AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 2003
                                                     REGISTRATION NO. 333-
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                         ------------------------------

                                    FORM S-4
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                         ------------------------------

                           LIBERTY MEDIA CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)


                                                                          
               DELAWARE                                  4841                                 84-1288730
   (State or other jurisdiction of           (Primary Standard Industrial                  (I.R.S. Employer
    incorporation or organization)           Classification Code Number)                 Identification No.)

                                               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)

                                             ELIZABETH M. MARKOWSKI, ESQ.
                                              LIBERTY MEDIA CORPORATION
                                               12300 LIBERTY BOULEVARD
                                              ENGLEWOOD, COLORADO 80112
                                                   (720) 875-5400
                               (Name, address, including zip code and telephone number,
                                      including area code, of agent for service)


                         ------------------------------


                                                     
                                               Copies to:
             STEVEN D. MILLER, ESQ.                                THOMAS H. MCCORMICK, ESQ.
            SHERMAN & HOWARD L.L.C.                                     SHAW PITTMAN LLP
       633 SEVENTEENTH STREET, SUITE 3000                              2300 N STREET, NW
             DENVER, COLORADO 80202                                   WASHINGTON, DC 20037
                (303) 297-2900                                          (202) 663-8000


                         ------------------------------

  APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement and upon the
effective time of the merger described in the proxy statement/prospectus forming
                     a part of this registration statement.
                         ------------------------------

    If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /

    If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
                         ------------------------------

                        CALCULATION OF REGISTRATION FEE



                                                                    PROPOSED MAXIMUM     PROPOSED MAXIMUM
           TITLE OF EACH CLASS OF                  AMOUNT TO         OFFERING PRICE          AGGREGATE            AMOUNT OF
        SECURITIES TO BE REGISTERED            BE REGISTERED(1)         PER SHARE        OFFERING PRICE(2)    REGISTRATION FEE
                                                                                                 
Series A common stock, $0.01 par value......   1,893,726 shares      Not Applicable         $22,672,834           $1,834.23


(1) Represents the registrant's estimate of the maximum number of shares
    issuable by the registrant in connection with the merger described in the
    proxy statement/prospectus forming a part of this registration statement,
    which estimate is based upon the product of (a) (i) the number of shares of
    Liberty Satellite & Technology, Inc. Series A and Series B common stock,
    held by persons other than the registrant or any of its subsidiaries
    (6,565,337) as of July 31, 2003, plus (ii) the number of shares of Liberty
    Satellite Series A and Series B common stock which are reserved for issuance
    upon exercise of certain outstanding options and other rights issued by
    Liberty Satellite which will be assumed by the registrant upon consummation
    of the merger (320,938), multiplied by (b) the exchange ratio of 0.2750 of a
    share of Liberty Media Corporation Series A common stock for each share of
    Liberty Satellite Series A or Series B common stock as provided for in the
    merger agreement included herein.

(2) Estimated solely for the purpose of calculating the registration fee. The
    registration fee was determined pursuant to Rules 457(f)(1) and 457(c) under
    the Securities Act by taking the sum of (a) the product of the average of
    the bid and asked price of Liberty Satellite's Series A common stock on the
    OTC Bulletin Board on September 11, 2003, multiplied by the number of shares
    of Liberty Satellite Series A common stock held by persons other than the
    registrant or any of its subsidiaries as of July 31, 2003 (including 320,938
    shares for which options and other rights were outstanding on such date);
    and (b) the product of the average of the bid and asked price of Liberty
    Satellite's Series B common stock on the OTC Bulletin Board on
    September 11, 2003, multiplied by the number of shares of Liberty Satellite
    Series B common stock held by persons other than the registrant or any of
    its subsidiaries as of July 31, 2003.
                         ------------------------------

    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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                                   [GRAPHIC]

                            12300 LIBERTY BOULEVARD
                           ENGLEWOOD, COLORADO 80112

Dear Liberty Satellite & Technology, Inc. Stockholder:

    The Liberty Satellite board of directors and a special committee of the
board have unanimously approved a merger agreement pursuant to which Liberty
Media Corporation would acquire all of the publicly held shares of Liberty
Satellite common stock that it does not already beneficially own. Liberty Media
is currently the beneficial owner of approximately 87% of Liberty Satellite's
outstanding common stock.

    You are cordially invited to attend a special meeting of stockholders of
Liberty Satellite on [            ], 2003, commencing at [            ] local
time at [            ], at which time we will ask you to adopt the merger
agreement and approve the merger pursuant to which Liberty Media would acquire
the remaining publicly held common stock of Liberty Satellite. If the merger is
completed, you will have the right to receive 0.2750 of a share of Liberty Media
Series A common stock in exchange for each share of Liberty Satellite Series A
or Series B common stock that you own unless you validly exercise your appraisal
rights. The merger exchange ratio has been fixed and will not be adjusted for
changes in the price of Liberty Media's or Liberty Satellite's common stock. A
copy of the merger agreement is included as ANNEX I to this proxy
statement/prospectus and should be read in its entirety.

    Liberty Media's Series A common stock is listed on the New York Stock
Exchange under the trading symbol "L." Liberty Satellite's Series A and
Series B common stock are eligible for quotation on the OTC Bulletin Board under
the symbols "LSTTA" and "LSTTB," respectively. On September 11, 2003, the last
reported sale price for Liberty Media Series A common stock was $10.80, the last
reported bid price for Liberty Satellite Series A common stock was $2.90, and
the last reported bid price for Liberty Satellite Series B common stock was
$7.00.

    The affirmative vote of the holders of a majority in voting power of the
outstanding equity securities of Liberty Satellite (which includes Series A and
Series B common stock and Series B preferred stock, voting together as a single
class) is required to adopt the merger agreement and approve the merger. In
connection with the merger agreement, Liberty Media has agreed with Liberty
Satellite to vote its shares for the adoption of the merger agreement and
approval of the merger, in which case the merger agreement and the merger will
be approved at the special meeting.

    This proxy statement/prospectus is also Liberty Media's prospectus for the
shares of Liberty Media Series A common stock that would be issued to Liberty
Satellite stockholders in the merger. PLEASE CAREFULLY CONSIDER ALL OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS REGARDING LIBERTY
SATELLITE, LIBERTY MEDIA AND THE MERGER, INCLUDING IN PARTICULAR THE DISCUSSION
IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 18.

    Whether or not you are personally able to attend the meeting, please
complete, sign and date the enclosed proxy card and return it in the enclosed
prepaid envelope as soon as possible. This action will not limit your right to
vote in person if you wish to attend the meeting and vote personally. You may
revoke your proxy in the manner described in this proxy statement/prospectus at
any time before it is voted at the special meeting.

                                          Sincerely yours,

                                          Kenneth G. Carroll,
                                          PRESIDENT

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT/PROSPECTUS OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

    This proxy statement/prospectus is dated             , 2003, and is first
being mailed to Liberty Satellite stockholders on or about             , 2003.

                                   [GRAPHIC]

                            12300 LIBERTY BOULEVARD
                           ENGLEWOOD, COLORADO 80112

                            ------------------------

                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
                       TO BE HELD ON [            ], 2003

                            ------------------------

To the Stockholders of Liberty Satellite & Technology, Inc.:

    Notice is hereby given that a special meeting of stockholders of Liberty
Satellite & Technology, Inc., a Delaware corporation, will be held at
[            ], on [            ], [            ], 2003, at [      ], local
time, for the following purposes:

        1.  To consider and vote upon a proposal to adopt a merger agreement
    dated as of August 26, 2003, among Liberty Satellite, Liberty Media
    Corporation, a Delaware corporation, and Liberty Satellite Acquisition Co.,
    a Delaware corporation, in the form of ANNEX I to the proxy
    statement/prospectus, and to approve the merger contemplated thereby
    pursuant to which Liberty Media would acquire all of the publicly held
    common stock of Liberty Satellite that it does not already beneficially own.

        2.  To transact such other business as may properly come before the
    meeting.

    The foregoing items of business are more completely described in the proxy
statement/prospectus accompanying this notice.

    The Liberty Satellite board of directors has fixed the close of business on
[            ], 2003 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the special meeting. Only holders of
record of Liberty Satellite Series A or Series B common stock and Series B
preferred stock as of the close of business on such date are entitled to notice
of, and to vote at, the special meeting. A list of Liberty Satellite
stockholders entitled to vote at the special meeting will be available for
examination by any Liberty Satellite stockholder at the special meeting and, for
a period of ten business days prior to the date of the special meeting, during
ordinary business hours, at Liberty Satellite's corporate offices at 12300
Liberty Boulevard, Englewood, Colorado 80112.

    Whether or not you are personally able to attend the meeting, please
complete, sign and date the enclosed proxy card and return it in the enclosed
prepaid envelope as soon as possible. This action will not limit your right to
vote in person if you wish to attend the special meeting and vote personally.
You may revoke your proxy in the manner described in the proxy
statement/prospectus at any time before it is voted at the special meeting.

                                          By Order of the Board of Directors,

                                          Pamela J. Strauss
                                          SECRETARY

Englewood, Colorado
            , 2003

DO NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD. THE PROCEDURE
FOR THE EXCHANGE OF YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET FORTH IN
THE PROXY STATEMENT/PROSPECTUS.

                      REFERENCE TO ADDITIONAL INFORMATION

    This proxy statement/prospectus "incorporates by reference" important
business and financial information about Liberty Media and Liberty Satellite
from documents that are not included in or delivered with this proxy
statement/prospectus. You may obtain documents incorporated by reference in this
proxy statement/prospectus without charge by requesting them in writing or by
telephone from Liberty Media or from Liberty Satellite at the following address:


                                            
             Investor Relations                             Investor Relations
          Liberty Media Corporation                Liberty Satellite & Technology, Inc.
           12300 Liberty Boulevard                        12300 Liberty Boulevard
          Englewood, Colorado 80112                      Englewood, Colorado 80237
         Telephone: (877) 772-1518                      Telephone: (720) 875-6861


    TO OBTAIN TIMELY DELIVERY OF REQUESTED DOCUMENTS PRIOR TO THE SPECIAL
STOCKHOLDERS' MEETING, YOU MUST REQUEST THE INCORPORATED INFORMATION NO LATER
THAN [            ], WHICH IS FIVE BUSINESS DAYS PRIOR TO THE MEETING. For a
more detailed description of the information incorporated by reference into this
proxy statement/prospectus and how you may obtain it, see the section entitled
"Where You Can Find More Information" on page 15.

    A copy of Liberty Satellite's Annual Report on Form 10-K for the year ended
December 31, 2002 and a copy of Liberty Satellite's Form 10-Q/A for the six
months ended June 30, 2003, each as filed with the Securities and Exchange
Commission, accompany this proxy statement/prospectus as ANNEX II.

                               TABLE OF CONTENTS



                                                                PAGE
                                                              --------
                                                           
QUESTIONS AND ANSWERS ABOUT THE MERGER......................      1
SUMMARY OF THIS PROXY STATEMENT/PROSPECTUS..................      4
  The Companies.............................................      4
  The Special Meeting.......................................      4
  The Merger................................................      5
  Interests of Directors and Officers.......................      8
  Material U.S. Federal Income Tax Consequences.............      8
  Appraisal Rights of Dissenting Stockholders...............      8
  Accounting Treatment......................................      8
  Certain Restrictions on Resale of Liberty Media Series A
    Common Stock............................................      8
  Differences Between Your Rights as a Liberty Satellite
    Stockholder and as a Liberty Media Stockholder..........      9
  Exchange of Stock Certificates............................      9
  Listing of Liberty Media Series A Common Stock............      9
SELECTED SUMMARY FINANCIAL INFORMATION......................     10
  Liberty Media.............................................     10
  Liberty Satellite.........................................     11
  Unaudited Comparative Per Share Data......................     12
  Comparative Per Share Market Price and Dividend
    Information.............................................     13
WHERE YOU CAN FIND MORE INFORMATION.........................     15
  Liberty Media.............................................     15
  Liberty Satellite.........................................     16
RISK FACTORS................................................     18
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS...     25
THE COMPANIES INVOLVED IN THE MERGER........................     26
  Liberty Media.............................................     26
  Liberty Satellite.........................................     26
THE SPECIAL MEETING.........................................     30
  General...................................................     30
  Proxies...................................................     30
  Record Date; Stockholders Entitled to Vote................     31
  Quorum; Voting Rights and Vote Required...................     31
  Expenses; Solicitation of Proxies.........................     32
  Voting of Shares held by Brokerage Firm or Other
    Nominee.................................................     32
THE MERGER..................................................     33
  General...................................................     33
  Background of the Merger..................................     33
  Purpose for the Merger; Recommendation of the Special
    Committee and the Liberty Satellite Board of Directors;
    Fairness of the Offer and the Merger....................     40
  Opinion of the Financial Advisor to the Special
    Committee...............................................     44
  Interests of Directors and Officers.......................     52
  Accounting Treatment......................................     53
  Material U.S. Federal Income Tax Consequences.............     53
  Deregistration of Liberty Satellite Common Stock after the
    Merger..................................................     54
  On Command Merger.........................................     54
  Certain Litigation........................................     55
THE MERGER AGREEMENT........................................     56


                                       i




                                                                PAGE
                                                              --------
                                                           
  General Structure; Effective Time.........................     56
  Consideration to be Received in the Merger................     56
  Regulatory Approvals; Conditions to the Merger............     58
  Covenants.................................................     60
  Indemnification...........................................     61
  Listing of Liberty Media Series A Common Stock............     61
  Termination, Amendment and Waiver.........................     62
  Certain Restrictions on Resale of Liberty Media Series A
    Common Stock by Affiliates of Liberty Satellite and
    Liberty Media...........................................     63
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS.................     64
COMPARISON OF STOCKHOLDER RIGHTS............................     67
  Common Stock..............................................     67
  Preferred Stock...........................................     67
  Conversion................................................     67
  Voting Rights.............................................     67
  Liquidation and Dissolution...............................     68
  Classified Board of Directors.............................     68
  Number of Directors.......................................     68
  Stockholder Action by Written Consent; Special Meetings...     68
  Removal of Directors......................................     69
  Actions Requiring Supermajority Vote......................     69
CERTAIN RELATED PARTY TRANSACTIONS..........................     70
EXPERTS.....................................................     70
LEGAL MATTERS...............................................     71


ANNEXES:


                  
Annex I      --         Merger Agreement
Annex II     --         Liberty Satellite Annual and Quarterly Reports
Annex III    --         Delaware Appraisal Rights Statute
Annex IV     --         Opinion of Morgan Stanley & Co. Incorporated


                                       ii

                     QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHAT IS THE TRANSACTION? (PAGE 33)

A:  The transaction is a merger of Liberty Satellite Acquisition Co., a newly
    formed controlled subsidiary of Liberty Media, with and into Liberty
    Satellite, with Liberty Satellite as the surviving corporation in the
    merger. As a result of the merger, Liberty Media will acquire all of the
    publicly held common stock of Liberty Satellite that it does not already
    beneficially own. Currently, Liberty Media is the beneficial owner of
    approximately 87% of Liberty Satellite's outstanding common stock and
    approximately 98% of the voting power associated with Liberty Satellite's
    equity securities.

   Unless the context clearly indicates otherwise, all references in this proxy
    statement/prospectus to the "merger" refer to the merger of Liberty
    Satellite Acquisition Co. with and into Liberty Satellite, and all
    references to the "merger agreement" refer to the merger agreement among
    Liberty Satellite, Liberty Satellite Acquisition Co. and Liberty Media which
    accompanies this proxy statement/prospectus as ANNEX I.

Q: WHAT WILL I RECEIVE IN THE MERGER? (PAGE 56)

A:  Following the consummation of the merger, unless you validly exercise your
    appraisal rights, you will receive 0.2750 of a share of Liberty Media
    Series A common stock in exchange for each share of Liberty Satellite
    Series A or Series B common stock that you hold on the effective date of the
    merger. Liberty Media will not issue fractional shares of Liberty Media
    Series A common stock in the merger. You will receive cash based on the
    market price of the Liberty Media Series A common stock instead of any
    fractional shares.

Q: WILL THE EXCHANGE RATIO AND THE VALUE OF THE SHARES I RECEIVE CHANGE BETWEEN
    NOW AND THE TIME THE MERGER IS CONSUMMATED? (PAGE 18)

A:  The exchange ratio (which affects the number of shares you will receive)
    will not change. The market value of the shares you receive may fluctuate
    between the date of this proxy statement/ prospectus and the completion of
    the merger, based upon changes in the market price for Liberty Media
    Series A common stock.

Q: WILL I HAVE APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER? (PAGE 64)

A:  Yes. Under Delaware law, which governs the merger, you have the right to
    seek appraisal of your shares of Liberty Satellite common stock. Your right
    to seek appraisal requires strict compliance with the procedures contained
    in Section 262 of the Delaware corporate statute. Failure to follow any of
    these procedures may result in the termination or waiver of your appraisal
    right.

Q: DOES THE LIBERTY SATELLITE BOARD OF DIRECTORS RECOMMEND APPROVAL OF THE
    MERGER? (PAGE 40)

A:  Yes. The Liberty Satellite board of directors, based in part on the
    recommendation of a special committee of the board, unanimously recommends
    that you vote in favor of adoption of the merger agreement and approval of
    the merger.

Q: WHAT IS THE DATE, TIME AND PLACE OF THE SPECIAL MEETING OF STOCKHOLDERS TO
    CONSIDER THE MERGER? (PAGE 30)

A:  The special meeting of stockholders of Liberty Satellite will be held on
    [            ], 2003 at [            ], local time, at [            ], to
    consider and vote upon the proposal to adopt the merger agreement and
    approve the merger.

                                       1

Q: WHAT VOTE IS REQUIRED TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER?
    (PAGE 31)

A:  In order to adopt the merger agreement and complete the merger, holders of a
    majority in voting power of the outstanding equity securities of Liberty
    Satellite (which includes Series A and Series B common stock and Series B
    preferred stock, voting together as a single class), must approve the merger
    agreement and the merger. Liberty Media beneficially owns approximately 87%
    of the outstanding Liberty Satellite common stock, and controls
    approximately 98% of the total voting power associated with Liberty
    Satellite's equity securities. In connection with the merger agreement,
    Liberty Media has agreed with Liberty Satellite that it will vote its shares
    for the adoption of the merger agreement and approval of the merger, in
    which case the merger agreement and the merger will be approved at the
    special meeting.

Q: WILL I REALIZE A TAXABLE GAIN OR LOSS FOR U.S. FEDERAL INCOME TAX PURPOSES?
    (PAGE 53)

A:  Yes. The merger will be a taxable transaction to you. You will be treated as
    having sold or exchanged your shares of Liberty Satellite common stock for
    Liberty Media Series A common stock and you will recognize gain or loss
    equal to the difference between (i) the tax basis for your shares of Liberty
    Satellite common stock and (ii) the fair market value of the Liberty Media
    Series A common stock and any cash in lieu of fractional shares that you
    receive.

Q: WHAT DO I NEED TO DO NOW? (PAGE 30)

A:  After carefully reading and considering the information contained in this
    proxy statement/ prospectus and its appendices, indicate your vote on your
    proxy card, and sign and mail the proxy card in the enclosed return envelope
    as soon as possible, so that your shares may be represented at the special
    meeting. If you sign and send in your proxy card and do not indicate your
    vote, we will count your proxy card as a vote in favor of the proposal to be
    voted upon at the special meeting. If you desire to exercise your appraisal
    rights, you should follow the procedures described in the section entitled
    "Appraisal Rights of Dissenting Stockholders."

Q: MAY I VOTE IN PERSON? (PAGE 30)

A:  Yes. If you hold your shares of record as of the close of business on
    [            ], 2003, you may attend the special meeting of Liberty
    Satellite stockholders and vote your shares in person rather than signing
    and returning your proxy card.

Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE? (PAGE 30)

A:  You should send in a new, later dated, signed proxy card, or a written
    revocation of your previous proxy card, to Liberty Satellite's corporate
    secretary so that it is received before the special meeting or attend the
    special meeting in person and vote (however, attendance at the special
    meeting without voting at the meeting will not in and of itself constitute a
    revocation of a proxy).

Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
    SHARES FOR ME? (PAGE 32)

A:  Yes, but only if you provide instructions to your broker on how to vote.
    Accordingly, please contact the person responsible for your account and give
    instructions for a proxy card to be signed representing your shares of
    Liberty Satellite common stock.

Q: SHOULD I SEND MY STOCK CERTIFICATES NOW? (PAGES 30, 56)

A:  No. As soon as practicable after the merger is completed, Liberty Satellite
    stockholders will be sent written instructions for exchanging their share
    certificates, together with a letter of transmittal for the certificates.
    YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARDS.

                                       2

Q: WILL I HAVE TO PAY ANY FEES OR COMMISSIONS? (PAGE 30)

A:  If you are the record owner of your shares, you will not have to pay
    brokerage fees or incur similar expenses. If you own your shares through a
    broker or other nominee, your broker may charge you a fee. You should
    consult your broker or nominee to determine whether any charges will apply.

Q: WHOM SHOULD I CALL WITH QUESTIONS? (PAGE 15)

A:  You should call Liberty Satellite's Investor Relations Department at
    (720) 875-6861. You may also obtain additional information about Liberty
    Media and Liberty Satellite from documents filed with the Securities and
    Exchange Commission by following the instructions in the section entitled
    "Where You Can Find More Information" on page 15.

                                       3

                   SUMMARY OF THIS PROXY STATEMENT/PROSPECTUS

    This summary highlights selected information from this proxy
statement/prospectus and may not contain all the information that is important
to you. To better understand the merger, you should read this entire document
carefully, including the documents to which we refer you. In addition, this
proxy statement/prospectus incorporates by reference important business and
financial information about Liberty Media and Liberty Satellite. You may obtain
the information incorporated by reference into this proxy statement/prospectus
without charge by following the instructions in the section entitled "Where You
Can Find More Information" on page 15.

THE COMPANIES (SEE PAGE 26)

Liberty Satellite & Technology, Inc.
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5400

    Liberty Satellite is a majority-owned subsidiary of Liberty Media. Liberty
Satellite's primary operating subsidiary is On Command Corporation, in which
Liberty Satellite owns approximately 74% of the outstanding common stock and 80%
of the outstanding voting power. On Command provides in-room, on-demand
entertainment and information services to hotels, motels and resorts. In
addition, Liberty Satellite pursues strategic opportunities worldwide in the
distribution of Internet data and other content via satellite and related
businesses. Currently, Liberty Satellite conducts its business through strategic
investments in, and contractual arrangements with, various entities that
operate, or are developing, satellite and terrestrial wireless networks for
broadband distribution of Internet access, video programming, streaming media
and other data.

Liberty Media Corporation
12300 Liberty Boulevard
Englewood, Colorado 80112
Telephone: (720) 875-5400

    Liberty Media owns interests in a broad range of video programming, media,
broadband distribution, interactive technology services and communications
businesses. Liberty Media and its affiliated companies operate in the United
States, Europe, South America and Asia. Its principal assets include interests
in Starz Encore Group LLC, Ascent Media Group, Inc., On Command Corporation,
Discovery Communications, Inc., UnitedGlobalCom, Inc., Jupiter
Telecommunications Co., Ltd., QVC, Inc., Court Television Network, Game Show
Network, AOL Time Warner Inc., IAC/ InterActiveCorp, Sprint PCS Group and The
News Corporation Limited.

THE SPECIAL MEETING (PAGE 30)

    GENERAL.  The special meeting of stockholders of Liberty Satellite will be
held at [      ], local time, on [            ], 2003, at [            ].

    RECORD DATE.  Stockholders are entitled to vote at the special meeting if
they owned shares of Liberty Satellite Series A or Series B common stock or
Series B preferred stock as of the close of business on [            ], 2003,
the record date. As of the record date, there were [      ] shares of Liberty
Satellite Series A common stock outstanding, [      ] shares of Liberty
Satellite Series B common stock outstanding and 150,000 shares of Liberty
Satellite Series B preferred stock outstanding.

    VOTING RIGHTS AND PROCEDURES.  Liberty Satellite common stockholders will be
entitled to one vote for each share of Liberty Satellite Series A common stock
owned on the record date and ten votes for each share of Liberty Satellite
Series B common stock owned on the record date. In addition, Liberty Satellite
Series B preferred stockholders are entitled to vote together with Liberty
Satellite common

                                       4

stockholders on all matters submitted to the Liberty Satellite common
stockholders, with holders of the Series B preferred stock having 558 votes per
share. You may vote either by attending the special meeting and voting your
shares or by completing the enclosed proxy card and mailing it to us in the
enclosed envelope.

    STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER.  The affirmative vote of
the holders of a majority of the voting power of outstanding shares of Liberty
Satellite Series A and Series B common stock and Series B preferred stock
(voting together as a single class) entitled to vote at the meeting is required
to approve the merger agreement and the merger. As of the record date, Liberty
Media beneficially owned approximately 87% of the outstanding Liberty Satellite
common stock and 100% of the outstanding Liberty Satellite Series B preferred
stock, which collectively represents 98% of the total voting power of equity
securities entitled to vote at the special meeting. This means that Liberty
Media owns enough shares of Liberty Satellite common stock to adopt the merger
agreement and approve the merger under the Delaware corporate statute without
the vote of any other holders of Liberty Satellite common stock. Liberty Media
has agreed to vote its shares of Liberty Satellite stock in favor of the merger.

    STOCK OWNERSHIP OF OFFICERS AND DIRECTORS.  As of the record date, the
directors and executive officers of Liberty Satellite owned [      ] shares of
Series A common stock and [      ] shares of Series B common stock, and held
exercisable options or other rights to acquire [      ] shares of Liberty
Satellite Series A common stock and [      ] shares of Liberty Satellite
Series B common stock, collectively representing [  ]% of the total number of
shares of Liberty Satellite common stock outstanding or beneficially owned at
that date.

THE MERGER (PAGE 33)

    GENERAL.  The merger agreement is attached as ANNEX I to this proxy
statement/prospectus and is incorporated herein by reference. We encourage you
to read the merger agreement, as it is the legal document that governs the
merger. The merger agreement provides that, upon consummation of the merger,
Liberty Satellite Acquisition Co. will merge with and into Liberty Satellite,
with Liberty Satellite continuing as the surviving corporation. The merger will
become effective upon the filing of a certificate of merger with the Secretary
of State of the State of Delaware. This filing is anticipated to be made as soon
as possible after receipt of Liberty Satellite stockholder approval and the
satisfaction or waiver of the other conditions to the merger.

    WHAT LIBERTY SATELLITE STOCKHOLDERS WILL RECEIVE.  Upon consummation of the
merger, holders of Liberty Satellite Series A and Series B common stock (except
for holders of Liberty Satellite common shares who exercise their appraisal
rights and except for Liberty Satellite Acquisition Co., Liberty Media and its
wholly-owned subsidiaries) will receive 0.2750 of a share of Series A common
stock of Liberty Media in exchange for each share of Liberty Satellite Series A
or Series B common stock that they own. The merger exchange ratio has been fixed
and will not be adjusted for changes in the price of Liberty Media's or Liberty
Satellite's common stock. In connection with the merger, a total of
approximately 1,893,726 shares of Liberty Media Series A common stock will be
issued or issuable in exchange for outstanding shares of Liberty Satellite
Series A and Series B common stock and upon exercise of options or other rights
to acquire shares of Liberty Satellite Series A and Series B common stock
outstanding at the time of the merger.

    LIBERTY SATELLITE REASONS FOR THE MERGER; RECOMMENDATION OF LIBERTY
SATELLITE BOARD OF DIRECTORS. The Liberty Satellite board of directors has
unanimously approved the merger agreement and has determined that it is
advisable and fair and in the best interests of Liberty Satellite and its
stockholders (other than Liberty Media and its affiliates), and unanimously
recommends that holders of Liberty

                                       5

Satellite common stock vote in favor of the proposal to adopt the merger
agreement and approve the merger. In making this recommendation, the board
considered the following factors:

    - the recommendation of a special committee of the board comprised entirely
      of independent directors;

    - the financial condition, competitive position and prospects of Liberty
      Satellite as a stand-alone entity;

    - the opinion of Morgan Stanley & Co. Incorporated, dated August 22, 2003
      and subject to and based upon the assumptions and considerations in its
      opinion, as to the fairness, from a financial point of view, of the
      exchange ratio pursuant to the merger agreement to the holders in the
      aggregate of Liberty Satellite common stock (other than Liberty Media and
      its affiliates);

    - the difficulties that Liberty Satellite, as a holding company, will face
      in meeting its dividend obligations with respect to its preferred stock;

    - the relative liquidity of the Liberty Media Series A common stock as
      compared to the Liberty Satellite Series A and Series B common stock;

    - the opportunity for Liberty Satellite stockholders to participate in the
      future performance of the other businesses and assets of Liberty Media
      through their ownership of Liberty Media Series A common stock, which they
      would receive in the merger;

    - the fact that based on the closing price of Liberty Media's common stock
      on August 20, 2003 of $11.54, the price per share of Liberty Satellite
      common stock implied by the exchange ratio represented a premium of
      approximately 48% over the market price of Liberty Satellite's Series A
      common stock before the public announcement of the initial offer by
      Liberty Media; and

    - Liberty Satellite's potential for growth is limited by the lack of
      strategic investment opportunities in the satellite industry.

    LIBERTY MEDIA REASONS FOR THE MERGER.  The purpose of the merger for Liberty
Media is to acquire the publicly held minority interest in Liberty Satellite. In
deciding to undertake the merger, which will result in Liberty Satellite ceasing
to be a public company, Liberty Media considered the following factors, among
others:

    - Liberty Satellite's need for additional capital resources to develop its
      business;

    - the trading price volatility of Liberty Satellite common stock caused, in
      part, by its limited public float;

    - recent capital market trends, which have adversely affected the ability of
      companies situated similarly to Liberty Satellite to access capital;

    - the elimination of costs associated with operating Liberty Satellite as a
      separate public company, including costs and expenses associated with
      Securities and Exchange Commission reporting, communicating with
      stockholders and related legal and accounting fees; and

    - the ability to eliminate certain conflicts of interest between Liberty
      Satellite and Liberty Media relating to business dealings between them.

    REGULATORY APPROVAL AND OTHER CONDITIONS TO THE MERGER.  Except for filing a
certificate of merger in Delaware and compliance with federal and state
securities laws, we are not aware of any material United States federal or state
or foreign governmental regulatory requirement necessary to be complied with, or
approval that must be obtained, in connection with the merger. However, the
respective obligations of Liberty Satellite and Liberty Media to consummate the
transactions contemplated by the

                                       6

merger agreement are subject to the satisfaction or, where permissible, waiver
of a number of conditions, including the adoption of the merger agreement and
approval of the merger by the requisite vote of stockholders of Liberty
Satellite, and certain other conditions that are usual and customary conditions
for merger transactions.

    COVENANTS.  Under the merger agreement, Liberty Satellite has agreed, prior
to the effective time of the merger, to conduct its business in the ordinary and
usual course consistent with past practice, to use its reasonable efforts to
preserve intact its business organization and assets and to refrain from issuing
additional capital stock, amending its certificate of incorporation, entering
into or modifying certain material agreements or taking certain other actions.

    EFFECT OF THE MERGER ON LIBERTY SATELLITE STOCK OPTIONS, STOCK APPRECIATION
RIGHTS AND RESTRICTED STOCK. Liberty Media will assume outstanding stock options
and stock appreciation rights issued under the Liberty Satellite & Technology
1996 Stock Incentive Plan, as amended, and other stock options and stock
appreciation rights not issued under that plan, in each case with respect to
Liberty Satellite Series A or Series B common stock on the effective date of the
merger. Assumed stock options and stock appreciation rights will be exercisable
with respect to the number of shares of Liberty Media Series A common stock
determined by multiplying the number of underlying shares of Liberty Satellite
Series A or Series B common stock on the effective date of the merger by the
0.2750 exchange ratio, rounded up to the nearest whole share. The exercise price
per share of Liberty Media Series A common stock issuable under each assumed
option and the base price of each assumed stock appreciation right will be
calculated by dividing the exercise price of the option or base price of the
stock appreciation right before the merger by the exchange ratio, rounded down
to the nearest whole cent.

    In addition, each restricted share of Liberty Satellite common stock issued
under or outside of the Liberty Satellite Stock Incentive Plan will be converted
into restricted shares of Liberty Media Series A common stock at the exchange
ratio, rounded up to the nearest whole share. Each restricted share of Liberty
Media Series A common stock issued to holders of Liberty Satellite restricted
stock will remain subject to the same restrictions applicable to such share
prior to the merger.

    TERMINATION.  The merger agreement may be terminated and the merger
abandoned at any time prior to the effective time of the merger, by the mutual
consent of Liberty Satellite and Liberty Media. In addition, either Liberty
Satellite or Liberty Media can terminate the merger agreement:

    - if the Liberty Satellite board of directors has withdrawn or modified in
      any manner adverse to Liberty Media its recommendation to Liberty
      Satellite stockholders regarding the adoption of the merger agreement;

    - if the merger has not been consummated before March 31, 2004;

    - for a material breach by the other party under the merger agreement that
      is incapable of being cured;

    - if a court of competent jurisdiction has issued an order permanently
      enjoining or otherwise prohibiting the merger; or

    - if the required adoption of the merger agreement and approval of the
      merger by the Liberty Satellite stockholders are not duly obtained at the
      special meeting.

                                       7

INTERESTS OF DIRECTORS AND OFFICERS (PAGE 52)

    You should be aware that some officers and directors of Liberty Satellite
have interests in the merger that are different from, or in addition to, yours.
These interests include:

    - ownership of Liberty Media common stock and options exercisable for shares
      of Liberty Media common stock; and

    - indemnification arrangements between Liberty Satellite and the directors
      and officers of Liberty Satellite.

    In addition, some of the officers and directors of Liberty Media and/or
Liberty Satellite Acquisition Co. are also directors of Liberty Satellite and
have interests that are in addition to, or different from, your interests.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (PAGE 53)

    The merger will be treated for tax purposes as a taxable sale or exchange of
Liberty Satellite common stock for Liberty Media Series A common stock. In
general, Liberty Satellite stockholders will have taxable gain or loss equal to
the difference between their aggregate basis for their Liberty Satellite common
shares surrendered in the merger and the sum of the fair market value of the
Liberty Media Series A common stock and any cash in lieu of fractional shares
that they receive in the merger. The gain or loss will be capital if they held
their shares of Liberty Satellite common stock as capital assets and would be
long term gain or loss if they held their shares of Liberty Satellite common
stock for more than a year as of the date of the merger. You should consult your
own tax advisor for a full understanding of the merger's tax consequences to
you.

APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS (PAGE 64)

    Delaware law permits holders of Liberty Satellite common stock to dissent
from the merger and to receive the appraised fair value of their shares of
Liberty Satellite common stock in cash in lieu of merger consideration. To do
this, a holder of Liberty Satellite common stock must follow certain procedures,
including filing certain notices with Liberty Satellite and refraining from
voting his or her shares in favor of the merger. If you validly exercise your
appraisal rights, your shares of Liberty Satellite common stock will not be
exchanged for shares of Liberty Media Series A common stock in the merger, and
your only right will be to receive the appraised fair value of your shares of
Liberty Satellite common stock in cash, which amount could be greater than, less
than or the same as the value of the merger consideration you would have
received at the closing of the merger. A copy of the Delaware statutes
describing these appraisal rights and the procedures for exercising them is
attached as ANNEX III to this proxy statement/prospectus.

ACCOUNTING TREATMENT (PAGE 53)

    For accounting and financial reporting purposes, the merger will be
accounted for as a "purchase" of a minority interest, as this term is used under
accounting principles generally accepted in the United States of America.

CERTAIN RESTRICTIONS ON RESALE OF LIBERTY MEDIA SERIES A COMMON STOCK (PAGE 63)

    All shares of Liberty Media Series A common stock received by you in
connection with the merger will be freely transferable unless you are considered
an "affiliate" of Liberty Satellite under the Securities Act of 1933 at the time
of the merger or you are an affiliate of Liberty Media. If you are an affiliate
of Liberty Satellite, then you may transfer your shares only pursuant to an
effective registration statement or an exemption under the Securities Act. This
restriction will generally lapse at the end of one year unless you are an
affiliate of Liberty Media.

                                       8

DIFFERENCES BETWEEN YOUR RIGHTS AS A LIBERTY SATELLITE STOCKHOLDER AND AS A
LIBERTY MEDIA STOCKHOLDER (PAGE 67)

    There are differences between the rights you have as a holder of Liberty
Satellite Series A or Series B common stock and the rights you will have as a
holder of Liberty Media Series A common stock.

EXCHANGE OF STOCK CERTIFICATES (PAGE 56)

    Promptly after the merger is completed, you will receive a letter and
instructions on how to surrender your Liberty Satellite stock certificates in
exchange for Liberty Media stock certificates. You will need to carefully review
and complete these materials and return them as instructed along with your stock
certificates for Liberty Satellite common stock. Please do not send Liberty
Satellite, Liberty Media or their transfer agents any stock certificates until
you receive these instructions. IF YOU HOLD LIBERTY SATELLITE COMMON STOCK AND
YOU ELECT TO EXERCISE YOUR APPRAISAL RIGHTS, YOU SHOULD FOLLOW THE PROCEDURES
OUTLINED IN THE "APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS" SECTION ON
PAGE 64.

LISTING OF LIBERTY MEDIA SERIES A COMMON STOCK

    Liberty Media has agreed to list the shares of Liberty Media Series A common
stock to be issued in connection with the merger on the New York Stock Exchange.

                                       9

                     SELECTED SUMMARY FINANCIAL INFORMATION

LIBERTY MEDIA

    The following table provides you with selected historical consolidated
financial data of Liberty Media. From August 1994 to March 1999 Liberty Media
was a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"). On March 9,
1999, AT&T Corp. ("AT&T") acquired TCI in a merger transaction. For financial
reporting purposes, the merger of AT&T and TCI is deemed to have occurred on
March 1, 1999. In connection with that merger, the assets and liabilities of
Liberty Media were adjusted to their respective fair values pursuant to the
purchase method of accounting. For periods prior to March 1, 1999, the assets
and liabilities of Liberty Media and the related consolidated results of
operations are referred to below as "Old Liberty," and for periods subsequent to
February 28, 1999, the assets and liabilities of Liberty Media and the related
consolidated results of operations are referred to as "New Liberty." Also, in
connection with that merger, TCI effected an internal restructuring as a result
of which certain assets and approximately $5.5 billion in cash were contributed
to Liberty Media. On August 10, 2001, AT&T effected a split-off of Liberty Media
and as a result of that transaction, Liberty Media is no longer a subsidiary of
AT&T. Liberty Media derived historical consolidated financial data from its
consolidated financial statements. It is important that when you read this
information, you read along with it the consolidated financial statements and
accompanying notes of Liberty Media incorporated by reference into this proxy
statement/prospectus. For a list of documents incorporated by reference into
this proxy statement/prospectus, see "Where You Can Find More Information" on
page 15.



                                                                                NEW LIBERTY                          OLD LIBERTY
                                                          -------------------------------------------------------   -------------
                                                                                      DECEMBER 31,
                                                           JUNE 30,     -----------------------------------------   DECEMBER 31,
                                                             2003         2002       2001       2000       1999         1998
                                                          -----------   --------   --------   --------   --------   -------------
                                                          (UNAUDITED)              AMOUNTS IN MILLIONS
                                                                                                  
SUMMARY BALANCE SHEET DATA:
Investment in affiliates................................    $ 7,952       7,390     10,076     20,464     15,922        3,079
Investments in available-for-sale securities and other
  cost investments......................................    $19,817      14,369     21,152     16,774     27,906       10,539
Total assets............................................    $46,325      39,685     48,539     54,268     58,658       15,783
Long-term debt..........................................    $ 6,390       4,316      4,764      5,269      2,723        1,912
Stockholders' equity....................................    $26,850      24,682     30,123     34,109     38,408        8,820



                                                                NEW LIBERTY
                                 --------------------------------------------------------------------------
                                                                                                   TEN
                                     SIX MONTHS ENDED                 YEARS ENDED                MONTHS
                                         JUNE 30,                     DECEMBER 31,                ENDED
                                 -------------------------   ------------------------------   DECEMBER 31,
                                    2003          2002         2002       2001       2000         1999
                                 -----------   -----------   --------   --------   --------   -------------
                                 (UNAUDITED)   (UNAUDITED)   AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
                                                                            
SUMMARY STATEMENT OF OPERATIONS
  DATA:
Revenue........................    $1,005         1,023        2,084      2,059      1,526          729
Operating income (loss)(1).....    $  (36)           65         (184)    (1,127)       436       (2,214)
Share of losses of affiliates,
  net(2).......................    $   91          (244)        (453)    (4,906)    (3,485)        (904)
Nontemporary declines in fair
  value of investments.........    $  (27)       (5,134)      (6,053)    (4,101)    (1,463)          --
Realized and unrealized gains
  (losses) on derivative
  instruments, net.............    $ (485)        1,574        2,122       (174)       223         (153)
Gains (losses) on dispositions,
  net..........................    $   97          (397)        (415)      (310)     7,340            4
Net earnings (loss)(1)(2)......    $ (332)       (4,660)      (5,330)    (6,203)     1,485       (2,021)
Basic and diluted net earnings
  (loss) per common share(3)...    $(0.12)        (1.80)       (2.06)     (2.40)       .57         (.78)


                                          OLD LIBERTY
                                 -----------------------------
                                      TWO
                                    MONTHS           YEAR
                                     ENDED           ENDED
                                 FEBRUARY 28,    DECEMBER 31,
                                     1999            1998
                                 -------------   -------------
                                 AMOUNTS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
                                           
SUMMARY STATEMENT OF OPERATIONS
  DATA:
Revenue........................       235            1,359
Operating income (loss)(1).....      (158)            (431)
Share of losses of affiliates,
  net(2).......................       (66)          (1,002)
Nontemporary declines in fair
  value of investments.........        --               --
Realized and unrealized gains
  (losses) on derivative
  instruments, net.............        --               --
Gains (losses) on dispositions,
  net..........................        14            2,449
Net earnings (loss)(1)(2)......       (70)             622
Basic and diluted net earnings
  (loss) per common share(3)...      (.03)             .24


------------------------------

(1) Effective January 1, 2002, Liberty Media adopted Statement of Financial
    Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS
    ("Statement 142"), which among other matters, provides that goodwill and
    other indefinite-lived assets no longer be amortized. Amortization expense
    for such assets aggregated $627 million, $598 million and $438 million for
    the

                                       10

    years ended December 31, 2001 and 2000 and the ten months ended
    December 31, 1999, respectively, and was not significant in prior periods.

(2) Included in share of losses of affiliates are other-than-temporary declines
    in value aggregating $148 million, $2,396 million and $1,324 million for the
    years ended December 31, 2002, 2001, and 2000, respectively. In addition,
    share of losses of affiliates includes excess basis amortization of
    $798 million, $1,058 million and $463 million for the years ended
    December 31, 2001 and 2000 and the ten months ended December 31, 1999,
    respectively. Pursuant to Statement 142, excess costs that are considered
    equity method goodwill are no longer amortized, but are evaluated for
    impairment under APB Opinion No. 18.

(3) The basic and diluted net earnings (loss) per common share for periods prior
    to Liberty Media's split off from AT&T is based upon 2,588 million shares of
    Liberty Media Series A and Series B common stock issued upon consummation of
    the split-off.

LIBERTY SATELLITE

    The following table provides you with selected historical consolidated
financial data of Liberty Satellite. The financial data in the following table
is derived from the consolidated financial statements of Liberty Satellite. It
is important that you read this information along with the consolidated
financial statements and accompanying notes of Liberty Satellite, which are
included in its annual report on Form 10-K for the year ended December 31, 2002
and on its quarterly report on Form 10-Q/A for the six months ended June 30,
2003, which are attached hereto as ANNEX II.



                                                     SIX MONTHS ENDED
                                                         JUNE 30,                          YEARS ENDED DECEMBER 31,
                                                 -------------------------   ----------------------------------------------------
                                                    2003          2002         2002       2001     2000(2)      1999     1998(1)
                                                 -----------   -----------   --------   --------   --------   --------   --------
                                                 (UNAUDITED)   (UNAUDITED)          AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
                                                                                                   AMOUNTS
                                                                                                    
SUMMARY STATEMENT OF OPERATIONS DATA:
Revenue........................................   $116,482       118,592      238,817    254,387    218,273        --     168,500
Operating, selling, general and administrative
  expenses and stock compensation..............   $(88,013)      (88,009)    (176,056)  (222,321)  (162,216)  (12,160)   (158,810)
Operating loss.................................   $(24,801)      (44,335)     (79,489)  (140,969)   (80,889)  (12,183)    (55,415)
Interest expense...............................   $ (7,423)       (9,786)     (18,530)   (47,477)   (34,843)     (140)    (14,177)
Share of losses of affiliates(3)...............   $   (208)       (3,358)     (13,705)  (424,247)    (7,251)       --    (375,053)
Nontemporary declines in fair values of
  investments(4)...............................   $ (4,412)      (58,948)    (163,881)   (96,438)    (9,860)       --          --
Earnings (loss) before cumulative effect of
  accounting change............................   $(35,789)     (109,786)    (238,037)  (602,263)  (116,959)   67,262    (445,266)
Net earnings (loss)............................   $(35,789)     (215,623)    (343,874)  (602,263)  (116,959)   67,262    (445,266)
Basic and diluted earnings (loss) per common
  share before cumulative effect of accounting
  change.......................................   $  (1.11)        (3.08)       (6.33)    (15.41)     (4.44)     9.67      (65.75)
Basic and diluted earnings (loss) per common
  share........................................   $  (1.11)        (5.63)       (8.77)    (15.41)     (4.44)     9.67      (65.75)




                                                                                                DECEMBER 31,
                                                              JUNE 30,     ------------------------------------------------------
                                                                2003         2002       2001       2000(2)      1999     1998(1)
                                                             -----------   --------   ---------   ---------   --------   --------
                                                             (UNAUDITED)                    AMOUNTS IN THOUSANDS
                                                                                                       
SUMMARY BALANCE SHEET DATA:
Cash and cash equivalents..................................   $ 81,741      11,571       33,913     466,617     2,473         --
Investments in available-for-sale securities and other cost
  investments, including securities pledged to creditors...   $129,476     143,858      373,900     361,507   140,101         --
Current and long-term derivative assets....................   $ 37,724     326,056      203,582     192,080        --         --
Total assets...............................................   $689,298     875,219    1,224,897   2,002,771   143,197    463,133
Debt including amounts due to parent and current portion...   $266,323     423,693      430,136     518,418     3,044         --
Redeemable preferred stock.................................   $212,707     202,147      196,027     189,907        --         --
Stockholders' equity (deficit).............................   $ 98,933     134,853      459,295   1,061,329    64,727     (6,365)


------------------------------

(1) Pursuant to a roll-up transaction that was consummated on April 1, 1996,
    Liberty Satellite contributed and transferred to PRIMESTAR, Inc. (now known
    as Phoenixstar, Inc.) all of its assets and liabilities except for assets
    and liabilities related to the high power direct broadcast satellite system
    then being constructed by Tempo Satellite, Inc., a wholly-owned subsidiary
    of Liberty Satellite.

                                       11

(2) On April 1, 2002, Liberty Satellite consummated a transaction (the "LSAT LLC
    and Ascent Entertainment Transaction"), whereby Liberty Satellite acquired
    from Liberty Media (i) certain subsidiaries of Liberty Media that
    collectively held the 89.41% of Liberty Satellite, LLC ("LSAT LLC") not
    already owned by Liberty Satellite and (ii) 100% of the capital stock of
    Ascent Entertainment Group, Inc. ("Ascent Entertainment"). Due to the fact
    that Liberty Satellite, LSAT LLC and Ascent Entertainment are all under the
    common control of Liberty Media, the LSAT LLC and Ascent Entertainment
    Transaction has been accounted for in a manner similar to a
    pooling-of-interests. As such, Liberty Satellite's consolidated financial
    statements have been restated to include LSAT LLC and Ascent Entertainment
    as wholly-owned subsidiaries of Liberty Satellite, effective with the
    respective March 2000 dates that LSAT LLC was formed and Liberty Media
    acquired control of Ascent Entertainment.

(3) The 2001 amount includes charges and losses aggregating $417,202,000
    relating to Liberty Satellite's investment in ASTROLINK International LLC.

(4) The 2002 amount includes charges aggregating $105,250,000 to reflect
    nontemporary declines in the fair value of Liberty Satellite's investment in
    various 10% investees that operate satellite television systems in Latin
    America. The 2001 amount includes charges aggregating $56,483,000 to reflect
    nontemporary declines in the fair value of Liberty Satellite's investment in
    WildBlue Communications, Inc.

UNAUDITED COMPARATIVE PER SHARE DATA

    The table below provides you with Liberty Media's and Liberty Satellite's
historical per share information as of and for the six months ended June 30,
2003 and as of and for the year ended December 31, 2002. It is important that
when you read this information, you read along with it the consolidated
financial statements and accompanying notes of Liberty Media incorporated by
reference into this proxy statement/prospectus. It is also important that when
you read this information, you read along with it the consolidated financial
statements and accompanying notes of Liberty Satellite, which are included in
its annual report on Form 10-K for the year ended December 31, 2002, and in its
quarterly report for the six months ended June 30, 2003 on Form 10-Q/A, which
are attached hereto as ANNEX II.



                                                              LIBERTY                     LIBERTY SATELLITE
                                                  LIBERTY    SATELLITE    LIBERTY MEDIA       PRO FORMA
                                                   MEDIA     HISTORICAL     PRO FORMA       EQUIVALENT(5)
                                                  --------   ----------   -------------   -----------------
                                                                              
Book value per common share as of:
  June 30, 2003.................................   $10.00       2.02          10.00 (1)         2.75
  December 31, 2002.............................   $ 9.18       2.94           9.18 (2)         2.52
Basic and diluted loss attributable to common
  shareholders per common share:
  Six months ended June 30, 2003................   $ (.12)     (1.11)          (.12)(3)         (.03)
  Year ended December 31, 2002..................   $(2.06)     (8.77)         (2.06)(4)         (.57)


------------------------

(1) The pro forma book value per share is based upon 2,475 million shares of
    Liberty Media Series A common stock and 212 million shares of Liberty Media
    Series B common stock. These amounts represent the number of shares that
    would have been outstanding if the merger of Liberty Satellite and Liberty
    Satellite Acquisition Co. had been completed on June 30, 2003.

(2) The pro forma book value per share is based upon 2,479 million shares of
    Liberty Media Series A common stock and 212 million shares of Liberty Media
    Series B common stock. These amounts represent the number of shares that
    would have been outstanding if the merger of Liberty Satellite and Liberty
    Satellite Acquisition Co. had been completed on December 31, 2002.

(3) The pro forma basic and diluted loss per share is based upon 2,689 million
    weighted average shares of Liberty Media Series A and Series B common stock
    outstanding for the six months ended June 30, 2003. This amount represents
    the number of weighted average shares that would have been outstanding if
    the merger of Liberty Satellite and Liberty Satellite Acquisition Co. had
    been completed on January 1, 2002.

                                       12

(4) The pro forma basic and diluted loss per share is based upon 2,592 million
    weighted average shares of Liberty Media Series A and Series B common stock
    outstanding for the year ended December 31, 2002. This amount represents the
    number of weighted average shares that would have been outstanding if the
    merger of Liberty Satellite and Liberty Satellite Acquisition Co. had been
    completed on January 1, 2002.

(5) The Liberty Satellite pro forma equivalents have been determined by
    multiplying the Liberty Media pro forma amounts by the exchange ratio of
    0.2750 of a share of Liberty Media Series A common stock for each share of
    Liberty Satellite common stock outstanding.

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

    Shares of Liberty Media Series A common stock are traded on the New York
Stock Exchange. Public trading of Liberty Media Series A common stock commenced
on August 10, 2001, the date of Liberty Media's split off from AT&T under the
symbol "LMCA." On January 2, 2002, the trading symbol for the Liberty Media
Series A common stock on the New York Stock Exchange was changed to "L." Through
April 1, 2002, shares of the Liberty Satellite Series A and Series B common
stock were quoted on the OTC Bulletin Board under the symbols "LSATA" and
"LSATB", respectively. Following the April 1, 2002 1-for-10 reverse stock splits
of Liberty Satellite's Series A and Series B common Stock (the "Reverse Split"),
shares of Liberty Satellite Series A and Series B common stock were quoted under
the symbols "LSTTA" and "LSTTB", respectively. The OTC Bulletin Board is a
regulated quotation service and is not a national securities exchange.
Historically, shares of Series B common stock have had low trading volume due to
a relatively low number of shares held in the public float.

    The following table sets forth, for the fiscal quarters indicated, the
following:

    - the range of high and low bid prices in U.S. dollars of shares of Liberty
      Satellite Series A and Series B common stock (the prices are interdealer
      prices, do not include retail markups, markdowns, or commissions and may
      not represent actual transactions); and

    - the range of high and low sales prices in U.S. dollars of shares of
      Liberty Media Series A common stock, as reported on the New York Stock
      Exchange Composite Transaction Tape.



                            LIBERTY SATELLITE SERIES A    LIBERTY SATELLITE SERIES B    LIBERTY MEDIA SERIES A
                                   COMMON STOCK                  COMMON STOCK                COMMON STOCK
                            ---------------------------   ---------------------------   -----------------------
                                HIGH           LOW            HIGH           LOW           HIGH         LOW
                            ------------   ------------   ------------   ------------   ----------   ----------
                                                                                   
Year Ended December 31,
  2002
  First quarter (as
    adjusted for the
    Reverse Split)........     $10.70          5.60           9.10           6.00         15.03        11.90
  Second quarter..........     $ 6.43          2.20           4.00           2.25         12.80         7.70
  Third quarter...........     $ 3.05          1.00           3.00           1.50          9.60         6.16
  Fourth quarter..........     $ 3.10          1.45           5.00           2.25         10.75         6.29

Year Ended December 31,
  2003
  First quarter...........     $ 2.90          2.05          10.01           4.00         10.38         8.45
  Second quarter..........     $ 2.95          2.10          14.00           7.00         12.25         9.52
  Third quarter (through
    September 10, 2003)...     $ 3.24          2.00          12.00           8.00         12.26        10.47


    Liberty Media's and Liberty Satellite's fiscal year ends on December 31 of
each year. Cash dividends have never been paid with respect to Liberty Media or
Liberty Satellite common stock. It is the current intention of Liberty Media to
retain future earnings to finance operations and expand its

                                       13

business. Liberty Media does not anticipate paying any dividends on its common
stock in the foreseeable future.

    The following table sets forth the closing bid price per share of Liberty
Satellite Series A and Series B common stock as reported on the OTC Bulletin
Board, and the last sale price per share of Liberty Media Series A common stock
as reported on the New York Stock Exchange Composite Transaction Tape, on:

    - August 27, 2003, the last full trading day prior to the public
      announcement of the merger; and

    - [            ], 2003, the last full trading day for which closing prices
      were       available prior to the printing of this proxy
      statement/prospectus.

    The table also presents, under the heading "Equivalent Per Share Price," an
amount equal to the closing price of a share of Liberty Media Series A common
stock on the applicable date multiplied by the merger exchange ratio of 0.2750.
These equivalent per share prices reflect the market value of the Liberty Media
Series A common stock you would have received for each of your shares of Liberty
Satellite common stock if the merger had been completed on the specified dates.
Because the market price of Liberty Media Series A common stock may increase or
decrease before the merger is completed, we urge you to obtain current market
quotations.



                                         LIBERTY SATELLITE   LIBERTY SATELLITE   LIBERTY MEDIA
                                             SERIES A            SERIES B          SERIES A      EQUIVALENT PER
DATES                                      COMMON STOCK        COMMON STOCK      COMMON STOCK     SHARE PRICE
-----                                    -----------------   -----------------   -------------   --------------
                                                                                     
August 27, 2003........................        $2.05               $8.00             $12.01          $3.30
[            ], 2003...................           --                  --                 --             --


                                       14

                      WHERE YOU CAN FIND MORE INFORMATION

    Liberty Media and Liberty Satellite each file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
Liberty Media and Liberty Satellite file at the Securities and Exchange
Commission's public reference room at the following location:

                             Public Reference Room
                             450 Fifth Street, N.W.
                                   Room 1024
                             Washington, D.C. 20549

    Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. The Securities and Exchange
Commission also maintains an internet site that contains reports, proxy
statements and other information regarding Liberty Media and Liberty Satellite.
The address of the Securities and Exchange Commission website is www.sec.gov.
Information contained on any web site referenced in this proxy
statement/prospectus is not incorporated by reference in this proxy
statement/prospectus. Liberty Media's and Liberty Satellite's Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services. Liberty Media filed a registration statement on
Form S-4 to register with the Securities and Exchange Commission its Series A
common stock to be issued to Liberty Satellite stockholders in the merger. This
proxy statement/prospectus is a part of that registration statement. As allowed
by Securities and Exchange Commission rules, this proxy statement/prospectus
does not contain all the information you can find in the registration statement
or the exhibits to the registration statement.

    Securities and Exchange Commission rules allow Liberty Media and Liberty
Satellite to "incorporate by reference" information into this proxy
statement/prospectus, which means that we can disclose important information to
you by referring you to other documents filed separately with the Securities and
Exchange Commission. The information incorporated by reference is an important
part of this proxy statement/prospectus and is deemed to be a part of this proxy
statement/prospectus, except for any information superseded or modified by
information contained directly in this proxy statement/prospectus or in any
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein. This proxy statement/prospectus incorporates by reference the
documents set forth below that have previously been filed with the Securities
and Exchange Commission. These documents contain important information about
each company and its financial condition.

LIBERTY MEDIA

    The following documents filed by Liberty Media (File No. 000-20421) are
hereby incorporated by reference into this proxy statement/prospectus:

    - Annual Report on Form 10-K for the year ended December 31, 2002, filed on
      March 25, 2003, as amended by Amendment No. 1 to the Annual Report on
      Form 10-K/A filed on April 9, 2003;

    - Quarterly Report on Form 10-Q for the three months ended March 31, 2003,
      filed on May 14, 2003;

    - Quarterly Report on Form 10-Q for the six months ended June 30, 2003,
      filed on August 13, 2003;

    - Current Reports on Form 8-K, filed on March 3, 2003, April 11, 2003,
      May 7, 2003, July 8, 2003 and September 10, 2003; and

                                       15

    - The description of Liberty Media's capital stock contained in Annex A to
      its Form 8-A filed under the Securities Exchange Act of 1934 on July 24,
      2001, and any amendment or report filed for the purpose of updating this
      description.

LIBERTY SATELLITE

    The following documents filed by Liberty Satellite (File No. 000-21317) are
hereby incorporated by reference into this proxy statement/prospectus:

    - Annual Report on Form 10-K for the year ended December 31, 2002, filed on
      March 28, 2003;

    - Quarterly Report on Form 10-Q for the three months ended March 31, 2003,
      filed on May 14, 2003;

    - Quarterly Report on Form 10-Q for the six months ended June 30, 2003,
      filed on August 14, 2003 as amended by Amendment No. 1 to the Quarterly
      Report on Form 10-Q/A filed on August 15, 2003; and

    - Current Report on Form 8-K, filed on September 2, 2003.

    A copy of Liberty Satellite's Annual Report on Form 10-K for the year ended
December 31, 2002 and a copy of Liberty Satellite's Form 10-Q/A for the six
months ended June 30, 2003, each as filed with the Securities and Exchange
Commission, accompany this proxy statement/prospectus as ANNEX II.

    All documents filed by Liberty Media pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Securities Exchange Act of 1934, and by Liberty Satellite,
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
subsequent to the date of this proxy statement/prospectus and prior to the
termination of the offering and any reoffering of the securities offered hereby
are incorporated by reference into and are deemed to be a part of this proxy
statement/prospectus from the date of filing of those documents.

    You may request a copy of any and all of the documents incorporated by
reference in this proxy statement/prospectus at no cost, by writing or
telephoning the office of either:



            Investor Relations                                Investor Relations
                                            
         Liberty Media Corporation                   Liberty Satellite & Technology, Inc.
          12300 Liberty Boulevard            or             12300 Liberty Boulevard
         Englewood, Colorado 80112                         Englewood, Colorado 80112
        Telephone: (877) 772-1518                               (720) 875-6861


    TO OBTAIN TIMELY DELIVERY OF REQUESTED DOCUMENTS PRIOR TO THE SPECIAL
STOCKHOLDERS' MEETING, YOU MUST REQUEST THE INCORPORATED INFORMATION NO LATER
THAN [            ], WHICH IS FIVE BUSINESS DAYS PRIOR TO THE MEETING.

    This proxy statement/prospectus incorporates by reference documents of
Liberty Media which include information concerning On Command, Liberty
Satellite, OpenTV Corp., and UnitedGlobalCom, Inc., among other public
companies. All of these companies file reports and other information with the
Securities and Exchange Commission in accordance with the requirements of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Information
incorporated by reference into this proxy statement/prospectus concerning those
companies has been derived from the reports and other information filed by them
with the Securities and Exchange Commission. Those reports and other information
are not incorporated by reference into this proxy statement/prospectus. You may
read and copy any reports and other information filed by those companies with
the Securities and Exchange Commission as set forth above.

                                       16

    You should rely only on the information contained in or incorporated by
reference in this section into the proxy statement/prospectus. We have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement/prospectus. This proxy statement/ prospectus
is dated [            ], 2003. You should not assume that the information
contained in this proxy statement/prospectus is accurate as of any date other
than that date, and neither the mailing of this proxy statement/prospectus to
stockholders nor the issuance of Liberty Media Series A common stock in the
merger shall create any implication to the contrary.

    Liberty Satellite has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Liberty Satellite.

    Liberty Media has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Liberty Media.

    This proxy statement/prospectus may also be used as a prospectus for the
resale by affiliates of Liberty Satellite of shares of Liberty Media Series A
common stock acquired in the merger. Any such resale would be reflected in a
supplement to this proxy statement/prospectus or a post-effective amendment of
the registration statement, as appropriate.

                                       17

                                  RISK FACTORS

    IF YOU HOLD YOUR SHARES OF LIBERTY SATELLITE SERIES A COMMON STOCK OR
SERIES B COMMON STOCK ON THE DATE OF THE MERGER AND DO NOT PROPERLY EXERCISE
YOUR APPRAISAL RIGHTS, YOU WILL RECEIVE SHARES OF LIBERTY MEDIA SERIES A COMMON
STOCK AND WILL BECOME A STOCKHOLDER OF LIBERTY MEDIA. AN INVESTMENT IN OUR
SECURITIES INVOLVES RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS,
AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS AND
IN THE DOCUMENTS WE HAVE INCORPORATED BY REFERENCE, BEFORE DECIDING WHETHER TO
VOTE IN FAVOR OF THE MERGER. ANY OF THE FOLLOWING RISKS COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE VALUE OF OUR SECURITIES.

    ALL REFERENCES IN THESE RISK FACTORS TO "WE", "US", "OUR," "OUR COMPANY" OR
SIMILAR REFERENCES ARE TO LIBERTY MEDIA.

RISK FACTORS RELATING TO THE MERGER

    THE VALUE OF OUR SERIES A COMMON STOCK THAT YOU WILL RECEIVE IN THE MERGER
MAY FLUCTUATE.

    The number of shares of our Series A common stock that you will receive in
the merger will not be adjusted based on changes in the market price of our
Series A common stock. Accordingly, because the market price of our Series A
common stock may fluctuate, the value of the consideration that you receive when
we complete the merger will depend on the market price of our Series A common
stock at that time. We cannot assure you as to the market value of the merger
consideration you will receive when the merger is completed.

    THE PRICE OF OUR SERIES A COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE PRICE OF LIBERTY SATELLITE COMMON STOCK.

    If the merger is completed, you will become a holder of our Series A common
stock. Our businesses are much broader than the businesses of Liberty Satellite,
and the results of our operations, as well as the market price of our Series A
common stock, may be affected by factors different from those affecting Liberty
Satellite's results of operations and the market price of Liberty Satellite
common stock. As a result, factors that had little or no effect on the price of
Liberty Satellite common stock may adversely affect the price of our Series A
common stock.

RISK FACTORS RELATING TO OUR COMPANY

    WE DEPEND 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. Until August of 2001, we were a subsidiary of AT&T Corp. ("AT&T").
AT&T's cable television subsidiaries, which operated under the name AT&T
Broadband, were parties to a combination with Comcast Corporation on
November 18, 2002. At the time of that combination, AT&T Broadband was one of
the two largest operators of cable television systems in the United States and,
together with its cable television affiliates, was the largest single customer
of our programming companies. With respect to some of our programming services
and those of our business affiliates, this was the case by a significant margin.
Today, the combined companies operate the largest number of cable television
systems in the United States. Many of the existing agreements between the former
AT&T Broadband cable television subsidiaries and affiliates and the program
suppliers owned by or affiliated with us were entered into with
Tele-Communications, Inc. ("TCI"), prior to its merger with AT&T in March of
1999. We were a subsidiary of TCI at the time of that merger. There can be no
assurance that our owned and affiliated program suppliers will be able to
negotiate renewal agreements with those cable television subsidiaries and
affiliates on commercially reasonable terms or at all. Although AT&T agreed to
extend any existing affiliation agreement of ours and our affiliates that
expires on or before March 9, 2004 to a date not before March 9, 2009, that
agreement is

                                       18

conditioned on mutual most favored nation terms being offered and the
arrangements being consistent with industry practice. In addition, we cannot
assure you as to what effect, if any, the combination of AT&T Broadband and
Comcast will have on our programming arrangements with the cable subsidiaries
and affiliates of the former AT&T Broadband. We are currently engaged in
litigation with Comcast concerning certain of these programming arrangements.

    THE LIQUIDITY AND VALUE OF OUR INTERESTS IN OUR BUSINESS AFFILIATES MAY BE
ADVERSELY AFFECTED BY STOCKHOLDER AGREEMENTS AND SIMILAR AGREEMENTS TO WHICH WE
ARE A PARTY.

    We own equity interests in a broad range of domestic and international video
programming and communications businesses. A significant portion of the equity
interests we own is held pursuant to stockholder agreements, partnership
agreements and other instruments and agreements that contain provisions that
affect the liquidity, and therefore the realizable value, of those interests.
Most of these agreements subject the transfer of the stock, partnership or other
interests constituting equity interests to consent rights or rights of first
refusal of the other stockholders or partners. In certain cases, a change in
control of our company or of the subsidiary holding our equity interest will
give rise to rights or remedies exercisable by other stockholders or partners,
such as a right to initiate or require the initiation of buy/sell procedures.
Some of our subsidiaries and business affiliates are parties to loan agreements
that restrict changes in ownership of the borrower without the consent of the
lenders. All of these provisions will restrict our ability to sell those equity
interests and may adversely affect the price at which those interests 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 upon 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 US.

    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 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 exercise influence over the management or policies
of an affiliate and enable us to prevent the sale of material assets by a
business affiliate in which we own less than a majority voting interest or
prevent it from paying dividends or making distributions to its stockholders or
partners, they do not enable us to cause these actions to be taken.

    OUR BUSINESS IS SUBJECT TO RISKS OF ADVERSE GOVERNMENT REGULATION.

    Programming services, cable television systems and satellite carriers 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 we have,
or may in the future make, an investment regulates, in varying degrees, the
distribution and content of programming services and foreign investment in
programming companies and wireline and wireless cable communications, satellite
and telephony services. Further material changes in the law and regulatory
requirements must be anticipated, and there can be no assurance that our
business and the business of our affiliates will not be adversely affected by
future legislation, new regulation or deregulation.

                                       19

    WE MAY MAKE SIGNIFICANT CAPITAL CONTRIBUTIONS AND LOANS TO OUR SUBSIDIARIES
AND BUSINESS AFFILIATES TO COVER THEIR OPERATING LOSSES AND FUND THEIR
DEVELOPMENT AND GROWTH, WHICH COULD LIMIT THE AMOUNT OF CASH AVAILABLE TO PAY
OUR OWN FINANCIAL OBLIGATIONS OR TO MAKE ACQUISITIONS OR INVESTMENTS.

    The development of video programming, communications and technology
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 our, and our consolidated
subsidiaries', share of the net losses of affiliates. Our results of operations
included net earnings (losses) attributable to affiliates of $91 million,
$(244) million, $(453) million, $(4,906) million and $(3,485) million for the
six months ended June 30, 2003 and 2002, and for the years ended December 31,
2002, 2001 and 2000, respectively.

    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, 2003, we and our consolidated subsidiaries in
the aggregate had guaranteed various loans, notes payable, letters of credit and
other obligations of certain of our subsidiaries and business affiliates
totaling approximately $966 million.

    To the extent we make loans and capital contributions to our subsidiaries
and business affiliates or we are required to expend cash due to a default by a
subsidiary or business affiliate of any obligation we guarantee, there will be
that much less cash available to us with which to pay our own financial
obligations or make acquisitions or investments.

    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 stockholder and partnership agreements that provide for
possible capital calls on stockholders and partners. Our failure to meet a
capital call, or other commitment to provide capital or loans to a particular
subsidiary or business affiliate, 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 stockholders 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 cash in amounts sufficient to service our financial
obligations" below.

    WE ARE SUBJECT TO THE RISK OF POSSIBLY BECOMING AN INVESTMENT COMPANY.

    Because we are a holding company and a significant portion of our assets
consists of investments in companies in which we own less than a 50% interest,
we run 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
in which we operate our business, nor are registered investment companies
permitted to have many of the relationships that we have with our affiliated
companies.

    To avoid regulation under the Investment Company Act, we monitor the value
of our investments and structure transactions with an eye toward the Investment
Company Act. As a result, we may structure transactions in a less advantageous
manner than if we did not have Investment Company Act concerns, or we may avoid
otherwise economically desirable transactions due to those concerns. In
addition, events beyond our control, including significant appreciation or
depreciation in the market value of certain of our publicly traded holdings,
could result in our inadvertently becoming an

                                       20

investment company. If we were to inadvertently become an 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 we were an 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
Securities and Exchange Commission, 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.

    THOSE OF OUR BUSINESS AFFILIATES THAT OPERATE OUTSIDE OF THE UNITED STATES
ARE SUBJECT TO NUMEROUS OPERATIONAL RISKS.

    A number of our business affiliates operate primarily in countries other
than the United States. Their businesses are thus subject to the following
inherent risks:

    - fluctuations in currency exchange rates;

    - longer payment cycles for sales in foreign countries that may increase the
      uncertainty associated with recoverable accounts;

    - difficulties in staffing and managing international operations; and

    - political unrest that may result in disruptions of services that are
      critical to their businesses.

    THE ECONOMIES IN MANY OF THE OPERATING REGIONS OF OUR INTERNATIONAL BUSINESS
AFFILIATES HAVE RECENTLY EXPERIENCED RECESSIONARY CONDITIONS, WHICH HAVE
ADVERSELY AFFECTED THE FINANCIAL CONDITION OF THEIR BUSINESSES.

    The economies in many of the operating regions of our international business
affiliates have recently experienced moderate to severe recessionary conditions,
including Argentina, Chile, the United Kingdom, Germany and Japan, among others,
which has strained consumer and corporate spending and financial systems and
financial institutions in these areas. As a result, our affiliates have
experienced a reduction in consumer spending and demand for services coupled
with an increase in borrowing costs, which has, in some cases, caused our
affiliates to default on their own indebtedness. We cannot assure you that these
economies will recover in the future or that continued economic weakness will
not lead to further reductions in consumer spending or demand for services. We
also cannot assure you that our affiliates in these regions will be able to
obtain sufficient capital or credit to fund their operations.

    WE HAVE TAKEN SIGNIFICANT IMPAIRMENT CHARGES DUE TO OTHER THAN TEMPORARY
DECLINES IN THE MARKET VALUE OF CERTAIN OF OUR AVAILABLE FOR SALE SECURITIES.

    We own equity interests in a significant number of publicly traded companies
which we account for as available for sale securities. We are required by
accounting principles generally accepted in the United States to determine, from
time to time, whether a decline in the market value of any of those investments
below our cost for that investment is other than temporary. If we determine that
the decline is other than temporary, we are required to write down our cost to a
new cost basis, with the amount of the write-down accounted for as a realized
loss in the determination of net income for the period in which the write-down
occurs. We realized losses of $27 million, $5,134 million, $6,053 million,
$4,101 million and $1,463 million for the six months ended June 30, 2003 and
2002 and the years ended December 31, 2002, 2001 and 2000, respectively, due to
other than temporary declines in the fair value of certain of our available for
sale securities, and we may be required to realize further losses of this nature
in future periods. We consider a number of factors in determining the fair value
of an investment and whether any decline in an investment is other than
temporary. As our assessment of fair value and any resulting impairment losses
requires a high degree of judgment and includes

                                       21

significant estimates and assumptions, the actual amount we may eventually
realize for an investment could differ materially from our assessment of the
value of that investment made in an earlier period.

    WE COULD BE UNABLE IN THE FUTURE TO OBTAIN CASH IN AMOUNTS SUFFICIENT TO
SERVICE OUR FINANCIAL OBLIGATIONS.

    Our ability to meet our financial obligations depends upon our ability to
access cash. We are a holding company, and our sources of cash include our
available cash balances, net cash from operating activities, dividends and
interest from our investments, availability under credit facilities,
monetization of our public investment portfolio and proceeds from asset sales.
We cannot assure you that we will maintain significant amounts of cash, cash
equivalents or marketable securities in the future.

    We obtained from Liberty Satellite net cash in the form of dividends in the
amount of $8 million, $23 million and $5 million in calendar years 2002, 2001
and 2000, respectively. We did not obtain any cash from our subsidiaries during
the six months ended June 30, 2003. The ability of our operating subsidiaries to
pay dividends or to make other payments or advances to us depends on their
individual operating results and any statutory, regulatory or contractual
restrictions to which they may be or may become subject. Some of our
subsidiaries 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.

    We generally do not receive cash, in the form of dividends, loans, advances
or otherwise, from our business affiliates. In this regard, we do not have
sufficient voting control over most of our business affiliates to cause those
companies to pay dividends or make other payments or advances to their partners
or stockholders, including us.

    WE ARE SUBJECT TO 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 TO US.

    Our 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,
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 our company;

       - permit us to meet our loan and capital commitments to our business
         affiliates;

       - allow us to help fund the operating losses or future development of our
         business affiliates; 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

                                       22

    - 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
parties require them to maintain financial ratios, including ratios of total
debt to operating cash flow and operating cash flow to interest expense. If our
subsidiaries fail to comply with the covenant restrictions contained in the
credit agreements, that failure could result in a default that accelerates the
maturity of the indebtedness under those agreements. Such a default could also
result in indebtedness under other credit agreements and certain debt securities
becoming due and payable due to the existence of cross-default or
cross-acceleration provisions of these credit agreements and in the indentures
governing these debt securities.

    As of June 30, 2003, the subsidiary of our company that operates the DMX
Music service was not in compliance with three covenants contained in its bank
loan agreement, under which it has $89 million outstanding. Although the
subsidiary and the participating banks have entered into a forbearance agreement
whereby the banks have agreed to forbear from exercising certain default-
related remedies against the subsidiary through March 31, 2004, we cannot assure
you that the subsidiary will be able to regain covenant compliance or refinance
the bank loan or that the banks will not eventually seek to exercise their
remedies. Another consolidated subsidiary of our company, On Command
Corporation, which is also a consolidated subsidiary of Liberty Satellite,
reached agreement with its bank lenders to postpone until October 1, 2003, a
step down of the leverage ratio covenant of its bank facility. In the absence of
this postponement, On Command would not have been in compliance with the
leverage ratio covenant at June 30, 2003. At June 30, 2003, On Command had
$266 million of borrowings outstanding under its bank facility.

RISKS RELATING TO OUR SERIES A COMMON STOCK

    OUR STOCK PRICE MAY DECLINE SIGNIFICANTLY BECAUSE OF STOCK MARKET
FLUCTUATIONS THAT AFFECT THE PRICES OF THE PUBLIC COMPANIES IN WHICH WE HAVE
OWNERSHIP INTERESTS.

    The stock market has recently experienced significant price and volume
fluctuations that have affected the market prices of securities of media and
other technology companies. We own equity interests in many media and technology
companies. If market fluctuations cause the stock price of these companies to
decline, our stock price may decline.

    OUR STOCK PRICE HAS FLUCTUATED SIGNIFICANTLY OVER THE LAST YEAR.

    During the past year, the stock market has experienced significant price and
volume fluctuations that have affected the market prices of our stock. In the
future, our stock price may be materially affected by, among other things:

    - actual or anticipated fluctuations in our operating results or those of
      the companies in which we invest;

    - potential acquisition activity by our company or the companies in which we
      invest;

    - issuances of debt or equity securities by us to raise capital;

    - changes in financial estimates by securities analysts regarding our
      company or companies in which we invest; or

    - general market conditions.

                                       23

    IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IF DOING SO MAY BE
BENEFICIAL TO OUR STOCKHOLDERS.

    Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of our company that a
stockholder may consider favorable. These provisions include the following:

    - authorizing a dual class structure, which entitles the holders of our
      Series B common stock to ten votes per share and the holders of our
      Series A common stock to one vote per share;

    - authorizing the issuance of "blank check" preferred stock that could be
      issued by our board of directors to increase the number of outstanding
      shares and thwart a takeover attempt;

    - classifying our board of directors with staggered three-year terms, which
      may lengthen the time required to gain control of our board of directors;

    - limiting who may call special meetings of stockholders;

    - prohibiting stockholder action by written consent, thereby requiring all
      stockholder actions to be taken at a meeting of the stockholders; and

    - establishing advance notice requirements for nominations of candidates for
      election to the board of directors or for proposing matters that can be
      acted upon by stockholders at stockholder meetings.

    Our chairman, John C. Malone, holds the power to direct the vote of
approximately 44% of our outstanding voting power, including the power to direct
the vote of approximately 94% of the outstanding shares of our Series B common
stock. Dr. Malone holds a portion of his voting power over our Series B common
stock pursuant to a stockholders agreement with the Estate of Bob Magness, the
late Kim Magness, Gary Magness and certain limited liability companies
controlled by the Magnesses.

    Section 203 of the Delaware corporate statute and our stock incentive plan
may also discourage, delay or prevent a change in control of our company even if
such change of control would be in the best interests of our stockholders.

                                       24

           CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

    CERTAIN STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS, INCLUDING DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. TO THE
EXTENT THAT SUCH STATEMENTS ARE NOT RECITATIONS OF HISTORICAL FACT, SUCH
STATEMENTS CONSTITUTE FORWARD-LOOKING STATEMENTS WHICH, BY DEFINITION, INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. WHEN USED IN THIS PROXY
STATEMENT/PROSPECTUS AND IN OUR INCORPORATED DOCUMENTS, 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. WHERE, IN ANY FORWARD-LOOKING
STATEMENT, WE EXPRESS AN EXPECTATION OR BELIEF AS TO FUTURE RESULTS OR EVENTS,
SUCH EXPECTATION OR BELIEF IS EXPRESSED IN GOOD FAITH AND BELIEVED TO HAVE A
REASONABLE BASIS, BUT THERE CAN BE NO ASSURANCE THAT THE STATEMENT OF
EXPECTATION OR BELIEF WILL RESULT OR BE ACHIEVED OR ACCOMPLISHED.
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHER THINGS, THE FACTORS DESCRIBED
ABOVE UNDER THE "RISK FACTORS" SECTION OF THIS PROXY STATEMENT/PROSPECTUS AND
THE FOLLOWING FACTORS THAT COULD CAUSE ACTUAL RESULTS OR EVENTS TO DIFFER
MATERIALLY FROM THOSE ANTICIPATED:

    - general economic and business conditions and industry trends;

    - spending on domestic and foreign television advertising;

    - the regulatory and competitive environment of the industries in which we,
      and the entities in which we have interests, operate;

    - continued consolidation of the broadband distribution industry;

    - uncertainties inherent in new business strategies, new product launches
      and development plans;

    - rapid technological changes;

    - the acquisition, development and/or financing of telecommunications
      networks and services;

    - the development and provision of programming for new television and
      telecommunications technologies;

    - future financial performance, including availability, terms and deployment
      of capital;

    - the ability of vendors to deliver required equipment, software and
      services;

    - the outcome of any pending or threatened litigation;

    - availability of qualified personnel;

    - changes in, or our failure or inability to comply with, government
      regulations, including, without limitation, regulations of the Federal
      Communications Commission, and adverse outcomes from regulatory
      proceedings;

    - changes in the nature of key strategic relationships with partners and
      joint venturers;

    - competitor responses to our products and services, and the products and
      services of the entities in which we have interests, and the overall
      market acceptance of these products and services; and

    - actual or threatened terrorist attacks and ongoing military action,
      including armed conflict in the Middle East and other parts of the world.

    THESE FORWARD-LOOKING STATEMENTS AND SUCH RISKS, UNCERTAINTIES AND OTHER
FACTORS SPEAK ONLY AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS. WE
EXPRESSLY DISCLAIM ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR
REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN, TO REFLECT ANY
CHANGE IN OUR EXPECTATIONS WITH REGARD THERETO, OR ANY OTHER CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.

                                       25

                      THE COMPANIES INVOLVED IN THE MERGER

LIBERTY MEDIA

    Liberty Media owns interests in a broad range of video programming, media,
broadband distribution, interactive technology services and communications
businesses. Liberty Media and its affiliated companies operate in the United
States, Europe, South America and Asia. Its principal assets include interests
in Starz Encore Group LLC, Ascent Media Group, Inc., On Command Corporation,
Discovery Communications, Inc., UnitedGlobalCom, Inc., Jupiter
Telecommunications Co., Ltd., QVC, Inc., Court Television Network, Game Show
Network, AOL Time Warner Inc., IAC/ InterActiveCorp, Sprint PCS Group and The
News Corporation Limited. For more detailed information on the business of
Liberty Media, please see the section entitled "Where You Can Find More
Information," on page 15 of this proxy statement/prospectus.

LIBERTY SATELLITE

    Liberty Satellite is a majority-owned subsidiary of Liberty Media. Liberty
Satellite's primary operating subsidiary is On Command Corporation, in which
Liberty Satellite owns approximately 74% of the outstanding common stock and 80%
of the outstanding voting power. On Command provides in-room, on-demand
entertainment and information services to hotels, motels and resorts. In
addition, Liberty Satellite pursues strategic opportunities worldwide in the
distribution of Internet data and other content via satellite and related
businesses. Currently, Liberty Satellite conducts its business through strategic
investments in, and contractual arrangements with, various entities that
operate, or are developing, satellite and terrestrial wireless networks for
broadband distribution of Internet access, video programming, streaming media
and other data.

    The following table sets forth information concerning Liberty Satellite's
significant subsidiaries and business affiliates. Ownership percentages in the
table are approximate, calculated as of June 30, 2003, and, where applicable and
except where otherwise noted, assume conversion of Liberty Satellite's ownership
interest to common equity. In addition to the following discussion, for more
detailed information on the business of Liberty Satellite, please see Liberty
Satellite's annual report on Form 10-K for the fiscal year ended December 31,
2002 and its quarterly report on Form 10-Q/A for the six months ended June 30,
2003, each of which accompany this proxy statement/prospectus as ANNEX II, and
the section entitled "Where You Can Find More Information," on page 15 of this
proxy statement/prospectus.



                                             PERCENTAGE
                                            OWNERSHIP AT
                                              JUNE 30,
ENTITY                                          2003                 DESCRIPTION OF BUSINESS
------                                      ------------   --------------------------------------------
                                                     
On Command................................           74%   Provides in-room, on demand video
                                                           entertainment and information services to
                                                           hotels, motels and resorts.

Astrolink International LLC...............         50.3%   Building a Ka-band satellite network to
                                                           provide broadband data communications
                                                           services to businesses.

WildBlue Communications, Inc..............           32%   Building a Ka-band satellite network to
                                                           provide broadband data communications
                                                           services to homes and small offices in North
                                                           America and Latin America.

Sky Latin America.........................           10%   Operates a satellite-delivered television
                                                           platform serving Mexico, Brazil, Colombia
                                                           and Chile.


                                       26




                                             PERCENTAGE
                                            OWNERSHIP AT
                                              JUNE 30,
ENTITY                                          2003                 DESCRIPTION OF BUSINESS
------                                      ------------   --------------------------------------------
                                                     
Hughes Electronics Corporation (NYSE:
  GMH)....................................  less than 1%   Provides digital television, entertainment,
                                                           satellite services and satellite-based
                                                           private business networks.

XM Satellite Radio Holdings, Inc.
  (NASDAQ: XMSR)..........................  less than 1%   Provides 100 national audio channels from
                                                           two satellites directly to vehicle, home and
                                                           portable radios.


    ON COMMAND CORPORATION

    On Command provides in-room, video entertainment and information services to
hotels, motels and resorts. At June 30, 2003, On Command provided in-room
entertainment services to approximately 885,000 hotel rooms. Approximately 89%
of On Command's total equipped rooms at June 30, 2003 were located in the United
States, with the balance located primarily in Canada and Mexico.

    ASTROLINK INTERNATIONAL LLC

    In March 2000, Liberty Satellite acquired an approximate 31.5% ownership
interest in ASTROLINK International LLC ("Astrolink"). Astrolink, a
developmental stage entity, was originally established to build a global telecom
network using Ka-band geostationary satellites to provide broadband data
communications services. Astrolink's original business plan required substantial
financing. During the fourth quarter of 2001, certain of the members of
Astrolink informed Astrolink that they did not intend to provide any of
Astrolink's remaining required financing. In light of this decision, Astrolink
and the Astrolink members considered several alternatives with respect to
Astrolink's proposed business plan.

    During the second quarter of 2002, Liberty Satellite signed a non-binding
letter of intent with the other members of Astrolink in connection with a
proposed restructuring of Astrolink. In January 2003, Liberty Satellite
announced that it had reached agreement with the other members of Astrolink in
connection with such proposed restructuring. As a part of the Astrolink
restructuring, Astrolink redeemed the interest of one member in January 2003 and
another member in April 2003. As a result of such redemptions, Liberty
Satellite's ownership interest in Astrolink has increased to 50.3%, and the
ownership interest of the other remaining member has increased to 49.7%.
Notwithstanding Liberty Satellite's ownership interest in Astrolink, Liberty
Satellite does not have a controlling financial interest in Astrolink due to the
significant participatory rights of the other remaining Astrolink member.
Accordingly, Liberty Satellite will continue to use the equity method to account
for its investment in Astrolink.

    Under the Astrolink restructuring agreement, Liberty Satellite would acquire
substantially all of the assets of Astrolink, subject to the closing conditions
and other terms and conditions provided for therein. Astrolink simultaneously
signed agreements with Lockheed Martin Corporation and Northrop Grumman Space &
Mission Systems Corp. for completion of two satellites. The parties also reached
agreement on the settlement of all claims related to the previous termination of
Astrolink's major procurement contracts and all other major third party creditor
claims. The closing of Liberty Satellite's acquisition of the Astrolink business
is subject to Liberty Satellite's obtaining satisfactory funding for the
business from additional investors, third party sources of financing, or firm
capacity commitments from prospective customers. The closing is also subject to
regulatory approvals and other closing conditions. Subject to the satisfaction
of these closing conditions, the closing is expected to occur on or

                                       27

before October 31, 2003. The United States Federal Communications Commission
granted its approval with respect to the Astrolink restructuring on May 22,
2003.

    If the closing occurs, Liberty Satellite would pay approximately
$43 million in cash and would issue approximately $3 million in value of
Series A common stock as total consideration for the Astrolink assets, including
certain existing satellite and launch contracts, and the settlement of all
claims against Astrolink. In addition, pursuant to the Astrolink restructuring
agreement, Liberty Satellite agreed to provide additional interim funding for
Astrolink pending closing. If the transactions are consummated, Liberty Media
would make a capital contribution to Liberty Satellite in an amount equal to 10%
of the estimated fair value of Liberty Media's equity holdings in Liberty
Satellite at the time of closing, up to a maximum commitment of $55 million, in
exchange for shares of Liberty Satellite's Series B common stock.

    Liberty Satellite currently plans to pursue a revised operating plan for the
new Astrolink system, taking into account financial and market factors. The
revised operating plan currently contemplates launching one or two Ka-band
satellites to provide enterprise customers in up to two of North America, Europe
or Asia with virtual private networks and related advanced services, and to
provide various government agencies with a solution to their expanding needs for
bandwidth.

    If the Astrolink restructuring is not consummated due to lack of financing
or the failure to satisfy other closing conditions, Liberty Satellite would
receive $7.8 million in exchange for its ownership interest in Astrolink and for
all notes evidencing interim loans made by Liberty Satellite to Astrolink as
prescribed in the Astrolink restructuring agreement.

    WILDBLUE COMMUNICATIONS, INC.

    WildBlue Communications, Inc. was established to build a Ka-band satellite
network to provide broadband data communications services to homes and small
offices in North America and Latin America. Other strategic investors in
WildBlue include Intelsat USA Sales Corp., National Rural Telecommunications
Cooperative and KPCB Holdings, Inc. (an affiliate of Kleiner Perkins Caufield &
Byers).

    In December 2002, Liberty Satellite announced that it agreed to increase its
investment in WildBlue. Prior to the announcement, Liberty Satellite had an
approximate 16% ownership interest in WildBlue. On April 21, 2003, Liberty
Satellite invested $58 million in return for senior preferred stock and warrants
of WildBlue, which increased its ownership interest to approximately 32%. Other
existing and new investors concurrently invested $98 million in WildBlue for a
total new investment of $156 million. Liberty Satellite is currently the largest
shareholder in WildBlue.

    WildBlue has leased the Ka-band capacity of a satellite, which WildBlue
currently expects to be launched in the second quarter of 2004, and WildBlue
currently expects to begin providing broadband data services in late 2004 or
early 2005.

    In connection with the April 2003 investment in WildBlue, Liberty Satellite
entered into a put agreement with KPCB Holdings. Pursuant to this put agreement,
KPCB Holdings will have the right to put its entire interest in WildBlue to
Liberty Satellite and another investor in WildBlue for $10,000,000, the amount
of KPCB Holdings' investment in WildBlue in the April 2003 financing round.
Liberty Satellite and such other investor are each responsible for $5,000,000 of
the aggregate $10,000,000 put obligation. The put may be exercised at any time
on or before April 21, 2007.

    SKY LATIN AMERICA

    Liberty Satellite has a 10% interest in each of three Latin American
satellite television operators, together known as Sky Latin America, serving
Mexico, Brazil, Colombia and Chile. Sky Latin America offers entertainment and
services via satellite to households through its various owned and affiliated

                                       28

distribution platforms worldwide. The Sky Latin America entities distribute
their programming primarily via direct-to-home or DTH platforms, allowing their
subscribers to access a variety of channels covering general entertainment,
music, movies, sports, kids, news, documentaries and education genres with their
television remote controls. Other major investors in Sky Latin America include
The News Corporation Limited, Grupo Televisa and Globo Comunicacoes e
Particpacoes. Liberty Satellite has severally guaranteed certain obligations of
the Sky Latin America entities. During the fourth quarter of 2002, Globo
Comunicacoes ceased funding certain of the Sky Latin America entities.

    HUGHES ELECTRONICS CORPORATION

    Hughes (NYSE: GMH), a subsidiary of General Motors Corporation, provides
digital television entertainment, satellite services and satellite-based private
business networks. At June 30, 2003, Liberty Satellite owned 1.8 million shares
of GM Hughes Stock.

    XM SATELLITE RADIO HOLDINGS, INC.

    XM Satellite Radio Holdings (Nasdaq: XMSR) offers approximately 100 national
audio channels from two satellites directly to vehicle, home and portable
radios. At June 30, 2003, Liberty Satellite owned 1.0 million shares of XM
Satellite Radio Holdings.

                                       29

                              THE SPECIAL MEETING

GENERAL

    This proxy statement/prospectus is first being mailed, on or about
[            ], 2003, to all persons who were Liberty Satellite stockholders of
record on [            ], 2003.

    Liberty Satellite stockholders are being provided with a notice of special
meeting and a form of proxy card that is solicited by Liberty Satellite's board
of directors for use at the special meeting of Liberty Satellite stockholders
and at any adjournments or postponements of that meeting.

    At the special meeting, Liberty Satellite stockholders will consider and
vote upon a proposal to approve the merger agreement, dated as of August 26,
2003, among Liberty Satellite, Liberty Media and Liberty Satellite Acquisition
Co., a controlled (through direct and indirect ownership interests) subsidiary
of Liberty Media, and the merger contemplated thereby pursuant to which Liberty
Satellite Acquisition Co. will merge with and into Liberty Satellite. As a
result, Liberty Media would acquire all of the publicly held common stock of
Liberty Satellite that it does not already beneficially own.

    The special meeting of Liberty Satellite stockholders will be held at the
following time and place:

                                           , 2003
                                     , local time
                               [Meeting Location]
                           [Meeting Location Address]
                           [Meeting Location Address]

PROXIES

    Liberty Satellite stockholders may vote their shares by completing, signing,
dating and returning the enclosed proxy card solicited by Liberty Satellite's
board of directors if they are unable to attend the special meeting in person or
wish to have their shares of Liberty Satellite common stock voted by proxy even
if they do attend the meeting.

