and to make certain other changes, and to restate the Existing Agreement as so amended in its entirety; NOW, THEREFORE, in consideration of the mutual covenants and agreement herein contained and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, do hereby agree as follows: 1. Term and Termination. -------------------- (a) Term. The term of Executive's employment (the "Employment ---- Term") under the Existing Agreement initially commenced on January 1, 1982 and ended on December 31, 1986 and, pursuant to the Existing Agreement, has been and, pursuant to and subject to the terms and conditions of this Agreement, will continue to be extended daily so that the remainder of the Employment Term shall at all times on and prior to the effective date of the termination of Executive's employment as provided herein be five (5) years. During the Employment Term, the Company agrees to employ Executive and Executive agrees to serve the Company upon and subject to the terms and conditions set forth in this Agreement. (b) Termination by the Company. Executive's employment by the -------------------------- Company may be terminated by the Company only as provided in clauses (i), (ii) and (iii) below. (i) Upon the death of Executive. (ii) Effective as of December 31 of any year, upon giving written notice of such termination to Executive six (6) months prior to the effective date thereof and by paying to Executive in a lump sum upon such termination all remaining compensation (other than compensation the payment of which was deferred by Executive prior to such termination) that would have been payable under Section 4 hereof if this Agreement remained in full force and effect for the full five-year balance of the Employment Term. (iii) At any time for "cause", which for purposes of this Agreement shall be deemed to have occurred only on the happening of any of the following: (A) the plea of guilty to, or conviction for, the commission of a felony offense by Executive; provided, -------- however, that after indictment, the Company may suspend ------- Executive from the rendition of services but without limiting or modifying in any other way the Company's obligations under this Agreement; (B) a material breach by Executive of a material fiduciary duty owed to the Company; (C) a material breach by Executive of the covenants made by him in Sections 9, 10 and 11 hereof; or (D) the willful and gross neglect by Executive of the material duties specifically and expressly required by this Agreement; provided, however, that any claim that "cause", within the meaning of -------- ------- clause (B), (C) or (D) above, exists for the termination of Executive's employment may be asserted on behalf of the Company only by a duly adopted resolution of the Board of Directors of the Company and only after 30 days prior written notice to Executive during which period he may cure the breach or neglect that is the basis of any such claim, if curable; provided, further, that during the period of twelve -------- ------- (12) months following a change in control of the Company (as defined below), "cause" shall be deemed to have occurred only upon the happening of an event referred to in clause (A) above; and provided, -------- further, that the term "material" as used in clauses (B), (C) and (D) ------- above and in Section 13 hereof shall be construed by reference to the effect of the relevant action or omission on the Company taken as a whole. For purposes of the foregoing, a change in control of the Company will be considered to have occurred if the group in control of the Company shall no longer include at least one of the following: (x) Bob Magness, members of his family or representatives thereof, or (y) representatives of Kearns-Tribune Corporation (but only if the present shareholders remain in control of such corporation). The term "family" as used herein means the named person's estate, spouse and lineal descendants and any trust or other investment vehicle for the primary benefit of such named person or members of his family and the term "representatives" includes executors and trustees. (c) Effect of Termination by the Company. If Executive's ------------------------------------ employment by the Company is terminated by the Company pursuant to Section 1(b) hereof, all compensation under Section 4 of this Agreement (other than compensation the payment of which was deferred by Executive prior to such termination) that has accrued in favor of Executive as of the date of such termination, to the extent unpaid or delivered, shall be paid or delivered to Executive on the date of termination. Upon such termination of Executive's employment and payment of such amount (and, if applicable, the full amount payable pursuant to clause (ii) of Section 1(b)), the Company's obligations under this Agreement shall terminate, except as provided in Section 4 (as it relates to compensation the payment of which was deferred by Executive prior to such termination), Section 5, Section 6 (as it relates to expenses incurred prior to such termination) and Section 8 of this Agreement. Executive acknowledges that his obligations under Sections 9, 10, 11 and 12 hereof will survive any such termination. (d) Termination by Executive. Executive shall have the right ------------------------ to terminate his employment by the Company, and be relieved of any obligation to render or provide any further services hereunder, as provided in clauses (i) and (ii) below: (i) Upon six (6) months prior written notice to the Company of the effective date of such termination. (ii) Immediately upon the giving of notice of termination by Executive to the Company following a change in control of the Company (as defined in Section 1(b) above). If Executive's employment by the Company is terminated by Executive pursuant to this Section 1(d), all compensation under Section 4 of this Agreement (other than compensation the payment of which was deferred by Executive prior to such termination) that has accrued in favor of Executive as of the date of such 2 termination, to the extent unpaid or undelivered, and, if Executive terminates his employment pursuant to clause (ii) above, all remaining compensation (other than compensation the payment of which Executive elected prior to such termination to defer) that would have been payable under Section 4 hereof if this Agreement remained in full force and effect for the full five-year balance of the Employment Term, shall be paid or delivered to Executive in a lump sum on the date of termination. Upon such termination of Executive's employment and payment of such amounts, Executive and the Company shall each be relieved of any further obligations under this Agreement, except (in the case of Executive) as provided in Sections 9, 10, 11 and 12 of this Agreement, and except (in the case of the Company) as provided in Section 4 (as it relates to compensation the payment of which was deferred by Executive prior to such termination), Section 5, Section 6 (as it relates to expenses incurred prior to such termination) and Section 8 of this Agreement. 2. Services to be Rendered by Executive. Executive Agrees to ------------------------------------ serve the Company as President and Chief Executive Officer of the Company. In such capacity, Executive shall perform all reasonable acts customarily associated with such positions, or necessary or desirable to protect and advance the best interests of the Company. Executive shall perform such acts and carry out such duties, and shall in all other respects serve the Company faithfully and to the best of his ability. If Executive is elected a director or an officer of any of the Company's subsidiaries during the Employment Term, Executive will serve in any such capacities without further compensation except as may be decided by the Company at the Company's sole election. The Company agrees that shall, during the Employment Term, be based at the Company's principal executive office, which shall be located in the Denver area, with the understanding that Executive will travel as reasonably required in the performance of his duties hereunder. 3. Time to be Devoted by Executive. Executive agrees to devote ------------------------------- eighty percent (80%) of all of his business time, attention, efforts and abilities to the business of the Company and to use his best efforts to promote the interests of the Company. 4. Compensation Payable to Executive. --------------------------------- (a) Commencing on the date of this Agreement and thereafter during the Employment Term, the Company shall pay to Executive a salary at the rate of $800,000 per annum. The Board of Directors shall review Executive's compensation annually to determine, in its sole discretion, whether any increase in Executive's salary is appropriate. (b) Executive's annual compensation shall be paid to Executive in accordance with the Company's regular policy but not less frequently than once a month. With respect to the employment year commencing January 1, 1993, Executive shall defer 40% of each monthly payment of Executive's annual compensation for such year and, with respect to each employment year thereafter, Executive shall be entitled to elect, by written notice to the Company received no later than 30 days prior to the commencement of such employment year, to defer such percentage (not in excess of 40%) as Executive may specify in such notice, of each monthly payment of Executive's annual compensation for such year (in each case, the "monthly deferred amount"). Each such monthly deferred amount shall bear interest, compounded annually, at the rate of 8% per annum, from the first day of the month of deferral to, but not including, the Determination Date. As used herein, "Determination Date" shall mean the first business day of the first full calendar month following the termination of Executive's employment with the Company. (c) The sum of the monthly deferred amounts pursuant to Section 4(b) above plus all interest accrued thereon to the Determination Date (the "total deferred amount") shall be calculated as of the Determination Date and shall be paid to Executive in substantially equal monthly payments over a 240- month period commencing