UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
- -----------------------------------
)
In the Matter of )
)
TIME WARNER INC., )
a corporation; )
)
TURNER BROADCASTING )
SYSTEM, INC., )
a corporation; )
) File No. 961-0004
TELE-COMMUNICATIONS, INC., )
a corporation; and )
)
LIBERTY MEDIA CORPORATION, )
a corporation. )
- ------------------------------------)
AGREEMENT CONTAINING CONSENT ORDER
The Federal Trade Commission ("Commission"), having
initiated an investigation of the proposed acquisition of Turner
Broadcasting System, Inc. ("Turner") by Time Warner Inc. ("Time
Warner"), and Tele-Communications, Inc.'s ("TCI") and Liberty Media
Corporation's ("LMC") proposed acquisitions of interests in Time
Warner, and it now appearing that Time Warner, Turner, TCI, and LMC,
hereinafter sometimes referred to as "proposed respondents," are
willing to enter into an agreement containing an order to divest
certain assets, and providing for other relief:
IT IS HEREBY AGREED by and between proposed respondents,
by their duly authorized officers and attorneys, and counsel for the
Commission that:
1. Proposed respondent Time Warner is a corporation organized,
existing and doing business under and by virtue of the laws of
the State of Delaware with its office and principal place of
business located at 75 Rockefeller Plaza, New York, New York
10019.
2. Proposed respondent Turner is a corporation organized, existing
and doing business under and by virtue of the laws of the State
of Georgia, with its office and principal place of business
located at One CNN Center, Atlanta, Georgia 30303.
3. Proposed respondent TCI is a corporation organized, existing
and doing business under and by virtue of the law of the State
of Delaware, with its office and principal place of business
located at 5619 DTC Parkway, Englewood, Colorado 80111.
4. Proposed respondent LMC is a corporation organized, existing
and doing business under and by virtue of the law of the State
of Delaware, with its office and principal place of business
located at 8101 East Prentice Avenue, Englewood, Colorado
80111.
5. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint here attached for purposes of
this agreement and order only.
6. Proposed respondents waive:
(1) any further procedural steps;
(2) the requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
(3) all rights to seek judicial review or otherwise to
challenge or contest the validity of the order entered pursuant
to this agreement; and
(4) any claim under the Equal Access to Justice Act.
7. Proposed respondents shall submit (either jointly or
individually), within sixty (60) days of the date this
agreement is signed by proposed respondents, an initial report
or reports, pursuant to Section 2.33 of the Commission's Rules,
signed by the proposed respondents and setting forth in detail
the manner in which the proposed respondents will comply with
Paragraphs VI, VII and VIII of the order, when and if entered.
Such report will not become part of the public record unless
and until this agreement and order are accepted by the
Commission for public comment.
8. This agreement shall not become part of the public record of
the proceeding unless and until it is accepted by the
Commission. If this agreement is accepted by the Commission it,
together with a draft of the complaint contemplated hereby,
will be placed on the public record for a period of sixty (60)
days and information in respect thereto publicly released. The
Commission thereafter may either withdraw its acceptance of
this agreement and so notify the proposed respondents, in which
event it will take such action as it may consider appropriate,
or issue and serve its complaint (in such form as the
circumstances may require) and decision, in disposition of the
proceeding.
9. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law
has been violated as alleged in the draft of complaint here
attached, or that the facts as alleged in the draft complaint,
other than jurisdictional facts, are true.
10. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently
withdrawn by the Commission pursuant to the provisions of Section
2.34 of the Commission's Rules, the Commission may, without
further notice to the proposed respondents, (1) issue its
complaint corresponding in form and substance with the draft of
complaint here attached and its decision containing the
following order in disposition of the proceeding, and (2) make
information public with respect thereto. When so entered, the
order shall have the same force and effect and may be altered,
modified or set aside in the same manner and within the same
time provided by statute for other orders. The order shall
become final upon service. Delivery by the U.S. Postal Service
of the complaint and decision containing the agreed-to order to
proposed respondents' addresses as stated in this agreement
shall constitute service. Proposed respondents waive any right
they may have to any other manner of service. The complaint may
be used in construing the terms of the order, and no agreement,
understanding, representation, or interpretation not contained
in the order or the agreement may be used to vary or contradict
the terms of the order.
11. Proposed respondents have read the proposed complaint and order
contemplated hereby. Proposed respondents understand that once
the order has been issued, they will be required to file one or
more compliance reports showing that they have fully complied
with the order. Proposed respondents further understand that
they may be liable for civil penalties in the amount provided
by law for each violation of the order after it becomes final.
12. Proposed respondents agree to be bound by all of the terms of
the Interim Agreement attached to this agreement and made a
part hereof as Appendix I, upon acceptance by the Commission of
this agreement for public comment. Proposed respondents agree
to notify the Commission's Bureau of Competition in writing,
within 30 days of the date the Commission accepts this
agreement for public comment, of any and all actions taken by
the proposed respondents to comply with the Interim Agreement
and of any ruling or decision by the Internal Revenue Service
("IRS") concerning the Distribution of The Separate Company
stock to the holders of the Liberty Tracking Stock within two
(2) business days after service of the IRS Ruling.
13. The order's obligations upon proposed respondents are
contingent upon consummation of the Acquisition.
ORDER
I.
As used in this Order, the following definitions shall apply:
A) "Acquisition" means Time Warner's acquisition of Turner and TCI's
and LMC's acquisition of interest in Time Warner.
B) "Affiliated" means having an Attributable Interest in a Person.
C) "Agent" or "Representative" means a Person that is acting in a
fiduciary capacity on behalf of a principal with respect to the
specific conduct or action under review or consideration.
D) "Attributable Interest" means an interest as defined in 47 C.F.R.
