AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 4841 84-1288730
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
12300 LIBERTY BOULEVARD, ENGLEWOOD, COLORADO 80112, (720) 875-5400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
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CHARLES Y. TANABE, ESQ. COPY TO:
LIBERTY MEDIA CORPORATION ROBERT W. MURRAY JR., ESQ.
12300 LIBERTY BOULEVARD BAKER BOTTS L.L.P.
ENGLEWOOD, COLORADO 80112 599 LEXINGTON AVENUE
(720) 875-5400 NEW YORK, NEW YORK 10022-6030
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (212) 705-5000
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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 registration statement for the same
offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT REGISTRATION FEE
3 1/4% Senior Exchangeable Debentures due 2031..... $817,729,000 100%(1) $204,432
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(1) Exclusive of accrued interest. Estimated pursuant to Rule 457 under the
Securities Act of 1933 solely for the purpose of calculating the
registration fee.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD 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 AUGUST 14, 2001
PROSPECTUS
$817,729,000
LIBERTY MEDIA CORPORATION
3 1/4% SENIOR EXCHANGEABLE DEBENTURES DUE 2031
(Exchangeable for Viacom Inc. Class B Common Stock or cash based on the value
thereof)
This prospectus relates to $817,729,000 original principal amount of our
3 1/4% senior exchangeable debentures due 2031, which may be sold from time to
time by the selling security holders named herein.
The debentures are exchangeable by the holders for the exchange market value
of the reference shares, calculated as described in this prospectus. The
reference shares currently consist of 18.5666 shares of Viacom Inc. Class B
common stock per debenture.
In addition to paying interest on the debentures, we will distribute, as an
additional distribution on each debenture, cash or securities (other than common
equity securities) that correspond to any dividends, distributions or other
payments made in respect of the reference shares. If any common equity
securities are distributed in respect of the reference shares, those securities
will themselves become reference shares.
We may redeem the debentures at any time beginning on and after March 15,
2006, at the redemption prices described in this prospectus.
The debentures were initially sold by us in a private placement to qualified
institutional buyers and pursuant to offers and sales that occurred outside the
United States in accordance with Regulation S under the Securities Act of 1933.
This prospectus has been made available to the selling security holders in
fulfillment of our obligations under a registration rights agreement.
The selling security holders may offer and sell the debentures directly to
purchasers or through underwriters, brokers, dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions. The
debentures may be sold in one or more transactions at fixed or negotiated prices
or at prices based on prevailing market prices at the time of sale.
We will not receive any proceeds from the sale of the debentures by the
selling security holders. We are, however, responsible for the costs of
registering, under the Securities Act of 1933, the offer and sale of the
debentures by the selling security holders.
INVESTING IN THE DEBENTURES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE 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 August , 2001
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................... 3
RISK FACTORS................................................ 9
USE OF PROCEEDS............................................. 14
VIACOM INC.................................................. 14
PRICE RANGE AND DIVIDEND HISTORY OF THE VIACOM CLASS B
STOCK..................................................... 16
SELLING SECURITY HOLDERS.................................... 17
DESCRIPTION OF THE DEBENTURES............................... 21
SUMMARY OF REGISTRATION RIGHTS OF SELLING SECURITY
HOLDERS................................................... 45
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS..... 46
PLAN OF DISTRIBUTION........................................ 50
LEGAL MATTERS............................................... 52
EXPERTS..................................................... 52
WHERE TO FIND MORE INFORMATION.............................. 52
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE
STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE
AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY
OF STATE OF THE STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATION OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
TO HELP YOU UNDERSTAND LIBERTY AND THE DEBENTURES. FOR A MORE COMPLETE
UNDERSTANDING OF LIBERTY AND THE DEBENTURES, WE ENCOURAGE YOU TO READ THIS
ENTIRE DOCUMENT, INCLUDING THE "RISK FACTORS" SECTION, AND ALL OF THE DOCUMENTS
THAT WE INCORPORATE BY REFERENCE INTO THIS PROSPECTUS. 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.
LIBERTY MEDIA CORPORATION
We own interests in a broad range of programming, communications and
Internet businesses in the United States, Europe, South America and Asia with
some of the most recognized and respected brands. These brands include Encore,
STARZ!, Discovery, TV Guide, Fox, USA, QVC, CNN, TBS, Motorola and Sprint PCS.
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. We are working
with our 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 May 15, 2001 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.
ATTRIBUTED
SUBSIDIARY/BUSINESS AFFILIATE OWNERSHIP %
----------------------------- -----------
Starz Encore Group LLC...................................... 100%
Liberty Digital, Inc........................................ 92%
Discovery Communications, Inc............................... 49%
QVC Inc..................................................... 42%
Telewest Communications plc................................. 25%
Sprint PCS Group............................................ 21%
USA Networks, Inc........................................... 21%
The News Corporation Limited................................ 18%
AOL Time Warner Inc......................................... 4%
Gemstar-TV Guide International, Inc......................... 4%
Motorola Inc................................................ 4%
Our principal executive offices are located at 12300 Liberty Boulevard,
Englewood, Colorado 80112. Our main telephone number is (720) 875-5400.
BUSINESS STRATEGY
Our business strategy is to maximize our value by (1) working with the
management teams of our existing subsidiaries and business affiliates to grow
their established businesses and create new
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businesses; (2) identifying and executing strategic transactions that improve
the value or optimize the efficiency of our assets; and (3) managing our capital
structure to maintain liquidity, reduce risk and preserve a prudent debt
structure. Key elements of our business strategy include the following:
- Promoting the internal growth of our subsidiaries and business affiliates;
- Maintaining significant involvement in governance;
- Participating with experienced management and strategic partners;
- Executing strategic transactions that optimize the efficiency of our
assets; and
- Participating in financial transactions to optimize our financial
structure.
SPLIT OFF FROM AT&T CORP.
We were a subsidiary of AT&T Corp. from March 9, 1999 through August 9,
2001. In March 1999, AT&T acquired by merger our parent company, the former
Tele-Communications, Inc., which has since been converted into a limited
liability company and renamed AT&T Broadband, LLC. 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. AT&T's Liberty Media Group common stock was a tracking stock
designed to reflect the economic performance of the businesses and assets of
AT&T attributed to the "Liberty Media Group." We were included in the Liberty
Media Group, and our businesses and assets and those of our subsidiaries
constituted all of the businesses and assets of the Liberty Media Group until
our split off from AT&T on August 10, 2001.
The split off occurred at 9:00 a.m., New York City time, on August 10, 2001.
In the split off, our common stock was recapitalized, and each outstanding share
of AT&T Class A Liberty Media Group tracking stock was redeemed for one share of
our Series A common stock, and each outstanding share of AT&T Class B Liberty
Media Group tracking stock was redeemed for one share of our Series B common
stock. As a result of the split off, we are an independent, publicly traded
company, and our Series A common stock and Series B common stock are listed on
the NYSE under the symbols LMC.A and LMC.B, respectively.
RECENT DEVELOPMENTS
We have agreed in principle to a transaction with Deutsche Telekom AG
pursuant to which we would purchase its entire interest in six of nine regional
cable television companies in Germany. We are negotiating the terms of
definitive agreements pertaining to that transaction. In addition to the
execution of definitive agreements, the transaction will be subject to various
conditions, including approval by antitrust authorities.
TERMS OF THE DEBENTURES
On March 8, 2001, we completed the private placement of $817,729,000
aggregate principal amount of our 3 1/4% Senior Exchangeable Debentures due
2031. On March 8, 2001, we entered into a registration rights agreement with the
initial purchaser, in which we agreed to file for the benefit of the holders of
the debentures a shelf registration statement covering public resales of the
debentures. This prospectus is part of that shelf registration statement, and
the debentures being offered hereby are those initially sold by us in the
private placement.
Set forth below is a summary description of the terms of the debentures
being offered hereby. We refer you to "Description of the Debentures," beginning
on page 21, for a more complete description of the debentures
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Issuer....................................... Liberty Media Corporation
Debentures offered........................... $817,729,000 aggregate original principal
amount of 3 1/4% Senior Exchangeable
Debentures due 2031. The debentures are being
offered by the selling security holders.
Ranking...................................... The debentures are our unsecured senior
obligations and rank equally with all of our
existing and future unsecured and
unsubordinated obligations. As of June 30,
2001, we had approximately $4.3 billion of
unsecured and unsubordinated indebtedness,
all of which ranked equally with the
debentures. The debentures will be
effectively subordinated to all of our
secured indebtedness to the extent of the
value of the assets securing that
indebtedness, and will be effectively
subordinated to all liabilities of our
consolidated subsidiaries. As of June 30,
2001, we had approximately $405 million of
secured indebtedness and our consolidated
subsidiaries had outstanding approximately
$16.0 billion of liabilities (of which
approximately $11.3 billion was deferred
income taxes), all of which effectively ranks
senior to the debentures.
Denominations; Principal Amount.............. The minimum denomination is $1,000 original
principal amount, which we refer to as a
debenture, and debentures may be transferred
in integral multiples of $1,000 original
principal amount. The principal amount of the
debentures is subject to adjustment as
described in this prospectus. Because the
principal amount is subject to change, we
refer to the principal amount, at any time of
determination, as the adjusted principal
amount.
Exchangeability.............................. At your option, each debenture can be
exchanged for the exchange market value,
calculated in the manner described in this
prospectus, of the reference shares
attributable to that debenture. At the date
of this prospectus, the reference shares
consist of 18.5666 shares of Viacom Inc.
Class B common stock per debenture; however,
the composition of the reference shares is
subject to change as described in this
prospectus.
We may pay the exchange market value of each
debenture that you present for exchange, at
our election, as follows:
- in cash;
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- by delivering the reference shares
attributable to the debenture; or
- in a combination of cash and reference
shares.
We will pay the exchange market value of each
debenture only in cash, however, until
January 23, 2003 (or until such earlier date
when we may deliver reference shares that can
be transferred by holders of debentures
generally without restriction under the
Securities Act).
Viacom and its Relationship to
the Debentures............................. According to publicly available information,
Viacom is a diversified entertainment company
with operations in seven segments: (1) Cable
Networks, consisting of cable network program
services; (2) Television, consisting of CBS
and UPN television networks, 39 broadcast
television stations, and production and
distribution of television programming; (3)
Infinity, consisting of an equity interest in
Infinity Broadcasting Corporation, which
operates radio stations and outdoor
advertising properties; (4) Entertainment,
consisting of the production and distribution
of theatrical motion pictures, movie theater
operations, music publishing operations, and
theme park operations; (5) Video, consisting
of an 82% equity interest in Blockbuster
Inc., which operates and franchises video
stores worldwide; (6) Publishing, consisting
of the publication and distribution of
consumer books and related multimedia
products; and (7) Online, consisting of
online music, children's destinations,
CBS.com and other related Internet
investments.
Neither Viacom nor any other reference
company will have any obligations whatsoever
under the debentures. This prospectus relates
solely to the debentures and does not relate
to any offering of the Viacom Class B stock
or any other securities of Viacom or any
successor reference company.
Maturity..................................... The debentures have a stated maturity of
March 15, 2031.
Interest..................................... We will pay you interest at the rate of
3 1/4% per annum on the original principal
amount of the debentures. Interest will be
paid semi-annually on each March 15 and
September 15, beginning on September 15, 2001
for the interest period commencing on March
8, 2001. The interest rate on the debentures
is subject to increase (by up to an
additional 1.00%) in the event this
prospectus
6
becomes unusable for more than 30 days in any
twelve-month period.
Additional Distributions..................... We will distribute, as an additional
distribution on each debenture, cash or
securities (other than publicly traded common
equity securities) that correspond to any
dividends, distributions or other payments
made in respect of the reference shares. If
any publicly traded common equity securities
are distributed in respect of the reference
shares, those securities will themselves
become reference shares.
Any additional distribution that we pay as a
result of a regular cash dividend on the
reference shares will be distributed to you
with the next semi-annual interest payment on
the debentures. All other additional
distributions will be paid or made within 20
business days after the payment or delivery
of the related dividends or distributions on
the reference shares.
As of the date of this prospectus, Viacom has
never paid a cash dividend on its Class B
stock.
Adjusted Principal Amount.................... The adjusted principal amount of the
debentures will not be reduced by any regular
cash dividend amount that we distribute to
holders of the debentures.
The original principal amount of the
debentures will be reduced by the amount of
all additional distributions that we make to
holders of the debentures that are
attributable to extraordinary distributions
on or in respect of the reference shares. The
adjusted principal amount will also be
reduced on subsequent interest payment dates
to the extent necessary so that the
annualized yield on the debentures paid by us
does not exceed 3 1/4% per annum. In no event
will the adjusted principal amount ever be
less than zero. Reductions to the adjusted
principal amount will not affect the amount
of the semi-annual interest payment received
by a holder of debentures, which is based on
the original principal amount.
Optional Redemption.......................... We may redeem the debentures, in whole or in
part, at any time on or after March 15, 2006,
at the redemption prices described herein. If
we make a partial redemption, debentures with
an aggregate principal amount of at least
$100 million must remain outstanding.
7
Covenants.................................... The indenture governing the debentures
contains covenants with respect to:
- limitations on liens;
- limitations on sale and leaseback; 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 Debentures -- Certain
Covenants."
Use of Proceeds.............................. We will not receive any of the proceeds from
the secondary sale by the selling security
holders of debentures. This prospectus
fulfills an obligation of ours under a
registration rights agreement that we entered
into with the initial purchaser of the
debentures.
Book-entry only.............................. The debentures have been issued in book-entry
form and are represented by global debentures
deposited with The Bank of New York on behalf
of The Depository Trust Company. Except to
the extent described herein, interests in the
global debentures will be shown on, and
transfers will be effected only through,
records maintained by DTC and its
participants.
RISK FACTORS
An investment in the debentures involves risks. See "Risk Factors" beginning
on the next page for a discussion of factors you should carefully consider
before deciding to purchase any debentures.
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RISK FACTORS
AN INVESTMENT IN THE DEBENTURES INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING FACTORS, AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS AND IN THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE BEFORE
DECIDING TO PURCHASE THE DEBENTURES. ANY OF THE FOLLOWING RISKS COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE VALUE OF THE DEBENTURES.