    A Liberty Satellite stockholder may revoke any proxy given in connection
with this solicitation by:

    - Delivering a written notice revoking the proxy prior to the taking of the
      vote at the special meeting;

    - Delivering a duly executed proxy relating to the same shares bearing a
      later date; or

    - Attending the meeting and voting in person (however, attendance at the
      special meeting without voting at the meeting will not in and of itself
      constitute a revocation of a proxy).

    Liberty Satellite stockholders should address all written notices of
revocation and other communications with respect to the revocation of proxies to
the following:

                      Liberty Satellite & Technology, Inc.
                         Attention: Corporate Secretary
                            12300 Liberty Boulevard
                           Englewood, Colorado 80112

    For a notice of revocation or later proxy to be valid, however, Liberty
Satellite must actually receive it prior to the vote of Liberty Satellite
stockholders at the special meeting. All shares of Liberty Satellite common
stock represented by valid proxies received through this solicitation and not
revoked prior to their exercise will be voted (or not voted) in accordance with
the voting instructions specified on the proxy card. If no specification is made
on the proxy card, shares of Liberty Satellite common stock represented by valid
proxies received and not revoked prior to their exercise will be voted for the

                                       30

adoption of the merger agreement and the approval of the merger and in the best
judgment of the proxy holder as to any other matters that properly may come
before the special meeting.

    Liberty Satellite is currently unaware of any other matters that may be
presented for action at the special meeting. If other matters do properly come
before the special meeting, including, among other things, consideration of a
motion to adjourn the special meeting to another time and/or place, then shares
of Liberty Satellite common stock represented by proxies will be voted (or not
voted) by the persons named in the proxies in their best judgment.

    STOCKHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.

RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE

    Liberty Satellite's board of directors has fixed the close of business on
[            ], 2003 as the record date for the determination of Liberty
Satellite stockholders entitled to receive notice of and to vote at Liberty
Satellite's special meeting of stockholders. Accordingly, only Liberty Satellite
stockholders of record at the close of business on [            ], 2003 will be
entitled to notice of and to vote at the special meeting.

    At the close of business on Liberty Satellite's record date, there were
[      ] shares of Liberty Satellite Series A common stock entitled to vote at
the special meeting held by approximately [      ] holders of record, and there
were [      ] shares of Liberty Satellite Series B common stock entitled to vote
at the special meeting held by approximately [      ] holders of record. In
addition, on the record date, there were 150,000 shares of Liberty Satellite
Series B preferred stock entitled to vote at the special meeting, all of which
are held by wholly-owned subsidiaries of Liberty Media. The Series B preferred
stock, which is convertible into Series B common stock, is entitled to vote
together with Liberty Satellite common stockholders on all matters submitted to
the Liberty Satellite common stockholders, with holders of the Series B
preferred stock to have 558 votes per share.

QUORUM; VOTING RIGHTS AND VOTE REQUIRED

    The presence, in person or by proxy, of a majority of the total voting power
of the outstanding shares of stock entitled to vote at the Liberty Satellite
special meeting is necessary to constitute a quorum.

    Each share of Liberty Satellite Series A common stock outstanding on Liberty
Satellite's record date entitles its holder to one vote, and each share of
Liberty Satellite Series B common stock outstanding on the record date entitles
its holder to ten votes, as to the approval of the merger agreement and the
merger or any other proposal that may properly come before the special meeting.

    For purposes of determining the presence or absence of a quorum for the
transaction of business, Liberty Satellite will count shares of Liberty
Satellite common stock present in person at the special meeting but not voting,
and shares of Liberty Satellite common stock for which it has received proxies
but with respect to which holders of such shares have abstained, as present at
the special meeting. Abstentions are counted as present at the Liberty Satellite
special meeting for purposes of determining whether a quorum exists, but will
have the effect of a vote against the proposal to adopt the merger agreement and
approve the merger.

    If your shares are registered in the name of a broker or other "street name"
nominee, your votes will only be counted as to those matters actually voted. If
you do not provide voting instructions (commonly referred to as "broker
non-votes"), your shares will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not be
voted in favor of the proposal to adopt the merger agreement and approve the
merger. As with abstentions, broker non-votes will also have the effect of a
vote against the proposal to adopt the merger agreement and approve the merger.

                                       31

    Under Delaware law, adoption of the merger agreement and approval of the
merger requires the affirmative vote of the holders of a majority of all votes
entitled to be cast at the special meeting. Liberty Media is the beneficial
owner of 8,145,659 shares of Liberty Satellite Series A common stock and
36,028,982 shares of Liberty Satellite Series B common stock (which includes
1,696,717 shares issuable upon conversion of Liberty Satellite Series B
preferred stock), which shares represent approximately 98% of the total voting
power of Liberty Satellite stockholders entitled to vote at the special meeting.
In connection with the merger agreement, Liberty Media has agreed with Liberty
Satellite to vote its shares in favor of the merger agreement and the merger,
which would assure that a quorum would be present and the merger would be
approved at the special meeting without any action on the part of any other
holder of Liberty Satellite common stock. Accordingly, it is expected that the
merger agreement will be adopted and the merger will be approved at the special
meeting.

    As of the record date, the directors and executive officers of Liberty
Satellite owned [      ] shares of Series A common stock, [      ] shares of
Series B common stock and no shares of preferred stock, and held exercisable
options to acquire [      ] shares of Liberty Satellite Series A common stock
and [      ] shares of Liberty Satellite Series B common stock.

EXPENSES; SOLICITATION OF PROXIES

    Pursuant to the merger agreement, costs and expenses incurred in connection
with the printing and mailing of this proxy statement/prospectus will be paid
50% by Liberty Media and 50% by Liberty Satellite. In addition to solicitation
by mail, proxies may be solicited by directors, officers and employees of
Liberty Satellite in person or by telephone, telegram or other means of
communication. Liberty Satellite directors, officers and employees will receive
no additional compensation for these services, but may be reimbursed for
reasonable out-of-pocket expenses in connection with any solicitations.
Brokerage firms, banks, nominees, fiduciaries and other custodians will be
requested to forward proxy solicitation materials to the beneficial owners of
shares held of record by them, and will be reimbursed for the reasonable
expenses incurred by them in connection therewith.

VOTING OF SHARES HELD BY BROKERAGE FIRM OR OTHER NOMINEE

    If your shares of Liberty Satellite common stock are held in the name of a
brokerage firm, bank nominee or other institution, only it can sign a proxy card
with respect to your shares of Liberty Satellite common stock. Accordingly,
please contact the person responsible for your account and give instructions for
a proxy card to be signed representing your shares of Liberty Satellite common
stock.

                                       32

                                   THE MERGER

GENERAL

    The merger agreement provides for the acquisition of Liberty Satellite by
Liberty Media, through the merger of Liberty Satellite Acquisition Co., a
controlled (through direct and indirect ownership interests) subsidiary of
Liberty Media, with and into Liberty Satellite which will be the surviving
corporation. As a result of the merger, Liberty Media will acquire all of the
publicly held common stock of Liberty Satellite that it does not already
beneficially own.

    In the merger, each outstanding share of Liberty Satellite Series A and
Series B common stock will be converted into 0.2750 of a share of Liberty Media
Series A common stock (except for any shares for which appraisal rights are
exercised and except for those shares owned by Liberty Satellite Acquisition
Co., Liberty Media and its wholly-owned subsidiaries). If the number of shares
of Liberty Media Series A common stock that you would receive in the merger
includes a fraction of a share of Liberty Media Series A common stock, Liberty
Media will instead pay you an equivalent cash amount, as described below, rather
than give you a fractional share of Liberty Media Series A common stock.

    This proxy statement/prospectus also constitutes a prospectus of Liberty
Media, which forms a part of the registration statement on Form S-4 filed by
Liberty Media with the Securities and Exchange Commission under the Securities
Act of 1933 in order to register the shares of Liberty Media Series A common
stock to be issued to Liberty Satellite's stockholders in the merger. The total
number of shares of Liberty Media Series A common stock to be issued in the
merger, based on the number of shares of Liberty Satellite Series A and
Series B common stock outstanding on July 31, 2003, is approximately
1,805,468 million. Up to 88,258 additional shares of Liberty Media Series A
common stock included in this registration statement will be reserved for
issuance upon the exercise of options and other rights for Liberty Satellite
Series A and Series B common stock outstanding on the effective date of the
merger or upon the conversion in the merger of any shares of Liberty Satellite
Series A common stock issued upon any exercise of these outstanding options or
rights prior to the effective date of the merger.

BACKGROUND OF THE MERGER

    CERTAIN PRIOR TRANSACTIONS AND NEGOTIATIONS

    Liberty Satellite is currently a majority-owned subsidiary of Liberty Media.
Liberty Media holds approximately 87% of Liberty Satellite's common stock and
100% of Liberty Satellite's preferred stock, which collectively represents
approximately 98% of the overall voting power of Liberty Satellite's common and
preferred stock.

    In March 2000, Liberty Satellite completed two concurrent transactions with
Liberty Media, which resulted in Liberty Satellite becoming a consolidated
subsidiary of Liberty Media. In the first transaction, Liberty Satellite
acquired from Liberty Media its beneficial interest in approximately 5 million
shares of Sprint Corporation PCS Group common stock in exchange for
$150 million worth of shares of Liberty Satellite's Series A preferred stock and
$150 million worth of shares of Liberty Satellite's Series B preferred stock.
The Series B preferred stock is convertible into shares of Liberty Satellite's
Series B common stock and has super voting rights, which gave Liberty Media
voting control over Liberty Satellite. In the second transaction, Liberty
Satellite and Liberty Media formed a joint venture, Liberty Satellite, LLC
("LSAT LLC"), owned 10.59% by Liberty Satellite, as managing member, and 89.41%
by Liberty Media, to hold and manage interests in entities that distribute
Internet data and other content via satellite and related businesses.

    In a related transaction at that same time, Liberty Satellite paid Liberty
Media $60 million in the form of an unsecured promissory note in exchange for a
13.99% interest in Liberty Satellite Astro LLC. Liberty Satellite Astro LLC is a
limited liability company whose assets included an approximate 31.5%

                                       33

interest in Astrolink and $250 million in cash. The remaining interest held by
Liberty Media in Liberty Satellite Astro LLC was contributed by Liberty Media to
LSAT LLC.

    On August 16, 2001, Liberty Satellite entered into two interrelated purchase
agreements with Liberty Media and its affiliates. One agreement provided for
Liberty Satellite's acquisition of certain subsidiaries of Liberty Media that
collectively held the 89.41% ownership interest in LSAT LLC not already owned by
Liberty Satellite in exchange for 25,298,279 shares of Liberty Satellite's
Series B common stock. The second agreement provided for the acquisition by
Liberty Satellite of 100% of the stock of Ascent Entertainment Group, Inc.
("Ascent Entertainment") from a subsidiary of Liberty Media in exchange for
8,701,621 shares of Liberty Satellite's Series B common stock. Ascent
Entertainment's primary operating subsidiary is On Command. The closing under
each of the August 2001 purchase agreements was conditioned upon the closing of
the other.

    On October 12, 2001, prior to the closing of the transaction contemplated by
the August 2001 purchase agreements, Liberty Media submitted to Liberty
Satellite's board of directors a proposal to acquire all the issued and
outstanding shares of common stock of Liberty Satellite that Liberty Media did
not already own in a stock-for-stock merger. Pursuant to the October 2001 merger
proposal, Liberty Satellite stockholders would have received 0.9 of a share of
Liberty Media Series A common stock for each share of Liberty Satellite common
stock held (as adjusted to reflect the Reverse Split). The stock-for-stock
merger would have superseded and replaced the stock-for-assets purchase
transaction provided for by the August 2001 purchase agreements. Accordingly,
Liberty Satellite and Liberty Media announced that the transaction under the
August 2001 purchase agreements would be suspended to give Liberty Satellite's
board of directors an opportunity to consider and respond to Liberty Media's
October 2001 merger proposal.

    On October 18, 2001, Liberty Satellite's board of directors formed a special
committee of the board consisting of Messrs. Alan M. Angelich, John W. Goddard
and J. Curt Hockemeier to consider the October 2001 merger proposal. The special
committee convened telephonically six times during October and November 2001 to
discuss the terms of the October 2001 merger proposal and related matters,
including the appropriate criteria for evaluating the merger proposal, and
potential strategic alternatives, including the stock-for-assets transaction
provided for by the August 2001 purchase agreements. The special committee
engaged separate legal counsel to advise the committee in this regard and
interviewed various investment banking firms as potential financial advisors.

    Following the announcement of the October 2001 merger proposal, two
purported class action complaints were filed in District Court in Arapahoe
County, Colorado, and eight purported class action complaints were filed in the
Court of Chancery in New Castle County, Delaware. Each complaint named Liberty
Media, Liberty Satellite and members of the board of directors of Liberty
Satellite (and in one case certain officers of Liberty Satellite) as defendants,
and alleged various breaches of duty and other claims in connection with the
proposed merger. The plaintiffs generally sought preliminary and permanent
injunctive relief, and if the transaction were consummated, an order rescinding
the transaction or damages.

    On November 30, 2001, the board of directors of Liberty Satellite met to
consider extending the deadline for the stock-for-assets transaction provided
for in the August 2001 purchase agreements. The original deadline under the
August 2001 purchase agreements had been January 5, 2002, and the terms of those
agreements provided that, after such date, either party could terminate the
agreements and abandon the proposed transaction, by notice to the other party.
Members of Liberty Satellite's management and legal counsel were present at the
meeting to answer questions regarding the stock-for-assets transaction.

    The Liberty Satellite board of directors noted, and Liberty Media's
representatives acknowledged, that investor reaction to Liberty Media's
October 2001 merger proposal had not been positive, and consensus was reached
that it would not be in the best interests of Liberty Satellite and its public

                                       34

stockholders to permit the August 2001 purchase agreements to expire. The
Liberty Satellite board then determined to proceed with the stock-for-assets
transaction provided for in the August 2001 purchase agreements and approved
amendments to such definitive agreements, which extended the deadline for that
transaction.

    On December 3, 2001, Liberty Media announced that it was withdrawing the
October 2001 merger proposal, and both Liberty Satellite and Liberty Media
stated that they would proceed with the stock-for-assets transaction provided
for in the August 2001 purchase agreements. The stock-for-assets transaction
provided for in the August 2001 purchase agreements was approved by the
stockholders of Liberty Satellite at Liberty Satellite's annual meeting of
stockholders on March 26, 2002, and was consummated on April 1, 2002.

    Each of the Series A preferred stock and Series B preferred stock of Liberty
Satellite which were issued to Liberty Media and its affiliates in the
March 2000 transactions have dividend rights. The Series A preferred stock
accrues dividends, payable quarterly, at 12% per annum through and including
March 31, 2005, 11% per annum from April 1, 2005 through and including
March 31, 2010 and 10% per annum thereafter, and the Series B preferred stock
accrues dividends, payable quarterly, at 8% per annum. Until March 31, 2003, the
dividends were permitted to be paid in cash or in shares of Liberty Satellite's
Series A common stock. On June 20, 2000, August 3, 2000 and September 20, 2000,
Liberty Satellite issued 8,996, 86,439 and 70,556 shares of Series A common
stock (as such amounts are adjusted to reflect the Reverse Split), respectively,
to Liberty Media and its affiliates in satisfaction of its respective dividend
obligations for the initial three quarters of 2000 (including the partial period
from the date of issuance through March 31, 2000). Such issuances were made in
lieu of a cash payment of dividends on Liberty Satellite's Series A and
Series B preferred stock and were valued at $1.233 million, $7.5 million and
$7.5 million, respectively. In 2001, Liberty Satellite made a cash payment in
the amount of $7.5 million in satisfaction of its dividend obligations for the
fourth quarter of 2000.

    Liberty Satellite also satisfied its dividend obligation for the first and
third quarters of 2001 with a cash payment of $7.5 million for each quarter.
Liberty Satellite's dividend payment for the second quarter of 2001 was made by
issuing 204,571 shares of Series A common stock (as adjusted for the Reverse
Split), valued at $7.5 million, to Liberty Media and its affiliates. On July 1,
2002, Liberty Satellite issued 1,970,580 shares of Series A common stock, worth
$15 million, to Liberty Media and its affiliates in satisfaction of its dividend
obligations for the last quarter of 2001 and the first quarter of 2002. On
August 1, 2002, Liberty Satellite issued 2,349,697 shares of its Series A common
stock, worth $7.5 million, to Liberty Media and its affiliates in satisfaction
of its dividend obligations for the second quarter of 2002. On January 20, 2003,
Liberty Satellite issued an additional 3,221,787 shares of its Series A common
stock as dividend payments required to be paid for the last two quarters of 2002
on the Series A preferred stock and Series B preferred stock held by Liberty
Media and its affiliates. Subsequent to March 31, 2003, dividends on the
Series A and Series B preferred stock are required to be paid in cash.

    Because Liberty Satellite is a holding company that does not generate
positive cash flow at the Liberty Satellite level, Liberty Satellite will
continue to have difficulty meeting its dividend obligations with respect to its
preferred stock. The only subsidiary of Liberty Satellite that generates
significant revenue is On Command. Due to covenant restrictions in On Command's
revolving credit facility, Liberty Satellite is generally not entitled to the
cash generated by the operations of On Command. Further, many of the businesses
with which Liberty Satellite has a strategic relationship are in developmental
stages and operate at substantial losses.

                                       35

    CONTACTS AND NEGOTIATIONS

    On March 27, 2003, Liberty Media sent a letter to the board of directors of
Liberty Satellite expressing interest in a potential business combination with
Liberty Satellite, pursuant to which the holders of common stock of Liberty
Satellite (other than Liberty Media and its subsidiaries) would receive 0.2131
of a share of Liberty Media Series A common stock for each share of Liberty
Satellite common stock. The proposed exchange was based on a valuation of $2.15
per share of Liberty Satellite's common stock, which was equal to the closing
price of Liberty Satellite's Series A common stock on the day preceding the date
of the letter of interest.

    On March 31, 2003, Liberty Media sent a letter to On Command (a
majority-owned subsidiary of Liberty Satellite) expressing interest in a
potential business combination in which each stockholder of On Command (other
than Liberty Media and its subsidiaries) would receive 0.0787 of a share of
Liberty Media's Series A common stock for each share of On Command stock. The
proposed exchange was based on a valuation of $0.77 per share of On Command,
represented a 10% premium over the closing price of the stock on the trading day
preceding the offer and a 6% premium over the average trading price over the 20
trading days preceding the offer. On Command formed a separate special committee
of its board of directors to evaluate the proposal.

    On April 1, 2003, the Liberty Satellite board of directors met to discuss
the proposal received from Liberty Media. Because Liberty Media is the
beneficial owner of approximately 87% of the outstanding common stock of Liberty
Satellite and certain of the Liberty Media directors serve on the Liberty
Satellite board of directors and may have an interest in the consummation of the
proposal that conflicts with the interests of Liberty Satellite and its other
stockholders, the Liberty Satellite board of directors formed a Special
Committee composed of three independent directors, Messrs. Angelich, Goddard and
Hockemeier. The Liberty Satellite board of directors appointed Mr. Angelich as
chairman of the Special Committee. None of the members of the Special Committee
is an officer or employee of Liberty Satellite, Liberty Media or any of their
affiliates. The Liberty Satellite board of directors delegated to the Special
Committee, among other things, the responsibility and authority to review,
evaluate and, if appropriate, negotiate the terms of the proposal. In
consideration of the anticipated time requirements and commitments required of
the members of the Special Committee, the Liberty Satellite board of directors
determined that each member would receive a fee of $40,000 for such service.
Each member would also be reimbursed for his out-of-pocket expenses. Liberty
Satellite then publicly announced the letter of interest and the formation of
the Special Committee.

    The Liberty Satellite board of directors authorized the Special Committee to
retain independent financial and legal advisors to assist it in its evaluation
of the Liberty Media proposal. The Special Committee retained Shaw Pittman LLP,
as its legal advisor.

    Shortly after Liberty Satellite's announcement on April 2, 2003 of Liberty
Media's initial merger proposal, five putative class action lawsuits were filed
on behalf of Liberty Satellite stockholders in the Court of Chancery of the
State of Delaware against Liberty Media, Liberty Satellite and members of the
board of directors of Liberty Satellite.

    On April 9, 2003, the Special Committee held its first meeting
telephonically. All of the members of the Special Committee were present at the
meeting. At the meeting, the directors discussed with Shaw Pittman the standard
of independence that each director on the Special Committee must meet and
determined, after a discussion of the directors' equity holdings and business
relationships, that none of the directors had any relationships that would
compromise their ability to objectively evaluate the proposal and vigorously
negotiate the transactions contemplated by the proposal. Shaw Pittman advised
the Special Committee as to its fiduciary duties and responsibilities in
considering and acting upon the acquisition proposal. The Special Committee also
discussed with its legal advisors the process by which independent financial
advisors to the Special Committee should be selected and retained.

                                       36

    The Special Committee then interviewed on April 14 and 15, 2003, three
investment banking firms, which they had selected from a larger pool of
candidates, based on the firms' knowledge of the satellite industry, their
expertise in similar advisory assignments and their lack of a significant
relationship with Liberty Media at that time. All of the members of the Special
Committee were present at the interviews.

    On April 17, 2003, the Special Committee met with Shaw Pittman to discuss
the interviews. All of the members of the Special Committee were present at the
meeting. After discussing the interviews, the Special Committee selected Morgan
Stanley & Co. Incorporated as its financial advisor, principally based on that
firm's independence and relative experience in the satellite industry. The
Special Committee then authorized Mr. Angelich, with the assistance of Shaw
Pittman, to negotiate an engagement letter with Morgan Stanley on behalf of the
Special Committee. The engagement letter with Morgan Stanley was executed on
April 21, 2003.

    On April 23, 2003, Shaw Pittman suggested that, in light of the number of
members of Liberty Satellite's board of directors who are also Liberty Media
management, the General Counsel of Liberty Satellite send to Liberty Satellite
management a letter instructing management not to provide forward-looking
information regarding Liberty Satellite to persons affiliated with Liberty
Satellite that are also officers or employees of Liberty Media. The letter was
thereafter distributed to Liberty Satellite management.

    On May 6, 2003, Morgan Stanley had conversations with each of Shaw Pittman
and Mr. Angelich regarding the scope of the financial due diligence that Morgan
Stanley intended to conduct on Liberty Satellite. Thereafter, Mr. Angelich, on
behalf of the Special Committee, sent a letter to the Executive Vice President
and Chief Operating Officer of Liberty Media, informing Liberty Media that the
Special Committee had retained Morgan Stanley and Shaw Pittman as its advisors,
notifying him that the due diligence process had begun and informing him that
the Special Committee would reply to Liberty Media's proposal once the due
diligence process had been completed.

    During May and June 2003, Morgan Stanley, on behalf of the Special
Committee, engaged in its financial due diligence review of Liberty Satellite,
including the entities in which Liberty Satellite has an interest, and of
Liberty Media.

    On June 10, 2003, the Special Committee held a meeting at Morgan Stanley's
offices in New York, at which Shaw Pittman, Morgan Stanley and all of the
members of the Special Committee were present, in person or by telephone. During
the meeting, Morgan Stanley discussed with the Special Committee various
valuation issues in connection with Liberty Media's offer based on Morgan
Stanley's initial due diligence review. After extensive discussion, the Special
Committee asked Morgan Stanley and Shaw Pittman to engage Liberty Media in
negotiations with respect to the proposal and the price offered thereunder.

    On June 25, 2003, Morgan Stanley and Shaw Pittman, on the one hand, and
Liberty Media, on the other hand, met in New York to discuss their respective
clients' approaches to valuation. Morgan Stanley suggested to Liberty Media that
based on its discussions with the Special Committee, Liberty Media reconsider
its analysis of Liberty Satellite with a view to making a higher offer. Liberty
Media disagreed with the positions put forth on behalf of the Special Committee,
indicating that Liberty Media did not believe a higher offer was warranted.

    On June 27, 2003, the Special Committee met telephonically with Morgan
Stanley and Shaw Pittman to discuss the initial negotiations with Liberty Media
that took place on June 25, 2003. All of the members of the Special Committee
were present at the meeting. Morgan Stanley reported on the stated positions and
arguments of Liberty Media, and the Special Committee discussed with its
advisors the nature of an acceptable counter-offer that Morgan Stanley would be
authorized to make to Liberty Media. The Special Committee also discussed the
appropriateness of considering information regarding

                                       37

On Command and the status of negotiations between On Command and Liberty Media
in its analysis of the proposal. The Special Committee then requested that
Morgan Stanley engage Liberty Media in further negotiations regarding an
acceptable counter-offer.

    On July 1, 2003, Morgan Stanley spoke with Liberty Media via conference call
to discuss in further detail various approaches to the valuation of Liberty
Satellite, including Liberty Media's perspective as to Liberty Satellite's
value.

    On July 2, 2003, the Special Committee held a telephonic meeting with its
advisors, which all of the members of the Special Committee attended. At the
meeting, Morgan Stanley reported to the Special Committee on its communications
with Liberty Media. The Special Committee discussed the relative merits of
Liberty Media's views on Liberty Satellite's value. The Special Committee
discussed with its advisors various negotiating strategies, and ultimately
decided that the Special Committee should, together with its financial and legal
advisors, have a face-to-face meeting with Liberty Media. The Special Committee
authorized Morgan Stanley to set up the meeting.

    During this period, Morgan Stanley continued to have periodic communications
with the members of the Special Committee. Morgan Stanley also continued its due
diligence on Liberty Satellite and the entities in which Liberty Satellite has
investments.

    On July 17, 2003, the Special Committee met telephonically with its legal
and financial advisors to discuss the anticipated face-to-face meeting with
Liberty Media scheduled by Morgan Stanley for July 21, 2003. All of the members
of the Special Committee were present at the meeting. Morgan Stanley summarized
for the Special Committee the purpose of, and agenda for, the meeting with
Liberty Media, and reviewed valuation issues regarding Liberty Satellite and,
potentially, On Command.

    On July 18, 2003, the Special Committee met via telephone conference call
with Shaw Pittman and Morgan Stanley to discuss the status of the negotiations
with Liberty Media.

    On July 21, 2003, the Special Committee, together with Morgan Stanley and
Shaw Pittman, met with Liberty Media in Englewood, Colorado to discuss Liberty
Media's proposal and to negotiate the consideration to be received by Liberty
Satellite stockholders in a transaction with Liberty Media. At that meeting, the
respective parties continued to have significant differences of opinion with
respect to the valuation of Liberty Satellite and failed to reach an agreement.
The Special Committee again asked Liberty Media to reconsider its proposal and
increase its initial offer.

    On July 24, 2003, the Special Committee met via telephone conference call
with Shaw Pittman and Morgan Stanley to discuss the status of the negotiations
with Liberty Media.

    On July 25, 2003, Liberty Media contacted Mr. Angelich to increase the
consideration offered in its initial proposal. Liberty Media proposed an
exchange ratio of 0.2627 for the conversion of Liberty Satellite's common stock
into shares of Liberty Media's Series A common stock.

    On July 28, 2003, the Special Committee met with its legal and financial
advisors to discuss the 0.2627 exchange ratio proposed by Liberty Media on
July 25, 2003. After the meeting, Mr. Angelich contacted Liberty Media and
suggested that the Special Committee might entertain an offer that was higher
than Liberty Media's suggested ratio of 0.2627. Subsequently, Liberty Media
increased the proposed exchange ratio to 0.2750.

    On July 29, 2003, the Special Committee met telephonically with Shaw Pittman
and Morgan Stanley. At the meeting, Mr. Angelich reported that a tentative
agreement had been reached with Liberty Media on an exchange ratio of 0.2750 for
the conversion of Liberty Satellite's common stock into shares of Liberty
Media's Series A common stock, assuming that the parties could agree on
acceptable merger terms in their negotiation of a merger agreement.

                                       38

    On July 30, 2003, outside counsel to Liberty Media sent a draft of a
proposed merger agreement to Shaw Pittman.

    During late July and early August, counsel to Liberty Media and counsel for
plaintiffs in the stockholder litigation pending before the Delaware Court of
Chancery negotiated over the potential settlement of the litigation. On
August 5, 2003, the parties to the litigation agreed in principle to a proposed
settlement which would provide, subject to certain conditions, that Liberty
Media would proceed with a merger in which the public holders of Liberty
Satellite common stock would receive 0.2750 of a share of Liberty Media
Series A common stock per share of Liberty Satellite common stock. For
additional information on the litigation, please see the section entitled
"Certain Litigation" on page 55.

    During the month of August, Shaw Pittman and counsel to Liberty Media
engaged in negotiations with respect to the merger agreement. The parties
discussed, among other things, (i) the breadth of the representations and
warranties to be provided by Liberty Satellite under the merger agreement,
(ii) the need for the Special Committee to be able to consider any acquisition
proposals submitted by third parties in order to discharge its fiduciary duties,
(iii) the appropriateness of Liberty Media's ability to terminate the merger
agreement and abandon the merger if, after signing the merger agreement but
prior to closing, a material adverse change should occur in Liberty Satellite's
condition and (iv) the amount and nature of closing conditions to the Merger,
including whether approval of the disinterested stockholders of Liberty
Satellite should be obtained with respect to the proposed merger.

    On August 20, 2003, the Special Committee met via telephone conference call
with its legal and financial advisors to discuss the status of the negotiations
of the merger agreement with Liberty Media's counsel. Messrs. Angelich and
Goddard were present at the meeting. Shaw Pittman outlined for the Special
Committee the remaining outstanding issues with respect to the merger agreement,
which the Special Committee then discussed with its advisors.

    On August 22, 2003, the full Liberty Satellite board of directors met with
Morgan Stanley and Shaw Pittman to review Morgan Stanley's presentation in
connection with the delivery of its financial opinion and the current draft of
the merger agreement. All of the members of the Liberty Satellite board of
directors, except for Robert R. Bennett were present, either in person or
telephonically. Following a discussion of the merger agreement and Morgan
Stanley's analysis as contained in its presentation, Morgan Stanley delivered to
the Special Committee its opinion, dated August 22, 2003, that, subject to and
based on the assumptions and considerations set forth in its opinion, the
exchange ratio pursuant to the merger agreement was fair from a financial point
of view to holders in the aggregate of Liberty Satellite's common stock (other
than Liberty Media and its affiliates).

    Immediately after the Liberty Satellite board of directors meeting that day,
the Special Committee met with Morgan Stanley and Shaw Pittman to discuss the
remaining outstanding issues with respect to the current draft of the merger
agreement.

    On August 26, 2003, after being presented with the final version of the
merger agreement, the Special Committee unanimously determined by written
consent that the proposed merger on the terms presented to the Special Committee
for review, including, without limitation, the exchange ratio, were fair to
Liberty Satellite and the stockholders of Liberty Satellite unaffiliated with
Liberty Media, and recommended to the Liberty Satellite board of directors that
the proposed merger and the final version of the merger agreement be approved,
and submitted to the stockholders of Liberty Satellite for their approval. Based
upon the recommendation of the Special Committee, the Liberty Satellite board of
directors approved the merger and the final version of the merger agreement by
unanimous written consent on that same day.

                                       39

PURPOSE FOR THE MERGER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE LIBERTY
SATELLITE BOARD OF DIRECTORS; FAIRNESS OF THE OFFER AND THE MERGER

    LIBERTY SATELLITE PURPOSE AND REASONS FOR THE MERGER

    The Liberty Satellite board of directors believes that because of the
limited liquidity of Liberty Satellite's common stock and, in particular its
Series B common stock, and the depressed share price of its common stock in the
public market, Liberty Satellite stockholders have not been able to realize the
value of their investment in Liberty Satellite. The Series A common stock of
Liberty Media to be received by Liberty Satellite stockholders in the merger
will provide such stockholders with enhanced liquidity and an investment in a
relatively attractive portfolio of operating businesses. Based on the closing
price of Liberty Media's Series A common stock on August 20, 2003 of $11.54, the
price per share of Liberty Satellite common stock implied by the exchange ratio
represented a premium of approximately 48% over the market price of Liberty
Satellite's Series A common stock before the public announcement of the initial
offer by Liberty Media.

    In addition, Liberty Satellite faces significant challenges as a stand alone
holding company. Its potential for growth is limited by the lack of strategic
investment opportunities in the satellite industry. Also, as discussed in
"Merger--Background of the Merger--Certain Prior Transactions and Negotiations,
"Liberty Satellite's holding company structure and the financial condition of On
Command make it increasingly difficult for Liberty Satellite to meet its cash
dividend obligations.

    LIBERTY MEDIA PURPOSE AND REASONS FOR THE MERGER

    Management of Liberty Media routinely reviews Liberty Media's investments in
its less than wholly-owned entities to determine whether it would be advisable
for Liberty Media to continue to hold, increase or dispose of any such
investment. Whether a decision to increase or dispose of an investment is made,
and the timing of any such decision, depends on numerous factors, including the
size and nature of the investment, the perceived advantages, if any, of full or
partial ownership and management control, conditions in the relevant industry
and general market and economic conditions.

    Since the time Liberty Media obtained its interest in Liberty Satellite,
management of Liberty Media has from time to time evaluated the performance of
Liberty Satellite and analyzed the extent to which it had achieved its business
objectives as a separate publicly-held company. In reaching its decision to make
the merger proposal and to enter into the merger agreement, Liberty Media
considered its management's assessment of Liberty Satellite's existing financial
position, the market performance of the Liberty Satellite Series A and Series B
common stock, industry and market conditions, and the following factors:

    - Liberty Satellite's need for additional capital resources to develop its
      business;

    - the trading price volatility of Liberty Satellite common stock caused, in
      part, by its limited public float;

    - recent capital market trends, which have adversely affected the ability of
      companies situated similarly to Liberty Satellite to access capital;

    - the elimination of costs associated with operating Liberty Satellite as a
      separate public company, including costs and expenses associated with
      Securities and Exchange Commission reporting, communicating with
      stockholders and related legal and accounting fees; and

    - the ability to eliminate certain conflicts of interest between Liberty
      Satellite and Liberty Media relating to business dealings between them.

                                       40

    RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE LIBERTY SATELLITE BOARD OF
     DIRECTORS

    In its written consent, dated as of August 26, 2003, the Special Committee:

    - determined that the merger agreement and the transactions contemplated
      thereby, including the merger and the exchange ratio, are fair to and in
      the best interests of Liberty Satellite and its stockholders (other than
      Liberty Media and its affiliates);

    - recommended that the Liberty Satellite board of directors authorize, adopt
      and approve the merger and the merger agreement;

    - recommended that the Liberty Satellite board of directors authorize the
      execution and delivery of the merger agreement, any other documents
      related to the merger agreement and the consummation of the merger; and

    - recommended that the Liberty Satellite board of directors submit the
      merger agreement to Liberty Satellite's stockholders for a vote, along
      with a Liberty Satellite board of directors recommendation that the
      stockholders approve such merger agreement.

    In its written consent, dated as of August 26, 2003, the Liberty Satellite
board of directors, based upon the recommendation of the Special Committee:

    - determined that the merger agreement and the transactions contemplated
      thereby, including the merger and the exchange ratio, are fair to and in
      the best interests of Liberty Satellite and its stockholders (other than
      Liberty Media and its affiliates);

    - authorized, adopted, approved and declared advisable the merger agreement
      and the transactions contemplated thereby, including the merger and the
      exchange ratio;

    - resolved to submit the merger agreement to Liberty Satellite's
      stockholders for their approval at a meeting of the stockholders;

    - advised and recommended that Liberty Satellite's stockholders approve the
      merger agreement and the transactions contemplated thereby; and

    - authorized certain Liberty Satellite officers to execute, deliver and
      perform the merger agreement and any related agreements and to make
      certain filings with the Securities and Exchange Commission related to the
      merger.

    THE SPECIAL COMMITTEE

    In reaching the recommendations described above, the Special Committee
considered a number of factors, including the following:

    - LIBERTY SATELLITE OPERATING AND FINANCIAL CONDITION AND PROSPECTS. The
      Special Committee took into account the current and historical financial
      condition and results of operations of Liberty Satellite and the companies
      in which it holds an interest. It also considered the prospects of Liberty
      Satellite as an independent, publicly held entity, taking into account its
      current financial situation, and the current and expected conditions in
      the general economy and the satellite industry.

    - TRANSACTION FINANCIAL TERMS/PREMIUM TO MARKET PRICE. The Special Committee
      considered the relationship of the per share consideration implied by the
      exchange ratio to the historical market price of shares of Liberty
      Satellite's common stock. At the time the Special Committee made its
      decision, the implied value of the merger consideration per share of
      Liberty Satellite common stock of $3.17 (based on the closing price of
      Liberty Media's Series A common stock on August 20, 2003) represented a
      premium of 48% over the closing price per share of Liberty Satellite's
      Series A common stock on March 26, 2003, the day before the public
      announcement

                                       41

      of Liberty Media's preliminary proposal to acquire all of Liberty
      Satellite's outstanding common stock, a premium of 20% over the closing
      price per share of Liberty Satellite's Series A common stock one month
      prior to Liberty Media's announcement, and a premium of 25% over the
      average price per share of Liberty Satellite's Series A common stock over
      the three month period prior to Liberty Media's announcement. The Special
      Committee believes that, after extensive negotiations on its behalf with
      Liberty Media, Liberty Satellite has obtained the highest price per share
      of Liberty Satellite common stock that Liberty Media is willing to pay.
      The Special Committee took into account the fact that the terms of the
      merger were determined through extensive negotiations between Liberty
      Media and Liberty Satellite and its financial and legal advisors, all of
      whom are unaffiliated with Liberty Media. The Special Committee also
      considered the risk that further price negotiations with Liberty Media
      could cause Liberty Media to abandon the transaction. The Special
      Committee was aware that the consideration to be received by Liberty
      Satellite's stockholders in the merger would be taxable to such
      stockholders for federal income tax purposes.

    - LACK OF ACTIVE TRADING MARKET. The Special Committee considered the fact
      that Liberty Satellite's common stock is not listed on a national
      securities exchange and that the trading of shares in the over-the-counter
      market does not constitute an active public trading market providing an
      efficient means for determining the value of the shares. The OTC Bulletin
      Board is not a securities exchange, it is merely a regulated quotation
      service. Therefore, the Special Committee took into account that it could
      not base the valuation of Liberty Satellite's common stock upon historic
      trading prices.

    - FORM OF CONSIDERATION. The Special Committee considered the fact that, in
      the merger, the exchange ratio is fixed and, therefore, the value of the
      consideration to be received by Liberty Satellite's stockholders is
      subject to the risks associated with fluctuations in the market price of
      Liberty Media's capital stock.

    - PRESENT ECONOMIC ENVIRONMENT/DECREASE IN LIBERTY SATELLITE SHARE
      PRICE. The Special Committee considered the fact that the implied value of
      $3.17 per share was lower than the average market price of its shares in
      early 2002 and the price at which Liberty Media made a similar proposal in
      October 2001, which was later withdrawn. The Special Committee nonetheless
      determined that the implied per share value would provide fair value to
      its stockholders given the depressed price of Liberty Satellite's common
      stock, the widespread downturn of equity values in general and, in
      particular, in the telecommunications industry, and the lack of confidence
      in such equity markets, indicating that the trend may not abate in the
      near future. The Special Committee believes this economic environment
      makes the merger more beneficial to Liberty Satellite stockholders, as the
      current market for Liberty Satellite's common stock may not offer them
      sufficient liquidity to make an open market sale of their common stock in
      a favorable exit strategy.

    - STRATEGIC ALTERNATIVES. The Special Committee considered the fact that
      Liberty Media currently owns approximately 98% of the overall voting power
      of Liberty Satellite. The Special Committee concluded that Liberty Media's
      control over Liberty Satellite could deter any potential acquisition of
      Liberty Satellite by a third party, and, accordingly, that a third party
      acquisition was not a likely alternative.

    - MORGAN STANLEY'S FAIRNESS OPINION. The Special Committee took into account
      the presentation from Morgan Stanley and its opinion, dated August 22,
      2003, that, based upon and subject to the considerations and assumptions
      in its opinion, the exchange ratio pursuant to the merger agreement was
      fair from a financial point of view to the holders in the aggregate of
      shares of Liberty Satellite's common stock (other than Liberty Media and
      its affiliates). A copy of the fairness opinion is attached hereto as
      ANNEX IV. For information regarding the analysis

                                       42

      conducted by Morgan Stanley, see "The Merger--Opinion of the Financial
      Advisor to the Special Committee." Liberty Satellite stockholders are
      urged to read the fairness opinion and the section entitled "The
      Merger--Opinion of the Financial Advisor to the Special Committee" in
      their entirety. The Special Committee was aware that Morgan Stanley
      becomes entitled to certain fees described under "The Merger--Opinion of
      the Financial Advisor to the Special Committee" upon the consummation of
      the merger.

    - APPRAISAL RIGHTS. The Special Committee considered the fact that holders
      of Liberty Satellite common stock who perfect their appraisal rights will
      have the right to dissent from the merger and to demand appraisal of the
      fair value of their shares under the Delaware corporate statute, as
      described under "Appraisal Rights of Dissenting Stockholders"

    THE LIBERTY SATELLITE BOARD OF DIRECTORS

    In reaching its determinations referred to above, the Liberty Satellite
board of directors considered the following factors, each of which in the view
of the Liberty Satellite board of directors supported such determinations:

    - the conclusions and recommendations of the Special Committee;

    - the factors referred to above as having been taken into account by the
      Special Committee, including the receipt by the Special Committee of the
      opinion of Morgan Stanley that, as of August 22, 2003 and based upon and
      subject to the assumptions stated therein, the exchange ratio pursuant to
      the merger agreement was fair from a financial point of view to Liberty
      Satellite's stockholders (other than Liberty Media and its affiliates),
      and the financial analysis presented by Morgan Stanley to the Liberty
      Satellite board of directors; and

    - the fact that the exchange ratio and the terms and conditions of the
      merger agreement were the result of extensive negotiations between the
      Special Committee and Liberty Media.

    The members of the Liberty Satellite board of directors, including the
members of the Special Committee, evaluated the merger in light of their
knowledge of the business, financial condition and prospects of Liberty
Satellite and based upon the advice of financial and legal advisors.

    The Liberty Satellite board of directors, including the members of the
Special Committee, believes that the merger is procedurally fair to the Liberty
Satellite stockholders (other than Liberty Media and its affiliates) based upon
a number of factors, including:

    - the fact that the Special Committee consisted of independent directors
      appointed to represent the interests of Liberty Satellite's stockholders
      (other than Liberty Media and its affiliates), and that the Special
      Committee was empowered with the exclusive authority to review, evaluate
      and negotiate the proposed merger;

    - the fact that the Special Committee retained and was advised by its own
      independent legal counsel;

    - the fact that the Special Committee retained and was advised by Morgan
      Stanley, as its independent financial advisor, to assist it in evaluating
      a potential transaction with Liberty Media;

    - the extent and nature of the deliberations pursuant to which the Special
      Committee evaluated the merger;

    - the fact that the merger agreement allows the Liberty Satellite board of
      directors to withdraw its recommendation to the stockholders under certain
      circumstances and, under certain circumstances, allows Liberty Satellite
      to consider an alternative transaction; and

                                       43

    - the fact that the exchange ratio resulted from extensive bargaining
      between representatives of the Special Committee on the one hand, and
      representatives of Liberty Media, on the other.

    In making its decision regarding procedural fairness, the Special Committee
also considered the fact that the merger is not conditioned upon approval by a
majority of the stockholders who are unaffiliated with Liberty Media. Although
the Special Committee, through counsel, requested such a condition, Liberty
Media did not agree. The Special Committee nonetheless determined the
transaction was fair even though it was not conditioned upon approval by a
majority of the stockholders who are unaffiliated with Liberty Media because:

    - the Special Committee was advised by its legal counsel that the Delaware
      statutes do not impose such a "majority of the minority" condition in such
      transactions;

    - the absence of offers from any interested buyers during the five months
      from the date of Liberty Media's initial proposal through the date of this
      proxy statement, despite the public announcement of the proposal and the
      merger; and

    - the terms of the merger agreement permit Liberty Satellite, under certain
      circumstances, to consider competing offers and permit the Liberty
      Satellite board of directors to withdraw its recommendation to Liberty
      Satellite's stockholders and terminate the merger agreement under certain
      circumstances.

    In view of the wide variety of factors considered in connection with their
evaluation of the merger, neither the Special Committee nor the Liberty
Satellite board of directors found it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors they
considered in reaching their determinations. The Special Committee and the
Liberty Satellite board of directors considered all the factors as a whole in
reaching their respective determinations.

    The foregoing discussion of the information and factors considered by the
Special Committee and the Liberty Satellite board of directors is not intended
to be exhaustive but is believed to include all material factors considered by
the Special Committee and the Liberty Satellite board of directors. Liberty
Satellite's executive officers have not been asked to make a recommendation as
to the merger.

OPINION OF THE FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE

    Under an engagement letter, dated April 21, 2003, the Special Committee
retained Morgan Stanley to provide it with financial advisory services
(including structuring, planning and negotiating services) and a financial
opinion letter in connection with the merger. At the meeting of the Liberty
Satellite board of directors, including the members of the Special Committee, on
August 22, 2003, Morgan Stanley rendered its oral opinion to the Special
Committee, subsequently confirmed in writing, to the effect that, as of
August 22, 2003 and subject to and based upon the assumptions and considerations
set forth in its written opinion, the exchange ratio of 0.2750 pursuant to the
merger agreement was fair to the holders of shares in the aggregate of Liberty
Satellite's common stock (other than Liberty Media and its affiliates) from a
financial point of view.

    THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY, DATED AUGUST 22,
2003, IS ATTACHED AS ANNEX IV. THE OPINION SETS FORTH, AMONG OTHER THINGS, THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION. WE
RECOMMEND THAT YOU READ THE ENTIRE OPINION CAREFULLY. MORGAN STANLEY'S OPINION
IS DIRECTED TO THE SPECIAL COMMITTEE AND ADDRESSES ONLY THE FAIRNESS IN THE
AGGREGATE, FROM A FINANCIAL POINT OF VIEW, OF THE EXCHANGE RATIO PURSUANT TO THE
MERGER AGREEMENT TO THE HOLDERS IN THE AGGREGATE OF LIBERTY SATELLITE'S COMMON
STOCK, OTHER THAN LIBERTY MEDIA AND ITS AFFILIATES, AS OF THE DATE OF THE
OPINION. IT DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF LIBERTY SATELLITE'S COMMON STOCK AS
TO HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER OR ANY OTHER
MATTER RELATING TO THE MERGER. THE SUMMARY OF THE

                                       44

OPINION OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.

    In connection with rendering its opinion, Morgan Stanley, among other
things:

    (i) reviewed certain publicly available financial statements and other
        information of Liberty Satellite and Liberty Media, respectively;

    (ii) reviewed certain internal financial statements and other financial and
         operating data concerning Liberty Satellite and its interests in other
         companies including, among others, On Command Corporation and WildBlue
         Communications, Inc. (collectively, the "Liberty Satellite
         Investments") prepared by the management of Liberty Satellite and
         certain of the Liberty Satellite Investments;

   (iii) reviewed certain financial forecasts related to Liberty Satellite and
         certain of the Liberty Satellite Investments, as prepared by the
         managements of Liberty Satellite and certain of the Liberty Satellite
         Investments, respectively;

    (iv) discussed the past and current operations and financial condition and
         the prospects of Liberty Satellite and the Liberty Satellite
         Investments with senior executives of Liberty Satellite and certain of
         the Liberty Satellite Investments, respectively;

    (v) considered information relating to certain strategic, financial and
        operational benefits anticipated from the merger, prepared by the
        managements of Liberty Satellite and certain of the Liberty Satellite
        Investments;

    (vi) reviewed the reported prices and trading activity of the Liberty
         Satellite common stock, the Liberty Media Series A common stock and
         certain of the Liberty Satellite Investments;

   (vii) compared the financial performance of Liberty Satellite, Liberty Media
         and, if applicable, the Liberty Satellite Investments, and the prices
         and trading activity of the Liberty Satellite common stock, the Liberty
         Media Series A common stock, and, if applicable, the common stock of
         certain of the Liberty Satellite Investments with that of certain
         comparable publicly-traded companies and their securities;

  (viii) reviewed the financial terms, to the extent publicly available, of
         selected minority buy-back transactions;

    (ix) participated in discussions and negotiations among representatives of
         Liberty Satellite and Liberty Media and their legal advisors;

    (x) reviewed the draft merger agreement dated August 20, 2003 and certain
        related documents; and

    (xi) performed such other analyses and considered such other factors as
         Morgan Stanley deemed appropriate.

    Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the purposes
of its opinion. With respect to the internal financial statements, other
financial and operating data, and financial forecasts, including certain
strategic, financial and operational benefits anticipated from the merger,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the management's best currently available estimates and judgments of the future
financial performance of Liberty Satellite and certain of the Liberty Satellite
Investments, respectively. Morgan Stanley has not made any independent valuation
or appraisal of the assets or liabilities or technology of Liberty Satellite,
the Liberty Satellite Investments or Liberty Media, nor has it been furnished
with any such appraisals. In arriving at its opinion, Morgan Stanley relied
primarily on publicly available information on Liberty Media provided

                                       45

by Liberty Media or equity research analysts who cover Liberty Media. In
addition, Morgan Stanley assumed that the merger will be consummated in
accordance with the terms set forth in the merger agreement without material
modification or waiver. Morgan Stanley's opinion was necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to Morgan Stanley as of August 22, 2003.

    In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and it did not solicit interest from any party with respect to the acquisition,
business combination or other extraordinary transaction involving Liberty
Satellite or the Liberty Satellite Investments or its or their assets. In
addition, Morgan Stanley's opinion does not in any manner address the prices at
which Liberty Media's Series A common stock or Liberty Satellite's common stock
will actually trade at any time or the relative fairness of the merger to the
holders of the Series A common stock or the Series B common stock of Liberty
Satellite.

    The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion. Some of these summaries of financial analyses include
information presented in tabular format. In order to fully understand the
financial analyses used by Morgan Stanley, the tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.

    LIBERTY SATELLITE VALUATION ANALYSIS.  Morgan Stanley noted that the implied
value per share of Liberty Satellite Series A common stock was $3.17, based on
the closing price per share of Liberty Media Series A common stock on
August 20, 2003 and the transaction exchange ratio. Morgan Stanley also noted
that the primary differences, among others, between the Liberty Satellite
Series A common stock and Liberty Satellite Series B common stock were the
average daily trading volume and the voting rights associated with each series.

    HISTORICAL TRADING ACTIVITY.  Morgan Stanley reviewed the closing prices and
trading volume of Liberty Satellite Series A common stock for different time
periods, ending August 20, 2003. Morgan Stanley observed the following:



                                                              VALUE PER SHARE OF
                                                              LIBERTY SATELLITE
                                                               SERIES A COMMON
PERIOD                                                              STOCK
------                                                        ------------------
                                                           
Current (8/20/03)...........................................         $2.25
Last Twelve Month High (12/2/02)............................         $3.10
Last Twelve Month Low (8/20/02).............................         $1.10


    Morgan Stanley observed that the implied value per share of Liberty
Satellite common stock of $3.17 represented a 41%, 2% and 188% premium over the
current, last twelve month high and last twelve month low of Liberty Satellite
Series A common stock share prices, respectively. Morgan Stanley also noted that
Liberty Satellite Series A common stock is not actively traded, with an average
of 10,475 shares of Liberty Satellite Series A common stock traded daily during
the twelve month period ending August 20, 2003, and that Liberty Satellite is
not covered by equity research analysts.

                                       46

    HISTORICAL PERFORMANCE VS. VARIOUS INDICES.  Morgan Stanley reviewed the
performance of Liberty Satellite Series A common stock versus various indices
during the two year period ending August 20, 2003. Morgan Stanley observed the
following:



                                                        INDEXED PRICE PERFORMANCE
INDEX                                                   ENDING AUGUST 20, 2003(5)
-----                                                   --------------------------
                                                     
S&P 500...............................................             (15)%
Direct to Home Index(1)...............................             (26)%
Fixed Satellite Services Index(2).....................             (39)%
Cable Index(3)........................................             (50)%
Digital Audio Radio Systems Index(4)..................             (64)%
Liberty Satellite Series A common stock...............             (91)%


------------------------

(1) Includes General Motors Corp. Class H, Echostar Communications Corp., XM
    Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.

(2) Includes SES Global SA, PanAmSat Corp., JSAT Corp., New Skies Satellites
    N.V., and Asia Satellite Telecommunications Holdings Limited

(3) Includes Comcast Corp., Cox Communications Inc., Charter
    Communications Inc., Cablevision Systems Corp., and AOL Time Warner Inc.

(4) Includes XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.

(5) Figures in parenthesis represent percentage price declines.

    EXCHANGE RATIO AND PRICE PREMIUM ANALYSIS.

    EXCHANGE RATIO ANALYSIS.  Morgan Stanley reviewed the ratios of the closing
prices of Liberty Satellite's Series A common stock divided by the corresponding
closing prices of Liberty Media's Series A common stock over various periods
ending on August 20, 2003. The resulting ratios are referred to as average
exchange ratios. Morgan Stanley then examined the premiums represented by the
exchange ratio of 0.2750 set forth in the merger agreement to these average
exchange ratios, and found them to be as follows:



                                                          TRANSACTION EXCHANGE RATIO
                                            AVERAGE       (0.2750) PREMIUM TO AVERAGE
PERIOD ENDING AUGUST 20, 2003            EXCHANGE RATIO         EXCHANGE RATIO
-----------------------------            --------------   ---------------------------
                                                    
August 20, 2003........................      0.1950                   41%
Last 5 days............................      0.2173                   27%
Last 10 days...........................      0.2230                   23%
Last 20 days...........................      0.2409                   14%
Last 30 days...........................      0.2517                    9%
Last 60 days...........................      0.2661                    3%
Last 90 days...........................      0.2732                    1%
March 26, 2003 (one day prior to
  initial offer).......................      0.2131                   29%


                                       47

    PRICE PREMIUM ANALYSIS.  Morgan Stanley then examined the premiums
represented by the value per share of Liberty Satellite Series A common stock
implied by the exchange ratio over these average prices for Liberty Satellite
Series A common stock, and found them to be as follows:



                                                            TRANSACTION IMPLIED PRICE
                                                            ($3.17) PREMIUM TO AVERAGE
PERIOD ENDING AUGUST 20, 2003               AVERAGE PRICE             PRICE
-----------------------------               -------------   --------------------------
                                                      
August 20, 2003...........................      $2.25                   41%
Last 5 days...............................      $2.17                   46%
Last 10 days..............................      $2.17                   46%
Last 20 days..............................      $2.26                   41%
Last 30 days..............................      $2.32                   37%
Last 60 days..............................      $2.52                   26%
Last 90 days..............................      $2.60                   22%
March 26, 2003 (one day prior to initial
  offer)..................................      $2.15                   48%


    ANALYSIS OF PRECEDENT MERGERS & ACQUISITIONS AND MINORITY BUY-BACK
TRANSACTIONS.  Morgan Stanley compared publicly available statistics for mergers
and acquisitions transactions involving a U.S. public target during the 14 year
period ending on July 1, 2003 to the relevant statistics for Liberty Satellite.
The average premium paid in all such transactions was 40% and for transactions
in which stock was the form of consideration was 37%.

    Morgan Stanley also compared publicly available statistics for selected
"minority buy-back" transactions to the relevant statistics for Liberty
Satellite. The transactions reviewed included public mergers and acquisitions
announced since 1992, in which a stockholder that owned between 50% and 90% of
the stock of a company sought to purchase the remaining shares that it did not
own, and in which the total equity value of the target company was less than
$100 million. For such transactions, Morgan Stanley analyzed, as of the
announcement date, the premium offered by the acquiror to the target's
unaffected closing price. Morgan Stanley found the mean premium paid in all of
such transactions to be approximately 45%.

    Morgan Stanley noted that the implied transaction value per share (based on
the exchange ratio of 0.2750 set forth in the merger agreement) of $3.17
represented an unaffected price premium (based on the day prior to the
announcement of Liberty Media's initial proposal) of 48%.

    No company or transaction utilized in the analysis of precedent mergers and
acquisitions and minority buy-back transactions is identical to Liberty
Satellite, Liberty Media or the merger. In evaluating the precedent minority
buy-back transactions, Morgan Stanley made judgments and assumptions with regard
to general business, market and financial conditions and other matters, which
are beyond the control of Liberty Media and Liberty Satellite, such as the
impact of competition on the business of Liberty Media, Liberty Satellite or the
industry generally, industry growth and the absence of any adverse material
change in the financial condition of Liberty Media, Liberty Satellite or the
industry or in the financial markets in general, which could affect the public
trading value of the companies and the premiums paid in the transactions to
which they are being compared. Mathematical analysis, such as determining the
average or median, is not in itself a meaningful method of using comparable
company or transaction data.

    SUM-OF-THE-PARTS ANALYSIS.  Morgan Stanley also performed a sum-of-the-parts
valuation analysis based on a range of values for each of the Liberty Satellite
Investments. This analysis utilized various

                                       48

valuation methodologies for each of the Liberty Satellite Investments. The
valuation methodologies and valuation ranges for each of the Liberty Satellite
Investments are summarized below:

                   ELEMENTS OF THE SUM-OF-THE-PARTS ANALYSIS

                       PUBLIC SECURITIES AND DERIVATIVES



                                                                              LIBERTY
                                                      ON           ON       SATELLITE'S      LIBERTY
                                                   COMMAND       COMMAND    OTHER COMMON   SATELLITE'S
                                                    COMMON      PREFERRED      STOCK       DERIVATIVE
VALUATION METHODOLOGY                               STOCK         STOCK     INVESTMENTS    INSTRUMENTS
---------------------                            ------------   ---------   ------------   -----------
                                                                               
Trading Value..................................      Yes         N/A  (1)     Yes            Yes
Public Market Comparables......................      Yes          No          No             No
Implied Liberty Media Offer....................      Yes         N/A  (1)     N/A  (1)       N/A  (1)
Discounted Cash Flow Analysis..................      Yes          No          No             No
Liquidation Preference.........................       No         Yes          No             No
Black-Scholes Option Pricing Model.............       No          No          No             Yes
Valuation Range ($Million).....................   $15 - $60      $102       $71 - $75


------------------------

(1) Not applicable.

                            PRIVATE INVESTMENTS/CASH



                                                                                               OTHER
                                                                   SKY LATIN                  PRIVATE
VALUATION METHODOLOGY                                WILDBLUE       AMERICA      ASTROLINK     ASSETS      CASH
---------------------                              ------------   ------------   ----------   --------   --------
                                                                                          
Implied Funding Value............................      Yes             No           No         No         N/A (1)
Public Market Comparables........................      Yes            Yes           No         No         N/A (1)
Discounted Cash Flow Analysis....................      Yes             No           No         No         N/A (1)
Liquidation Value................................       No             No           Yes        Yes        Yes
Valuation Range ($Million).......................   $63 - $90      $48 - $87      $0 - $6      $0         $76


------------------------

(1) Not applicable.

    The result of the sum-of-the-parts valuation analysis is summarized below:

                                    SUMMARY



                                                                     VALUATION RANGE
                                                              ------------------------------
                                                                LOW       MEDIUM      HIGH
                                                              --------   --------   --------
                                                               ($MILLION, EXCEPT PER SHARE)
                                                                           
On Command Common and Preferred Stock.......................   $  117     $ 141      $ 162
Other Public Securities and Derivatives.....................   $   71     $  74      $  75
Private Investments and Cash................................   $  187     $ 243      $ 258
                                                               ------     -----      -----
Total Assets................................................   $  374     $ 457      $ 495
  Less Total Debt and Liabilities(1)........................   $ (365)    $(362)     $(360)
                                                               ------     -----      -----
Equity Value................................................   $    9     $  95      $ 135
Per Share Value.............................................   $ 0.18     $1.81      $2.59
Premium by Implied Value of 0.275 Exchange Ratio............    1,658%       75%        23%


------------------------

(1) Includes preferred stock at liquidation value of $300 million, Ascent
    Entertainment tax liability of $20 million, iBEAM put liability of
    $32.4 million and capitalized corporate overhead values of $12.5 million,
    $10 million and $7.5 million for the low, medium and high cases,
    respectively.

                                       49

    In arriving at the low, medium and high cases in the immediately preceding
table, Morgan Stanley considered, among other things, discussions with Liberty
Satellite management, the ability of Liberty Satellite to sell or transfer
certain investments and the potential trading market for such investments or
lack thereof. Morgan Stanley noted that the sum-of-the-parts valuation analysis
did not assign any value to the contingent liabilities of Sky Latin America,
which currently have a present value of approximately $69 million.

    LIBERTY MEDIA VALUATION ANALYSIS.

    HISTORICAL TRADING ACTIVITY.  Morgan Stanley reviewed the closing prices and
trading activity of Liberty Media Series A common stock for different time
periods, ending August 20, 2003. Morgan Stanley observed the following:



                                                              VALUE PER SHARE OF
                                                                LIBERTY MEDIA
                                                               SERIES A COMMON
PERIOD                                                              STOCK
------                                                        ------------------
                                                           
Current (8/20/03)...........................................        $11.54
Last Twelve Month High (7/7/03).............................        $12.27
Last Twelve Month Low (10/7/02).............................        $ 6.29


    Morgan Stanley noted that Liberty Media's average daily trading volume over
the past twelve months ending on August 20, 2003 (approximately 7.2 million
shares) was four times the total number of shares of Liberty Media Series A
common stock that would be issued to Liberty Satellite stockholders under the
terms of the merger agreement as of August 20, 2003. Morgan Stanley also noted
that Liberty Media Series A common stock is widely covered by equity research
analysts.

    HISTORICAL PERFORMANCE VS. VARIOUS INDICES.  Morgan Stanley reviewed the
performance of Liberty Media Series A common stock versus various indices for
the prior two years, ending on August 20, 2003. Morgan Stanley observed the
following:



                                                        INDEXED PRICE PERFORMANCE
INDEX                                                   ENDING AUGUST 20, 2003(2)
-----                                                   --------------------------
                                                     
S&P 500...............................................             (15)%
Liberty Media.........................................             (22)%
Entertainment Composite(1)............................             (35)%


------------------------

(1) Consists of The News Corporation Limited, Fox Entertainment Group Inc., Walt
    Disney Co., AOL Time Warner Inc. and Viacom Inc.

(2) Figures in parenthesis represent percentage price declines.

    EQUITY RESEARCH ANALYSTS' PRICE TARGETS.  Morgan Stanley observed that the
range of publicly available price targets set by equity research analysts for
Liberty Media Series A common stock ranged from $12.00 to $17.60 with a mean
price target of $14.89.

    NET ASSET VALUE SUM-OF-THE-PARTS ANALYSIS.  Morgan Stanley performed an
analysis of the Net Asset Value per share of Liberty Media Series A common stock
based on (i) share prices and derivatives values of Liberty Media's publicly
disclosed interests in public entities as of August 20, 2003 and (ii) Morgan
Stanley equity research estimates of Liberty Media's publicly disclosed private
assets as of June 30, 2003. Morgan Stanley varied the share prices of the public
assets on the low end of the range by the greater of the last twelve month low
or a 25% discount to the current share price as of August 20, 2003. Morgan
Stanley varied the share prices of the public assets on the high end of the
valuation range by the greater of the last twelve month high or the Morgan
Stanley equity research

                                       50

price target, subject to a maximum of a 25% premium to the share prices as of
August 20, 2003. Morgan Stanley varied the Liberty Media private asset values by
a 10% discount on the low end of the valuation range and by a 10% premium on the
high end of the valuation range. This analysis suggested a Liberty Media Net
Asset Value per share range of $12.15 to $16.16. Morgan Stanley observed that
Liberty Media Series A common stock has traded at a discount to the Morgan
Stanley equity research Net Asset Value as high as 40%, but that this discount
was approximately 20% as of July 1, 2003. Applying this 20% discount to the Net
Asset Value range implies a valuation of $10.12 to $13.47. Morgan Stanley noted
that the low end of this range implied a Liberty Satellite per share value of
$2.78, representing a 29% premium over the unaffected Liberty Satellite
Series A common stock price of $2.15.

    In connection with the review of the merger by the Special Committee and the
Liberty Satellite board of directors, Morgan Stanley performed a variety of
financial and comparative analyses for purposes of rendering its opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to a partial analysis or summary description. In arriving at its
opinion, Morgan Stanley considered the results of all of its analyses as a whole
and did not attribute any particular weight to any analysis or factor it
considered. Morgan Stanley believes that selecting any portion of its analyses,
without considering all analyses as a whole, would create an incomplete view of
the process underlying its analyses and opinion. In addition, Morgan Stanley may
have given various analyses and factors more or less weight than other analyses
and factors, and may have deemed various assumptions more or less probable than
other assumptions. As a result, the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of Liberty Satellite or Liberty Media. In performing
its analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters. Many of
these assumptions are beyond the control of Liberty Satellite or Liberty Media.
Any estimates contained in Morgan Stanley's analyses are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates.

    Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to holders in the aggregate of shares of Liberty
Satellite's common stock (other than Liberty Media and its affiliates) and in
connection with the delivery of its opinion to the Special Committee. These
analyses do not purport to be appraisals or to reflect the prices at which
shares of Liberty Satellite common stock or Liberty Media might actually trade.
Liberty Satellite did not impose any limitations on the scope of the information
received or reviewed by Morgan Stanley in connection with its delivery of the
opinion regarding the exchange ratio pursuant to the merger agreement.

    The exchange ratio pursuant to the merger agreement was determined through
arm's length negotiations between Liberty Satellite and Liberty Media and was
approved by the Special Committee and the Liberty Satellite board of directors.
Morgan Stanley provided advice to the Special Committee of Liberty Satellite
during these negotiations. Morgan Stanley did not, however, recommend any
specific exchange ratio to the Special Committee or that any specific exchange
ratio constituted the only appropriate exchange ratio for the merger.

    In addition, Morgan Stanley's opinion and its presentation to the Special
Committee and the Liberty Satellite board of directors was one of many factors
taken into consideration by the Special Committee and the Liberty Satellite
board of directors in deciding to approve the exchange ratio of 0.2750 and the
merger. Consequently, the analyses as described above should not be viewed as
determinative of the opinion of the Special Committee or the Liberty Satellite
board of directors with respect to the exchange ratio of 0.2750 or of whether
the Special Committee or the Liberty Satellite board of directors would have
been willing to agree to a different exchange ratio.

                                       51

    As discussed in the section entitled, "Merger--Background of the
Merger--Contracts and Negotiations," after considering and interviewing a number
of investment banking firms, the Special Committee retained Morgan Stanley based
upon Morgan Stanley's qualifications, experience and expertise. Morgan Stanley
is an internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate, estate and other purposes. In the ordinary course
of business, Morgan Stanley or its affiliates may from time to time trade in the
securities or indebtedness of Liberty Satellite or Liberty Media for its own
account, the accounts of investment funds and other clients under the management
of Morgan Stanley and for the account of customers and, accordingly, may hold
long or short positions in these securities or indebtedness.

    Under the engagement letter, the Special Committee agreed that Liberty
Satellite would pay Morgan Stanley a fee for providing its financial advisory
services, payable in installments. A portion of the fee was a fixed amount paid
upon the engagement of Morgan Stanley in recognition of its general advisory
services. Another portion of the fee, which was a fixed amount attributable to
Morgan Stanley's services with respect to the opinion, was paid upon delivery of
the fairness opinion. The final portion of the fee is an amount based on the
implied value per share received by the holders of Liberty Satellite's common
stock in the merger, calculated and payable upon consummation of the merger.
Under the engagement letter, Liberty Satellite will also reimburse Morgan
Stanley for its expenses incurred in performing its services. In addition,
Liberty Satellite will indemnify Morgan Stanley and its affiliates, their
respective directors, officers, agents and employees and each person, if any,
controlling Morgan Stanley or any of its affiliates against certain liabilities
and expenses, including certain liabilities under the federal securities laws,
related to or arising out of Morgan Stanley's engagement. In the past, Morgan
Stanley & Co. Incorporated and its affiliates have provided financing services
for Liberty Media and have received fees for the rendering of those services.

INTERESTS OF DIRECTORS AND OFFICERS

    Certain directors and officers of Liberty Satellite have one or more of the
following interests that may be deemed to be different from, or in addition to,
the interests of Liberty Satellite stockholders generally. In the case of
directors of Liberty Satellite, the following interests presented actual or
potential conflicts of interest in determining the exchange ratio and the other
terms of the merger:

    - ownership of shares of Liberty Media common stock;

    - ownership of options convertible into shares of Liberty Media common
      stock; and

    - indemnification arrangements between Liberty Satellite and the Liberty
      Satellite directors and officers.

    Officers and directors of Liberty Media, Liberty Satellite Acquisition Co.
and/or Liberty Satellite who own shares of Liberty Satellite common stock
(including restricted stock) at the effective time of the merger will receive
shares of Liberty Media Series A common stock on the same terms as the Liberty
Satellite public stockholders (except that any shares of restricted stock will
remain subject to the same restrictions in place prior to the merger). Officers
and directors of Liberty Media, Liberty Satellite Acquisition Co. and/or Liberty
Satellite who own options or stock appreciation rights with respect to shares of
Liberty Satellite Series A or Series B common stock at the effective time of the
merger will have these interests assumed by Liberty Media on the same basis as
any other outstanding stock options and stock appreciation rights for Liberty
Satellite Series A or Series B common stock. Assumed stock options and stock
appreciation rights will be exercisable with respect to the number of shares of
Liberty Media Series A common stock determined by multiplying the number of
underlying

                                       52

shares of Liberty Satellite Series A common stock by the exchange ratio of
0.2750, with an inverse and proportionate adjustment to the exercise price per
share.

    The following table identifies those directors and executive officers of
Liberty Satellite who are directors or officers of Liberty Media or its
affiliates (other than Liberty Satellite and its controlled affiliates) and the
positions held by such individuals with Liberty Media and Liberty Satellite.
Messrs. Bennett, Fitzgerald and Howard do not receive any compensation for their
services as members of Liberty Satellite's board of directors.



NAME                       AFFILIATED ENTITY                  POSITION(S) HELD
----                       -----------------  -------------------------------------------------
                                        
Robert R. Bennett........  Liberty Media      Director, President and Chief Executive Officer
                           Liberty            Director
                           Satellite........

William R. Fitzgerald....  Liberty Media      Senior Vice President
                           Liberty Satellite  Director

Gary S. Howard...........  Liberty Media      Executive Vice President, Chief Operating
                           Liberty Satellite  Officer, Director
                                              Director and Chairman of the Board


    INDEMNIFICATION.  Please see the section entitled "The Merger
Agreement--Indemnification" for a description of certain indemnification rights
that the merger agreement provides to present and former directors and officers
of Liberty Satellite and any of its subsidiaries (when acting in such capacity),
and any person who is or was serving at the request of Liberty Satellite as a
director or officer of another entity (when acting in such capacity).

ACCOUNTING TREATMENT

    The merger will be accounted as a "purchase" of a minority interest, as this
term is used under accounting principles generally accepted in the United States
of America, for accounting and financial reporting purposes. Accordingly, the
consideration paid for the acquired Liberty Satellite shares will be allocated
to the assets and liabilities of Liberty Satellite based on their respective
fair values.

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

    GENERAL.  The following discussion summarizes the material U.S. federal
income tax consequences of the merger that are applicable to holders of Liberty
Satellite common stock. It is not a complete analysis of all potential tax
effects relevant to the merger. This discussion assumes that you hold your
shares of Liberty Satellite common stock as capital assets within the meaning of
Section 1221 of the Internal Revenue Code.

    This discussion does not address the tax consequences that may be relevant
to a particular Liberty Satellite stockholder subject to special treatment under
U.S. federal income tax laws, such as dealers in securities, banks, insurance
companies, financial institutions, partnerships or other pass-through entities,
tax-exempt organizations, non-U.S. persons, stockholders who acquired their
shares of Liberty Satellite common stock pursuant to the exercise of options or
otherwise as compensation, or stockholders who hold their stock as part of a
hedge, constructive sale, wash sale, straddle or conversion transaction, nor
does the discussion address any consequences arising under the laws of any
state, local or foreign jurisdiction or the application of the U.S. federal
estate and gift tax or the alternative minimum tax. Moreover, the tax
consequences to holders of Liberty Satellite options are not discussed. The
discussion is based on and subject to the Internal Revenue Code of 1986, as
amended, Treasury regulations thereunder, and administrative rulings and court
decisions as of the date hereof. All of the foregoing are subject to change,
which may be retroactive, and any such change could affect the

                                       53

continuing validity of this discussion. We urge you to consult your own tax
advisors concerning the U.S. federal, state and local and foreign tax
consequences of the merger to you.

    TAX CONSEQUENCES TO LIBERTY SATELLITE COMMON STOCKHOLDERS.

    The merger will be treated for tax purposes as a taxable sale or exchange of
Liberty Satellite shares for shares of Liberty Media Series A common stock and
for cash in lieu of fractional shares, if applicable. Liberty Satellite
stockholders will have taxable gain or loss equal to the difference between
their aggregate basis for their Liberty Satellite shares surrendered in the
merger and the sum of the amount of cash and the fair market value of the
Liberty Media Series A common stock they receive in the merger. The gain or loss
will be capital if they held their shares of Liberty Satellite stock as capital
assets and would be long term gain or loss if they held their shares of Liberty
Satellite common stock for more than a year as of the date of the merger. Long
term capital gains are generally taxed at more favorable tax rates than other
types of income or gain. Capital losses are generally deductible only against
capital gains, plus, in the case of individuals, $3,000 each year.

    Your aggregate adjusted basis in the Liberty Media Series A common stock
received in the merger generally will be equal to the fair market value of such
stock as of the date of the merger. Your holding period in the Liberty Media
Series A common stock received in the merger will begin on the day after the
date of the merger.

    CONSEQUENCES TO THE CORPORATIONS

    The corporations that are parties to the merger will recognize no gain or
loss in the merger. The merger will be treated as a taxable purchase of the
stock of Liberty Satellite. Such a transaction results in gain or loss
recognition for the Liberty Satellite stockholders, but no gain or loss
recognition for the corporations.

    THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF YOUR STATUS AND ATTRIBUTES. AS A RESULT, THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO YOU. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX CONSEQUENCES, YOU
ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO YOU, INCLUDING THE APPLICATION AND EFFECT OF
UNITED STATES FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS
OF CHANGES IN UNITED STATES FEDERAL AND OTHER TAX LAWS.

DEREGISTRATION OF LIBERTY SATELLITE COMMON STOCK AFTER THE MERGER

    If the merger is completed, Liberty Satellite Series A and Series B common
stock will be deregistered under the Securities Exchange Act and will no longer
be eligible for quotation on the OTC Bulletin Board.

ON COMMAND MERGER

    Liberty Media has also entered into a merger agreement with On Command,
pursuant to which Liberty Media would acquire all of the publicly held common
stock of On Command not already beneficially owned by Liberty Satellite. In this
separate merger transaction, unaffiliated holders of On Command common stock
will receive 0.166 of a share of Series A common stock of Liberty Media in
exchange for each share of On Command common stock that they own (subject to
certain adjustments described below based on the trading price of Liberty Media
Series A common stock). The closing of the Liberty Satellite merger and the On
Command merger are not conditioned upon each other. If the implied value of the
exchange ratio in the On Command merger is less than $1.90 or more than $2.10
per share of On Command common stock, based on the average market price of the
Liberty Media

                                       54

Series A common stock during the five trading days ending on the third trading
day prior to the closing of the merger, then the exchange ratio will be adjusted
upward or downward, as applicable, to yield an implied value of $1.90 or $2.10
per share, respectively, based on such average market price. Any adjustment of
the exchange ratio to more than 0.190 of a share of Liberty Media Series A
common stock for each share of On Command common stock will be at Liberty
Media's sole discretion. If Liberty Media determines not to increase the
exchange ratio further, then the exchange ratio would be fixed at 0.190 and On
Command would be entitled to terminate the merger agreement. Any decision of the
On Command board of directors to terminate the merger agreement would be made by
vote of the independent directors.

CERTAIN LITIGATION

    Shortly after Liberty Satellite's announcement on April 2, 2003 of Liberty
Media's initial merger proposal, five putative class action lawsuits were filed
on behalf of Liberty Satellite stockholders in the Court of Chancery of the
State of Delaware (the "Delaware Court") against Liberty Media, Liberty
Satellite and members of the board of directors of Liberty Satellite (the "Class
Action Lawsuits"). The complaints allege, among other things, that the
defendants breached fiduciary and other duties in connection with Liberty
Media's proposal to acquire ownership of all issued and outstanding shares of
Liberty Satellite common stock. The complaints seek a court order enjoining the
proposed transaction, an award of unspecified damages and attorneys' fees, the
unwinding of any transaction consummated and various other equitable relief. The
five lawsuits were consolidated by the Delaware Court on April 30, 2003.

    Following settlement discussions between plaintiffs' counsel and counsel for
Liberty Media during late July and early August, the parties to the pending
stockholder litigation agreed on and executed a memorandum of understanding on
August 5, 2003 to reflect a proposed settlement of the litigation. The parties
also agreed, subject to the conditions described below, to enter into a
settlement agreement, cooperate in public disclosures related to the settlement
and use best efforts to gain approval of the settlement by the Delaware courts.
Without any admission of fault by the defendants, the memorandum of
understanding contemplates a dismissal of all claims with prejudice and a
release in favor of all defendants of any and all claims related to the proposed
transaction that have been or could have been asserted by the plaintiffs or any
members of the purported class consisting of all record and beneficial holders
of Liberty Satellite common stock from April 1, 2003 through the completion of
the merger. These dismissed claims are referred to in this proxy statement as
the settled claims.

    The proposed settlement is subject to numerous conditions, including the
completion of confirmatory discovery, execution of a settlement agreement, a
determination by Liberty Media that the dismissal of the litigation in
accordance with the settlement agreement will result in the final release with
prejudice of the settled claims, final approval of the settlement by the
Delaware courts and completion of the merger. Because the proposed settlement is
subject to consummation of the merger and other conditions described above, any
settlement will not be final at the time you will be asked to vote on the
merger.

    If the parties to the litigation do not proceed with the proposed
settlement, or in the event that the proposed settlement ultimately is not
approved by the Delaware courts, the litigation could proceed and plaintiffs
could seek the relief sought in their complaints, including rescission of the
merger or an award of damages in favor of Liberty Satellite stockholders in any
plaintiff class that might be certified.

                                       55

                              THE MERGER AGREEMENT

    The following description of the merger agreement is qualified in its
entirety by reference to the complete text of the merger agreement, which is
incorporated by reference herein and a copy of which is annexed to this proxy
statement/prospectus as ANNEX I.

GENERAL STRUCTURE; EFFECTIVE TIME.

    The merger agreement provides that, upon the terms and subject to the
conditions of the merger agreement, Liberty Satellite Acquisition Co. will merge
with and into Liberty Satellite, with Liberty Satellite being the surviving
corporation. In the merger, which will become effective on the date and at the
time that a certificate of merger is accepted for filing by the Delaware
Secretary of State in accordance with the applicable provisions of the Delaware
corporate statute (or such later date and time as may be agreed to by Liberty
Media and Liberty Satellite and specified in the certificate of merger),
stockholders of Liberty Satellite will receive the consideration described below
under "Consideration to be Received in the Merger." The effective time of the
merger will occur as soon as practicable after the last of the conditions
described under "Conditions to the Merger" below, has been satisfied or waived
by Liberty Media or Liberty Satellite, as applicable. We expect the merger to
become effective as soon as possible following the special meeting of
stockholders. However, because the merger is subject to certain conditions, the
merger may occur on any date thereafter, or not at all.

    As a result of the merger, Liberty Media will acquire all of the publicly
held common stock of Liberty Satellite that it does not already beneficially
own. The merger agreement provides that:

    - the Liberty Satellite certificate of incorporation will remain as the
      certificate of incorporation of Liberty Satellite after the merger until
      thereafter amended in accordance with the terms thereof and the Delaware
      corporate statute;

    - Liberty Satellite's bylaws will remain as the bylaws of Liberty Satellite
      after the merger until thereafter amended in accordance with the terms
      thereof, the certificate of incorporation of Liberty Satellite and the
      Delaware corporate statute; and

    - the parties will take appropriate action to ensure that the directors of
      Liberty Satellite Acquisition Co. and the officers of Liberty Satellite at
      the effective time of the merger will, from and after the effective time
      of the merger, be the directors and officers of Liberty Satellite after
      the merger until their respective successors are duly elected or appointed
      and qualified in accordance with the certificate of incorporation and
      bylaws of Liberty Satellite, or as otherwise provided by applicable law.

CONSIDERATION TO BE RECEIVED IN THE MERGER

    LIBERTY MEDIA SERIES A COMMON STOCK.  At the effective time of the merger,
each holder of shares of Liberty Satellite Series A and Series B common stock
(other than Liberty Media, Liberty Satellite Acquisition Co. and wholly-owned
subsidiaries of Liberty Media) who has not properly exercised appraisal rights,
will be entitled to receive 0.2750 of a share of Liberty Media Series A common
stock for each share of Liberty Satellite Series A or Series B common stock held
immediately prior to the merger. Liberty Media will not issue fractional shares
of Liberty Media Series A common stock in the merger. Instead, if any holder of
Liberty Satellite common stock would be entitled to receive a number of shares
of Liberty Media Series A common stock that includes a fraction, then in lieu of
a fractional share, the stockholder will be entitled to receive cash in an
amount determined by multiplying the fraction by the current market value of a
whole share of Liberty Media Series A common stock and rounding the product to
the nearest whole cent. The "current market value" of a share of Liberty Media
Series A common stock means, for this purpose, the average of the last reported
sale prices of a

                                       56

share of Liberty Media Series A common stock on the New York Stock Exchange for
the period of five consecutive trading days prior to the last full trading day
preceding the closing date of the merger.

    TREATMENT OF LIBERTY SATELLITE STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
     AND RESTRICTED STOCK.

    Liberty Media will assume outstanding stock options and stock appreciation
rights issued under the Liberty Satellite & Technology 1996 Stock Incentive
Plan, as amended, and other stock options and stock appreciation rights not
issued under that plan, in each case with respect to Liberty Satellite Series A
or Series B common stock on the effective date of the merger. Assumed stock
options and stock appreciation rights will be exercisable with respect to the
number of shares of Liberty Media Series A common stock determined by
multiplying the number of underlying shares of Liberty Satellite Series A or
Series B common stock on the effective date of the merger by the 0.2750 exchange
ratio, rounded up to the nearest whole share. The exercise price per share of
Liberty Media Series A common stock issuable under each assumed option (and the
base price of each stock appreciation right issued in tandem with, and at the
same exercise price as the stock options) will be calculated by dividing the
exercise price of the option (or base price of the stock appreciation right)
before the merger by the exchange ratio, rounded down to the nearest whole cent.

    In addition, each restricted share of Liberty Satellite common stock issued
under or outside of the Liberty Satellite Stock Incentive Plan will be converted
into restricted shares of Liberty Media Series A common stock at the exchange
ratio, rounded up to the nearest whole share. Each restricted share of Liberty
Media stock issued to holders of Liberty Satellite restricted stock will remain
subject to the same restrictions applicable to such share prior to the merger.

    EFFECT OF THE MERGER ON LIBERTY SATELLITE PREFERRED STOCK.  All shares of
Liberty Satellite Series A and B preferred stock that are issued and outstanding
immediately prior to the merger will remain outstanding after the merger. All
outstanding shares of Series A and B preferred stock are currently held by
wholly-owned subsidiaries of Liberty Media. For additional information on the
Liberty Satellite preferred stock, please see the section entitled "Comparison
of Stockholder Rights" on page 67.

    LIBERTY SATELLITE ACQUISITION CO. CAPITAL STOCK.  At the effective time of
the merger, each share of capital stock of Liberty Satellite Acquisition Co.
outstanding immediately prior to the effective time of the merger will be
converted into one share of the common stock of Liberty Satellite, as the
surviving corporation in the merger, and will constitute the only outstanding
shares of capital stock of the surviving corporation (other than dissenting
shares and Liberty Satellite preferred stock). As a result, Liberty Media will
acquire all of the publicly held common stock of Liberty Satellite that it does
not beneficially own, as Liberty Media directly and indirectly through several
controlled subsidiaries, controls all of the issued and outstanding capital
stock of Liberty Satellite Acquisition Co.

    CERTAIN ADJUSTMENTS.  If, prior to the effective time of the merger, the
Liberty Media Series A common stock is recapitalized or reclassified or Liberty
Media effects any stock dividend, stock split, or reverse stock split of Liberty
Media Series A common stock or otherwise effects any transaction that changes
the Liberty Media Series A common stock into any other securities (including
securities of another corporation), or any dividend or distribution is made on
the Liberty Media Series A common stock (or such other securities), then the
shares of Liberty Media Series A common stock to be delivered in the merger to
the holders of Liberty Satellite common stock will be appropriately and
equitably adjusted to the kind and amount of shares of stock and other
securities and property which the holders of such shares of Liberty Media
Series A common stock would have been entitled to receive had such shares been
issued and outstanding as of the record date for determining stockholders
entitled to participate in such corporate event.

    EXCHANGE OF SHARES.  Promptly after the effective time of the merger,
transmittal letters will be mailed to each holder of record of shares of Liberty
Satellite common stock to be used in forwarding

                                       57

his or her certificates evidencing such shares for surrender and exchange for
certificates evidencing the shares of Liberty Media Series A common stock to
which he or she has become entitled and, if applicable, cash in lieu of a
fractional share of Liberty Media Series A common stock. After receipt of this
transmittal letter, each holder of certificates formerly representing Liberty
Satellite common stock should surrender such certificates to the exchange agent
designated in the transmittal letter, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of Liberty
Media Series A common stock to which he or she is entitled and a check for any
cash that may be payable in lieu of a fractional share of Liberty Media
Series A common stock. These transmittal letters will be accompanied by
instructions specifying other details of the exchange.

    STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL LETTER.

    After the effective time of the merger, except for holders of Liberty
Satellite common stock who exercise their statutory dissenters' rights of
appraisal, each certificate evidencing Liberty Satellite common stock (other
than certificates evidencing shares held directly by Liberty Satellite in its
treasury or shares owned of record by Liberty Satellite Acquisition Co., Liberty
Media or any wholly-owned subsidiary of Liberty Media, all of which will be
canceled), until so surrendered and exchanged, will be deemed, for all purposes,
to evidence only the right to receive the number of shares of Liberty Media
Series A common stock that the holder of the certificate is entitled to receive
and the right to receive any cash payment in lieu of a fractional share of
Liberty Media Series A common stock. The holder of the unexchanged certificate
will not be entitled to receive any dividends or other distributions payable by
Liberty Media until the certificate is surrendered. Subject to applicable laws,
these dividends and distributions, if any, will be accumulated and, at the time
of the surrender, all such unpaid dividends and distributions, together with any
cash payment in lieu of a fractional share of Liberty Media Series A common
stock, will be paid, without interest.

REGULATORY APPROVALS; CONDITIONS TO THE MERGER.

    REGULATORY APPROVALS.  We are not aware of any material regulatory
requirements applicable to the merger under any U.S. state or federal law or
regulation, other than any requirements under applicable federal and state
securities laws and regulations and Delaware corporate law.

    CONDITIONS OF ALL PARTIES.  The respective obligations of Liberty Satellite,
Liberty Media and Liberty Satellite Acquisition Co. to consummate the
transactions contemplated by the merger agreement are subject to the
satisfaction or, where permissible, waiver of the following conditions:

    - adoption of the merger agreement and approval of the merger by the
      requisite vote of the stockholders of Liberty Satellite at the special
      meeting;

    - effective registration under the Securities Act of 1933 of the shares of
      Liberty Media Series A common stock to be issued in connection with the
      merger and receipt of all state securities law permits and authorizations
      necessary to carry out the transactions contemplated by the merger
      agreement; and

    - the absence of any effective permanent or preliminary injunction or
      similar order issued by a court or other governmental entity of competent
      jurisdiction preventing consummation of the transactions contemplated by
      the merger agreement as provided therein or permitting such consummation
      only subject to any condition or restriction that has or would have a
      material adverse effect on Liberty Satellite.

                                       58

    CONDITIONS OF LIBERTY MEDIA AND LIBERTY SATELLITE ACQUISITION CO.  The
obligations of Liberty Media and Liberty Satellite Acquisition Co. to consummate
the transactions contemplated by the merger agreement are also subject to the
satisfaction or waiver of the following conditions:

    - the accuracy of the representations and warranties regarding the business
      operations of Liberty Satellite (except for inaccuracies that could not
      have a material adverse effect on Liberty Satellite or prevent or
      materially delay consummation of the merger), the accuracy in all material
      respects of the remaining representations and warranties of Liberty
      Satellite, and the performance, in all material respects, of the
      obligations, agreements and covenants made by Liberty Satellite in the
      merger agreement;

    - receipt of certain closing certificates from Liberty Satellite;

    - no action having been taken, nor any statute, rule, regulation, order,
      judgment or decree proposed, enacted, issued, enforced or deemed
      applicable by any foreign or United States federal, state or local
      governmental entity, and the absence of any pending or threatened action,
      suit or proceeding, which (i) makes or may make the merger agreement, the
      merger or any of the other transactions contemplated by the merger
      agreement illegal or imposes or may impose material damages or penalties
      in connection therewith, (ii) requires or may require the divestiture of a
      material portion of the business of Liberty Media or any of its
      subsidiaries, (iii) imposes or may impose material limitations on the
      ability of Liberty Media effectively to exercise full rights of ownership
      of shares of capital stock of Liberty Satellite, (iv) requires or may
      require Liberty Media, Liberty Satellite or any of their respective
      material subsidiaries or affiliates to refrain from engaging in any
      material business if the merger is consummated, or (v) materially
      increases Liberty Media's obligations in connection therewith; and

    - receipt of all material governmental and applicable third party consents,
      approvals and authorizations.

    CONDITIONS OF LIBERTY SATELLITE.  The obligation of Liberty Satellite to
consummate the transactions contemplated by the merger agreement is also subject
to the satisfaction or waiver of the following conditions:

    - the accuracy of the representations and warranties regarding the business
      operations of Liberty Media (except for inaccuracies that could not have a
      material adverse effect on Liberty Media or prevent or materially delay
      consummation of the merger), the accuracy in all material respects of the
      remaining representations and warranties of Liberty Media and Liberty
      Satellite Acquisition Co., and the performance, in all material respects,
      of the obligations, agreements and covenants made by Liberty Media and
      Liberty Satellite Acquisition Co. in the merger agreement;

    - receipt of certain closing certificates from Liberty Media;

    - no action having been taken, nor any statute, rule, regulation, order,
      judgment or decree proposed, enacted, issued, enforced or deemed
      applicable by any foreign or United States federal, state or local
      governmental entity, and the absence of any pending or threatened action,
      suit or proceeding, which (i) makes or may make the merger agreement, the
      merger or any of the other transactions contemplated by the merger
      agreement illegal or may impose material damages or penalties in
      connection therewith, or (ii) has or, in the reasonable judgment of
      Liberty Satellite, assuming consummation of the merger, is reasonably
      likely to have a material adverse effect on the business, properties,
      operations or financial condition of Liberty Media and its subsidiaries
      (including Liberty Satellite and its subsidiaries), taken as a whole;

                                       59

    - the shares of Liberty Media Series A common stock that will be issued in
      the merger must be authorized for listing on the New York Stock Exchange,
      subject only to official notice of issuance; and

    - receipt of all material governmental consents, approvals and
      authorizations.

COVENANTS

    CERTAIN COVENANTS BY LIBERTY SATELLITE.  Liberty Satellite has agreed,
except as permitted, required or specifically contemplated by the merger
agreement, required by a change in applicable law or consented to in writing by
Liberty Media, to conduct, and to cause each of its subsidiaries to conduct, its
business, in the ordinary and usual course consistent with past practice, and to
use its reasonable efforts to preserve intact its business organization, to
preserve its licenses and other permits in full force and effect, to keep
available the services of its present officers and key employees and to preserve
the good will of those with which it has business relationships. Liberty
Satellite has also agreed that except as permitted, required or specifically
contemplated by the merger agreement, required by a change in applicable law or
consented to in writing by Liberty Media, it will not and will not permit any of
its subsidiaries to, prior to the effective time of the merger:

    - amend its certificate of incorporation or bylaws or other governing
      instrument or document;

    - authorize for issuance, issue, grant, sell, deliver, dispose of, pledge or
      otherwise encumber any shares of its capital stock or any securities or
      rights convertible into, exchangeable for, or evidencing the right to
      subscribe for any shares of its capital stock or other equity or voting
      interests, or any rights, options, warrants, calls, commitments or other
      agreements of any character to purchase or acquire any shares of its
      capital stock or other equity or voting interests, or any securities or
      rights convertible into, exchangeable for, or evidencing the right to
      subscribe for, any shares of its capital stock or other equity or voting
      interests, subject to certain specified exceptions;

    - split, combine, subdivide or reclassify the outstanding shares of its
      capital stock or other equity or voting interests, or declare, set aside
      for payment or pay any dividend, or make any other actual, constructive or
      deemed distribution in respect of any shares of its capital stock or other
      equity or voting interests, or otherwise make any payments to stockholders
      or owners of equity or voting interests in their capacity as such (other
      than dividends or distributions paid by any wholly-owned subsidiary of
      Liberty Satellite to Liberty Satellite or another wholly-owned
      subsidiary);

    - redeem, purchase or otherwise acquire, directly or indirectly, any
      outstanding shares of capital stock or other securities or equity or
      voting interests of Liberty Satellite or any subsidiary of Liberty
      Satellite, subject to certain specified exceptions;

    - make any other changes in its capital or ownership structure;

    - sell or grant a lien with respect to any stock, equity or partnership
      interest owned by it in any subsidiary of Liberty Satellite; or

    - enter into or assume any contract, agreement, obligation, commitment or
      arrangement with respect to any of the foregoing.