Section 76.501 (and accompanying notes), as that rule read on July 1,
1996.
E) "Basic Service Tier" means the Tier of video programming as
defined in 47 C.F.R. Section 76.901(a), as that rule read on July 1,
1996.
F) "Buying Group" or "Purchasing Agent" means any Person
representing the interests of more than one Person distributing
multichannel video programming that: (1) agrees to be financially
liable for any fees due pursuant to a Programming Service Agreement
which it signs as a contracting party as a representative of its
members, or each of whose members, as contracting parties, agrees to
be liable for its portion of the fees due pursuant to the
programming service agreement; (2) agrees to uniform billing and
standardized contract provisions for individual members; and (3)
agrees either collectively or individually on reasonable technical
quality standards for the individual members of the group.
G) "Carriage Terms" means all terms and conditions for sale,
licensing or delivery to an MVPD for a Video Programming Service and
includes, but is not limited to, all discounts (such as for volume,
channel position and Penetration Rate), local advertising
availabilities, marketing, and promotional support, and other terms
and conditions.
H) "CATV" means a cable system, or multiple cable systems Controlled
by the same Person, located in the United States.
I) "Closing Date" means the date of the closing of the Acquisition.
J) "CNN" means the Video Programming Service Cable News Network.
K) "Commission" means the Federal Trade Commission.
L) "Competing MVPD" means an Unaffiliated MVPD whose proposed or
actual service area overlaps with the actual service area of an Time
Warner CATV.
M) "Control," "Controlled" or "Controlled by" has the meaning set
forth in 16 C.F.R. Section 801.1 as that regulation read on July 1, 1996,
except that Time Warner's 50% interest in Comedy Central (as of the
Closing Date) and TCI's 50% interests in Bresnan Communications,
Intermedia Partnerships and Lenfest Communications (all as of the
Closing Date) shall not be deemed sufficient standing alone to
confer Control over that Person.
N) "Converted WTBS" means WTBS once converted to a Video Programming
Service.
O) "Fully Diluted Equity of Time Warner" means all Time Warner
common stock actually issued and outstanding plus the aggregate
number of shares of Time Warner common stock that would be issued
and outstanding assuming the exercise of all outstanding options,
warrants and rights (excluding shares that would be issued in the
event a poison pill is triggered) and the conversion of all
outstanding securities that are convertible into Time Warner common
stock.
P) "HBO" means the Video Programming Service Home Box Office,
including multiplexed versions.
Q) "Independent Advertising-Supported News and Information Video
Programming Service" means a National Video Programming Service (1)
that is not owned, Controlled by, or Affiliated with Time Warner;
(2) that is a 24-hour per day service consisting of current
national, international, sports, financial and weather news and/or
information, and other similar programming; and (3) that has
national significance so that, as of February 1, 1997, it has
contractual commitments to supply its service to 10 million
subscribers on Unaffiliated MVPDs, or, together with the contractual
commitments it will obtain from Time Warner, it has total
contractual commitments to supply its service to 15 million
subscribers. If no such Service has such contractual commitments,
then Time Warner may choose from among the two Services with
contractual commitments with Unaffiliated MVPDs for the largest
number of subscribers.
R) "Independent Third Party" means (1) a Person that does not own,
Control, and is not Affiliated with or has a share of voting power,
or an Ownership Interest in, greater than 1% of any of the
following: TCI, LMC, or the Kearns-Tribune Corporation; or (2) a
Person which none of TCI, LMC, or the TCI Control Shareholders owns,
Controls, is Affiliated with, or in which any of them has a share of
voting power, or an Ownership Interest in, greater than 1%.
Provided, however, that an Independent Third Party shall not lose
such status if, as a result of a transaction between an Independent
Third Party and The Separate Company, such Independent Third Party
becomes a successor to The Separate Company and the TCI Control
Shareholders collectively hold an Ownership Interest of 5% or less
and collectively hold a share of voting power of 1% or less in that
successor company.
S) "LMC" means Liberty Media Corporation, all of its directors,
officers, employees, Agents, and Representatives, and also includes
(1) all of its predecessors, successors, assigns, subsidiaries, and
divisions, all of their respective directors, officers, employees,
Agents, and Representatives, and the respective successors and
assigns of any of the foregoing; and (2) partnerships, joint
ventures, and affiliates that Liberty Media Corporation Controls,
directly or indirectly.
T) "The Liberty Tracking Stock" means Tele-Communications, Inc.
Series A Liberty Media Group Common Stock and Tele-Communications,
Inc. Series B Liberty Media Group Common Stock.
U) "Multichannel Video Programming Distributor" or "MVPD" means a
Person providing multiple channels of video programming to
subscribers in the United States for which a fee is charged, by any
of various methods including, but not limited to, cable, satellite
master antenna television, multichannel multipoint distribution,
direct-to-home satellite (C-band, Ku- band, direct broadcast
satellite), ultra high-frequency microwave systems (sometimes called
LMDS), open video systems, or the facilities of common carrier
telephone companies or their affiliates, as well as Buying Groups or
Purchasing Agents of all such Persons.
V) "National Video Programming Service" means a Video Programming
Service that is intended for distribution in all or substantially
all of the United States.
W) "Ownership Interest" means any right(s), present or contingent,
to hold voting or nonvoting interest(s), equity interest(s), and/or
beneficial ownership(s) in the capital stock of a Person.
X) "Penetration Rate" means the percentage of Total Subscribers on
an MVPD who receives a particular Video Programming Service.
Y) "Person" includes any natural person, corporate entity,
partnership, association, joint venture, government entity or trust.
Z) "Programming Service Agreement" means any agreement between a
Video Programming Vendor and an MVPD by which a Video Programming
Vendor agrees to permit carriage of a Video Programming Service on
that MVPD.