on the Determination Date and continuing on the first day of each calendar month thereafter until paid in full. Each monthly payment of the total deferred amount shall be accompanied by a payment of interest thereon computed at the rate of 8% per annum, compounded annually, from and including the Determination Date to the date of such payment. The Company and Executive acknowledge that the payment of 3 40% of each monthly payment of Executive's annual compensation during the calendar year 1983 and $12,500 of each monthly payment of Executive's annual compensation thereafter through the end of calendar year 1992 has been (and, in the case of the December 1992 payment, will be) deferred pursuant to and as required by the terms of Section 4 of the Existing Agreement (the "previously deferred compensation"). The provisions of said Section 4 of the Existing Agreement shall continue to govern with respect to the calculation of, accrual of interest on, and payment of all such previously deferred compensation, and such provisions as they relate to such previously deferred compensation shall survive the execution and delivery of this Agreement unaffected hereby. (d) If Executive dies while he is a full-time employee of the Company or before the expiration of the period during which such deferred payments are to be paid to him, the remaining deferred payments shall be paid forthwith in a lump sum to Executive's designated beneficiary or beneficiaries. The phrase "designated beneficiary or beneficiaries" shall mean Executive's spouse, if she shall survive Executive, or such other person or persons named from time to time by Executive in a signed instrument filed with the Company. If the designation made in any such signed instrument shall for any reason be ineffective, the phrase "designated beneficiary or beneficiaries" shall mean Executive's estate. (e) The amount of deferred compensation payable hereunder (together with the interest applicable thereto) shall not in any way be reserved or held in trust by the Company. Neither Executive nor any designated beneficiary or personal representative shall have any rights against the Company in respect of such deferred payments other than the rights of any unsecured creditor of the Company. Deferred payments provided for herein shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and shall not in any manner be liable or subject to the debts, contracts, liabilities, engagements or torts of Executive, nor of any designated beneficiary or personal representative. The payment to Executive of such deferred payments shall be subject to the further condition that Executive shall comply with the provisions of Section 10 of this Agreement during the entire payment period and Executive shall comply with the provisions of Sections 9 and 12 of this Agreement, if said provisions are applicable by their terms, for the first two (2) years of the payment period. 5. Salary Continuation Plan. ------------------------ (a) At such time as Executive's employment with the Company shall terminate, Executive shall be entitled to receive from the Company 240 consecutive monthly payments of $15,000, the first payment of which shall be payable on the first day of the month succeeding the termination of Executive's employment. The amount of the monthly payments provided for in the immediately preceding sentence shall be increased at the rate of 12% per annum, compounded annually from January 1, 1998 to the date that the first payment thereof commences. The foregoing is referred to in this Agreement as the "Benefit." (b) Upon the death of Executive, the payments provided for in Section 5(a) above (or, if Executive dies after termination of his employment and during the payment period contemplated by Section 5(a), any remaining such payments) shall be made to Executive's designated beneficiary or beneficiaries. The phrase "designated beneficiary or beneficiaries" shall mean Executive's spouse, if she shall survive Executive, or such other person or persons named from time to time by Executive in a signed instrument filed with the Company. If the designation made in any such signed instrument shall for any reason be ineffective, the phrase "designated beneficiary or beneficiaries" shall mean Executive's estate. (c) The payment to Executive of the Benefit shall be subject to the condition that Executive shall comply with the provisions of Section 10 of this Agreement during the entire payment period and Executive shall comply with the provisions of Sections 9 and 12 of this Agreement, if said provisions are applicable by their terms, during the first two (2) years of the payment period. (d) The Benefit payable under this Agreement shall not in any way be reserved or held in trust by the Company. Neither Executive nor any designated beneficiary or personal representative shall 4 have any rights against the Company in respect of such Benefit other than the rights of an unsecured general creditor of the Company. Payments of the Benefit shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and shall not in any manner be liable or subject to the debts, contracts, liabilities, engagements or torts of Executive, nor of any designated beneficiary or personal representative. The Company shall not be obligated under any circumstances to fund its obligations under this Section 5, but it may, however, at its sole option elect to fund such obligations in whole or in part in any manner whatsoever including, but not limited to, the purchase of life insurance on the life of the Executive, in any amounts the Company deems appropriate. Any such funding shall remain a general unrestricted asset of the Company and in no way security for the Company's performance under this Section 5. Executive agrees to cooperate with the Company, if so requested, in its obtaining such insurance. (e) The Benefit provided for in this Section 5 is intended by the parties to be in substitution for, and not in addition to, the "Benefit" as defined in and contemplated by Section 16 of the Existing Agreement, the terms and provisions of which Section 16 are superseded in their entirety by the terms and provisions of this Section 5. 6. Expenses. The Company shall reimburse Executive for the -------- reasonable amount of dining, hotel, traveling, entertainment and other expenses necessarily incurred by Executive in the discharge of his duties hereunder. 7. Executive Benefit Plans; Use of Company Aircraft. ------------------------------------------------ (a) During the Employment Term, Executive shall be entitled to participate in and to be accorded all rights and benefits under all formal incentive compensation plans, stock incentive plans, employee stock purchase plans, retirements plans, disability insurance, life insurance, health and major medical insurance policy or policies, and other plans or benefits (including, without limitation, any insurance covering Officers or Directors against errors or omissions) now in existence or that may hereafter be adopted by the Company for the benefit of its executive officers or key employees generally or for the benefit of its employees generally, provided that Executive is eligible by the terms thereof to participate therein. (b) While he is employed by the Company pursuant to this Agreement, Executive will be permitted by the Company to make use of the Company's aircraft and flight crew from time to time for personal trips (each an "Executive Flight"), subject to the conditions hereinafter set forth and provided that the Executive Flights shall be limited to an aggregate Value (as defined below) of $35,000 per year. The Company will bear the expense of each Executive Flight permitted hereby and the Value of each Executive Flight shall be treated as additional compensation to Executive. For purposes of the foregoing, the Value of each Executive Flight shall be determined in accordance with Treasury Regulation Section 1.61-21(g) (or any successor regulation promulgated under the Internal Revenue Code of 1986, as amended) as from time to time in effect. Executive will give the Company at least 48 hours notice of any desired Executive Flight, stating the proposed schedule, the points of origination and destination of the flight and, if so required by the Company, such information about the general purpose of the Executive Flight as shall be sufficient for the Company to determine that such flight does not violate any requirement of applicable law. The Company will promptly thereafter inform Executive of the availability of the aircraft and its flight crew. The Company shall have no obligation to provide the aircraft and a flight crew for any Executive Flight at any time when (i) a requested Executive Flight would conflict with any actual or planned use of the aircraft by the Company, (ii) the aircraft is undergoing any scheduled maintenance or repairs or is otherwise not in a condition to be operated, or (iii) a qualified flight crew is unavailable to operate the aircraft for a requested Executive Flight. In addition, the Company will have no obligation hereunder to make the aircraft and its flight crew available for any use or purpose, and Executive agrees not to use the same for any use or purpose, which, in the opinion of the Company, is in violation of or not permitted by applicable law as applied to either the Company or Executive, or is not permitted under or stipulated in the insurance policies maintained by the Company. The proposed schedule and points of origination and destination of each Executive Flight will be subject to the approval of the captain of the flight crew, who shall at all times be in charge and control of the aircraft, and in no 5 event shall the aircraft be operated beyond the geographical limits prescribed in the insurance policies maintained by the Company. 