FACTORS RELATING TO THE DEBENTURES
THE RETURN TO INVESTORS ON THE DEBENTURES DEPENDS ON THE VALUE OF THE VIACOM
CLASS B STOCK. The terms of the debentures differ from those of ordinary debt
securities because:
- the effective yield on the debentures may change depending upon the
dividend policy of Viacom or any other reference company;
- the debentures are exchangeable by the holder for (1) cash in an amount
based on the then exchange market value of the reference shares, (2) the
reference shares themselves or (3) a combination of cash and reference
shares, at the election of Liberty; and
- the principal amount of the debentures will be reduced by the amount of an
additional distribution that is made by Liberty following any
extraordinary distribution being made on or in respect of the reference
shares.
Accordingly, the return that a holder of the debentures will realize may be
less than that of an ordinary fixed income debt security that may be issued by
us.
We do not have any control over the dividend policy of Viacom. As of the
date of this prospectus, Viacom has never paid a cash dividend on its Class B
stock. We cannot assure you that Viacom will ever pay a cash dividend on its
Class B stock.
It is not possible to predict whether the price of the Viacom Class B stock
will rise or fall. Trading prices of the Viacom Class B stock will be influenced
by Viacom's operating results and by complex and interrelated political,
economic, financial and other factors that can affect the capital markets
generally, the New York Stock Exchange and the market segments of which Viacom
is a part.
VIACOM HAS NO OBLIGATIONS WITH RESPECT TO THE DEBENTURES. Viacom is not
involved in the offering of the debentures, and neither Viacom nor any other
reference company will have any obligations with respect to the debentures,
including any obligation to take our interests or your interests into
consideration for any reason or under any circumstance. Holders of the
debentures will not be entitled to any rights with respect to the Viacom
Class B stock or any other reference shares other than indirectly pursuant to
the express terms of the debentures or at such time, if any, that the debentures
are tendered for exchange and we elect to deliver reference shares in connection
therewith.
THE NUMBER OF REFERENCE SHARES ATTRIBUTABLE TO THE DEBENTURES WILL NOT
ADJUST FOR SOME DILUTIVE TRANSACTIONS INVOLVING THE REFERENCE SHARES. If
specific dilutive or anti-dilutive events occur with respect to the reference
shares, the number and type of reference shares that will be used to calculate
the amount of cash or reference shares you will receive upon exchange, maturity
or redemption of a debenture will be adjusted to reflect such events. These
adjustments will not take into account various other events, such as offerings
of reference shares by a reference company for cash or business acquisitions by
a reference company with the reference shares, that may adversely affect the
price of the reference shares and may adversely affect the trading price and
market value of the debentures. We cannot assure you that a reference company
will not make offerings of the reference shares or other equity securities or
enter into such business acquisitions in the future.
PURCHASING THE DEBENTURES INVOLVES POTENTIAL ADVERSE TAX
CONSEQUENCES. Before purchasing the debentures, you should recognize that the
amount of interest income required to be included in income by you for each year
will be in excess of the semi-annual interest payments you actually receive. Any
gain recognized by you on the sale or exchange of the debentures will be
ordinary income; any loss will be ordinary loss to the extent of the interest
previously included in income, and thereafter, capital loss. See "Certain United
States Federal Income Tax Considerations."
THE DEBENTURES ARE A RECENT ISSUE OF SECURITIES FOR WHICH THERE IS CURRENTLY
NO ACTIVE TRADING MARKET. The debentures are a recent issue of securities with
no active trading market. If a trading market does
9
not develop or is not maintained, holders of the debentures may experience
difficulty in reselling the debentures or may be unable to sell them at all. We
cannot assure you that an active public market or other market for the
debentures will develop or be maintained. If a market for the debentures
develops, it may be discontinued at any time.
The liquidity of any market for the debentures will depend upon the number
of holders of the debentures, our operating performance, the operating
performance of Viacom or any other reference company, the interest of securities
dealers in making a market in the debentures and other factors. A liquid trading
market may not develop for the debentures. Furthermore, the market price for the
debentures may be subject to substantial fluctuations. Factors such as the
following may have a significant effect on the market price of the debentures:
- the market price of the Viacom Class B stock or any other reference
shares;
- hedging or arbitrage trading activity that may develop involving the
debentures and the Viacom Class B stock or any other reference shares;
- 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.
FACTORS RELATING TO LIBERTY
OUR HOLDING COMPANY STRUCTURE COULD RESTRICT ACCESS TO FUNDS OF OUR
SUBSIDIARIES THAT MAY BE NEEDED TO SERVICE THE DEBENTURES. Creditors of our
subsidiaries have a claim on their assets that is senior to that of holders of
the debentures. 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 debentures. Our subsidiaries are separate and distinct legal entities
and they have no obligation, contingent or otherwise, to pay any amounts due
under the debentures or to make any funds available for any of those payments.
All of the liabilities of our subsidiaries effectively rank senior to the
debentures. A substantial portion of the consolidated liabilities of Liberty
consists of liabilities incurred by its subsidiaries. Moreover, the indenture
governing the debentures does not limit the amount of indebtedness that may be
incurred by Liberty's subsidiaries in the future. The rights of Liberty and of
its creditors, including holders of the debentures, 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, 2001,
the aggregate amount of the total liabilities of our consolidated subsidiaries
was approximately $16.0 billion, of which approximately $11.3 billion was
deferred income taxes.
WE COULD BE UNABLE IN THE FUTURE TO OBTAIN A SUFFICIENT AMOUNT OF CASH WITH
WHICH TO SERVICE OUR FINANCIAL OBLIGATIONS. Our ability to meet our debt
service requirements, including those with respect to the debentures, 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, 2001,
Liberty had cash and cash equivalents of approximately $1,787 million and
short-term investments of approximately $494 million, there is no requirement in
the indenture governing the debentures 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 debentures. We
cannot assure you that Liberty will maintain significant amounts of cash, cash
equivalents or marketable securities in the future.
Liberty obtained from one of its subsidiaries net cash of $15 million in the
first six months of 2001, $5 million in calendar year 2000 and $6 million in
1999. The ability of Liberty's operating subsidiaries to pay dividends or to
make other payments or advances to Liberty depends on their individual
10
operating results and any statutory, regulatory or contractual restrictions to
which they may be or may become subject. Some of our subsidiaries are subject to
loan 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.
Liberty generally does not receive cash, in the form of dividends, loans,
advances or otherwise, from its business affiliates (those companies in which
Liberty has less than a majority interest). In this regard, 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).
WE MAY SECURE FUTURE INDEBTEDNESS OF LIBERTY WITH THE CAPITAL STOCK OF OUR
SUBSIDIARIES OR OTHER SECURITIES, IN WHICH CASE THAT INDEBTEDNESS WILL
EFFECTIVELY RANK SENIOR TO THE DEBENTURES. 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 debentures 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.
WE HAVE ENTERED INTO BANK CREDIT AGREEMENTS THAT CONTAIN RESTRICTIONS ON HOW
WE FINANCE OUR OPERATIONS AND OPERATE OUR BUSINESS, WHICH COULD IMPEDE OUR
ABILITY TO ENGAGE IN TRANSACTIONS THAT WOULD BE BENEFICIAL FOR US. Liberty and
its subsidiaries are subject to significant financial and operating restrictions
contained in outstanding credit facilities. 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.
The restrictions contained in these credit agreements 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; 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 in which we would otherwise
invest; 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.
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
debentures 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 debentures.
WE MAY MAKE SIGNIFICANT CAPITAL CONTRIBUTIONS AND LOANS TO OUR SUBSIDIARIES
AND BUSINESS AFFILIATES TO COVER OPERATING LOSSES AND FUND DEVELOPMENT AND
GROWTH, WHICH COULD LIMIT THE AMOUNT OF CASH AVAILABLE TO PAY LIBERTY'S OWN
FINANCIAL OBLIGATIONS. The development of video programming, communications,
11
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. Our results of operations include
ours and our consolidated subsidiaries' share of the net losses of their
affiliates. The share of net losses amounted to $3,311 million for the first six
months of 2001, $3,485 million for the calendar year 2000 and $970 million for
calendar year 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, 2001, we had guaranteed various loans, notes
payable, letters of credit and other obligations of certain of our subsidiaries
and business affiliates totaling $2,106 million.
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 debentures.
If we fail to meet required capital calls to a subsidiary or business
affiliate, we could be forced to sell our interest in that company, our interest
in that company could be diluted or we could forfeit important rights. 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 "--We could be unable in the future to obtain a
sufficient amount of cash with which to service our financial obligations"
above.
THE LIQUIDITY AND VALUE OF OUR INTERESTS IN OUR BUSINESS AFFILIATES MAY BE
ADVERSELY AFFECTED BY SHAREHOLDER AGREEMENTS AND SIMILAR AGREEMENTS TO WHICH WE
ARE A PARTY. A significant portion of the equity securities we own is held
pursuant to shareholder 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 shareholders
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 shareholders 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, WHICH MEANS WE
CANNOT CAUSE THOSE AFFILIATES TO OPERATE IN A MANNER THAT IS FAVORABLE TO
LIBERTY. 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 in which we own less than a majority voting interest of assets or
prevent it from paying dividends or
12
making distributions to its stockholders or partners, they do not enable us to
cause these actions to be taken.
OUR BUSINESS IS SUBJECT TO RISKS OF ADVERSE GOVERNMENT
REGULATION. Programming services, cable television systems, satellite carriers,
television stations and internet companies are subject to varying degrees of
regulation in the United States by the Federal Communications Commission and
other entities. Such regulation and legislation are subject to the political
process and have been in constant flux over the past decade. In addition,
substantially every foreign country in which Liberty has, 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. 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.
WE ARE SUBJECT TO THE RISK OF POSSIBLY BECOMING AN INVESTMENT
COMPANY. Because Liberty is a holding company and a significant portion of its
assets consists of investments in companies in which Liberty owns less than a
50% interest, Liberty runs the risk of inadvertently becoming an investment
company that is required to register under the Investment Company Act of 1940.
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.
To avoid regulation under the Investment Company Act, Liberty monitors the
value of its investments and structures transactions with an eye toward the
Investment Company Act. As a result, Liberty may structure transactions in a
less advantageous manner than if Liberty did not have Investment Company Act
concerns, or Liberty may avoid otherwise economically desirable transactions due
to those concerns. In addition, events beyond Liberty's control, including
significant appreciation or depreciation in the market value of certain of our
publicly traded holdings, could result in us becoming an inadvertent investment
company. If we were to become an inadvertent investment company, we would have
one year to divest of a sufficient amount of investment securities and/or
acquire other assets sufficient to cause us to no longer be an investment
company.
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 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 prior to the AT&T merger. 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.
THIS PROSPECTUS CONTAINS FORWARD LOOKING STATEMENTS CONCERNING FUTURE EVENTS
THAT ARE SUBJECT TO RISKS, UNCERTAINTIES AND ASSUMPTIONS. Certain statements
made in this prospectus under the captions entitled "Prospectus Summary," and
"Risk Factors," and elsewhere in this prospectus are forward-looking statements.
These forward-looking statements are based on our current expectations and
projections
13
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;
- 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;
- 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. In light of
these risks, uncertainties and other assumptions, the forward-looking events
discussed in this prospectus might not occur.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the debentures by
the selling security holders. We have filed, and have caused to become
effective, the registration statement of which this prospectus is a part solely
to satisfy our obligation to register the debentures pursuant to the terms of a
registration rights agreement with the initial purchaser of the debentures.
VIACOM INC.
We refer to Viacom's Class B common stock, $.01 par value per share, as
Viacom Class B stock. According to publicly available documents, Viacom has
outstanding two classes of common stock, Class A common stock, $.01 par value
per share, and the Viacom Class B stock. These two classes of common stock have
substantially identical characteristics, except that the Viacom Class A stock is
entitled to exercise voting rights, while the Viacom Class B stock is not
entitled to any voting rights. In describing the debentures, the Viacom Class B
stock will initially comprise the reference shares. As of the date of this
prospectus, 18.5666 reference shares are attributable to each debenture. The
reference shares will also include any other publicly traded common equity
securities that may be distributed on or in respect of the Viacom Class B stock,
or on or with respect to any publicly traded common equity security into which
any of those securities may be converted or exchanged. In describing the
debentures, we refer to Viacom and any other company that may in the future
become an issuer of reference shares as the reference company.
According to publicly available documents, Viacom is a diversified
entertainment company with operations in seven segments:
- The Cable Networks segment operates MTV: MUSIC
TELEVISION-Registered Trademark-, SHOWTIME-Registered Trademark-,
NICKELODEON-Registered Trademark-, NICK AT NITE-Registered Trademark-, VH1
MUSIC FIRST-Registered Trademark-, TV LAND-Registered Trademark-, TNN: THE
NATIONAL NETWORK, CMT: COUNTRY MUSIC TELEVISION-TM- and BET: BLACK
ENTERTAINMENT TELEVISION-Registered Trademark-, among other program
services.
- The Television segment consists of the CBS-Registered Trademark- and
UPN-Registered Trademark- television networks, 39 owned broadcast
television stations, and the Company's television production and
syndication business, including KING WORLD PRODUCTIONS-TM- and PARAMOUNT
TELEVISION-TM-.
14
- The Infinity segment operates approximately 184 radio stations through
INFINITY BROADCASTING-Registered Trademark-, and outdoor advertising
properties through INFINITY OUTDOOR-TM- and TDI-Registered Trademark-.
- The Entertainment segment includes PARAMOUNT
PICTURES-Registered Trademark-, which produces and distributes theatrical
motion pictures; PARAMOUNT PARKS-Registered Trademark-, which owns and
operates five theme parks and a themed attraction in the U.S. and Canada;
and movie theater and music publishing operations.
- The Video segment consists of an approximately 82% equity interest in
Blockbuster Inc., which operates and franchises
BLOCKBUSTER-Registered Trademark- video stores worldwide. The remainder of
Blockbuster's common stock was sold to the public in August 1999.
- The Publishing segment publishes and distributes consumer books and
related multimedia products, under such imprints as SIMON &
SCHUSTER-Registered Trademark-, POCKET BOOKS-TM-,
SCRIBNER-Registered Trademark- and THE FREE PRESS-TM-.
- The Online segment provides online music and children's destinations
through Internet sites related to MTV: MUSIC TELEVISION, NICKELODEON, NICK
AT NITE, VH1 MUSIC FIRST, and CMT: COUNTRY MUSIC TELEVISION, as well as
SonicNet.com, and NickJr.com. In addition, CBS.com offers a broad range of
informational, entertainment, news and promotional services. Effective
January 1, 2001, Viacom presents its online businesses as part of the
Cable Networks and Television segments.
Viacom is required to file reports and other information with the SEC.
Copies of these reports and other information may be inspected and copied at the
SEC offices specified under "Where to Find More Information" below.