AA) "The Separate Company" means a separately incorporated Person,
either existing or to be created, to take the actions provided by
Paragraph II and includes without limitation all of The Separate
Company's subsidiaries, divisions, and affiliates Controlled,
directly or indirectly, all of their respective directors, officers,
employees, Agents, and Representatives, and the respective
successors and assigns of any of the foregoing, other than any
Independent Third Party.
BB) "Service Area Overlap" means the geographic area in which a
Competing MVPD's proposed or actual service area overlaps with the
actual service area of a Time Warner CATV.
CC) "Similarly Situated MVPDs" means MVPDs with the same or similar
number of Total Subscribers as the Competing MVPD has nationally and
the same or similar Penetration Rate(s) as the Competing MVPD makes
available nationally.
DD) "TCI" means Tele-Communications, Inc., all of its directors,
officers, employees, Agents, and Representatives, and also includes
(1) all of its predecessors, successors, assigns, subsidiaries, and
divisions, all of their respective directors, officers, employees,
Agents, and Representatives, and the respective successors and
assigns of any of the foregoing; and (2) partnerships, joint
ventures, and affiliates that Tele-Communications, Inc. Controls,
directly or indirectly. TCI acknowledges that the obligations of
subparagraphs (C)(6), (8)-(9), (D)(1)-(2) of Paragraph II and of
Paragraph III of this order extend to actions by Bob Magness and
John C. Malone, taken in an individual capacity as well as in a
capacity as an officer or director, and agrees to be liable for such
actions.
EE) "TCI Control Shareholders" means the following Persons,
individually as well as collectively: Bob Magness, John C. Malone,
and the Kearns-Tribune Corporation, its Agents and Representatives,
and the respective successors and assigns of any of the foregoing.
FF) "TCI's and LMC's Interest in Time Warner" means all the
Ownership Interest in Time Warner to be acquired by TCI and LMC,
including the right of first refusal with respect to Time Warner
stock to be held by R. E. Turner, III, pursuant to the Shareholders
Agreement dated September 22, 1995 with LMC or any successor
agreement.
GG) "TCI's and LMC's Turner-Related Businesses" means the businesses
conducted by Southern Satellite Systems, Inc., a subsidiary of TCI
which is principally in the business of distributing WTBS to MVPDs.
HH) "Tier" means a grouping of Video Programming Services offered by
an MVPD to subscribers for one package price.
II) "Time Warner" means Time Warner Inc., all of its directors,
officers, employees, Agents, and Representatives, and also includes
(1) all of its predecessors, successors, assigns, subsidiaries, and
divisions, including, but not limited to, Turner after the Closing
Date, all of their respective directors, officers, employees,
Agents, and Representatives, and the respective successors and
assigns of any of the foregoing; and (2) partnerships, joint
ventures, and affiliates that Time Warner Inc. Controls, directly or
indirectly. Time Warner shall, except for the purposes of
definitions OO and PP, include Time Warner Entertainment Company,
L.P., so long as it falls within this definition.
JJ) "Time Warner CATV" means a CATV which is owned or Controlled by
Time Warner.
"Non-Time Warner CATV" means a CATV which is not owned
or Controlled by Time Warner. Obligations in this order applicable
to Time Warner CATVs shall not survive the disposition of Time
Warner's Control over them.
KK) "Time Warner National Video Programming Vendor" means a Video
Programming Vendor providing a National Video Programming Service
which is owned or Controlled by Time Warner. Likewise, "Non-Time
Warner National Video Programming Vendor" means a Video Programming
Vendor providing a National Video Programming Service which is not
owned or Controlled by Time Warner.
LL) "TNT" means the Video Programming Service Turner Network
Television.
MM) "Total Subscribers" means the total number of subscribers to an
MVPD other than subscribers only to the Basic Service Tier.
NN) "Turner" means Turner Broadcasting System, Inc., all of its
directors, officers, employees, Agents, and Representatives, and
also includes (1) all of its predecessors, successors (except Time
Warner), assigns (except Time Warner), subsidiaries, and divisions;
and (2) partnerships, joint ventures, and affiliates that Turner
Broadcasting System, Inc., Controls, directly or indirectly.
OO) "Turner Video Programming Services" means each Video Programming
Service owned or Controlled by Turner on the Closing Date, and
includes (1) WTBS, (2) any such Video Programming Service and WTBS
that is transferred after the Closing Date to another part of Time
Warner (including TWE), and (3) any Video Programming Service
created after the Closing Date that Time Warner owns or Controls
that is not owned or Controlled by TWE, for so long as the Video
Programming Service remains owned or Controlled by Time Warner.
PP) "Turner-Affiliated Video Programming Services" means each Video
Programming Service, whether or not satellite-delivered, that is
owned, Controlled by, or Affiliated with Turner on the Closing Date,
and includes (1) WTBS, (2) any such Video Programming Service and
WTBS that is transferred after the Closing Date to another part of
Time Warner (including TWE), and (3) any Video Programming Service
created after the Closing Date that Time Warner owns, Controls or is
Affiliated with that is not owned, Controlled by, or Affiliated with
TWE, for so long as the Video Programming Service remains owned,
Controlled by, or affiliated with Time Warner.
QQ) "TWE" means Time Warner Entertainment Company, L.P., all of its
officers, employees, Agents, Representatives, and also includes (1)
all of its predecessors, successors, assigns, subsidiaries,
divisions, including, but not limited to, Time Warner Cable, and the
respective successors and assigns of any of the foregoing, but
excluding Turner; and (2) partnerships, joint ventures, and
affiliates that Time Warner Entertainment Company, L.P., Controls,
directly or indirectly.