    Except as permitted, required or specifically contemplated by the merger
agreement, required by a change in applicable law or consented to in writing by
Liberty Media, Liberty Satellite has also agreed that it will not, and will
cause its subsidiaries not to take certain actions outside the ordinary course
of business.

                                       60

    In addition, Liberty Satellite has agreed that it will not, and it will not
permit its officers, directors, representatives and agents to, directly or
indirectly, (i) take any action to solicit, initiate or knowingly encourage the
submission of any offer or proposal concerning a tender offer, exchange offer,
merger, share exchange, recapitalization, consolidation or other similar
business combination, or a direct or indirect acquisition in any manner of a
significant equity interest in, or a substantial portion of the assets of,
Liberty Satellite (each, an "Acquisition Proposal") or (ii) engage in
discussions or negotiations with any person to facilitate an Acquisition
Proposal. However, Liberty Satellite may engage in discussions or negotiations
with, and furnish nonpublic information or access to, any person in response to
an unsolicited Acquisition Proposal, if (y) it has complied with the foregoing
non-solicitation covenant and (z) the Liberty Satellite board of directors
determines in good faith after consultation with counsel that it is necessary to
do so in order to discharge its fiduciary duties under applicable law. Liberty
Satellite must notify Liberty Media of, and keep it informed of any developments
with respect to, an Acquisition Proposal. The Liberty Satellite board of
directors is permitted to withdraw or modify in a manner adverse to Liberty
Media its recommendation to the stockholders of Liberty Satellite to approve the
merger agreement if it has complied with this non-solicitation covenant.

    CERTAIN COVENANTS BY LIBERTY MEDIA.  Pursuant to the merger agreement,
Liberty Media has agreed, in its capacity as a beneficial owner of Liberty
Satellite common and preferred stock, to cause the Liberty Satellite stock
beneficially owned by Liberty Media, Liberty Satellite Acquisition Co. and
Liberty Media's wholly-owned subsidiaries to be voted at the special meeting in
favor of the proposal to adopt the merger agreement.

INDEMNIFICATION

    The merger agreement provides that, from and after the effective time of the
merger, Liberty Satellite (as the surviving corporation in the merger) will
indemnify, defend and hold harmless the present and former directors and
officers of Liberty Satellite and any of its subsidiaries (when acting in such
capacity), and any person who is or was serving at the request of Liberty
Satellite as a director or officer of another entity (when acting in such
capacity) (collectively, the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including fees and expenses of counsel properly
retained by an Indemnified Party under the merger agreement), liabilities or
judgments or amounts that are paid in settlement with the approval of Liberty
Satellite (which approval shall not be unreasonably withheld) of or in
connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person was at any time prior to the effective time of the merger a director or
officer of Liberty Satellite, pertaining to any matter existing or occurring at
or prior to the effective time of the merger and whether asserted or claimed
prior to, at or after the effective time of the merger ("Indemnified
Liabilities") to the full extent that (x) a corporation is permitted under
Delaware law to indemnify or advance expenses to its own directors or officers,
as the case may be, (y) such Indemnified Party would have been entitled to be
indemnified by Liberty Satellite, if such Indemnified Party was a director or
officer of Liberty Satellite, with respect to the Indemnified Liabilities in
question under the Liberty Satellite certificate of incorporation and Liberty
Satellite's bylaws as in effect on August 26, 2003 and under any indemnification
agreement with Liberty Satellite in a form disclosed to Liberty Media prior to
the date of the merger agreement and (z) such indemnification otherwise is
permitted by applicable law.

LISTING OF LIBERTY MEDIA SERIES A COMMON STOCK

    Liberty Media will use reasonable efforts to cause the shares of Liberty
Media Series A common stock that will be issued in the merger (including shares
issued in connection with Liberty Satellite's options assumed in the merger) to
be authorized for listing on the New York Stock Exchange, subject to official
notice of issuance, before completing the merger. The merger will not be
completed before the authorization is obtained.

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TERMINATION, AMENDMENT AND WAIVER

    TERMINATION.  The merger agreement may be terminated and the merger
abandoned at any time prior to the effective time of the merger, whether before
or after adoption of the merger agreement by the stockholders of Liberty
Satellite, by

    - mutual consent of Liberty Satellite and Liberty Media;

    - either Liberty Satellite, on the one hand, or Liberty Media and Liberty
      Satellite Acquisition Co., on the other hand, if (i) the merger has not
      been consummated before March 31, 2004, unless this delay in consummation
      is due to the failure of the party seeking to terminate the merger
      agreement to perform any of its obligations thereunder, (ii) there has
      been a material breach of any representation, warranty, covenant or
      agreement on the part of the other party (or by Liberty Satellite
      Acquisition Co., if the party seeking to terminate the merger agreement is
      Liberty Satellite) contained in the merger agreement and this breach is
      incapable of being cured, (iii) any court of competent jurisdiction or
      other competent governmental authority has issued an order, decree or
      ruling or taken any other action permanently restraining, enjoining or
      otherwise prohibiting the merger and this action has become final and
      nonappealable, or (iv) the required adoption of the merger agreement by
      the stockholders of Liberty Satellite has not been duly obtained at the
      special meeting, provided the terminating party has complied with its
      obligations contained in the merger agreement regarding the special
      meeting and applicable Securities and Exchange Commission filings; or

    - Liberty Media or Liberty Satellite, if the Liberty Satellite board of
      directors has withdrawn or modified in any manner adverse to Liberty Media
      its recommendation to Liberty Satellite stockholders regarding the
      adoption of the merger agreement and approval of the merger.

    In the event of termination of the merger agreement by either Liberty
Satellite or Liberty Media as provided above, the merger agreement will become
void and there will be no liability or obligation on the part of Liberty Media,
Liberty Satellite Acquisition Co., Liberty Satellite or their respective
affiliates, stockholders, officers, directors, agents or representatives (other
than under certain specified provisions of the merger agreement which will
survive the termination thereof and other than to the extent this termination
results from the willful breach by Liberty Media, Liberty Satellite Acquisition
Co. or Liberty Satellite of any of its respective representations, warranties,
covenants or agreements contained in the merger agreement).

    AMENDMENT AND WAIVER.  Liberty Satellite and Liberty Media may amend the
merger agreement, by action taken or authorized by their respective boards of
directors, at any time prior to the effective time of the merger, either before
or after adoption by the stockholders of Liberty Satellite of the merger
agreement, except that after the adoption by the stockholders of Liberty
Satellite, no amendment may be made which by law requires further approval by
such stockholders without further approval. At any time prior to the effective
time of the merger, either Liberty Satellite or Liberty Media, by action taken
or authorized by such party's board of directors, may, to the extent legally
allowed, extend the time specified in the merger agreement for the performance
of any of the obligations of the other party, waive any inaccuracies in the
representations and warranties of the other party contained in the merger
agreement or in any document delivered pursuant thereto, waive compliance by the
other party with any of the agreements or covenants of the other party contained
in the merger agreement or waive any condition to the waiving party's obligation
to consummate the transactions contemplated by, or other obligations under, the
merger agreement.

                                       62

CERTAIN RESTRICTIONS ON RESALE OF LIBERTY MEDIA SERIES A COMMON STOCK BY
AFFILIATES OF LIBERTY SATELLITE AND LIBERTY MEDIA

    All shares of Liberty Media Series A common stock received by Liberty
Satellite stockholders in the merger will be registered under the Securities Act
of 1933 and freely transferable under the federal securities laws, except that
any such shares received by persons who are deemed "affiliates" (as such term is
defined under the Securities Act of 1933) of Liberty Satellite prior to the
merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act of 1933 (or Rule 144 in the case
of such persons who become affiliates of Liberty Media) or as otherwise
permitted under the Securities Act of 1933. This proxy statement/prospectus may
also be used as a prospectus for the resale by affiliates of Liberty Satellite
of shares of Liberty Media Series A common stock acquired in the merger. Any
such resale would be reflected in a supplement to this proxy
statement/prospectus or a post-effective amendment to the registration
statement, as appropriate.

    Persons who may be deemed to be affiliates of Liberty Satellite or Liberty
Media generally include individuals or entities that control, are controlled by,
or are under common control with such party and may include certain officers and
directors of such party as well as principal stockholders of such party.

                                       63

                  APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS

    If the merger is consummated, holders of Liberty Satellite common stock on
the date of making a demand for appraisal, as described below, will be entitled
to have the fair value of those shares appraised by the Delaware Court of
Chancery under Section 262 of the Delaware General Corporation Law and to
receive payment for the "fair value" of those shares instead of the merger
consideration. In order to be eligible for such appraisal rights, however, a
stockholder must (1) continue to hold such stockholder's shares through the
effective date of the merger; (2) strictly comply with the procedures described
in Section 262 and (3) not have voted in favor of the merger (a stockholder's
vote against the merger, including as a result of a failure to vote, will not in
and of itself constitute a waiver or exercise of his or her appraisal rights).

    THE STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 REQUIRES STRICT
COMPLIANCE WITH THE PROCEDURES SET FORTH IN SECTION 262. FAILURE TO FOLLOW ANY
OF THESE PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS
UNDER SECTION 262. THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL PROVISIONS OF
SECTION 262.

    The following summary is not a complete statement of Section 262 of the
Delaware General Corporation Law, and is qualified in its entirety by reference
to Section 262, which is incorporated in this proxy statement/prospectus by
reference, together with any amendments to the laws that may be adopted after
the date of this proxy statement/prospectus. A copy of Section 262 is attached
as ANNEX III to this proxy statement/prospectus.

    NOTICE REQUIREMENTS.  Under Section 262, not less than 20 days prior to the
date of the special meeting, Liberty Satellite, as the surviving corporation, is
required to mail to each Liberty Satellite stockholder entitled to appraisal
rights, a notice that appraisal rights are available to the stockholder. This
notice must also include a copy of Section 262. THIS PROXY STATEMENT/PROSPECTUS
CONSTITUTES YOUR NOTICE OF APPRAISAL RIGHTS AS REQUIRED UNDER SECTION 262,
INCLUDING YOUR NOTICE AS TO THE TIME PERIODS IN WHICH YOU HAVE TO EXERCISE THOSE
RIGHTS. NO FURTHER NOTICE AS TO TIME RESTRICTIONS ON YOUR APPRAISAL RIGHTS WILL
BE GIVEN. IT WAS MAILED TO THE STOCKHOLDERS OF LIBERTY SATELLITE ON
[            ], 2003.

    DEMAND FOR APPRAISAL.  In order to exercise appraisal rights, a stockholder
must, before the taking of the vote on the merger agreement and the merger at
the special meeting, demand in writing from the surviving corporation, Liberty
Satellite, an appraisal of the stockholder's shares of Liberty Satellite common
stock. This demand will be sufficient if it reasonably informs Liberty Satellite
of the identity of the stockholder and that the stockholder intends to demand an
appraisal of the fair value of the stockholder's shares of Liberty Satellite
common stock. Failure to make this demand on or before the taking of the vote on
the merger agreement and the merger at the meeting will foreclose a
stockholder's rights to appraisal. A stockholder's vote against the merger
agreement and the merger, including as a result of a failure to vote, will not
in and of itself constitute a waiver or exercise of his or her appraisal rights.
ALL DEMANDS SHOULD BE DELIVERED TO LIBERTY SATELLITE AND ADDRESSED AS FOLLOWS:
LIBERTY SATELLITE & TECHNOLOGY, INC., 12300 LIBERTY BOULEVARD, ENGLEWOOD,
COLORADO 80112, ATTENTION: CORPORATE SECRETARY.

    Only a record holder of shares of Liberty Satellite common stock on the date
of making a written demand for appraisal who continuously holds those shares
through the time of the merger is entitled to seek appraisal. Demand for
appraisal must be executed by or for the holder of record, fully and correctly,
as that holder's name appears on the holder's stock certificates representing
shares of Liberty Satellite common stock. If Liberty Satellite common stock is
owned of record in a fiduciary capacity by a trustee, guardian or custodian, the
demand should be made in that capacity. If Liberty Satellite common stock is
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be made by or for all owners of record.

                                       64

    An authorized agent, including an agent for one or more joint owners, may
execute the demand for appraisal for a holder of record; that agent, however,
must identify the record owner or owners and expressly disclose in the demand
that the agent is acting as agent for the record owner or owners of the shares.
If a stockholder holds shares of Liberty Satellite common stock through a broker
who in turn holds the shares through a central securities depository nominee
such as Cede & Co., a demand for appraisal of such shares must be made by or on
behalf of the depository nominee and must identify the depository nominee as
record holder.

    A record holder such as a broker, fiduciary, depository or other nominee who
holds shares of Liberty Satellite common stock as a nominee for more than one
beneficial owner, some of whom desire to demand appraisal, may exercise
appraisal rights on behalf of those beneficial owners with respect to the shares
of Liberty Satellite common stock held for those beneficial owners. In that
case, the written demand for appraisal should state the number of shares of
Liberty Satellite common stock covered by it. Unless a demand for appraisal
specifies a number of shares, the demand will be presumed to cover all shares of
Liberty Satellite common stock held in the name of the record owner.

    THIS PROXY STATEMENT/PROSPECTUS CONSTITUTES STATUTORY NOTICE THAT BENEFICIAL
OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE APPRAISAL RIGHTS
SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY REQUIREMENTS WITH
RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE TAKING OF THE VOTE ON THE
MERGER AGREEMENT AND THE MERGER AT THE SPECIAL MEETING.

    Within 10 days of the effective date of the merger, Liberty Satellite must
notify each stockholder whose demand for appraisal complies with Section 262 and
who has not voted in favor of the merger of the date that the merger has become
effective.

    FILING OF PETITION.  Within 120 days after the effective date of the merger,
any stockholder who has complied with the applicable provisions of Section 262
will be entitled, upon written request, to receive from Liberty Satellite a
statement setting forth the aggregate number of shares of common stock not voted
in favor of the merger and with respect to which demands for appraisal were
received by Liberty Satellite and the number of holders of these shares.

    Liberty Satellite must mail this statement within ten days after it receives
the written request or within ten days after the expiration of the period for
the delivery of demands as described above, whichever is later.

    Within 120 days after the effective date of the merger, the surviving
corporation or any stockholder who has complied with the requirements of
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares of Liberty Satellite common stock
held by all stockholders seeking appraisal. A dissenting stockholder must serve
a copy of the petition on Liberty Satellite. If no petition is filed within the
120-day period, the rights of all dissenting stockholders to appraisal will
cease.

    Stockholders seeking to exercise appraisal rights should not assume that the
surviving corporation will file a petition with respect to the appraisal of the
fair value of their shares or that the surviving corporation will initiate any
negotiations with respect to the fair value of those shares. The surviving
corporation is under no obligation to, and has no present intention to, take any
action in this regard. Accordingly, stockholders who wish to seek appraisal of
their shares should initiate all necessary action with respect to the perfection
of their appraisal rights within the time periods and in the manner prescribed
in Section 262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS WILL CAUSE THE
STOCKHOLDER'S RIGHT TO AN APPRAISAL TO CEASE.

    HEARING IN CHANCERY COURT.  If a petition for an appraisal is filed in a
timely manner, at the hearing on the petition, the Delaware Court of Chancery
will determine which stockholders are entitled to appraisal rights and will
appraise the shares of Liberty Satellite common stock owned by those
stockholders. The Delaware Court of Chancery may require the stockholders who
have demanded an

                                       65

appraisal for their shares and who hold stock represented by certificates to
submit their stock certificates to the Register in Chancery for notation on such
certificates of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court of Chancery
may dismiss the proceedings as to such stockholder. The court will determine the
fair value of those shares, taking into account all relevant circumstances,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, to be paid, if any, upon
the fair value. The Delaware Court of Chancery may determine the cost of the
appraisal proceeding and assess it against the parties as the court deems
equitable.

    Neither Liberty Media nor Liberty Satellite makes any representation as to
the outcome of the appraisal of fair value as determined by the court and
stockholders should recognize that such an appraisal could result in a
determination of a value that is higher or lower than, or the same as, the
merger consideration. Liberty Media does not anticipate offering more than the
merger consideration to any stockholder exercising appraisal rights and reserves
the right to assert, in any appraisal proceeding, that, for purposes of
Section 262, the "fair value" of a share of Liberty Satellite common stock is
less than the merger consideration.

    EXPENSES.  Each dissenting stockholder is responsible for his or her
attorneys' and expert witness expenses, although upon application of a
dissenting stockholder, the court may order that all or a portion of the
expenses incurred by any dissenting stockholder in connection with the appraisal
proceeding (including, without limitation, reasonable attorney's fees and the
fees and expenses of experts) be charged pro rata against the value of all
shares of Liberty Satellite common stock entitled to appraisal. In the absence
of a court determination or assessment, each party bears its own expenses.

    NO RIGHT TO VOTE OR RECEIVE DIVIDENDS.  Any stockholder who has demanded
appraisal in compliance with Section 262 will not, after the effective time of
the merger, be entitled to vote such stock for any purpose or receive payment of
dividends or other distributions, if any, on Liberty Satellite common stock,
except for dividends or distributions, if any, payable to stockholders of record
at a date prior to the merger.

    WITHDRAWAL. A stockholder may withdraw a demand for appraisal and accept
Liberty Media Series A common stock at any time within 60 days after the
effective date of the merger, or thereafter may withdraw a demand for appraisal
with the written approval of Liberty Satellite. Notwithstanding the foregoing,
if an appraisal proceeding is properly instituted, it may not be dismissed as to
any stockholder without the approval of the Delaware Court of Chancery, and any
such approval may be conditioned on the Court of Chancery's deeming the terms to
be just. If, after the merger, a holder of Liberty Satellite common stock who
had demanded appraisal for his or her shares fails to perfect or loses his or
her right to appraisal, those shares will be treated as if they were converted
into Liberty Media Series A common stock at the time of the merger.

    BECAUSE A STOCKHOLDER THAT FAILS TO COMPLY ENTIRELY WITH THE STRICT
REQUIREMENTS OF THE DELAWARE CORPORATE STATUTE MAY LOSE SUCH STOCKHOLDER'S RIGHT
TO AN APPRAISAL, ANY LIBERTY SATELLITE STOCKHOLDER WHO IS CONSIDERING EXERCISING
APPRAISAL RIGHTS SHOULD PROMPTLY CONSULT A LEGAL ADVISOR.

                                       66

                        COMPARISON OF STOCKHOLDER RIGHTS

    As a stockholder of Liberty Satellite, your rights are governed by Liberty
Satellite's certificate of incorporation and bylaws. After completion of the
merger, you will become a stockholder of Liberty Media. As a Liberty Media
stockholder, your rights will be governed by Liberty Media's certificate of
incorporation and bylaws. Liberty Satellite and Liberty Media are each
incorporated under the laws of the State of Delaware and accordingly, your
rights as a stockholder will continue to be governed by the Delaware General
Corporation Law after completion of the merger.

    This section of the proxy statement/prospectus describes certain differences
between the rights of holders of Liberty Satellite common stock and Liberty
Media common stock. This description is only a summary and may not contain all
of the information that is important to you. You should carefully read this
entire document and the other documents we refer to for a more complete
understanding of the differences between being a stockholder of Liberty
Satellite and being a stockholder of Liberty Media.

COMMON STOCK

    Liberty Satellite has Series A common stock and Series B common stock issued
and outstanding and Liberty Media has Series A common stock and Series B common
stock issued and outstanding. Liberty Satellite has authorized 170 million
shares of common stock, and Liberty Media has authorized 4,400 million shares of
common stock. As of August 21, 2003, there were approximately 49,043,261 shares
of Liberty Satellite common stock outstanding (14,278,206 shares of Series A
common stock and 34,765,055 shares of Series B common stock) and an aggregate of
approximately 320,938 shares of Liberty Satellite common stock reserved for
issuance upon exercise of outstanding options and warrants. As of July 31, 2003,
there were approximately 2,685,665,231 shares of Liberty Media common stock
outstanding (2,473,846,455 shares of Series A common stock and 211,818,776
shares of Series B common stock), and an aggregate of approximately 81,223,239
shares of Liberty Media Series A common stock and 28,165,255 shares of Liberty
Media Series B common stock reserved for issuance upon exercise of outstanding
options and warrants.

PREFERRED STOCK

    Liberty Satellite has authorized five million shares of preferred stock. Of
Liberty Satellite's preferred stock, 150,000 shares are designated as Cumulative
Preferred Stock, Series A, and 150,000 shares are designated as Cumulative
Convertible Voting Preferred Stock, Series B. As of August 21, there were
150,000 shares of Series A preferred stock outstanding and 150,000 shares of
Series B preferred stock outstanding. Liberty Media has authorized 50 million
shares of preferred stock, none of which were outstanding as of July 30, 2003.

CONVERSION

    Each share of Series B common stock of Liberty Satellite and each share of
Series B common stock of Liberty Media, respectively, is convertible, at the
option of the holder, into one share of Series A common stock of Liberty
Satellite or one share of Series A common stock of Liberty Media, respectively.
Neither the Series A common stock of Liberty Satellite nor the Series A common
stock of Liberty Media is convertible.

    As of August 21, 2003, each share of Series B preferred stock of Liberty
Satellite is convertible at the option of the holder into 11.31145 shares of
Series B common stock of Liberty Satellite.

VOTING RIGHTS

    With respect to each of Liberty Satellite and Liberty Media, the holders of
Series A common stock are entitled to one vote for each share held, and the
holders of Series B common stock are entitled to

                                       67

ten votes for each share held, on all matters voted on by stockholders,
including elections of directors. Additionally, the holders of Series B
preferred stock of Liberty Satellite are entitled to 558 votes for each share
held on all matters voted on by stockholders, including elections of directors.
Neither Liberty Satellite nor Liberty Media provides for cumulative voting in
the election of directors in its respective certificate of incorporation.

LIQUIDATION AND DISSOLUTION

    In the event of liquidation, dissolution or winding up of Liberty Satellite,
the holders of Series A common stock and Series B common stock of Liberty
Satellite, and in the event of liquidation, dissolution or winding up of Liberty
Media, the holders of Series A common stock and Series B common stock of Liberty
Media, respectively, will share equally, on a share for share basis, in the
assets remaining for distribution to the common stockholders of the applicable
corporation, after payment or provisions for payment of such corporation's debts
and liabilities and subject to prior payment in full of any preferential amounts
to which the holders of such corporation's preferred stock may be entitled.

CLASSIFIED BOARD OF DIRECTORS

    Delaware law provides that a corporation's board of directors may be divided
into various classes with staggered terms of office. Liberty Satellite's
certificate of incorporation and bylaws do not provide for a classified board of
directors. The board of directors of Liberty Media is divided into three
classes, as nearly equal in size as possible, with one class elected annually.
The holders of a series of preferred stock of Liberty Media may be entitled to
elect additional directors if the certificate of designations with respect to
such series so provides. Directors of Liberty Media are elected for a term of
three years, subject to the election and qualification of the director's
successor and to the director's earlier death, resignation or removal.

NUMBER OF DIRECTORS

    Liberty Satellite's board of directors currently consists of seven
directors. The number of directors on Liberty Satellite's board is determined by
resolution of the board of directors, but cannot be fewer than three. Liberty
Media's board of directors currently consists of nine directors. The number of
directors on Liberty Media's board is determined by resolution of the board of
directors, but cannot be fewer than three.

STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS

    The certificate of incorporation of each of Liberty Media and Liberty
Satellite does not permit the applicable corporation's stockholders to take
action by written consent in lieu of a meeting of stockholders, except as
otherwise provided in the terms of any series of preferred stock of the
applicable corporation.

    Special meetings of stockholders of each of Liberty Media and Liberty
Satellite for any purpose or purposes may be called only by the secretary of the
applicable corporation (1) upon written request of holders of not less than
66 2/3% of the total voting power of outstanding voting capital stock or (2) at
the request of at least 75% of the members of the board then in office, except
as otherwise required by law and subject to the rights of the holders of any
series of preferred stock. No business other than that stated in the notice of
special meeting shall be transacted at any special meeting of either
corporation.

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REMOVAL OF DIRECTORS

    The bylaws of Liberty Satellite provide that, subject to the rights of the
holders of any series of preferred stock, directors may be removed from office
only for "cause" (as defined below), but not without cause, upon the affirmative
vote of the holders of not less than 66 2/3% of the total voting power of the
then outstanding capital stock of Liberty Satellite entitled to vote on such
matters, voting together as a single class. Except as may otherwise be provided
by law, "cause" for removal of a director of Liberty Satellite exists only if:

    - the director whose removal is proposed has been convicted of a felony, or
      has been granted immunity to testify in an action where another has been
      convicted of a felony, by a court of competent jurisdiction and such
      conviction is no longer subject to direct appeal;

    - the director has become mentally incompetent, whether or not so
      adjudicated, which mental incompetence directly affects his or her ability
      as a director of Liberty Satellite, as determined by not less than 66 2/3%
      of the members of the board of directors then in office (other than such
      director); or

    - the director's actions or failure to act have been determined by at least
      66 2/3% of the members of the board of directors then in office (other
      than such director) to be in derogation of the director's duties.

    The certificate of incorporation of Liberty Media provides that, subject to
the rights of any series of preferred stock, directors may be removed from
office only for cause upon the affirmative vote of the holders of a least a
majority of the total voting power of the then outstanding shares of Series A
common stock, Series B common stock and any series of preferred stock entitled
to vote at an election of directors, voting together as a single class.

ACTIONS REQUIRING SUPERMAJORITY VOTE

    The certificate of incorporation of each of Liberty Satellite and Liberty
Media provides that, subject to the rights of the holders of any series of
preferred stock, the affirmative vote of the holders of at least 66 2/3% of the
voting power of outstanding voting capital stock, voting together as a single
class, is required for the following corporate actions:

    - to amend, alter or repeal any provision of the certificate of
      incorporation or the addition or insertion of other provisions in the
      certificate;

    - to adopt, amend or repeal any provision of the bylaws, except that no vote
      of stockholders will be required to authorize the adoption, amendment or
      repeal of any provision of the bylaws by the board of directors in
      accordance with the power conferred upon it pursuant to the certificate of
      incorporation;

    - the merger or consolidation of the corporation with any other corporation,
      unless (1) the laws of the state of Delaware, as then in effect, do not
      require stockholder consent or (2) at least 75% of the members of its
      board then in office has approved such transaction;

    - the sale, lease or exchange of all, or substantially all, of the assets of
      the corporation; or

    - the dissolution of the corporation.

    In the case of Liberty Media, the supermajority voting requirement will not
apply to the amendment of its certificate of incorporation, the sale, lease or
exchange of all or substantially all of its assets, or its dissolution if such
action is approved by at least 75% of the members of its board of directors then
in office.

                                       69

    Liberty Media's chairman, John C. Malone, holds the power to direct the vote
of approximately 44% of Liberty Media's outstanding voting power. Liberty Media
holds the power to direct the vote of approximately 98% of Liberty Satellite's
voting power.

                       CERTAIN RELATED PARTY TRANSACTIONS

    For a description of certain relationships and material transactions between
Liberty Media and Liberty Satellite, or their respective affiliates, please see
Item 13 of Liberty Satellite's Form 10-K for the year ending December 31, 2002,
a copy of which is attached hereto as Annex II, and the Section entitled "The
Merger--Background of the Merger--Certain Prior Transactions and Negotiations"
on page 33.

                                    EXPERTS

    The consolidated balance sheets of Liberty Media and subsidiaries as of
December 31, 2002 and 2001, and the related consolidated statements of
operations and comprehensive earnings, stockholder's equity, and cash flows for
each of the years in the three-year period ended December 31, 2002 have been
incorporated by reference herein in reliance upon the report, dated March 17,
2003, of KPMG LLP, independent accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. As
discussed in notes 3 and 7 to the consolidated financial statements, Liberty
Media changed its method of accounting for intangible assets in 2002 and for
derivative financial instruments in 2001.

    The consolidated balance sheets of Telewest Communications plc and
subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and comprehensive income, and
cash flows for each of the years in the three-year period ended December 31,
2002, have been incorporated by reference herein in reliance upon the report,
dated March 26, 2003, of KPMG Audit plc, independent chartered accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.

    The report of KPMG Audit plc dated March 26, 2003 contains an explanatory
paragraph that states that Telewest Communications plc is undergoing financial
restructuring which raises substantial doubt about its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. As discussed in note 3 to the
consolidated financial statements, Telewest Communications plc changed its
method of accounting for intangible assets in 2002 and derivative instruments in
2001.

    The consolidated financial statements of Liberty Satellite and subsidiaries
as of December 31, 2002 and 2001, and for each of the years in the three-year
period ended December 31, 2002, have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG LLP,
independent accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The audit report
covering the December 31, 2002 consolidated financial statements refers to a
change in Liberty Satellite's method of accounting for goodwill and other
intangible assets in 2002.

    The consolidated financial statements of Astrolink as of December 31, 2001
and 2002, and for each of the years in the three-year period ended December 31,
2002 and for the period from April 22, 1999 (date of inception) through
December 31, 2002, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.

    The audit report covering the December 31, 2002, Astrolink consolidated
financial statements contains an explanatory paragraph that states that
Astrolink has not generated any revenue and is

                                       70

dependent upon additional equity and/or debt financing or firm commitments from
prospective customers to complete construction and launch of its intended
satellite system, which raises substantial doubt about Astrolink's ability to
continue as a going concern. The consolidated financial statements of Astrolink
do not include any adjustments that might result from the outcome of that
uncertainty.

                                 LEGAL MATTERS

    An opinion regarding the legality of the Liberty Media Series A common stock
to be issued in the merger is being provided by Sherman & Howard L.L.C., counsel
to Liberty Media. Certain Sherman & Howard L.L.C. attorneys own shares of
Liberty Media common stock and stock of certain of Liberty Media's subsidiaries.

                                       71

                                    ANNEX I

                                MERGER AGREEMENT

                          AGREEMENT AND PLAN OF MERGER

    THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of this 26th
day of August, 2003, by and among Liberty Media Corporation, a Delaware
corporation ("Parent"), Liberty Satellite Acquisition Co., a Delaware
corporation ("Merger Sub"), and Liberty Satellite & Technology, Inc., a Delaware
corporation (the "Company").

                                    RECITALS

    WHEREAS, Parent beneficially owns approximately 87% of the Company's issued
and outstanding common stock;

    WHEREAS, Merger Sub is an indirect controlled subsidiary of Parent;

    WHEREAS, Parent, acting through Merger Sub, desires to acquire all of the
common stock of the Company that it does not beneficially own;

    WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company each
have determined that it is advisable and in the best interests of their
respective stockholders for Parent to so acquire such common stock and, to that
end, for Merger Sub to merge with and into the Company (the "Merger") upon the
terms and subject to the conditions of this Agreement; and

    NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein, the
parties hereto agree as follows:

                                   ARTICLE I
                          DEFINITIONS AND CONSTRUCTION

1.1 CERTAIN DEFINITIONS.

    As used in this Agreement, the following terms will have the following
meanings unless the context otherwise requires:

    "ACQUISITION PROPOSAL" means any offer or proposal by any Person or group of
Persons concerning (i) any tender or exchange offer, (ii) any merger, share
exchange, recapitalization, consolidation or other business combination
involving the Company or (iii) an acquisition in any manner, directly or
indirectly, of a significant equity interest in, or a substantial portion of the
assets of, the Company, other than pursuant to the transactions contemplated by
this Agreement.

    "AFFILIATE" of any Person has the meaning ascribed to such term in
Rule 12b-2 under the Exchange Act. For purposes of this Agreement, unless
otherwise specified, (A) neither the Company nor any of its Subsidiaries will be
deemed to be Affiliates of Parent or any of Parent's Subsidiaries; (B) neither
Parent nor any of its Subsidiaries will be deemed to be Affiliates of the
Company or any of the Company's Subsidiaries; (C) none of the Affiliates of the
Company or any of its Subsidiaries (the "Company Affiliates") will be deemed to
be an Affiliate of Parent or any of Parent's Subsidiaries, unless such Company
Affiliate would be such an Affiliate if neither Parent nor any of its
Subsidiaries (1) owned any capital stock of the Company, (2) designated or
nominated, or possessed any contractual right to designate or nominate, any
directors of the Company or any of its Subsidiaries or (3) otherwise possessed,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the Company or any of its Subsidiaries; and (D) none
of the Affiliates of Parent or any of Parent's Subsidiaries ("Parent
Affiliates") will be deemed to be an Affiliate of the Company or any of the
Company's Subsidiaries, unless such Parent Affiliate would be such an Affiliate
if neither Parent nor any of its Subsidiaries (1) owned any capital stock of the
Company, (2) designated or nominated, or possessed any contractual right to
designate or nominate, any directors of the Company or any of its

                                       1

Subsidiaries or (3) otherwise possessed, directly or indirectly, the power to
direct or cause the direction of the management or policies of the Company or
any of its Subsidiaries.

    "AFFILIATE CONTRACT" has the meaning specified in Section 4.12(a).

    "AGREEMENT" has the meaning specified in the preamble.

    "ASSUMED OPTION" has the meaning specified in Section 2.6(a).

    "ASSUMED SAR" has the meaning specified in Section 2.6(b).

    "CERTIFICATES" has the meaning specified in Section 2.4(b).

    "CERTIFICATE OF MERGER" means the certificate of merger with respect to the
Merger, containing the provisions required by, and executed in accordance with,
Section 251 of the DGCL.

    "CHANGE OF CONTROL" shall mean any (i) change in the direct or indirect
record or beneficial ownership of any of the equity securities of the Company or
any of its Subsidiaries, (ii) merger, consolidation, statutory share exchange or
other transaction involving the Company or any of its Subsidiaries or
(iii) change in the composition of the board of directors or other governing
body of the Company or any of its Subsidiaries.

    "CHANGE OF CONTROL COVENANT" shall mean any covenant, agreement or other
provision pursuant to which the occurrence or existence of a Change of Control
would result in a violation or breach of, constitute (with or without due notice
or lapse of time or both) or permit any Person to declare a default or event of
default under, give rise to any right of termination, cancellation, amendment,
acceleration, repurchase, prepayment or repayment or to increased payments
under, give rise to or accelerate any material obligation (including any
obligation to, or to offer to, repurchase, prepay, repay or make increased
payments) or result in the loss or modification of any material right or benefit
under, or result in any Restriction or give any Person the right to obtain any
Restriction on any capital stock or other securities or ownership interests
pursuant to, or result in any Lien or give any Person the right to obtain any
Lien on any material asset pursuant to, any Contract to which the Company or any
of its Subsidiaries is or becomes a party or to which the Company or any of its
Subsidiaries or any of their respective assets are or become subject or bound.

    "CLOSING" means the consummation of the transactions contemplated by this
Agreement.

    "CLOSING DATE" means the date on which the Closing occurs pursuant to
Section 2.2.

    "CODE" means the Internal Revenue Code of 1986, as amended.

    "COMPANY" has the meaning specified in the preamble.

    "COMPANY BOARD" means the Board of Directors of the Company.

    "COMPANY CHARTER," means the Amended and Restated Certificate of
Incorporation of the Company, including any certificate of designations filed
with respect to the Company Preferred Stock, as amended to the date hereof.

    "COMPANY COMMON STOCK" means the Company Series A Common Stock and the
Company Series B Common Stock.

    "COMPANY EQUITY AFFILIATES" has the meaning specified in Section 4.1.

    "COMPANY OPTION" has the meaning specified in Section 2.6(a).

    "COMPANY PLAN" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance or termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement,

                                       2

sponsored, maintained or contributed to or required to be contributed to at any
time since December 31, 1999 by the Company or by any trade or business, whether
or not incorporated ("ERISA Affiliate"), that together with the Company would be
deemed a "controlled group" within the meaning of Section 4001(a)(14) of ERISA,
for the benefit of any employee, director or former employee or director of the
Company or any ERISA Affiliate including any such type of plan established,
maintained or contributed to under the laws of any foreign country; provided,
however, that Company Plan will not include any such plan or arrangement
maintained by Liberty Media Corporation.

    "COMPANY PREFERRED STOCK" means the preferred stock, par value $.01 per
share, of the Company, including the Company Series A Preferred Stock and the
Company Series B Preferred Stock.

    "COMPANY RESTRICTED STOCK" has the meaning specified in Section 2.6(c).

    "COMPANY SAR" has the meaning specified in Section 2.6(b).

    "COMPANY SEC FILINGS" has the meaning specified in Section 4.4.

    "COMPANY SERIES A COMMON STOCK" means the Series A Common Stock, par value
$1.00 per share, of the Company.

    "COMPANY SERIES B COMMON STOCK" means the Series B Common Stock, par value
$1.00 per share, of the Company.

    "COMPANY SERIES A PREFERRED STOCK" means the Series A Cumulative Preferred
Stock, par value $.01 per share, of the Company.

    "COMPANY SERIES B PREFERRED STOCK" means the Series B Cumulative Convertible
Voting Preferred Stock, par value $.01 per share, of the Company.

    "COMPANY STOCK" means the Company Common Stock and the Company Preferred
Stock.

    "CONSOLIDATED PERIOD" means any period from and including March 16, 2000
through the date of this Agreement (1) during which the Company was a member of
the affiliated group (within the meaning of Section 1504 of the Code) the common
parent of which is Parent or (2) with respect to which the Company or any of its
Subsidiaries otherwise was or will be required to file a consolidated or unitary
Tax Return pursuant to which the Company or any of its Subsidiaries were or will
be combined with Parent on the same Tax Return.

    "CONSOLIDATED PERIOD TAXES" means any Taxes of the Company or any of its
Subsidiaries related to any Consolidated Period, which were or will be required
to be included on any Consolidated Tax Return.

    "CONSOLIDATED TAX RETURN" means any consolidated or unitary income Tax
Return related to any Consolidated Period on which the Company or any of its
Subsidiaries were or will be combined with Parent on the same Tax Return.

    "CONTRACT CONSENT" has the meaning specified in Section 4.5(iii).

    "CONTRACT NOTICE" has the meaning specified in Section 4.5(iii).

    "CONTRACT" has the meaning specified in Section 4.5(iv).

    "CONTRIBUTED CONTRACT" has the meaning specified in Section 4.12(a).

    "CONTROL" means, with respect to any Person, the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.

    "CONVERTIBLE SECURITIES" has the meaning specified in Section 4.3(e).

                                       3

    "DGCL" means the General Corporation Law of the State of Delaware.

    "DISSENTING SHARES" has the meaning specified in Section 2.7.

    "EFFECTIVE TIME" means the time when the Merger of Merger Sub with and into
the Company becomes effective under applicable law as provided in
Section 2.1(a).

    "ENVIRONMENTAL LAWS" has the meaning specified in Section 4.9(b).

    "EQUITY AFFILIATE" of a Person shall mean any other Person in which the
first Person directly or indirectly through a Subsidiary owns an investment
accounted for by the equity method within the meaning of GAAP.

    "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations promulgated thereunder, as in effect from time to
time.

    "ERISA AFFILIATE" has the meaning specified in the definition of the term
"Company Plan".

    "EXCHANGE AGENT" has the meaning specified in Section 2.4(a).

    "EXCHANGE AGENT AGREEMENT" has the meaning specified in Section 2.4(a).

    "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.

    "EXCHANGE RATIO" has the meaning specified in Section 2.3(a)(i).

    "FAIRNESS OPINION" has the meaning specified in Section 4.14.

    "GAAP" means generally accepted accounting principles as accepted by the
accounting profession in the United States as in effect from time to time.

    "GOVERNMENT CONSENT" has the meaning specified in Section 4.5(ii).

    "GOVERNMENTAL ENTITY" means any court, arbitrator, administrative or other
governmental department, agency, commission, authority or instrumentality,
domestic or foreign.

    "GOVERNMENTAL FILING" has the meaning specified in Section 4.5(ii).

    "INDEBTEDNESS" shall mean, with respect to any Person, without duplication
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (i) every liability of such Person
(excluding intercompany accounts between the Company and any wholly-owned
Subsidiary of the Company or between wholly-owned Subsidiaries of the Company)
(A) for borrowed money, (B) evidenced by notes, bonds, debentures or other
similar instruments (whether or not negotiable), (C) for reimbursement of
amounts drawn under letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (D) issued or assumed as the
deferred purchase price of property or services (excluding accounts payable) or
(E) relating to a capitalized lease obligation and all debt attributable to
sale/leaseback transactions of such Person; and (ii) every liability of others
of the kind described in the preceding clause (i) that such Person has
guaranteed or which is otherwise its legal liability.

    "INDEMNIFIED LIABILITIES" has the meaning specified in Section 6.6(a).

    "INDEMNIFIED PARTIES" has the meaning specified in Section 6.6(a).

    "INDEMNIFIED PARTY" has the meaning specified in Section 6.6(a).

    "INJUNCTION" has the meaning specified in Section 3.4.

    "LEGAL PROCEEDING" shall mean any private or governmental action, suit,
complaint, arbitration, mediation, legal or administrative proceeding or
investigation.

                                       4

    "LICENSE" means any license, franchise, ordinance, authorization, permit,
certificate, variance, exemption, concession, lease, right of way, easement,
instrument, order and approval, domestic or foreign.

    "LIEN" means any security interest, mortgage, pledge, hypothecation, charge,
claim, option, right to acquire, adverse interest, assignment, deposit
arrangement, encumbrance, restriction, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).

    "LOCAL APPROVALS" has the meaning specified in Section 4.5(ii).

    "MATERIAL ADVERSE EFFECT" means (A) with respect to Parent, a material
adverse effect on the business, properties, operations or financial condition of
Parent and its Subsidiaries (including the Company and its Subsidiaries) taken
as a whole, other than any such effect arising out of or resulting from general
business or economic conditions or from general changes in or affecting the
industries in which Parent operates in areas where Parent does business directly
or through its Subsidiaries (including the Company and its Subsidiaries), and
(B) with respect to the Company, a material adverse effect on the business,
properties, operations or financial condition of the Company and its
Subsidiaries taken as a whole, other than any such effect arising out of or
resulting from general business or economic conditions or from general changes
in or affecting the industries in which the Company operates in areas where the
Company does business directly or through its Subsidiaries.

    "MATERIAL CONTRACT" has the meaning specified in Section 4.12(a).

    "MERGER" has the meaning specified in the recitals.

    "MERGER SUB" has the meaning specified in the preamble hereto.

    "NYSE" means The New York Stock Exchange.

    "PARENT" has the meaning set forth in the preamble.

    "PARENT CHARTER" means the Restated Certificate of Incorporation of Parent,
as amended.

    "PARENT MARKET PRICE," on any date of determination, means the average of
the closing sales prices of a share of Parent Series A Stock on the NYSE on each
of the five consecutive trading days immediately preceding the trading day prior
to the date of such determination.

    "PARENT PREFERRED STOCK" means the preferred stock, $.01 par value per
share, of Parent.

    "PARENT SEC FILINGS" has the meaning specified in Section 5.4.

    "PARENT SERIES A STOCK" means the Series A common stock, $.01 par value per
share, of Parent, or such other securities as may be issuable to holders fo
Company Common Stock in the Merger in accordance with Section 2.5.

    "PARENT SERIES B STOCK" means the Series B common stock, $.01 par value per
share, of Parent.

    "PERMITS" has the meaning specified in Section 4.9(a).

    "PERSON" means an individual, partnership, corporation, limited liability
company, trust, unincorporated organization, association, joint venture or other
entity or a government, agency, political subdivision, or instrumentality
thereof.

    "PROXY STATEMENT" has the meaning specified in Section 3.2(a).

    "REGISTRATION STATEMENT" has the meaning specified in Section 3.2(a).

                                       5

    "REPRESENTATIVES" has the meaning specified in Section 6.2.

    "RESTRICTION", with respect to any capital stock or other security, shall
mean any voting or other trust or agreement, option, warrant, escrow
arrangement, proxy, buy-sell agreement, power of attorney or other Contract, or
any law, rule, regulation, order, judgment or decree which, conditionally or
unconditionally: (i) grants to any Person the right to purchase or otherwise
acquire, or obligates any Person to purchase or sell or otherwise acquire,
dispose of or issue, or otherwise results in or, whether upon the occurrence of
any event or with notice or lapse of time or both or otherwise, may result in,
any Person acquiring, (A) any of such capital stock or other security; (B) any
of the proceeds of, or any distributions paid or which are or may become payable
with respect to, any of such capital stock or other security; or (C) any
interest in such capital stock or other security or any such proceeds or
distributions; (ii) restricts or, whether upon the occurrence of any event or
with notice or lapse of time or both or otherwise, may restrict the transfer or
voting of, or the exercise of any rights or the enjoyment of any benefits
arising by reason of ownership of, any such capital stock or other security or
any such proceeds or distributions; or (iii) creates or, whether upon the
occurrence of any event or with notice or lapse of time or both or otherwise,
may create a Lien or purported Lien affecting such capital stock or other
security, proceeds or distributions.

    "SEC" means the Securities and Exchange Commission.

    "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations thereunder.

    "SIGNIFICANT STOCKHOLDER" shall mean any Person known to the Company to be
the beneficial owner of 5% of more of the outstanding shares of Company Common
Stock other than Parent or any of its Affiliates.

    "SPECIAL MEETING" has the meaning specified in Section 3.1.

    "SUBSIDIARY" when used with respect to any Person, means any other Person:
(1) of which (x) in the case of a corporation, at least (A) a majority of the
equity and (B) a majority of the voting interests are owned or Controlled,
directly or indirectly, by such first Person, by any one or more of its
Subsidiaries, or by such first Person and one or more of its Subsidiaries or
(y) in the case of any Person other than a corporation, such first Person, one
or more of its Subsidiaries, or such first Person and one or more of its
Subsidiaries (A) owns a majority of the equity interests thereof and (B) has the
power to elect or direct the election of a majority of the members of the
governing body thereof or otherwise has Control over such organization or
entity; or (2) that is required to be consolidated with such first Person for
financial reporting purposes under GAAP.

    "SURVIVING CORPORATION" means the Company as the Surviving Corporation after
the Merger as provided in Section 2.1(a).

    "TAX" or "TAXES" shall mean (i) any and all federal, state, local and
foreign taxes and other assessments, governmental charges, duties, fees, levies,
impositions and liabilities in the nature of a tax, including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes and (ii) all interest, penalties and
additions imposed with respect to such amounts in clause (i).

    "TAX RETURN" shall mean a report, return or other information required to be
supplied to or filed with a Governmental Entity with respect to any Tax
including an information return, claim for refund, amended Tax return or
declaration of estimated Tax.

    "TREASURY REGULATIONS" shall mean the regulations promulgated under the Code
in effect on the date hereof and the corresponding sections of any regulations
subsequently issued that amend or supersede such regulations.

                                       6

    "VIOLATION" has the meaning specified in Section 4.5(iv).

    "VOTING DEBT" has the meaning specified in Section 4.3(d).

    "WHOLLY-OWNED SUBSIDIARY" means, as to any Person, a Subsidiary of such
Person, 100% of the equity and voting interest in which is owned, directly
and/or indirectly, by such Person.

1.2 TERMS GENERALLY.

    The definitions in Section 1.1 will apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
will include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" will be deemed to be followed by the
phrase "without limitation". The words "herein", "hereof" and "hereunder" and
words of similar import refer to this Agreement (including the Exhibits and
Schedules) in its entirety and not to any part hereof unless the context
otherwise requires. As used herein, the term "to the knowledge of the Company"
or any similar term relating to the Company's knowledge means the actual
knowledge, without investigation, of either of Pamela Strauss or Kenneth G.
Carroll, and the term "to the knowledge of Parent" or any similar term relating
to Parent's knowledge means the actual knowledge, without investigation, of any
of the officers or directors of Parent. All references herein to Articles,
Sections, Exhibits and Schedules will be deemed references to Articles and
Sections of, and Exhibits and Schedules to, this Agreement unless the context
otherwise requires. Unless the context otherwise requires, any references to any
agreement or other instrument or statute or regulation are to it as amended and
supplemented from time to time (and, in the case of a statute or regulation, to
any successor provisions). Any reference in this Agreement to a "day" or number
of "days" (without the explicit qualification of "business") will be interpreted
as a reference to a calendar day or number of calendar days. If any action or
notice is to be taken or given on or by a particular calendar day, and such
calendar day is not a business day, then such action or notice will be deferred
until, or may be taken or given on, the next business day. As used herein, the
phrase "made available" means that the information referred to has been made
available if requested by the party to whom such information is to be made
available.

                                   ARTICLE II
                         THE MERGER AND RELATED MATTERS

2.1 THE MERGER.

    (A) MERGER; EFFECTIVE TIME.

    At the Effective Time and subject to and upon the terms and conditions of
this Agreement, Merger Sub will merge with and into the Company in accordance
with the provisions of the DGCL, the separate corporate existence of Merger Sub
will cease and the Company will continue as the Surviving Corporation. The
Effective Time will occur on the date and at the time that the Certificate of
Merger has been accepted for filing by the Delaware Secretary of State (or such
later date and time as may be agreed to by Parent and the Company and specified
in the Certificate of Merger). Provided that this Agreement has not been
terminated pursuant to Article VIII, the parties will cause the Certificate of
Merger to be filed with the Delaware Secretary of State as soon as practicable
after the Closing.

    (B) EFFECTS OF THE MERGER.

    From and after the Effective Time, the Merger will have the effects set
forth in the DGCL (including, without limitation, Sections 259, 260 and 261
thereof). Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the properties, rights, privileges, powers and
franchises of the Company and Merger Sub will vest in the Surviving Corporation,
and all debts,

                                       7

liabilities and duties of the Company and Merger Sub will become the debts,
liabilities and duties of the Surviving Corporation.

    (C) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION.

    At the Effective Time, the Company Charter will remain as the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the terms thereof and the DGCL and all certificates of
designation filed by the Company with respect to the Company Preferred Stock
will remain as certificates of designation of the Surviving Corporation until
thereafter amended in accordance with the terms thereof and the DGCL.

    (D) BYLAWS OF THE SURVIVING CORPORATION.

    The Bylaws of the Company will remain as the Bylaws of the Surviving
Corporation until thereafter amended in accordance with the terms thereof, the
Certificate of Incorporation of the Surviving Corporation and the DGCL.

    (E) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.

    Parent, the Company and the Surviving Corporation will take such action as
is necessary to ensure that the directors of Merger Sub at the Effective Time
will, from and after the Effective Time, be the directors of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation, or as otherwise provided by applicable law. Parent, the
Company and the Surviving Corporation will take such action as is necessary to
ensure that the officers of the Company at the Effective Time will, from and
after the Effective Time, be the officers of the Surviving Corporation until
their respective successors are duly appointed and qualified in accordance with
the Certificate of Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by applicable law.

2.2 CLOSING.

    Unless this Agreement has been terminated pursuant to Section 8.1 and
subject to the satisfaction or, when permissible, waiver of the conditions set
forth in Article VII, the Closing will take place (i) at 10:00 a.m. (Denver
time) at the executive offices of Parent in Englewood, Colorado, on the date on
which the last of the conditions set forth in Article VII (other than the filing
of the Certificate of Merger and other than any such conditions which by their
terms are not capable of being satisfied until the Closing Date or thereafter)
is satisfied or, when permissible, waived, or (ii) on such other date and/or at
such other time and/or place as the parties may mutually agree.

2.3 CONVERSION OF SECURITIES.

    (A) CONVERSION OF COMPANY SECURITIES.

    At the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Merger Sub, the Company or the holders of shares of Company
Common Stock:

    (i) Each share of Company Common Stock issued and outstanding immediately
        prior to the Effective Time (other than any shares of Company Common
        Stock to be canceled pursuant to Section 2.3(a)(ii) and other than
        Dissenting Shares, if any) will be converted into and represent the
        right to receive, and will be exchangeable for, .2750 (the "Exchange
        Ratio") of a validly issued, fully paid and nonassessable share of
        Parent Series A Stock. At the Effective Time, all such shares of Company
        Common Stock will no longer be outstanding and will automatically be
        canceled and retired and will cease to exist, and each holder of a
        certificate representing any such shares will cease to have any rights
        with respect thereto, except the

                                       8

        right to receive the shares of Parent Series A Stock to be issued
        pursuant to this Section 2.3(a)(i) (and any dividends or other
        distributions and any cash in lieu of a fractional share payable
        pursuant to Sections 2.4(f) and 2.4(g)) with respect thereto upon the
        surrender of such certificate in accordance with Section 2.4, without
        interest.

    (ii) Each share of Company Common Stock (not including any common stock of
         the Surviving Corporation that is issued under Section 2.3(b)) that
         immediately prior to the Effective Time is (x) owned of record by
         Parent, Merger Sub or any Wholly-Owned Subsidiary of Parent or
         (y) held in the treasury of the Company or held by any Wholly-Owned
         Subsidiary of the Company will automatically be canceled, retired and
         cease to exist without payment of any consideration thereof and without
         any conversion thereof into Parent Series A Stock.

   (iii) Each share of Company Preferred Stock issued and outstanding
         immediately prior to the Effective Time, will, by virtue of the Merger,
         and without any further act on the part of any holder thereof, remain
         as an issued and outstanding share of preferred stock of the Surviving
         Corporation that will have the powers, designations, preferences and
         relative, participating, optional or other rights, if any, and the
         qualifications limitations and restrictions thereof, as are set forth
         in the certificate of designations for such Company Preferred Stock
         immediately prior to the Effective Time.

    (B) CONVERSION OF MERGER SUB STOCK.

    At the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Merger Sub or the Company, each share of capital stock of Merger
Sub outstanding immediately prior to the Effective Time will be converted into
and become one share of common stock of the Surviving Corporation and will
constitute the only outstanding shares of capital stock of the Surviving
Corporation (other than Dissenting Shares, if any, and the preferred stock of
the Surviving Corporation described in Section 2.3(a)(iii)).

2.4 EXCHANGE OF SHARES.

    (A) APPOINTMENT OF EXCHANGE AGENT.

    On or before the Closing Date, Parent will enter into an agreement (the
"Exchange Agent Agreement") with an exchange agent selected by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), authorizing such
Exchange Agent to act as Exchange Agent hereunder.

    (B) LETTER OF TRANSMITTAL.

    As soon as reasonably practicable after the Effective Time, Parent will
instruct the Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time evidenced issued and
outstanding shares of Company Common Stock (other than shares to be canceled
pursuant to Section 2.3(a)(ii)) (the "Certificates"): (i) a notice of the
effectiveness of the Merger and (ii) a letter of transmittal (which will state
that delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon proper delivery of the Certificates to the Exchange Agent)
with instructions for use in effecting the surrender and exchange of the
Certificates. Such notice, letter of transmittal and instructions will contain
such provisions and be in such form as Parent and the Company may jointly
specify.

    (C) EXCHANGE PROCEDURE.

    Promptly following the surrender, in accordance with such instructions, of a
Certificate to the Exchange Agent (or such other agent or agents as may be
appointed by the Exchange Agent or Parent pursuant to the Exchange Agent
Agreement), together with such letter of transmittal (duly executed)

                                       9

and any other documents required by such instructions or letter of transmittal,
Parent will, subject to Section 2.4(d), cause to be distributed to the Person in
whose name such Certificate has been issued (i) a certificate registered in the
name of such Person representing the number of whole shares of Parent Series A
Stock into which the shares previously represented by the surrendered
Certificate are to have been converted at the Effective Time pursuant to this
Article II and (ii) payment (which will be made by check) of any cash payable in
lieu of a fractional share of Parent Series A Stock pursuant to Section 2.4(f).
Each Certificate so surrendered will immediately be canceled.

    (D) UNREGISTERED TRANSFERS OF COMPANY COMMON STOCK.

    In the event of a transfer of ownership of shares of Company Common Stock
which is not registered in the transfer records of the Company, a certificate
representing the proper number of whole shares of Parent Series A Stock may be
issued (and cash in lieu of a fractional share of Parent Series A Stock may be
paid) to the transferee of such shares if the Certificate evidencing such shares
of Company Common Stock surrendered to the Exchange Agent in accordance with
Section 2.4(c) is properly endorsed for transfer or is accompanied by
appropriate and properly endorsed stock powers and is otherwise in proper form
to effect such transfer, if the Person requesting such transfer pays to the
Exchange Agent any transfer or other taxes payable by reason of such transfer or
establishes to the satisfaction of the Exchange Agent that such taxes have been
paid or are not required to be paid and if such Person establishes to the
satisfaction of Parent that such transfer would not violate applicable federal
or state securities laws.

    (E) LOST, STOLEN OR DESTROYED CERTIFICATES.

    In the event any Certificate has been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed satisfactory to Parent and complying with any other
reasonable requirements imposed by Parent, Parent will cause to be delivered to
such Person in respect of such lost, stolen or destroyed Certificate the shares
of Parent Series A Stock or other property deliverable in respect thereof as
determined in accordance with this Article II. Parent may, in its discretion,
require the owner of such lost, stolen or destroyed Certificate to give Parent a
bond in such sum as it may direct as indemnity against any claim that may be
made against Parent or the Surviving Corporation with respect to the Certificate
alleged to have been lost, stolen or destroyed.

    (F) NO FRACTIONAL SHARES.

    No certificates or scrip representing fractional shares of Parent Series A
Stock will be issued upon the surrender for exchange of Certificates for Company
Common Stock; and no such fractional share interest will entitle the owner
thereof to vote as, or to any other rights of, a stockholder of Parent. In lieu
of such fractional shares, any holder of Company Common Stock who would
otherwise be entitled to a fractional share of Parent Series A Stock will, upon
surrender of his Certificate to the Exchange Agent in accordance with
Section 2.4(c), be entitled to receive cash in an amount determined by
multiplying such fraction by the Parent Market Price as of the Closing Date and
rounding the product to the nearest whole cent. No interest will accrue or be
paid with respect to fractional share interests or with respect to cash payable
in lieu of fractional share interests.

    (G) NO DIVIDENDS BEFORE SURRENDER OF CERTIFICATES.

    No dividends or other distributions declared or made after the Effective
Time with respect to Parent Series A Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Series A Stock for which such Certificate is
then entitled to be exchanged, until the holder of record of such Certificate
will surrender such Certificate as provided herein. Subject to the effect of
applicable laws, following surrender of any such

                                       10

Certificate, there will be paid to the record holder of the certificates
representing whole shares of Parent Series A Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions, if any, with a record date after the Effective Time that
were previously paid by Parent with respect to such whole shares of Parent
Series A Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, if any, with a record date after the Effective
Time but prior to surrender and with a payment date subsequent to surrender
payable with respect to such whole shares of Parent Series A Stock.

    (H) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK.

    All shares of Parent Series A Stock issued and all cash in lieu of
fractional shares paid upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof will be deemed to have been
issued and paid in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there will be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time.
Subject to Section 2.4(i), if, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they will be canceled and
exchanged as provided in this Article II.

    (I) ABANDONED PROPERTY LAWS.

    Payment or delivery of the shares of Parent Series A Stock, any cash in lieu
of fractional shares thereof and any dividends or distributions with respect
thereto in accordance with the terms hereof will be subject to applicable
abandoned property, escheat and similar laws and none of Parent, Merger Sub, the
Surviving Corporation or the Company will be liable to any holder of shares of
Company Common Stock or Parent Series A Stock for any such shares, for any
dividends or distributions with respect thereto or for any cash in lieu of
fractional shares which may be delivered to any public official pursuant to any
abandoned property, escheat or similar law.

    (J) WITHHOLDING RIGHTS.

    Each of the Surviving Corporation and Parent will be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of shares of Company Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by the Surviving Corporation or Parent, as the case may be, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding were made by the Surviving Corporation or
Parent, as the case may be.

2.5 CHANGES IN PARENT SERIES A STOCK.

    If, after the date hereof and prior to the Effective Time, the Parent
Series A Stock is recapitalized or reclassified or Parent will effect any stock
dividend, stock split, or reverse stock split of Parent Series A Stock or
otherwise effect any transaction that changes the Parent Series A Stock into any
other securities (including securities of another corporation) or any other
dividend or distribution is made on the Parent Series A Stock (or such other
securities), then the shares of Parent Series A Stock to be delivered under this
Agreement to the holders of Company Common Stock will be appropriately and
equitably adjusted to the kind and amount of shares of stock and other
securities and property which the holders of such shares of Parent Series A
Stock would have been entitled to receive had such shares been issued and
outstanding as of the record date for determining stockholders entitled to
participate in such corporate event.

                                       11

2.6 STOCK OPTIONS, SARS AND RESTRICTED STOCK.

    (A) STOCK OPTIONS.

    Each of the then outstanding stock options, if any, to purchase shares of
Company Common Stock (each, a "Company Option") issued by the Company pursuant
to any Company Plan, and any non-plan options to acquire shares of Company
Common Stock set forth in Schedule 2.6 issued by the Company pursuant to an
option agreement or otherwise issued by the Company, will, by virtue of the
Merger, and without any further action on the part of any holder thereof, be
assumed by Parent and converted into an option (an "Assumed Option") to purchase
that number of shares of Parent Series A Stock determined by multiplying the
number of shares of Company Common Stock subject to such Company Option at the
Effective Time by the Exchange Ratio, at an exercise price per share of Parent
Series A Stock equal to the exercise price per share of such Company Option
immediately prior to the Effective Time divided by the Exchange Ratio, rounded
down to the nearest whole cent. If the foregoing calculation results in an
Assumed Option being exercisable for a fraction of a share of Parent Series A
Stock, then the number of shares of Parent Series A Stock subject to such option
will be rounded up to the nearest whole number of shares, with no cash being
payable for such fractional share. The terms and conditions of each Assumed
Option will otherwise remain as set forth in the Company Option converted into
such Assumed Option. The adjustment provided for in this Section 2.6(a) with
respect to any options that are "incentive stock options" (as defined in
Section 422 of the Code) will be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code.

    (B) STOCK APPRECIATION RIGHTS.

    Each of the then outstanding stock appreciation rights, if any, with respect
to shares of Company Common Stock (each, a "Company SAR") issued by the Company
pursuant to any Company Plan, and any non-plan stock appreciation rights with
respect to shares of Company Common Stock set forth in Schedule 2.6 or otherwise
issued by the Company, will, by virtue of the Merger, and without any further
action on the part of any holder thereof, be assumed by Parent and converted
into a stock appreciation right (an "Assumed SAR") with respect to that number
of shares of Parent Series A Stock equal to the number of shares of Company
Common Stock that were subject to such Company SAR at the Effective Time
multiplied by the Exchange Ratio, at an exercise or base price per stock
appreciation right equal to (i) in the case of a Company SAR issued in tandem
with, and at the same base or exercise price as, Company Options, the exercise
price per share of the related Company Option assumed by Parent as determined
above and (ii) in the case of a free standing Company SAR or a Company SAR
issued in tandem with, and at a different base or exercise price as, Company
Options, the amount determined by dividing the base price per share of such
Company SAR immediately prior to the Effective Time by the Exchange Ratio,
rounded down to the nearest whole cent. If the foregoing calculation results in
an Assumed SAR being exercisable with respect to a fraction of a share of Parent
Series A Stock, then the number of shares of Parent Series A Stock in respect of
such stock appreciation right will be rounded up to the nearest whole number of
shares, with no cash being payable for such fractional share. The terms and
conditions of each Assumed SAR will otherwise remain as set forth in the Company
SAR converted into such Assumed SAR.

                                       12

    (C) RESTRICTED STOCK.

    Each restricted share of Company Common Stock ("Company Restricted Stock")
granted pursuant to any Company Plan and each restricted share of Company Common
Stock issued pursuant to individual awards not granted pursuant to any Company
Plan will, by virtue of the Merger, and without any further action on the part
of any holder thereof, be converted into a number of restricted shares of Parent
Series A Stock at the Exchange Ratio, and will remain subject to the same
restrictions applicable to such restricted share of Company Common Stock
immediately prior to the Effective Time. If the foregoing calculation results in
a restricted share of Company Common Stock being convertible for a fraction of a
share of Parent Series A Stock, then the number of shares of Parent Series A
Stock to be issued will be rounded up to the nearest whole number of shares,
with no cash being payable for such fractional share.

2.7 APPRAISAL RIGHTS.

    Holders of Company Common Stock are entitled to appraisal rights in the
Merger under Section 262 of the DGCL. Notwithstanding anything to the contrary
in this Agreement, each outstanding share of Company Common Stock, the holder of
which has demanded and perfected his demand for appraisal of the fair value of
such shares in accordance with Section 262 and has not effectively withdrawn or
lost his right to such appraisal (the "Dissenting Shares"), shall not be
converted into or represent a right to receive the Merger consideration
specified in Section 2.3, but the holder thereof shall be entitled only to such
rights as are granted by Section 262. The Company shall give Parent prompt
notice upon receipt of any such written demands for appraisal of the fair value
of shares of Company Common Stock and of withdrawals of such demands and any
other instruments provided to the Company pursuant to Section 262. Any payment
to a holder of Company Common Stock ordered by the Delaware Court of Chancery
pursuant to Section 262 of the DGCL shall be made by the Surviving Corporation
out of its own funds. Parent and Merger Sub acknowledge that they have received
a copy of Section 262 of the DGCL and that, as a result of their consent to the
Merger as set forth in Section 6.9, they will have no right to exercise
appraisal rights under Section 262 of the DGCL with respect to any Company Stock
that immediately prior to the Effective Time is owned of record by Parent or any
Wholly-Owned Subsidiary of Parent.

                                  ARTICLE III
                                CERTAIN ACTIONS

3.1 STOCKHOLDER MEETING.

    Except as otherwise required by the fiduciary duties of the Company Board,
as determined in good faith by the Company Board following the receipt of advice
of the Company's outside legal counsel thereon, (A) the Company, acting through
the Company Board, will, in accordance with applicable law, the Company Charter
and the Company's Bylaws, duly call, give notice of, convene and hold, as soon
as reasonably practicable after the date hereof, a meeting of the Company's
stockholders (the "Special Meeting") for the purpose of considering and voting
upon this Agreement and (B) the Company will, through the Company Board,
recommend to its stockholders the adoption of this Agreement.

3.2 REGISTRATION STATEMENT AND OTHER SEC FILINGS.

    (A) REGISTRATION STATEMENT AND PROXY STATEMENT.

    As soon as reasonably practicable after the execution of this Agreement, the
Company will prepare and file with the SEC a preliminary proxy statement in form
and substance reasonably satisfactory to Parent, and Parent will prepare and
file with the SEC a Registration Statement on Form S-4 (the

                                       13

"Registration Statement") in connection with the registration under the
Securities Act of the Parent Series A Stock issuable in the Merger and upon
exercise of the Assumed Options. The proxy statement furnished to the Company's
stockholders in connection with the Special Meeting (the "Proxy Statement") will
be included as part of the prospectus forming part of the Registration
Statement. Each party hereto agrees to use commercially reasonable efforts to
cooperate with each other party in connection with the preparation and filing of
the preliminary proxy statement, the Proxy Statement and the Registration
Statement, including providing information to the other party with respect to
itself as may be reasonably required in connection therewith. Each of Parent and
the Company will use commercially reasonable efforts to respond to any comments
of the SEC, to cause the Registration Statement to be declared effective under
the Securities Act as soon as reasonably practicable after such filing and to
continue to be effective as of the Effective Time and to cause the Proxy
Statement approved by the SEC to be mailed to the Company's stockholders at the
earliest practicable time. Parent also will use commercially reasonable efforts
to take any reasonable action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified, subjecting itself to taxation
in any jurisdiction in which it is not now so subject, giving any consent to
general service of process in any jurisdiction in which it is not now subject to
such service or changing in any respect its authorized or outstanding capital
stock or the composition of its assets) required to be taken under any
applicable state securities or blue sky laws in connection with the issuance of
the Parent Series A Stock to be covered by the Registration Statement.

    (B) SEC COMMENTS; AMENDMENTS AND SUPPLEMENTS.

    Each of Parent and the Company will notify the other party promptly of the
receipt of any comments of the SEC or its staff and of any request by the SEC or
its staff or any other governmental officials for amendments or supplements to
the preliminary proxy statement, the Proxy Statement, the Registration Statement
or any other related filing or for additional information related thereto, and
will supply the other with copies of all correspondence between it and any of
its representatives, on the one hand, and the SEC or its staff or any other
governmental officials, on the other hand, with respect to the preliminary proxy
statement, the Proxy Statement, the Registration Statement, the Merger or any
other filing relating thereto. The Proxy Statement, the Registration Statement
and such other filings will comply in all material respects with all applicable
requirements of law. If at any time prior to the Effective Time, any event
occurs relating to Parent or the Company, as the case may be, or its
Subsidiaries or any of their respective officers, directors, partners or
Affiliates which should be described in an amendment or supplement to the Proxy
Statement, the Registration Statement or any other related filing, Parent or the
Company, as the case may be, will inform the other party promptly after becoming
aware of such event and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of the Company, such
amendment or supplement.

3.3 [RESERVED]

3.4 REASONABLE EFFORTS.

    Subject to the terms and conditions of this Agreement and applicable law
and, in the case of the Company, except as otherwise required by the fiduciary
duties of the Company Board (as determined in good faith by the Company Board
following the receipt of advice of the Company's outside legal counsel thereon),
each of the parties hereto will use commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
reasonably necessary, proper or advisable under applicable laws and regulations
or otherwise to consummate and make effective the Merger and the other
transactions contemplated by this Agreement as soon as reasonably practicable,
including such actions or things as any other party hereto may reasonably
request in order to cause any of the conditions to such other party's obligation
to consummate such transactions specified in Article VII to be fully satisfied.
Without limiting the generality of the foregoing, the parties will, and

                                       14

will cause their respective directors, officers and Subsidiaries, and use
commercially reasonable efforts to cause their respective Affiliates, employees,
agents, attorneys, accountants and representatives, to consult and fully
cooperate with and provide reasonable assistance to each other in (i) obtaining
all necessary consents, approvals, waivers, licenses, permits, authorizations,
registrations, qualifications, or other permission or action by, and giving all
necessary notices to and making all necessary filings with and applications and
submissions to, any Governmental Entity or other Person; (ii) lifting any
permanent or preliminary injunction or restraining order or other similar order
issued or entered by any court or Governmental Entity (an "Injunction") of any
type referred to in Section 7.1(c); (iii) subject to the last sentence of
Section 3.2(a), taking such actions as may reasonably be required under
applicable state securities or blue sky laws in connection with the issuance of
the Parent Series A Stock to be covered by the Registration Statement; and
(iv) in general, consummating and making effective the transactions contemplated
hereby. Prior to making any application to or filing with any Governmental
Entity or other Person in connection with this Agreement, each party will
provide the other party with drafts thereof and afford the other party a
reasonable opportunity to comment on such drafts.

3.5 NO SOLICITATIONS; OTHER OFFERS.

    (a) The Company shall not, nor shall it knowingly permit any of its
officers, directors, representatives or agents to, directly or indirectly,
(i) take any action to solicit, initiate or knowingly encourage the submission
of any Acquisition Proposal or (ii) engage in discussions or negotiations with
any other Person to facilitate an Acquisition Proposal. From and after the date
hereof, the Company and all of its officers, directors, employees, agents and
advisors shall cease doing any of the foregoing. Nothing contained in this
Agreement shall prevent the Company Board from complying with Rule 14d-9 or
Rule 14e-2 under the Exchange Act with respect to any Acquisition Proposal.

    (b) Notwithstanding the foregoing, the Company may, subject to a
confidentiality agreement containing customary terms, engage in discussions or
negotiations with, and furnish nonpublic information or access to, any Person in
response to an unsolicited Acquisition Proposal or a request for information or
access made incident to an unsolicited Acquisition Proposal if (i) the Company
has complied with the terms of Section 3.5(a) hereof and (ii) the Company Board
determines in good faith, after consultation with outside legal counsel, that
the taking of such action is necessary to discharge its fiduciary duties under
applicable law.

    (c) The Company will promptly (but in no event later than 48 hours) notify
Parent if any Acquisition Proposal is made, indicating the identity of the
offeror and the terms and conditions of such Acquisition Proposal. The Company
shall keep Parent fully informed of all material developments that could result
in the Company Board withdrawing, modifying or amending its recommendation to
its stockholders referred to in Section 3.1(B) hereof.

    (d) The Company Board shall be permitted to withdraw, or modify in a manner
adverse to Parent, its recommendation to its stockholders referred to in
Section 3.1(B) and Section 4.15 hereof if the Company has complied with the
terms of this Section 3.5.

                                   ARTICLE IV
                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

    The Company hereby represents and warrants to Parent and Merger Sub as
follows:

4.1 ORGANIZATION AND QUALIFICATION.

    Each of the Company and its Subsidiaries (i) is a corporation, partnership,
limited liability company or other business association duly organized, validly
existing and in good standing under the

                                       15

laws of the jurisdiction of its incorporation or organization, (ii) has all
requisite corporate, partnership, limited liability company or other business
association power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and (iii) is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or license necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed or in good
standing has not had and could not have, individually or in the aggregate, a
Material Adverse Effect on the Company. To the Company's knowledge, each entity
in which the Company, directly or through one or more of its Subsidiaries, owns
an investment accounted for by the equity method within the meaning of GAAP (the
"Company Equity Affiliates") is a corporation, partnership, limited liability
company or other business association (A) duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, (B) has all requisite corporate, partnership, limited liability
company or other business association power and authority to own, lease and
operate its properties and to carry on its business as it is now being conducted
and (C) is duly qualified to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it, or the
nature of its activities, makes such qualification necessary, except in each
case where such failure to be so existing and in good standing or to have such
power and authority or to be so qualified to do business and be in good standing
has not had and could not have, in the aggregate, a Material Adverse Effect on
the Company. The Company has heretofore furnished or made available to Parent a
true and complete copy of the Company Charter and the Company's Bylaws, each as
amended through and in effect on the date hereof.

4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT.

    The Company has all requisite corporate power and authority to enter into
this Agreement and, subject to obtaining the approval of its stockholders
specified in Section 4.11, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Company Board
and by all other necessary corporate action on the part of the Company, subject,
in the case of the consummation by it of the Merger, to such approval of the
Company's stockholders. This Agreement has been duly executed and delivered by
the Company and (assuming the due execution and delivery of this Agreement by
the other parties hereto) constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms (except
insofar as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or by principles governing the availability of equitable remedies).

4.3 CAPITALIZATION.

    (a) The authorized capital stock of the Company consists of (i) 170,000,000
shares of Company Common Stock, of which 100,000,000 shares are designated
Company Series A Common Stock and 70,000,000 shares are designated Company
Series B Common Stock and (ii) 5,000,000 shares of Company Preferred Stock,
issuable in series, of which 150,000 are designated as Company Series A
Preferred Stock and 150,000 are designated as Company Series B Preferred Stock.

    (b) As of the close of business on August 21, 2003, (i) 14,304,794 shares of
Company Series A Common Stock and 34,764,921 shares of Company Series B Common
Stock were issued and outstanding, (ii) 150,000 shares of Company Series A
Preferred Stock and 150,000 shares of Company Series B Preferred Stock were
issued and outstanding, (iii) 213,353 shares of Company Series A Common Stock
were reserved for issuance upon conversion of outstanding Company Series B
Common Stock, (iv) 5,150 shares of Company Series B Common Stock were reserved
for issuance upon conversion of outstanding Company Series B Preferred Stock;
(v) 320,938 shares of Company Series A

                                       16

Common Stock and no shares of Company Series B Common Stock were reserved for
issuance upon conversion, exchange or exercise of outstanding Company Options,
Company SARs and Company Restricted Stock issued pursuant to Company Plans,
(vi) 479,911 shares of Company Series A Common Stock and no shares of Company
Series B Common Stock were reserved for issuance upon conversion, exchange or
exercise of Company Options, Company SARs and Company Restricted Stocks
available for grant pursuant to Company Plans (vii) no shares of Company
Preferred Stock other than the Company Series A Preferred Stock and the Company
Series B Preferred Stock were issued and outstanding and no action had been
taken by the Company Board with respect to the designation of the rights and
preferences of any series of Company Preferred Stock other than the Company
Series A Preferred Stock and the Company Series B Preferred Stock, and
(viii) 2,954 shares of Company Series A Common Stock, no shares of Company
Series B Common Stock and no Company Preferred Stock were held in the treasury
of the Company or held by Subsidiaries of the Company. Except as set forth in
the preceding sentence, at the close of business on August 21, 2003, no shares
of capital stock or other securities or other equity interests of the Company
and no phantom shares, phantom equity interests, or stock or equity appreciation
rights relating to the Company or any of its divisions or Subsidiaries were
issued, reserved for issuance or outstanding. Since the close of business on
August 21, 2003, no shares of capital stock or other securities or other equity
interests of the Company and no phantom shares, phantom equity interests, or
stock or equity appreciation rights relating to the Company or any of its
divisions or Subsidiaries have been issued other than shares of Company Common
Stock issued upon exercise of Company Options, Company SARs and Company
Restricted Stock outstanding at the close of business on August 21, 2003
referred to in clause (v) of the second preceding sentence in accordance with
their terms.

    (c) All outstanding shares of Company Common Stock and Company Preferred
Stock are, and all shares of Company Common Stock which may be issued upon the
exercise of Company Options, Company SARs or Company Restricted Stock will be,
duly authorized, validly issued, fully paid and nonassessable, and no class of
capital stock of the Company is entitled to preemptive rights. All outstanding
shares of Company Common Stock and Company Options, Company SARs or Company
Restricted Stock issued pursuant to the Company Plans were issued, and all
shares of Company Common Stock which may be issued upon the exercise of Company
Options or Company SARs issued pursuant to the Company Plans will be, when
issued, in compliance with all applicable state and federal laws concerning the
offer, sale and issuance of such securities.

    (d) There are no issued or outstanding bonds, debentures, notes or other
Indebtedness of the Company or any of its Subsidiaries which have the right to
vote (or which are convertible into other securities having the right to vote)
on any matters on which stockholders of the Company may vote (the "Voting
Debt").

    (e) Except as described on Schedule 4.3(e), there are no, and immediately
after the Effective Time there will be no, outstanding or authorized
subscriptions, options, warrants, securities, calls, rights, commitments or any
other contracts of any character to or by which the Company or any of its
Subsidiaries is a party or is bound that, directly or indirectly, obligate the
Company or any of its Subsidiaries (contingently or otherwise) to issue, deliver
or sell or cause to be issued, delivered or sold any shares of Company Common
Stock or any Company Preferred Stock or other capital stock, securities, equity
interests or Voting Debt of the Company or any Subsidiary of the Company, any
securities convertible into, or exercisable or exchangeable for, or evidencing
the right (contingent or otherwise) to subscribe for any such shares,
securities, interests or Voting Debt, or any phantom shares, phantom equity
interests or stock or equity appreciation rights, or obligating the Company or
any of its Subsidiaries to grant, extend or enter into any such subscription,
option, warrant, security, call, right or Contract (collectively, "Convertible
Securities"). Schedule 4.3(e) sets forth with respect to each outstanding
Company Option, Company SAR and each Company Restricted Stock share (i) the name
of the Person that holds such Company Option, Company SAR or Company Restricted
Stock and

                                       17

(ii) the total number of shares of Company Common Stock issuable upon exercise
of such Company Option or Company SAR or subject to such Company Restricted
Stock (assuming that all conditions to the exercise thereof, including the
passage of time, had been met). Neither the Company nor any Subsidiary thereof
is subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock. The Company has
delivered to Parent true and complete copies of the Company Restricted Stock
documents and the Company Option and Company SAR documents which copies
(together, with the provisions of the applicable Company Plans) represent the
complete terms, conditions, provisions, obligations and undertakings of the
Company with respect to all the Company Restricted Stock, the Company Options
and the Company SARs.

    (f) Except as described on Schedule 4.3(f), neither the Company nor any of
its Subsidiaries has adopted, authorized or assumed any plans, arrangements or
practices for the benefit of its officers, employees or directors that require
or permit the issuance, sale, purchase or grant of any capital stock, securities
or other equity interests or Voting Debt of the Company or any Subsidiary of the
Company, any phantom shares, phantom equity interests or stock or equity
appreciation rights or any Convertible Securities.

4.4 REPORTS AND FINANCIAL STATEMENTS.

    (a) The Company has filed on a timely basis all forms, reports and documents
with the SEC required to filed by it under the Securities Act or the Exchange
Act since January 1, 1999 (collectively, the "Company SEC Filings"). The Company
has heretofore furnished or made available to Parent true and complete copies of
all the Company SEC Filings filed prior to the date hereof. As of their
respective dates, each of the Company SEC Filings complied in all material
respects with the applicable requirements of the Exchange Act and the rules and
regulations thereunder, and none of the Company SEC Filings contained as of such
date any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (except
that no representation or warranty is made with respect to any information
regarding Parent or its Affiliates included in the Company SEC Filings which was
furnished by Parent or its Affiliates expressly for use therein). When filed
with the SEC, the financial statements (including the related notes) included in
the Company SEC Filings complied as to form in all material respects with the
applicable requirements of the Exchange Act and the applicable rules and
regulations thereunder and were prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the schedules
thereto), and such financial statements fairly present, in all material
respects, the consolidated financial position of the Company and its
consolidated Subsidiaries as of the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended, subject, in the case of the unaudited interim
financial statements, to normal, recurring year-end audit adjustments.

    (b) Except as and to the extent reflected or reserved against in the
financial statements included in the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 2003 or as disclosed therein or in Schedule 4.4, none
of the Company or any of its Subsidiaries, or to its knowledge, any of its
Equity Affiliates, had as of such date any actual or potential liability or
obligation of any kind, whether accrued, absolute, contingent, unliquidated or
other, or whether due or to become due (including any liability for breach of
contract, breach of warranty, torts, infringements, claims or lawsuits), that in
the aggregate, insofar as the Company can reasonably foresee, could have, a
Material Adverse Effect on the Company or that individually is required by the
applicable rules and regulations of the SEC and GAAP to be disclosed, reflected
or reserved against in the Company's consolidated financial statements
(including the notes thereto). Except as set forth on Schedule 4.4, neither the
Company nor any of its Subsidiaries has guaranteed or otherwise agreed to become
responsible for any Indebtedness of any other Person.

                                       18

4.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS.

    Except as set forth on Schedule 4.5, the execution and delivery by the
Company of this Agreement do not, and the performance by the Company of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not:

    (i) assuming adoption of this Agreement at the Special Meeting by the
       requisite vote of the Company's stockholders, conflict with or violate
       the Company Charter or Bylaws or the charter or bylaws of any corporate
       Subsidiary of the Company, or any other instrument or document governing
       any Subsidiary of the Company that is not a corporation or partnership;

    (ii) require any consent, approval, order or authorization of or other
       action by any Governmental Entity (a "Government Consent") or any
       registration, qualification, declaration or filing with or notice to any
       Governmental Entity (a "Governmental Filing"), in each case on the part
       of or with respect to the Company, any Subsidiary of the Company or, to
       the knowledge of the Company, any Company Equity Affiliate, except for
       (A) the filing with the SEC of the Registration Statement and the Proxy
       Statement and such reports under Sections 13(a) and 16(a) of the Exchange
       Act as may be required in connection with this Agreement and the
       transactions contemplated hereby, (B) the filing of the Certificate of
       Merger with the Delaware Secretary of State and appropriate documents
       with the relevant authorities of other states in which the Company is
       qualified to do business, (C) such Government Consents and Governmental
       Filings with federal, foreign, state and local governmental authorities
       (the "Local Approvals") as may be required with respect to the Licenses
       held by the Company, any of its Subsidiaries or, to the knowledge of the
       Company, any of the Company Equity Affiliates or as may otherwise be
       required under laws applicable to the conduct of the businesses of the
       Company and its Subsidiaries in the ordinary course, all of which are
       listed on Schedule 4.5, (D) the Governmental Filings to be made on the
       part of or with respect to Parent and Merger Sub referred to in
       clause (ii) of Section 5.5, (E) such Government Consents and Governmental
       Filings as may be required in connection with the issuance of the Parent
       Series A Stock to be covered by the Registration Statement pursuant to
       state securities and blue sky laws, and (F) such Government Consents and
       Government Filings the absence or omission of which could not, in the
       aggregate, have a Material Adverse Effect on the Company or prevent or
       materially delay the consummation of the Merger;

    (iii) assuming adoption of this Agreement at the Special Meeting by the
       requisite vote of the Company's stockholders, require, on the part of the
       Company, any Subsidiary of the Company or, to the knowledge of the
       Company, any Company Equity Affiliate, any consent by or approval or
       authorization of (a "Contract Consent") or notice to (a "Contract
       Notice") any other Person (other than a Governmental Entity), whether
       under any License or other Contract or otherwise, except (A) as set forth
       on Schedule 4.5 and (B) such Contract Consents and Contract Notices the
       absence or omission of which could not, in the aggregate, have a Material
       Adverse Effect on the Company or prevent or materially delay the
       consummation of the Merger;

    (iv) assuming that the Contract Consents and Contract Notices described on
       Schedule 4.5 are obtained and given and that any Government Consents and
       Governmental Filings required under any Licenses are obtained or made,
       conflict with or result in any violation or breach of or default (with or
       without notice or lapse of time, or both) under, or give rise to a right
       of termination, cancellation, suspension, modification or acceleration of
       any obligation or any increase in any payment required by or the
       impairment, loss or forfeiture of any material benefit, rights or
       privileges under or the creation of a Lien, Restriction or other
       encumbrance on any assets pursuant to (any such conflict, violation,
       breach, default, right of termination, cancellation or acceleration, loss
       or creation, a "Violation") any contract (including any note,

                                       19

       bond, indenture, mortgage, deed of trust, lease, franchise, permit,
       authorization, license, contract, instrument, employee benefit plan or
       practice, or other agreement, obligation, commitment or concession of any
       nature (each, a "Contract")) to which the Company, any Subsidiary of the
       Company or, to the knowledge of the Company, any Company Equity Affiliate
       is a party, by which the Company, any Subsidiary of the Company or, to
       the knowledge of the Company, any Company Equity Affiliate or any of
       their respective assets or properties is bound or affected or pursuant to
       which the Company, any Subsidiary of the Company or, to the knowledge of
       the Company, any Company Equity Affiliate is entitled to any rights or
       benefits (including the Licenses), except such Violations which could
       not, in the aggregate, have a Material Adverse Effect on the Company or
       prevent or materially delay the consummation of the Merger; or

    (v) assuming adoption of this Agreement at the Special Meeting by the
       requisite vote of the Company's stockholders and assuming that the
       Government Consents and Governmental Filings specified in clause (ii) of
       this Section 4.5 are obtained, made and given, result in a Violation of,
       under or pursuant to any law, rule, regulation, order, judgment or decree
       applicable to the Company, any Subsidiary of the Company or, to the
       knowledge of the Company, any Company Equity Affiliate, or by which any
       of their respective properties or assets are bound or affected, except
       for such Violations which could not, in the aggregate, have a Material
       Adverse Effect on the Company or prevent or materially delay the
       consummation of the Merger.

4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.

    Except as otherwise disclosed in the Company SEC Filings filed with the SEC
and publicly available prior to the date hereof or as set forth on
Schedule 4.6, from December 31, 2002 through the date of this Agreement,
(a) there has not been any material adverse change in the business, properties,
operations or financial condition of the Company and its Subsidiaries taken as a
whole, and no event has occurred and no condition exists which, individually or
together with other events or conditions, has had or, insofar as the Company can
reasonably foresee, could have, a Material Adverse Effect on the Company and
(b) no action has been taken by the Company or any Subsidiary of the Company
that, if Section 6.4 of this Agreement had then been in effect, would have been
prohibited by such Section without the consent or approval of Parent, and no
Contract to take any such action was entered into during such period, except for
such actions which could not, in the aggregate, have a Material Adverse Effect
on the Company or prevent or materially delay the consummation of the Merger.

4.7 REGISTRATION STATEMENT; PROXY STATEMENT.

    None of the information supplied or to be supplied by the Company in writing
specifically for inclusion or incorporation by reference in, and which is
included or incorporated by reference in, (i) the Registration Statement
(including the Proxy Statement forming part of the prospectus included therein)
or any amendment or supplement thereto or (ii) any other documents filed or to
be filed with the SEC or any other Governmental Entity in connection with the
transactions contemplated hereby, will, at the respective times such documents
are filed, and, in the case of the Registration Statement (including the Proxy
Statement forming part of the prospectus included therein) or any amendment or
supplement thereto, when the same becomes effective, at the time of the Special
Meeting and at the Effective Time, be false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or necessary to correct any statement in any earlier
communication.

                                       20

4.8 LEGAL PROCEEDINGS.

    Except as otherwise disclosed in the Company SEC Filings filed with the SEC
and publicly available prior to the date hereof or as set forth on
Schedule 4.8, there is no (a) Legal Proceeding pending or, to the knowledge of
the Company, threatened, against, involving or affecting the Company, any
Subsidiary of the Company or, to the knowledge of the Company, any Equity
Affiliate of the Company or any of its or their respective assets or rights,
(b) judgment, decree, Injunction, rule, or order of any Governmental Entity
applicable to the Company or any Subsidiary of the Company, or to the knowledge
of the Company, any Equity Affiliate of the Company that has had or could have,
either individually or in the aggregate, a Material Adverse Effect on the
Company, (c) Legal Proceeding pending or, to the knowledge of the Company,
threatened, against the Company, any Subsidiary of the Company or, to the
knowledge of the Company, any Equity Affiliate of the Company that seeks to
restrain, enjoin or delay the consummation of the Merger or any of the other
transactions contemplated by this Agreement or that seeks damages in connection
therewith, or (d) Injunction of any type referred to in Section 7.1(c).

4.9 LICENSES; COMPLIANCE WITH REGULATORY REQUIREMENTS.

    (a) The Company and its Subsidiaries, and to the knowledge of the Company,
its Equity Affiliates hold all Licenses required for or which are material to
the ownership of the assets and the operation of the businesses of the Company
or any of its Subsidiaries, except for those Licenses which the failure to hold
has not had and could not have, in the aggregate, a Material Adverse Effect. The
Company and each of its Subsidiaries, and to the knowledge of the Company, each
of its Equity Affiliates, are in compliance with, and have conducted their
respective businesses so as to comply with, the terms of their respective
Licenses and with all applicable laws, rules, regulations, ordinances and codes
(domestic or foreign), except where the failure so to comply has not had and
could not have, in the aggregate, a Material Adverse Effect. Without limiting
the generality of the foregoing, the Company and its Subsidiaries, and to the
knowledge of the Company, its Equity Affiliates (i) have all Licenses of
foreign, state and local Governmental Entities required for the operation of the
facilities being operated on the date hereof by the Company or any of its
Subsidiaries or Equity Affiliates (the "Permits"), (ii) have duly and currently
filed all reports and other information required to be filed with any
Governmental Entity in connection with such Permits and (iii) are not in
violation of any of such Permits, other than the lack of Permits, delays in
filing reports or possible violations that have not had and, could not have, a
Material Adverse Effect.

    (b) Except as set forth in Schedule 4.9(b), (i) the Company and its
Subsidiaries and to the knowledge of the Company, its Equity Affiliates, and the
operation of their respective businesses, equipment and other assets and the
facilities owned or leased by them are in compliance in all material respects
with all applicable Environmental Laws, (ii) the Company and its Subsidiaries
and to the knowledge of the Company, its Equity Affiliates, hold all material
Licenses required under Environmental Laws necessary to enable them to own,
lease or otherwise hold their assets and to carry on their businesses as
presently conducted, (iii) there are no investigations, administrative
proceedings, judicial actions, orders, claims or notices that are pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries or to the knowledge of the Company, its Equity Affiliates, relating
to or arising under any Environmental Laws, (iv) there is no ongoing remediation
of or other response activity to address contamination or any other adverse
environmental or indoor air quality condition and no condition that would be
reasonably expected to give rise to a requirement under applicable Environmental
Laws to conduct such remediation or response activities, and no Governmental
Entity has proposed or threatened any such remediation or response, at any real
property currently or formerly leased or owned by the Company or any of its
Subsidiaries or to the knowledge of the Company, any of its Equity Affiliates,
or resulting from any activity of the Company or any of its Subsidiaries or to
the knowledge of the Company, any of its Equity Affiliates, (v) neither

                                       21

the Company nor any of its Subsidiaries nor to the knowledge of the Company, any
of its Equity Affiliates, has received any notice alleging a violation of or
liability of the Company or any of its Subsidiaries or any of its Equity
Affiliates, under any Environmental Laws, and (vi) neither the Company nor any
of its Subsidiaries nor to the knowledge of the Company, any of its Equity
Affiliates, have contractually agreed to assume or provide an indemnity for
environmental liabilities of any third party. For purposes of this Agreement,
the term "Environmental Laws" means any federal, state, local or foreign law,
statute, rule or regulation or the common law relating to the environment, the
management of hazardous or toxic substances, the protection of natural resources
or wildlife, or occupational or public health and safety, including the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended and the federal Occupational Safety and Health Act of 1970, as
amended, and any state or foreign law counterpart.