8. Indemnification. The Company will indemnify and hold harmless --------------- Executive, to the fullest extent permitted by applicable law, in respect of any liability, damage, cost or expense (including reasonable counsel fees) incurred in connection with the defense of any claim, action, suit or proceeding to which he is a party, or threat thereof, by reason of his being or having been an officer or director of the Company or any subsidiary of the Company, or his serving or having served at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, business organization, enterprise or other entity, including service with respect to employee benefit plans. Without limiting the generality of the foregoing, the Company will pay the expenses (including reasonable counsel fees) of defending any such claim, action, suit or proceeding in advance of its final disposition, upon receipt of an undertaking by Executive to repay all amounts advanced if it should ultimately be determined that Executive is not entitled to be indemnified under this Section. 9. Non-Competition. Executive agrees that while in the employ of --------------- the Company and for a period of two (2) years following the effective date of the termination of his employment with the Company, unless such termination results from a change in control of the Company (as defined in Section 1(b) hereof), he will not, directly or indirectly, as principal or agent, or in any other capacity, own, manage, operate, participate in or be employed by or otherwise be interested in, or connected in any manner with, any person, firm, corporation or other enterprise which directly competes in a material respect with the business of the Company or any of its majority-owned subsidiaries as it is conducted while Executive is employed by the Company; provided, however, that -------- ------- Executive may serve as Chairman of the Board of Liberty Media Corporation, a Delaware corporation ("Liberty"), and own securities of Liberty without regard to the foregoing or to the percentage limitation in the following sentence. Nothing herein contained shall be construed as denying Executive the right to own securities of any such corporation which is listed on a national securities exchange or quoted in the NASDAQ System to the extent of an aggregate of 5% of the amount of such securities outstanding. 10. Confidentiality. Executive agrees that while in the employ of --------------- the Company (otherwise than in the performance of his duties hereunder) and thereafter, not to, directly or indirectly, make use of, or divulge to any person, firm, corporation, entity or business organization and he shall use his best efforts to prevent the publication or disclosure of, any confidential or proprietary information concerning the business, accounts or finances of, or any of the methods of doing business used by the Company or of the dealings, transactions or affairs of the Company or any of its customers which have or which may have come to his knowledge during his employment with the Company, but this Section 10 shall not prevent Executive from responding to any subpoena, court order or threat of other legal duress, provided Executive notifies the Company thereof with reasonable promptness so that the Company may seek a protective order or other appropriate relief. 11. Delivery of Materials. Executive agrees that upon the --------------------- termination of his employment he will deliver to the Company all documents, papers, materials and other property of the Company relating to its affairs, which may then be in his possession or under his control. 12. Non-Interference. Executive agrees that he will not, while in ---------------- the employ of the Company and for a period of two (2) years following the effective date of the termination of his employment with the Company, unless such termination results from a change in control of the Company (as defined in Section 1(b) hereof), solicit the employment of any employee of the Company on behalf of any other person, firm, corporation, entity or business organization, or otherwise interfere with the employment relationship between any employee or officer of the Company and the Company. 13. Remedies of the Company. Executive agrees that, in the event of ----------------------- a material breach by Executive of this Agreement, in addition to any other rights that the Company may have pursuant to this Agreement, the Company shall be entitled, if it so elects, to institute and prosecute proceedings at law or in equity to obtain damages with respect to such breach or to enforce the specific performance of this Agreement by Executive or to 6 enjoin Executive from engaging in any activity in violation hereof. Executive agrees that because Executive's services to the Company are of such a unique and extraordinary character, a suit at law may be an inadequate remedy with respect to a breach by Executive of Sections 9, 10, 11 and 12 hereof, and that upon any such breach or threatened breach by him of such Sections the Company shall be entitled, in addition to any other lawful remedies that may be available to it, to injunctive relief. 14. Notices. All notices to be given hereunder shall be deemed duly ------- given when delivered personally in writing or mailed, certified mail, return receipt requested, postage prepaid and addressed, as follows: (a) If to be given to the Company: Tele-Communications, Inc. 5619 DTC Parkway Englewood, Colorado 80111-3000 Attention: Chairman of the Board with a copy similarly addressed and marked to the attention of the Legal Department (b) If to be given to Executive: Mr. John C. Malone 12415 Lost Canyon Trail Parker, Colorado 80134 or to such other address as a party may request by notice given in accordance with this Section 14. 15. Miscellaneous. This Agreement constitutes the entire agreement ------------- between the parties with respect to the subject matter hereof and replaces and supersedes as of the date hereof any and all prior agreements and understandings with respect to Executive's employment by the Company, whether oral or written, between the parties hereto, including, without limitation, except to the extent provided in Section 4(c) hereof, the Existing Agreement. This Agreement may not be changed nor may nay provision hereof be waived except by an instrument in writing duly signed by the party to be charged. This Agreement shall be interpreted, governed and controlled by the law of the State of Colorado, without reference to principles of conflict of laws. 7 IN WITNESS WHEREOF, this Agreement has been executed as of the day and year first above written. TELE-COMMUNICATIONS, INC. By:/s/ Bob Magness --------------------------------- Name: Bob Magness Title: Authorized Officer By:/s/ John C. Malone --------------------------------- Name: John C. Malone ATTEST: /s/ Martha L. Flessner - ------------------------ Name: Martha L. Flessner 8 AMENDMENT TO EMPLOYMENT AGREEMENT --------------------------------- This Amendment to Employment Agreement (this "Amendment"), effective as of March 9, 1999, is between Liberty Media Corporation, a Delaware corporation (the "Company"), and John C. Malone ("Executive"). Recitals -------- Executive and Tele-Communications, Inc. ("TCI") are parties to a Restated and Amended Employment Agreement (the "Employment Agreement") dated as of November 1, 1992, setting forth various terms applicable to Executive's employment by TCI. A copy of the Employment Agreement is attached as Appendix A to this Amendment. In connection with the acquisition of TCI by AT&T Corp. on March 9, 1999, the Company assumed the obligations of TCI under the Employment Agreement. The Company and Executive desire to amend the Employment Agreement in various respects. Agreement --------- In consideration of the mutual covenants set forth in this Amendment and the Employment Agreement, the parties, intending to be legally bound, agree as follows: 1. Definitions. As used in this Amendment, all terms with initial ----------- capital letters that are not defined in this Amendment will have the meaning ascribed to them in the Employment Agreement. 2. Services to be Rendered by Executive. The first sentence of ------------------------------------ Section 2 of the Employment Agreement is amended in its entirety to read as follows: "Executive agrees to serve the Company as the Chairman of the Company's Board of Directors." 3. Time to be Devoted by Executive. Section 3 of the Employment ------------------------------- Agreement is amended in its entirety to read as follows: "Executive will use his best efforts to promote the interests of the Company and will devote such of his business time, attention, efforts and abilities as reasonably may be required to perform the duties contemplated hereby." 4. Compensation Payable to Executive. The first sentence of --------------------------------- Section 4(a) of the Employment Agreement is amended in its entirety to read as follows: "Effective as of March 1, 1999, and thereafter during the Employment Term, the Company will pay to Executive a salary at the rate of $2,600 per annum." 5. Executive Benefit Plans; Use of Company Aircraft. ------------------------------------------------ (a) The first sentence of Section 7(b) of the Employment Agreement is amended by changing the reference in that sentence to "$35,000 per year" to "$200,000 per year." (b) The following will be added as subsection (c) to Section 7 of the Employment Agreement: "(c) The Company will pay, or will reimburse Executive for, all fees and other costs for professional services reasonably incurred by Executive in obtaining estate or tax planning advice or services, up to a maximum amount of $50,000 per year." 6. Notices. The address for notices to Executive set forth in ------- Section 14 of the Employment Agreement is amended to read as follows: Mr. John C. Malone 12750 Pine Drive Parker, CO 80134 This Agreement has been signed on June 30, 1999, but will be effective as of the date first written above. LIBERTY MEDIA CORPORATION By:/s/ Robert R. Bennett ----------------------------------- Name: Robert R. Bennett Title: President /s/ John C. Malone -------------------------------------- Name: John C. Malone 2 EX-12 15 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 ----------