RR) "TWE's Management Committee" means the Management Committee
established in Section 8 of the Admission Agreement dated May 16,
1993, between TWE and U S West, Inc., and any successor thereof, and
includes any management committee in any successor agreement that
provides for membership on the management committee for non-Time
Warner individuals.
SS) "TWE Video Programming Services" means each Video Programming
Service owned or Controlled by TWE on the Closing Date, and includes
(1) any such Video Programming Service transferred after the Closing
Date to another part of Time Warner and (2) any Video Programming
Service created after the Closing Date that TWE owns or Controls,
for so long as the Video Programming Service remains owned or
Controlled by TWE.
TT) "TWE-Affiliated Video Programming Services" means each Video
Programming Service, whether or not satellite-delivered, that is
owned, Controlled by, or Affiliated with TWE, and includes (1) any
such Video Programming Service transferred after the Closing Date to
another part of Time Warner and (2) any Video Programming Service
created after the Closing Date that TWE owns or Controls, or is
Affiliated with, for so long as the Video Programming Service
remains owned, Controlled by, or Affiliated with TWE.
VV) "Unaffiliated MVPD" means an MVPD which is not owned, Controlled
by, or Affiliated with Time Warner.
WW) "United States" means the fifty states, the District of
Columbia, and all territories, dependencies, or possessions of the
United States of America.
XX) "Video Programming Service" means a satellite-delivered video
programming service that is offered, alone or with other services,
to MVPDs in the United States. It does not include pay-per-view
programming service(s), interactive programming service(s),
over-the-air television broadcasting, or satellite broadcast
programming as defined in 47 C.F.R. Section 76.1000(f) as that rule
read on July 1, 1996.
YY) "Video Programming Vendor" means a Person engaged in the
production, creation, or wholesale distribution to MVPDs of Video
Programming Services for sale in the United States.
ZZ) "WTBS" means the television broadcast station popularly known as
TBS Superstation, and includes any Video Programming Service that
may be a successor to WTBS, including Converted WTBS.
II.
IT IS ORDERED that:
(A) TCI and LMC shall divest TCI's and LMC's Interest in Time Warner and
TCI's and LMC's Turner-Related Businesses to The Separate Company by:
(1) combining TCI's and LMC's Interest in Time Warner Inc. and
TCI's and LMC's Turner-Related Businesses in The Separate
Company;
(2) distributing The Separate Company stock to the holders of
Liberty Tracking Stock ("Distribution"); and
(3) using their best efforts to ensure that The Separate
Company's stock is registered or listed for trading on the
Nasdaq Stock Market or the New York Stock Exchange or the
American Stock Exchange.
(B) TCI and LMC shall make all regulatory filings, including, but
not limited to, filings with the Federal Communications Commission
and the Securities and Exchange Commission that are necessary to
accomplish the requirements of Paragraph II(A).
(C) TCI, LMC, and The Separate Company shall ensure that:
(1) The Separate Company's by-laws obligate The Separate
Company to be bound by this order and contain provisions
ensuring compliance with this order;
(2) The Separate Company's board of directors at the time of
the Distribution are subject to the prior approval of the
Commission;
(3) The Separate Company shall, within six (6) months of the
Distribution, call a shareholder's meeting for the purpose of
electing directors;
(4) No member of the board of directors of The Separate
Company, both at the time of the Distribution and pursuant to
any election now or at any time in the future, shall, at the
time of his or her election or while serving as a director of
The Separate Company, be an officer, director, or employee of
TCI or LMC or shall hold, or have under his or her direction or
Control, greater than one-tenth of one percent (0.1%) of the
voting power of TCI and one-tenth of one percent (0.1%) of the
Ownership Interest in TCI or greater than one-tenth of one
percent (0.1%) of the voting power of LMC and one-tenth of one
percent (0.1%) of the Ownership Interest in LMC;
(5) No officer, director or employee of TCI or LMC shall
concurrently serve as an officer or employee of The Separate
Company. Provided further, that TCI or LMC
employees who are not TCI Control Shareholders or directors or
officers of either Tele-Communications, Inc. or Liberty Media
Corporation may provide to The Separate Company services
contemplated by the attached Transition Services Agreement;
(6) The TCI Control Shareholders shall promptly exchange the
shares of stock received by them in the Distribution for shares
of one or more classes or series of convertible preferred stock
of The Separate Company that shall be entitled to vote only on
the following issues on which a vote of the shareholders of The
Separate Company is required: a proposed merger; consolidation
or stock exchange involving The Separate Company; the sale,
lease, exchange or other disposition of all or substantially
all of The Separate Company's assets; the dissolution or
winding up of The Separate Company; proposed amendments to the
corporate charter or bylaws of The Separate Company; proposed
changes in the terms of such classes or series; or any other
matters on which their vote is required as a matter of law
(except that, for such other matters, The Separate Company and
the TCI Control Shareholders shall ensure that the TCI Control
Shareholders' votes are apportioned in the exact ratio as the
votes of the rest of the shareholders);
(7) No vote on any of the proposals listed in subparagraph (6)
shall be successful unless a majority of shareholders other
than the TCI Control Shareholders vote in favor of such
proposal;
(8) After the Distribution, the TCI Control Shareholders shall
not seek to influence, or attempt to control by proxy or
otherwise, any other Person's vote of The Separate Company
stock;
(9) After the Distribution, no officer, director or employee of
TCI or LMC, or any of the TCI Control Shareholders shall
communicate, directly or indirectly, with any officer,
director, or employee of The Separate Company. Provided,
however, that the TCI Control Shareholders may communicate with
an officer, director or employee of The Separate Company when
the subject is one of the issues listed in subparagraph 6 on
which TCI Control Shareholders are permitted to vote, except
that, when a TCI Control Shareholder seeks to initiate action
on a subject listed in subparagraph 6 on which the TCI Control
Shareholders are permitted to vote, the initial proposal for
such action shall be made in writing. Provided further, that
this provision does not apply to communications by TCI or LMC
employees who are not TCI Control Shareholders or directors or
officers of either Tele-Communications, Inc. or Liberty Media
Corporation in the context of providing to The Separate Company
services contemplated by the attached Transition Services
Agreement or to communications relating to the possible
purchase of services from TCI's and LMC's Turner-Related
Businesses;
(10) The Separate Company shall not acquire or hold greater
than 14.99% of the Fully Diluted Equity of Time Warner.