4.10 TAX MATTERS. Except as set forth on Schedule 4.10:

    (a) The Company and each of its Subsidiaries (except with respect to any
Consolidated Tax Return) have timely filed all Tax Returns that they were
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company and each of its Subsidiaries (except any
Consolidated Period Taxes) (whether or not shown on any Tax Return) have been
timely paid. A reserve, which the Company reasonably believes to be adequate,
has been set up for the payment of all such Taxes anticipated to be payable by
the Company and each of its Subsidiaries in respect of periods through the date
hereof. Neither the Company nor any of its Subsidiaries (except with respect to
any Consolidated Tax Return) is currently the beneficiary of any extension of
time within which to file any Tax Return.

    (b) No claim has ever been made by an authority in a jurisdiction where the
Company or any of its Subsidiaries does not file Tax Returns that the Company or
any of its Subsidiaries is or may be subject to taxation by that jurisdiction.

    (c) There are no Liens or Restrictions on any of the assets or properties of
the Company or any of its Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax, except any Liens or Restrictions on any of
the assets or properties of the Company or any of its Subsidiaries that arose in
connection with any failure (or alleged failure) by Parent to pay any
Consolidated Period Taxes.

    (d) The Company and its Subsidiaries have withheld and paid over to the
relevant taxing authority all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder, or other third party.

    (e) None of the Tax Returns filed by the Company or any of its Subsidiaries
(except with respect to any Consolidated Tax Return) has been or is currently
being examined by the Internal Revenue Service or relevant state, local or
foreign taxing authorities. Except with respect to any Consolidated Period
Taxes, (i) there are no examinations or other administrative or court
proceedings relating to Taxes of the Company or any of its Subsidiaries in
progress or pending, (ii) neither the Company nor any of its Subsidiaries has
received any notice or report asserting a Tax deficiency with respect to the
Company or any of its Subsidiaries and (iii) there are no current or threatened
actions, suits, proceedings, investigations, audits or claims relating to or
asserted for Taxes of the Company or any of its Subsidiaries.

    (f) Except with respect to any Consolidated Period Taxes, all deficiencies
or assessments asserted against the Company or any of its Subsidiaries by any
taxing authority have been paid or fully and finally settled and, to the
knowledge of the Company, no issue previously raised in writing by any such
taxing authority reasonably could be expected to result in a material assessment
for any taxable period (or portion of a period) beginning on or after the
Closing Date.

                                       22

    (g) Except with respect to any Consolidated Period Taxes, the Company and
its Subsidiaries have not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.

    (h) Neither the Company nor any of its Subsidiaries (A) has filed a consent
under Section 341(f) of the Code concerning collapsible corporations, or (B) is
required to include in income any adjustment pursuant to Section 481(a) of the
Code by reason of a change in accounting method.

    (i) There is no contract, agreement, plan or arrangement to which the
Company or any of its Subsidiaries is a party covering any employee, former
employee, officer, director, shareholder or contract worker of the Company or
any of its Subsidiaries, which, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to Sections 280G
or 162(m) of the Code.

    (j) Neither the Company nor any of its Subsidiaries (A) is or has been a
member of an affiliated group (within the meaning of Section 1504 of the Code)
filing a consolidated federal income Tax Return other than an affiliated group
the common parent of which is the Company or Parent, (B) is or has been a member
of any affiliated, combined, consolidated, unitary, or similar group for state,
local or foreign Tax purposes other than a group the common parent of which is
the Company or Parent, (C) is or has been a party to any Tax allocation or Tax
sharing agreement except with Parent, or (D) has any liability for the Taxes of
any Person (other than any of the Company and its Subsidiaries or pursuant to
any agreement between the Company and Parent) under Treasury Regulations
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by Contract, or otherwise.

    (k) Neither the Company nor any of its Subsidiaries (except with respect to
any Consolidated Period Taxes) has requested a ruling from, or entered into a
closing agreement with, the Internal Revenue Service or any other taxing
authority which will have an effect on the Surviving Corporation or any of its
Subsidiaries in any taxable period ending after the Closing Date.

    (l) None of the assets of the Company or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code,
"tax-exempt bond financed property" within the meaning of Section 168(g)(5) of
the Code, or may be treated as owned by any other Person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986.

    (m) Neither the Company nor any of its Subsidiaries has participated in a
corporate tax shelter within the meaning of Treasury Regulations
Section 1.6011-4T or participated in a transaction that it has disclosed
pursuant to Internal Revenue Services Announcement 2002-2, 2002-2 I.R.B. 304.
The Company and its Subsidiaries (except with respect to any Consolidated Tax
Return) have disclosed on their U.S. federal Tax Returns all positions taken
therein that are likely to give rise to a substantial understatement of federal
income Tax within the meaning of Section 6662 of the Code.

4.11 EMPLOYEE MATTERS.

    (a) Schedule 4.11(a) contains a true and complete list of all of the Company
Plans, except for any such plans that relate exclusively to On Command
Corporation and/or its Subsidiaries. The Company has heretofore delivered to
Parent true and complete copies of (i) each Company Plan and, if the Company
Plan is funded through a trust or any third party funding vehicle, a copy of the
trust or other funding document, (ii) the most recent determination letter
issued by the Internal Revenue Service with respect to each Company Plan for
which such a letter has been obtained, (iii) annual reports on Form 5500
required to be filed with any Governmental Entity for each Company Plan for the
three most recent plan years and all required actuarial reports for the last
three plan years of each Company Plan.

                                       23

    (b) No Company Plan is subject to Title IV of ERISA or section 412 of the
Code and neither the Company nor any ERISA Affiliate made, or was required to
make, contributions to any employee benefit plan subject to Title IV of ERISA or
section 412 of the Code during the six year period ending on the Effective Time.

    (c) Each Company Plan that utilizes a funding vehicle described in
Section 501(c)(9) of the Code or is subject to the provisions of Section 505 of
the Code has been the subject of a notification by the Internal Revenue Service
that such funding vehicle (i) qualifies for tax-exempt status under
Section 501(c)(9) of the Code and (ii) complies with Section 505 of the Code,
except for those Company Plans listed on Schedule 4.11(c) which the Internal
Revenue Service does not as a matter of policy issue such notification with
respect to that particular type of plan. Each such Company Plan satisfies, where
appropriate, the requirements of Sections 501(c)(9) and 505 of the Code.

    (d) There has been no event or circumstance which has resulted in any
liability being asserted by any Company Plan, the Pension Benefit Guaranty
Corporation or any other Person under Title IV of ERISA or section 412 of the
Code against the Company or any ERISA Affiliate and there has not been any event
or circumstance which could reasonably be expected to result in such liability.

    (e) Neither the Company nor any Subsidiary of the Company is a party to or
bound by the terms of any collective bargaining agreement. The Company and each
of its Subsidiaries is in compliance in all material respects with all
applicable laws respecting the employment and employment practices, terms and
conditions of employment and wage and hours of its employees and is not engaged
in any unfair labor practice. There is no labor strike or labor disturbance
pending or, to the knowledge of the Company, threatened against the Company or
any Subsidiary of the Company, and during the past five years neither the
Company nor any Subsidiary of the Company has experienced a work stoppage.

    (f) Each Company Plan has been operated and administered in accordance with
its terms and applicable law, including Section 406 of ERISA and Section 4975 of
the Code.

    (g) Each Company Plan which is intended to be "qualified" within the meaning
of Section 401(a) of the Code is so qualified and the trusts maintained
thereunder are exempt from taxation under Section 501(a) of the Code.

    (h) No Company Plan provides welfare benefits, including death or medical
benefits, with respect to current or former employees or consultants of the
Company or any Subsidiary of the Company beyond their retirement or other
termination of service (other than coverage mandated by applicable law).

    (i) There are no pending, or the Company's knowledge threatened claims by or
on behalf of any Company Plan, by any employee or beneficiary covered under any
such Company Plan with respect to such Company Plan, or otherwise involving any
such Company Plan (other than routine claims for benefits).

    (j) Schedule 4.11(j) sets forth a true and complete list as of the date
hereof of each of the following material agreements, arrangements and
commitments to which the Company or any of its Subsidiaries is a party or by
which any of them may be bound (true and complete copies of which have been
delivered to Parent), except for any of such agreements, arrangements or
commitments that have been filed by the Company with the SEC as an exhibit to
its Annual Report on Form 10-K: (i) each employment, consulting, agency or
commission agreement not terminable without liability to the Company or any of
its Subsidiaries upon 60 days' or less prior notice to the employee, consultant
or agent; (ii) each agreement with any employee of the Company or any Subsidiary
of the Company the benefits of which are contingent, or the terms of which are
materially altered, upon the consummation of the transactions contemplated by
this Agreement (whether alone or in conjunction with other actions); (iii) each
agreement with respect to any employee of the Company or any Subsidiary of the
Company providing any term of employment or compensation guarantee extending for
a period longer

                                       24

than one year; and (iv) each other agreement or Company Plan any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement (whether alone or in conjunction with other actions) or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.

    (k) Except as set forth in Schedule 4.11(k), (i) no employee of the Company
or any of its Subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Company
Plan as a result of the consummation of the transactions contemplated by this
Agreement (whether alone or in conjunction with other actions), (ii) no amount
payable, or economic benefit provided, by the Company or any of its Subsidiaries
(including any acceleration of the time of payment or vesting of any benefit) as
a result of the consummation of the transactions contemplated by this Agreement
(whether alone or in conjunction with other actions) could be considered an
"excess parachute payment" under Section 280G of the Code, (iii) no Person is
entitled to receive any additional payment from the Company, any of its
Subsidiaries or any other Person (a "Parachute Gross-Up Payment") in the event
that the excise tax of Section 4999 of the Code is imposed on such Person, and
(iv) neither the Company nor any of its Subsidiaries has granted to any Person
any right to receive any Parachute Gross-Up Payment.

4.12 CERTAIN AGREEMENTS, AFFILIATE TRANSACTIONS AND INSURANCE.

    (a) Schedule 4.12(a) lists or describes each Contract to which the Company
or any of its Subsidiaries is a party, or by which any of their respective
assets are subject or bound, of the following nature, except for (x) any of such
Contracts that have previously been filed by the Company with the SEC as an
exhibit to its Annual Report on Form 10-K, (y) any of such Contracts that Parent
or any of its Affiliates are a party to (each, an "Affiliate Contract") and
(z) any of such Contracts that were directly or indirectly contributed to or
assumed by the Company or any of its Subsidiaries by virtue of the transactions
consummated pursuant to either (1) the Purchase Agreement dated as of
August 16, 2001 by and among the Company, Liberty AEG, Inc. and for certain
limited purposes, Parent, or (2) the Purchase Agreement dated as of August 16,
2001 by and among LMC/LSAT Holdings, Inc., Liberty Brazil DTH Inc., Liberty
Mexico DTH Inc., Liberty Multicountry DTH, Inc., Liberty International
DTH, Inc., Liberty Latin Partners, Inc., the Company, and for certain limited
purposes, Parent (each Contract referenced in subclause (1) or (2), a
"Contributed Contract") (each Contract listed or required to be listed on
Schedule 4.12(a), along with each Contract listed or described, or required to
be listed or described, on Schedules 4.3(e), 4.3(f), 4.12(b) or 4.12(c), each
contract which has previously been filed with the SEC as an exhibit to its
Annual Report on Form 10-K and each Affiliate Contract and Contributed Contract,
a "Material Contract"):

    (i) Contracts that have not previously been filed and are required to be
       filed with the SEC pursuant to the Exchange Act as an exhibit to the
       Company's Annual Report on Form 10-K;

    (ii) Contracts that were entered into outside the ordinary course of
       business and pursuant to which any obligations or liabilities (whether
       absolute, contingent or otherwise) remain outstanding;

    (iii) employment, bonus or consulting agreements involving potential
       payments in excess of $100,000 over any period of 12 months or more;

    (iv) Contracts evidencing or securing Indebtedness of the Company or any of
       its Subsidiaries (other than trade accounts arising in the ordinary
       course of business that do not exceed $10,000 individually or $250,000 in
       the aggregate);

    (v) Contracts in which the Company or any of its Subsidiaries has guaranteed
       the obligations of any Person;

                                       25

    (vi) Contracts that may require the Company or any of its Subsidiaries to
       indemnify any other Person;

    (vii) any Contract involving the potential payment (A) by the Company or any
       of its Subsidiaries of $100,000 or more or (B) to the Company or any of
       its Subsidiaries of an amount that is reasonably likely to be $100,000 or
       more;

    (viii)Contracts that contain any "most favored nations" provisions, as such
       term is commonly understood in the cable television and satellite
       television industries;

    (ix) Contracts that guarantee any Person a particular amount of payment from
       the Company or any of the Company's Subsidiaries irrespective of such
       Person's performance of any of its obligations under such Contract;

    (x) Contracts between the Company or any of its Subsidiaries, on the one
       hand, and any director, officer or Significant Stockholder of the Company
       or any of its Subsidiaries or Equity Affiliates, on the other hand;

    (xi) Contracts that contain a Change of Control Covenant; and

    (xii) Contracts giving any Person the right (contingent or otherwise) to
       require the Company or any of its Subsidiaries to register under the
       Securities Act any securities or to participate in any registration of
       such securities.

    Except as set forth in Schedule 4.12(a), each Material Contract is in full
force and effect and is valid and enforceable in accordance with its terms
(except insofar as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally, or by principles governing the availability of equitable
remedies and except that employees' covenants not to compete may not be
enforceable in accordance with their terms in Colorado and certain other
jurisdictions), and the Company or the applicable Subsidiary of the Company, as
the case may be, has taken all actions necessary to comply in all material
respects with such Material Contract and is not in material breach or violation
of or default under (with or without notice or lapse of time or both) any such
Material Contract. To the knowledge of the Company, except as set forth in
Schedule 4.12(a), all parties to the Material Contracts other than the Company
and its Subsidiaries have complied in all material respects with the provisions
thereof and no party is in breach or violation of, or in default (with or
without notice or lapse of time, or both) under, such Material Contracts. The
Company has not received notice of any actual or threatened termination,
cancellation or limitation to, and there has not been any other adverse
development in respect of, any of the Material Contracts. The Company has
delivered to Parent a true and correct copy of each Material Contract (other
than the Contributed Contracts and the Contracts that have previously been filed
with the SEC as an exhibit to the Company's Annual Report on Form 10-K) that is
in writing, and a description of all material terms of each Material Contract or
arrangement that is not in writing, listed or described or required to be listed
or described on Schedule 4.12(a).

    (b) Except as set forth in Schedule 4.12(b), (i) there is no Contract or any
judgment, injunction, order or decree binding upon the Company or any of its
Subsidiaries that has or would reasonably be likely to have the effect of
prohibiting or materially restricting or limiting the ability of the Company to
conduct its business as the same is currently conducted or contemplated to be
conducted and (ii) none of the Company or any of the Company's Subsidiaries is a
party to, and none of their respective assets is bound by, any Contract or any
judgment, injunction, order or decree that, after the consummation of the
transactions contemplated by this Agreement, would be or would purport to be
binding upon Parent or any of its Affiliates (other than the Surviving
Corporation) or any Contract or any judgement, injunction, order or decree in
respect of which any act or omission of Parent or any of its Affiliates (other
than the Surviving Corporation) would result in a breach or violation thereof
or, in the case of any Contract, constitute (with or without notice or lapse of
time or both) a default or event of

                                       26

default thereunder, or give rise to any right of termination, cancellation,
amendment, acceleration, repurchase, prepayment or repayment or to increased
payments thereunder, or give rise to or accelerate any material obligation or
result in the loss or modification of any material rights or benefits thereunder
or result in any Lien or Restriction on any of the material assets of the
Surviving Corporation or any of its Subsidiaries. The Company has delivered to
Parent a true and correct copy of each Contract that is in writing, a
description of all material terms of each Contract or arrangement that is not in
writing, and a true and correct copy of each judgment, injunction, order or
decree, listed or described, or required to be listed or described, on
Schedule 4.12(b).

    (c) Schedule 4.12(c) lists or describes all transactions and Contracts
between the Company or any of its Subsidiaries, on the one hand, and any
director, executive officer or Significant Stockholder of the Company or any of
its Subsidiaries or Equity Affiliates, on the other hand, other than any of such
transactions that have previously been described in the Company SEC Filings
filed with the SEC and publicly available prior to the date hereof. The Company
has delivered to Parent a true and correct copy of each Contract and arrangement
that is in writing, and a description of all material terms of each transaction
and each Contract that is not in writing, listed or described, or required to be
listed or described, on Schedule 4.12(c).

    (d) The directors' and officers', errors and omissions, fire and casualty,
general liability, business interruption, product liability, and sprinkler and
water damage insurance policies maintained by the Company or any of its
Subsidiaries provide adequate coverage for all normal risks incident to the
business of the Company and its Subsidiaries and their respective properties and
assets, and are in character and amount at least equivalent to that carried by
Persons engaged in similar businesses and subject to the same or similar perils
or hazards, except for any such failures to maintain insurance policies that, in
the aggregate, could not have a Material Adverse Effect on the Company.

4.13 BROKERS OR FINDERS.

    No investment banker, broker, finder, consultant or intermediary (other than
Morgan Stanley) is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement, the Merger and the other
transactions contemplated hereby based upon arrangements made by or on behalf of
the Company.

4.14 FAIRNESS OPINION.

    The Company Board has received the opinion, dated August 22, 2003, of Morgan
Stanley to the effect that the Exchange Ratio contemplated by Section 2.3(a) for
the conversion of Company Common Stock into Parent Series A Stock pursuant to
the Merger is fair, from a financial point of view, to the holders of Company
Common Stock (other than Parent or its Affiliates) (the "Fairness Opinion"). A
true and complete copy of the Fairness Opinion (which includes a consent to the
inclusion in its entirety of a copy of the Fairness Opinion in any documents
required to be filed by the Company with the SEC with respect to the Merger,
which consent has not been withdrawn) has been delivered to Parent.

4.15 RECOMMENDATION OF THE COMPANY BOARD.

    The Company Board, at a meeting duly called and held, unanimously
(a) determined that this Agreement and the Merger are fair to and in the best
interests of the Company's stockholders (other than Parent and its
Subsidiaries), (b) approved this Agreement, the Merger and the other
transactions contemplated hereby and (c) resolved to recommend adoption of this
Agreement by the stockholders of the Company.

                                       27

4.16 VOTE REQUIRED.

    The only vote of stockholders of the Company required under the DGCL, the
Company Charter and the Company's Bylaws in order to adopt this Agreement is the
affirmative vote of a majority of the aggregate voting power of the issued and
outstanding shares of Company Series A Common Stock, the Company Series B Common
Stock and the Company Series B Preferred Stock voting together as a single
class, and no other vote or approval of or other action by the holders of any
capital stock or other securities of the Company is required.

4.17 FULL DISCLOSURE.

    No statement in this Agreement or in any certificate delivered pursuant to
the requirements of this Agreement by or on behalf of the Company to Parent
contains or will contain an untrue statement of a material fact or omits or will
omit to state a material fact necessary in order to make the statements herein
or therein, in light of the circumstances under which they were made, not
misleading.

4.18 DOCUMENTS DELIVERED.

    All documents which have been or shall be delivered to Parent by or on
behalf of the Company pursuant to this Agreement or in connection with the
transactions contemplated hereby (including all documents and agreements
referenced in any schedules or provided to Parent in connection with its due
diligence investigation of the Company) are or when so delivered shall be
correct, current and complete copies of the originals thereof.

                                   ARTICLE V
                    REPRESENTATIONS AND WARRANTIES OF PARENT

    Parent hereby represents and warrants to the Company as follows:

5.1 ORGANIZATION.

    Each of Merger Sub and Parent (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, (ii) has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and (iii) is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification or license necessary, except in such jurisdictions where the
failure to be so duly qualified or licensed or in good standing has not had and
could not have, in the aggregate, a Material Adverse Effect on Parent.

5.2 AUTHORIZATION AND VALIDITY OF AGREEMENT.

    Each of Parent and Merger Sub has all requisite corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution, delivery and
performance by each of Parent and Merger Sub of this Agreement and the
consummation by each of Parent and Merger Sub of the transactions contemplated
hereby have been approved by the respective Boards of Directors of Parent and
Merger Sub and by Parent as the sole stockholder of Merger Sub, and have been
duly authorized by all other necessary corporate action on the part of Parent or
Merger Sub. This Agreement has been duly executed and delivered by Parent and
Merger Sub and (assuming the due execution and delivery of this Agreement by the
Company) constitutes a valid and binding agreement of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with its terms (except
insofar as enforceability may be limited by

                                       28

applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, or by principles governing the
availability of equitable remedies).

5.3 CAPITALIZATION OF PARENT AND MERGER SUB.

    (a) As of the date hereof, the authorized capital stock of Parent consists
of (i) 4,400,000,000 shares of common stock, $.01 par value, of which
4,000,000,000 are designated Parent Series A Stock and 400,000,000 shares are
designated Parent Series B Stock and (ii) 50,000,000 shares of Parent Preferred
Stock.

    (b) As of the close of business on July 30, 2003, (A) 2,473,846,455 shares
of Parent Series A Stock and 211,818,776 shares of Parent Series B Stock (in
each case net of shares held in treasury and shares held by Subsidiaries of
Parent all of the common stock of which is beneficially owned by Parent) were
issued and were outstanding, and (B) no shares of preferred stock were issued
and were outstanding.

    (c) All outstanding shares of Parent Series A Stock and Parent Series B
Stock are duly authorized, validly issued, fully paid and nonassessable, and no
class of capital stock of Parent is entitled to preemptive rights.

    (d) As of the close of business on July 30, 2003, there were no options,
warrants or other rights to acquire Parent Series A Stock (or securities
convertible into or exercisable or exchangeable for Parent Series A Stock) from
Parent, other than (i) the right of the holders of Parent Series B Stock to
convert shares of Parent Series B Stock into Parent Series A Stock, pursuant to
the Parent Charter, and (ii) options or other rights representing in the
aggregate the right to purchase or otherwise acquire up to 77,418,789 shares of
Parent Series A Stock (which includes 28,165,255 options that can be exercised
for either Parent Series A Stock or Parent Series B Stock) and 28,165,255 shares
of Parent Series B Stock (all of which are options that can be exercised for
either Parent Series A Stock or Parent Series B Stock), pursuant to a parent
employee benefit plan or otherwise. All other material information about the
capitalization of Parent has been disclosed in the Parent SEC Filings.

    (e) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, all of which is owned beneficially and of record by Parent or any
Wholly Owned Subsidiary of Parent.

5.4 PARENT REPORTS AND FINANCIAL STATEMENTS.

    (a) Parent has filed on a timely basis all forms, reports and documents with
the SEC required to filed by it under the Securities Act or the Exchange Act
since August 11, 2001 (collectively, the "Parent SEC Filings"). Parent has
heretofore furnished or made available to the Company true and complete copies
of all the Parent SEC Filings filed prior to the date hereof. The Parent SEC
Filings constitute all of the documents (other than preliminary material) that
Parent was required to file with the SEC under the Exchange Act since such date.
As of their respective dates, each of the Parent SEC Filings complied in all
material respects with the applicable requirements of the Exchange Act and the
rules and regulations thereunder, and none of the Parent SEC Filings contained
as of such date any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (except that no representation or warranty is made with respect to
any information regarding the Company included in the Parent SEC Filings which
was furnished by the Company expressly for use therein). When filed with the
SEC, the financial statements (including the related notes) included in the
Parent SEC Filings complied as to form in all material respects with the
applicable requirements of the Exchange Act and the applicable rules and
regulations thereunder and were prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the schedules
thereto), and such financial statements fairly present, in all material
respects, the consolidated financial position of Parent and its consolidated
Subsidiaries as of the respective dates thereof and the consolidated results of
their operations and their consolidated cash flows for the respective periods
then ended, subject, in the case of the unaudited interim financial statements,
to normal, recurring year-end audit adjustments.

                                       29

    (b) Except as and to the extent reflected or reserved against in the
financial statements included in Parent's quarterly report on Form 10-Q for the
quarter ended June 30, 2003 or as disclosed therein or in Schedule 5.4, none of
Parent or any of its Subsidiaries, or to its knowledge, any of its Equity
Affiliates, had as of such date any actual or potential liability or obligation
of any kind, whether accrued, absolute, contingent, unliquidated or other, or
whether due or to become due (including any liability for breach of contract,
breach of warranty, torts, infringements, claims or lawsuits), that in the
aggregate has had or would have a Material Adverse Effect on Parent or that
individually is required by the applicable rules and regulations of the SEC and
GAAP to be disclosed, reflected or reserved against in Parent's consolidated
financial statements (including the notes thereto).

5.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS.

    The execution and delivery by Parent and Merger Sub of this Agreement do
not, and the performance by Parent and Merger Sub of their obligations hereunder
and the consummation of the transactions contemplated hereby will not:

    (i) conflict with or violate the Parent Charter or Parent's Bylaws or the
       Certificate of Incorporation or Bylaws of Merger Sub;

    (ii) require any Government Consent or Governmental Filing on the part of or
       with respect to Parent, Merger Sub or any other Subsidiary (except for
       the Company and its Subsidiaries) of Parent, except for (A) the filing
       with the SEC of the Registration Statement and such reports under
       Sections 12(g), 13(a), 13(d) and 16(a) of the Exchange Act as may be
       required in connection with this Agreement and the transactions
       contemplated hereby, (B) the filing of the Certificate of Merger with the
       Delaware Secretary of State and appropriate documents with the relevant
       authorities of other states in which the Company or Merger Sub is
       qualified to do business, (C) the Local Approvals, (D) such Government
       Consents and Governmental Filings as may be required in connection with
       the issuance of the Parent Series A Stock to be covered by the
       Registration Statement pursuant to state securities and blue sky laws,
       (E) the Governmental Filings to be made on the part of or with respect to
       the Company and its Subsidiaries referred to in clause (ii) of
       Section 4.5 or in Schedule 4.5, and (F) such Government Consents and
       Governmental Filings the absence or omission of which could not in the
       aggregate, have a Material Adverse Effect on Parent or prevent or
       materially delay the consummation of the Merger;

    (iii) require on the part of Parent, Merger Sub or any other Subsidiary of
       Parent (other than the Company or its Subsidiaries), any Contract Consent
       or Contract Notice, except such Contract Consents and Contract Notices
       the absence or omission of which could not, in the aggregate, have a
       Material Adverse Effect on Parent or prevent or materially delay the
       consummation of the Merger;

    (iv) assuming that any Government Consents and Governmental Filings required
       under any Licenses are obtained or made, result in a Violation by Parent,
       Merger Sub or any other Subsidiary of Parent (other than the Company or
       any of its Subsidiaries) of any Contract to which Parent, Merger Sub, or
       any other Subsidiary of Parent (other than the Company or any of its
       Subsidiaries) is a party, by which Parent, Merger Sub or any other
       Subsidiary of Parent (other than the Company or any of its Subsidiaries)
       or any of their respective assets or properties is bound or affected or
       pursuant to which Parent, Merger Sub or any other Subsidiary of Parent
       (other than the Company or any of its Subsidiaries) is entitled to any
       rights or benefits, except for such Violations which could not, in the
       aggregate, have a Material Adverse Effect on Parent or prevent or
       materially delay the consummation of the Merger; or

                                       30

    (v) assuming that this Agreement is adopted by the Company's stockholders as
       required by the DGCL and the Company Charter and Bylaws, and that the
       Government Consents and Governmental Filings specified in clause (ii) of
       this Section 5.5 are obtained, made and given, result in a Violation of,
       under or pursuant to any law, rule, regulation, order, judgment or decree
       applicable to Parent, Merger Sub or any other Subsidiary of Parent (other
       than the Company or any of its Subsidiaries) or by which any of their
       respective properties or assets are bound or affected, except for such
       Violations which could not, in the aggregate, have a Material Adverse
       Effect on Parent or prevent or materially delay the consummation of the
       Merger.

5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS.

    Except as otherwise disclosed in the Parent SEC Filings filed with the SEC
prior to the date hereof, from December 31, 2002 through the date of this
Agreement, there has not been any material adverse change in the business,
properties, operations or financial condition of Parent and its Subsidiaries
taken as a whole, and no event has occurred and no condition exists which,
individually or together with other events or conditions, has had or could have
a Material Adverse Effect on Parent.

5.7 REGISTRATION STATEMENT.

    None of the information supplied or to be supplied by Parent or Merger Sub
in writing specifically for inclusion or incorporation by reference in, and
which is included or incorporated by reference in, (i) the Registration
Statement (including the Proxy Statement forming part of the prospectus included
therein) or any amendment or supplement thereto, or (ii) any other documents
filed or to be filed with the SEC or any other Governmental Entity in connection
with the transactions contemplated hereby, will, at the respective times such
documents are filed, and, in the case of the Registration Statement (including
the Proxy Statement forming part of the prospectus included therein) or any
amendment or supplement thereto, when the same becomes effective, at the time of
the Special Meeting and at the Effective Time, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or necessary to correct any statement in any
earlier communication.

5.8 BROKERS OR FINDERS.

    No investment banker, broker, finder, consultant or intermediary is entitled
to any brokerage, finder's or other fee or commission in connection with this
Agreement, the Merger and the other transactions contemplated hereby based upon
arrangements made by or on behalf of Parent or Merger Sub.

5.9 VOTE REQUIRED.

    No vote of stockholders of Parent is required under the DGCL, the Parent
Charter, Parent's Bylaws or the rules and regulations of the NYSE in order for
Parent to validly perform its obligations under this Agreement (including,
without limitation, its obligation to issue the Parent Series A Stock pursuant
to Article II hereof).

5.10 FULL DISCLOSURE.

    No statement in this Agreement or in any certificate delivered pursuant to
the requirements of this Agreement by or on behalf of Parent or Merger Sub to
the Company contains or will contain an untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.

                                       31

5.11 INTERIM OPERATIONS OF MERGER SUB.

    Merger Sub has been formed solely for the purpose of engaging in the
transactions contemplated hereby, and immediately prior to the Effective Time
will have engaged in no other business activities, will have no Subsidiaries
(other than the Company), and will have conducted its operations only as
contemplated hereby.

5.12 PARENT SERIES A STOCK.

    The Parent Series A Stock is duly listed on the NYSE and no inquiry or
proceeding has been initiated or, to Parent's knowledge, threatened for the
purpose of causing such listing to be terminated or restricted. The shares of
Parent Series A Stock to be issued and delivered pursuant to Section 2.4 will
be, when the Merger has become effective and such shares are issued and
delivered as provided in Section 2.4 and as described in the Registration
Statement, duly authorized, validly issued, fully paid and nonassessable and no
stockholder of Parent will have any preemptive right of subscription or purchase
in respect thereof granted by Parent or under applicable law. The shares of
Parent Series A Stock to be issued in the Merger, will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under any applicable state securities laws.

                                   ARTICLE VI
                         TRANSACTIONS PRIOR TO CLOSING

6.1 ACCESS TO INFORMATION.

    From the date hereof to the Effective Time, upon reasonable notice, the
Company will (and will cause its Subsidiaries, and use commercially reasonable
efforts to cause its other Affiliates, to) afford to the officers, employees,
counsel, accountants and other authorized representatives of Parent reasonable
access during normal business hours to all its properties, personnel, books and
records and furnish promptly to such Persons such information concerning its
business, properties, personnel and affairs as such Persons will from time to
time reasonably request.

6.2 CONFIDENTIALITY.

    Unless otherwise agreed to in writing by the party disclosing (or whose
Representatives disclosed) the same (a "disclosing party"), each receiving party
(a "receiving party") will, and will cause its Affiliates, directors, officers,
employees, agents and Controlling Persons (such Affiliates and other Persons
with respect to any party being collectively referred to as such party's
"Representatives") to, (i) keep all Proprietary Information (as defined below)
of the disclosing party confidential and not disclose or reveal any such
Proprietary Information to any Person other than those Representatives of the
receiving party who are participating in effecting the transactions contemplated
hereby or who otherwise need to know such Proprietary Information, (ii) use such
Proprietary Information only in connection with consummating the transactions
contemplated hereby and enforcing the receiving party's rights hereunder, and
(iii) not use Proprietary Information in any manner detrimental to the
disclosing party. In the event that a receiving party is requested pursuant to,
or required by, applicable law or regulation or by legal process to disclose any
Proprietary Information of the disclosing party, the receiving party will
provide the disclosing party with prompt notice of such request(s) to enable the
disclosing party to seek an appropriate protective order. A party's obligations
hereunder with respect to Proprietary Information that (A) is disclosed to a
third party with the disclosing party's written approval, (B) is required to be
produced under order of a court of competent jurisdiction or other similar
requirements of a governmental agency, or (C) is required to be disclosed by
applicable law or regulation, will, subject in the case of clauses (B) and
(C) above to the receiving party's compliance with the preceding sentence, cease
to the extent of the disclosure so consented to or required, except to the
extent otherwise provided by the terms of such consent or covered by a
protective order. If a

                                       32

receiving party uses a degree of care to prevent disclosure of the Proprietary
Information that is at least as great as the care it normally takes to preserve
its own information of a similar nature, it will not be liable for any
disclosure that occurs despite the exercise of that degree of care, and in no
event will a receiving party be liable for any indirect, punitive, special or
consequential damages unless such disclosure resulted from its willful
misconduct or gross negligence in which event it will be liable in damages for
the disclosing party's lost profits resulting directly and solely from such
disclosure. In the event this Agreement is terminated, each party will, if so
requested by the other party, promptly return or destroy all of the Proprietary
Information of such other party, including all copies, reproductions, summaries,
analyses or extracts thereof or based thereon in the possession of the receiving
party or its Representatives; provided, however, that the receiving party will
not be required to return or cause to be returned summaries, analyses or
extracts prepared by it or its Representatives, but will destroy (or cause to be
destroyed) the same upon request of the disclosing party.

    For purposes of this Section 6.2, "Proprietary Information" of a party means
all proprietary or confidential information about such party that is furnished
by it or its Representatives to the other party or the other party's
Representatives, regardless of the manner in which it is furnished. "Proprietary
Information" does not include, however, information which (a) has been or in the
future is published or is now or in the future is otherwise in the public domain
through no fault of the receiving party or its Representatives, (b) was
available to the receiving party or its Representatives on a non-confidential
basis prior to its disclosure by the disclosing party, (c) becomes available to
the receiving party or its Representatives on a non-confidential basis from a
Person other than the disclosing party or its Representatives who is not
otherwise bound by a confidentiality agreement with the disclosing party or its
Representatives, or is not otherwise prohibited from transmitting the
information to the receiving party or its Representatives, or (d) is
independently developed by the receiving party or its Representatives through
Persons who have not had, either directly or indirectly, access to or knowledge
of such information.

6.3 PUBLIC ANNOUNCEMENTS.

    No party will or will permit any of its Subsidiaries to (and each party will
use commercially reasonable efforts to cause its Affiliates, directors,
officers, employees, agents and representatives not to) issue any press release,
make any public announcement or furnish any written statement to its employees
or stockholders generally concerning the transactions contemplated by this
Agreement without the consent of the other party (which consent will not be
unreasonably withheld), except to the extent required by applicable law or the
applicable requirements of the NYSE (and in either such case such party will, to
the extent consistent with timely compliance with such requirement, consult with
the other party prior to making the required release, announcement or
statement).

6.4 CONDUCT OF THE COMPANY'S BUSINESS PENDING THE EFFECTIVE TIME.

    The Company will, and will cause each of its Subsidiaries to, except as
permitted, required or specifically contemplated by this Agreement or by
Schedule 6.4, required by any change in applicable law or consented to or
approved in writing by Parent (which consent or approval will not be
unreasonably withheld) during the period commencing on the date hereof and
ending at the Effective Time:

    (a) conduct its business only in, and not take any action except in, the
ordinary and usual course of its business and consistent with past practices;

    (b) use commercially reasonable efforts, in the ordinary and usual course of
business and consistent with past practices, to preserve intact its current
business organizations, to preserve its Licenses in full force and effect, to
keep available the services of its present officers and key employees, and to
preserve the good will of those having business relationships with it;

                                       33

    (c) not (i) make any change or amendments in its charter, bylaws or
partnership agreement or other governing instrument or document (as the case may
be); (ii) authorize for issuance, issue, grant, sell, deliver, dispose of,
pledge or otherwise encumber any shares of its capital stock or any securities
or rights convertible into, exchangeable for, or evidencing the right to
subscribe for any shares of its capital stock or other equity or voting
interests, or any rights, options, warrants, calls, commitments or other
agreements of any character to purchase or acquire any shares of its capital
stock or other equity or voting interests, or any securities or rights
convertible into, exchangeable for, or evidencing the right to subscribe for,
any shares of its capital stock or other equity or voting interests, other than
(A) shares of Company Common Stock issued upon exercise of Company Options or
other rights outstanding as of the date hereof under Company Plans or otherwise
disclosed pursuant to this Agreement, in accordance with the terms thereof,
(B) shares of Company Series B Common Stock issued upon conversion of shares of
Company Series B Preferred Stock outstanding on the date hereof and shares of
Company Series A Common Stock issued upon conversion of shares of Company
Series B Common Stock outstanding on the date hereof, each in accordance with
the terms of the Company Charter as in effect on the date hereof, (C) shares of
Company Common Stock issued in connection with the conversion of convertible or
exchangeable securities of the Company or its Subsidiaries, outstanding as of
the date hereof, in accordance with the terms of such securities, and
(D) shares of Company Series B Common Stock issued as payment of dividends on
Company Series B Preferred Stock; (iii) split, combine, subdivide or reclassify
the outstanding shares of its capital stock or other equity or voting interests,
or declare, set aside for payment or pay any dividend (except as provided in
Section 6.4(c)(ii)(D)), or make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or other equity or
voting interests, or otherwise make any payments to stockholders or owners of
equity or voting interests in their capacity as such (other than dividends or
distributions paid by any Wholly-Owned Subsidiary of the Company to the Company
or another Wholly-Owned Subsidiary); (iv) except for conversions of shares of
Company Series B Common Stock issued upon conversion of shares of Company
Series B Preferred Stock outstanding on the date hereof and conversion of shares
of Company Series B Common Stock outstanding on the date hereof into shares of
Company Series A Common Stock, each in accordance with the terms of the Company
Charter as in effect on the date hereof, redeem, purchase or otherwise acquire,
directly or indirectly, any outstanding shares of capital stock or other
securities or equity or voting interests of the Company or any Subsidiary of the
Company; (v) make any other changes in its capital or ownership structure;
(vi) sell or grant a Lien or Restriction with respect to any stock, equity or
partnership interest owned by it in any Subsidiary of the Company; or
(vii) enter into or assume any contract, agreement, obligation, commitment or
arrangement with respect to any of the foregoing;

    (d) not (i) modify or change in any material respect any material License or
other material Contract, other than in the ordinary course of business;
(ii) enter into any new employment, consulting, agency or commission agreement,
make any amendment or modification to any existing such agreement or grant any
increases in compensation, (A) in each case other than in the ordinary course of
business and consistent with past practice and with or granted to Persons who
are not officers or directors of the Company or any Subsidiary of the Company
and which do not, in the aggregate, materially increase the compensation or
benefit expense of the Company or any Subsidiary of the Company or any Company
Equity Affiliate and (B) other than the regular annual salary increase granted
in the ordinary course of business and consistent with past practice to officers
of the Company or its Subsidiaries who are not directors or executive officers
of the Company; (iii) establish, amend or modify any Company Plan or any other
employee benefit plan, except in the ordinary course of business, consistent
with past practice and to the extent not material and except to the extent
required by any applicable law or the existing terms of such Company Plan or by
the provisions of this Agreement; (iv) pay, discharge or satisfy claims,
liabilities or obligations (absolute, accrued, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved against
in, or contemplated by, the consolidated financial statements (or

                                       34

the notes thereto) of the Company included in the Company SEC Filings, or
incurred in the ordinary course of business and consistent with past practice;
(v) cancel any debts or waive any claims or rights, except in the ordinary
course of business and consistent with past practice; (vi) make any capital
expenditures which individually or in the aggregate are in excess of the amount
provided for capital expenditures in the most recent capital budget for the
Company and its Subsidiaries approved by the Company Board prior to
December 31, 2002 (the "2003 capital budget"); (vii) accelerate the payment of,
or otherwise prepay, any existing outstanding indebtedness for borrowed money;
(viii) other than the normal cash management practices of the Company and its
Subsidiaries conducted in the ordinary and usual course of their business and
consistent with past practice, make any advance or loan to or engage in any
transaction with any director, officer, partner or Affiliate not required by the
terms of an existing Contract; or (ix) enter into or assume any contract,
agreement, obligation, commitment or arrangement with respect to any of the
foregoing;

    (e) not (i) incur (which will not be deemed to include entering into credit
agreements, lines of credit or similar arrangements until borrowings are made
under such arrangements) any material amount of indebtedness for borrowed money
or guarantee any such indebtedness; (ii) issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any of its
Subsidiaries or guarantee any debt securities of others other than in the
ordinary course of business consistent with past practice; (iii) provide any
security for outstanding Indebtedness that was previously unsecured;
(iv) increase any security for outstanding secured Indebtedness; or (v) grant
any Liens or Restrictions on any of the assets of Company or its Subsidiaries;
provided, however, that the foregoing will not prohibit (A) any guarantees in
effect on the date of this Agreement that are referred to in the Company SEC
Filings or in Schedule 6.4 or that are required to be given under existing
agreements referred to in the Company SEC Filings, (B) the incurrence or
guarantee of the indebtedness set forth on Schedule 6.4, and (C) any renewal,
extension, amendment or refinancing of existing indebtedness (provided there is
no increase in the interest rate or the principal amount of such indebtedness);

    (f) not acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to otherwise acquire any assets that are material, individually
or in the aggregate, to the Company and its Subsidiaries taken as a whole;

    (g) not sell, lease or encumber or otherwise voluntarily dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its assets that
are material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole;

    (h) not (i) make, revoke or amend any Tax election, (ii) make any material
change in any accounting, financial reporting or Tax practice or policy,
(iii) execute any waiver of restrictions on assessment or collection of any Tax,
(iv) enter into or amend any agreement or settlement with any Tax authority,
(v) change the Company's auditors or (vi) permit any insurance policy naming it
as a beneficiary or loss-payable payee to be cancelled or terminated, except, in
the case of clause (v), in the ordinary course of business consistent with past
practice; and

    (i) not take any action that would cause its representations and warranties
contained in Section 4.1 to be untrue in any respect.

6.5 EXPENSES.

    Whether or not the Merger is consummated, all costs and expenses incurred or
to be incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such cost or expense,
except that the costs and expenses incurred in connection with printing and
mailing the Proxy Statement, the Registration Statement (and any amendment or
supplement thereto) and the prospectus included in the Registration Statement
(and any amendment or supplement thereto) will be borne 50% by Parent and 50% by
the Company.

                                       35

6.6 INDEMNIFICATION.

    (A) INDEMNIFICATION OF COMPANY DIRECTORS AND OFFICERS.

    From and after the Effective Time, the Surviving Corporation will indemnify,
defend and hold harmless the present and former directors and officers of the
Company (when acting in such capacity) and any of its Subsidiaries, and any
Person who is or was serving at the request of the Company as a director or
officer of another Person (when acting in such capacity) (individually an
"Indemnified Party" and, collectively, the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including fees and expenses of counsel
properly retained by an Indemnified Party under this Section 6.6), liabilities
or judgments or amounts that are paid in settlement with the approval of the
Surviving Corporation (which approval will not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
Person was at any time prior to the Effective Time a director or officer, of the
Company, pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, at or after the
Effective Time ("Indemnified Liabilities"), to the fullest extent that (x) a
corporation is permitted under Delaware law to indemnify or advance expenses to
its own directors or officers, as the case may be, (y) such Indemnified Party
would have been entitled to be indemnified by the Company, if such Indemnified
Party was a director or officer of the Company, with respect to the Indemnified
Liabilities in question under the Company Charter and the Company's Bylaws as in
effect on the date hereof and under any indemnification agreement with the
Company in a form disclosed to Parent prior to the date hereof and (z) such
indemnification otherwise is permitted by applicable law. In the event any such
claim, action, suit, proceeding or investigation is asserted or commenced
against any Indemnified Party (whether before or after the Effective Time), the
Surviving Corporation will be entitled to participate and, to the extent that it
may wish, to assume the defense thereof, except that if the Surviving
Corporation also is a subject of such claim, action, suit, proceeding or
investigation and there is, under applicable standards of professional conduct,
a conflict on any significant issue between the position of the Surviving
Corporation and the position of such Indemnified Party, or if the Surviving
Corporation will fail to assume responsibility for such defense, such
Indemnified Party may, subject to Section 6.6(b), retain counsel who will
represent such Indemnified Party, and the Surviving Corporation will pay all
fees and expenses of such counsel promptly as statements therefor are received;
provided that such Indemnified Party will vigorously defend (or, if the defense
is assumed by the Surviving Corporation, use commercially reasonable efforts to
assist in the vigorous defense of) any such matter; provided, further, that the
Surviving Corporation will not be liable for any settlement effected without its
written consent, which consent, however, will not be unreasonably withheld; and
provided, further, that the Surviving Corporation will not have any obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
will ultimately determine, after exhaustion of all avenues of appeal, that such
Indemnified Party is not entitled to indemnification hereunder.

    (B) INDEMNIFICATION PROCEDURES.

    Any Indemnified Party wishing to claim indemnification or advancement of
expenses under Section 6.6(a), upon learning of any such claim, action, suit,
proceeding or investigation, will promptly notify the Surviving Corporation
thereof (provided that the failure so to notify the Surviving Corporation will
not relieve the Surviving Corporation from any liability which it may have under
this Section 6.6, except to the extent such failure materially prejudices the
Surviving Corporation) and will deliver to the Surviving Corporation an
undertaking to repay any amounts advanced pursuant thereto when and if a court
of competent jurisdiction ultimately determines, after exhaustion of all avenues
of appeal, that such Indemnified Party is not entitled to indemnification
hereunder. In no event may the Indemnified Parties retain more than one lead law
firm and one local counsel to represent them with respect to any such matter
unless the independent directors of the Company determine that under

                                       36

applicable standards of professional conduct, there is a conflict on any
significant issue between the position of the independent directors and any
other Indemnified Parties in which case the independent directors may (unless
the defense of such matter has been assumed by the Surviving Corporation as
provided herein) retain, at the expense of the Surviving Corporation, one lead
law firm and one local counsel to represent the independent directors

    (C) SURVIVAL OF EXISTING INDEMNIFICATION RIGHTS.

    The Surviving Corporation and Merger Sub agree that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any action, suit or proceeding, whether civil, criminal,
administrative or investigative (each, a "Claim"), existing in favor of the
Indemnified Parties as provided in the Company Charter or the Company's Bylaws
or pursuant to other agreements, or certificates of incorporation or bylaws or
similar documents of any of the Company's Subsidiaries, as in effect as of the
date hereof, will survive the Merger and will continue in full force and effect
for a period of not less than six years from the Effective Time; provided,
however, that all rights to indemnification in respect of any Claim asserted,
made or commenced within such period will continue until the final disposition
of such Claim.

    (D) SURVIVAL.

    This Section 6.6 will survive the consummation of the Merger. The provisions
of this Section 6.6 are intended to be for the benefit of and will be
enforceable by each of the Indemnified Parties and his heirs and legal
representatives, and will be binding on Parent, Merger Sub and the Surviving
Corporation and their respective successors and assigns.

6.7 NOTIFICATION OF CERTAIN MATTERS.

    Between the date hereof and the Effective Time, each party will give prompt
notice in writing to the other party of: (i) any information that indicates that
any of its representations or warranties contained herein was not true and
correct as of the date hereof or will not be true and correct at and as of the
Effective Time with the same force and effect as if made at and as of the
Effective Time (except for changes permitted or contemplated by this Agreement),
(ii) the occurrence or non-occurrence of any event which will result, or has a
reasonable prospect of resulting, in the failure of any condition, covenant or
agreement contained in this Agreement to be complied with or satisfied,
(iii) any failure of the Company or Parent (or Merger Sub), as the case may be,
to comply with or satisfy any condition, covenant or agreement to be complied
with or satisfied by it hereunder, (iv) any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement or
that such transactions otherwise may violate the rights of or confer remedies
upon such third party and (v) any notice of, or other communication relating to,
any litigation referred to in Section 6.8 or any order or judgment entered or
rendered therein; provided, however, that the delivery of any notice pursuant to
this Section 6.7 will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.

6.8 DEFENSE OF LITIGATION.

    Each of the parties agrees, except, in the case of the Company, as otherwise
required by the fiduciary duties of the Company Board (as determined in good
faith by the Company Board following the receipt of advice of the Company's
outside legal counsel thereon), to vigorously defend against all actions, suits
or proceedings in which such party is named as a defendant which seek to enjoin,
restrain or prohibit the transactions contemplated hereby or seek damages with
respect to such transactions. No party will settle any such action, suit or
proceeding or fail to perfect on a timely basis any right to appeal any judgment
rendered or order entered against such party therein without the consent of the

                                       37

other party (which consent will not be withheld unreasonably). Each of the
parties further agrees to use commercially reasonable efforts to cause each of
its Affiliates, directors and officers to vigorously defend any action, suit or
proceeding in which such Affiliate, director or officer is named as a defendant
and which seeks any such relief to comply with this Section to the same extent
as if such Person were a party hereto.

6.9 ACTIONS BY PARENT AND MERGER SUB.

    In its capacity as a beneficial owner of Company Stock, Parent hereby
consents to the adoption of this Agreement and agrees to cause the Company Stock
beneficially owned by Parent, Merger Sub and Wholly Owned Subsidiaries of Parent
to be voted in favor of the adoption of this Agreement at the Special Meeting.
In its capacity as the sole stockholder of Merger Sub, (i) Parent hereby
consents to the adoption of this Agreement by Merger Sub and agrees that such
consent will be treated for all purposes as a vote in favor of this Agreement
duly adopted at a meeting of the stockholders of Merger Sub held for such
purpose, and (ii) Parent will cause Merger Sub to take all commercially
reasonable corporate action necessary on its part to consummate the Merger and
the transactions contemplated hereby. Merger Sub will not conduct any other
business.

6.10 LISTING.

    Parent shall use commercially reasonable efforts to cause the shares of
Parent Series A Stock to be issued pursuant to this Agreement and upon exercise
of the Assumed Options to be approved for listing on the NYSE, subject to
official notice of issuance, prior to the Closing Date.

6.11 TRANSFER TAXES.

    All stock transfer, real estate transfer, documentary, stamp, recording and
other similar taxes incurred in connection with the Merger shall be paid either
by Merger Sub or the Surviving Corporation, and the Company shall cooperate with
Merger Sub and Parent in preparing, executing and filing any tax returns with
respect to such taxes.

                                  ARTICLE VII
                              CONDITIONS PRECEDENT

7.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT, MERGER SUB AND THE
    COMPANY.

    The respective obligations of Parent, Merger Sub and the Company to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any or all of which, to the extent permitted by applicable law, may
be waived by Parent, for itself and Merger Sub (but not for the Company), or by
the Company for itself (but not for Parent or Merger Sub):

    (A) STOCKHOLDER APPROVAL.

    This Agreement will have been duly adopted by the requisite vote of the
stockholders of the Company at the Special Meeting, in accordance with the DGCL,
the Company Charter and the Company's Bylaws.

    (B) REGISTRATION.

    The Registration Statement (as amended or supplemented) will have been
declared effective and will be effective under the Securities Act at the
Effective Time, and no stop order suspending effectiveness will have been
issued, and no action, suit, proceeding or investigation seeking a stop order or
to suspend the effectiveness of the Registration Statement will have been
initiated and be continuing

                                       38

or will have been threatened and be unresolved. Parent will have received all
state securities law or blue sky permits and authorizations necessary to carry
out the transactions contemplated hereby, such permits and authorizations will
be in full force and effect and no action, suit, proceeding or investigation
seeking to revoke or suspend the effectiveness of any such permit or
authorization will have been initiated and be continuing or will have been
threatened and be unresolved.

    (C) ABSENCE OF INJUNCTIONS.

    No permanent or preliminary Injunction or restraining order or other order
by any court or other Governmental Entity of competent jurisdiction, or other
legal restraint or prohibition, preventing consummation of the transactions
contemplated hereby as provided herein will be in effect, or permitting such
consummation only subject to any condition or restriction that has or would have
a Material Adverse Effect on the Company.(c)

7.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MERGER SUB AND PARENT.

    The obligations of Merger Sub and Parent to consummate the transactions
contemplated by this Agreement are also subject to the satisfaction at or prior
to the Closing Date of each of the following conditions, unless waived by
Parent:

    (A) ACCURACY OF REPRESENTATIONS AND WARRANTIES.

    Each of the representations and warranties of the Company contained in
Sections 4.1, 4.2, 4.3, 4.4(a), 4.5, 4.6, 4.7, 4.13, 4.14, 4.15, 4.16, 4.17 and
4.18 of this Agreement will, if specifically qualified by materiality, be true
and correct and, if not so qualified, be true and correct in all material
respects in each case as of the date of this Agreement and (except to the extent
such representations and warranties, including without limitation Section 4.6,
speak as of a specified earlier date) on and as of the Closing Date as though
made on and as of the Closing Date, except for changes permitted or contemplated
by this Agreement. In addition, each of the representations and warranties of
the Company contained in Sections 4.4(b), 4.8, 4.9, 4.10, 4.11 and 4.12 of this
Agreement will be true and correct as of the date of this Agreement and (except
to the extent such representations and warranties speak as of a specified
earlier date) on and as of the Closing Date as though made on and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except for any inaccuracies which could not, in the aggregate, have a Material
Adverse Effect on the Company or prevent or materially delay the consummation of
the Merger.

    (B) PERFORMANCE OF AGREEMENTS.

    The Company will have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants and
conditions, contained in this Agreement to be performed or complied with by it
prior to or on the Closing Date.

    (C) OFFICERS' CERTIFICATES.

    Parent and Merger Sub will have received such certificates of the Company,
dated the Closing Date, in each case signed by an executive officer of the
Company (but without personal liability thereto), to evidence satisfaction of
the conditions set forth in Sections 7.1(a), 7.1(c), 7.2(a) and 7.2(b)(insofar
as each relates to the Company), as may be reasonably requested by Parent.

    (D) NO ADVERSE ENACTMENTS.

    There will not have been any action taken, or any statute, rule, regulation,
order, judgment or decree proposed, enacted, promulgated, entered, issued,
enforced or deemed applicable by any foreign or United States federal, state or
local Governmental Entity, and there will be no action, suit or

                                       39

proceeding pending or threatened, which (i) makes or may make this Agreement,
the Merger, or any of the other transactions contemplated by this Agreement
illegal or imposes or may impose material damages or penalties in connection
therewith; (ii) requires or may require the divestiture of a material portion of
the business of Parent or any of its Subsidiaries, if the Merger is consummated,
(iii) imposes or may result in imposition of material limitations on the ability
of Parent effectively to exercise full rights of ownership of shares of capital
stock of the Surviving Corporation (including the right to vote such shares on
all matters properly presented to the stockholders of the Surviving Corporation)
or makes the holding by Parent of any such shares illegal or subject to any
materially burdensome requirement or condition, (iv) requires or may require
Parent or the Company or any of their respective material Subsidiaries or
Affiliates to cease or refrain from engaging in any material business, including
any material business conducted by the Company or any of its Subsidiaries, if
the Merger is consummated, or (v) increases or may increase in any material
respect the liabilities or obligations of Parent arising out of this Agreement,
the Merger, or any of the other transactions contemplated by this Agreement.

    (E) RECEIPT OF LICENSES, PERMITS AND CONSENTS.

    Other than the filing of the Certificate of Merger with the Delaware
Secretary of State and filings due after the Effective Time, all Local Approvals
and all other Government Consents as are required in connection with the
consummation of the transactions contemplated hereby will have been obtained and
will be in full force and effect and all Governmental Filings as are required in
connection with the consummation of such transactions will have been made, and
all waiting periods, if any, applicable to the consummation of such transactions
imposed by any Governmental Entity will have expired, other than those which, if
not obtained, in force or effect, made or expired (as the case may be) could
not, in the aggregate, (i) have a material adverse effect on the transactions
contemplated hereby or (ii) assuming consummation of the Merger, have a Material
Adverse Effect, as of or after the Effective Time, on the Company or Parent.

    (F) CONTRACT CONSENTS.

    The Company shall have obtained or made, and shall have provided Parent and
Merger Sub with copies of, all Contract Consents and Contract Notices set forth
on Schedule 4.5, other than those which, if not obtained or made (as the case
may be) would not, either individually or in the aggregate, (i) have a material
adverse effect on the transactions contemplated hereby or (ii) assuming
consummation of the Merger, have a Material Adverse Effect, as of or after the
Effective Time, on the Company or Parent.

7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY.

    The obligation of the Company to consummate the transactions contemplated by
this Agreement is also subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, unless waived by the Company:

    (A) ACCURACY OF REPRESENTATIONS AND WARRANTIES.

    Each of the representations and warranties of Parent contained in Sections
5.1, 5.2, 5.3, 5.4(a), 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11 and 5.12 of this
Agreement will, if specifically qualified by materiality, be true and correct
and, if not so qualified, be true and correct in all material respects in each
case as of the date of this Agreement and (except to the extent such
representations and warranties, including without limitation Section 5.6, speak
as of a specified earlier date) on and as of the Closing Date as though made on
and as of the Closing Date, except for changes permitted or contemplated by this
Agreement. In addition, each of the representations and warranties of Parent
contained in Section 5.4(b) of this Agreement will be true and correct as of the
date of this Agreement and (except

                                       40

to the extent such representations and warranties speak as of a specified
earlier date) on and as of the Closing Date as though made on and as of the
Closing Date, except for changes permitted or contemplated by this Agreement and
except for any inaccuracies which could not, in the aggregate, have a Material
Adverse Effect on Parent or prevent or materially delay the consummation of the
Merger.

    (B) PERFORMANCE OF AGREEMENTS.

    Each of Merger Sub and Parent will have performed in all material respects
all obligations and agreements, and complied in all material respects with all
covenants and conditions, contained in this Agreement to be performed or
complied with by it prior to or on the Closing Date.

    (C) OFFICERS' CERTIFICATES.

    The Company will have received such certificates of Parent, dated the
Closing Date, in each case signed by an executive officer of Parent (but without
personal liability thereto) to evidence satisfaction of the conditions set forth
in Sections 7.1(b), 7.1(c), 7.3(a), 7.3(b) and 7.3(d) (insofar as each relates
to Parent or Merger Sub), as may be reasonably requested by the Company.

    (D) NO ADVERSE ENACTMENTS.

    There will not have been any action taken, or any statute, rule, regulation,
order, judgment or decree proposed, enacted, promulgated, entered, issued,
enforced or deemed applicable by any foreign or United States federal, state or
local Governmental Entity, and there will be no action, suit or proceeding
pending or threatened, which (i) makes or may make this Agreement, the Merger,
or any of the other transactions contemplated by this Agreement illegal or
imposes or may impose material damages or penalties in connection therewith or
(ii) has or, in the reasonable judgment of the Company, assuming consummation of
the Merger, could have a Material Adverse Effect, as of or after the Effective
Time, on Parent (including any potential change or event disclosed on any
Schedule which, subsequent to the date hereof, actually occurs).

    (E) RECEIPT OF LICENSES, PERMITS AND CONSENTS.

    Other than the filing of the Certificate of Merger with the Delaware
Secretary of State and filings due after the Effective Time, all Local Approvals
and all other Government Consents as are required in connection with the
consummation of the transactions contemplated hereby will have been obtained and
will be in full force and effect, all Governmental Filings as are required in
connection with the consummation of such transactions will have been made, and
all waiting periods, if any, applicable to the consummation of such transactions
imposed by any Governmental Entity will have expired, other than those which, if
not obtained, in force or effect, made or expired (as the case may be), could
not, in the aggregate, assuming consummation of the Merger, have a Material
Adverse Effect, as of or after the Effective Time, on Parent.

    (F) NYSE LISTING.

    The shares of Parent Series A Stock to be issued pursuant to this Agreement
and upon exercise of the Assumed Options will have been approved for listing on
the NYSE, subject only to official notice of issuance.

                                       41

                                  ARTICLE VIII
                                  TERMINATION

8.1 TERMINATION AND ABANDONMENT.

    This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time prior to the Effective Time, whether before or
after adoption of this Agreement by the stockholders of the Company:

    (i) by mutual consent of Parent and the Company;

    (ii) by either the Company, on the one hand, or Parent and Merger Sub, on
       the other hand: (A) if the Merger has not been consummated before
       March 31, 2004, provided that the right to terminate this Agreement
       pursuant to this clause (ii)(A) will not be available to any party whose
       failure to perform any of its obligations under this Agreement required
       to be performed by it at or prior to the Effective Time has been the
       cause of or resulted in the failure of the Merger to be consummated
       before such date, (B) if there has been a material breach of any
       representation, warranty, covenant or agreement on the part of the other
       party (or by Merger Sub, if the party seeking to terminate this Agreement
       is the Company) contained in this Agreement and such breach is incapable
       of being cured, (C) if any court of competent jurisdiction or other
       competent governmental authority will have issued an order, decree or
       ruling or taken any other action permanently restraining, enjoining or
       otherwise prohibiting the Merger and such order, decree, ruling or other
       action will have become final and nonappealable, or (D) if the required
       adoption of this Agreement by the stockholders of the Company has not
       been duly obtained in accordance with the provisions of Section 7.1(a)
       hereof, provided that the terminating party has complied with its
       obligations under Section 3.1 or 3.2 (as the case may be); or

    (iii) by either Parent or the Company if the Company Board has
       (i) withdrawn or modified in any manner adverse to Parent its
       recommendation to the Company stockholders referred to in Section 3.1(B)
       and Section 4.16, (ii) recommended an Acquisition Proposal or
       (iii) resolved to do any of the foregoing.

8.2 EFFECT OF TERMINATION.

    In the event of any termination of this Agreement by the Company or Parent
pursuant to Section 8.1, this Agreement (other than as set forth in Sections
6.2, 6.5, 8.2 and Article 9, each of which will survive the termination of this
Agreement) immediately will become void and there will be no liability or
obligation on the part of Parent, Merger Sub, the Company or their respective
Affiliates, stockholders, directors, officers, agents or representatives;
PROVIDED, that no such termination will relieve any party of any liability or
damages resulting from any willful or intentional breach of any of its
representations, warranties, covenants or agreements contained in this
Agreement.

                                   ARTICLE IX
                                 MISCELLANEOUS

9.1 EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.

    Except as set forth in the next sentence, the respective representations,
warranties and agreements of the parties contained herein or in any certificate
or other instrument delivered pursuant hereto prior to or at the Closing will
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the other parties hereto, after the execution of this
Agreement. The

                                       42

representations, warranties, covenants or agreements contained in this Agreement
or in any certificate or other instrument delivered pursuant to this Agreement
will terminate at the Effective Time, except for the agreements contained in
Article II, Sections 6.5 and 6.6, and in this Article IX.

9.2 NOTICES.

    All notices, requests, demands, waivers and other communications required or
permitted to be given under this Agreement will be in writing and will be deemed
to have been duly given if delivered personally or mailed, certified or
registered mail with postage prepaid, or sent by telegram, overnight courier or
confirmed telex or telecopier, as follows:

    (a) if to Parent or Merger Sub, to:

       Liberty Media Corporation
       12300 Liberty Boulevard
       Englewood, Colorado 80112
       Attn: Elizabeth M. Markowski, Esq.
       Telecopier: (720) 875-5858
       and with a copy to:

       Sherman & Howard L.L.C.
       633 Seventeenth Street, Suite 3000
       Denver, Colorado 80202
       Attn: Steven D. Miller, Esq.
       Telecopier: (303) 298-0940

    (b) if to the Company, to:

       Liberty Satellite & Technology, Inc.
       12300 Liberty Boulevard
       Englewood, Colorado 80112
       Attn: Pamela Strauss, Esq.
       Telecopier: (720) 875-6895

       with a copy to:

       Shaw Pittman LLP
       2300 N Street, NW
       Washington, DC 20037
       Attn: Thomas H. McCormick, Esq.
       Telecopier: (202) 663-8007

or to such other Person or address as any party will specify by notice in
writing to the other party. All such notices, requests, demands, waivers and
communications will be deemed to have been received on the date of delivery or
on the third business day after the mailing thereof, except that any notice of a
change of address will be effective only upon actual receipt thereof.

9.3 ENTIRE AGREEMENT.

    This Agreement (including the Schedules, Exhibits and other documents
delivered in connection herewith) constitutes the entire agreement of the
parties and supersedes all prior agreements and understandings, oral and
written, between the parties with respect to the subject matter hereof.

                                       43

9.4 ASSIGNMENT; BINDING EFFECT; BENEFIT.

    Neither this Agreement nor any of the rights, benefits or obligations
hereunder may be assigned by any party (whether by operation of law or
otherwise) without the prior written consent of the other party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
Nothing in this Agreement, expressed or implied, is intended to confer on, or to
make enforceable by, any Person other than the parties or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, other than rights conferred upon Indemnified
Parties under Section 6.6 and upon stockholders, directors, officers,
Affiliates, agents and representatives of the parties under Section 9.11.
Notwithstanding anything to the contrary contained in this Agreement, the
provisions of Section 6.6 of this Agreement may not be amended or altered in any
manner with respect to any Indemnified Party without the written consent of such
Indemnified Party. No assignment of this Agreement will relieve the Surviving
Corporation from its obligations to any Indemnified Party contained in
Section 6.6 of this Agreement.

9.5 AMENDMENT.

    Before or after adoption of this Agreement by the stockholders of the
Company, this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time prior to the
Effective Time; provided, however, that after adoption of this Agreement by the
stockholders of the Company, no amendment may be made without the further
requisite approval of such stockholders if such amendment by law requires the
further approval of such stockholders. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.

9.6 EXTENSION; WAIVER.

    At any time prior to the Effective Time, either of the parties, by action
taken or authorized by such party's Board of Directors, may, to the extent
legally allowed, (i) extend the time specified herein for the performance of any
of the obligations of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto, (iii) waive compliance by the other party
with any of the agreements or covenants of such other party contained herein or
(iv) waive any condition to such waiving party's obligation to consummate the
transactions contemplated hereby or to any of such waiving party's other
obligations hereunder. Any such extension or waiver will be valid only if set
forth in a written instrument signed by the party or parties to be bound
thereby. Any such extension or waiver by any party will be binding on such party
but not on the other party entitled to the benefits of the provision of this
Agreement affected unless such other party also has agreed to such extension or
waiver. No such waiver will constitute a waiver of, or estoppel with respect to,
any subsequent or other breach or failure to strictly comply with the provisions
of this Agreement. The failure of any party to exercise any of its rights,
powers or remedies hereunder or with respect hereto or to insist on strict
compliance with this Agreement will not constitute a waiver by such party of its
right to exercise any such or other rights, powers or remedies or to demand such
compliance. Whenever this Agreement requires or permits consent or approval by
any party, such consent or approval will be effective if given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 9.6.

9.7 HEADINGS.

    The headings contained in this Agreement are for reference purposes only and
will not affect in any way the meaning or interpretation of this Agreement.

                                       44

9.8 COUNTERPARTS.

    This Agreement may be executed in any number of counterparts, each of which
will be deemed to be an original, and all of which together will be deemed to be
one and the same instrument.

9.9 APPLICABLE LAW.

    This Agreement and the legal relations between the parties will be governed
by and construed in accordance with the laws of the State of Delaware, without
regard to the conflict of laws rules thereof.

9.10  WAIVER OF JURY TRIAL.

    EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION 9.10.

9.11  JOINT PARTICIPATION IN DRAFTING THIS AGREEMENT.

    The parties acknowledge and confirm that each of their respective attorneys
has participated jointly in the drafting, review and revision of this Agreement
and that it has not been written solely by counsel for one party and that each
party has had the benefit of its independent legal counsel's advice with respect
to the terms and provisions hereof and its rights and obligations hereunder.
Each party hereto, therefore, stipulates and agrees that the rule of
construction to the effect that any ambiguities are to be or may be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any party against another and that no party shall have the
benefit of any legal presumption or the detriment of any burden of proof by
reason of any ambiguity or uncertain meaning contained in this Agreement.

9.12  ENFORCEMENT OF THIS AGREEMENT.

    The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the parties will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which they are entitled at
law or in equity.

9.13  LIMITED LIABILITY.

    Notwithstanding any other provision of this Agreement, no stockholder,
director, officer, Affiliate, agent or representative of any party (other than
Parent as the sole stockholder of Merger Sub) will have any liability in respect
of or relating to the covenants, obligations, representations or warranties of
such party hereunder or in respect of any certificate delivered with respect
thereto and, to the fullest extent legally permissible, each party, for itself
and its stockholders, directors, officers and Affiliates,

                                       45

waives and agrees not to seek to assert or enforce any such liability which any
such Person otherwise might have pursuant to applicable law.

9.14  SEVERABILITY.

    If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement will nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto will negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible to the fullest extent permitted by applicable law
in an acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.

                              [SIGNATURE PAGE FOLLOWS]

                                       46

    IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger as of the date first above written.


                                                        
                                                       LIBERTY MEDIA CORPORATION

                                                       By:          /s/ ELIZABETH M. MARKOWSKI
                                                              --------------------------------------
                                                       Name:          Elizabeth M. Markowski
                                                       Title:          SENIOR VICE PRESIDENT

ATTEST:
/s/ MAUREEN STURGEON
-------------------------------------------
ASSISTANT SECRETARY
                                                       LIBERTY SATELLITE & TECHNOLOGY,
                                                       INC.

                                                       By:            /s/ KENNETH G. CARROLL
                                                              --------------------------------------
                                                       Name:            Kenneth G. Carroll
                                                       Title:                PRESIDENT

ATTEST:
/s/ PAMELA STRAUSS
-------------------------------------------
SECRETARY
                                                       LIBERTY SATELLITE ACQUISITION CO.

                                                       By:          /s/ ELIZABETH M. MARKOWSKI
                                                              --------------------------------------
                                                       Name:          Elizabeth M. Markowski
                                                       Title:          SENIOR VICE PRESIDENT

ATTEST:
/s/ MAUREEN STURGEON
-------------------------------------------
ASSISTANT SECRETARY


                                       47

                                    ANNEX II

                 LIBERTY SATELLITE ANNUAL AND QUARTERLY REPORTS

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                       FOR ANNUAL AND TRANSITION REPORTS
                    PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


        
(MARK ONE)

   /X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

              FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                  OR

   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

            FOR THE TRANSITION PERIOD FROM               TO


                        COMMISSION FILE NUMBER: 0-21317
                            ------------------------

                      LIBERTY SATELLITE & TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)


                                              
               STATE OF DELAWARE                                   84-1299995
         (State or other jurisdiction                (I.R.S. Employer Identification Number)
       of incorporation or organization)

            12300 LIBERTY BOULEVARD                                   80112
              ENGLEWOOD, COLORADO                                  (Zip Code)
   (Address of principal executive offices)


       Registrant's telephone number, including area code: (720) 875-5400

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:
                Series A Common Stock, par value $1.00 per share
                Series B Common Stock, par value $1.00 per share

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/  No / /

Indicate by check mark whether the Registrant is an accelerated filer as
described in Rule 12(b)-2 of the Securities Exchange Act. Yes / /  No /X/

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. /X/

    The aggregate market value of the voting stock held by nonaffiliates of
Liberty Satellite & Technology, Inc. computed by reference to the last sales
price of such stock, as of the close of trading on June 28, 2002, was
approximately $14,822,000.

    The number of shares outstanding of Liberty Satellite & Technology, Inc.'s
common stock as of February 28, 2003 was:

                 Series A Common Stock--14,304,794 shares; and
                   Series B Common Stock--34,765,055 shares.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                      LIBERTY SATELLITE & TECHNOLOGY, INC.
                        2002 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS



                                                                             PAGE
                                                                           --------
                                                                     
                                      PART I

Item 1.      Business....................................................  I-1
Item 2.      Properties..................................................  I-22
Item 3.      Legal Proceedings...........................................  I-22
Item 4.      Submission of Matters to a Vote of Security Holders.........  I-23

                                      PART II

Item 5.      Market for Registrant's Common Equity and Related
               Stockholder Matters.......................................  II-1
Item 6.      Selected Financial Data.....................................  II-2
Item 7.      Management's Discussion and Analysis of Financial Condition
               and Results of Operations.................................  II-3
Item 7A.     Quantitative and Qualitative Disclosures About Market
               Risk......................................................  II-20
Item 8.      Financial Statements and Supplementary Data.................  II-20
Item 9.      Changes in and Disagreements with Accountants on Accounting
               and Financial Disclosure..................................  II-20

                                     PART III

Item 10.     Directors and Executive Officers of the Registrant..........  III-1
Item 11.     Executive Compensation......................................  III-3
Item 12.     Security Ownership of Certain Beneficial Owners and
               Management................................................  III-5
Item 13.     Certain Relationships and Related Transactions..............  III-10
Item 14.     Controls and Procedures.....................................  III-13

                                      PART IV

Item 15.     Exhibits, Financial Statements and Financial Statement
               Schedules and Reports on Form 8-K.........................  IV-1


                                     PART I

ITEM 1. BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

    GENERAL.  Liberty Satellite & Technology, Inc. ("LSAT", and together with
its consolidated subsidiaries, the "Company") is a majority-owned subsidiary of
Liberty Media Corporation ("Liberty Media"). At December 31, 2002, Liberty Media
owned 85.6% of LSAT's common stock, and 100% of LSAT's preferred stock, which
ownership interests collectively represented 97.6% of the overall voting power
of LSAT's common and preferred securities. LSAT's primary operating subsidiary
is On Command Corporation, which provides in-room, on-demand entertainment and
information services to hotels, motels and resorts. In addition, LSAT pursues
strategic opportunities worldwide in the distribution of Internet data and other
content via satellite and related businesses. Currently, the Company conducts
its business through strategic investments in, and contractual arrangements
with, various entities that operate, or are developing, satellite and
terrestrial wireless networks for broadband distribution of Internet access,
video programming, streaming media and other data. Most of the businesses with
which the Company has strategic relationships are in developmental stages and
operate at substantial losses. There can be no assurances that such businesses
will continue to be able to fund such losses or that their development plans
will be achieved.

    Since its formation in 1996, the Company has undergone a number of
significant changes in its business. In order to help the reader to understand
the financial information presented herein, following is a brief description of
the business of LSAT and its predecessors since 1996, as well as certain
material transactions affecting the Company during such period.

    THE SPIN-OFF.  LSAT was incorporated in Delaware in November 1996 under the
name TCI Satellite Entertainment, Inc. Prior to the Spin-off (as defined below),
the Company was wholly owned by Tele-Communications, Inc. ("TCI") (which was
acquired by AT&T Corp. in 1999 and subsequently by Comcast Corporation (formerly
AT&T Comcast Corporation) in 2002). Among its other businesses, TCI, through
various subsidiaries, was engaged in distributing
PRIMESTAR-Registered Trademark- satellite television services, a medium power
digital satellite service. The Company was formed to own and operate certain
businesses constituting TCI's collective interest in the digital satellite
business. On December 4, 1996, TCI distributed, as a dividend, all of the issued
and outstanding LSAT common stock to the holders of TCI's then outstanding TCI
Group tracking stock (the "Spin-off").

    PRIMESTAR BY TCI.  From December 1996 through March 1998, LSAT marketed and
distributed the PRIMESTAR-Registered Trademark- programming service under the
brand names "PRIMESTAR By TCI" and "PRIMESTAR By TSAT" and owned an aggregate
21% partnership interest in PRIMESTAR Partners L.P. (now known as Phoenixstar
Partners L.P.) ("Primestar Partners"). Primestar Partners owned and operated the
PRIMESTAR-Registered Trademark- service, which was the second largest digital
satellite business and the eighth largest multichannel video programming
distribution business in the U.S., measured by the number of subscribers at
December 31, 1998. In addition, the Company, through its wholly-owned
subsidiary, Tempo Satellite, Inc. ("Tempo"), held a construction permit (the
"FCC License") issued by the Federal Communications Commission ("FCC"),
authorizing construction of a high power direct broadcast satellite ("DBS")
system. Tempo was a party to a satellite construction agreement (the "Satellite
Construction Agreement") with Space Systems/Loral, Inc. ("Loral") pursuant to
which Tempo arranged for the construction of two high power direct broadcast
satellites (the "Tempo Satellites"). In March 1997, one of the Tempo Satellites
("Tempo DBS-1") was launched into geosynchronous orbit. The other Tempo
Satellite ("Tempo DBS-2") served as a ground spare for Tempo DBS-1.

    THE PRIMESTAR ROLL-UP.  Effective April 1, 1998, a business combination (the
"Primestar Roll-up") was consummated whereby LSAT contributed and transferred to
PRIMESTAR, Inc. (now known as Phoenixstar, Inc.) ("Phoenixstar") substantially
all of LSAT's assets and liabilities in exchange

                                      I-1

for shares of Phoenixstar common stock representing approximately 37% of the
outstanding shares of common equity of Phoenixstar and approximately 38% of the
combined voting power of such common equity. In addition, the business of
Primestar Partners and the business of distributing the
PRIMESTAR-Registered Trademark- programming service of each of the other
partners in Primestar Partners was consolidated into Phoenixstar.

    As a result of the Primestar Roll-up, LSAT became a holding company, with no
substantial assets or liabilities other than (i) 100% of the outstanding capital
stock of Tempo, (ii) its ownership interest in Phoenixstar, and (iii) its rights
and obligations under certain agreements with Phoenixstar and others.

    THE HUGHES TRANSACTIONS.  In 1999, LSAT, Tempo, Phoenixstar and Primestar
Partners sold to Hughes Electronics Corporation ("Hughes"), a subsidiary of
General Motors Corporation, (i) Tempo DBS-1 and Tempo DBS-2 (ii) Tempo's FCC
License and (iii) Phoenixstar's rights to use Tempo's DBS system for aggregate
consideration of $500 million including assumed liabilities (the "Hughes High
Power Transaction").

    In a separate transaction (the "Hughes Medium Power Transaction") completed
on April 28, 1999 (the "Hughes Closing Date"), Phoenixstar sold to Hughes,
Phoenixstar's medium-power DBS business and assets for $1.1 billion in cash plus
14.613 million shares of General Motors Class H common stock ("GM Hughes
Stock"). Phoenixstar used the cash proceeds from Hughes to repay its bank and
public debt.

    In connection with their approval of the Hughes Medium Power Transaction and
other transactions, the stockholders of Phoenixstar approved the payment to LSAT
of 4,221,921 shares of GM Hughes Stock (the "Phoenixstar Payment"). In
consideration of the Phoenixstar Payment, the Company agreed to approve the
Hughes Medium Power Transaction and Hughes High Power Transaction (the "Hughes
Transactions") as a stockholder of Phoenixstar, to modify certain agreements to
facilitate the Hughes High Power Transaction, and to issue Phoenixstar a share
appreciation right (the "LSAT GMH SAR") with respect to the shares of GM Hughes
Stock received as the Phoenixstar Payment. The LSAT GMH SAR granted Phoenixstar
the right to any market price appreciation in such GM Hughes Stock during the
one-year period following the date of issuance, over an agreed strike price of
$15.67. The Company agreed to forgo any liquidating distribution or other
payment that may be made in respect of the outstanding shares of Phoenixstar
upon any dissolution and winding-up of Phoenixstar, or otherwise in respect of
Phoenixstar's existing equity and to transfer its shares in Phoenixstar to the
other Phoenixstar stockholders. Effective May 10, 2000, the Company sold
2,400,000 shares of GM Hughes Stock and used a portion of the cash proceeds to
satisfy the LSAT GMH SAR liability.

    LIBERTY 2000 TRANSACTIONS.  On March 16, 2000, the Company completed two
transactions with Liberty Media (the "Liberty 2000 Transactions"). Pursuant to
the terms of the first transaction, the Company acquired from Liberty Media its
beneficial interest in 5,084,745 shares of Sprint Corporation PCS Group common
stock ("Sprint PCS Stock"), in exchange for (i) Series A 12% Cumulative
Preferred Stock of the Company with a liquidation value of $150,000,000 and
(ii) Series B 8% Cumulative Convertible Voting Preferred Stock ("Series B
Preferred Stock") of the Company with a liquidation value of $150,000,000. The
Series B Preferred Stock is convertible into Series B Common Stock of the
Company at a conversion price of $88.40 per share, subject to adjustment. The
shares of Series B Preferred Stock have super voting rights, which gave Liberty
Media voting control over the Company. Accordingly, since March 16, 2000, LSAT
has been a consolidated subsidiary of Liberty Media.

    Pursuant to the terms of the second transaction, the Company and Liberty
Media formed a joint venture, Liberty Satellite, LLC, a Delaware limited
liability company ("LSAT LLC"), to hold and manage interests in entities engaged
globally in the distribution of Internet data and other content via satellite
and related businesses. Liberty Media contributed cash and its interests in XM
Satellite Radio Holdings, Inc., Wildblue Communications, Inc., LSAT Astro LLC
and the Sky Latin America satellite

                                      I-2

businesses in exchange for an 89.41% ownership interest in LSAT LLC. The Company
contributed its interest in GM Hughes Stock, subject to the LSAT GMH SAR, and
certain other assets, in exchange for a 10.59% managing ownership interest in
LSAT LLC.

    In a related transaction, which was also consummated on March 16, 2000, the
Company paid Liberty Media $60,000,000 in the form of an unsecured promissory
note in exchange for a 13.99% ownership interest in LSAT Astro LLC ("LSAT
Astro"), a limited liability company whose assets included an approximate 31.5%
interest in ASTROLINK International LLC and $250,000,000 in cash. The remaining
86.01% of LSAT Astro was contributed by Liberty Media to LSAT LLC, as indicated
above.

    LSAT LLC AND ASCENT ENTERTAINMENT TRANSACTION.  On August 16, 2001, the
Company entered into two interrelated purchase agreements with Liberty Media and
certain of its subsidiaries and affiliates. Both agreements were amended in
November 2001 and January 2002. One agreement provided for the Company's
acquisition of certain subsidiaries of Liberty Media that collectively held the
89.41% ownership interest in LSAT LLC not already owned by LSAT in exchange for
25,298,379 shares of the Company's Series B Common Stock. The second purchase
agreement provided for the Company's acquisition of 100% of the capital stock of
Ascent Entertainment Group, Inc. ("Ascent Entertainment") from a subsidiary of
Liberty Media in exchange for 8,701,621 shares of the Company's Series B Common
Stock. Ascent Entertainment's primary operating subsidiary is On Command
Corporation (together with its subsidiaries, "On Command"), which provides
in-room, on-demand video entertainment and information services to hotels,
motels and resorts, primarily in the United States. The foregoing transaction
(the "LSAT LLC and Ascent Entertainment Transaction") closed on April 1, 2002.

    FORWARD LOOKING STATEMENTS.  Certain statements in this Annual Report on
Form 10-K constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. To the extent that such
statements are not recitations of historical fact, such statements constitute
forward-looking statements which, by definition, involve risks and
uncertainties. Where, in any forward-looking statement, the Company expresses an
expectation or belief as to future results or events, such expectation or belief
is expressed in good faith and believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished. The following include some but not all of the
factors that could cause actual results or events to differ materially from
those anticipated:

    - General economic and business conditions, particularly trends in the
      telecommunications, travel and entertainment industries;

    - The regulatory and competitive environment of the industries in which the
      Company, and the entities in which it has interests, operate;

    - Uncertainties inherent in new business strategies, product launches,
      development plans and investments, including the Company's proposed
      investments in ASTROLINK International LLC and Wildblue
      Communications, Inc., and On Command's strategy to expand its target
      market to include smaller hotels;

    - Uncertainties associated with the Company's contingent obligations with
      respect to its investments in satellite television operators in Latin
      America;

    - The acquisition, development and/or financing of telecommunications
      networks and services;

    - Trends in hotel occupancy rates and business and leisure travel patterns,
      including the potential impacts that wars, terrorist activities, or other
      geopolitical events might have on such occupancy rates and travel
      patterns;

                                      I-3

    - Uncertainties inherent in On Command's efforts to renew or enter into
      agreements on acceptable terms with its significant hotel chain customers
      and their owned, managed and franchised hotels;

    - On Command's ability to access quality movies, programming networks and
      other content on acceptable terms;

    - The potential impact that any negative publicity, lawsuits, or boycotts by
      opponents of mature-themed programming content distributed by On Command
      could have on the willingness of hotel industry participants to deliver
      such content to guests;

    - The potential for increased government regulation and enforcement actions,
      and the potential for changes in laws that would restrict or otherwise
      inhibit On Command's ability to make mature-themed programming content
      available over its video systems;

    - Competitive threats posed by rapid technological changes;

    - The development, provision and marketing of On Command's new platforms,
      such as the Roommate-TM- and MiniMate-TM- platforms, and customer
      acceptance, usage rates, and profitability of such platforms;

    - The development and provision of new services, such as On Command's
      television-based Internet service, short subject, video game and digital
      music products, and customer acceptance and usage rates of such services;

    - Uncertainties inherent in On Command's future operating results and
      capital expenditure requirements;

    - Uncertainties inherent in On Command's ability to execute planned upgrades
      of its video systems, including uncertainties associated with operational,
      economic and other factors;

    - The ability of vendors to deliver required equipment, software and
      services;

    - Availability of qualified personnel;

    - The ability of On Command to restructure or refinance its revolving credit
      facility;

    - The ability of LSAT and On Command to secure long-term financing on
      acceptable terms; and

    - Other factors discussed in this Report.

    Many of the foregoing risks and uncertainties are discussed in greater
detail under the captions "BUSINESS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." These forward-looking
statements (and such risks, uncertainties and other factors) speak only as of
the date of this Annual Report. The Company expressly disclaims any obligation
or undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

    The Company has two operating segments: "On Command" and "Other". Financial
information related to the Company's operating segments is included in the notes
to the accompanying consolidated financial statements.

                                      I-4

(c) NARRATIVE DESCRIPTION OF BUSINESS

    PRINCIPLE SUBSIDIARIES AND STRATEGIC RELATIONSHIPS

    The following table sets forth information concerning the Company's
significant subsidiaries and business affiliates. Ownership percentages in the
table are approximate, calculated as of February 1, 2003, and, where applicable
and except where otherwise noted, assume conversion of the Company's ownership
interest to common equity.



                                            PERCENTAGE
                                             OWNERSHIP
ENTITY                                       AT 3/1/03              DESCRIPTION OF BUSINESS
------                                    ---------------   ----------------------------------------
                                                      
On Command..............................             80%    Provides in-room, on demand video
                                                            entertainment and information services
                                                            to hotels, motels and resorts.

Sky Latin America.......................             10%    Operates a satellite-delivered
                                                            television platform serving Mexico,
                                                            Brazil, Colombia and Chile.

Wildblue Communications, Inc............             16%    Building a Ka-band satellite network to
                                                            provide broadband data communications
                                                            services to homes and small offices in
                                                            North America and Latin America.

ASTROLINK International LLC.............           31.5%    Building a Ka-band satellite network to
                                                            provide broadband data communications
                                                            services to businesses.

Hughes Electronics Corporation (NYSE:
  GMH)..................................    less than 1%    Provides digital television
                                                            entertainment, satellite services and
                                                            satellite-based private business
                                                            networks.

XM Satellite Radio Holdings, Inc.
  (NASDAQ: XMSR)........................    less than 1%    Provides 100 national audio channels
                                                            from two satellites directly to vehicle,
                                                            home and portable radios.


ON COMMAND CORPORATION

GENERAL

    On Command is a leading provider (in terms of revenue and number of rooms
served) of in-room, video entertainment and information services to hotels,
motels and resorts. At December 31, 2002, On Command provided in-room
entertainment services to approximately 891,000 hotel rooms. Approximately 89%
of On Command's total equipped rooms at December 31, 2002 were located in the
United States, with the balance located primarily in Canada and Mexico. A hotel,
motel or resort is collectively referred to herein as a "hotel." At March 1,
2003, LSAT, through Ascent Entertainment, controlled approximately 74% of the
outstanding On Command Common Stock and approximately 80% of the total voting
power associated with On Command's equity securities.

INDUSTRY BACKGROUND

    The provision of in-room entertainment and information services to the hotel
industry includes offering pay-per-view motion pictures, archived television and
other short subject content, games, digital

                                      I-5

music, Internet connectivity, guest programming of select pay cable channels and
an increasing array of interactive programs and information services. Depending
on the type of system installed and the size of the hotel, guests could choose
from among 12 to 85 pay-per-view programming titles as of December 31, 2002.
Based on the current storage capacities of On Command's most technologically
advanced systems, and improvements in the storage capacities of those systems
that are expected to occur in 2003 and future periods, On Command expects that
the average number of programming titles available to guests will increase over
time. Changes in technology have also led to the ability to provide a number of
on-demand interactive services such as Internet services, games, digital music,
guest folio review, automatic checkout, survey completion and guest messaging.
The market for in-room entertainment and information is characterized as a
highly competitive environment among several industry-dedicated companies and a
number of new entrants including cable companies, satellite distribution
companies, telecommunications companies, laptop connectivity companies and
others.

OPERATING AND GROWTH STRATEGY

    On Command's operating and growth strategy for the next several years is to
increase revenue while containing, and wherever possible, reducing expenses and
capital expenditures. Specifically On Command plans to increase revenue by
(i) developing and, to the extent economically feasible, implementing new
technologies that will enhance On Command's ability to manage its existing
systems or products and/or allow On Command to introduce new or more
technologically advanced products; (ii) retaining existing hotel customers and
selectively increasing the number of rooms in On Command's traditional target
market (generally hotels with 150 or more rooms); (iii) expanding On Command's
target market by marketing the MiniMate-TM- platform to smaller hotels
(generally hotels with less than 150 rooms) and lower cost hotels; and
(iv) selectively increasing prices. On Command initiated cost reduction and
containment efforts in 2001, and On Command expects to continue to focus on all
available opportunities to reduce or contain costs for the foreseeable future.
In this regard, On Command believes vendor and customer relationships,
outsourcing, and new technologies, such as On Command's new satellite
distribution system, are among the areas that will provide opportunities for
cost reduction and containment during 2003 and future periods. On Command
intends to contain and reduce capital expenditures by continuing its efforts to
more effectively manage and deploy capital with a view towards improving On
Command's return on its capital expenditures. On Command's ability to accomplish
its operating objectives is dependent to a degree on hotel occupancy rates and
other factors outside of its control. No assurance can be given that On Command
will be able to significantly increase its revenue base or reduce its expenses
or capital expenditures. To the extent that changes in hotel occupancy rates
impact On Command's revenue base, On Command will not experience proportionate
changes in its expenses since many of On Command's expenses do not vary with
hotel occupancy rates.

VIDEO SYSTEMS

    OCX-Registered Trademark- Video System

    The OCX-Registered Trademark- video system is a multimedia platform that, in
most cases, incorporates digital content storage and playback. The
OCX-Registered Trademark- video system currently is capable of providing
interactive multimedia menus, high-speed television-based Internet service,
Playstation-Registered Trademark- games and digital music, as well as the
ability to offer more choices of higher-quality on-demand movie services,
including full-length feature films and non-theatrical short videos.

    On Command has developed an updated version of the OCX-Registered Trademark-
video system, marketed under the name Roommate-TM-. This new version expands
upon the basic architecture of the OCX-Registered Trademark- video system,
allowing On Command to take advantage of general cost reductions in hardware
technology while preserving its investment in its Site Manager software. The
Roommate-TM- system, which was designed to be installed in hotels with 150 or
more rooms, was launched during the fourth quarter of 2001. Due to the cost
benefits and greater storage capacity associated with Roommate-TM-, On Command
generally installs the Roommate-TM- system whenever a new video system is
required to be installed in new and existing hotels with 150 or more rooms.

                                      I-6

    During the fourth quarter of 2002, On Command conducted field tests of
MiniMate-TM-, a reduced scale extension of the Roommate-TM- video system that
was designed to be economically and technologically viable for hotels with 150
rooms or less. Based on the results of the field testing, On Command has
concluded that the MiniMate-TM- system was ready to be deployed, and On Command
has commenced marketing the MiniMate-TM- system to smaller hotels. The standard
MiniMate-TM- system is designed to provide on-demand pay-per-view services and
digital music, with television-based Internet access service also available for
an additional cost at the option of the hotel. When compared to the standard
configuration of the Roommate-TM- system, the standard MiniMate-TM- system has
the same capacity for the storage of programming titles, but has a smaller
capacity for the simultaneous output of entertainment services. The scalable
design of MiniMate-TM- enables On Command to add additional products and
services as such products and services become economically viable.

    One version of On Command's OCX-Registered Trademark- system utilizes an
analog tape based video storage sub-system, as opposed to the digital content
storage sub-system that is utilized by the majority of the
OCX-Registered Trademark- systems. This video system, which On Command refers to
as an OCX.i video system, represents an older system that has been upgraded on
the "front end" to allow for the provision of the full range of entertainment
and guest services available through the OCX-Registered Trademark- platform. The
analog tape based storage sub-system of the OCX.i video system was not upgraded
to the digital content storage sub-system utilized in a typical
OCX-Registered Trademark- system due to economic considerations at the time of
the upgrade. The analog tape based storage sub-system utilized by the OCX.i
system is not compatible with the satellite distribution system that On Command
began deploying in 2003. On Command is currently studying different alternatives
that might allow On Command to economically convert to a compatible digital
content storage sub-system in its OCX.i systems. No specific time frame for this
conversion has been set.