This prospectus relates only to the debentures and does not relate to the
Viacom Class B stock or other securities of Viacom. Viacom has no obligations
whatsoever under the debentures. All disclosures contained in this prospectus
regarding Viacom are derived from the publicly available documents referred to
in the preceding paragraph. We have not participated in the preparation of
Viacom's documents nor made any due diligence inquiry with respect to the
information provided in those documents. The initial purchaser has not made any
due diligence inquiry with respect to the information provided in Viacom's
documents in connection with the offering of the debentures. Neither we nor the
initial purchaser represent that Viacom's publicly available documents or any
other publicly available information regarding Viacom are accurate or complete.
Neither we nor the initial purchaser can provide you with any assurance that all
events occurring prior to the date of this prospectus, including events that
would affect the accuracy or completeness of the publicly available documents
described in the preceding paragraph that would affect the trading price of the
Viacom Class B stock, and therefore the issue price of the debentures, have been
publicly disclosed. Subsequent disclosure of any such event or the disclosure of
or failure to disclose material future events concerning Viacom could affect the
trading price of the debentures.
We, our affiliates and the initial purchaser do not make any representation
to you as to the performance of Viacom, the Viacom Class B stock or any other
securities of Viacom.
15
PRICE RANGE AND DIVIDEND HISTORY OF THE VIACOM CLASS B STOCK
The Viacom Class B stock is listed and traded on the NYSE under the symbol
"VIA-B."
The following table sets forth, for the calendar quarters indicated, the
range of high and low sale prices of the Viacom Class B stock as reported on the
NYSE Composite Tape during the last two years.
VIACOM
CLASS B STOCK
-------------------
HIGH LOW
-------- --------
1999:
First quarter........................................... $45.938 $35.375
Second quarter.......................................... 49.188 36.625
Third quarter........................................... 48.750 38.563
Fourth quarter.......................................... 60.438 39.813
2000:
First quarter........................................... $63.250 $49.563
Second quarter.......................................... 70.875 45.688
Third quarter........................................... 75.875 54.125
Fourth quarter.......................................... 59.875 44.313
2001:
First quarter........................................... $59.625 $ 37.90
Second quarter.......................................... 59.50 39.00
Third quarter (through August 13)....................... 53.20 43.60
Viacom has never paid a cash dividend on the Viacom Class B stock.
The last reported sale price on the NYSE of one share of Viacom Class B
stock on August 13, 2001 was $49.50.
16
SELLING SECURITY HOLDERS
We issued and sold the debentures in a private placement that was exempt
from the registration requirements of the Securities Act. We understand that the
initial purchaser of the debentures subsequently resold the debentures in
compliance with Rule 144A and Regulation S. Prior to the date of this
prospectus, the debentures were transferable in accordance with Rule 144A and
Regulation S and were eligible for trading in Nasdaq's Private Offerings,
Resales and Trading Through Automated Linkages (PORTAL) market. The selling
security holders listed below (including their transferees, pledgees, donees or
successors) may offer and sell pursuant to this prospectus any or all of the
debentures owned by them from time to time.
In accordance with the terms of a registration rights agreement that we
entered into with the initial purchaser of the debentures, we have made this
prospectus available to the selling security holders so that they may publicly
resell their debentures.
The following table sets forth information with respect to each selling
security holder and the principal amount of debentures owned by it. The entire
principal amount of the debentures owned by each of the selling security holders
named in the table may be sold pursuant to this prospectus. Because each selling
security holder may sell all or some of its debentures from time to time under
this prospectus, no estimate can be given at this time as to the principal
amount of debentures that will be held by a particular selling security holder
following any sale of debentures by it. In addition, some of the selling
security holders named in the table may have sold, transferred, loaned or
otherwise disposed of all or a portion of their debentures since the date they
last advised us of their holdings. Hence, the total principal amount of
debentures included in the following table does not equal the maximum aggregate
principal amount of debentures to which this prospectus relates. Changes in the
information concerning the selling security holders will be set forth in
supplements to this prospectus, when and if necessary.
PRINCIPAL
AMOUNT OF
DEBENTURES PERCENTAGE OF
THAT MAY BE OUTSTANDING
NAME SOLD ($) DEBENTURES
---- ----------- -------------
1976 Distribution Trust FBD A.R. Lauder/Zinterhofer......... 8,000 *
1976 Distribution Trust FBD Jane A. Lauder.................. 17,000 *
2000 Revocable Trust FBO A.R. Lauder/Zinterhofer............ 8,000 *
AFTRA Health Fund........................................... 130,000 *
Alexandra Global Investment Fund 1, LTD..................... 6,000,000 *
Allstate Insurance Company.................................. 2,850,000 *
Allstate Life Insurance Company............................. 5,650,000 *
American Motorist Insurance Company......................... 615,000 *
Amerus Life Insurance Co. (Amerus Multi-Fund Convertible
Account).................................................. 760,000 *
Arapahoe County Colorado.................................... 61,000 *
Arkansas Teachers Retirement................................ 4,194,000 *
AXP Bond Fund, Inc.......................................... 1,420,000 *
AXP Variable Portfolio--Bond Fund, a series of AXP Variable
Portfolio Income Series, Inc.............................. 590,000 *
AXP Variable Portfolio--Managed Fund, a series of AXP
Variable Portfolio Managed Series, Inc.................... 440,000 *
Bankers Life Insurance Company of New York.................. 60,000 *
Bankers Trust Company Trustee for Daimler Chrysler Corp.
Emp. #1 Pension Plan DTD 4/1/89........................... 6,680,000 *
Baptist Health of South Florida............................. 527,000 *
Bay County PERS............................................. 225,000 *
17
PRINCIPAL
AMOUNT OF
DEBENTURES PERCENTAGE OF
THAT MAY BE OUTSTANDING
NAME SOLD ($) DEBENTURES
---- ----------- -------------
Boston Museum of Fine Art................................... 55,000 *
British Virgin Islands Social Security Board................ 46,000 *
City of New Orleans......................................... 250,000 *
City University of New York................................. 150,000 *
The Class IC Company, Ltd................................... 3,000,000 *
Conseco Annuity Assurance--Multi Bucket Annuity Convertible
Bond Fund................................................. 2,250,000 *
Conseco Fund Group--Conseco Convertible Securities Fund..... 250,000 *
Convertible ARB QIB......................................... 3,260,000 *
Convertible Securities Fund................................. 150,000 *
Engineers Joint Pension Fund................................ 507,000 *
Enterprise Convertible Securities Fund...................... 150,000 *
Equity & Convertibles Fund.................................. 1,700,000 *
Equity Income Fund.......................................... 200,000 *
Evergreen Equity Income Fund................................ 10,000,000 1.2%
Fidelity Devonshire Trust: Fidelity Equity-Income Fund...... 24,460,000 3%
Fidelity Financial Trust: Fidelity Convertible Securities
Fund...................................................... 16,600,000 2%
Fidelity Puritan Trust: Fidelity Puritan Fund............... 14,140,000 1.7%
First Union Securities Inc.................................. 33,214,000 4%
FIST--Franklin Convertible Securities Fund.................. 3,500,000 *
FIST--Franklin Equity Income Fund........................... 4,250,000 *
Forest Alternative Strategies Fund II LP ASM................ 75,000 *
Forest Fulcrum Fund L.P..................................... 600,000 *
Forest Global Convertible Fund A5........................... 3,075,000 *
Franklin and Marshall College............................... 360,000 *
FTVIP--Franklin Growth and Income Securities Fund........... 7,250,000 *
The Gabelli Global Convertible Securities Fund.............. 200,000 *
Global Bermuda Limited Partnership.......................... 2,000,000 *
The Grable Foundation....................................... 115,000 *
The Grady Hospital Foundation............................... 131,000 *
Granville Capital Corporation............................... 500,000 *
HFR Convertible Arbitrage Account........................... 385,000 *
IL Annuity and Insurance Company............................ 23,425,000 2.9%
Income Portfolio, a series of IDS Life Series Fund, Inc..... 30,000 *
Independence Blue Cross..................................... 130,000 *
Innovest Finanzdienstleistungs.............................. 503,000 *
Insinger De Beaufort Umbrella Fund N.V.--IDB Global
Convertible Fund.......................................... 1,000,000 *
Janus Capital Corporation................................... 81,000,000 9.9%
JMG Capital Partners, L.P................................... 3,900,000 *
JMG Triton Offshore FD LTD.................................. 3,900,000 *
Kerr McGee Corporation...................................... 700,000 *
Lakeshore International Ltd................................. 4,500,000 *
Lipper Convertibles, L.P.................................... 30,500,000 3.7%
Lipper Convertibles, L.P. (Class B)......................... 2,000,000 *
Lipper Convertibles Series II, L.P.......................... 2,000,000 *
Lipper Offshore Convertibles, L.P........................... 7,000,000 *
Lipper Offshore Convertibles, L.P. #2....................... 2,000,000 *
LLT Limited................................................. 150,000 *
18
PRINCIPAL
AMOUNT OF
DEBENTURES PERCENTAGE OF
THAT MAY BE OUTSTANDING
NAME SOLD ($) DEBENTURES
---- ----------- -------------
Local Initiatives Support Corporation....................... 68,000 *
Lumbermens Mutual Casualty.................................. 525,000 *
Lutheran Brotherhood........................................ 3,000,000 *
Lydian Overseas Partners Master Fund........................ 20,000,000 2%
Lyxor Master Fund, c/o Forest Investment Mngt. LLC.......... 500,000 *
Mainstay Convertible Fund................................... 1,880,000 *
Mainstay VP Convertible Portfolio........................... 530,000 *
Merrill Lynch Insurance Group............................... 320,000 *
Motion Pictures Industry.................................... 590,000 *
Municipal Employees......................................... 131,000 *
Nabisco Holdings............................................ 38,000 *
Nations Convertible Securities Fund......................... 4,500,000 *
Nations Equity Income Fund.................................. 3,075,000 *
New Orleans Firefighters Pension/Relief Fund................ 136,000 *
New York Life Separate Account #7........................... 260,000 *
Nicholas Applegate Convertible Fund......................... 1,555,000 *
Nicholas Applegate Investment Grade Convertible............. 14,000 *
The Northern Income Equity Fund............................. 1,000,000 *
North Pole Capital Investments Limited...................... 2,700,000 *
Occidental Petroleum Corporation............................ 251,000 *
Ohio Bureau of Workers Compensation......................... 165,000 *
Onex Industrial Partners Limited............................ 22,510,000 2.4%
Oppenheimer Capital Income Fund............................. 14,000,000 1.7%
Oppenheimer Convertible Securities Fund..................... 10,000,000 1.2%
Paloma Securities LLC....................................... 22,500,000 2.8%
Pebble Capital Inc.......................................... 10,325,000 1.2%
Pell Rudman Trust Company................................... 4,000,000 *
Penn Treaty Network America Insurance Company............... 445,000 *
Physicians Life............................................. 400,000 *
Polar Hedge Enhanced Income Trust........................... 300,000 *
Policemen and Firemen Retirement System of the City of
Detroit................................................... 659,000 *
President and Fellows of Harvard College.................... 27,500,000 3.4%
ProMutual................................................... 738,000 *
Raytheon Master Pension Trust............................... 400,000 *
RBC Capital Services, Inc. c/o Forest Investment Mngt.
LLC....................................................... 100,000 *
RJR Reynolds................................................ 115,000 *
Salomon Smith Barney Inc.................................... 34,950,000 4.3%
San Diego City Retirement................................... 972,000 *
San Diego County Convertible................................ 1,969,000 *
Screen Actors Guild Pension Convertible..................... 544,000 *
Shell Pension Trust......................................... 543,000 *
Silvercreek Limited Partnership............................. 13,445,000 1.6%
Silvercreek II Limited...................................... 29,220,000 3.6%
Smithfield Trust Company Convertible Securities Fund........ 10,000 *
Southern Farm Bureau Life Insurance......................... 600,000 *
Starwest Combined Portfolio................................. 800,000 *
Starwest Managed Portfolio.................................. 45,000 *
19
PRINCIPAL
AMOUNT OF
DEBENTURES PERCENTAGE OF
THAT MAY BE OUTSTANDING
NAME SOLD ($) DEBENTURES
---- ----------- -------------
State of Florida Division of Treasury....................... 2,000,000 *
State of Maryland Retirement Agency......................... 3,150,000 *
State Street Bank Custodian for GE Pension Trust............ 2,715,000 *
Sylvan IMA Ltd, c/o Forest Investment Mngt, LLC............. 250,000 *
Total Return Portfolio, a series of Growth and Income
Trust..................................................... 520,000 *
TQA Master Fund............................................. 9,500,000 1.2%
TQA Master Plus Fund LTD.................................... 9,000,000 1.1%
Variable Insurance Products Fund: Equity Income Portfolio... 11,400,000 1.4%
Wake Forest University...................................... 787,000 *
Writers Guild Convertible................................... 317,000 *
Wyoming State Treasurer..................................... 1,095,000 *
Zurich Institutional Benchmarks Master Fund Limited......... 250,000 *
Zurich Master Hedge Fund c/o Forest Investment Mngt, LLC.... 250,000 *
Any other holder of debentures as of the date of this
prospectus................................................ **
------------------------
* Less than 1%
** Information concerning other selling security holders will be listed in
prospectus supplements from time to time, when and if required.
20
DESCRIPTION OF THE DEBENTURES
The debentures were issued under an indenture dated as of July 7, 1999,
between Liberty and The Bank of New York, as trustee, as supplemented by a sixth
supplemental indenture dated as of March 8, 2001, between Liberty and the
trustee. When we refer to the indenture, we mean the indenture as supplemented
by the sixth supplemental indenture. The terms of the debentures include those
stated in the indenture and those terms made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended. The following summary of certain
provisions of the indenture and the debentures does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the provisions
of the indenture. A copy of the indenture has been filed as an exhibit to the
registration statement of which this prospectus is a part. You can read
indenture, and obtain a copy of it, at the locations described under "Where to
Find More Information" on page 52.
GENERAL
The indenture provides that senior debt securities may be issued by Liberty
thereunder from time to time in one or more series. The senior debt securities
that Liberty may issue under the indenture, including the debentures, are
collectively referred to in this section as the "senior debt securities." The
indenture does not limit the aggregate principal amount of senior debt
securities that may be issued under it. Senior debt securities of each series
issued under the indenture, including the debentures, may be reopened at any
time and additional securities of that series may be issued.