Provided, however, that, if the TCI Control
Shareholders reduce their collective holdings in The Separate
Company to no more than one-tenth of one percent (0.1%) of the
voting power of The Separate Company and one-tenth of one
percent (0.1%) of the Ownership Interest in The Separate
Company or reduce their collective holdings in TCI and LMC to
no more than one-tenth of one percent (0.1%) of the voting
power of TCI and one-tenth of one percent (0.1%) of the
Ownership Interest in TCI and one-tenth of one percent (0.1%)
of the voting power of LMC and one-tenth of one percent (0.1%)
of the Ownership Interest in LMC, then The Separate Company
shall not be prohibited by this order from increasing its
holding of Time Warner stock beyond that figure; and
(11) The Separate Company shall not acquire or hold, directly
or indirectly, any Ownership Interest in Time Warner that is
entitled to exercise voting power except (a) a vote of one-one
hundredth (1/100) of a vote per share owned, voting with the
outstanding common stock, with respect to the election of
directors and (b) with respect to proposed changes in the
charter of Time Warner Inc. or of the instrument creating such
securities that would (i) adversely change any of the terms of
such securities or (ii) adversely affect the rights, power, or
preferences of such securities. Provided, however, that any
portion of The Separate Company's stock in Time Warner that is
sold to an Independent Third Party may be converted into voting
stock of Time Warner. Provided, further, that, if the TCI
Control Shareholders reduce their collective holdings in The
Separate Company to no more than one-tenth of one percent
(0.1%) of the voting power of The Separate Company and
one-tenth of one percent (0.1%) of the Ownership Interest in
The Separate Company or reduce their collective holdings in
both TCI and LMC to no more than one-tenth of one percent
(0.1%) of the voting power of TCI and one-tenth of one percent
(0.1%) of the Ownership Interest in TCI and one-tenth of one
percent (0.1%) of the voting power of LMC and one-tenth of one
percent (0.1%) of the Ownership Interest in LMC, The Separate
Company's Time Warner stock may be converted into voting stock
of Time Warner.
(D) TCI and LMC shall use their best efforts to obtain a private
letter ruling from the Internal Revenue Service to the effect that
the Distribution will be generally tax-free to both the Liberty
Tracking Stock holders and to TCI under Section 355 of the Internal
Revenue Code of 1986, as amended ("IRS Ruling"). Upon receipt of the
IRS Ruling, TCI and LMC shall have thirty (30) days (excluding time
needed to comply with the requirements of any federal securities and
communications laws and regulations, provided that TCI and LMC shall
use their best efforts to comply with all such laws and regulations)
to carry out the requirements of Paragraph II(A) and (B). Pending
the IRS Ruling, or in the event that TCI and LMC are unable to
obtain the IRS Ruling,
(1) TCI, LMC, Bob Magness and John C. Malone,
collectively or individually, shall not acquire or hold,
directly or indirectly, an Ownership Interest that is
more than the lesser of 9.2% of the Fully Diluted Equity
of Time Warner or 12.4% of the actual issued and
outstanding common stock of Time Warner, as determined by
generally accepted accounting principles. Provided,
however, that day-to-day market price changes that cause
any such holding to exceed the latter threshold shall not
be deemed to cause the parties to be in violation of this
subparagraph; and
(2) TCI, LMC and the TCI Control Shareholders shall not acquire
or hold any Ownership Interest in Time Warner that is entitled
to exercise voting power except (a) a vote of one-one hundredth
(1/100) of a vote per share owned, voting with the outstanding
common stock, with respect to the election of directors and (b)
with respect to proposed changes in the charter of Time Warner
Inc. or of the instrument creating such securities that would
(i) adversely change any of the terms of such securities or
(ii) adversely affect the rights, power, or preferences of such
securities. Provided, however, that any portion of TCI's and
LMC's Interest in Time Warner that is sold to an Independent
Third Party may be converted into voting stock of Time Warner.
In the event that TCI and LMC are unable to obtain the IRS Ruling,
TCI and LMC shall be relieved of the obligations set forth in
subparagraphs (A), (B) and (C).
III.
IT IS FURTHER ORDERED that
After the Distribution, TCI, LMC, Bob Magness and John C.
Malone, collectively or individually, shall not acquire or
hold, directly or indirectly, any voting power of, or other
Ownership Interest in, Time Warner that is more than the less
of 1% of the Fully Diluted Equity of Time Warner or 1.35% of
actual issued and outstanding common stock of Time Warner, as
determined by generally accepted accounting principles
(provided, however, that such interest shall not vote except
as provided in Paragraph II(D)(2)), without the prior approval
of the Commission. Provided, further, that day-to-day market
price changes that cause any such holding to exceed the latter
threshold shall not be deemed to cause the parties to be in
violation of this Paragraph.
IV.
IT IS FURTHER ORDERED that
(A) For six months after the Closing Date, TCI and Time Warner shall
not enter into any new Programming Service Agreement that requires
carriage of any Turner Video Programming Service on any analog Tier
of TCI's CATVs.