    At December 31, 2002, the OCX-Registered Trademark- video system was
installed in 291,000 rooms, including 85,000 with Roommate-TM- systems, and
47,000 with OCX.i systems.

    While the OCX-Registered Trademark- platform itself may be extended or
upgraded to support future new product offerings, current implementations
include on-demand pay-per-view services, television-based Internet access,
Playstation-Registered Trademark- video games, digital music and a rich
interactive multimedia user interface. With the OCX-Registered Trademark- video
system technology, each component of the platform has multiple uses. For
example, the same component used for navigating graphics-intensive menus is used
subsequently for accessing the Internet and sending e-mail. With the digital
content storage that is included in most OCX-Registered Trademark- systems, a
two-hour feature film could be replaced by four 30-minute short subject videos,
unlike one-for-one replacement with videocassettes. In addition, digital content
storage will allow On Command to economically implement the electronic delivery
of digital content through On Command's satellite distribution system.

    On Command is continually upgrading its video systems with the overall
objective of maximizing revenue, while minimizing expenses and capital
expenditures. During 2002, On Command upgraded 26,000 OCX-Registered Trademark-
rooms to allow for the digital provision, where applicable, of music and a
24-hour mature-themed motion picture product, and to provide a full-motion video
and audio promotional screen. On Command plans to install similar upgrades in an
estimated 116,000 OCX-Registered Trademark- rooms during 2003. During 2003, On
Command also plans to upgrade all of its OCX-Registered Trademark- systems that
utilize digital content storage sub-systems (approximately 243,000 rooms at
December 31, 2002) to facilitate the electronic delivery of digital content
through On Command's satellite distribution system. Wherever possible, On
Command will install both of the above-described OCX-Registered Trademark-
upgrades contemporaneously.

    During 2003, On Command also plans to deploy a new graphical interface that
will provide for an enhanced menu in all of its OCX-Registered Trademark-
systems that use a digital content storage sub-system. This new menu is expected
to increase revenue by expanding the entertainment options available to the
guest, improving product presentation, and facilitating guest navigation of the
on-screen menu.

                                      I-7

    OCV-Registered Trademark- Video System

    The On Command video system (the "OCV-Registered Trademark- or Blue
Box-Registered Trademark- video system") is On Command's original platform, and
the predecessor to the OCX-Registered Trademark- video system. At December 31,
2002, the OCV-Registered Trademark- video system was installed in approximately
562,000 rooms. The OCV-Registered Trademark- video system was patented by On
Command in 1992, and consists of a microprocessor controlling the television in
each room, a hand-held remote control, and a central "head-end" video rack and
system computer located elsewhere in the hotel. Programming signals originate
from video cassette players located within the head-end rack and are transmitted
to individual rooms by way of the OCV-Registered Trademark- video system's
proprietary video switching technology. Movie starts are automatically
controlled by the system computer. The system computer also records the purchase
by a guest of any title and reports billing data for manual or automated entry
into the hotel's property management system, which system posts the charge to
the guest's bill.

    Manual functions of the OCV-Registered Trademark- video system equipment are
limited to changing videocassettes once per month and are all handled by On
Command's service personnel, who also update the system's movie titles screens.
The OCV-Registered Trademark- video system's information system is capable of
generating regular reports of guests' entertainment selections, permitting the
OCV-Registered Trademark- video system to adjust its programming to respond to
viewing patterns. The number of guests that can view a particular movie at the
same time varies from hotel to hotel depending upon the popularity of the movie.
The OCV-Registered Trademark- video system provides more copies of the most
popular programming to hotels. The OCV-Registered Trademark- video system
includes a computerized in-room on-screen menu that offers guests a list of only
those movie selections available to the guest at that time rather than all of
the titles currently playing at the hotel. This minimizes the possibility of a
guest being disappointed when the guest's selection is not available. The
high-speed, two-way digital communications capability of the
OCV-Registered Trademark- video system enables On Command to provide advanced
interactive and information features, such as video games, in addition to basic
guest services such as video checkout, room service ordering and guest
satisfaction surveys. The OCV-Registered Trademark- video system also enables
hotel owners to broadcast informational and promotional messages and to monitor
room availability.

    The analog tape based storage sub-system utilized by the
OCV-Registered Trademark- system is not compatible with the satellite
distribution system that On Command began deploying in 2003. As a result, On
Command is currently studying different alternatives that might allow On Command
to economically convert to a compatible digital content storage sub-system in
its OCV-Registered Trademark- systems. No specific timeframe for this conversion
has been set.

    During 2002, On Command upgraded approximately 61,000
OCV-Registered Trademark- rooms to allow for the digital provision of music, a
24-hour mature-themed motion picture product, and a full-motion video and audio
promotional screen. On Command plans to install similar upgrades in an estimated
78,000 OCV-Registered Trademark- rooms during 2003. On Command's experience has
been that the installation of this upgrade typically results in increases in
room revenue.

    Other Video Systems

    The SpectraVision-Registered Trademark- video system, which provides in-room
entertainment on a rolling schedule basis, and in some upgraded variations, on
an on-demand basis, remained in approximately 30,000 rooms at December 31, 2002.
The SpectraVision-Registered Trademark- video system generally offers fewer
movie choices than the OCX-Registered Trademark- or OCV-Registered Trademark-
video systems. The Video Now video system, which provides in-room entertainment
on an on-demand basis, remained in approximately 8,000 rooms at December 31,
2002. Both the SpectraVision-Registered Trademark- and Video Now video systems
utilize older technologies, and On Command expects that the number of hotels
served by the SpectraVision-Registered Trademark- and Video Now video systems
will decrease significantly during 2003, and will be phased-out completely over
the next several years. In general, On Command expects that service will be
discontinued to unprofitable or marginally profitable hotels, while other more
profitable hotels will be converted to a more technologically advanced video

                                      I-8

system, if the return on invested capital is projected to be adequate. During
the year ended December 31, 2002, the SpectraVision-Registered Trademark- and
Video Now video systems generated less than 3% of On Command's total net
revenue.

CONTENT DISTRIBUTION

    On Command uses several methods to distribute content to On Command's
proprietary video and entertainment systems located in hotels. Free-to-guest
cable programming is distributed via satellite to the antennae systems of
hotels. VHS tapes and removable hard disk drives containing films, digital music
and short subjects, and video game cassettes have historically been distributed
to hotels by air and ground transportation. However, during the fourth quarter
of 2002, On Command successfully completed test trials of a satellite
distribution system for films, short subjects and digital music. The economic
feasibility of implementing satellite delivery is dependent upon the nature of
On Command's proprietary equipment installed at hotels. On Command expects to
convert all of its OCX-Registered Trademark- systems that utilize a digital
content storage sub-system (243,000 rooms at December 31, 2002) to satellite
delivery by the end of the third quarter of 2003. On Command is currently
studying different alternatives that might provide for the economic
implementation of satellite delivery for films and videos to hotels that use
OCV-Registered Trademark- and OCX.i video systems, and no specific time frame
for this application of satellite delivery has been set. On Command's satellite
delivery technology does not currently encompass the delivery of video games.
The use of a satellite delivery system is considered desirable due to the cost
savings and efficiencies that are expected to arise from a more efficient
distribution system, and the potential increases in revenue that are expected to
result from On Command's ability to more actively manage the content that is
available in hotel rooms.

SERVICES

    Pay-Per-View Movie Services

    On Command provides on-demand and, in less than 2% of rooms served,
scheduled in-room television viewing of major motion pictures and non-rated
motion pictures intended for mature audiences, for which a hotel guest pays on a
per-view basis. Depending on the type of system installed and the size of the
hotel, guests could choose from among 12 to 85 pay-per-view programming titles
at December 31, 2002. Based on the current storage capacities of On Command's
most technologically advanced systems, and improvements in the storage
capacities of those systems that are expected to occur in 2003 and future
periods, On Command expects that the average number of programming titles
available to guests will increase over time. On Command obtains the
non-exclusive rights to show recently released motion pictures from major motion
picture studios generally pursuant to agreements with each studio. The license
period and fee for each motion picture are negotiated individually with each
studio, which typically receives a percentage of that picture's net revenue
generated by the pay-per-view system. Typically, On Command obtains rights to
exhibit major motion pictures during the "Hotel/Motel Pay-Per-View Window,"
which is the time period after initial theatrical release and before release for
home video distribution or cable television exhibition. On Command attempts to
license pictures as close as possible to motion pictures' theatrical release
dates to benefit from the studios' advertising and promotional efforts.

    Through 2002, On Command also obtained non-rated motion pictures intended
for mature audiences for a one-time flat fee that was nominal in relation to the
licensing fees paid for major motion pictures. During the first quarter of 2003,
On Command began to acquire most of its mature-themed content from a supplier
who receives a contractually determined percentage of the net revenue generated
from the content provided to On Command. Although On Command expects that the
cost of mature-themed content will increase as a result of this new arrangement,
On Command believes that the higher cost is justified by the potential for
increased revenue as a result of the improved quantity and quality of content
that is expected to be provided by the supplier. In addition, the new supplier
will

                                      I-9

perform editing and production services that On Command was generally required
to perform under its prior arrangements with providers of mature-themed product.

    The revenue generated from On Command's pay-per-view service is dependent on
the occupancy rate at the hotel, the "buy rate" or percentage of occupied rooms
that buy movies or other services at the hotel, and the price of the movie or
service. Occupancy rates vary based on general economic conditions, the hotel's
location and its competitive position within the marketplace. Buy rates
generally reflect the hotel's guest demographic profile, the popularity of the
motion pictures or services available at the hotel and the guests' other
entertainment alternatives. Buy rates also vary over time with general economic
conditions. The business of On Command is closely related to the performance of
hotels in the top 25 markets, as defined by Smith Travel Research. Movie price
levels are set based on overall economic conditions, recent release dates and
guest acceptability. Currently, On Command's prices for individual motion
pictures typically range from $8.99 to $12.99, and its prices for the 24-hour
viewing of certain non-rated motion pictures intended for mature audiences
typically range from $14.99 to $21.99.

    Short Subjects

    In addition to movies, On Command provides short video programming options
to the hotel guest. This content includes HBO-Registered Trademark-'s Sex and
the City and The Sopranos, the comedy series Seinfeld, Showtime's Red Shoe
Diaries, programming from the Discovery Networks and other entertainment
packages. On Command currently charges $5.99 to $9.99 for this type of
programming and pays the supplier of the programming a negotiated percentage of
net revenue from the programming. On Command's short video suppliers receive
license fees that are equal to a negotiated percentage of the net revenue stream
generated by the applicable short subject videos. At December 31, 2002, short
subject videos were available to 758,000 or 85% of the total rooms served by On
Command. Future growth of rooms in which On Command's short subject service is
available is expected to come from those hotels where On Command can expect to
earn an adequate return on its invested capital.

    Internet Services

    OCX-Registered Trademark- video systems are capable of supporting a
television-based Internet service that enables guests to access and navigate the
Internet through the television, using the remote control and wireless keyboard
in their room. This service allows up to 24 hours of access for a typical price
of $10.99 for basic Internet and e-mail service. In addition, On Command is
currently field-testing a premium Internet service in 14 hotels that allows the
guest to access the basic Internet service plus certain mature-themed content
for a price of $14.99. On Command expects to increase the availability of the
premium Internet service during 2003. On Command has continually upgraded its
television-based Internet service through improvements to its Internet browser
software that offer better reformatting for the television, improved speed and
enhanced functionality. Most recently, On Command, in conjunction with an
Internet browser provider, developed and, in July 2002, deployed a special
purpose Internet browser that reformats web pages for optimal viewing and
navigation on a television. On Command has subsequently deployed additional
updates of this software to further improve the functionality and features of
the television-based Internet browser. In addition, during 2002, On Command
entered into agreements with entities such as New Frontier Media, Inc. and
TeamOn Systems, Inc. for the provision of pre-formatted interactive content and
applications that have been developed specifically for presentation to hotel
guests via the OCX-Registered Trademark- platform. During the first quarter of
2003, On Command renewed a similar arrangement with Gannett Co., Inc. to
continue to offer USA TODAY-Registered Trademark- NewsCenter iTV content to
guests. On Command plans to continue to seek out additional arrangements that
will allow On Command to expand the amount of pre-formatted interactive content
that is available through On Command's television-based Internet service. In
addition to the software and content improvements, On Command has also improved
the functionality of the latest versions of its television remote controls and
wireless keyboards. On Command pays the provider of its Internet browser a flat
software fee and either On Command or the applicable hotel pay the connectivity
fees

                                      I-10

related to the service. At December 31, 2002, On Command's television-based
Internet product was available to 235,000 or 26% of the total rooms served by On
Command. Future growth of rooms in which On Command's Internet service is
available is expected to come from those hotels where connectivity is available
at a reasonable price, and where On Command can expect to earn an adequate
return on its investment in the required in-room equipment and other capital
requirements.

    Digital Music

    In March 2001, On Command acquired control of Hotel Digital Network, Inc.
("Hotel Digital Network"), a company that provides in-room music content to
hotels through On Command and other in-room entertainment providers. Until
February 2002, Hotel Digital Network operated under the name Digital Music
Network. In February 2002, Hotel Digital Network began doing business under the
name Instant Media Network ("IMN"). With the IMN system, an On Command hotel
guest pays $9.99 per two-hour period to choose from over 600 CDs and over 100
music videos. The IMN system, marketed by On Command as Music On
Command-Registered Trademark-, is available on certain OCX-Registered Trademark-
and upgraded OCV-Registered Trademark- video systems. At December 31, 2002, On
Command's digital music product was available to 178,000 or 20% of the total
rooms served by On Command. On Command plans to continue to install and market
Music On Command-Registered Trademark- in 2003. On Command, through IMN,
generally advances minimum royalties to its suppliers, and is subject to
additional fees that are calculated as a percentage of net revenue generated
from the service once certain thresholds are met. The minimum royalties advanced
to suppliers generally are not recoverable by the Company in the event that
actual revenue is less than the revenue that is projected for the license period
at the time that royalties are advanced to the suppliers. Future growth of rooms
in which Music On Command-Registered Trademark- is available is expected to
occur in those hotels where On Command can expect to earn an adequate return on
its invested capital.

    Game Services

    At December 31, 2002, On Command's video game service was available to
390,000 or 44% of the total rooms served by On Command. On Command's
Roommate-TM-, OCX-Registered Trademark- and OCV-Registered Trademark- video
systems support PlayStation-Registered Trademark- games. On Command's video
systems, however, do not support Playstation-Registered Trademark-2 games. There
are on average 8 to 12 game titles available in most rooms in which video games
are offered. Guests typically pay $6.99 per hour to play the games. On Command
does not expect significant growth during 2003 in the number of hotel rooms
equipped with On Command's video game service as new installations will be
limited to only those hotels (primarily resort hotels) where historical
experience would suggest that On Command will earn an adequate return on its
invested capital. On Command pays its video game suppliers a flat software fee.
In addition, suppliers receive a percentage of net revenue generated from the
service.

    Free-To-Guest Programming Services

    On Command also markets free-to-guest programming services pursuant to which
a hotel may elect to receive one or more programming channels, such as
ESPN-Registered Trademark-, HBO-Registered Trademark-, Turner Services, USA,
STARZ!-Registered Trademark-, and other popular cable networks, which the hotel
provides to guests at no additional cost. On Command provides hotels with guest
programming services through a variety of arrangements, ranging from the payment
by hotels of a monthly fee per room for each programming channel selected to the
inclusion of the cost or part of the cost of such programming within On
Command's overall contractual arrangements with hotels. On Command obtains its
free-to-guest programming either directly from the supplier or from
DIRECTV, Inc. ("DIRECTV") pursuant to an agency agreement. Since all of On
Command's free-to-guest programming channels are available pursuant to the
DIRECTV agency agreement, the determination of whether to purchase directly from
the programming supplier, or from DIRECTV, is based on cost considerations at
the time that contracts with programming suppliers are under review for renewal.
DIRECTV also provides transport services for most of On Command's free-to-guest
programming. During the fourth quarter of 2002, On Command executed a new agency
agreement with DIRECTV, and amended its existing transport agreement with

                                      I-11

DIRECTV. On Command's agreements with DIRECTV and other suppliers expire on
various dates ranging from 2003 to 2008. Agreements with respect to certain of
the programming carried by On Command's video systems have expired, and On
Command is operating under letter agreements or other arrangements until new
arrangements are finalized.

    On Command has agreements with over 25 programming suppliers that provide
over 80 channels of programming. However, the standard free-to-guest channel
line-up offered by On Command typically provides approximately 20 different
channels of programming. Payment to programming suppliers primarily is based on
subscriber room counts. However, variables such as the combination of channels
received, occupancy, volume and penetration also factor into many of On
Command's rates. Certain of On Command's arrangements with programming suppliers
provide for increases in programming rates in future periods that are
significantly in excess of (i) recent rates of inflation and (ii) On Command's
projected growth rates for free-to-guest programming revenue. Although On
Command is working with programming suppliers and taking other actions to
mitigate future cost increases, there is no assurance that On Command will be
able to limit the growth in its free-to-guest programming costs to rates that
are less than or equal to On Command's projected growth rates for free-to-guest
programming revenue.   If programming costs increase at rates in excess of
free-to-guest revenue growth rates in future periods, On Command will experience
pressure on its operating margins. On Command's ability to pass increases in
programming costs on to hotels is limited by certain of On Command's contracts
with hotels.

    Other Hotel and Guest Services

    In addition to entertainment services, On Command provides other guest
services to the hotel industry. These additional services use the two-way
interactive communications capability of On Command's equipment. Among the guest
services provided are video check-out, room service ordering and guest
satisfaction surveys. Guest services are available in various foreign languages.

SALES AND MARKETING

    Historically, substantially all of On Command's growth in rooms served was
derived from obtaining contracts with hotels in the United States not under
contract with existing vendors or whose contracts with other vendors were
expiring or have expired. On Command believes that the opportunity for
additional growth in rooms served in the deluxe, luxury and upscale hotel
markets in the United States is more limited than in the past since most of the
hotels in these categories are under contract with On Command or its
competitors. Therefore, On Command has broadened its strategy for obtaining new
hotel customers to target both smaller hotels and lower cost hotels. Management
anticipates that the lower costs and flexibility associated with the
MiniMate-TM- version of On Command's OCX-Registered Trademark- system will make
marketing to smaller hotels and lower cost hotels more economically attractive
than in the past. On Command began marketing the MiniMate-TM- platform during
the fourth quarter of 2002. Under On Command's current marketing plan, hotels
will enter into agreements that will provide for (i) the purchase by the hotels
of the MiniMate-TM- system; (ii) the licensing of the hotels to use On Command's
proprietary software, and (iii) the performance of video system maintenance
services by On Command. Hotels that purchase the MiniMate-TM- platform will
receive a contractual percentage of the net margin generated by the MiniMate-TM-
video system. No assurance can be given that that MiniMate-TM- system will be
successfully marketed to smaller hotels, or that On Command will be successful
in the execution of its strategy to use the MiniMate-TM- system to broaden its
target market.

    In addition to broadening its strategy to obtain new customers, On Command
is focusing on increasing the revenue derived from each equipped room by
developing and, to the extent economically feasible, implementing new
technologies that will enhance On Command's ability to manage its existing
products and/or allow On Command to introduce new or more technologically
advanced systems or products, and by selectively increasing prices.

    On Command markets its services to hotel guests primarily by means of
on-screen advertising that highlights the services and motion picture selections
for the month. During 2002, On Command upgraded certain of its
OCX-Registered Trademark- and OCV-Registered Trademark- video systems to provide
a full-motion video and audio promotional screen, and On Command's plans to
implement this upgrade for additional OCX-Registered Trademark- and
OCV-Registered Trademark- systems during 2003. During 2003, On Command also
plans to deploy a new graphical interface that will provide for an enhanced menu
in all of its OCX-Registered Trademark- systems that use a digital content
storage sub-system.

                                      I-12

HOTEL CONTRACTS

    For some of On Command's large customers, On Command negotiates and enters
into a single master contract covering all hotels owned, and in some cases,
managed or franchised by the hotel chain customer. A master contract typically
provides for the financial and operational terms that govern the provision of
in-room services. In some cases, the economic and other terms of a contract with
an individual hotel may be different from those contained in the applicable
master contract. In this regard, the contractual relationship with an individual
hotel that is covered by a master contract generally has a duration that
commences on the date that On Command's video system becomes operational in that
hotel. Accordingly, the expiration date of the contractual relationship with any
such hotel is largely independent from the expiration date of the applicable
master contract. Furthermore, upon expiration, On Command's contracts typically
convert into month-to-month arrangements that generally remain in effect until
such time as the Company is able to enter into new or renewed contracts, or a
competitor is able to install its proprietary equipment in the applicable
hotels. Notwithstanding the foregoing, a limited number of On Command's master
contracts provide for the simultaneous expiration of On Command's contractual
relationships with all of the individual hotels that are subject to such a
master contract. In the case of hotels that are not covered by master contracts,
On Command generally executes contracts separately with each hotel. On Command's
existing contracts, whether master contracts or contracts with individual
hotels, generally have terms ranging from five to seven years.

    Under its existing contracts, On Command generally installs its system into
the hotel at On Command's cost, and On Command generally retains ownership of
all equipment used in providing the service. However, in the case of the
recently introduced MiniMate-TM- system, On Command's marketing plan is to sell
the MiniMate-TM- system to hotels. In certain cases, On Command has entered into
master contracts whereby On Command has agreed to purchase televisions and/or
provide other forms of capital assistance and, to a lesser extent, provide
television maintenance services to hotels during the respective terms of the
applicable contracts. However, On Command generally seeks to avoid entering into
new contracts or renewals that require On Command to provide capital assistance
or television maintenance services unless other terms of the contract make it
economical for On Command to do so.

    On Command's contracts with hotels generally provide that On Command will be
the exclusive provider of in-room, pay-per-view entertainment services to the
hotel and generally permit On Command to set its prices. Under certain
circumstances, certain hotel customers have the right to prior approval of any
price changes, which approval may not be unreasonably withheld. On Command's
contracts with hotels typically set forth the terms governing On Command's
provision of free-to-guest programming as well. Depending on the contract, On
Command may or may not be the exclusive provider of free-to-guest programming,
and in cases where On Command is not the exclusive provider, certain of On
Command's contracts require On Command to make payments to hotels to subsidize
the cost to the hotels of using another free-to-guest programming provider. Most
of On Command's contracts with hotels contain provisions that limit the amount
of programming cost increases that may be passed on to the hotels for the
free-to-guest service. As a result of these limitations, increases in
free-to-guest programming revenue have not kept pace with increases in the
corresponding programming costs, and the amount of revenue derived from On
Command's free-to-guest service has been less than the aggregate cost to On
Command of the corresponding programming during each of the past three years. On
Command is currently working with its programming vendors and hotels to mitigate
the shortfall. In this regard, as On Command enters into new contracts, or
renews existing contracts, with hotels, On Command seeks to maximize the amount
of free-to-guest programming cost increases that are permitted to be passed on
to hotels while limiting the overall cost of the free-to-guest channel line-up
that is required to be provided.

    The hotels collect fees from their guests and, in most cases, the hotels
retain a commission equal to a negotiated percentage of the net revenue
generated from On Command's video systems. The amount of the commission varies
depending on the overall economics of the applicable contract and

                                      I-13

other factors. Some contracts also require On Command to upgrade systems to the
extent that new technologies and features are introduced during the term of the
contract. At the scheduled expiration of a contract, On Command generally seeks
to extend the agreement on terms that are based upon the competitive situation
in the market. As of December 31, 2002, contracts covering approximately 40% of
On Command's equipped rooms have expired, or are scheduled to expire, if not
renewed, during the two-year period ending December 31, 2004.

MARKETS AND CUSTOMERS

    On Command currently provides entertainment and information services to
hotels that are associated with major hotel chains, management companies and
independent hotels including Marriott-Registered Trademark-,
Hilton-Registered Trademark-, Six Continents-TM-, Starwood,
Hyatt-Registered Trademark-, Wyndham Hotels and Resorts-Registered Trademark-,
Radisson-Registered Trademark-, Four Seasons, Fairmont and other select hotels.
The majority of On Command's hotel customers are located in the United States,
with the balance located primarily in Canada and Mexico.

    The following table sets forth certain information regarding the number of
hotels and rooms served by On Command:



                                                         DECEMBER 31,
                                                  ---------------------------
                                                      2002           2001
                                                  ------------   ------------
                                                           
Hotels served:
  U.S...........................................         2,989          3,038
  International.................................           383            402
                                                  ------------   ------------
                                                         3,372          3,440
                                                  ============   ============
Rooms served:
  U.S...........................................       792,000        819,000
  International.................................        99,000        107,000
                                                  ------------   ------------
                                                       891,000        926,000
                                                  ============   ============
Average net room revenue per equipped room......  $20.76/month   $20.21/month


SIGNIFICANT CUSTOMERS

    During 2002, hotels owned, managed or franchised by Marriott
International, Inc. ("Marriott"), Hilton Hotels Corporation ("Hilton"), Six
Continents Hotels, Inc. ("Six Continents"), Hyatt Hotel Corporation ("Hyatt"),
and Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") accounted for 30%,
16% 12%, 7% and 7%, respectively, of On Command's net room revenue. Accordingly,
hotels owned, managed or franchised by On Command's five largest hotel chain
customers accounted for 72% of On Command's total net room revenue during 2002.
The loss of any of these hotel chain customers, or the loss of a significant
number of other hotel chain customers, could have a material adverse effect on
On Command's results of operations and financial condition.

    On March 21, 2001, On Command and Marriott entered into a definitive master
agreement pursuant to which On Command distributes its services in hotel rooms
owned or managed by Marriott. In addition, On Command has the opportunity to
enter into agreements to provide its services to additional hotel rooms
franchised by Marriott. The master agreement with Marriott expires in 2008. At
September 30, 2002, the total number of rooms that were owned or managed by
Marriott was approximately 175,000, and the number of rooms that were franchised
by Marriott was approximately 167,000. At December 31, 2002, On Command provided
entertainment services to approximately 160,000 rooms that were owned or managed
by Marriott, and approximately 79,000 rooms that were franchised by Marriott.
Subject to the availability of capital and other economic considerations, On
Command is seeking to increase the number of Marriott rooms it serves.

                                      I-14

    As further discussed below, the Hilton master contract has expired, and
Hilton has signed a new master contract with a competitor of On Command. In
addition, On Command does not have master contracts with either Starwood or Six
Continents, and the Hyatt master contract provides for the simultaneous
expiration of On Command's contractual relationships with all of the individual
hotels that are subject to the Hyatt master contract as of December 31, 2004. At
December 31, 2002, On Command provided entertainment services to approximately
178,000 rooms in hotels that are owned, managed or franchised by Starwood or Six
Continents. Agreements with respect to approximately 54% of such Starwood and
Six Continents rooms have already expired, or will expire by December 31, 2004.
At December 31, 2002, approximately 39,000 or 61% of On Command's Starwood rooms
were located in Sheraton or Four Points hotels that, depending on whether such
hotels are owned, managed or franchised by Starwood, may be covered by a master
contract with a competitor of On Command upon the expiration of such hotels'
contracts with On Command. On Command is actively pursuing master agreements
with Hyatt and Six Continents, and with Starwood with respect to the Starwood
brands that are not already covered by a competitor's contract. In certain
cases, On Command is also pursuing direct contractual relationships with
individual hotels that are owned, managed or franchised by these hotel chains.
No assurance can be given that On Command will be successful in executing master
or individual hotel contracts. Due to the significant cost involved in changing
the proprietary video equipment installed in hotels, On Command expects that,
regardless of the expiration dates of master contracts or individual contracts
with hotels, On Command will continue to be the provider of in-room
entertainment services for individual hotels that are not under contract until
such time as a competitor's equipment can be installed. For this and other
reasons, On Command does not anticipate that it will cease earning revenue from
all of its Hyatt rooms on December 31, 2004 in the event that a new master
contract has not been executed by that date.

    In October 2000, Hilton announced that it would not be renewing its master
contract with On Command. As a result, hotels owned, managed or franchised by
Hilton are currently subject to a master contract between Hilton and a
competitor of On Command. Accordingly, On Command anticipates that hotels owned
by Hilton will not renew their contracts as they expire. On the other hand,
hotels that are managed or franchised by Hilton are not precluded from renewing
their contracts with On Command, and, although no assurance can be given, On
Command anticipates that certain of those hotels will choose to renew. At
December 31, 2002, On Command provided service to approximately 126,200 rooms in
534 hotels that are owned, managed or franchised by Hilton. The majority of
these rooms are located in managed or franchised hotels that are not owned by
Hilton. Through December 31, 2002, On Command's contracts with 71 of the
aforementioned 534 hotels (20,400 rooms) had expired and service to these hotels
is currently provided under monthly or other short-term renewals. On Command's
individual contracts with the remaining 463 Hilton hotels (105,800 rooms) expire
at various dates through 2010, with 56% of those rooms expiring by 2005. During
2002, On Command entered into new contracts, or renewed existing contracts, with
respect to 7,000 rooms that were franchised by Hilton, and 2,600 rooms that were
managed by Hilton. Over time, On Command anticipates that the revenue it derives
from hotels that are owned, managed or franchised by Hilton will decrease.
However, due to the uncertainties involved, On Command is currently unable to
predict the amount and timing of the revenue decreases.

TECHNOLOGY--RESEARCH AND DEVELOPMENT

    On Command develops technologies to be used in its video systems to support
and enhance their operations, and develops new applications. On Command incurred
costs of approximately $4,064,000, $5,600,000 and $8,734,000 in 2002, 2001 and
2000, respectively, related to research and development.

    On Command's product development philosophy is to design and integrate
components for high quality entertainment and information systems that
incorporate features allowing On Command to add system enhancements as they
become commercially available and economically viable. The high speed, two-way
digital communications capability of OCX-Registered Trademark- video systems
enables On Command to provide

                                      I-15

advanced interactive features such as video games and television-based Internet
access in addition to basic guest services such as video checkout and guest
survey.

    On Command's systems incorporate proprietary communications system designs
with commercially manufactured components and hardware such as video cassette
players, digital video disk players, other digital storage media, televisions,
amplifiers and computers. Because On Command's systems generally use industry
standard interfaces, On Command can often economically integrate new
technologies as they become viable.

    On Command is in the process of developing applications of Internet Protocol
("IP") technology for use in On Command's video systems. No assurance can be
made that On Command will be successful in developing economically viable
applications of IP technology.

PATENTS, TRADEMARKS AND COPYRIGHTS

    On Command holds a number of patents and patent licenses covering various
aspects of its pay-per-view and interactive systems primarily related to the
OCV-Registered Trademark- video system. The patents expire between 2007 and
2015. With the rate of technological development currently being experienced, a
patent's utility and value may diminish before the end of its respective term.
Currently, On Command is pursuing patent protection of elements of the
OCX-Registered Trademark- and Roommate-TM- video systems. In connection with a
negotiated settlement agreement with LodgeNet in 1998, On Command and LodgeNet
have cross-licensed certain of each other's patented technology and have also
agreed not to engage in patent litigation against one another through 2003.

    On Command holds United States trademarks for all significant names that it
uses, including "Blue Box-Registered Trademark-" "On
Command-Registered Trademark-", "OCV-Registered Trademark-",
"SpectraVision-Registered Trademark-" and "OCX-Registered Trademark-." The
federal registration of these trademarks expires between 2004 and 2011 if not
renewed.

    On Command has trademark applications pending in the United States Patent
and Trademark Office for the "Roommate-TM-", "MiniMate-TM-" and "TeleMate-TM-"
trademarks.

LICENSEES AND OTHER SYSTEM SALES

    On Command sells systems to certain other providers of in-room entertainment
including Allin Interactive, which is licensed to install On Command's equipment
on cruise ships; Techlive Limited, formerly known as On Command Europe Limited,
which is licensed to use On Command's system to provide service in Europe and
the Middle East; and e-ROOM CORPORATION ("e-ROOM"), formerly known as MagiNet
Corporation, which is licensed to use On Command's system to provide service in
the Asia marketplace. In addition, IMN sells in-room digital music systems and
licenses software to Hospitality, and licenses content to Hospitality and
LodgeNet.

SEASONALITY

    The amount of revenue realized by On Command each month is affected by a
variety of factors, including among others, hotel occupancy rates, business and
leisure travel patterns, general economic conditions, changes in the number of
rooms served, the number of business days in a month, and holidays. With the
exception of December, which is generally On Command's lowest month for revenue,
On Command typically does not experience significant variations in its monthly
revenue that can be attributed solely to seasonal factors.

SPRINT CORPORATION PCS GROUP

    At December 31, 2002, LSAT LLC held beneficial interests with respect to
5,084,745 shares of Sprint Corporation PCS Group common stock ("Sprint PCS
Stock") (NYSE: PCS) and certain derivative financial instruments related to
those shares. In March 2003, the Company received aggregate proceeds of
approximately $149 million in connection with the sale of a portion of its
shares

                                      I-16

of Sprint PCS Stock and the settlement of a portion of its interests in the
Sprint PCS Stock equity collar. In April 2003, the Company expects to receive
additional proceeds of approximately $154 million in connection with the sale of
its remaining Sprint PCS Stock and the settlement of its remaining interests in
the Sprint PCS Stock equity collar.

SKY LATIN AMERICA

    LSAT LLC has a 10% interest in each of three Latin American satellite
television operators, together known as Sky Latin America, serving Mexico,
Brazil, Colombia and Chile. Sky Latin America offers entertainment and services
via satellite to households through its various owned and affiliated
distribution platforms worldwide. The Sky Latin America entities distribute
their programming primarily via direct-to-home or DTH platforms, allowing their
subscribers to access a variety of channels covering general entertainment,
music, movies, sports, kids, news, documentaries and education genres with their
television remote controls. Other major investors in Sky Latin America include
News Corporation, Grupo Televisa and Globo Comunicacoes e Particpacoes
("GloboPar"). The Company has severally guaranteed certain obligations of the
Sky Latin America entities. During the fourth quarter of 2002, GloboPar ceased
funding certain of the Sky Latin America entities.

WILDBLUE COMMUNICATIONS, INC.

    Wildblue Communications, Inc. ("Wildblue") was established to build a
Ka-band satellite network to provide broadband data communications services to
homes and small offices in North America and Latin America. Other strategic
investors in Wildblue include Gemstar-TV Guide International, Inc., Kleiner
Perkins Caufield & Byers, TRW, Inc., EchoStar Communications Corp., and Telesat
Canada.

    In December 2002, the Company announced that it has agreed to increase its
investment in Wildblue. Currently, the Company has an approximate 16% ownership
interest in Wildblue. Under the new agreement, the Company will invest
$58 million in return for senior preferred stock and warrants of Wildblue. As
also agreed, other existing and new investors will invest $98 million in
Wildblue for a total new investment of $156 million. Upon closing of the
transaction, of which no assurance can be given, the Company will be the largest
shareholder with an ownership interest of approximately 32% and a voting
interest of approximately 37%. The closing of the transaction is subject to
certain conditions, and is expected to occur in the second quarter of 2003.
Assuming the Wildblue transaction is consummated as described above, of which no
assurance can be given, Wildblue currently expects to launch its satellite in
the fourth quarter of 2003 and begin providing broadband data services in the
second or third quarter of 2004.

    In connection with the aforementioned additional investment in Wildblue, the
Company entered into a put agreement with KPCB Holdings, Inc. ("KPCB"), another
investor in Wildblue. Pursuant to this put agreement and in the event the
parties make additional investments in Wildblue, KPCB will have the right to put
its interest in Wildblue to the Company and another investor in Wildblue for
$10,000,000, the amount KPCB has agreed to invest in Wildblue at the closing of
the Wildblue transaction. The Company and such other investor are each
responsible for $5,000,000 of the aggregate $10,000,000 put obligation. The put
may be exercised at any time within four years from the closing of the Wildblue
transaction.

ASTROLINK INTERNATIONAL LLC

    The Company owns an approximate 31.5% ownership interest in Astrolink.
Astrolink, a developmental stage entity, was originally established to build a
global telecom network using Ka-band geostationary satellites to provide
broadband data communications services. Astrolink's original business plan
required substantial financing. During the fourth quarter of 2001, certain of
the members of Astrolink informed Astrolink that they did not intend to provide
any of Astrolink's remaining required

                                      I-17

financing. In light of this decision, Astrolink and the Astrolink members
considered several alternatives with respect to Astrolink's proposed business
plan.

    During the second quarter of 2002, LSAT signed a non-binding letter of
intent with the other Astrolink members in connection with the proposed
restructuring of Astrolink. In January 2003, the Company announced that it had
reached agreement with the other members of Astrolink in connection with such
proposed restructuring ("the Astrolink Restructuring"). Under the agreement (the
"Astrolink Restructuring Agreement"), the Company will acquire substantially all
of the assets of Astrolink. Astrolink simultaneously signed agreements with
Lockheed Martin Corporation and Northrop Grumman Space & Mission Systems Corp.
for completion of two satellites. The parties also reached agreement on the
settlement of all claims related to the previous termination of Astrolink's
major procurement contracts and all other major third party creditor claims. The
closing of the Company's acquisition of the Astrolink business is subject to the
Company obtaining satisfactory funding for the business from additional
investors, third party sources of financing, or firm capacity commitments from
prospective customers. The closing is also subject to regulatory approvals and
other closing conditions. Subject to satisfaction of these closing conditions,
the closing is expected to occur on or before October 31, 2003.

    If the closing occurs, the Company will pay approximately $43 million in
cash and will issue approximately $3 million in value of Series A Common Stock
as total consideration for the Astrolink assets, including certain existing
satellite and launch contracts, and the settlement of all claims against
Astrolink. In addition, the Company will provide additional interim funding for
Astrolink pending closing. If the transactions are consummated, Liberty Media
will make a capital contribution to the Company in an amount equal to 10% of the
estimated fair value of Liberty Media's equity holdings in the Company at the
time of closing, up to a maximum commitment of $55 million, in exchange for
shares of the Company's Series B Common Stock.

    The Company currently plans to pursue a revised operating plan for the new
Astrolink system, taking into account financial and market factors. The revised
operating plan currently contemplates launching one or two Ka-band satellites to
provide enterprise customers in up to two of North America, Europe or Asia, with
virtual private networks and related advanced services, and to provide various
government agencies with a solution to their expanding needs for bandwidth.

    In the event the Astrolink Restructuring is not consummated due to lack of
financing or other closing conditions, the Company anticipates that Astrolink
will be liquidated and the Company will receive $7.8 million as prescribed in
the Astrolink Restructuring Agreement.

HUGHES ELECTRONICS CORPORATION

    Hughes (NYSE: GMH), a subsidiary of General Motors Corporation, provides
digital television entertainment, satellite services and satellite-based private
business networks. At December 31, 2002, LSAT LLC owned 1,821,921 shares of GM
Hughes Stock.

XM SATELLITE RADIO HOLDINGS, INC.

    XM Satellite Radio Holdings (Nasdaq: XMSR) offers approximately 100 national
audio channels from two satellites directly to vehicle, home and portable
radios. At December 31, 2002, LSAT LLC owned 1.0 million shares of XM Satellite
Radio Holdings.

COMPETITION

    LSAT COMPETITION

    LSAT pursues strategic opportunities worldwide in the distribution of
Internet data and other content via satellite and related businesses. Currently,
LSAT conducts its business through strategic investments in, and contractual
arrangements with, various entities that operate, or are developing,

                                      I-18

satellite and terrestrial wireless networks for broadband distribution of
Internet access, video programming, streaming media and other data. Most of the
businesses with which LSAT has strategic relationships are in the development
stage and operate at substantial losses. There can be no assurances that such
businesses will continue to be able to fund such losses or that their
development plans will be achieved.

    The broadband communications industry experiences intense competition in
worldwide markets among numerous global competitors, including some of the
world's largest and best known companies. LSAT and those entities in which LSAT
has made strategic investments will face competition from other satellite
providers, cable television providers, "wireless cable" providers, DSL (digital
subscriber line) providers, traditional narrowband Internet access providers,
proprietary on-line services and other telecommunications companies and service
providers. Many of such competitors and potential competitors have substantially
greater capital and financial resources, brand recognition, marketing resources,
and/or technological capabilities than LSAT, and many have substantial existing
customer bases and established relationships with content providers,
distributors and/or retail outlets. Such advantages may increase the ability of
such actual and potential competitors to compete successfully against LSAT and
its strategic investments.

    LSAT expects that significant competitive factors will include price,
service quality and reliability, signal latency, susceptibility to "rain fade"
and other forms of interference, geographic service areas or "footprints," ease
of use, breadth of features and service offerings, the ability to bundle
complementary services, the availability of vendor financing for antennas,
receivers and other customer premises equipment, brand recognition and
time-to-market.

    LSAT believes that competition in its industry will increase as the FCC
grants additional licenses in existing frequency ranges and as new technologies
are developed and deployed.

    ON COMMAND COMPETITION

    There are numerous providers of in-room entertainment services to the hotel
industry. Market participants include, but are not limited to, (i) other full
service in-room providers, such as LodgeNet Entertainment Corporation
("LodgeNet"), Hospitality Network ("Hospitality"), NXTV, Inc., SeaChange
International, Inc., KoolConnect Technologies, Inc. and other providers in
international markets, (ii) cable television companies, such as Comcast
Corporation, AOL Time Warner Inc., Cox Communications, Inc., (iii) direct
broadcast satellite services, such as DirecTV and the DISH Network,
(iv) television networks and programmers, such as ABC, NBC, CBS, FOX,
HBO-Registered Trademark-, STARZ!-Registered Trademark-, and Showtime,
(v) Internet service providers, such as AOL Time Warner Inc., (vi) broadband
connectivity companies, such as STSN, Inc. and (vii) other telecommunications
companies. In addition, On Command's services compete for a guest's time and
entertainment resources with other forms of entertainment and leisure
activities. On Command anticipates that it will continue to face substantial
competition from traditional as well as new competitors, and that certain of
these competitors have greater financial resources and better access to the
capital markets than On Command. Many of the Company's potential competitors are
developing ways to use their existing infrastructure to provide in-room
entertainment and/or informational services. Certain of these competitors are
already providing guest programming services and are beginning to provide
video-on-demand, Internet and high-speed connectivity services to hotels. At
December 31, 2002, On Command served approximately 891,000 rooms world wide, of
which approximately 874,000 are served by on-demand systems. Based on publicly
available information, On Command estimates that, at December 31, 2002, LodgeNet
and Hospitality provided service to approximately 953,000 and 110,000 rooms,
respectively.

    Competition with respect to the provision of in-room entertainment and
information systems centers on a variety of factors, depending upon the
circumstances important to a particular hotel. Among the more important factors
are (i) the financial terms and conditions of the proposed contract; (ii) the
features and benefits of the entertainment and information systems; and
(iii) the quality of the vendor's technical support and maintenance services.
With respect to hotel properties already receiving in-room entertainment
services, the current provider may have certain informational and installation
cost advantages compared to outside competitors.

                                      I-19

    On Command anticipates that it will face substantial competition in
obtaining new contracts with major hotel chains. On Command believes that hotels
view the provision of in-room on-demand entertainment and information services
both as a revenue source and as a source of competitive advantage because
sophisticated hotel guests are increasingly demanding a greater range of quality
entertainment and information alternatives. At the same time, On Command
believes that certain major hotel chains have awarded contracts based primarily
on the level and nature of financial and other incentives offered by the service
provider. While On Command believes it will continue to enter into contractual
arrangements that are attractive to both On Command and its hotel customers, its
competitors may attempt to maintain or gain market share at the expense of
profitability. On Command may not always be willing or able to match incentives
provided by its competitors.

    The communications industry is subject to rapid technological change. New
technological developments could adversely affect On Command's operations unless
On Command is able to provide equivalent services at competitive prices.

REGULATORY MATTERS

    LSAT REGULATORY MATTERS

    FCC REGULATION.  The FCC is the government agency with primary authority in
the United States to regulate the use of radio spectrum, including both
satellite and terrestrial applications. LSAT does not directly hold any FCC
licenses or other authorizations, and cannot directly acquire, own, construct or
operate a satellite system without an appropriate license, construction permit
or other authorization issued by the FCC for such purpose. In addition, most
microwave and other terrestrial radio operations also require FCC authorization.
The FCC has promulgated numerous regulations governing the construction,
ownership and operation of satellite and terrestrial radio systems. Wireless
communications companies must comply with all such regulations applicable to
their operations, and if they violate such regulations, the FCC can impose
sanctions such as fines, loss or modification of authorizations, and/or the
denial of applications for new authorizations or for renewal of existing
authorizations.

    Certain terrestrial wireless systems utilize un-licensed radio frequencies
for communicating between the antenna serving an individual community and
subscribers in that community. However, such systems are nevertheless subject to
FCC regulation and may utilize other frequencies that require authorizations for
other purposes (such as satellite earth stations or microwave communications
between a head end and community antennas). Service providers that use
unlicensed spectrum are also subject to interference from other permitted users
of such spectrum in their service areas, and may be subject to restrictions on
amplification and other limitations.

    Construction of a Ka-band satellite system requires an appropriate
construction permit from the FCC. Such permits are subject to time limits and
requirements that the permittee exercise due diligence toward the construction
and deployment of the permitted system within such time limits. Licenses for
Ka-band satellites are issued for an initial ten-year term commencing once the
satellite is successfully placed into orbit and its operations fully conform to
the terms and conditions of the license. Upon the expiration of the license for
each Ka-band satellite, the licensee must apply for renewal of the license.
Astrolink and Wildblue have been granted five and two FCC permits, respectively.
However, Astrolink has applied to return two of its permits and Wildblue has
applied to return one of its permits. Such permits require Astrolink and
Wildblue to meet terms and conditions and comply with FCC regulations. If they
do not meet the FCC terms and conditions, their FCC permits could expire, be
revoked, modified, or may or may not be renewed.

    INVESTMENT COMPANY ACT.  The Investment Company Act requires companies that
are engaged primarily in the business of investing, reinvesting, owning, holding
or trading in securities, or that fail certain numerical tests regarding the
composition of their assets and their sources of income and that

                                      I-20

are not primarily engaged in a business other than investing, reinvesting,
owning, holding or trading in securities, to register as "investment companies."
Various substantive restrictions are imposed on investment companies by the
Investment Company Act.

    LSAT is primarily engaged in a business other than investing, reinvesting,
owning, holding or trading securities, and does not intend to be an investment
company within the meaning of the Investment Company Act. However, as LSAT is a
holding company with ownership interests in other entities, some of which
represent less than 50% of the voting equity of such entities, there is a risk
that LSAT could be deemed to have become an inadvertent investment company
within the meaning of the Investment Company Act. If LSAT is required to
register as an investment company under the Investment Company Act, LSAT would
become subject to substantial regulation of its capital structure, management,
operations, transactions with "affiliated persons," as defined in the Investment
Company Act, and other matters. If LSAT were deemed to be an investment company
subject to regulation under the Investment Company Act and did not register
under that Act, it would be in violation of the Investment Company Act and would
be prohibited from engaging in business or selling its securities and could be
subject to civil and criminal actions for doing so. In addition, LSAT's
contracts would be voidable and a court could appoint a receiver to take control
of LSAT and liquidate it. Therefore, LSAT's classification as an investment
company subject to regulation under the Investment Company Act could materially
adversely affect its business, results of operations and financial condition.

    ON COMMAND REGULATORY MATTERS

    The Communications Act of 1934, as amended by the Cable Communications
Policy Act of 1984, the Cable Television Consumer Protection and Competition Act
of 1992 and the Telecommunications Act of 1996, governs the distribution of
video programming by cable, satellite or over-the-air technology, through
regulation by the FCC. However, because On Command's video distribution systems
do not use any public rights of way, they are not classified as cable systems
and are subject to minimal regulation. Thus, the FCC does not directly regulate
the pay-per-view or guest programming provided by On Command to hotel guests.

    The Internet-based services offered by On Command potentially may be
affected by various laws and governmental regulations. There are currently few
laws or regulations directly applicable to access to or commerce on commercial
online services or the Internet. However, because of the increasing popularity
and use of commercial online services and the Internet, a number of laws and
regulations may be adopted with respect to commercial online services and the
Internet. For example, the Internet Tax Freedom Act, which was extended through
November 1, 2003, placed a moratorium on new state and local taxes on Internet
access and commerce. Other Internet-related laws and regulations may cover
issues such as user privacy, defamatory speech, copyright infringement, pricing
and characteristics and quality of products and services. The adoption of such
laws or regulations in the future may slow the growth of commercial online
services and the Internet, which could in turn cause a decline in the demand for
On Command's Internet-based services and products or otherwise have an adverse
effect on On Command. Moreover, the applicability to commercial online services
and the Internet of existing laws governing issues such as property ownership,
libel, personal privacy and taxation is uncertain and could expose On Command to
liability.

    Although the FCC generally does not directly regulate the services provided
by On Command, the regulation of video distribution and communications services
is subject to the political process and has been in constant flux over the past
decade. Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that On Command's business will not be
adversely affected by future legislation or new regulations.

    On Command is required to have performance licenses to the extent that its
services utilize copyrighted music. On Command has one agreement in place and is
negotiating a second agreement

                                      I-21

with organizations that represent rights holders. In addition, certain
programming distributed by On Command is acquired pursuant to agreements that
require performance licenses to be obtained by On Command's suppliers. IMN has
separate performance licenses in place with two groups that represent rights
holders, one of which is on an interim basis, and is attempting to negotiate a
third license. Music performance licensing rights have been the subject of
industry-wide arbitration and/or litigation for a number of years. Depending
upon the outcome of on-going proceedings and On Command's negotiations, the
performance license fees for such distribution may increase over the course of
time.

OTHER

    Compliance with federal, state and local provisions that have been enacted
or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.

    As of December 31, 2002, LSAT had 4 employees, and On Command had 620
employees.

ITEM 2. PROPERTIES.

    LSAT owns no real estate. LSAT subleases office space from Liberty Media in
Englewood, Colorado. LSAT believes that such office space is adequate for its
business operations for the foreseeable future.

    On Command has two leases, which expire in June 2005 and May 2006, for
approximately 25,700 square feet and 7,500 square feet, respectively, for its
corporate headquarters in Denver, Colorado. On Command also has a lease that
expires in February 2008 for 76,972 square feet of light manufacturing and
storage space in Denver, Colorado. On Command has another lease, which expires
in June 2004, for approximately 131,000 square feet of leased office, light
manufacturing and storage space in San Jose, California, a portion of which has
been subleased and the majority of the remainder of which On Command is
attempting to sublease. On Command has a number of other small leases for small
parcels of property throughout the United States, Canada and Mexico. On
Command's properties are suitable and adequate for On Command's business
operations.

ITEM 3. LEGAL PROCEEDINGS.

    There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject, except as follows:

    In a civil action entitled DANIEL BOONE, OZARK HEARTLAND ELECTRONICS, INC.
    V. RADIO SHACK, ET AL, the plaintiff alleged that the Company and other
    defendants (i) entered into a vertical resale price maintenance agreement
    with Radio Shack, in violation of Section 1 of the Sherman Act, and
    (ii) tortiously interfered with plaintiff's contractual relationship with
    Radio Shack when they requested that Radio Shack terminate plaintiff's right
    to market PRIMESTAR-Registered Trademark- products. On February 1, 2001, the
    Eighth Circuit Court of Appeals affirmed an earlier ruling by the District
    Court granting summary judgment in favor of each of the Defendants and
    dismissing the suit. The plaintiff filed a Petition for Rehearing, which was
    denied by the Eighth Circuit Court of Appeals on March 4, 2002. The
    plaintiff had until June 3, 2002 to file a petition for certiorari with the
    United States Supreme Court, but did not do so. As a result, this matter has
    concluded, and it will not be reported in future filings.

    On Command has received a series of letters from Acacia Media Technologies
    Corporation regarding a portfolio of patents owned by Acacia. Acacia has
    alleged that its patents cover certain activities performed by On Command
    and has proposed that On Command take a license under

                                      I-22

    those patents. On Command is reviewing Acacia's patents and believes there
    are substantial arguments that Acacia's claims lack merit.

    The Company is a defendant, and may be a potential defendant, in other
lawsuits and claims arising in the ordinary course of its business. While the
outcomes of such claims, lawsuits, or other proceedings cannot be predicted with
certainty, management expects that such liability, to the extent not provided
for by insurance or otherwise, will not have a material adverse effect on the
financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    At the Company's annual meeting of stockholders held on November 6, 2002,
the following matters were voted upon and approved by the stockholders of the
Company:

    Election of the following to the Company's Board of Directors:



                                                           VOTES       VOTES
                                                            FOR       WITHHELD
                                                        -----------   --------
                                                                
Alan M. Angelich......................................  437,484,593    93,970
Robert R. Bennett.....................................  437,478,091   100,472
William H. Berkman....................................  437,520,069    58,494
William R. Fitzgerald.................................  437,517,112    61,451
John W. Goddard.......................................  437,484,335    94,228
J. Curt Hockemeier....................................  437,484,952    93,611
Gary S. Howard........................................  437,515,515    63,048


    Ratification of the appointment of KPMG LLP as the Company's independent
auditors for the year ended December 31, 2002 (437,487,406 votes "For", 48,312
votes "Against", and 42,845 Abstentions).

                                      I-23

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    Through April 1, 2002, shares of the Series A common stock ("Series A Common
Stock") and Series B common stock ("Series B Common Stock") of Liberty Satellite
and Technology, Inc. ("LSAT", and together with its consolidated subsidiaries,
the "Company") traded over-the-counter on the OTC Bulletin Board under the
symbols "LSATA" and "LSATB", respectively. Following an April 1, 2002 reverse
stock split, shares of Series A Common Stock and Series B Common Stock began
trading under the symbols "LSTTA" and "LSTTB", respectively. Historically,
shares of Series B Common Stock have had low trading volume due to a relatively
low number of shares held in the public float. The following table sets forth
the range of high and low bid prices in U.S. dollars of shares of Series A
Common Stock and Series B Common Stock for the periods indicated. The prices are
interdealer prices, do not include retail markups, markdowns, or commissions and
may not represent actual transactions.



                                                      SERIES A              SERIES B
                                                 -------------------   -------------------
                                                   HIGH       LOW        HIGH       LOW
                                                 --------   --------   --------   --------
                                                                      
2002
  First quarter................................   $10.70      5.60       9.10       6.00
  Second quarter...............................   $ 6.43      2.20       4.00       2.25
  Third quarter................................   $ 3.05      1.00       3.00       1.50
  Fourth quarter...............................   $ 3.10      1.45       5.00       2.25

2001
  First quarter................................   $50.00     14.38      46.25      16.25
  Second quarter...............................   $45.50     14.38      45.00      16.25
  Third quarter................................   $31.50     10.40      29.50      11.00
  Fourth quarter...............................   $14.80      7.50      16.50       8.10


    As of December 31, 2002, there were approximately 2,918 and 137 record
holders of the Series A Common Stock and Series B Common Stock, respectively
(which amounts do not include the number of shareholders whose shares are held
of record by banks, brokerage houses or other institutions, but include each
such institution as one shareholder).

    The Company has not paid cash dividends on its Series A Common Stock and
Series B Common Stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the LSAT's Board of
Directors in light of its earnings, financial condition and other relevant
considerations.

    On April 1, 2002, LSAT issued 34,000,000 shares of Series B Common Stock
valued at $204,000,000 to Liberty Media Corporation ("Liberty Media") in
exchange for (i) the capital stock of certain subsidiaries of Liberty Media that
collectively held the 89.41% of Liberty Satellite, LLC not already owned by LSAT
and (ii) 100% of the capital stock of Ascent Entertainment Group, Inc. ("Ascent
Entertainment"). The issuance was made in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933 (the "Act")
for transactions by an issuer not involving a public offering.

    On July 1, 2002, LSAT issued 1,970,580 shares of Series A Common Stock to
Liberty Media. Such issuance was made in lieu of a cash payment of dividends on
LSAT's Series A 12% Cumulative Preferred Stock ("Series A Preferred Stock") and
LSAT's Series B 8% Cumulative Convertible Voting Preferred Stock ("Series B
Preferred Stock") for the quarters ended December 31, 2001 and March 31, 2002
and was valued at $15,000,000. The foregoing issuance was made pursuant to the
private placement exemption from the Act afforded by Section 4(2) of the Act.

    On August 1, 2002, LSAT issued 2,349,697 shares of Series A Common Stock to
Liberty Media. Such issuance was made in lieu of a cash payment of dividends on
LSAT's Series A and Series B Preferred Stock for the quarter ended June 30, 2002
and was valued at $7,500,000. The foregoing

                                      II-1

issuance was made pursuant to the private placement exemption from the Act
afforded by Section 4(2) of the Act.

ITEM 6. SELECTED FINANCIAL DATA

    Selected financial data related to the Company's financial condition and
results of operations for the five years ended December 31, 2002 are summarized
as follows. Such information should be read in conjunction with the accompanying
consolidated financial statements of the Company and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" included
elsewhere herein.



                                                           YEARS ENDED DECEMBER 31,
                                             -----------------------------------------------------
                                               2002        2001     2000(2)      1999     1998(1)
                                             ---------   --------   --------   --------   --------
                                                AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
                                                                           
SUMMARY STATEMENT OF OPERATIONS DATA:
  Revenue..................................  $ 238,817    254,387    218,273        --     168,500
  Operating, selling, general and
    administrative expenses and stock
    compensation...........................  $(176,056)  (222,321)  (162,216)  (12,160)   (158,810)
  Operating loss...........................  $ (79,489)  (140,969)   (80,889)  (12,183)    (55,415)
  Interest expense.........................  $ (18,530)   (47,477)   (34,843)     (140)    (14,177)
  Share of losses of affiliates(3).........  $ (13,705)  (424,247)    (7,251)       --    (375,053)
  Nontemporary declines in fair values of
    investments(4).........................  $(163,881)   (96,438)    (9,860)       --          --
  Earnings (loss) before cumulative effect
    of accounting change...................  $(238,037)  (602,263)  (116,959)   67,262    (445,266)
  Net earnings (loss)......................  $(343,874)  (602,263)  (116,959)   67,262    (445,266)
  Basic and diluted earnings (loss) per
    common share before cumulative effect
    of accounting change...................  $   (6.33)    (15.41)     (4.44)     9.67      (65.75)
  Basic and diluted earnings (loss) per
    common share...........................  $   (8.77)    (15.41)     (4.44)     9.67      (65.75)




                                                                  DECEMBER 31,
                                             ------------------------------------------------------
                                               2002       2001       2000(2)      1999     1998(1)
                                             --------   ---------   ---------   --------   --------
                                                              AMOUNTS IN THOUSANDS
                                                                            
SUMMARY BALANCE SHEET DATA:
  Cash and cash equivalents................  $ 11,571      33,913     466,617     2,473         --
  Investments in available-for-sale
    securities and other cost investments,
    including securities pledged to
    creditors..............................  $143,858     373,900     361,507   140,101         --
  Current and long-term derivative
    assets.................................  $326,056     203,582     192,080        --         --
  Total assets.............................  $875,219   1,224,897   2,002,771   143,197    463,133
  Debt, including amounts due to parent and
    current portion........................  $423,693     430,136     518,418     3,044         --
  Redeemable preferred stock...............  $202,147     196,027     189,907        --         --
  Stockholders' equity (deficit)...........  $134,853     459,295   1,061,329    64,727     (6,365)


------------------------

(1) Pursuant to a roll-up transaction that was consummated on April 1, 1998,
    LSAT contributed and transferred to PRIMESTAR, Inc. (now known as
    Phoenixstar, Inc.) all of its assets and liabilities except for assets and
    liabilities related to the high power direct broadcast satellite system then
    being constructed by Tempo Satellite, Inc., a wholly-owned subsidiary of the
    Company.

(2) On April 1, 2002, the Company consummated a transaction (the "LSAT LLC and
    Ascent Entertainment Transaction"), whereby the Company acquired from
    Liberty Media (i) certain

                                      II-2

    subsidiaries of Liberty Media that collectively held the 89.41% of Liberty
    Satellite, LLC ("LSAT LLC") not already owned by LSAT and (ii) 100% of the
    capital stock of Ascent Entertainment Group, Inc. ("Ascent Entertainment").
    Due to the fact that the Company, LSAT LLC and Ascent Entertainment are all
    under the common control of Liberty Media, the LSAT LLC and Ascent
    Entertainment Transaction has been accounted for in a manner similar to a
    pooling-of-interests. As such, the Company's consolidated financial
    statements have been restated to include LSAT LLC and Ascent Entertainment
    as wholly-owned subsidiaries of LSAT, effective with the respective
    March 2000 dates that Liberty Media acquired control of such entities.

(3) The 2001 amount includes charges and losses aggregating $417,202,000
    relating to the Company's indirect investment in ASTROLINK International
    LLC.

(4) The 2002 amount includes charges aggregating $105,250,000 to reflect
    nontemporary declines in the fair value of the Company's indirect investment
    in various 10% investees that operate satellite television systems in Latin
    America ("Sky Latin America"). The 2001 amount includes charges aggregating
    $56,483,000 to reflect nontemporary declines in the fair value of the
    Company's indirect investment in Wildblue Communications, Inc.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

RECENT TRANSACTIONS

    LSAT LLC AND ASCENT ENTERTAINMENT TRANSACTION. On August 16, 2001, the
Company entered into two interrelated purchase agreements with Liberty Media and
certain of its subsidiaries and affiliates with respect to the LSAT LLC and
Ascent Entertainment Transaction. Both agreements were amended in November 2001
and January 2002. One agreement provided for the Company's acquisition of
certain subsidiaries of Liberty Media that collectively held the 89.41%
ownership interest in LSAT LLC not already owned by the Company in exchange for
25,298,379 shares of Series B Common Stock of the Company. The second purchase
agreement provided for the Company's acquisition of 100% of the capital stock of
Ascent Entertainment from a subsidiary of Liberty Media in exchange for
8,701,621 shares of Series B Common Stock of the Company. Ascent Entertainment's
primary operating subsidiary is On Command Corporation ("On Command"). The LSAT
LLC and Ascent Entertainment Transaction closed on April 1, 2002. At
December 31, 2002, Liberty Media owned 85.6% of the Company's outstanding common
stock, and 100% of the Company's preferred stock, which ownership interests
collectively represented 97.6% of the overall voting power of the Company's
common and preferred securities.

    As a result of the consummation of the LSAT LLC and Ascent Entertainment
Transaction, the Company became the owner of 100% of the equity interests of
Ascent Entertainment and LSAT LLC. Due to the fact that the Company, LSAT LLC
and Ascent Entertainment are all under the common control of Liberty Media, the
LSAT LLC and Ascent Entertainment Transaction has been accounted for by the
Company in a manner similar to a pooling-of-interests. As such, the consolidated
financial statements of the Company for periods prior to the consummation of the
LSAT LLC and Ascent Entertainment Transaction have been restated to include LSAT
LLC and Ascent Entertainment as wholly-owned subsidiaries of LSAT, effective
with the respective March 2000 dates that Liberty Media acquired control of such
entities.

    As a result of the LSAT LLC and Ascent Entertainment Transaction, LSAT's
primary operating subsidiary is On Command. At December 31, 2002, LSAT, through
its ownership interest in Ascent Entertainment, owned approximately 70% of the
outstanding On Command common stock ("On Command Common Stock") and 100% of
certain series of On Command's preferred stock, which ownership interests
collectively represented approximately 76% of the voting power associated with
On Command's common and preferred securities. Subsequent to December 31, 2002,
the Company's ownership interest in the outstanding On Command Common Stock
increased to approximately 74%, and the Company's overall voting power in On
Command increased to approximately 80%. On Command develops, assembles,
installs, and operates proprietary video systems. On Command's

                                      II-3

primary distribution system allows hotel guests to select, on an on-demand
basis, motion pictures on computer-controlled television sets located in their
hotel rooms. On Command also provides, under long-term contracts, in-room
viewing of select cable channels and other interactive services to hotels and
businesses. The interactive services include video games, Internet offerings,
digital music and various hotel and guest services. At December 31, 2002,
approximately 89% of On Command's equipped rooms were located in the United
States, with the balance located primarily in Canada and Mexico.

    In addition to On Command's operations, the Company pursues strategic
opportunities worldwide in the distribution of Internet data and other content
via satellite and related business. The Company is actively seeking to develop
and/or acquire operating businesses related to, or complementary with, such
strategy.

    SALE OF ASCENT NETWORK SERVICES.  Effective September 4, 2001, Ascent
Entertainment completed the sale of Ascent Network Services to Ascent Media
Group, Inc. (formerly Liberty Livewire Corporation) ("Ascent Media"), a
consolidated subsidiary of Liberty Media, for cash consideration of $32,038,000.
Ascent Network Services provides video distributions services to the NBC
television network and other private networks. As Ascent Entertainment and
Ascent Media are both consolidated subsidiaries of Liberty Media, no gain or
loss was recognized in connection with this transaction.

CRITICAL ACCOUNTING POLICIES

    The preparation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Listed
below are the accounting policies that the Company believes are critical to its
financial statements due to the degree of uncertainty regarding the estimates or
assumptions involved and the magnitude of the asset, liability, revenue or
expense being reported. All of these accounting policies, estimates and
assumptions, as well as the resulting impact to the Company's financial
statements, have been discussed with the Company's audit committee. The
following descriptions of the Company's critical accounting policies with
respect to long-lived assets and goodwill relate primarily to the Company's "On
Command" operating segment, and the descriptions with respect to investments and
derivatives relate primarily to the Company's "Other" operating segment.

    CARRYING VALUE OF LONG-LIVED ASSETS.  In accordance with Statement of
Financial Accounting Standards No. 144, ACCOUNTING FOR THE IMPAIRMENT OR
DISPOSAL OF LONG-LIVED ASSETS, the Company periodically reviews the carrying
amounts of property and equipment and amortizable intangible assets to determine
whether current events and circumstances indicate that such carrying amounts may
not be recoverable. If the carrying amount of the asset is greater than the
expected undiscounted cash flows to be generated by such asset, an impairment
adjustment is to be recognized. Such adjustment is measured by the amount that
the carrying value of such asset exceeds its estimated fair value. The Company
generally measures estimated fair value by considering quoted market prices,
sales prices for similar assets, or by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate the undiscounted cash
flows and fair values of assets. Accordingly, actual results could vary
significantly from such estimates. At December 31, 2002, the Company concluded
that its long-lived assets were not impaired based on an analysis of estimated
undiscounted cash flows. A significant decline in the estimated undiscounted
cash flows of the Company's long-lived assets could cause the Company to
recognize an impairment charge.

    CARRYING VALUE OF GOODWILL.  In accordance with Statement of Financial
Accounting Standards No. 142, ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE
ASSETS ("Statement 142"), the Company evaluates, on at least an annual basis,
the carrying amount of goodwill to determine whether current events and
circumstances indicate that such carrying amount may not be recoverable. To
accomplish

                                      II-4

this, the Company compares the fair value of its assets to their carrying
amounts. If the carrying value of a reporting unit were to exceed its fair
value, the Company would perform the second step of the impairment test. In the
second step, the Company would compare the implied fair value of the reporting
unit's goodwill to its carrying amount and any excess would be charged to
operations. Considerable management judgment is necessary to estimate the fair
values of assets. Accordingly, actual results could vary significantly from such
estimates. At December 31, 2002, the Company concluded that its goodwill was not
impaired based on an assessment of estimated fair values. The fair values used
in such assessment were based on the market price of On Command's Common Stock.

    CARRYING VALUE OF INVESTMENTS.  The Company's cost and equity method
investments comprise a significant portion of its total assets at December 31,
2002 and 2001. The Company accounts for these investments pursuant to Statement
of Financial Accounting Standards No. 115, Statement 142 and Accounting
Principles Board Opinion No. 18. These accounting principles require the Company
to periodically evaluate its investments to determine if decreases in fair value
below its cost bases are other than temporary or "nontemporary." If a decline in
fair value is determined to be nontemporary, the Company is required to reflect
such decline in its consolidated statement of operations. Nontemporary declines
in fair value of cost investments are recognized on a separate line in the
consolidated statement of operations, and nontemporary declines in fair value of
equity method investments are included in share of losses of affiliates in the
consolidated statement of operations.

    The Company considers a number of factors in its determination of whether a
decline in fair value below the cost basis is nontemporary including (i) the
financial condition, operating performance and near term prospects of the
investee; (ii) the reason for the decline in fair value, be it general market,
industry specific or investee specific conditions; (iii) the length of time that
the fair value of the investment is below the Company's carrying value; (iv)
changes in valuation subsequent to the balance sheet date and (v) the Company's
intent and ability to hold the investment for a period of time sufficient to
allow for a recovery in fair value. If the decline in fair value is deemed to be
nontemporary, a new cost basis of the security is established at the then
estimated fair value. In situations where the fair value of an asset is not
evident due to a lack of public market price or other factors, management uses
its bests estimates and assumptions to arrive at the estimated fair value of
such an asset. The Company's assessment of the foregoing factors pursuant to
this accounting policy involves a high degree of judgment and includes
significant estimates and assumptions.

    The Company's evaluation of the fair value of its investments and any
resulting impairment charges are determined as of the most recent balance sheet
date. Changes in fair value subsequent to the balance sheet date due to the
factors described in the preceding paragraph are possible. Subsequent decreases
in fair value will be recognized in the Company's statement of operations in the
period in which they occur to the extent such decreases are deemed to be
nontemporary. Subsequent increases in fair value will be recognized in the
Company's consolidated statement of operations upon disposition of the
investment.

    ACCOUNTING FOR DERIVATIVE INSTRUMENTS.  The Company uses various derivative
instruments, including equity collars and put spread collars, to manage fair
value risk associated with certain of its investments. The Company accounts for
these derivative instruments pursuant to Statement of Financial Accounting
Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
("Statement 133"). Statement 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in derivatives designated
as cash flow hedges are recorded in other comprehensive income. Changes in
derivatives designated as fair value hedges and changes in derivatives not
designated as hedges are included in realized and unrealized gains (losses) on
derivative instruments in the statement of operations.

    The Company uses the Black-Scholes model to estimate the fair value of its
derivative instruments. The Black-Scholes model incorporates a number of
variables in determining such fair values, including expected volatility of the
underlying security and an appropriate discount rate. The Company obtains a

                                      II-5

volatility rate from an independent source at the inception of the derivative
instrument based on the expected volatility of the underlying security over the
term of the derivative instrument. The volatility assumption is generally
evaluated annually to determine if it should be adjusted. The Company selects a
discount rate at the inception of the derivative instrument and updates such
rate each reporting period based on an estimate of the discount rate at which
the derivative instrument could be settled. Considerable management judgment is
required in estimating the Black-Scholes variables. Actual results upon
settlement or unwinding of the Company's derivative instruments may differ
materially from these estimates.

    For long-term derivatives, changes in the Company's assumptions regarding
(1) the volatility rates of the underlying securities and (2) the risk free
interest rate would have the most significant impact on the valuation of its
derivatives. Due to the short-term nature of the Company's derivatives (all
expire within 15 months of December 31, 2002), changes in these assumptions
would not have had a significant impact upon the December 31, 2002 valuations.

RESULTS OF OPERATIONS

    As noted above, the Company's consolidated results of operations include
Ascent Entertainment and its majority-owned subsidiary On Command since
March 2000. Accordingly, and unless otherwise noted below, increases in the
Company's revenue and expenses from 2000 to 2001 are due in part to the
inclusion of Ascent Entertainment and On Command for a full year in 2001, as
compared to nine months in 2000.

REVENUE

IN-ROOM ENTERTAINMENT REVENUE

    Revenue from On Command's in-room entertainment services consists primarily
of fees collected from hotels for in-room services provided to hotel guests by
On Command ("room revenue"). Services provided by On Command to hotel guests
include pay-per-view movies and short subjects, free-to-guest programming, video
games, Internet service and digital music. On Command also earns revenue from
the sale of video and music systems to third parties and the sale of video
equipment to hotels, from other sources ("system and equipment sales and other
entertainment revenue"). Total in-room entertainment revenue (comprised of room
revenue, and system and equipment sale and other entertainment revenue)
decreased $1,012,000 or less than one percent during 2002 and increased
$38,993,000 or 19.5% during 2001.

    Net room revenue decreased $1,616,000 or less than 1% during 2002, as
compared to 2001. The decrease in net room revenue during 2002 is primarily
attributable to the net effect of (i) a decrease attributable to a lower volume
of pay-per-view buys; (ii) an increase attributable to higher average rates for
certain pay-per-view products; and (iii) a $4,428,000 increase in the aggregate
revenue derived from short subject, digital music and television-based Internet
products. On Command believes that most of the decrease in pay-per-view buys is
attributable to a decline in occupancy rates, as further discussed below. A 3.3%
reduction in the average number of rooms served by On Command during 2002 also
contributed to the decrease in pay-per-view buys. The decline in the average
number of rooms served by On Command is attributable to (i) the disposition of
certain hotel rooms; (ii) the loss of rooms to competitors; and (iii) the
discontinuance of service to certain non-profitable hotels.

    Overall hotel occupancy rates declined 1.0% during 2002, as compared to
2001. In addition, occupancy rates for hotels in the top 25 markets, as defined
by Smith Travel Research, declined 1.8% over the same period. Since On Command
derives a significant portion of its revenue from hotels located in the top 25
markets, On Command believes that the occupancy rate for this segment is the
best indicator of the impact changes in hotel occupancy are having on On
Command's business. Hotel occupancy rates are outside of On Command's control,
and changes in hotel occupancy rates can have a significant impact on On
Command's results of operations.

                                      II-6

    During 2002, hotels owned, managed or franchised by Marriott
International, Inc. ("Marriott"), Hilton Hotels Corporation ("Hilton"), Six
Continents Hotels, Inc. ("Six Continents"), Hyatt Hotel Corporation ("Hyatt"),
and Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") accounted for 30%,
16% 12%, 7% and 7%, respectively, of On Command's net room revenue. Accordingly,
hotels owned, managed or franchised by On Command's five largest hotel chain
customers accounted for 72% of On Command's total net room revenue during 2002.
The loss of any of these hotel chain customers, or the loss of a significant
number of other hotel chain customers, could have a material adverse effect on
On Command's results of operations and financial condition.

    As further discussed below, the Hilton master contract has expired, and
Hilton has signed a new master contract with a competitor of On Command. In
addition, On Command does not have master contracts with either Starwood or Six
Continents, and the Hyatt master contract provides for the simultaneous
expiration of On Command's contractual relationships with all of the individual
hotels that are subject to the Hyatt master contract as of December 31, 2004. At
December 31, 2002, On Command provided entertainment services to approximately
178,000 rooms in hotels that are owned, managed or franchised by Starwood or Six
Continents. Agreements with respect to approximately 54% of such Starwood and
Six Continents rooms have already expired, or will expire by December 31, 2004.
At December 31, 2002, approximately 39,000 or 61% of On Command's Starwood rooms
were located in Sheraton or Four Points hotels that, depending on whether such
hotels are owned, managed or franchised by Starwood, may be covered by a master
contract with a competitor of On Command upon the expiration of such hotels'
contracts with On Command. On Command is actively pursuing master agreements
with Hyatt and Six Continents, and with Starwood with respect to the Starwood
brands that are not already covered by a competitor's contract. In certain
cases, On Command is also pursuing direct contractual relationships with
individual hotels that are owned, managed or franchised by these hotel chains.
No assurance can be given that On Command will be successful in executing master
or individual hotel contracts. Due to the significant cost involved in changing
the proprietary video equipment installed in hotels, On Command expects that,
regardless of the expiration dates of master contracts or individual contracts
with hotels, On Command will continue to be the provider of in-room
entertainment services for individual hotels that are not under contract until
such time as a competitor's equipment can be installed. For this and other
reasons, On Command does not anticipate that it will cease earning revenue from
all of its Hyatt rooms on December 31, 2004 in the event that a new master
contract has not been executed by that date.

    In October 2000, Hilton announced that it would not be renewing its master
contract with On Command. As a result, hotels owned, managed or franchised by
Hilton are currently subject to a master contract between Hilton and a
competitor of On Command. Accordingly, On Command anticipates that hotels owned
by Hilton will not renew their contracts as they expire. On the other hand,
hotels that are managed or franchised by Hilton are not precluded from renewing
their contracts with On Command, and, although no assurance can be given, On
Command anticipates that certain of those hotels will choose to renew. At
December 31, 2002, On Command provided service to approximately 126,200 rooms in
534 hotels that are owned, managed or franchised by Hilton. The majority of
these rooms are located in managed or franchised hotels that are not owned by
Hilton. Through December 31, 2002, On Command's contracts with 71 of the
aforementioned 534 hotels (20,400 rooms) had expired and service to these hotels
is currently provided under monthly or other short-term renewals. On Command's
individual contracts with the remaining 463 Hilton hotels (105,800 rooms) expire
at various dates through 2010, with 56% of those rooms expiring by 2005. During
2002, On Command entered into new contracts, or renewed existing contracts, with
respect to 7,000 rooms that were franchised by Hilton, and 2,600 rooms that were
managed by Hilton. Over time, On Command anticipates that the revenue it derives
from hotels that are owned, managed or franchised by Hilton will decrease.
However, due to the uncertainties involved, On Command is currently unable to
predict the amount and timing of the revenue decreases.

                                      II-7

    The Company's consolidated financial statements reflect an increase in
in-room entertainment revenue from 2000 to 2001 due to the inclusion of On
Command's operating results for only nine months during the 2000 period.
However, On Command's in-room entertainment revenue actually decreased by 9.8%
from 2000 to 2001 on a full-year basis. Such full-year decrease represents the
net effect of (i) a lower volume of pay-per-view buys; (ii) an increase
attributable to higher average rates for certain pay-per-view products; (iii) a
decrease associated with the inclusion of non-recurring license fee revenue in
the full year 2000 amount; and (iv) an increase in the aggregate revenue derived
from short subject, television-based Internet and other new products. On Command
believes that most of the decrease in pay-per-view buys is due to a decline in
occupancy rates. Hotel occupancy rates declined 5.7% during 2001, as compared to
2000. In addition, occupancy rates for hotels in the top 25 markets, as defined
by Smith Travel Research, declined 7.8% over the same period.

OTHER REVENUE

    Other revenue is primarily comprised of revenue generated by Ascent Network
Services during the 2001 and 2000 periods. Ascent Entertainment sold Ascent
Network Services to Ascent Media on September 4, 2001.

OPERATING COSTS

IN-ROOM ENTERTAINMENT OPERATING COSTS

    In-room entertainment operating costs consist primarily of fees paid to
movie and other content providers, hotel commissions, direct costs associated
with On Command's television-based Internet product, costs associated with video
and music systems sold to third parties, costs associated with the repair,
maintenance and support of video systems and other room service equipment, and
costs associated with research and development activities.

    In-room entertainment operating costs decreased $9,100,000 or 5.8% during
2002, as compared to 2001. Such decrease represents the net effect of (i) a
decrease associated with certain changes to On Command's operational structure
and other cost savings measures, including the outsourcing of certain call
center and warehouse management functions; (ii) a $4,083,000 increase in
free-to-guest programming costs; (iii) a $2,074,000 reduction in Internet direct
costs; (iv) a $1,783,000 increase in hotel commissions; (v) a $1,329,000
decrease attributable to the third quarter 2002 reversal of accruals deemed no
longer needed for their originally intended purpose, and (vi) various other
individually insignificant items. The increase in free-to-guest programming
costs is primarily the result of higher rates from programming suppliers.
Certain of On Command's content fees and other in-room service costs do not vary
with room revenue and occupancy rates.

    The Company's consolidated financial statements reflect an increase in
in-room entertainment operating costs from 2000 to 2001 due to the inclusion of
On Command's operating results for only nine months during the 2000 period.
However, On Command's in-room entertainment operating costs actually decreased
by 4.8% from 2000 to 2001 on a full-year basis. Such full-year decrease
represents the net effect of (i) reductions in hotel commissions, license fee
royalties and video duplication and distribution costs; (ii) increases in
free-to-guest programming costs; and (iii) increases in the direct costs
associated with On Command's television-based Internet and short subject
products. Such increases and decreases include an overall net decrease resulting
from the disposition of On Command's Asian operations during the first quarter
of 2001. The decreases in hotel commissions and license fee royalties on a
full-year basis are largely the result of decreases in corresponding revenue
amounts.

    On Command is a party to various agreements with programming suppliers that
permit On Command to distribute movies and programming networks. On Command
expects that the cost of such movies and programming networks will increase in
future periods as contracts expire and renewals are

                                      II-8

negotiated. Certain of On Command's contracts with hotel customers limit the
amount of any cost increases that can be passed on to any such hotels. Any cost
increases that On Command is not able to pass on to its customers would result
in increased pressure on On Command's operating margins.

OTHER OPERATING COSTS

    Other operating costs are primarily comprised of costs incurred by Ascent
Network Services during the 2001 and 2000 periods. Ascent Entertainment sold
Ascent Network Services to Ascent Media on September 4, 2001.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE

    Selling, general and administrative expense decreased $30,811,000 or 51.9%
during 2002, as compared to 2001. Costs associated with On Command's 2001
relocation and restructuring activities, together with the cost savings that
resulted from such activities, accounted for approximately $15,000,000 of such
decrease. The remaining decrease is attributable to other reductions in the
selling, general and administrative expenses incurred by Ascent Entertainment.
Such other reductions in Ascent Entertainment expenses are primarily
attributable to (i) the elimination of expenses as a result of the September 4,
2001 sale of Ascent Network Services to Ascent Media and (ii) the inclusion of
$7,746,000 in the 2001 amount related to Ascent Entertainment's 2001 repurchase
of 2,245,155 shares of On Command Common Stock from the then chief executive
officer of On Command.

    Selling, general and administrative expenses increased $33,426,000 or 128.7%
from 2000 to 2001. Such increase is due to increases in Ascent Entertainment's
expenses as a result of (i) the inclusion of Ascent Entertainment in the
Company's consolidated financial statements for a full 12 month in 2001, as
compared to nine months in 2000; (ii) an $8,236,000 increase in On Command's
relocation and restructuring costs from 2000 to 2001; and (ii) a $7,746,000
increase in the 2001 amount related to Ascent Entertainment's 2001 repurchase of
2,245,155 shares of On Command Common Stock from the then chief executive
officer of On Command.

STOCK COMPENSATION

    LSAT records estimated stock compensation pursuant to the intrinsic value
method of Accounting Principles Board Opinion No. 25. Such estimate is subject
to future adjustment based upon the market value of the underlying common stock.
Since none of LSAT's outstanding stock appreciation rights ("SARs") were
in-the-money at December 31, 2002 or 2001, LSAT recorded no compensation expense
with respect to SARs during 2002 and 2001. The adjustment to stock compensation
expense in 2000 is the result of a decrease in the Company's liability for SARs.
The stock compensation expense recorded during 2002 and 2001 is attributable to
restricted stock awards granted in February 2001.

DEPRECIATION AND AMORTIZATION

    Depreciation and amortization decreased $38,926,000 or 22.6% during 2002, as
compared to 2001. Such decrease in depreciation and amortization is primarily
the result of the Company's adoption of Statement 142, which, among other
things, required the Company to cease recording goodwill amortization effective
January 1, 2002. Depreciation remained relatively constant during the 2002 and
2001 periods as reductions to On Command's depreciable asset base attributable
to (i) assets becoming fully depreciated, and (ii) asset dispositions were
largely offset by increases attributable to capital expenditures.

    Depreciation and amortization increased $37,014,000 or 27.4% during 2001, as
compared to 2000. The majority of such increase is attributable to the inclusion
of Ascent Entertainment in the Company's consolidated financial statements for a
full 12 months in 2001, as compared to nine months in 2000. The application of
purchase accounting in connection with the March 2000 acquisition of Ascent

                                      II-9

Entertainment also contributed to the increase. On a full-year basis, the
depreciation incurred by On Command during 2001 and 2000 remained relatively
constant.

ASSET IMPAIRMENTS AND OTHER CHARGES

    On Command recorded impairment charges of $8,850,000 during 2002, including
a loss of $5,103,000 relating to the sale of its European operations, and a loss
of $1,411,000 relating to a transaction in which certain equipment was
transferred to STSN, Inc. On Command also recorded other charges aggregating
$2,336,000, $709,000 and $1,634,000 during 2002, 2001 and 2000 respectively,
related to obsolete materials and equipment, and losses on various dispositions
of property and equipment and other assets.

INTEREST INCOME

    The Company recognized interest income of $2,174,000, $12,967,000 and
$21,066,000 during 2002, 2001 and 2000, respectively. The 2002 income was earned
primarily on certain bonds that were purchased by LSAT LLC in August 2001. Such
bonds are included with the Company's investment in Sky Latin America. The 2001
and 2000 income was earned primarily on the cash and cash equivalent balances
maintained by Ascent Entertainment and LSAT Astro LLC ("LSAT Astro"), a
subsidiary of the Company. The majority of Ascent Entertainment's cash and cash
equivalent balances were utilized to redeem the Ascent Entertainment Senior
Secured Discount Notes on December 31, 2001, and all of LSAT Astro's cash and
cash equivalent balances were utilized to fund the capital calls during 2001 and
2000 of ASTROLINK International LLC ("Astrolink"), LSAT Astro's 31.5%-owned
investee.

INTEREST EXPENSE

    During 2002, 2001 and 2000, the Company recognized interest expense of
$18,530,000, $47,477,000 and $34,843,000, respectively. The decrease in interest
expense from 2001 to 2002 represents the combined effect of a decrease in the
Company's weighted average debt balance and a decrease in interest rates. The
reduction in the Company's weighted average debt balance is primarily due to the
December 31, 2001 redemption of the Ascent Entertainment Senior Secured Discount
Notes. The increase in interest expense from 2000 to 2001 is primarily due to
the inclusion of Ascent Entertainment in the Company's consolidated financial
statements for a full 12 months in 2001, as compared to nine months in 2000.

SHARE OF LOSSES OF AFFILIATES

    During 2002, 2001 and 2000, the Company's share of losses of affiliates
aggregated $13,705,000, $424,247,000 and $7,251,000, respectively. The 2002
amount is primarily related to losses arising from LSAT LLC's investment in
Aerocast.com, Inc. ("Aerocast"). In 2002, LSAT LLC determined that its
investment in Aerocast experienced a nontemporary decline in value that resulted
in a $7,072,000 write-off of the remaining carrying value of its investment in
Aerocast. Such write-off is included in LSAT LLC's share of Aerocast's 2002
losses. The 2001 amount includes $417,202,000 of losses and charges arising from
LSAT Astro's investment in Astrolink. Due to the Company's fourth quarter 2001
determination that LSAT Astro's investment in Astrolink should be reduced to a
fair value that assumes the liquidation of Astrolink, LSAT Astro wrote-off its
remaining $249,868,000 investment in Astrolink during the fourth quarter of
2001. Previously, the Company had taken a $155,000,000 writedown on this
investment during the second quarter of 2001. Since LSAT Astro's investment in
Astrolink was reduced to zero at December 31, 2001, LSAT Astro's share of
Astrolink's losses in 2002 has been limited to the amounts loaned to Astrolink
by the Company during 2002. Subsequent to December 31, 2002, the Company entered
into an agreement that, among other matters, provides for the recapitalization
of Astrolink, subject to certain conditions. The 2000 amount includes the

                                     II-10

Company's share of Astrolink's losses for 10 months, and the Company's share of
Aerocast's losses for 6 months.

NONTEMPORARY DECLINES IN FAIR VALUES OF INVESTMENTS

    Nontemporary declines in fair values of investments aggregated $163,881,000,
$96,438,000 and $9,860,000 during 2002, 2001 and 2000, respectively, and are
comprised of the following.



                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                           
Sky Latin America...........................................  $105,250        --        --
Sprint Corporation PCS Group................................    21,511        --        --
Loral Space and Communications Ltd..........................    17,384        --        --
STSN, Inc...................................................     6,060    16,539        --
Wildblue Communications, Inc................................        --    56,483        --
XMSR Satellite Holdings, Inc................................     1,626    14,575        --
Other.......................................................    12,050     8,841     9,860
                                                              --------    ------     -----
                                                              $163,881    96,438     9,860
                                                              ========    ======     =====


UNREALIZED GAINS (LOSSES) ON FINANCIAL INSTRUMENTS

    Unrealized gains (losses) on financial instruments during 2002, 2001 and
2000 aggregated $2,393,000, $38,891,000 and ($14,426,000), respectively. The
details of such gains (losses) are as follows:



                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                           
Change in fair value of GM Hughes put spread collar.........  $ 5,259      9,748      4,997
Change in time value of Sprint PCS Stock and XMSR equity
  collars...................................................     (302)    25,902         --
Change in fair value of iBEAM put option....................   (2,564)     3,241    (19,423)
                                                              -------     ------    -------
                                                              $ 2,393     38,891    (14,426)
                                                              =======     ======    =======


    During 2002 and 2001, the Company had designated its equity collars as fair
value hedges. Pursuant to Statement 133, the equity collars were recorded on the
balance sheet at fair value, and changes in the fair value of the equity collars
and of the hedged security were recognized in earnings. Effective December 31,
2002, the Company elected to no longer designate its equity collars as fair
value hedges. This election had no impact on the Company's financial position or
results of operations on December 31, 2002. However, subsequent to December 31,
2002, changes in the fair value of the hedged securities that previously had
been reported in earnings will now be reported as a component of other
comprehensive income on the Company's balance sheet. Changes in the fair value
of the equity collars will continue to be reported in earnings.

LOSS ON EXTINGUISHMENT OF DEBT

    The $14,322,000 loss on extinguishment of debt during 2001 resulted from the
December 31, 2001 redemption of the Ascent Senior Secured Discount Notes.

GM HUGHES STOCK TRANSACTIONS

    In May 2000, the Company sold 2,400,000 shares of General Motors Corporation
Class H common Stock ("GM Hughes Stock") for net cash proceeds of $74,243,000
and used $65,721,000 of such net

                                     II-11

cash proceeds to satisfy a GM Hughes Stock share appreciation right. The
$36,643,000 gain recognized by the Company on the sale of GM Hughes Stock was
more than offset by the $65,721,000 loss recognized on the satisfaction of the
GM Hughes Stock share appreciation right.

INCOME TAXES

    The Company recognized income tax benefits of $35,621,000, $35,652,000 and
$28,450,000 during 2002, 2001, and 2000, respectively. The 2002 benefit includes
a $5,666,000 tax refund received by LSAT as a result of a change in tax law that
occurred during the first quarter of 2002. Such change resulted in the
elimination of restrictions on the use of net operating loss carryforwards to
offset alternative minimum tax liabilities. The 2002, 2001 and 2000 income tax
benefits also include deferred tax benefits associated with losses recognized by
the Company. The Company has recognized such losses to the extent that the tax
effect of such losses offsets the Company's deferred income tax liability. At
December 31, 2002, the Company's deferred tax liability was $14,558,000. The
Company is only able to recognize income tax benefits for financial reporting
purposes to the extent that such benefits offset recorded income tax liabilities
or the Company generates taxable income. In connection with the consummation of
the LSAT LLC and Ascent Entertainment Transaction, LSAT and Liberty Media
entered into a Tax Liability Allocation and Indemnification Agreement, and LSAT
assumed an intercompany tax liability owed by Ascent Entertainment to Liberty
Media pursuant to a separate Tax Liability Allocation and Indemnification
Agreement. Since April 1, 2002, the Company and its 80%-or-more owned
subsidiaries have been included in Liberty Media's consolidated tax return.

MINORITY INTERESTS IN LOSSES OF CONSOLIDATED SUBSIDIARIES

    The minority interests' share of losses of consolidated subsidiaries
aggregated $165,000, $34,346,000 and $15,078,000 during 2002, 2001, and 2000,
respectively. Such amounts primarily represent the minority interests' share of
On Command's net losses. The decrease from 2001 to 2002 is primarily
attributable to a change in how On Command's losses are allocated between Ascent
Entertainment and the minority interest holders. During the first quarter of
2002, the cumulative losses allocated by Ascent to the On Command minority
interests reduced to zero Ascent's carrying amount for the minority interests in
On Command's equity. Since the On Command minority interest holders have no
obligation to make further contributions to On Command, 100% of On Command's
losses for periods subsequent to March 31, 2002 have been, and will be in future
periods, allocated to Ascent unless and to the extent that the On Command
minority interest holders make additional investments in On Command's equity.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

    Pursuant to the transitional provisions of Statement 142, the Company
recorded a $105,837,000 reduction of goodwill in 2002. Such goodwill was
originally recorded in connection with the March 2000 Ascent Entertainment
acquisition. In accordance with Statement 142, this goodwill reduction has been
recorded as the cumulative effect of an accounting change.

NET LOSS

    As a result of the factors described above, the Company incurred net losses
of $343,874,000, $602,263,000 and $116,959,000 during 2002, 2001 and 2000,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

    LSAT is a holding company that does not generate positive cash flow at the
LSAT level. The only subsidiary of LSAT that generates significant revenue is On
Command. Due to covenant restrictions contained in the On Command Revolving
Credit Facility, LSAT is generally not entitled to the cash

                                     II-12

resources or cash generated by the operations of On Command. The sources of
liquidity available to LSAT at the LSAT level are described below.