Liberty Media Corporation Calculation of Ratio of Earnings to Fixed Charges (dollars in millions) (unaudited) Two 4 Mos Months 6 Mos Ended Ended Ended Year Ended December 31, ------------------------------------------------ 6/30/99 2/28/99 6/30/98 1998 1997 1996 1995 1994 ---------------------------------------------------------------------------------- Earnings (losses) before income taxes $ (926) 141 (164) 1,083 (645) 1,174 (100) 283 Add: Interest on debt 81 38 70 178 71 58 61 23 Interest portion of rentals 4 2 6 11 9 13 22 17 Amortization of debt expense 2 1 2 5 3 1 - - Distributions from and losses of less than 50%-owned affiliates with debt not guaranteed by Liberty 52 31 398 876 723 310 195 45 Minority interest in earnings/(losses) of consolidated subsidiaries (12) (3) 5 (13) 10 (18) 142 - ---------------------------------------------------------------------------------- Earnings available for fixed charges $ (799) 210 317 2,140 171 1,538 320 368 ================================================================================== Fixed charges: Interest on debt: LMC and consolidated subsidiaries 46 26 33 104 40 53 34 11 Less than 50%-owned affiliates with debt guaranteed by Liberty 6 3 8 16 11 1 2 2 Liberty's proportionate share of interest of 50%-owned affiliates 29 9 29 58 20 4 25 10 ---------------------------------------------------------------------------------- Total interest on debt 81 38 70 178 71 58 61 23 Interest portion on rentals 4 2 6 11 9 13 22 17 Amortization of debt expense 2 1 2 5 3 1 - - Capitalized interest - - - - - - - - ---------------------------------------------------------------------------------- Total fixed charges $ 87 41 78 194 83 72 83 40 ================================================================================== Ratio of earnings to fixed charges - 5.12 4.06 11.03 2.06 21.36 3.86 9.20 Deficiency $ (886) - - - - - - -
The ratio of earnings to fixed charges of the Company was 11.03, 2.06, 21.36, 3.86 and 9.20 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively, and 5.12 and 4.06 for the two-months ended February 28, 1999 and the six-month period ended June 30, 1998, respectively. The ratio of earnings to fixed charges of the Company was less than 1.00 for the four-month period ended June 30, 1999; thus, earnings available for fixed charges were inadequate to cover fixed charges for such period. The amount of coverage deficiency for the four-month period ended June 30, 1999 was $886 million. For the ratio calculations, earnings available for fixed charges consists of earnings (losses) before income taxes plus fixed charges, distributions from and losses of less than 50%-owned affiliates with debt not guaranteed by the Company (net of earnings not distributed of less than 50%-owned affiliates) and minority interests in earnings (losses) of consolidated subsidiaries. Fixed charges consist of (i) interest on debt, including interest related to debt guaranteed by the Company of less than 50%-owned affiliates where the investment in such affiliates results in the recognition of a loss, (ii) the Company's proportionate share of interest of 50%-owned affiliates, (iii) that portion of rental expense the Company believes to be representative of interest (one-third of rental expense), and (iv) amortization of debt expense. The Company has guaranteed the debt of certain less than 50%-owned affiliates and certain unaffiliated entities in which it has an interest. Fixed charges of $1 million relating to such guarantees for the years ended December 31, 1998, 1997, 1995 and 1994 and for the six months ended June 30, 1998 and the four months ended June 30, 1999 have not been included in fixed charges because the investment in such entities does not result in the recognition of a loss and it is not probable that the Company will be required to honor the guarantee. EX-21 16 LIST OF SUBSIDIARIES OF LIBERTY EXHIBIT 21 ---------- A table of the subsidiaries of Liberty Media Corporation as of August 31, 1999, is set forth below, indicating as to each the state or the jurisdiction of incorporation or organization and the names under which such subsidiaries do business (Trade Names). Subsidiaries not included in the table are inactive or, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. ENTITY.NAME....................................... State Trade Names LIBERTY MEDIA CORPORATION DE ETC INGENIUS HOLDINGS, INC. DE ETC w/tci, INC. DE LIBERTY ACADEMIC SYSTEMS HOLDINGS, INC. CO LIBERTY LIGHTSPAN HOLDINGS, INC. CO RL INGENIUS, INC. CO TCI CT HOLDINGS, INC. DE TCI CT OPERATIONS, INC. CO TCI CTRACK ASSET CORP. CO TCI ETC HOLDINGS, INC. DE THE LIGHTSPAN PARTNERSHIP, INC. CA CABLE RIOS DE LOS DELTAS S.A. ARG REAL NAME IS "CABLE RIOS de los DELTAS S.A." CABLEVISION S.A. ARG CONSTRURED, S.A. ARG FIBERTEL-TCI2 ARG LIBERTY ARGENTINA, INC. DE LIBERTY BRAZIL DTH, INC. CO LIBERTY CHILE, INC. CO LIBERTY EUROPE, INC. CO LIBERTY HOLDINGS EUROPE, INC. CO LIBERTY HOLDINGS JAPAN, INC. CO LIBERTY HOME SHOP INTERNATIONAL, INC. CO LIBERTY INTERNATIONAL CABLE MANAGEMENT, INC. CO LIBERTY INTERNATIONAL DTH, INC. CO LIBERTY IRELAND LIMITED LIABILITY COMPANY UT LIBERTY IRELAND, INC. CO LIBERTY LATIN PARTNERS, INC. DE LIBERTY MEDIA INTERNATIONAL, INC. DE TINTA TCI SQUARED, INC. LIBERTY MEXICO DTH, INC. CO LIBERTY MULTICOUNTRY DTH, INC. CO LIBERTY PROGRAMMING ARGENTINA, INC. DE LIBERTY PROGRAMMING AUSTRALIA, INC. CO LIBERTY PROGRAMMING FRANCE, INC. CO LIBERTY PROGRAMMING SOUTH AMERICA, INC. DE LIBERTY UK, INC. CO LIBERTY/TINTA AUSTRALIA, INC. DE LIBERTY/TINTA DISTRIBUTION, INC. DE OESTE CABLE COLOR S.A. ARG PRAMER S.C.A. ARG TCI AUSTRALIA, LLC DE TCI CABLE PROGRAMME PARTNERS, INC. CO TCI CABLEVISION OF PUERTO RICO, INC. DE TCI CATHAY TV, INC. CO TCI HOLDINGS (CHILE), INC. DE TCI INTERNATIONAL BRASIL, LTDA. BRZ TCI INTERNATIONAL INVESTMENTS LTD. UK TCI INTERNATIONAL PARTNERS (CHILE), L.P. DE TCI INTERNATIONAL PARTNERSHIP HOLDINGS, INC. CO TCI MOVIES AUSTRALIA PTY LIMITED AUS TCI POLAND, INC. CO TCI SOUTH AMERICA, SRL ARG TCI TELECOMMUNICATIONS IRELAND LTD. IRE TCI TOKYO CO., LTD LLC DE TINTA LATIN PROGRAMMING LTD. CAY UNITED ARTISTS INTERNATIONAL, INC. CO DMX, LLC DE PARADIGM MUSIC ENTERTAINMENT COMPANY DE PURPLE DEMON, INC. NY BIG DEAL SONICNET, INC. DE SUPERSOUND TCI MUSIC, INC. DE THE BOX ARGENTINA, S.A. ARG THE BOX HOLLAND, B.V. NTH THE BOX ITALY, S.R.L. ITL THE BOX WORLDWIDE, INC. FL THE BOX WORLDWIDE-EUROPE, B.V. NTH THE BOX WORLDWIDE-LATIN AMERICA, INC. BVI THE BOX WORLDWIDE-USA, INC. DE VIDEO JUKEBOX NETWORK EUROPE, LTD. UK VJN LPTV CORP. DE VJN MANAGEMENT SERVICES, INC. BVI DRY CREEK PRODUCTIONS LLC CO ENCORE ASIA MANAGEMENT LIMITED HKG ENCORE ASIA, INC. CO ENCORE AUSTRALIA MANAGEMENT, INC. DE ENCORE ICCP INVESTMENTS LLC CO ENCORE ICCP, INC. CO EMC ENTERTAINMENT INTERNATIONAL, INC. ENCORE INTERNATIONAL NEWCO, INC. CO ENCORE INTERNATIONAL, INC. CO ENCORE MEDIA CORPORATION CO ENCORE ENCORE MEDIA GROUP LLC CO ENCORE QE PROGRAMMING CORP. CO ICCP, INC. CO INTERNATIONAL CABLE CHANNELS PARTNERSHIP, LTD. CO MGM GOLD NETWORKS (ASIA) BV NTH MGM GOLD NETWORKS ASIA, LLC DE MGNA DISTRIBUTION LLC CO STARZ MOVIES LLC CO AMERICANA TELEVISION PRODUCTIONS LLC CO BDTV II INC. DE BDTV III INC. DE BDTV INC. DE BDTV IV, INC. DE COMMUNICATION CAPITAL CORP. DE COLORADO COMMUNICATION CAPITAL CORP. [CO] 2 INTESSERA, INC. CO REAL NAME IS "INtessera, Inc." INtessera Technologies Group LBTW I, INC. CO LBTW II, INC. CO LBTW III, INC. CO LD BONDNET, INC. DE LIBERTY ANTC, INC. CO LIBERTY ATCL, INC. CO LIBERTY BAY, INC. CO LIBERTY BETI, INC. DE LIBERTY BROADCASTING, INC. OR LIBERTY CHALLENGER, LLC DE LIBERTY CHC, INC. CO LIBERTY CNBC, INC. CO LIBERTY CNDT, INC. DE LIBERTY COURT II, INC. CO LIBERTY COURT, INC. WY LIBERTY CSG CASH, LLC DE LIBERTY CSG WARRANTS, LLC DE LIBERTY CVC, INC. DE LIBERTY DENVER ARENA LLC DE LIBERTY DIGITAL HEALTH GROUP, LLC CO LIBERTY DIGITAL, LLC DE LIBERTY DISTRIBUTION, INC. CO LIBERTY DMX, INC. CO LIBERTY DS, INC. DE LIBERTY EQUATOR, INC. DE LIBERTY GI II, INC. DE LIBERTY GI, INC. DE LIBERTY GIC, INC. CO LIBERTY HG, INC. DE LIBERTY HSN II, INC. DE LIBERTY HSN LLC HOLDINGS, INC. DE LIBERTY HSN, INC. CO LIBERTY IATV EVENTS, INC. DE LIBERTY IATV, INC. DE LIBERTY IB, INC. DE LIBERTY IFE, INC. CO LIBERTY IP, INC. DE LIBERTY JAPAN, INC. DE LIBERTY JAVA, INC. CO LIBERTY KASTR CORP. DE LIBERTY KASTR HOLDINGS LLC LIBERTY KHC, INC. DE LIBERTY KI, INC. DE LIBERTY KSCC, LLC LIBERTY MCNS HOLDINGS, INC. CO LIBERTY MEDIA GROUP LLC DE LIBERTY MEDSCHOLAR, INC. DE LIBERTY MICROUNITY HOLDINGS, INC. CO LIBERTY MLP, INC. CO LIBERTY MOVIECO, INC. CO LIBERTY NEA, INC. DE LIBERTY ONLINE HEALTH KI HOLDINGS, INC. CO LIBERTY ONLINE HEALTH RN HOLDINGS, INC. CO 3 LIBERTY PL, INC. DE LIBERTY PL, INC. DE LIBERTY PROGRAMMING COMPANY LLC DE LIBERTY PROGRAMMING DEVELOPMENT CORPORATION WY LIBERTY PROGRAMMING JAPAN, INC. DE LIBERTY PROGRAMMING UK, INC. DE LIBERTY QS, INC. DE LIBERTY QVC, INC. CO LIBERTY SMTRK OF TEXAS, INC. CO LIBERTY SMTRK, LLC DE LIBERTY SPANISH GROUP, L.L.C. CO LIBERTY SPANISH HOLDINGS, INC. CO LIBERTY STARZ, INC. CO LIBERTY TE, INC. DE LIBERTY TELEMUNDO NETWORK, INC. CO LIBERTY TELEMUNDO STATIONS, INC. CO LIBERTY TIV, INC. DE LIBERTY TOWER, INC. DE LIBERTY TSAT, INC. DE LIBERTY TVGIA, INC. DE LIBERTY TVGOS, INC. CO LIBERTY TW, LLC CO LIBERTY UK RADIO, INC. CO LIBERTY UVSG, INC. CO LIBERTY VF, INC. DE LIBERTY VILLAGE, INC. DE LIBERTY VIRTUAL i/O, INC. CO LIBERTY VJN, INC. CO LIFESCAPE, LLC DE LMC ANIMAL PLANET, INC. CO LMC BET, INC. CO LMC CAPITAL LLC DE LMC DIGITAL, INC. CO LMC DISCOVERY, INC. CO LMC E!, INC. CO LMC ENCORE, INC. CO LMC IATV EVENTS, LLC DE LMC INFORMATION SERVICES, INC. NV X*PRESS INFORMATION SERVICES LMC MUSIC, INC. CO LMC REQUEST, INC. CO LMC SATCOM, INC. GA LMC SILLERMAN, INC. CO LMC SILVER KING, INC. CO LMC USA I, INC. DE LMC USA II, INC. DE LMC USA III, INC. DE LMC USA IV, INC. DE LMC USA IX, INC. DE LMC USA V, INC. DE LMC USA VI, INC. DE LMC USA VIII, INC. DE LMC WIRELESS HOLDINGS, INC. DE LQ I, INC. CO LQ II, INC. CO LTWX I, INC. CO LTWX II, INC. CO 4 LTWX III, INC. CO LTWX IV, INC. CO LTWX V, INC. CO MACNEIL/LEHRER PRODUCTIONS NY REQUEST HOLDINGS, INC. DE ROYAL COMMUNICATIONS, INC. CO RTV ASSOCIATES, L.P. DE SOUTHERN SATELLITE SYSTEMS, INC. GA STT VIDEO PARTNERS, L.P. DE TCI ONLINE SERVICES, INC. CO VISION GROUP INCORPORATED CO X*PRESS ELECTRONIC SERVICES, LTD. CO X*PRESS INFORMATION SERVICES, LTD. CO INTERNATIONAL SPORTS PROGRAMMING LLC DE ISP TRANSPONDER L.L.C. DE LIBERTY ARC, INC. DE LIBERTY J - SPORTS, INC. DE LIBERTY NC II, INC. DE LIBERTY NC III, INC. DE LIBERTY NC, INC. DE LIBERTY NEWCO INTERNATIONAL, INC. DE