(B) Any Programming Service Agreement entered into thereafter that
requires carriage of any Turner Video Programming Service on TCI's
CATVs on an analog Tier shall be limited in effective duration to
five (5) years, except that such agreements may give TCI the
unilateral right(s) to renew such agreements for one or more
five-year periods.
(C) Notwithstanding the foregoing, Time Warner, Turner and TCI may
enter into, prior to the Closing Date, agreements that require
carriage on an analog Tier by TCI for no more than five years for
each of WTBS (with the five year period to commence at the time of
WTBS' conversion to Converted WTBS) and Headline News, and such
agreements may give TCI the unilateral right(s) to renew such
agreements for one or more five-year periods.
V.
IT IS FURTHER ORDERED that
Time Warner shall not, expressly or impliedly:
(A) refuse to make available or condition the availability of HBO to
any MVPD on whether that MVPD or any other MVPD agrees to carry any
Turner-Affiliated Video Programming Service;
(B) condition any Carriage Terms for HBO to any MVPD on whether that
MVPD or any other MVPD agrees to carry any Turner-Affiliated Video
Programming Service;
(C) refuse to make available or condition the availability of each
of CNN, WTBS, or TNT to any MVPD on whether that MVPD or any other
MVPD agrees to carry any TWE-Affiliated Video Programming Service;
or
(D) condition any Carriage Terms for each of CNN, WTBS, or TNT to
any MVPD on whether that MVPD or any other MVPD agrees to carry any
TWE-Affiliated Video Programming Service.
VI.
IT IS FURTHER ORDERED that
(A) For subscribers that a Competing MVPD services in the Service
Area Overlap, Time Warner shall provide, upon request, any Turner
Video Programming Service to that Competing MVPD at Carriage Terms
no less favorable, relative to the Carriage Terms then offered by
Time Warner for that Service to the three MVPDs with the greatest
number of subscribers, than the Carriage Terms offered by Turner to
Similarly Situated MVPDs relative to the Carriage Terms offered by
Turner to the three MVPDs with the greatest number of subscribers
for that Service on July 30, 1996. For Turner Video Programming
Services not in existence on July 30, 1996, the pre-Closing Date
comparison will be to relative Carriage Terms offered with respect
to any Turner Video Programming Service existing as of July 30,
1996.
(B) Time Warner shall be in violation of this Paragraph if the
Carriage Terms it offers to the Competing MVPD for those subscribers
outside the Service Area Overlap are set at a higher level compared
to Similarly Situated MVPDs so as to avoid the restrictions set
forth in subparagraph (A).
VII.
IT IS FURTHER ORDERED that
(A) Time Warner shall not require a financial interest in any
National Video Programming Service as a condition for carriage on
one or more Time Warner CATVs.
(B) Time Warner shall not coerce any National Video Programming
Vendor to provide, or retaliate against such a Vendor for failing to
provide exclusive rights against any other MVPD as a condition for
carriage on one or more Time Warner CATVs.
(C) Time Warner shall not engage in conduct the effect of which is
to unreasonably restrain the ability of a Non-Time Warner National
Video Programming Vendor to compete fairly by discriminating in
video programming distribution on the basis of affiliation or
nonaffiliation of Vendors in the selection, terms, or conditions for
carriage of video programming provided by such Vendors.
VIII.
IT IS FURTHER ORDERED that
(A) Time Warner shall collect the following information, on a
quarterly basis:
(1) for any and all offers made to Time Warner's corporate
office by a Non-Time Warner National Video Programming Vendor
to enter into or to modify any Programming Service Agreement
for carriage on a Time Warner CATV, in that quarter:
a) the identity of the National Video Programming Vendor;
b) a description of the type of programming;
c) any and all Carriage Terms as finally agreed to or,
when there is no final agreement but the Vendor's initial
offer is more than three months old, the last offer of
each side;
d) any and all commitment(s) to a roll-out schedule, if
applicable, as finally agreed to or, when there is no
final agreement but the Vendor's initial offer is more
than three months old, the last offer of each side;
e) a copy of any and all Programming Service Agreement(s)
as finally agreed to or, when there is no final agreement
but the Vendor's initial offer is more than three months
old, the last offer of each side; and
(2) on an annual basis for each National Video Programming
Service on Time Warner CATVs, the actual carriage rates on Time
Warner CATVs and
(a) the average carriage rates on all Non-Time Warner
CATVs for each National Video Programming Service that has
publicly-available information from which Penetration
Rates can be derived; and
(b) the carriage rates on each of the fifty (50) largest
(in total number of subscribers) Non-Time Warner CATVs for
each National Video Programming Service that has
publicly-available information from which Penetration
Rates can be derived.
(B) The information collected pursuant to subparagraph (A) shall be
provided to each member of TWE's Management Committee on the last
day of March, June, September and December of each year. Provided,
however, that, in the event TWE's Management Committee ceases to
exist, the disclosures required in this Paragraph shall be made to
any and all partners in TWE; or, if there are no partners in TWE,
then the disclosures required in this Paragraph shall be made to the
Audit Committee of Time Warner.
(C) The General Counsel within TWE who is responsible for CATV shall
annually certify to the Commission that it believes that Time Warner
is in compliance with Paragraph VII of this order.
(D) Time Warner shall retain all of the information collected as
required by subparagraph (A), including information on when and to
whom such information was communicated as required herein in
subparagraph (B), for a period of five (5) years.
IX.
IT IS FURTHER ORDERED that
(A) By February 1, 1997, Time Warner shall execute a Programming
Service Agreement with at least one Independent
Advertising-Supported News and Information National Video
Programming Service, unless the Commission determines, upon a
showing by Time Warner, that none of the offers of Carriage Terms
are commercially reasonable.