The 3 1/4% senior exchangeable debentures due 2031 constitute a separate
series of senior debt securities under the indenture. The debentures are
unsecured senior obligations of Liberty and are initially limited to an
aggregate original principal amount of $817,729,000. They will mature on
March 15, 2031, unless earlier exchanged by the holders or redeemed by Liberty.
When we refer to a "debenture" in this section, we are referring to a debenture
in the original principal amount of $1,000.
The indenture does not contain any provision that restricts the ability of
Liberty to incur additional indebtedness. It also does not afford holders of
debentures any protection in the event of a decline in Liberty's credit quality
as a result of a takeover, recapitalization or similar transaction involving
Liberty. Subject to the limitations set forth under "--Successor Corporation"
below, Liberty may enter into transactions, including a sale of all or
substantially all of its assets, a merger or a consolidation, that could
substantially increase the amount of Liberty's indebtedness or substantially
reduce or eliminate its assets, and which may have an adverse effect on
Liberty's ability to service its indebtedness, including the debentures.
Liberty will make payments of principal, premium, if any, interest and
distributions on the debentures through the trustee to DTC, as the registered
holder of the debentures. See "--Form, Denomination and Registration" below.
Liberty will not have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global debentures registered in the name of DTC or its nominee,
or for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests.
If any payment or distribution on the debentures is to be made on a day that
is not a business day, that payment or distribution will be made on the next
business day, without interest or any other payment being made on account of the
delay. A business day means any day that is not a Saturday, Sunday or legal
holiday on which banking institutions or trust companies in The City of New York
are authorized or obligated by law or regulation to close.
If the debentures at some date are reissued in certificated form, Liberty
will make payments of principal, premium, if any, interest and distributions on
the debentures to the registered holders thereof. Liberty will make payments due
on the maturity date in immediately available funds upon presentation and
surrender by the holder of a certificated debenture at the office or agency
maintained
21
by Liberty for this purpose in the Borough of Manhattan, The City of New York,
which is expected to be the office of the trustee at 101 Barclay Street, New
York, N.Y. 10286. Liberty will pay interest and additional distributions
attributable to regular cash dividend amounts on the reference shares, if any,
due on a certificated debenture on any interest payment date other than the
maturity date by check mailed to the address of the holder entitled to the
payment as his address shall appear in the security register of Liberty.
Notwithstanding the foregoing, a holder of $10 million or more in aggregate
original principal amount of certificated debentures will be entitled to receive
such payments, 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 and any additional distribution due and not punctually paid or duly
provided for on a certificated debenture on any interest payment date other than
the maturity date will cease to be payable to the holder of that debenture 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 debenture is registered at the close
of business on a special record date for the payment of the defaulted interest
and any additional distribution that is fixed by Liberty, written notice of
which will be given to the holders of the debentures not less than 30 calendar
days prior to the special record date, or (2) at any time in any other lawful
manner.
Liberty will pay or distribute additional distributions, if any, due on a
certificated debenture to the holder of that debenture as of a special record
date which will be the 10th business day after the date the related distribution
is made on the reference shares, at the address shown for such holder in the
security register of Liberty.
All moneys or in-kind distributions paid or made by Liberty to the trustee
or any paying agent for the payment of principal, premium, if any, interest
and/or distributions on any certificated debenture which remain unclaimed for
two years after the payment or making thereof may be repaid or returned to
Liberty and, thereafter, the holder of the debenture may look only to Liberty
for payment.
RANKING AND HOLDING COMPANY STRUCTURE
The debentures, which constitute unsecured senior indebtedness of Liberty,
rank equally with Liberty's existing and future unsubordinated unsecured
indebtedness, and senior in right of payment to all subordinated indebtedness of
Liberty. As of June 30, 2001, we had outstanding $4.3 billion of unsecured and
unsubordinated indebtedness, all of which ranks equally with the debentures. The
debentures are effectively subordinated to all secured indebtedness of Liberty,
to the extent of the value of the assets securing that indebtedness, and to all
liabilities of Liberty's subsidiaries. As of June 30, 2001, we had approximately
$405 million of secured indebtedness and our consolidated subsidiaries had
outstanding $16.0 billion of liabilities (including deferred income tax
liabilities of $11.3 billion), all of which effectively ranks senior to the
debentures. See "Risk Factors--Factors Relating to Liberty--Our holding company
structure could restrict access to funds of our subsidiaries that may be needed
to service the debentures."
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 will be dependent
on those payments to meet its obligations under the debentures. Liberty's
subsidiaries and business affiliates have no obligation, contingent or
otherwise, to pay any amounts due under the debentures or to make any funds
available for any of those payments. See "Risk Factors--Factors Relating to
Liberty--We could be unable in the future to obtain a sufficient amount of cash
with which to service our financial obligations."
22
INTEREST
Liberty will pay interest on the debentures semi-annually on March 15 and
September 15, beginning September 15, 2001, at the per annum rate of 3 1/4% of
the original principal amount of each debenture. The debentures will begin to
accrue interest on the date of original issuance of the debentures. Interest
will be paid to the persons in whose names the debentures are registered at the
close of business on the March 1 and September 1 preceding the interest payment
date. We refer to these dates as the regular payment dates. Changes in the
adjusted principal amount will not affect the amount of the semi-annual interest
payments received by holders of the debentures, which is calculated based solely
on the original principal amount. See "--Adjusted Principal Amount" below.
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 debentures is calculated on the basis of a 360-day year of twelve 30-day
months.
Until a debenture can be transferred in compliance with Rule 144(k) under
the Securities Act, the interest rate on that debenture is subject to increase
in the event this prospectus becomes unusable by the selling security holders
for more than 30 days in any twelve-month period. Beginning on the 31st day, the
interest rate will increase by one quarter of one percent (0.25%) of the
original principal amount of the debenture for the first 90-day period
thereafter, and will increase by an additional one quarter of one percent of the
original principal amount of the debenture at the beginning of each subsequent
90-day period during which the prospectus remains unusable. However, the maximum
interest rate that may be borne by the debentures is 4 1/4%. Upon the prospectus
again becoming useable, the interest rate borne by the debentures will return to
the original interest rate of 3 1/4%.
EXCHANGE OPTION
The holder of a debenture may at any time, except during the periods
described below under "--Payment at Stated Maturity" and "--Optional
Redemption," exchange the debenture for the exchange market value of the
reference shares attributable to that debenture. Liberty may pay the exchange
market value of each debenture tendered for exchange as follows:
- in cash;
- by delivering the reference shares attributable to the debenture; or
- in a combination of cash and reference shares.
We will pay the exchange market value of the reference shares attributable
to the debentures only in cash, however, until January 23, 2003, or until such
earlier date when we may deliver, upon exchange of debentures, reference shares
that can be transferred by the recipients (who are not affiliates of the issuer
of such reference shares) without registration under the Securities Act.
For so long as the debentures are represented by global debentures
registered in the name of DTC or its nominee, exchanges may be effected only
through DTC's Automated Tender Offer Program, or ATOP. If the debentures at some
date are reissued in certificated form, the exchange right at that time will be
exercisable as follows:
- by completing and manually signing an exchange notice in the form
available from the exchange agent, which is initially the trustee, and
delivering the exchange notice to the exchange agent at the office it
maintains for this purpose;
- by surrendering the debentures to be exchanged to the exchange agent;
- if required, by furnishing appropriate endorsement and transfer documents;
and
- if required, by paying all transfer or similar taxes.
23
If an exchange is made during the period between a regular record date and
the next succeeding interest payment date, the exchanging holder will be
required to tender funds equal to the interest and any additional distribution
that is payable to the holders of debentures on that interest payment date.
We refer to the date on which all of the foregoing requirements for exchange
of a particular debenture are satisfied as the exchange date for that debenture.
The transmission of an agent's message requesting an exchange through ATOP, or
delivery of an exchange notice to the exchange agent, shall be irrevocable.
Liberty will advise a holder that tenders debentures for exchange of the form of
consideration to be paid by Liberty for the exchange market value of the
reference shares attributable to the debentures by 9:30 a.m., New York City
time, on the first trading day after the exchange date. Such advice by Liberty
shall be irrevocable.
At the date of this prospectus, the reference shares attributable to each
debenture consist of 18.5666 shares of Viacom Class B stock. If any other
publicly traded common equity securities, including additional shares of Viacom
Class B stock, are issued as a distribution in respect of the Viacom Class B
stock or any other reference shares, or if any reference shares are exchanged
for publicly traded common equity securities of a different issuer in an
exchange offer, merger or other extraordinary transaction, then the reference
shares will include the shares so issued, or be replaced by the shares issued in
the exchange offer, merger or other transaction. See "--Changes to the Reference
Shares" below.
We will pay the consideration due upon an exchange of debentures as soon as
reasonably practicable after the determination of the exchange market value, but
in no event later than 10 trading days thereafter. The calculation of the
exchange market value of a debenture will depend on when the notice of exchange
for that debenture is delivered to the exchange agent. If the notice is
delivered before March 15, 2002, the exchange market value will be the closing
price of the reference shares attributable to that debenture on the twentieth
trading day following its exchange date, unless the exchange agent receives
notices of exchange for more than $1,000,000 aggregate original principal amount
of debentures on the same day, in which case the exchange market value of those
debentures will be the average of the closing prices of the reference shares on
the five trading days ending on the twentieth trading day following the exchange
date.
If the notice of exchange for a debenture is delivered on or after
March 15, 2002, the exchange market value will be the closing price of the
reference shares attributable to that debenture on the second trading day
following its exchange date, unless the exchange agent receives notices of
exchange for more than $1,000,000 aggregate original principal amount of
debentures on the same day, in which case the exchange market value of those
debentures will be the average of the closing prices of the reference shares on
the five trading days following the date Liberty advises the holder of the form
of consideration to be paid by Liberty for such exchange market value.
If more than $1,000,000 aggregate original principal amount of debentures
are tendered for exchange on any day, notice of that event will be given to DTC
for dissemination through the DTC broadcast facility. Our failure to provide
this notice, however, will not affect the determination of the exchange market
value of the debentures tendered for exchange.
The closing price of a security on any date means:
- the closing sale price or, if no closing sale price is reported, the last
reported sale price, of that security (regular way) on the NYSE; or
- if the security is not listed for trading on the NYSE, as reported in the
composite transactions for the principal United States national or
regional securities exchange on which it is listed; or
- if the security is not listed on a United States national or regional
securities exchange, as reported by the Nasdaq National Market, or if the
security is not so reported, the last quoted
24
bid price for the security in the over-the-counter market as reported by
the National Quotation Bureau or a similar organization.
If the closing price of a security cannot be determined by any of the
foregoing methods on a particular trading day, our board of directors will be
entitled to determine the closing price on the basis of those quotations that
it, in good faith, considers appropriate. However, a nationally recognized
investment banking or appraisal firm retained by us will make that determination
if the securities at issue are to be distributed to holders of the debentures
and the aggregate value of those securities is expected to exceed $100,000,000.
With respect to options, warrants, and other rights to purchase a security, the
closing price of the option, warrant or other right will be deemed to be the
closing price of the underlying security, minus the exercise price. With respect
to securities exchangeable for or convertible into another security, the closing
price of the exchangeable or convertible security will be the closing price of
that security determined as aforesaid or, if its closing price cannot be so
determined, then the closing price will be deemed to be the fully exchanged or
converted value based upon the closing price of the underlying security. If an
"ex-dividend" date for a security occurs during the period used in determining
that security's closing price, the closing price of the security on any day
prior to the "ex-dividend" date used in calculating the closing price shall be
reduced by the amount of the dividend. For this purpose, the amount of a
non-cash dividend will be equal to the value of that dividend as determined by a
nationally recognized investment banking firm that we retain for this purpose.
ADDITIONAL DISTRIBUTIONS
If a reference company pays or makes a dividend or distribution on its
reference shares, we may pay or make an additional distribution to holders of
the debentures based on that dividend or distribution. At the date of this
prospectus, the reference shares attributable to each debenture consist of
18.5666 shares of Viacom Class B stock, and Viacom is the initial reference
company. The reference shares and the reference company are subject to change as
described under "--Changes to the Reference Shares" below.
As of the date of this prospectus, Viacom has never paid a cash dividend on
the Viacom Class B stock. We will pay to the holder of each debenture, as an
additional distribution, the amount of any regular cash dividend paid in respect
of the number of reference shares attributable to each debenture. We will pay
this additional distribution on the next semi-annual interest payment date for
the debentures. The additional distribution will be paid to holders of the
debentures as of 5:00 p.m., New York City time, on the regular record date for
that interest payment date. We will treat as a regular cash dividend any cash
dividend that is paid by a reference company in accordance with its publicly
announced regular common equity dividend policy. We refer to any dividend or
distribution by a reference company on its reference shares that is not a
regular cash dividend as an extraordinary distribution.
Whether and what we pay or make by way of an additional distribution
following an extraordinary distribution by a reference company on its reference
shares will depend on the nature of the extraordinary distribution. If an
extraordinary distribution consists of cash, we will pay to holders of the
debentures, as an additional distribution on each debenture, the amount of the
cash distribution received by a holder of the number of reference shares
attributable to a debenture.
If an extraordinary distribution consists of publicly traded common equity
securities, we will not make an additional distribution to holders of the
debentures. Rather, the number of publicly traded common equity securities
(including fractions thereof) distributed to a holder of the number of reference
shares attributable to a debenture will be treated as reference shares that are
also attributable to that debenture.
25
If an extraordinary distribution consists of publicly traded securities
other than common equity securities, including options, warrants or similar
rights to acquire reference shares, we will cause to be delivered to the holders
of the debentures, as an additional distribution on each debenture, those
securities received by a holder of the number of reference shares attributable
to a debenture. We will not, however, deliver fractional securities. Instead, we
will pay cash in an amount equal to the product of the fractional interest times
the closing price of the security as of the special record date we set for the
additional distribution. If Liberty is unable to distribute any securities as an
additional distribution because necessary qualifications or registrations under
applicable state or federal laws cannot be obtained on a timely basis, then the
additional distribution may instead consist of cash. The cash payment will be
based on the average, over the five trading days ending on the trading day next
preceding the date the additional distribution is paid, of the closing prices of
the security that would have otherwise been delivered.
If an extraordinary distribution consists of assets or property other than
cash or publicly traded securities, we will pay to holders of the debentures, as
an additional distribution on each debenture, an amount of cash equal to the
fair market value of the assets or properties distributed to a holder of the
number of reference shares attributable to a debenture. That fair market value
will be determined, in good faith, by our board of directors. However, a
nationally recognized investment banking or appraisal firm retained by us will
make that determination if we expect the aggregate fair market value of the
assets or properties distributed on the number of reference shares attributable
to all of the outstanding debentures to exceed $100,000,000.