LIBERTY SPORTS, INC. CO LIBERTY SPORTSOUTH, INC. GA LIBERTY/TINTA LLC DE LIBERTY/TINTA MIDDLE EAST LLC DE LIBERTY/TINTA SPORT EQUITY LLC DE LIBERTY/TINTA TRANSPONDER LLC DE LIBERTY/TINTA U.S. DEPORTIVA LLC DE LIBERTY/TINTA WORLD LLC DE LMC BAY AREA SPORTS, INC. CO BASN (CA) BAY AREA SPORTS NETWORK (CA) PACIFIC SPORTS NETWORK (CA) PSN (CA) LMC DENVER ARENA, INC. DE LMC INTERNATIONAL, INC. CO LMC REGIONAL SPORTS, INC. CO LMC SOUTHEAST SPORTS, INC. CO LMC SUNSHINE, INC. CO NEW LMC ARC, INC. DE LIBERTY INTERACTIVE TECHNOLOGIES, INC. DE 5 EX-23.1 17 CONSENT OF KPMG LLP EXHIBIT 23.1 ------------ CONSENT OF INDEPENDENT AUDITORS The Board of Directors Liberty Media Corporation: We consent to the use of our report dated March 9, 1999, relating to the consolidated balance sheets of Liberty Media Corporation and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations and comprehensive earnings, stockholder's equity, and cash flows for each of the years in the three-year period ended December 31, 1998 included herein and to the reference to our firm under the heading "Experts" in the registration statement. KPMG LLP Denver, Colorado September 3, 1999 EX-23.2 18 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23.2 ------------ INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Liberty Media Corporation on Form S-4 of our report dated February 2, 1999, on the consolidated financial statements of Sprint Spectrum Holding Company, L.P. and subsidiaries and the related financial statement schedule, for the year ended December 31, 1998, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Kansas City, Missouri September 2, 1999 EX-25 19 STATEMENT OF ELIGIBILITY OF TRUSTEE EXHIBIT 25 ---------- ======================================================================== FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ______________________ THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) ______________________ LIBERTY MEDIA CORPORATION (Exact name of obligor as specified in its charter) Delaware 84-1288730 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 9197 South Peoria Street Englewood, Colorado 80112 (Address of principal executive offices) (Zip code) _____________ 7-7/8% Senior Notes due 2009 8-1/2% Senior Debentures due 2029 (Title of the indenture securities) ======================================================================== 1. General information. Furnish the following information as to the Trustee: (a) Name and address of each examining or supervising authority to which it is subject. - ---------------------------------------------------------- Name Address - ---------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, New York N.Y. 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 16. List of Exhibits. Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a- 29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -2- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 27th day of August, 1999. THE BANK OF NEW YORK By: /s/ WALTER N. GITLIN ---------------------------------------- Name: WALTER N. GITLIN Title: VICE PRESIDENT EXHIBIT 7 TO EXHIBIT 25 - ----------------------- - ------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1999, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts ASSETS In Thousands Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin............................................................ $ 5,597,807 Interest-bearing balances............................................ 4,075,775 Securities: Held-to-maturity securities.......................................... 785,167 Available-for-sale securities........................................ 4,159,891 Federal funds sold and Securities purchased under agreements to resell........................................... 2,476,963 Loans and lease financing receivables: Loans and leases, net of unearned income............................................................. 38,028,772 LESS: Allowance for loan and lease losses......................................................... 568,617 LESS: Allocated transfer risk reserve.............................................................. 16,352 Loans and leases, net of unearned income, allowance, and reserve.............................................. 37,443,803 Trading Assets........................................................ 1,563,671 Premises and fixed assets (including capitalized leases)................................................. 683,587 Other real estate owned............................................... 10,995 Investments in unconsolidated subsidiaries and associated companies................................................. 184,661 Customers' liability to this bank on acceptances outstanding............................................. 812,015 Intangible assets..................................................... 1,135,572 Other assets.......................................................... 5,607,019 ----------- Total assets.......................................................... $64,536,926 ===========
LIABILITIES Deposits: In domestic offices.................................................. $26,488,980 Noninterest-bearing.................................................. 10,626,811 Interest-bearing..................................................... 15,862,169 In foreign offices, Edge and Agreement subsidiaries, and IBFs.............................................. 20,655,414 Noninterest-bearing.................................................. 156,471 Interest-bearing..................................................... 20,498,943 Federal funds purchased and Securities sold under agreements to repurchase....................................... 3,729,439 Demand notes issued to the U.S.Treasury............................... 257,860 Trading liabilities................................................... 1,987,450 Other borrowed money: With remaining maturity of one year or less................................................................ 496,235 With remaining maturity of more than one year through three years........................................... 465 With remaining maturity of more than three years........................................................ 31,080 Bank's liability on acceptances executed and outstanding.......................................................... 822,455 Subordinated notes and debentures..................................... 1,308,000 Other liabilities..................................................... 2,846,649 ----------- Total liabilities..................................................... 58,624,027 =========== EQUITY CAPITAL Common stock.......................................................... 1,135,284 Surplus............................................................... 815,314 Undivided profits and capital reserves................................ 4,001,767 Net unrealized holding gains (losses) on available-for-sale securities........................................ (7,956) Cumulative foreign currency translation adjustments.......................................................... (31,510) ----------- Total equity capital.................................................. 5,912,899 ----------- Total liabilities and equity capital.................................. $64,536,926 ===========
I, Thomas J. Mastro, Senior Vice President and Comptroller of the above- named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Thomas J. Mastro We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. Thomas A. Reyni ] Alan R. Griffith ] Directors Gerald L. Hassell ] - ------------------------------------------------------------------------------- EX-99.1 20 FORM OF LETTER OF TRANSMITTAL FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 ------------ OFFER TO EXCHANGE 7 7/8% Senior Notes due 2009 which 8 1/2% Senior Debentures due 2029 which have been registered under the have been registered Securities Act of 1933 for any and all under the Securities Act of 1933 for any outstanding and all outstanding 7 7/8% Senior Notes due 2009 8 1/2% Senior Debentures due 2029
OF LIBERTY MEDIA CORPORATION THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON 5:00 P.M., 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED BY LIBERTY MEDIA CORPORATION THE EXCHANGE AGENT IS: THE BANK OF NEW YORK BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York 101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E New York, New York 10286 Corporate Trust Services Window Attn: Gertrude Jeanpierre New York, New York 10286 Reorganization Section Attn: Gertrude Jeanpierre Reorganization Section BY FACSIMILE TRANSMISSION: (for eligible institutions only) The Bank of New York Facsimile No. (212) 815-6339 Attn: Gertrude Jeanpierre Reorganization Section Confirm by Telephone: (212) 815-5920 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the prospectus dated [__________], 1999 (the "Prospectus") of Liberty Media Corporation ("Liberty"), and this letter of transmittal (the "Letter of Transmittal"), which together describe Liberty's offer (the "Exchange Offer") to exchange (i) its 7 7/8% Senior Notes due 2009 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for each of its outstanding 7 7/8% Senior Notes due 2009 (the "Outstanding Notes") from the holders thereof, and (ii) its 8 1/2% Senior Debentures due 2029 (the "Exchange Debentures" and, together with the Exchange Notes, the "Exchange Securities"), which have been registered under the Securities Act, for each of its outstanding 8 1/2% Senior Debentures due 2029 (the "Outstanding Debentures" and, together with the Outstanding Notes, the "Outstanding Securities") from the holders thereof. The terms of the Exchange Securities are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Outstanding Securities for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Securities are freely transferable by holders thereof (except as provided herein or in the Prospectus). Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus. YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. List below the Outstanding Securities to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and aggregate principal amounts should be listed on a separate signed schedule affixed hereto.