(B) If all the requirements of either subparagraph (A) or (C) are
met, Time Warner shall carry an Independent Advertising-Supported
News and Information Video Programming Service on Time Warner CATVs
at Penetration Rates no less than the following:
(1) If the Service is carried on Time Warner CATVs as of July
30, 1996, Time Warner must make the Service available:
(a) By July 30, 1997, so that it is available to 30% of
the Total Subscribers of all Time Warner CATVs at that
time; and
(b) By July 30, 1999, so that it is available to 50% of
the Total Subscribers of all Time Warner CATVs at that
time.
(2) If the Service is not carried on Time Warner CATVs as of
July 30, 1996, Time Warner must make the Service available:
(a) By July 30, 1997, so that it is available to 10% of
the Total Subscribers of all Time Warner CATVs at that
time;
(b) By July 30, 1999, so that it is available to 30% of
the Total Subscribers of all Time Warner CATVs at that
time; and
(c) By July 30, 2001, so that it is available to 50% of
the Total Subscribers of all Time Warner CATVs at that
time.
(C) If, for any reason, the Independent Advertising-Supported News and
Information National Video Programming Service chosen by Time Warner
ceases operating or is in material breach of its Programming Service
Agreement with Time Warner at any time before July 30, 2001, Time Warner
shall, within six months of the date that such Service ceased operation
or the date of termination of the Agreement because of the material
breach, enter into a replacement Programming Service Agreement with a
replacement Independent Advertising-Supported News and Information
National Video Programming Service so that replacement Service is
available pursuant to subparagraph (B) within three months of the
execution of the replacement Programming Service Agreement, unless the
Commission determines, upon a showing by Time Warner, that none of the
Carriage Terms offered are commercially reasonable. Such replacement
Service shall have, six months after the date the first Service ceased
operation or the date of termination of the first Agreement because of
the material breach, contractual commitments to supply its Service to at
least 10 million subscribers on Unaffiliated MVPDs, or, together with
the contractual commitments it will obtain from Time Warner, total
contractual commitments to supply its Service to 15 million subscribers;
if no such Service has such contractual commitments, then Time Warner
may choose from among the two Services with contractual commitments with
Unaffiliated MVPDs for the largest number of subscribers.
X.
IT IS FURTHER ORDERED that:
(A) Within sixty (60) days after the date this order becomes final
and every sixty (60) days thereafter until respondents have fully
complied with the provisions of Paragraphs IV(A) and IX(A) of this
order and, with respect to Paragraph II, until the Distribution,
respondents shall
submit jointly or individually to the Commission a verified written
report or reports setting forth in detail the manner and form in
which they intend to comply, are complying, and have complied with
Paragraphs II, IV(A) and IX(A) of this order.
(B) One year (1) from the date this order becomes final, annually
for the next nine (9) years on the anniversary of the date this
order becomes final, and at other times as the Commission may
require, respondents shall file jointly or individually a verified
written report or reports with the Commission setting forth in
detail the manner and form in which they have complied and are
complying with each Paragraph of this order.
XI.
IT IS FURTHER ORDERED that respondents shall notify the
Commission at least thirty (30) days prior to any proposed change in
respondents (other than this Acquisition) such as dissolution,
assignment, sale resulting in the emergence of a successor
corporation, or the creation or dissolution of subsidiaries or any
other change in the corporation that may affect compliance
obligations arising out of the order.
XII.
IT IS FURTHER ORDERED that, for the purpose of determining or
securing compliance with this order, and subject to any legally
recognized privilege, upon written request, respondents shall permit
any duly authorized representative of the Commission:
1. Access, during regular business hours upon reasonable notice and
in the presence of counsel for respondents, to inspect and copy all
books, ledgers, accounts, correspondence, memoranda and other
records and documents in the possession or under the control of
respondents relating to any matters contained in this order; and
2. Upon five days' notice to respondents and without restraint or
interference from it, to interview officers, directors, or employees
of respondents, who may have counsel present, regarding such
matters.
XIII.
IT IS FURTHER ORDERED THAT this order shall terminate ten (10)
years from the date this order becomes final.
Signed this _____ day of _______________, 19____.
TIME WARNER INC., A CORPORATION
By: _________________________
Gerald M. Levin
_________________________
Counsel for Time Warner Inc.
TURNER BROADCASTING SYSTEM, INC., A CORPORATION
By: ________________________
General Counsel
________________________
Counsel for Turner Broadcasting System, Inc.
TELE-COMMUNICATIONS, INC., A CORPORATION
By: ________________________
John C. Malone
________________________
Counsel for Tele-Communications, Inc.
LIBERTY MEDIA CORPORATION, A CORPORATION
By: ________________________
Vice President
________________________
Counsel for Liberty Media Corporation
FEDERAL TRADE COMMISSION
By:
________________________
James A. Fishkin
Attorney
Bureau of Competition
Approved:
________________________
Robert W. Doyle, Jr.
Deputy Assistant Director
Bureau of Competition
________________________
George S. Cary
Senior Deputy Director
Bureau of Competition
________________________
William J. Baer
Director
Bureau of Competition
Appendix I
UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
- --------------------------------)
)
)
In the Matter of )
)
TIME WARNER INC., )
a corporation; )
)
TURNER BROADCASTING )
SYSTEM, INC., )
a corporation; )
) File No. 961-0004
TELE-COMMUNICATIONS, INC., )
a corporation; and )
)
LIBERTY MEDIA CORPORATION, )
a corporation. )
)
- --------------------------------)
INTERIM AGREEMENT
This Interim Agreement is by and between Time Warner Inc.