We will treat as an extraordinary distribution any consideration that is
distributed in connection with a merger, consolidation, share exchange,
liquidation or dissolution involving a reference company, except to the extent
it consists of publicly traded common equity securities. Publicly traded common
equity securities that are issued in connection with a merger, consolidation,
share exchange, liquidation or dissolution involving a reference company will
themselves become reference shares. See "--Changes to the Reference Shares"
below.
We will make an additional distribution that is attributable to an
extraordinary distribution on the twentieth business day after such
extraordinary distribution is made by the applicable reference company or
successor reference company. The additional distribution will be paid to holders
of the debentures as of a special record date that will be the tenth business
day prior to the date we pay the additional distribution.
Liberty will issue a press release setting forth the amount and composition,
per debenture, of any additional distribution to be made by it that is
attributable to an extraordinary distribution, and will deliver such release to
DTC for dissemination through the DTC broadcast facility. All additional
distributions that are paid or made in respect of any regular cash dividend
amount or extraordinary distributions will be paid or made without any interest
or other payment in respect of such amounts.
ADJUSTED PRINCIPAL AMOUNT
ORIGINAL PRINCIPAL AMOUNT. The principal amount of the debentures initially
is equal to their original principal amount, which is $1,000 for each debenture.
ADJUSTMENTS TO PRINCIPAL AMOUNT. The principal amount of the debentures
will be adjusted downward to reflect any additional distributions that we make
to holders of the debentures that are attributable to extraordinary
distributions made on the reference shares. No adjustment will be made to the
principal amount, however, for additional distributions that are paid in respect
of any regular cash dividend amount. Because the principal amount of the
debentures is subject to reduction, we refer to the principal amount of a
debenture at any time as its adjusted principal amount. In no event will the
adjusted principal amount of a debenture be less than zero.
26
On any date that we pay or make an additional distribution to the holders of
the debentures that is attributable to an extraordinary distribution on the
reference shares, the original principal amount of each debenture (or, if such
principal amount has previously been reduced, the adjusted principal amount of
the debenture) will be reduced by the amount of the additional distribution that
is paid or made with respect to that debenture. Thereafter, the adjusted
principal amount will be further reduced on each successive semi-annual interest
payment date to the extent necessary to cause the semi-annual interest payment
on that date to represent the payment by Liberty, in arrears, of an annualized
yield of 3 1/4% of the adjusted principal amount of the debentures. An
adjustment for purposes of ensuring that Liberty does not pay an annualized
yield of more than 3 1/4% of the adjusted principal amount of the debentures
that is necessitated by the payment of an additional distribution to holders of
the debentures will take effect on the second succeeding interest payment date
after the payment of that distribution. We will issue a press release, and
provide the release to DTC for dissemination through the DTC broadcast facility,
each time an adjustment is made to the adjusted principal amount of the
debentures.
The adjustments described above will not affect the amount of the
semi-annual interest payments received by holders of debentures, which will
continue to be a rate of interest equal to 3 1/4% per annum of the original
principal amount of the debentures.
PAYMENT AT STATED MATURITY
The stated maturity of the debentures is March 15, 2031. The amount that we
will pay a holder of debentures at stated maturity will depend on whether we
notify holders, no fewer than 30 business days prior to the stated maturity
date:
- that we will cause reference shares to be delivered in payment of the
exchange market value of all debentures tendered for exchange up until the
close of business on the trading day preceding the stated maturity date;
or
- that we are terminating, as of the 30th business day prior to the stated
maturity date, the right of all holders to exchange their debentures for
the exchange market value thereof.
CONTINUATION OF EXCHANGE RIGHT. If we notify debenture holders that we will
cause reference shares to be delivered in payment of the exchange market value
of all debentures tendered for exchange up until the close of business on the
trading day preceding the stated maturity date, then we will pay, for each
debenture outstanding on the stated maturity date, an amount equal to the sum
of:
- the adjusted principal amount of the debenture; plus
- any accrued but unpaid interest on the debenture up to the stated maturity
date; plus
- any final period distribution on the debenture.
TERMINATION OF EXCHANGE RIGHT. If we notify debenture holders that we are
terminating, as of the 30th business day prior to the stated maturity date,
their right to exchange their debentures for the exchange market value thereof,
then we will pay, for each debenture outstanding on the stated maturity date, an
amount equal to the sum of:
- the greater of:
- the adjusted principal amount of the debenture; and
- the current market value of the reference shares attributable to the
debenture; plus
- any accrued but unpaid interest on the debenture up to the stated maturity
date; plus
- any final period distribution on the debenture.
27
The current market value of the reference shares attributable to the
debentures for this purpose will be calculated based on the average closing
price for each reference share over the 20 trading day period immediately prior
to, but not including, the fifth business day preceding the stated maturity
date.
A final period distribution will be made if, as of the stated maturity date:
- a regular cash dividend has been declared on any of the reference shares
attributable to a debenture or an extraordinary dividend has been declared
on any of the reference shares attributable to a debenture; and
- the ex-dividend date for that dividend or distribution has occurred; and
- the holders of such reference shares have not yet received the dividend or
distribution.
In the case of a regular cash dividend that has been declared on reference
shares attributable to a debenture as of the stated maturity date but not yet
paid, the final period distribution for each debenture will be equal to the
amount of the regular cash dividend that is payable to a holder of the number of
reference shares attributable to a debenture. This amount will be paid on the
stated maturity date with all other amounts then due. In the case of an
extraordinary distribution that has been declared on reference shares as of the
stated maturity date but not yet paid or made, the form and amount of the final
period distribution will be determined in the same manner as that for an
additional distribution that would have been attributable to that extraordinary
distribution, except that any publicly traded common equity securities to be
distributed on the reference shares will be part of any final period
distribution rather than treated as additional reference shares. Because any
additional distribution we make on a debenture that is attributable to an
extraordinary distribution on the reference shares is deducted from the adjusted
principal amount of that debenture, we will deduct from any final period
distribution that is attributable to an extraordinary distribution the adjusted
principal amount of the debenture, as of the stated maturity date, as to which
such final period distribution is paid. We will pay or make any final period
distribution that is attributable to an extraordinary distribution on the 20th
business day after the payment of that extraordinary dividend by the applicable
reference company.
The amount we pay for any debentures outstanding on the stated maturity date
will be payable in cash, except that any final period distribution included in
that amount which consists of publicly traded securities will be payable by
delivery of those securities.
AMOUNT PAYABLE UPON ACCELERATION OF THE DEBENTURES
If the maturity of the debentures is accelerated following an event of
default, the amount payable for each debenture will be determined in the same
manner as the amount payable at stated maturity under the circumstances in which
Liberty notifies debenture holders that it is terminating, as of the 30th
business day prior to the stated maturity date, their right to exchange their
debentures for the exchange market value thereof. See "--Payment at Stated
Maturity" above.
REDEMPTION
The debentures are not redeemable before March 15, 2006. At any time or from
time to time on or after March 15, 2006, Liberty may redeem all or some of the
debentures on no fewer than 30 business days prior notice. If Liberty chooses to
redeem only some of the debentures, there must remain outstanding, immediately
following any partial redemption, at least $100 million original principal
amount of debentures.
28
The redemption price we pay for a debenture on any redemption date will
depend on whether we notify holders of debentures called for redemption, no
fewer than 30 business days prior to the redemption date:
- that we will cause reference shares to be delivered in payment of the
exchange market value of all debentures called for redemption that are
tendered for exchange up until the close of business on the trading day
next preceding the redemption date; or
- that we are terminating, as of the 30th business day prior to the
redemption date, the right of all holders of debentures called for
redemption to exchange those debentures for the exchange market value
thereof.
Any termination of the exchange right in the event of a partial redemption
will only apply to the debentures called for redemption.
CONTINUATION OF EXCHANGE RIGHT. If we notify debenture holders that we will
cause reference shares to be delivered in payment of the exchange market value
of all debentures called for redemption that are tendered for exchange up until
the close of business on the trading day next preceding the redemption date,
then we will pay, for each debenture that we redeem on the redemption date, a
redemption price equal to the sum of:
- the adjusted principal amount of the debenture; plus
- any accrued but unpaid interest on the debenture up to the redemption
date; plus
- any final period distribution on the debenture.
TERMINATION OF EXCHANGE RIGHT. If we notify holders of debentures called
for redemption that we are terminating, as of the 30th business day prior to the
redemption date, their right to exchange their debentures for the exchange
market value thereof, then we will pay, for each debenture that we redeem on the
redemption date, an amount equal to the sum of:
- the greater of:
- the adjusted principal amount of the debenture; and
- the current market value of the reference shares attributable to the
debenture; plus
- any accrued but unpaid interest on the debenture up to the redemption
date; plus
- any final period distribution on the debenture.
CALCULATION OF CURRENT MARKET VALUE. If the current market value of the
reference shares attributable to a debenture needs to be calculated to determine
the amount of the redemption price, it will be calculated based on the average
closing price for each reference share over the 20 trading day period
immediately prior to, but not including, the fifth business day preceding the
redemption date.
DEFINITION AND TIMING OF FINAL PERIOD DISTRIBUTION. A final period
distribution will be made with respect to each debenture we redeem if, as of the
redemption date:
- a regular cash dividend has been declared on any of the reference shares
attributable to a debenture or an extraordinary dividend has been declared
on any of the reference shares attributable to a debenture; and
- the ex-dividend date for that dividend or distribution has occurred; and
- the holders of such reference shares have not yet received the dividend or
distribution.
The timing, amount and form of any final period distribution that we make in
connection with a redemption of debentures will be determined in the same manner
as that described under "--Payment
29
at Stated Maturity" above for any final distribution we may make in connection
with the repayment of debentures that are outstanding on the stated maturity
date.
PAYMENT OF REDEMPTION PRICE. The redemption price will be paid in cash,
except that any final period distribution included in the redemption price which
consists of publicly traded common equity securities will be payable by delivery
of those securities. On or prior to the redemption date, we will irrevocably
deposit with the trustee sufficient funds to pay the redemption price for all
debentures being redeemed at that date, other than any final period distribution
that is attributable to an extraordinary distribution on the reference shares. A
final period distribution that is attributable to an extraordinary distribution
will be paid on the 20th business day after the extraordinary distribution is
received by holders of reference shares. If the redemption date is not a
business day, then the redemption price will be payable on the next business
day, without any interest or other payment being made in respect of the delay.
Additional distributions to be made after debentures have been called for
redemption and before the redemption date will be payable to the holders on the
record date for that distribution.
Once a notice of redemption is given and funds are irrevocably deposited,
interest on the debentures will cease to accrue on and after the date of
redemption and all rights of the holders of the debentures will cease, except
for the right of the holders to receive the redemption amount, including, if
applicable, any final period distribution (but without any interest or other
payment on that redemption amount).
If we improperly withhold or refuse to pay the redemption price for the
debentures, interest on the debentures will continue to accrue at an annual rate
of 3 1/4% from the original redemption date to the actual date of payment. In
this case, the actual payment date will be considered the redemption date for
purposes of calculating the redemption price. Any final period distribution will
be payable based on the original redemption date scheduled.
In compliance with applicable law (including the United States federal
securities laws), we and our affiliates may, at any time, purchase outstanding
debentures by tender, in the open market or by private agreement.
CHANGES TO THE REFERENCE SHARES
As of the date of this prospectus, Viacom is the reference company and one
share of Viacom Class B stock represents one reference share. The reference
company may change over the 30-year term of the debentures, or there may be one
or more additional reference companies. A change in, or the addition of, a
reference company will result in a change in, or the addition to, the reference
shares attributable to the debentures. One reference share attributable to each
debenture may, over time, consist of a basket of reference shares.
The initial reference shares attributable to each debenture are 18.5666
shares of Viacom Class B stock.
The reference shares attributable to each debenture will be affected by the
following events, in the manner described below:
DIVIDENDS AND DISTRIBUTIONS. If a reference company makes a dividend or
distribution on its reference shares consisting of additional reference shares
of the same class, then the number of reference shares attributable to each
debenture will equal the sum of:
- the number of reference shares attributable to each debenture immediately
prior to the dividend or distribution; and
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- the number of additional references shares that a holder of the number of
reference shares attributable to each debenture receives as a result of
the dividend or distribution.
If a reference company makes a distribution on its reference shares
consisting of publicly traded common equity securities of another class of that
reference company or of another issuer, then the reference shares attributable
to each debenture will consist of the following:
- the number of reference shares attributable to each debenture immediately
prior to the distribution; and
- the number and type of new common equity securities that a holder of the
number of reference shares attributable to each debenture receives as a
result of the distribution.
Any change in the reference shares attributable to a debenture that results
from a dividend or distribution by a reference company will be deemed to have
occurred on the date the dividend or distribution is made by the reference
company.
COMBINATIONS, SUBDIVISIONS AND RECLASSIFICATIONS. If a reference company
combines or subdivides its reference shares or issues by reclassification of its
reference shares any shares of any other class of its publicly traded common
equity securities (including any reclassification that is effected in connection
with a merger in which the reference company is the continuing corporation), the
reference shares will be adjusted so that the reference shares attributable to
each debenture will become the number and kind of reference shares that a holder
of the reference shares attributable to each debenture immediately prior to the
combination, subdivision or reclassification owns immediately following that
action.
Any change in the reference shares attributable to a debenture that results
from a combination, split or reclassification by a reference company will be
deemed to have occurred immediately after the effective date of the combination,
subdivision or reclassification.
MERGERS AND CONSOLIDATIONS. If a reference company merges or consolidates
with another company where the reference shares are exchanged for other publicly
traded common equity securities, the reference shares will be adjusted so that
the reference shares attributable to each debenture will become the number and
kind of publicly traded common equity securities that a holder of the number of
reference shares attributable to each debenture immediately prior to the merger
or consolidation owns immediately following the merger or consolidation. To the
extent the consideration received by the holders of reference shares in a merger
or consolidation consists of cash or assets other than publicly traded common
equity securities, the cash and assets so received will be treated as though
they were part of an extraordinary distribution by the reference company or the
successor reference company, and shall be the object of an additional
distribution by Liberty. See "--Additional Distributions" above.
If an election is offered to holders of reference shares as to the form of
consideration they may receive in any merger or consolidation, such election
shall be deemed a reference share offer and treated in the manner described
under "--Tender or Exchange Offer; Elections" below.