    On a consolidated basis, the Company used cash provided by operating
activities of $62,820,000, cash and cash equivalents on hand of $22,342,000 and
cash provided by financing activities of $4,777,000 to fund investing activities
of $89,939,000 during 2002. The Company's investing activities included
$54,397,000 of capital expenditures and $31,304,000 of investments and advances
to affiliates.

    LSAT LLC's revolving credit facility, as amended, (the "PCS Loan Facility")
provides for maximum borrowings of $303,000,000. The PCS Loan Facility is
secured by the Company's interest in the Sprint Corporation PCS Group common
stock ("Sprint PCS Stock") and the Sprint PCS Stock equity collar. Interest
accrues at the 30 day LIBOR (1.44% at December 31, 2002) and is payable monthly.
The Company expects that all amounts due under the PCS Loan Facility will be
repaid in April 2003 with proceeds received upon the sale of its Sprint PCS
Stock and the settlement of its interests in the Sprint PCS Stock equity collar.

    In March 2000, LSAT received a 13.99% ownership interest in LSAT Astro in
exchange for a $60,000,000 note payable to Liberty Media. Interest on the note
accrued at the 3 month LIBOR plus 2% (3.74% at December 31, 2002). Interest
payments were due semi-annually on the first day of March and September. At
December 31, 2002, the unpaid principal on the note was $48,411,000 and the
accrued interest on the note was $614,000. All amounts due under the note
payable to Liberty Media were repaid in March 2003.

    In August 2002, the LSAT Board of Directors authorized the Company's
purchase of up to 3,000,000 of Series A and Series B Common Stock in open market
purchases. The timing of purchases, prices paid and actual number of shares of
common stock purchased will depend on market conditions and the direction of
management. During 2002, LSAT purchased 24,900 shares of Series A Common Stock
for aggregate cash consideration of $53,000 pursuant to this share buy back
program.

    In March 2000, LSAT issued 150,000 shares of Series A Preferred Stock, and
150,000 shares of Series B Preferred Stock to Liberty Media in exchange for
shares of Sprint PCS Stock. On the date of issuance, each such series of
preferred stock had an aggregate stated value of $150,000,000. The Series A
Preferred Stock and Series B Preferred Stock, which were each issued at a
discount to their stated values, are redeemable at the option of Liberty Media
on or after April 1, 2020 at a price equal to stated value plus all accrued and
unpaid dividends. The Company may elect to use cash, Series A Common Stock or a
combination thereof to satisfy such dividend requirements through March 2003.
Subsequent to March 31, 2003, dividends are required to be paid in cash. During
2002, the Company issued 4,320,277 shares of Series A Common Stock, and paid
$7,500,000 in cash, in satisfaction of dividends accrued through September 30,
2002. Accrued and unpaid dividends on the Series A Preferred Stock and Series B
Preferred Stock aggregated $7,500,000 as of December 31, 2002. Such accrued
dividends were satisfied through the issuance of 3,221,787 shares of Series A
Common Stock during the first quarter of 2003.

    During the year ended December 31, 2001 and the three months ended
March 31, 2002, Liberty Media loaned $18,552,000 and $6,573,000, respectively,
to LSAT LLC. LSAT LLC used the proceeds from these loans to fund capital calls
from Sky Latin America. The loans provided for interest at 8% per annum and were
due and payable on demand after November 27, 2001. Concurrently, with the
closing of the LSAT LLC and Ascent Entertainment Transaction, (i) Liberty Media
contributed to the Company, as part of that transaction and for no additional
consideration, promissory notes issued by subsidiaries of Liberty Media, with an
aggregate principal balance of $18,552,000 and related accrued interest of
$651,000, representing the loans described above that were made through
December 31, 2001, and (ii) LSAT LLC repaid principal of $6,573,000 and accrued
interest of $37,000 related to the first quarter 2002 advances.

                                     II-13

    During the second quarter of 2002, LSAT signed a non-binding letter of
intent with the other Astrolink members in connection with the proposed
restructuring of Astrolink. In January 2003, the Company announced that it had
reached agreement with the other members of Astrolink in connection with such
proposed restructuring (the "Astrolink Restructuring"). Under the agreement (the
"Astrolink Restructuring Agreement"), the Company will acquire substantially all
of the assets of Astrolink. Astrolink simultaneously signed agreements with
Lockheed Martin Corporation and Northrop Grumman Space & Mission Systems Corp.
for completion of two satellites. The parties also reached agreement on the
settlement of all claims related to the previous termination of Astrolink's
major procurement contracts and all other major third party creditor claims. The
closing of the Company's acquisition of the Astrolink business is subject to the
Company obtaining satisfactory funding for the business from additional
investors, third party sources of financing, or firm capacity commitments from
prospective customers. The closing is also subject to regulatory approvals and
other closing conditions. Subject to satisfaction of these closing conditions,
the closing is expected to occur on or before October 31, 2003.

    If the closing occurs, the Company will pay approximately $43 million in
cash and will issue approximately $3 million in value of Series A Common Stock
as total consideration for the Astrolink assets, including certain existing
satellite and launch contracts, and the settlement of all claims against
Astrolink. In addition, the Company will provide additional interim funding for
Astrolink pending closing. If the transactions are consummated, Liberty Media
will make a capital contribution to the Company in an amount equal to 10% of the
estimated fair value of Liberty Media's equity holdings in the Company at the
time of closing, up to a maximum commitment of $55 million, in exchange for
shares of the Company's Series B Common Stock.

    The Company currently plans to pursue a revised operating plan for the new
Astrolink system, taking into account financial and market factors. The revised
operating plan currently contemplates launching Ka-band satellites to provide
enterprise customers in North America with virtual private networks and related
advanced services, and to provide various government agencies with a solution to
their expanding needs for bandwidth.

    In the event the Astrolink Restructuring is not consummated due to lack of
financing or other closing conditions, the Company anticipates that Astrolink
will be liquidated and the Company will receive $7.8 million dollars as
prescribed in the Astrolink Restructuring Agreement.

    In December 2002, the Company announced that it has agreed to increase its
investment in Wildblue Communications, Inc. ("Wildblue"). Currently, the Company
has an approximate 16% ownership interest in Wildblue. Under the new agreement,
the Company will invest $58 million in return for senior preferred stock and
warrants of Wildblue. As also agreed, other existing and new investors will
invest $98 million in Wildblue for a total new investment of $156 million. Upon
closing of the transaction, of which no assurance can be given, the Company will
be the largest shareholder with an ownership interest of approximately 32% and a
voting interest of approximately 37%. The closing of the transaction is subject
to certain conditions, and is expected to occur in the second quarter of 2003.
Assuming the Wildblue transaction is consummated as described above, of which no
assurance can be given, Wildblue currently expects to launch its satellite in
the fourth quarter of 2003 and begin providing broadband data services in the
second or third quarter of 2004.

    In connection with the aforementioned additional investment in Wildblue, the
Company entered into a put agreement with KPCB Holdings, Inc. ("KPCB"), another
investor in Wildblue. Pursuant to this put agreement and in the event the
parties make additional investments in Wildblue, KPCB will have the right to put
its interest in Wildblue to the Company and another investor in Wildblue for
$10,000,000, the amount KPCB has agreed to invest in Wildblue at the closing of
the Wildblue transaction. The Company and such other investor are each
responsible for $5,000,000 of the aggregate $10,000,000 put obligation. The put
may be exercised at any time within four years from the closing of the Wildblue
transaction.

                                     II-14

    As a result of the consummation of the LSAT LLC and Ascent Entertainment
Transaction, Liberty Media no longer has a direct ownership interest in LSAT
LLC, and has no obligation to provide funding to LSAT LLC. Accordingly, the
primary sources of liquidity expected to be available at the LSAT level during
2003 are the (i) proceeds of approximately $149 million received in March 2003
upon the sale of a portion of the Company's Sprint PCS Stock and the settlement
of a portion of its interests in the Sprint PCS Stock equity collar;
(ii) proceeds of approximately $154 million to be received upon the expected
April 2003 sale of the Company's remaining Sprint PCS Stock and settlement of
its remaining interests in the Sprint PCS Stock equity collar; and
(iii) $9,741,000 of cash and cash equivalents held by LSAT at December 31, 2002.
As noted above, the Company has used, or intends to use, approximately
$163 million of such Sprint proceeds to repay in full all amounts due under the
PCS Loan Facility and the note payable to Liberty Media in March and
April 2003. The Company believes that the remaining proceeds of approximately
$140 million, together with the cash and cash equivalents held at the LSAT
level, will be sufficient to fund LSAT's expected cash requirements during 2003,
exclusive of the proposed investment in Astrolink, which investment, as further
described above, will be funded primarily by a capital contribution from Liberty
Media. LSAT's liquidity requirements during 2003 are expected to include
(i) its proposed investment in Wildblue, if consummated; (ii) its preferred
stock dividend requirements; (iii) its capital contributions to Sky Latin
America, and its interim funding commitments to Astrolink. LSAT does not expect
Ascent Entertainment or its principal operating subsidiary, On Command, to
provide any of LSAT's financial resources during 2002. The financial resources
and requirements of On Command are described below.

    At December 31, 2002, the On Command Revolving Credit Facility, as amended
in 2001, provided for aggregate borrowings of $275,000,000. Borrowings under the
On Command Revolving Credit Facility are due and payable in July 2004. On
Command had $13,367,000 of remaining availability under the On Command Revolving
Credit Facility at December 31, 2002. On Command's ability to draw additional
funds under the On Command Revolving Credit Facility is subject to On Command's
continual compliance with applicable financial covenants.

    Revolving loans extended under the On Command Revolving Credit Facility bear
interest at the LIBOR plus a spread that may range from 1.10% to 2.75% depending
on certain operating ratios of On Command (3.94% effective borrowing rate at
December 31, 2002). In addition, a facility fee ranging from 0.15% to 0.50% per
annum is charged on the On Command Revolving Credit Facility, depending on
certain operating ratios of On Command. The On Command Revolving Credit Facility
contains customary covenants and agreements, most notably the inclusion of
restrictions on On Command's ability to pay dividends or make other
distributions, and restrictions on On Command's ability to make capital
expenditures. In addition, On Command is required to maintain leverage and
interest coverage ratios. On Command was in compliance with such covenants at
December 31, 2002. Substantially all of On Command's assets are pledged as
collateral for borrowings under the On Command Revolving Credit Facility.

    At December 31, 2002, the maximum leverage ratio permitted under the On
Command Revolving Credit Facility was 4.25, and On Command's actual leverage
ratio was 3.99. The maximum leverage ratio permitted under the On Command
Revolving Credit Facility at March 31, 2003 is 3.50. Although On Command is in
compliance with the leverage ratio covenant at December 31, 2002, On Command
believes that it would not have been in compliance with such covenant at
March 31, 2003. In March 2003, On Command reached agreement with its bank
lenders to postpone until June 29, 2003 the step-down of the leverage ratio
covenant from 4.25 to 3.50. On Command is also seeking to restructure the On
Command Revolving Credit Facility to, among other matters, extend the maturity
date to December 31, 2007. It is anticipated that any closing of the
restructuring of the On Command Revolving Credit Facility will be contingent
upon the contribution of $40,000,000 by Liberty Media or one of its affiliates
to On Command to be used to repay principle due, and permanently reduce lender
commitments, pursuant to the restructured On Command Revolving Credit Facility.
The terms of the

                                     II-15

proposed Liberty Media contribution (including the securities or other
consideration to be received by Liberty Media or its affiliate in exchange for
such contribution) have not yet been agreed upon, and no assurance can be given
that Liberty Media or its affiliate will contribute $40,000,000 to On Command,
as contemplated by the terms of the proposed restructuring. In the event On
Command determines that it is unlikely that the proposed restructuring of the On
Command Revolving Credit Facility will close on or before June 29, 2003, On
Command anticipates that it would seek a further postponement of the step-down
of the leverage ratio covenant, and would continue to seek to refinance or
restructure the On Command Revolving Credit Facility. In the event that a
restructuring or refinancing is not completed by the date that the leverage
ratio is reduced to 3.50, On Command anticipates that a default would occur
under the terms of the On Command Revolving Credit Facility. Upon the occurrence
of a default, if left uncured, the bank lenders would have various remedies,
including terminating their revolving loan commitment, declaring all outstanding
loan amounts including interest immediately due and payable, and exercising
their rights against their collateral which consists of substantially all of On
Command's assets. No assurance can be given that On Command will be able to
successfully restructure or refinance the On Command Revolving Credit Facility
on terms acceptable to On Command, or that On Command will be able to avoid a
default under the On Command Revolving Credit Facility. In light of the
foregoing circumstances, On Command's independent auditors have included an
explanatory paragraph in their audit report that addresses the ability of On
Command to continue as a going concern.

    In connection with a first quarter 2001 transaction, On Command agreed that
e-ROOM Corporation ("e-ROOM") would have the option during the 15 day period
beginning on March 1, 2003 to cause On Command to repurchase all, but not less
than all, of the 275,000 shares of On Command Common Stock issued to e-ROOM at a
price of $15 per share. During the fourth quarter of 2002, On Command
repurchased 119,500 of such shares for an aggregate price of $1,344,000 or
$11.25 per share. The $448,000 excess of the repurchase obligation, calculated
at $15 per share, over the aggregate price paid to repurchase such shares has
been reflected as a decrease to intangible assets in the accompanying
consolidated balance sheets. In connection with this transaction, the parties
agreed to postpone until March 1, 2004 the date on which On Command can be
required to repurchase 119,500 of the remaining shares subject to repurchase. On
Command is not precluded from repurchasing such shares at an earlier date. The
repurchase price for such shares will be $15 per share, plus an adjustment
factor calculated from March 1, 2003 to the date of repurchase, at a rate of 8%
per annum. Subsequent to December 31, 2002, the date on which the remaining
36,000 shares will first become subject to repurchase by On Command was
postponed until March 1, 2004. The repurchase price for such shares will remain
at $15 per share.

    On February 28, 2001, On Command acquired a controlling interest in the
common stock of Hotel Digital Network, Inc. ("HDN"). In connection with such
acquisition, On Command entered into a stockholders' agreement (the "HDN
Stockholders' Agreement") with the then controlling stockholder of Hotel Digital
Network (the "HDN Stockholder"). The HDN Stockholders' Agreement provides the
HDN Stockholder with the right during each of the 30-day periods beginning on
March 1, 2003 and 2004 to require On Command to exchange shares of On Command
Common Stock for all, but not less than all, of the Hotel Digital Network common
shares held by the HDN Stockholder. On March 20, 2003, the HDN Stockholder
exercised such right. The HDN Stockholders' Agreement also provides On Command
with the right during the 30-day period beginning on March 1, 2006 to require
the HDN Stockholder to exchange all, but not less than all, of his Hotel Digital
Network common shares for shares of On Command Common Stock. The number of
shares of On Command Common Stock to be issued in any such exchanges will be
determined based on the then market value of On Command Common Stock and the
then fair value of Hotel Digital Network common stock, each as determined in
accordance with the HDN Stockholders' Agreement. At December 31, 2002, On
Command held 85.9%, and the HDN Shareholder held 13.3% of the outstanding Hotel
Digital Network common stock. Based on On Command's current assessment of
values, On Command does not expect that the settlement of

                                     II-16

this obligation will have a material impact on its capitalization, financial
condition or results of operations.

    Historically, On Command has required external financing to fund the cost of
installing and upgrading video systems in hotels. However, during 2002 On
Command was able to manage its operations and capital expenditures such that On
Command was able to rely on internally generated funds and existing sources of
liquidity to finance its installation and upgrade activities. During 2003 and
future periods, On Command intends to continue to focus its efforts on
increasing revenue while containing, and wherever possible, reducing expenses
and capital expenditures. Assuming On Command meets its operating and capital
expenditure targets for 2003, On Command expects that it will be able to rely on
cash provided by operations, existing availability under the Revolving Credit
Facility, and existing cash and cash equivalent balances to fund its capital
expenditures and other anticipated liquidity requirements during 2003. On
Command's operating plan for 2003 is based in part on the assumption that hotel
occupancy rates will increase modestly from 2002 to 2003. To the extent that On
Command was to experience a revenue shortfall or any other unfavorable variance
from its 2003 operating plan, On Command would seek to reduce expenses and/or
capital expenditures to compensate for any such shortfall or unfavorable
variance. Accordingly, On Command believes, although no assurance can be given,
that it will not require additional sources of liquidity to fund its capital
expenditures and anticipated liquidity requirements during 2003. Notwithstanding
the foregoing, On Command anticipates that it would require additional external
financing to (i) fund any significant new growth initiatives or unanticipated
liquidity requirements; or (ii) refinance the Revolving Credit Facility, if
necessary (as discussed above). No assurance can be given that On Command will
not be required to seek external financing during 2003, and if external
financing is required, no assurance can be given that any such financing would
be available on terms acceptable to On Command or at all.

    The Company uses equity collars and a put spread collar to hedge market risk
with respect to certain of its publicly traded securities. Although the
Company's equity collars and put spread collar provide protection against market
risk, such derivative instruments may involve elements of credit risk and market
risk in excess of what is recognized in the Company's consolidated financial
statements. The Company monitors its positions and the credit quality of
counterparties, consisting primarily of major financial institutions and does
not anticipate nonperformance by any counterparty.

    Liberty Media International, Inc., ("Liberty International") a subsidiary of
Liberty Media, and other investors in the Sky Latin America businesses have
severally guaranteed obligations due under certain transponder agreements and
equipment lease agreements through 2018. The Company has indemnified Liberty
International with respect to Liberty International's obligations under these
guarantees. At December 31, 2002, the portions of the remaining undiscounted
obligations due under such transponder agreements and equipment lease agreements
that were severally guaranteed by Liberty International aggregated approximately
$107,906,000 and $7,000,000, respectively. During the fourth quarter of 2002,
Globo Comunicacoes e Participacoes ("GloboPar"), an investor in three of the Sky
Latin America entities, announced that it was reevaluating its capital
structure. Since that time, GloboPar has not provided any funding to the three
Sky Latin America entities in which it is an investor. In the case of one such
entity, Sky Multi-Country Partners ("Sky Multi-Country"), the Company and the
other investors in Sky Multi-Country have each entered into a Forbearance
Agreement with respect to Sky Multi-Country's obligations under a Transponder
Services Agreement with PamAmSat Corporation (successor-in-interest to PamAmSat
International, Inc.) ("PamAmSat"). Pursuant to the Forbearance Agreement,
PamAmSat will forbear from enforcing its rights under the Transponder Services
Agreement through April 30, 2003, provided that it receives at least 70% of the
fees due under the Transponder Services Agreement. Through March 15, 2003, the
Company and the other investors in Sky Multi-Country have collectively funded at
least 70% of the fees due under the Transponder Services Agreement. At
December 31, 2002, the aggregate obligations of Sky Multi-Country that were
severally guaranteed by Liberty International were $40,667,000. Sky
Multi-Country

                                     II-17

funds another Sky Latin America entity in which GloboPar is an investor. At
December 31, 2002, the aggregate obligations of this entity that are severally
guaranteed by Liberty International were $7,000,000. In the case of Sky Brasil
Servicos Limitada ("Sky Brasil"), another entity in which GloboPar is an
investor, an investor other than the Company had previously agreed in July 2002
to assume up to $50,000,000 of GloboPar's funding obligations through 2003 in
exchange for increased ownership and governance rights. At December 31, 2002,
the aggregate obligations of Sky Brasil that are severally guaranteed by Liberty
International were $41,360,000. As detailed above, the three entities in which
GloboPar is an investor account for approximately $89,027,000 of the aggregate
obligations guaranteed by Liberty International at December 31, 2002. To the
extent that the Company or other investors do not fully assume GloboPar's
funding obligations, any funding shortfall could lead to defaults under
applicable transponder agreements and equipment lease agreements. With respect
to the equipment lease agreements, default also includes bankruptcy, debt
default, or material adverse change in the business or financial condition of
any guarantor that materially adversely affects the ability of any such
guarantor to perform its obligations under the guarantee. In the event any such
defaults were to occur, the default provisions of the applicable agreements
would determine the ultimate amount to be paid by the Company. The Company
believes that the maximum amount of the Company's aggregate exposure under the
default provisions of the various agreements is not in excess of the
undiscounted remaining obligations guaranteed by the Company, as set forth
above. The Company cannot currently predict if, and to what extent, it will be
required to perform under any of such guarantees.

    In connection with the LSAT LLC and Ascent Entertainment Transaction, the
Company assumed an intercompany income tax liability owed by Ascent
Entertainment to Liberty Media pursuant to a tax liability allocation and
indemnification agreement. At December 31, 2002, the amount owed by Ascent
Entertainment to Liberty Media pursuant to this agreement was $8,409,000. Such
amount, which is non-interest bearing, includes $36,568,000 that is due on
demand to Liberty Media, and $28,159,000 that is payable to the Company by
Liberty Media if, and to the extent, that tax benefits generated by Ascent
Entertainment are utilized to reduce Liberty Media's taxable income.

    Effective September 29, 2000, LSAT LLC acquired a 1% managing common
interest in a joint venture ("IB2 LLC") from a subsidiary of Liberty
Digital, Inc. ("Liberty Digital") for $652,000. Liberty Digital, a consolidated
subsidiary of Liberty Media, retained a preferred interest (the "Preferred
Interest") in IB2 LLC, which owns approximately 360,000 shares of iBEAM
Broadcasting Corp. ("iBEAM") common stock ("iBEAM Stock"). The Preferred
Interest had an initial liquidation value of $64,574,000 and is entitled to a
return of 9%, compounded annually. As part of the transaction, LSAT LLC granted
Liberty Digital the right to put the Preferred Interest to LSAT LLC for a
purchase price equal to $26,000,000 (the value of iBEAM Stock on September 29,
2000) plus a 9% return, compounded annually (the "iBEAM Put Option"). LSAT LLC
has the right to call Liberty Digital's Preferred Interest at a price equal to
the initial liquidation value plus a return of 9%, compounded annually. Both the
iBEAM Put Option and call option are exercisable on September 29, 2008. Under
certain limited circumstances, including iBEAM's bankruptcy, LSAT LLC can force
Liberty Digital to exercise the iBEAM Put Option prior to September 29, 2008.
During the fourth quarter of 2001, iBEAM filed for bankruptcy under Chapter 11
of the Bankruptcy Code. As a result of such bankruptcy filing, the Company began
carrying the iBEAM Put Option liability at an amount ($31,052,000 at
December 31, 2002), which represents the iBEAM Put Option purchase price to LSAT
LLC plus an accrued return to Liberty Digital of 9%, compounded annually. The
Company anticipates that future losses with respect to the iBEAM Put Option will
be limited to Liberty Digital's 9% return on the iBEAM Put Option liability.

                                     II-18

    Information concerning the timing of the Company's required payments due
under various contractual obligations at December 31, 2002 is summarized below:



                                                                       PAYMENTS DUE BY PERIOD
                                                             ------------------------------------------
                                                             LESS THAN    1 TO 3     4 TO 5     AFTER
                                                   TOTAL     ONE YEAR     YEARS      YEARS     5 YEARS
                                                  --------   ---------   --------   --------   --------
                                                                  AMOUNTS IN THOUSANDS
                                                                                
On Command Revolving Credit Facility............  $261,633         --    261,633       --           --
Redeemable preferred stock......................   202,147         --         --       --      202,147
PCS Loan Agreement(1)...........................   112,503    112,503         --       --           --
Note payable to Liberty Media(2)................    48,411     48,411         --       --           --
iBEAM Put Option liability......................    31,052         --         --       --       31,052
Operating leases................................     6,637      3,229      3,005      400            3
Obligation to repurchase On Command Common
  Stock.........................................     2,333         --      2,333       --           --
Capital lease obligations.......................     1,146        833        310        3           --
                                                  --------    -------    -------      ---      -------
Total...........................................  $665,862    164,976    267,281      403      233,202
                                                  ========    =======    =======      ===      =======


------------------------

(1) The Company expects to repay all amounts due under the PCS Loan Agreement in
    April 2003 with proceeds received upon the sale of its Sprint PCS Stock and
    the settlement of its Sprint PCS Stock equity collar.

(2) All amounts due under the note payable to Liberty Media were repaid in
    March 2003.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("Statement 146"). In October 2002,
the FASB issued Statement of Financial Accounting Standards No. 147,
ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, AN AMENDMENT OF FASB STATEMENT
NOS. 72 AND 144 AND FASB INTERPRETATION NO. 9 ("Statement No. 147"). In
December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE--AN
AMENDMENT OF FASB STATEMENT NO. 123 ("Statement No. 148"). The adoption of
Statement Nos. 146, 147 and 148 is not expected to have, a material impact on
the Company's financial condition, results of operations or cash flows.

    In November 2002, the FASB issued FASB Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS, AN INTERPRETATION OF FASB STATEMENTS
NO. 5, 57, AND 107 AND RESCISSION OF FASB INTERPRETATION NO. 34 ("FIN 45"). FIN
45 elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions in FIN
45 are effective for all guarantees issued or modified after December 31, 2002.
The Company does not believe that the implementation of FIN 45 will have a
material impact on its financial position or results of operations.

    In January 2003, the FASB issued FASB Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN
46 addresses consolidation of variable interest entities which have
characteristics described in the pronouncement. In general, if an entity is
considered a variable interest entity ("VIE"), the party that has the most
exposure to economic risks and potential rewards from the VIE is required to
consolidate the VIE. The consolidation requirements of FIN 46 apply to all VIE's
created after January 31, 2003. In addition, by July 1, 2003, the consolidation

                                     II-19

requirements must be applied to all VIE's in existence prior to February 1,
2003. Based on the Company's preliminary analysis, the Company does not believe
that the implementation of FIN 46 will have a material impact on its financial
condition or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    At December 31, 2002, the Company had $422,547,000 of variable-rate
liabilities with a weighted-average interest rate of 3.25%. Accordingly, the
Company is exposed to interest rate risk. To date, the Company has not entered
into any derivative instruments to manage its interest rate exposure. Assuming
no increase or decrease in the amount outstanding, a hypothetical 100 basis
point increase (or decrease) in interest rates at December 31, 2002 would
increase (or decrease) the Company's annual interest expense and cash outflows
by approximately $4,225,000. In March 2003, the Company repaid $48,411,000 of
the outstanding principle amount of its variable-rate liabilities at
December 31, 2002, and the Company expects to repay an additional $112,503,000
in April 2003.

    The Company is exposed to changes in stock prices primarily as a result of
its holdings in publicly traded securities. The Company uses equity collars and
a put spread collar to hedge market risk with respect to certain of its publicly
traded securities. At December 31, 2002, the aggregate fair market value of the
Company's publicly traded securities (excluding the fair value of related hedge
instruments) was $48,532,000 ($22,271,000 of which represents the fair value of
the Sprint PCS Stock). At December 31, 2002, the fair value of the Company's
equity collars was $306,052,000 ($280,559,000 of which represents the fair value
of the Sprint PCS Stock equity collar), and the fair value of the Company's put
spread collar was $20,004,000. At December 31, 2002, the fair market value of
the GM Hughes Stock that is the subject of the put spread collar was
$19,495,000. Among other things, the GM Hughes put spread collar (i) provides
the Company with the right to require a counterparty to purchase shares of GM
Hughes Stock for a weighted average price of $26.64 per share in October 2003;
and (ii) provides a counterparty with the right to require the Company to
repurchase shares of GM Hughes Stock for a weighted average price of $14.80 per
share in October 2003. At December 31, 2002, the per share market value of GM
Hughes Stock was $10.70. In addition, the Company owned $4,076,000 of publicly
traded securities at December 31, 2002 that were not hedged.

    On Command's foreign operations are located primarily in Canada and Mexico.
In addition, the Sky Latin America entities operate satellite television systems
in Mexico, Brazil, Chile and Colombia. The Company has a 10% beneficial interest
in each of the Sky Latin America businesses. The Company believes the risks of
foreign exchange rate fluctuations on its present operations are not material to
the Company's overall financial condition. However, the Company will consider
using foreign currency contracts, swap arrangements, or other financial
instruments designed to limit exposure to foreign exchange rate fluctuations, if
deemed prudent.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

    The financial statements of the Company are filed under this item beginning
on page II-21.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

    None.

                                     II-20

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Liberty Satellite & Technology, Inc.:

    We have audited the accompanying consolidated balance sheets of Liberty
Satellite & Technology, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of operations, comprehensive loss,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Liberty
Satellite & Technology, Inc. and subsidiaries as of December 31, 2002 and 2001,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

    As discussed in Note 2 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, effective January 1, 2002.


                                            
                                               KPMG LLP

Denver, Colorado
February 12, 2003, except as to notes 9 and
21 to the consolidated financial statements,
which are as of March 28, 2003


                                     II-21

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2002 AND 2001



                                                                2002        2001
                                                              ---------   ---------
                                                              AMOUNTS IN THOUSANDS
                                                                    
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  11,571      33,913
  Restricted cash (note 6)..................................      2,690      18,360
  Trade and other receivables, net..........................     33,513      34,060
  Derivative assets (note 7)................................    317,580          --
  Other current assets......................................      3,629       3,193
                                                              ---------   ---------
    Total current assets....................................    368,983      89,526
                                                              ---------   ---------
Investments in affiliates accounted for using the equity
  method (note 5)...........................................         --      12,158
Investments in available-for-sale securities and other cost
  investments, including securities pledged to creditors
  (note 6)..................................................    143,858     373,900
Long-term derivative assets (note 7)........................      8,476     203,582

Property and equipment:
  Video systems.............................................    392,350     410,121
  Support equipment.........................................     12,813      13,716
                                                              ---------   ---------
                                                                405,163     423,837
  Accumulated depreciation..................................   (130,086)   (115,352)
                                                              ---------   ---------
                                                                275,077     308,485
                                                              ---------   ---------
Intangible assets subject to amortization:
  Hotel contracts...........................................    163,000     163,000
  Accumulated amortization..................................   (149,417)    (95,083)
                                                              ---------   ---------
                                                                 13,583      67,917
                                                              ---------   ---------

Intangible assets not subject to amortization--Goodwill
  (note 2)..................................................     52,272     155,191
Other assets................................................     12,970      14,138
                                                              ---------   ---------

    Total assets............................................  $ 875,219   1,224,897
                                                              =========   =========


                                                                     (continued)

                                     II-22

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           DECEMBER 31, 2002 AND 2001



                                                                 2002          2001
                                                              -----------   ----------
                                                                AMOUNTS IN THOUSANDS
                                                                      
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $    28,709       21,042
  Accrued compensation......................................        6,469        5,550
  Sales, use and property tax liabilities...................        4,587        5,158
  Other accrued liabilities.................................        8,567        7,987

  Due to parent (note 4)
    Note payable............................................       48,411       18,552
    Accrued interest........................................          614        1,171
    Other accrued expenses..................................        6,931       14,678
                                                              -----------   ----------
                                                                   55,956       34,401
                                                              -----------   ----------
  Current portion of debt (note 9)..........................      113,336          909
  Securities lending agreement (note 6).....................        2,690       18,360
                                                              -----------   ----------
    Total current liabilities...............................      220,314       93,407
                                                              -----------   ----------
Note payable to parent (note 4).............................           --       48,411
Debt (note 9)...............................................      261,946      362,264
Put option liability due to related party (note 4)..........       31,052       28,488
Deferred tax liability (note 15)............................       14,558       27,169
Other long-term liabilities.................................          495           --
                                                              -----------   ----------
    Total liabilities.......................................      528,365      559,739
                                                              -----------   ----------
Minority interests in equity of consolidated subsidiaries
  (note 10).................................................        9,854        9,836
Redeemable preferred stock (note 11)........................      202,147      196,027

Stockholders' Equity (note 12)
  Preferred stock; authorized 5,000,000 shares; issued
    300,000 shares in 2002 and 2001.........................           --           --
  Series A common stock, $1 par value; authorized
    100,000,000 shares; issued 11,078,834 in 2002 and
    6,753,101 in 2001.......................................       11,079        6,753
  Series B common stock, $1 par value; authorized 70,000,000
    shares; issued and outstanding 34,765,055 in 2002 and
    34,771,828 in 2001......................................       34,765       34,772
  Additional paid-in capital................................    1,981,831    1,980,389
  Accumulated other comprehensive earnings (loss)...........        3,085      (10,650)
  Accumulated deficit.......................................   (1,895,220)  (1,551,346)
                                                              -----------   ----------
                                                                  135,540      459,918
  Series A common stock held in treasury, at cost (27,854
    shares in 2002 and 2,954 shares in 2001) (notes 12 and
    14).....................................................         (378)        (325)
  Notes receivable from officers (note 14)..................         (309)        (298)
                                                              -----------   ----------
    Total stockholders' equity..............................      134,853      459,295
                                                              -----------   ----------
Commitments and contingencies (notes 5, 6, 9, 17 and 18)
    Total liabilities and stockholders' equity..............  $   875,219    1,224,897
                                                              ===========   ==========


          See accompanying notes to consolidated financial statements.

                                     II-23

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                 YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000



                                                                2002        2001       2000
                                                              ---------   --------   --------
                                                                   AMOUNTS IN THOUSANDS,
                                                                 EXCEPT PER SHARE AMOUNTS
                                                                            
Revenue:
  In-room entertainment services............................  $ 238,397    239,409    200,416
  Other.....................................................        420     14,978     17,857
                                                              ---------   --------   --------
                                                                238,817    254,387    218,273
Operating costs and expenses:
  Operating
    In-room entertainment services..........................    147,186    156,286    130,471
    Other...................................................         --      6,378      8,897
  Selling, general and administrative ("SG&A")(notes 4 and
    14).....................................................     28,578     59,389     25,963
  Stock compensation--SG&A (note 13)........................        292        268     (3,115)
  Depreciation and amortization.............................    133,400    172,326    135,312
  Asset impairments and other charges.......................      8,850        709      1,634
                                                              ---------   --------   --------
                                                                318,306    395,356    299,162
                                                              ---------   --------   --------
      Operating loss........................................    (79,489)  (140,969)   (80,889)

Other income (expense):
  Interest income...........................................      2,174     12,967     21,066
  Interest expense--parent (note 4).........................     (2,396)    (3,686)    (3,942)
  Interest expense--other...................................    (16,134)   (43,791)   (30,901)
  Share of losses of affiliates (note 5)....................    (13,705)  (424,247)    (7,251)
  Nontemporary declines in fair values of investments
    (note 6)................................................   (163,881)   (96,438)    (9,860)
  Unrealized gains (losses) on financial instruments, net
    (note 6)................................................      2,393     38,891    (14,426)
  Loss on extinguishment of debt (note 9)...................         --    (14,322)        --
  Gain on sale of GM Hughes Stock (note 6)..................         --         --     36,643
  Loss on GM Hughes Stock share appreciation rights
    (note 6)................................................         --         --    (65,721)
  Other, net................................................     (2,785)      (666)    (5,206)
                                                              ---------   --------   --------
                                                               (194,334)  (531,292)   (79,598)
                                                              ---------   --------   --------

      Loss before income taxes and minority interest........   (273,823)  (672,261)  (160,487)

Income tax benefit (note 15)................................     35,621     35,652     28,450
Minority interest in losses of consolidated subsidiaries
  (note 10).................................................        165     34,346     15,078
                                                              ---------   --------   --------

      Loss before cumulative effect of accounting change....   (238,037)  (602,263)  (116,959)
Cumulative effect of accounting change, net of taxes
  (note 2)..................................................   (105,837)        --         --
                                                              ---------   --------   --------
      Net loss..............................................   (343,874)  (602,263)  (116,959)

Accretion of redeemable preferred stock (note 11)...........     (6,120)    (6,120)    (4,634)
Dividends on redeemable preferred stock (note 11)...........    (30,000)   (30,000)   (23,733)
                                                              ---------   --------   --------

      Net loss attributable to common stockholders..........  $(379,994)  (638,383)  (145,326)
                                                              ---------   --------   --------

Basic and diluted loss per common share before cumulative
  effect of accounting change...............................  $   (6.33)    (15.41)     (4.44)
Cumulative effect of accounting change (note 2).............      (2.44)        --         --
                                                              ---------   --------   --------
Basic and diluted loss per common share.....................  $   (8.77)    (15.41)     (4.44)
                                                              =========   ========   ========


          See accompanying notes to consolidated financial statements

                                     II-24

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                2002        2001       2000
                                                              ---------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                            

Net loss....................................................  $(343,874)  (602,263)  (116,959)
                                                              ---------   --------   --------
Other comprehensive earnings (loss), net of tax:
  Unrealized holding losses on available for sale
    securities..............................................    (17,363)    (6,127)   (34,482)
  Reclassification adjustments for losses (gains) included
    in net loss.............................................     30,076      9,000    (23,070)

  Unrealized gain on share appreciation rights liability....         --         --      2,000
  Reclassification adjustment for losses included in net
    loss....................................................         --         --     40,583

  Foreign currency translation adjustment...................         92      2,077       (631)
  Reclassification adjustment for losses included in net
    loss....................................................        930         --         --
                                                              ---------   --------   --------

    Other comprehensive earnings (loss).....................     13,735      4,950    (15,600)
                                                              ---------   --------   --------

      Comprehensive loss....................................  $(330,139)  (597,313)  (132,559)
                                                              =========   ========   ========


          See accompanying notes to consolidated financial statements

                                     II-25

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                          ACCUMULATED
                                         COMMON STOCK       ADDITIONAL       OTHER                                    TOTAL
                                      -------------------    PAID-IN     COMPREHENSIVE   ACCUMULATED   TREASURY   STOCKHOLDERS'
                                      SERIES A   SERIES B    CAPITAL         LOSS          DEFICIT      STOCK        EQUITY
                                      --------   --------   ----------   -------------   -----------   --------   -------------
                                                                        AMOUNTS IN THOUSANDS
                                                                                             

Balance at January 1, 2000..........   $6,290        846      889,715            --       (832,124)        --          64,727
  Net loss..........................       --         --           --            --       (116,959)        --        (116,959)
  Other comprehensive loss..........       --         --           --       (15,600)            --         --         (15,600)
  Acquisition of Liberty Satellite,
    LLC (note 1)....................       --     25,298      496,615            --             --         --         521,913
  Acquisition of Ascent
    Entertainment Group, Inc.
    (note 1)........................       --      8,702      445,035            --             --         --         453,737
  Cash contributions from parent....       --         --       51,412            --             --         --          51,412
  Reversal of deferred tax asset
    valuation allowance resulting
    from the transactions with
    Liberty Media in 2000
    (note 1)........................       --         --      114,628            --             --         --         114,628
  Accretion and dividends on
    redeemable preferred stock......       --         --      (28,367)           --             --         --         (28,367)
  Issuance of Series A common stock
    for preferred stock dividends...      166         --       16,067            --             --         --          16,233
  Recognition of stock compensation
    related to stock options and
    restricted stock awards, net of
    taxes...........................       --         --           22            --             --         --              22
  Issuance of Series A common stock
    upon exercise of stock
    options.........................        7         --          490            --             --         --             497
  Issuance of common stock related
    to restricted stock awards......       11         --          (11)           --             --         --              --
  Series B common stock exchanged
    for Series A common stock.......       73        (73)          --            --             --         --              --
  Purchase of treasury stock........       --         --           --            --             --       (325)           (325)
  Dividend to related party
    (note 4)........................       --         --         (652)           --             --         --            (652)
  Gain in connection with issuance
    of stock by subsidiary, net of
    taxes...........................       --         --           63            --             --         --              63
                                       ------     ------    ---------       -------       --------       ----       ---------
Balance at December 31, 2000........   $6,547     34,773    1,985,017       (15,600)      (949,083)      (325)      1,061,329
                                       ======     ======    =========       =======       ========       ====       =========
                                                                                                                    (continued)


                                     II-26

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                                     ACCUMULATED
                                    COMMON STOCK       ADDITIONAL       OTHER
                                 -------------------    PAID-IN     COMPREHENSIVE    ACCUMULATED    TREASURY
                                 SERIES A   SERIES B    CAPITAL     EARNING (LOSS)     DEFICIT       STOCK
                                 --------   --------   ----------   --------------   ------------   --------
                                                            AMOUNTS IN THOUSANDS
                                                                                  

Balance at December 31, 2000...  $ 6,547     34,773    1,985,017       (15,600)         (949,083)     (325)
  Net loss.....................       --         --           --            --          (602,263)       --
  Other comprehensive
    earnings...................       --         --           --         4,950                --        --
  Cash contributions from
    parent.....................       --         --       21,970            --                --        --
  Gain in connection with
    issuance of stock by a
    subsidiary, net of taxes...       --         --        2,061            --                --        --
  Accretion and dividends on
    redeemable preferred
    stock......................       --         --      (36,120)           --                --        --
  Issuance of Series A common
    stock for preferred stock
    dividends..................      205         --        7,295            --                --        --
  Recognition of stock
    compensation related to
    restricted stock awards,
    net of taxes...............       --         --          166            --                --        --
  Reclassify notes receivable
    from officers to equity....       --         --           --            --                --        --
  Series B common stock
    exchanged for Series A
    common stock...............        1         (1)          --            --                --        --
                                 -------     ------    ---------       -------        ----------      ----
Balance at December 31, 2001...    6,753     34,772    1,980,389       (10,650)       (1,551,346)     (325)
  Net loss.....................       --         --           --            --          (343,874)       --
  Other comprehensive
    earnings...................       --         --           --        13,735                --        --
  Contribution by Liberty Media
    of intercompany notes
    receivable (note 4)........       --         --       19,203            --                --        --
  Purchase of Series A common
    stock......................       --         --           --            --                --       (53)
  Retirement of fractional
    shares in connection with
    reverse stock split........       --         (1)         (10)           --                --        --
  Series B common stock
    exchanged for Series A
    common stock...............        6         (6)          --            --                --        --
  Accretion and dividends on
    redeemable preferred
    stock......................       --         --      (36,120)           --                --        --
  Issuance of Series A common
    stock for preferred stock
    dividends..................    4,320         --       18,180            --                --        --
  Recognition of stock
    compensation related to
    restricted stock awards,
    net of taxes...............       --         --          178            --                --        --
  Accrual of interest on notes
    receivable from officers...       --         --           11            --                --        --
                                 -------     ------    ---------       -------        ----------      ----
Balance at December 31, 2002...  $11,079     34,765    1,981,831         3,085        (1,895,220)     (378)
                                 =======     ======    =========       =======        ==========      ====


                                   NOTES
                                 RECEIVABLE       TOTAL
                                    FROM      STOCKHOLDERS'
                                  OFFICERS       EQUITY
                                 ----------   -------------
                                    AMOUNTS IN THOUSANDS
                                        
Balance at December 31, 2000...       --        1,061,329
  Net loss.....................       --         (602,263)
  Other comprehensive
    earnings...................       --            4,950
  Cash contributions from
    parent.....................       --           21,970
  Gain in connection with
    issuance of stock by a
    subsidiary, net of taxes...       --            2,061
  Accretion and dividends on
    redeemable preferred
    stock......................       --          (36,120)
  Issuance of Series A common
    stock for preferred stock
    dividends..................       --            7,500
  Recognition of stock
    compensation related to
    restricted stock awards,
    net of taxes...............       --              166
  Reclassify notes receivable
    from officers to equity....     (298)            (298)
  Series B common stock
    exchanged for Series A
    common stock...............       --               --
                                    ----        ---------
Balance at December 31, 2001...     (298)         459,295
  Net loss.....................       --         (343,874)
  Other comprehensive
    earnings...................       --           13,735
  Contribution by Liberty Media
    of intercompany notes
    receivable (note 4)........       --           19,203
  Purchase of Series A common
    stock......................       --              (53)
  Retirement of fractional
    shares in connection with
    reverse stock split........       --              (11)
  Series B common stock
    exchanged for Series A
    common stock...............       --               --
  Accretion and dividends on
    redeemable preferred
    stock......................       --          (36,120)
  Issuance of Series A common
    stock for preferred stock
    dividends..................       --           22,500
  Recognition of stock
    compensation related to
    restricted stock awards,
    net of taxes...............       --              178
  Accrual of interest on notes
    receivable from officers...      (11)              --
                                    ----        ---------
Balance at December 31, 2002...     (309)         134,853
                                    ====        =========


          See accompanying notes to consolidated financial statements.

                                     II-27

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                2002        2001       2000
                                                              ---------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                       (SEE NOTE 3)
                                                                            
Cash flows from operating activities:
  Net loss..................................................  $(343,874)  (602,263)  (116,959)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Stock compensation and restricted stock awards..........        292        268     (3,115)
    Payments for stock compensation.........................         --         --     (2,404)
    Depreciation and amortization...........................    133,400    172,326    135,312
    Asset impairments and other charges.....................      8,850        709      1,634
    Non-cash interest expense...............................         --     22,275     14,921
    Share of losses of affiliates...........................     13,705    424,247      7,251
    Nontemporary declines in fair values of investments.....    163,881     96,438      9,860
    Unrealized losses (gains) on financial instruments......     (2,393)   (38,891)    14,426
    Loss on extinguishment of debt..........................         --     14,322         --
    Gain on sale of GM Hughes Stock.........................         --         --    (36,643)
    Loss on GM Hughes share appreciation rights.............         --         --     65,721
    Deferred income tax benefit.............................    (20,811)   (17,486)   (67,384)
    Minority interest in losses of consolidated
      subsidiaries..........................................       (165)   (34,346)   (15,078)
    Cumulative effect of accounting change, net of taxes....    105,837         --         --
    Other non-cash charges..................................      1,542      4,038      3,773
    Changes in operating assets and liabilities, net of the
      non-cash effect of acquisitions and dispositions:
      Receivables and prepaid expenses......................       (412)     5,503      2,507
      Accruals and payables.................................      2,968    (58,751)    25,646
                                                              ---------   --------   --------
        Net cash provided by (used in) operating
          activities........................................     62,820    (11,611)    39,468
                                                              ---------   --------   --------
Cash flows from investing activities:
  Capital expended for equipment............................    (54,397)   (88,080)   (86,483)
  Investments in and advance to affiliates..................    (31,304)  (230,863)  (200,546)
  Proceeds received upon disposition of assets..............      1,135     31,995    267,661
  Acquisition of minority interest of subsidiary............     (2,921)   (17,455)        --
  Net proceeds from sale of GM Hughes Stock.................         --         --     74,242
  Payment of GM Hughes share appreciation rights............         --         --    (65,721)
  Proceeds received in Liberty 2000 Transactions............         --         --    249,620
  Cash acquired in Ascent Entertainment acquisition.........         --         --     49,317
  Other investing activities................................     (2,452)    (2,857)      (700)
                                                              ---------   --------   --------
        Net cash provided by (used in) investing
          activities........................................    (89,939)  (307,260)   287,390
                                                              ---------   --------   --------
Cash flows from financing activities:
  Borrowings of third-party debt............................     25,020    150,000    324,236
  Repayments of third-party debt............................    (12,862)  (283,891)  (233,494)
  Advances and contributions from parent....................      6,573     49,130     51,412
  Repayments of note payable to parent......................     (6,573)    (6,572)    (5,018)
  Cash payment of preferred stock dividends.................     (7,500)   (22,500)        --
  Other financing activities................................        119         --        150
                                                              ---------   --------   --------
        Net cash provided by (used in) financing
          activities........................................      4,777   (113,833)   137,286
                                                              ---------   --------   --------
        Net increase (decrease) in cash and cash
          equivalents.......................................    (22,342)  (432,704)   464,144
        Cash and cash equivalents--beginning of year........     33,913    466,617      2,473
                                                              ---------   --------   --------
        Cash and cash equivalents--end of year..............  $  11,571     33,913    466,617
                                                              =========   ========   ========


          See accompanying notes to consolidated financial statements.

                                     II-28

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2002, 2001 AND 2000

(1) BASIS OF PRESENTATION

    GENERAL.  Liberty Satellite & Technology, Inc. ("LSAT," and together with
its consolidated subsidiaries, the "Company") has been a consolidated subsidiary
of Liberty Media Corporation ("Liberty Media") since March 16, 2000, when LSAT
issued preferred stock to Liberty Media in exchange for certain assets. On
March 28, 2000, Liberty Media acquired voting control of Ascent Entertainment
Group, Inc. ("Ascent Entertainment"), and on June 8, 2000, Liberty Media
completed its acquisition of Ascent Entertainment pursuant to which Ascent
Entertainment became an indirect wholly-owned subsidiary of Liberty Media.
Ascent Entertainment's primary operating subsidiary is On Command Corporation
("On Command"), which provides in-room, on-demand entertainment and
informational services to hotels, motels and resorts. On April 1, 2002, LSAT
issued 34,000,000 shares of its Series B common stock ("Series B Common Stock")
to Liberty Media in exchange for the 89.41% interest in Liberty Satellite, LLC
("LSAT LLC") not already owned by LSAT, and 100% of the capital stock of Ascent
Entertainment (the "LSAT LLC and Ascent Entertainment Transaction"). The
foregoing transactions are described in greater detail below.

    At December 31, 2002, Liberty Media owned 85.6% of the Company's outstanding
common stock, and 100% of the Company's preferred stock, which ownership
interests collectively represented 97.6% of the overall voting power of the
Company's common and preferred securities. At December 31, 2002, LSAT, through
its ownership interest in Ascent Entertainment, owned approximately 70% of the
outstanding On Command common stock ("On Command Common Stock") and 100% of
certain series of On Commands' preferred stock, which ownership interests
collectively represented approximately 76% of the voting power associated with
On Command's common and preferred securities. Subsequent to December 31, 2002,
the Company's ownership interest in the outstanding On Command Common Stock
increased to approximately 74%, and the Company's overall voting power in On
Command increased to approximately 80%.

    As a result of the consummation of the LSAT LLC and Ascent Entertainment
Transaction, the Company became the owner of 100% of the equity interests of
Ascent Entertainment and LSAT LLC. Due to the fact that LSAT, LSAT LLC and
Ascent Entertainment are all under the common control of Liberty Media, the LSAT
LLC and Ascent Entertainment Transaction has been accounted for in a manner
similar to a pooling-of-interests. As such, the Company's consolidated financial
statements have been restated to include LSAT LLC and Ascent Entertainment as
wholly-owned subsidiaries of LSAT, effective with the respective March 2000
dates that Liberty Media acquired control of such entities.

                                     II-29

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Separate results of operations for LSAT, LSAT LLC and Ascent Entertainment
for the periods prior to the LSAT LLC and Ascent Entertainment Transaction are
as follows:



                                                                  YEARS ENDED
                                              THREE MONTHS       DECEMBER 31,
                                                 ENDED        -------------------
                                             MARCH 31, 2002     2001       2000
                                             --------------   --------   --------
                                                     AMOUNTS IN THOUSANDS
                                                                
REVENUE
LSAT.......................................     $     105          420        445
LSAT LLC...................................            --           --         --
Ascent Entertainment.......................        57,383      253,967    217,828
                                                ---------     --------   --------
Combined...................................     $  57,488      254,387    218,273
                                                =========     ========   ========
NET EARNINGS (LOSS)
LSAT.......................................     $   7,136      (58,261)   (49,200)
LSAT LLC...................................       (13,223)    (419,320)       599
Ascent Entertainment(1)....................      (125,595)    (124,682)   (68,358)
                                                ---------     --------   --------
Combined...................................     $(131,682)    (602,263)  (116,959)
                                                =========     ========   ========


------------------------

(1) Includes Liberty Media purchase accounting adjustments that previously had
    not been "pushed down" to Ascent Entertainment's historical financial
    statements.

    In addition to the Company's interests in On Command and various
investments, the Company is currently pursuing strategic opportunities worldwide
in the distribution of Internet and other content via satellite and related
businesses.

    CONTRIBUTION OF SPRINT PCS STOCK AND FORMATION OF LSAT LLC.  On March 16,
2000, the Company completed two transactions with Liberty Media. Pursuant to the
terms of the first transaction, the Company acquired a beneficial interest in
5,084,745 shares of Sprint Corporation PCS Group common stock ("Sprint PCS
Stock") with an aggregate market value on the closing date of $300,000,000 in
exchange for 150,000 shares of LSAT Series A Preferred Stock with a liquidation
value of $150,000,000 and 150,000 shares of LSAT Series B Preferred Stock
("Series B Preferred Stock") with a liquidation value of $150,000,000. The
shares of Series B Preferred Stock have super voting rights, which gave Liberty
Media voting control over the Company. Accordingly, since March 16, 2000, the
Company has been a consolidated subsidiary of Liberty Media.

    Pursuant to the terms of the second transaction with Liberty Media, the
Company (through its wholly-owned subsidiaries) became the managing member of
two newly formed limited liability companies, LSAT LLC and LSAT Astro LLC ("LSAT
Astro," and together with LSAT LLC, the "LSAT Joint Ventures"). The Company
contributed (i) its beneficial interest in 4,221,921 shares of General Motors
Corporation Class H common stock ("GM Hughes Stock"), subject to a stock
appreciation right, and (ii) other assets to LSAT LLC in exchange for a 10.59%
ownership interest in LSAT LLC. Liberty Media contributed cash and its interests
in various satellite related assets, including an 86.01% ownership interest in
LSAT Astro, to LSAT LLC in exchange for the remaining 89.41% ownership interest
in LSAT LLC. As the Company is a consolidated subsidiary of Liberty Media, all
of the assets contributed by the Company and Liberty Media to the LSAT Joint
Ventures were recorded at their net book values at the date of contribution.

                                     II-30

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    LIBERTY MEDIA'S ACQUISITION OF ASCENT ENTERTAINMENT.  On March 28, 2000,
Liberty Media completed its cash tender offer for the outstanding common stock
of Ascent Entertainment at a price of $15.25 per share. Approximately, 85% of
the outstanding common shares of Ascent Entertainment were tendered in the
offer, and Liberty Media paid approximately $385,000,000. On June 8, 2000,
Liberty Media completed its acquisition of 100% of Ascent Entertainment for an
additional $67,000,000. The total purchase price for the acquisition was
$452,000,000. Liberty Media accounted for such transaction using the purchase
method of accounting. The following pro forma information for the year ended
December 31, 2000 was prepared assuming Liberty Media's acquisition of Ascent
Entertainment had occurred on January 1, 2000. These pro forma amounts are not
necessarily indicative of operating results that would have occurred if the
acquisition of Ascent Entertainment had occurred on January 1, 2000 (amounts in
thousands, except per share amount):


                                                           
Revenue.....................................................  $ 288,309
Net loss....................................................  $(152,597)
Pro forma basic and diluted loss per share..................  $   (4.39)


    LSAT LLC AND ASCENT ENTERTAINMENT TRANSACTION.  On August 16, 2001, the
Company entered into two interrelated purchase agreements with Liberty Media and
certain of its subsidiaries and affiliates with respect to the LSAT LLC and
Ascent Entertainment Transaction. Both agreements were amended in November 2001
and January 2002. One agreement provided for the Company's acquisition of
certain subsidiaries of Liberty Media that collectively held the 89.41%
ownership interest in LSAT LLC not already owned by LSAT in exchange for
25,298,379 shares of Series B Common Stock. The second purchase agreement
provided for the Company's acquisition of 100% of the capital stock of Ascent
Entertainment from a subsidiary of Liberty Media in exchange for 8,701,621
shares of Series B Common Stock. The foregoing transaction closed on April 1,
2002. As noted above, the LSAT LLC and Ascent Entertainment Transaction has been
accounted for in a manner similar to a pooling-of-interests.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
LSAT and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest. All significant
inter-company transactions have been eliminated.

CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.

RECEIVABLES

    Receivables are reflected net of an allowance for doubtful accounts of
$1,087,000 and $1,640,000 at December 31, 2002 and 2001, respectively. The
allowance is based on historical collection trends and management's judgment of
the collectibility of the Company's accounts receivable. These collection
trends, as well as prevailing and anticipated economic conditions, are routinely
monitored by management, and any adjustments required are reflected in current
operations.

                                     II-31

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INVESTMENTS

    All marketable equity securities held by the Company are classified as
available-for-sale and are carried at estimated fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are carried net
of taxes as a component of accumulated other comprehensive earnings in
stockholders' equity. Realized gains and losses are determined on a
specific-identification basis. Other investments in which the ownership
interests are less than 20% and are not considered marketable securities are
carried at cost, subject to other-than-temporary impairment.

    For those investments in affiliates in which the Company has the ability to
exercise significant influence, the equity method of accounting is used. Under
this method, the investment, originally recorded at cost, subject to
other-than-temporary impairment, is adjusted to recognize the Company's share of
net earnings or losses of the affiliates as they occur rather than as dividends
or other distributions are received, limited to the extent of the Company's
investment in, and advances and commitments to the investee. The Company's share
of net earnings or losses of affiliates includes the amortization of the
difference between the Company's investment and its share of the net assets of
the investee when such difference is attributable to amortizable assets.
Recognition of gains on sales of properties to affiliates accounted for under
the equity method is deferred in proportion to the Company's ownership interest
in such affiliates.

    Changes in the Company's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional securities by such subsidiary or equity investee, are recognized as
increases to or reductions of additional paid-in capital in the consolidated
statements of stockholders' equity.

    The Company continually reviews its investments to determine whether a
decline in fair value below the cost basis is other than temporary or
"nontemporary". The Company considers a number of factors in its determination
including (i) the financial condition, operating performance and near term
prospects of the investee; (ii) the reason for the decline in fair value, be it
general market, industry specific or investee specific conditions; (iii) the
length of time that the fair value of the investment is below the Company's
carrying value; (iv) changes in valuation subsequent to the balance sheet date
and (v) the Company's intent and ability to hold the investment for a period of
time sufficient to allow for a recovery in fair value. If the decline in
estimated fair value is deemed to be nontemporary, a new cost basis of the
security is established at the then estimated fair value. In situations where
the fair value of an asset is not evident due to a lack of public market price
or other factors, management uses its best estimates and assumptions to arrive
at the estimated fair value of such an asset. The Company's assessment of the
foregoing factors involves a high degree of judgment and includes significant
estimates and assumptions. Writedowns of cost investments are included in the
consolidated statements of operations as nontemporary declines in fair values of
investments. Writedowns of equity method investments are included in share of
losses of affiliates.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

    LSAT accounts for its derivative instruments pursuant to Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("Statement 133"), which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are required to
be recorded on the balance sheet at fair value. If the derivative is designated
as a fair value hedge, the changes in the fair value of the

                                     II-32

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive earnings and are recognized in the consolidated statement of
operations when the hedged item affects earnings. Ineffective portions of
changes in the fair value of cash flow hedges are recognized in earnings. If the
derivative is not designated as a hedge, changes in the fair value of the
derivative are recognized in earnings.

    The Company has entered into equity collars and put spread collars with
respect to certain securities held by the Company. The Company uses these
derivatives to manage fair value risk associated with the related investments.
During 2001 and 2002, the Company's equity collars were designated as fair value
hedges. Effective December 31, 2002, the Company elected to no longer designate
its equity collars as fair value hedges. Such election had no effect on the
Company's financial position or results of operations on December 31, 2002.
Subsequent to December 31, 2002, changes in the fair value of the Company's
available-for-sale securities that previously had been reported in earnings due
to the designation of equity collars as fair value hedges will be reported as a
component of other comprehensive earnings on the Company's consolidated balance
sheet. Changes in the fair value of the equity collars will continue to be
reported in earnings.

    The Company uses the Black-Scholes model to estimate the fair value of its
derivative instruments. The Black-Scholes model incorporates a number of
variables in determining such fair values, including expected volatility of the
underlying security and an appropriate discount rate. The Company obtains a
volatility rate from an independent source at the inception of the derivative
instrument based on the expected volatility of the underlying security over the
term of the derivative instrument. The volatility assumption is generally
evaluated annually to determine if it should be adjusted. The Company selects a
discount rate at the inception of the derivative instrument and updates such
rate each reporting period based on an estimate of the discount rate at which
the derivative instrument could be settled. Considerable management judgment is
required in estimating the Black-Scholes variables. Actual results upon
settlement or unwinding of derivative instruments may differ significantly from
these estimates.

    Derivative instruments are generally not used for speculative purposes. The
derivative instruments may involve elements of credit and market risk in excess
of amounts recognized in the financial statements. The Company monitors its
positions and the credit quality of counter-parties, consisting primarily of
major financial institutions and does not expect nonperformance by any
counter-party.

    For derivatives designated either as fair value or cash flow hedges, changes
in the time value of the derivatives are excluded from the assessment of hedge
effectiveness and are recognized in earnings. The Company currently does not
have any cash flow hedges. Hedge ineffectiveness, determined in accordance with
Statement 133, had no impact on earnings for the years ended December 31, 2002
and 2001.

                                     II-33

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

    Property and equipment is stated at cost less accumulated depreciation.
Video systems in service consist of equipment, related costs of assembling and
costs of installation at hotel locations. Depreciation is calculated on a
straight-line basis using the remaining terms of the applicable hotel contracts
for video systems, and the shorter of capital lease terms or estimated useful
lives for all remaining depreciable assets. The original terms of the Company's
hotel contracts generally range from five to seven years. Support equipment,
vehicles and leasehold improvements generally are depreciated using estimated
lives of five years. Repairs and maintenance costs that do not significantly
extend the life of the asset are charged to operations. Gains or losses are
recognized upon the retirement, impairment or disposal of assets.

INTANGIBLE ASSETS SUBJECT TO AMORTIZATION

    The Company's intangible asset associated with hotel contracts represents
the amount assigned to On Command's contractual relationships with its hotel
customers, and such intangible asset represents the Company's only intangible
asset with a finite useful life. This intangible asset is being amortized over
three years, the estimated weighted average remaining life of such contractual
relationships at the March 28, 2000 date that Liberty Media acquired control of
Ascent Entertainment. Accordingly, the Company's hotel contracts intangible
asset will be fully amortized at March 31, 2003. Amortization of this intangible
asset aggregated $54,334,000, 54,333,000 and 40,750,000 during December 31,
2002, 2001 and 2000, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

    In accordance with Statement of Financial Accounting Standards No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, the Company
periodically reviews the carrying amounts of property and equipment, and
amortizable intangible assets to determine whether current events and
circumstances indicate that such carrying amounts may not be recoverable. If the
carrying amount of the asset is greater than the expected undiscounted cash
flows to be generated by such asset, an impairment adjustment is to be
recognized. Such adjustment is measured by the amount that the carrying value of
such asset exceeds its estimated fair value. The Company generally measures
estimated fair value by considering quoted market prices, sales prices for
similar assets, or by discounting estimated future cash flows. Considerable
management judgment is necessary to estimate the undiscounted cash flows and
fair values of assets. Accordingly, actual results could vary significantly from
such estimates.

GOODWILL

    In accordance with Statement of Financial Accounting Standards No. 142,
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement No. 142"), the
Company evaluates, on at least an annual basis, the carrying amount of goodwill
to determine whether current events and circumstances indicate that such
carrying amount may not be recoverable. To accomplish this, the Company compares
the fair value of its reporting units to their carrying amounts. If the carrying
value of a reporting unit were to exceed its fair value, the Company would
perform the second step of the impairment test. In the second step, the Company
would compare the implied fair value of the reporting unit's goodwill to its
carrying amount and any excess would be charged to operations. Considerable
management judgment is

                                     II-34

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

necessary to estimate the fair values of assets and liabilities. Accordingly,
actual results could vary significantly from such estimates.

    Under Statement No. 142, which the Company adopted January 1, 2002, the
Company no longer amortizes goodwill. Prior to the adoption of Statement 142,
goodwill was amortized over the expected periods to be benefited, generally
20 years. Adjusted net loss and pro forma loss per common share for 2001 and
2000, exclusive of amortization expense related to goodwill are as follows
(amounts in thousands, except per share amounts):



                                                             YEARS ENDED
                                                             DECEMBER 31,
                                                         --------------------
                                                           2001        2000
                                                         ---------   --------
                                                               
Net loss, as reported..................................  $(602,263)  (116,959)
  Adjustment for amortization of goodwill..............     37,623     31,690
                                                         ---------   --------
Net loss, as adjusted..................................  $(564,640)   (85,269)
                                                         =========   ========
Basic and diluted loss per common share, as reported...  $  (15.41)     (4.44)
  Adjustment for amortization of goodwill..............        .91        .97
                                                         ---------   --------
Basic and diluted loss per common share, as adjusted...  $  (14.50)     (3.47)
                                                         =========   ========


INTERNALLY DEVELOPED SOFTWARE

    On Command capitalizes certain internally developed software costs in
accordance with AICPA Statement of Position 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. Internally developed
software that is integral to the On Command video systems is classified within
video systems in the accompanying consolidated balance sheet. All other
internally developed software is included in other assets. Amortization or
depreciation commences when the software is ready for its intended use. Software
is generally amortized or depreciated over five years. Capitalized costs
primarily include internal salaries and wages of individuals dedicated to the
development of internal use software. On Command capitalized software
development costs of $4,865,000, $4,218,000 and $4,088,000 during 2002, 2001 and
2000, respectively.

FOREIGN CURRENCY TRANSLATION

    All balance sheet accounts of foreign subsidiaries whose functional currency
is not the United States ("U.S.") dollar are translated into U.S. dollars at the
current exchange rate as of the end of the accounting period. Results of
operations are translated at average currency exchange rates. The resulting
translation adjustment is recorded as a separate component of accumulated other
comprehensive earnings in stockholders' equity.

    Transactions denominated in currencies other than the functional currency
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses,
which are reflected in the combined statements of operations as unrealized
(based on the applicable period end translation) or realized upon settlement of
the transactions. Such realized and unrealized gains and losses were not
material to the accompanying consolidated financial statements.

                                     II-35

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The impact of exchange rate fluctuations on intercompany accounts between On
Command and its foreign subsidiaries is reported as a component of other
comprehensive income so long as the intercompany accounts are determined to be
of a long-term investment nature.

REVENUE RECOGNITION

    The Company recognizes pay-per-view revenue at the time of viewing, net of
estimated denials. Revenue from other guest room services is recognized in the
period that services are delivered. Revenue from the sale of video systems is
recognized when the terms of the sales agreement are fixed, the equipment is
shipped, there are no future obligations, and collectibility is reasonably
assured.

STOCK BASED-COMPENSATION

    The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, ("APB Opinion No. 25") and related interpretations, to
account for its fixed plan stock options. Under this method, compensation
expense for stock options or awards that are fixed is required to be recognized
over the vesting period only if the current market price of the underlying stock
exceeds the exercise price on the date of grant. Statement of Financial
Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
("Statement 123") established accounting and disclosure requirements using a
fair value-based method of accounting for stock-based employee compensation
plans. As allowed by Statement 123, the Company has elected to continue to apply
the intrinsic value-based method of accounting prescribed by APB Opinion
No. 25, and has adopted the disclosure requirement of Statement 123, as amended
by Statement of Financial Accounting Standards No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE--AN AMENDMENT OF FASB
STATEMENT NO. 123 ("Statement 148"). The following table illustrates the effects
on net loss and loss per share if the Company had applied the fair value
recognition provisions of Statement 123 to stock-based employee compensation.



                                                  YEARS ENDED DECEMBER 31,
                                              ---------------------------------
                                                2002        2001        2000
                                              ---------   ---------   ---------
                                                             
Net loss, as reported.......................  $(343,874)  $(602,263)  $(116,959)
  Deduct stock compensation expense
    determined under fair value method, net
    of taxes................................     (6,242)     (5,188)    (10,573)
                                              ---------   ---------   ---------
    Pro forma net loss......................  $(350,116)  $(607,451)  $(127,532)
                                              =========   =========   =========
    Pro forma net loss applicable to common
      shareholders..........................  $(386,236)  $(643,571)  $(155,899)
                                              =========   =========   =========
Loss per share:
  Basic and diluted--as reported............  $   (8.77)  $  (15.41)  $   (4.44)
                                              =========   =========   =========
  Basic and diluted--pro forma..............  $   (8.92)  $  (15.53)  $   (4.77)
                                              =========   =========   =========


    The grant-date fair values underlying the foregoing calculations are based
on the Black-Scholes option-pricing model. With respect to options granted by
LSAT, the key assumptions used in the model for purposes of these calculations
include the following: (a) a discount rate equal to the one-year Treasury Bill
rate; (b) an 85% volatility rate; (c) the 10-year option term; (d) the closing
price of the Series A Common Stock on the date of grant; and (e) an expected
dividend rate of zero. With respect

                                     II-36

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to options granted by On Command, the key assumptions used in the model include
the following: (a) a discount rate equal to the one-year Treasury Bill rate at
the date of grant; (b) volatility rates of 86.3% for 2002 grants, 71.8% for 2001
grants, 47.7% for 2000 grants, 45.9% for 1999 grants and 25% for all grants in
all prior periods; (c) expected option lives of 5 or 5.5 years; (d) the closing
price of the On Command Common Stock on the date of grant; and (e) an expected
dividend rate of zero.

INCOME TAXES

    The Company accounts for its income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

EARNINGS (LOSS) PER COMMON SHARE

    Basic earnings (loss) per share is measured as the earnings or loss
attributable to common stockholders divided by the weighted average outstanding
common shares for the period. Net earnings (loss) is reduced (increased) by
preferred stock dividends and accretion to arrive at earnings (loss)
attributable to common stockholders. Diluted earnings per share is similar to
basic earnings per share but presents the dilutive effect on a per share basis
of potential common shares (e.g., convertible securities, options, etc.) as if
they had been converted at the beginning of the periods presented, or at
original issuance date, if later. Potential dilutive common shares that have an
anti-dilutive effect (i.e., those that increase income per share or decrease
loss per share) are excluded from diluted earnings per share.

    The loss per common share for 2002, 2001 and 2000 is based on 43,337,100,
41,430,500 and 32,703,300 weighted average shares outstanding during the
respective periods. Potential common shares were not included in the computation
of diluted EPS because their inclusion would be anti-dilutive. At December 31,
2002 and 2001, the number of potential common shares was approximately 2,170,300
and 2,159,200, respectively. Such potential common shares consist of stock
options to acquire shares of the Company's Series A Common Stock and securities
that were convertible into 1,696,717 shares of the Company's Series B Common
Stock at each of December 31, 2002 and 2001. The foregoing potential common
share amounts do not take into account the assumed number of shares that would
be repurchased by the Company upon the exercise of stock options.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2002, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("Statement 146"). In October 2002,
the FASB issued Statement of Financial Accounting Standards No. 147,
ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS, AN AMENDMENT OF FASB STATEMENT
NOS. 72 AND 144 AND FASB INTERPRETATION NO. 9 ("Statement No. 147"). In
December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION--TRANSITION AND DISCLOSURE--AN
AMENDMENT OF FASB STATEMENT NO. 123 ("Statement No. 148"). The adoption of
Statement Nos. 146, 147 and 148 is not expected to have, a material impact on
the Company's financial condition, results of operations or cash flows.

                                     II-37

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    In November 2002, the FASB issued FASB Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS, AN INTERPRETATION OF FASB STATEMENTS
NO. 5, 57, AND 107 AND RESCISSION OF FASB INTERPRETATION NO. 34 ("FIN 45"). FIN
45 elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions in FIN
45 are effective for all guarantees issued or modified after December 31, 2002.
The Company does not believe that the implementation of FIN 45 will have a
material impact on its financial position or results of operations.

    In January 2003, the FASB issued FASB Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN
46 addresses consolidation of variable interest entities which have
characteristics described in the pronouncement. In general, if an entity is
considered a variable interest entity ("VIE"), the party that has the most
exposure to economic risks and potential rewards from the VIE is required to
consolidate the VIE. The consolidation requirements of FIN 46 apply to all VIE's
created after January 31, 2003. In addition, by July 1, 2003 the consolidation
requirements must be applied to all VIE's in existence prior to February 1,
2003. Based on the Company's preliminary analysis, the Company does not believe
that the implementation of FIN 46 will have a material impact on its financial
condition or results of operations.

USE OF ESTIMATES

    The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities, as well as the reported amounts of revenue
and expenses. Significant estimates are involved in the determination of the
fair value of derivative instruments, the allowance for doubtful accounts
receivable, asset impairments and the estimated useful lives of video systems,
property and equipment and intangible assets, and the amounts in certain accrued
liabilities. Actual results may vary significantly from these estimates.

RECLASSIFICATIONS

    Certain prior year amounts have been reclassified to conform to the current
year presentation.

(3) SUPPLEMENTAL DISCLOSURES TO STATEMENTS OF CASH FLOWS

    Cash paid for interest was $14,616,000, $25,733,000 and $15,659,000 during
2002, 2001 and 2000, respectively. Cash paid for income taxes was $5,845,000 in
2001 and was not material during 2002 and 2000.

                                     II-38

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Significant non-cash investing and financing activities are as follows:


                                                           
2000
  Acquisition of Ascent Entertainment:
    Fair value of assets acquired...........................  $(933,894)
    Net liabilities assumed.................................    459,543
    Minority interest in consolidated subsidiaries..........     69,931
    Issuance of Series B Common Stock.......................    453,737
                                                              ---------
      Cash acquired.........................................  $  49,317
                                                              =========
  Cash received in transactions with Liberty Media:
    Value of investments received...........................  $(632,293)
    Debt issued.............................................     60,000
    Deferred tax liability assumed..........................    114,628
    Redeemable preferred stock issued.......................    185,372
    Issuance of Series B Common Stock.......................    521,913
                                                              ---------
                                                              $ 249,620
                                                              =========


    For descriptions of certain other non-cash investing and financing
activities, see notes 6, 8 and 14.

(4) TRANSACTIONS WITH LIBERTY MEDIA AND OTHER RELATED PARTIES

TRANSACTIONS WITH LIBERTY MEDIA AND AFFILIATES

    On March 16, 2000, the Company received a 13.99% ownership interest in LSAT
Astro in exchange for a $60,000,000 note payable to Liberty Media. Interest on
the note accrued at the 3 month LIBOR plus 2% (3.74% at December 31, 2002).
Interest payments were due semi-annually on the first day of March and
September. At December 31, 2002, the unpaid principal on the note was
$48,411,000 and the accrued interest on the note was $614,000.

    TAX LIABILITY ALLOCATION AND INDEMNIFICATION AGREEMENT.  In connection with
the LSAT LLC and Ascent Entertainment Transaction, the Company and Liberty Media
entered into a tax liability allocation and indemnification agreement whereby
the Company will be obligated to make a cash payment to Liberty Media in each
year that the Company (taken together with any of its subsidiaries) has taxable
income. The amount of the payment will be equal to the amount of the taxable
income of the Company and its subsidiaries (determined as if the Company and its
subsidiaries filed a separate return) multiplied by the highest applicable
corporate tax rate. In the event that (1) the Company and its subsidiaries, when
treated as a separate group, has a net operating loss or deduction or is
entitled to a tax credit for a particular year; and (2) Liberty Media is able to
use such loss, deduction or credit to reduce its tax liability, the Company will
be entitled to a credit against current and future payments to Liberty Media
under the agreement. If the Company disaffiliates itself with Liberty Media and
the members of Liberty Media's affiliated group prior to the time that the
Company is able to use such credit, the Company will be entitled to a payment
from Liberty Media at the earlier of the time that (1) the Company and its
subsidiaries show they could have used the net operating loss or net tax credit
to reduce their own separately computed tax liability or (2) the voting power of
the stock of the Company held by Liberty Media and the members of its affiliated
group drops below 20%.

                                     II-39

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    In addition, under the tax liability allocation and indemnification
agreement, the Company will have the opportunity to participate in the defense
of claims of the Internal Revenue Service that might affect its liability under
the agreement, and to participate in tax refunds paid to Liberty Media where
such refunds are due in part to the Company's operations.

    In connection with the LSAT LLC and Ascent Entertainment Transaction, the
Company assumed an intercompany income tax liability owed by Ascent
Entertainment to Liberty Media pursuant to a tax liability allocation and
indemnification agreement with terms similar to the agreement described above.
At December 31, 2002, the amount owed by Ascent Entertainment to Liberty Media
pursuant to this agreement was $8,409,000. Such amount, which is non-interest
bearing, includes $36,568,000 that is due on demand to Liberty Media, and
$28,159,000 that is payable to the Company by Liberty Media if, and to the
extent, that tax benefits generated by Ascent Entertainment are utilized to
reduce Liberty Media's taxable income.

    EXPENSE ALLOCATIONS AND REIMBURSEMENTS.  Liberty Media allocates rent,
salaries, benefits and certain other general and administrative expenses to the
Company. Although there is no written agreement with Liberty Media for these
allocations, the Company believes the allocated amounts to be reasonable. The
aggregate allocations from Liberty Media were $303,000, $329,000 and $200,000
during 2002, 2001 and 2000, respectively. In addition, the Company reimburses
Liberty Media for certain expenses paid by Liberty Media on behalf of the
Company. Amounts owed to Liberty Media pursuant to these arrangements
($1,585,000 at December 31, 2002) are non-interest bearing and are generally
paid on a monthly basis.

    SKY LATIN AMERICA LOANS.  During the year ended December 31, 2001 and the
three months ended March 31, 2002, Liberty Media loaned $18,552,000 and
$6,573,000, respectively, to LSAT LLC. LSAT LLC used the proceeds from these
loans to fund capital calls from its various 10% investees that operate
satellite television systems in Latin America ("Sky Latin America"). The loans
provided for interest at 8% per annum and were due and payable on demand after
November 27, 2001. Concurrently, with the closing of the LSAT LLC and Ascent
Entertainment Transaction, (i) Liberty Media contributed to the Company, as part
of that transaction and for no additional consideration, promissory notes issued
by LSAT LLC due to subsidiaries of Liberty Media, with an aggregate principal
balance of $18,552,000 and related accrued interest of $651,000, and (ii) LSAT
LLC repaid principal of $6,573,000 and accrued interest of $37,000.

    SALE OF ASCENT NETWORK SERVICES.  Effective September 4, 2001, Ascent
Entertainment completed the sale of Ascent Network Services to Ascent Media
Group, Inc. (formerly Liberty Livewire Corporation) ("Ascent Media"), a
consolidated subsidiary of Liberty Media, for cash consideration of $32,038,000.
Ascent Network Services provides video distribution services to the NBC
television network and other private networks. As Ascent Entertainment and
Ascent Media are both consolidated subsidiaries of Liberty Media, no gain or
loss was recognized in connection with this transaction. During 2001, Ascent
Network Services paid management fees to Ascent Media aggregating $6,400,000
through September 4, 2001. Such management fees are included in selling, general
and administrative expenses in the accompanying consolidated statement of
operations.

    ASCENT MEDIA SATELLITE SERVICES.  Effective October 1, 2002, On Command
entered into a short-term agreement with Ascent Media pursuant to which Ascent
Media supplied On Command with uplink and satellite transport services at a cost
of $120,000 through December 31, 2002. On Command had been utilizing the
services to test the satellite delivery of content updates to On Command's
downlink sites at various hotels. On Command has completed its testing of
satellite delivery and the parties have

                                     II-40

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

executed a Content Preparation and Distribution Services Agreement, dated
March 24, 2003, to be effective April 1, 2003, which will provide for uplink and
satellite transport services for a period of five years. The long-term agreement
also provides for Ascent Media to supply On Command with content preparation
services at a negotiated rate for a period of five years at On Command's
request. On Command is also negotiating an agreement with a wholly-owned
subsidiary of Ascent Media for the installation by such subsidiary of satellite
equipment at On Command's downlink sites at hotels for a set fee per
installation completed.

    PUT OPTION LIABILITY.  Effective September 29, 2000, LSAT LLC acquired a 1%
managing common interest in a joint venture ("IB2 LLC") from a subsidiary of
Liberty Digital, Inc. ("Liberty Digital") for $652,000. Liberty Digital, an
indirect wholly-owned subsidiary of Liberty Media, retained a preferred interest
(the "Preferred Interest") in IB2 LLC, which owns approximately 360,000 shares
of iBEAM Broadcasting Corp. ("iBEAM") common stock ("iBEAM Stock"). The
Preferred Interest had an initial liquidation value of $64,574,000 and is
entitled to a return of 9%, compounded annually. As part of the transaction,
LSAT LLC granted Liberty Digital the right to put the Preferred Interest to LSAT
LLC for a purchase price equal to $26,000,000 (the value of iBEAM Stock on
September 29, 2000) plus a 9% return, compounded annually (the "iBEAM Put
Option"). LSAT LLC has the right to call Liberty Digital's Preferred Interest at
a price equal to the initial liquidation value plus a return of 9%, compounded
annually. Both the iBEAM Put Option and call option are exercisable on
September 29, 2008. Under certain limited circumstances, including iBEAM's
bankruptcy, LSAT LLC can force Liberty Digital to exercise the iBEAM Put Option
prior to September 29, 2008.

    Due to the related party nature of the transaction, the fair value of the
iBEAM Put Option on the iBEAM Closing Date has been reflected as a reduction of
redeemable preferred stock in the accompanying consolidated financial
statements. Similarly, the cash paid for LSAT LLC's interest in IB2 LLC has been
reflected as a direct charge to additional paid-in capital.

    During the fourth quarter of 2001, iBEAM filed for bankruptcy under Chapter
11 of the Bankruptcy Code. As a result of such bankruptcy filing, the Company
began carrying the iBEAM Put Option liability at an amount ($31,052,000 at
December 31, 2002) which represents the iBEAM Put Option purchase price to LSAT
LLC plus an accrued return to Liberty Digital of 9%, compounded annually. The
Company anticipates that future losses with respect to the iBEAM Put Option will
be limited to Liberty Digital's 9% return on the iBEAM Put Option liability.

    Changes in the fair market value of the iBEAM Put Option subsequent to
September 29, 2000 have been recognized as unrealized gains (losses) on
financial instruments in the Company's consolidated statements of operations.
During 2002, 2001 and 2000, the Company recorded unrealized gains (losses) of
$2,564,000, $3,241,000 and ($19,423,000), respectively, related to the iBEAM Put
Option.

TRANSACTIONS WITH OTHER RELATED PARTIES

    PHOENIXSTAR MANAGEMENT AGREEMENT.  Effective February 1, 2000, the Company
entered into a management agreement with Phoenixstar, Inc. (formerly known as
PRIMESTAR, Inc.) ("Phoenixstar") pursuant to which the company is managing
Phoenixstar's affairs in exchange for a monthly management fee. Prior to 1999,
the Company beneficially owned 37% of Phoenixstar's outstanding shares. In
connection with certain other transactions that closed in 1999, the Company
agreed to forego any liquidating distribution or other payment that may be made
in respect of the outstanding shares of Phoenixstar upon any dissolution and
winding-up of Phoenixstar, or otherwise in respect of Phoenixstar's equity, and
to transfer its shares in Phoenixstar to the other Phoenixstar stockholders.

                                     II-41

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Management fees from Phoenixstar aggregated $420,000, $420,000 and $445,000 in
2002, 2001 and 2000, respectively. In addition, the Company allocates certain
general and administrative expenses, such as office rent and computer support to
Phoenixstar. Under the current management agreement, expense allocations have
been limited to $5,000 per month since February 2001. Such allocations
aggregated $60,000, $54,000 and $169,000 during 2002, 2001 and 2000,
respectively, and are reflected as a reduction of general and administrative
expenses in the accompanying consolidated statements of operations.

(5) INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD

    The following table reflects the carrying amounts of investments accounted
for using the equity method:



                                                                  DECEMBER 31,
                                                              --------------------
                                                                2002        2001
                                                              ---------   --------
                                                                   AMOUNTS IN
                                                                   THOUSANDS
                                                                    
ASTROLINK International LLC ("Astrolink")...................  $     --         --
Aerocast.com, Inc. ("Aerocast").............................        --     12,158
                                                              ---------    ------
                                                              $     --     12,158
                                                              =========    ======


    The following table reflects the Company's share of losses of affiliates
(including nontemporary declines in fair values of investments):



                                                      YEARS ENDED DECEMBER 31,
                                                   ------------------------------
                                                     2002       2001       2000
                                                   --------   --------   --------
                                                        AMOUNTS IN THOUSANDS
                                                                
Astrolink........................................  $ (1,447)  (417,202)   (6,498)
Aerocast.........................................   (12,258)    (7,045)     (753)
                                                   --------   --------    ------
                                                   $(13,705)  (424,247)   (7,251)
                                                   ========   ========    ======


ASTROLINK

    The Company owns an approximate 31.5% ownership interest in Astrolink.
Astrolink, a developmental stage entity, was originally established to build a
global telecom network using Ka-band geostationary satellites to provide
broadband data communications services. Astrolink's original business plan
required substantial financing. During the fourth quarter of 2001, certain of
the members of Astrolink informed Astrolink that they did not intend to provide
any of Astrolink's remaining required financing. In light of this decision,
Astrolink and the Astrolink members considered several alternatives with respect
to Astrolink's proposed business plan.

    During the second quarter of 2002, LSAT signed a non-binding letter of
intent with the other Astrolink members in connection with the proposed
restructuring of Astrolink. In January 2003, the Company announced that it had
reached agreement with the other members of Astrolink in connection with such
proposed restructuring ("the Astrolink Restructuring"). Under the agreement (the
"Astrolink Restructuring Agreement"), the Company will acquire substantially all
of the assets of Astrolink. Astrolink simultaneously signed agreements with
Lockheed Martin Corporation and Northrop Grumman Space & Mission Systems Corp.
for completion of two satellites. The parties also reached

                                     II-42

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

agreement on the settlement of all claims related to the previous termination of
Astrolink's major procurement contracts and all other major third party creditor
claims. The closing of the Company's acquisition of the Astrolink business is
subject to the Company obtaining satisfactory funding for the business from
additional investors, third party sources of financing, or firm capacity
commitments from prospective customers. The closing is also subject to
regulatory approvals and other closing conditions. Subject to the satisfaction
of these closing conditions, the closing is expected to occur on or before
October 31, 2003.

    If the closing occurs, the Company will pay approximately $43 million in
cash and will issue approximately $3 million in value of Series A Common Stock
as total consideration for the Astrolink assets, including certain existing
satellite and launch contracts, and the settlement of all claims against
Astrolink. In addition, the Company will provide additional interim funding for
Astrolink pending closing. If the transactions are consummated, Liberty Media
will make a capital contribution to the Company in an amount equal to 10% of the
estimated fair value of Liberty Media's equity holdings in the Company at the
time of closing, up to a maximum commitment of $55 million, in exchange for
shares of the Company's Series B Common Stock.

    The Company currently plans to pursue a revised operating plan for the new
Astrolink system, taking into account financial and market factors. The revised
operating plan currently contemplates launching one or two Ka-band satellites to
provide enterprise customers in up to two of North America, Europe or Asia with
virtual private networks and related advanced services, and to provide various
government agencies with a solution to their expanding needs for bandwidth.

    In the event the Astrolink Restructuring is not consummated due to lack of
financing or other closing conditions, the Company anticipates that Astrolink
will be liquidated and the Company will receive $7.8 million as prescribed in
the Astrolink Restructuring Agreement.

    During the second quarter of 2001, the Company determined that its
investment in Astrolink experienced a nontemporary decline in value.
Accordingly, the carrying amount of such investment was adjusted to its then
estimated fair value resulting in a recognized loss of $155,000,000. Such loss
is included in share of losses of affiliates. Based on a fourth quarter 2001
assessment of Astrolink's remaining sources of liquidity and Astrolink's
inability to obtain financing for its business plan, the Company concluded that
the carrying value of LSAT Astro's investment in Astrolink should be reduced to
reflect a fair value that assumes the liquidation of Astrolink. Accordingly,
LSAT Astro wrote-off all of its remaining investment in Astrolink during the
fourth quarter of 2001. The aggregate amount required to reduce LSAT Astro's
investment in Astrolink to zero was $249,868,000. Including such fourth quarter
amount, LSAT Astro recorded losses and charges relating to its investment in
Astrolink aggregating $417,202,000 during the year ended December 31, 2001.

    Since LSAT Astro's investment in Astrolink was reduced to zero at
December 31, 2001, LSAT Astro's share of Astrolink's losses since December 31,
2001 has been limited to the amounts loaned to Astrolink by the Company during
the year ended December 31, 2002 ($1,447,000).

                                     II-43

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Summarized unaudited financial information for Astrolink for the periods in
which Astrolink was owned by LSAT LLC is as follows:



                                                       YEARS ENDED DECEMBER 31,
                                                       -------------------------
                                                          2002          2001
                                                       -----------   -----------
                                                         AMOUNTS IN THOUSANDS
                                                               
FINANCIAL POSITION
  Current assets.....................................   $ 11,587        21,686
  Property and equipment, net........................    515,167       525,146
  Other assets.......................................     25,447        25,370
                                                        --------       -------
    Total assets.....................................   $552,201       572,202
                                                        ========       =======
  Current liabilities................................   $228,215       234,354
  Other liabilities..................................         --           164
  Members' equity....................................    323,986       337,684
                                                        --------       -------
    Total liabilities and equity.....................   $552,201       572,202
                                                        ========       =======




                                                     YEARS ENDED DECEMBER 31,
                                                  ------------------------------
                                                    2002       2001       2000
                                                  --------   --------   --------
                                                       AMOUNTS IN THOUSANDS
                                                               
RESULTS OF OPERATIONS
  General and administrative expense............  $ (4,558)   (65,930)  (31,431)
  Write-down of system under construction.......        --   (728,495)       --
  Contract termination charges..................        --   (174,016)       --
  Depreciation and amortization.................    (8,844)    (3,894)     (636)
  Other income (expense)........................      (297)     8,179     7,818
                                                  --------   --------   -------
    Net loss....................................  $(13,699)  (964,156)  (24,249)
                                                  ========   ========   =======


AEROCAST

    LSAT LLC owns an approximate 45.5% ownership interest in Aerocast. During
the fourth quarter of 2002, the Company recorded a $7,072,000 charge to reduce
the carrying value of LSAT LLC's investment in Aerocast to zero. Such charge is
included in the Company's share of Aerocast's losses for the year ended
December 31, 2002.

                                     II-44

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Summarized unaudited financial information for Aerocast for the periods in
which Aerocast was owned by LSAT LLC is as follows:



                                                             DECEMBER 31,
                                                         ---------------------
                                                           2002        2001
                                                         ---------   ---------
                                                         AMOUNTS IN THOUSANDS
                                                               
FINANCIAL POSITION
  Current assets.......................................   $  201       5,268
  Property and equipment, net..........................    1,159       1,798
  Other assets.........................................    2,921       2,902
                                                          ------       -----
    Total assets.......................................   $4,281       9,968
                                                          ======       =====
  Current liabilities..................................   $1,634         690
  Owners' equity.......................................    2,647       9,278
                                                          ------       -----
    Total liabilities and equity.......................   $4,281       9,968
                                                          ======       =====




                                                        YEARS ENDED DECEMBER 31,
                                                     ------------------------------
                                                       2002       2001       2000
                                                     --------   --------   --------
                                                          AMOUNTS IN THOUSANDS
                                                                  
RESULTS OF OPERATIONS
  Revenue..........................................  $    85         23         --
  Operating expenses...............................   (6,242)   (10,736)    (2,081)
  Depreciation and amortization....................     (384)      (351)        --
  Other income (expense), net......................     (103)       129         52
                                                     -------    -------     ------
    Net loss.......................................  $(6,644)   (10,935)    (2,029)
                                                     =======    =======     ======


(6) INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES AND OTHER COST INVESTMENTS

    Investments in available-for-sale securities and other cost investments are
summarized as follows:



                                                               DECEMBER 31,
                                                           ---------------------
                                                             2002        2001
                                                           ---------   ---------
                                                           AMOUNTS IN THOUSANDS
                                                                 
Sky Latin America........................................  $ 86,772     175,048
Sprint Corporation PCS Group ("Sprint PCS Group")*.......    22,271     124,119
Hughes Electronics Corporation ("GM Hughes")*............    19,495      28,148
XM Satellite Radio Holdings, Inc. ("XMSR")*..............     2,690      18,360
Other....................................................    12,630      28,225
                                                           --------     -------
                                                           $143,858     373,900
                                                           ========     =======


------------------------

*   Denotes an investment carried as an available-for-sale security.

                                     II-45

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SKY LATIN AMERICA

    Represents the aggregate book basis of a number of different satellite
television operators located in Mexico, Brazil, Chile and Colombia. LSAT LLC has
a 10% beneficial interest in each of the Sky Latin America businesses.

    During 2002, the Company recorded aggregate losses of $105,250,000 to
reflect nontemporary declines in the value of LSAT LLC's investment in Sky Latin
America.

SPRINT PCS STOCK

    The Company acquired beneficial interest in 5,084,745 shares of Sprint PCS
Stock from Liberty Media in March 2000. The Company accounts for such investment
as an available-for-sale security.

GM HUGHES

    The Company, through LSAT LLC, holds 1,821,921 shares of GM Hughes Stock and
accounts for such shares as available-for-sale. During 2002, the Company
recorded a $9,049,000 loss to recognize a nontemporary decline in the fair value
of its GM Hughes Stock.

    Effective May 10, 2000, the Company sold 2.4 million shares of GM Hughes
Stock for net cash proceeds of $74,243,000 (after fees and commissions of
$717,000), and recognized a gain on sale of $36,643,000. The Company paid
$65,721,000 of such cash proceeds to Phoenixstar to satisfy a stock appreciation
right, and recognized a loss of $65,721,000.

XMSR

    At December 31, 2002, LSAT LLC owned 1,000,000 shares of XMSR Class A common
stock, representing an ownership interest of less than 1%. The closing stock
price of XMSR Class A common stock on December 31, 2002 was $2.69 per share.