- ---------------------------------------------------------------------------------------------------------------- DESCRIPTION OF OUTSTANDING SECURITIES TENDERED HEREWITH - ---------------------------------------------------------------------------------------------------------------- 1 2 3 4 5 6 PRINCIPAL PRINCIPAL PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF NAME(S) AND ADDRESS(ES) OF AMOUNT OF OUTSTANDING AMOUNT OF OUTSTANDING REGISTERED HOLDER(S) CERTIFICATE OUTSTANDING NOTES OUTSTANDING DEBENTURES (PLEASE FILL IN) NUMBER(S)* NOTES* TENDERED** DEBENTURES* TENDERED** _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ TOTAL
______________________________________________________________ * Need not be completed by book-entry holders. ** Outstanding Securities may be tendered in whole or in part in denominations of $1,000 and integral multiples thereof. All Outstanding Securities held shall be deemed tendered unless a lesser number is specified in column 4 or column 6. See instruction 2. 2 Holders of Outstanding Securities whose Outstanding Securities are not immediately available or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Outstanding Securities according to the guaranteed delivery procedures set forth in the Prospectus. Unless the context otherwise requires, the term "holder" for purposes of this Letter of Transmittal means any person in whose name Outstanding Securities are registered or any other person who has obtained a properly completed bond power from the registered holder or any person whose Outstanding Securities are held of record by The Depository Trust Company ("DTC"). / / CHECK HERE IF TENDERED OUTSTANDING SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s)_______________________________________________ Name of Eligible Institution that Guaranteed Delivery______________________ Date of Execution of Notice of Guaranteed Delivery_________________________ If Delivered by Book-Entry Transfer: Name of Tendering Institution______________________________________________ Account Number_____________________________________________________________ Transaction Code Number____________________________________________________ / / CHECK HERE IF EXCHANGE SECURITIES ARE TO BE DELIVERED TO PERSON OTHER THAN PERSON SIGNING THIS LETTER OF TRANSMITTAL: Name_______________________________________________________________________ Address____________________________________________________________________ / / CHECK HERE IF EXCHANGE SECURITIES ARE TO BE DELIVERED TO ADDRESS DIFFERENT FROM THAT LISTED ELSEWHERE IN THIS LETTER OF TRANSMITTAL: Name_______________________________________________________________________ Address____________________________________________________________________ / / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OUTSTANDING SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:______________________________________________________________________ Address:___________________________________________________________________ If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive 3 Exchange Securities for its own account in exchange for Outstanding Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to Outstanding Securities acquired other than as a result of market-making activities or other trading activities. Any holder who is an "affiliate" of Liberty or who has an arrangement or understanding with respect to the distribution of the Exchange Securities to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Outstanding Securities from Liberty to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to Liberty the principal amount of the Outstanding Securities indicated above. Subject to, and effective upon, the acceptance for exchange of all or any portion of the Outstanding Securities tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, Liberty all right, title and interest in and to such Outstanding Securities as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of Liberty, in connection with the Exchange Offer) to cause the Outstanding Securities to be assigned, transferred and exchanged. The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Outstanding Securities and to acquire Exchange Securities issuable upon the exchange of such tendered Outstanding Securities, and that, when the same are accepted for exchange, Liberty will acquire good and unencumbered title to the tendered Outstanding Securities, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned also warrants that it will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or Liberty to be necessary or desirable to complete the exchange, assignment and transfer of the tendered Outstanding Securities or transfer ownership of such Outstanding Securities on the account books maintained by the book-entry transfer facility. The undersigned further agrees that acceptance of any and all validly tendered Outstanding Securities by Liberty and the issuance of Exchange Securities in exchange therefor shall constitute performance in full by Liberty of its obligations under the Registration Rights Agreement dated as of July 7, 1999, among Liberty, Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital Markets, Inc., Credit Lyonnais Securities (USA) Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Schroder & Co. Inc. and TD Securities (USA) Inc. (the "Registration Rights Agreement"), and that Liberty shall have no further obligations or liabilities thereunder. The undersigned will comply with its obligations under the Registration Rights Agreement. The undersigned has read and agrees to all terms of the Exchange Offer. The Exchange Offer is subject to certain conditions as set forth in the Prospectus under the caption "The Exchange Offer--Conditions." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by Liberty), as more particularly set forth in the Prospectus, Liberty may not be required to exchange any of the Outstanding Securities tendered hereby and, in such event, the Outstanding Securities not exchanged will be returned to the undersigned at the address shown above, promptly following the expiration or termination of the Exchange Offer. In addition, Liberty may amend the Exchange Offer at any time prior to the Expiration Date if any of the conditions set forth under "The Exchange Offer--Conditions" occur. 4 The undersigned understands that tenders of Outstanding Securities pursuant to any one of the procedures described in the Prospectus and in the instructions attached hereto will, upon Liberty's acceptance for exchange of such tendered Outstanding Securities, constitute a binding agreement between the undersigned and Liberty upon the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under circumstances set forth in the Prospectus, Liberty may not be required to accept for exchange any of the Outstanding Securities. By tendering shares of Outstanding Securities and executing this Letter of Transmittal, the undersigned represents that Exchange Securities acquired in the exchange will be obtained in the ordinary course of business of the undersigned, that the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of such Exchange Securities, that the undersigned is not an "affiliate" of Liberty within the meaning of Rule 405 under the Securities Act and that if the undersigned or the person receiving such Exchange Securities, whether or not such person is the undersigned, is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned or the person receiving such Exchange Securities, whether or not such person is the undersigned, is a broker-dealer that will receive Exchange Securities for its own account in exchange for Outstanding Securities that were acquired as a result of market- making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. If the undersigned is a person in the United Kingdom, the undersigned represents that its ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business. Any holder of Outstanding Securities using the Exchange Offer to participate in a distribution of the Exchange Securities (i) cannot rely on the position of the staff of the Securities and Exchange Commission enunciated in its interpretive letter with respect to Exxon Capital Holdings Corporation (available April 13, 1989) or similar interpretive letters and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Tendered Outstanding Securities may be withdrawn at any time prior to the Expiration Date in accordance with the terms of this Letter of Transmittal. Except as stated in the Prospectus, this tender is irrevocable. Certificates for all Exchange Securities delivered in exchange for tendered Outstanding Securities and any Outstanding Securities delivered herewith but not exchanged, and registered in the name of the undersigned, shall be delivered to the undersigned at the address shown below the signature of the undersigned. The undersigned, by completing the box entitled "Description of Outstanding Securities Tendered Herewith" above and signing this letter, will be deemed to have tendered the Outstanding Securities as set forth in such box. 5 TENDERING HOLDER(S) SIGN HERE (Complete accompanying substitute Form W-9) MUST BE SIGNED BY REGISTERED HOLDER(S) EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE(S) FOR OUTSTANDING SECURITIES HEREBY TENDERED OR IN WHOSE NAME OUTSTANDING SECURITIES ARE REGISTERED ON THE BOOKS OF DTC OR ONE OF ITS PARTICIPANTS, OR BY ANY PERSON(S) AUTHORIZED TO BECOME THE REGISTERED HOLDER(S) BY ENDORSEMENTS AND DOCUMENTS TRANSMITTED HEREWITH. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE FULL TITLE OF SUCH PERSON. SEE INSTRUCTION 3. ________________________________________________________________________________ ________________________________________________________________________________ (SIGNATURE(S) OF HOLDER(S)) Date____________________________________________________________________________ Name(s)_________________________________________________________________________ ________________________________________________________________________________ (PLEASE PRINT) Capacity (full title)___________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ (INCLUDING ZIP CODE) Daytime Area Code and Telephone No._____________________________________________ Taxpayer Identification No._____________________________________________________ 6 GUARANTEE OF SIGNATURE(S) (IF REQUIRED--SEE INSTRUCTION 3) Authorized Signature____________________________________________________________ Dated___________________________________________________________________________ Name____________________________________________________________________________ Title___________________________________________________________________________ Name of Firm____________________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone No._____________________________________________________ SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if Exchange Securities or Outstanding Securities not tendered are to be issued in the name of someone other than the registered holder of the Outstanding Securities whose name(s) appear(s) above. Issue / / Outstanding Securities not tendered to: / / Exchange Securities to: Name(s)_________________________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Daytime Area Code and Telephone No._____________________________________________ Tax Identification No.__________________________________________________________ SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if Exchange Securities or Outstanding Securities not tendered are to be sent to someone other than the registered holder of the Outstanding Securities whose name(s) appear(s) above, or such registered holder(s) at an address other than that shown above. 