Any change in the reference shares attributable to a debenture that results
from a merger or consolidation will be deemed to have occurred immediately after
the effective date of the merger or consolidation.
STATUTORY SHARE EXCHANGE. If a reference company participates in a
statutory share exchange with another company where the reference shares are
exchanged for other publicly traded common equity securities, the reference
shares will be adjusted so that the reference shares attributable to each
debenture will become the number and kind of publicly traded common equity
securities that a holder of the number of reference shares attributable to each
debenture immediately prior to the share
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exchange owns immediately following the share exchange. To the extent the
consideration received by the holders of reference shares in a share exchange
consists of cash or assets other than publicly traded common equity securities,
the cash and assets so exchanged will be treated as though they were part of an
extraordinary distribution by the reference company or the successor reference
company, and shall be the object of an additional distribution by Liberty. See
"--Additional Distributions" above.
If an election is offered to holders of reference shares as to the form of
consideration they may receive in any statutory exchange, such election shall be
deemed a reference share offer and treated in the manner described under
"--Tender or Exchange Offer; Elections" below.
Any change in the reference shares attributable to a debenture that results
from a share exchange will be deemed to have occurred immediately after the
effective date of the share exchange.
LIQUIDATION OR DISSOLUTION. If a reference company liquidates or dissolves,
the reference shares will be adjusted so that the reference shares attributable
to each debenture will become the number and kind of publicly traded common
equity securities, if any, that a holder of the number of reference shares
attributable to each debenture immediately prior to the liquidation or
dissolution owns immediately thereafter. To the extent the consideration
received by the holders of reference shares in a liquidation or dissolution
consists of cash or assets other than publicly traded common equity securities,
the cash and assets so exchanged will be treated as though they were part of an
extraordinary distribution by the reference company, and shall be the subject of
an additional distribution by Liberty. See "--Additional Distributions" above.
Any change in the reference shares attributable to a debenture that results
from the liquidation or dissolution of a reference company will be deemed to
have occurred immediately after the effective date of the liquidation or
dissolution.
TENDER OR EXCHANGE OFFER; ELECTIONS. The reference shares will be adjusted
in the event of any tender or exchange offer for 30% or more of the outstanding
reference shares of any reference company. In the event of such a tender offer,
or any consolidation, merger or statutory share exchange involving a reference
company in which an election is given to holders of reference shares as to the
consideration to be received in the transaction, a reference share offer shall
be deemed to have been made.
If a reference share offer is made, we will make a reference share offer
adjustment. This means the reference shares attributable to each debenture will
include, immediately after the closing of the reference share offer, the portion
of the average transaction consideration that consists of publicly traded common
equity securities. In addition, this means reducing the reference shares
attributable to each debenture immediately prior to the closing of such
reference share offer by the reference share proportionate reduction.
The term "average transaction consideration" means, as to each reference
share subject to the reference share offer, the quotient derived by dividing
(1) the aggregate amount of consideration actually distributed or paid to all
holders of reference shares that participated in the reference share offer, by
(2) the total number of reference shares outstanding immediately prior to the
closing of the reference share offer and entitled to participate in that
reference share offer.
The term "reference share proportionate reduction" means a proportionate
reduction in the number of reference shares attributable to each debenture that
are the subject of the reference share offer, calculated in accordance with the
following formula:
R = X/N
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where:
R = the fraction by which the number of reference shares that are the
subject of the reference share offer and attributable to each debenture will be
reduced.
X = the aggregate number of such reference shares that are surrendered and
accepted in the reference share offer.
N = the aggregate number of reference shares, which are the subject of the
reference share offer, outstanding immediately prior to the closing of the
reference share offer.
Any portion of the average transaction consideration that does not consist
of publicly traded common equity securities will be treated as though it were
part of an extraordinary distribution by the reference company, and shall be the
object of an additional distribution by Liberty. See "--Additional
Distributions" above.
Any change in the reference shares attributable to a debenture that results
from a reference share offer will be deemed to have occurred immediately after
the closing of the tender or exchange offer or the effective date of the merger,
consolidation or statutory share exchange involving an election, as the case may
be.
If following any merger, consolidation, liquidation, dissolution, exchange
offer or tender offer no reference shares were to remain outstanding, the
maturity of the debentures would not be accelerated and the debentures would
continue to remain outstanding until the stated maturity date, unless the
debentures were earlier redeemed by us. At the stated maturity or upon
redemption, holders of the debentures would only be entitled to receive the
adjusted principal amount of the debentures, plus any accrued but unpaid
interest and any final period distribution.
CALCULATIONS IN RESPECT OF THE DEBENTURES
We will be responsible for making all calculations called for under the
debentures. These calculations include determination of:
- the adjusted principal amount of the debentures;
- the current market value of the reference shares;
- the exchange market value of the reference shares;
- any final period distribution on the debentures;
- the cash value of any property distributed on the reference shares;
- the average transaction consideration in a reference share offer;
- the reference share proportionate reduction resulting from a reference
share offer;
- the number and composition of the reference shares attributable to a
debenture; and
- the amount of accrued interest payable upon redemption or at maturity of
the debentures.
We will make all these calculations in good faith and, absent manifest
error, our calculations will be final and binding on holders of the debentures.
We will provide a schedule of our calculations to the trustee, and the trustee
is entitled to rely upon the accuracy of our calculations without independent
verification.
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FORM, DENOMINATION AND REGISTRATION
The debentures have been issued in book-entry form only, and are represented
by global debentures registered in the name Cede & Co., as nominee of The
Depository Trust Company. The debentures are transferable on the books of DTC in
minimum denomination of $1,000 original principal amount and integral multiples
thereof.
So long as DTC, or its nominee is the registered owner of a global
debenture, DTC or its nominee, as the case may be, will be the sole holder of
the debentures represented by the global debenture for all purposes under the
indenture. Except as otherwise provided in this section, the beneficial owners
of the global debentures representing the debentures will not be entitled to
receive physical delivery of certificated debentures and will not be considered
the holders of the debentures for any purpose under the indenture, and no global
debenture representing the book-entry debentures will be exchangeable or
transferable. Accordingly, each beneficial owner must rely on the procedures of
DTC and, if the beneficial owner is not a participant of DTC, 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 debentures or the indenture. The laws of some
jurisdictions may require that certain purchasers of debentures take physical
delivery of the debentures in certificated form. Such limits and laws may impair
the ability to transfer beneficial interests in a global debenture representing
the debentures.
The global debentures representing the debentures will be exchangeable for
certificated debentures of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if:
- DTC notifies Liberty that it is unwilling or unable to continue as
depositary for the global debentures;
- DTC ceases to be a clearing agency registered under the Exchange Act;
- Liberty in its sole discretion determines that the global debentures shall
be exchangeable for certificated debentures; or
- there shall have occurred and be continuing an event of default under the
indenture with respect to the debentures; provided that interests in the
temporary Regulation S global debentures will not be exchangeable for
certificated debentures until expiration of the 40-day distribution
compliance period and receipt of certification of non-U.S. beneficial
ownership as described above.
Upon any exchange, the certificated debentures shall be registered in the
names of the beneficial owners of the global debentures representing the
debentures, which names shall be provided by DTC's relevant participants (as
identified by DTC) to the trustee.
INFORMATION RELATING TO DTC. The following is based on information
furnished by DTC, which is the initial depositary:
DTC will act as the depositary for the debentures. The debentures have been
issued as fully registered senior debt securities registered in the name of
Cede & Co., which is DTC's partnership nominee. Fully registered global
debentures have been issued for the debentures, in the aggregate principal
amount of $817,729,000, and have been deposited with DTC, or a custodian for its
benefit.
DTC 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. DTC
holds debentures that its participants deposit with it. DTC also facilitates the
settlement among participants of securities transactions, including transfers
and pledges, in deposited debentures through
34
electronic computerized book-entry changes to participants' accounts, thereby
eliminating the need for physical movement of senior debt securities
certificates. Direct participants of DTC include securities brokers and dealers,
including the initial purchasers of the debentures, banks, trust companies,
clearing corporations and certain other organizations. DTC is owned by a number
of its direct participants, including the initial purchaser of the debentures
and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to DTC'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 DTC and its participants are on file with the SEC.
Purchases of debentures under DTC's system must be made by or through direct
participants, which will receive a credit for the debentures on DTC's record.
The ownership interest of each beneficial owner, which is the actual purchaser
of each debenture, represented by global debentures, is in turn to be recorded
on the direct and indirect participants' records. Beneficial owners will not
receive written confirmation from DTC 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 debentures
representing the debentures are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners of the
global debentures representing the debentures will not receive certificated
debentures representing their ownership interests therein, except in the event
that use of the book-entry system for the debentures is discontinued.
To facilitate subsequent transfers, all global debentures representing the
debentures which are deposited with, or on behalf of, DTC are registered in the
name of DTC's nominee, Cede & Co. The deposit of global debentures with, or on
behalf of, DTC and their registration in the name of Cede & Co. effect no change
in beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the global debentures representing the debentures; DTC's records reflect only
the identity of the direct participants to whose accounts the debentures 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 DTC 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 DTC nor Cede & Co. will consent or vote with respect to the global
debentures representing the debentures. Under its usual procedure, DTC 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 debentures are credited on the
applicable record date (identified in a listing attached to the omnibus proxy).
Principal and/or interest payments and additional distributions on the
global debentures representing the debentures will be made to DTC. DTC's
practice is to credit direct participants' accounts on the applicable payment
date in accordance with their respective holdings shown on DTC's records unless
DTC 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 debentures 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 DTC, the trustee or Liberty,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and/or interest and additional distributions
to DTC is the responsibility of Liberty or the trustee,
35
disbursement of the payments to direct participants will be the responsibility
of DTC, and disbursement of the payments to the beneficial owners will be the
responsibility of direct and indirect participants.
DTC may discontinue providing its services as securities depositary with
respect to the debentures 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 debentures are required to be printed
and delivered.
Liberty may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depositary. In that event, certificated
debentures will be printed and delivered.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in the global debentures among participants of
DTC, it is 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 DTC or
its respective participants or indirect participants of its obligations under
the rules and procedures governing its operations.
The information in this subsection concerning DTC and its respective
book-entry system has been obtained from sources that Liberty believes to be
reliable, but Liberty takes no responsibility for its accuracy.
CERTAIN COVENANTS
The covenants set forth below are contained in the indenture and are
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 debentures (together
with, if Liberty shall so determine, any other Funded Indebtedness ranking
equally with the debentures, 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
36
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 debentures;
(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;
(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 debentures;
(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 debentures (together with, if
Liberty shall so determine, any other Funded Indebtedness ranking equally
with the debentures, 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 debentures or to retire other Funded Indebtedness, or
37
(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 debentures.
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 debentures 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 debentures:
(1) default in the payment of any interest or distributions on any
senior debt security of the series, or any additional amounts payable with
respect thereto, when the interest or distributions 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 its obligations to deliver cash or
reference shares in exchange for debentures as described above under
"--Exchange Option";
(4) failure of Liberty to comply with any of its obligations described
above under "--Successor Corporation";
(5) default in the deposit of any sinking fund payment when and as due
by the terms of a senior debt security of the series;
(6) 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
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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;
(7) 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;
(8) 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;
(9) 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
39
benefit of creditors, or the taking of corporate action by Liberty or any
Material Subsidiary in furtherance of any such action; or
(10) 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 (8)
or (9) 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 (8) or (9) 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 and distributions
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
(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,
interest and distributions 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 and used
under "--Certain Covenants" above:
"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.
40
"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 Baa1 or BBB+ or higher by the Rating Agencies;
- 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 Baa1 or BBB+ or higher by the Rating Agencies;
and
- 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
41
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, that "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
(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;
42
(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;
(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 2000 fiscal year-end accounts, as of the date of
this prospectus, the only Material Subsidiaries of Liberty are Starz Encore
Group LLC, Liberty Livewire Corporation and On Command Corporation.
"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.
"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.
43
"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 or distributions 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 or distributions 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 installment of interest or distributions 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;
(9) reduce the amount of cash or reference shares deliverable upon exchange
of the debentures; or
(10) modify any of the above provisions.
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
44
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 or
distributions 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 calendar 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.
GOVERNING LAW
The indenture and the debentures 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.
SUMMARY OF REGISTRATION RIGHTS OF SELLING SECURITY HOLDERS
We entered into a registration rights agreement with the initial purchaser
of the debentures, pursuant to which we filed with the SEC and caused to become
effective a shelf registration statement of which this prospectus is a part.
Pursuant to the registration rights agreement, we are required to:
- use our reasonable best efforts to keep effective the shelf registration
statement until two years after the issue date or until all of the
debentures covered by the shelf registration statement have been sold,
exchanged or redeemed or otherwise cease to be outstanding; and
- use our reasonable best efforts to ensure that:
- the shelf registration statement and any amendment thereto and any
prospectus included therein comply in all material respects with the
Securities Act; and
- the shelf registration statement and any amendment thereto and any
prospectus included therein do not, when the shelf registration
statement or any amendment becomes effective, contain an untrue
statement of a material fact.
If the shelf registration statement is unusable by the holders for any
reason for more than 30 days in the aggregate in any consecutive 12-month
period, then the interest rate borne by the debentures will be increased by
0.25% per annum of the principal amount of the debentures for the first 90-day
period (or portion thereof) beginning on the 31st 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 debentures 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. Upon the shelf registration statement once again becoming usable, the
interest rate borne by the debentures will be reduced to the original interest
rate. Additional interest shall be computed based on the actual number of days
elapsed in each 90-day period in which the shelf registration statement is
unusable.
45
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 the
debentures, 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 debentures entitled to receive the interest payment
to be paid on such date as set forth in the indenture. Each obligation to pay
additional interest shall be deemed to accrue from and including the date
following the applicable event date.
The registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part, and we refer you
to the registration rights agreement for a complete description of its terms.
See "Where to Find More Information." The registration rights agreement requires
us to pay substantially all of the expenses incident to the registration,
offering, and sale of the debentures to the public, other than commissions,
concessions and discounts of underwriters, dealers or agents, but including the
fees and disbursements of one counsel for the selling security holders. We have
agreed to indemnify the selling security holders and any underwriters they may
use against certain civil liabilities, including liabilities under the
Securities Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the debentures and
of the Viacom Class B stock for which the debentures may be exchanged. This
summary is based upon the United States Internal Revenue Code of 1986, as
amended (which we refer to as the "Code"), administrative pronouncements,
judicial decisions, and existing and proposed Treasury Regulations, changes to
any of which subsequent to the date of this prospectus may affect the tax
consequences described in this prospectus, possibly with retroactive effect.