    On June 27, 2001, LSAT LLC entered into an agreement to loan 1,000,000
shares of XMSR to a third party. The obligation to return those shares is
secured by cash collateral equal to 100% of the market value of that stock,
which was $2,690,000 at December 31, 2002. Such cash collateral is reported as
restricted cash in the accompanying consolidated balance sheet with the offset
being reflected as a liability. During the period of the loan, which is
terminable by either party at any time, the cash collateral is to be
marked-to-market daily. Interest accrues on the cash collateral for the benefit
of LSAT LLC at the rate of .15% per annum. As of December 31, 2002, 1,000,000
shares of XMSR had been lent under this agreement. The loan has no stated
maturity date.

OTHER

    Information concerning certain of the Company's other investments is set
forth below.

    In December 2002, the Company announced that it has agreed to increase its
investment in Wildblue Communications, Inc. ("Wildblue"). Currently, the Company
has an approximate 16% ownership interest in Wildblue. Under the new agreement,
the Company will invest $58 million in return for senior preferred stock and
warrants of Wildblue. As also agreed, other existing and new investors will
invest $98 million in Wildblue for a total new investment of $156 million. Upon
closing of the transaction, of which no assurance can be given, the Company will
be the largest shareholder with an ownership interest of approximately 32% and a
voting interest of approximately 37%. The closing of

                                     II-46

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the transaction is subject to certain conditions, and is expected to occur in
the second quarter of 2003. Assuming the Wildblue transaction is consummated as
described above, of which no assurance can be given, Wildblue currently expects
to launch its satellite in the fourth quarter of 2003 and begin providing
broadband data services in the second or third quarter of 2004.

    In connection with the aforementioned additional investment in Wildblue, the
Company entered into a put agreement with KPCB Holdings, Inc. ("KPCB") another
investor in Wildblue. Pursuant to this put agreement and in the event the
parties make additional investments in Wildblue, KPCB will have the right to put
its interest in Wildblue to the Company and another investor in Wildblue for
$10,000,000, the amount KPCB has agreed to invest in Wildblue at the closing of
the Wildblue transaction. The Company and such other investor are each
responsible for $5,000,000 of the aggregate $10,000,000 put obligation. The put
may be exercised at any time within four years from the closing of the Wildblue
transaction.

    During the first quarter of 2001, On Command completed a transaction that
resulted in On Command's acquisition of a 7.5% interest in e-ROOM and the
settlement of certain litigation. To acquire the 7.5% interest and settle the
litigation, On Command (i) contributed its Asia-Pacific subsidiaries to e-ROOM
and transferred On Command's intercompany receivables from such subsidiaries to
e-ROOM; (ii) issued 275,000 shares of Company Common Stock to e-ROOM; and
(iii) paid $1,000,000 to e-ROOM. Due to the existence of the repurchase
obligation, described below, On Command valued the equity issued to e-ROOM at
$15 per share. The excess of the value assigned to the consideration paid to
e-ROOM over the then estimated $5,298,000 fair value of the 7.5% interest in
e-ROOM received by On Command has been reflected as loss on settlement of
litigation in the accompanying consolidated statements of operations. On
Command's original estimate of the litigation loss resulted in a $4,764,000
charge during the fourth quarter of 2000. An additional charge of $3,700,000 was
recorded during the first quarter of 2001 to reflect a change in the estimate of
the amount of On Command's intercompany receivables to be transferred to e-ROOM.
During the fourth quarter of 2001, On Command recorded a $2,000,000 impairment
charge to reflect an other than temporary decline in the estimated fair value of
its investment in e-ROOM.

    On Command also agreed that e-ROOM would have the option during the 15 day
period beginning on March 1, 2003 to cause On Command to repurchase all, but not
less than all, of the 275,000 shares of Company Common Stock issued to e-ROOM at
a price of $15 per share. During the fourth quarter of 2002, On Command
repurchased 119,500 of such shares for an aggregate price of $1,344,000 or
$11.25 per share. In connection with this transaction, the parties agreed to
postpone until March 1, 2004 the date on which On Command can be required to
repurchase 119,500 of the remaining shares subject to repurchase. On Command is
not precluded from repurchasing such shares at an earlier date. The repurchase
price for such shares will be $15 per share, plus an adjustment factor
calculated from March 1, 2003 to the date of repurchase, at a rate of 8% per
annum. Subsequent to December 31, 2002, the date on which the remaining 36,000
shares will first become subject to repurchase by On Command was postponed until
March 1, 2004. The repurchase price for such shares will remain at $15 per
share.

NONTEMPORARY DECLINES IN FAIR VALUES OF INVESTMENTS

    During 2002, 2001 and 2000, the Company determined that certain investments
experienced other-than-temporary declines in value. As a result, the cost bases
of such investments were adjusted to

                                     II-47

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

their respective estimated fair values. Such adjustments resulted in losses
aggregating $163,881,000, $96,438,000 and $9,860,000 in 2002, 2001 and 2000,
respectively, and are comprised of the following:



                                                        YEARS ENDED DECEMBER 31,
                                                     ------------------------------
                                                       2002       2001       2000
                                                     --------   --------   --------
                                                          AMOUNTS IN THOUSANDS
                                                                  
Investments
  Sky Latin America................................  $105,250        --        --
  Sprint PCS Stock.................................    21,511        --        --
  Loral Space & Communications, Ltd................    17,384        --        --
  STSN, Inc........................................     6,060    16,539        --
  Wildblue.........................................        --    56,483        --
  XMSR.............................................     1,626    14,575        --
  Other............................................    12,050     8,841     9,860
                                                     --------    ------     -----
                                                     $163,881    96,438     9,860
                                                     ========    ======     =====


    Investments in available-for-sale securities are summarized below. The
unrealized holding gains and losses are in addition to the unrealized gains and
losses recognized in the consolidated statements of operations.



                                                             DECEMBER 31,
                                                         ---------------------
                                                           2002        2001
                                                         ---------   ---------
                                                         AMOUNTS IN THOUSANDS
                                                               
Equity securities
  Fair value...........................................   $48,532     184,581
                                                          =======     =======
  Gross unrealized holding gains.......................   $ 1,517       3,942
                                                          =======     =======
  Gross unrealized holding losses......................   $    --     (23,532)
                                                          =======     =======


(7) DERIVATIVE INSTRUMENTS

    The Company's derivative instruments are comprised of the following:



                                                                FAIR VALUE AT
                                                                DECEMBER 31,
TYPE OF                                        UNDERLYING   ---------------------
DERIVATIVE                                      SECURITY      2002        2001
----------                                     ----------   ---------   ---------
                                                            AMOUNTS IN THOUSANDS
                                                               
Equity collar................................  Sprint PCS   $280,559     177,721
Equity collar................................     XMSR        25,493      11,115
Put spread collar............................     GMH         20,004      14,746
                                                            --------     -------
  Total......................................               $326,056     203,582
  Less current portion.......................               (317,580)         --
                                                            --------     -------
Long-term derivative assets..................               $  8,476     203,582
                                                            ========     =======


                                     II-48

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The trust holding the Sprint PCS Stock for LSAT's benefit has entered into
an equity collar with a financial institution with respect to LSAT's Sprint PCS
Stock. The collar provides the trust with a put option that gives it the right
to require its counterparty to buy 5,084,745 shares of Sprint PCS Stock from the
trust in seven tranches in March 2003 for a weighted average price of $59.71 per
share. LSAT simultaneously sold a call option giving the counterparty the right
to buy the same shares of stock from the trust in seven tranches in March 2003
for a weighted average price of $82.39 per share. The put and call options for
this collar were equally priced, resulting in no cash receipts or payments.

    LSAT LLC has entered into a put spread collar with a financial institution
with respect to the Company's shares of GM Hughes Stock. The collar
(i) provides LSAT LLC with a put option that gives it the right to require its
counterparty to buy 1,821,921 shares of GM Hughes Stock from LSAT LLC in three
tranches in October 2003 for a weighted average price of $26.64, and
(ii) provides the counterparty with a put option that gives it the right to
require LSAT LLC to repurchase the shares of GM Hughes Stock for a weighted
average price of $14.80. LSAT LLC simultaneously sold a call option giving the
counterparty the right to buy the same shares of stock from LSAT LLC in three
tranches in October 2003 for a weighted average price of $54.32 per share. The
put and call options for this collar were equally priced, resulting in no cash
receipts or payments.

    LSAT LLC has entered into an equity collar with a financial institution with
respect to its shares of XMSR common stock. The collar provides LSAT LLC with a
put option that gives it the right to require its counterparty to buy 1,000,000
shares of XMSR common stock from LSAT LLC in three tranches in November 2003,
December 2003 and February 2004 for a weighted average price of $28.55. LSAT LLC
simultaneously sold a call option giving the counterparty the right to buy the
same shares of stock from LSAT LLC in three tranches in November 2003,
December 2003 and February 2004 for a weighted average price of $51.49 per
share. The put and call options for this collar were equally priced, resulting
in no cash receipts or payments.

    Unrealized gains (losses) on financial instruments during 2002, 2001 and
2000 aggregated $2,393,000, $38,891,000 and ($14,426,000), respectively. The
details of such gains (losses) are as follows:



                                                       YEARS ENDED DECEMBER 31,
                                                    ------------------------------
                                                      2002       2001       2000
                                                    --------   --------   --------
                                                         AMOUNTS IN THOUSANDS
                                                                 
Change in fair value of GM Hughes put spread
  collar..........................................  $ 5,259      9,748      4,997
Change in time value of Sprint PCS Stock and XMSR
  equity collars..................................     (302)    25,902         --
Change in fair value of iBEAM Put Option..........   (2,564)     3,241    (19,423)
                                                    -------     ------    -------
                                                    $ 2,393     38,891    (14,426)
                                                    =======     ======    =======


                                     II-49

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(8) ACQUISITIONS AND DISPOSITIONS

    In July 2002, On Command consummated the sale (the "OCE Sale") of its 70%
majority shareholdings in On Command Europe Limited ("OCE") to Techlive Limited
("Techlive"), the owner of the remaining 30% interest in OCE. Proceeds from the
sale, net of cash transferred, aggregated $1,135,000. As a result of the
consummation of the OCE Sale, On Command recorded a $5,103,000 impairment loss
during the second quarter of 2002 to reduce the carrying value of OCE's
long-lived assets to the fair value indicated by the OCE Sale. During the third
quarter of 2002, OCE's remaining net assets, including a $930,000 cumulative
foreign currency translation loss, were written-off against the net proceeds
received, resulting in no material impact to the Company's net loss for the
period.

    Effective July 6, 2000, Ascent Entertainment sold its sports-related
businesses, which were comprised of the Denver Nuggets basketball team, the
Colorado Avalanche hockey team and Ascent Arena Company, the owner and operator
of the Pepsi Center, to an unrelated third party for cash consideration of
$267,661,000 and the assumption of $136,200,000 in non-recourse debt. In
connection with Liberty Media's acquisition of Ascent Entertainment on
March 28, 2000, net assets of the sport-related businesses were treated as
assets held for sale. Accordingly, the net assets of the sports-related
businesses were recorded at their estimated net realizable value, and no gain or
loss was recognized by Liberty Media in connection with the disposition of these
businesses. The operating results of the sports-related businesses from
March 28, 2000 through July 6, 2000, which were excluded from Liberty Media's
operating results and treated as an adjustment of the net realizable value of
the sports-related businesses, were not material.

(9) DEBT

    Debt is summarized as follows:



                                                             DECEMBER 31,
                                                         --------------------
                                                           2002        2001
                                                         ---------   --------
                                                         AMOUNTS IN THOUSANDS
                                                               
On Command Revolving Credit Facility(a)................  $ 261,633    263,633
PCS Loan Facility(b)...................................    112,503     97,503
Capital lease obligations..............................      1,146      2,037
                                                         ---------   --------
                                                           375,282    363,173
Less current portion...................................   (113,336)      (909)
                                                         ---------   --------
                                                         $ 261,946    362,264
                                                         =========   ========


------------------------

(a) At December 31, 2002, On Command's revolving credit facility, as amended in
    2001, (the "On Command Revolving Credit Facility") provided for aggregate
    borrowings of $275,000,000. Borrowings under the On Command Revolving Credit
    Facility are due and payable in July 2004. On Command had $13,367,000 of
    remaining availability under the On Command Revolving Credit Facility at
    December 31, 2002. On Command's ability to draw additional funds under the
    On Command Revolving Credit Facility is subject to On Command's continued
    compliance with applicable financial covenants.

    Revolving loans extended under the On Command Revolving Credit Facility bear
    interest at the London Interbank Offering Rate ("LIBOR") plus a spread that
    may range from 1.10% to 2.75%

                                     II-50

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    depending on certain operating ratios of On Command (3.94% effective
    borrowing rate at December 31, 2002). In addition, a facility fee ranging
    from 0.15% to 0.50% per annum is charged on the On Command Revolving Credit
    Facility, depending on certain operating ratios of On Command. The On
    Command Revolving Credit Facility contains customary covenants and
    agreements, most notably the inclusion of restrictions on On Command's
    ability to pay dividends or make other distributions, and restrictions on On
    Command's ability to make capital expenditures. In addition, On Command is
    required to maintain minimum leverage and interest coverage ratios. On
    Command was in compliance with such covenants at December 31, 2002.
    Substantially all of On Command's assets are pledged as collateral for
    borrowings under the On Command Revolving Credit Facility.

    At December 31, 2002, the maximum leverage ratio permitted under the On
    Command Revolving Credit Facility was 4.25, and On Command's actual leverage
    ratio was 3.99. The maximum leverage ratio permitted under the On Command
    Revolving Credit Facility at March 31, 2003 is 3.50. Although On Command is
    in compliance with the leverage ratio covenant at December 31, 2002, On
    Command believes that it would not have been in compliance with such
    covenant at March 31, 2003. In March 2003, On Command reached agreement with
    its bank lenders to postpone until June 29, 2003 the step-down of the
    leverage ratio covenant from 4.25 to 3.50. On Command is also seeking to
    restructure the On Command Revolving Credit Facility to, among other
    matters, extend the maturity date to December 31, 2007. It is anticipated
    that any closing of the restructuring of the On Command Revolving Credit
    Facility will be contingent upon the contribution of $40,000,000 by Liberty
    Media or one of its affiliates to On Command to be used to repay principle
    due, and permanently reduce lender commitments, pursuant to the restructured
    On Command Revolving Credit Facility. The terms of the proposed Liberty
    Media contribution (including the securities or other consideration to be
    received by Liberty Media or its affiliate in exchange for such
    contribution) have not yet been agreed upon, and no assurance can be given
    that Liberty Media or its affiliate will contribute $40,000,000 to On
    Command, as contemplated by the terms of the proposed restructuring. In the
    event On Command determines that it is unlikely that the proposed
    restructuring of the On Command Revolving Credit Facility will close on or
    before June 29, 2003, On Command anticipates that it would seek a further
    postponement of the step-down of the leverage ratio covenant, and would
    continue to seek to refinance or restructure the On Command Revolving Credit
    Facility. In the event that a restructuring or refinancing is not completed
    by the date that the leverage ratio is reduced to 3.50, On Command
    anticipates that a default would occur under the terms of the On Command
    Revolving Credit Facility. Upon the occurrence of a default, if left
    uncured, the bank lenders would have various remedies, including terminating
    their revolving loan commitment, declaring all outstanding loan amounts
    including interest immediately due and payable, and exercising their rights
    against their collateral which consists of substantially all of On Command's
    assets. No assurance can be given that On Command will be able to
    successfully restructure or refinance the On Command Revolving Credit
    Facility on terms acceptable to On Command, or that On Command will be able
    to avoid a default under the On Command Revolving Credit Facility. In light
    of the foregoing circumstances, On Command's independent auditors have
    included an explanatory paragraph in their audit report that addresses the
    ability of On Command to continue as a going concern.

(b) LSAT LLC's revolving credit facility, as amended, provides for maximum
    borrowings of $303,000,000 (the "PCS Loan Facility"). The PCS Loan Facility
    is secured by LSAT LLC's interest in shares of Sprint PCS Stock and by the
    Sprint PCS Stock equity collar. Interest accrues at the 30 day LIBOR (1.44%
    at December 31, 2002) and is payable monthly.

                                     II-51

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    Ascent Entertainment's Senior Secured Discount Notes (the "Ascent
Entertainment Senior Notes"), which were scheduled to mature on December 15,
2004, were originally sold at a discount. The terms of the Ascent Entertainment
Senior Notes required no cash interest payments prior to December 15, 2002. On
November 30, 2001, Ascent gave notice that it had elected to redeem the Ascent
Entertainment Senior Notes effective December 31, 2001 at a price of 105.9375%
of the accreted value of the Ascent Entertainment Senior Notes. This price
represented $948.63 per $1,000 principal amount, or an aggregate of
approximately $213,000,000, including accrued interest. Ascent Entertainment
recognized a loss of $14,322,000 in connection with such redemption.

    The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for the same remaining maturities. Due to its variable rate nature,
the fair value of the Company's debt approximated its carrying value at
December 31, 2002.

    Annual maturities of the Company's debt for each of the next five years are
as follows (amounts in thousands):


                                                           
2003........................................................  $113,336
2004........................................................   261,905
2005........................................................        38
2006........................................................         3
2007........................................................        --
                                                              --------
                                                              $375,282
                                                              ========


(10) MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES

ON COMMAND

    GENERAL

    During the first quarter of 2002, the cumulative losses allocated by Ascent
Entertainment to the On Command minority interests reduced to zero Ascent
Entertainment's carrying amount for the minority interests in On Command's
equity. Since the On Command minority interest holders have no obligation to
make further contributions to On Command, 100% of On Command's losses for
periods subsequent to March 31, 2002 have been, and will be in future periods,
allocated to Ascent Entertainment unless and to the extent that the On Command
minority interest holders make additional investments in On Command's equity.

    ON COMMAND WARRANTS

    At December 31, 2002, warrants ("On Command Warrants") issued by On Command
to purchase 7,494,854 shares of On Command Common Stock at a purchase price of
$15.27 per share were outstanding. The outstanding On Command Warrants, which
include 1,424,875 Series A Warrants, 2,619,979 Series B Warrants and 3,450,000
Series C Warrants, expire on October 7, 2003. The Series A Warrants provide only
for a cashless exercise that allows the holder to use the excess of the fair
market value of On Command Common Stock over the $15.27 exercise price as a
currency to acquire shares of On Command Common Stock. The exercise price for
the Series B and Series C Warrants is to be paid with cash. At December 31,
2002, Ascent Entertainment held 1,123,792 Series A Warrants and 40

                                     II-52

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Series B Warrants. The On Command Warrants are included in minority interests in
equity of consolidated subsidiaries in the accompanying consolidated balance
sheets.

    ON COMMAND SERIES A PREFERRED STOCK

    On August 8, 2000, On Command issued 13,500 shares of Series A, $.01 par
value Convertible Participating Preferred Stock ("On Command Series A Preferred
Stock"), to the former Chairman and Chief Executive Officer of On Command in
exchange for a $21,080,000 promissory note and a $13,500 cash payment. The On
Command Series A Preferred Stock is initially convertible into an aggregate of
1,350,000 shares of On Command Common Stock. The price of the On Command
Series A Preferred Stock was $1,562.50 per share. The On Command Series A
Preferred Stock participates in any dividends paid to the holders of On Command
Common Stock but otherwise is not entitled to receive any dividends. The On
Command Series A Preferred Stock has a liquidation preference of $.01 per share,
and will also participate with the On Command Common Stock in any liquidating
distributions on an as-converted basis. The holder of the Series A Preferred
Stock votes with the holders of the On Command Common Stock as a single class
and is entitled to one vote per share. The promissory note is secured by the On
Command Series A Preferred Stock or proceeds thereon and the former Chairman and
Chief Executive Officer's personal obligations under such promissory note are
limited to 25% of the principal amount of the note, plus accrued interest
thereon. The note may not be prepaid and interest on the note accrues at a rate
of 7% per annum, compounded quarterly. The right to transfer the Series A
Preferred Stock is restricted. The On Command Series A Preferred Stock is
included in minority interests in equity of consolidated subsidiaries in the
accompanying consolidated balance sheets.

(11) REDEEMABLE PREFERRED STOCK

    On March 16, 2000, the Company issued 150,000 shares of Series A Cumulative
Preferred Stock ("Series A Preferred Stock") and 150,000 shares of Series B
Preferred Stock to Liberty Media in exchange for shares of Sprint PCS Stock.

SERIES A CUMULATIVE PREFERRED STOCK

    The Series A Preferred Stock accrues dividends at 12% per annum at all times
prior to April 1, 2005, 11% on and after April 1, 2005 and prior to April 1,
2010, and 10% on and after April 1, 2010. Such dividends are payable the last
day of each March, June, September and December. Prior to April 1, 2003,
dividends may be paid, at the option of the Company, in cash, shares of
Series A Common Stock of the Company, or a combination of both. Subsequent to
March 31, 2003, dividends are payable in cash. Dividends not paid are added to
the liquidation preference on such date and remain a part of the liquidation
preference until such dividends are paid. In the event of a default, the
dividend rate will be equal to the dividend rate then in effect plus 2%. Subject
to certain specified exceptions, the Company is prohibited from paying dividends
on any shares, parity securities or junior securities during any period in which
the Company is in arrears with respect to payment of dividends on Series A
Preferred Stock.

    The holder of Series A Preferred Stock is not entitled to vote on any
matters submitted to a vote of the shareholders of the Company, except as
required by law and other limited exceptions.

    The liquidation preference of each share of the Series A Preferred Stock is
equal to the stated value per share of $1,000 plus all accrued and unpaid
dividends.

                                     II-53

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The Series A Preferred Stock is redeemable at the option of the Company, in
whole or from time to time in part, on any business day after April 1, 2020 at a
redemption price per share equal to the liquidation preference of such share on
the applicable redemption date. If less than all outstanding shares are to be
redeemed, shares will be redeemed ratably from the holders. On or after
April 1, 2020, the Series A Preferred Stock is redeemable at the option of the
holder for cash.

SERIES B CUMULATIVE CONVERTIBLE VOTING PREFERRED STOCK

    The Series B Preferred Stock accrues dividends at the rate of 8% per annum.
Such dividends are payable the last day of each March, June, September and
December. Prior to April 1, 2003, dividends may be paid, at the option of the
Company, in cash, shares of Series A Common Stock of the Company, or a
combination of both. Subsequent to March 31, 2003, dividends are payable in
cash. Dividends not paid are added to the liquidation preference on such date
and remain a part of the liquidation preference until such dividends are paid.
In the event of a default, the dividend rate will be 10% per annum. Subject to
certain specified exceptions, the Company is prohibited from paying dividends on
any shares, parity securities or junior securities during any period in which
the Company is in arrears with respect to payment of dividends on Series B
Preferred Stock.

    In addition to voting rights required by law, each share of Series B
Preferred Stock will be entitled to vote together with holders of the Series A
and Series B Common Stock as a single class upon all matters upon which holders
of Series A and Series B Common Stock are entitled to vote. In any such vote,
the holders of Series B Preferred Stock will be entitled to 558 votes per share
held. The Series B Preferred Stock is redeemable at the option of the Company
after April 1, 2005. At any date on or after April 1, 2020, the Series B
Preferred Stock is redeemable at the option of the holder for cash.

    The liquidation preference of each share of the Series B Preferred Stock as
of any date of determination is equal to the stated value per share of $1,000
plus all accrued and unpaid dividends.

    Each share of the Series B Preferred Stock is initially convertible into
11.31145 shares of Series B Common Stock. Such conversion rate was calculated as
the liquidation value of such shares divided by $88.406 and is adjustable based
on the adjusted liquidation value at the date of conversion.

    Accrued dividends on the Series A Preferred Stock and Series B Preferred
Stock aggregated $7,500,000 at December 31, 2002.

    Both the Series A and Series B Preferred Stock were issued at a discount
from the stated values of such shares. Therefore, the Company is accreting both
the Series A Preferred Stock and the Series B Preferred Stock up to the
respective redemption values over the period from the issuance date to the
redemption date using the effective interest method. Accretion on the Series A
and Series B Preferred Stock aggregated $6,120,000, $6,120,000 and $4,634,000
during 2002, 2001 and 2000 respectively. Such accretion has been accounted for
as a direct charge to additional paid-in capital and has been included in the
calculation of loss attributable to common shareholders.

                                     II-54

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) STOCKHOLDERS' EQUITY

PREFERRED STOCK

    The Company is authorized to issue 5,000,000 shares of preferred stock. The
preferred stock may be issued from time to time as determined by the Company's
Board of Directors (the "LSAT Board"), without stockholder approval. Such
preferred stock may be issued in such series and with such designations,
preferences, conversion or other rights voting powers, qualifications,
limitations, or restrictions as shall be stated or expressed in a resolution or
resolutions providing for the issue of such series adopted by the LSAT Board.

COMMON STOCK

    The Series A Common Stock has one vote per share and the Series B Common
Stock has ten votes per share. Each share of Series B Common Stock is
convertible, at the option of the holder, into one share of Series A Common
Stock.

    On December 4, 1996, (the "Spin-off Date"), Tele-Communications, Inc.
("TCI") (now a part of Comcast Corporation) distributed (the "Spin-off"), as a
dividend, all of the issued and outstanding LSAT common stock to the holders of
TCI's then outstanding TCI Group tracking stock. In connection with the
Spin-off, TCI and the Company entered into a "Share Purchase Agreement" to sell
to each other from time to time, at the then current market price, shares of
Series A TCI Group common stock and Series A Common Stock, respectively, as
necessary to satisfy their respective obligations after the Spin-off Date under
certain stock options and SARs held by their respective employees and
non-employee directors. At December 31, 2002, shares of Series A Common Stock
were reserved for issuance pursuant to options to purchase approximately 92,725
shares of Series A Common Stock that were held by current and former employees
of TCI pursuant to the Share Purchase Agreement. Such options, which have
expiration dates ranging from 2003 to 2005, include 10,579 options with an
exercise price of $8.40 per share, and 82,146 options with exercise prices
ranging from $174.70 to $237.60 per share.

    In August 2002, the LSAT Board of Directors authorized the Company's
purchase of up to 3,000,000 of Series A and Series B Common Stock in open market
purchases. The timing of purchases, prices paid and actual number of shares of
common stock purchased will depend on market conditions and the direction of
management. During 2002, LSAT purchased 24,900 shares of Series A Common Stock
for aggregate cash consideration of $53,000 pursuant to this share buy back
program.

    At December 31, 2002, a total of 380,820 shares of Series A Common Stock
were reserved for issuance pursuant to outstanding stock options and restricted
stock awards. In addition, 1,696,717 shares of Series B Common Stock are
reserved for issuance upon conversion of the Series B Preferred Stock, and one
share of Series A Common Stock is reserved for each outstanding share of
Series B Common Stock.

(13) STOCK COMPENSATION

LSAT STOCK OPTIONS

    The Liberty Satellite & Technology 1996 Stock Incentive Plan (the "LSAT 1996
Plan"), as amended, provides for awards to be made in respect of a maximum of
520,000 shares of Series A Common Stock (subject to certain anti-dilution
adjustments). Awards may be made as grants of stock

                                     II-55

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

options, stock appreciation rights ("SARs"), restricted shares, stock units,
performance awards or any combination thereof (collectively, "Awards"). Awards
may be made to employees and to consultants and advisors to the Company who are
not employees. Shares of Series A Common Stock that are subject to Awards that
expire, terminate or are annulled for any reason without having been exercised
(or deemed exercised, by virtue of the exercise of a related SAR), or are
forfeited prior to becoming vested, will return to the pool of such shares
available for grant under the LSAT 1996 Plan.

    Options granted to certain key employees and officers of LSAT pursuant to
the LSAT 1996 Plan generally vest over a 5-year period beginning on the date of
the grant, first becomes exercisable as to 25% on the second anniversary of the
date of grant and become exercisable as to an additional 25% on each of the
third, fourth and fifth anniversaries of the date of grant. Such options expire
10 years from the date of grant.

    In June 1996, the Board of Directors of TCI (the "TCI Board") authorized TCI
to permit certain of its executive officers to acquire equity interests in
certain of TCI's subsidiaries. In connection therewith, the TCI Board approved
the acquisition by each of two then executive officers of TCI who were not
employees of the Company (the "TCI Officers"), of 1.0% of the net equity of the
Company. The TCI Board also approved the acquisition by an individual who was
then the chief executive officer and a director of the Company (the "Company
Officer"), of 1.0% of the net equity of the Company and the acquisition by a
then executive officer of certain TCI subsidiaries who was also then a director,
but not an employee, of the Company (the "TCI Subsidiary Officer"), of 0.5% of
the net equity of the Company. The TCI Board determined to structure such
transactions as grants by the Company to such persons of options to purchase
shares of Series A Common Stock representing 1.0% (in the case of each of the
TCI Officers and the Company Officer) and 0.5% (in the case of the TCI
Subsidiary Officer) of the shares of Series A Common Stock and Series B Common
Stock issued and outstanding on the Spin-off Date, determined immediately after
giving effect to the Spin-off, but before giving effect to any exercise of such
options (the "Spin-off Date Options").

    Spin-off Date Options to purchase 232,427 shares of Series A Common Stock at
a per share price of $88.60 were granted on the Spin-off Date. In
February 1999, 66,408 of the Spin-off Date Options were cancelled. The remaining
Spin-off Date Options are fully vested at December 31, 2002 and expire
February 1, 2006.

    Pursuant to the terms of the Spin-off, and (in the case of the TCI Officers
and the TCI Subsidiary Officer) in partial consideration for the capital
contribution made by TCI to the Company in connection with the Spin-off, the
Company agreed, effective as of the Spin-off Date, to bear all obligations under
such options and to enter into stock option agreements with respect to such
options with each of the TCI Officers, the Company Officer and the TCI
Subsidiary Officer.

    The TCI Satellite Entertainment, Inc. 1997 Nonemployee Director Stock Option
Plan (the "LSAT DSOP") provides for the grant to each person that is a member of
the LSAT Board and is not an employee of the Company, its subsidiaries or its
affiliates, of options to purchase 5,000 shares of Series A Common Stock.
Options issued pursuant to the LSAT DSOP vest and become exercisable over a
three-year period from the date of grant and expire 10 years from the date of
grant.

                                     II-56

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The following table presents the number, weighted-average exercise price and
weighted-average grant-date fair value of the Spin-off Date Options and options
to buy Series A Common Stock granted pursuant to the LSAT 1996 Plan and the LSAT
DSOP.



                                                                          WEIGHTED-   WEIGHTED-
                                                                           AVERAGE     AVERAGE
                                                              NUMBER OF   EXERCISE    GRANT-DATE
                                                               OPTIONS      PRICE     FAIR VALUE
                                                              ---------   ---------   ----------
                                                                             
Outstanding at January 1, 2000..............................   382,070     $ 83.32
  Exercised.................................................   (54,000)    $ 78.60
  Forfeited and cancelled...................................    (9,000)    $ 71.30
  Granted...................................................    25,000     $111.90      $87.70
                                                               -------
Outstanding at December 31, 2000............................   344,070     $ 86.45
  Exercised.................................................        --
  Forfeited and cancelled...................................        --
  Granted...................................................    15,000     $ 26.00      $22.40
                                                               -------
Outstanding at December 31, 2001............................   359,070     $ 83.94
  Exercised.................................................        --
  Forfeited and cancelled...................................        --
  Granted...................................................        --
                                                               -------
Outstanding at December 31, 2002............................   359,070     $ 83.94
                                                               =======
Exercisable at December 31, 2000............................   175,815     $ 86.50
                                                               =======
Exercisable at December 31, 2001............................   203,327     $ 85.60
                                                               =======
Exercisable at December 31, 2002............................   276,545     $ 86.78
                                                               =======


    The outstanding options at December 31, 2002, which had a weighted-average
remaining contractual life of approximately five years, included 15,000 options
with an exercise price of $26.00 per share and 344,070 options with exercise
prices ranging from $71.25 to $119.38 per share.

    The respective estimated grant-date fair values of the options noted above
are based on the Black-Scholes model and are stated in current annualized
dollars on a present value basis. The key assumptions used in the model for
purposes of these calculations include the following: (a) a discount rate equal
to the one-year Treasury Bill rate; (b) an 85% volatility rate; (c) the 10-year
option term; (d) the closing price of the Series A Common Stock on the date of
grant; and (e) an expected dividend rate of zero.

ON COMMAND STOCK OPTIONS

    On Command adopted the 1996 Key Employee Stock Option Plan (the "On Command
1996 Plan") under which employees may be granted incentive or non-statutory
stock options for the purchase of On Command Common Stock. In addition,
restricted stock purchases, performance awards, stock payment or appreciation
rights or deferred stock may be granted under the On Command 1996 Plan. A total
of 3,000,000 shares were initially reserved for the On Command 1996 Plan. The On
Command 1996 Plan expires in 2006. In June 2000, the Board of Directors approved
an amendment to the On Command 1996 Plan to increase the number of shares
reserved under the On Command 1996 Plan to 5,250,000.

                                     II-57

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The exercise price of options granted is set by On Command's Board of
Directors. Incentive stock options are granted at no less than fair market value
on the date of grant. Options generally expire in ten years, vest over a
five-year period and are exercisable in installments of 20% one year from the
date of grant and 20% annually thereafter. Unvested options generally are
cancelled upon termination of employment.

1997 NON-EMPLOYEE DIRECTORS STOCK PLAN

    The On Command 1997 Non-Employee Directors Stock Plan, as amended, (the "On
Command Directors Plan") authorized the granting of an annual award of 400
shares of On Command Common Stock and, pursuant to an amendment adopted in 1999,
a one-time non-qualified option to purchase 50,000 shares of On Command Common
Stock (an "On Command Independent Director Option") to each On Command
independent director. The aggregate number of shares of On Command Common Stock
which may be issued upon exercise of On Command Independent Directors Options
granted under the On Command Directors Plan plus the number of shares which may
be awarded pursuant to the On Command Directors Plan will not exceed 696,800,
subject to adjustment to reflect events such as stock dividends, stock splits,
recapitalizations, mergers or reorganizations of or by On Command. Effective
December 2002, On Command's Board of Directors adopted a new compensation plan
for independent directors that eliminates the equity component set forth in the
On Command Directors Plan. Subject to the terms and conditions of the plan, the
stock options were granted at no less than fair market value on the date of
grant. The options generally expire in ten years, vest over a three-year period
and are exercisable in installments of 25% after the first and second years, and
the remaining 50% after the third year. During 2002, no options were granted
pursuant to the Directors Plan. In 2001 and 2000, options granted pursuant to
the On Command Directors Plan aggregated 50,000 and 200,000, respectively.

                                     II-58

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The following is a summary of activity under the On Command 1996 Plan and
the On Command Directors Plan:



                                                                            OPTIONS OUTSTANDING
                                                                           ---------------------
                                                                                        WEIGHTED
                                                               OPTIONS                  AVERAGE
                                                              AVAILABLE    NUMBER OF    EXERCISE
                                                              FOR GRANT      SHARES      PRICE
                                                              ----------   ----------   --------
                                                                               
Balances, January 1, 2000 (690,847 exercisable at a
  weighted-average price of $12.77).........................     436,224    2,489,079    $14.11
Granted (weighted-average fair value of $7.06)..............  (2,460,500)   2,460,500    $14.12
Increase in options authorized..............................   2,650,000           --
Exercised...................................................          --     (191,762)   $10.40
Cancelled...................................................     862,342     (862,342)   $15.25
                                                              ----------   ----------
Balances, December 31, 2000 (1,124,938 exercisable at a
  weighted-average price of $14.07).........................   1,488,066    3,895,475    $13.79
Granted (weighted-average fair value of $3.68)..............  (1,317,000)   1,317,000    $ 6.62
Exercised...................................................          --       (2,520)   $ 7.19
Cancelled...................................................   1,938,009   (1,938,009)   $13.24
                                                              ----------   ----------
Balances, December 31, 2001 (1,404,793 exercisable at a
  weighted-average price of $13.94).........................   2,109,075    3,271,946    $11.38
Granted (weighted average fair value of $3.32)..............  (1,282,000)   1,282,000    $ 4.74
Cancelled...................................................   1,213,850   (1,213,850)   $10.75
                                                              ----------   ----------
Balances, December 31, 2002 (1,187,907 exercisable at a
  weighted-average price of $12.87).........................   2,040,925    3,340,096    $ 9.06
                                                              ==========   ==========


    The following table summarizes information about On Command's fixed stock
options outstanding at December 31, 2002:



                                           OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
                                      -----------------------------   ----------------------------
                                        WEIGHTED
                                        AVERAGE
                          NUMBER       REMAINING        WEIGHTED        NUMBER         WEIGHTED
      RANGE OF          OUTSTANDING   CONTRACTUAL       AVERAGE       EXERCISABLE      AVERAGE
   EXERCISE PRICES      AT 12/31/02   LIFE (YEARS)   EXERCISE PRICE   AT 12/31/02   EXERCISE PRICE
---------------------   -----------   ------------   --------------   -----------   --------------
                                                                     
$    1.10 -   4.53         400,000        9.2            $ 2.20           38,000        $ 3.41
$    5.45 -   5.80       1,289,000        9.0            $ 5.54           89,000        $ 5.80
$    7.34 -   9.34         314,500        7.8            $ 7.65          153,500        $ 7.90
$   11.13 -  14.87         374,096        5.7            $12.74          262,957        $12.72
$   15.19 -  15.91         666,500        7.0            $15.27          351,400        $15.33
$   16.00 -  18.09         296,000        6.6            $16.03          293,050        $16.02
                         ---------                                     ---------
                         3,340,096        7.5            $ 9.06        1,187,907        $12.87
                         =========                                     =========


    The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock options, and accordingly, compensation expense has been recognized
for its stock options in the accompanying financial statements using the
intrinsic value method. The adjustment to stock compensation of $3,115,000 in
2000 resulted from a decrease in LSAT's liability for SARs.

                                     II-59

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

OTHER

    Effective February 1, 2001, certain key employees of the Company were
granted, pursuant to the LSAT 1996 Plan, an aggregate of 21,750 restricted
shares of Series A Common Stock. Such shares vest 25% on February 1, 2003, and
vest an additional 25% on each of February 1, 2004, 2005 and 2006. Compensation
expense with respect to the restricted shares aggregated $292,000 and $268,000
during 2002 and 2001, respectively.

(14) TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS

LSAT

    In September 2000, an executive officer, who was the Company's Chief
Executive Officer and President until his resignation on October 8, 2001,
purchased a 1.83% common stock interest in a subsidiary of Liberty Media for
$400,000. Such subsidiary owned an indirect interest in LSAT LLC. Liberty Media
and the executive officer entered into a shareholders agreement in which the
executive officer could require Liberty Media to purchase, after five years, all
or part of his common stock interest in the subsidiary, in exchange for Liberty
Media common stock, at its then fair value. In addition, Liberty Media had the
right to purchase, in exchange for Liberty Media common stock, the executive
officer's common stock interest for fair market value at any time. On
October 10, 2001, Liberty Media purchased the executive officer's 1.83% common
stock interest in the subsidiary for $425,000.

    During 2000, a then director of the Company exercised stock options to buy
5,000 shares of Series A Common Stock of the Company. Such options had an
exercise price of $65.00 per share, and the market price of Series A Common
Stock at the time of such exercise was $110.00. Simultaneously with such
exercise, the Company purchased from the director 2,954 shares of Series A
Common Stock for an aggregate purchase price of $325,000, which represented the
director's aggregate exercise price. Such shares are reflected as treasury
shares in the Company's consolidated statement of stockholders' equity.

    During 2000, two executive officers of the Company, received loans in the
principal amounts of $136,000 and $135,000, respectively, to be used solely for
the purpose of satisfying tax liabilities related to the lapse of restrictions
on shares of common stock awarded under the LSAT 1996 Plan. Through
December 31, 2001, the loans accrued interest at an annual rate of 6.41%. In
addition, each of the loans originally provided for principal and interest to be
payable upon the occurrence of certain events and in no event later than
December 1, 2001. During the first quarter of 2002, the Company agreed to extend
the maturity dates of the loans to December 31, 2003, and lower the annual
interest rates of the loans to 4% per annum. Consistent with the terms of the
original loans, interest payments may be deferred by the borrowers until
maturity. Each loan is secured in each case by 2,500 shares of the Company's
Series A Common Stock and are otherwise nonrecourse to the borrowers. As of
December 31, 2002, the balances outstanding on the loans including accrued
interest, were $155,000 and $154,000 respectively, and such balances were
reflected as reductions of stockholders' equity in the accompanying consolidated
balance sheets. Effective April 27, 2001, one of the executive officers became
the President of On Command. Since that date, On Command has been responsible
for 100% of such executive's compensation.

                                     II-60

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ASCENT ENTERTAINMENT

    During the second quarter of 2001, Ascent Entertainment purchased 2,245,155
shares of common stock of On Command from On Command's former Chairman of the
Board and Chief Executive Officer for aggregate cash consideration of
$25,191,000. Such purchase price represents a per share price of $11.22. The
closing market price for On Command common stock on the day the transaction was
signed was $7.77. The Company has included the $7,746,000 difference between the
aggregate market value of the shares purchased and the cash consideration paid
in selling, general and administrative expenses in the accompanying consolidated
statement of operations.

ON COMMAND

    On August 8, 2000, On Command issued 13,500 shares of On Command Series A
Preferred Stock, to the then Chairman and Chief Executive Officer of On Command
in exchange for a $21,080,000 promissory note and a $13,500 cash payment. The
promissory note is secured by the Series A Preferred Stock or proceeds thereon
and the former Chairman and Chief Executive Officer's personal obligations under
such promissory note are limited to 25% of the principal amount of the note plus
accrued interest thereon. The note, which may not be prepaid, is due and payable
on August 1, 2005, and interest on the note accrues at a rate of 7% per annum,
compounded quarterly.

    On Command had made arrangements for the use of an airplane owned by a
limited liability company of which On Command's former Chairman of the Board and
Chief Executive Officer is the sole member. When that airplane was used for
purposes related to the conduct of On Command's business, On Command reimbursed
the limited liability company for such use at market rates. The aggregate amount
paid for this service in 2001 was approximately $190,000. This arrangement was
terminated in June 2001.

    On August 3, 1998, On Command loaned a Senior Vice President of On Command
$175,000 in connection with such Senior Vice President's relocation. Interest on
the loan accrued at an annual interest rate of 6.34%. Interest accrued annually
but was not payable by the Senior Vice President until the last payment was made
on the loan in accordance with the terms of the loan agreement. All principal
amounts due under the loan were to be paid in three equal payments on
December 31, 2002, 2003 and 2004. As of December 31, 2002, the outstanding
balance on the loan to the Senior Vice President including accrued interest, was
approximately $206,000. On February 5, 2003, all amounts outstanding under this
loan were repaid in full.

                                     II-61

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(15) INCOME TAXES

    LSAT and its 80%-or-more owned subsidiaries have been included in Liberty
Media's consolidated tax return since April 1, 2002. As of December 31, 2002, On
Command was a separate taxpayer and was not included in Liberty Media's
consolidated tax return. In connection with the LSAT LLC and Ascent
Entertainment Transaction, the Company and Liberty Media entered into a Tax
Liability Allocation and Indemnification Agreement, and the Company assumed an
intercompany income tax liability owed by Ascent Entertainment to Liberty Media.
See note 4.

    Income tax benefit (expense) for 2002, 2001 and 2000 consists of:



                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                           
Current
  Federal...................................................  $15,228     18,596    (35,578)
  State, local and foreign..................................     (418)      (430)    (3,356)
                                                              -------     ------    -------
                                                               14,810     18,166    (38,934)
                                                              -------     ------    -------
Deferred
  Federal...................................................   17,527     20,075     59,248
  State, local and foreign..................................    3,284     (2,589)     8,136
                                                              -------     ------    -------
                                                               20,811     17,486     67,384
                                                              -------     ------    -------

Income tax benefit..........................................  $35,621     35,652     28,450
                                                              =======     ======    =======


    Income tax benefit (expense) differs from the amounts computed by applying
the federal income tax rate of 35% as a result of the following:



                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                           
Computed "expected" tax (benefit............................  $ 95,780    223,270    50,893
State and local income taxes, net of federal income tax
  benefit...................................................    10,748      2,910     4,686
Minority interest share of losses...........................       205     12,108     5,131
Change in valuation allowance...............................   (67,388)  (189,714)  (59,221)
Foreign taxes...............................................    (3,705)      (130)     (185)
Amortization of goodwill....................................        --    (13,326)   (5,994)
Tax benefit from disposal of investment.....................        --         --    27,210
Other.......................................................       (19)       534     5,930
                                                              --------   --------   -------
                                                              $ 35,621     35,652    28,450
                                                              ========   ========   =======


                                     II-62

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001 are presented below:



                                                             DECEMBER 31,
                                                         --------------------
                                                           2002        2001
                                                         ---------   --------
                                                         AMOUNTS IN THOUSANDS
                                                               
Deferred tax assets:
  Capital and net operating loss carryforwards and tax
    credits............................................  $ 192,097    177,696
  Investments..........................................    241,620    181,261
  Future deductible amounts principally due to accruals
    deductible in later periods........................      3,582      4,921
                                                         ---------   --------
    Total deferred tax assets..........................    437,299    363,878
  Valuation allowance..................................   (414,179)  (346,791)
                                                         ---------   --------
    Net deferred tax assets............................     23,120     17,087
Deferred tax liabilities:
  Property and equipment...............................    (20,724)   (18,106)
  Intangible assets....................................     (4,931)   (24,610)
  Future taxable amounts principally due to accruals
    recognized for tax purposes........................    (12,023)    (1,540)
                                                         ---------   --------
      Net deferred tax liabilities.....................  $ (14,558)   (27,169)
                                                         =========   ========


    The valuation allowance for deferred tax assets as of December 31, 2002 and
2001 was $414,179,000 and $346,791,000, respectively. Such balances increased
$67,388,000 and $189,714,000 from December 31, 2001 and 2000, respectively.

    The Company has analyzed the sources and expected reversal periods of its
deferred tax assets. The Company believes that the tax benefits attributable to
deductible temporary differences will be realized to the extent of future
reversals of existing taxable temporary differences.

    At December 31, 2002, the Company had capital and net operating loss carry
forwards for income tax purposes aggregating approximately $544,201,000 which,
if not utilized to reduce taxable income in future periods, expire as follows
(amounts in thousands):


                                                           
2009........................................................  $ 42,971
2011........................................................  $  5,783
2012........................................................  $ 62,712
2018........................................................  $136,988
2019........................................................  $ 44,039
2020........................................................  $117,400
2021........................................................  $ 76,333
2022........................................................  $ 57,975


    Current federal and state tax laws include substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and tax credit carryforwards may be limited as a
result of such restrictions. Such a limitation could result in the expiration of
carryforwards before they are utilized.

                                     II-63

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The Company and TCI entered into a tax sharing agreement (the "TCI Tax
Sharing Agreement") dated June 1997, to confirm that (i) neither the Company nor
any of its subsidiaries has any obligation to indemnify TCI or the TCI
shareholders for any tax resulting from the Spin-off failing to qualify as a
tax-free distribution pursuant to Section 355 of the Internal Revenue Code of
1986 (the "Code"); (ii) TCI is obligated to indemnify the Company and its
subsidiaries for any taxes resulting from the Spin-off failing to qualify as a
tax-free distribution pursuant to Section 355 of the Code; (iii) to the best
knowledge of TCI, the Company's total payment obligation under the TCI Tax
Sharing Agreement could not reasonably be expected to exceed $5,000,000.

(16) EMPLOYEE BENEFIT PLANS

    On Command is the sponsor of the On Command 401(k) Saving Plan, which
provides employees an opportunity to create a retirement fund by contributing up
to 15% of their eligible earnings in several different mutual funds. On Command,
by annual resolution of On Command's Board of Directors, generally contributes
up to 50% of the amount contributed by employees up to a maximum matching
contribution of 4% of the participating employee's wages. Matching contributions
made by On Command were approximately $798,000, $971,000 and $1,068,000 for
2002, 2001 and 2000, respectively.

    In August 1997, On Command adopted the Employee Stock Purchase Plan (the "On
Command ESP Plan") which is intended to qualify under Section 423 of the
Internal Revenue Code. Under the terms of the On Command ESP Plan, On Command
employees can purchase On Command Common Stock at a 10% discount from the market
value on the purchase date. As of December 31, 2002, all shares authorized for
issuance pursuant to the On Command ESP Plan had been purchased by On Command
employees.

(17) CONCENTRATION OF RISK

    The Company invests its cash in high-credit quality institutions. These
instruments are short-term in nature and, therefore, bear minimal credit risk.

    On Command generates the majority of its revenue from the guest usage of
proprietary video systems in various hotels located primarily throughout the
United States, Canada and Mexico. On Command performs periodic credit
evaluations of its installed hotel locations and generally requires no
collateral while maintaining allowances for potential credit losses.

    During 2002, hotels owned, managed or franchised by Marriott
International, Inc. ("Marriott"), Hilton Hotels Corporation ("Hilton"), Six
Continents Hotels, Inc. ("Six Continents"), Hyatt Hotel Corporation ("Hyatt"),
and Starwood Hotels and Resorts Worldwide, Inc. ("Starwood") accounted for 30%,
16% 12%, 7% and 7%, respectively, of On Command's total net room revenue.
Accordingly, hotels owned, managed or franchised by On Command's five largest
hotel chain customers accounted for 72% of On Command's total net room revenue
during 2002. The loss of any of these hotel chain customers, or the loss of a
significant number of other hotel chain customers, could have a material adverse
effect on the Company's results of operations and financial condition.

    As further discussed below, the Hilton master contract has expired, and
Hilton has signed a new master contract with a competitor of On Command. In
addition, On Command does not have master contracts with either Starwood or Six
Continents, and the Hyatt master contract provides for the simultaneous
expiration of On Command's contractual relationships with all of the individual
hotels

                                     II-64

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

that are subject to the Hyatt master contract as of December 31, 2004. At
December 31, 2002, On Command provided entertainment services to approximately
178,000 rooms in hotels that are owned, managed or franchised by Starwood or Six
Continents. Agreements with respect to approximately 54% of such Starwood and
Six Continents rooms have already expired, or will expire by December 31, 2004.
At December 31, 2002, approximately 39,000 or 61% of On Command's Starwood rooms
were located in Sheraton or Four Points hotels that, depending on whether such
hotels are owned, managed or franchised by Starwood, may be covered by a master
contract with a competitor of On Command upon the expiration of such hotels'
contracts with On Command. On Command is actively pursuing master agreements
with Hyatt and Six Continents, and with Starwood with respect to the Starwood
brands that are not already covered by a competitor's contract. In certain
cases, On Command is also pursuing direct contractual relationships with
individual hotels that are owned, managed or franchised by these hotel chains.
No assurance can be given that On Command will be successful in executing master
or individual hotel contracts. Due to the significant cost involved in changing
the proprietary video equipment installed in hotels, On Command expects that,
regardless of the expiration dates of master contracts or individual contracts
with hotels, On Command will continue to be the provider of in-room
entertainment services for individual hotels that are not under contract until
such time as a competitor's equipment can be installed. For this and other
reasons, On Command does not anticipate that it will cease earning revenue from
all of its Hyatt rooms on December 31, 2004 in the event that a new master
contract has not been executed by that date.

    In October 2000, Hilton announced that it would not be renewing its master
contract with On Command. As a result, hotels owned, managed or franchised by
Hilton are currently subject to a master contract between Hilton and a
competitor of On Command. Accordingly, On Command anticipates that hotels owned
by Hilton will not renew their contracts as they expire. On the other hand,
hotels that are managed or franchised by Hilton are not precluded from renewing
their contracts with On Command, and, although no assurance can be given, On
Command anticipates that certain of those hotels will choose to renew. At
December 31, 2002, On Command provided service to approximately 126,200 rooms in
534 hotels that are owned, managed or franchised by Hilton. The majority of
these rooms are located in managed or franchised hotels that are not owned by
Hilton. Through December 31, 2002, On Command's contracts with 71 of the
aforementioned 534 hotels (20,400 rooms) had expired and service to these hotels
is currently provided under monthly or other short-term renewals. On Command's
individual contracts with the remaining 463 Hilton hotels (105,800 rooms) expire
at various dates through 2010, with 56% of those rooms expiring by 2005. During
2002, On Command entered into new contracts, or renewed existing contracts, with
respect to 7,000 rooms that were franchised by Hilton, and 2,600 rooms that were
managed by Hilton. Over time, On Command anticipates that the revenue it derives
from hotels that are owned, managed or franchised by Hilton will decrease.
However, due to the uncertainties involved, On Command is currently unable to
predict the amount and timing of the revenue decreases.

    During 2001, Marriott, Hilton and Six Continents accounted for 27%, 19% and
12%, respectively of On Command's net room revenue. During 2000, Marriott,
Hilton and Six Continents accounted for 24%, 20% and 11%, respectively of On
Command's net room revenue.

                                     II-65

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(18) COMMITMENTS AND CONTINGENCIES

    COMMITMENTS

    The Company leases office space and certain equipment pursuant to
noncancelable operating leases. Rental expense under such agreements amounted to
$3,737,000, $4,914,000 and $3,967,000 for 2002, 2001 and 2000, respectively.

    Future minimum annual payments under non-cancelable operating leases at
December 31, 2002 are as follows (amounts in thousands):



YEARS ENDING DECEMBER 31:
-------------------------
                                                           
  2003......................................................   $3,229
  2004......................................................    2,124
  2005......................................................      881
  2006......................................................      308
  2007 and thereafter.......................................       95
                                                               ------
  Total.....................................................   $6,637
                                                               ======


    The foregoing future minimum payment amounts include $1,590,000 of future
payments provided for in certain On Command restructuring accruals. Such
reserves are included in other accrued liabilities and other long term
liabilities in the accompanying consolidated balance sheets.

    On Command is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, On Command is committed to carry such
suppliers' programming on its video systems. Additionally, certain of such
agreements provide for penalties and charges in the event the programming is not
carried or not delivered to a contractually specified number of rooms.

    In certain cases, On Command has entered into master contracts whereby On
Command has agreed to purchase televisions and/or provide other forms of capital
assistance and, to a lesser extent, provide television maintenance services to
hotels during the respective terms of the applicable contracts.

    In connection with the first quarter 2001 acquisition of Hotel Digital
Network, Inc. ("HDN"), On Command entered into a stockholders' agreement (the
"HDN Stockholders' Agreement") with the then controlling stockholder of Hotel
Digital Network (the "HDN Stockholder"). The HDN Stockholders' Agreement
provides the HDN Stockholder with the right during each of the 30-day periods
beginning on March 1, 2003 and 2004 to require On Command to exchange shares of
On Command Common Stock for all, but not less than all, of the HDN common shares
held by the HDN Stockholder. On March 20, 2003, the HDN Stockholder exercised
such right. The HDN Stockholders' Agreement also provides On Command with the
right during the 30-day period beginning on March 1, 2006 to require the HDN
Stockholder to exchange all, but not less than all, of his HDN common shares for
shares of On Command Common Stock. The number of shares of On Command Common
Stock to be issued in any such exchanges will be determined based on the then
market value of On Command Common Stock and the then fair value of HDN common
stock, each as determined in accordance with the HDN Stockholders' Agreement. At
December 31, 2002, On Command held 85.9%, and the HDN Stockholder held 13.3% of
the outstanding HDN common stock. Based on On Command's current assessment of
values, On Command does not expect that the settlement of this obligation will
have a material impact on its capitalization, financial condition or results of
operations.

                                     II-66

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    CONTINGENCIES

    Liberty Media International, Inc. ("Liberty International"), a subsidiary of
Liberty Media, and other investors in the Sky Latin America businesses have
severally guaranteed obligations due under certain transponder agreements and
equipment lease agreements through 2018. The Company has indemnified Liberty
International with respect to Liberty International's obligations under these
guarantees. At December 31, 2002, the portions of the remaining undiscounted
obligations due under such transponder agreements and equipment lease agreements
that were severally guaranteed by Liberty International aggregated approximately
$107,906,000 and $7,000,000, respectively. During the fourth quarter of 2002,
Globo Comunicacoes e Participacoes ("GloboPar"), an investor in three of the Sky
Latin America entities, announced that it was reevaluating its capital
structure. Since that time, GloboPar has not provided any funding to the three
Sky Latin America entities in which it is an investor. In the case of one such
entity, Sky Multi-Country Partners ("Sky Multi-Country"), the Company and the
other investors in Sky Multi-Country have each entered into a Forbearance
Agreement with respect to Sky Multi-Country's obligations under a Transponder
Services Agreement with PamAmSat Corporation (successor-in-interest to PamAmSat
International, Inc.) ("PamAmSat"). Pursuant to the Forbearance Agreement,
PamAmSat will forbear from enforcing its rights under the Transponder Services
Agreement through April 30, 2003, provided that it receives at least 70% of the
fees due under the Transponder Services Agreement. Through March 15, 2003, the
Company and the other investors in Sky Multi-Country have collectively funded at
lease 70% of the fees due under the Transponder Service Agreement. At
December 31, 2002, the aggregate obligations of Sky Multi-Country that were
severally guaranteed by Liberty International were $40,667,000. Sky
Multi-Country funds another Sky Latin America entity in which GloboPar is an
investor. At December 31, 2002, the aggregate obligations of this entity that
are severally guaranteed by Liberty International were $7,000,000. In the case
of Sky Brasil Servicos Limitada ("Sky Brasil"), another entity in which GloboPar
is an investor, an investor other than the Company had previously agreed in
July 2002 to assume up to $50,000,000 of GloboPar's funding obligations through
2003 in exchange for increased ownership and governance rights. At December 31,
2002, the aggregate obligations of Sky Brasil that are severally guaranteed by
Liberty International were $41,360,000. As detailed above, the three entities in
which GloboPar is an investor account for approximately $89,027,000 of the
aggregate obligations guaranteed by Liberty International at December 31, 2002.
To the extent that the Company or other investors do not fully assume GloboPar's
funding obligations, any funding shortfall could lead to defaults under
applicable transponder agreements and equipment lease agreements. With respect
to the equipment lease agreements, default also includes bankruptcy, debt
default, or material adverse change in the business or financial condition of
any guarantor that materially adversely affects the ability of any such
guarantor to perform its obligations under the guarantee. In the event any such
defaults were to occur, the default provisions of the applicable agreements
would determine the ultimate amount to be paid by the Company. The Company
believes that the maximum amount of the Company's aggregate exposure under the
default provisions of the various agreements is not in excess of the
undiscounted remaining obligations guaranteed by the Company, as set forth
above. The Company cannot currently predict if, and to what extent, it will be
required to perform under any of such guarantees.

    On Command has received a series of letters from Acacia Media Technologies
Corporation regarding a portfolio of patents owned by Acacia. Acacia has alleged
that its patents cover certain activities performed by On Command and has
proposed that On Command take a license under those patents. On Command is
reviewing Acacia's patents and believes there are substantial arguments that
Acacia's claims lack merit.

                                     II-67

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    The Company has contingent liabilities related to other legal proceedings
and other matters arising in the ordinary course of business. Although it is
reasonably possible the Company may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the opinion
of management, it is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to the accompanying
consolidated financial statements.

(19) INFORMATION ABOUT OPERATING SEGMENTS

    LSAT identifies its reportable segments as those consolidated subsidiaries
that represent 10% or more of its combined revenue, net earnings or loss, or
total assets and those equity method affiliates whose share of earnings or
losses represent 10% or more of its pre-tax earnings or loss. Subsidiaries and
affiliates not meeting this threshold are aggregated together for segment
reporting purposes. The segment presentation for prior periods has been
conformed to the current period segment presentation.

    For the year ended December 31, 2002, LSAT had two operating segments: "On
Command" and "Other." On Command provides in-room, on-demand video entertainment
and information services to hotels, motels and resorts primarily in the United
States and is majority owned and consolidated by LSAT. "Other" includes LSAT's
non-consolidated investments, corporate and other consolidated businesses not
representing separately reportable segments.

    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. LSAT evaluates performance based
on the measures of revenue and operating cash flow. LSAT defines operating cash
flow as operating income before deducting stock compensation, depreciation and
amortization, and asset impairments and other charges. LSAT's definition of
operating cash flow may differ from cash flow measurements provided by other
public companies. LSAT believes operating cash flow is a widely used financial
indicator of companies similar to LSAT and its affiliates, which should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with generally accepted accounting
principles. LSAT generally accounts for intersegment sales and transfers as if
the sales or transfers were to third parties, that is, at current prices.

                                     II-68

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    LSAT utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:



                                                              ON COMMAND    OTHER       TOTAL
                                                              ----------   --------   ---------
                                                                    AMOUNTS IN THOUSANDS
                                                                             
PERFORMANCE MEASURES:

Year ended December 31, 2002
  Revenue...................................................   $238,397        420      238,817
  Operating cash flow.......................................   $ 65,431     (2,378)      63,053

Year ended December 31, 2001
  Revenue...................................................   $239,409     14,978      254,387
  Operating cash flow.......................................   $ 44,131    (11,797)      32,334

Year ended December 31, 2000
  Revenue...................................................   $200,416     17,857      218,273
  Operating cash flow.......................................   $ 50,440      2,502       52,942

BALANCE SHEET INFORMATION:

As of December 31, 2002
  Total assets..............................................   $397,973    477,246      875,219
  Investments in affiliates.................................         --         --           --
As of December 31, 2001
  Total assets..............................................   $584,726    640,171    1,224,897
  Investments in affiliates.................................   $     --     12,158       12,158


    The following table provides a reconciliation of segment operating cash flow
to loss before income taxes and minority interest:



                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2002        2001       2000
                                                              ---------   --------   --------
                                                                   AMOUNTS IN THOUSANDS
                                                                            
Segment operating cash flow.................................  $  63,053     32,334     52,942
Stock compensation..........................................       (292)      (268)     3,115
Depreciation and amortization...............................   (133,400)  (172,326)  (135,312)
Asset impairments and other charges.........................     (8,850)      (709)    (1,634)
Interest expense............................................    (18,530)   (47,477)   (34,843)
Share of losses of affiliates...............................    (13,705)  (424,247)    (7,251)
Nontemporary declines in fair value of investments..........   (163,881)   (96,438)    (9,860)
Unrealized gain (losses) on financial instruments...........      2,393     38,891    (14,426)
Other, net..................................................       (611)    (2,021)   (13,218)
                                                              ---------   --------   --------
Loss before income taxes and minority interest..............  $(273,823)  (672,261)  (160,487)
                                                              =========   ========   ========


                                     II-69

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(20) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)



                                                           1ST        2ND        3RD        4TH
                                                         QUARTER    QUARTER    QUARTER    QUARTER
                                                        ---------   --------   --------   --------
                                                                  AMOUNTS IN THOUSANDS,
                                                                 EXCEPT PER SHARE AMOUNTS
                                                                              
2002:
  Revenue, as reported................................  $     105    61,104     60,895
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........     57,383        --         --
                                                        ---------   -------    -------
  Revenue, as adjusted................................  $  57,488    61,104     60,895      59,330
                                                        =========   =======    =======    ========
  Operating loss, as reported.........................  $    (941)  (21,920)   (17,600)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........    (20,338)       --         --
                                                        ---------   -------    -------
  Operating loss, as adjusted.........................  $ (21,279)  (21,920)   (17,600)    (18,690)
                                                        =========   =======    =======    ========

  Loss before cumulative effect of accounting change,
    as reported.......................................  $   6,314   (83,941)   (29,666)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........    (32,159)       --         --
                                                        ---------   -------    -------
  Loss before cumulative effect of accounting change,
    as adjusted.......................................  $ (25,845)  (83,941)   (29,666)    (98,585)
                                                        =========   =======    =======    ========
  Net loss attributable to common shareholders, as
    reported..........................................  $  (2,629)  (92,971)   (38,696)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........   (138,083)       --         --
                                                        ---------   -------    -------
  Net loss attributable to common shareholders, as
    adjusted..........................................  $(140,712)  (92,971)   (38,696)   (107,615)
                                                        =========   =======    =======    ========
  Basic and diluted loss per common share before
    cumulative effect of accounting change, as
    reported..........................................  $    0.84     (2.02)     (0.67)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........      (1.46)       --         --
                                                        ---------   -------    -------
  Basic and diluted loss per common share before
    cumulative effect of accounting change, as
    adjusted..........................................  $   (0.62)    (2.02)     (0.67)      (2.15)
                                                        =========   =======    =======    ========
  Basic and diluted loss per common share, as
    reported..........................................  $   (0.35)    (2.24)     (0.88)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........      (3.04)       --         --
                                                        ---------   -------    -------
  Basic and diluted loss per common share, as
    adjusted..........................................  $   (3.39)    (2.24)     (0.88)      (2.35)
                                                        =========   =======    =======    ========


                                     II-70

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIARIES

            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



                                                          1ST        2ND        3RD        4TH
                                                        QUARTER    QUARTER    QUARTER    QUARTER
                                                        --------   --------   --------   --------
                                                                  AMOUNTS IN THOUSANDS,
                                                                EXCEPT PER SHARE AMOUNTS
                                                                             
2001:
  Revenue, as reported................................  $    105        105       105         105
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........    67,645     69,145    61,642      55,535
                                                        --------   --------   -------    --------
  Revenue, as adjusted................................  $ 67,750     69,250    61,747      55,640
                                                        ========   ========   =======    ========
  Operating loss, as reported.........................  $   (759)      (785)   (1,664)     (1,531)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........   (32,361)   (44,456)  (28,358)    (31,055)
                                                        --------   --------   -------    --------
  Operating loss, as adjusted.........................  $(33,120)   (45,241)  (30,022)    (32,586)
                                                        ========   ========   =======    ========
  Net loss attributable to common shareholders, as
    reported..........................................  $(12,088)   (49,203)   (9,154)    (67,975)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........   (55,323)  (161,784)  (26,494)   (256,362)
                                                        --------   --------   -------    --------
  Net loss attributable to common shareholders, as
    adjusted..........................................  $(67,411)  (210,987)  (35,648)   (324,337)
                                                        ========   ========   =======    ========
  Basic and diluted loss per common share, as
    reported..........................................  $  (1.65)     (6.72)    (1.22)      (9.03)
    Adjustment for related party acquisition accounted
      for similar to a pooling of interests...........       .02       1.61       .36        1.22
                                                        --------   --------   -------    --------
  Basic and diluted loss per common share, as
    adjusted..........................................  $  (1.63)     (5.11)    (0.86)      (7.81)
                                                        ========   ========   =======    ========


(21) SUBSEQUENT EVENTS

    In March 2003, the Company received proceeds of approximately $149 million
upon the sale of a portion of its Sprint PCS Stock and the settlement of a
portion of its interests in the Sprint PCS Stock equity collar. The Company used
approximately $48 million of such proceeds to repay all amounts due under its
note payable to Liberty Media. In April 2003, the Company expects to receive
additional proceeds of approximately $154 million in connection with the sale of
its remaining Sprint PCS Stock and the settlement of its remaining interests in
the Sprint PCS Stock equity collar. The Company expects to use approximately
$115 million of such proceeds to repay all amounts due under the PCS Loan
Facility.

                                     II-71

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    The following lists the directors and executive officers of Liberty
Satellite and Technology, Inc. ("LSAT," and together with its consolidated
subsidiaries, the "Company"), their birth dates, a description of their business
experience and positions held with the Company, as of February 1, 2003, unless
otherwise noted.



NAME                                               POSITION
----                     ------------------------------------------------------------
                      
Alan M. Angelich .....   Has served as a director of the Company since August 2000.
Born October 22, 1943    Mr. Angelich has been the President of Janco Capital
                         Partners, Inc., an investment banking firm specializing in
                         the telecommunications industry, since December 1995 when he
                         co-founded the firm.

Robert R. Bennett ....   Has served as a director of the Company since August 2000.
Born April 19, 1958      Mr. Bennett has served as President and Chief Executive
                         Officer of the Company's parent, Liberty Media Corporation
                         ("Liberty Media"), since April 1997. Mr. Bennett served as
                         Executive Vice President of Tele-Communications, Inc.
                         ("TCI") (now a part of Comcast Corporation) from April 1997
                         to March 1999. Mr. Bennett has held various executive
                         positions since Liberty Media's inception in 1990. Mr.
                         Bennett is a director of Liberty Media, Ascent Media Group,
                         Inc. (formerly Liberty Livewire Corporation) ("Ascent
                         Media"), UnitedGlobalCom, Inc. ("UnitedGlobalCom"), USA
                         Interactive, and OpenTV Corp.

William H. Berkman .     Has served as a director of the Company since August 2000.
Born February 26, 1965   Since January 2000, Mr. Berkman has been the Managing
                         Partner of the Associated Group, LLC, the general partner of
                         Liberty Associated Partners, LP, an investment partnership
                         specializing in the telecommunications and media industry.
                         From 1994 to January 2000, Mr. Berkman was a principal at
                         The Associated Group, Inc., a publicly traded company. Mr.
                         Berkman was also one of the founders of Teligent, Inc. and
                         served as a member of Teligent, Inc.'s board of directors
                         from August 1996 to January 2000.

William R.               Has served as a director of the Company since April 1, 2002.
Fitzgerald .             Mr. Fitzgerald has served as Senior Vice President of
Born May 20, 1957        Liberty Media and as Chairman of the Board of Ascent Media,
                         since August 2000, and has served as Acting Chief Executive
                         Officer of Ascent Media since May 2002. Mr. Fitzgerald
                         served as Chief Operating Officer, Operations
                         Administration, of AT&T Broadband LLC (formerly TCI, and now
                         a part of Comcast Corporation), from August 1999 to May
                         2000, and Executive Vice President and Chief Operating
                         Officer of TCI from March 1999 to August 1999. Mr.
                         Fitzgerald served as Executive Vice President and Chief
                         Operating Officer of TCI Communications, Inc. (TCI
                         Communications"), the domestic cable subsidiary of TCI, from
                         November 1998 to March 1999, and served as Executive Vice
                         President of TCI Communications from December 1997 to March
                         1999. Mr. Fitzgerald is a director of On Command Corporation
                         ("On Command"), an indirect subsidiary of the Company, and
                         Ascent Media.


                                     III-1




NAME                                               POSITION
----                     ------------------------------------------------------------
                      
John W. Goddard ......   Has served as a director of the Company since December 1996.
Born May 4, 1941         Mr. Goddard served as President and Chief Executive Officer
                         of the cable division of Viacom International, Inc. from
                         1980 until the division was sold in July 1996. Mr. Goddard
                         is also a director of Cable Television Laboratories, Inc.
                         (Cablelabs), and The Deafness Research Foundation and is a
                         Trustee of the Walter Kaitz Foundation.

J. Curt Hockemeier ...   Has served as a director of the Company since August 2000.
Born May 15, 1948        Mr. Hockemeier has been President of Arbinet-thexchange, a
                         leading online telecommunications exchange, since April
                         2000, and Chief Executive Officer since August 2000. From
                         June 1999 until April 2000, Mr. Hockemeier served as
                         Executive Vice President and Chief Operating Officer for
                         telephone operations for AT&T Broadband, LLC (formerly TCI,
                         and now a part of Comcast Corporation) and from July 1998
                         until June 1999, he served as AT&T Local Network Services'
                         Vice President. Beginning in 1992, Mr. Hockemeier served as
                         Senior Vice President of Affiliate Services for Teleport
                         Communications Group and held other senior management
                         positions with Teleport, including Senior Vice President of
                         National Operations, until AT&T Corporation acquired
                         Teleport Communications Group in July 1998.

Gary S. Howard .......   Has served as Chairman of the Board since August 2000 and
Born February 22, 1951   has served as a director of the Company since November 1996.
                         Mr. Howard served as Chief Executive Officer of the Company
                         from December 1996 until April 2000. From February 1995
                         through August 1997, Mr. Howard also served as President of
                         the Company. Mr. Howard has served as the Executive Vice
                         President, Chief Operating Officer and director of Liberty
                         Media since July 1998. Mr. Howard served as Executive Vice
                         President of TCI from December 1997 to March 1999; as Chief
                         Executive Officer, Chairman of the Board and director of TV
                         Guide, Inc. from June 1997 to March 1999; and as President
                         and Chief Executive Officer of TCI Ventures Group, LLC from
                         December 1997 to March 1999. Mr. Howard is a director of
                         Liberty Media, Ascent Media, UnitedGlobalCom, On Command and
                         SpectraSite, Inc.

Kenneth G. Carroll ...   Has served as Senior Vice President and Chief Financial
Born April 21, 1955      Officer of the Company since February 1995 and as Treasurer
                         since August 1999. Mr. Carroll is currently the Company's
                         acting President. He has also served as Senior Vice
                         President and Chief Financial Officer of Phoenixstar, Inc.
                         (formerly known as PRIMESTAR, Inc.) since April 1998. Mr.
                         Carroll is a director of On Command.


    The directors of the Company will hold office until the next annual meeting
of stockholders of the Company and until their successors are duly elected and
qualified. The executive officers named above will serve in such capacities
until the next annual meeting of the Company's Board of Directors (the "LSAT
Board"), or until their respective successors have been duly elected and have
been qualified, or until their earlier death, resignation, disqualification or
removal from office.

    The Company's charter provides for a Board of Directors of not less than
three members. The exact number of directors is fixed by resolution of the LSAT
Board.

    There are no family relations by blood, marriage or adoption, of first
cousin or closer, among the above named individuals.

                                     III-2

    During the past five years, none of the persons named above has had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than ten percent
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file.

    Based solely on review of the copies of Forms 3, 4 and 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year, or
written representations that no Forms 5 were required, the Company believes
that, during the year ended December 31, 2002, its officers, directors and
greater-than-ten-percent beneficial owners complied with all Section 16(a)
filing requirements.

ITEM 11. EXECUTIVE COMPENSATION

    (a) SUMMARY COMPENSATION TABLE

    The following table is a summary of all forms of compensation paid by the
Company to the officer named therein for services rendered in all capacities to
the Company for the fiscal years ended December 31, 2002, 2001 and 2000.



                                                       ANNUAL
                                                    COMPENSATION        LONG-TERM COMPENSATION
                                                    ------------      --------------------------
                                                                                      SECURITIES          ALL
                                                                      RESTRICTED      UNDERLYING         OTHER
NAME AND PRINCIPAL POSITION                                             STOCK          OPTIONS/       COMPENSATION
WITH THE COMPANY                           YEAR        SALARY           AWARD            SARS             (4)
---------------------------------------  --------   ------------      ----------      ----------      ------------
                                                                                       
Kenneth G. Carroll ....................    2002       $284,457         $     --             --           $17,856
  (Senior Vice President,                  2001       $278,000         $314,063(2)      15,000(3)        $17,500
  CFO, Treasurer and Acting President)     2000       $238,343(1)      $     --             --           $15,000


------------------------

(1) Mr. Carroll began receiving compensation from the Company on February 1,
    2000. Accordingly, the 2000 compensation information included in the table
    represents eleven months of employment.

(2) Effective February 1, 2001, Mr. Carroll was granted 7,500 restricted shares
    of the Company's Series A common stock ("Series A Common Stock"). Such
    shares vested 25% on February 1, 2003, and will vest an additional 25% on
    February 1, 2004, 2005 and 2006.

(3) Pursuant to the Company's 1996 Stock Incentive Plan (the "LSAT 1996 Plan")
    and effective August 10, 2001, Mr. Carroll was granted an aggregate of
    15,000 options to acquire shares of Series A Common Stock at a purchase
    price of $26.00.

(4) Includes LSAT contributions to the Liberty Media 401(k) Savings Plan (the
    "Liberty 401(k) Savings Plan") beginning in April 2000. Mr. Carroll is fully
    vested in such plan.

    Since April 2000, LSAT employees have been eligible to participate in the
Liberty 401(k) Savings Plan. The Liberty 401(k) Savings Plan provides employees
with an opportunity to save for retirement. The Liberty 401(k) Savings Plan
participants may contribute up to 10% of their pre-tax compensation and/or up to
10% of their post-tax compensation. Liberty 401(k) Savings contributes a
matching contribution of 100% of the participants' contributions. Participant
contributions to the Liberty 401(k) Savings Plan are fully vested upon
contribution.

                                     III-3

    Generally, participants acquire a vested right in Liberty 401(k) Savings
Plan contributions as follows:



YEARS OF SERVICE                                      VESTING PERCENTAGE
----------------                                      ------------------
                                                   
Less than 1.........................................            0%
1-2.................................................           33%
2-3.................................................           66%
3 or more...........................................          100%


    Directors who are not employees of Liberty Media are ineligible to
participate in the Liberty 401(k) Savings Plan. Under the terms of the Liberty
401(k) Savings Plan, employees are eligible to participate after three months of
service.

    (b) OPTION GRANTS IN LAST FISCAL YEAR

    No stock options were granted during the year ended December 31, 2002 to the
named executive officer of the Company.

    (c) AGGREGATED LSAT OPTION/STOCK APPRECIATION RIGHT ("SAR") EXERCISES AND
       FISCAL YEAR-END LSAT

    OPTION/SAR VALUES

    The following table provides, for the executive named in the Summary
Compensation Table, information on (i) the exercise during the year ended
December 31, 2002, of options/SARs with respect to shares of Series A Common
Stock, (ii) the number of shares of Series A Common Stock represented by
unexercised options/SARs owned by him at December 31, 2002, and (iii) the value
of those options/ SARs as of the same date.



                                                                               NUMBER OF
                                                                              SECURITIES       VALUE OF
                                                                              UNDERLYING      UNEXERCISED
                                                                              UNEXERCISED    IN-THE-MONEY
                                                                               OPTIONS/        OPTIONS/
                                                                                SARS AT         SARS AT
                                                                             DECEMBER 31,    DECEMBER 31,
                                                      SHARES                     2002            2002
                                                     ACQUIRED      VALUE     EXERCISABLE/    EXERCISABLE/
NAME                                                ON EXERCISE   REALIZED   UNEXERCISABLE   UNEXERCISABLE
----                                                -----------   --------   -------------   -------------
                                                                                 
Kenneth G. Carroll
  Exercisable Series A............................         --          --       31,465               --
  Unexercisable Series A..........................         --          --       36,250               --


    (d) COMPENSATION OF DIRECTORS

    Members of the LSAT Board who are also full-time employees of the Company or
Liberty Media, or any of their respective subsidiaries, do not receive any
additional compensation for their services as directors. Directors who are not
full-time employees of the Company or Liberty Media, or any of their respective
subsidiaries, receive a retainer of $30,000 per year. Directors are generally
not separately compensated for service on committees. All members of the LSAT
Board are reimbursed for expenses incurred to attend any meeting of the LSAT
Board or any committee thereof. In addition, the TCI Satellite
Entertainment, Inc. 1997 Nonemployee Director Stock Option Plan (the "LSAT
DSOP") provides for the grant to each person that is a member of the LSAT Board
and is not an employee of the Company, its subsidiaries or its affiliates, of
options to purchase 5,000 shares of Series A Common Stock. Such grant of options
is made at the time a person first becomes an LSAT director. The LSAT DSOP
provides that the per share exercise price of each option granted under the LSAT
DSOP will be equal to the fair market value of the Series A Common Stock on the
date such option is granted. In

                                     III-4

general, fair market value is determined by reference to the last sale price for
shares of Series A Common Stock on the date of grant.

    During the first quarter of 2002, Messrs. Allan M. Angelich, John W. Goddard
and J. Curt Hockemeier, each received $7,500 for their service during the fourth
quarter of 2001 on a special committee formed by the LSAT Board to review and
evaluate Liberty Media's October 12, 2001 proposal to acquire all of the Company
common stock not already owned by Liberty Media.

    (e) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
       AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS

    The members of the Company's compensation committee are Messrs. Alan M.
Angelich, William H. Berkman and John. W. Goddard, each a director of the
Company. None of the members of the compensation committee are or were officers
of the Company or any of its subsidiaries or any other person that would
constitute a compensation committee interlock with the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    (a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

    The following table lists stockholders (excluding any directors or officers
of the Company) believed by the Company to be the beneficial owners of more than
five percent of the outstanding voting securities as of December 31, 2002 based
upon filings pursuant to Section 13(d) or (g) under the Securities Exchange Act
of 1934, as amended. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock issuable
upon exercise or conversion of options, warrants and convertible securities that
were exercisable or convertible on or within 60 days after December 31, 2002,
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person. Voting power
in the table is computed with respect to a general election of directors. So far
as is known to the Company, the persons indicated below have sole voting and
investment power with respect to the shares indicated as believed to be owned by
them except as otherwise stated in the notes to the table.



                                                                  NUMBER OF
                                                                    SHARES                      COMBINED
                                                                 BENEFICIALLY                    VOTING
NAME AND ADDRESS OF                                                 OWNED        PERCENT OF   POWER OF ALL
BENEFICIAL OWNER                          TITLE OF CLASS        (IN THOUSANDS)    CLASS(1)    HOLDINGS(1)
-------------------                  ------------------------   --------------   ----------   ------------
                                                                                  
Liberty Media Corporation .........  Series B Preferred Stock          150          100.0%        97.6%(2)
  12300 Liberty Boulevard               Series A Common Stock        4,924           44.4%
  Englewood, Colorado                   Series B Common Stock       34,332(2)        98.8%(2)

Arnhold and S. Bleichroeder .......  Series B Preferred Stock           --             --            *
  Advisers, Inc. (3)                    Series A Common Stock          200            1.8%
  1345 Avenue of the Americas           Series B Common Stock           --             --
  New York, NY 10105

Michael M. Kellen (4) .............  Series B Preferred Stock           --             --            *
  1345 Avenue of the Americas           Series A Common Stock          598            5.4%
  New York, NY 10105                    Series B Common Stock           --             --


------------------------

*   Less than one percent.

                                     III-5

(1) Based on 150,000 shares of the Series B Preferred Stock ("Series B Preferred
    Stock"), 11,078,834 shares of Series A Common Stock and 34,765,055 shares of
    Series B Common Stock outstanding as of December 31, 2002.

(2) Does not include 1,696,717 shares of Series B common stock ("Series B Common
    Stock") issuable upon conversion of the Series B Preferred Stock.

(3) Based upon a Schedule 13D jointly filed on November 5, 2002 by Michael M.
    Kellen, an individual, DEF Associates N.V., a corporation incorporated in
    Saint Maarten under the laws of the Netherlands Antilles, Arnhold and S.
    Bleichroeder Holdings, Inc., a New York corporation ("A&SB Holdings"), and
    Arnhold and S. Bleichroeder Advisers, Inc., a New York corporation ("A&SB
    Advisers") and a wholly-owned subsidiary of A&SB Holdings. The foregoing
    persons are hereinafter referred to collectively as the A&SB Reporting
    Persons. DEF Associates owns 200,000 shares. Each of A&SB Advisers, by
    reason of its investment advisory relationship with DEF Associates, and A&SB
    Holdings, by reason of its controlling ownership of A&SB Advisers, may be
    deemed to own the 200,000 shares owned by DEF Associates. DEF Associates,
    A&SB Advisers and A&SB Holdings share the power to direct the vote and the
    disposition of 200,000 shares. While the beneficial ownership of the A&SB
    Reporting Persons amounts to less than five percent of the outstanding
    shares of Series A common stock, their beneficial ownership is related to,
    and reported on, the same Schedule 13D for Michael Kellen's beneficial
    ownership of shares of Series A common stock. For a further discussion of
    Mr. Kellen's relationship to the A&SB Reporting Persons, please see
    note (4) to this table below.

(4) Based upon the Schedule 13D jointly filed on November 5, 2002 by the A&SB
    Reporting Persons. A Senior Vice President and Director of A&SB Holdings,
    Mr. Kellen, in his individual capacity, has discretionary investment
    management authority with respect to certain assets of the funds advised by
    A&SB Advisers, including the 200,000 shares held by DEF Associates.
    Mr. Kellen, therefore, may also be deemed to beneficially own such 200,000
    shares. Mr. Kellen also beneficially owns 397,740 shares of Series A common
    stock through certain discretionary accounts under his management.
    Mr. Kellen has the shared power to direct the vote and the disposition of
    597,740 shares.

    (b) SECURITY OWNERSHIP OF MANAGEMENT

    The following table sets forth information with respect to the ownership by
each director and each of the named executive officers of LSAT and by all
directors and executive officers of LSAT as a group of shares of Series A Common
Stock and Series B Common Stock. In addition, the table sets forth information
with respect to the ownership of such individuals of shares of On Command common
stock ("On Command Common Stock"), and of Liberty Media Series A common stock
("Liberty Media Series A Common Stock") and Liberty Media Series B common stock
("Liberty Media Series B Common Stock"). Liberty Media owns a controlling
interest in LSAT, and LSAT owns a controlling interest in On Command.

                                     III-6

    The following information is given as of December 31, 2002 and, in the case
of percentage ownership information, is based on 11,078,834 shares of Series A
Common Stock, 34,765,055 shares of Series B Common Stock, 30,854,489 shares of
On Command common stock, 2,476,953,566 shares of Liberty Media Series A Common
Stock, and 212,044,128 shares of Liberty Media Series B Common Stock,
outstanding on that date. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common stock
issuable upon exercise or conversion of options, warrants and convertible
securities that were exercisable or convertible on or within 60 days after
December 31, 2002, are deemed to be outstanding and to be beneficially owned by
the person holding the options, warrants or convertible securities for the
purpose of computing the percentage ownership of the person, but are not treated
as outstanding for the purpose of computing the percentage ownership of any
other person. Voting power in the table is computed with respect to a general
election of directors. So far as is known to the Company, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as believed to be owned by them, except as indicated in the notes to the table.



                                                            NUMBER
                                                          OF SHARES
                                                         BENEFICIALLY                  PERCENT
                                                            OWNED                         OF       VOTING
NAME                               TITLE OF CLASS       (IN THOUSANDS)                  CLASS      POWER
----                           ----------------------   --------------                 --------   --------
                                                                                   
Directors:
  Alan M. Angelich...........  Series A                          3           (1)           *          *
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A           40                         *          *
                               Liberty Media Series B           --                        --

  Robert R. Bennett..........  Series A                          1           (2)           *          *
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A        3,800       (3)(4)(5)(6)      *        1.8%
                               Liberty Media Series B        7,923           (4)         3.6%

  William H. Berkman.........  Series A                          3          (1)(7)         *          *
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A        1,382           (8)           *          *
                               Liberty Media Series B           --                        --

  William R. Fitzgerald......  Series A                         --                        --
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A          654         (9)(10)         *          *
                               Liberty Media Series B           --                        --


                                     III-7




                                                            NUMBER
                                                          OF SHARES
                                                         BENEFICIALLY                  PERCENT
                                                            OWNED                         OF       VOTING
NAME                               TITLE OF CLASS       (IN THOUSANDS)                  CLASS      POWER
----                           ----------------------   --------------                 --------   --------
                                                                                   
  John W. Goddard............  Series A                          5         (11)(12)        *          *
                               Series B                         --           (11)         --
                               On Command                       --                        --
                               Liberty Media Series A           83           (11)          *          *
                               Liberty Media Series B           73           (11)          *

  J. Curt Hockemeier.........  Series A                          3           (1)           *          *
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A            2           (13)          *          *
                               Liberty Media Series B           --                        --

  Gary S. Howard.............  Series A                         58           (14)          *          *
                               Series B                         --                        --
                               On Command                        1                         *          *
                               Liberty Media Series A        5,651       (15)(16)(17)      *          *
                                                                           (18)(19)
                               Liberty Media Series B           --                        --

Named executive officer:
  Kenneth G. Carroll.........  Series A                         44           (20)          *          *
                               Series B                         --                        --
                               On Command                       --                        --
                               Liberty Media Series A           17           (21)          *          *
                               Liberty Media Series B           --                        --

All directors and executive                                    117                       1.1%         *
  officers as a group........  Series A
                               Series B                         --                        --
                               On Command                        1                         *          *
                               Liberty Media Series A       11,629                         *        2.0%
                               Liberty Media Series B        7,996                       3.6%


------------------------

  * Less than one percent.

 (1) Assumes the exercise in full of options to purchase 3,333 shares granted
     pursuant to the Company's Nonemployee Director Stock Option Plan, all of
     which are exercisable on or within 60 days after December 31, 2002.

 (2) Assumes the exercise in full of stock options granted in tandem with SARs
     to purchase 500 shares, all of which are exercisable on or within 60 days
     after December 31, 2002.

 (3) Includes 349,307 restricted shares, none of which was vested at
     December 31, 2002.

 (4) Assumes the exercise in full of options to purchase 25,640 shares of
     Liberty Media Series A Common Stock and 7,922,930 shares of Liberty Media
     Series B Common Stock, all of which are exercisable on or within 60 days
     after December 31, 2002. Mr. Bennett also has the right to convert options
     to purchase Liberty Media Series B Common Stock into options to purchase
     Liberty Media Series A Common Stock.

 (5) Includes 22,287 shares held by the Liberty 401(k) Savings Plan for the
     benefit of Mr. Bennett.

                                     III-8

 (6) Includes 1,246,580 shares owned by Hilltop Investments, Inc. which is
     jointly owned by Mr. Bennett and his wife, Mrs. Deborah Bennett.

 (7) Includes 12 shares of Series A Common Stock held by trusts for the benefit
     of Mr. Berkman's brother's children. Mr. Berkman is the trustee of two of
     the trusts.

 (8) Assumes the exercise in full of options to purchase 1,306,121 shares, all
     of which are exercisable on or within 60 days after December 31, 2002.

 (9) Assumes the exercise in full of options to purchase 611,274 shares, all of
     which are exercisable on or within 60 days after December 31, 2002.

(10) Includes 6,168 shares held by the Liberty 401(k) Savings Plan for the
     benefit of Mr. Fitzgerald.

(11) Includes 140 shares of Series A Common Stock, 142 shares of Series B Common
     Stock, 83,136 shares of Liberty Media Series A Common Stock and 72,772
     shares of Liberty Media Series B Common Stock held in trusts in which
     Mr. Goddard is a beneficial owner.

(12) Assumes the exercise in full of options to purchase 5,000 shares granted
     pursuant to the Company's Nonemployee Director Stock Option Plan, all of
     which are exercisable on or within 60 days after December 31, 2002.

(13) Includes 1,603 shares held by a long-term 401(k) savings plan for the
     benefit of Mr. Hockemeier.

(14) Assumes the exercise in full of Company stock options to purchase 49,965
     shares, all of which are exercisable on or within 60 days after
     December 31, 2002. Also includes 2,549 shares held by trusts of which
     Mr. Howard is beneficial owner as trustee for his children.

(15) Includes 291,089 restricted shares held by a Grantor Retained Annuity
     Trust, none of which were vested at December 31, 2002.

(16) Assumes the exercise in full of options to purchase 4,173,183 shares, all
     of which are exercisable on or within 60 days after December 31, 2002.

(17) Includes 40,623 shares held by the Liberty 401(k) Savings Plan for the
     benefit of Mr. Howard.

(18) Includes 314,376 shares held by a Grantor Retained Annuity Trust.

(19) Includes 12,284 shares owned directly by Mr. Howard's wife, Mrs. Leslie D.
     Howard, and 185,120 shares owned by Mrs. Leslie D. Howard that are held by
     a Grantor Retained Annuity Trust, as to which shares Mr. Howard has
     disclaimed beneficial ownership.

(20) Assumes the exercise in full of Company stock options to purchase 31,465
     shares, all of which are exercisable on or within 60 days after
     December 31, 2002. Also includes 7,500 restricted shares issued in
     February 2001, 25% of which vest within 60 days of December 31, 2002.

(21) Includes 4,721 shares held by the Liberty 401(k) Savings Plan for the
     benefit of Mr. Carroll

                                     III-9

(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

    The following table sets forth information as of December 31, 2002 with
respect to securities authorized for issuance under the Company's equity
compensation plans.



                                                                                           NUMBER OF
                                                                                          SECURITIES
                                                         NUMBER OF                       AVAILABLE FOR
                                                       SECURITIES TO      WEIGHTED      FUTURE ISSUANCE
                                                         BE ISSUED        AVERAGE        UNDER EQUITY
                                                       UPON EXERCISE   EXERCISE PRICE    COMPENSATION
                                                            OF               OF              PLANS
                                                        OUTSTANDING     OUTSTANDING       (EXCLUDING
                                                         OPTIONS,         OPTIONS,        SECURITIES
                                                       WARRANTS AND     WARRANTS AND     REFLECTED IN
PLAN CATEGORY                                            RIGHTS(A)         RIGHTS         COLUMN(A))
-------------                                          -------------   --------------   ---------------
                                                                               
Equity compensation plans approved by security
  holders:
  Liberty Satellite & Technology 1996 Incentive
    Plan:............................................     324,070          $82.55           141,680
  TCI Satellite Entertainment, Inc. 1997 Nonemployee
    Director Stock Option Plan.......................      35,000          $96.88            10,000
Equity compensation plans not approved by security
  holders--None......................................          --              --                --
                                                          -------                           -------
Total................................................     359,070          $83.94           151,680
                                                          =======          ======           =======


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    GENERAL.  Liberty owns a controlling interest in the Company. For so long as
Liberty continues to indirectly control more than 50% of the outstanding voting
stock of the Company, it will be able, among other things, to approve any
corporate action requiring stockholder approval, by a majority or plurality,
including the election of directors and, amendments to the Company's Amended and
Restated Certificate of Incorporation and Bylaws, without the consent of the
other stockholders of the Company. In addition, through its representation on
the Board of Directors, Liberty is able to influence certain decisions,
including decisions with respect to the Company's dividend policy, the Company's
access to capital (including the decision to incur additional indebtedness or
issue additional shares of common or preferred stock), mergers or other business
combinations involving the Company, the acquisition or disposition of assets by
the Company and any change in control of the Company.