7 Mail / / Outstanding Securities not tendered to: / / Exchange Securities to: Name(s)_________________________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ (INCLUDE ZIP CODE) Area Code and Telephone No._____________________________________________________ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. A holder of Outstanding Securities may tender the same by (i) properly completing and signing this Letter of Transmittal or a facsimile hereof (all references in the Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates, if applicable, representing the Outstanding Securities being tendered, and any required signature guarantees and any other documents required by this Letter of Transmittal, to the Exchange Agent at its address set forth above on or prior to the Expiration Date, or (ii) complying with the procedure for book-entry transfer described below, or (iii) complying with the guaranteed delivery procedures described below. Holders of Outstanding Securities may tender Outstanding Securities by book-entry transfer by crediting the Outstanding Securities to the Exchange Agent's account at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will then send a computer-generated message (an "Agent's Message") to the Exchange Agent for its acceptance in which the holder of the Outstanding Securities acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, this Letter of Transmittal, the DTC participant confirms on behalf of itself and the beneficial owners of such Outstanding Securities all provisions of this Letter of Transmittal (including any representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. DTC participants may also accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through ATOP. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING SECURITIES AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. RATHER THAN MAIL THESE ITEMS, LIBERTY RECOMMENDS THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT CERTIFIED OR REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED. IN ALL CASES, 8 SUFFICIENT TIME SHOULD BE ALLOWED TO PERMIT TIMELY DELIVERY. NO OUTSTANDING SECURITIES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO LIBERTY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM. Holders whose Outstanding Securities are not immediately available or who cannot deliver their Outstanding Securities and all other required documents to the Exchange Agent on or prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Outstanding Securities pursuant to the guaranteed delivery procedure set forth in the Prospectus. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution a properly completed and duly executed notice of guaranteed delivery, by facsimile transmission, mail or hand delivery, setting forth the name and address of the holder, the principal amount of Outstanding Securities tendered, stating that the tender is being made thereby, and guaranteeing that, within three (3) New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal, or facsimile of this Letter of Transmittal, duly executed, together with a book-entry confirmation, and any other documents required by this Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the properly completed and executed Letter of Transmittal, or facsimile thereof, as well as a book-entry confirmation, and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three (3) New York Stock Exchange trading days after the Expiration Date. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Outstanding Securities for exchange. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of Outstanding Notes or Outstanding Debentures, as the case may be, evidenced by a submitted certificate is tendered, the tendering holder must fill in the aggregate principal amount of Outstanding Notes or Outstanding Debentures tendered in the box entitled "Description of Outstanding Securities Tendered Herewith." A newly issued certificate for the Outstanding Notes or Outstanding Debentures submitted but not tendered will be sent to such holder as soon as practicable after the Expiration Date. All Outstanding Notes and all Outstanding Debentures delivered to the Exchange Agent will be deemed to have been tendered unless otherwise clearly indicated. If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Outstanding Securities, a written notice, which may be by telegram, telex, facsimile transmission or letter of withdrawal, must be received by the Exchange Agent at one of the addresses for the Exchange Agent set forth above. Any notice of withdrawal must (i) specify the name of the person who tendered the Outstanding Securities to be withdrawn; (ii) identify the Outstanding Securities to be withdrawn including the certificate number or numbers and principal amount of such Outstanding Securities; and (iii) be signed by the holder in the same manner as the original signature on this Letter of Transmittal (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the trustee with respect to the Outstanding Securities register the transfer of the Ourstanding Securities into the name of the person withdrawing the tender. If Outstanding Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Outstanding Securities and otherwise comply with the procedures of that facility. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by Liberty, and such determination will be final and binding on all parties. 9 Any Outstanding Securities so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Outstanding Securities which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Outstanding Securities tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, such Outstanding Securities will be credited to an account with DTC for Outstanding Securities as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Outstanding Securities may be retendered by following one of the procedures described under the caption "The Exchange Offer-- Procedures for Tendering" in the Prospectus at any time prior to the Expiration Date. 3. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Outstanding Securities tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Outstanding Securities tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If a number of Outstanding Securities registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Outstanding Securities. When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include the book- entry transfer facility whose name appears on a security listing as the owner of the Outstanding Securities) of Outstanding Securities listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required. Signatures on this Letter of Transmittal or a notice of withdrawal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"), unless the Outstanding Securities tendered pursuant thereto are tendered: (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter of Transmittal; or (ii) for the account of an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder or holders of the Outstanding Securities listed, such Outstanding Securities must be endorsed by the registered holder with the signature guaranteed by an eligible instititution or accompanied by proper documentation of transfer or exchange, in satisfactory form as determined by Liberty in its sole discretion, and signed by the registered holder with the signature guaranteed by an Eligible Institution. If this Letter of Transmittal, any certificates or separate written instruments of transfer or exchange are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by Liberty, proper evidence satisfactory to Liberty of their authority to so act must be submitted with this Letter of Transmittal. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, as applicable, the name and address to which the Exchange Securities or certificates for Outstanding Securities not exchanged are to be issued or sent, if different from the name and address 10 of the person signing this Letter of Transmittal. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Outstanding Securities by book-entry transfer may request that Outstanding Securities not exchanged be credited to such account maintained at the book-entry transfer facility as such holder may designate. 5. TRANSFER TAXES. Holders who tender their Outstanding Securities for exchange will not be obligated to pay any transfer taxes in connection therewith, except that holders who instruct Liberty to register Exchange Securities in the name of, or request that Outstanding Securities not tendered or not accepted in the Exchange Offer be returned to, a person other than the registered tendering holder will be responsible for the paymbent of any applicable transfer tax thereon. If satisfactory evidence of payment of such transfer taxes or exception therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. 6. WAIVER OF CONDITIONS. Liberty reserves the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus. 7. MUTILATED, LOST, STOLEN OR DESTROYED SECURITIES. Any holder whose Outstanding Securities have been mutilated, lost, stolen or destroyed, should contact the Exchange Agent at the address indicated below for further instructions. 8. SUBSTITUTE FORM W-9 Each holder of Outstanding Securities whose Outstanding Securities are accepted for exchange (or other payee) is required to provide a correct taxpayer identification number ("TIN"), generally the holder's Social Security or federal employer identification number, and certain other information, on Substitute Form W-9, which is provided under "Important Tax Information" below, and to certify that the holder (or other payee) is not subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service and 31% federal income tax backup withholding on payments made in connection with the Outstanding Securities. The box in Part 3 of the Substitute Form W-9 may be checked if the holder (or other payee) has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is not provided by the time any payment is made in connection with the Outstanding Securities, 31% of all such payments will be withheld until a TIN is provided. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number indicated above. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF (TOGETHER WITH CERTIFICATES OF OUTSTANDING SECURITIES OR CONFIRMATION OF BOOK- ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE. 11 IMPORTANT TAX INFORMATION Under U.S. Federal income tax law, a holder of Outstanding Securities whose Outstanding Securities are accepted for exchange may be subject to backup withholding unless the holder provides The Bank of New York, as Paying Agent (the "Paying Agent"), through the Exchange Agent, with either (i) such holder's correct taxpayer identification number ("TIN") on Substitute Form W-9 attached hereto, certifying that the TIN provided on Substitute Form W-9 is correct (or that such holder of Outstanding Securities is awaiting a TIN) and that (A) the holder of Outstanding Securities has not been notified by the Internal Revenue Service that he or she is subject to backup withholding as a result of a failure to report all interest or dividends or (B) the Internal Revenue Service has notified the holder of Outstanding Securities that he or she is no longer subject to backup withholding; or (ii) an adequate basis for exemption from backup withholding. If such holder of Outstanding Securities is an individual, the TIN is such holder's social security number. If the Paying Agent is not provided with the correct TIN, the holder of Outstanding Securities may be subject to certain penalties imposed by the Internal Revenue Service. Certain holders of Outstanding Securities (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. However, exempt holders of Outstanding Securities should indicate their exempt status on Substitute Form W-9. For example, a corporation must complete the Substitute Form W-9, providing its TIN and indicating that it is exempt from backup withholding. In order for a foreign individual to qualify as an exempt recipient, the holder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Paying Agent. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Paying Agent is required to withhold 31% of any such payments made to the holder of Outstanding Securities or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the surrendering holder of Outstanding Securities has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the holder of Outstanding Securities or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Paying Agent will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Paying Agent. The holder of Outstanding Securities is required to give the Paying Agent the TIN (e.g., social security number or employer identification number) of the record owner of the Outstanding Securities. If the Outstanding Securities are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER FOR THE PAYEE (YOU) TO GIVE THE PAYER.--Social security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employee identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service. 12
GIVE THE FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY NUMBER OF-- 1. Individual The individual 2. Two or more individuals (joint The actual owner of account) the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a minor (Uniform The minor(2) Gift to Minors Act) 4. a. The usual revocable savings trust account The grantor-trustee(1) (grantor is also trustee) b. So-called trust account that is not a legal or The actual owner(1) valid trust under state law 5. Sole proprietorship The owner(3)