This summary deals only with holders that will hold the debentures and Viacom
Class B stock for which the debentures may be exchanged as "capital assets"
within the meaning of Section 1221 of the Code, and does not address tax
considerations applicable to holders that may be subject to special tax rules,
such as dealers or traders in securities, financial institutions, tax-exempt
entities, holders that hold the debentures as a part of a hedging, straddle,
conversion or other integrated transaction, or U.S. Holders (as defined below)
whose functional currency is not the United States dollar. The following summary
assumes that the reference shares received upon maturity, exchange or redemption
of the debentures will consist of Viacom Class B stock.
THE DISCUSSION SET OUT BELOW IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE DEBENTURES.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE DEBENTURES, INCLUDING THE APPLICATION TO
THEIR PARTICULAR SITUATIONS OF THE TAX CONSIDERATIONS DISCUSSED BELOW, AS WELL
AS THE APPLICATION OF STATE, LOCAL OR FOREIGN TAX LAWS.
"U.S. Holder" means a beneficial owner of the debentures or Viacom Class B
stock, as the case may be, that is, for United States federal income tax
purposes, (i) an individual citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source or (iv) in general, a trust which is subject to the
primary supervision of a United States court and the control of one or more
United States fiduciaries. "Non-U.S. Holder" means any holder of the debentures
or Viacom Class B stock, as the case may be, that is not a U.S. Holder.
46
TAX CONSEQUENCES TO U.S. HOLDERS
INTEREST ACCRUAL ON THE DEBENTURES. For United States federal income tax
purposes, the debentures will be subject to Treasury Regulations relating to
contingent payment debt instruments (which we refer to as the contingent payment
debt regulations). Under the contingent payment debt regulations, a U.S. Holder
will be required to accrue interest income on the debentures (in amounts
described in the next paragraph) regardless of whether such U.S. Holder uses the
cash or accrual method of tax accounting. As a result, a U.S. Holder will be
required to include interest in taxable income each year in excess of the
semi-annual interest payments received in that year.
Under the contingent payment debt regulations, for each accrual period prior
to and including the maturity date of the debentures, the amount of interest
that accrues, as original issue discount, on a debenture equals the product of
(a) the adjusted issue price (as defined below) as of the beginning of the
accrual period and (b) the comparable yield (as defined below) (adjusted for the
length of the accrual period). This amount is ratably allocated to each day in
the accrual period and is includable as ordinary interest income by a U.S.
Holder for each day in the accrual period on which the U.S. Holder holds the
debentures.
The "adjusted issue price" means the issue price of the debenture, which is
$1,000, increased by any interest previously accrued (determined without regard
to any adjustments to interest accruals described below) and decreased by the
amount of any projected payments (as defined below) with respect to the
debenture.
The "comparable yield" means the annual yield we would pay, as of the issue
date, on a fixed-rate debt security with no exchange right or other contingent
payments but with terms and conditions otherwise comparable to those of the
debentures. Amounts treated as interest under the contingent payment debt
regulations are treated as original issue discount for all purposes of the Code.
We have determined that the comparable yield is 10.37%, compounded
semi-annually. Under the contingent payment debt regulations, we are required,
solely for United States federal income tax purposes, to provide a schedule of
the projected amounts of payments (which we refer to as projected payments) on
the debentures. This schedule must produce the comparable yield. Based on our
determination of the comparable yield, the schedule of projected payments
(assuming a principal amount of $1,000 and an issue price of $1,000, and with
respect to each integral multiple thereof) consists of (a) a payment of stated
interest equal to $16.8819 on September 15, 2001, (b) payments of stated
interest equal to $16.25 on all subsequent semi-annual interest payment dates
(including the maturity date) and (c) a payment of a projected amount at the
maturity date of the debentures (excluding the stated semi-annual interest on
the debentures payable on such date) equal to $14,594.50. For United States
federal income tax purposes, a U.S. Holder is required to use the comparable
yield and the schedule of projected payments in determining its interest
accruals and adjustments thereof in respect of the debentures, unless such U.S.
Holder timely discloses and justifies the use of other estimates to the IRS.
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT PROVIDED
FOR ANY PURPOSE OTHER THAN THE DETERMINATION OF HOLDERS' INTEREST ACCRUALS AND
ADJUSTMENTS THEREOF IN RESPECT OF THE DEBENTURES FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION
REGARDING THE ACTUAL AMOUNTS PAYABLE ON THE DEBENTURES.
ADJUSTMENTS TO INTEREST ACCRUALS. If, during any taxable year, the sum of
any actual payments with respect to the debentures for that taxable year
(including regular cash dividend amounts, extraordinary distributions and, in
the case of the taxable year which includes the maturity date of the debentures,
the fair market value of any Viacom Class B stock received by such holder, plus
the fair market value of any other property received, plus the amount of cash
received) exceeds the total amount of projected payments for that taxable year,
the difference will produce a "net positive adjustment" under
47
the contingent payment debt regulations, which will be treated as additional
interest for the taxable year. For this purpose, the payments in a taxable year
include the fair market value of property received in that year. If the actual
amount received in a taxable year is less than the amount of projected payments
for that taxable year, the difference will produce a "net negative adjustment"
under the contingent payment debt regulations, which will (a) reduce the U.S.
Holder's interest income on the debentures for that taxable year and (b) to the
extent of any excess after the application of (a), give rise to an ordinary loss
to the extent of the U.S. Holder's interest income on the debentures during
prior taxable years (reduced to the extent such interest was offset by prior net
negative adjustments).
SALE OR EXCHANGE OF THE DEBENTURES. Upon the sale, exchange or retirement
of the debentures (including, for instance, an exchange at the U.S. Holder's
option for Viacom Class B stock or the redemption of the debentures by us) prior
to the maturity date, the U.S. Holder will recognize gain or loss equal to the
difference between the amount realized and the U.S. Holder's adjusted basis. A
U.S. holder will be treated as receiving an amount equal to the fair market
value of any Viacom Class B stock received, plus the fair market value of any
other property received, plus the amount of any cash received. The adjusted
basis will be the U.S. Holder's original basis in the debentures, increased by
the interest income previously included by the U.S. Holder with respect to the
debentures (determined without regard to any adjustments to interest accruals
described in the preceding paragraph) and decreased by the projected amount of
all prior payments with respect to the debentures. (See below under PURCHASE FOR
PREMIUM OR DISCOUNT for additional adjustments made with respect to U.S. Holders
who did not purchase debentures in the initial offering). Any gain upon sale or
exchange of the debentures will be ordinary interest income; any loss will be
ordinary loss to the extent of the interest previously included in income by the
U.S. Holder with respect to the debentures, and thereafter, capital loss. The
distinction between capital loss and ordinary loss is potentially significant in
several respects. For example, limitations apply to a U.S. Holder's ability to
offset capital losses against ordinary income.
PURCHASE FOR PREMIUM OR DISCOUNT. A purchase of a debenture by a U.S.
Holder will cause the new U.S. Holder to have a basis in the debenture equal to
the amount paid for the debenture. A U.S. Holder is required to reasonably
allocate any difference between the adjusted issue price of the debenture and
such U.S. Holder's basis in the debenture to daily portions of interest or
projected payments over the remaining term of debenture. If such basis in the
debenture exceeds the debenture's adjusted issue price, the amount of the
difference allocated to a daily portion of interest or to a projected payment is
treated as a negative adjustment on the date the daily portion accrues or the
payment is made. On the date of the adjustment, the U.S. Holder's adjusted basis
in the debenture is reduced by the amount the U.S. Holder so treats as a
negative adjustment. If the new U.S. Holder's basis in the debenture is less
than the debenture's adjusted issue price, the amount of the difference
allocated to a daily portion of interest or to a projected payment is treated as
a positive adjustment on the date the daily portion accrues or the payment is
made. On the date of the adjustment, the U.S. Holder's adjusted basis in the
debenture is increased by the amount the U.S. Holder so treats as a positive
adjustment
DISTRIBUTIONS ON VIACOM CLASS B STOCK. The gross amount of any distribution
made by Viacom to a U.S. Holder with respect to the Viacom Class B stock
generally will be includable in the income of a U.S. Holder as dividend income
to the extent that such distribution is paid out of Viacom's current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. Subject to certain limitations, United States corporations holding
Viacom Class B stock that receive dividends thereon generally will be eligible
for a dividends-received deduction equal to 70% of the dividends received. If
the amount of any distribution exceeds Viacom's current and accumulated earnings
and profits as so computed, such excess first will be treated as a tax-free
return of capital to the extent of the U.S. Holder's tax basis in its Viacom
Class B stock, and thereafter as gain from the sale or exchange of property.
48
DISPOSITIONS OF VIACOM CLASS B STOCK. A U.S. Holder generally will
recognize capital gain or loss for U.S. federal income tax purposes on the sale
or disposition of Viacom Class B stock in an amount equal to the difference
between the amount realized on the sale or other disposition and the U.S.
Holder's tax basis in the Viacom Class B stock. Any such gain or loss will be
long-term gain or loss if the U.S. Holder held the Viacom Class B stock for more
than one year. A U.S. Holder that received Viacom Class B stock from Liberty in
a disposition of a debenture either on or before the maturity date will have a
basis in that Viacom Class B stock equal to that stock's fair market value on
the date of such disposition of the debenture. Additionally, the U.S. Holder's
holding period in the Viacom Class B stock will begin the day after such
disposition of the debenture.
BACKUP WITHHOLDING. Certain noncorporate U.S. Holders may be subject to
backup withholding at a rate of 31% on payments of principal and interest
(including original issue discount) on, or the proceeds of disposition of, the
debentures and dividends on the Viacom Class B stock. Backup withholding will
apply only if the U.S. Holder (a) fails to furnish its Taxpayer Identification
Number (which we refer to as TIN) which, for an individual, is his or her Social
Security number, (b) furnishes an incorrect TIN, (c) is notified by the IRS that
it has failed to properly report payments of interest and dividends or
(d) under certain circumstances, fails to certify, under penalties of perjury,
that it has furnished a correct TIN and has not been notified by the IRS that it
is subject to backup withholding for failure to report interest and dividend
payments. U.S. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
WITHHOLDING. Under present United States federal income tax law, and
subject to the discussion below concerning backup withholding, payments of
principal and interest (including original issue discount) on the debentures by
us or any paying agent to any Non-U.S. Holder, and gain realized on the sale or
exchange of the debentures or Viacom Class B stock by a Non-U.S. Holder, will be
exempt from United States federal income or withholding tax, provided that:
- such Non-U.S. Holder does not own, actually or constructively, 10 percent
or more of the total combined voting power of all classes of our stock
entitled to vote, is not a controlled foreign corporation related,
directly or indirectly, to us through stock ownership, and is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code;
- the statement requirement set forth in Section 871(h) or Section 881(c) of
the Code has been fulfilled with respect to the beneficial owner, as
discussed below;
- such Non-U.S. Holder is not an individual who is present in the United
States for 183 days or more in the taxable year of disposition or who is
subject to special rules applicable to former citizens and residents of
the United States;
- such payments and gain are not effectively connected with the conduct by
such Non-U.S. Holder of a trade or business in the United States; and
- the Viacom Class B stock continues to be actively traded within the
meaning of Section 871(h)(4)(C)(v)(I) of the Code (which, for these
purposes and subject to certain exceptions, includes trading on the NYSE).
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a debenture certifies on an appropriate
form (generally IRS Form W-8BEN), under penalties
49
of perjury, that it is not a United States person and provides its name and
address, and (a) the beneficial owner files that form with the withholding agent
or (b) a securities clearing organization, bank or other financial institution
holding customers' securities in the ordinary course of its trade or business
that holds the debentures on behalf of the beneficial owner, files with the
withholding agent a statement that it has received the Form W-8BEN from the
beneficial owner and furnishes the withholding agent with a copy thereof. With
respect to any debentures held by a foreign partnership, unless the foreign
partnership has entered into a withholding agreement with the IRS, each partner
that is a Non-U.S. Holder will be required to supply this certification in order
to avoid withholding with respect to such partner's share of interest (including
original issue discount) and disposition proceeds paid with respect to the
debentures to the foreign partnership.
Distributions by Viacom with respect to Viacom Class B stock that are
treated as dividends paid, as described above under "--Tax Consequences to U.S.
Holders--Distributions on Viacom Class B Stock," to a Non-U.S. Holder (excluding
dividends that are effectively connected with the conduct of a trade or business
in the United States by such Holder and are taxable as described below) will be
subject to United States federal withholding tax at a 30% rate (or lower rate
provided under any applicable income tax treaty).
If a Non-U.S. Holder of the debentures or Viacom Class B stock is engaged in
a trade or business in the United States, and if interest on the debentures,
dividends on the Viacom Class B stock, or gain from the sale or exchange of the
debentures or Viacom Class B stock are effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed in the preceding paragraphs, will generally be subject
to regular United States federal income tax on such interest, dividends, or gain
realized on the sale or exchange of the debentures or Viacom Class B stock in
the same manner as if it were a U.S. Holder. In lieu of the certificate
described in the preceding paragraph, such a Non-U.S. Holder will be required to
provide to the withholding agent a properly executed IRS Form W-8ECI (or
successor form) in order to claim an exemption from withholding tax. In
addition, if such a Non-U.S. Holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% (or such lower rate provided by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Backup withholding (at the
rate of 31%) will not apply to payments made by us or a paying agent on the
debentures or Viacom Class B stock if the certifications required by Sections
871(h) or 881(c) are received, provided in each case that we or such paying
agent, as the case may be, do not have actual knowledge and do not have reason
to know that the payee is a United States person.
Non-U.S. Holders of the debentures and Viacom Class B stock should consult
their tax advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available. Any
amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such Non-U.S. Holder's
United States federal income tax liability and may entitle such Non-U.S. Holder
to a refund, provided that the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds from sales of debentures by selling
security holders. The debentures may be sold from time to time:
- directly by any selling holder to one or more purchasers;
- to or through underwriters, brokers or dealers;
- through agents on a best-efforts basis or otherwise; or
50
- through a combination of such methods of sale.
If debentures are sold through underwriters, brokers and dealers, the
selling security holder will be responsible for underwriting discounts or
agent's commissions.
The debentures may be sold:
- in one or more transactions at a fixed price or prices, which may be
changed;
- at prevailing market prices at the time of sale or at prices related to
such prevailing prices;
- at varying prices determined at the time of sale; or
- at negotiated prices.