    DIVIDENDS ON PREFERRED STOCK HELD BY LIBERTY MEDIA.  In accordance with the
terms of the Series A Preferred Stock and Series B Preferred Stock, through
March 31, 2003, the Company has the right to issue shares of Series A Common
Stock in satisfaction of its dividend liability. During the year ended
December 31, 2002, the Company issued 4,320,277 shares of Series A Common Stock,
representing a $13,500,000 dividend obligation under the terms of the Series A
Preferred Stock and a $9,000,000 dividend obligation under the terms of
Series B Preferred Stock. During the same period, cash dividends on the
Series A Preferred Stock and Series B Preferred Stock have aggregated $4,500,000
and $3,000,000, respectively.

    PROMISSORY NOTE WITH LIBERTY MEDIA.  On March 16, 2000, the Company paid
Liberty Media $60,000,000 in the form of an unsecured promissory note in
exchange for a 13.99% ownership interest in LSAT Astro LLC. Interest on the note
accrued interest at the 3 month LIBOR plus 2% (3.74% at December 31, 2002).
Interest payments were due semi-annually on the first day of March and
September. As of December 31, 2002, the unpaid principal balance on the note was
$48,411,000 and accrued interest under this note was $614,000. Interest expense
on the note for the year ended December 31, 2002 was $1,992,000. All amounts due
under this note were repaid in March 2003.

                                     III-10

    LSAT LLC AND ASCENT ENTERTAINMENT TRANSACTION.  On August 16, 2001, the
Company entered into two interrelated purchase agreements with Liberty Media and
certain of its subsidiaries and affiliates. Both agreements were amended in
November 2001 and January 2002. One agreement provided for the Company's
acquisition of certain subsidiaries of Liberty Media that collectively held the
aggregate 89.41% ownership interest in Liberty Satellite, LLC ("LSAT LLC") not
already owned by LSAT in exchange for 25,298,379 shares of Series B Common Stock
of the Company. The second purchase agreement provided for the Company's
acquisition of 100% of the capital stock of Ascent Entertainment from a
subsidiary of Liberty Media in exchange for 8,701,621 shares of Series B Common
Stock of the Company. Ascent Entertainment's primary operating subsidiary is On
Command, which provides in-room, on-demand video entertainment and information
services to hotels, motels and resorts, primarily in the United States. The
foregoing transaction (the "LSAT LLC and Ascent Entertainment Transaction")
closed on April 1, 2002.

    Concurrently with the closing of the LSAT LLC and Ascent Entertainment
Transaction, Liberty Media contributed to the Company, as part of those
transactions and for no additional consideration, promissory notes issued by
LSAT LLC due to subsidiaries of Liberty Media, with an aggregate principal
balance of $18,552,000. Interest expense on these notes was $404,000 during the
first quarter of 2002.

    REGISTRATION RIGHTS AGREEMENT BETWEEN THE COMPANY AND LIBERTY MEDIA.  The
Company and Liberty Media are parties to a registration rights agreement, dated
as of March 16, 2000, whereby Liberty Media and its affiliates have at any time,
the right to request that the Company register under the Securities Act of 1933,
as amended, (the "Securities Act") any and all of the shares of Series A Common
Stock and Series B Common Stock (collectively, "LSAT Common Stock") or shares of
the Company's capital stock that are convertible into shares of LSAT Common
Stock, owned by them, subject to the terms and conditions thereunder. Liberty
Media and its affiliates also have certain "piggy-back" registration rights,
whereby anytime the Company proposes to register shares of the Company's capital
stock under the Securities Act, Liberty Media and its affiliates have the right
to include their shares of the Company's capital stock in such registration. In
general, the Company will bear the expenses incurred in connection with the
registration and distribution of shares of the LSAT Common Stock owned by
Liberty Media and its affiliates. The Company and Liberty Media entered into an
amendment to this registration rights agreement to include thereunder the shares
of Series B Common Stock that Liberty Media and its affiliates acquired as a
result of the consummation of the LSAT LLC and Ascent Entertainment
Transactions.

    TRANSACTION BETWEEN LSAT LLC AND LIBERTY DIGITAL.  Effective September 29,
2000, LSAT LLC acquired a 1% managing common interest in a joint venture known
as IB2 LLC, from a subsidiary of Liberty Digital for $652,000. Liberty Digital,
an indirect wholly-owned subsidiary of Liberty Media, retained a preferred
interest (the "Preferred Interest") in IB2 LLC, which owns approximately 360,000
shares of the common stock of iBEAM Broadcasting Corp. ("iBEAM"). The Preferred
Interest had an initial liquidation value of $64,574,000 and is entitled to a
return of 9%, compounded annually. As part of the transaction, LSAT LLC granted
Liberty Digital the right to put the Preferred Interest to LSAT LLC for a
purchase price equal to $26,000,000 (the value of iBEAM stock on September 29,
2000) plus a return of 9%, compounded annually (the "Put Option"). LSAT LLC has
the right to call the Preferred Interest at a price equal to the initial
liquidation value plus a return of 9%, compounded annually. Both the Put Option
and call option are exercisable on September 29, 2008. Under certain limited
circumstances, including iBEAM's bankruptcy, LSAT LLC can force Liberty Digital
to exercise the Put Option prior to September 29, 2008.

    Changes in the fair market value of the Put Option subsequent to
September 29, 2000 were recognized as unrealized gains and losses on financial
instruments in the Company's consolidated statements of operations. During the
year ended December 31, 2002, the Company recorded an unrealized loss of
$2,564,000 related to the Put Option.

                                     III-11

    During the fourth quarter of 2001, iBEAM filed for bankruptcy under Chapter
11 of the Bankruptcy Code. As a result of such bankruptcy filing, the Company
began carrying amount the Put Option liability at an amount ($31,052,000 at
December 31, 2002), which represents the Put Option purchase price to LSAT LLC
plus an accrued return to Liberty Digital of 9%, compounded annually.

    EXECUTIVE OFFICER LOANS.  Messrs. Carroll and Sophinos, executive officers
of the Company, received loans in the principal amounts of $136,000 and
$135,000, respectively, to be used solely for the purpose of satisfying tax
liabilities related to the lapse of restrictions on shares of common stock
awarded under the Company's 1996 Stock Incentive Plan. Through December 31,
2001, the loans accrued interest at an annual rate of 6.41%. In addition, each
of the loans originally provided for principal and interest to be payable upon
the occurrence of certain events and in no event later than December 1, 2001.
During the first quarter of 2002, the Company agreed to extend the maturity
dates of the loans to December 31, 2003, and lower the annual interest rates of
the loans to 4% per annum. Consistent with the terms of the original loans,
interest payments may be deferred by the borrowers until maturity. Each loan is
secured in each case by 2,500 shares of Series A Common Stock and are otherwise
nonrecourse to the borrowers. As of December 31, 2002, the balances outstanding
on the loans to Messrs. Carroll and Sophinos, including accrued interest, were
$155,000 and $154,000 respectively. Effective April 27, 2001, Mr. Sophinos
became the President of On Command. Since that date, On Command has been
responsible for 100% of Mr. Sophinos' compensation.

    EXPENSE ALLOCATIONS FROM LIBERTY MEDIA.  Liberty Media allocates rent,
salaries, benefits and certain other general and administrative expenses to the
Company. Although there is no written agreement with Liberty Media for these
services, the Company believes the allocated amounts to be reasonable. The
aggregate amount allocated pursuant to this arrangement was $303,000 during
2002. In addition, the Company reimburses Liberty Media for certain expenses
paid by Liberty Media on behalf of the Company. Amounts owed to Liberty Media
pursuant to these arrangements ($1,585,000 at December 31, 2002) are
non-interest bearing and are generally paid on a monthly basis.

    ASCENT MEDIA SATELLITE SERVICES.  Effective October 1, 2002, On Command
entered into a short-term agreement with Ascent Media pursuant to which Ascent
Media supplied On Command with uplink and satellite transport services at a cost
of $120,000 through December 31, 2002. On Command had been utilizing the
services to test the satellite delivery of content updates to On Command's
downlink sites at various hotels. On Command has completed its testing of
satellite delivery and the parties have executed a Content Preparation and
Distribution Services Agreement, dated March 24, 2003, to be effective April 1,
2003, which will provide for uplink and satellite transport services for a
monthly fee of approximately $36,000, subject to adjustment, for a period of
five years. The long-term agreement also provides for Ascent Media to supply On
Command with content preparation services at a negotiated rate for a period of
five years at On Command's request. On Command is also negotiating an agreement
with a wholly-owned subsidiary of Ascent Media for the installation by such
subsidiary of satellite equipment at On Command's downlink sites at hotels for a
set fee per installation completed.

    TAX LIABILITY ALLOCATION AND INDEMNIFICATION AGREEMENT BETWEEN LIBERTY MEDIA
AND THE COMPANY.  In connection with the LSAT LLC and Ascent Entertainment
Transaction, the Company and Liberty Media entered into a Tax Liability
Allocation and Indemnification Agreement whereby the Company will be obligated
to make a cash payment to Liberty Media in each year that the Company (taken
together with any of its subsidiaries) has taxable income. The amount of the
payment will be equal to the amount of the taxable income of the Company and its
subsidiaries (determined as if the Company and its subsidiaries filed a separate
return) multiplied by the highest applicable corporate tax rate. In the event
that (1) the Company and its subsidiaries, when treated as a separate group, has
a net operating loss or deduction or is entitled to a tax credit for a
particular year; and (2) Liberty Media is able to use such loss, deduction or
credit to reduce its tax liability, the Company will be entitled to a credit
against current and future payments to Liberty Media under the agreement. If the
Company

                                     III-12

disaffiliates itself with Liberty Media and the members of Liberty Media's
affiliated group prior to the time that the Company is able to use such credit,
the Company will be entitled to a payment from Liberty Media at the earlier of
the time that (1) the Company and its subsidiaries show they could have used the
net operating loss or net tax credit to reduce their own separately computed tax
liability or (2) the voting power of the stock of the Company held by Liberty
Media and the members of its affiliated group drops below 20%.

    In addition, under the proposed Tax Liability Allocation and Indemnification
Agreement, the Company will have the opportunity to participate in the defense
of claims of the Internal Revenue Service that might affect its liability under
the agreement, and to participate in tax refunds paid to Liberty Media where
such refunds are due in part to the Company's operations.

    In connection with the LSAT LLC and Ascent Entertainment Transaction, the
Company assumed an intercompany income tax liability owed by Ascent
Entertainment to Liberty Media pursuant to a tax liability allocation and
indemnification agreement with terms similar to the agreement describe above. At
December 31, 2002, the amount owed by Ascent Entertainment to Liberty Media
pursuant to this agreement was $8,409,000. Such amount, which is non-interest
bearing, includes $36,568,000 that is due on demand to Liberty Media, and
$28,159,000 that is payable to the Company by Liberty Media if, and to the
extent, that tax benefits generated by Ascent are utilized to reduce Liberty
Media's taxable income.

ITEM 14. CONTROLS AND PROCEDURES

    The Company's acting president and chief financial officer (the "Executive")
conducted an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures, as defined in Exchange Act
Rule 13(a)-14(c), as of a date within 90 days prior to the filing of this annual
report on Form 10-K. Based on this evaluation, the Executive concluded that the
Company's disclosure controls and procedures were effective as of the date of
that evaluation. There have been no significant changes in the Company's
disclosure controls and procedures or in other factors that could significantly
affect these controls subsequent to the date on which the Executive completed
this evaluation.

                                     III-13

PART IV.

ITEM 15.  EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K

(a) (1) FINANCIAL STATEMENTS

    Included in Part II of this Report:



                                                              PAGE NO.
                                                              --------
                                                           
Independent Auditors' Report................................  II-21

Consolidated Balance Sheets, December 31, 2002 and 2001.....  II-22

Consolidated Statements of Operations, Years ended
  December 31, 2002, 2001, and 2000.........................  II-24

Consolidated Statements of Comprehensive Loss Years ended
  December 31, 2002, 2001 and 2000..........................  II-25

Consolidated Statements of Stockholders' Equity, Years ended
  December 31, 2002, 2001 and 2000..........................  II-26

Consolidated Statements of Cash Flows, Years ended
  December 31, 2002, 2001 and 2000..........................  II-28

Notes to Consolidated Financial Statements, December 31,
  2002, 2001 and 2000.......................................  II-29


(a) (2) FINANCIAL STATEMENT SCHEDULES

    Included in Part IV of this Report:

       (1) Separate Financial Statements for ASTROLINK International LLC:



CONSOLIDATED FINANCIAL STATEMENTS
                                                           
  Independent Auditors' Report..............................  IV-6

  Consolidated Balance Sheets...............................  IV-7

  Consolidated Statements of Operations.....................  IV-8

  Consolidated Statements of Members' Equity................  IV-9

  Consolidated Statements of Cash Flows.....................  IV-10

  Notes to Consolidated Financial Statements................  IV-11


                                      IV-1

(a) (3) EXHIBITS

    The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:



2--Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession:
                     
          2.1           Reorganization Agreement dated as of December 4, 1996, among
                          Tele-Communications, Inc. ("TCI"), TCI Communications,
                          Inc. ("TCIC"), Tempo Enterprises, Inc., TCI Digital
                          Satellite Entertainment, Inc., TCI K-1, Inc. ("TCI K-1"),
                          United Artists K-1 Investments, Inc. ("UA K-1"), TCI SE
                          Partner 1, Inc. ("TCISE 1"), TCI SE Partner 2, Inc.
                          "(TCISE 2") and TCI Satellite Entertainment, Inc. (the
                          "Company").(b)

          2.2           Merger and Contribution Agreement dated as of February 6,
                          1998, among the Company, PRIMESTAR, Inc., Time Warner
                          Entertainment Company L.P. ("TWE"), Advance/ Newhouse
                          Partnership ("Newhouse"), Comcast Corporation ("Comcast"),
                          Cox Communications, Inc. ("Cox"), MediaOne of Delaware,
                          Inc. ("MediaOne") and GE American Communications, Inc.
                          ("GE Americom").(d)

          2.3           Asset Transfer Agreement dated as of February 6, 1998,
                          between the Company and PRIMESTAR, Inc.(d)

          2.4           Contribution and Exchange Agreement among TCI Satellite
                          Entertainment, Inc., Liberty LSAT, Inc. and Liberty LSAT
                          II, Inc. dated as of March 16, 2000.(a)

          2.5           Contribution Agreement by and among Liberty Media
                          Corporation, Liberty Media International, Inc., LSAT
                          Holdings, Inc., TCI Satellite Entertainment, Inc., TSAT
                          Holding 1, Inc., each of the Liberty Members signatory
                          hereto, Liberty Satellite, LLC, and LSAT Astro, LLC dated
                          March 16, 2000.(a)

          2.6           Operating Agreement of Liberty Satellite, LLC dated March
                          16, 2000.(a)

          2.7           Amended and Restated Operating Agreement of LSAT Astro LLC
                          dated March 16, 2000.(a)

 3--Articles of Incorporation and Bylaws:

          3.1           Amended and Restated Certificate of Incorporation of the
                          Company.(f)

          3.2           Certificate of Amendment of Amended and Restated Certificate
                          of Incorporation filed herewith.

          3.3           Amended and Restated Bylaws of the Company.(c)

          3.4           Certificate of Designations, Series A Preferred Stock.(a)

          3.5           Certificate of Designations, Series B Preferred Stock.(a)

 4--Instruments Defining the Rights of Security Holders:

          4.1           Specimen certificate representing shares of Series A Common
                          Stock of the Company.(c)

          4.2           Specimen certificate representing shares of Series B Common
                          Stock of the Company.(c)

 10--Material Contracts

         10.1           Amended and Restated Liberty Satellite & Technology, Inc.
                          1996 Stock Incentive Plan*.(c)

         10.2           Qualified Employee Stock Purchase Plan of the Company*.(b)

         10.3           Indemnification Agreement dated December 4, 1996, by and
                          between TCI and Gary S. Howard.(d)


                                      IV-2


                     
         10.4           Option Agreement, dated as of December 4, 1996, by and
                          between the Company and Gary S. Howard*.(b)

         10.5           Option Agreement, dated as of December 4, 1996, by and
                          between the Company and Larry E, Romrell*.(b)

         10.6           Option Agreement, dated as of December 4, 1996, by and
                          between the Company and David P. Beddow*.(b)

         10.7           Share Purchase Agreement dated as of December 4, 1996,
                          between TCI and the Company.(b)

         10.8           Option Agreement dated as of December 4, 1996, between TCI
                          and the Company.(b)

         10.9           TCI Satellite Entertainment, Inc. 1997 Nonemployee Director
                          Plan*.(d)

        10.10           Asset Purchase Agreement by and among Hughes Electronics
                          Corporation, PRIMESTAR, Inc., PRIMESTAR Partners L.P.,
                          Tempo Satellite, Inc. and the Stockholders of PRIMESTAR
                          listed herein, dated as of January 22, 1999.(e)

        10.11           Asset Purchase Agreement among PRIMESTAR, Inc., PRIMESTAR
                          Partners L.P., PRIMESTAR MDU, Inc., the Stockholders of
                          PRIMESTAR, Inc. listed herein and Hughes Electronics
                          Corporation dated as of January 22, 1999.(e)

        10.12           PRIMESTAR Payment Agreement dated as of January 22, 1999
                          among TCI Satellite Entertainment, Inc., PRIMESTAR, Inc.,
                          the Funding Parties and Paragon Communications.
                          Incorporated by reference to Phoenixstar, Inc.'s Current
                          Report on Form 8-K, dated May 13, 1999. (Commission File
                          No. 0-23883).

        10.13           Promissory Note, dated March 16, 2000, between TCI Satellite
                          Entertainment, Inc. (now known as Liberty Satellite &
                          Technology, Inc.) and Liberty Media Corporation.
                          Incorporated by reference to the Company's Quarterly
                          Report on Form 10-Q for the quarter ended March 31, 2001.
                          (Commission File No. 0-21317).

        10.14           Amended and Restated Loan Agreement by and between Liberty
                          PCS Trust and DLJ Cayman Islands, LCD dated November 3,
                          2000. Incorporated by reference to the Company's Annual
                          Report on Form 10-K for the year ended December 31, 2001.
                          (Commission File No. 0-21317).

        10.15           Purchase Agreement by and among LSAT, Liberty AEG, Inc. and
                          Liberty Media dated August 16, 2001.(f)

        10.16           First Amendment to the Purchase Agreement by and among LSAT,
                          Liberty AEG, Inc. and Liberty Media dated November 30,
                          2001.(f)

        10.17           Second Amendment to the Purchase Agreement by and among
                          LSAT, Liberty AEG, Inc. and Liberty Media dated February
                          7, 2002.(f)

        10.18           LSAT LLC Purchase Agreement by and among LMC/LSAT Holdings,
                          Inc., Liberty Brazil DTH Inc., Liberty Mexico DTH Inc.,
                          Liberty Multicountry DTH, Inc., Liberty International DTH,
                          Inc., Liberty Latin Partners, Inc., LSAT and Liberty Media
                          dated August 16, 2001.(f)

        10.19           First Amendment to the LSAT LLC Purchase Agreement by and
                          among LMC/LSAT Holdings, Inc., Liberty Brazil DTH Inc.,
                          Liberty Mexico DTH Inc., Liberty Multicountry DTH, Inc.,
                          Liberty International DTH, Inc., Liberty Latin Partners,
                          Inc., LSAT and Liberty Media dated November 20, 2001.(f)


                                      IV-3


                     
        10.20           Second Amendment to the LSAT LLC Purchase Agreement by and
                          among LMC/LSAT Holdings, Inc., Liberty Brazil DTH Inc.,
                          Liberty Mexico DTH Inc., Liberty Multicountry DTH, Inc.,
                          Liberty International DTH, Inc., Liberty Latin Partners,
                          Inc., LSAT and Liberty Media dated February 7, 2002.(f)

        10.21           Tax Liability Allocation and Indemnification Agreement dated
                          as of April 1, 2002 between Liberty Media and LSAT filed
                          herewith.

        10.22           Subscription Agreement, dated as of December 9, 2002,
                          between Wildblue Communications, Inc. and Liberty
                          Satellite & Technology, Inc. filed herewith.

        10.23           Subscription Agreement, dated as of December 9, 2002,
                          between Wildblue Communications, Inc. and Liberty
                          Satellite & Technology, Inc. filed herewith.

        10.24           Agreement of Stockholders, dated as of December 9, 2002,
                          among Wildblue Communications, Inc. and the stockholders
                          listed therein filed herewith.

        10.25           Supplemental Stockholders Agreement, dated as of January 31,
                          2003, between Liberty Satellite & Technology, Inc. and
                          IntelSat USA Sales Corp. filed herewith.

        10.26           Master Agreement Regarding Restructuring of ASTROLINK
                          International LLC, dated as of January 17, 2003, by and
                          among Liberty Satellite & Technology, Inc. and the other
                          parties named therein filed herewith.

        10.27           Contribution Agreement, dated as of January 17, 2003, by and
                          among Liberty Satellite & Technology, Inc., Liberty Media
                          Corporation and ASTROLINK International LLC filed
                          herewith.

        10.28           Master Services Agreement, dated as of August 3, 1993, by
                          and between Marriott International, Inc., Marriott Hotel
                          Services, Inc. and On Command Video Corporation
                          (confidential treatment granted) (Incorporated by
                          reference to Exhibit 10.6 to the Registration Statement on
                          Form S-1 (File No. 33-98502) of Ascent Entertainment
                          Group, Inc.).

        10.29           Service Agreement, dated March 21, 2001, between On Command
                          Corporation and Marriott International, Inc. (composite
                          version) (confidential treatment requested) (Incorporated
                          by reference to Exhibit 10.1 to the Quarterly Report on
                          Form 10-Q for the quarter ended June 30, 2001 of On
                          Command Corporation, Commission File No. 00-21315).

        10.30           Hilton Hotels Corporation-On Command Video Agreement, dated
                          April 27, 1993, by and between Hilton Hotels Corporation
                          and On Command Video Corporation (confidential treatment
                          granted) (Incorporated by reference to Exhibit 10.4 to the
                          Registration Statement on Form S-4 (File No. 333-10407) of
                          On Command Corporation).

        10.31           Credit Agreement, dated as of July 18, 2000, by and among On
                          Command Corporation, the lenders party thereto, Toronto
                          Dominion (Texas), Inc., Fleet National Bank, Bank of
                          America, N.A., and the Bank of New York. (Incorporated by
                          reference to Exhibit 10.16 of the Annual Report on
                          Form 10-K/A for the year ended December 31, 2000 of On
                          Command Corporation).

        10.32           Amendment No. 1, dated as of March 27, 2001, to the Credit
                          Agreement, dated as of July 18, 2000, by and among On
                          Command Corporation, the lenders party thereto, Toronto
                          Dominion (Texas), Inc., Fleet National Bank, Bank of
                          America, N.A., and the Bank of New York. (Incorporated by
                          reference to Exhibit 10.17 of the Annual Report on
                          Form 10-K/A for the year ended December 31, 2000 of On
                          Command Corporation).


                                      IV-4


                     
        10.33           Amendment No. 2 dated as of November 14, 2001, to the Credit
                          Agreement, by and among On Command Corporation, Toronto
                          Dominion (Texas), Inc. Fleet National Bank, Bank of
                          America, the Bank of New York Company and the Bank of New
                          York. (Incorporated by reference to Exhibit 10.16 of the
                          Annual Report of Form 10-K for the year ended
                          December 31, 2001 of On Command Corporation).

           21           Subsidiaries of the Registrant filed herewith.

         23.1           Consent of KPMG LLP filed herewith.

         23.2           Consent of KPMG LLP filed herewith.

         99.1           Certification pursuant to Section 906 of the Sarbanes-Oxley
                          Act of 2002 filed herewith.


------------------------

*   Indicates compensatory plan or arrangement.

(a) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the year ended December 31, 1999 (Commission File No. 0-21317).

(b) Incorporated by reference to the Company's Annual Report on Form 10-K for
    the year ended December 31, 1996 (Commission File No. 0-21317).

(c) Incorporated by reference to the Company's Registration Statement on Form 10
    filed with the Securities and Exchange Commission ("SEC") on November 15,
    1996 (Registration No. 0-21317).

(d) Incorporated by reference to PRIMESTAR, Inc.'s Registration Statement on
    Form S-4 filed with the SEC on February 9, 1998 (Registration No.
    333-45835).

(e) Incorporated by reference to the Company's Current Report on Form 8-K, dated
    February 1, 1999.

(f) Incorporated by reference to the Company's definitive proxy materials filed
    with the SEC on February 11, 2002.

(b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED DECEMBER 31, 2002:



                                                                      FINANCIAL
DATE OF                                                      ITEM     STATEMENTS
REPORT                                                      FILED       FILED
-------                                                    --------   ----------
                                                                
November 14, 2002........................................  Item 9.    None


                                      IV-5

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Members
ASTROLINK International LLC:

    We have audited the accompanying consolidated balance sheets of ASTROLINK
International LLC and subsidiaries (a development stage limited liability
company) as of December 31, 2001 and 2002, and the related consolidated
statements of operations, Members' equity, and cash flows for each of the years
in the three-year period ended December 31, 2002, and for the period from
April 22, 1999 (date of inception) through December 31, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

    As discussed in notes 1 and 4 to the consolidated financial statements,
during October 2001, certain of the Company's Members announced that they would
not provide additional funding beyond those amounts previously committed. On
January 17, 2003, one of the Company's Members reached an agreement with the
other Members to acquire substantially all of the assets of the Company and all
contractual claims were settled. The agreement is expected to close by
October 31, 2003, and is dependent upon achieving additional financing and
regulatory approval.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ASTROLINK
International LLC and subsidiaries (a development stage limited liability
company) as of December 31, 2001 and 2002 and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2002, and the period from April 22, 1999 (date of inception)
through December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

    The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
note 3 to the consolidated financial statements, to date the Company has not
generated any revenue and is dependent upon additional equity and/or debt
financing or firm commitments from prospective customers to complete
construction and launch of its intended satellite system, which raises
substantial doubt about its ability to continue as a going concern. The
Company's plans with respect to these matters are also described in note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                          /s/ KPMG LLP

McLean, Virginia
March 14, 2003

                                      IV-6

                          ASTROLINK INTERNATIONAL LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                          CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2002



                                                                   2001             2002
                                                              --------------   ---------------
                                                                         
                           ASSETS
Current assets:
  Cash and cash equivalents.................................  $    5,774,057           634,634
  Restricted cash...........................................       7,243,206         2,165,723
  Prepaid and other current assets..........................       8,668,636         8,786,614
                                                              --------------   ---------------
    Total current assets....................................      21,685,899        11,586,971
Value added tax receivable..................................       7,649,537         7,725,671
System under construction...................................     478,429,567       478,294,286
Property and equipment, net of accumulated depreciation and
  amortization of $4,600,605 and $11,851,183 in 2001 and
  2002, respectively........................................      46,716,019        36,872,608
Intangible assets...........................................      17,721,000        17,721,000
                                                              --------------   ---------------
                                                              $  572,202,022       552,200,536
                                                              ==============   ===============
              LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $    6,669,137         5,832,509
  Accounts payable to Members...............................      41,693,433        41,693,433
  Member advances...........................................              --         2,498,557
  Accrued contract termination liabilities..................      46,653,000        46,653,000
  Accrued contract termination liabilities to Members.......     127,362,988       127,362,988
  Accrued expenses..........................................      11,975,077         4,174,253
                                                              --------------   ---------------
    Total current liabilities...............................     234,353,635       228,214,740
Deferred rent...............................................         164,024                --
                                                              --------------   ---------------
    Total liabilities.......................................     234,517,659       228,214,740
                                                              --------------   ---------------
Commitments and contingencies
Members' equity:
  Class A units--authorized 135,010,000 units; issued and
    outstanding at December 31, 2001 and 2002...............   1,336,037,500     1,336,037,500
  Class B units--authorized 7,466,391 units; no units issued
    and outstanding.........................................              --                --
  Deficit accumulated during development stage..............    (998,353,137)   (1,012,051,704)
                                                              --------------   ---------------
    Total members' equity...................................     337,684,363       323,985,796
                                                              --------------   ---------------
                                                              $  572,202,022       552,200,536
                                                              ==============   ===============


          See accompanying notes to consolidated financial statements.

                                      IV-7

                          ASTROLINK INTERNATIONAL LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                     CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                                      PERIOD FROM
                                                                                     APRIL 22, 1999
                                                                                      (INCEPTION)
                                                  YEAR ENDED DECEMBER 31,               THROUGH
                                         -----------------------------------------    DECEMBER 31,
                                             2000           2001          2002            2002
                                         ------------   ------------   -----------   --------------
                                                                         
Revenues...............................  $         --             --            --               --
Expenses:
  General and administrative...........    31,431,521     65,929,746     4,558,228      113,617,266
  Write-down of system under
    construction.......................            --    728,494,722            --      728,494,722
  Contract termination charges.........            --    174,015,988            --      174,015,988
  Depreciation and amortization........       635,810      3,894,217     8,843,636       13,585,573
                                         ------------   ------------   -----------   --------------
    Total expenses.....................    32,067,331    972,334,673    13,401,864    1,029,713,549
                                         ------------   ------------   -----------   --------------
    Loss from operations...............   (32,067,331)  (972,334,673)  (13,401,864)  (1,029,713,549)

Other income (expense)
  Interest income......................     7,818,150      8,178,576        84,566       18,043,114
  Interest expense.....................            --             --      (110,836)        (110,836)
  Loss on disposal of property and
    equipment..........................            --             --      (804,034)        (804,034)
  Unrealized foreign currency
    transaction gain...................            --             --       533,601          533,601
                                         ------------   ------------   -----------   --------------
    Total other income (expense).......     7,818,150      8,178,576      (296,703)      17,661,845
                                         ------------   ------------   -----------   --------------
    Net loss...........................  $(24,249,181)  (964,156,097)  (13,698,567)  (1,012,051,704)
                                         ============   ============   ===========   ==============


          See accompanying notes to consolidated financial statements.

                                      IV-8

                          ASTROLINK INTERNATIONAL LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                   CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY



                                                                                                     DEFICIT
                                                                                                   ACCUMULATED
                                   CLASS A UNITS              CLASS B UNITS                           DURING          TOTAL
                            ----------------------------   --------------------   SUBSCRIPTIONS    DEVELOPMENT       MEMBERS'
                               UNITS          AMOUNT        UNITS      AMOUNT      RECEIVABLE         STAGE           EQUITY
                            -----------   --------------   --------   ---------   -------------   --------------   ------------
                                                                                              
Balance at April 22, 1999
  (inception).............           --   $           --        --    $     --              --                --             --
Issuance of Class A Units
  (July 20, 1999).........   92,000,000      920,000,000        --          --    (599,840,000)               --    320,160,000
Issuance of Class A Units
  (December 13, 1999).....   43,010,000      430,100,000        --          --    (361,610,000)               --     68,490,000
Issuance costs of Class A
  Units...................           --      (14,062,500)       --          --              --                --    (14,062,500)
Net loss..................           --               --        --          --              --        (9,947,859)    (9,947,859)
                            -----------   --------------   --------   ---------   ------------    --------------   ------------
Balance at December 31,
  1999....................  135,010,000    1,336,037,500        --          --    (961,450,000)       (9,947,859)   364,639,641
Payments under
  subscriptions
  receivables.............           --               --        --          --     495,740,000                --    495,740,000
Net loss..................           --               --        --          --              --       (24,249,181)   (24,249,181)
                            -----------   --------------   --------   ---------   ------------    --------------   ------------
Balance at December 31,
  2000....................  135,010,000    1,336,037,500        --          --    (465,710,000)      (34,197,040)   836,130,460
Payments under
  subscriptions
  receivables.............           --               --        --          --     465,710,000                --    465,710,000
Net loss..................           --               --        --          --              --      (964,156,097)  (964,156,097)
                            -----------   --------------   --------   ---------   ------------    --------------   ------------
Balance at December 31,
  2001....................  135,010,000    1,336,037,500        --          --              --      (998,353,137)   337,684,363
Net loss..................           --               --        --          --              --       (13,698,567)   (13,698,567)
                            -----------   --------------   --------   ---------   ------------    --------------   ------------
Balance at December 31,
  2002....................  135,010,000   $1,336,037,500        --    $     --              --    (1,012,051,704)   323,985,796
                            ===========   ==============   ========   =========   ============    ==============   ============


          See accompanying notes to consolidated financial statements.

                                      IV-9

                          ASTROLINK INTERNATIONAL LLC
                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                               PERIOD FROM
                                                                                              APRIL 22, 1999
                                                                                               (INCEPTION)
                                                           YEAR ENDED DECEMBER 31,               THROUGH
                                                  -----------------------------------------    DECEMBER 31,
                                                      2000           2001          2002            2002
                                                  ------------   ------------   -----------   --------------
                                                                                  
Cash flows from operating activities:
  Net loss......................................  $(24,249,181)  (964,156,097)  (13,698,567)  (1,012,051,704)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization...............       635,810      3,894,217     8,843,636       13,585,573
    Loss on disposal of property and
      equipment.................................            --        150,678       804,034          954,712
    Foreign currency gain.......................            --             --      (533,601)        (533,601)
    Non-cash interest...........................            --             --       110,836          110,836
    Write-off of contributed assets.............            --             --            --          225,000
    Write-down of system under construction.....            --    728,494,722            --      728,494,722
    Changes in assets and liabilities:
      Cash reserved for trust fund establishment
        and distribution........................            --     (7,243,206)    5,077,483       (2,165,723)
      Prepaid and other current assets..........       445,177     (8,406,815)       17,303       (8,786,614)
      Accounts payable and accrued
        liabilities.............................     2,504,389    187,030,723    (8,801,476)     225,716,183
                                                  ------------   ------------   -----------   --------------
        Net cash used in operating activities...   (20,663,805)   (60,235,778)   (8,180,352)     (54,450,616)
                                                  ------------   ------------   -----------   --------------
Cash flows from investing activities:
  Value added tax receivable....................    (4,678,252)       (22,485)      457,467       (7,192,070)
  Purchases of property and equipment...........      (660,756)   (48,603,771)           --      (49,554,634)
  Proceeds from sale of property and
    equipment...................................            --             --       195,741          195,741
  Additions to system under construction........  (448,142,278)  (396,288,578)           --   (1,206,789,008)
                                                  ------------   ------------   -----------   --------------
        Net cash used in investing activities...  (453,481,286)  (444,914,834)      653,208   (1,263,339,971)
                                                  ------------   ------------   -----------   --------------
Cash flows from financing activities:
  Proceeds from Member advances.................            --             --     2,387,721        2,387,721
  Proceeds from the issuance of Class A units...   495,740,000    465,710,000            --    1,330,100,000
  Unit issuance costs...........................    (5,312,500)            --            --      (14,062,500)
                                                  ------------   ------------   -----------   --------------
        Net cash provided by financing
          activities............................   490,427,500    465,710,000     2,387,721    1,318,425,221
                                                  ------------   ------------   -----------   --------------
        Net increase (decrease) in cash and cash
          equivalents...........................    16,282,409    (39,440,612)   (5,139,423)         634,634

Cash and cash equivalents, beginning of
  period........................................    28,932,260     45,214,669     5,774,057               --
                                                  ------------   ------------   -----------   --------------
Cash and cash equivalents, end of period........  $ 45,214,669      5,774,057       634,634          634,634
                                                  ============   ============   ===========   ==============
Supplemental disclosure of noncash investing
  activities:
  Contribution of assets by Member..............  $         --             --            --       20,000,000


          See accompanying notes to consolidated financial statements.

                                     IV-10

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2002

(1) NATURE OF THE BUSINESS

    ASTROLINK International LLC (the Company) was formed on April 22, 1999 in
the State of Delaware as a Limited Liability Company for the purpose of engaging
in one or more telecommunications businesses and all incidental activities. The
Company was formed by Lockheed Martin Global Telecommunications, Inc. (LMGT) (a
wholly owned subsidiary of Lockheed Martin Corporation (LMC)). The Company's
initial Members were LMGT, TRW Inc. (TRW), and Telespazio, S.p.A. through
Telespazio Luxembourg, S.A. (Telespazio). Liberty Media Group, through LSAT
Astro LLC (LMG), became a Member in December 1999. The Company was originally
formed to establish and operate a worldwide, digital, Ka-band telecommunications
system consisting initially of four geosynchronous satellites and a space and
ground control system to provide worldwide multimedia interactive broadband
telecommunications services (the original ASTROLINK System-TM-).

    During 2001, certain of the Company's investors indicated that they would
not provide additional funding to the Company beyond those amounts previously
subscribed for. On January 17, 2003, one of the Company's Members reached an
agreement (the Master Agreement) with the other Members in connection with the
proposed restructuring of the Company. Under the Master Agreement and related
agreements, the Member will acquire substantially all of the assets of the
Company and all contractual claims of certain Members, affiliates of the Members
and certain other parties were settled. The closing of the agreement is expected
by October 31, 2003 and is dependent upon achieving additional financing and
regulatory approval, see note 4.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    (A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

        The consolidated financial statements include the accounts of ASTROLINK
    International LLC and its wholly owned subsidiaries. All significant
    intercompany transactions and accounts have been eliminated. Members are
    generally not liable for debts, obligations or liabilities of the Company.

    (B) DEVELOPMENT STAGE ENTERPRISE

        The Company's consolidated financial statements are presented as those
    of a development stage enterprise, as prescribed by Statement of Financial
    Accounting Standards (SFAS) No. 7, ACCOUNTING AND REPORTING BY DEVELOPMENT
    STAGE ENTERPRISES.

    (C) CASH AND CASH EQUIVALENTS

        The Company considers short-term, highly liquid investments with an
    original maturity of three months or less to be cash equivalents. Cash
    equivalents at December 31, 2001 and 2002 consist primarily of investments
    in U.S. government obligations, and amounted to approximately $1,266,000 and
    $0, respectively. These investments are stated at amortized cost, which
    approximated the fair value due to the highly liquid nature and short
    maturities of the underlying securities.

                                     IV-11

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    (D) RESTRICTED CASH

        During 2001, the Company established a trust fund to pay severance to
    terminated employees in accordance with the Company's severance pay plans,
    as approved by the Company's Board of Directors. Restricted cash in the
    trust fund at December 31, 2001 and 2002 amounted to $7,243,206 and
    $2,165,723, respectively, and was comprised of money market investments.

    (E) FURNITURE AND EQUIPMENT

        Property and equipment, including equipment with an original cost of
    $2,054,000 contributed by LMC and LMGT in July 1999, are carried at
    historical cost less accumulated depreciation and amortization. Depreciation
    and amortization is calculated using the straight-line method over the
    following estimated useful lives:


                                         
Furniture and fixtures....................  5 years
Machinery, equipment, and computer
  hardware and software...................  3 years
                                            Shorter of estimated life or remaining
Leasehold improvements....................  term


    (F) SYSTEM UNDER CONSTRUCTION

        The Company has been in the process of designing and developing its
    broadband telecommunications service via a Ka-band satellite
    telecommunications system. System under construction includes all costs
    incurred related to the construction of the space and ground components of
    the original ASTROLINK System-TM-. Depreciation expense will be recognized
    on a satellite-by-satellite basis as the satellites are placed into service
    following delivery of each satellite to its mission orbit. Depreciation
    expense related to the ground components will commence with the placement
    into service of such components. To date, no satellites have been completed
    and launched, nor have the ground components been completed.

    (G) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

        SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
    ASSETS, (SFAS No. 144) provides a single accounting model for long-lived
    assets to be disposed of. SFAS No. 144 also changes the criteria for
    classifying an asset as held for sale; and broadens the scope of businesses
    to be disposed of that qualify for reporting as discontinued operations and
    changes the timing of recognizing losses on such operations. The Company
    adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No. 144 did
    not affect the Company's financial statements.

        In accordance with SFAS No. 144, long-lived assets, such as property and
    equipment, and purchased intangibles subject to amortization, are reviewed
    for impairment whenever events or changes in circumstances indicate that the
    carrying amount of an asset may not be recoverable. Recoverability of assets
    to be held and used is measured by a comparison of the carrying amount of an
    asset to estimated undiscounted future cash flows expected to be generated
    by the asset. If the carrying amount of an asset exceeds its estimated
    future cash flows, an impairment charge is recognized by the amount by which
    the carrying amount of the asset exceeds the fair value of the asset. Assets
    to be disposed of would be separately presented in the balance sheet and
    reported at

                                     IV-12

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    the lower of the carrying amount or fair value less costs to sell, and are
    no longer depreciated. The assets and liabilities of a disposed group
    classified as held for sale would be presented separately in the appropriate
    asset and liability sections of the balance sheet.

        Goodwill and intangible assets not subject to amortization are tested
    annually for impairment, and are tested for impairment more frequently if
    events and circumstances indicate that the asset might be impaired. An
    impairment loss is recognized to the extent that the carrying amount exceeds
    the asset's fair value.

        Prior to the adoption of SFAS No. 144, the Company accounted for
    long-lived assets in accordance with SFAS No. 121, ACCOUNTING FOR IMPAIRMENT
    OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.

    (H) INTANGIBLE ASSETS

        Intangible assets represent the contracts, agreements, and licenses
    related to the space component of the original ASTROLINK System-TM- which
    were contributed by LMGT in partial consideration for its Class A units.
    These intangible assets will be amortized on a straight-line basis over
    seven years, commencing with the placement of the satellites into service.

        In the first quarter of 2002, the Company adopted the provisions SFAS
    No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS No. 142). SFAS No. 142
    requires that goodwill and intangible assets with indefinite useful lives no
    longer be amortized, but instead tested for impairment at least annually in
    accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires
    that intangible assets with estimable useful lives be amortized over their
    respective estimated useful lives to their estimated residual values, and
    reviewed for impairment in accordance with SFAS No. 144.

        Upon adoption of SFAS No. 142, the Company was also required to reassess
    the useful lives and residual values of all of its intangible assets, and
    make any necessary amortization period or impairment adjustments. Impairment
    is measured as the excess of carrying value over the fair value of an
    intangible asset with an indefinite life. The Company determined that the
    carrying amounts of its intangible assets were not impaired and the useful
    lives were appropriate upon adoption of SFAS No. 142.

    (I) FAIR VALUE OF FINANCIAL INSTRUMENTS

        SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
    (SFAS No. 107) requires disclosures of fair value information about
    financial instruments, whether or not recognized in the balance sheet, for
    which it is practicable to estimate that value. SFAS No. 107 excludes
    certain financial instruments and all non-financial instruments from these
    disclosure requirements. Accordingly, the aggregate fair value amounts
    presented do not represent the underlying value of the Company. The carrying
    amounts reported in the consolidated balance sheets approximates the fair
    value for cash and cash equivalents, restricted cash, prepaid and other
    current assets, value added tax receivable, accounts payable, and accrued
    expenses. The accounts payable to Members, Member advances, and accrued
    contract terminations were settled as part of the Master Agreement.

                                     IV-13

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    (J) INCOME TAXES

        As a limited liability company, the Company is not subject to U.S.
    federal income taxes directly. Rather, each holder of Class A Units of the
    Company (each Member) is subject to U.S. federal income taxation based on
    its ratable portion of the Company's income or loss. Certain of the
    Company's subsidiaries are subject to tax in various jurisdictions; however,
    the subsidiaries had no taxable income through December 31, 2002.

    (K) UNIT-BASED COMPENSATION

        At December 31, 2002, the Company had one unit-based employee
    compensation plan, which is described more fully in note 10. The Company
    accounts for the plan under the recognition and measurement principles of
    APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
    interpretations. No unit-based employee compensation cost is reflected in
    net loss, as all options granted under the plan had an exercise price equal
    to the estimated market value of the underlying common stock on the date of
    grant. The following table illustrates the effect on net loss if the Company
    had applied the fair value recognition provisions of SFAS No. 123,
    ACCOUNTING FOR STOCK-BASED COMPENSATION, to unit-based employee
    compensation.



                                            2000          2001          2002
                                         -----------   -----------   ----------
                                                            
Net loss, as reported..................  $24,249,181   964,156,097   13,698,567
Add: Total unit-based employee
  compensation expense determined under
  fair value based method for all
  awards...............................    1,428,907     2,946,673    1,153,371
                                         -----------   -----------   ----------
      Pro forma net loss...............  $25,678,088   967,102,770   14,851,938
                                         ===========   ===========   ==========


    (L) MANAGEMENT ESTIMATES

        The preparation of the Company's consolidated financial statements in
    conformity with accounting principles generally accepted in the United
    States of America requires management to make estimates and assumptions that
    affect the reported amounts of assets and liabilities and disclosure of
    contingent assets and liabilities, including the recoverability of the
    system under construction and the amounts of contract termination
    liabilities, at the date of the consolidated financial statements and the
    reported amounts of expenses during the reporting period. Actual results
    could differ from those estimates.

    (M) FOREIGN CURRENCY

        All balance sheet accounts of foreign operations are translated into
    U.S. dollars at the year-end rate of exchange and statements of operations
    items are translated at the weighted average exchange rates for the year.
    Gains and losses from foreign currency transactions, such as those resulting
    from the settlement of foreign receivables or payables, are included in the
    consolidated statements of operations.

                                     IV-14

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2002

    (N) OTHER COMPREHENSIVE INCOME

        The Company has engaged in no transactions during the years ended
    December 31, 2000, 2001, and 2002 that would be classified as other
    comprehensive income.

    (O) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

        On January 1, 2001, the Company adopted SFAS No. 133, ACCOUNTING FOR
    DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES and SFAS No. 138,
    ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITY,
    AN AMENDMENT OF SFAS 133. SFAS Nos. 133 and 138 require that all derivative
    instruments be recorded on the balance sheet at their respective fair
    values. The Company has reviewed its contracts and has no derivative
    instruments and does not engage in hedging activities.

    (P) RECENTLY ISSUED ACCOUNTING STANDARDS

    In June 2001, FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS (SFAS No. 143). SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also records a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS
No. 143 on January 1, 2003. The adoption of SFAS No. 143 is not expected to have
a material effect on the Company's consolidated financial statements.

    In April 2002, the FASB issued SFAS No. 145, RESCISSION OF FASB STATEMENTS
NO. 4, 44 AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS
(SFAS No. 145). SFAS No. 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS No. 145 also amends SFAS
No. 13 to require sale-leaseback accounting for certain lease modifications that
have economic effects similar to sale-leaseback transactions. The provisions of
the Statement related to the rescission of Statement No. 4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 is not expected to have a material
effect on the Company's consolidated financial statements.

    In June 2002, the FASB issued SFAS No. 146, ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES (SFAS No. 146). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN
ACTIVITY. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS No. 146 is not expected to have a material
effect on the Company's consolidated financial statements.

                                     IV-15

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS TO OTHERS, AN INTERPRETATION OF FASB STATEMENTS
NO. 5, 57 AND 107 AND A RESCISSION OF FASB INTERPRETATION NO. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material effect on the
Company's financial statements. The disclosure requirements are effective for
consolidated financial statements of annual periods ending after December 15,
2002.

    In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION--TRANSITION AND DISCLOSURE, AN AMENDMENT OF FASB STATEMENT
NO. 123. This Statement amends FASB Statement No. 123 to provide alternative
methods of transition for a voluntary change to the fair value method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated financial
statements.

    In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51. This Interpretation
addresses the consolidation by business enterprises of variable interest
entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For nonpublic enterprises, such as the Company,
with a variable interest in a variable interest entity created before
February 1, 2003, the Interpretation is applied to the enterprise no later than
the end of the first annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

(3) LIQUIDITY

    To date, the Company has devoted all of its efforts to developing,
constructing and marketing the original ASTROLINK System-TM-. Through
December 31, 2002, the Company has generated no revenue and has an accumulated
deficit of approximately $1.0 billion. The reduced-scale operating plan
discussed in note 4 will require substantial additional financing to complete
the construction and launch of the two satellites and to market and distribute
the satellite-based services. Management's plans are to fund the remaining
satellite construction and launch and operations with equity investments from
additional investors, third-party sources of financing, or firm capacity
commitments from prospective customers, (see note 4(b)). Currently, economic
uncertainties exist regarding the successful acquisition of additional equity or
debt financing or firm commitments from prospective customers and the attainment
of positive cash flows from the Company's reduced-scale operating plan. These
factors individually, or in the aggregate, could have an adverse effect on the
Company's financial condition and future operating results and create an
uncertainty as to the Company's ability to continue as a going

                                     IV-16

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

concern. The consolidated financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a going
concern.

(4) BUSINESS DEVELOPMENTS AND PROPOSED RECONSTITUTION OF THE COMPANY

    (A) CESSATION OF FURTHER FUNDING FROM MEMBERS, CONTRACT TERMINATIONS AND
     RELATED ACTIONS

    On October 25, 2001, LMGT advised the Company and publicly stated that it
would not provide additional funding to the Company beyond those amounts
previously subscribed for. Subsequent to that date, TRW made a similar
announcement.

    As a result of these announcements, the Company terminated substantially all
of its major procurement contracts for the original ASTROLINK System-TM-,
including those with Members or Member-affiliates (see notes 6 and 11). The
Company terminated these contracts "for convenience", which is permitted by the
terms of the contracts. Also, in accordance with the terms of those contracts,
the parties are to determine payments due, if any, in connection with the
termination, which amounts are subject to review and, in some cases, negotiation
by the parties before final settlement. As of December 31, 2001, based on
termination claims received from the various contractors, Company estimates, and
the terms of each contract, the Company accrued approximately $174,015,988 to
recognize the estimated termination liability for these contracts. Of that
amount, approximately $127,362,988 relates to contracts with Members or
Member-affiliates.

    In December 2001, the Company's Board of Directors established a plan to
terminate all of the Company's employees and established a trust fund to pay
severance to terminated employees in accordance with the Company's severance pay
plans. Restricted cash in the trust fund at December 31, 2001 and 2002 amounted
to approximately $7,243,000 and $2,166,000, respectively. Through December 31,
2001 and 2002, the Company made severance payments of approximately $2,446,000
and $5,145,000, respectively, to the terminated employees. Additionally, some
employees forfeited their severance rights in 2002 in the amount of $913,000 and
the plan was amended in 2002 to cancel the terminations of the remaining
employees, which resulted in a reduction of the accrual of approximately
$1,226,000. As of December 31, 2001 and 2002, the severance accrual was
approximately $7,934,000 and $680,000, respectively. Severance costs are
included in general and administrative expenses in the accompanying consolidated
statements of operations for the years ended December 31, 2001 and 2002.

    On March 6, 2002, the Company filed a Demand for Arbitration with the
American Arbitration Association to initiate arbitration under the provisions of
one of its procurement contracts with an affiliate of a Member. The Demand for
Arbitration results from a dispute as to the Company's rights resulting from the
termination of the contract by the Company in November 2001. In connection with
the settlement of claims pursuant to the Master Agreement, this arbitration was
terminated.

    (B) PROPOSED RECONSTITUTION OF THE COMPANY

    On January 22, 2003, Liberty Satellite & Technology, Inc. (Liberty
Satellite), an affiliate of LMG announced that it had entered into the Master
Agreement with Lockheed Martin Corporation, Northrop Grumman Space & Mission
Systems Corp. (formerly TRW, Inc.) (Northrop Grumman), Telespazio S.p.A and
certain of their affiliates in connection with the proposed restructuring of the
Company.

                                     IV-17

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    Under the Master Agreement, Liberty Satellite will acquire substantially all
of the assets of the Company. The Company simultaneously signed agreements with
Lockheed Martin and Northrop Grumman for completion of two satellites. The
parties also reached agreement on the settlement of all claims related to the
previous termination of the Company's major procurement contracts and all other
major third-party creditor claims. The closing of Liberty Satellite's
acquisition of the Company's business is subject to regulatory approvals and
other closing conditions, including Liberty Satellite obtaining satisfactory
funding for the business from additional investors, third party sources of
financing, or firm capacity commitments from prospective customers. Closing is
expected to occur on or before October 31, 2003.

    If the closing occurs, Liberty Satellite will pay approximately $43 million
in cash and will issue approximately $3 million in value of Series A common
stock as total consideration for the Company's assets, including certain
existing satellite and launch contracts, and the settlement of all claims
against the Company. In addition, Liberty Satellite will provide additional
interim funding for the Company pending the closing.

    Liberty Satellite currently plans to pursue a revised operating plan for the
new Astrolink System-TM-, taking into account current financial and market
factors. The revised operating plan currently envisions launching two Ka-band
satellites to provide enterprise customers with virtual private networks and
related advanced services, as well as their use in fulfilling the expanding
needs for bandwidth by various government agencies.

    If the closing under the Master Agreement does not occur, the Company will
pursue an orderly liquidation in accordance with the terms of the Master
Agreement.

    Effective January 17, 2003, Northrop Grumman's Class A units were redeemed
and retired by the Company under the terms of the Master Agreement for $500,000
in cash contributed by other Members and $1,000,000 in assets. Whether the
closing of the Master Agreement occurs or if the Company enters a orderly
liquidation, certain Members' Class A units are to be redeemed and retired under
the terms of the Master Agreement.

    (C) WRITE-DOWN RELATING TO SYSTEM UNDER CONSTRUCTION ASSET

    As a result of the Company's reduced-scale operating plan, it has written
down all capitalized costs except those costs necessary to support the new plan
as discussed above. Charges relating to these costs were approximately
$728,495,000 for the year ended December 31, 2001.

    In accordance with SFAS No. 144, the Company also assessed whether the costs
incurred and capitalized associated with the current reduced-scale operating
plan had been further impaired during 2002. Based on the Company's projected
undiscounted cash flows from this plan, and after considering the estimated
costs to complete construction and launch of the reduced-scale system as well as
the risk of availability of adequate additional financing and likelihood of
customer acceptance of the services from the new Astrolink System-TM-,
management does not believe that the costs incurred and capitalized associated
with the reduced-scale system, have been impaired as of December 31, 2002.

                                     IV-18

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    (D) RISKS AND UNCERTAINTIES RELATING TO THE RECONSTITUTION AND REDUCED-SCALE
     OPERATING PLAN

    The completion of the reconstitution is subject to numerous conditions,
including obtaining adequate financing, or firm capacity commitments from
prospective customers and receipt of governmental approvals, which involve
substantial risks and uncertainties. In addition, the Company's development
effort relating to the reduced-scale operating plan involves substantial risks
and uncertainties. Future operating results will be subject to significant
business, economic, regulatory, technological, and competitive uncertainties and
contingencies, including the ability to obtain and maintain the necessary
licenses and other approvals to operate the network and provide services. These
factors individually or in the aggregate could have an adverse effect on the
Company's financial condition and future operating results. In addition, the
Company will require substantial additional financing before construction is
completed, see note 3. Failure to obtain the required long-term financing will
prevent the Company from realizing its objective of operating its Ka-band
telecommunications system. There can be no assurance that the Company will be
successful in its efforts to reconstitute the development, construction and
implementation of the reduced-scale operating plan, or that it will be able to
obtain the necessary financing to complete and operate the system even if the
reconstitution plan, as described above, is implemented.

(5) MEMBERS' EQUITY

    On July 20, 1999, LMGT purchased 42,000,000 Class A units for an aggregate
purchase price of $420,000,000. During 1999, 2000 and 2001, LMGT paid all
amounts in accordance with this commitment.

    Also on July 20, 1999, Northrop Grumman and Telespazio each purchased
25,000,000 Class A units for a purchase price of $250,000,000. Northrop Grumman
subscribed to purchase an additional 510,000 Class A units on December 13, 1999,
for a purchase price of $5,100,000. During 1999, 2000, and 2001, Northrop
Grumman and Telespazio each paid all amounts of their respective commitments.

    On December 31, 1999, LMG purchased 42,500,000 Class A units for an
aggregate purchase price of $425,000,000. In 1999, 2000 and 2001, LMG paid all
amounts in accordance with this commitment.

    On January 17, 2003, Northrop Grumman's Class A units were redeemed and
retired by the Company under the terms of the Master Agreement, see note 4(b).

(6) TRANSACTIONS AND COMMITMENTS WITH MEMBERS

    (A) SATELLITE PURCHASE AND LAUNCH SERVICES CONTRACTS WITH MEMBERS

    During 1999, 2000, and 2001, the Company entered into a series of contracts
with a Member and certain of its affiliates for the procurement of four
satellites, launch services, and a satellite control facility with related
services, training and documentation. The total original aggregate commitment
under the agreements was approximately $1,826,235,000, before considering the
terminations discussed in note 4. The amounts under the contracts were due
partly in monthly payments and partly upon the completion of certain milestones.
During the years ended December 31, 2000 and 2001, the Company paid
approximately $348,521,000 and $300,942,000, respectively, to the Member under
the terms of these contracts. No payment was made in 2002 due to the termination
of such contracts in 2001. At

                                     IV-19

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

December 31, 2001 and 2002, $26,771,000 was payable to the Member under the
original terms of these contracts. In accordance with the terms of the Master
Agreement at closing, the Company will receive a refund of $8,314,000 for its
prepaid launch costs paid to an affiliate of a Member, which is included in
prepaid and other current assets in the consolidated balance sheets.

    (B) GROUND SEGMENT AND TELEMETRY, TRACKING AND COMMAND PRODUCTS, AND
     SERVICES CONTRACTS

    On April 29, 1999, the Company entered into two contracts with a Member for
obtaining certain satellite ground segment and telemetry, tracking and command
products, and services. The total original aggregate commitment under these
contracts, as amended, was approximately $511,500,000, before considering the
terminations discussed in note 4. This amount was due upon the completion of
certain milestones. During the years ended December 31, 2000 and 2001, the
Company paid approximately $81,400,000 and $135,242,000, respectively, to the
Member under the terms of the contracts. No payment was made in 2002 due to the
termination of such contracts in 2001. At December 31, 2001 and 2002,
approximately $13,001,000 was payable to the Member.

    (C) OPERATIONS AND MAINTENANCE CONTRACTS

    On July 27, 2001, the Company entered into two contracts with a Member for
obtaining certain operations and maintenance services for the ASTROLINK
System-TM- for 15 years. Amounts due under these contracts are billed on a time
and materials basis. During the year ended December 31, 2001, the Company paid
approximately $1,315,000 to the Member under the terms of the contracts. No
payment was made in 2002 due to the termination of such contracts in 2001. At
December 31, 2001 and 2002, approximately $776,000 was payable to the Member.

    (D) SATELLITE APPLICATIONS INTERFACE CONTRACTS

    During 1999 and 2000, the Company entered into contracts with a Member for
obtaining a satellite applications interface and payload emulators. The total
original commitment under the agreements was approximately $34,525,000 with an
option to purchase up to $1,525,000 in additional support services, before
considering the terminations discussed in note 4. The amounts were due upon the
completion of certain milestones or the delivery of optional support services.
During the years ended December 31, 2000 and 2001, the Company paid
approximately $18,220,000 and $12,666,000, respectively, to the Member under the
terms of the contracts. No payment was made in 2002 due to the termination of
such contracts in 2001. At December 31, 2001 and 2002, approximately $1,146,000
was payable to the Member under the original terms of the contracts.

    (E) SETTLEMENTS OF CLAIMS UNDER PROCUREMENT CONTRACTS WITH MEMBERS

    As of January 17, 2003, all claims related to the previous termination of
the Company's procurement contracts with its Members and certain of their
affiliates were settled under the Master Agreement. During January 2003, the
Company entered into two contracts with a Member and a Member-affiliate for the
completion of two satellite payloads, two spacecraft, and provision of one
launch. The total aggregate commitment under the agreements is approximately
$272,000,000. The amounts under the contracts are due partly in periodic
payments and partly upon completion of certain milestones.

                                     IV-20

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

    (F) MEMBER ADVANCES

    During 2002, the Company received $2,387,721 from its Members in the form of
loans bearing interest at 10%, of which $800,000 was secured by all of the
assets of the Company with the exception of any work in process under any system
procurement contract unless it constituted proceeds from the procurement
contract. The Company incurred $110,836 in interest during 2002 under these
advances.

(7) PROPERTY AND EQUIPMENT

    Property and equipment consists of the following at December 31, 2001 and
2002:



                                                        2001          2002
                                                     -----------   -----------
                                                             
Computer hardware and software.....................  $   679,239       470,768
Furniture and fixtures.............................    1,288,679        22,493
Machinery and equipment............................      418,894            --
Leasehold improvements.............................    1,261,934       720,000
Satellite equipment................................   47,667,878    47,510,530
                                                     -----------   -----------
                                                      51,316,624    48,723,791
Less accumulated depreciation and amortization.....   (4,600,605)  (11,851,183)
                                                     -----------   -----------
                                                     $46,716,019    36,872,608
                                                     ===========   ===========


    During 2002, the Company disposed of the majority of its headquarters'
furniture and fixtures and leasehold improvements as a direct result of Company
downsizing, resulting in a loss on disposal of approximately $804,000.

(8) EMPLOYEE BENEFIT PLAN

    On July 20, 1999, the Company adopted a profit sharing and savings plan (the
Plan) under Section 401(k) of the Internal Revenue Code. This Plan allows
eligible employees to defer up to 20% of their annual compensation, subject to
IRS rules and applicable limits to the Plan. During the years ended
December 31, 2000, 2001 and 2002, the Company contributed 4% of each employee's
annual compensation to the Plan, which amounted to approximately $345,000,
$555,000, and $93,000, respectively.

                                     IV-21

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2001 AND 2002

(9) LEASES

    The Company has a non-cancelable operating lease for property that will
expire in 2016. The future minimum lease payments under the lease as of
December 31, 2002 are:


                                                           
Year ending December 31:
  2003......................................................  $   96,000
  2004......................................................      96,000
  2005......................................................      96,000
  2006......................................................      96,000
  2007 and thereafter.......................................     896,000
                                                              ----------
                                                              $1,280,000
                                                              ==========


    Rent expense for the years ended December 31, 2000, 2001, and 2002 was
approximately $1,545,000, $1,656,000, and $733,000, respectively.

(10) UNIT OPTIONS

    The Company has a unit option plan that provides for the granting of options
to employees of the Company to purchase Class B units. The Class B units are
non-voting and are convertible into any class of securities that become
registered during an initial public offering. The options vest over a five-year
period and expire ten years after the date of grant. As of December 31, 2001 and
2002, the Company had reserved 8,512,704 units for issuance under the option
plan.

    The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee unit options rather than the alternative fair value
accounting method allowed by SFAS No. 123. APB No. 25 provides that compensation
expense under variable plan accounting applicable to junior option plans is
based upon the difference, if any, between the exercise price and the fair value
of the Company's units when it becomes probable that the conversion of the
non-voting units to the voting class will occur. SFAS No. 123 requires companies
that continue to follow APB No. 25 to

                                     IV-22

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

provide pro forma disclosure of the impact of applying the fair value method of
SFAS No. 123. The following table summarizes unit option activity:



                                                           CLASS B      PRICE
                                                            UNITS      PER UNIT
                                                          ----------   --------
                                                                 
Balance at January 1, 2000..............................          --    $ 0.00

Granted.................................................   3,932,000     10.00
Exercised...............................................          --        --
Forfeited...............................................    (419,000)    10.00
                                                          ----------
Balance at December 31, 2000............................   3,513,000    $10.00

Granted.................................................   4,350,204     10.00
Exercised...............................................          --        --
Forfeited...............................................    (641,000)    10.00
                                                          ----------
Balance at December 31, 2001............................   7,222,204    $10.00

Granted.................................................          --        --
Exercised...............................................          --        --
Forfeited...............................................  (4,655,999)    10.00
                                                          ----------
Balance at December 31, 2002............................   2,566,205    $10.00
                                                          ==========


    There were 754,700 and 610,941 options exercisable at December 31, 2001 and
2002, respectively. There were 5,946,499 units available for future grants as of
December 31, 2002. The weighted average exercise price of unit options granted
during the year ended December 31, 2000 and 2001 was $10.00. The weighted
average remaining contractual life of the Company's unit options was
approximately eight years at December 31, 2002.

    Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee unit
options under the fair value method. The weighted average fair value of unit
options granted during 2000 and 2001 was $2.56 and $2.00, respectively, per
share using the Black-Scholes option pricing model with the following
assumptions: expected dividend yield 0%, volatility 0%, average risk free
interest rate 4.51%--6.01%, and expected life of five years. For purposes of the
pro forma disclosures, the estimated fair value of the unit options is amortized
to expense over the unit options' vesting period. Had compensation expense for
the unit options granted to employees been determined based on the fair value of
the related unit options at the grant dates in accordance with SFAS No. 123, the
Company's net loss for the years ended December 31, 2000, 2001 and 2002 would
have increased by the pro forma amount indicated below:



                                          2000           2001          2002
                                       -----------   ------------   -----------
                                                           
Net loss, as reported................  $22,249,181   $964,156,097   $13,698,567
Net loss, pro forma..................   25,678,088    967,102,770    14,851,938


                                     IV-23

                          ASTROLINK INTERNATIONAL LLC

                (A DEVELOPMENT STAGE LIMITED LIABILITY COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           DECEMBER 31, 2001 AND 2002

(11) OTHER CONTRACTUAL COMMITMENTS AND RELATED TERMINATIONS

    During 2000 and 2001, the Company entered into contracts with third-party
contractors for the development and manufacture of end-user terminals and
service provider gateway terminals. Amounts under the contracts were due upon
the completion of certain milestones. As described in note 4, the Company
terminated all of its construction and related contracts during 2001. During the
years ended December 31, 2000 and 2001, the Company paid approximately
$1,500,000 and $16,000,000, respectively, to the contractors under the terms of
these contracts. At December 31, 2001 and 2002, approximately $4,675,000 was
payable to the contractors under the original terms of these contracts. The
Company has accrued an additional $46,653,000 related to the termination of
these contracts. During January 2003, all claims from third party contractors
for the development and manufacture of terminals were settled in consideration
of payments made by a Member.

    As of December 31, 2002, the Company was subject to a legal proceeding and
claim relating to a software license agreement that arose in the ordinary course
of its operations that had not been finally adjudicated. The amount at issue in
this proceeding was $1,200,000, all of which was accrued for as of December 31,
2001. As of January 17, 2003, and in connection with the Master Agreement, the
dispute was settled in consideration of a payment of $350,000 by the Company to
the software vendor and the proceeding was dismissed. In December 2002, the
Company reduced its accrual for the settlement by $850,000, which is included in
the consolidated statements of operations.

(12) VALUE ADDED TAX (VAT) REFUND DISPUTE

    In 2001, in accordance with Italian law, the Company's Italian subsidiary
submitted a written request for a refund of value added tax (VAT) that has been
paid to the Italian government in connection with work performed in Italy on the
original Astrolink System-TM-. In 2002, the Italian VAT authority provided a
partial refund of VAT of approximately $450,000 and is currently disputing the
remaining refund petition of approximately $7,726,000. The Italian VAT authority
has also threatened other actions against the Company in connection with the VAT
refund request. The Company believes that the Italian government's position is
without merit and that the collectibility of the remaining VAT receivable is
probable (although the timing is uncertain). Therefore, no reserve has been
established over the VAT receivable at December 31, 2002. However, there can be
no assurance that the resolution of this dispute will not result in the
write-off of some portion, or all, of the VAT receivable.

                                     IV-24

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                              
                                               LIBERTY SATELLITE & TECHNOLOGY, INC.

                                               By:               /s/ KENNETH G. CARROLL
                                                    ------------------------------------------------
                                                    Name: Kenneth G. Carroll
                                                    Title:  ACTING PRESIDENT, CHIEF FINANCIAL OFFICER
                                                         AND TREASURER


Dated March 28, 2003

    Pursuant to the Securities Exchange Act of 1934, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the date indicated:



                  SIGNATURE                                    TITLE                        DATE
                  ---------                                    -----                        ----
                                                                                
             /s/ GARY S. HOWARD
    ------------------------------------       Chairman of the Board and Director      March 28, 2003
               Gary S. Howard

            /s/ ALAN M. ANGELICH
    ------------------------------------       Director                                March 28, 2003
              Alan M. Angelich

            /s/ ROBERT R. BENNETT
    ------------------------------------       Director                                March 28, 2003
              Robert R. Bennett

           /s/ WILLIAM H. BERKMAN
    ------------------------------------       Director                                March 28, 2003
             William H. Berkman

          /s/ WILLIAM R. FITZGERALD
    ------------------------------------       Director                                March 28, 2003
            William R. Fitzgerald

             /s/ JOHN W. GODDARD
    ------------------------------------       Director                                March 28, 2003
               John W. Goddard

           /s/ J. CURT HOCKEMEIER
    ------------------------------------       Director                                March 28, 2003
             J. Curt Hockemeier

                                               Acting President, Chief Financial
           /s/ KENNETH G. CARROLL                Officer and Treasurer (Principal
    ------------------------------------         Executive, Financial and Accounting   March 28, 2003
             Kenneth G. Carroll                  Officer)


                                     IV-25

                                 CERTIFICATION

I, Kenneth G. Carroll, certify that:

    1.  I have reviewed this annual report on Form 10-K of Liberty Satellite &
Technology, Inc.;

    2.  Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

    3.  Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

    4.  I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:

        a)  designed such disclosure controls and procedures to ensure that
    material information relating to the registrant, including its consolidated
    subsidiaries, is made known to us by others within those entities,
    particularly during the period in which this annual report is being
    prepared;

        b)  evaluated the effectiveness of the registrant's disclosure controls
    and procedures as of a date within 90 days prior to the filing date of this
    annual report (the "Evaluation Date"); and

        c)  presented in this annual report our conclusions about the
    effectiveness of the disclosure controls and procedures based on my
    evaluation as of the Evaluation Date;

    5.  I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

        a)  all significant deficiencies in the design or operation of internal
    controls which could adversely affect the registrant's ability to record,
    process, summarize and report financial data and have identified for the
    registrant's auditors any material weaknesses in internal controls; and

        b)  any fraud, whether or not material, that involves management or
    other employees who have a significant role in the registrant's internal
    controls; and

    6.  I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.


                                            
Date: March 28, 2003

/s/ KENNETH G. CARROLL
--------------------------------------------
Kenneth G. Carroll
ACTING PRESIDENT, CHIEF FINANCIAL OFFICER AND
TREASURER


                                     IV-26

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549

                                 F O R M 10-Q/A
                                AMENDMENT NO. 1


        
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
           FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                                  OR

   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

            FOR THE TRANSITION PERIOD FROM               TO


                        COMMISSION FILE NUMBER: 0-21317

                      LIBERTY SATELLITE & TECHNOLOGY, INC.
             (Exact name of Registrant as specified in its charter)


                                            
              STATE OF DELAWARE                                 84-1299995
       (State or other jurisdiction of             (I.R.S. Employer Identification No.)
       incorporation or organization)

           12300 LIBERTY BOULEVARD                                 80112
             ENGLEWOOD, COLORADO                                (Zip Code)
  (Address of principal executive offices)

            Registrant's telephone number, including area code: (720) 875-5400


    Indicate by check mark whether the Registrant is an accelerated filer as
described in Rule 12(b)-2 of the Securities Exchange Act. Yes / /  No /X/

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/  No / /

    The number of shares outstanding of Liberty Satellite & Technology, Inc.'s
common stock as of July 31, 2003 was:

                 Series A common stock--14,278,206 shares; and
                   Series B common stock--34,765,055 shares.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)



                                                              JUNE 30,    DECEMBER 31,
                                                                2003          2002
                                                              ---------   ------------
                                                                AMOUNTS IN THOUSANDS
                                                                    
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  81,741        11,571
  Restricted cash (note 6)..................................     10,990         2,690
  Trade and other receivables, net..........................     30,531        33,513
  Derivative assets (note 8)................................     37,724       317,580
  Other current assets......................................      2,106         3,629
                                                              ---------     ---------
    Total current assets....................................    163,092       368,983
                                                              ---------     ---------
Investments in available-for-sale securities and other cost
  investments, including securities pledged to creditors
  (note 6)..................................................    129,476       138,602
Investment in WildBlue Communications, Inc. (note 7)........     64,098         5,256

Property and equipment:
  Video systems.............................................    388,525       392,350
  Support equipment.........................................     13,170        12,813
                                                              ---------     ---------
                                                                401,695       405,163
  Accumulated depreciation..................................   (138,745)     (130,086)
                                                              ---------     ---------
                                                                262,950       275,077
                                                              ---------     ---------
Intangible asset subject to amortization, net of accumulated
  amortization..............................................         --        13,583
Intangible asset not subject to amortization--Goodwill......     53,371        52,272
Other assets (note 8).......................................     16,311        21,446
                                                              ---------     ---------
    Total assets............................................  $ 689,298       875,219
                                                              =========     =========


                                                                     (continued)

                                      I-1

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED
                                  (UNAUDITED)



                                                               JUNE 30,     DECEMBER 31,
                                                                 2003           2002
                                                              -----------   ------------
                                                                 AMOUNTS IN THOUSANDS
                                                                      
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................  $    40,046        48,332
  Due to parent (note 2)
    Note payable............................................           --        48,411
    Accrued interest........................................           --           614
    Other accrued expenses..................................        5,763         6,931
  Current portion of long-term debt (note 9)................      266,295       113,336
  Securities lending agreement (note 6).....................       10,990         2,690
                                                              -----------   -----------
      Total current liabilities.............................      323,094       220,314
                                                              -----------   -----------
Long-term debt (note 9).....................................           28       261,946
Put option liability due to related party (note 2)..........       32,418        31,052
Deferred tax liability......................................       10,595        14,558
Other liabilities (note 7)..................................        1,516           495
                                                              -----------   -----------
      Total liabilities.....................................      367,651       528,365
                                                              -----------   -----------
Minority interests in equity of consolidated subsidiaries...       10,007         9,854
Redeemable preferred stock..................................      212,707       202,147

Stockholders' Equity:
  Preferred stock; authorized 5,000,000 shares; issued and
    outstanding 300,000 shares in 2003 and 2002.............           --            --
  Series A common stock, $1 par value; authorized
    100,000,000 shares; issued 14,306,060 shares at June 30,
    2003 and 11,078,834 shares at December 31, 2002.........       14,306        11,079
  Series B common stock, $1 par value; authorized 70,000,000
    shares; issued and outstanding 34,765,055 shares at
    June 30, 2003 and December 31, 2002.....................       34,765        34,765
  Additional paid-in capital................................    1,968,104     1,981,831
  Accumulated other comprehensive earnings..................       13,460         3,085
  Accumulated deficit.......................................   (1,931,009)   (1,895,220)
                                                              -----------   -----------
                                                                   99,626       135,540
  Series A common stock held in treasury, at cost (27,854
    shares at June 30, 2003 and December 31, 2002)..........         (378)         (378)
  Notes receivable from officers............................         (315)         (309)
                                                              -----------   -----------
    Total stockholders' equity..............................       98,933       134,853
                                                              -----------   -----------
Commitments and contingencies (notes 6, 7, 11 and 12)
                                                              $   689,298       875,219
                                                              ===========   ===========


See accompanying notes to condensed consolidated financial statements.

                                      I-2

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)



                                                           THREE MONTHS ENDED      SIX MONTHS ENDED
                                                                JUNE 30,               JUNE 30,
                                                           -------------------   --------------------
                                                             2003       2002       2003       2002
                                                           --------   --------   --------   ---------
                                                             AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
                                                                            AMOUNTS
                                                                                
Net revenue:
  In-room entertainment..................................  $ 59,552     60,999    116,272     118,382
  Other..................................................       105        105        210         210
                                                           --------   --------   --------   ---------
                                                             59,657     61,104    116,482     118,592
                                                           --------   --------   --------   ---------
Operating costs and expenses:
  Operating..............................................    39,289     38,553     74,682      75,280
  Selling, general and administrative (note 2)...........     7,051      6,216     13,331      12,729
  Depreciation and amortization..........................    19,444     33,553     52,014      67,268
  Asset impairments and other charges....................       931      5,821      1,256       7,650
                                                           --------   --------   --------   ---------
                                                             66,715     84,143    141,283     162,927
                                                           --------   --------   --------   ---------
      Operating loss.....................................    (7,058)   (23,039)   (24,801)    (44,335)

Other income (expense):
  Interest expense-parent (note 2).......................        --       (470)      (412)     (1,462)
  Interest expense-other.................................    (2,938)    (4,253)    (7,011)     (8,324)
  Share of losses of affiliates..........................      (208)    (1,856)      (208)     (3,358)
  Realized and unrealized gains (losses) on financial
    instruments, net (note 8)............................    (5,559)     6,563     (7,535)       (753)
  Nontemporary declines in fair values of investments
    (note 6).............................................    (4,412)   (58,948)    (4,412)    (58,948)
  Other, net.............................................       653      1,918        813         299
                                                           --------   --------   --------   ---------
                                                            (12,464)   (57,046)   (18,765)    (72,546)
                                                           --------   --------   --------   ---------
      Loss before income taxes and minority interests....   (19,522)   (80,085)   (43,566)   (116,881)
Income tax benefit (expense).............................     3,406     (3,542)     8,189       6,712
Minority interests in losses (earnings) of consolidated
  subsidiaries...........................................      (249)      (314)      (412)        383
                                                           --------   --------   --------   ---------
      Loss before cumulative effect of accounting
        change...........................................   (16,365)   (83,941)   (35,789)   (109,786)
Cumulative effect of accounting change, net of taxes.....        --         --         --    (105,837)
                                                           --------   --------   --------   ---------
      Net loss...........................................   (16,365)   (83,941)   (35,789)   (215,623)
Accretion of redeemable preferred stock..................    (1,530)    (1,530)    (3,060)     (3,060)
Dividends on redeemable preferred stock..................    (7,500)    (7,500)   (15,000)    (15,000)
                                                           --------   --------   --------   ---------
      Net loss attributable to common stockholders.......  $(25,395)   (92,971)   (53,849)   (233,683)
                                                           ========   ========   ========   =========
Basic and diluted loss per common share before cumulative
  effect of accounting change (note 4)...................  $   (.52)     (2.24)     (1.11)      (3.08)
Cumulative effect of accounting change...................        --         --         --       (2.55)
                                                           --------   --------   --------   ---------
Basic and diluted loss per common share..................  $   (.52)     (2.24)     (1.11)      (5.63)
                                                           ========   ========   ========   =========


See accompanying notes to condensed consolidated financial statements.

                                      I-3

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                  (UNAUDITED)



                                                      THREE MONTHS ENDED      SIX MONTHS ENDED
                                                           JUNE 30,               JUNE 30,
                                                      -------------------   --------------------
                                                        2003       2002       2003       2002
                                                      --------   --------   --------   ---------
                                                                 AMOUNTS IN THOUSANDS
                                                                           
Net loss............................................  $(16,365)   (83,941)   (35,789)   (215,623)
                                                      --------   --------   --------   ---------
Other comprehensive income (loss), net of tax:
  Unrealized holding gains (losses).................     4,696    (13,596)     6,182     (14,636)
  Reclassification of holding losses included in
    earnings........................................        91         --        503          --
  Foreign currency translation adjustments..........     1,636      1,446      3,690       1,506
                                                      --------   --------   --------   ---------
    Other comprehensive income (loss)...............     6,423    (12,150)    10,375     (13,130)
                                                      --------   --------   --------   ---------
      Comprehensive loss............................  $ (9,942)   (96,091)   (25,414)   (228,753)
                                                      ========   ========   ========   =========


See accompanying notes to condensed consolidated financial statements.

                                      I-4

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                         SIX MONTHS ENDED JUNE 30, 2003
                                  (UNAUDITED)



                                                              ACCUMULATED                               NOTES
                             COMMON STOCK       ADDITIONAL       OTHER                                RECEIVABLE       TOTAL
                          -------------------    PAID-IN     COMPREHENSIVE   ACCUMULATED   TREASURY      FROM      STOCKHOLDERS'
                          SERIES A   SERIES B    CAPITAL       EARNINGS        DEFICIT      STOCK      OFFICERS       EQUITY
                          --------   --------   ----------   -------------   -----------   --------   ----------   -------------
                                                                   AMOUNTS IN THOUSANDS
                                                                                           
Balance at January 1,
  2003..................  $11,079     34,765    1,981,831        3,085       (1,895,220)     (378)       (309)        134,853
  Net loss..............       --         --           --           --          (35,789)       --          --         (35,789)
  Other comprehensive
    income..............       --         --           --       10,375               --        --          --          10,375
  Accretion and
    dividends on
    redeemable preferred
    stock...............       --         --      (18,060)          --               --        --          --         (18,060)
  Issuance of Series A
    common stock for
    preferred stock
    dividends...........    3,222         --        4,278           --               --        --          --           7,500
  Recognition of stock
    compensation related
    to restricted stock
    awards, net of
    taxes...............       --         --           54           --               --        --          --              54
  Accrual of interest on
    notes receivable
    from officers.......       --         --            6           --               --        --          (6)             --
  Issuance of restricted
    stock...............        5         --           (5)          --               --        --          --              --
                          -------    -------    ---------       ------       ----------      ----        ----         -------
Balance at June 30,
  2003..................  $14,306     34,765    1,968,104       13,460       (1,931,009)     (378)       (315)         98,933
                          =======    =======    =========       ======       ==========      ====        ====         =======


See accompanying notes to condensed consolidated financial statements.

                                      I-5

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)



                                                                SIX MONTHS ENDED
                                                                    JUNE 30,
                                                              --------------------
                                                                2003        2002
                                                              ---------   --------
                                                              AMOUNTS IN THOUSANDS
                                                                  (SEE NOTE 5)
                                                                    
Cash flows from operating activities:
  Net loss..................................................  $ (35,789)  (215,623)
    Adjustments to reconcile net loss to net cash provided
      by operating activities:
      Depreciation and amortization.........................     52,014     67,268
      Asset impairments and other charges...................      1,256      7,650
      Share of losses of affiliates.........................        208      3,358
      Realized and unrealized losses on financial
        instruments, net....................................      7,535        753
      Nontemporary declines in fair values of investments...      4,412     58,948
      Minority interests in earnings (losses) of
        consolidated subsidiaries...........................        412       (383)
      Deferred tax benefit..................................     (8,272)    (1,585)
      Cumulative effect of accounting change, net of
        taxes...............................................         --    105,837
      Other non-cash items..................................      2,186      3,375
      Changes in operating assets and liabilities:
        Receivables and prepaid expenses....................      4,862     (3,384)
        Accruals and payables...............................    (10,207)     5,791
                                                              ---------   --------
          Net cash provided by operating activities.........     18,617     32,005
                                                              ---------   --------
Cash flows from investing activities:
  Proceeds from disposition of available-for-sale security
    and related equity collar...............................    303,586         --
  Investments in and advances to affiliates and investees...    (65,931)   (23,350)
  Capital expended for equipment............................    (25,606)   (26,018)
  Other investing activities................................     (2,077)      (469)
                                                              ---------   --------
          Net cash provided (used) by investing
            activities......................................    209,972    (49,837)
                                                              ---------   --------
Cash flows from financing activities:
  Borrowings of third-party debt............................      6,000     22,000
  Repayments of third-party debt............................   (114,960)    (5,406)
  Advances and contributions from parent....................         --      6,573
  Repayments of note payable to parent......................    (48,411)    (6,573)
  Payment of deferred financing costs.......................     (1,027)        --
  Other financing activities................................        (21)        49
                                                              ---------   --------
          Net cash provided (used) by financing
            activities......................................   (158,419)    16,643
                                                              ---------   --------
          Net increase (decrease) in cash and cash
            equivalents.....................................     70,170     (1,189)
          Cash and cash equivalents:
            Beginning of period.............................     11,571     33,913
                                                              ---------   --------
            End of period...................................  $  81,741     32,724
                                                              =========   ========


See accompanying notes to condensed consolidated financial statements.

                                      I-6

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 2003
                                  (UNAUDITED)

(1) BASIS OF PRESENTATION

    The accompanying condensed consolidated financial statements include the
accounts of Liberty Satellite & Technology, Inc. and those of all majority-owned
or controlled subsidiaries ("LSAT" and together with its consolidated
subsidiaries, the "Company"). All significant inter-company transactions have
been eliminated.

    LSAT is a consolidated subsidiary of Liberty Media Corporation ("Liberty
Media"). At June 30, 2003, Liberty Media owned approximately 87% of LSAT's
outstanding common stock, which, when considered with LSAT redeemable preferred
stock owned by Liberty Media, represented approximately 98% of LSAT's
outstanding voting power. The Company's primary operating subsidiary is On
Command Corporation ("On Command"), which provides in-room, on-demand video
entertainment and informational services to hotels, motels and resorts. At
June 30, 2003, LSAT, indirectly controlled approximately 74% of the outstanding
On Command common stock ("On Command Common Stock") and 100% of certain series
of On Command's preferred stock, which ownership interests collectively
represented approximately 80% of On Command's outstanding voting power.

    In addition to LSAT's indirect interests in On Command and in various
investments, the Company is currently pursuing strategic opportunities worldwide
relating to the business of distributing Internet and other content via
satellite and related businesses.

    These interim condensed consolidated financial statements are unaudited. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) have been made that are necessary to present fairly the financial
position of the Company as of June 30, 2003 and the results of its operations
for the three and six months ended June 30, 2003 and 2002. The results of
operations for any interim period are not necessarily indicative of the results
for the entire year. These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related notes
thereto included in the Company's December 31, 2002 Annual Report on Form 10-K.

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.

    Certain prior period amounts have been reclassified for comparability with
the 2003 presentation.

(2) TRANSACTIONS WITH LIBERTY MEDIA AND OTHER RELATED PARTIES

    PROPOSALS BY LIBERTY MEDIA TO ACQUIRE LSAT AND ON COMMAND PUBLICLY-HELD
     STOCK

    On April 1, 2003, the Company announced that it had received an expression
of interest from Liberty Media regarding the possibility of Liberty Media
acquiring all the issued and outstanding shares of LSAT that Liberty Media does
not already own. As proposed by Liberty Media, LSAT stockholders would receive
0.2131 of a share of Liberty Media Series A common stock for each share of LSAT
common stock held. The transaction would be taxable to LSAT stockholders.

                                      I-7

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    LSAT's Board of Directors has established a committee of independent
directors to consider the proposal from Liberty Media. The committee has engaged
independent legal counsel and financial advisors, and has authority, among other
things, to review and evaluate the terms and conditions of the proposed
transaction, to determine whether the proposed transaction is in the best
interests of the Company and its public stockholders, to negotiate with Liberty
Media, and to accept, reject or seek to modify the proposed transaction. Any
transaction between LSAT and Liberty Media would be subject to negotiation,
execution and delivery of definitive documentation relating thereto and any
closing conditions provided for in such documentation.

    On April 2, 2003, On Command announced that it had received an expression of
interest from Liberty Media regarding the possibility of Liberty Media acquiring
all the issued and outstanding shares of On Command that Liberty Media (through
its subsidiaries) does not already own. As proposed by Liberty Media, On Command
stockholders would receive 0.0787 of a share of Liberty Media Series A common
stock for each share of On Command Common Stock held. The transaction would be
taxable to On Command stockholders.

    On Command's Board of Directors has established a committee of independent
directors to consider the proposal from Liberty Media. The committee has engaged
independent legal counsel and financial advisors, and has authority, among other
things, to review and evaluate the terms and conditions of the proposed
transaction, to determine whether the proposed transaction is in the best
interests of On Command and its public stockholders, to negotiate with Liberty
Media, and to accept, reject or seek to modify the proposed transaction. Any
transaction between On Command and Liberty Media would be subject to
negotiation, execution and delivery of definitive documentation relating thereto
and any closing conditions provided for in such documentation.

    TRANSACTIONS WITH LIBERTY MEDIA AND AFFILIATES

    NOTE PAYABLE.  On March 26, 2003, LSAT used a portion of the proceeds from
the delivery of 2,500,000 shares of Sprint Corporation PCS Group common stock
and the termination of a related equity collar to repay a note payable to
Liberty Media with a principal balance of $48,411,000 and an accrued interest
balance of $115,000.

    TAX LIABILITY ALLOCATION AND INDEMNIFICATION AGREEMENT.  LSAT and Liberty
Media have entered into a tax liability allocation and indemnification agreement
whereby LSAT is obligated to make a cash payment to Liberty Media in each year
that LSAT (taken together with any of its subsidiaries) has taxable income. The
amount of the payment will be equal to the amount of the taxable income of LSAT
and its subsidiaries (determined as if LSAT and its subsidiaries filed a
separate return) multiplied by the highest applicable corporate tax rate. In the
event that (1) LSAT and its subsidiaries, when treated as a separate group, have
a net operating loss or deduction or are entitled to a tax credit for a
particular year; and (2) Liberty Media is able to use such loss, deduction or
credit to reduce its tax liability, LSAT will be entitled to a credit against
current and future payments to Liberty Media under the agreement. If LSAT ceases
to be affiliated with Liberty Media and the members of Liberty Media's
affiliated group prior to the time that LSAT is able to use such credit, LSAT
will be entitled to a payment from Liberty Media at the earlier of the time that
(1) LSAT and its subsidiaries show they could have used the net operating loss
or net tax credit to reduce their own separately computed tax liability or
(2) the voting power of the stock of LSAT held by Liberty Media and the members
of its affiliated group drops below 20%.

                                      I-8

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    In addition, under the tax liability allocation and indemnification
agreement, LSAT will have the opportunity to participate in the defense of
claims of the Internal Revenue Service that might affect its liability under the
agreement, and to participate in tax refunds paid to Liberty Media where such
refunds are due in part to LSAT's operations. Through June 30, 2003, the Company
has recorded a $2,814,000 intercompany receivable from Liberty Media pursuant to
this agreement.

    At June 30, 2003, Ascent Entertainment, Inc., a wholly-owned subsidiary of
LSAT, ("Ascent Entertainment") owed Liberty Media $8,409,000 pursuant to a
separate tax liability allocation and indemnification agreement. Such amount,
which is non-interest bearing, represents the net effect of $36,568,000 that is
due on demand to Liberty Media and $28,159,000 that is payable to the Company by
Liberty Media if, and to the extent that, tax benefits generated by Ascent
Entertainment are utilized to reduce Liberty Media's taxable income.

    EXPENSE ALLOCATIONS AND REIMBURSEMENTS.  Liberty Media allocates rent,
salaries, benefits and certain other general and administrative expenses to the
Company. Although there is no written agreement with Liberty Media for these
allocations, the Company believes the allocated amounts to be reasonable. The
aggregate allocations from Liberty Media were $227,000 during each of the six
month periods ended June 30, 2003 and 2002. In addition, the Company reimburses
Liberty Media for certain expenses paid by Liberty Media on behalf of the
Company. Amounts owed to Liberty Media pursuant to these arrangements ($168,000
at June 30, 2003) are non-interest bearing and are generally paid on a monthly
basis.

    PUT OPTION LIABILITY.  Effective September 29, 2000, Liberty Satellite LLC
("LSAT LLC"), a subsidiary of LSAT, acquired a 1% managing common interest in a
joint venture ("IB2 LLC") from a subsidiary of Liberty Digital, Inc. ("Liberty
Digital") for $652,000. Liberty Digital, an indirect wholly-owned subsidiary of
Liberty Media, retained a preferred interest (the "Preferred Interest") in IB2
LLC, which owns approximately 360,000 shares of iBEAM Broadcasting Corp.
("iBEAM") common stock ("iBEAM Stock"). The Preferred Interest had an initial
liquidation value of $64,574,000 and is entitled to a return of 9%, compounded
annually. As part of the transaction, LSAT LLC granted Liberty Digital the right
to put the Preferred Interest to LSAT LLC for a purchase price equal to
$26,000,000 (the value of iBEAM Stock on September 29, 2000) plus a 9% return,
compounded annually (the "iBEAM Put Option"). LSAT LLC has the right to call
Liberty Digital's Preferred Interest at a price equal to the initial liquidation
value plus a return of 9%, compounded annually. Both the iBEAM Put Option and
call option are exercisable on September 29, 2008. Under certain limited
circumstances, including iBEAM's bankruptcy, LSAT LLC can force Liberty Digital
to exercise the iBEAM Put Option prior to September 29, 2008.

    During the fourth quarter of 2001, iBEAM filed for bankruptcy under
Chapter 11 of the Bankruptcy Code. As a result of such bankruptcy filing, the
Company began carrying the iBEAM Put Option liability at an amount ($32,418,000
at June 30, 2003), which represents the iBEAM Put Option purchase price to LSAT
LLC plus an accrued return to Liberty Digital of 9%, compounded annually. The
Company anticipates that future losses with respect to the iBEAM Put Option will
be limited to Liberty Digital's 9% return on the iBEAM Put Option liability.

    Changes in the fair market value of the iBEAM Put Option subsequent to
September 29, 2000 have been recognized as unrealized gains (losses) on
financial instruments in the Company's condensed consolidated statements of
operations. During the six months ended June 30, 2003 and 2002, the Company
recorded unrealized losses of $1,367,000 and $1,254,000, respectively, related
to the iBEAM Put Option.

                                      I-9

             LIBERTY SATELLITE & TECHNOLOGY, INC. AND SUBSIDIAIRES
            (A CONSOLIDATED SUBSIDIARY OF LIBERTY MEDIA CORPORATION)

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

    ASC