GIVE THE EMPLOYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or pension trust The legal entity(4) 8. Corporate The corporation 9. Association, club, religious, charitable, The organization educational, or other tax-exempt organization account 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of Agriculture in the The public entity name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments
- ------------------------- 1. List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. 13 2. Circle the minor's name and furnish the minor's social security number. 3. You must show your individual name, but you may also enter your business or"doing business as" name. You may use either your social security number or your employer identification number (if you have one). 4. List first and circle the name of the legal trust, estate, or pension trust.(Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: IF NO NAME IS CIRCLED WHEN THERE IS MORE THAN ONE NAME, THE NUMBER WILL BE CONSIDERED TO BE THAT OF THE FIRST NAME LISTED. OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5. Application for a Social Security Card, at the local Social Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING PAYEES SPECIFICALLY EXEMPTED FROM WITHHOLDING INCLUDE: - - An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). - - The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly-owned agency or instrumentality of any one or more of the foregoing. - - An international organization or any agency or instrumentality thereof. - - A foreign government and any political subdivision, agency or instrumentality thereof. - - Payees that may be exempt from backup withholding include: - - A corporation. - - A financial institution. - - A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. - - A real estate investment trust. - - A common trust fund operated by a bank under Section 584(a). - - An entity registered at all times during the tax year under the Investment Company Act of 1940. - - A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. - - A futures commission merchant registered with the Commodity Futures Trading Commission. - - A foreign central bank of issue. 14 PAYMENTS OF DIVIDENDS AND PATRONAGE DIVIDENDS GENERALLY EXEMPT FROM BACKUP WITHHOLDING INCLUDE: - - Payments to nonresident aliens subject to withholding under Section 1441. - - Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. - - Payments of patronage dividends not paid in money. - - Payments made by certain foreign organizations. - - Section 404(k) payments made by an ESOP. PAYMENTS OF INTEREST GENERALLY EXEMPT FROM BACKUP WITHHOLDING INCLUDE: - - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and you have not provided your correct taxpayer identification number to the payer. - - Payments of tax-exempt interest (including exempt-interest dividends under Section 852). - - Payments described in Section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under Section 1451. - - Payments made by certain foreign organizations. - - Mortgage interest paid to you. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see the regulations under sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N. EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. PRIVACY ACT NOTICE.--Section 6109 requires you to provide your correct taxpayer identification number to payers, who must report the payments to the IRS. The IRS uses the number for identification purposes and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. 15 (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. PAYER'S NAME: SUBSTITUTE PART 1--PLEASE PROVIDE YOUR TIN IN ___________________________________ FORM W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number DEPARTMENT OF THE SIGNING AND DATING BELOW. OR TREASURY INTERNAL REVENUE SERVICE Employer Identification Number Payer's Request for PART 2 PART 3-- Taxpayer Identification CERTIFICATION--Under the penalties of perjury, I / / Awaiting TIN Number (TIN) certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding because (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such item (2).
SIGNATURE ) SIGN HERE DATE NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 16 YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld. Signature ______________________ Date ___________, 1999 17 EX-99.2 21 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 ------------ FORM OF NOTICE OF GUARANTEED DELIVERY for Tender of 7 7/8% Senior Notes due 2009 and 8 1/2% Senior Debentures due 2029 OF LIBERTY MEDIA CORPORATION THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1999 (THE "EXPIRATION DATE") UNLESS EXTENDED BY LIBERTY MEDIA CORPORATION Registered holders of outstanding 7 7/8% Senior Notes due 2009 (the "Outstanding Notes") who wish to tender their Outstanding Notes in exchange for a like principal amount of new 7 7/8% Senior Notes due 2009 (the "Exchange Notes") and registered holders of outstanding 8 1/2% Senior Debentures due 2029 (the "Outstanding Debentures" and, together with the Outstanding Notes, the "Outstanding Securities") who wish to tender their Outstanding Debentures in exchange for a like principal amount of new 8 1/2% Senior Debentures due 2029 (the "Exchange Debentures" and, together with the Exchange Notes, the "Exchange Securities") may use this Notice of Guaranteed Delivery or one substantially equivalent hereto to tender Outstanding Securities pursuant to the Exchange Offer (as defined below) if: (1) their Outstanding Securities are not immediately available or (2) they cannot deliver their Outstanding Securities (or a confirmation of book-entry transfer of Outstanding Securities into the account of the Exchange Agent at The Depository Trust Company), the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date or (3) they cannot complete the procedure for book-entry transfer on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission or mail to the Exchange Agent. See "The Exchange Offer-- Procedures for Tendering" in the prospectus dated ___________, 1999 (the "Prospectus"), which together with the related Letter of Transmittal constitutes the "Exchange Offer" of Liberty Media Corporation. THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: THE BANK OF NEW YORK BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY: The Bank of New York The Bank of New York 101 Barclay Street, Floor 7E 101 Barclay Street, Floor 7E New York, New York 10286 Corporate Trust Services Window Attn: Gertrude Jeanpierre New York, New York 10286 Reorganization Section Attn: Gertrude Jeanpierre Reorganization Section BY FACSIMILE TRANSMISSION: (for eligible institutions only) The Bank of New York Facsimile No. (212) 815-6339 Attn: Gertrude Jeanpierre Reorganization Section Confirm by Telephone: (212) 815-5920 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an eligible institution (as defined in the Prospectus), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. Ladies and Gentlemen: The undersigned hereby tenders the principal amount of Outstanding Securities indicated below pursuant to the guaranteed delivery procedures set forth in the Prospectus and the Letter of Transmittal, upon the terms and subject to the conditions contained in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged. DESCRIPTION OF OUTSTANDING SECURITIES TENDERED OUTSTANDING NOTES
NAME AND ADDRESS OF REGISTERED HOLDER AS IT APPEARS ON THE CERTIFICATE NUMBER(S) OF PRINCIPAL AMOUNT OF OUTSTANDING NOTES TENDERED (OR NAME OF TENDERING OUTSTANDING NOTES ACCOUNT NUMBER AT BOOK-ENTRY OUTSTANDING NOTES HOLDER (PLEASE PRINT) FACILITY) TENDERED*
SIGN HERE ___________________ * Must be in denominations of $1,000 and any integral multiple thereof. NAME OF REGISTERED OR ACTING HOLDER:___________________________________________ SIGNATURE(S):__________________________________________________________________ NAME(S) (PLEASE PRINT):________________________________________________________ ADDRESS:_______________________________________________________________________ _______________________________________________________________________________ 2 TELEPHONE NUMBER:______________________________________________________________ DATE:__________________________________________________________________________ IF OUTSTANDING NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION: DTC ACCOUNT NUMBER:__________________________________________________ DATE:________________________________________________________________ OUTSTANDING DEBENTURES
NAME AND ADDRESS OF REGISTERED HOLDER AS IT CERTIFICATE NUMBER(S) APPEARS ON THE PRINCIPAL AMOUNT OF OF OUTSTANDING DEBENTURES NAME OF TENDERING OUTSTANDING DEBENTURES TENDERED (OR ACCOUNT NUMBER AT OUTSTANDING DEBENTURES HOLDER (PLEASE PRINT) BOOK-ENTRY FACILITY) TENDERED*
SIGN HERE ___________________ * Must be in denominations of $1,000 and any integral multiple thereof. NAME OF REGISTERED OR ACTING HOLDER:___________________________________________ SIGNATURE(S):__________________________________________________________________ NAME(S) (PLEASE PRINT):________________________________________________________ ADDRESS:_______________________________________________________________________ TELEPHONE NUMBER:______________________________________________________________ DATE:__________________________________________________________________________ IF OUTSTANDING DEBENTURES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION: DTC ACCOUNT NUMBER:__________________________________________________ DATE:________________________________________________________________ THE FOLLOWING GUARANTEE MUST BE COMPLETED GUARANTEE OF DELIVERY (NOT TO BE USED FOR SIGNATURE GUARANTEE) 3 The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth above, the certificates representing the Outstanding Securities being tendered hereby (or a confirmation of book-entry transfer of such Outstanding Securities into the Exchange Agent's account at The Depository Trust Company), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three (3) New York Stock Exchange trading days after the Expiration Date. Name of Firm:_________ Authorized Signature:______________ Address:________________ Title: ________________________ Name: Zip Code:____________ (Please type or print) Area Code and Telephone No.:_______ Date:___________________ NOTE: DO NOT SEND OUTSTANDING SECURITIES WITH THIS NOTICE OF GUARANTEED DELIVERY. OUTSTANDING SECURITIES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 4 -----END PRIVACY-ENHANCED MESSAGE-----