Such sales may be effected in transactions (which may involve crosses or
block transactions):
- on any national securities exchange or quotation service on which the
debentures may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
- through the writing of options.
In connection with the sale of the debentures, any selling security holder
may:
- enter into hedging transactions with brokers, dealers or others, which may
in turn engage in short sales of the debentures in the course of hedging
the positions they assume;
- sell short or deliver debentures to close out such short positions; or
- loan or pledge debentures to brokers, dealers or others that may in turn
sell such securities.
Any selling security holder may pledge or grant a security interest in some
or all of the debentures owned by it, and if it defaults in the performance of
its secured obligations, the pledgees or secured party may sell from time to
time the pledged debentures pursuant to the registration statement of which this
prospectus is a part. The selling security holders may also transfer and donate
debentures in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling security holders
for purposes of this prospectus.
Underwriters, brokers, dealers and agents may receive compensation in the
form of underwriting discounts, concessions or commissions from the selling
security holders or the purchaser of debentures for whom they may act as agent.
The selling security holders and any underwriters, dealers or agents that
participate in the distribution of debentures may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of
debentures by them and any discounts, commissions or concessions received by
them might be deemed to be underwriting discounts and commissions under the
Securities Act.
There is currently no active trading market for the debentures. We do not
presently intend to list the debentures on any stock exchange. Therefore, any
trading with respect to the debentures is expected to occur in over-the-counter
markets.
At the time a particular offering or sale of debentures is made, a
prospectus supplement, if required, will be distributed which will set forth the
aggregate amount of debentures offered or sold and the terms of the offering or
sale, including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling security holders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers.
51
To comply with the securities laws of certain jurisdictions, if applicable,
the debentures can be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain jurisdictions
the debentures may not be offered or sold unless they have been registered or
qualified for sale in such jurisdictions or an exemption from registration or
qualification is available and is complied with.
There is no assurance that the selling security holders will sell any of the
debentures. In addition, any debentures covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A under the Securities Act may be sold
pursuant to Rule 144 or Rule 144A rather than pursuant to this prospectus.
LEGAL MATTERS
The validity of the debentures will be passed upon for us by Baker Botts
L.L.P., New York, New York.
EXPERTS
The consolidated balance sheets of Liberty Media Corporation and
subsidiaries ("New Liberty or Successor") as of December 31, 2000 and 1999, and
the related consolidated statements of operations and comprehensive earnings,
stockholder's equity, and cash flows for the year ended December 31, 2000 and
for the period from March 1, 1999 to December 31, 1999 (Successor periods) and
from January 1, 1999 to February 28, 1999 and for the year ended December 31,
1998 (Predecessor periods) have been incorporated by reference herein in
reliance upon the report, dated February 26, 2001, except as to notes 1 and 2,
which are as of May 7, 2001, of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
In addition the KPMG LLP report contains an explanatory paragraph and states
that effective March 9, 1999, AT&T Corp., the former parent company of New
Liberty, acquired Tele-Communications, Inc., the former parent company of Old
Liberty, in a business combination accounted for as a purchase. As a result of
the acquisition, the consolidated financial information for the periods after
the acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
The consolidated financial statements of Teligent, Inc. as of December 31,
2000 and 1999 and for each of the three years in the period ended December 31,
2000 and the related financial statement schedule included in Teligent Inc.'s
Annual Report (Form 10-K/A) for the year ended December 31, 2000 and
incorporated by reference in this prospectus and registration statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference (which
report contains explanatory paragraphs describing conditions that raise
substantial doubt about Teligent, Inc.'s ability to continue as a going concern
as more fully described in Note 1 to the consolidated financial statements, and
the restatement of the December 31, 2000 consolidated balance sheet to reflect
the classification of Teligent, Inc.'s outstanding debt from a long-term
liability to a current liability). Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
WHERE TO FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the debentures that may be sold 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
52
information about us or the debentures that may be sold 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, we refer you to that
exhibit for a more complete description of the matter involved.
The SEC allows us to "incorporate by reference" information into this
document, which means that we can disclose important information to you by
referring you to other documents. The information incorporated by reference is
an important part of this prospectus, and is deemed to be part of this document
except for any information superceded by this document or any other document
incorporated by reference in this document. Any statement, including financial
statements, contained in our Annual Report on Form 10-K for the year ended
December 31, 2000 shall be deemed to be modified or superseded to the extent
that a statement, including financial statements, contained in this prospectus
or in any other later incorporated document modifies or supersedes that
statement. We incorporate by reference the documents listed below and any future
filings made by us with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934:
- Annual Report on Form 10-K for the year ended December 31, 2000, filed on
March 28. 2001, as amended by the Annual Report on Form 10-K/A for the
year ended December 31, 2000, filed on June 12, 2001.
- Quarterly Report on Form 10-Q for the three-month period ending March 31,
2001, filed on May 14, 2001, as amended by the Quarterly Report on
Form 10-Q/A for the three month period ending March 31, 2001, filed on
June 20,2001.
- Quarterly Report on Form 10-Q for the six-month period ending June 30,
2001, filed on August 14, 2001.
- Current Report on Form 8-K, filed on March 7, 2001.
- Current Report on Form 8-K, filed on June 26, 2001.
- Current Report on Form 8-K, filed on August 14, 2001.
- The consolidated financial statements and related financial statement
schedule of Teligent, as of December 31, 2000 and 1999 and for each of the
years in the three-year period ended December 31, 2000, which appear in
the Annual Report on Form 10-K/A for the year ended December 31, 2000 of
Teligent, Inc., filed on July 5, 2001. On May 21, 2001, Teligent, Inc. and
all of its direct and indirect domestic subsidiaries filed voluntary
petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York.
On May 7, 2001, certain subsidiaries and assets of AT&T Corp. which had
previously been attributed to AT&T's Liberty Media Group but which had not been
previously held by Liberty Media Corporation were contributed to Liberty Media
Corporation in anticipation of its split off from AT&T. Those subsidiaries and
assets, which constitute only a portion of our overall assets, are being
accounted for in a manner similar to a pooling of interests and, therefore, the
financial statements of Liberty Media Corporation for periods prior to the
contributions have been restated to include the financial position and results
of operations of the contributed assets from the dates of their acquisition by
AT&T. Accordingly, the following information is incorporated by reference from
the Registration Statement on Form S-1 of Liberty Media Corporation,
Registration No. 333-55998, declared effective on June 14, 2001, with respect to
the split off: (1) the information under the captions titled "Capitalization,"
"Selected Financial Information" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and (2) the following financial
statements and notes thereto of Liberty Media Corporation and subsidiaries,
which have been restated to give effect to the aforementioned contribution:
(x) the balance sheets of Liberty Media Corporation as of March 31,
53
2001 and December 31, 2000, and the related consolidated statements of
operations and comprehensive earnings, stockholder's equity, and cash flows for
the three months ended March 31, 2001 and 2000; and (y) the balance sheets of
Liberty Media Corporation as of December 31, 2000 and 1999 and the related
consolidated statements of operations and comprehensive earnings, stockholder's
equity, and cash flows for the year ended December 31, 2000, and the period from
March 1, 1999 to December 31, 1999 (Successor periods) and from January 1, 1999
to February 28, 1999 and for the year ended December 31, 1998 (Predecessor
periods).
You may request a copy of these filings at no cost, by writing or
telephoning the office of
Corporate Secretary
Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: 720-875-5400
Our annual, quarterly and special reports and other information are on file
with the SEC. You may read and copy any document that we file at the Public
Reference Room of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. You may also inspect our filings at the regional
offices of the SEC located at Citicorp, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048 or
over the Internet at the SEC's WEB site at http://www.sec.gov. Information
contained on any website referenced in this prospectus is not incorporated by
reference in this prospectus.
This prospectus includes information concerning The News Corporation
Limited, AOL Time Warner Inc., Gemstar-TV Guide International, Inc., USA
Networks, Inc., Sprint Corporation, Telewest Communications plc, Motorola Inc.,
IDT Corporation and UnitedGlobalCom, Inc., among other public companies. All of
these companies file reports and other information with the SEC in accordance
with the requirements of the Securities Act and the Securities Exchange Act.
Information incorporated by reference in this prospectus concerning those
companies has been derived from the reports and other information filed by them
with the SEC. Liberty had no part in the preparation of those reports and other
information, nor are they incorporated by reference in this prospectus. You may
read and copy any reports and other information filed by those companies with
the SEC as set forth above.
You should rely only on the information contained or incorporated by
reference in this prospectus or to which we have referred you. We have not, and
the selling security holders have not, authorized any person to provide you with
different information or to make any representation not contained in this
prospectus.
54
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$817,729,000
LIBERTY MEDIA CORPORATION
3 1/4% SENIOR EXCHANGEABLE DEBENTURES DUE 2031
(Exchangeable for Viacom Inc. Class B Common Stock or Cash Based on the Value
Thereof)
[LOGO]
------------------------
PROSPECTUS
AUGUST , 2001
------------------------
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND REGISTRATION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
transaction being registered. All amounts are estimates except the SEC
registration fee.
Registration fee............................................ $204,432
Printing and engraving expenses............................. $100,000
Legal fees and expenses..................................... $100,000
Accounting fees and expenses................................ $ 25,000
Miscellaneous............................................... $ 10,000
--------
TOTAL................................................. $439,432
========
ITEM 15. 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 Liberty shall not be
liable to Liberty or any of its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this
II-1
paragraph 1 shall be prospective only and shall not adversely affect any
limitation, right or protection of a director of Liberty existing at the time of
such repeal or modification.
2. INDEMNIFICATION.
(a) RIGHT TO INDEMNIFICATION. Liberty 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 Liberty or is or was serving at the request of Liberty
as a director, officer, employee or agent of another corporation or of a
partnership, 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 upon matters which antedate the adoption of this Section E.
Liberty shall be required to indemnify or make advances to 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
Liberty.
(b) PREPAYMENT OF EXPENSES. Liberty 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 paragraph or otherwise.
(c) CLAIMS. If a claim for indemnification or payment of expenses under
this paragraph is not paid in full within 60 days after a written claim therefor
has been received by Liberty, 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, Liberty
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
paragraph shall not be exclusive of any other rights which such person may have
or hereafter acquire under any statute, provision of the Liberty Charter,
Liberty's Bylaws, agreement, vote of stockholders or resolution of disinterested
directors or otherwise.
(e) OTHER INDEMNIFICATION. Liberty'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, joint venture, trust, enterprise or
nonprofit entity shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture, trust,
enterprise or nonprofit entity.
3. AMENDMENT OR REPEAL. Any amendment, modification or repeal 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 amendment, modification or repeal.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following is a complete list of Exhibits filed as part
of this Registration Statement.
EXHIBIT NO. DOCUMENT
----------- --------
4.1 Indenture dated as of July 7, 1999, between Liberty and The
Bank of New York (incorporated by reference to Exhibit 4.1
to the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999 (the "Liberty S-4 Registration Statement)).
4.2 Sixth Supplemental Indenture dated as of March 8, 2001
between Liberty and The Bank of New York (incorporated by
reference to Exhibit 4.9 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-55998)
as filed on May 24, 2001 (the "Liberty S-1 Registration
Statement")).
4.3 Registration Rights Agreement dated as of March 8, 2001,
between Liberty and Salomon Smith Barney, Inc.
4.4 Form of 3 1/4% Senior Exchangeable Debenture due 2031.
4.5 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.
5 Form of Opinion of Baker Botts L.L.P., with respect to
legality of debentures being registered.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of Baker Botts L.L.P. (included in Exhibit 5).
23.3 Consent of Ernst & Young LLP.
24 Power of Attorney (included on page II-5).
25 Statement of Eligibility of Trustee.
ITEM 17. UNDERTAKINGS.
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-3
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 city of Denver, state of
Colorado, on August 14, 2001.
LIBERTY MEDIA CORPORATION
By: /s/ CHARLES Y. TANABE
-----------------------------------------
Name: Charles Y. Tanabe
Title: SENIOR VICE PRESIDENT, GENERAL
COUNSEL, AND SECRETARY
II-4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles Y. Tanabe and Robert W. Murray Jr., and
each of them his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign and file (1) any or all amendments (including
post-effective amendments) to this Registration Statement, with all exhibits
thereto, and other documents in connection therewith, and (2) 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, as
amended, 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 IN THE
CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE
---- ----- ----
/s/ JOHN C. MALONE
------------------------------------------- Chairman of the Board and August 14, 2001
John C. Malone Director
/s/ ROBERT R. BENNETT President, Chief Executive
------------------------------------------- Officer (Principal Executive August 14, 2001
Robert R. Bennett Officer) and Director
/s/ GARY S. HOWARD Executive Vice President,
------------------------------------------- Chief Operating Officer and August 14, 2001
Gary S. Howard Director
/s/ DAVID J.A. FLOWERS Senior Vice President and
------------------------------------------- Treasurer August (Principal August 14, 2001
David J.A. Flowers Financial Officer)
/s/ CHRISTOPHER W. SHEAN Vice President and Controller
------------------------------------------- (Principal Accounting August 14, 2001
Christopher W. Shean Officer)
/s/ PAUL A. GOULD
------------------------------------------- Director August 14, 2001
Paul A. Gould
/s/ JEROME H. KERN
------------------------------------------- Director August 14, 2001
Jerome H. Kern
/s/ LARRY E. ROMRELL
------------------------------------------- Director August 14, 2001
Larry E. Romrell
II-5
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT
----------- --------
4.1 Indenture dated as of July 7, 1999, between Liberty and The
Bank of New York (incorporated by reference to Exhibit 4.1
to the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999 (the "Liberty S-4 Registration Statement)).
4.2 Sixth Supplemental Indenture dated as of March 8, 2001
between Liberty and The Bank of New York (incorporated by
reference to Exhibit 4.9 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-55998)
as filed on May 24, 2001 (the "Liberty S-1 Registration
Statement")).
4.3 Registration Rights Agreement dated as of January 11, 2001,
between Liberty and Salomon Smith Barney Inc.
4.4 Form of 3 1/4% Senior Exchangeable Debenture due 2031.
4.5 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.
5 Form of Opinion of Baker Botts L.L.P., with respect to
legality of debentures being registered.
12 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of KPMG LLP.
23.2 Consent of Baker Botts L.L.P. (included in Exhibit 5).
23.3 Consent of Ernst & Young LLP.
24 Power of Attorney (included on page II-5).
25 Statement of Eligibility of Trustee.