("Time Warner"), a corporation organized, existing, and doing
business under and by virtue of the law of the State of Delaware,
with its office and principal place of business at New York, New
York; Turner Broadcasting System, Inc. ("Turner"), a corporation
organized, existing, and doing business under and by virtue of the
law of the State of Georgia with its office and principal place of
business at Atlanta, Georgia; Tele-Communications, Inc. ("TCI"), a
corporation organized, existing, and doing business under and by
virtue of the law of the State of Delaware, with its office and
principal place of business located at Englewood, Colorado; Liberty
Media Corp. ("LMC"), a corporation organized, existing and doing
business under and by virtue of the law of the State of Delaware,
with its office and principal place of business located at
Englewood, Colorado; and the Federal Trade Commission
("Commission"), an independent agency of the United States
Government, established under the Federal Trade Commission Act of
1914, 15 U.S.C. ss. 41 et seq.
Interim Agreement Page 2 of 5
WHEREAS Time Warner entered into an agreement with Turner for
Time Warner to acquire the outstanding voting securities of Turner,
and TCI and LMC proposed to acquire stock in Time Warner
(hereinafter "the Acquisition");
WHEREAS the Commission is investigating the Acquisition to
determine whether it would violate any statute enforced by the
Commission;
WHEREAS TCI and LMC are willing to enter into an Agreement
Containing Consent Order (hereafter "Consent Order") requiring them,
inter alia, to divest TCI's and LMC's Interest in Time Warner and
TCI's and LMC's Turner-Related Businesses," by contributing those
interests to a separate corporation, The Separate Company, the stock
of which will be distributed to the holders of Liberty Tracking
Stock ("the Distribution"), but, in order to fulfill paragraph II(D)
of that Consent Order, TCI and LMC must apply now to receive an
Internal Revenue Service ruling as to whether the Distribution will
be generally tax-free to both the Liberty Tracking Stock holders and
to TCI under Section 355 of the Internal Revenue Code of 1986, as
amended ("IRS Ruling");
WHEREAS "TCI's and LMC's Interest in Time Warner" means all of
the economic interest in Time Warner to be acquired by TCI and LMC,
including the right of first refusal with respect to Time Warner
stock to be held by R. E. Turner, III, pursuant to the Shareholders
Agreement dated September 22, 1995 with LMC or any successor
agreement;
WHEREAS "TCI's and LMC's Turner-Related Businesses" means the
businesses conducted by Southern Satellite Systems, Inc., a
subsidiary of TCI which is principally in the business of
distributing WTBS to MVPDs;
WHEREAS "Liberty Tracking Stock" means Tele-Communications,
Inc. Series A Liberty Media Group Common Stock and
Tele-Communications, Inc. Series B Liberty Media Group Common Stock;
WHEREAS Time Warner, Turner, TCI, and LMC are willing to enter
into a Consent Order requiring them, inter alia, to forego entering
into certain new programming service agreements for a period of six
months from the date that the parties close this Acquisition
("Closing Date"), but, in order to comply more fully with that
requirement, they must cancel now the two agreements that were
negotiated as part of this Acquisition: namely, (1) the September
15, 1995, program service agreement between TCI's subsidiary,
Satellite Services, Inc. ("SSI"), and Turner and (2) the September
14, 1995, cable carriage agreement between SSI and Time Warner for
WTBS (hereafter "Two Programming Service Agreements");
WHEREAS if the Commission accepts the attached Consent Order,
the Commission is required to place the Consent Order on the public
record for a period of at least sixty (60)
Interim Agreement Page 3 of 5
days and may subsequently withdraw such acceptance pursuant to the
provisions of Rule 2.34 of the Commission's Rules of Practice and
Procedure, 16 C.F.R. ss. 2.34;
WHEREAS the Commission is concerned that if the parties do not,
before this order is made final, apply to the IRS for the IRS Ruling
and cancel the Two Programming Service Agreements, compliance with
the operative provisions of the Consent Order might not be possible
or might produce a less than effective remedy;
WHEREAS Time Warner, Turner, TCI, and LMC's entering into this
Agreement shall in no way be construed as an admission by them that
the Acquisition is illegal;
WHEREAS Time Warner, Turner, TCI, and LMC understand that no
act or transaction contemplated by this Agreement shall be deemed
immune or exempt from the provisions of the antitrust laws or the
Federal Trade Commission Act by reason of anything contained in this
Agreement;
NOW, THEREFORE, upon understanding that the Commission has not
yet determined whether the Acquisition will be challenged, and in
consideration of the Commission's agreement that, unless the
Commission determines to reject the Consent Order, it will not seek
further relief from Time Warner, Turner, TCI, and LMC with respect
to the Acquisition, except that the Commission may exercise any and
all rights to enforce this Agreement and the Consent Order to which
this Agreement is annexed and made a part thereof, the parties agree
as follows:
1. Within thirty (30) days of the date the Commission accepts
the attached Consent Order for public comment, TCI and LMC
shall apply to the IRS for the IRS Ruling.
2. On or before the Closing Date, Time Warner, Turner and TCI
shall cancel the Two Programming Service Agreements.
3. This Agreement shall be binding when approved by the
Commission.
Dated: _____________________
FOR THE FEDERAL TRADE COMMISSION
Interim Agreement Page 4 of 5
- ----------------------
- ----------------------
Stephen Calkins
General Counsel
FOR TIME WARNER INC., A CORPORATION
By: ________________________
Gerald A. Levin
________________________
Counsel for Time Warner Inc.
FOR TURNER BROADCASTING SYSTEM, INC., A CORPORATION
By: ________________________
General Counsel
________________________
Counsel for Turner Broadcasting System, Inc.
FOR TELE-COMMUNICATIONS, INC., A CORPORATION
By: ________________________
John C. Malone
________________________
Counsel for Tele-Communications, Inc.
FOR LIBERTY MEDIA CORPORATION, A CORPORATION
By: ________________________
Vice President
________________________
Counsel for Liberty Media Corporation